To Groupon or Not to Groupon: The Profitability of Deep Discounts

Edelman, Benjamin; Jaffe, Sonia; Kominers, Scott Duke

doi:10.2139/ssrn.1727508

Cited by 101 publications

(80 citation statements)

References 27 publications

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“…In the last two decades, digitally-enabled marketplaces have seen tremendous growth (Aldrich, 1999;Choudhury et al, 1998), with cost effectiveness (Bakos, 1991;Rask and Kragh, 2004), global reach (Eng, 2004), and "long tail" advantages (Andersen, 2009;Brynjolfsson et al, 2011) as prime motivators. Digital marketplaces range across multiple domains: electronic commerce marketplaces (e.g., Amazon.com) (Mahadevan, 2000), online auctions marketplaces (e.g., eBay.com) (Eng, 2004), online freelance marketplaces (e.g., oDesk.com) (Groysberg et al, 2011), group buying marketplaces (e.g., Groupon.com) (Edelman et al 2011) and digital application marketplaces (e.g., Apple's AppStore) (West and Mace, 2010). …”

Section: Digital Application Marketplaces: Conceptual Backgroundmentioning

confidence: 99%

A Paradigmatic Analysis of Digital Application Marketplaces

Ghazawneh

Henfridsson

2015

Journal of Information Technology

123

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Abstract. This paper offers a paradigmatic analysis of digital application marketplaces for advancing information systems (IS) research on digital platforms and ecosystems. We refer to the notion of digital application marketplace, colloquially called "appstores," as a platform component that offers a venue for exchanging applications between developers and end-users belonging to a single or multiple ecosystems. Such marketplaces exhibit diversity in features and assumptions, and we propose that examining this diversity, and its ideal types, will help us to further understand the relationship between application marketplaces, platforms, and platform ecosystems. To this end, we generate a typology that distinguishes four kinds of digital application marketplaces: closed, censored, focused, and open marketplaces. The paper also offers implications for actors wishing to make informed decisions about their relationship to a particular digital application marketplace.

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Section: Digital Application Marketplaces: Conceptual Backgroundmentioning

confidence: 99%

A Paradigmatic Analysis of Digital Application Marketplaces

Ghazawneh

Henfridsson

2015

Journal of Information Technology

123

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“…Different from Dholakia's survey approach, we will analyze the impacts of the online discount voucher mechanism on merchant's expected profit from a theoretical perspective. Edelman et al (2010) investigate the profitability of discount vouchers by using the framework of Bils (1989). They examine two mechanisms by which a discount voucher service can benefit affiliated merchants: price discrimination and advertising.…”

Section: Literature Reviewmentioning

confidence: 99%

The Role of Discount Vouchers in Market with Customer Valuation Uncertainty

Gao¹,

Chen

2015

Production and Operations Management

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Online discount voucher market In the discount voucher market, customers usually face two types of valuation uncertainty, namely, preference uncertainty and consumption state uncertainty. Preference uncertainty is related to the customer's lack of relevant experience with the merchant, whereas consumption state uncertainty is related to the advance selling nature of the discount voucher mechanism. By taking a comprehensive perspective (i.e., considering revenue management and promotion effect at the same time), we find (i) no show of voucher buyers may not be a good thing for the merchant, especially for those large or start-up ones; (ii) offering refund may always hurt the merchant's profit and the PayPal model may not be optimal in terms of maximizing social welfare; and (iii) market segmentation is not necessary for the profitability of promotion. Disciplines Business | Finance and Financial ManagementThis journal article is available at ScholarlyCommons: http://repository.upenn.edu/fnce_papers/67Electronic copy available at: http://ssrn.com/abstract=2510988 The Role of Discount Vouchers in Market with Customer Valuation Uncertainty Fei GaoThe Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104, feigao@wharton.upenn.edu Jian ChenResearch Center for Contemporary Management, Tsinghua University, Beijing 100084, chenj@sem.tsinghua.edu.cn AbstractOnline discount voucher market In the discount voucher market, customers usually face two types of valuation uncertainty, namely, preference uncertainty and consumption state uncertainty. Preference uncertainty is related to the customer's lack of relevant experience with the merchant, whereas consumption state uncertainty is related to the advance selling nature of the discount voucher mechanism. By taking a comprehensive perspective (i.e., considering revenue management and promotion effect at the same time), we find (i) no show of voucher buyers may not be a good thing for the merchant, especially for those large or start-up ones; (ii) offering refund may always hurt the merchant's profit and the PayPal model may not be optimal in terms of maximizing social welfare; and (iii) market segmentation is not necessary for the profitability of promotion.

