a nd the Online Coupon Industry Ben Sobczak Jennifer Nevins Joel Samen Mike Rabinovich Sindhu George

1. and the Online Coupon Industry Ben Sobczak Jennifer Nevins Joel Samen Mike Rabinovich Sindhu George MK-859: Business Marketing April 23, 2012

2. Industry Mechanics Redeem Coupon $ Payment Less Cut Full Payment $ $ Broker Merchants Consumers Coupon Offer Coupon Provide Service

3. Merchant Needs • Awareness • Exposure to new customers • Manage Inventory and Capacity • Unload excess inventory or capacity • Price Discrimination • Discounts to consumers who value product/service less than ordinary consumers • Customer needs • Buzz Factor • Word of mouth promotion

4. A Growing Industry Source: Needham & Company LLC worlwide estimates (Jan 2011)

5. Industry is Highly Competitive Threat of Substitute Product Threats of New Entrants Bargaining Power of Suppliers Bargaining Power of Buyers Intensity of Rivalry Government • Low switching costs • Near perfect information on costs • High fragmentation of marketplace • Low differentiation of products • Main supplier is labor • High unemployment • New industry attracts high quality talent • This could decline as economy recovers and industry matures • Innovations are easily copied • Currently market penetration over profits • High level of marketing expenses • Laws and policies differ by region • CARD Act • Privacy Laws • Low costs of new entry • Need brand equity in order to build customer base • Time to build distribution network • Short term not profitable • This is a unique substitute to old economy coupons • Low switching costs, no tie-in • Hard to quantify performance vs. traditional • High • Medium • Low Legend

6. Segment Growth

7. Challenges and Opportunities Opportunities Challenges • Prove Efficacy • Questionable profitability for merchants • Capacity issues for small businesses • Fraudulent deals • Generate Long Term Buy In • Existing players are not yet profitable

8. A Market Dominated by Two Increased market share; added 3% of the industry’s revenues from July 2011- August 20111 Lost 2% market share over the same period1 Focuses largely on daily travel deals Combined market share of 22%; numbering more than 4002 Others 22% 5% 53% 20% Other online discounters Source: “Daily Deal Trends in North America.” Yipit Data. http://www.yipit.com. August, 2011.

9. Value Distribution & Profitability Value Distribution per Deal (typical discount of 50%) • Merchant • Broker • Revenue • Volume of new customers and products • Revenue • Volume of deals • Profit • Fixed costs related to merchant and consumer acquisition • Profit • Conversion rate from first-time to repeat-buyer • Strategic • Large base of loyal merchant customers • Strategic • Cannibalization of customer base

10. LivingSocial: Playing Catch-up to Groupon Others 22% Industry Position 5% 53% • 2nd largest by market share, revenue • Lost 3%-5% market share in 2011 • 46 million subscribers 20% “LivingSocialis the online source for discovering valuable local experiences”. “We help great local businesses grow by introducing them to high-qualitynew customers, and give merchants the tools to make our members their regulars”. Source: “Daily Deal Trends in North America.” Yipit Data. http://www.yipit.com. August, 2011.

11. Marketing, Sales and Channel Strategies

12. Customer Segments & Product Offerings Target Customer Segment Broad-based Niche Daily Deals Families Broad-based Product/Service Type Offered Adventures Niche Take-out & Delivery Escapes Gourmet

13. Solution #1: Release Developer API Facebook user growth (in millions) Benefits to LivingSocial Benefits to Merchant Risks Competitive Response • Reduced Sales Costs • Increased Consumer Reach • Tiered Subscription Model for Data • More Visibility of Promotions • Potential Loss of Control • Easy for Competitors to Duplicate

14. Solution #2: Amazon Loyalty Partnership Benefits to LivingSocial Benefits to Merchant Risks Competitive Response • Target More Customers Using Amazon • Lower Cost Per Acquiring Consumers • More Customer Loyalty to LivingSocial • Better Analytics on Purchase Patterns • Decreased Profitability for LivingSocial • Harm Amazon Brand Name • Easy for Competitors to Duplicate with Partners • Groupon with Expedia and Four Square

15. Solution #3: Analytics to Prove efficacy Source: “Daily Deal Trends in North America.” Yipit Data. http://www.yipit.com. August, 2011.

16. Solution #3: Analytics to Prove efficacy Coupon Analytics Purchase • Coupon ID • Purchase Total • Coupon Total • Profit to Merchant • Coupon ID • Coupon Value • Coupon ID • Purchase Total Benefits to LivingSocial Benefits to Merchant Risks Competitive Response • Larger, More Loyal Merchant Base • Increase Revenue Through Fees • Define Profitability of Campaigns • Tie Purchases to Consumers – Demographics • Propose Key Groups to Target in Future • Campaigns Proven to be Unprofitable • Privacy • Easy for Competitors to Duplicate

17. Implementation ROADMAP Release Developer API Support and Marketing Full Roll Out Initial development Beta Testing Use Analytics to Prove Efficacy Ongoing Development Full Roll Out Extend current analytics capabilities Beta test Amazon Loyalty Partnership Measure and Control Develop Co-branded credit card Software Integration Sales/Marketing

18. Living Social in a SEA of RED 2011 Financial Situation $1B Cash Infusion Needed

19. Benefits of Recommendations • Old Projections • Break Even in 2014 • $1B Injection of Liquidity Necessary • New Projections • Break Even in 2013 • $500m Injection of Liquidity Necessary