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The power of group buying

 

Unless you have been under a rock for the past year you will have probably heard the terms group buying or social commerce, even if you have yet to make your first purchase. Harnessing the power of the consumer collective is the premise behind the multi-billion dollar web trend of group buying.

The model is based on the age old premise that the collective has more purchasing power than the individual. The modern incarnation of this concept saw several iterations in the early dot-com days, but the concept of online group buying as it is now known, only emerged towards the end of 2008 in the United States. Quickly growing in popularity, the model has been adopted and adapted around the world and is now known to be the fastest growing online business model ever.

E-Commerce in the Middle East

While group buying was busy turning heads and generating big returns overseas, the model did not reach the shores of the Middle East until the middle of last year. Entrepreneur Sohrab Jahanbani and digital specialist Dan Stuart joined forces to create what has now become LivingSocial, the region’s first group buying website.

LivingSocial acquired the Middle East’s original group buying website GoNabit.com in June 2011, and the company officially rebranded to LivingSocial Middle East in October 2011.

The premise behind LivingSocial is simple: LivingSocial negotiates great offers with merchants by acting for the “group” and leveraging the power of its subscriber base. Every day LivingSocial features discounted offers (between 50-90%) that give people the chance to experience the best their city has to offer. People see offers they like from businesses that interest them and then buy through the website using their credit card. To successfully “nab” the deal, it must first tip; the point at which the minimum number of purchases is achieved. Once the deal closes, all buyers receive their e-voucher which contains details of how they can redeem the service directly with the merchant. As Stuart, who is CEO of LivingSocial, says, “The model is based on the premise that if enough people agree to buy something, they all get a substantial discount”.

Launching GoNabit; the Predecessor of LivingSocial…

Since the launch and establishment of the Dubai headquarters, GoNabit has expanded rapidly across the region; opening five offices in under a year in Abu Dhabi, Beirut, Kuwait City, Amman and most recently Cairo. Stuart attributes the ability to expand quickly to the company’s commitment to delivering outstanding deals to both the consumer and the merchant; while at the same time adhering to international standards in terms of online security and customer service.

For consumers, the benefits are clear; the excitement of discovering a new deal every day, combined with the ability to make significant savings drew thousands of subscribers to GoNabit. Consequently, where there are people, merchants will follow. GoNabit’s subscriber base is an alluring proposition for businesses facing the realities of a post financial crisis world. It offers exciting opportunities for companies looking to capitalize on a new and cost effective way of promoting their business.

A key element to the success of GoNabit is the sharing of daily deals between friends via email, Facebook, Twitter and word of mouth. However, word of mouth is a powerful influence in initiating online purchases, with 77% having bought online after a recommendation from a friend. Meanwhile, 89% of respondents have recommended an online deal to friends and family through word of mouth.

…In Lebanon

Originally launched in Lebanon in September 2010, the site has enjoyed robust growth in both subscribers and merchants participating in the daily deals offered on the site.  Although a relatively immature market in terms of online retailing, the country boasts high credit card penetration and an increasingly efficient ICT infrastructure that is helping to drive sustained growth for the company.

 “It is clear from our consistent increase in subscribers, and certainly from the record response to this particular deal, that LivingSocial is delivering a much needed service to the Beirut community. As a pioneer in the online space in this market, we value the strong loyalty we have earned in a relatively short time period, and hope to bring many more deals of this kind to our consumers in Beirut,” said Dan Stuart. “The strength of personal recommendation and the social opportunities that LivingSocial deals offer, highlight today’s business approach and the success behind our brand.  Beirut has been quick to share deals, get great discounts and discover new things to see, eat and do,” he added.

Win-Win Proposition

The LivingSocial founders are so confident of the returns that partner merchants will see, that they have coined the term ‘assured marketing’ to explain their promise to businesses. Sohrab Jahanbani, COO and Co-founder of LivingSocial explains: “LivingSocial takes the guesswork out of the cost of customer acquisition, providing one of the most targeted channels for converting online awareness (buzz) into quantifiable e-sales (buy). New customers are guaranteed because our users commit to trying the merchant’s offer with a financial investment – it’s not just another discount or coupon book. Hence we use the term ‘assured marketing’, as we assure merchants of their return, of new customer creation, dedicated brand promotion, measurable results and no upfront cost other than providing a fantastic deal.”

Jahanbani adds: “We run deals with a variety of merchants – international hotel chains, small falafel outlets, boutique spas and hot air ballooning businesses – and they have all benefitted from our assured marketing promise. We work to understand the needs of each company we partner with and structure a deal that achieves their business objectives. Running a deal on LivingSocial is a huge shot of adrenaline for a business, putting the merchant at the heart of our savvy social media community and generating quantifiable new customers. We’ve had merchants tell us that their partnership with us has reinvigorated their business. A great local restaurant in Amman, Shawarmama, was a big hit on LivingSocial, creating significant buzz and attracting new buyers.”

It seems that this win-win proposition for merchants and consumers is also a clear win for LivingSocial. The company has seen 50% month-on-month growth since they began and is now one of the largest e-commerce companies in the Middle East. Dubai remains the strongest performing market, but newer cities are faring well and LivingSocial is committed to growing the business from their on-ground offices in each market. The company has also broken ground on new business verticals – such as Dubai Families and LivingSocial Getaways.

