some groupon loveI wrote last year questioning whether the Groupon bubble was about to burst.  At the time, the evidence seemed quite conclusive.  After all, they had received a record number of complaints, and 70% of small companies confessed to hating the site.

Alas, a new study suggests that far from waning popularity with small businesses, daily deal sites such as Groupon are holding firm in the marketplace.

The study surveyed nearly 650 small and medium sized companies throughout 2011 and 2012, and the results were generally very positive.

“Overall, the results find little or no evidence of deterioration in the performance of daily deal promotions over the past year or as the business operator runs multiple daily deals,” says Utpal Dholakia, professor of management at Rice University’s Jones Graduate School of Business. “Rather, there is improvement on some metrics.”

There were some key standouts from the research:

  • The likelihood of enjoying profitable promotions is associated positively with the business’s experience; while less than half of the businesses running their first daily deal report profitable promotions, three-quarters of those running seven or more deals report profits from these promotions. The percentage of businesses making money jumped by about 6 percentage points in the May 2012 sample—from 55.5 percent (spring 2011) to 61.5 percent.
  • Daily deals are just as likely to be successful for both businesses that don’t do any marketing and those that spend heavily on marketing.
  • Almost 80 percent of daily deal patrons are new customers, even for businesses running their seventh (or higher) daily deal, and businesses continue to see equally stable conversion rates for both repeat purchasing and spending beyond deal value.
  • Daily deals appear to be sustainable programs for approximately 30 percent of businesses. Newer and relatively smaller businesses have even higher sustainability rates of close to 40 percent.
  • Photographers (with a 75 percent rate of profitable daily deals), health and fitness services (69.3 percent), tourism-related services (68 percent), and doctors and dentists (66.7 percent) have significantly higher rates of daily deal success, while cleaning services (27.3 percent), restaurants and bars (44.2 percent), and retailers (50 percent) fare relatively poorly.
  • Daily deals appear to be more sustainable for newer and smaller businesses. Businesses founded within the past six years had a 39 percent retention rate after seven deals compared with a 23 percent retention rate for older, well-established businesses. Smaller businesses with annual revenue below $500,000 enjoyed a 41 percent retention rate compared with larger businesses, which had a 15 percent retention rate.

“These findings indicate that daily deal promotions appear to be sustainable marketing programs for about one-third of the businesses that try them,” Dholakia says.

“The challenge for the daily deal sites in the coming months will be to find these businesses and earn a greater share of their business.”

The research team produced the following video to support their research.