Online daily deal marketing has become a huge business, with new players popping up on a regular basis. A new study, however, shows that daily deal sites like Groupon, LivingSocial and Kudzu are quickly losing their appeal to consumers and their effectiveness for small businesses.

The study, which was conducted by Professor Utpal Dholakia of the prestigious Rice University Jones Graduate School of Business, found that on average 20 percent of consumers who take advantage of the deals become repeat customers for the businesses who offer them. Dholakia said the success rate was higher for certain types of businesses, including dentists, doctors and photographers. Restaurants, bars, cleaning services and retailers typically have lower success rates. CEO Charles Gaudet explains, “Daily deal sites are a double-edged sword, and unless they are structured properly, they’re likely to produce more harm than good.” He says daily deals are effective at attracting new customers “based upon the price of the product, not because they have an intention to continue doing business with you.” Such deals only succeed in getting customers to make the initial discounted purchase. After that, it’s up to the business to convert them into repeat buyers.

Gaudet urges businesses who engage in daily deal promotions to make sure their offerings reach the right audience. Many daily deal sites provide demographic information that can be used to target buyers who are more likely to become repeat buyers.

Another key factor is ensuring that your business is fully prepared to handle the additional activity generated by these promotions. Companies that fail to adequately prepare for the influx of business place unnecessary strains on their employees and infrastructure and often end up irritating their existing customer base.

Businesses also need to carefully track the cost of daily deal promotions and the actual cost per customer acquisition. Gaudet says, “As with all marketing measures, test small, measure its performance and look for ways to improve.”


Ned Smith. “Why Daily Deal Sites Are a Mixed Bag for Small Businesses”. Business News Daily. 8/23/2012