The daily deal industry is questioned almost as often as it pushes new offers into your email box. But a new Rice University study by daily deal site expert Utpal Dholakia says the industry shows no signs of slowing down or losing popularity.
In contrast to a study Dholakia published last June, his latest findings indicate a number of positive signs for the daily deal industry.
“Overall, the results find little or no evidence of deterioration in the performance of daily deal promotions over the past year or as the business operator runs multiple daily deals,” Dholakia said. “Rather, there is improvement on some metrics.”
Rice news writer Amy Hodges summarizes the study findings thus:
Key findings from the new paper include:
The likelihood of enjoying profitable promotions is associated positively with the business’s experience; 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.
Daily deals are just as likely to be successful for both businesses that don’t do any marketing and those that spend heavily on marketing.
Almost 80 percent of daily deal patrons are new customers, even for businesses running their seventh (or higher) daily deal, and businesses continue to see equally stable conversion rates for both repeat purchasing and spending beyond deal value.
Daily deals appear to be sustainable programs for approximately 30 percent of businesses. Newer and relatively smaller businesses have even higher sustainability rates of close to 40 percent.
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.
Daily deals appear to be more sustainable for 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.
“These findings indicate that daily deal promotions appear to be sustainable marketing programs for about one-third of the businesses that try them,” Dholakia said. “The challenge for the daily deal sites in the coming months will be to find these businesses and earn a greater share of their business.”
American consumers have taken it on the chin economically for the last few years but about half of them think next year will be better.
As a roller coaster 2011 comes to a close, many U.S. adults are feeling positive about what 2012 may hold for their finances. According to a new CouponCabin.com survey, nearly half (48 percent) of U.S. adults are optimistic that 2012 will be a better year for them financially than years past.
The survey has many lessons for e-commerce marketers. Despite this optimism, many consumers plan to watch their dollars more closely, a fact that bodes well for the daily deal and discount sites. That’s assuming they have any dollars left to spend after splurging during the holiday season.
On the flip side, 37 percent said they do not think 2012 will be better financially, while 16 percent said they weren’t sure. This survey was conducted online nationwide by Harris Interactive on behalf of CouponCabin.com from November 14th-16th, 2011 among 2,207 U.S. adults aged 18 and older.
More than a third plan a financial overhaul
Part of the financial optimism for 2012 may stem from the many who plan to make major financial changes this upcoming year, as nearly four-in-ten (39 percent) U.S. adults said they plan to overhaul their finances in 2012.
When it comes to how U.S. adults will do the overhauling, three-in-four (77 percent) said they plan to cut back on unnecessary expenses. Rounding out the list were the following:
Cut back on “extras” (e.g., eating out, going to the movies) – 62 percent
Set a budget and stick to it – 54 percent
Use coupons – 54 percent
Plan payments to get out of debt – 40 percent
Make investments (e.g., stock market, mutual funds) – 21 percent
See a financial advisor – 8 percent
Open a savings account – 7 percent
“While 2011 was a better year than the few years before it, many people still faced a lot of financial challenges over the past 12 months,” said Jackie Warrick, President and Chief Savings Officer at CouponCabin.com.
“The good news is that many are looking ahead to 2012 through positive eyes and are optimistic about what the future holds for their finances. Even if some are uncertain about the upcoming new year, many will take the lessons they’ve learned over the past few years and apply them to improve their situations down the road.”
While some U.S. adults are looking at 2012 through rose-colored glasses when it comes to their finances, others are a little more uncertain.
Thirty-seven percent said they feel less financially secure than they did at the beginning of 2011, while 43 percent said they are neither more or less financially secure. More than one-in-five (21 percent) said that when they look back at the start of 2011, they feel more financially secure this year.
Regardless of their financial state, most U.S. adults have at least one financial New Year’s resolution on the docket. When asked what their number one financial resolution would be for 2012, in a random sampling, U.S. adults said the following:
Accelerate paying off my debt.
Be less wasteful when buying groceries.
Buy store brands instead of name brands to save money.
Try to get promoted.
Get on track with making student loan payments.
Save for a down payment on a house.
Increase my retirement savings.
Move to a more affordable apartment.
Pay my credit card balance off each month.
Plan shopping trips well to save gas and time.
Cut back on unnecessary purchases of clothes, shoes and handbags.
Groupon dazzled the investor world with its initial public offering of stock last week, raising $700 million and seeing its share price of $20 pop 40 percent. It was selling at $26.75 in mid-morning trading Monday. But everything is not rosy for the Chicago-based leader in the online daily deals space.
