It’s a foolish shopper who uses the internet to buy goods without first visiting one of the many online voucher code portals to secure an immediate discount.
The voucher and group-buying discount market is already hugely competitive, with little or no barrier to entry. Indeed, JP Morgan estimates there are 200 voucher code sites in the UK, 500 in the US and a staggering 2,000 in China.
“Lots of these sites are going to disappear as quickly as they emerged,” predicts online media analyst Ian Maude of Enders Analysis. “But it’s a scale business and the big players such as LivingSocial and Groupon have an abundance of scale. Facebook, Google and even Yellow Pages have legitimate reason to move into this space because the retail coupon market is worth £30bn a year in the UK.”
Having launched in 2008, Groupon now has more than 50 million subscribers in 400 markets. LivingSocial, with which it shares 90% of the US daily deal site traffic, according to comScore, has 40 million subscribers in 478 markets.
Both companies have achieved scale with a blitzkrieg approach to customer acquisition. Indeed, in launching its recent IPO, Groupon’s profitability has come under intense scrutiny as it was revealed that it sought to discount its marketing costs from consideration. Its adjusted consolidated segment operating income put the company $60m in profit by discounting $263m in marketing expenses. It has been widely reported that the company spends about $1.43 for every $1 of customer revenue.
Groupon could not comment on this issue because the IPO quiet period prevents a brand talking publicly about its business. However, Maude at Enders Analysis says: “We’re starting to see Groupon’s marketing costs as a percentage of revenue going down. We just need to see now if it can sustain its advantage.”
Maude puts a lot of Groupon’s advantage down to its local sales team. While Facebook is moving into the deals and ecommerce area, the opportunities found there are largely nationwide or generic. It may have 750 million active users, but it does not yet have substantial local reach in the discounts area.
LivingSocial UK managing director Peter Briffett says: “We cannot just give blanket offers. There are 20 companies in London alone trying to do the ’daily deal’ so we have to create value and quality by partnering with the right companies.”
Briffett claims that LivingSocial creates differentiation and value through offering not just simple discounts, but experiences that are hard to recreate elsewhere.
“We need to be new and exciting every day,” he insists. He points out that LivingSocial recently sold 3,000 fish pedicure experiences and says: “London didn’t wake up that morning wanting a fish pedicure.”
Yet companies signing up to offer their discounts on daily email services should beware that it can be tricky to sustain business at the levels offered on Groupon or LivingSocial. The high volume of interest generated can also often overwhelm smaller operators experimenting with this type of service.
Max Jennings, co-founder and marketing director of deals website Vouchercodes, agrees that brands have to enter this space with a clear strategy in mind. “I think we’ve all learned from the Thresher voucher experience [the off-licence chain offered suppliers a 40% off deal that went viral and millions of people downloaded it] and brands are now seeking trusted partners to push the vouchers to the right audience,” he states. “Whether your strategy is over a quarter or six months, to revive interest in a sale, boost targets or attract new customers, control is key.”
Trend Micro, a brand offering online security software, works with digital marketing consultancy Stream 20 to develop voucher codes that suit different customer segments. Some customers prefer to see a percentage discount, whereas others are attracted by a specific money-off amount.
Jen Brown, senior manager EMEA for online acquisitions at Trend Micro, says simply offering sporadic money-off deals is ineffective. “Voucher emails and sites must be fully engaged with the company’s overall marketing strategy to make sense,” she adds.
“Internet security is a considered purchase and the behaviour of our customer is typical in that they search for the best value,” she reports. “Driving them to our site through the branded content on sites such as Vouchercodes encourages them to see what else we offer. Someone may come to us through an offer on virus software, for example, and see that we also sell child online protection packages. It is both an acquisition and an upselling model.”
She also points out that promotions such as these aren’t about “quick wins”, although Trend Micro actively encourages sharing its offers to capitalise on those people who are looking for discounts. She claims: “If it goes viral, then it’s alright by me.”
But Brown insists that even when companies are keen for their offers to receive a large volume of interest, brands should ensure that any activity on voucher sites provides content that attracts interest from consumers beyond the initial offer.
Brands retaining careful control over their vouchers ensure they are not spread on forums that don’t fit the company’s original offer intention. Retailer New Look, for example, runs 20% discounts for four days at a time which are always accessed via the Vouchercode portal. Equally, it is timed to go out with the company’s customer newsletter, reinforcing brand messages.
VoucherCloud managing director Greg le Tocq acknowledges: “Printable vouchers can go viral with very little control. Partners want to know how many vouchers are going to be used, where and by whom.”
One of VoucherCloud’s brand partners is Hotel du Vin. Although the upmarket brand seems an unlikely partner for a discount site, it uses the offers site for awareness and new customer acquisition (see Brand in the Spotlight, below).
Malmaison and Hotel du Vin group marketing director Emma Benney explains: “It’s important to recognise the medium by which our customers are finding us and booking us through.”
Hotel du Vin is not the only luxury brand that has no problems entering the voucher code area. Crazy Bear hotel and private members club group is also happy to use the mechanic, as it appears that even the most upmarket consumers are anxious to find the best prices.
