Research reveals how businesses fare with daily deals

Oct. 11, 2012 – A report conducted by Utpal M. Dholakia, an associate professor of
management at the Jones Graduate School of Business at Rice University,
has revealed interesting statistics about the success of online daily
deals from the perspective of participating businesses.

Oct. 11, 2012 – Daily deals have grown in popularity among customers in the last few years, but what do restaurants really gain from them? A report conducted by Utpal M. Dholakia, an associate professor of management at the Jones Graduate School of Business at Rice University, has revealed interesting statistics about the success of online daily deals from the perspective of participating businesses.

The study examined performance of daily deals from five major websites in 23 different American markets. A survey revealed that of the 324 businesses surveyed that conducted a daily deal promotion between August 2009 and March 2011, just more than half (55.5 per cent) reported making money. More than a quarter (26.6 per cent) lost money on their promotions, and 17.9 per cent broke even. Nearly 80 per cent of deal users were new customers, but significantly fewer users spent beyond the deal’s value or returned to purchase at full price.

Findings lead the researchers to conclude that it is hard for one site to stand out from the rest, and pointed out red flags regarding daily deal promotions as a whole, with two notable ones for the restaurant industry:

• A fairly low percentage (35.9 per cent) of deal users spend beyond the deal value. Even lower, only 19.9 per cent of users are returning for a full-price purchase. “Guests take advantage of the deal by buying low cost ticket items and stop buying once they meet the dollar value,” one respondent commented.
• Only 35.9 per cent of restaurants and bars that had run a daily deal asserted they would run another such promotion in the future. “Since restaurants/bars . . . represent the bread-and-butter for many daily deal sites, these findings raise questions regarding the continued availability of a sufficient pool of viable revenue-generating merchants,” the paper states.
  

The study also found that 47 per cent of “dollar promotions” (where customers get a certain amount of money to spend on anything they wish, for example, $20 worth of food for $10) were profitable, but not as much as item promotions (those that promote a particular product or service) at 59 per cent. Overall, only 35.9 per cent of restaurants/bars that had run a daily deal indicated they would run another such promotion in the future.

“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 keep finding viable candidates to fill their pipelines of daily deals,” the report concluded.