Study: Daily deal promotions generate new customers

A new survey just released by Cornell University’s Center for Hospitality Research shows that daily restaurant deals help generate new customers who are likely to return and recommend the establishment to others.

The data focuses on consumers’ response to the fairly new niche of daily deals, and spans two types of daily deal sites: generic sites such as Groupon and Living Social, and restaurant-focused sites such as OpenTable, Spotlight, Restaurant.com and Savored.

Behavioral differences

Most respondents reported that they spend and order the same with a daily deal promotion as they normally do without one. The notable difference was that frequent customers with the promotion were more likely to spend more than usual and order more than usual as compared to infrequent or new customers.

Frequent customers were significantly more likely to visit a restaurant without a promotion than infrequent customers. Where restaurants can capitalize on a daily deal offering is in tapping new customers, who mostly answered they were unlikely to have eaten at an establishment without the promotion.

While 44 percent of daily deal purchasers in the study were regulars, the other 56 percent were either new or infrequent. The new customers answered that they were likely to return to the restaurant even if it didn’t offer another deal.

If a restaurant were to take advantage of this new customer opportunity, they’d likely have to put forth a strong marketing effort. A large majority of those who have never purchased a daily deal promotion said it’s because they didn’t know about them. Others answered that they hadn’t thought about it, while some said daily deals were not available in their area.

Additionally, per the report, daily deal users answered that they were satisfied with their experience, regardless of their previous customer status, and would likely spread the word to others. A majority also thought the restaurant they patronized was a good value even without the daily deal.

The report states, “Given that customer satisfaction has been linked to a firm’s profitability, customer satisfaction of this type may lead to increased restaurant revenue.”

Weighing the pros and cons

As social couponing sites rise, operators are forced to weigh the pros and cons of offering such discount promotions. Cornell’s report breaks down the potential of both.

Advantages include:

·         Incremental customers: Daily deals bring in additional customers who may return to the restaurant in the future. Recent Technomic research echoed this benefit, showing that 48 percent of daily deal hunters were new customers.

·         Increased revenue and profit: An increase in traffic will help increase revenue and profit.

·         Exposure: Daily deals can serve as a marketing tool to help boost brand awareness.

Potential disadvantages include:

·         Cost: Daily deals bump food costs by about 30 percent, and there are possible personnel costs if business picks up. Daily deal sites also take 30 to 50 percent of revenue from the face value of the deal.

·         Cannibalization: There is a potential for cannibalization of regular customers who would have paid full amount anyway.

·         Displacement: If a restaurant gets a flood of daily deal patrons, it may push regular, full-price paying customers out.

·         Employee frustration: Employees worry about compromised tips from deal seekers.  

·          Brand erosion: Restaurant operators may believe there is a negative stigma attached to daily deal offerings.

The report found many of these concerns to be overstated. “It appears that daily deal customers are not at all different from regular customers, except that they like to try new things and they appreciate a deal,” the study wrote. “These customers like to feel they’re ahead of the curve on market trends and once you have provided them with good value, they’ll be just as loyal as other customer groups.”

Daily deal sites used

Most respondents used a daily deal at a casual restaurant (about 47 percent), followed by quick-service (about 17 percent), upscale casual (16 percent) and fast casual (15 percent).

A great majority – 94.2 percent – of respondents were aware of Groupon, while more than 82 percent knew of Restaurant.com, followed by Living Social (79.5 percent) and TravelZoo (54.1 percent).

Less than half of respondents were familiar with Gilt City, OpenTable, BuyWithMe, Blackboard Eats, Daily Candy, ScoutMob or EverSave.

The research included 931 U.S. consumers and their behaviors over the past three months.