Looking ahead

At the core of LivingSocial, is the desire to build a long term sustainable business, and it seems the co-founders have timed it perfectly. Since the global financial crisis hit, it is fair to say that society as a whole has adjusted its attitude to money – people are more aware of their spending and are open to taking advantage of opportunities to save. Businesses are also in need of smarter, more sophisticated ways to market their services.

While LivingSocial agrees that the financial climate contributed to the market’s readiness for the group buying model, the emergence of e-commerce across the region presented the perfect opportunity for the dynamic entrepreneurs. As pioneers of not only group buying, but online shopping generally; LivingSocial has played a significant role in shaping the future of the region’s e-commerce industry.

Furthermore, in January of this year, LivingSocial became the first website in the region to attain the TRUSTe Web Privacy Seal. The TRUSTe certification, together with LivingSocial’s proprietary Customer Charter, demonstrates the company’s commitment to transparency, accountability and consumer choice.

Group-Buying is the Catalyst

According to new research, group-buying may well have cemented its position as a catalyst for e-commerce in the Middle East. The study conducted by LivingSocial and YouGovSiraj, not only showed that end users are overwhelmingly positive towards online shopping in the region, but that group buying also serves as a great entry point into e-commerce for consumers new to online transactions.

LivingSocial released the results of its survey during the ArabNet 2011 Forum, the largest conference for the Arab web industry that took place in Beirut, Lebanon. With the highly active online community that has sprung up around LivingSocial since its launch, the region’s leading group-buying website polled a random sample of 2,196 users to determine whether e-commerce in the Middle East has moved beyond its embryonic stages.

“We felt the reasons why people don’t buy online in the Middle East were well documented – if not often exaggerated. We all know there are issues with payment gateways and a lack of quality homegrown websites. We’ve essentially sparked e-commerce in every market where we operate and, from our experience, consumer confidence in online shopping is improving. We decided to ask registered LivingSocial users, who we consider early adopters of regional e-commerce, what motivates or demotivates their online purchasing decisions,” explained Sohrab Jahanbani.

The findings signal a positive outlook for entrepreneurship in e-commerce with consumers’ propensity to spend online improving significantly. Respondents are overwhelmingly positive towards e-commerce (93% positive), despite the known and perceived problems in this region of security, availability and delivery. This suggests the market will continue to grow as these barriers are broken down.

Two thirds of consumers (66%) claim that if it is cheaper to buy online they would buy more often.  In addition, over half (56%) would buy more often if it was more convenient to purchase online. Exclusivity, ease of online transacting and a wider product range are secondary motivators for why people would choose to buy online more often.

“This shows there is great potential for online stores that can disrupt offline retailers through the cost efficiencies of e-commerce. Online retailers that can provide a mix of value and convenience will see a very receptive market,” said Jahanbani.

There is also considerable purchasing power among online shoppers. Interestingly, for a daily deal website, the LivingSocial sample was skewed towards higher incomes (38% with monthly salary of $5,333 or more). Just over half (53%) have spent more than $500 on a purchase, while 3 in 5 (60%) would be prepared to do so in the future. Over half (52%) of those on the highest incomes have spent more than $1,000 online and 57% are prepared to spend that amount in the future.

In addition to highlighting the positive outlook for e-commerce from an end user’s perspective, LivingSocial says the survey results reinforce the effectiveness of the group-buying business model as a powerful online marketing tool. Furthermore, Livingsocial has also shown that the collective power of group buying extends well beyond its customer base. The model’s effectiveness is also helping to mobilize an entire industry. As long as players can continue to knock down some of the existing infrastructure barriers, the outlook for the region’s e-commerce market looks very bright indeed.

About

LivingSocial Middle East

LivingSocial was originally launched in Lebanon in 2010 by experienced entrepreneurs Dan Stuart and Sohrab Jahanbani and is majority-owned and supported by Bayt.com, the number one job site in the Middle East. LivingSocial helps people around the world find, share and enjoy great local deals and new experience to help users get more out of their city. Through its daily deal e-mails and alerts, LivingSocial introduces members to handpicked local businesses, products or services each day at significant savings. Other services include LivingSocial Escapes, which features easy “vacations in a box” to leading destinations, and LivingSocial Instant, which helps members discover real-time discounts at nearby restaurants, stores and businesses. LivingSocial works with each merchant partner to create customized marketing solutions that attract and retain loyal, long-term customers. Based in Washington, D.C., LivingSocial now has more than 46 million members in 25 countries.

YouGovSiraj

 

YouGov Siraj is a full-service market research company, specializing in online polling. YouGovSiraj has the region’s largest pure research panel of 250,000+ members, who respond to surveys. The company has particularly strong analytical skills, with research specialists who have many years regional experience. YouGov Siraj acts as a research consultancy for clients on research projects of any size, outsourcing face-to-face and telephone, ensuring the very best service the region can offer. It is a subsidiary company of YouGov Plc in the UK and applies the same online methodology, which has proven levels of accuracy.

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