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Can PayPal deals compete against Groupon?

December 15, 2011

PayPal offering deals as part of retail technology solution

Mobile deals will play an important role for PayPal next year as it continues to build a multifaceted retail technology solution to help retailers address the pain points in their businesses.

PayPal has been talking up the holistic approach it wants to take in retail, where mobile is one important piece of the puzzle for how retailers can generate demand, sell products and create an ongoing relationship with customers. Mobile deals are the demand generation part of the scenario and the first step in retailers’ interaction with shoppers.

“Consumers are fatigued with receiving offers and deals because there is a deluge of deals and most of them aren’t that relevant to me,” said Anuj Nayar, director of communications for PayPal, San Jose, CA.

“What you are going to see if having deals integrated into the rest of the offerings that we have and that will be happening over the next 12 to 18 months,” he said.

“PayPal is seen as a payments company but we are moving toward a more holistic approach to help retailers in all parts of the shopping environment.”

Curated offers
The question is how big a player PayPal can be in the deals space which is dominated by Groupon and Living Social with Google Offers also in play.

If PayPal can clearly differentiate its value proposition from Groupon and Living Social, it could be a factor in mobile deals.

“PayPal’s user base is made up largely of eBay auction users,” said Mark Beccue, senior analyst at ABI Research, New York. “Would deals hinge on eBay auction ‘merchants,’ or more traditional retailers?”

“If PayPal are able to truly leverage highly personalized, curated offers, it could be a competitive advantage over Groupon and Living Social,” he said.

PayPal could bring several benefits to the deals space, including the possibility of receiving a deal on a mobile phone and using that same phone to pay for the featured item at a store .

“PayPal’s strengths here include a potentially frictionless consumer experience – get deal and pay for it,” Mr. Beccue said.

Mobile deals could give PayPal a way to build stronger relationships with retailers. It is also strengthens the brand’s mobile strategy since deals need to be acted upon relatively quickly.

PayPal recently said that it expects that the volume of payments made via PayPal from mobile devices will total more than $3.5 billion in 2011.

“PayPal wants to strengthen their ties to merchants,” Mr. Beccue said. “Deals helps PayPal introduce their play to more merchants.”

It helps that PayPal parent company eBay is already offering deal.

“It is relatively easy for PayPal to leverage the assets eBay has in place to enable deals,” Mr. Beccue said. “EBay sees value in associating daily deals with the PayPal brand.”

Friction points
EBay has been on an aggressive acquisition streak over the past 18 months and has built up a core of technology in order to give retailers a one-stop shop where all the pieces work together.

The mobile deals part of PayPal’s technology offering comes from eBay’s acquisition of Where earlier this year. The technology is being integrated into PayPal’s core technology to enable more targeted deals to be delivered to consumers.

One example of how PayPal deals might work is when someone is walking past a coffee shop that is part of a chain frequented by this person. Using PayPal’s technology, the chain can send an offer on the customer’s mobile phone when it is within a certain distance from a store at the time when that customer typically buys coffee.

“This will enable retailers to talk to consumers to give them relevant deals when and where they want them,” PayPal’s Mr. Nayar said.

For someone who gets a haircut every six weeks, an offer could be sent when it is time for a haircut and when the consumer is nearby a competing barber.

The company will also look to integrate its payment capabilities at the point of sale so the customer can, for example, pick up a coffee order and pay for it without having to stand in line.

“What we’ve done is create a suite of tools to address what the friction point is for a particular retailer,” Mr. Nayar said. 

“Mobile plays a very important part in this but it is not the only part.”

Final Take
Chantal Tode is associate editor on Mobile Commerce Daily, New  York

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