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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.

Patricio Robles

Published 13 September, 2011 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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Pete Austin @MarketingXD

Good point. Groupon does not deliver fully qualified leads. Its low prices deliver some customers who would never normally buy the product. So it's obvious in hindsight that their review ratings will be a bit lower than average customers.

I would expect this effect to apply to customers attracted by other types of non-product promotions. For example contests.

almost 5 years ago

Dave Wieneke

Dave Wieneke, Director of Digital Strategy - ISITE Design at www.UsefulArts.us

As my office is in an MIT incubator, I've been hearing a ton about this...and I have a different initial perspective than the researchers.

The classic marketing text, Crossing the Chasm, describes what happens when niche firms try to "cross the chasm" to reach mass markets. They encounter all the kinds of problems -- including that they are now servicing a less devoted mass audience.

I think it is more interesting to take the "digital" eyeglasses off and see this as a clear business truth.

The other factor at work here is the hype cycle. For a year Groupon walked on water. Now inflated expectations are being followed by a trough of equally severe despair. We saw this with Google, Microsoft, even Obama.

Coupons are risky because the deliver mass markets to small firms - complete with thin margins and fickle tastes.

But, its not the daily deal that is risky. Its granting the wish for growth -- which can put firms of risky new ground.

almost 5 years ago

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Damo G

Interesting bit of research. Here in the UK, Pizza Express has started a MASSIVE campaign of giving away deals. You can't get away from them: Facebook, Twitter, buy a pizza in the supermarket and find a pack of BOGOF vouchers, BOGOF of the backs of cinema tickets....

I seem to be flooded with them at the moment and it does just make me wonder, "Why?"

I've always got a 2 for 1 deal on Wednesdays because I'm an Orange customer. That seemed 'special'. But what's with the massive giveaway? In a way it feels like it's cheapening the whole brand. (Or do they have a clever strategy up their sleeve?)

almost 5 years ago

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Gabrielle Hase, Director at Soleberry Advisory Ltd.

This research verifies what the industry has heard anecdotally for some time. It also highlights the opportunity for these group buying sites to differentiate themselves by offering services to their merchant network that help the network capitalise on this sales traffic and fulfil it more profitably.

Groupon, Living Social and their competitors are only as good as the deals they offer, so I expect the penetration of smaller, more niche businesses to continue. Therefore it's in Groupon et.al.'s best interests to help the merchants protect their reputations and scale more effectively.

almost 5 years ago

Tom Griffiths

Tom Griffiths, Digital Team Lead at Browser Media

First impressions (dis)count.

This research has finally given some credence to the possible risks which sites like Groupon pose to these businesses' fledgling brands. This can only be seen as a welcome warning to those jumping on a bandwagon without clear sight of where it's headed.

Suffice it to say that those small businesses seeing increased footfall need to account for the inevitable ebb. The hope behind sites like Groupon was that they would drive new customers, a proportion of whom would recognise the value / service / quality of the paid-for product or service and become a regular customer, even an advocate!

The reality is that not only does it continue to fan the flames of expectation that discounts should be available, it has tempted small businesses into the discount culture who can't afford to maintain a discount 'campaign'. Big businesses whose marketing relies on virtually-permanent deals or sales such as DFS, Dominos, or increasingly the mid-range restaurants, work to known margins and write these into their costing structure.

Small businesses aren't recognising that, if they jump into the world of daily deals and discounts, to sustain the expectation of a discount is unsustainable! Not only that, it denigrates their brand, as the research points out.
Daily Deals can be effective if done with eyes wide-open. It should be approached carefully and managed as both an ad and PR campaign would. But that's the key, like social media, it's more than just blind promotion, PR must be involved, customer service must be involved, not just the marketers who can see fast footfall.

Businesses are positioning themselves without the benefit of existing brand equity. Do you really want a future customer's first impression of your business to be associated with discounts? First impressions (dis)count.

Use Daily Deals to promote a business, but make sure all angles have been covered, because new 'customers' are making assumptions about these businesses that they might not be able to fulfil.

almost 5 years ago

Conrad Morris

Conrad Morris, Director at Match Me Now Limited

Interesting research and, as always, thought-provoking comments. I think Dave Wieneke has it absolutely right: the issue is "servicing a less devoted mass audience". This doesn't make it any less of an issue, but it's not something specific to a daily deal campaign. Dave's point about taking "the "digital" eyeglasses off" is another vital one for us all to remember. It's too easy to become excited by the something new in the digital world, and lose sight of the basic business/marketing truths.

almost 5 years ago

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dimatteo

A good read and quite insightful. However, I don't think a 10% drop in online reputation is a deal breaker if footfall increases by 100%. It's not a perfect world and one has to weigh up the benefits against the drawbacks.

In saying that I don't use Groupon for my brand because I feel it is really a C2DE demographic....

almost 5 years ago

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Irene Mathew

specialpunch.com is best place to find online Deals, Coupons , freebies etc,Get in Touch with the large number of Coupon for free.

over 4 years ago

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john yaeger

Right.Daily deals promises so much sweets,it's tempting to bite however the taste becomes bitter when the effect is not lasting. Quality service over quantity still matters.

about 4 years ago

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