Amazon Turns to Deep Discounts to Promote Amazon Local

by Mercator Advisory Group 0

Internet retailer Amazon.com has said that it will offer $10 gift cards for $5 on March 20 in order to promote its daily deal Web site AmazonLocal. The deal is similar to one offered in January 2011 when daily deal Web site LivingSocial sold almost 1.4 million $20 Amazon gift cards for $10. The terms of the 2011 sale were not clear, as it seems that either Amazon or LivingSocial may have lost money, according to press reports, but the accounting is muddied by Amazon’s $175 million investment in LivingSocial. The current deal is designed to raise awareness and so the cost of the deal is likely to be absorbed in Amazon’s marketing budget.

“Some folks, even if they’re Amazon customers, don’t know about us yet,” AmazonLocal vice president Mike George told CNN Money. “This is going to draw a whole bunch of people to check us out.”

Though Amazon.com stands to lose money Tuesday by offering the half-price gift cards, the risk may be worth in the long run if the deal proves as popular as its first daily deal experiment.

The question with all of these awareness building deals is whether or not they actually draw in new customers or just dedicated customers looking for a discount to their favorite store. Deep discount deals can prove risky for the discounter, and merchants should track the results closely to determine whether they are getting what they pay for.

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