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Social couponing: Big idea … but big profits?

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Groupon logoThe rise of the Internet has changed the way the couponing business operates. Not only are people logging online to find coupons rather than searching for them in the local paper, so-called “social couponing” has also entered the scene. This is where online coupon offers become active only after a minimum number of registered users sign on to them.

Groupon is probably the best-known of these couponing platforms, although there are others active in the field including MyCityDeal, Half Off Depot, BuyWithMe and LivingSocial. [Interestingly the idea of social couponing originated in the People’s Republic of China.]

The concept, as Groupon does it, is pretty simple. It offers one “Groupon” per day in distinct market segments. If a predetermined specified number of people sign up for the coupon offer, the deal then becomes available to all; otherwise, the offer doesn’t take effect.

Groupon makes its money by getting a percentage of the deal from the participating retailers.

In theory, social couponing reduces the risk for retailers, who can treat the coupons as brand promotion tools in addition to offering discounts or freebies. But research carried out recently by the Jones Graduate School of Business at Rice University throws a bit of cold water on this hot idea.

The Rice research, which included ~150 businesses, found that the Groupon campaigns were unprofitable ventures for one-third of them. Furthermore, ~40% of the companies studied stated that, based on their experience, they don’t plan to run another social coupon promotion.

The Rice study measured program success based on two criteria: what portion of customers spent more than the coupon amount … and to what degree did customers subsequently make follow-up purchases without the coupon offer. Those companies that reported their campaigns had not been profitable also reported that only ~25% of the coupon redeemers spent more than the face value of the coupon.

Beyond that, fewer than 15% made a subsequent purchase at full price.

In contrast, firms that reported having profitable promotions stated that about half of the coupon redeemers spent more than value of the coupon, and ~30% of them made follow-up purchases at regular prices.

But even some of these firms were wary about conducting another campaign, believing that the Groupon offer did not attract the “right” kind of customers.

What types of offers did well? The Rice study found that foodservice offers performed best in terms of the quantity of offers redeemed. Other categories that scored relatively well were tourism offers, educational services, salons and spas – but each of these drew less than half the response level that restaurants achieved.

Utpal Dholakia, an associate professor of marketing at Rice and leader of the research study, concluded, “There is disillusionment with the extreme price-sensitive nature and transactional orientation of these consumers.” Dr. Dholakia went on to point out that “they are not the relational customers that they had hoped for, or the ones … necessary for their businesses’ long-term success.”

What’s the caveat for businesses thinking about jumping into social couponing? Such a program may well contribute to a surge in business. But many of these new customers will be price-conscious in the extreme, holding a bargain-hunting agenda above everything else.

Hmmm. Just like the real world.

Google: The Company Everyone Loves to Hate?

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Google, the company people love to hate?What is it about Google that gets people so riled up? After all, it’s a company that has revolutionized the ease in which we find and process information, not to mention the way we consume video content.

If that seems like an overstatement, just think back 15 years or so to how you once researched questions or searched for information … like trudging to the public library or placing “wish-and-wait-for” phone calls to other offices or government agencies.

Maybe we get frustrated with Google because even though the company’s informal slogan is “Don’t be Evil” … every time we turn around, it seems the company is saying or doing something to (deliberately?) engender consumer dissatisfaction.

Consider the comments of Eric Schmidt, Google’s CEO, who speaks often about the role of Google and how it relates to the personal privacy of consumers. There he goes, wandering from media outlet to media outlet, dropping bon mots — others might call them “verbal bombshells” — like these:

 “[Google is] building an augmented version of humanity, building computers to help human do the things they don’t do well, better.”

 “We know where you are. We know where you’ve been. We can, more or less, know what you’re thinking about.”

 “If you have something that you don’t want anyone to know, maybe you shouldn’t be doing it in the first place.”

What’s more, Mr. Schmidt seems to be digging in his heels on Google Maps. I’ve blogged before about this controversial initiative, as it began to become evident that Google was collecting more than just photos of people’s homes.

Just this past week, Google finally admitted that its Street View vehicles had been scooping up a lot more than just “meaningless fragments” of information from unsecured WiFi networks as it sweeps through neighborhoods. The digital harvest has included full e-mail addresses and passwords.

Alan Eustace, Google’s senior vice president of engineering and research, seemed apologetic. “We are mortified by what happened,” he said.

