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Group Deals: Steady Growth for a Sticky Business

Group Deals: Steady Growth for a Sticky Business

Group deals are experiencing steady growth among local merchants, a new survey shows. But the deals are also proving to be sticky. Once merchants have tested the group deal waters, they tend to stay in the pool; 75 percent of merchants polled say they would offer another deal in the future, citing the effectiveness of such deals in customer acquisition.

Group deals have grown 33 percent over the last six months and are now being offered by 12 percent of local merchants, according to a study of 2,500 local businesses across the country conducted by MerchantCircle, a social network of local business owners.

Profitability appears to be fueling the popularity of group deals ; 37 percent of merchants now say solid profitability will lead them to offer another deal, up from just 24 percent in June, MerchantCircle said.

But not everyone has had success acquiring new customers and generating a profit using group deals. Among the 25 percent who said they wouldn't offer another daily deal, 42 percent said it was not effective for customer acquisition , 36 percent said it was too costly and 34 percent said they lost money on the deal.

When choosing a deals provider, cost remains the most important criteria for local merchants, with 64 percent citing cost as their top consideration. Local targeting (57 percent) and the ability to reach a large audience (52 percent) were the second- and third-most important selection criteria, the survey showed. However, businesses that plan to use Groupon in the future report that the ability to reach a large audience is equally as important to them as cost, with 62 percent citing reach and cost as key selection criteria.

While Groupon and LivingSocial helped establish the daily deals market in 2009, they now face increased competition for local marketing dollars from Google as well as specialized deals providers. About 19 percent of local merchants who have offered a group deal have tried using Google Offers since its launch this summer, compared with Groupon (26 percent) and LivingSocial (21 percent). A large number of specialized deals providers have also entered the market; these services have been used by about 43 percent of local merchants who have offered a group deal.

"Google has done a remarkable job parlaying its large local merchant base into customers for Google Offers, and the company has quickly become a formidable challenger to Groupon and LivingSocial in this space," said Darren Waddell, executive vice president of product and marketing at MerchantCircle's parent, Reply!, Inc.  "Just as we saw with Facebook — which was able to grow Facebook Ads to more than 20 percent adoption in a matter of months — marketing service providers that have existing relationships with local merchants are very well-positioned to introduce new online marketing services to this audience."