Roses and Sunshine, or Thorns and Storms?

The daily deal market might have lost some of its luster after the digital world’s initial excitement, but by all accounts the state of the market is strong.

Daily deals continue to provide value for merchants who understand the intricacies of crafting a daily deal and are willing to take a short-term risk for larger returns over the long term. The fever pitch of criticism that daily deal providers often face regarding their business models and the business value of the deals themselves, however, hasn’t waned.

That being said, consumers on the whole seem pleased with the concept. But, alas, it’s not all roses and sunshine.

Subscriptions to daily deal sites are down and that could be seen as a pretty big problem. ForeSee Results recently published research as part of its Holiday ERetail Satisfaction Index that revealed that 60 percent of respondents were enrolled in at least one daily deal email program. That figure was down from last spring’s 65 percent, and the 63 percent of subscribers to daily deal emails that had actually purchased an offer in the past 90 days was down from 67 percent a year ago.

This could be attributed to a flood of vendors that entered the market initially, as well as the variety of out-and-out clones and specialist deal providers that continue to make their way towards grasping even the smallest slice of daily deal profits. As it stands today, of course, Groupon and Living Social are dominating the space. There is a big problem, however.

With 40 percent of respondents indicating they do not subscribe to any daily deal providers, it is difficult to know if that percentage is because it is still a growing channel or if the market is still up for grabs. Either way, this means that niche providers still have a valid opportunity, particularly if they are able to differentiate themselves in creative ways.

It’s not just about subscription rates, however. In the end, what matters most is whether those subscribers are buying — and in some respects, but not all, they are. Fifty percent of daily deal subscribers purchased from Groupon, but just half as many purchased from Living Social — although purchases are increasing for the Amazon-funded company, according to the Foresee Results study.

What is disconcerting, however, is that 37 percent have not purchased any offers whatsoever. Whether this is because the right deal was not presented is unknown, but the role that personalization and targeting will play in the future will inevitably take center stage in the coming years.

Redemption of daily deals is another hot topic. According to the Foresee Results study, 90 percent of buyers said they used (redeemed) at least one offer in the previous 90 days. Breaking it down even further, 56 percent redeemed multiple offers while 34 percent redeemed at least one. One question continues to loom large in the minds of retailers, however: As purchases and redemption rates rise, can daily deal sites really help retailers translate their promotional dollars into new business?

Three in ten respondents that redeemed a daily deal had never conducted previous business with the company and, what is more, 12 percent had never even heard of the company prior to their daily deal purchase. Twenty-six percent indicated they were infrequent customers, leaving roughly 40 percent that were already frequent customers.

So, as to the question of whether daily deals drive new business, the answer seems to be a resounding... “In some cases.” The good news is that purchases from merchants spawned from daily deal sites actually inspire repeat business — more than 90 percent of shoppers reported making another transaction with a merchant since redeeming an offer or planned to do so in the future.

The state of the daily deal market on the surface looks strong by most accounts. With room to grow and technology available to improve the experience of users and merchants, daily deals are here to stay. But to remain a viable option, the daily deal market needs continued innovation — innovation that increases satisfaction for all interested parties.