According to a recent study of daily deal performance by Rice University, profits have improved for companies that offer multiple deals.
Thirty percent of the 641 companies in the study currently use daily deals as a part of their efforts to build sales and customer loyalty.
According to the research, newer and small companies have benefited the most from the daily deal concept, with 40 percent reporting a sustainable use of daily deals. The loyalty benefits are there in addition to the initial sales. Companies that have been launched within the past six years had a 39 percent retention rate after seven deals, better than the 23 percent retention reported by established businesses. Firms with less than $500,000 in annual revenue reported a 41 percent retention rate versus the 15 percent retention rate of larger firms.
Though some analysts have questioned the sustainability of the daily deal business as more firms enter the business and as leader Groupon has financial difficulties, the research found “little or no evidence of deterioration in the performance of daily deal promotions over the past year for small and medium-sized businesses or with experience as the business operator runs multiple daily deals. Rather, there is improvement in some metrics,” said report author Utpal M. Dholakia, a professor of management at the Jones Graduate School of Business at Rice.
According to Dholakia, the rate of new customer acquisition with the most recently completed daily deal is close to 80 percent, even when a company has run seven or more previous deals. About one-third of these become repeat customers.
“Over the longer term, the daily deal’s success hinges on its ability to convert a significant proportion of the new customers that the deal brought in into repeat buyers who then return to repurchase from the business again and again at full price,” Dholakia said in the report. “Such regular sales to repeat customers usually enjoy higher margins (because repeat customers are not as price-sensitive) and contribute to both the profitability and growth of the business.”
Dholakia added that loyalty levels are low for businesses running multiple daily deals. For their second deal, just over half (54 percent) of the businesses go with the same daily deal site they used the first time, and by the time they have run seven or more deals, more than 90 percent of them have used multiple daily deal sites. Only 8.6 percent have used the same site for all their daily deals in this experienced group of businesses
The number of profitable daily deals increases with a company’s experience. Less than half of the businesses had profitable daily deal promotions on their initial tries. More than three quarters of them have profitable promotions by the time they have run seven or more deals.
Businesses that spent very little or nothing on marketing activities were just as likely to have profitable promotions as companies that spent significantly on marketing, Dholakia added.
Businesses with the best success were photographers, 75 percent rate of profitability on daily deals; health and fitness, 69.3 percent; tourism-related services, 68 percent; and doctors and dentists, 66.7 percent. Performing poorly were cleaning services, 27.3 percent; restaurants and bars, 44.2 percent; and retailers, 50 percent.