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’.

How Groupon should move on

Groupon's been a mixed-feelings company lately. On the one hand, it is still one of the late boomers in the industry. On the other hand, there are some issues with the stock market entrance being postponed and accumulating stories about unhappy clients (for Groupon these are the firms/shops providing the offer). 

Although there is a vast literature about the malleability of promotions in the long term, this is even worse for services I believe. Promotions can always invoke feelings of suspicion about a product's actual price. Suppose people doubt the price for your goods, then maybe they are still willing to pay a subjectively overpriced product in the future given high customer satisfaction. If there is some behind-the-scenes production involved, people are willing to pay a higher price. So far so good, for actual goods being offered on Groupon.