A Note on the Impact of Daily Deals on Local Retailers’ Online Reputation: Mediation Effects of the Consumer Experience

This study investigates the impact of daily deals on local retailers’ (restaurants’) online ratings. We collected and utilized a comprehensive panel data set that combines information on restaurants’ deal offerings (Groupon or LivingSocial) with their Yelp review details. Although demonstrating a negative main effect of daily deals on a restaurant’s monthly average ratings, we worked to uncover the underlying mechanisms by focusing on the mediating role of consumers’ postconsumption perception. Our mediation analyses show that daily deals are associated with the reduction of both consumers’ perceived food quality and perceived service quality as revealed in review texts, which leads to subsequent declines in a restaurant’s online ratings. We further noted and studied two types of reviews that existed during the deal-redemption period: (1) reviews that mentioned daily deals ( DD Reviews ) and (2) reviews that did not mention daily deals ( NDD Reviews ). NDD Reviews are usually from regular customers, whereas DD Reviews are likely from a different base of customers, deal users. Our separate analyses demonstrate differential mediation processes between DD Reviews and NDD Reviews . For DD Reviews , both perceived food and service quality had mediation roles, suggesting a mismatch effect. That is, daily deals attract discount-focused consumers, including new customers, who are less likely to appreciate the food or service and, therefore, leave a negative review. In contrast, for NDD Reviews , only perceived service quality had a mediation role, suggesting a negative externality effect. That is, the large volume of deal redemptions by deal users may induce a longer waiting time (to be seated and/or served) and, thus, reduced perceived service quality for regular customers. These results deepen our understanding of the impact of daily deals on business online reputation and provide important practical guidance to both local retailers and daily deal platforms.