The “tipping point” feature of social coupons: An empirical investigation

Groupon has pioneered a new business model that combines the features of daily deals and group buying. Utilizing a large proprietary dataset of Groupon users, the authors formulate three hypotheses about the effects of the tipping point (i.e., whether enough people have purchased the deal before it can be redeemed) on consumer behavior. The results indicate that (1) surprisingly, the tipping point does not stimulate consumers to refer the deal to others, (2) after controlling for detailed deal characteristics, information about the tipping point increases deal purchase probability and accelerates deal purchase speed by removing consumers' uncertainty about whether the deal will eventually tip, and (3) through a comparison of the different effects of prior purchases on purchase likelihood before and after a tipping point, conformity rather than social learning is identified as playing the dominant role in contagious purchases. Taken together, our results support the fact that the tipping point can alter consumer behavior and affect sales. However, recent changes made by Groupon are inconsistent with our empirical results and keeps the company from fully utilizing its potential. This study also provides an example of using web analytics tools to augment clickstream data and consolidate information from other sources.