That daily deal you bought? Maybe not so great a deal after all

 

Lots of research has been done to see whether daily deals are a good deal for small businesses. However, not much research has been done to see whether daily deals are always a good deal for consumers.

Presumably this is because daily deals are always a good deal for consumers – otherwise nobody would buy them, right?

In most cases, that’s right. However, we’ve done some research into the sector of the daily deals industry with which we’re most familiar – the local services industry. And the data show that daily deals for local services – like handymen, house cleaners, or painters – can actually be bad deals for consumers.

Here’s what we found:

Many daily deals in the local services industry are priced equal to or higher than the average local price of the service

  • A good portion of daily deals in the local services industry seem to offer prices that are equal to or higher than the average price of the service city-wide. For example, we show below that Groupon recently offered home cleaning services in Phoenix for $24.50/hour – when the average rate of all cleaning services in Phoenix is $23.50/hour.
  • Daily deal sites frequently offer deals in the local services industry that are significantly higher than regular prices offered by many local professionals. If Groupon’s deal for home cleaning services in Phoenix is $24.50/hour and the average rate of all cleaning services in Phoenix is $23.50/hour, then you should be able to find a good home cleaner in Phoenix for less than $23.50/hour. Our data confirms this – of the last fifty bids that came through our site on Phoenix home cleaning jobs, 22 professionals offered their services for less than $23.50/hour, with a low rate of $17.50/hour.
  • If a daily deal offers little or no discount below the average price of the service – or a premium above the price you could get through a bidding process – then it doesn’t make sense to buy the deal. You would be forced to use the professional offered by the deal site (rather than choose your own), you would take the risk that you will never use the coupon, and you would be giving a lot of money to the daily deal site – rather than putting that money into the pocket of the local professional. There’s also no reason to rush into buying a daily deal if the same or lower price is always available to you.

11% of daily deals are for local services

First, a bit of background on what we mean by the “local services industry.” The people in the local services industry are local professionals like home contractors, house cleaners, portrait photographers, wedding planners, math tutors, and graphic designers. According to Groupon, 11% of Groupon’s deals fall into this “services” category. An example of one of these types of deals is “$49 for Two Hours of House Cleaning in San Francisco – 67% Savings“.

Also according to Groupon, they worked with 45,665 North American merchants in the first half of 2011. If 11% of these are merchants that fall within the “services” category, then Groupon featured deals from about 5,000 North American local services merchants in the first six months of 2011.

More than 200,000 local businesses have now listed themselves on Thumbtack, and about 40% of these – or about 80,000 professionals – have listed with us the hourly price they charge. For example, this wedding and portrait photographer charges $100-150 per hour for her services.

So we have lots of hourly pricing data for a lot of local services merchants across the U.S.

When BuyWithMe offers house cleaning in San Francisco for $60 – a stated discount of 57% – or Livingsocial offers interior painting in Kansas City for $89 – a stated discount of 56% – are consumers really saving money?

Maybe. And maybe not.

Let’s take a look.

5 daily deals, 5 above-market rates

On September 19, 2011, Groupon offered two hours of home cleaning services in Phoenix for $49 - a stated discount of 67% from a regular price of $150.

As of today, 126 home cleaning companies in Phoenix have listed themselves and given their hourly rate on Thumbtack. What’s the average hourly rate of these cleaning services in Phoenix? $23.50.

The average rate of house cleaning services in Phoenix is $23.50/hour… yet the “deal” purchased on Groupon by more than 500 people is for home cleaning services at $24.50/hour, discounted from a ‘normal’ rate of $75/hour.

We also took a look at the last fifty bids that have come through our site on jobs for home cleaners in Phoenix. Of these 50 bids, 22 were below the city-wide average of $23.50/hour, with a low bid of $17.50/hour.

Let’s look at another example.

On February 13, 2011, Groupon offered $79 for two hours of handyman services in Seattle – a stated discount of 64% from a regular price of $220.

57 Seattle handymen have listed themselves on Thumbtack. Their average hourly rate? $42. And of the last 50 bids on our site for handyman jobs in Seattle, 21 were for handyman services below $42/hour with a low of $32.50/hour.

Soooo… Groupon’s normal rate? $110. Groupon’s discounted rate? $39.50 The average hourly rate city-wide? $42. The rate you can find every day on a bidding site? $32.50.

