Are Deals Dumb?

Image by Getty Images via @daylife

As I read my daily emails from Groupon, LivingSocial, and a couple of other daily deal sites, I started thinking once again about the wisdom of these things. Not so much from a consumer perspective because, frankly, anything that saves me money is OK in my book. From a business perspective, however, there are a number of on-going questions about which there’s a lot of conflicting information. Let’s lay some of it out and get your perspective.

If you’re not familiar with daily deals and how they work for a business, the very short version is that you as a business owner agree to charge a lot less for something in return (you hope) for incremental business.  It’s sort of a mix between couponing and free samples since if the business is giving the consumer half (or more) off and then only getting half (or less) of what the customer is paying (the rest goes to the deal site), there isn’t a lot (maybe 25%) left to cover the cost of goods or services.  It’s not a bad thing, in my opinion, if you’re a service business (nail salon, dentist) with fixed costs and unbooked time.  If you’re a restaurant, however, you might draw in a lot of new customers that are not covering the costs of what they’re eating (bar bills and tips are usually excluded from the deal and patrons are encouraged to tip on the what the full bill would have been so the wait staff doesn’t suffer).

From the examples you can figure out that if a good percentage of the deal folks return to pay full fare, it works out.  It also is great if they’re all new customers and not regulars who are just paying a lot less.  So here’s what’s confusing:

• According to a ForeSee Results survey, 38% of daily deal buyers—the largest share—said they were already loyal to the business offering a deal. However, nearly a third were new customers and the same percentage had been swayed by a discount after having either visited only sporadically or had stopped patronizing the establishment altogether.
• A survey conducted by Rice University painted a slightly different picture of daily deal-driven customers.  New customers made up more than 77% of deal buyers for the sites studied. 35% spent over the deal value and, on average, about 20% became repeat customers.
• According to Technomic, a food industry research firm,  67% of consumers claimed to have gone back to businesses where they had previously used a daily deal. In this survey, 48% of daily deal buyers were new customers and 83% ended up recommending the restaurant to family or friends.

So if it’s your business, what would you do?  Have you used any deal sites either personally or professionally?  What’s your take?