Top Complaints About Daily Deal Sites

Avoid these missteps to improve your experience and benefit local businesses.

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Groupon and rivals like LivingSocial, Google Offers, and other daily deal sites that broker goods and services at deep initial discounts aim to help businesses get new customers in the door, again and again. It's a fairly straightforward formula that works on many levels; just look at the rivals that have cropped up to challenge early leader Groupon.

But the appeal of the deal is clearly wearing off for some consumers. In my experience, sales staff increasingly let their annoyance at handling the conditional coupons slip out. Ever notice the changed tone of the receptionist making the massage appointment once you declare "I have a Groupon"?

[See 50 Ways to Improve Your Finances in 2012.]

Businesses are getting better, it seems, at isolating those newbie patrons that send the signal that they're not returning anytime soon sans the markdown. But proprietor frustration is sometimes taken out on other good-intentioned and curious daily deal users who truly want a lower-cost trial run as they sip sake or tie up their tap shoes for the first time. They're begging to be courted.

In another turn, established customers at hair salons and corner restaurants are finding that the coupon-only crowds sometimes ruin the quality of experience that regulars have come to expect; the flash of new appointments and reservations can scuttle the scheduling or walk-in ease they're used to. They may go elsewhere.

In an era where brick-and-mortar businesses must compete with online rivals, stellar customer service is becoming a rarity and yet may be more important than ever. How can businesses hope to gain repeat traffic as the deal buzz wears off and this fast-expanding retail trend moves into its next stage—sustaining customers and the business model for deal middle men? As for consumers, will we one day be painfully weaned from promotions?

[See 6 Shopping Habits to Help You Save More in 2012.]

Susquehanna Financial Group and daily deal industry tracking firm Yipit surveyed almost 400 merchants recently about their experiences running daily deals with Groupon (symbol: GRPN), Amazon-backed LivingSocial, and other providers.

An average of 8 out of 10 merchants said they enjoyed working with daily deal companies. However, the survey also found that 52 percent of the polled merchants are currently not planning to feature deals in the next six months, and nearly 24 percent of the merchants intend to feature only one deal in the next six months. In response, Groupon, which had one of the notable IPOs of 2011, saw its share price drop below its $20 launch.

"Our proprietary merchant survey highlights concerns of the daily deal sites and early read implies lower usage over the next six months, despite some surprisingly high satisfaction rates," Herman Leung, an analyst at Susquehanna, wrote in a research note.

Some stories reveal major holes in the daily deals formula. The U.K.'s Telegraph ran a profile of a British cupcake owner who claimed that a Groupon deal nearly wiped out her business after she had to sell 102,000 cupcakes at a loss. In my own north-side Chicago neighborhood, cafe Drew's Eatery shuttered in December and pointed the finger at online deals in a statement: "Trying to keep up with our competitors we began working with the online deals (Groupon, Plum, KGB, LivingSocial, Reward Network, Price Bunch and others). We soon realized that these deals are not what they seem but yet are silent killers and only build false hope. We accept full responsibility, as nobody forced us into Groupon or any other deal. We stopped doing any future deals in October and had hoped we could recover, but it was too late."

[See A Survival Guide to the Deluge of Daily Deals.]

Groupon and LivingSocial recently unveiled instant deals, which are targeted to a subscriber's location and usually run for just a few hours. For instance, users might troll for a lunch deal by their office. The survey by Susquehanna and Yipit found that only 10 percent of merchants polled have considered running an instant deal with Groupon or LivingSocial.