Do Daily Deal Sites Equal Sound Money Saving Strategies?

It seems that the latest fad in frugality is the daily deal site. Some, such as well-known super sites like Groupon and LivingSocial, offer discounts from a vast array of vendors including retailers, restaurants and spas. Those two particular online coupon distribution companies have taken a hyper-localized approach to savings, giving their subscribers of a near-constant slew of offers available in their specified neighborhood via email alerts.

Other such sites are more specialized in the savings they offer, such as Restaurant.com which is tailored for foodies, Paws4Deals.com which caters to pet owners and Zozi.com which is strictly appeals to savers with an active lifestyle.

It’s a business arena that has become increasingly competitive, with millions of dollars being invested and new sites springing up almost as often as the deals being proffered. The sites make money by taking a cut from the coupons offered to consumers, and the participating merchants are involved in order to gain greater exposure and repeat customers.

According to an online Wall Street Journal article, roughly a third of daily deal sites across the country were sold or shut down entirely so far in 2011. It was not just the smaller sites that fell victim to that fate, as might be suspected. Yelp and Facebook are two companies with big audience bases to whom they could pitch online coupons, but instead both have opted to ease off on attempts to become major players in the daily deal market.

The Wall Street Journal reports that a Facebook spokesperson claimed that “the company determined it would be better served focusing on other core social experiences instead of daily deals.”

For those companies peddling savings online choosing to stay in the game, there certainly seems to be room for growth. According to data gleaned from a survey with the name of Daily Deal Fatigue or Unabated Enthusiasm? A Study of Consumer Perceptions of Daily Deal Promotions as reported by the Huffington Post, only 1 in 6 consumers currently make use of daily deal sites, meaning a large percentage of the population is a potential source of future revenue.

There seems to be no signs of “consumer fatigue,” meaning that instead of tiring of using such sites after a few tries, consumers who are daily deal enthusiasts remain avid customers and 85% of them regularly frequent such sites.

So are sites like LivingSocial and Groupon good money-saving options for cash-strapped consumers?

PROS

Many of the deals advertised on such sites offer goods and services at a substantial savings. Frequently the savings offered amounts to 50% or greater off the regular purchase price of an item or service. Coupons offered run the gamut:   it seems deals can be had on everything from manicures, dental exams to laser hair removal treatments. For people experiencing serious financial hardship who simply aren’t in the market for a Caribbean vacation for a steal or month-long membership at a yoga studio for a deeply discounted rate, there are often more appealing and, arguably, practical coupons to be had. The Whole Foods Supermarket chain recently offered a half-off coupon via LivingSocial and when a Miles Farmer’s Market in Colon, Ohio posted a similar deal on Groupon they received an enormous response.

"I think there were 1,000 sold already (by 8 a.m.) and that's unusual," bargain hunter Cindy Walker said according to newsnet5.com. The Whole Foods deal was snatched up by nearly a million people.

Groupon’s unveiling of their loyalty rewards program means that, come mid-October, so-called “Groupon Groupies” can amass even more savings by frequenting their beloved site.

Designed primarily to appease merchants who complain that they lose revenue by offering one-off deals through Groupon because the customer rarely returns after redeeming their deal to spend more money, the Groupon Rewards program will track consumer spending by the credit card number subscribers have registered on the site. As long as they make purchases using those same cards, they will earn bonus savings opportunities upon spending a certain amount of money at those businesses affiliated with Groupon over a period of time. Combined with any credit card deals offered from the card issuer, a single purchase could be loaded with a ton of perks.

“We think there are three components merchants need to run their business in the new world of local commerce,” Groupon’s senior VP of product, Jeff Holden, told TechCrunch according to AdWeek.

“The first is the daily deal, which Groupon perfected as a customer acquisition product and reached massive scale. The second is Groupon Now, its mobile app that lets local merchants do yield management by offering deals when business is slow. The third now is Groupon Rewards, which is built around customer loyalty and retention.”

CONS

All deals, whether purchased from Groupon, LivingSocial or some of their smaller competitors, come with an expiration date. So unless the would-be saver is organized enough to stay on top of thing and make sure they redeem their offers prior to their expiration date, daily deals can amount to money being thrown away on nothing.

There are site out there, specifically designed to help die-hard online coupon collectors organize their deals. They will organize and categorize deal purchased and even send out an email alert in advance of when one is slated to expire.

Another downside to daily deals is the temptation to buy things that aren’t needed. As with high limit credit cards, daily deals require that some self-discipline be demonstrated on the part of the buyer, otherwise overspending is all too easy. Just because a particular item or service is offered at a substantial discount, doesn’t mean that it’s a wise move to buy it. Daily deal sites only really work as a means of saving money if the people purchasing them are turning to sites like Groupon, LivingSocial, etc. to buy things at a discounted rate that they would otherwise pay full price for elsewhere.

For its part, Groupon is spending a pretty penny to entice savers to subscribe to their site. According to data revealed by the Wall Street Journal, Groupon spent $378.7 million in marketing during the first half of 2011 alone.

That is over $35 million more than they spend during the same time period the previous year, according to regulatory filings.

With competition between daily deal sites growing ever more intense, consumers can sit back, mouse in hand, and click their way to serious savings.

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