You can scroll the shelf using ← and → keys
You can scroll the shelf using ← and → keys
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:
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?
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.”
Group Buying works for a reason, regardless of the service woes plaguing the industry (which have been driven by a combination of greed and inexperience, not the model itself) the principles behind Group Buying are sound. Over the next few posts, I will explain the key mechanics and position them in a series of non-Group Buying contexts.
This is the first of six posts I will write that describe those mechanics.
FOCUS ATTENTION ON ONLY A FEW OFFERS
Limiting promotional efforts to only 1 – 3 featured offers enhances the perception of those offers and likely uptake, minimising “noise” around those offers will further spotlight the chosen few. Featuring multiple offers on the other hand dilutes the “WOW” and runs the risk of Paradox of Choice effects.
Most email platforms will support controlled tests, such as sending one control group an EDM with multiple offers, one with the three best offers and one EDM with only a single “hero” offer.
Assuming the control conditions are sound, the likely outcome is that the Hero and “three best offers” EDMs will each provide a click through rate that is greater than the “multiple offers” EDM even though the multiple offers email included the featured offers from the other tests.
[This post originally appeared on the ADMA blog]
Businesses have been discriminatory since the dawn of time. Recognising that not all customers are equal is essential and provides the key to maximising the effects of supply and demand.
Making the best use of discriminatory pricing means that you need to identify the price sensitivity of each customer group and target them with an appropriate incentive. For example, how willing are they to do work or take risk in exchange for a discount.
Airlines are the masters of price discrimination and there is a lot to be learned from their approach. Granted airlines have the luxury of sophisticated modelling and real time pricing however your business can execute a similar strategy with limited fuss.
Think about airlines’ ticket pricing as a set of incentives and it may become clearer. Imagine the advertising headlines read something like this:
“Book this seat months in advance and we can be sure the flight will sell well. In exchange for that insight and the non-refundable dollars you are willing to give us (that will then sit in our account to earn interest) we will give you a generous discount”
“We are eager to maximise the bums on seats on this flight and as such here is a substantial discount”.
Right now, your business probably has a series of ongoing campaigns designed to incentivise price sensitive customers to purchase. Offers such as “half price Tuesday”, “book early to save”, “book late and save” or “buy one get one free”. These are all effective discriminatory price strategies.
The key is to deeply understand both your “price sensitive customer” and your “marginal cost of sale” i.e. the true incremental cost of servicing one additional customer now that your fixed costs are covered. The likelihood is that each additional customer can be serviced profitably even if they only pay 30% of the full advertised rate. You can profitably take utilisation from 65% (which is the typical breakeven point) to >80% even if each new customer only pays 50% or less of the advertised rate. There is a risk of course. If you broadcast the discount too largely your full paying customers may hear about the lower rate, they may be annoyed or worse still hold back from purchasing, therefore cannibalising your base revenue stream. Learning how to target your “price sensitive customers” is essential to profitable price discrimination.
Data driven marketing solves each of the issues described above. Find ways to identify and reach the “price sensitive audience” (geography, prior buying behaviour, acquisition source) then serve discrete offers designed to encourage acquisition behaviour, such as switching from an existing provider, prepayment, bulk purchase or even to drive
out of the area. The level of incentive you offer should be generous; if your costs have been covered you can afford it. Ensure staff treat all customers equally and focus on providing a great customer experience that will maximise profit, loyalty and word of mouth recommendation.
Remember, “price sensitive customers” are savvy, not cheap. Reward them with great service and you will earn their loyalty, except next time they will pay full price – no discrimination required
As the CEO of a Group Buying business in the nascent and burgeoning category it was critical that I had a very clear view of marketing effectiveness, with Audience Engagement being the key indicator. There were a number of sources available to the team that purported to provide reliable Audience measurement and insights however I only depended on two to provide an accurate view, Omniture and Nielsen.
