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Study: Deal sites help restaurants draw new customers

A study of restaurant consumers who use group or daily-deal websites, released last week by Rice University and Cornell University researchers, indicates that while deep discount offers may cause sales cannibalization, they also bring in new guests with positive attributes.

The study, "Customer Response to Restaurant Daily Deals," by professors Utpal M. Dholakia of Rice and Sheryl E. Kimes of Cornell, stemmed from an August survey of 931 completed consumer responses. A quota sample was used that insured that about two-thirds of the sample had purchased a restaurant daily deal and one third had not, the authors said.

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An affiliated report also released by Dholakia and Kimes last week indicated that the typically steep rate of discounting found at deal websites — 40 percent to 50 percent — may give away more than necessary to attract new guests or increase visit frequency among others.

"Based on our results, it seems daily deals help generate new customers who are satisfied with their experience, likely to return to the restaurant and likely to recommend it to their friends," they wrote in the report. "We also found that some cannibalization of existing customers may be occurring, that daily deal users were not necessarily 'cheap,' were likely to tip on the full amount of the bill [before discount] and were no less loyal than non-users."

The researchers also noted the potential of deal users to influence others.

"Market mavens are people who like to provide market price and shopping information to their friends,” they said. “Daily-deal users were significantly more likely to be a market maven than non-users.

“Daily-deal users tend to be more impulsive buyers, which indicates that there may be some opportunities for successful suggestive selling when they are in the restaurant," they added.

The Rice–Cornell study comes at a time when many restaurant companies are weighing the pros and cons of group or daily-deal sites, such as Groupon, LivingSocial, and EverSave. The research touched on several points raised in such debates, which include that while deal sites may bring in traffic and increase restaurant trial, they may also steal sales from existing customers, crowd out full-price paying guests, harm margins or tarnish the overall reputation of a restaurant offering a deal.

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Confirming that deal sites can bring in new guests, while representing a possible cause of sales cannibalization, the researchers said 22 percent of the respondents who redeemed a deal were new to the establishment, 34 percent were infrequent customers and 44 percent were frequent patrons.

Dholakia and Kimes found that deal users are more likely than non-users to dine out, with about 54.7 percent of the discount seekers using a restaurant for lunch or dinner at least once a week, versus 34.9 percent of the non-users. Frequent diners purchased significantly more deals, they said.

Other findings included:

• In terms of awareness among surveyed consumers, Groupon led a list of 11 deal sites, with recognition among 92 percent of deal-using respondents, followed by, 82.7 percent; Living Social, 79.5 percent; and TravelZoo, 54.1 percent. Gilt City, OpenTable, BuyWithMe, Blackboard Eats, Daily Candy, ScoutMob and EverSave were recognized by less than half of the respondents.

• Groupon was the most frequently used deal site, having garnered a purchase from 79.8 percent of deal-seeking respondents, followed by TravelZoo, 57.5 percent; and, 50.5 percent.

• In a "heart share" analysis by the authors that factored input about favorites and frequency of use, Groupon again led the pack, with a score of 42, followed by, 16.9; LivingSocial, 7.4; OpenTable, 6.3; and EverSave, 5.4.

• Respondents using deals reported that they spent and ordered about the same as they did without the discount. Frequent customers of a restaurant were significantly more likely to spend more than usual when using a deal than infrequent customers or new customers, the researchers said.

• There was no significant difference in relational orientation, or loyalty to a business that treats them well, between deal users and non-users.

• The researchers said that as a whole, deal users did not feel as if they were treated as "second-class" customers when they redeemed deals. They also indicated that the offer of discount through a deal site did not cause them to think less of a restaurant.

Among consumers who did not use deal sites, the most frequent reason cited was that they did not know about them, a situation acknowledged by 46 percent of those respondents. About 28 percent of such respondents said they had not thought of using such sites, and others indicated that such deals were not available in their areas, Dholakia and Kimes said.

Contact Alan J. Liddle at [email protected].
Follow him on Twitter: @AJ_NRN

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