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Groupon hug from small businesses? Not so much

Daily deal sites lack loyalty from bar owners, barbers and cooks

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Daily deal sites such as Groupon are just a fad with little individual staying power, a new study has claimed.

According to the Rice University, Groupon and other coupon promotion websites lack a key ingredient for sustainability because businesses don't remain loyal to one site.

"Our findings also uncovered a number of red flags regarding the industry as a whole," wrote the report's author Utpal Dholakia. The report included a survey-based study of 324 businesses that conducted a daily deal promotion between August 2009 and March this year.

"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."

Down the line, the US-based websites that also include LivingSocial, OpenTable, Travelzoo and BuyWithMe Promotions will see their share of revenues tumble as businesses that currently partner with daily deal outfits become more fickle about the industry.

More than 70 per cent of those businesses surveyed said they would seek out alternative daily deal sites to the ones they currently partner with.

Restaurants, bars, hair salons and beauty spas, which seem to be the main businesses that use the sites to sell their wares online, found they only made money from the promotions offered via Groupon around 50 per cent of the time.

Of the 324 businesses surveyed, more than a quarter reported they had lost money after using daily deal sites. Another 17.9 per cent of respondents said they broke even.

"Since restaurants, bars, salons and spas represent the bread-and-butter for many daily deal sites, these findings raise questions regarding the continued availability of a sufficient pool of viable revenue-generating merchants from these two industries for daily deal sites," said Dholakia.

Chicago-based Groupon filed for an IPO earlier this month. In December 2010 it rejected a $6bn takeover offer from Google, and is now hoping to raise $750m. Its valuation could be as high as $25bn, dwarfing Mountain View's acquisition bid. Of course, Google recently created a daily deal site of its own.

Dholakia added that steep discounts currently offered by daily deal sites could not be sustained, so eventually customers won't benefit from Groupon and co's business strategy.

All of which leaves gushing reports such as this looking a little bit off-colour and needing a good sit-down and talking to, we feel. ®

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