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The serious side of Gamification
April 22, 2013
A steady stream of retail innovation exists online; some effective, some less so. But most claim to centre on a perennial problem in Retail:
How to drive sales through incentives without destroying long term brand value…
Group Buying and other Daily Deals sites were built to address this issue, and they’ve done a pretty decent job if their multi-billion dollar revenues are anything to go by! Though, to some extent they are a victim of their own success in that it’s hard for a brand to discriminate on price discretely when so many of its regular customers are Daily Deals customers.
Further challenges with Daily Deals include the fact that the Brand doesn’t typically control the creative, meaning they are often a Supplier to the Daily Deals Site not a Client. And, the Daily Deals site will leave a permanent record of the Sale in their back catalogue which will appear in Search and therefore undermine brand value. Further, the Brand owner is asked to give away quite a lot, more often than not the Retail price is discounted by more than 50% and a further 20% – 30% is given to the Daily Deals site as a commission.
Clearly there are a number of scenarios where this channel works well for a business. The unit sales volume can be significant with no marketing effort from the Brand Owner hence they are appealing in a lot of ways, especially if owning the customer is unimportant.
A radical new tilt at the problem is Entertainment Shopping, where the retail price is used only to describe the Size of the Prize, but is otherwise irrelevant. One example of Entertainment Shopping is Penny Auctions, where users purchase Bids which they use to win items, theoretically being able to win and items for a single bid, which may cost less than a dollar. T
he reality though is that these Auctions are super competitive and the likelihood is that you will lose many more auctions than you win, yet the bids you used on lost auctions still cost real money – in that sense it’s more akin to gambling than shopping. For the Auction site this means the overall yield per item is greater than the retail value, thus favouring the Penny Auctions themselves more than the Brand Owners or the customers, albeit customers may choose this purchasing route for the sheer joy of the Auction!
In the Entertainment Shopping category Australian Statup Wynbox has a much more evolved solution for Brand Owners. The genius of the Wynbox solution is that they provide their Buy-to-Win platform as an integrated shopping engine for an existing website, meaning the retailer retains end to end control of the user experience.
Buy-to-Win involves the retailer setting a ratio of free items to full paid items, meaning anything from 1 in 2 to 1 in 10 or more may be free, equivalent to a direct discount if that number are purchased by a single customer, or a lucky dip if you are buying just one.This is a simple way to provide a strong purchase incentive without discounting the product, and it can be fun too, so it ticks the box for the user who plays Candy Crush between shopping missions!
There are a number of interesting scenarios that underline the power of the Wynbox platform, such as in the sale of concert tickets for instance. As sales begin to lag for a concert, the ratio is introduced. The ratio can be cranked up to 1 in 2 if necessary to drive sales, but at no point is the ticket price discounted, meaning the customers who purchased the concert tickets at full price never feel cheated and the Talent and the Promoter are happy.
In fact, Wynbox works in a number of scenarios, including Fashion where margins on Full Price products are high but the vast majority of purchases normally occur at a substantial discount, with Buy-to-Win the discount can exist without an overt discount.
All retail businesses should be thinking about the entertainment value of their shopping experience as consumers explore less boring ways to shop for discretionary items. Wynbox offers a fresh solution that can be “plugged in” to an existing site, meaning a fast track to an Entertainment Shopping experience that would otherwise be very hard to achieve.
Spreets goes Hybrid in a desperate move that might just work.
December 13, 2012
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Spreets recently announced their plan to include offers from competitors alongside their own, making spreets.com.au the first major player to launch a hybrid Group Buying/Super Affiliate offering in the Australian market.
I imagine the evolution of their model went something like this:
Early 2010: Spreets is formed and is among the very early entrants into the Australian marketplace, their model closely echoes the fast growing US originator, GroupOn.
Middle 2010: Spreets finds early success with a single deal each day, deals are sold at 40-50% revenue share to Spreets and consumers are excited about the new model, each offer sells many hundreds of vouchers, competition is light and shareholders are happy!
