Published on: August 10, 2011by Kate McMahon
There’s just no escaping the avalanche of “daily deals” on line, with Groupon, Living Social, OpenTable and competitors promising beaucoup savings on products and services ranging from artisanal cheeses, Thai food and Botox injections to fly-fishing trips and pole dancing lessons.
The bargains ($200 worth of food and drink for $100!) and the explosive growth of the category have captured the attention of coupon aficionados, Wall Street, Main Street and the media. One study reports that 47 percent of the nation’s consumers subscribe to at least one online daily deal website.
But the critical part of the equation for participating businesses is what happens after the deal is launched and the bottom line is calculated. A recent study by Rice University management professor Utpal Dholakia shows decidedly mixed reviews.
First, a little Daily Deal 101: Typically, merchants get 25 percent of the coupon value. For example, in a Groupon deal offering $50 worth of food at a local eatery for $25, the restaurant gets only $12.50 and Groupon takes the rest in exchange for marketing and promotion. The goal, of course, is new customers, and there are plenty of tales of small businesses being inundated (and overwhelmed) with first-time customers cashing in coupons.
And therein lies one of the “red flags” Dholakia cited in the study: Although almost 80 percent of the deal users were new customers, less than one in five returned for a full price purchase and only one-third spent beyond the deal value.
Among the other key findings:
• Almost 22 percent of deal buyers never redeem the vouchers they've purchased.
• Some 55.5 percent of businesses reported making money, 26.6 percent lost money and 17.9 percent broke even on their promotions.
• Forty-eight percent of businesses indicated they would run another daily deal promotion, almost 20 percent said they would not and 32 percent said they were uncertain.
"The major take-away from the study is that not enough businesses are coming back to daily deals to make the industry sustainable in the long run," Dholakia said. "And our results from three studies and close to 500 businesses surveyed show that the deals are nowhere close to the rates of financial success for participating businesses that some companies claim to be having."
For businesses considering entering the fray, Dholakia offers the following advice: offer a daily deal of relatively high face value ($50 or more) with a shallow discount (at most 25 percent off face value), a short redemption period (three months or less), and a limit on the number of deal vouchers that consumers can buy.
More advice comes from daily deals proponent and B2B marketing specialist John Amato, CEO of MarketSharing, who responded to the Rice survey on the social media website Mashable.com.
He writes that the three most important factors for a successful deal are: Know your margins before setting a price, prepare for the surge of daily deal seekers so daily operations are not disrupted, and most importantly, get your employees on board. Both Amato and Dholakia agree that educating employees about the goal of the promotion is critical for success.
And finally, it follows that the daily deal crazy has prompted a new genre for consumers with buyer’s remorse: daily deal resale sites such as CoupRecoup, DealsGoRound and LifeSta for those who want to unload unused coupons. As for the previously noted pole dancing lessons? Plenty available on the resale sites.
Comments? Have you had your own experiences - good and/or bad - with Daily Deal sites? Send me an email at firstname.lastname@example.org .
- KC's View: