Daily Deals Business Continues to Grow

Source: livingsocial.com

Rumors of the daily deal's demise have been greatly exaggerated.

Despite past studies questioning its long-term viability, the daily deal industry is showing no signs of slowing down, new research from Rice University finds.

"Overall, the results find little or no evidence of deterioration in the performance of daily deal promotions over the past year or as the business operator runs multiple daily deals," said Utpal Dholakia, the study's author. "Rather, there is improvement on some metrics."

The research found that while less than half of the businesses offering their first daily deal had profitable promotions, three-quarters of those running seven or more deals made money, up 6 percentage points over the past year.

The promotions are are paying off most for new and small businesses. Businesses with annual revenue below $500,000 saw a 41 percent customer retention rate from daily deals, compared with just 15 percent retention for larger businesses.

Companies founded within the past six years had a 39 percent retention rate after seven deals, compared with 23 percent for older, well-established businesses.

"These findings indicate that daily deal promotions appear to be sustainable marketing programs for about one-third of the businesses that try them," Dholakia said. "The challenge for the daily deal sites in the coming months will be to find these businesses and earn a greater share of their business."

Overall, photographers, with a 75 percent rate of profitability, have found the most success with daily deal promotions. Other types of businesses seeing high rates of profits from daily deals include health and fitness services, tourism-related services and doctors and dentists.

On the opposite end of the spectrum, cleaning services, restaurants and bars and retailers were the least likely to make a profit from the deals.

The study, "How Businesses Fare With Daily Deals As They Gain Experience: A Multi-Time Period Study of Daily Deal Performance," was based on survey data from 641 small and medium-size businesses.