Late 2010: A number of new entrants intensify competition, including well-funded overseas players GroupOn and LivingSocial, local Catch group player Scoopon and of course Cudo who brought TV advertising to bear for the first time. Spreets immediately lose marketshare to these new upstarts, unsettling shareholders and peaking the interest of Yahoo!7, the natural rival of Cudo shareholder ninemsn. A second “side deal” is now commonplace on Group Buying sites, providing an alternative to the main offer of the day. Revenue shares of 35% are also now common as competition intensifies and daily deals businesses battle to win the best merchants.
Early 2011: Spreets is bought by Yahoo!7 for just over 22m, an incredible outcome for the Spreets’ co-founders and investors. Interestingly, a higher purchase price was touted ($40m) as the new owners congratulate themselves at having managed to jump on the fastest of bandwagons (myspace anyone?). The model has evolved to include 5 or more daily offers, vacation offers and longer running offers. Revenue shares of 30% are common.
Late 2011: Some 80 competitors exist in the market and Spreets market-share has flattened to 12-14%, products offers become frequent often at under 15% revenue share for the Group Buying business, customer discontent is at an all-time high due to shoddy product suppliers failing to deliver and 20+ daily offers are now common resembling a deal marketplace and requiring an increasingly large and expensive sales force to meet that demand.
2012: 2012 was make or break for many group buying businesses with a large percentage falling away in the second half of the year. Average revenue shares of 25% are typical and with 50+ daily offers on each of the larger group buying sites the average voucher sales per offer has declined significantly making it hard to fund the sales force required to meet the demands of a deal marketplace.
December 2012: Spreets calls it quits on the Group Buying model deciding to give the Hybrid model a go instead.
For many, the economics of a deal marketplace don’t stack up, which seems to be the case for Spreets. Meeting the demands of a marketplace without the overhead of a large sales force is possible though if competitor deals are surfaced alongside those deals originated in-house as a Hybrid affiliate/group buying business. Doing so can be profitable too, Affiliates are commonly paid 10% of gross revenue when a new customer is introduced, or almost half of the revenue retained by the group buying company, which is a good bounty given no sales effort, customer support or refunds and no exposure to shoddy merchants!
Assuming their Group Buying competitors sign up to having their offers surfaced on Spreets.com.au deal choice on the site will grow and no doubt customers will thank them for it. But what is the long term outlook for this Hybrid model?
Spreets customers will be absorbed by the competition over time, Spreets will already be losing 4-8% of Subscribers each month though natural churn and may not have the funds to replace them so a customer exodus to the competition will hurt greatly. The more successful the Hybrid model is at generating Affiliate fees the more quickly the exodus will occur and unless they can make their marketplace a great destination through the curation of compelling deal content and email targeting/personalisation they won’t come back either.
Alternatively this may be Spreets way of simply “milking the asset” until they close the doors on the business given this model will lead very quickly to some much needed profits, given their original investment it would be nice to see some return!
Related articles
- Group Buying fortunes on the up? (57signals.com)
- Group buying market ‘is in a pickle’ (mumbrella.com.au)
- Google Would Be Nuts To Buy Groupon, Even At A Huge Discount (GOOG, GRPN) (businessinsider.com)
Click Frenzy, in spite of the massive failure it was an unprecedented success!
November 26, 2012
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Sneeze and you may have missed it.
The Click Frenzy frenzy came and went in a matter of days, yet in that time it managed to reach the consciousness of some 20% of online Australians! That’s quite an achievement.
Their PR machine had triggered something in Australia’s uber-price-sensitive media which led to an incredible amount of coverage in the days leading up to the sale – it really did become a frenzy.
Even before the site ran into capacity issues on their woefully inadequate servers, their business model meant they would only ever make moderate returns. Choosing an all-up-front fixed-fee suggested they doubted the results they could yield for their retail partners preferring instead to cover their costs and hope for a modest return.
All in all, they clearly had no idea how ready the Australian market was for Click Frenzy!
Click Frenzy founder Grant Arnott explained in a rare and touching mia culpa that 300k visitors was their top traffic estimate, so the 1.6m visitors they actually saw blew their infrastructure wide open. To be fair, I think only a handful of sites around the world would cope gracefully with 1.6m concurrent users! The fact is the 7pm launch time was a big part of the problem, internet infrastructure hates concurrency!
Aside from the access issues suffered by many hundreds of thousands of bargain hungry shoppers, many found their way to the registered retailers and boy did they spend!
