Does Groupon Hurt a Restaurant's Ratings?

By Jonathan Kauffman Tue., Sep. 13 2011 at 8:09 AM

Does Groupon bring out the trolls?

The selling point of daily deal sites like Groupon and LivingSocial has long been that they bring in new customers and new revenue. Though there's concern that the online-deal market is saturated, deal sites may bring in as much as $1 billion in revenue this year. But is new business all the deals bring in to a given business? As a blog post yesterday on MIT's Techology Review reports, a study from researchers at Boston University and Harvard, deals might bring in new Yelp critics as well.

The three researchers followed 16,000 Groupon deals in 20 cities, tracking how Facebook helped boost sales of the deals. However, as Groupon users registered their experience with a participating business on Yelp, its overall rating went down:

[The researchers'] most controversial finding is that a Groupon deal seems to have an adverse impact on reputation as measured by Yelp ratings. Their analysis shows that while the number of reviews increases significantly due to daily deals, average rating scores from reviewers who mention daily deals are about 10% lower than scores of their peers.

What's the reason for the decrease in positive comments? Is it the fact that daily deals reach new customers outside a business's natural target audience? Are we contemptuous of businesses that offer a discount? Is the Yelp-score dip permanent, or will subsequent coupon-free months restore it to its previous level? Unknown.

What is more important to businesses than a half-point drop in a Yelp rating is a longer-term increase in revenue. If deal sites can offer that, they have nothing to fear.

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Tags:

Groupon, LivingSocial, Yelp

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Orin

As MrEricSir said, the big element is probably crowds.

One of the biggest is a lack of control of crowds. Some companies are now rather notorious for not working in a manageable cap if you don't ask for it.

The result is a good percentage of restaurants get HUGE tail spikes, i.e. not the initial crowd, but the "oh-my-coupon-is-expiring-I-better-use-it-today" end group.

On a large deal, this end crowd can be beyond a restaurants capacity to handle adequately. Different services no doubt have slightly different use patterns (we partner merchants with charities for promotional fundraiser sales, and we don't see end spikes nearly as much for some reason).

If you can seat 40 at a time max, and you sell 1,500 coupons, and 25% of those try to arrive in the last week that's 375 people. If half of those are arrive in the busy hours of your busiest days, that's a problem!It would be interesting to compare those with 100%+ results and those with 80-90% or less results. Like many things in life, the "average" alone isn't that interesting. It's figuring out what happened to individual merchants to get that overall average that is telling. I suspect 1) crowd management and 2) It was their first big "deal" are very common in the below 90% group. I've heard stories too about deal sites making the issue worse, by claiming lower redemption rates than occur, so the merchants don't realize how big the final wave will be (if you are expecting 80% redemption but get 95%, and have 70% used with 1 week left, you probably weren't preparing for the end wave adequately). I also suspect that 1) leads to 3) fatigue by owner/staff, which compounds the problem as motivation drops right as the crowds get thickest.

MrEricSir

I suspect that many restaurants get worse while a deal is in play, either because the staff is overworked or the ingredient quality decreases to maintain profitability.

In other words, don't blame the Yelpers. Blame basic math.