Rice U. marketing expert available for comment on daily deal industry news

CONTACT: Jessica Stark
PHONE: 713-348-6777
EMAIL: stark@rice.edu

Rice U. marketing expert available for comment on daily deal industry news
Topics include Groupon leadership change, Groupon Now, LivingSocial, LevelUp

As new twists on the daily deal model continue to emerge almost weekly, popular sites like Groupon and LivingSocial continue to grow, but they present significant risks for merchants, according to Rice University marketing expert Utpal Dholakia, who has published and is conducting research on the daily deal industry.

Dholakia is available to comment on these developments, including Groupon’s recent change in leadership; Groupon Now, a service designed to deliver time- and location-specific deals through smartphones; LivingSocial’s Family Edition deals, which are focused on family-friendly activities; and the launch of LevelUp, a site that offers increasingly better deals for a merchant’s repeat customers.

“All daily deals are simply price promotions — and often steep ones at that,” Dholakia said in an opinion piece published today by Harvard Business Review. “A steep price promotion can make consumers permanently price sensitive by lowering the reference price they expect to pay, and price promotions can distract customers from products’ benefits, causing irreversible damage to brands.

“Rarely do price promotions lead to increased sales; more often than not, they simply attract deal seekers or encourage consumers to stockpile items that are on sale,” Dholakia said. 

Dholakia’s Groupon effectiveness study, published in September 2010, found that Groupon promotions were profitable for 66 percent of the businesses surveyed for the study, but they were unprofitable for 32 percent. More than 40 percent of the respondents indicated they would not run such a promotion again. He conducted surveys with 150 businesses spanning 19 U.S. cities and 13 product categories that ran and completed Groupon promotions between June 2009 and August 2010.

Study findings include:

Groupon promotions offer the most benefit for businesses in which the promotion does not cannibalize sales to existing customers.

Among the service businesses (restaurants, educational services, tourism and salon and spa), restaurants fared the worst and salons and spas were the most successful.

Businesses with unprofitable promotions reported low rates of spending by Groupon users beyond the Groupon’s face value and low rates of return to the business again at full price.

The most important factor for the Groupon promotion to work successfully for a business is whether the business’s employees are satisfied with the experience.

In today’s Harvard Business Review piece, Dholakia argued:

“When assessing daily deal innovations, merchants would do well to heed psychologist Abraham Maslow’s maxim(also called ‘Maslow’s hammer’): ‘To the man who only has a hammer in the toolkit, every problem looks like a nail.’ Most merchants have many pressing problems such as building their brands, delivering superior experiences andhigh quality, handling complaints effectively and winning customer referrals. Wielding the daily-deal hammer alone is likely to prove dangerous; what merchants need is a full tool kit of marketing programs to solve all their problems and market effectively.”

Dholakia’s study, “How Effective are Groupon Promotions for Businesses?”, can be found at www.ruf.rice.edu/~dholakia/. To interview Dholakia, contact Jessica Stark at 713-348-6777 or stark@rice.edu.