Is the Daily Deals Juggernaut Running Out of Steam?

One of the features of the recession has been the rapid growth of traffic to coupon and reward sites, as consumers look for discounts to justify their little indulgences amongst the economic gloom. According to Ofcom, in the 12 months to April '11 visitors to reward and coupon sites increased by 25%. 40% of al UK web users now visit such sites.Much of this growth has been driven by the daily deals phenomena.  Users sign up to a daily deals service in their locality and then receive daily emails letting them know about offers from local businesses, usually at highly discounted rates. For some services, the deal is available to all irrespective of take up - for example, Kelkoo Select. But for others the deal only becomes triggered once a certain critical mass of users opt to take it up - hence the term social shopping, as it someone wants a deal, it's in their interests to get their friends to take it up as well.Groupon has grown to be the dominant social shopping service in the UK. It's growth has been rapid since it's UK launch in January 2010 and by April this year, it was reaching 16% of all internet users. It's nearest direct rival, LivingSocial, was only 1/8 of the size in the same month, although a recent TV advertising campaign may have narrowed the gap.Coupon_and_rewards_sites_active_reachSo daily deals seem to be on an up in the UK but things aren't so rosy in the US, and trends have a habit of migrating across The Pond.Although Groupon in the US commands a healthy 115m subscribers, it appears that those subscribers are become increasingly fatigued with daily deals.  Figures from Experian Hitwise show that Groupon has lost 50% of it's web traffic since it's peak in June.  The holiday season may explain some of the fall, but LivingSocial has grown by 27% in the same period and is now almost half the size of it's rival.  If this trend continues, Groupon will be in the number 2 position by the end of the year.US_Visits_to_Groupon_and_LivingSocialBut a deeper malaise in the daily deals industry has been revealed by those that are getting out or scaling back.After just 4 months, Facebook recently announced the end of their Deals experiment - although check-in deals will remain.  And Yelp in the US is seriously scaling back it's daily deals service.The problem with this market are 2 fold - the barriers to entry are too low and the sales and marketing costs are too high.  The market has been flooded with new daily deals services and consumers in the US have simply become sated with choice - in fact, 52% of US admitted being overwhelmed by the number of daily deals emails in their inboxes. In addition, the sales and marketing costs have proved to be so exhorbitant that not even the number 1 player, Groupon, is turning a profit.For brands, the questions has always been whether offering product at such heavily reduced prices makes sense.  Clearly, if the product is 'distressed' or 'end of line' and the transaction makes sense at the discounted level, then promoting via dail deals services makes sense. Brands such Gap have also had success with discounted gift vouchers.  But the debate rages as to whether social shopping creates new customers, or just offers discounts to those who will never pay full price.It's a little early to tell exactly what's going to happen to the daily deals market - a 2 month dip in the market leaders traffi, albeit serious, is not yet a trend. And whilst the cost of living continues to rise, it makes sense that services that allow consumers to enjoy indulgences at much reduced prices will continue to thrive.But what we are probably seeing is the start of consolidation in this industry as those sevices with less resources get weeded out and those less committed deal hunters fall away. However, we believe the daily deals story still has some way to run.

Social Shoppingadmin