Study: Half of All Daily Deals Don’t Increase Profits or Sales

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With Amazon and Google recently launching their own daily deals sites to compete with Groupon and LivingSocial, you might be forgiven for thinking that we’re living in a golden age of savings and reasonably priced offerings. A new study had a message for those who might feel that way: Enjoy it while you can, because it’s not likely to last.

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The problem with the current generation of daily deals sites, according to “How Businesses Fare with Daily Deals,” a study lead by Utpal Dholakia of Rice University’s Jesse H Jones Graduate School of Management, may be that there are too many sites and too little brand loyalty.

The study, carried out between August 2009 and March 2011, discovered that, although 80% of deal users were new customers, only 35.9% of customers spent more than the deal’s value, with less than 20% returning to the business at a later date to make a full-priced purchase. In fact, 21.7% of those buying the deals online never actually get around to redeeming the deals at all.

For the businesses participating in the deals, only 55.5% made money doing so (17.9% broke even, with 26.6% losing money). The most successful verticals were health, services and special events, with 70% of those being profitable, and only 43.6% of restaurants finding themselves in the black as a result.

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No great surprise, then, that only 48.1% of businesses who participated in the survey said that they would definitely run another similar promotion, although 72.8% of those businesses admitted that they’d consider running it with another daily deal site, with one business owner reporting, “I’ve learned a lot and now can see that I can cherry pick who to work with to give me the cut and the percentage off that works for me.”

“It appears that none of the daily deal sites have been very successful in differentiating themselves from others, or engendering significant loyalty among their respective merchant bases,” the study reports, adding that “current levels of revenue-sharing (ranging from 30%, but more often as high as 50%) demanded by daily deal sites may be unsustainable and subject to erosion in the near future, as shrewd merchants play the salesperson of one site against the other in demanding more favorable terms for themselves before agreeing to run the next deal.”

Translation? The market for deals can’t support the current trend amongst companies to venture into the daily deals industry, either amongst users or participating businesses. But maybe we’ll all get some even cheaper deals out of things while everyone tries to figure out how to make things work.

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