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Is T-Mobile Too Late to the Daily Deal Market? Are You?

T-Mobile has announced it is jumping into the daily deal market with an offering called More for Me. Like some of the other providers in this space, it is aggregating — not originating — these daily deal for any wireless subscriber to an Android handset.

For local businesses the news could not be more welcome. Increasingly it is recognized that this model answers all of the limitations of previous local online ad offerings. T-Mobile, though, is hardly the only provider in this space and as the group buying market becomes ever more crowded, it is worthwhile for advertisers — aka the businesses — to wonder about the future of the model.

In one respect there is good news for them. Over the next few years, it is likely that daily deal sites will have to settle for lower shares of revenues from businesses compared with their current levels, and it will be harder and more expensive for them to find viable candidates to fill their pipelines of daily deals, according to Utpal Dholakia, associate professor of management at Rice University's Jones Graduate School of Business.

In his third study in this area, Dholakia found that there is very little difference between companies in this space, and it will be difficult for any one site to stand out from the others. "The major take-away from the study is that not enough businesses are coming back to daily deals to make the industry sustainable in the long run," Dholakia said. "And our results from three studies and close to 500 businesses surveyed show that the deals are nowhere close to the rates of financial success for participating businesses that some companies claim to be having."

He found that: 55.5% of businesses reported making money, 26.6% lost money and 17.9% broke even on their promotions. Although close to 80% of deal users were new customers, significantly fewer users spent beyond the deal’s value or returned to purchase at full price. 48.1 percent of businesses indicated they would run another daily deal promotion, 19.8% said they would not and 32.1% said they were uncertain.

"Our findings also uncovered a number of red flags regarding the industry as a whole," Dholakia said. "The relatively low percentages of deal users spending beyond the deal value (35.9 percent) and returning for a full-price purchase (19.9 percent) are symptomatic of a structural weakness in the daily deal business model."

Who Wins, Who Loses

As the model changes, expect to see even more realignment in related categories. Already traditional marketing programs have been impacted adversely by daily deal spending, according to Dholakia. Spending on Yellow Pages advertising was down 27.5% compared with 2009, print advertising was down 21.6% and self-managed direct mail was down 17.6%. Local radio and TV advertising also dropped substantially, whereas spending on email promotions and online search programs was up substantially (7.8% in each case) over the past year.

There have been some surprising winners, though, as well. StrongMail, for example, recently announced a significant increase in customers for its burst email delivery technology, which is powering a rapidly expanding list of popular daily deal and flash commerce sites, including FamilyFinds, Joss & Main, HauteLook and Privalia. No Brand Building The businesses that we see spending their marketing dollars on daily deal sites have dramatically cut their advertising budgets, Dholakia also reported. "This is a problem for businesses, because they're not building their brand when they offer discounted prices for their products and services.”

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