Tag Archives: LivingSocial

“Retail Experience” Innovations at LivingSocial

15 Feb

On Monday, LivingSocial announced the grand opening of a “first-of-its-kind live events venue” in downtown Washington D.C., where the rapidly growing daily deals business will offer customers unique experiences to its customers, and a testing ground for its merchant partners.  The “retail experience” space is an innovative move for the company, who is looking to expand its image beyond that of a “coupon company.”

   (image courtesy of Washington Post)

The company’s new venture is notable for many reasons, and I am particularly anxious to see how it pans out, as I’ve long been bullish on the daily deals business model and do not think it is sustainable in its own right.

Even though the company has expanded its user base to more than 60 million members, and offers deals in 647 markets worldwide, LivingSocial and its closest competitor Groupon have yet to turn significant, sustainable profits; figures from Amazon’s 10-K report imply that DC-based LivingSocial suffered a net loss of $558 million in 2011, on revenues of $245 million (Amazon has a 31% stake in the company). Those 60+ million consumers are proving to be very expensive to acquire as repeat customers.

Is a retail experience venue like that of LivingSocial a one-off innovative initiative, or a game-changing model?

Most of the criticisms charged against daily deals businesses have been around the lack of long-term gains conferred to their merchant partners. Mom and pop shops often find it challenging to keep up with the demand created by a one-off deal, and they receive only a fraction of the proceeds from those deals (usually 25% or less of the face value of the goods and services the coupon offers). Additionally, cost-conscious consumers have little reason to be loyal to one daily discounter over another; as long as they can get half-off pedicures and sushi rolls, it doesn’t matter what company sells them the voucher.

What is interesting about the retail experience, however, is that it allows merchant vendors to more proactively manage their expenses and the customer experience. Rather than providing consumers access to a brand at a discount, the retail experience space gives brands access to consumers (albeit still at a discount, for the most part).  This subtle distinction, where vendors have more control over the customer experience, means that local companies are better positioned to lock patrons in as loyal customers. Who do you think will revisit a restaurant more often – a consumer who buys a 50% discounted meal, or one who pays to experience a new tasting menu with a restaurant’s chef?

LivingSocial’s press announcement for the retail experience space at 918 F Street didn’t explicitly state whether the new venture would be repeated throughout the hundreds of other markets where the company is present, but one can imagine that if the model proves successful, they will roll it out company-wide – that is, if LivingSocial’s competitors don’t copy it first.