Groupon has taken a lot of knocks and shots in the past several months; here’s another. A blog post on MIT’s Technology Review site repeats findings from Boston U. and Harvard researchers who claim that running a deal has clear positive social media effects, but equally seems to degrade merchant reputation.
The researchers looked at 16,000 Groupon deals in 20 cities between January and July 2011. The objective of the research was to “study the interplay between social networks and daily deal sites.” One of the things they examined was how reputations changed before and after running a deal through Groupon.
The researchers counted the number of Facebook Likes generated from these deals, as well as new reviews for the involved merchants on Yelp. The looked at more than 50,000 reviews for more than 2,300 merchants running 2,496 deals.
These were the high-level findings:
- Daily deal sites benefit from significant word-of-mouth effects during sales events
- The number of reviews increases significantly due to daily deals
- Average scores from reviewers who mention daily deals were 10% lower than scores of their peers on average
We’ve known for a long time that Yelp is often where people go to check merchant reviews before deciding to buy a deal. The Facebook “word of mouth” effect could have been predicted too: people “discussing” and sharing deals via Facebook. However the negative effect on reviews is surprising.
How might it be explained?
I’m not a statistician but there may be a straightforward explanation that argues as the number of reviews increases their distribution changes and overall scores decline. In other words as more people review a business (following greater exposure through Groupon) we start to see a broader mix of reviews that depress the merchant’s score somewhat.
However perhaps there’s a more disturbing pattern: people are valuing these businesses less because merchants are discounting and they receive weaker reviews accordingly. This would play into merchant fears about the impact of discounting and deals generally.
Another potential explanation exists. Unprepared deal merchants may also be delivering weaker service that gets reflected in Yelp reviews. However I would be surprised if “unprepared” applies to all 2,300-plus merchants in the sample.
How might you explain this correlation between deals and declining reputation scores? Is it simply a function of a greater volume of reviews or is there something else, along the lines of what I’ve speculated above?