Similar to its well-known and larger competitor Groupon, the LivingSocial website offers deep discounts on services provided by local business, such as nail salons and restaurants. The sites promote the daily deals to their huge customer bases, and local businesses cross their fingers that many new customers will arrive at their doors.

By eliminating, or at least reducing, the need to advertise, these sites offer a great benefit to small local businesses. A large, attentive, interested audience volunteers to receive marketing through LivingSocial and Groupon, giving the businesses a pre-segmented target audience. All the local business has to do is offer a discount to attract them—and pay the website a fee for the service, of course.

But there is rather more to it for the local businesses, which run into trouble if they cannot handle the vast number of customers they attract with their deals or lose too much money by discounting their services too much. The hope is that customers will use the discounted service, enjoy their experience, and then return for full-price services at a later date. However, Groupon and LivingSocial have created a new type of customers, deal takers who swoop in on the daily deals without ever planning to return, or at least without another deep discount.

As of December 2010, LivingSocial had 17 million subscribers and 5.3 million unique visitors. Groupon has about double that much. These companies also keep expanding their footprints into more and more cities, as well as considering global expansions. Can local businesses the world over keep up with the demand?

Discussion Questions:

1. Do businesses benefit from LivingSocial offering their services at a deep discount?
2. What disadvantages do businesses using LivingSocial suffer?

Geoffrey Fowler, “Deals Site LivingSocial Tackles Overseas Growth,” The Wall Street Journal, January 13, 2011.