In a new survey, roughly 400 hundred businesses that have offered special discounts through Groupon, LivingSocial, and other daily deal sites in the past were asked if they had plans to run daily deals in the future. More than half (52%) said they wouldn’t offer a daily deal in the next six months, while 24% said they’d run just one deal in the half-year ahead. After news of the survey broke, Groupon’s stock price dropped by over 6%—on a day when most of the stock market soared.
When Groupon stock made its IPO in early November, the price per share was $20. After yesterday’s 6.6% decrease, a share was going for $19.27.
The survey at least partially responsible for the price dip was jointly conducted by Yipit, the daily deal site aggregator and research firm, and the Susquehanna Financial Group.
While the survey data show that three-quarters of the merchants polled plan on offering no more than one daily deal over the next six months, it doesn’t mean that Groupon or the daily deal market as a whole is hurting. The businesses surveyed aren’t necessarily suffering from the retail equivalent of “Groupon remorse,” or the regret some consumers feel when they realize how silly it was to buy a restaurant daily deal voucher when they already have a stack of unused vouchers. In fact, 8 in 10 of the merchants surveyed reported being satisfied with their participation in daily deal promotions.
More and more, though, businesses seem to carefully plotting if, when, and how it makes the most sense to go the Groupon or LivingSocial well as a means to drum up business in the future. Daily deals are costly to participating merchants: It’s been shown that only slightly more than half make money once the discount is factored in and the deal site takes its cut. This is the case even though a sizeable chunk of daily deal vouchers (perhaps 20% or 30%) are never redeemed.
If merchants are showing reluctance to utilize daily deals (or use them over and over) to attract business, it may actually be a good sign for the economy. When business is good, after all, there’s no need to offer special deals to attract business. This is the gist of what one Susquehanna analyst told Bloomberg:
“About 76 percent of the merchants plan to do zero or one deal over the next six months. They’re seeing sufficient demand on their own as the economy is getting better.”
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For businesses and consumers alike, there seem to be diminishing rewards when it comes to using daily deals again and again. The initial thrill of paying $10 for $20 worth of food at a restaurant has long since faded for daily deal junkies. Similarly, the big splash—in terms of exposure to new customers—made by a business’s first daily deal is often impossible to repeat. Hence, many businesses aren’t even trying to repeat it.
Since LivingSocial, Groupon, and other daily deal specialists can’t really rely on repeat business, they’ll have to continue on with the labor-intensive chore of seeking out new partners. That shouldn’t be too difficult. Groupon says it has a backlog of tens of thousands of new businesses waiting to run their first deals. The latest Yipit report shows that Groupon’s sales grew 6% in November—$154 million, versus $145 million in October—despite the fact that November is an off month for daily deals since consumers are doing more shopping in brick-and-mortar stores and more traditional e-retail sites.