But Eric Schmidt may have revealed the true feelings of the company when he suggested on CNN’s Parker-Spitzer program that the people who don’t like Google’s Street View vehicles taking pictures of their homes “can just move.”

Of course, complaining about Google is a great armchair activity that may be little more than petting grousing. I know of few (if any) people who would be willing to forego the benefits that Google’s vaunted information and content engine delivers.

Going forward, it does appear that Google may be a bit more receptive to the concerns people have expressed. This past Friday, the company announced that it has appointed a new “director of privacy” across its engineering and product management. Reportedly, Alma Whitten, the person appointed to this position, will be focusing on building privacy controls into products and internal practices.

We’ll see how that goes.

What’s changing – and what’s not – in consumer banking habits.

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Consumer Banking BehaviorsThose of us who live our daily lives online from sun-up to sun-down may need to be gently reminded that many people are only being brought to the online world kicking and screaming.

The results of a new survey on consumer banking habits underscores this fact. Market research firm Empathica Consumer Insights surveyed more than 15,000 Americans and Canadians on their preferences for how they do their banking. The results show that while Internet banking has certainly made its mark, many people still have a preference for traditional methods when it comes to transacting routine banking business:

 Prefer Internet banking: ~41%
 Prefer branch banking: ~33%
 Prefer an ATM machine: 23%
 Prefer a mobile (M-banking) channel: 2%
 Prefer telephone banking: 1%

Moreover, it’s when dealing with an account issue or problem that consumer preferences for “tried and true” banking interfaces really come to the fore:

 Prefer to visit the bank/branch office to deal with an account issue: ~60%
 Prefer the telephone to deal with an account issue: ~34%
 Prefer online contact to deal with an account issue: ~6%

What’s more, consumers’ brand loyalty to a banking organization is mostly dependent on their perceptions of how well the bank deals with account issues or problems — not everyday banking transactions.

The quicker and easier a bank addresses an account issue, people are more apt to be brand loyal – even when compared to consumers who have never faced a banking issue or concern with their bank.

In other words, the notion of “making lemonade out of lemons” is at work here.

What about other major transactions like applying for a loan or opening a new account? The survey showed that there’s the same preference for dealing with the bank in traditional ways – face-to-face.

One of the more surprising findings of the Empathica study was how few people are using the mobile channel for their routine banking transactions. At the moment, it’s barely a blip on the scale. One factor that may be at play is that more than half of the respondents say they don’t trust the security of mobile banking (whereas only a quarter don’t trust the security of banking by computer).

But here’s a nugget that may be a harbinger of future behavior … those consumers who do use the mobile channel for everyday banking transactions say they’re highly satisfied with this aspect of their banking, and they express a high degree of affinity with their banking institution.

Like we’re seeing with so many other market segments, the mobile channel appears to be lurking just around the corner …

The Big Dig: Scraping and Scooping the Web

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Data ScrapersI’ve blogged before about how the Internet is making people’s lives pretty much an open book.

Most people who are online are pretty aware of how their reputation can be affected by their Facebook or MySpace pages and other public or quasi-public online information. But The Wall Street Journal has been publishing a series of stories on how much more pervasive than that digital snooping has become.

The series is titled “What They Know” … and it’s well-worth checking out. The most recent article appeared on the front page of the October 12, 2010 edition of the WSJ, and focuses on the phenomenon of “data scraping.”

For those who aren’t familiar with the term, “scraping” is a method by which sophisticated software is used to access and scoop up information that has been posted anonymously on sites that are supposed to be closed to prying eyes. One example cited in the WSJ article of a site that has been scraped is PatientsLikeMe, which has message boards and forums dealing with mental disorders, depression and other issues that most people would prefer to keep private.

People who post on discussion forums like these do so using pseudonyms, and the identity of the posters is carefully guarded by the host sites.

But it turns out that these sites are little match for the sophisticated IT capabilities of companies like Nielsen and PeekYou, who are in the business of matching psychographics as well as demographics to individual people for purposes of serving up relevant advertising — and goodness knows what else.

Think of it as the “lifestyle” direct mail lists of yesteryear – but now on steroids.

