Daily Deal Promotions Research Articles

Effects of Reputation on Daily Deal Promotions: Evidence from Groupon

Daily deals are nowadays very popular. As a new form of marketing, they allow local small businesses to sell vouchers at substantial price discounts for a very limited period of time. However, it is unclear whether and to what extent a seller’s online reputation affects the outcomes of its daily deal promotions. This paper presents an analysis of 4060 daily deals scraped from Groupon. The empirical results suggest that (1) business reputation, measured by displayed average rating, is positively associated with the sales of vouchers; (2) business reputation has no significant relationship with voucher discount depth; (3) business reputation is positively associated with the increase of customer traffic following a daily deal promotion; and (4) ratings displayed on daily deal sites are more influential than ratings displayed on third-party review sites. These findings extend our understanding of daily deals and provide concrete guidance to merchants regarding how to attract more purchases and traffic through online deals as well as to platform owners by pointing out the value of reputation in moderating consumers’ and merchants’ behaviors.

Sealing the Deal: Factors Influencing Guest Satisfaction with Accommodation Daily Deals

ABSTRACTThis research explores the underlying determinants of guest satisfaction with accommodation purchased through daily deal promotions. The results of a survey of three hundred buyers find a generally high level of satisfaction with the overall experience of accommodation daily deals. The research contributes to the literature by identifying five factors, which underpin guest satisfaction with accommodation daily deals. It presents the first published research, which identifies the factors which significantly influence the level of satisfaction reported by guests for accommodation daily deals. The five factors identified are trade-offs associated with purchasing via a daily deal; the value and integrity of the deal; customer delight with the stay; hotel staff’s knowledge of the deal; and redemption challenges. With the exception of redemption challenges, all other factors are shown to have a significant influence on the guest’s overall satisfaction with their accommodation deal stay experience.

Strategic Revenue Sharing with Daily Deal Sites: A Competitive Analysis

ABSTRACTPromoting through daily deal sites has become popular in the past few years. Groupon is perhaps the best known provider of these promotions (also known as online discount vouchers) to customers. Daily deals differ from traditional coupons on three important dimensions: (i) They are not offered to consumers directly by firms but are offered through an intermediary, (ii) the promotional depth offered by these localized promotions tends to be higher, and (iii) consumers prepay for the discount vouchers, and then the daily deals site reimburses the retailer a prespecified negotiated percentage of each paid voucher. In this study, we build a theoretical model to explore the profitability of undertaking a daily deals campaign by firms. Our analysis identifies the role of types of consumers in the market, relative bargaining power of the local firms, revenue sharing agreements, and market characteristics, such as degree of product substitutability and extent of competition, on the profitability attained through daily deal promotions. Surprisingly, when demand spillovers exist, an asymmetric outcome, with one firm offering an online discount voucher and the competing firm not offering an online discount voucher, is an equilibrium under some conditions.

Signalling effect of daily deal promotion for a start-up service provider

In this paper, we consider a start-up service provider that decides whether to advertise its service product by offering temporary daily deal promotion. Based on the repeat purchase mechanism, we show that both the commission rate (ie, the revenue-sharing ratio) charged by the daily deal site and the discount level offered by the service provider play important roles in signalling the initially unobservable quality level of the service provider. A high commission rate can facilitate the signalling of the daily deal promotion, and in equilibrium only the high-quality service provider would do daily deal promotion. We find that if the daily deal site adopts a two-part tariff charging scheme, the high-quality service provider can always signal its quality by offering daily deals. And the two-part tariff leads to a lower signalling cost but a higher repeat purchase rate than those under the revenue-sharing if the variable cost of the low-quality service provider is not too large.

Compulsive buying in online daily deal settings: An investigation of motivations and contextual elements

The authors develop a motivation theory of online buyer behavior for daily deal promotions with a focus on compulsive buyers. The theory helps explain and predict compulsive buyers' online or mobile shopping motivations. Further, the theory explains mobile/online buyer's psychological responses to contextual factors in online daily deal promotions. Daily deal promotions display indicators that may increase time pressure (e.g., product is available for today only claims) and social pressure (e.g., 834 other consumers have purchased claims). The authors empirically show that daily deal websites represent an especially tempting shopping context for compulsive buyers due to hedonic and social motives that influence consumers' response to such contextual factors. To protect this vulnerable consumer segment from overspending, the implications for retailers and daily deal site managers are to lessen the prominence of high-pressure indicators, such as number of deals sold to other consumers and the seconds remaining to purchase.

