Why You Can't Resist Daily Deals

CHICAGO, IL - JUNE 10:  The Groupon logo is displayed in the lobby of the company's international headquarters on June 10, 2011 in Chicago, Illinois. Groupon, a local e-commerce marketplace that connects merchants and consumers by offering goods and services at a discount, announced June 2 that it had filed with the Securities and Exchange Commission for a proposed initial public offering of its Class A common stock. The company, launched in Chicago in November 2008 now markets products and services in 43 countries around the world.  (Photo by Scott Olson/Getty Images)
Scott Olson/Getty Images

And you thought Groupon was dead.

Turns out that daily deals are hip again, and for good reason.

According to research firm BIA/Kelsey, spending on daily deals is expected to rise 23 percent in 2013, with further growth coming in at a 19.8 percent annual clip through 2016. At that point, we'll be spending $5.5 billion on flash sales and insta-deals.

No wonder shares of Groupon (GRPN) have nearly doubled year to date. The deal deliverer accounted for $2.3 billion in revenue last year, or 64 percent of what remains a surprisingly vast and vibrant market. Privately held peer LivingSocial reported $536 million in 2012 revenue.

Why so much growth when Groupon fired co-founder and former CEO Andrew Mason over performance issues barely six months ago?

Turns out daily deals are, on balance, pretty effective. Here are four facts about the business of daily deals that might surprise you, compiled by deals aggregator TikTakTo:

  1. People like doing business with local merchants. According to a Consumer Pulse survey, more than one-third of consumers are more likely to buy deals from local small businesses. Make it a deal for something consumers "already like to do," and the likelihood of buying jumps to 60 percent among surveyed respondents. The latter may help to explain why Google (GOOG) is still selling deals. Search data can help to determine what you like and where you'd shop if offered a bargain nearby.

  2. If you sign up, you'll spend. Consumer Pulse also found that 4 out of 5 subscribers to daily-deal services purchased at least one offer in the last six months. Those ages 50 to 59 bought more than five deals. The message? For all the criticism of Groupon and peer LivingSocial, a growing number of us are responding to their pitches.

  3. Most customers need the savings. According to Edison Research, 38 percent of daily-deal subscribers took home between $25,000 and $75,000 in household income in 2011. Higher-income shoppers also use daily deals, but less frequently. Only 24 percent of deal subscribers made between $75,000 and $150,000, and a mere 8 percent earned more than $150,000 annually.

Yeah, but What's In It for Me?

Clearly, consumers are still willing to eat up daily deals. But are shops and services going to continue to serve up savings?

A Rice University study found that between 55 percent and 61 percent of daily deals studied between April 2011 and May 2012 were profitable for the businesses offering them. The research also found that close to 80 percent of redemptions were from new customers. All told, study author Utpal M. Dholakia found that daily-deals programs could prove sustainably useful for 30 percent of businesses.

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That's good news, and not just for Groupon but also Google and Amazon.com (AMZN), which in February upped its stake in LivingSocial by $56 million. All signs point to more deals from the big two services and a slew of local market competitors.

For consumers, that means the hunt for bargains is going to keep getting easier. Sure, you'll have to put up with annoying pitches for stuff you don't want. That's always been true -- it's why we call so much of our snail mail "junk." We sift through it anyway in hopes of finding a gem.

Daily deals are no different. Indeed, if the Rice study is to believed, plenty of gems are still out there. One may even be waiting in your email inbox right now.

Motley Fool contributor Tim Beyers owns shares of Google. Find him on Twitter, where he goes by @milehighfool. The Motley Fool recommends Amazon.com and Google. The Motley Fool owns shares of Amazon.com and Google.

Originally published