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For many merchants owners, daily deals services are very attractive. Their promise: lots of customers coming through the doors in a short period of time. And no up-front fees to boot.
The appeal of the daily deal has driven the growth of some of the fastest growing companies ever.
One of those companies, Groupon, today sports a multi-billion dollar valuation. But in the past year, many aspects of its business have come under scrutiny. One of those: the 'daily deal' business model.
Well documented are stories of small businesses overwhelmed by their Groupons. But even for merchants whose businesses survive a Groupon onslaught, significant questions have been raised about the efficacy of daily deals. They don't deliver long-term customer, and thus they don't deliver ROI, skeptics argue.
Obviously, each business will get different mileage from a daily deal, but according to a study conducted by researchers at Boston University and Harvard University, merchants may have something else to worry about in addition to ROI: a hit to online reputation.
The MIT Technology Review explains:
...a Groupon deal seems to have an adverse impact on reputation as measured by Yelp ratings. Their analysis shows that while the number of reviews increases signifificantly due to daily deals, average rating scores from reviewers who mention daily deals are about 10% lower than scores of their peers.
They examine this effect in more detail by pinpointing reviews that specifically mention the words "Groupon" and "coupon". "Reviews mentioning either keyword are associated with star ratings that are 10% lower on average than reviews that do not, while the very small fraction of reviews mentioning both keywords are more than 20% lower on average," they say.
Given the size of the sample ("some 56,000 [reviews] for 2,332 merchants who ran 2,496 deals"), the results are certainly eye-opening. But perhaps not surprising.
Handling an influx of customers from a Groupon can be challenging for many merchants, particularly those who are smaller. Some merchants may find that they're understaffed, for instance. That can lead to sub-par service that leaves Groupon customers disappointed.
At the same time, some merchants would likely argue that the type of customers Groupon delivers is lacking. Common complaints are that daily deal customers are not interested in becoming patrons of the businesses they try; instead they want the world and everything in it -- for half off of course.
In these instances, it may be impossible to please a subset of Groupon customers, a portion of which will take to Yelp and voice their complaints when they don't get what they were hoping for.
The key takeaway: merchants need to take a holistic view when considering the daily deal model, and implementing one if they choose to employ it. The upside of a successful daily deal can seem great, but the risks may not be limited to a monetary loss.
If this latest research is any indication, a Groupon can negatively impact online reputation, something that has the potential to derail long-term customer acquisition.