Big businesses still shying away from daily deals

September 25, 2011

Online daily deals have fast become a viable marketing tool thanks to the popularity of LivingSocial and Groupon, but few well-heeled merchants are embracing the format, according to attendees of last week’s annual Advertising Week D.C. conference.

Businesses that can afford an advertising agency tend to be skeptical about the value coupon sites can offer their brands. Area advertising executives say they pitch the sites as another channel to reach customers, but so far clients are not biting.

“The platform is in its infancy,” said Trish Holman, an account supervisor at SmithGifford, a Falls Church-based advertising agency. “A lot of clients are eyeing it and feeling it out and thinking about it, but I haven’t had anyone pull the trigger yet.”

Part of the hesi­ta­tion, she said, are concerns that discount offers might tarnish the brand identity or may not reach the desired clientele.

“It’s much more advantageous for small businesses, than for big brands,” said Erik Rogstad, vice president of the Advertising Club of Metropolitan Washington, which hosted the conference.

For mom-and-pop operations, he said, online promotions lure new customers at a more-affordable rate than a formal ad campaign, even if the deal cuts into profits. Industry experts say small businesses are the most frequent users of daily-deal sites.

That trend, however, doesn’t preclude larger merchants from benefiting from the popularity of daily deals, said Fred Kraeise, director of social media for SmithGifford. Where he sees daily deals gaining traction is with restaurant chains, for whom the sites offer “a good way to introduce new products or re-energize the brand.”

Quiznos, having suffered sluggish sales for the past two years, teamed with Groupon in July on a $6 voucher for $12 worth of subs or salads, an offer that drew more than 126,000 buyers, according to the deal site.

Other national brands are dipping their toes into the daily-deal waters. General Mills, parent of such brands as Betty Crocker and Green Giant, ran a Groupon deal in April for $40 worth of its packaged goods for $20. Early this month, Whole Foods grabbed headlines when more than 700,000 LivingSocial subscribers bought its $10-for-$20 grocery deal.

To date, Whole Foods is one of only five national retailers, including Amazon.com and Fandango, to use District-based LivingSocial, company spokesman Brendan Lewis said.

“Our business is driven by local commerce, but even national brands have local outlets. So it fits into the core mission of what we do as a company,” he said. “It’s a growing area of interest, and clearly our user community responds well to these offers.”

Groupon spokesman Kelsey O’Neill echoed Lewis’s view that the foundation of the Chicago-based deal site is local commerce. Still, the company will continue to grow its partnerships with national brands, especially for the upcoming holiday season, she said.

In spite of the popularity of coupon sites, analysts question whether the market has hit a plateau. Consulting firm BIA/Kelsey, based in Chantilly, forecasts consumer spending on deal-a-day offers will grow from $873 million in 2010 to $4.2 billion in 2015, but the firm revised its sales outlook for 2011 from $2 billion to $1.2 billion.

There has already been some shakeout in the industry. According to deal aggregator Yipit.com, 170 of the 530 daily deal sites across the country have shut down or been sold this year.

Nonetheless, Cary Hatch, chief executive of MDB Communications in the District, says more national players probably will employ daily deals as the sector matures and ad dollars increasingly find their way to social media, particularly if the economy remains sluggish.

Danielle Douglas covers the banking industry for The Washington Post.
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