I’m not sure I see much of a “deal” here.

Some other examples I came across:

August 28, 2011: Groupon offers two hours of maid service for $45 in Chicago – a discount to $22.50/hour from a regular rate of $45/hour. The average rate of 62 Chicago maids listed on Thumbtack? $20/hour. The low rate we’ve seen recently by bidding? $16/hour.

August 22, 2011: Groupon offers two hours of handyman services for $75 in Houston - a discount to $37.50/hour from a regular rate of $75/hour. The average rate of 39 Houston handymen listed on Thumbtack? $35/hour. The low rate we’ve seen recently by bidding? $27.50/hour.

July 19, 2011: Livingsocial offers interior painting of one 12′x12′ room for $150 in Boston – a discount from a regular price of $800.  We asked five Boston painters how long they thought it would take to paint such a room, and the average of their responses was 4 hours. If it takes 4 hours for a pro to paint a 12′x12′ room, that’s $37.50/hr, a discount from a regular rate of $200/hr. The average rate of 34 Boston interior painters listed on Thumbtack? $35/hour. The low rate we’ve seen recently by bidding? $30/hour.

To be fair, these are just some data points. We don’t have data about the average prices that Groupon and others charge for local service jobs. Maybe these examples are higher than the average rates typically charged by daily deal sites.

A better deal is out there

And finally, let’s keep this in mind: these average hourly prices on Thumbtack are just that – average prices.

If price is what you primarily care about, it’s pretty easy to find someone with a lower price than average. Just call around – or use a free bidding service (like ours) that brings you 3-5 bids on your job to your email inbox within 24 hours.

You’re probably saving money most times that you use a daily deal site. But if you’re hiring a local service professional, you may want to think twice before jumping on the newest ‘deal’ that comes into your inbox.

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  • http://pulse.yahoo.com/_ML5M56SDDKOWUJULR3HXKZROQU Just for

    excellent post.thanks. I think this happens more to services. 

    • Anonymous

      Definitely agreed – pricing in the services industry is oftentimes much more opaque than pricing in other industries (like restaurants, groceries, products, event tickets, etc.). Probably one big reason this seems more common for services.

      Thanks for checking it out.

      • Matt Wilhalme

        Just emailed your support with a few questions about your research. Please ping Matt at LAUNCH dot is 

        • Anonymous

          Thanks Matt, responding now.

  • http://pulse.yahoo.com/_ML5M56SDDKOWUJULR3HXKZROQU Just for

    excellent post.thanks. I think this happens more to services. 

  • Nevada Website Design

    Recently, I spent about $200.00 to become a “Qnanza” consultant. This is a new “daily deal” company, which I decided wasn’t for me. Of course, they would not refund my money (you have to quit within 72 hours). I decided against it because there are so many companies offering “daily deals” and I have yet to find a business willing to offer an EXCEPTIONAL deal to attract new customers to their business. There are some offers out there that you can catch, like those of 90% off at Restaurants.com, but they are hard to get because they are quick offers you have to be ready for. Personally, I’ve lost interest in the “daily deals” offers because, as this article says, they aren’t good enough – some aren’t deals at all!

    • Anonymous

      Yes, we just looked at the two biggest sites – but it’s possible (probable?) that this happens for local service offers by other daily deal companies as well.

  • http://www.anitaclarkrealtor.com Anita Clark

    Not all that surprising to me.  We want things quick and easy and if a “reputable” company like Groupon says there is a savings attached, many of us will jump at it.  I wonder if the 500 who took the offer would feel deceived if they knew their discount was more than the “regular” cost.

    • Anonymous

      That’s a good question, Anita. I wonder how they’d feel too!

  • Will

    You actually should hire Groupon services. What you don’t know is that Groupon takes 50% of the deal so in reality the handyman is working for half the rate you think he is and he will probably give you a better deal (than the Groupon deal) in the future, which is basically the whole point with Groupon services (make a connection for future business). The measly $1-2/hr that you guys figured out as overpayment can quickly evaporate when your cheapest hire will also walk with your stuff or do a shoddy job. Services competing on price only are doing it because they have nothing else to compete on.

  • http://dailyhealthblitz.com/ Daily Deal Addict

     One of the maddening things is buying a daily deal with an expiration date.  I’ve had Groupons expire on me before.  I hate that!

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