But they write that the lower-on-average scores provide “a cautionary note” for merchants. The authors aren’t sure if the lower ratings have a long-term impact on businesses. Specifically, reviewers mentioning either keyword offer ratings that are 10 percent lower, on average, while the small fraction of reviewers mentioning both keywords are more that 20 percent lower, on average. That’s good news for merchants, but there’s a catch: reviewers mentioning the words “Groupon” and “coupon” give “strikingly lower rating scores” than those who do not mention those terms, write the authors. “The effect is immediate and significant,” says Byers. They found a surge in reviews from new customers after a Groupon offer. For each Groupon deal associated with a Yelp rating, the researchers collected all of the reviews posted on Yelp through August 2011. The most surprising finding involves Yelp, where customers can post reviews of a business and rank it with one to five stars. At Adverplex, they were investigating online companies with rapid trajectories, so Groupon, which called “the fastest growing company ever,” was on their radar.
The two researchers also work at Adverplex, a start-up incubator in Cambridge, Mass., that helps businesses monetize their online traffic. It was a huge amount of data to collect and analyze, but Byers and Zervas were well suited for the job. At the same time, they collected data on Facebook “likes” tied to the deals and later gathered data from the daily deal site LivingSocial and the review site Yelp. Between January 3 and July 3, 2011, they monitored every Groupon deal offered in 20 cities-16,692 deals altogether.
The findings, published recently in the online journal arXiv (pronounced “archive”), call into question the very foundation of daily deal sites.īyers, Zervas, and Mitzenmacher began collecting data in January 2011. The team found that for merchants, Groupon cuts both ways: the deals lead to a surge in Yelp reviews from new customers, but they also lead to a higher percentage of negative reviews. John Byers, a College of Arts & Sciences associate professor of computer science, and Georgios Zervas (GRS’11), a postdoctoral fellow at Yale, worked with Michael Mitzenmacher, a professor of computer science at Harvard, to collect a massive amount of Groupon data over six months.
It’s a risk that merchants have been taking without any evidence that it pays off-until now. They hope that offering a short-term discount, and giving Groupon half the revenue from the deal, will bring long-term gains: a higher profile and new customers. Merchants who work with Groupon take a risk. Online daily deal sites like Groupon are great for consumers, offering deep discounts on everything from restaurants to sporting events.
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