Daily Deals: Do Consumers Still Care?

The Answer to This Question and More Things You Should Know About the Industry

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Are consumers over daily deals?
Consumers are still showing an appetite for them. U.S. spending on deals, including daily deals, instant deals and flash sales, will hit nearly $2 billion this year and be more than $4.1 billion by 2015, according to BIA/Kelsey.

KFC used Groupon Hong Kong to offer 50% off chicken and egg tarts leading up to Christmas.
KFC used Groupon Hong Kong to offer 50% off chicken and egg tarts leading up to Christmas.
A Rice University study from second-half 2011 found that U.S. consumers are still excited about daily deals, defined as an email or mobile notification for a discounted local service or product.

Groupon, which popularized deals, lost its darling status when its initial public offering revealed no earnings. Still, the company had more than 33 million active users at the end of last year, nearly triple the 2010 number.

LivingSocial also remains a major player in the category. And even though major internet players like Yelp and Facebook have scaled back or even shuttered their deals products, local media companies like Belo and the New York Times are still going strong.

Now that the buzz is over, where is the deals industry going?
The business is headed toward lifestyle companies, said Peter Krasilovsky, VP at BIA/Kelsey. The trend is toward vertical-deal categories rather than scattershot offerings of everything from bikini waxes to skydiving lessons.

Both Groupon and LivingSocial have dedicated travel categories. Travel site Expedia recently added a tab for Groupon Getaways after the companies launched those deals last summer.

LivingSocial has expanded its "Gourmet" category for high-end restaurant deals, and Groupon has tested grocery deals in partnership with a New England supermarket chain. Groupon Getaways and Groupon Goods, its consumer-products channel, grew during the company's holiday push, according to deal aggregator Yipit.

Why should national advertisers care?
Even though daily deals started with local merchants, the category is no longer just for small businesses. There's also a mix of national and international advertisers using the service to target locally. For example, KFC ran a deal with Groupon Hong Kong for 50% off chicken and egg tarts leading up to Christmas. Last year, Groupon ran deals with packaged-goods marketers General Mills and Unilever, too.

Are local media companies still selling deals?
Trying to cash in on Groupon's success with local advertisers, many media companies set up their own daily-deal services and taught their sales teams to market deals. Newspapers, cable companies and radio stations sell deals along with their own ad inventory.

That's exactly where new entrants may find an opening, said Mr. Krasilovsky at BIA. "Deals are about customer acquisition, but the question is whether they also extend to loyalty and engagement," he said.

Daily deals can mean a flood of new customers rushing to get as much as 50% off a product or service -- but that has not proved to be sustainable for some businesses.

But media companies have more to offer: advertising, which is a way marketers can build a relationship with customers generated by the deal.

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