Yesterday Groupon shares tumbled more than 10%. The stock is down 67% since the beginning of the year and 74% since its IPO last year. On top of this performance there are a mass of stories that question if offering a deal is good for small businesses. Mostly anecdotal stories such as Wafflegate. The end result is widespread concern about the viability of the online deal industry with dire predictions for the companies that participate in it. Predictions that are predominantly based on the performance of a single company that seems to have continual execution issues. However when the industry is put under more rigorous analysis, there are a number of positive signs for the market.
Utpal Dholakia of Rice University recently published a follow up study to his June 2011 research. The new study, entitled "How Business Fare With Daily Deals As They Gain Experinece: A Multi-Time Period Study of Daily Deal Performance" is much more upbeat than what you might read in the popular press. Among the findings.
- The percentage of merchants making money off a deal jumped 6 percentage points to 61.5%.
- The percentage of new customers a deal attracts remains unchanged at 80%.
- The deal site share of revenue increased by 2.5 percentage points to 45%.
- The incidence of profitable daily deals increases with the merchants prior level of deal experience.
- Deals appear to be sustainable online marketing programs for 30% of businesses.
- Deal site loyalty levels are low (which is a positive if you are a challenger brand).
Some of Dholakia's conclusions from the data collected in the study.
"On the whole these results are encouraging for the daily deal industry. They provide no evidence to support the conventional wisdom that daily deals are working less effectively for businesses than they did in the early stages of this industry's evolution. Nor do we find the daily deal industry to becoming weaker in its pricing power."
"Daily deals continue to remain effective with repeated use, and marks the first such evidence to our knowledge that daily deals can be sustainable marketing programs for at least some businesses that use them."
And he concludes with:
"Our results find little or no evidence of deterioration in the performance of daily deal promotions over the past year for small and medium-sized businesses or with experience as the business operator runs multiple daily deals."
What I am seeing in the performance of Half Off Depots supports this conclusion. Sales are up, margins are not compressing, merchants come back to do more deals, and many merchants have made our program the core of their online marketing effort.
The reports of the online deal industry's death have been greatly exaggerated.