The growth of Groupon Now!, its location-based service, has stalled. Since its launch five months ago, the average weekly growth rate has gone from 37% in June to an average weekly growth rate in September of 6%, with the rate down to 2% in the last week of September, says Beyond.
The actual revenue generated in September from Groupon Now!, originally hailed as Groupon 2.0, was just 0.7 percent of its overall North American revenue.
According to Beyond, which specializes in understanding consumer behaviors online, the data points to a significant challenge with the Groupon Now! model when it comes to winning over consumers.
“Groupon Now! has seen the strongest adoption for spontaneous purchases such as restaurants where the average price per deal is $8 compared to much higher involvement purchases such as medical and dental care. However, with merchants on average making just $171 from Groupon Now! per month versus $22,722 for Groupon and with discounts bigger on Groupon than Groupon Now!, the merchant and consumer incentive isn’t there to drive high adoption rates,” commented David Hargreaves, CEO Beyond.
For years, people have promoted the holy grail of marketing as the ability to offer relevant deals based on people’s location, but even with Groupon’s huge sales and distribution infrastructure its geo-targeted product has failed to ignite consumer interest.
“One of Groupon’s challenges is that people want to get deals from specific brands they care about and yet Groupon has no way making deals highly personalized. Additionally, brands can use multiple different platforms to offer deals to their most loyal customers,” added Hargreaves.
If you think there’s trouble in Dealville, think again. A survey by Borrell Associates and Presslaff Interactive of nearly 40,000 consumers indicates they not only love the deals, but they’re also eager to sign up for more.
And a simultaneous survey of more than 700 local advertisers shows that deals are driving a significant amount of new business as well as repeat business from those new customers.
“The buzz lately about ‘deals’ being burned out appears to be a bit off base,” said Gordon Borrell, CEO of Borrell Associates, which conducted the survey in August and September with Presslaff Interactive.
“The headlines about these programs putting advertisers at risk might just be a reflection of some businesses being unprepared or making bad deals. The survey indicates that a significant percentage of advertisers are seeing business they ordinarily don’t get, and that there’s a lot of growth potential.”
Consumer love deals
The survey offers insights into what consumers and advertisers are thinking about this explosive marketing phenomenon. While the research shows that consumers overwhelmingly love deals, the response from advertisers is more tempered. “Advertisers want more than they’re getting with ‘deals,’“ said Ruth Presslaff, president of Presslaff Interactive.
The survey was launched through local media companies across the U.S., polling consumers who frequented local media websites and small and medium-sized businesses (SMBs) who advertise or participate in deals and coupons programs. It ran Aug. 1 through Sept. 9 and polled 39,040 consumers and 729 advertisers.
Among the findings:
• 91% of the consumers said they’re likely to register for other deals programs.
• 44% have signed up for four or more email lists.
• 81% of advertiser respondents have not yet participated in a deals program
• Of those advertisers who have, the average deal generated 191 sales
• 45% of the sales generated from deals come from new customers, and 22% of them become repeat customers.
“That last bullet point need underscoring,” Presslaff said. “If the average deal means 191 redemptions, that means each deal brings 20 new customers to a business. If one customer means $500 in annual sales to a dress shop or restaurant, that’s $10,000 in brand-new business for every deal launched. When advertisers figure this out, you may see a lot of bandwagon-chasing among that other 81% who haven’t tried out deals yet.”
The survey also asked questions about the frequency with which consumers preferred to see deals (answer: weekly, not daily), the most popular deals and coupons programs used, the types of business establishments most likely to participate in such programs, and the reasons advertisers and consumers participate.
WASHINGTON, DC – Consumers in the Baltimore and Washington, DC areas are using daily deal websites such as Groupon and Living Social and engaging with user-generated product and service review sites like Yelp in ways that impact their purchasing decisions.
The Capitol Communicator/WB&A Market Research Poll, a study sponsored by branding and marketing communications agency ZilYen, queries consumers on their behavior across a range of online activities from exploring daily deal websites to following companies on Facebook and Twitter to scanning QR codes with smartphones for product and service information.
If you’re looking for insight into the Digital Media world in the Potomac region, you might want to check out TechMedia’s Digital East Conference next week (Sept. 28-29) at Tysons Corner, VA. And now, back to our regular program:
According to the July/August study of 836 households, about a quarter of respondents said they purchased online coupons through a daily deal website in the past two months (Baltimore 24%, Washington 30%).
