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BizReport : Advertising archives : June 15, 2011

Most daily deal buyers don't come back

Less than half of businesses who have run daily deal promotions with the likes of Groupon and LivingSocial plan to do so again according to new research by Rice University that uncovered a number of red flags regarding the industry as a whole.

by Helen Leggatt

First, the good news. Almost 80% of people who purchased a daily deal were new customers. Not bad.

Even the finding that 21.7% of deal buyers never redeem their vouchers is a plus point from the point of revenues.

But it would seem that daily deals don't help businesses build their brand as effectively as more traditional channels, nor do they create loyal repeat customers. Just 1 in 5 deal redeemers came back again to make a full-price purchase, found Rice.

"The businesses that we see spending their marketing dollars on daily deal sites have dramatically cut their advertising budgets," said Utpal Dholakia, associate professor at management at Rice University's Jones Graduate School of Business.

"This is a problem for businesses, because they're not building their brand when they offer discounted prices for their products and services. Only about 20% of customers using daily deals return to businesses to buy at full price; customers acquired through other programs typically have much higher rates of full-price repurchases."

In addition, a relatively low percentage of redeemers (35.9%) spent more than the value of the deal at the time of redemption.

So, while daily deals can pull in new punters their loyalty appears short-lived. This, says Dholakia, is "symptomatic of a structural weakness in the daily deal business model" and serves as a red flag for the industry as a whole.

And what about making a profit from daily deals? According to Rice not all businesses are making a profit, far from it. Just over half (55.5%) of businesses reported making money, 26.6% lost money and 17.9% broke even on their promotions.

When asked if they would consider running another daily deal under half (48.1%) of businesses said they would while 19.8% said they would not and 32.1% said they were unsure.

Tags: daily deals, group eals, Groupon, LivingSocial, Rice University

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