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Whole Foods $15 Million Marketing Gamble

10/12/2011

LivingSocial’s national promotion with Whole Foods, which began and ended on Tuesday, was the biggest thing to happen to the daily deal site since it partnered with Amazon.com back in January. Both campaigns were set to top off at one million vouchers and both did so in record time.

The Whole Foods offer was for $20 worth of products for $10.  It sold at “a staggering rate,” according to company spokesman Andrew Weinstein, as quoted by the Associated Press. During the peak time, coupons were flying out at 115,000 per hour.

The deal with Whole Foods came at a good time for LivingSocial on the news of research showing it losing market share to rival Groupon in August. According to Yipit, LivingSocial’s market share fell from 22 percent in July to 20 percent last month. In terms of revenue, Yipit told The Wall Street Journal that Groupon saw a 13 percent increase in August while LivingSocial declined three percent.

What does Whole Foods get out of the deal? Obviously media attention and word-of-mouth (the later being the superior of the two). The flip side is that Whole Foods has essentially placed a $10 – $15 million bet (1 million deal cap times $10 discount each, plus LivingSocial commissions of up to 50 percent) that the publicity, new shopper acquisition, basket lift, and change in long-term shopper behavior driven by this program will outweigh the costs.

This could turn out to be a marketing disaster for Whole Foods. New customers come to Whole Foods, notice the high prices and tell their friends – that is the worst kind of word-of-mouth the grocer could receive. My post, “Whole Foods $80 Bag of Groceries” expresses how many shoppers feel about their experience at Whole Foods. Additionally, Whole Foods is going to have difficulty measuring the ROI of the Living Social deal. That said, I support Whole Foods effort to push the window of marketing via daily deals and social media.

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