One-third using social media
Slightly more Washington, DC area residents bought a daily deal coupon for a merchant they had not tried before (25%), than for merchants they had made a previous purchase from (21%), whereas a similar proportion of Baltimore area residents purchased these daily deal coupons both for merchants they are trying for the first time and for merchants they had experience with in the past (17% vs. 16%).
Baltimore and Washington, DC area residents are also using the growing reach of Social Media to follow and gain information on companies through Facebook and Twitter. In fact, about a third of residents in both areas “friend” or “like” companies on Facebook (Baltimore 34%, Washington, DC 32%), while almost one in ten “follow” or “tag” companies on Twitter (Baltimore 7%, Washington, DC 9%).
“There is so much online data available that consumers can quickly get information overload when researching a purchase,” says Steve Markenson, president of WB&A Market Research, “so our study provides some insights to help marketers and communicators develop the most effective strategies.”
Other findings from the study available at www.WBandA.com are:
More than half of residents said that user-generated online reviews have impacted a purchasing decision in the past 6 months (Baltimore 57%, Washington, DC 59%). However, a smaller proportion of residents are actually posting reviews themselves (Baltimore 42%, Washington, DC 33%).
There is higher overall smartphone ownership in Washington than Baltimore (58% vs. 42%), with more Washingtonians scanning a QR code for additional information or discounts on products/services (23% vs. 17%).
More Baltimore area residents (59%) would be impacted by an online tax as compared to half of Washington, DC area residents (50%).
“With this snapshot of consumer behavior in Baltimore and Washington we are helping marketers and communicators find the hot buttons of their audiences and ways to reach them,” says Paul Duning, co-founder of Capitol Communicator. “It will be interesting to see how this data changes over time.”
Despite recent news reports questioning the long-term viability of daily deal companies, a new study from researchers at Rice University and Cornell University shows that the companies are more popular than ever among consumers.
“The key finding is that there is no evidence of waning interest among consumers of daily deal promotions,” said Rice University’s Utpal Dholakia, co-author of “Daily Deal Fatigue or Unabated Enthusiasm?” “In fact, the more deals purchased by an individual, the more enthusiastic they seem to be.”
That’s really good news for Groupon which will likely go ahead and launch its initial public offering of stock in late October or early November, according to the New York Times. The company had delayed its IPO plans due to volatile market conditions for the IPO, which could value the company as high as $30 billion.
Dholakia, professor of management at Rice University’s Jones Graduate School of Business, and Sheryl Kimes, professor of hospitality management at Cornell University, examined consumer perceptions of promotions for nine daily deal companies: Groupon, LivingSocial, Travelzoo, Gilt City, OpenTable, BuyWithMe, ScoutMob, eversave and Restaurants.com. The researchers surveyed 973 respondents in August; 655 were daily deal users and 318 were not.
Good news for daily deal companies
Dholakia said the study is good news for daily deal companies, who have been hit hard in recent weeks with reports of the industry’s decline. Even previous research by Dholakia found that not enough businesses are coming back to daily deals to make the industry sustainable over a long time.
The new study shows significant opportunity for growth among consumers, as only 16.7 percent of the research panel’s population has used daily deals before, and the majority of non-users (90.6 percent) haven’t bought a deal because of awareness or access issues.
“We see significant further opportunity for trial and use of daily deals by current non-users,” Dholakia said.
Overall, daily deal customers tend to have little interest in being seen as different or “fringe” in their shopping patterns, are not very careful with their personal finances and do not think about spending issues all the time. They are interested in trying new products and services to have new experiences to talk about and influence others. They are attracted to a deal because it is a deal, and are likely to be less sensitive to the actual terms of the offer made by the merchant.
“All of these psychological characteristics indicate that the underlying motivations for purchasing daily deals are complex and multifaceted, having to do with more than just saving money,” Dholakia said.
The study brings into question one of the basic beliefs held by most in the daily deal industry. “There is a theory that consumers must be offered ‘deep’ discounts (50 percent or more) to be interested in daily deals,” Dholakia said.
“Our research shows that a significant number of consumers will continue to buy the deals even if the discounts are slightly smaller. This is a significant finding because my previous research showed that businesses find huge discounts to be unsustainable. The industry seems to be operating under the opinion that deep discounts are the only way to be successful, but that’s not the case.”
The study was funded by the Cornell Center for Hospitality Research and Rice University.
