We have had some impressive daily deal sales in Canada over the past 3 or so years, and 2013 got kicked off with another brilliant one. Living Social partnered with Starbucks yet again to offer a $10 Gift Card for $5. This time it made the offer also available in Canada.
Result: Living Social smashed the Canadian record for the most consumers who bought a daily deal, the most vouchers sold for a Daily Deal, and the largest sales volume that was NOT a travel or Spa service. They sold, get this, 150,000 vouchers of a $5 Starbucks gift card. That’s $750,000 in sales volume that is fairly certain to not have many returns.
A few things:
- How impressive was this record? Consider that Starbucks ran a similar deal with Living Social a few months ago in the USA and they sold 1.5 million vouchers. Little ole Canada sold 150,000 vouchers. Yes, the standard 10% of USA rule applies for Canada but this is still very, very impressive for Canada since Living Social is no where near as competitive in Canada as they are in the USA.
- Living Social is not a powerhouse in Canada. The top deal sites are Groupon, Teambuy, Dealfind (Teambuy and Dealfind have now merged), Wagjag, and Tuango for Quebec. Living Social is quite far away from the others. As such, for Living Social to produce 150,000 buys is impressive and even more impressive is what the sales would be like if Wagjag or Teambuy/Dealfind had the same offer given that their reach is larger than Living Social’s in Canada.
- Will this help Starbucks in Canada? You bet. At the very least, they have more than gotten their money’s worth in terms of advertising and exposure. 150,000 vouchers were purchased, meaning consumers will walk into a Starbucks 150,000 times over the next few months and order their coffee, Tea, muffin. Starbucks most likely negotiated a favourable rate from Living Social, certainly not 50%. I would guesstimate the rate at 25% or 30%. As such, Starbucks gets $3.75 from the sale. The cost of a $10 sale (the voucher value) at Starbucks is a lot lower than $3.75. So Starbucks already makes money on this offer. If say 30% of consumers purchase beyond their average buy, then Starbucks makes that extra revenue as well. The offer gets 150,000 vouchers in a Starbucks. That traffic will translate into revenues and profits for Starbucks, great advertising and word of Mouth as well. Oh, and with a $5 voucher, the tendency is a lower redemption rate. Meaning, Starbucks should expect that 15% of vouchers will NOT be redeemed ever. Given that it is Starbucks, let’s decrease this to 10%.
- Should this motivate Starbucks competitors to try the same. Yes. Second Cup, JavaU, Tim Hortons, McDonalds, etc. They should all be having conversations with Teambuy/Dealfind, Wagjag, Tuango and even Groupon. Offering a Daily Deal promotion is not about discounting anymore. It’s about driving traffic and advertising. Starbucks understands this and has offered several promotions of the kind in the USA. Yet their Canadian competitors have not leveraged the power of Daily Deal providers as well as they should. Perhaps these recent developments will change this.
- As an interesting piece of trivia: Howard Schultz, the chairman of Starbucks, sat on Groupon’s board in 2012 but then left rather abruptly. (no surprise given Groupon’s issues) Soon after that, Starbucks and Living Social forged a marketing relationship and here we are with both companies reaping the rewards of that relationship.
Here is the url for the offer http://www.livingsocial.com/cities/53-toronto/deals/578736-10-starbucks-card-egift?locale=en-CA