Are Daily Deals Sites Good Marketing? [Study]

July 25, 2012 By Heather Fletcher

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The death of daily deals sites has been greatly exaggerated. Sites like Groupon are alive and well and showing consistent results, with a few improved metrics during the past year, according to a study announced on July 5 by Rice University.

"How Businesses Fare With Daily Deals As They Gain Experience: A Multi-time Period Study of Daily Deal Performance" is authored by Utpal M. Dholakia, professor of management at Rice University's Jones Graduate School of Business.

He writes in the research: "There is recent emerging evidence that businesses running multiple daily deals are having some success with them. For example, Yipit, the daily deal aggregator, recently reported that 41 percent of merchants running Groupon promotions were repeat merchants in the first quarter of 2012, up from 31 percent in the third quarter of 2011, and they accounted for 56 percent of Groupon's North American gross billings in the first quarter of 2012, from just 33 percent six months earlier."

The study found that the types of marketers who can benefit the most from daily deals sites are:

• Newer and smaller businesses: "Businesses founded within the past six years had a 39 percent retention rate after seven deals, compared with a 23 percent retention rate for older, well-established businesses. Smaller businesses with annual revenue below $500,000 enjoyed a 41 percent retention rate compared with larger businesses, which had a 15 percent retention rate."
• Repeat deal providers: "While less than half of the businesses running their first daily deal report profitable promotions, three-quarters of those running seven or more deals report profits from these promotions. The percentage of businesses making money jumped by about 6 percentage points in the May 2012 sample—from 55.5 percent (spring 2011) to 61.5 percent."
• Businesses that don't do any marketing and those that spend heavily on marketing have equal success on the sites.
• Service providers and non-retail marketers tend to do better than others: "Photographers (with a 75 percent rate of profitable daily deals), health and fitness services (69.3 percent), tourism-related services (68 percent), and doctors and dentists (66.7 percent) have significantly higher rates of daily deal success, while cleaning services (27.3 percent), restaurants and bars (44.2 percent), and retailers (50 percent) fare relatively poorly."

These findings contradict Dholakia's own prediction in June 2011: "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 find viable candidates to fill their pipelines of daily deals."

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