Businesses that are running daily deal promotions using services Groupon and LivingSocial aren’t necessarily profiting as a result, explains Helen Leggatt in her article “Most Daily Deal Buyers Don’t Come Back” (BizReport.com).
According to Utpal Dholakia, associate professor of management at Rice University’s Jones Graduate School of Business, “only about 20% of customers using daily deals return to businesses to buy at full price.” He says that customers who initially interact with a brand through a daily deal also have lower rates of full-price repurchases.
But is this really a problem? After all, almost 80% of people who purchased a daily deal were new customers.
In an economy where consumer dollars are stretched incredibly tight, I do see benefits to exposing new customers to your brand even if they can’t afford to come back and buy your items at full price tomorrow. Offering daily deals serves as an opportunity to raise brand awareness and increase brand loyalty; when the economic tides turn, customers might be excited to spend their dollars on those items they could only buy “on sale” in the past.
Dholakia, however, sees this short-lived loyalty as “symptomatic of a structural weakness in the daily deal business model.”
Consider the following:
- 35.9% spent more than the value of the deal at the time of redemption
- 55.5% of businesses reported making money, 26.6% lost money, 17.9% broke even on their promotions
- 48.1% of businesses said they would consider running another daily deal, 19.8% said they would not, 32.1% said they were unsure
What do you perceive these numbers as suggesting? Should businesses continue to use daily deals as part of their advertising strategy? I invite you to join the discussion and share your comments below.