Research: Operators reveal pros and cons of daily deals

Making daily deals work

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Wu, Kimes and Dholakia also surveyed the restaurateurs about their views of deal users and then compared the findings with earlier research involving consumers who use deals. They said that while the surveys were not matched, as they were done at different times with different samples, their comparison still can provide insight into whether restaurateurs understand daily deal users well enough to create and manage such promotions as effectively as possible.

The comparison revealed that restaurateurs underestimated the loyalty of daily deal customers, underestimated the likelihood that deal users would recommend their restaurant to others, and, in general, underestimated the value consciousness of customers. The researchers said operators also overestimated the need for deal users to receive special treatment and missed noting a key characteristic of deal buyers: their desire to be opinion leaders or “market mavens.”

“Given the consumers’ attitudes, the best strategy to bring back deal buyers is to offer them a first-class experience so that they can see a restaurant’s full value proposition,” the researchers concluded.

Saying, “We see no reason that this type of promotion will disappear in the near future,” Wu, Kimes and Dholakia offer the following suggestions to operators who use daily deals or are considering using them:

- Try to devise a way to limit the deal to new users.

- Structure deals to maximize overage, or customer spending above the amount of the offer, to net higher sales and better cover costs. For example, they said, if a restaurant’s per-person average is $40, a promotion selling $20 in credit for $10 is likely to yield more overage and total revenue to the operator, including coupon-sale-price share, than a promotion offering a $40 credit for $20. 

- Consider bounce-back offers to further prime the pump and encourage repeat patronage among daily deal users.

- Encourage daily deal users to post reviews or blogs about their dining experience and talk up your establishment to others.

- Remind employees to treat all guests well, including deal users, as earlier research by Dholakia suggested that properly trained staff is a key driver of a successful daily deal.

RELATED:

- A look at restaurant online ordering trends
- Q&A: Sheryl E. Kimes, Cornell University
- Research: Deal users may go for lower discounts

The full report is available at the Cornell School of Hotel Administration's website.