Why the Numbers Are Stacked Against Daily Deal Sites

By Mikal E. Belicove|For Entrepreneur.com|June 16, 2011

Despite all the hoopla surrounding the growing army of daily deal websites, researchers at Rice University’s Jones Graduate School of Business say the business model is standing over the coffin holding the final nail, and looking for a hammer.

Utpal Dholakia, an associate professor of marketing at Rice, has released his third study on the daily deals industry called How Businesses Fare With Daily Deals: A Multi-Site Analysis of Groupon, LivingSocial, OpenTable, Travelzoo and BuyWithMe Promotions. The 31-page study looks at daily deals from these five major sites in 23 markets in the U.S. as well as 324 businesses that participated in a daily deal promotion sometime between August 2009 and March 2011.

To sum up his exhaustive report, Dholakia says there isn’t enough repeat business to make online daily coupon promotions sustainable in the long run. Among the “red flags” raised in the study is that nearly 80 percent of deal users (consumers) were first-time customers, and few of them (35.9 percent) spent beyond the deal value. Only 19.9 percent said they returned later for a full-price purchase. A surprising 21.7 percent said they never even redeemed the coupons they purchased.

“The days of running a costly deal on an unfocused group-buying site with an audience full of bargain hunters is done,” says Martin Tobias, CEO of Tippr, which touts itself as…

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