To some, LivingSocial is an afterthought, but it should not be. LivingSocial has the financial chops to compete with industry-leader Groupon because of Amazon’s major investment in the company. This puts LivingSocial future on equal footing with Groupon, even if it lags in market share and in brand awareness.
In fact, the couponing company offers deals that are similar to Groupon’s, but most merchants give LivingSocial higher marks because it provides better customer service. The social element of the company appeals to the growing social media presence in modern marketing, and LivingSocial capitalizes on that trend by offering package deals. Restaurants can craft their offers as part of entertainment packages for travelers, concert dinner-and-show packages and other types of live-event deals.
LivingSocial has offices in Washington, D.C., and London, England. The company promotes daily deals and live-event packages that attract consumers who are 49 percent more likely to have incomes of $150,000 and up annually. This stat compares to 30 percent for Groupon.
The company was started in 2007 by four employees of Revolution Health Group. Initially conceived as a Facebook application for sharing books and reviews with friends, the company gradually grew by offering PickYourFive and other opinion-polling applications. LivingSocial bought BuyYourFriendADrink.com in 2009 and launched its daily deals. In 2010, LivingSocial acquired an adventure company called Urban Escapes and controlling interest in an Australian shopping website called Jump On It. The company has also acquired assets in Europe, Dubai, Egypt, Lebanon, Spain, Portugal, Italy, Argentina, Uruguay, Colombia, Chile and Mexico.
Amazon didn’t actually buy LivingSocial but invested in the company, but people can expect that Amazon is calling most of the shots. Amazon didn’t buy the company outright because of the huge capital investment and the fact that owning LivingSocial would subject all Amazon users to paying sales tax in the United States.
The company hopes to overtake Groupon as the industry leader in daily marketing deals, which include the company’s escapes, adventures and travel packages. LivingSocial also appeals to affluent women who tend to plan entertainment, travel and dining for their families. LivingSocial is well-positioned to challenge tour operators, event planners, travel agencies and booking websites.
Headquartered in the Washington, D.C., LivingSocial plans to expand its local workforce but has had some ups and downs, recently laying off 400 workers. That setback damaged the company’s prospects of hiring enough people to qualify for city’s tax breaks that begin in 2015.
How It Works
Merchants praise LivingSocial’s prompt customer service, and restaurants are contacted by representatives when they express an interest in advertising a deal. The company tries harder to reach an accommodation than Groupon, which still presents more static options for restaurants. The process of advertising a deal works like this:
- Crafting an Offer
LivingSocial works with you directly to craft an appealing deal for the prospects whom you want to attract.
- Merchant Dashboard
Each restaurant gets an easy-to-operate dashboard to manage their deals or “vouchers.” There are no initial costs for restaurants. You can use your dashboard to start and stop offers or limit the number of deals, so you can always control the volume.
Managing yours deals is important because you could face cash flow problems after going live. You may offer customers the signature 50 percent discount the cost of a meal or certain items, but LivingSocial has eased up on requiring it across the board. The remainder that the customer pays is split between you and LivingSocial. You could face big crowds of customers paying only about 23-24 percent of regular prices during the first month after going live. Your coupon offer usually has an expiration date, but the amount of money that the customer spends on the voucher is redeemable for five years. This gives people who miss the expiration date an incentive to come in and use the money that they spent, even after the discount portion of the offer has expired.
- LivingSocial Services
LivingSocial works with you to design a promotional page by providing teams of marketing photography ad editorial experts. The company’s huge database puts your business in front of an upscale audience, including people within a short geographic radius who’re looking for restaurant discounts. You can expand your reach by upselling products and services, attracting repeat business and taking part in package deals. You never have to pay LivingSocial a penny. The company pays you, and most companies receive 80 percent just 14 days after the deal starts and an additional 20 percent when the deal expires.
- Redeeming Vouchers
Most restaurants use their Merchant Center on a regular computer or the Merchant Center app for a tablet or smartphone. Vouchers can come in printed or digital versions, depending on whether the customer has a smartphone.
Restaurants pay for their advertising through “sweat equity” or meals and service for the customers who buy the vouchers. You’re on the hook for providing the cash amount that people spent for up to five years, even if the buyers don’t redeem the coupons before they expire. That means you have to provide the cost of the voucher, even though you split the cost with LivingSocial. If the customer redeems the offer before the expiration date, you must provide food or services valued at about four times the amount that you receive from LivingSocial. That can run into some serious issues unless you manage your offers carefully, do the math and offer discounts on slow-moving or high-profit items.
LivingSocial appeals to technologically savvy women who often determine where their families will dine. The company offers all the latest apps, technology and conveniences that you’d expect from an Amazon-partnered company.
Analytical targeting is important if you want to earn a return from any kind of discount promotion. For example, if you’re targeting a cost-cutting crowd, you need to offer something more valuable than just savings to get people to return. Another option is to offer a small discount to get bargain hunters in the door and sell them on side orders, carryout foods, sports merchandise and other peripherals.