PeekYou has applied for a patent on a system whereby it matches real people to the pseudonyms used on forums, blogs, Twitter and other social media outlets. Taking a “peek” at the company’s patent application reveals the great lengths their systems go to ferret out and cross-analyze small, innocuous bits of information that, taken together, find the “needle in a haystack” match to the actual individual:

 Birthday match
 Age match
 First name match
 Nickname match
 Middle name match
 Middle initial match
 Gender match
 e-Mail address match
 Phone number match
 Physical address match
 Username match

When you consider that the same type of powerful computers that are used to analyze and process search engine queries are the ones processing millions or billions of information bits and instantaneously testing and slotting them based on relational patterns … it’s not hard to understand how, over time, eerily accurate portraits of individuals can be drawn that not only correctly reflect the “demographics” of the person, but also a host of psychographic and behavioral aspects such as:

 Shopping habits
 Recreational pursuits
 Personal finance profile
 Health information
 Political leanings
 Hobbies and interests
 Spirituality/religiosity
 Sexual preference or sexual proclivities

The WSJ articles detail how web sites are attempting to stay one step ahead of the “scrapers” by employing software that alerts them to suspicious “bot” activity on forums and other password-protected areas. It’s often a losing battle … and is that particularly surprising?

These days, not even the Orthodox monks at Mount Athos are protected, probably!

What’s Happening with Web Search Behaviors?

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Search EnginesMore than 460 million searches are performed every day on the Internet by U.S. consumers. A new report titled 2010 SERP Insights Study from Performics, an arm of Publicis Groupe, gives us interesting clues as to what’s happening in the world of web search these days.

The survey, fielded by Lancaster, PA-based ROI Research, queried 500 U.S. consumers who use a search engine at least once per week, found that people who search the Internet regularly are a persistent lot.

Nine out of ten respondents reported that they will modify their search and try again if they aren’t successful in their quest. Nearly as many will try an alternate search engine if they don’t succeed.

As for search engine preference, despite earnest efforts recently to knock Google down a notch or two, it remains fully ensconced on the top perch; three-fourths of the respondents in this survey identify Google as their primary search engine. Moreover, Google users are less likely to stray from their primary search engine and try elsewhere.

But interestingly, Google is the “search engine of choice” for seasoned searchers more than it is for newbies. The Performics study found that Google is the leading search engine for only ~57% of novice users, whereas Yahoo does much better among novices than regular users (~36% versus ~18% overall).

What about Bing? It’s continuing to look pretty weak across the board, with only ~7% preferring Bing.

The Performics 2010 study gives us a clear indication as to what searchers are typically seeking when they use search engines:

 Find a specific manufacturer or product web site: ~83%
 Gather information before making a purchase online: ~80%
 Find the best price for a product or service: ~78%
 Learn more about a product or service after seeing an ad elsewhere: ~78%
 Gather information before purchasing in-store or via a catalog: ~76%
 Find a location for purchasing a produce offline: ~74%
 Find coupons, specials, or sales: ~63%

As for what types of listings are more likely to attract clickthroughs, brand visibility on the search engine results page turns out to be more important than you might think. Here’s how respondents rated the likelihood to click on a search result:

 … If it includes the exact words searched for: ~88%
 … If it includes an image: ~53%
 … If the brand appears multiple times on the SERP: ~48%
 … If it includes a video: ~26%

The takeaway message here: Spend more energy on achieving multiple high SERP rankings than in creating catchy video content!

And what about paid or sponsored links – the program that’s contributing so much to Google’s sky-high stock price? As more searchers come to understand the difference between paid and “natural” search rankings … fewer are drawn to them. While over 90% of the respondents in this research study reported that they have ever clicked on paid sponsored listings, only about one in five of them do so on a frequent basis.

Where are Newspapers Now?

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Newspaper ad revenues continue in the doldrums.John Barlow of Barlow Research Associates, Inc. reminds me that it’s been awhile since I blogged about the dire straits of America’s newspaper industry. The twin whammies of a major economic recession along with the rapidly changing ways Americans are getting their news have hammered advertising revenues and profits, leading to organizational restructuring, bankruptcies, and more.

But with the recession bottoming out (hopefully?), there was hope that the decline in newspaper ad revenues might be arrested as well.

Well, the latest industry survey doesn’t provide much cause for celebration. A poll of ~2,700 small and mid-size businesses conducted this summer by Portland, OR-based market research firm ITZBelden and the American Press Institute finds that ~23% of these businesses plan to cut back on newspaper advertising this year.

The kicker is that these revenues are being spent, but they’re being put to use in other advertising media.

The ITZBelden survey found that a similar ~23% of companies plan to up their 2010 digital ad spending anywhere from 10% to 30%. This compares to only about 10% planning to increase their print advertising by similar proportions.

