Skip to main content

Research looks at daily deal drawbacks

daily dealsWe’re not one to beat a dead horse, but given the way the daily deals market refuses to slow down, it’s difficult to ignore reports of the effects they are having. It’s fairly well known at this point that Groupon and its clones are not a catch-all for local retail success and it’s just as easy to find yourself losing money as making it. The fact that there’s been growing disenchantment with the Groupon IPO has muddled the deal-a-day market a little as well, but a new report regarding how businesses are being affected by the setup is really what supports our cynicism.

Rice University’s Utpal M. Dholakia has been researching the effects of Groupon-type promotions, and in a recent study found that 55.5-percent of surveyed businesses made money, 26.6-percent lost money, and 17.9 broke even. He also found that while using Groupon, LivingSocial, OpenTable, Travelzoo, and BuyWithMe brought in hoards of new customers, most didn’t spend more than the coupon’s value, most didn’t return to buy the product at full price, and that 21.7-percent of deal buyers never brought their coupons in. The study also supported the idea that converting these deal buyers into repeat customers is extremely difficult.

And of course, these types of marketing schemes only work for some businesses (health and services were very successful, whereas dining and salons/spas didn’t do as well). Dholakia remarks that it’s surprising that restaurants and bars account for so much of these daily deal promotions while they aren’t raking in as much money as you’d expect.

But the most significant take away from the study is the general weakness of the daily deal business structure. “Over the next few years, it is likely that daily deal sites will have to settle for lower shares of revenues from businesses compared to their current levels, and it will be harder and more expensive for them to find viable candidates to fill their pipelines of daily deals.” It’s possible the Groupon-system will fade away as quickly as it arrived and took the industry by storm.

Editors' Recommendations

Topics
Molly McHugh
Former Digital Trends Contributor
Before coming to Digital Trends, Molly worked as a freelance writer, occasional photographer, and general technical lackey…
A summer slump doesn’t mean Google Offers is down for the count

Analyzing the daily deals market has become industry fodder lately. Initially, the concept was new and fresh and we all basked in its take on collective buying. Since then, criticism over the actual benefit and possible toll on businesses that Groupon, LivingSocial, and their competition could be taking has been under heavy scrutiny.
One site that has avoided terribly intense examination is Google Offers. The site likely has its recent and initially limited launch to thank for this. Still, it hasn’t gone totally unanalyzed, and Yipit offered us some insight on the site’s performance. Full disclosure: Yipit is a direct Google Offers competitor that also offers curated coupons for your city of choice. But the site also serves as a data mine for daily deals information, and has become a go-to source for background on this emerging and increasingly controversial industry.
Yipit has some interesting things to say about Google Offers. According to its reports, Google Offers has seen declines in the last three months, which for a company that launched in June doesn’t exactly speak well of its future. Revenues dropped 23-percent in August as major competitors Groupon and LivingSocial both gained market share. But Yipit Data’s David Sinsky told us that there’s more than meets the eye to this supposed rough start.
“Google has a lot of advantages when it comes to this. They’ll be able to tie in other products and they’ve really just begun to do that,” Sinsky says. “You haven’t seen Google really step on the gas in terms of using all the tools they have.” He mentions that we will see properties like Google Maps and Wallet integrated with Google Offers, which is when Offers will hit its stride.
“A disappointing month won’t stop them. Google is thinking long term, and they were smart. They’re taking it very slowly so they can learn and find the right receipt for the product,” he says.
Google is a company that has the ability to take conceptual and financial risks. That said, there’s no denying it has some formidable competition in the daily deals market. Despite boosting the amount of offers, its revenue decreased and the number of deals sold still lags far behind Groupon and LivingSocial.
Google entered the daily deals game later than its top competition, however, and Sinsky also offers that managing a local salesforce isn’t something the company is used to doing. But every knock against it can’t overshadow the natural advantages it has. Sinsky explains that right now, less than one percent of its competitors are mobile based, and Android and Google Maps will give Offers a step up.
“They have an inherent advantage there with mobile and local commerce – Groupon and LivingSocial don’t have that.” He says the industry is going to increasingly turn to mobile platforms over the next few years and this will give Offers a several year opportunity as far as gaining market share.

Read more
Facebook gets rid of Deals

Facebook announced late Friday that it would be bowing out of the daily deal business. The Groupon-inspired Facebook Deals was discontinued after only four months of testing.
In a statement received by Reuters and other outlets, a Facebook spokesperson wrote:
“After testing Deals for four months, we've decided to end our Deals product in the coming weeks. We think there is a lot of power in a social approach to driving people into local business. We've learned a lot from our test and we'll continue to evaluate how to best serve local businesses.”
The end of Deals seems like a logical follow after the nixed Facebook Places app, though the company insists that it will still maintain the Check-in feature as well as Ads, Pages, and Sponsored stories; local business aren't being completely shuffled aside.
Facebook Deals began its short-lived existence in April this year, sparking anticipation of heated and frenzied competition with Google Offers, Living Social Groupon and the other sites packed into the cramped pool of local-discount services. Deals had already put down roots in five major cities, set up deals with merchants in the area and set up offers with other daily deal companies such as ReachLocal, OpenTable, Tippr, aDealio and more.
Does Facebook's retreat say something about the daily deals business?
The vacancy means less pressure for those still in the game (looking at you S-1 filing Groupon), but there has been some criticism of Groupon's business model and talk of the daily deals enthusiasm waning.
Co-founder of Yipit.com Vinicius Vacanti weighed in on the topic, telling Reuters, “I don't believe this means daily deals are not a viable business. It more suggests that large media and tech companies can't just 'turn on' daily deals and expect them to work. It has to be more thoughtfully integrated into their existing product.”

Read more
Groupon Now deals coming to Foursquare check-ins

Foursquare’s been making a serious effort to develop its daily deals platform partnering with the likes of LivingSocial, Gilt, and Amex. Now, it can add the veteran coupon curator of them all to that list. Today Groupon announced it would be partnering with Foursquare, and its Groupon Now deals will be available when you use Foursquare to check-in.
“As you get out and explore your city, just peruse participating Groupon merchants on Foursquare, from lunch spots to live events, and purchase your Now! deal to apply immediately to your purchase,” it explains. Daily deals will also be viewable when you use Foursquare.
Months ago, we heard that the two big purveyors of local commerce were working on integrating, which would be a big coup for Groupon. It would give the daily deals service a new way to reach users outside its current model, and Foursquare’s massively growing userbase is no small territory to invade.
The Groupon phenomenon has come under serious scrutiny recently as vendors have tired of the operation and its potential fallout has become common knowledge. Consumers have slightly soured toward the site as well, given the oversaturation in the daily deals market and some general disillusion with the process. But the Groupon Now application could easily give the site a boost, offering deals in real time based on users’ locations. Pairing it with Foursquare, despite some of the competition between these two companies, will likely skyrocket its use.

Read more