LivingSocial’s $10 Amazon deal: Who’s the real winner?

By Lauren Elizabeth Chapman

On Wednesday morning, LivingSocial released its biggest daily deal to date: a $20 Amazon gift card at a cost of only $10 to LivingSocial members. With almost 1.4 million purchases made in 24 hours across 170 markets in the U.S., the deal topped the chart for most buzz, in addition to setting the record for most purchased coupon on a daily deal site. What’s the thinking behind such a bold marketing play by both LivingSocial and Amazon?

From the start, LivingSocial has struggled to gain as much popularity and to distinguish itself from its main rival Groupon, as well as the other online group deal sites that have sprung up in the past year. Most likely, the Amazon deal was meant to compete with Groupon’s biggest deal to date, the $50 Gap deal offered for $25 in August 2010 that had almost a half million purchases.
It may have come as a surprise to many, but the partnership between LivingSocial and Amazon on this deal is not shocking. In December 2010, Amazon invested $175 million in LivingSocial, which is expected to report over $500 million in revenues this year. It makes sense that out of all online retailers, Amazon would be LivingSocial’s go-to option, as Amazon has a vested interest in LivingSocial’s success.

The more important question is which company will be taking a bigger financial hit from the discount? The deal suggests that LivingSocial purchased the gift cards directly from Amazon, rather than Amazon selling the discount through the LivingSocial site (which is how deals are typically handled). So, is LivingSocial eating the discount as a marketing expense in hopes that it will regain the sales over time from new member subscriptions? Or was Amazon willing to sell the gift cards at a discount knowing that the expense would be recouped through LivingSocial purchases on its site, which would most likely be more than $20?

With this deal, I think LivingSocial was extremely successful in its attempt to get its name more widely known and to compete with Groupon on a higher level. Not only did LivingSocial triple Groupon’s previous one-day purchase record, it also created tremendous online buzz. Members jumped on Facebook and Twitter after making their purchases to post the deal in hopes that three friends would buy–making their deal free. Now that it’s added thousands of subscribers, LivingSocial could do even more to distinguish itself by using the idea of me + 3 = free to entice purchases. Though after Wednesday’s frenzy, LivingSocial is definitely one step closer to catching up or even taking the lead in the online daily deal space.

Tell us: Did you purchase the Amazon deal Wednesday? Are daily deal sites good for consumers as well as the companies that promote their deals on the sites? And how will Google change the game once it launches Google Offers?

Lauren Elizabeth Chapman is a student in the Masters in Integrated Marketing Communications program at Northwestern University’s Medill School and can be reached at laurenchapman2011@u.northwestern.edu.

Allowing customers to self-segment can provide lasting value for companies

By Ashley Graves

DraftFCB CMO Michael Fassnact said in his Ad Age editorial, "The Death of Consumer Segmentation," earlier this month that the traditional way of segmenting customers is most likely dying, or at least becoming less useful.

Segmentation is still important to the analysis of huge customer databases, but it is what to do with the segmentation schemes that should be looked at differently. As Fassnact argues, marketers can’t simply segment customers and then leave them in those segments for life. A company’s segmentation scheme should allow for customers to migrate between segments in order to maximize their lifetime value to the business. Self-selection into segments is even better.

Many companies are doing a fantastic job at self-segmentation-ahem, Amazon.com, anyone? This idea of having customers initially segment themselves allows for more targeted messages, and also allows customers to move to a different segment based on a variety of events.

Let’s take swimsuit shopping as an example. For many women, including me, shopping for a swimsuit is a dreaded yearly event. You generally are far from being tan and forget that certain swimsuit cuts look awful until you put them on. Wouldn't it be great to skip the trial-and-error step?

Many retailers are doing a fairly good job of letting customers self-segment online when shopping for swimsuits. Both Macy’s and Nordstrom have “Swimsuit finder” sections in their websites that allow for customers to sort and view swimsuits that are flattering to their self-selected body type. If I’m pear-shaped, I’m directed towards different styles than if I were hourglass-shaped.

This concept of dressing to your body type is fairly common within fashion, but there is a big opportunity for retailers to better apply this idea to segmenting their customers. Macys.com also allows you to shop for dresses by body type, but it is difficult to find. You have to choose your shape again instead of having the site carry over your selection from swimsuit shopping.

Why can’t retailers like Macy’s save your self-segmented preferences in order to provide an entirely new level of personalized shopping? If customers could provide information in their profiles about things like body type, retailers like Macy’s could provide clothing recommendations in any department.

Self-segmentation strategies could provide consumers with more relevant, targeted and effective communications, thus increasing their value to the company over a longer period of time.

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Ashley Graves is the Editorial Director at Vitamin IMC and a student in the Masters in Integrated Marketing Communications program at Northwestern University’s Medill School. Swimsuit shopping stresses her out. She can be reached at ashleygraves2010@u.northwestern.edu.

