entrepreneurship at the intersection of sports media and the social graph

New Facebook Deals Page Offers Promotion Locator for Users and a Guide for Admins

January 31st, 2011

By Josh Constine

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Facebook’s new introduction site for Deals, its location-based promotions service, helps users discover nearby Deals and teaches business owners how to offer them. The locator displays a list and Bing map of local promotions, while the instructional videos and downloadable Deals Guide for Businesses .pdf explain best practices for creating Deals campaigns.

By facilitating the business on-boarding process, and allowing users to purposefully search for promotions, the site should help Deals become a more popular way for businesses to incentivize foot traffic.

Facebook originally launched Deals with a handful of brands in November, but it was only available in the U.S. for iPhone and touch.facebook.com users. Though a powerful way for businesses to court customers, a lack of understanding amongst both business and users led relatively few to implement or use it.

In the months since, Facebook has rolled out its location service Places to Europe, Japan, Canada, and Australia, added access for Android devices, and today launched Deals in Europe. Now that it has expanded the potential user base and gotten feedback from businesses who’ve tried it, Facebook is prepared for a more aggressive push.

Deals Locator

Facebook.com/deals starts with a quick overview video and a Facepile of friends who’ve claimed Deals. Below, visitors see Your Local Deals — a dynamic Bing map displaying nearby Deals based on a user’s IP address. Mousing over a Places icon reveals a hovercard with the business’ address, and links to directions and the current Deal on the location’s Places page.

To the right is a list the actual promotions offered, along with their associated Likes and comments. Users can use a search bar to view Deals in other cities, refreshing the map and list.

Previously, there was no aggregated list of Deals, making discovery cumbersome. Users could only see if any of the closest businesses offered Deals. This meant they’d often miss Deals that were in their city, some within a mile of them. The Deals locator will help those specifically hunting for promotions to find and claim them, exposing their network to the Deals feature as a whole. This exposure could snowball into widespread awareness, which would inspire more businesses to offer Deals.

Educating User and Business Owners

Under the How to Claim Deals tab, users can find a more detailed introduction to determining which businesses offer Deals and how to redeem them. The video tells users to look for yellow stickers on storefronts, which Facebook has mailed out to some businesses running Deals. Images walk users through the Deal redemption flow and illustrate the four types of Deals they’ll encounter: Individual, Friend, Loyalty, and Charity.

Users will also find links to the Help Center FAQ about Deals as well as a panel citing the devices and countries with access. Currently, this list is outdated, as it doesn’t mention Android devices.

The For Business Owners tab includes a “How Deals Work” video describing the value of incentivizing check-ins, and a “Creating a Deal” video tutorial for admins. The site also links to a downloadable .pdf  ”Deals Guide for Businesses” hosted by Box.net. The .pdf and videos outline the three core benefits of using Deals:

• Acquire customers
• Spread the word
• Build  customer loyalty

The guide also includes a detailed breakdown of the differences between the four Deal types, the creation flow, and best practices. Some of the tips include:

• Offering at least a 10% to 50% discount
• Providing clear and succinct Deal summaries and redemption instruction copy
• Monitoring campaign progress to avoid Deal fatigue and opportunism
• Training employees to redeem Deals
• Ensuring sufficient supply of offered gifts and staff to administer them
• Setting up policies for handing issues with customers
• Working with Facebook’s account managers to set up Deals across hundreds of locations if necessary
• Buying Facebook ads to promote Deals

By providing these best practices, Facebook can reduce the likelihood that businesses will have an unsuccessful or stressful experience with Deals. The last point is the real motive behind the otherwise free feature. As with the recently launched Sponsored Stories ad unit, businesses can pay Facebook to increase the distribution of their Deals. If Facebook can demonstrate that Deals are simple to create and generate a solid return on investment, businesses will be eager to buy ads for them.

Facebook calls Deals “A new way to connect with customers”. While other location services like Foursquare have local promotions, Deals has greater potential because it’s self-serve and free for admins, and incentivizes users to expose or even bring their friends to a business. The educational and discovery resources on Facebook.com/deals will help the feature approach the tipping point to rapid growth.

Check out the Facebook Marketing Bible - The Guide to Marketing your Brand, App, Website, or Content Inside Facebook.

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Filed in Advertising, Facebook, Marketing, Mobile, Places, location

Golden Footballs and the Economics of Groupon

By Evan Miller

May 30, 2009

UPDATE 9/28/2010 - There are other reasons for Groupon's success than the analysis described here. See also Is Groupon The Next Google?.

Why in the world do businesses like Groupon?