A Decision-Making Model of Social Shopping in Franchising: Assessing Collaboration Strategies

Our paper develops a decision-making model of social shopping in franchising to understand impacts of various collaboration strategies on profits of a social intermediary, a franchisor, and a franchisee. Three decision variables are considered to make a daily deal promotion in a manner that results in optimal profits: the social intermediary's advertising expense, the franchisee's service quality expense, and the franchisor's financial assistance to the franchisee. The analysis shows that while system-wide collaboration generates more total profit for all three parties than the profits obtained when they seek to optimize their individual profit functions, the advantage of system-wide collaboration may depend on the parameter values of the profit function and collaboration cost. Since social shopping is just in the early stage of the business model development, most franchises and social intermediaries have not formed concrete collaboration strategies. Our model provides a methodology for different collaborative needs of the franchises and social intermediaries.

Consumers' Motivations and Daily Deal Promotions

In the last years daily deal (dd) sites have become a substantial part of e-commerce scenario. Every day, for a limited time, such sites offer their subscribers, at very discounted prices, deals for products or services. Despite the worldwide success of daily deal sites, testified by articles in newspapers and magazines, there is an almost complete absence of academic research on this topic. The aim of this paper is to understand the consumers' drivers in online coupon buying. The study is exploratory in nature and authors have collected data by carrying out four synchronous online focus groups involving 21 participants and investigating five areas: level of awareness, perception area, social dimension, consumer behavior, and relationship with e-commerce. Respondents show a high level of awareness of daily deal sites. In the perceptive area, convenience emerges as the driving factor in coupon buying. As to the self-perception area, some ambivalences emerge between smartness and compulsive buying, highlighting also some dissatisfaction. The ‘social dimension’ is almost irrelevant, and as to consumer behavior, daily deal buying seems to be a kind of fashion. Consumers perceive the bargain side of the offer, behaving like “cherry pickers.”

Signaling Effects of Daily Deal Promotions

Daily deal sites like Groupon and LivingSocial have been growing at an impressive rate. These sites provide merchants a new channel to advertise. A question is that if daily deals can help a merchant to signal its good quality. To answer this question, we present a signaling model, in which the discount level is a choice variable of a merchant who offers a product on a daily deal site, and may be used as a signal for the initially unobservable quality of the product. Repeat purchases and commission charged by the daily deal site play crucial roles in our model.

Does a Daily Deal Promotion Signal a Distressed Business? An Empirical Investigation of Small Business Survival

In the last four years, daily deals have emerged from nowhere to become a multi-billion dollar industry world-wide. Daily deal sites such as Groupon and Livingsocial oer products and services at deep discounts to consumers via email and social networks. As the industry matures, there are many questions regarding the impact of daily deals on the marketplace. Important questions in this regard concern the reasons why businesses decide to oer daily deals and their longer-term impact on businesses. In the present paper, we investigate whether the unobserved factors that make marketers run daily deals are correlated with the unobserved factors that inuence the business, In particular, we employ the framework of seemingly unrelated regression to model the correlation between the errors in predicting whether a business uses a daily deal and the errors in predicting the business’ survival. Our analysis consists of the survival of 985 small businesses that oered daily deals between January and July 2011 in the city of Chicago. Our results indicate that there is a statistically signicant correlation between the unobserved factors that inuence the business’ decision to oer a daily deal and the unobserved factors that impact its survival. Furthermore, our results indicate that the correlation coecient is signicant

How Businesses Fare with Daily Deals as They Gain Experience: A Multi-Time Period Study of Daily Deal Performance

