Daily deal sites in decline

Make the most of daily deal sites such as Groupon and LivingSocial – because they’re set for a big decline, according to a Rice University professor.

Over the next few years, he says, they’re likely to have to settle for lower shares of revenues than now, and it will be harder and more expensive for them to find viable candidates for their daily deals.

Utpal Dholakia, associate professor of management at Rice University’s Jones Graduate School of Business, has found that there’s very little difference between companies in the ever-expanding competition for consumer dollars, and it will be difficult for any one site to stand out from the others.

Dholakia examined the performance of daily deals run through Groupon, LivingSocial, OpenTable, Travelzoo and BuyWithMe Promotions in 23 US markets.

“The major take-away from the study is that not enough businesses are coming back to daily deals to make the industry sustainable in the long run,” he says.

“And our results from three studies and close to 500 businesses surveyed show that the deals are nowhere close to the rates of financial success for participating businesses that some companies claim to be having.”

Customers seem to be losing interest too. Over a fifth of deal buyers never redeem the vouchers they’ve already paid for, he says.

And lthough close to 80 percent of deal users were new customers, significantly fewer users spent beyond the deal’s value or returned to purchase at full price.

“For consumers, I’d say to be cautious about buying a daily deal. If you’re going to purchase a voucher, make sure you use it before it expires,” says Dholakia.

“Right now the getting is still good for the consumer, but that isn’t going to last much longer as these steep discounts won’t and can’t last very much longer.”