Customers, of course, love Groupon, and you don't need economic theory to figure out why. Groupon, if you haven't heard, is a website subtitled "Collective Buying Power." Every day, the site advertises a groupon—a coupon with a collectivist twist. A groupon can only be redeemed if a certain number of people agree to buy one. So one day Groupon might offer you a 78% discount on a hot stone massage one day, or 54% off a tennis lesson; but if not enough people sign up for that groupon, then you, poor customer, will be left with an aching back and a pathetic forehand.

Groupon seems like a gimmick, like those knives they sell on TV supposedly worth $155, yours for only $29.99 plus shipping and handling and sales tax. You might be thinking: if groupons actually offered a real discount—fifty, sixty, seventy, eighty percent off—and not just off of soda pop, Subway sandwiches, or the usual coupon fare, we're talking about fancy haircuts and Cubs games and teeth whitenings—why in the world would businesses agree to it?

If you have studied some economics or marketing, you might come up with a few answers. Perhaps Groupon users are more financially constrained than the average (say) Cubs fan, and Groupon enables price discrimination; or perhaps Groupon is a way to reach out to first-time customers who will then become regular customers and pay the full price.

A year ago, I would have been happy with either explanation. But after hearing Kevin Murphy pontificate on a similar subject, I am convinced that other forces pull beneath the surface of Groupon. I believe that Groupon represents a profound economic innovation. I have been trying to find an article on the phenomenon I am about to describe, but it might reside only in Kevin Murphy's lecture notes. In any event, allow me to paraphrase his ideas, however imperfectly.

I am going to assume that you took an introductory microeconomics course one or more decades ago, and bring back a few diagrams from the foggy mists of college.

Let's say we have a seller who vends hot dogs. It costs him a dollar to make a hot dog, but he can charge whatever he wants. The cost is the supply curve:

Now let's draw in a demand curve. We'll suppose people like hot dogs to varying degrees, and are willing to pay anywhere from $10 down to $0 for a hot dog. If we arrange these individual demands from top to bottom, we get the demand curve:

Suppose we're inside a baseball stadium and there is no other place to buy hot dogs. The seller can choose any price. If he picks a high price, very few people will buy and he makes very little profit. Everyone else will be sad they couldn't buy a hot dog:

If he chooses a price down close to the cost, a lot of people buy and are happy that it only cost a dollar or two. But, he still makes little profit:

So, the seller chooses a price somewhere in the middle, to make the profit box as big as possible. Some people are sad that they can't buy a hot dog for a dollar, but other people are more than happy to pay the price of convenience there in the baseball stadium:

This is the standard diagram of a monopolist. Higher prices than the monopoly price make everyone worse off. Lower prices make the consumers better off but the business worse off.

But let's try something a little subversive. What if we picked a combination of prices and quantities over on the right hand side of the diagram?

Consumers, it turns out, are happier on net:

And profits are bigger for the hot dog vendor:

Normally, the right side of the diagram is off-limits because given a price, customers choose how much to buy, and choose an amount along the demand curve. But what if we said you can only get this price if you agree to buy a certain quantity?

That is where Groupon comes in. Groupon provides the mechanism to move businesses and customers over to a part of the diagram previously regarded as unreachable. It only works because customers can collectively commit to buying more than they would with a run-of-the-mill coupon.

We can work with the diagram to find out exactly what kind of discounts—and crucially, what kind of participation requirements—Groupon can offer. First consider the customers' perspective. We can draw an indifference curve that shows groupons that make the customers just as happy as without a groupon. Customers like everything below the curve (because that means lower prices):

Now consider the business. They want a profit box just as big as before. That can be achieved anywhere along a hyperbola that looks like this. Businesses like everything above the curve, because that means bigger profits:

Taking these two curves together, we find that there is a whole region that is preferable to the business and preferable to the customers. After Kevin Murphy, I like to call it the golden football:

That sliver is the raison d'etre of Groupon. It pulls everyone off the demand curve and makes them—against all the economics you learned in undergrad—better off. It works even if Groupon customers never return. It works even if they could afford the regular price. Price discrimination and the gimmick theory are completely unnecessary for explaining the success of Groupon. Groupon opens up the golden football.

Whither Groupon?

Groupon, or a commitment mechanism like it, has something to offer any business that sells a unique product above the cost of production: that is, businesses that are monopolists, or price-setters. So far Groupon has proven suitable to small businesses that offer one-of-a-kind services (for example, a downtown restaurant), but the economics hold for large businesses selling patented or highly branded products. All that is needed is a simple trade with a group of customers: a lower unit price in exchange for an agreement to buy a larger quantity than they would actually like to have at that unit price. Like the best economics, the golden football is a simple idea—but a powerful one.

All graphics in this article were created with the excellent OmniGraphSketcher.

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