LivingSocial Reacts to Recent Studies about Daily Deals

    June 28, 2011

A couple of recent studies brought out some interesting, but contradictory data pertaining to daily deals’ providers. The first study from Rice University found that the business model behind daily deals’ sites was unsustainable and predicted “tough times ahead for daily deal sites.”

The study specifically examined Groupon, LivingSocial, OpenTable, Travelzoo and BuyWithMe. If you remember, the New York Times questioned Groupon’s business model in a report earlier this year as well.

“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,” said Utpal Dholakia, an Associate Professor of Management at Rice University. “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.”

Interestingly, a second study was released even more recently that revealed just the opposite. The study from ForeSee Results found that new customers were, in fact, coming in and purchasing offers through daily deals’ sites, namely LivingSocial and Groupon.

Larry Freed, the President and CEO of ForeSee Results, wrote this regarding their findings, “31%, are brand new business (new customers who weren’t aware of the company before the deal plus those with some brand awareness), 27% were infrequent customers, and 4% were former customers. That’s at least 35% and arguably 62% of deal buyers that represent NEW business.  This is compelling data, and these are the customers that provide what the daily deal model is supposed to provide: bringing you new customers to try your business or products out.” (No emphasis added).

Needless to say, these studies have resulted in some confusion in the industry. Should merchants and consumers put their trust in Rice University, ForeSee Results, or neither?

What do these studies tell you about the daily deals industry? We’d love to know your thoughts.

In hopes of clearing up some of the confusion, WebProNews reached out to Maire Griffin of LivingSocial. According to her, the studies help to enforce checks and balances on the industry, but they don’t dictate what the real goals of LivingSocial are.

When we spoke to Aaron Batalion, co-founder and CTO of LivingSocial, earlier this year, he pointed out that LivingSocial’s focus was on “local commerce” and not daily deals. Griffin spoke further to this point and said that the company worked with merchants on an individual level to create deals that not only encourage consumers to buy, but that would also help move the merchant’s business forward.

“We’re confident in what we’re putting together for all local merchants in all of our different product sections,” she added.

She also brought up another important point regarding LivingSocial’s approach. She said, “Daily deals are an important part of our business, and they will continue to be an important part of our business; but one thing that LivingSocial is really great at is innovating our products… our different lines, be it Families, Instants, Escapes, build on what we know and we’ve really perfected from a daily deals’ perspective to help more and different kinds of merchants all around the globe.”

Even though Rice University’s study shed some pessimism on the future of daily deal’ providers, it found that 83 percent of LivingSocial’s customers were new customers. Griffin told us that internal data from LivingSocial shows a similar high influx of new customers and also an increasing number of secured relationships between the company and its merchants.

“Our tremendous growth has really reinforced that we are putting the right steps in place,” she said. “We really believe in creating relationships with our merchants; that’s why we have actual employees in every single one of our markets, so we can learn that merchant’s business.

In terms of the overall space, she additionally stated, “The industry has proven that it is good for local businesses.”

Do you agree with LivingSocial and believe that daily deals are beneficial to local businesses?