Source: Esther Swilley, 785-532-6135, esthers@k-state.edu
News release prepared by: Megan Molitor, 785-532-1566, molitor@k-state.edu

Tuesday, May 22, 2012

Deal website discretion: A deal a day can keep the consumer away, researcher says

MANHATTAN -- Before giving into temptation and purchasing a half-price vacation or yoga lesson from a daily deal website, one Kansas State University professor cautions users to think twice.

Daily deal websites and flash sale websites often offer prices well below what would be seen in a retail store or through typical online shopping. But Ether Swilley, assistant professor of marketing, says the deals may not be so good for business and that consumers may regret their impulse buying.

"I would advise users to use discretion," Swilley said. "Make sure it's something you really need or want, and you're not just purchasing it because it's there and time is counting down."

Daily deal websites like Groupon and others operate the same way regular coupons have for years, Swilley said. Businesses offer a service or product at a discount in order to bring in new customers, with hopes that they will enjoy what they purchased and return for more.

"What's happening, though, is that people aren't coming back after that initial coupon use," she said. "They think, 'this was cheap the first time, I want it to be cheap again.' They're not really gaining a true customer but simply a one-time user who is deal-prone. Now retailers are reconsidering the value of Web coupons."

Flash sale websites, such as Gilt, often operate through email. Potential customers sign up to receive a list of daily deals, or visit the business's website, with the promise to receive a large discount if they purchase a product within a short period of time.

Swilley said flash sale websites are a way for mid- to high-end retail companies to get rid of their extra inventory without selling it to off-price department stores like T.J. Maxx or Marshalls. She added that it is also a way for businesses to test out a new product.

"Flash sale websites are often used as a marketing tool," Swilley said. "If a company has a new product coming out, they may want to see how the public feels about it. They use a flash sale to lower the price a bit so that a few people will buy it and get it out there. Then, when someone asks where you bought your shoes, they can go to the store and purchase them."

Both flash sale and daily deal websites have been around for several years, offering everything from clothing and accessories to travel packages and restaurant coupons. Swilley said Groupon was the first to really pick up steam last year when it debuted its initial public offering.

"When Groupon did its IPO, the buzz surrounding it gave consumer credence to sites like this," Swilley said. "However, retailers may still be wary and are figuring out how to effectively use these services."

Well-known companies are getting into the game as well: Amazon offers the high-end flash sale site MyHabit and Google created Google Offers, a daily deal site.

Consumers have been eager to take advantage of what may be perceived as a quick bargain -- these websites have created a billion-dollar industry. But Swilley warns would-be buyers to take a second look at what they're considering.

"You may see a pair of shoes that is marked down to $500 from $1,600," she said. "Yes, it's a discount, but would you have seriously considered an expensive pair of shoes if the picture wasn't in front of you?"

Purchasing an item from a time-limited website is only advisable if you search out the deal, not if the deal comes to you, Swilley said. She suggests using these websites to make travel plans or purchase high-end items -- but only if you were looking for them in the first place.

Swilley predicts that daily deal and flash sale websites aren't going anywhere in the foreseeable future, but that changes likely are on the horizon.

"Look at MySpace, Facebook and Twitter," she said. "Things branch out and change as the market changes. If consumers tire of these types of deals, they'll have to come up with something else that fits what the consumer wants. The consumer is finicky and fickle, and these businesses will have to adhere."