Crazy Bear marketing manager Melanie Fenwick says: “This was an opportunity to reach out to new people and gain access to a database of 1 million-plus people within our demographic.
“Our hotels are relatively small, so this was never going to be a mass-market offer and we have no plans to constantly run price promotions. But this was a very positive experience and we’re already seeing repeat purchases outside the voucher environment.”
Whether it’s through providing exclusive packages or simply relieving the burden of everyday purchases, such as Groupon’s recent offer of a year’s free delivery plus £40 of Ocado groceries for £39, the voucher and group buying market is clearly yet to reach its tipping point. Scale is king, both in developing partnerships and achieving the sizeable database of customers to make the marketing outlay worthwhile.
Localisation is also likely to grow further in importance. Although Groupon’s recent partnership with social network Foursquare which allows people to broadcast their location to friends is some seven months behind the launch of Facebook Deals, analysts claim the hyperlocality, already inherent in Groupon, LivingSocial and other group buying sites, may well trump Facebook.
Mobile will play an enormous part in this. A third of the adult UK population has some sort of smartphone, suggests an Ofcom report from 4 August this year, resulting in more consumers than ever looking for deals on the go. This could trigger more impulse buys and an increase in mobile app-based voucher programmes that develop loyalty beyond the initial discount hit. VoucherCloud’s app for Debenhams has already moved in this direction by delivering in-store discounts direct to handsets, ready to be redeemed at the cash desk.
But at the heart of whether this fast-changing model will be sustainable lies the ability of brands and voucher sites to maintain the delicate balance between attracting mass consumer interest and simply appearing cheap.
10% The average increase in basket value when vouchers are involved, according to VoucherCloud.
90% The share of the US daily deal market taken by Groupon and LivingSocial.
8.6%…of affiliate marketers believe voucher codes will present a significant threat to their earnings; 4.02% think group buying websites are a threat; and 3.5% worry about mobile or location-based applications.
30% The percentage by which the affiliate market is set to grow in 2011, with mobile being seen as the market with the biggest potential.
What forms do voucher marketing take?
Digital vouchers are delivered either by ’daily deals’ emails, texts or dedicated websites providing codes for discounts on internet shopping.
Why use voucher marketing?
To draw in new customers or encourage existing customers to buy more items.
What are the disadvantages?
Discounting can denigrate a brand in consumers’ eyes. Brands need to also ensure that online vouchers do not get out of control virally, leading to greater demand than supply.
Brand in the spotlight
Emma Benney, Group marketing director, Malmaison and Hotel du Vin
Marketing Week (MW): How does a voucher or branded app achieve standout from other possible ways of getting discounts?
Emma Benney (EB): A branded app highlights great deals for the consumer that are available at places that are of interest to them. For businesses, it offers a measurable, low-cost model that drives volume.
MW: How do you ensure that consumers stay with you after taking advantage of a one-shot discount deal?
EB: Our deals are frequently renewed and reinvigorated to ensure we keep the interest of those customers who take up an offer. We are committed to understanding the buyer behaviour of those customers who stay with us, so we can ensure the experience they have exceeds their expectation. We are committed to customer loyalty and are achieving a 75% return rate.
MW: For what purpose do you use discount deals?
EB: VoucherCloud and the partnerships it has formed have allowed us to widen our brand awareness. It has also helped us to embrace new innovative technology that perhaps as a hotel chain we are yet to integrate into our own communications.
MW: Is embracing all the emergent technologies as important as these service providers would have us believe?
EB: Any company that is not looking to embrace apps and smartphone technology is ultimately restricting its business growth. We have to recognise that the patterns of buyer behaviour have changed and adapt our business models. We have to be accessible to customers and understand what our buyers want.
top trends 2011 predictions
Managing director, LivingSocial UK
Hyperlocalisation will be key. The local advertising model is a multibillion pound industry and we have to innovate to grow. A lot of that innovation will be in mobile.
Senior manager EMEA for online acquisitions, Trend Micro
Voucher volume will grow, but vouchers won’t be the answer to everything. They can support brand activity and growth but they can’t create demand on their own. Voucher companies will want to partner with brands that are willing to make the investment in growing their business.
Co-founder and marketing director, Vouchercodes
Mobile is going to close the loop between on and offline. There is a real appetite from the consumer to get back in-store. It will also depend on how sophisticated the retailer is in developing a mobile offering that taps into that need, from brand positioning to redemption mechanics.
Group marketing director, Malmaison and Hotel du Vin
Our partners such as VoucherCloud have created a measurable increase in volume and profitability, so the development of an app and smartphone technology, integration of an aggressive social media strategy and a mobile optimised website are our priorities for the next 12 to 18 months.
Greg le Tocq
Managing director, VoucherCloud
We need to close the loop on communications, particularly looking at how voucher activity can be linked to loyalty. And maximising technology that allows contactless and mobile payments will help deliver a single platform relationship that is of immediate benefit.