We examine performance of daily deals using survey data from 641 small- and medium-sized businesses obtained during three time periods: April-May 2011, October 2011, and May 2012. In contrast to our June 2011 report, our present findings indicate a number of positive signs for the daily deal industry, notably: (1) the incidence of profitable promotions has remained stable over the study’s duration (between 55% and 61%); (2) the likelihood of enjoying profitable promotions is associated positively with the operator’s experience with them. Less than half of the businesses running their first daily deal report profitable promotions, whereas more than three quarters of those running seven or more deals do so; (3) daily deals are just as likely to be successful for businesses that don’t do any other marketing at all as those that spend heavily on marketing activities; (4) performance metrics of completed daily deals have remained largely stable since May 2011, and have even improved on some measures like spending by deal users beyond the voucher’s value and spending by repeat customers in the most recent May 2012 sample; (5) businesses continue to attract close to 80% new customers even when running their seventh (or more) daily deal, and see equally stable conversion rates for repeat purchasing and spending beyond deal value; (6) the daily deal site’s share of revenue increased marginally from 42.5% in October 2011 to 45% in May 2012; (7) the calculation of dropout rates (i.e., businesses not intending to run daily deals again in the future) indicates that daily deals appear to be sustainable programs for approximately 30% of businesses; and (8) newer and relatively smaller businesses have even higher sustainability rates of close to 40%. We also find that restaurants and retailers (store-fronts and offline) are having a more difficult time making daily deals work compared to other industries, whereas salons and spas, and health and fitness services are doing relatively well with daily deals. Taken together, our results find little or no evidence of deterioration in the performance of daily deal promotions over the past year (April-May 2011 to May 2012) for small and medium-sized businesses or with experience as the business operator runs multiple daily deals. Rather, there is improvement in some metrics.

Daily Deal Fatigue or Unabated Enthusiasm? A Study of Consumer Perceptions of Daily Deal Promotions

We examined consumer perceptions of daily deal promotions. In a survey-based study conducted with a diverse sample of 973 respondents (655 daily deal users and 318 non-users), we find no evidence of daily deal fatigue. Instead, the heaviest daily deal users (those who have purchased 11 or more deals) are the most enthusiastic about them. They indicate the greatest interest in checking their email for deal offers every day, have little trouble in using the deals before they expire, believe that daily deals help them save money on things they would have purchased anyway, and say they have integrated these deals into their usual shopping behavior. As another positive sign, all users indicate high levels of intentions to purchase a daily deal again within the next month. Non-users indicate not using daily deals primarily because of awareness and access issues, and given that only 16.7% of our panel’s population has used daily deals before, there is significant opportunity for growth of daily deals on the consumer side. In assessing different sites, Groupon has the highest levels of awareness, use, and heart share among daily deal users, whereas LivingSocial, eversave, Travelzoo, and OpenTable score significantly lower on these metrics. We also find daily deal usage decreases with the consumer’s age, increases with the household income, and is the highest for those who live in urban areas. Psychologically, heavier daily deal users are less interested in being seen as different or 'fringe' in their shopping patterns, are less careful with their personal finances, are more interested in trying new things so as to have experiences to talk about and influence others, and are attracted to a deal because it is a deal rather than because of its magnitude. Our findings suggest that consumers may be less sensitive to the depth of daily deal discount than is conventionally believed and may be appealed to via creative and subtle offers offering lower discounts.

