New research conducted by John Byers and Georgia Zervas from Boston University and Michael Mitzenmacher from Harvard University reveals a fascinating downside to merchants running group buying deals: they hurt not just the wallet, but the reputation, too.
The hammer has hit the nail on the head many a time when discussing the financial burdens merchants must bear to endure the supposed benefits of tossing their lifeline into the firey daily deals space. But up to this point, no detailed, quantifiable research has targeted insight into another key aspect of how these deals influence merchants' success: reputation.
My immediate guess was that daily deals boosted rep—a silver lining to the dark, shadowy cloud companies like Groupon hide behind. But as it turns out, the opposite is true.
This chart shows that running a Groupon offer has two distinct effects. The first is that you get a boost in Yelp reviews. The second is that more of your Yelp reviews are poor. And the affliction lingers: Yelp ratings increased in volume and continued to decline in positivity even after a full 6 months post-Groupon. Ouch.
The "why" of this effect remains unclear. Are merchants failing to deliver positive experiences to the influx of new customers? Are complex or erroneous Groupon deals causing confusion among consumers? Or are more bad businesses than good businesses using Groupon and simply getting more awareness of consumers, exposing their negative elements?
Whatever the reason, this is more convincing data suggest merchants ought to be wary of the daily deals space.
Credit: Technology Review, arxiv.org/abs/1109.1530