One retailer example I was shown paid less than $3,000 to participate but yielded over $80,000 in sales. An equivalent Group Buying offer would have cost the business $24 – 30k in commissions! A pretty good outcome for the retailer!
The chart below from Quantium shows the direct impact on participating retailers versus non-participating retailers.
160 retailers of varying sizes participated, and Click Frenzy probably netted an average of 3 – 5k upfront from each, meaning 480 – 800k in Gross Revenue. Not bad, however had they chosen to take a booking fee plus a moderate trailing commission, they would have netted anywhere from $800k ($1k upfront, 5% commission on $80k Average) to $2.4m ($1k upfront, 15% commission on $100k average)!
All credit is due to the Click Frenzy team, they were swept along by a frenzy of their own making albeit they we flattened in the stampede. Better luck next year.
Related articles
- Click Frenzy a big success, says Myer (news.theage.com.au)
Group Buying fortunes on the up?
November 15, 2012
— 2 Comments
After bottoming out during the past few months, the fortunes of some Group Buying businesses seem to be on the up, albeit a significant number have collapsed or been acquired in the past six months and the outlook remains grave for many more!
The fact that the sector’s nose is slightly up is in part due to the weeding out of weaker and often less scrupulous competitors who often served only to undermine the reputation of the sector as a whole.
In fact out of the 50 largest Group Buying businesses assessed in April, only 29 remain intact just 6 months on. And given only 10% (5) of those businesses were acquired that supports the view that smaller Group Buying businesses are of limited real value. In such a crowded and undifferentiated market lifesaving investment is tricky too given a lack of brand equity, good will or asset strength (off the shelf web sites are common and subscriber base overlap with top-tier competitors is often well over 70%) resulting in the collapse of underperforming and debt laden Group Buying businesses.
A quick browse through the sites of the 29 still standing uncovered indicators of pending doom for some.
Here are the choking canaries of the Group Buying world:
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A high degree of niche product deals, such as robotic vacuum cleaners or iPad accessories
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No sign of “number purchased”, an essential component of Group Buying that is quickly discarded when numbers are low
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Extended Deal deadlines, this industry was founded on deal a day for good reason!
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A smorgasbord of deals on one page, suggesting desperate recycling of old offers
Group Buying remains a $1bn future industry in Australia, regardless if that industry seemed to lose its way and stall when it was only half way there. Regaining lost momentum will be down to the leading players showing the way once again with a combination of brilliant marketing and a commitment to helping consumers discover great business products.
The strongest already have their playbook (Living Social, Cudo and Ourdeal) and will extend their positions in the coming 6 months through a focus on back-to-basics Group Buying offers like quality restaurants, high value vacation offers and utility products such as Cudo’s Meat Merchant.
Although I suspect another 15 from April’s top 50 will be gone by April 2013, leaving only a dozen or so standing, I think I already know who they are, I wonder if they do?
Good commercial sense underpins sustainable philanthropy
October 29, 2012
In 1999 the ever cheery Brits (of which I’m one) were flabbergasted when their #1 Son Richard Branson lost a bid for the National Lottery. His manifesto for the People’s Lottery was based on it being run as a Not for Profit meaning that profits would be provided as donations to the lottery commission over and above the standard fun-raising efforts of the National Lottery. Even though these additional donations would exceed $1bn each year the Lottery Commission said no, instead they chose Camelot who had no such altruism in mind.
Surely something’s afoot, why would the Purpose driven Lottery Commission choose greedy toes Camelot over goody two shoes Branson? Isn’t that Greed before Good?
Not that simple.
The Lottery Commission figured that without the benefit of a Profit Engine behind Lottery Ticket sales, they’d be worse off taking the $1bn contribution from the Virgin effort. That their interests would be misaligned and the overall donation pool would be smaller as a result. A decision that has since been vindicated several times over.
If the collective interests are balanced, doing good doesn’t have to be unprofitable.
Recently I co-founded a business called BeyondCover. On one hand BeyondCover is an Insurance reseller for Global Underwriter QBE, selling CTP (The mandatory Motor cover in Australia), General Motor and Travel Insurance, on the other hand it raises money for causes by rewarding Cause partners when they introduce a new Insurance Customer.
The key to having the right incentives in place lies within the nature of Philanthropists. People who regularly support Good Causes are good people, they take fewer risks, cause fewer accidents and pay their bills on time. They make pretty good Insurance customers too!
Is your business gearing up for in-car Internet?
September 21, 2012
ABI Research are forecasting a significant growth in Internet Enabled cars, with 50m vehicles sold by 2017 with native Internet connectivity.
In car connectivity is already broadly available with smartphone-dependent products like HondaLink available in most markets today. However like any new technology, the real breakthrough comes when new applications are developed by a broader ecosystem, which, as far as we can tell, is yet to happen.
It’s quite possible that 30 – 40% of new cars sold in Australia will be Internet Enabled with 5 years, yet few business have connected cars in their 3 year plan.
Google, a lot like a corrupt SatNav!
May 7, 2012
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Google commands tens of millions of dollars each year (probably hundreds) through knowingly selling brand terms through AdWords (such as “cudo” for our business). Yet, users are increasingly using Google for everyday web navigation, so they knew where they wanted to go, they just wanted Google to help them get there.
This is a lot like punching a restaurant’s address into your satnav, but being taken to the highest bidding restaurant instead!
And as businesses grow their sophistication in SEO and they establish their listing at the top of the Organic pile for free. Allowing competitors to purchase a business’s brand term means the target business also has to buy their own
brand term else there is a fair chance an unsuspecting user will click on the competitor’s link, commanding unnecessary dollars from at least two businesses! This has lead to a Mexican Standoff between Group Buying sites, including the seven or so competitors currently spending their dollars on the term “Cudo” today.
In itself this is not necessarily evil of Google, it is opportunistic though.
However, once a business has been granted a trade mark they can then protect their brand from being bought on Google by law, yet Google seems to be oddly slow at applying any kind of block to AdWords, milking yet more dollars from a potentially struggling business over the 3 to 6 months it takes to limit the term in AdWords (Google may not block the term altogether!).
Why is it so hard to protect my mark on the world’s most sophisticated Search platform? Yahoo! and Bing seem to behave much less like a Corrupt SatNav with a clear policy on Trade Marks.
At Cudo we are spending over $50k each month buying our brand term on Google, that’s one expensive Mexican Standoff!
See below for an excerpt from a Trademark Case Study, found here
“Trademark Case Study
A Google Adwords client, who is a leader in the very competitive Network Marketing field, recently noticed a surge of infringements against their trademark which was being used in competitor ad copy on the Google Network. Competition within the Network Marketing industry is extremely competitive and aggressive. The client became aware that their competitors were bidding on their trademarked search terms. This caused the cost to secure top positions for their ads to skyrocket from an initial $2.00 per click to $15.00 per click. Monthly expenditures increased from $1,200 to nearly $30,000. The estimated budget increased to $500,000+ for the year. Control of the top ad space in Google was their primary objective in order to dominate the ad-space for their branded trademarked term.
Given the level of aggression by the competitors and the extortionate cost been borne by the client, there was only one solution and that was to stop all advertisers from bidding on the terms. Is it right that a business owner has to spend $500,000+ to buy their own branded name – a name that has already cost them millions of dollars to build? This is $500,000+ the trademark owner has to spend because of a policy that disavows elementary business ethics. Yahoo and MSN have recognized the injustice of such a slippery-slope policy and have taken steps to change it. We filed trademark infringements with all three search egnines. Yahoo and MSN results were clear within days.”
GroupOn here in Australia, Bait and Switch is tactic #1
February 14, 2011
— 7 Comments
I was disappointed to hear about GroupOn’s Bait and Switch issue concerning the Valentine’s Day offer with FTD, however I immediately jumped to their defence.
A large part of Cudo’s operation is focused on ensuring that the offers we provide are 100% genuine, not just because we advertise on TV and are subject to rigorous standards, but because we believe the long term success of Cudo is hinged upon trust.
Our Merchant partners have to trust that Cudo will do the right thing by them by providing a great audience of new customers, broad brand promotion as described and payment in full within five days. And our members have to trust that Cudo is all about genuine no-brainer offers!
