Home  › Social › Social Commerce
groupon-logo

Only 20% of Daily Deals Users Come Back for Full Purchases

  |  June 14, 2011   |  Comments

Rice study delivers a blow to pre-IPO Groupon.

For the second time in eight months, Rice University has bad news for the likes of Groupon and LivingSocial. Among its findings: Only 19.9 percent of deal users are returning for full-price purchases at restaurants, bars, salons, and other retailers.

Utpal Dholakia, associate professor of management at Rice's Jones Graduate School of Business, said small businesses are exhibiting low levels of loyalty to Groupon, LivingSocial, and other deals sites.

"The major take-away from the study is that not enough businesses are coming back to daily deals to make the industry sustainable in the long run," he said in a prepared release. "And our results from three studies and close to 500 businesses surveyed show that the deals are nowhere close to the rates of financial success for participating businesses that some companies claim to be having."

Other findings from the Houston-based school's research:

  • 35.9 percent of deals users spend more than the voucher value when visiting a merchant.
  • 21.7 percent of them never redeem the vouchers they've paid for.
  • 55.5 percent of businesses reported making money on their promotions, 26.6 percent lost money, and 17.9 percent broke even.
  • 48.1 percent of businesses planned to run another daily deal promotion, 19.8 percent indicated they would not, and 32.1 percent didn't know for sure.

But there was a statistic that surely echoes the sales calls being made by Groupon and LivingSocial's local teams: 80 percent of deal users were new customers. Even if less than one-fifth came back, one could argue they gave the advertising establishment a shot at their continued patronage.

Additionally, two San Francisco-based businesses told The Wall Street Journal that daily deals were growing their enterprises. However, both were tourism/events-based ventures with fixed product costs, entailing more easily predictable profit/loss margins for their promotions when compared to the food inventory concerns of bistros and bars.

Indeed, daily deals appear to work better for some verticals than others. And Rice's study on hundreds of businesses says so.

Among industries, 70 percent of marketers in special events, health, and services made money on their promotion. Conversely, 43.6 percent of the restaurants surveyed financially profited from the promotion, and only 35.9 percent of them intend to run another daily deal.

Meanwhile, Dholakia of Rice offered more cautionary commentary on the so-called social commerce landscape. "Our findings…uncovered a number of red flags regarding the industry as a whole," he said.

Dholakia authored a study last fall that found Groupon to be unprofitable for one-third of 150 businesses that ran a deals promotions between June 2009 and August 2010.

ClickZ Live Toronto On the heels of a fantastic event in New York City, ClickZ Live is taking the fun and learning to Toronto, June 23-25. With over 15 years' experience delivering industry-leading events, ClickZ Live offers an action-packed, educationally-focused agenda covering all aspects of digital marketing. Register today!

ClickZ Live San Francisco Want to learn more? Join us at ClickZ Live San Francisco, Aug 10-12!
Educating marketers for over 15 years, ClickZ Live brings together industry thought leaders from the largest brands and agencies to deliver the most advanced, educational digital marketing agenda. Register today and save $500!

ABOUT THE AUTHOR

Christopher Heine

Christopher Heine was a senior writer for ClickZ through June 2012. He covered social media, sports/entertainment marketing, retail, and more. Heine's work has also appeared via Mashable, Brandweek, DM News, MarketingSherpa, and other tech- and ad-centric publications. USA Today, Bloomberg Radio, and The Los Angeles Times have cited him as an expert journalist.

COMMENTSCommenting policy

comments powered by Disqus

Get ClickZ Social newsletters delivered right to your inbox. Subscribe today!

COMMENTS

UPCOMING EVENTS

Featured White Papers

Gartner Magic Quadrant for Digital Commerce

Gartner Magic Quadrant for Digital Commerce
This Magic Quadrant examines leading digital commerce platforms that enable organizations to build digital commerce sites. These commerce platforms facilitate purchasing transactions over the Web, and support the creation and continuing development of an online relationship with a consumer.

Paid Search in the Mobile Era

Paid Search in the Mobile Era
Google reports that paid search ads are currently driving 40+ million calls per month. Cost per click is increasing, paid search budgets are growing, and mobile continues to dominate. It's time to revamp old search strategies, reimagine stale best practices, and add new layers data to your analytics.

WEBINARS

Resources

Jobs

    • GREAT Campaign Project Coordinator
      GREAT Campaign Project Coordinator (British Consulate-General, New York) - New YorkThe GREAT Britain Campaign is seeking an energetic and creative...
    • Paid Search Senior Account Manager
      Paid Search Senior Account Manager (Hanapin Marketing) - BloomingtonHanapin Marketing is hiring a strategic Paid Search Senior Account Manager...
    • Paid Search Account Manager
      Paid Search Account Manager (Hanapin Marketing) - BloomingtonHanapin Marketing is hiring an experienced Paid Search Account Manager to...