More than 1 in 5 daily deal vouchers are never used. Increasingly, customers who do redeem them complain of pushy upselling, tricky fine print, or that the service or product was a poor value or just plain bad, no matter how big the discount. What’s more, at least two states are now looking into whether daily deal expiration dates break the law. Has the heyday of daily deals already passed?
For quite some time now, small businesses have been questioning the wisdom of using daily deals to attract new customers. Writing for Project Syndicate in early 2011, start-up investor Esther Dyson saw Groupon and LivingSocial customers as hit-and-run bargain hunters—as “customers come for the deals, and then leave for deals offered by other merchants through Groupon.” TechCrunch contributor Rocky Agrawal has been on a tear this spring and summer, regularly bashing the daily deal model and predicting the fall of Groupon and its followers. Retaildoc.com published a series of posts (excerpted from a book) arguing that daily deals are an awful idea for most businesses. A recent Rice University study, meanwhile, reported that a little over half (56%) of businesses made money from running daily deal promotions, while the rest either lost money (27%) or broke even (18%).
The reaction from Joe or Jane consumer may be: Who cares? I love getting half-off meals at random restaurants and snapping up $100 massages for $50. If businesses don’t want to play ball with the Groupons of the world, no one is forcing them to do so.
But more and more, it’s not just small businesses taking issue with daily deals. The New York Post reports that more consumers are “finding that these daily steals are more like highway robbery.” A big reason why this is the case is that, per that same Rice study mentioned above, 21.7% of people buying daily deals never use the vouchers they’ve purchased.
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That means a huge chunk of the businesses reporting that they earned profits from daily deal promotions were in the black because consumers paid for a voucher and received nothing whatsoever in return. That’s a damn good business model.
Responding to Agrawal’s daily deal bashing columns, Vinicius Vacanti, CEO of daily deal aggregator Yipit, defended the business model at TechCrunch:
Anywhere between 10% and 30% of deals aren’t redeemed. North American businesses get to keep the profits associated with those vouchers without incurring the cost.
Again, that’s all and good for businesses collecting cash and providing no service, but horribly wasteful for the folks buying those never-used vouchers.
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As consumers get beyond the initial excitement of daily deals, it slowly seems to be sinking in that daily deals can be bad deals. The concept of “Groupon remorse” has surfaced widely, in which the initial thrill of the deal is followed by the puzzled thought, “Now why in holy hell did I buy that?” A Slate writer set out with a mission to live off of Groupon deals for a week, only to fail miserably as she discovered so many of the offers useless, impractical, or unpalatable. When she did use Groupons, she often encountered eye-rolling from dismissive waitstaff who wrote her off as a cheapskate. Surveys also show that when it comes to genuine old-fashioned saving money, consumers say that coupons beat daily deals hands down.
The idea that daily deals can, in fact, be bad deals, is the entire point of The BadDeal.com, a new blog written by Bloomberg food critic Ryan Sutton. Sutton susses out restaurant deals not worthy of their discounted purchase price (mainly because he deems the restaurants bad at any price), and also does occasional larger posts, like eight bad deal rules. Rule #1, for instance, is:
If you financially need a deal to eat out, you shouldn’t eat out. This isn’t cutting coupons so your family can afford milk.
While Rule #5 offers this piece of wisdom:
Deals don’t help you save money. They help you spend money. Deal sites often lock you into a set tasting of food or wine in restaurants that are otherwise a la carte. So yes, maybe you’re saving 35% by ordering a tasting of eight margaritas, but do really want eight margaritas?
Consumer psychologist Kit Yarrow, meanwhile, blogging at SFGate, warns of the dangers of too many daily deals and flash site offers landing in your in-box:
While many shoppers are avoiding the temptation of malls, flash sales are exposing shoppers to products they often didn’t know they wanted. They’re then forced into a hasty purchase decision through shotgun starts and immediate purchase requirements. This is far more dangerous than malls.
Perhaps at least one frustrating part of the daily deal model could change. Attorney generals in Connecticut and Illinois (Groupon is based in the latter) are inquiring whether daily deal vouchers should be considered as the equivalent of gift cards—and therefore subject to the same state laws that limit or ban expiration dates for gift cards.
As things stand, most daily deal vouchers expire if unused within a stipulated amount of time—often three to six months after purchase. The vouchers typically don’t become useless at that point, but the discount disappears; a $30 restaurant voucher purchased for $15, for instance, would revert to being worth just $15. From the consumer point of view, it’d obviously be better if the discount remained valid no matter when the voucher was redeemed. But something tells me if you haven’t used a voucher six months after you bought it, you probably never will.
(MORE: Tips on Controlling Your Impulse Buys)
Brad Tuttle is a reporter at TIME. Find him on Twitter at @bradrtuttle. You can also continue the discussion on TIME’s Facebook page and on Twitter at @TIME.