To Groupon or Not to Groupon: The Profitability of Deep Discounts
AbstractWe examine the profitability and implications of online discount vouchers, a new marketing tool that offers consumers large discounts when they prepay for participating merchants' goods and services. Within a model of repeat experience good purchase, we examine two mechanisms by which a discount voucher service can benefit affiliated merchants: price discrimination and advertising. For vouchers to provide successful price discrimination, the valuations of consumers who have access to vouchers must systematically differ from?and typically be lower than?those of consumers who do not have access to vouchers. Offering vouchers is more profitable for merchants which are patient or relatively unknown, and for merchants with low marginal costs. Extensions to our model accommodate the possibilities of multiple voucher purchases and merchant price re-optimization.
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Bibliographic InfoPaper provided by Harvard Business School in its series Harvard Business School Working Papers with number 11-063.
Length: 15 pages
Date of creation: Dec 2010
Date of revision: Oct 2011
voucher discounts; Groupon; experience goods; repeat purchase.;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-01-03 (All new papers)
- NEP-COM-2011-01-03 (Industrial Competition)
- NEP-MKT-2011-01-03 (Marketing)
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