Unsatisfied business owners are starting to abandon daily deal sites such as Groupon, LivingSocial, Travelzoo and BuyWithMe and may not return in sufficient numbers to sustain such sites in the future. That’s one key take-away from the most exhaustive study yet done on the daily-deals phenomenon.
The study by Rice University business-school professor Utpal Dholakia analyzed the performance of daily deals offered through five major sites in 23 U.S. markets. It examined the results local businesses achieved on the deals they offered over an 18-month period.
Overall, the picture isn’t pretty. Most small businesses that have been making discount offers on Groupon, LivingSocial and other sites either don’t track the actual financial results of their offer, or have a distorted view of what’s really happening. Several Rice University studies show that most offers are not producing great results.
Two big things that local businesses bank on when deciding to post a deal are these:
1) That deal buyers will spend at least a little money beyond the deal value itself; and,
2) That many of the deal-buying customers will return at some point for a full-price purchase.
But things aren’t quite working out that way on either count. According to the research, just one buyer out of every three spends anything beyond the basic discount-deal price. Even worse, less than 1-in-5 (19.9 percent) return later to make a full-price purchase.
If you do plan to proceed with a daily-deal offer, there are things to consider:
• Try offering a daily deal of relatively high face value (say, $50 or more) with a shallow discount (at most 25 percent off face value), a short redemption period (90 days or less), and a limit on the number of deal vouchers consumers can buy.
• Among industries, health care, professional services and special events have been most successful; more than 70 percent made money. However, two of the largest industries – restaurants/bars and salons/spas – don’t perform as well. Only 43.6 percent of restaurants surveyed earned a profit from the promotion, while 53.7 percent of salons and spas made money.
• Most importantly, don’t cut your other advertising and marketing spending to do daily deals. “Many local businesses that are spending their marketing dollars on daily-deal sites have dramatically cut their ad budgets,” Dholakia said. “This is a problem because they’re not building their brand when they discount their products and services. Only about 20 percent of customers using daily deals return to buy at full price, but customers acquired through other programs typically have much higher rates of full-price repurchases.” •
Daniel Kehrer can be reached at
editor@bizbest.com.
Seifert Systems Invests in Energy Efficiency to Strengthen Operations
For manufacturers, energy is more than just another operating expense. It plays a critical role…
Learn More