Alternative sources included Hitwise, Google Analytics and Alexa – Google Analytics is cheap/free but pretty unreliable and Alexa provides a Relative view only. Hitwise is the worst of the bunch though given their data collection methodology means it doesn’t represent the broader online population and worse still, it doesn’t necessarily reflect human activity!
Here are the two main issues with Hitwise data:
1. Hitwise does not measure individuals – it measures traffic.
This effectively means you could hit your website with bot traffic to boost your numbers and it would show as traffic in Hitwise. Nielsen Australia removed 50% of GroupOn Australia’s traffic in March because that traffic consisted largely of unsolicited clicks, meaning popups that appear as you close scurrilous ads (Congratulations, you have won $1,000,000!!!!!) – those clicks are still counted in Hitwise.
2. Hitwise doesn’t include key ISPs
Hitwise harvest data from partnering ISP’s, however Australia’s two largest ISP’s BigPond and Optus don’t participate. This is major a concern as a large proportion of internet users (about 58%) are not reflected in their data. This is a particular problem for a business like Cudo given its mainstream audience, and mainstream Australia do not typically use fringe ISPs.
Nielsen was recently selected as the official measurement partner of the Australian IAB, in their press release they said:
With the endorsement of Nielsen Online Ratings, IAB Australia is identifying people-based metrics, as opposed to browser-based, as the best and preferred online audience measurement system for the Australian online advertising industry.
This is the nub of the problem. TechCrunch called it out almost two years ago.
At Cudo we didn’t care about browsers for obvious reasons, we cared about people, they still do, like the 1,000,000 plus Australians who go to cudo.com.au each and every month, I couldn’t give a monkeys how many Bots swing by!
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.
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!
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.
Group Buying is all about hard bargains on great experiences, the web sites (and there are a few) trade exposure to a large audience for a discounted offer and a share of the revenue gathered. Check out most of these sites and you’ll see they are typically focused on the discounts they can negotiate on behalf of their members, crowd-power put to work! These same companies often regale in the millions of dollars they have “saved” on their Members’ behalf, reflecting the margin businesses have given up in an effort to attract a new audience.
But businesses tell us at Cudo that they are being pushed too far by aggressive Group Buying reps, and that they are disappointed by the quality of customers they attract, often finding they are seasoned voucher buyers rather than reflecting their typical audience.
And regardless of their intentions prior to running an offer, a business that has been pushed to its limits will have no choice but to minimise its losses during the process, especially when faced with a lower value customer who is less likely to come back once the vouchers is spent.
Minimising losses means one of two things to these businesses, delivering the service more cheaply to preserve some margin, or hoping the Voucher buyer never shows at all, also known as Breakage!
In fact, some Competitors’ commercial agreements even include a clause intended to maximise the value of Breakage, where a higher percentage of unredeemed vouchers is good for the Group Buying business.
But this is hurting the industry as a whole.
The Group Buying company typically controls contact with the end user, meaning they alone can communicate with the purchasers and encourage them to redeem their unused vouchers, however they are not incentivised to do so, the featured business should be focused on maximising the number of new customers they touch but may be hurting so badly after loosing the battle to preserve some margin that they hope no one ever shows! That said, they are not in a position to talk to voucher buyers even if they wanted to!
Group Buying cannot be about discounts alone, it has to be about incentivising customers to try new things. This is a sampling exercise, not a fire sale. Screwing a business in the name of growing your Member base is counter intuitive, because over time the best of the businesses we want to work with will want nothing to do with the Group Buying category as a whole, hurting the more reputable business out there.
And Consumers know that owning unredeemed vouchers is a lot like having a wardrobe full of clothes with Sale tags on, at some point someone will say “enough” and the buying will grind to a halt no matter how good the discounts are. We are focused on Experiences at Cudo, offered at a no-brainer discount, and we get that the future of the industry is hinged on our customers actually participating in those experiences, not just for the growth of the businesses we feature, but for the future of Cudo and for the industry as a whole. We will continue to focus on redemption at Cudo, and never encourage Breakage.