Moreover, the survey findings reveal that small and mid-size U.S. businesses have moved into digital marketing in a significant way. Not only do more than 80% of them maintain web sites, they’re active in other areas, including:

 ~45% maintain a Facebook or MySpace page
 ~23% are engaged in online couponing
 ~13% are involved with Craigslist
 ~10% are listed on Yelp! or similar user-review sites

One area which is still just a relative blip on the screen is mobile advertising, in that fewer than 4% of the respondents reported activities in that advertising category.

Where are these advertisers planning to put their promotional funds going forward? While newspapers should continue to represent around one quarter of the expenditures, various digital media expenditures will account for ~13% of the activity, making this more important than direct mail, TV and Yellow Pages advertising.

There was one bright spot for newspapers in the survey, however. Respondents expressed a mixture of confusion and bewilderment about the constantly evolving array of digital marketing communications options opening up … and they’re looking for support from media experts to guide their plans and activities.

And where do they see this expert advice coming from? Newspaper ad reps.

Perhaps the Yellow Book’s “Beyond Yellow” small business advertising campaign – you know, the one that touts not only the Yellow Pages advertising but also web development, online advertising, search marketing and mobile advertising – is onto something.

Doomed if you don’t read the Fine Print: GameStation Channels Mephistopheles Online

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GameStation's Immortal Soul ClauseEver wondered how many people actually read usage agreements, product warranty documents or web site privacy policies?

If you were to extrapolate your own behavior to the world at large, my guess is you’d probably admit that practically no one does.

And in that case … you’d be right. Proving the point, last spring GameStation, the U.K.’s leading video games retailer, took a page right out of Goethe’s play (or Gounod’s opera) Faust. GameStation inserted a clause into the purchase of online game products in which buyers turned their souls over to them!

GameStation added the clause allowing it to claim the souls of online game purchasers as part of an April Fool’s spoof. The clause in the user agreement stated clearly that customers granted GameStation the right to “claim their immortal souls.”

Specifically, the “soul” clause stated:

By placing an order via this Web site on the first day of the fourth month of the year 2010 Anno Domini, you agree to grant Us a non transferable option to claim, for now and for ever more, your immortal soul. Should We wish to exercise this option, you agree to surrender your immortal soul, and any claim you may have on it, within 5 (five) working days of receiving written notification from gamesation.co.uk or one of its duly authorized minions.

But all shoppers were also presented with an tick-box option allowing them to opt out of this startling condition – along with getting a ~$10 voucher towards a future GameStation purchase.

It turns out that nearly 90% of all buyers – that’s around 7,500 people – neglected to check the box in order to claim the bonus voucher – as well as protect their immortal soul. This led the retailer to conclude that practically no one reads its sale terms and buying conditions at all.

I’m sure Mephistopheles would be mighty proud of the clever folks at GameStation. But fortunately for us, GameStation doesn’t drive as hard a bargain as the devil did against Faust. Instead, the company simply sent a follow-up e-mail to each unsuspecting customer nullifying any claim to his or her soul.

Thanks, guys. That was mighty sporting of you.

What does this prove in the larger scheme of things? Perhaps that people are gullible? Or that folks find all the small print in user agreements intimidating or indecipherable?

Most likely, it’s just that people are lazy.

Are “News Hound” Behaviors Changing?

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News Hound Behaviors are ChangingMost of the people I know who are eager consumers of news tend to spend far more time on the Internet than they do offline with their nose in the newspaper.

So I was surprised to read the results of a new study published by Gather, Inc., a Boston-based online media company, which found that self-described “news junkies” are more likely to rely on traditional media sources like television, newspapers and radio than online ones.

In fact, the survey, which was fielded in March 2010 and queried the news consumption habits of some 1,450 respondents representing a cross-section of age and income demographics, found that more than half of the “news hounds” cited newspapers as their primary source of news.

By comparison, younger respondents (below age 25) are far more likely to utilize the Internet for reading news (~70% do so).

Another interesting finding in the Gather study – though not terribly surprising – is that younger respondents describe themselves as “interest-based,” meaning that apart from breaking news, they focus only on stories of interest to them. This pick-and-choose “cafeteria-style” approach to news consumption may partially explain the great gaps in knowledge that the “over 40” population segment perceives in the younger generations (those observations being reported with accompanying grunts of displeasure, no doubt).

