Marketing to Women: Only 1 in 5 Groupon Users Return

A new twist on the old 80-20 rule about advertising holds true for Groupon and other daily group deals.   A second study from Rice University on group deals reported in Clickz.com finds only 19.9 percent of deal users are returning for full-price purchases at restaurants, bars, salons, and other retailers.

An earlier study in 2010 found that Groupon promotions were unprofitable for 32 percent of the businesses surveyed and over 40 percent of those businesses indicated they would not run a comparable promotion again.  This new study has caused some critics to wonder if daily deal sites will survive due to the low levels of loyalty exhibited by deal users.

However, daily deals do get the attention of those coveted new users;  some 80% of deal users are new customers, and any coupon program should really only encourage trial.

Here are some other findings from Rice University’s research:

• 35.9 percent of deals users spend more than the voucher value when visiting a merchant.  Marketers need to have a strategy for incremental sales.
• 21.7 percent of them never redeem the vouchers they’ve paid for.  In traditional coupons, some 98% of coupons are never redeemed, although it makes sense that once you have paid for something, you are more likely to redeem it.
• 55.5 percent of businesses reported making money on their promotions, 26.6 percent lost money, and 17.9 percent broke even.  Breaking even is the best that one can expect because of the cost of Groupon deals.  Most marketers can only receive 25% of the face value of the deal.
• 48.1 percent of businesses planned to run another daily deal promotion, 19.8 percent indicated they would not, and 32.1 percent didn’t know for sure.  Making sure you are encouraging trial of a new product or service, or growing business in the slow periods might be a strategy for running a daily deal.

So, what businesses seem to benefit from daily deals?  The study reports that two of the industries on which daily deal sites rely most — restaurants/bars and salons/spas —aren’t finding the greatest success through the promotions. Only 44 percent of the restaurants surveyed earned a profit from the daily deal, and just 36 percent intend to run another such promotion in the future. While 53.7 percent of salons and spas made money on the promotion, less than 42 percent said they intend to run another daily deal.

The word of caution for marketers.  Have a real objective for your daily deal strategy.  Don’t expect to make money, but have a plan for getting first time customers to either purchase incrementally or come back a second time.

I don’t know enough to prognosticate the future of Groupon and Living Social.  Fad or here to stay?   Groupon has certainly invested money in recruiting customers to the point of not making a profit.  And competition is rampant, offering better deals for marketers who shop around for the best audience for their product.

The true legacy of all of these daily deal sites is the continued reliance on coupons and deals driving sales.

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