Groupon, Savored & LivingSocial Create Special Deals for the Rich

Daily Deal sites are working their way up the socioeconomic ladder. LivingSocial and Groupon have launched new services that target wealthy customers (LivingSocial Gourmet & Groupon Reserve). This comes after a study by the consulting firm Accenture Ltd. found that deal-seekers are wealthier than you might think. It is not that big of a secret. If you have dined with the well-off, they give a surprising amount of attention to price. However, it would be wise if you do not suggest that they are “cheap” even in jest or it may be the last time you dine with them. Consequently, setting up deals for the affluent is a delicate thing. LivingSocial, Groupon and Savored have all started special events programs designed for affluent customers. I believe that these programs are based on assumptions about affluent customers that will turn out to be incorrect.

Here is the Groupon, who targets no specific socioeconomic class, that most of us are familiar with:

Savored Gets A Head Start

Savored has already had success with online deals targeted at the wealthy.

Savored, a deals site specifically for fine dining, provides deals for fine dining restaurants. They have been able to grab the attention of customers with disposable income in major markets. As a result, they are growing fast. This is part of the reason that LivingSocial and Groupon are trying to make inroads in this part of the market. It is a proven money-maker.

Before the Accenture study, Savored saw that the affluent were interested in restaurant deals too. They were smart and didn’t try the Groupon and LivingSocial approach (50% off), which would have been rejected by high-end restaurants.  Instead, Savored users get a 30% discount off their bill with a $10 reservation fee (Savored’s cut). This system was much more reasonable to restaurant owners than the daily deals sites. Along with a more manageable discount, restaurants on Savored control when customers can use this discount, allowing them to boost business on slow days.

Equally important, Savored does not feel like a fire-sale the way that Groupon and LivingSocial do. Generally, well-respected fine dining restaurants do not take nearly as much risk with their brands by using Savored as the daily deal giants. For most customers, the actions of these restaurants seem to be prudent rather than desperate. The customers are grateful for the deal and don’t presume it has something to do with the quality of the restaurant. I have in the past expressed mixed feeling about Savored’s fast growth, but currently, from what I can see, they make good on their promises to restaurants.

(disclosure: some of our clients work with Savored)

Source for Special Food Events

Now, let me discuss the marketing mistake that I believe LivingSocial, Groupon and Savored are making. LivingSocial, Groupon and Savored are rolling out programs (called LivingSocial Gourmet, Groupon Reserve and Savored Signatures) that offer expensive special events to customers. I believe these programs have built in limits. While in the beginning, these companies will probably see promising responses from their customers, this will likely peak very soon and not be scalable.

I see that the daily deals misunderstands the affluent. Brand plays a factor. For better or worse, LivingSocial, Groupon and even Savored are associated with restaurant discounts, even in the case of the more upscale Savored.

There is some confusion about whether these programs are consistent with their core business. It is clear that they are trying to sell new food experiences that take money to buy.  Customers will make the leap that they are receiving a better price for these premium food events, a positive as well as a negative. Obviously, these sites will probably avoid clarifying what exactly the normal value of the event is. A customer may ask: do they organize these events, negotiate good prices or just communicate them to customers? So the perception that there is a discount will carry over to LivingSocial Gourmet, Groupon Reserve and Savored Signatures.

All three companies are trying to give these programs a degree of exclusivity. LivingSocial Gourmet and Groupon Reserve are by invitation. That cannot last. Eventually, as the number of events increases, to keep up interest they have to open up these events, unless these programs will be only for vanity purposes.

Why There Is A Ceiling on Special Event Programs

The crux of the matter has to do with the buying habits of affluent customers. Yes, rich customers, especially the young, like finding new things to do. But part of it is taken away by everyone getting an email about it.

Secondly, the wealthy don’t really mind scrutinizing the menu when they are with close friends and family. It’s entirely different thing being caught at a Groupon, LivingSocial or Savored event. You’d have to get your friends to go (many are young and unmarried) and you can’t always say we were going to eat out anywhere (as people do with Savored). As the setting becomes bigger and bigger and the sociability increases, the wealthy become more self-conscious. If you noticed, the rich spare no expense for weddings. This holds true for even the most price-conscious.

A Question of Brand

For the affluent, there is a fine line between being savvy and being fixated with price. Normally, when the wealthy are looking for new things to do (rather than a dinner reservation), they open their check books. Of course, there may be little to no discount in Groupon, Savored and LivingSocial’s programs. But the companies smell of discount and that is enough to limit the appeal. Putting a name after the company name does not separate one brand from another. If these companies want to get into the special events world, they need an autonomous brand, no longer associated with their parent company. That means separate websites, separate systems, separate branding, like the relationship between Lexus and Toyota. Notice how many times Toyota and Lexus have different dealerships.

Obviously, Savored Signature has the most potential, but they have the least resources. These companies in the past have solved difficult problems in terms of growth, so maybe they will be able to sneak into the world of high-end brands. Still, Groupon Now and LivingSocial Instant Deals have not really hit their stride, even though they have a lot of potential. Sometimes, you have to know what you are good at and stick to it.