Saturday, June 18, 2011

Fortune: 'Grim news' in daily deal sites study

The new Rice University study found that only 20% of coupon users become repeat customers of businesses offering deals through services like Groupon and LivingSocial, according to this Fortune magazine story. Other companies like Google are targeting the space -- as is Gannett, of course, through its still-developing Deal Chicken site.

As competitors pile into the market, Rice management professor Utpal Dholakia found, the business will only get tougher, especially if perception grows among small companies that daily deals don't generate much new business.

The study, published this week, comes as Gannett is expanding its Deal Chicken site to dozens of GCI markets. So far, it's only offered in Phoenix, where it was launched in September.

"Over the next few years," Dholakia wrote, "it is likely that daily deal sites will have to settle for lower shares of revenues from businesses compared to their current levels, and it will be harder and more expensive for them to find viable candidates to fill their pipelines of daily deals."

Dholakia surveyed 324 businesses that offered deals from August 2009 to March 2011 from five coupon services: Groupon, LivingSocial, OpenTable, BuyWithMe and TravelZoo.

Earlier: Dozens more jobs point to Deal Chicken expansion.


  1. 20% become repeat customers? Doesn't sound so bad to me especially with this still being a relatively new concept. That's one out of every five people that walk in the door coming back for more business. However, I agree that as this business model becomes more and more diluted with all the daily deal options out there, I can see having to settle for lower shares. Especially as the economy improves and businesses become more savvy -- playing the daily deal companies against each other. Those daily deals that were first in the gate and having the most success (i.e. Groupon) will be able to keep higher margins while those late to the game (i.e. Chicken S*it) will probably have to settle for lower margins or get out of the game altogether. Not all of those daily deal services will survive. Survival of the fittest.

  2. Outside of the social networking and the huge cost to the business how is this different from ValPack coupons?

  3. Again, I don't think most people, including those on this blog, truly understand the GroupOn business model. Here's how it works: GroupOn goes to the local business and says "we'll give you $7,000. In return we'll give out these coupons for your product. Any revenue generated from the coupons is split between us".
    So the local site gets a a big intake of money (the $7K figure is just an example), and then whatever revenue comes in, regardless if it is $5K, $15K or $30K, is divided between GroupOn and the retailer. So the retailer could make out great if they don't sell much from the coupons, or they could take a big hit. Why would they do this? Yes, it's a form of advertising guaranteed to get customers in the door, and there's this carrot dangling in front of them in a large initial cash investment, but it could really kill them. GroupOn tells them what deals to do and when to do them.
    And it could all backfire on GroupOn if they sign up a bunch of retailers who end up going out of business before they get the return on their investment.

    I don't know what Deal Chicken's model, or what other coupon sites use for their business model, but GroupOn's is crap.

  4. 8:23 I don't believe Groupon guarantees any upfront payments -- at least, not according to its own FAQ or its GrouponWorks for business slideshow.

    The premise of the system is this: Groupon and the merchant only make money when a minimum number of customers buy the coupons. If that number isn't reached, the deal is canceled. The merchant isn't out anything, because it didn't put down any money up front. Only Groupon loses, because it has to eat the marketing costs.

  5. appleton post cresent web had a pencil ad for deal chicken coming soon this week. who's selling that in wisconsin - local ad sales or are they trucking in "professionals"?

  6. Why is everyone peeing on Deal Chicken? Aren't we all better off it succeeds? It has worked well in Phoenix.

  7. 11:25 a.m., Oshkosh Northwestern has that ad on their website, too. Earlier this week it said, brought to you by the Post-Crescent. Duh. They've since removed that line.

    Don't know about the ad selling, however.

  8. Google "Groupon Ponzi scheme." Lots of people are writing about the similarities.

  9. You know that game Angry Birds that's really popular? Jim and Spanky play a similar game -- Angry Butts.

  10. This comment has been removed by a blog administrator.

  11. Read this, Jim:

    And this:


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