The daily deal industry continues to generate excitement among consumers and marketers that are offering limited-time steep discounts. The latest research shows that some types of marketers do better than others with deals. And, consumer sharing behavior can contribute to the success of a deal.
When the daily deal industry first sprang up, Groupon and Living Social largely controlled the market. But many competitors came into the market, including local media companies who worked with small businesses to generate their own daily deals. While the key players in this industry are battling for market share, reports have cast doubt on the profitability and success of this promotional tool. However, Utpal Dholakia, a Rice University researcher, has studied the industry since its inception and find reason for optimism.
Dholakia’s research shows that the more deals a marketer runs, the more likely they are to become profitable. In a first deal promotion, fewer than half of marketers generate a profit. By the 7th deal, 75% of marketers see a profit. Not every business can continuously run daily deals but for about 30% of marketers, this tool is sustainable. Success rates of deals also appear to correlate to the type of business promoting them. In Dholakia’s research, the following success rates are being reported:
- Photographers 75%
- Health and fitness services 69.3%
- Tourism-related services 68%
- Doctors/dentists 66.7%
On the other hand, profitability is much lower for cleaning services (27.3%) and restaurants and bars (44.2%).
Consumer behavior also contributes to deal success. A joint study from Chadwick Martin Baily and Constant Contact shows that deal subscribers maintain great enthusiasm for the possibility of saving money. Over half of these people, especially women (60%) enjoy sharing with their friends. For those who subscribe to a deal service, purchase frequency in the past 6 months looks strong:
- 5+ deals 27%
- 3–4 deals 21%
- 1–2 deals 31%
- 0 deals 21%
Key motivators for buying deals range from ‘being an activity I already do – 60%’ to ‘local business I know about — 42%' to' local business near home or work – 39%.'
Businesses that sponsor deals report up to 80% of customers in each instance are new. Bringing these new customers through the door is the first step to developing a loyal following. Based on the results of this study, the key question for the deals industry is who is likely to control them at the local level, an industry giant like Groupon or the local media company. If local companies can leverage their long-term relationships with small business owners, they can help them generate more revenue by setting up deal programs.[Sources: Dholakia, Utpal. How Businesses Fare with Daily Deals as They Gain Experience. Rice.edu. 5 Jul. 2012. Web. 20 Aug. 2012; 10 Quick Facts about How and Customers Use Daily Deals. CMBInfo.com. 2012. Web. 17 Aug. 2012]