Daily deals: Maybe not so bad after all

Do Groupon.com and LivingSocial.com help restaurant operators?

The usefulness of daily deal sites has been a controversial topic among restaurant operators since Groupon first launched back in 2008. Deals were helpful at that time, filling up tables during the recession. But although they spread like wildfire among restaurant patrons—everybody likes to eat out at half price—many operators weren’t sure that offering these deep-discount deals was ultimately good for business.

Four years later, the jury is still out on daily deals. But we’re learning more about the long-term implications of their use.

Today, some restaurant owners categorize them as a savvy marketing tool that enhances exposure, attracts incremental customers and boosts revenue and profit. Detractors say deals cost too much; cannibalize and/or displace regular customers who would otherwise pay full price; and drive their staffs crazy while playing havoc with service standards.

Which is it? Research studies have begun to shed new light on the daily deal industry.

Before we look at how offering deals has worked out for restaurants, let’s look at some new data that shows how useful they’ve proven to be for the online retail industry.

A just-released study conducted by Ann Arbor, MI-based customer analytics firm ForeSee (see infographic) shows that, at least for online retailers, daily deal offers increase business awareness, purchases and repeat purchases.

The company’s survey of 10,000 retail website users found that of those who bought daily deals, 55 percent had been new or infrequent customers prior to purchase, 12 percent had never even heard of the  business before buying its deal, and 90 percent said that, post-deal, they had done additional business with the online retailer or intended to do so.

“Businesses that use these sites effectively are growing their customer base and customers are getting a deal, which results in a win for everyone,” says ForeSee president Larry Freed.

Yes, this study has no direct connection to the restaurant industry. We cite it because ForeSee reached the same conclusion as ace academic researchers Sheryl Kimes and Utpal Dholakia did in their  study Restaurant Daily Deals: Customers’ Responses to Social Couponing, which appeared in theCornell Hospitality Reportlast November. Their bottom line: “It seems fair to say that a well-designed coupon deal will benefit both the restaurant operator and customer.”

Kimes, a professor of hospitality management at the Cornell University School of Hotel Administration, and Dholakia, a B-school professor at Rice University, are as good as it gets in academic research about real-world restaurant issues, including daily deals. For this study, they surveyed U.S. adults who had recently purchased restaurant daily deals.

The results: Kimes and Dholakia found that while some cannibalization did occur when daily deals were offered, new customers were attracted and infrequent customers were frequently moved to revisit a restaurant they had not patronized for a while. Both new and infrequent customers indicated they would return at full price if the value was there during their deal visit.

Kimes and Dholakia’s study also turned up this promising factoid about daily deal purchasers: they’re impulse buyers.

“We infer that restaurants may be able to create successful opportunities for suggestive selling, which benefits both the customer (who receives even greater value from the experience) and the restaurant (which boosts average check),” the researchers say.

When experts talk about effective use of daily deal sites, this latter point is one of the things they’re talking about.

 Since it appears that daily deal marketing has entered a more mature phase, you may wish to experiment with deals to gauge whether they would be a cost-effective way your restaurant could boost trial and revenue.

When researchers studying different industries reach the same conclusion about deal effectiveness, consider it a signal. Now we need a study along the lines ofDaily Deal Best Practices For Full-Service Restaurants. Drs. Kimes and Dholakia, how about it?