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Do Daily Deals Encourage Repeat Business?

Companies are skeptical about the long-term payoff of daily deals

While daily deals become increasingly popular with consumers, there is conflicting information about whether such offers are worth it for businesses. For some, the payoff does not justify the payout even though others enjoy profits and new customers from the venture.

In a June 2011 MerchantCircle survey of small businesses, the leading reason for liking daily deals was customer acquisition (58%) while at the same time ineffective customer acquisition was also listed as the top reason for not offering a daily deal again (42.4%).

Giving discounts to consumers who would have patronized the establishment anyway is also a concern. According to a ForeSee Results survey, this is not unfounded. Thirty-eight percent 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 Utpal M. Dholakia at Rice University painted a slightly different picture of daily deal-driven customers. With the exception of OpenTable, which focuses exclusively on higher-end restaurants and had a small response rate, new customers made up more than 77% of deal buyers for the sites studied. All spent over the deal value and, on average, about 20% became repeat customers.

ConsumerSearch.com and The About Group discovered that an overwhelming majority of those who had used a daily deal returned even without another discount. Fifty-three percent of redeemers went on to become regular customers.

Restaurants have a similar rate of return, according to Technomic, a food industry research firm. Sixty-seven percent 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.

Even though these statistics for return business range from roughly 20% to 70%, it is not a wholly discouraging prospect. It is worth noting that the higher Technomic and ConsumerSearch.com figures were self-reported by consumers, while the lower number came from the businesses that agreed to participate in the Rice University study. The reality likely lies somewhere in between.

The surveys also differed in how likely businesses said they were to go down the daily deal road again. Close to half (48.1%) of the Rice University group said they would offer another daily deal, while a third were uncertain. The small businesses surveyed by MerchantCircle were more optimistic: 77% would run another such promotion.

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Check out today’s other article, “Children of Gen Xers Are Key Brand Influencers.”

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