Society & Culture - Posted by David Ruth-Rice on Thursday, September 15, 2011 8:40 - 6 Comments 
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(No Ratings Yet) Loading ...No buyer fatigue at daily deal sites
The more deals purchased from daily deal sites like Groupon, the more enthusiastic consumers seem to be, good news for the companies that have been hit hard in recent weeks with reports of the industry’s decline. (Credit: iStockphoto)
RICE U. (US) — Rumors of the demise of daily deal companies are greatly exaggerated according to a new study that finds they are more popular that ever with consumers.
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The text of this article by Futurity is licensed under a Creative Commons Attribution-No Derivatives License.
“The key finding is that there is no evidence of waning interest among consumers of daily deal promotions,” says Utpal Dholakia, professor of management at Rice University. “In fact, the more deals purchased by an individual, the more enthusiastic they seem to be.”
Straight from the Source
For a new study published by the Social Sciences Research Network, Dholakia and co-author Sheryl Kimes, professor of hospitality management at Cornell University, examined consumer perceptions of daily deal promotions, surveying 973 respondents—655 who were daily deal users and 318 who were not.
The study is good news for daily deal companies that have been hit hard with reports of the industry’s decline. Even previous research by Dholakia found that not enough businesses are returning to daily deal sites to make the industry sustainable over a long period.
The new study shows significant opportunity for growth among consumers, as only 16.7 percent of the research panel’s population has used daily deals before, and the majority of non-users (90.6 percent) haven’t bought a deal because of awareness or access issues.
“We see significant further opportunity for trial and use of daily deals by current non-users,” says Dholakia.
Overall, daily deal customers tend to have little interest in being seen as different or “fringe” in their shopping patterns, are not very careful with their personal finances, and don’t think constantly about spending issues.
They are interested in trying new products and services to have new experiences to talk about and influence others. They are attracted to a deal because it is a deal, and are likely to be less sensitive to the actual terms of the offer made by the merchant.
“All of these psychological characteristics indicate that the underlying motivations for purchasing daily deals are complex and multifaceted, having to do with more than just saving money,” Dholakia says.
The study questions the importance of deep discounts of 50 percent or more, Dholakia says.
“Our research shows that a significant number of consumers will continue to buy the deals even if the discounts are slightly smaller. This is a significant finding because my previous research showed that businesses find huge discounts to be unsustainable.
“The industry seems to be operating under the opinion that deep discounts are the only way to be successful, but that’s not the case.”
More news from Rice University: www.media.rice.edu/media/
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6 Comments
Everyone, whether they admit it or not (or extremely rich) loves a good deal, its just a factor that is built into the human brain, to get the lowest price for the good or service as possible. We offer a ton of daily deals on our site in the UK, Check it out – http://www.loveonlinedeals.com/ . Thanks for the article.
David
“not enough businesses are returning to daily deal sites to make the industry sustainable over a long period.”
“The new study shows significant opportunity for growth among consumers”
Growth in consumers is not going to do these sites any good if businesses won’t give them deals to sell. this study does nothing to rebut the idea that they are not sustainable.
The problem is that businesses who try these deals generally find that two types of people take them up: existing customers of the business and dedicated coupon shoppers. The first type don’t bring in new revenue, the second type don’t come back once the offer is over. So the business loses a bunch of money on the discount and the percentage for the coupon site and gains no new revenue in return. As more businesses learn this the industry will contract through lack of supply, not demand.
I find it fascinating that everyone has an opinion on what is happening with the “daily deal” space. I can tell you that from working with Travelzoo Local Deals we have really carved out a niche that is sustainable, is making money and is having ALL Merchants coming back to run again.
How is this done? We partner strictly with very high end ‘experiential type’ places that have GREAT reviews or accolades. Venues that our high end subscriber base will visit frequently and have no problem in paying full price if the service is good. Furthermore, we do not bombard our subscribers with an email every day that has 5 deals within it, most of which aren’t even appealing.
Groupon has been going with the ‘spray and pray’ mentality since they began and we all know that business model is short lived. Where they truly made the biggest mistake is when they gave up 10, 20 and even 30-40 points in their revenue shares, by trying to eliminate competition. That’s right, I have spoken to many merchants that Groupon has partnered with whom have received a 80/20 or even a 90/10 revenue share. 4 things… First is they will lose their shirt on all of these deals. Secondly, Groupon will never get the revenue share back to a reasonable level with those Merchants. Third, is that when word spreads of revenue shares like that everyone starts demanding that from Groupon. Fourth is that Groupon pays out the merchants immediately after their publishing of an offer… this is by far the worst element to their business. Paying Merchants immediately gives them no float on the revenue and more importantly when Merchants go out of business, Groupon is stuck paying all of the customers back after they have already paid the Merhcant, more than doubling their loss on such deals.
All of these elements make the Groupon model unsustainable and hence why they will meet their demise in the next year or two. Okay, down from my soapbox, but I had to get my 2 cents in as this is why they will meet their demise sooner than running out of subscribers or businesses to partner with… simply the money won’t last… they lose hand over fist each quarter.
I can see how Travelzoo can be successful by selectively picking its customers. Unfortunately, many small businesses doing poorly are lured by the Groupon model with no cash upfront and barely floating. Picking businesses with good reviews make a lot of sense.
If I were running one of these daily deal sites, I would strongly suggest the following to the small business owner, or suggest he do business with another company.
1. What are your plans to get contact info and follow up? Most have no follow up.
2. How do you plan to handle your regular customers and how much additional; business can you handle? Selling too many will lead to poor service both for your new and existing customers and also hurt your online reviews and future business.
3. What are you going to cover with your employees? They need to be trained how to handle the promotion and best practices to upsell and get contact info. Make sure they are taken care of also, such as tips on the regular price.
I don’t have much to say, but Groupon is actually pretty sweet!
There will always be people looking for a great deal whether it be traditional printable coupons, sales, or daily deals!