Are daily deal sites really all that great? Not if you don't think before you click.
This post is by Casey Bond at www.GoBankingRates.com.
A $25 restaurant gift certificate for $2. An hour-long Swedish massage at half-off. Some deals are just too good to pass up. After all, when it comes to daily deals and coupon sites like Groupon, the more you spend, the more you save.
But would you have gone out to eat at that fancy restaurant if you didn’t have a gift certificate? Would you have suffered greatly if you didn’t receive the discounted massage? Not likely. In fact, if you never knew these deals existed, you probably wouldn’t have spent the money in the first place.
A new breed of frugality
The recession has inspired a newfound frugal mentality among Americans that’s only increasing. Everyone from the usual suspects (stay-at-home moms and starving students) to less likely digital coupon-clippers (single men and retirees) is jumping all over daily deal sites like Groupon, Living Social, and Restaurant.com.
So how much are the users of these websites actually saving? The real question is: How much more are they spending?
According to analysis by BIA/Kelsey, annual U.S. consumer spending on daily deal offers is expected to increase from an estimated $873 million in 2010 to $3.9 billion by 2015. That’s a compound annual growth rate of 35.1 percent.
At the same time, however, 64 percent of Americans don’t even have $1,000 in emergency savings, a relatively small amount of money for a financial safety net.
It’s becoming apparent that consumers think they’re saving money, yet are failing to do so.
How daily deals encourage impulse buying
The primary characteristic of daily deal and coupon sites that sets them apart from other money-saving resources is a deadline: These deals are only available for that particular day, or a few days at most.
That means it’s nearly impossible to use these sites for planned-out purchases that fit within a predetermined budget. Rather, you’re enticed by a steep discount on a non-essential purchase – then urged to buy, buy, buy before the deal is gone forever.
Here’s one result of that impulsiveness: 21.7 percent of daily deal participants never even redeem their coupons, according research by Utpal Dholakia, a management professor at Rice University.
Whether they never have the time or they simply forget, obtaining the deal and “saving money” is more important to the buyer than actually using the product or service.
Lindsay Benitez, a 22-year-old professional in Los Angeles, admits her addiction to daily deal sites is a constant drain on her budget. “I don’t really save any money because they’re things I wouldn’t normally spend on at all. Sure I’ll save 50 percent on this service, but really, would I have even gotten it in the first place?”
Even though this fact is obvious, the thrill of snagging exclusive discounts keeps her coming back. “They e-mail so early in the morning, so it’s the first thing I see,” Benitez says. “I check them about every day to see what new deals they have.” She jokes, “I need to deactivate the messages, but what if I miss out on a good deal?!”
What if you saved the money instead?
These online coupons and daily deals are positioned as tools for budget-conscious shoppers, but the money spent would almost always be better used for something else – like building up an emergency savings account or paying down high-interest debt.
Peter Warnock, father of two young children and avid daily deal shopper, agrees: “Cash flow gets tight at the end of the month from my impulse buys. If I can’t pay my bills in full, the interest I get charged negates any discounts I would’ve gotten from the offers.”
Spending $20 here and $50 dollars there may only feel like an occasional splurge, the financial impact of which is easy to discount by the savings associated with the purchase. Unfortunately, these small purchases add up to big spending each month or year – money that is often spent at the expense of a high credit card balance or severely underfunded 401(k).
In a time when high unemployment and rocky financial markets make it more important than ever to scrutinize every dollar spent, consumers will likely find their finances benefit most from avoiding these deals sites altogether.