- What do you think of the LivingSocial / Amazon deal? That one worked, huh?
- I guess you were wrong about social commerce, Amazon just proved that it works!
- You have to keep in mind that Amazon invested in LivingSocial, so it is a win-win.
- You have to understand that this is how modern marketing works.
- You have to give people something of high value in order to grow your business.
- Even Snooki tweeted about this, so it really did work.
- You really don't know the financial arrangement between the two companies, so it could work. Since Amazon owns a part of LivingSocial, it probably nets out at no-cost for Amazon.
- Why are you against social commerce?
- Why do you hate promotions? They work, customers love them, and they help brands grow.
- Discounting doesn't hurt loyalty ... look at Woot, they have great customer loyalty and they do discounts as well as anybody.
Twitter and Blogs have changed how we evaluate whether a marketing strategy works. Today, something works if it is Popular, and if it is backed by a Strongly Worded Opinion (SWO).
In the real world, the following equation holds:
- Actual Data > Popularity + Strongly Worded Opinions.
- If we give away $13,000,000, how will we get our money back?
- Will we get our profit back in the short-term, or in the long-term?
- Will the promotion generate new customers, or will we have to find a way to get profit from existing customers?
And it is possible to get the money back. Here's a scenario where we more than make up the costs of the promotion. I assume that customers will spend 50% more than the $20 gift card they purchase for $10, I assume that 30% of the purchases would have happened anyway, without the promotion (yielding a 70% incremental rate). I assume net sales, gross margin, and pick/pack/ship percentages based on publicly available information and 10K statements. I make very crude assumptions for new/existing customers, and for 12-month profit estimates. I assume that by improving an Amazon buyer from 10 purchases to 11 purchases, you increase long-term profit from those customers by $2.
If you don't like the assumptions, choose your own and run your own numbers!!!!!
|Add-On Item Demand (50%)||$10,000,000|
|Total Promotional Demand||$30,000,000|
|Incremental Demand (70%)||$21,000,000|
|Net Sales (96%)||$20,160,000|
|Gross Margin (25%)||$5,040,000|
|Less Promo Cost||$13,000,000|
|Less Pick/Pack/Ship (6%)||$1,209,600|
|New Amazon Customers (5%)||65,000|
|Existing Amazon Customers (95%)||1,235,000|
|Additional, Incremental 12-Month Profit: Amazon, From Existing Buyers ($2)||$2,470,000|
|12-Month Profit: Amazon, New Buyers ($20)||$1,300,000|
|12-Month Profit: LivingSocial ($15)||$18,525,000|
If I can show that the net relationship is profitable, then I support the promotion.
That's the point of all of this.
- Actual Data > Popularity + Strongly Worded Opinions
And when you run the math, you may be surprised to learn that your Strongly Worded Opinion is, in fact, correct!