How e-WOM and local competition drive local retailers' decisions about daily deal offerings

Abstract

Local retailers considering offering daily deals must take into account possible impacts of both electronic-word-of-mouth (e-WOM) and local competition. However, how e-WOM, local competition, and their interactions affect local retailers' decisions to offer daily deals remains unclear. Here we examine these effects utilizing a data set that contains details of daily deals, online reviews, and local competition measures for restaurants in the Chicago area. With a propensity score matching (PSA) method, we show: 1) local retailers with high ratings and high number of reviews were more likely to initiate daily deals; 2) local retailers in an area with a low level of local competition were more likely to initiate daily deals; and 3) the strength and direction of the impact of e-WOM depend on the level of local competition. Our results enhance understanding of local retailers' decisions to offer daily deals and yield important implications related to daily deal sites.