Marketers cast skeptical eye on daily deal promotions

Less than half (48%) of small- and medium-sized businesses (SMBs) that have run a daily deal promotion say they would use the promotion vehicle again, according to a study by Rice University professor of management Utpal Dholakia. Of the 324 businesses surveyed, about a third (32%) said they were uncertain if they’d run another daily deal promotion and 20% said they would not.

According to the study, 79% of consumers who redeemed a daily deal were new customers, but only 20% of the total deal users became repeat customers. Additionally, only 36% of deal users’ purchases exceeded the deal’s value.

Despite recent reports of merchants losing money by running daily deals, 73% of the merchants surveyed said they had profited or broken even.

From August 2009 through March 2011, Dholakia conducted his survey of businesses that have promoted offers on daily deal sites such as Groupon, LivingSocial, OpenTable, Travelzoo and BuyWithMe.

Dholakia said the dissatisfaction among SMBs poses a risk for daily deals sites’ sustainability because they represent the sites’ long-term merchant base.

“As far as large marketers are concerned, they already have a lot of ways of getting coupons to their customers,” he said. “They don’t necessarily need a daily deals site to do that.”

The surveyed businesses average a marketing budget of $198,000, with daily deals on average taking the largest share of that budget at 24%.

Groupon was the most popular daily deals site among respondents, with 46% saying they had run a promotion on the site. LivingSocial followed with 36%. However, 73% of surveyed businesses said they would consider a different daily deals site if they were to run another offer.

“I see a number of red flags for this entire industry as a whole, which brings into question what is going to happen in the next couple of years with respect to whatever profitability levels they have right now,” said Dholakia.

Groupon has come under scrutiny after the company filed to go public on June 2. According to Groupon’s regulatory filing, the company has yet to record a full-year profit and posted a net income loss of $413.4 million in 2010, despite having 83 million subscribers.

Daily deals sites should also be concerned about large technology companies entering the fray, said Dholakia.

“The only assets all of these [daily deals] companies have are their email lists and their brand recognition and brand value,” he said, “which are not very sustainable in the face of competitors like Google, Facebook or Amazon, because they have exactly the same assets and more.”

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