Transactions in the daily deal market are expected to reach into the billions of dollars within a few years, but the drawbacks to the model - from the merchant's perspective at least - are beginning to add up. The latest reason to be wary of these deals comes from a study conducted by John Byers and Georgia Zervas from Boston University and Michael Mitzenmacher from Harvard University, Technology Review reports.
It found that a Groupon deal seems to have an adverse impact on reputation as measured by Yelp ratings. "Reviews mentioning either keyword are associated with star ratings that are 10% lower on average than reviews that do not, while the very small fraction of reviews mentioning both keywords are more than 20% lower on average," they say, according to Technology Review.
The study looked at 16,000 Groupon deals in 20 US cities. It monitored each deal every ten minutes to determine how sales were impacted. It also counted the number of Facebook likes that each deal generated and - as the end finding notes - collected Yelp reviews.
Another Acquisition, This Time for $65M
Even though talk, in some quarters, has been to the contrary, the market does not appear ready to abandon daily deals as a mere craze. Roughly the same time the study’s results were announced, FriendFinder Networks said it was acquiring BDM Global Ventures, the company which owns the operations of JigoCity, for $65 million.
What is apparent, though, is that the margins in this model are shifting in favor of the merchants - especially as more and more daily deal sites come to market, Search Engine Land notes. "The current deep discounting so appealing to consumers, with '50 percent margins' to deal vendors, is unsustainable," it said. "Many people, including me, also believe that more “balance” and merchant-friendly policies will inevitably come about."
"Make no mistake, the model as a whole isn’t going away. But we will see increasing consolidation as well as many failures in the next 12 months. Beyond the familiar names (e.g., Groupon, LivingSocial), winners and losers will start to emerge."