GroupOn must also have a whole team of people focused on ensuring that offers are “as stated”, hence why I jumped to their defence. However after seeing the following “all you can eat” ad, I am no longer sure!
Clicking on the ad for $8 all you can eat Macaroons takes you to a sign-up page, no such offer exists.
Deceptive. Yes. Bait and Switch. I think so.
Unless I am missing something, this type of Bait and Switch advertising is way out of line and threatens to damage the market as a whole. One thing is for sure, Cudo will never resort to these desperate tactics.
Group Buying – audience by numbers
January 29, 2011
At Cudo we made a decision to do things differently.
Until Cudo came along, Group Buying business were based on the following core principles:
Long term this approach is seriously flawed.
Database-driven Group Buying is a race to zero. Competing primarily on database size means a group buying company is vulnerable to being undercut on commission (revenue share) by competitors with similarly sized or smaller bases. We are already seeing a significant reduction in share from 4 of the top 5 Group Buying business in Australia (Scoopon as little of 10%, Spreets <30%, Jumponit <40%, ourdeal <30%) . Only Cudo is holding share at 50% on each and every offer (averaging 49.6% revenue share to date).
Another key flaw in the database-driven approach and a common complaint from Merchants around the world is that the average voucher buyer looks more like a bargain hunter than the Merchant’s target customer, meaning less strategic value for the merchant, making the overall category less attractive to Merchants over time.
Cudo is not database-driven. By promoting the Merchant and their Offer on TV and through ninemsn – Australia’s largest portal – Cudo provides a fresh new audience to each offer, resulting in around 30% or more of the vouchers being sold to new Cudo customers who came to Cudo specifically to trial that Merchant’s offer.
That said, Cudo has a market leading audience too, both in terms of its member base (more than 500,000 members)and it’s regular visitors, ranked number 1 with 788k visitors in December by Nielsen NetView. We also lead the market when Net Revenue is measured, a critical, long term measure of a businesses’ sustainability. And lastly, and most importantly, we lead the market in Merchant satisfaction, driving the best outcomes for Merchants every day!
At Cudo we have created a new approach to Group Buying, at least two of our key competitors have recognised this and have begun adjusting their model, let’s hope it’s not too late for them, it’s hard to pull-up from a race to zero!
Group Buying – Smoothing demand to meet supply
December 30, 2010
— 2 Comments
A Targeted Voucher Program (like Group Buying) does more than simply increase brand awareness and consumer demand, it smooths demand to make best use of the available Supply, combine this will upsell opportunities and future loyalty and the returns will continue to flow well beyond the life of the promotion.
Running an above the line Brand promotion will make the target business top of mind for a new set of potential customers, hopefully creating lots of new Demand albeit the profile of that demand is likely to look a lot like existing demand, just more of it! For restaurants, that means what little availability there is on a Friday or Saturday will go first, and once they are gone, customers will be unlikely to settle for a midweek or Sunday slot instead, squandering the marketing investment and the opportunity to introduce your business to a new audience.
A Targeted Voucher Program is fundamentally different. Why? Typically, when a someone calls a restaurant to book a table they are planning an evening out, they have an evening in mind and are looking for a suitable restaurant to meet their needs, if their preferred night is full, they’ll call the next restaurant on their list; however when they call with a Voucher, they already have a restaurant in mind, they just need to find a suitable evening to redeem it, they have already made a commitment to your business after all (and paid upfront too!)! Voucher holders are willing to book well in advance to redeem their voucher, something an average patron is unlikely to do and upselling your Voucher holder to a weeknight at this point is the first step toward smoothing Demand.
At Cudo, we hear often from business owners that occupancy is significantly improved on Thursdays and Sundays as a direct result of running a promotion on cudo.com.au. The more popular the offer, the greater the impact is on weekday trade, yielding a significant gain in efficiency for the business overall.
Making the most of this type of promotion is the role of the featured business, they have to embrace the promotion and the new interest generated, train their staff to upsell and make the most of customer loyalty.
But irrespective of how small the gap is between supply and demand, combine a Targeted Voucher Program with a booking system and you have a very powerful way to improve short to medium term occupancy – make the most of the Program and it will have a lasting impact on your business.
