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What’s the Deal with Daily Deals?
How Groupon and Livingsocial impact the businesses that run with them and the users who buy with them. By Cathy Alter
Comments () | Published November 28, 2011

Even though she’s at a gym, Christine Grimaldi looks out of place in gray sweatpants and a faded blue T-shirt. Then again, so does the woman wearing the plexiglass hooker heels.

On this Saturday morning in SomaFit’s second-floor Georgetown studio, high heels are more the norm as seven women, in varying lengths of short and shorter shorts, take their place in front of their very own fireman’s pole and begin to warm up. They twirl themselves around the pole or shimmy up—some more successfully than others—until their instructor, Crystal McLean, is ready to begin.

McLean, who’s wearing pink argyle knee socks and has a vine tattoo winding down her right leg, approaches a grimacing thirtysomething woman dressed in an athletic bra top, bike shorts, and black slingbacks. “You got pole burn?” she asks. Grimaldi looks on, her face a combination of gameness and alarm. This is her first lesson in McLean’s Pole Pressure class, and it wasn’t the chance to channel her inner exotic dancer that brought her here.

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“It’s hard to beat a good deal,” she said earlier in the locker room.

The 25-year-old transportation-policy reporter from DC, along with three other polesters in today’s class, has bought a series of five lessons for $50 through Groupon—half off the drop-in price of $20 a class. For the next hour, these women will learn how to perfect their catch spins and reverse hooks and perform an impressive combo of a fireman segueing into a pinwheel. They will sweat in ways unbecoming to sex goddesses.

“A coupon gets me to do things I’d never do,” says Grimaldi. She’s not talking just about catch spins. “Next, I want to try a facial.”

Practically unheard of a few years ago, daily-deal sites such as Groupon, LivingSocial, and a slew of clones—HomeRun, Moolala, and Bloomspot, to name a few—are offering deals on everything from Botox to balloon rides.

And shoppers are flocking to them. While news articles have reported on “deal fatigue,” with traffic at some sites slowing, these sites in general are still very popular. According to the Web-tracking firm Experian, US visits to the sites were up by 110 percent this October compared with last October. And while 36 deal sites nationwide shut down in September, 30 new ones started up, according to the research firm Yipit Data. Even Glenn Beck is getting in on the action with his new discount retail site,

Groupon has captured more than 142 million subscribers in 500-plus markets. At the end of trading on the day after its initial public offering in November, Groupon’s stock price gave it a value of more than $16 billion. In September, 1 million LivingSocial subscribers purchased $20 Whole Foods gift certificates for half price—at a rate that reached 80 deals a second, its fastest-selling offer.

The phenomenon earned cultural relevance in the form of an April 11 New Yorker cartoon. “It wasn’t our first choice of schools,” one mother tells another, “but we had a Groupon for it, so what the hell.”

These sites are creating a new generation of coupon users. Retailers are banking on luring people in the door—with the expectation that they’ll come back for more.

“Groupon kick-started our business,” says Jessalynn Medairy, the 25-year-old founder of Pole Pressure. “Before I signed on with them, I had been standing on street corners passing out flyers.”

Back in 2009, Medairy was a self-described “one-woman machine,” teaching 22 classes a week out of the 14th Street, Northwest, outpost of Balance Gym. She launched a Groupon deal to coincide with New Year’s Day in 2010 and sold 544 coupons. She repeated the deal in June and upped those numbers to 1,200. So far, Medairy figures, 85 percent of the coupons have been redeemed and she has gone from being a solo enterprise to employing a staff of 20 in studios throughout the Washington area.

“Groupon showed me we had a lot of potential in the city,” says Medairy. A study by LivingSocial revealed that its customers were more likely to purchase pole-dancing classes (19,972 vouchers sold) than gym memberships (16,125 sold).

What’s harder to show is whether Medairy’s coupon recruits will become full-price-paying customers. Nearly ten months after her first SomaFit class, Christine Grimaldi has yet to climb back on the pole for a second lesson. According to a recent study of the daily-deal industry conducted by Utpal Dholakia, associate professor of management at Rice University, while close to 80 percent of deal users were new customers, “significantly fewer users spent beyond the deal’s value or returned to purchase at full price.”

Next: The shame in bargains no longer exists


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Posted at 01:00 PM/ET, 11/28/2011 RSS | Print | Permalink | Comments () | Articles