Daily Deals: Prediction, Social Diffusion, and Reputational Ramifications

TL;DR

This paper analyzes the economics, social influence, and reputational effects of daily deal sites like Groupon and LivingSocial, using extensive data to reveal purchase behaviors, social diffusion, and reputation impacts.

Contribution

It provides a comprehensive empirical study of daily deal dynamics, social effects, and reputation consequences, combining multiple datasets and analytical approaches.

Findings

Daily deals benefit from significant word-of-mouth effects.

Deal activity increases the number of merchant reviews.

Average ratings tend to be lower for reviews mentioning deals.

Abstract

Daily deal sites have become the latest Internet sensation, providing discounted offers to customers for restaurants, ticketed events, services, and other items. We begin by undertaking a study of the economics of daily deals on the web, based on a dataset we compiled by monitoring Groupon and LivingSocial sales in 20 large cities over several months. We use this dataset to characterize deal purchases; glean insights about operational strategies of these firms; and evaluate customers' sensitivity to factors such as price, deal scheduling, and limited inventory. We then marry our daily deals dataset with additional datasets we compiled from Facebook and Yelp users to study the interplay between social networks and daily deal sites. First, by studying user activity on Facebook while a deal is running, we provide evidence that daily deal sites benefit from significant word-of-mouth effects during sales events, consistent with results predicted by cascade models. Second, we consider the effects of daily deals on the longer-term reputation of merchants, based on their Yelp reviews before and after they run a daily deal. Our analysis shows that while the number of reviews increases significantly due to daily deals, average rating scores from reviewers who mention daily deals are 10% lower than scores of their peers on average.