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Helping Merchants to Assess the Profitability of Deal-of-the-Day Promotions

Author

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  • Jochen Reiner

    (Department of Marketing, Goethe University Frankfurt, 60323 Frankfurt, Germany)

  • Bernd Skiera

    (Department of Marketing, Goethe University Frankfurt, 60323 Frankfurt, Germany)

Abstract

The ability to calculate and understand the profitability of deal-of-the-day promotions (DoDs) is of vital importance for merchants. It is also challenging because it requires these merchants to consider long-term, cross-selling, and cannibalization effects and select an appropriate discount for the promotion. The authors develop and implement a model as a free online calculator ( http://www.coupon-calculator.com ) to help merchants to determine the profit they can generate from these promotions. This calculator evaluated almost 3,700 DoDs from the merchants’ and providers’ perspectives. To gain insight on the expected profitability of DoDs, the authors analyzed 627 of these planned promotions and 30 realized promotions. The results indicate that two-thirds of the planned and all realized DoDs are expected to be profitable in the long term. Yet, DoDs are unlikely to pay off in the short term. The findings also show that unredeemed coupons strongly increase profit, particularly those of the provider.

Suggested Citation

  • Jochen Reiner & Bernd Skiera, 2018. "Helping Merchants to Assess the Profitability of Deal-of-the-Day Promotions," Interfaces, INFORMS, vol. 48(3), pages 247-259, June.
    • Handle: RePEc:inm:orinte:v:48:y:2018:i:3:p:247-259
    DOI: 10.1287/inte.2017.0937
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    References listed on IDEAS

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    1. Byung-Cheol Kim & Jeongsik Jay Lee & Hyunwoo Park, 2012. "Two-Sided Platform Competition in the Online Daily Deals Promotion Market," Working Papers 12-04, NET Institute.
    2. Jiahua Wu & Mengze Shi & Ming Hu, 2015. "Threshold Effects in Online Group Buying," Management Science, INFORMS, vol. 61(9), pages 2025-2040, September.
    3. Song, Minjae & Park, Eunho & Yoo, Byungjoon & Jeon, Seongmin, 2016. "Is the Daily Deal Social Shopping?: An Empirical Analysis of Customer Panel Data," Journal of Interactive Marketing, Elsevier, vol. 33(C), pages 57-76.
    4. Eisenbeiss, Maik & Wilken, Robert & Skiera, Bernd & Cornelissen, Markus, 2015. "What makes deal-of-the-day promotions really effective? The interplay of discount and time constraint with product type," International Journal of Research in Marketing, Elsevier, vol. 32(4), pages 387-397.
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    Cited by:

    1. Hu, Li & Zhang, Mengwei & Wen, Xin, 2023. "Optimal distribution strategy of coupons on e-commerce platforms: Sufficient or scarce?," International Journal of Production Economics, Elsevier, vol. 266(C).
    2. Tang, Yao & Chen, Rachel R. & Guan, Xu, 2021. "Daily-deal market with consumer retention: Price discrimination or quality differentiation," Omega, Elsevier, vol. 102(C).

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