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Is Groupon Really Bringing Businesses New Customers?

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GROUPON DAILY DEALS SITES
AP

In its pitch to local businesses, daily deals site Groupon promises merchants that the discounts offered through its service will deliver "valuable new customers, guaranteed."

But new research from Forrester on the daily deals and flash sale industry suggests otherwise: For certain types of merchants, more than half of the consumers who bought prepaid vouchers from the likes of LivingSocial and Groupon were already patrons of the businesses where they received discounts and said they would have spent money with the retailer without a coupon.

"There's a big disconnect between the incrementality that all these companies, particularly prepaid voucher companies, are purporting to provide versus the reality of it," said Forrester's Sucharita Mulpuru, who co-authored the report. "A significant part of their [daily deals sites'] growth is coming from consumers who buy deals, but are also most likely to be consumers of those merchants anyway."

Sixty-three percent of users who purchased discounts at restaurants, by far the most popular deal category, and at businesses selling health and beauty products said they had "previously bought directly from the retailer or service provider featured," according to Forrester. That number was even higher for the home and garden category (67 percent) and for deals on clothing and accessories, where 80 percent of shoppers had already purchased from the retailer.

Daily deals users were more likely to branch out when it came to spa services and activities, such as wine tasting or bungee jumping, and in both categories, fewer than 50 percent of those surveyed said they'd previously frequented the business for which they'd bought vouchers.

Some merchants would have captured customers' dollars without coupons: A majority of shoppers told Forrester they would have patronized the restaurant (52 percent), fashion retailer (60 percent) or beauty product provider (55 percent) for which they got a deal regardless of the discount.

A study by researchers at Rice University and Cornell University released earlier this fall drew similar conclusions, noting that "none of the users seems to believe that they are buying unusual products (ones they normally would not buy) because of daily deals to a significant degree." It also found that novice, experienced and heavy daily deal users all "confidently agree that daily deals help them save money on things they would have purchased anyway."

Mulpuru maintains that daily deals sites need to do more to prove their services actually benefit the businesses that provide deals.

"What's good for Groupon is not good for merchants," Mulpuru said. "They haven't been able to create a win-win scenario."

Though Forrester's stats diminish daily deals sites' claims that their services will bring in new business, the lion's share of daily deals subscribers noted that companies like Groupon help them "discover and try" new retailers. Ninety percent of "Gen Xers" and "Gen Yers," as well as 89 percent of baby boomers, credited coupon and flash sale sites with introducing them to businesses they might not have known otherwise.

"No one is saying that the emails are terrible," Mulpuru explained. "These are, for the most part, welcome emails. Of the people who continue to receive emails, they like getting the emails, they just don't act that much on them."

Thirty-six percent of users subscribing to daily deals sites said they had not purchased a voucher in the past year, though 26 percent said they had bought four or more in the same time period. At the same time, however, the university study found "no evidence of daily deal fatigue."

Groupon made its debut on the Nasdaq stock exchange on November 4 and watched its value skyrocket to over $15 billion. Still, as Forrester's results suggest, it's hardly home free. Read more about the challenges facing the company here.

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