More Competitors to Enter Daily Deal Space

There’s little question that the daily deal sector is hot property for service providers and marketers. Rapid growth and huge valuations from venture firms for operators like Groupon and Living Social have drawn both positive and negative attention. Two of the biggest talking points on the topic are whether marketers are actually getting new customers and whether the low barriers to entry will allow traditional media companies to move into and operate profitably in this space.

Many marketers are experimenting with daily deals. They’re slashing prices and offer extreme discounts if enough consumers go for the deal. While merchants understand that a certain number of deal takers are existing customers, they’re hoping to attract new customers, who keep coming back. The latest research from ForeSee Results shows that merchants are bringing in new customers through daily deals. Here’s a snapshot of who is redeeming coupons:

  •  Frequent customers: 38%
  • New customers: 31%
  • Infrequent customers: 27%
  • Former customers: 4%

For these business models to succeed, the service providers rely on their subscribers to go for a certain number of deals to maintain business volume. Foresee research indicates those statistics look like this:

  •  Consumers who subscribe to more than 1 deal service: 46%
  • Consumers who have used more than 1 offer in the last 3 months: 55%
  • Consumers who have used more than 1 offer in any time period: 33%
  • Consumer who have not used any offers: 11%

While there is keen interest in daily deals, the focus on the industry leader, Groupon, is extreme. More than one blogger has delved into Groupon's S‑1 filing and determined that the firm’s financial arrangements stack the deck heavily in Groupon’s favor. As competitors enter the fray and offer more favorable financial terms to vendors, and perhaps a more targeted audience, Groupon may find its leadership position diluted. In addition, Felix Salmon points out what many others have noticed — Groupon is paying too much to acquire new customers, a strategy that could erode profitability.

As this market matures, merchants will surely continue to offer deals that play off the social media angle but they may be buying the service from a major media company instead of one of the new online pure-​plays. For now, it’s too soon to tell who the big winners will be.

[Sources: ForeSee Results: Daily deals getting a bad rap? Techflash​.com. 25 Jun. 2011. Web. 11 Jul. 2011; New Data: Groupon & Living Social. FreedYourMind​.com. 22 Jun. 2011. Web. 30 Jun. 2011; Agrawal, Rocky. Why Groupon Is Poised for Collapse. Techcrunch​.com. 13 Jun. 2011. Web. 11 Jul 2011 ] 
Kathy Crosett
Kathy is the Vice President of Research for SalesFuel. She holds a Masters in Business Administration from the University of Vermont and oversees a staff of researchers, writers and content providers for SalesFuel. Previously, she was co-​owner of several small businesses in the health care services sector.