Walmart & the stickiness of customer loyalty

By Anne Mahoney

Walmart’s pricing strategy of everyday low, low, sometimes unbelievably low prices has earned it high points in customer loyalty, according to a new survey. But does this loyalty translate into true affection, or will the retailer lose its golden product retrievers to a new master once pricing is no longer the dominant differentiator?

The very public price war between Walmart and Amazon.com at the end of 2009 was a prime demonstration of the heavyweight’s affect on other retailers. It also demonstrated the tenacity of the “little guys” to match pricing that would barely achieve above-margin revenue. Target entered the ring after Amazon, each squaring off against Walmart by dramatically dropping prices.

What’s the potentially larger problem for all retailers involved? Setting a standard for customer expectations. Walmart’s customers may not be actually loyal to Walmart, the brand. They are loyal to the prices on Walmart’s tags. And now with online shopping price comparison sites and savvier retailer incentive programs, Walmart may need to be more than just the cheapest lemonade stand on the block.

Several strategies for retailers preparing to exit the recession era and compete outside of pricing were offered by DIRECT Magazine. It recommend competing on the best landscape suited to the brand, targeted promotions, strategic use of information and selective pricing.

To add to those recommendations are a few more, compliments of the Medill IMC classroom:

• Personalized Communications & Incentives: The success of grocery retailer Tesco by marketing agent dunnhumby is a much-discussed case at Medill. Retailers who know how to leverage customer data and provide personal attention in the form of promotional offers have the upper hand in achieving real loyalty.

• Experiential Shopping: Quick – what do you think of when you read “Target”? How about “Best Buy”? Now think “Walmart.” It is likely you thought of specific experiences, imagery, products or customer service for the first two. Did you think about cheap prices for Walmart? That’s where brand equity comes in.
  
  
• Exclusivity: The economic situation has turned retail into a flea market. Everyone is shopping around for the best price. If retailers can’t compete on price, they can compete with superior product selection and avoidance of substitutability.

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Anne Mahoney is Social Media Director at Vitamin IMC and a student in the Masters in Integrated Marketing Communications program at Northwestern University's Medill School. She is smitten by Target’s advertising, to give full disclosure to this article. She can be reached at annemahoney2010@u.northwestern.edu.

Trading privacy for data

According to Stephen Baker, the Numerati are taking over. These mathematicians and computer scientists are the focus of Baker’s book, The Numerati, which he discussed last week at Medill. Baker described how our observed behavioral patterns are being turned into quantifiable data by these innovators, and hinted at the vast implications this has for marketers.

“This science is ideal for those industries where you can afford to make a lot of mistakes,” Baker said. That is, marketing and advertising. In practice marketing is a blend of art and science, intuition and analysis. The Numerati can analyze the vast amounts of data and uncover new insights about consumer tastes, preferences, and moods. The use of behavioral data undoubtedly makes marketing more effective than traditional segmentation approaches based on demographics.

Forget about demographic and psychographic targeting. NetFlix and Amazon.com use vast databases that predict behavior and make recommendations based on past purchase behavior. Sometimes the suggestions are misguided, but there is little cost associated with the error. It is certainly more accurate than a strategy based on customers’ billing zip codes.

But these new methods aren’t without problems. People are increasingly protective of their privacy and anonymity, both online and offline. Baker argued that consumers would be more willing to share information if they understand how it benefits them.

The ultimate effects of the Numerati’s efforts in using the staggering volume of available data will be decided by the public’s willingness to trade its privacy for better relationships with brands and businesses – or the government’s eagerness to step in and change laws.

Do you think companies are going too far with your private information?

--Kelly Kross

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Kelly Kross is a graduate student in the Masters in Integrated Marketing Communications program at Northwestern University’s Medill School. She loves her BlackBerry and will never switch to the iPhone. Kelly can be reached at kellykross2010@u.northwestern.edu

Amazon Steps on Its Own Tail

Amazon.com is a prime example of using the Long Tail theory as a business model. Amazon sells a lot of unique products to niche markets instead of focusing on selling a few popular products to the masses. However, recently the company stepped on its (long) tail when books categorized as "adult material" (including LGBT themed books) were removed from sales rankings and search results. Whether an unfortunate decision or accidental 'glitch,' Amazon's blunder incited outrage that spread like wildfire across the internet.

While Amazon is icing its tail, marketers should take this as a lesson learned and as a reminder to never underestimate the power of the consumer. Consumer communities and social media can escalate an issue before you've even had time to blink. Prevent situations like this by listening to your customers and being proactive. If they are taking time to report issues to you directly, these issues should be investigated and addressed quickly to prevent discontentment. Slow action and sub-par responses infuriate customers. In Amazon's case, one blogger encountered the issue as early as February and posted a timeline of his effort to get the issue resolved.

You can't always expect customers to come to you with issues. Therefore, you must be proactive and monitor Web chatter about your company. Consumers are more forgiving to companies that are trustworthy and authentic. If you uncover an issue and can't fix it immediately, be honest and open with customers and let them know what you're doing to control the situation.

What are your ideas and best practices handling issues and complaints in a social media world?

--Marina Molenda