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“…The results suggest that ROI (return on investments) of online social coupons seems to be unprofitable. Edelman, Jaffe, and Kominers (2011) argued that daily deals can benefit merchants through advertising, by informing consumers of a merchant's existence. This could be particularly beneficial for merchants that offer products or services with little likelihood of repeat purchase (e.g., barbeque and grilling classes, bee-keeping seminars, glass-blowing workshop).…”

Section: Profitability Of Social Coupons and Customer Value For/to Bumentioning

confidence: 99%

“…Hence, once the deals are e-mailed out to prospective customers, the merchants enjoy high brand exposures with little risk of a perception backlash from a subsequent cancelled offer/deal. Edelman et al (2011) also pointed out that the total cost to a merchant offering daily deals can be nonlinear where cost goes up when a merchant nears capacity or is oversubscribed (e.g., more customers than it can handle; full-paying customers feeling they were underserved; or deal customers not planning to return because they felt short-changed). With smart planning in the deal offer and restrictions, these costs could be avoided or minimized (see recommendations by Hughes & Beukes, 2012).…”

Section: Profitability Of Social Coupons and Customer Value For/to Bumentioning

confidence: 99%

“…For some deals, such as bee-keeping seminars, the cost curve may flatten out (i.e., cost increases marginally with 3 or 5 more deal participants joining the seminar planned for, say, a dozen customers; but revenues may be higher from after-seminar sales). Furthermore, competition among daily deal providers may drive down fees on merchants desiring to offer daily deals (Edelman et al, 2011).…”

Section: Profitability Of Social Coupons and Customer Value For/to Bumentioning

confidence: 99%

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Attitudes, Perceptions, and Responses of Purchasers Versus Subscribers-Only for Daily Deals on Hospitality Products

Ong

2014

Journal of Hospitality Marketing & Management

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Daily deals are prepaid online coupons or vouchers that offered steep price discounts (anywhere from 20% to 70% off) at local businesses such as restaurants, nail salons, and sky-diving operators. Pioneers such as Groupon and LivingSocial have leveraged today's social media and smart phones era to amass large consumer subscribers who opt in to receive these e-mail deals from local merchants. While U.S. consumer spending on daily deals could grow to over $5.5 billion by 2016, scholarly research on this social coupon is rather limited. To help narrow this literature gap, we investigated differences between daily deal subscribers-only (nonpurchasers), very satisfied purchasers, and all other daily deal purchasers in the context of their perceived value/attractiveness and skepticism of daily deals, discount size sought, and consumers' value to merchants offering daily deals. Our online survey netted 329 participants who had purchased or received deals on hospitality products/services (e.g., fine-dining restaurants, hotel stays, vacation packages, or event admission tickets). We found that customers' perceptions and attitudes were influenced by their satisfaction with daily deals purchased/redeemed. Managerial insights on converting more nonpurchasers to deal purchasers were also discussed.

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To Groupon or Not to Groupon: The Profitability of Deep Discounts

Cited by 101 publications

References 27 publications

A Paradigmatic Analysis of Digital Application Marketplaces

A Paradigmatic Analysis of Digital Application Marketplaces

The Role of Discount Vouchers in Market with Customer Valuation Uncertainty

Attitudes, Perceptions, and Responses of Purchasers Versus Subscribers-Only for Daily Deals on Hospitality Products

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