Social Coupons Add Mobility for Real-time Deals

As the separate successes of Groupon and LivingSocial have shown, people are hot for deep discounts on local purchases from dining to sky-diving to laser hair removal. In most cases, those deals are bought on the Web or over an app and delivered via email; they usually stay available for 24 hours and can be redeemed inside a pretty open window of a few months.

Now each of those group-buying platforms is adding a mobile component that will identify a user’s location and deliver deals that can be bought and used right away—as in, within two or three hours.

On April 15 LivingSocial launched a one-city test of its new Instant Deals feature, serving up $1 lunch deals to users located in its Washington D.C. hometown. Users simply downloaded the free LivingSocial app to their iPhone or Android devices, opened the app and clicked on “Instant Deals” to see the closest of the more than 120 D.C. restaurants that had agreed to offer lunch for $1 from 11 a.m. to 2 p.m. on that day.

While all those deals were available, the LivingSocial app makes use of smartphone GPS to filter and deliver only Instant Deals being offered within a half-mile radius of where the user is at that moment.

LivingSocial claims that it sold more than 27,000 of the $1 deals during that three-hour window. The company subsidized the $1 offers by the participating restaurants as a way of buzzing the service among its users. No details were revealed about revenue sharing or deal price points as Instant Deals becomes part of the standard LivingSocial offering in D.C

“It was a way to introduce our new product to both our merchant base but also our community of members, who are already using LivingSocial in a variety of ways,” says LivingSocial CEO Tim O’Shaughnessy. “It tells them, ‘Here’s 20 places you can go grab a lunch deal right now, within half a mile of where you are.’”

Users simply buy the deal via the app and receive a mobile voucher. They can then show that voucher to the cashier at the restaurant or other merchant, where it will be validated on a LivingSocial redemption app and accepted. Here’s a short video from the company outlining the process:

LivingSocial Instant Deals are also available via a tab on the Washington D.C. version of the company’s local Web site. There users can filter the deals with a drop-down menu of some 15 D.C. neighborhoods.

Merchants are interested in what real-time deals might be able to do to drive business through their doors right away, O’Shaughnessy says. “Anybody with a storefront is going to see potential benefit in this product. Restaurants are a prime opportunity, but we’ve worked with cupcake shops, museums, and others. Anyone with inventory that will be lost if it sits on the shelf unused.” A salon or massage parlor with empty chairs might want to offer a short-term deal to avoid that underused capacity, for example.

Real-time deals intended to be redeemed in hours rather than months could solve one issue arising from social couponing, particularly for the restaurant trade, where owners have not always been able to absorb the 500 or so people who buy a standard social-coupon deal. Restaurateurs also worry that those coupons will come flooding back for redemption during their peak periods, creating bad customer experiences both for first-time visitors and for their loyal regulars.

Of course, the capacity problem exists in small time frames, too. Press reports and blog posts suggested that at least some of the merchants involved in the $1 LivingSocial lunch promotion were caught off guard by the number of customers looking to redeem deals, leading to long lines and some refunds.

LivingSocial expects to conduct a 30- to 60-day test of Instant Deals in Washington before rolling it out in a number of the other 250 U.S. and global cities in which it offers local coupons. “We’ll measure response and make sure that we’re rolling this out in an effective way,” O’Shaughnessy says. “You’ll see us being in quite a few more markets by the end of the year, but the exact number hasn’t been determined yet.”

One factor that may lead LivingSocial to expand its Instant Deals platform in a hurry is the intention of its main social-coupon competitor, Groupon, to get into real-time deals delivered via mobile device. The Chicago-based Groupon is now conducting a live test of Groupon Now, a micro-targeted platform that lets user open app on their smartphones and use a two-button interface—“I’m Hungry” or “I’m Bored”—to find real-time deals redeemable at restaurants and attractions in their immediate vicinity. Like Instant Deals, those offers are available only for a limited time and targetable to specific dayparts.

Groupon has not yet announced how long the Chicago test will last or when it expects to bring the Groupon Now platform to some of the more than 500 other global markets it serves.

Dayparting isn’t the only way social-deal providers are attempting to make their offers more targeted and relevant. In late March, Groupon took a pass at segmenting its regular daily deal offerings within the New York market by running “Neighborhood Week” from March 28 through April 3. Each day, the New York Groupon site showcased the participating merchants from one of seven Manhattan neighborhoods on the site. The company kept track of which neighborhoods sold the most in Groupon deals on their featured day, and shoppers who enabled that win by purchased a deal from a merchant in that part of town on that day were awarded $5 in Groupon Bucks.