As for sharing news online, there are distinct differences in the behavior of older versus younger respondents. Two findings are telling:

 More than two-thirds of respondents age 45 and older share news items with other primarily through e-mail communiqués.

 ~55% of respondents under age 45 share news primarily through social networking.

Also, more than 80% of the respondents in Gather’s study revealed that they have personally posted online comments about news stories. This suggests that people have now become more “active” in the news by weighing in with their own opinions, rather than just passively reading the stories. This is an interesting development that may be rendering the 90-9-1 principle moot.

[For those who are unfamiliar with the 90-9-1 rule, it contends that for every 100 people interacting with online content, one creates the content … nine edit, modify or comment on that content … and the remaining 90 passively read/review the content without undertaking any further action. It’s long been a tenet in discussions about online behavior.]

What types of news stories are most likely to generate reader comments? Well, politics and world events are right up there, but local news stories are also a pretty important source for comments:

 Political stories: 28%
 National/international news stories: 27%
 Local news stories: 22%
 Celebrity news: 13%
 Sports stories: 5%
 Business and financial news: 5%

And what about the propensity for news seekers to use search engines to find multiple perspectives on a news story? More than one-third of respondents report that they “click on multiple [search engine] results to get a variety of perspectives,” while less than half of that number click on just the first one or two search result entries.

And why wouldn’t people hunt around more? In today’s world, it’s possible to find all sorts of perspectives and “slants” on a news story, whereas just a few years ago, you’d have to be content with the same AP or UPI wire story that you’d find republished in dozens of papers — often word-for-word.

An About-Face on Facebook?

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Facebook logoThis past week, social networking site Facebook trumpeted the fact that is signed up its 500 millionth member. That’s an impressive statistic — and all the more so when you realize that Facebook had only about 100 million registrants just two short years ago.

And the site is truly international these days, with ~70% of Facebook users living someplace other than the USA.

But there are some interesting rumblings in cyberspace these days that suggest the bloom may be off the rose for Facebook. After having climbed to the #1 perch in terms of registrations and site traffic, there are some intriguing new signs that all is not well in Farmville – or elsewhere in the land of Facebook.

Inside Facebook, an independent research entity that tracks the Facebook platform for developers and marketers, is reporting new Facebook registrations dropped in June to ~250,000. That may still seem like a lot of people, but it’s a far cry from the ~7.7 million new registrants in May.

Furthermore, looking at age demographics, Inside Facebook has concluded that in the critical 26-34 age group, the total number of U.S. users active on Facebook actually declined during the month of June.

Are these people being swayed by the privacy debate that’s happening concerning how much visibility Facebook postings are being given on Google and other search engines?

That may be one explanation for the decline, but there could be other forces at work as well. The latest American Customer Satisfaction Index report from ForeSee Results, a web research and consulting firm, places Facebook’s ranking near dead-last on a list of 30 major online web sites in terms of customer satisfaction with site design and utility.

Who scored highest? Dowdy old Wikipedia. Even boring government sites like the IRS scored better.

It’s evident the issue goes far beyond privacy concerns. There’s also confusion or irritation with Facebook’s ever-changing user interface. As Aaron Shapiro wrote recently in Media Post’s Online Media Daily:

“The truth is, Facebook isn’t fun to use anymore. It’s become a chore, just one more place that busy people have to log in to stay up-to-date. And Facebook is making the goal of staying up-to-date harder and harder to achieve. There are so many apps like Farmville producing status updates, as well as people using Facebook as their repository for passing thoughts and private/public conversations, I have to sort through tons of what I don’t want to read before I get to something I want or need to know.”

Back in its early days, the beauty of Facebook was that it provided such an easy framework to stay connected with family and friends. It was a way to share photos and other personal information quickly – and almost effortlessly – with far-flung contacts all over the world.

Those attributes seem to have gotten buried in all of the “spammy” hi-jinks and gimmicks that characterize so much of today’s Facebook.

Considering the growing dissatisfaction with Facebook, ranging from things like privacy (mis)management and ubiquitous advertising to confusion with the site’s ever-changing design and irritating lack of utility, some industry watchers are predicting that users will begin seriously looking at alternatives. Despite Facebook’s huge presence and large pool of registrants, they may find simpler, purer sites out there that are more to their liking. Several that could be beneficiaries of the “Facebook fall-off” are Diaspora and Collegiate Nation.