LivingSocial users have the following demographic and statistical characteristics:
- About 70 percent of the deal-buyers are women.
- 76 percent have college degrees.
- Around 70 percent are in the prime marketing age range of 25–54.
- More than 56 percent earn more than $75,000 annually.
- 70 percent of first-time users return within three months.
- 55 percent of LivingSocial customers refers others to businesses that they find on the site.
- Average restaurant customers spend about $26 more than the voucher’s value.
- 68 percent of LivingSocial customers are new restaurant customers, as opposed to existing customers who buy coupons to save on their regular dining practices.
Comparison to Competitors & Marketplace
LivingSocial attracts hip, connected, affluent people, and merchants attest that the company’s service is more prompt and professional than Groupon’s inconsistent service. However, restaurants that target college crowds, neighborhood traffic, blue-collar workers and working moms might try other marketing approaches for better results. Upscale restaurants that cater to women, families, professionals and other people at the higher end of the socioeconomic spectrum will likely get better results from LivingSocial than any of the other daily deal websites.
Your Customer Base
If you are striving to reach a young, sophisticated and affluent audience, then LivingSocial is a good choice and will reach the right people in your market (if LivingSocial is currently running specials in your area). However, unless you have a strategy to upsell each customer and/or encourage repeat business, you could be throwing money away at bargain shoppers who hop from one deal to the next.
If you target a blue-collar crowd or can’t risk a full dining room paying one-fourth of your regular prices, you can create your own incentive offers on your Facebook page. In-house digital marketing is increasingly viable for restaurants, so you can cut back on services that take too much of your profits. Alternatives to LivingSocial include Groupon (which actually has more of the same problems) and ScoutMob, which offers discount coupons to people who don’t pay the site but pay you directly. Available in New York, San Francisco and Atlanta, ScoutMob Plans to expand soon to Los Angeles, Seattle, Springfield, Denver, Austin, Dallas, Chicago, Washington D.C., Nashville and Boston. Other LivingSocial alternatives include:
- BuyWithMe: This website gives customers up to a week to buy into a group deal. The cities offering this service are limited but growing.
- Coupons.com: You can offer highly customized deals with this classic marketing approach that offers traditional printed coupons through a printing app that people download.
- DealMap: Customers can view offers on a map across the United States with eight different deal types that include 50-percent-off coupons, daily deals, printable coupons and romantic deals.
- BloomSpot: Customers pay more for dining at the luxury restaurants featured on BloomSpot, which also offers upscale dining/spa or resort/dining packages.
Depending on how valuable a new customer is to your restaurant, we recommend LivingSocial as an effective tool in a well-planned marketing campaign. You can manage your offers from the client dashboard and adjust campaigns to prevent too many offers from appearing in a single day, week or month. Restaurateurs can increase the number of deals in slow months to generate new customers and increase the placebo effect or customer attraction to restaurants with full dining rooms. LivingSocial has a better reputation than Groupon for working with restaurants closely to craft effective offers.
However, you still face the twin problems of bargain hunters — who never return — and regular customers stocking up on coupons to reduce their costs. Although LivingSocial seems to get fewer of these complaints than its competitors, your restaurant could prove the exception.
Hidden costs include regular customers buying multiple vouchers to save money and spurts in business that crowd regulars out on normally busy days. However, the biggest hidden cost is not educating and training your staff to provide great service to voucher holders. If people come in and get treated poorly because they have vouchers or the restaurant’s servers are in the weeds, then all your investment is wasted because these customers won’t return and will often complain in reviews, which further damages your restaurant’s reputation.
Take time to train your servers to treat each customer with the same efficiency and courtesy, even if voucher holders don’t tip as well. Schedule additional staff for the first month after a deal goes live. If possible, arrange to have workers on call to handle unexpected surges in business.
LivingSocial is growing rapidly, even if not at the speed that Groupon initially progressed. However, the growth might be more sustainable over time — especially for restaurants — because of the higher number of women using the site and the fact that LivingSocial customers use the daily deals and entertainment packages in ways that are more aligned to restaurant marketing goals.
What We Like
We like the dashboard for managing your offers and the variety of package deals that appeal to upscale audiences. We think that the website’s demographic profile is appealing to most restaurants and like the fact that customers get an enthusiastic and flexible marketing partner.
What We Don’t Like
We don’t like the long-term commitment of providing the cash amount of offers for up to five years. However, we agree that the condition could bring in customers after the discount part of the offers expires. We don’t like the high cost of providing 50 percent off and then paying 50 percent of the balance to LivingSocial, but it’s a fairly common fee for daily deal sites.
Marketing is about getting results and the realizing the long-term value of producing a loyal customer. We think that restaurants can attract valuable customers with this marketing approach if the campaign’s planned carefully and executed correctly.