How Businesses Fare with Daily Deals as They Gain Experience: A Multi-Time Period Study of Daily Deal Performance

Abstract

We examine performance of daily deals using survey data from 641 small- and medium-sized businesses obtained during three time periods: April-May 2011, October 2011, and May 2012. In contrast to our June 2011 report, our present findings indicate a number of positive signs for the daily deal industry, notably: (1) the incidence of profitable promotions has remained stable over the study’s duration (between 55% and 61%); (2) the likelihood of enjoying profitable promotions is associated positively with the operator’s experience with them. Less than half of the businesses running their first daily deal report profitable promotions, whereas more than three quarters of those running seven or more deals do so; (3) daily deals are just as likely to be successful for businesses that don’t do any other marketing at all as those that spend heavily on marketing activities; (4) performance metrics of completed daily deals have remained largely stable since May 2011, and have even improved on some measures like spending by deal users beyond the voucher’s value and spending by repeat customers in the most recent May 2012 sample; (5) businesses continue to attract close to 80% new customers even when running their seventh (or more) daily deal, and see equally stable conversion rates for repeat purchasing and spending beyond deal value; (6) the daily deal site’s share of revenue increased marginally from 42.5% in October 2011 to 45% in May 2012; (7) the calculation of dropout rates (i.e., businesses not intending to run daily deals again in the future) indicates that daily deals appear to be sustainable programs for approximately 30% of businesses; and (8) newer and relatively smaller businesses have even higher sustainability rates of close to 40%. We also find that restaurants and retailers (store-fronts and offline) are having a more difficult time making daily deals work compared to other industries, whereas salons and spas, and health and fitness services are doing relatively well with daily deals. Taken together, our results find little or no evidence of deterioration in the performance of daily deal promotions over the past year (April-May 2011 to May 2012) for small and medium-sized businesses or with experience as the business operator runs multiple daily deals. Rather, there is improvement in some metrics.

Keywords: daily deal promotions, Groupon, LivingSocial, price promotions, SMEs, small and medium sized businesses, marketing