Merchants, Analysts Debate The Longevity of Daily Deals

Daily deals have emerged as a way for retailers to increase customer acquisitions and overall purchase rates. Sites such as Groupon and LivingSocial offer consumers limited-time deals and specials for services from merchants, restaurants and salons, retail items and other consumer-oriented goods. Despite the recent departure of Facebook and Yelp from the daily deal space and reports of deal redemption issues, a new study from Rice and Cornell universities reveals that daily deal usage is still thriving.

The study, titled “Daily Deal Fatigue or Unabated Enthusiasm?,” spotlighted purchase behaviors and consumers’ overall opinion of daily deal sites. In the survey of 655 consumers that have purchased at least one daily deal, participants were separated into three categories: novice users who have purchased between one and four daily deals in the past; experienced users who have purchased between five and 10 deals; and heavy users who bought 11 or more offers.

Based on a 1:7 scale ― 1 representing respondents who “strongly disagree” and 7 being those who “strongly agree,” novice users rated a 4.09, indicating that the daily deal offer incents them to buy products/services they normally would not. Results also revealed that many consumers are repeat users: only 3.8% of heavy and experienced daily deal users tap into the sites less often than they have previously.


“The key finding is that there is no evidence of waning interest among consumers of daily deal promotions,” said Utpal Dholakia, Professor of Management at Rice University and co-author of the study, in a press statement. “In fact, the more deals purchased by an individual, the more enthusiastic she seems to be.”

In today’s challenging economic environment, consumers are redeeming online coupons for discounted merchandise, special trips and meals, and must-have deals on salon services such as massages and manicures. While the deal itself piques consumer interest, sites often limit coupon availability to a maximum of two days to increase purchase urgency. As consumers grow savvier in thrifty spending techniques across channels, it is vital that retailers stand out by offering incentives to extend the reach of their brand and merchandise.

“The daily deal phenomenon couldn’t have come at a more opportune time for deal providers, consumers and merchants,” Emily Keye, Marketing Strategist for Bronto Software told Retail TouchPoints. “The recession and the uncertain recovery have had a tremendous impact on consumer shopping habits. While many studies show people have cut spending on luxury items and are being more frugal, consumers still want and need to spend on fun and entertainment now and then — that’s where daily deal sites come in. They enable consumers to stick to the ‘new normal’ of being frugal while still enjoying themselves.”

Research conducted by ForeSee Results also highlights great potential for retailers that leverage daily deals. In a survey of 22,000 consumers, more than 66% were enrolled in at least one daily deal email program. These users were regularly active in purchasing and redeeming deals: more than half (55%) noted that they redeemed more than one offer in a three-month period.

While retailers are leveraging daily deals to drive incentive purchases, many also are partnering with sites like Groupon and LivingSocial in an effort to increase brand awareness and customer loyalty. Industry experts, however, indicate that the success or failure of daily deals relies on the number of consumers who become loyal customers after purchasing a digital offer. “The goal of most coupon and discount promotions is to attract new shoppers with the allure of a discount, then turn them into loyal customers,” said Larry Freed, CEO of ForeSee Results. “But ultimately, the effectiveness of the daily deal comes down to how many people actually were customers already and how many of them were new. That’s the key driver of whether it’s going to be worthwhile for retailers.”

Maximizing Success Through Daily Deals

While many merchants release daily deals in an effort to increase their consumer base, they also can use these types of deals to deplete overstocks during transitional selling seasons.

For example, many may turn to daily deals to drive in-store traffic and sell excess inventory during the pre- and post-holiday shopping season, according to Freed. “It will be interesting to see how retailers will use daily deals during the holiday season, especially since the shopping season seems to start earlier and earlier, and retailers grow more eager to roll out discounts.. When the holiday season winds down, it also will be interesting to see if retailers use daily deals as an accelerant to sell excess inventory.”

While retailers are reaping a number of benefits from daily deals, , they also must be cautious about the long-term brand implications of leveraging coupons and discount tactics. Freed suggests retailers ask themselves a few key questions: Does couponing accurately represent the company’s brand image? What is the potential long-term effect of couponing strategies on customer loyalty?

“If your goal is to get rid of the inventory at minimal margin, going into your loyal base with deals is a great way to do it,” Freed noted. “If you’re looking to broaden your appeal, daily deals are a great way to get people in store. But you have to be careful about how you train your customers. Are you training them to just wait for the sale?”

Depending on business model and vertical, merchants also must consider how daily deals will affect the overall customer experience. Service merchants, such as salons or restaurants, may have more at risk than those selling products, such as big box stores.  “If you’re a loyal Nordstrom customer and the store is out of what you want, it is less hurtful to the relationship than if your need was service-oriented, such as a manicure.”

While some merchants are finding success offering their deals via sites like Groupon and LivingSocial, others ― such as Bloomingdale’s and Neiman Marcus ― are doing it alone. This presents an opportunity for the individual retailer to implement a daily deal model that best represents the specific brand image and target consumer base, according to Keye. “Leading daily deal providers have already proven the tremendous success of the business model but marketers are beginning to consider ways to make their deals stand out in such a competitive email inbox.”

Part II of the Daily Deal Update will be published in the October 27 Retail TouchPoints newsletter.

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