Daily Deals May Hinder A Company's Reputation

Last month, a study conducted by Boston University researchers John Byers and Georgia Zervas and Harvard University researcher Michael Mitzenmacher found that while Groupon and LivingSocial deals can increase the number Yelp reviews, they can also reduce Yelp scores by ten percent. Yelp reviews that mentioned the words "Groupon" or "coupon" lowered star ratings by ten percent. Reviews that mentioned both words showed a 20 percent drop.

The researchers examined 16,692 Groupon offers and 2,609 LivingSocial offers in 20 cities and 56,000 Yelp reviews for 2,332 merchants that ran 2,496 deals.

Of this finding, Byers said, "Offering a Groupon puts a merchant's reputation at risk." But he also added, "The audience being reached may be more critical than their typical audience or have a more tenuous fit with the merchant."

Contrary to hindered reputation, the study also found that Groupon deals spread across Facebook played a significant role in increasing sales.

While the study did not address it, other studies have found coupons of other types such as those received from retailers in the mail or through Sunday inserts can harm a brand's reputation as well. A Babson University study (mention) found short term discounts of more than 20 percent can harm a brand more than lower, long term discounts.

None of this is surprising. It's a rare instance where something perceived as cheap can also be perceived as quality. And that's the rub that daily deals have recently amplified. Certainly discounts get consumers to shop more than they might otherwise but a brand would be wise to remain sensitive to how many discounts they offer and how those discount may or may not affect brand perception.