It seems like everyone these days uses coupon sites like Groupon for everything from dining to vacations to laser hair removal. These sites can be an interesting new way to get the word out about one’s business to thousands of people. For business owners looking to promote their company or product, the growing number of locally-oriented coupon sites can be daunting.
Small business owners considering using coupon sites to promote their business might want to check out the Business Finance Store’s blog post “Coupon Sites: Deal or No Deal?.”
The Business Finance Store raises a few issues to consider when choosing a coupon site to promote one’s business. While it may seem easy to advertise a coupon on a website, knowing a few things issues before getting started will be immensely helpful to small business owners.
Coupon sites have the potential to improve a company’s business. However, success with coupons and deals requires finesse and good communication. Read about a few things business should think about before using coupon sites at the Business Finance Store’s blog.
The Business Finance Store is a business financing and consulting firm that offers customized Business Financial Solutions. Seasoned professionals offer assistance in a variety of financial solutions to help small businesses succeed such as: Business Financial Solutions , Legal Solutions, and Accounting Solutions.
For 10 years The Business Finance Store has been helping startups and other small businesses legally structure their companies, find the right franchises, get the funding they need, and to achieve the American Dream of owning their own successful business. Since expanding nationwide in 2007 they have helped thousands of companies and have funded over $60 Million in business credit lines, not including SBA loans.
Zulily lands $43M for boutique brand daily deal site
Yet another dialy deal site is racking up significant investment dollars. San Franciso-based Zulily (www.zulily.com), the destination site best known for offering daily deals up to 90 percent off the most popular and up-and-coming boutique brands for moms, babies and kids, today announced it has received $43 million in funding. Meritech Capital Partners, the preeminent late-stage investment firm behind several successful Internet companies such as Facebook, Zipcar, and PopCap Games, led the investment with participation from existing investors. This latest round brings the total funds raised to date to $53.6 million.
Zulily will use the additional capital to hire more employees and fund other marketing and growth initiatives. In conjunction with the financing, Zulily is expanding its board to include Craig Sherman of Meritech.
Zulily was co-founded by Darrell Cavens, the former senior vice president of marketing and technology at Blue Nile, and Mark Vadon, the chairman and founder of Blue Nile. Cavens and Vadon started the company shortly after becoming new dads and realizing that the shopping at big box retail outlets and boutique stores did not provide a broad selection of unique, high-quality children’s apparel, gear and toys at reasonable prices.
Rocket Lawyer nabs $18.5M for online legal servcies
San Francisco-based Rocket Lawyer, the fastest growing online legal service, announced today that it has raised $18.5 million in expansion capital. The financing, led by August Capital and including Google Ventures and Investor Growth Capital (IGC), will be used to continue building Rocket Lawyer’s brand and patent-pending online legal solutions.
Rocket Lawyer helps users create customized legal documents that can be electronically signed online and shared instantly or downloaded for printing. Legal plan members have access to free document reviews from local attorneys, and deeply discounted rates on legal fees for more complicated legal services. Visitors to Rocket Lawyer have grown over 100 percent, year over year.
25 billion stumbles
People have clicked on the StumbleUpon button more than 25 billion times, a company exec said in a tweet. The ten-year-old company is racking up 1 billion stumbles a month. We use StumbleUpon ourselves quite often and it has introduced us to new sites that indeed catch our interest.
Over the past six months, daily deal sites such as Groupon, Living Social and Gilt Groupe have attracted more than $1.69 billion in venture capital and other investments according to the new 2011 Daily Deal Investment Index released today by Daily Deal Media. Overall, 22 Daily Deal companies have received investments in the past six months.
“This market is exploding, with the number of daily deal companies growing from 70 to more than 350 in the past year,” said Boyan Josic, CEO of Daily Deal Media, the leading publication covering the daily deal market.
“Despite a conservative approach from many investors, as daily deals companies build scale and expand reach, they are finding support from the investor community. We see no signs of the market slowing down as an increasing number of sites test the market, helped by low barriers to entry.”
The 10 largest investments of the past six months include:
Half Off Depot
Globally, there are more than 3,000 total daily deal companies, including more than 1,000 in China, more than 900 in Europe and more than 600 in South America.
For more information or to purchase a copy of the 1H 2011 Daily Deal Investment Index, which includes a comprehensive breakdown of the deals and profiles of more than 30 leading Daily Deal companies, visit dailydealmedia.com/data-and-reports.
Daily Deal Media is a news, information and data resource for those interested in the Daily Deal industry. Known for its breaking news and unbiased market insight, the company provides its readers with valuable insight, resources, industry reports, forums and conferences.