A study by Rice University has found that 32% of businesses surveyed lost money on the Groupon promotion, and more than 40% said they would not partner with Groupon again. Another study said that only 36% of deal users spent beyond the value of the deal. Nearly all businesses need repeat customers to survive, and the daily-deals model is no different. While Groupon's promotion with Gap
Race to the bottom
There are several problems businesses have with the Groupon model. The deal is supposed to serve as an ad for the business, attracting new customers, but just one in five daily-deal users comes back. The deal undermines the regular full-price-paying customers the partnering businesses already have, essentially encouraging customers they don't want and discouraging the ones they do, or gives a discount to a customer who would have paid full price. Many retailers think they are only creating an expectation of continued discounting, and the new customers will just hop on to the next deal when they're done with theirs. The deals seem to instill loyalty to the website offering them instead of the end businesses, and retailers feel pressure to offer the discounts to match their competitors, even though the end result seems to be squeezing margins across participating businesses.
Two's company, 300's a crowd
Currently, there are more than 300 daily-deal sites, with heavyweights such as Microsoft
With Internet powerhouses like Facebook bowing out of the daily-deal racket and Yelp cutting its deals sales staff in half, it looks as if the boom may be over. Investors in deal sites Travelzoo
The daily-deals industry is a quickly changing one. Keep up with any developments in the battle over discounts by adding these companies to My Watchlist.
Fool contributor Jeremy Bowman holds no positions in the companies mentioned here. The Motley Fool owns shares of Amazon.com, Microsoft, Google, Gap, and OpenTable. Motley Fool newsletter services have recommended buying shares of Microsoft, Travelzoo, Google, Amazon.com, and OpenTable and creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.