Effects of reputation on daily deal promotions: Evidence from groupon

Abstract

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. (is 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.