Todd Sprinkle led QVC’s foray into mobile commerce.
Despite signs of consumer fatigue, a researcher says daily deals have staying power.
The main problem facing daily deal providers such as Groupon and LivingSocial is not consumer boredom with limited-time online discount offers, but making more shoppers aware of the deals, according to a Rice University researcher who this week released a study about the market.
Utpal Dholakia, an associate marketing professor, found that 45.3% of consumers who don’t receive daily deal offers said they don’t even know about daily deal web sites; other reasons consumers don’t sign up to receive daily deals include vouchers not being offered in the shoppers’ areas, the view that vouchers hurt businesses, and the worry that using a voucher will lead to poor service.
“There is no evidence of waning interest among consumers of daily deal promotions,” he says. “In fact, the more deals purchased by an individual, the more enthusiastic they seem to be.” Supporting that is the report’s finding that only 27.5% of consumers who have bought at least five daily deal vouchers said they buy daily deals less often than they used to.
Dholakia bases his findings on a survey of 973 consumers, 318 of whom receive daily deal e-mail marketing messages and 655 who do not. His report arrives amid signs of daily deal fatigue; traffic to the more than 50 daily deal sites tracked by Experian Hitwise was down 25% as of Aug. 26 from its peak in the second week of June, for instance. And Facebook recently shuttered its daily deal offering, though it still offers a mobile version of the discounts.
Dholakia says his research indicates that daily deal operations such as Groupon and LivingSocial should increase awareness and access to their deals. If daily deal sites ramp up their marketing efforts, particularly through broadly accessible means like TV commercials, and enter more markets, more consumers would use daily deals, says the report.
Such broad marketing efforts can prove costly, though. For instance, Groupon spent $345.1 million on online marketing initiatives aimed at acquiring new customers in the first half of the year, according to the company’s initial public offering filing.
But if those marketing efforts can attract heavy users of daily deal vouchers, defined in the report as those who have purchased 11 or more deals, it may be worthwhile. The majority of those consumers said they are eager to check their e-mail for deal offers every day, believe that the vouchers help them save money on products they would have purchased anyway and integrate the deals into their usual shopping behavior. And all of the heavy users said they will likely purchase another voucher within the next month.
One of the main criticisms of Groupon and similar operators is that they suck too much revenue from merchants, who often only receive half the purchase price of a voucher, says Dholakia. But the report found that consumers will continue to buy deals even if the discounts are smaller. Discounts that are less than 50% are often found on Groupon Now and LivingSocial Instant Deals, both of which are accessible via mobile devices. “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,” he says.
Dholakia’s findings help explain why media research and consulting firm BIA/Kelsey this week released an update to its daily deal forecast that suggests that U.S. consumer spending on Groupon, LivingSocial and other daily deal programs will reach $1.97 billion this year, up 125.7% from $873 million in 2010. Among the reasons cited by BIA/Kelsey for the revision include the continuing growth of Groupon and LivingSocial and a jump in the average price per daily deal transaction.
The consulting firm expects daily deals to maintain a 36.7% compound annual growth rate through 2015. That would peg revenue at $4.17 billion in 2015.
“A strong foundation has already been created in the promotional ecosystem of this young industry,” says Mark Fratrik, BIA/Kelsey vice president and chief economist. “We believe daily deals reinforce other advertising and that related services, like instant deals and flash sales, will significantly boost income for key players.”
BIA/Kelsey estimates that consumers can shop offers from more than 600 daily-deal sites, including both destination sites and other providers that funnel deals that local media companies then can brand as their own.
“The deals market continues to grow, despite the recent departure of Facebook and others that may not have been well-equipped to invest the time and money necessary to participate in such a crowded market,” says Peter Krasilovsky, BIA/Kelsey vice president and program director, marketplaces. “We expect to see local media companies leverage their existing promotional, sales and other local assets to play a significant role in this industry, alongside today’s deals leaders Groupon and LivingSocial.”