Consumers Love a Bargain

Consumers love a bargain. The proliferation of daily deal sites online has grown in response to consumer demand. Currently there are more than 600 daily deal sites offering consumers 50 to 90 per cent discounts on a diverse array of goods and services. Consumers spent more than $1.1 billion on daily deals in 2010. Daily deal industry leaders include Groupon, Living Social, Gilt City, Travelzoo, Bloomspot, DealFind, Lifebroker, Woot and kgb.

Groupon, the first and still the largest daily deal site, features daily deals on the best things to buy, see, experience or eat in more than 565 cities worldwide. Based in Chicago, Illinois, Groupon employs more than 10,000 people. To date, Groupon reports that it has saved consumers more than $300 million. Groupon also claims to have generated millions in new revenue for the business featured on the Groupon site.

As more and more daily deal sites “pop up” on the Internet, the trend is towards building deal sites that focus on a targeted niche market. Whether you are looking for an exotic travel destination or someone to groom your dog, just enter a couple of keywords and you will find a daily deal to save money on just about anything you want.

Daily deals are an innovative marketing strategy to entice customers to try a new vendor or service provider. They are basically loss leaders, offered to encourage the consumer to spend beyond the deal offered and return often, as regular customers.

Savvy shoppers register for free at daily deal sites. Consumers can easily sign up with an email or Facebook account. The majority of daily deal sites filter deals by locality or interest. Most daily deals are deeply discounted, short-term offers delivered directly to your inbox. Customers can purchase daily deals online with any major credit card or PayPal. Once you purchase a deal, simply print the voucher and redeem at the specified merchant or business.

The redemption process allows businesses extensive exposure, attracting potential customers and clients that would not have otherwise heard of, or tried their products or services. The majority of business that have opted to implement daily deals are overwhelmingly pleased with the new business their daily deal marketing campaign produced. Others are disenchanted with daily deals.

A study conducted at Rice University; How Businesses Fare with Daily Deals: A Multi-Site Analysis of Groupon, LivingSocial, OpenTable, Travelzoo, and BuyWithMe Promotions; Utpal M. Dholakia; Released June 13, 2011 offers insight into the problems businesses face when offering daily deals.

The study, conducted by Utpal M. Dholakia, Professor of Management, examined 324 daily deals from five major daily deal sites in 23 US markets. The study evaluated campaigns conducted during a period from August 2009 through March 2011. The Rice University study reports, “55.5% of businesses reported making money, 26.6% lost money and 17.9% broke even on their promotions.”

The study further reported, “Although close to 80% of deal users were new customers, significantly fewer users spent beyond the deal’s value or returned to purchase at full price. 48.1% of businesses indicated they would run another daily deal promotion, 19.8% said they would not, and 32.1% said they were uncertain.”

“Over the next few years,” Dholakia advised, “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 find viable candidates to fill their pipelines of daily deals.“

Some businesses that have offered daily deals, find serving customers with a deal, infringes on the rights of other customers and may diminish their experience. Other businesses failed to carefully plan their campaign and offered goods they could not provide when the demand exceeded supply. A lesson can be learned from the story featured in the UK Telegraph of a British baker who claimed a Groupon deal almost put her out of business after she had to honor the sale of 102,000 cupcakes at a considerable loss. 

As the daily deal industry goes through “growing pains,” both consumers and businesses will benefit. Public scrutiny of the industry leads to reform. Gone are the days of inflated prices and deals that “are too good to be true.” Consumers are likely to see better deals with restrictions and are advised to read the small print. Remember, tips and taxes are not included. Businesses will limit their risk by limiting the amount of deals available and requiring that they be used during specified periods.

In spite of the naysayers, daily deals are here to stay. It is a market tactic that will see increased focus on local merchants and specific niche markets. For local businesses, it remains one of the best modalities to introduce new patrons to their goods and services.

Source: Social Science Research Network