LivingSocial formed a Merchant Solutions division toward the end of last year to explore ways the company could beef up its relationship with local businesses. Former PayPal executive Dickson Chu was hired in December to serve as the group’s senior vice president.
“My customer is the merchant,” Chu said. “Our entire focus of this business unit is how do I make [them] more successful. Our role is to be the enabler.”
Chu said two or three products are already in the works and will be piloted by select merchants in the coming weeks. They were created based on lessons learned from the retailers that LivingSocial has worked with since its daily deals launched three years ago.
Many restaurants and other shopkeepers use clunky and expensive point-of-sale systems to track customers’ purchase activity and process payments, Chu said, creating an opportunity for LivingSocial to “disrupt” the status quo.
Furthermore, small businesses tend to struggle with marketing via e-mail and social media because it can prove time consuming and difficult to execute, Chu said. That’s another area where LivingSocial can use its expertise to help merchants, he said.
The software could also help merchants to more easily track which LivingSocial buyers actually redeem their vouchers and then contact those patrons after their visit.
“We don’t know what the right answer is, but know what the needs are in the market,” Chu said. He added that the new products would likely be marketed to small business owners regardless of whether they have ever run a daily deal through LivingSocial.
Unlike the daily deals business, where the company’s only real competitior is Groupon, the merchant services business has several big players. Columbia-based Micros, which counts LivingSocial as a customer, is one market heavyweight.
Chief Technology Officer Mike Russo said Micros has made its point-of-sale systems compatable in recent years with the emerging technologies shaping local commerce. It acquired a mobile payment company last year and will soon introduce a version of its system that runs on Apple devices alone.
“We have a lot of different customers that have different needs,” Russo said. “When those things become available do we like to take advantage of them? Yes.”
LivingSocial and other daily deal purveyors have been criticized in the past by some who claim their business model is detrimental to small merchants. Some shop owners have lost money on their deals as a result of steep price reductions and an overrun of customers.
But executives have long said the discounts should be viewed as a marketing expense. What’s more, LivingSocial’s chief executive Tim O’Shaughnessy said 54 percent of merchants make money on deals and 31 percent break even, citing the results of a company-conducted survey.
LivingSocial has been looking to expand beyond the daily vouchers it sells to subscribers for discounted restaurant meals, spa visits and recreational activities. O’Shaughnessy said new products now comprise roughly 25 percent of the firm’s revenue.
But many of those revenue streams are still dependent on steep price cuts. The two largest categories after daily deals are LivingSocial Escapes and LivingSocial Families, which offer marked-down getaways and family-oriented activities, respectively.
The company’s latest initiatives, however, reflect a conscious effort to move away from discounts. LivingSocial now creates one-of-a-kind events in partnership with local merchants, such as a night with sushi-making classes, a sake tasting and sumo wrestling.
An experimental event space at 918 F Street in Washington has hosted 25,000 guests since it opened in February, executives said. The heavily renovated building boasts a bar and small music venue, live-demo kitchen and art room.
“A significant percentage of what we do [in the future] will be things where the discount won’t be the primary driver,” said O’Shaughnessy, who is the son-in-law of Washington Post Co. Chairman Donald E. Graham.
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Related: Which deals site is most effective for small businesses?