How does LivingSocial Make a Living?

By Lilia Stokes, Editorial Intern

We have all seen or heard one of those catchy “LivingSocial” commercials. LivingSocial is one of the fastest growing companies and specializes in the e-commerce space and specializes in localized “daily deals” in over twelve countries.

When you use LivingSocial each day, the website sends you a “Daily Deal” that corresponds to your zip code. It is free for users to become a member, and once you sign up you can instantly receive up to 90 percent off vacation get-always, restaurants, personal trainers and more.

The deal almost sounds too good to get be true. Once I familiarized myself with the company, I thought to myself, “If this company is giving me a discount on these deals, and they purchase the deal full price, how does LivingSocial make a profit?”

Immediately I began to research in hopes of discovering what happens when LivingSocial offers users a discount on an Amazon gift certificate? They may ask that you pay $15 for a certificate worth $30.

My first theory is LivingSocial buys these deals from different companies and discounts it to users of their site because this is a way for the company to possibly experience exponential growth. For instance, when LivingSocial offers a deal with a retailer like Amazon, LivingSocial gets to advertise their site using Amazon’s site. Amazon is the world’s largest online retailer. When LivingSocial pays full price for these deals, and offer it to their customers at a discounted price they must consider the expenditure as a marketing expense. I believe they consider it as a marketing expense because LivingSocial benefits by advertising on a popular site such as Amazon.

My second theory is both sites must benefit from the discounted deals simultaneously. An example is LivingSocial gets major advertising perks on a site like Amazon. On the other hand Amazon gains the advantage to profit from assured spending from customers who purchase the deal. At this point the role of viral marketing comes into play. Using this technique allows businesses the opportunity to market techniques by using pre- existing social networks to produce increases in brand awareness. Using the viral marketing technique no money is spent on advertisement, because it is 100% viral marketing. Therefore both companies get to continue expanding their empires and spare an expense when it comes to advertising.

The approach LivingSocial and other companies like it have taken to become profitable may seem complex, but right now LivingSocial is experiencing major exponential  growth and expanding its empire each day using this tactic.

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