Consumers’ expected quality of high discount daily deal services

Below is a guest post by Sanne Meussen, who studied consumer responses to daily deal websites in her master's thesis (which I supervised). Apart from the to-be-expected preference for higher discounts on such websites, she also found some evidence that there is a hidden danger to these high discounts...

Even though Groupon has lost $10 billion of its market value in less than one year, the number of subscribers is still growing. Apparently, consumers are still interested in high discount deals on daily deal websites. Why wouldn’t they, if they can eat a first-class meal at a local restaurant with a 75% discount? Groupon even points out: ‘we want each Groupon purchase to feel too good to be true’.

Groupon reached their goal, consumers really feel most of the Groupon deals are too good to be true. In my research, potential consumers gave their attitude towards services offered on daily deal websites with discounts ranging from 25% to 75%. Despite the positive attitude consumers have towards the discounted price in advertisements with high discounts, the attitude towards the expected quality is more negative with 75% discounts than with 25% discounts. Overall, consumers expected that the quality of the service provided would drop when discounts rose, potentially damaging the reputation for advertisers on Groupon.

Quality is one of the most important features of consumers’ repurchase intention. To support this, consumers expected it to be more likely to return when the expected quality is higher (25% discount) than when the expected quality is lower (75% discount). This outcome contrasts with the main goal advertisers have in mind when offering  their services on a daily deal website: gaining new customers who will return for the full price later on.

Important to keep in mind is that consumers in my research have only seen the advertisement and have not actually experienced the service. In general, the potential consumers have a very negative attitude towards a repurchase when they have only seen the advertisement. It seems like they are only interested in purchasing the service with a high discount, but don’t feel the intention to return for the full price after they have used their coupon. Obviously, this attitude can change after they had dinner in the restaurant and experienced a high quality service.

This implies a specific call-to- action or advertisers. Consumers are still interested in online deals with high discounts, but the expected quality of these services drops. To make consumers return, advertisers have to ensure consumers with coupons are treated with an excellent service. In this way, they might be positively surprised and return paying the full price. Besides, the best way to improve the image of an organisation is word-of-mouth marketing. So, make sure consumers spread the word by offering them the full quality service when using a coupon.