Are Daily Deals Here to Stay? One Researcher Doubts It

View full size image

While many consumers have fallen in love with daily deal group discount offers, many businesses that participate in the deals aren’t reaping the benefits they hoped for, and researchers now say that’s hurting the daily promotion industry’s chances of survival.

A new study conducted by Rice University assistant professor Utpal Dholakia found that just 55 percent of participating businesses reported making money through the popular promotions, and less than 50 percent of the companies said they would consider running another deal —not enough to make the industry sustainable in the long run, Dholakia said.

Specifically, the study reports that two of the industries on which daily deal sites rely most — restaurants/bars and salons/spas —aren’t finding great success through the promotions. Only 44 percent of the restaurants surveyed earned a profit from the daily deal, and just 36 percent intend to run another such promotion in the future. While 53.7 percent of salons and spas made money on the promotion, less than 42 percent said they intend to run another daily deal.

"This indicates that if daily deal sites want to keep finding deal partners, they are going to have to work extra hard," Dholakia told BusinessNewsDaily. "Constantly finding new customers is an expensive proposition."

Daily deal sites, popularized by the growth of giant Groupon, offer daily promotions to specific participating businesses that share profits with the deal site in the hopes that they’ll gain new customers and make money.

In Dholakia’s study, however, only 36 percent of consumers reported spending money at the business beyond the value of the promoted deal, with less than 20 percent returning for a deal-less purchase later.

"This shows they are just interested in the deal, and not the vendor," Dholakia said. "The motivation for the customers is entirely different with a daily deal promotion, because they are just coming in because of price."

Dholakia believes that in the next few years, daily deal sites will have to settle for lower shares of revenues from businesses, and it will become more difficult and more expensive for them to find viable candidates to fill their promotional pipelines.

"There is no way the revenue sharing, which is as much as 60 percent (currently), will last for long," Dholakia said. "I don't see business owners being able to afford this for much longer."

The report also points out that nearly 73 percent of businesses indicated they’d be open to using a different daily deal site for their promotion.

"Essentially, there is absolutely no loyalty to a particular site," Dholakia said.

Businesses looking to increase the likelihood of a profitable promotion should offer a daily deal of high value — $50 or more —with a discount of less than 25 percent, Dholakia said. He also suggests having a short redemption period and a limit on the number of deal vouchers that consumers can buy.
"Do something that is going to help build your brand," Dholakia said.

This was the third, and most in-depth, study Dholakia has conducted on the on the daily deal industry. It examined the performance of daily deals run through five major sites in 23 U.S. markets, which included a survey-based study of 324 businesses that conducted a daily deal promotion between August 2009 and March 2011.

This story was provided by BusinessNewsDaily, a sister site to LiveScience.