“Daily Deal” Discounts Not About The Discount

So-called "daily deal" websites, like Groupon and living social, use e-mail and social media to offer consumers discounts at local businesses. Some recent media reports and studies have indicated that daily deal sites may be in trouble, with consumers getting sick of all the offers. But a Rice University business professor says not so fast. Carrie Feibel reports his research indicates there’s a future for these companies, but not for the reasons you might think.

This summer, Yelp started offering fewer daily deals, and Facebook pulled out of the business entirely.

But Rice professor Utpal Dholakia thinks there’s still a strong market for these businesses.

“There’s a lot of room for this industry to grow. Simply because most people have not tried daily deals so far.”

Dholakia estimates that only 17 percent of consumers have used a daily deal coupon.

Many people either don’t know about the websites yet, or live in smaller towns where the local businesses aren’t offering the coupons.

Dholakia and a professor from Cornell University surveyed both consumers who use the sites and those who don’t.

The most compelling result refutes the conventional wisdom about who uses the coupons. It’s apparently not the penny pinchers.

“It is exactly the opposite type of people, the people who don’t care as much and who don’t control their personal finances and who do not think about their personal finances all the time, those are the people more likely to purchase daily deals.”

People like the discounts, sure, but Dholakia says other motivations are at work here. Principally, the chance to try something new and then talk to family or friends about what it was like. 

Analysts call those consumers “market mavens.”

“First they want to go out and experience new products and services. And then second they want to talk about and influence their social circle.”

For these consumers, shopping is an experience, not just a way to save money.

To survive and thrive, daily-deal sites need to target them. That means maybe offering a smaller discount but a more unique or complex experience.

Dholakia says daily deal websites might be able to get more local businesses to participate, if they don’t have to offer such a huge discount.