New research from a Rice University professor found that while daily deal sites like Groupon and Living social are very successful at helping businesses attract new customers, those customers rarely spent beyond the deals value or returned to purchase at full price.
The research by Utpal Dholakia, a professor of management, found that while close to 80% of consumers using such sites were new, only 35.9% purchased more than the discounted item or service and only 19.9 percent returned to the business to make a full-price purchase.
The findings are based on a survey of 324 businesses that conducted a daily deal promotion between August 2009 and March 2011, 55.5% of businesses reported making money, 26.6% lost money and 17.9% broke even on their promotions. Even so 48.1% of businesses indicated they would run another daily deal promotion, 19.8% said they would not, and 32.1% said they were uncertain.
Dholakia said his research led him to conclude that there are relatively few points of differentiation between the daily deal sites, making it harder for any one site to stand out from the others.
Our findings also uncovered a number of red flags regarding the industry as a whole, he writes in his abstract to the study.
Less than half of the businesses surveyed indicated enthusiasm about running another daily deal in the future, fully 72.8% indicated openness to considering a different daily deal site, and only 35.9% of restaurants/ bars and 41.5% of salons and spas that had run a daily deal asserted they would run another such promotion in the future.
All of these findings point to the same conclusion,” Dholakia wrote. “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.