Customer Response to Restaurant Daily Deals

Over the past year, restaurant operators have been inundated with sales pitches to run daily deals for their customers from companies such as Groupon, Living Social, OpenTable and Restaurant.com. On the plus side, daily deals can help restaurants fill unused capacity. Given that the only significant variable cost for restaurants is that of their food (typically about 25 -30%), such promotions may offer an effective revenue management strategy to restaurant operators. However, on the negative side, if operators cannot control when daily deal users patronize the restaurant, full-paying regulars may get displaced during busy periods, leading to lost profits in the short run and the attrition of a stable customer base over the longer-term. Or, if a significant number of regular customers purchase and redeem daily deal offers, such cannibalization could dilute the restaurant’s prices. In addition, the possible negative effects on service (from increased volume) and employee morale (based on the perception that daily deal customers are ‘cheap’ and will tip less) must also be considered. We examined consumer perceptions of restaurant daily deal promotions. In a survey-based study conducted with a diverse sample of 931 respondents (617 restaurant daily deal users and 314 non-users). People who had purchased a restaurant daily deal tended to be younger, have a higher income and live in urban or suburban areas. We found that 44% of the respondents who had purchased restaurant daily deals in the previous 3 months were frequent customers of the restaurant; 22% were new customers and 34% had been to the restaurant before, but did not go there frequently. Based on our results, it seems that daily deals help generate new customers who are satisfied with their experience, likely to return to the restaurant and likely to recommend it to their friends. We also found that some cannibalization of existing customers may be occurring, that daily deal users were not necessarily ‘cheap’, were likely to tip on the full amount of the bill and were no less likely to be loyal than non-users. Psychologically, heavier daily deal users had a similar value consciousness to non-users, were more likely to enjoy recommending products to friends, were more likely to use coupons and were less likely to purchase things impulsively. Non-users indicate not using daily deals primarily because of awareness and access issues, and given that only 31% of our panel’s population has used daily deals before, there is significant opportunity for growth of restaurant daily deals on the consumer side. In assessing different sites, Groupon has the highest levels of awareness, use, and heart share among daily deal users, whereas Restaurants.com, LivingSocial, eversave, Travelzoo, and OpenTable score significantly lower on these metrics.

How Businesses Fare with Daily Deals: A Multi-Site Analysis of Groupon, Livingsocial, Opentable, Travelzoo, and BuyWithMe Promotions

We examine performance of daily deals run through five major sites in 23 US markets. In a survey-based study of 324 businesses that conducted a daily deal promotion between August 2009 and March 2011, 55.5% of businesses reported making money, 26.6% lost money and 17.9% broke even on their promotions. Although close to 80% of deal users were new customers, significantly fewer users spent beyond the deal’s value or returned to purchase at full price. 48.1% of businesses indicated they would run another daily deal promotion, 19.8% said they would not, and 32.1% said they were uncertain. We also examined drivers of deal profitability, the loyalty of merchants to a daily deal site, and how spending on daily deals has affected spending of businesses on other marketing programs. Overall, our findings lead us to conclude that there are relatively few points of differentiation between the daily deal sites, making it harder for any one site to stand out from the others. Our findings also uncovered a number of red flags regarding the industry as a whole: (1) the relatively low percentages of deal users spending beyond the deal value (35.9%) and returning for a full-price purchase (19.9%) are symptomatic of a structural weakness in the daily deal business model, (2) less than half of the businesses indicated enthusiasm about running another daily deal in the future, (3) fully 72.8% indicated openness to considering a different daily deal site, and (4) only 35.9% of restaurants/ bars and 41.5% of salons and spas that had run a daily deal asserted they would run another such promotion in the future. All of these findings point to the same conclusion: Over the next few years, it is likely that daily deal sites will have to settle for lower shares of revenues from businesses compared to their current levels, and it will be harder and more expensive for them to find viable candidates to fill their pipelines of daily deals.

A Startup’s Experience with Running a Groupon Promotion

As daily deal promotions have exploded in popularity, there is considerable debate regarding their benefits and pitfalls. However, empirical evidence regarding the change in revenues and profits resulting from a daily deal promotion for a business, the potential exposure value it provides, and patterns of redemption rates over the course of the promotion is scarce in the public domain. Such knowledge is important to understand the real potential associated with daily deal promotions. To examine these issues, we conduct an in-depth descriptive analysis of the experience of Gourmet Prep Meals (GPM), a Houston-based startup, with running a Groupon promotion. Our results provide evidence of significant exposure value, defined as the increase in sales because of exposure received by the business to the Groupon customer base. For GPM, the Groupon promotion’s exposure value is approximately 140% of its baseline sales over the six month period. We also find that although the promotion itself had no material impact on the firm’s profits, when the earnings from unredeemed Groupons are taken into account, GPM enjoyed a substantial 30% lift in profits compared to baseline levels. The firm lost a small amount of money on the average Groupon user, but more than made up for it from the increased rate of purchase - which was more than three times higher - by full price-paying customers from the increased exposure. The Groupon promotion also helped GPM identify its target customers and fine-tune its product and service offerings. We conclude that the Groupon promotion was beneficial to GPM in multiple ways, and that daily deal promotions can be effective marketing tools for retail startup businesses in local markets to achieve exposure and stimulate sales.