Amazon Daily Deals for Itself

Discussion
Mar 22, 2012

It was pretty much seen as a coup for LivingSocial in January 2011 when it ran a daily deal featuring a $20 Amazon.com gift card for $10. The offer generated unprecedented interest and many on RetailWire and elsewhere thought it would provide a lift for LivingSocial going forward.

While there is plenty to debate on the after effects of the deal for LivingSocial, Amazon appears to have been happy with the results and has decided to go the daily deal route again. The difference is that this time the company is keeping the business completely in-house with its own AmazonLocal service.

Amazon had made a $175 million investment in LivingSocial several weeks before running the promotion last year and currently owns about one-third of the company. This go-around, Amazon sold one million gift cards valued at $10 for $5. According to All Things Digital, it took Amazon all of 17 hours to do it. LivingSocial with a bigger daily deal subscriber base reached the million gift card mark at 14 hours.

"One of their challenges going forward will be to build their subscriber base for AmazonLocal, which explains why they ran this deal," Vinicius Vacanti, co-founder of Yipit, told Reuters. "Had they run this deal through LivingSocial, LivingSocial would have kept all of the subscribers."

In a blog post, Tim Elliot, co-founder of Savvr, wrote, "Analyzing Groupon’s data and general industry trends, the price for a daily deal subscriber is around $5 per person. Amazon not only paid that amount but they also acquired substantially more valuable subscribers: Customers who are known to make purchases online and now these customers can place 1-click orders as well. These subscribers are substantially more valuable than a regular list subscription that may never materialize into a buying customer."

Discussion Questions: What will the AmazonLocal deal mean for Amazon.com? Do you think the customers they will be signing up are worth the cost of acquisition?

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9 Comments on "Amazon Daily Deals for Itself"


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Doug Stephens
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Doug Stephens
10 years 2 months ago

I think the question of whether these customers are worth the acquisition cost has to be answered in relative terms. If we’re comparing this cost to running TV ads, radio spots or newspaper ads, then the answer is most likely “yes.” Clearly, Amazon’s advantage is their ability to precisely measure the ROI on each new subscriber — an advantage the average retailer running a daily deal doesn’t have.

Adrian Weidmann
Guest
10 years 2 months ago

All the evidence suggests that Amazon ran the numbers and made a great investment. Keeping and developing those shoppers that leverage these offers ‘in-house’ is very pragmatic. As Walmart ramps up its e-commerce to catch-up with Amazon’s momentum, Amazon continues to leverage its position and is reacting to who, what and how their customers want to do business with them.

Bob Phibbs
Guest
10 years 2 months ago

While I think Amazon is a big threat to everyone in just about any industry or sector, they are operating on all cylinders. You have to hand it to them to capture the data for their own, not their partner LivingSocial. And only a company like Amazon could move the needle so well.

Of course, shareholders keep picking up the cost of more discounts to buy market share and outlast their competitors like some game of musical chairs. What happens when the music stops and they have to be profitable?

Camille P. Schuster, Ph.D.
Guest
10 years 2 months ago

To get new customers with this service, Amazon will have to do promotion in places where regular Amazon shoppers do not go. However, being able to keep the customer data provides the opportunity to convert them to regular Amazon shoppers. If this is the model Amazon intends, they will need to treat the new service and the existing Amazon promotion efforts as separate, but the rewards could be significant.

Dr. Emmanuel Probst
Guest
Dr. Emmanuel Probst
10 years 2 months ago

I see this operation as a win/win for Amazon. It will help with building their subscriber base on one hand while acquiring new Amazon.com clients on the other. In the near future, AmazonLocal could feature more deals for Amazon.com or affiliated vendors. In other words, Amazon can drive traffic and sales to its own online stores, rather than having to reach complex and arguably less profitable agreements with retailers and restaurants.

Ryan Mathews
Guest
10 years 2 months ago

It should continue to expand their customer base. As to the value of that base, only time will tell. It will all depend on whether they are just casing deals or actually develop into more robust non-discount customers.

Dan Frechtling
Guest
10 years 2 months ago

I do think the customers are worth it, especially when considering the spend increment.

The average customer now spends about $250 per year, or $20 per month, across all Amazon sites. So the value of an incremental visit is at least $20. So what looks like a 50% discount ($10 for $5), is on average only 25% ($20 for $5). And if the average cost of a new subscriber to AmazonLocal is like Groupon, the $5 is earned back.

While Amazon.com proper’s large consumer base suggests these customers may be simply buying more frequently than being net new adds, AmazonLocal is indeed growing its membership. And this time the deal sold out in about the same time while discounting $5 less than it did with LivingSocial.

John Boccuzzi, Jr.
Guest
John Boccuzzi, Jr.
10 years 2 months ago

Absolutely. Amazon has a reputation for delivering great solutions so for them to expand into daily deals makes sense and will have a positive impact for their business. The cost of acquiring new subscribers was worth it. Not only did they add over one million users to their daily deal site, but think about all the free press Amazon received yesterday when this news went viral. I don’t have the actual figures, but I can only assume year over year sales at Amazon were up more than the average day. Shows the power of social media.

Kai Clarke
Guest
10 years 2 months ago

More customers, more purchases, and a greater base of loyal fans. Sales of Kindles, electronics, books, and music will all increase and Amazon will win, win, win! What is there not to like?

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