ANN ARBOR – Earlier this month, the New York Times reported that as Groupon prepares to go public, the success of its business model is in some question. I took a look at some data from our Top 100 study this year (data gathered in February/March timeframe), and I don’t think anyone should be signing any death certificates yet.

Our annual top 100 research (a study of customer satisfaction with the top 100 American e-retailers, as defined by Internet Retailer’s Top 500 Guide) gives us the opportunity to ask more than 22,000 online shoppers about a variety of topics. This spring, one subject we wanted to explore was the daily deal phenomenon, and this latest news about Groupon made me dig out the data and look a little closer at the findings (thanks also to research manager Rhonda Berg for her great help with this). What we found is that Groupon and Living Social do bring in new customers, and that should be welcome news to both retailers and daily deal companies alike.

Let me give you some background data for context.

About two-thirds of Top 100 site visitors are enrolled in at least one Daily Deal email program. (that’s 14,000 plus of the more than 22,000 respondents we surveyed who visited the top 100 retail websites, or 65 percent). Groupon is the most popular site among those who subscribe to daily deals; it has about twice the number of subscribers as its closest competitor, Living Social, and more than twice the number of purchasers. Although the New York Times reports that competitors are catching up, Groupon is solidly in the lead for now (and we?ll see how those numbers look when we do the study again in 6 months).

Of those who subscribe to daily deals, nearly half (46 percent) subscribe to more than one service, a number that should continue to rise. In other words, just because some competitors are gaining traction doesn?t necessarily mean that Groupon will be losing it. This may be a situation where there is enough pie for everyone (of course, that is pie sold at half price!).

Not only are shoppers subscribing to these daily deals, they are using them, which is good news for consumers, retailers, and the sustainability of the daily deal business model in general. Nearly two-thirds of subscribers to daily deals have purchased at least one deal in the past 90 days, regardless of what site they’re subscribed to, and most of those buyers (89 percent) have redeemed their purchase during that time. I was surprised by the strength of these numbers and the daily deal companies (and their investors) should be thrilled with the results.

Now we get to the part that I think is the most interesting and has the most relevance to recent discussions about the future of the daily deal business model and the individual companies involved. Are Groupon and Living Social actually helping companies to acquire new business or are they just letting existing customers get better deals when they might have been willing to buy at full price? The million dollar question… (or thousand dollar question, or multimillion dollar question, depending on your business size…). And of course there is both good news and bad news here.

Good News/Bad News: Daily deals do bring in new business but also give deals to frequent customers. Of the people buying daily deals, 38 percent were already frequent customers of the company. In other words, existing customers, loyal customers, are getting significant discounts to buy what they might have bought anyway. The added value is minimal, it erodes margins and potentially conditions the loyal customers to become discount seekers.

On the positive side, 31 percent, are brand new business (new customers who weren?t aware of the company before the deal plus those with some brand awareness), 27 percent were infrequent customers, and 4 percent were former customers. That’s at least 35 percent and arguably 62 percent of deal buyers that represent NEW business. This is compelling data, and these are the customers that provide what the daily deal model is supposed to provide: bringing you new customers to try your business or products out. Now it’s up to you to do a great job in meeting their needs and satisfying these new customers. And not only satisfy them but satisfy them to the level that will allow you to convert a percentage of customers to long term, loyal customers. More to come on that in future research.

Daily Deals are also attracting men and women differently; among the three major players, Google Offers garners more male participation than either Groupon or Living Social.

Ok, your turn. We?ve read a lot about the challenges of this business model and, specifically, the challenges that Groupon may be facing. As a retailer, does this give you more confidence in using a service like Groupon or Living Social? Or if you have, do you have any experience to share? As an investor, does this increase your confidence in the potential of this business model? I?d love to hear your thoughts in the comments.

Larry Freed is President and CEO of ForeSeeResults. You can look at all his statistics by click on FreedYourMind.Com

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