Do Groupon, Living Social Work?

The promise to businesses is that social coupon sites like Living Social and Groupon will bring new customers in the door. While the sites may bring them in, research is showing they are not coming back.

A Rice University study authored by Utpal Dholakia, associate professor of management at Rice’s Jones Graduate School of Business, shows that 19.9 percent of deal users are returning for full-price purchases at restaurants, bars, salons, and other retailers.

“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,” said Dholakia.

Other findings from the research:

  • 35.9 percent of deals users spend more than the voucher value when visiting a merchant.
  • 21.7 percent of them never redeem the vouchers they’ve paid for.
  • 55.5 percent of businesses reported making money on their promotions, 26.6 percent lost money, and 17.9 percent broke even.
  • 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.
  • 80 percent of deal users were new customers.

Daily deals appear to work better for some markets than others. Among industries, 70 percent of marketers in special events, health, and services made money on their promotion. Conversely, 43.6 percent of the restaurants surveyed financially profited from the promotion, and only 35.9 percent of them intend to run another daily deal.

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