Tim Pruitt declared the blackened catfish and cornbread stuffing he’d just had for lunch at Le Creolé restaurant as “excellent.”
And Pruitt’s table of three was pretty happy with the deal as well. He paid for part of the $62 meal with a $50 voucher — some call them discounted gift certificates — he’d bought for $25 from LivingSocial, one of at least three online coupon sites offering “daily deals” in the Baton Rouge market.
Daily deal providers like LivingSocial, Groupon and Louisiana-based BargainBee partner with businesses to offer goods or services at generally half off the regular price. For example, about two weeks ago The Bulldog restaurant and bar on Perkins Road ran a deal with Groupon, where customers could purchase a $7 voucher valued at $15. The voucher is only good for food and can be used until Nov. 8. The business sets the terms of the deal and the expiration date of the voucher. About 200 Groupon vouchers were sold in The Bulldog offering, said Eddie Dyer, one of the owners of The Bulldog. By last Monday about 10 percent of the vouchers had been redeemed, he added.
“Our goal was to get people to try our food,” Dyer said. “Our food at the other — older — locations is recognized as some?of the best bar food around but many in Baton Rouge have only come to us for drinks.”
The online coupon services seem to be hitting virtually every possible business in a growing set of metro markets around the country. In Louisiana, Groupon can be found in New Orleans and Shreveport in addition to Baton Rouge. LivingSocial works with businesses in Baton Rouge, New Orleans, Lafayette and Shreveport. BargainBee is an online coupon service in Baton Rouge, New Orleans, Lafayette, Lake Charles, Alexandria and Shreveport.
BargainBee is based in Sulphur, near Lake Charles, and also operates in several Texas markets.
In Baton Rouge, businesses offering dental exams, maid services, spa visits, car washes and more have all found their way to one of the online daily deals sites. And in many cases, the coupon is enough to earn repeat customers, say merchants.
“We have gained new members from the deal,” said Charles Anderson, head golf professional at the Copper Mill Golf Club in Zachary. Copper Mill recently ran a special through Groupon, where $149 buys a voucher worth $1,047 at the golf club.
Some businesses might wince at the amount of free goods and services they’re providing through the coupon service deals, particularly since the business generally splits the face value of the voucher with the daily deals provider.
In the case of Le Creolé, only $12.50 of the $25 paid by the customer went to the restaurant. The remaining amount went to LivingSocial, explained Clark Ellis, general manager for Le Creolé.
“So we’re really only getting $12 for $50 worth of food, which sounds funny unless you put in the caveat that most people can’t come into this restaurant — at dinner anyway — and spend (only) $50,” Ellis said.
The restaurant sold some 1,600 $50 vouchers at the end of July, Ellis noted. Studies show 20 percent of vouchers are not redeemed.
Other merchants hope the deals will translate into a core of regular customers.
“I was really hesitant to give up so much,” said Jessica O. Dardenne, owner of Bengal Beach Tanning, which recently ran a special through Groupon where $29 buys $60 worth of tanning services. Several hundred vouchers were sold.
“I am really?hopeful?it will help us out in the long run,” she said.
Pruitt and his friends said they’ve dined at Le Creolé without the coupons.
With online daily deals services so new — LivingSocial was founded in 2007, Groupon in 2008 and BargainBee in 2010 — it’s hard to say how effective these coupons are when it comes to generating repeat business.
“What tends to happen with any price promotion — and this is true for Groupon or a coupon or any type of situation where you give a discount to the customer — you tend to draw in ‘price-sensitive’ people,” said Utpal M. Dholakia, a management professor at Rice University who has researched the growth and use of daily deal online sites by businesses.
Dholakia’s research examined 324 businesses using daily deal sites between 2009 and 2011 in 23 U.S. markets. He found that 55 percent of businesses reported making money, 27 percent lost money and 18 percent broke even on their promotions. And although close to 80 percent of deal-users were new customers, significantly fewer users spent beyond the deal’s value or returned to purchase at full price, the study found. Furthermore, only 36 percent of restaurants and bars and 42 percent of salons and spas that had run a daily deal indicated they would run another such promotion in the future.
“And when you draw in price-sensitive people, by their nature, they are not as loyal because they are looking for a good deal.”
Dholakia stressed that a company’s marketing plan should consider a range of options rather than only coupons.
“The bottom line is whatever industry you’re in — whether you’re a restaurant or a massage therapist or whatever — you still need a core of full-price paying customers,” he said. “And none of those coupons are going to get you those customers.”
Ellis, the manager at Le Creolé, said he mostly thinks of the coupons as a marketing tool, though he noted the restaurant is using other advertising avenues. However, there is no denying the messaging achieved when LivingSocial sends out its mass emails to thousands of possible shoppers, he added.
“We don’t have the budget to go with a national type of marketing blitz, so this works for us to get those first-time customers in, who otherwise might not have heard of us,” he explained.
All of those new customers redeeming a LivingSocial voucher at Le Creolé are attached to an email address, which can be invaluable for localized marketing data, Ellis said. When a voucher is redeemed by LivingSocial the company sends an email to that customer asking for feedback. As of mid-August Ellis had received results from 177 diners, with 37 percent saying they’d been to the business before. Two-thirds were new customers, with 90 percent saying they would be back, according to the survey results. Ellis said this is not the kind of market information he could get from a traditional clip-out coupon.
This type of market feedback is just one of the reasons the Washington, D.C.-based company sees “an extraordinary amount of return business,” said Maire Griffin, communications director for LivingSocial.
Other daily deal providers also report a high rate of businesses wanting to run more deals through their sites.
“We have over a 70 percent business retention rate of businesses that are featured wanting to be featured again,” said Nick Fontenot, owner of BargainBee.
“Our data shows that 97 percent of the businesses we feature want to run again,” said Kelsey O’Neill, a spokesperson for Chicago-based Groupon.
Advertising experts agree that online coupon deals are very likely the wave of the future.
“Twenty years ago in this industry, the company I was with we had a ‘deal of the day,’” recalled Art de la Torre, classified ad manager at The Advocate. “It was a coupon we put in the paper.
“So this, really, … we’ve been doing this. It’s not a new concept. It’s just online now,” he added. “I think this is here to stay for a while, and the question is, who’s going to survive in the ‘daily deal’ fight.”
That’s a question researchers are also wondering. Dholakia, at Rice University, said there are some 450 to 500 different daily deal sites currently in operation across the country. The market is basically saturated, he remarked. LivingSocial with its 3,400 employees in 25 countries and Groupon which has 9,600 employees in 43 countries, are easily two of the largest and most successful of the daily deal providers.
Groupon, which is in the pre-IPO process of offering stock in the company, reported a gross profit — the amount the company retains after payments to merchants — of $611 million in the first six months of 2011, according to SEC filings. Nonetheless, Groupon reported a net loss of $225.2 million, once operating and other expenses were factored in.
“There is no question that 450 to 500 sites cannot sustain themselves,” Dholakia said, reflecting on the state of the industry, noting he expects the shrinkage to happen in the next year or two and those that survive will probably have to settle for lower shares of revenue from participating businesses.
“The whole industry is only about two to three years old,” Dholakia continued. “And, as is true with any industry, I think there is a lot of instability, basically, because they’re figuring out how to do these things.”