Industry News | November 14, 2011

To Groupon or Not: Insights on Social Couponing

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Daily deals or social coupons carry great potential advantages for hospitality operators, but a poorly structured deal could turn into a nightmare of lost revenue and unhappy customers. Two new reports from the Cornell Center for Hospitality Research (CHR) examine how social couponing is working for hospitality operators and their customers.

On balance, the news is good. One report, “To Groupon or Not to Groupon: A Tour Operator’s Dilemma,” explains how a regional travel operator structured a daily deal.

The other, “Restaurant Daily Deals: Customers’ Responses to Social Couponing,” analyzes customers’ demographics and reactions to the deals and to the restaurants that offer them. Both reports are available at no charge from the CHR.

The case study, “To Groupon or Not to Groupon: A Tour Operator’s Dilemma,” demonstrates the many considerations that go into a deal with Groupon, the largest of the daily deal operators. Written by Cornell School of Hotel Administration associate professor Chekitan Dev, Laura Winter Falk (co-owner of the travel operator), and Laure Mougeot Stroock, a researcher for Cornell, the case study poses the question of whether the firm, Experience! The Finger Lakes (E!FL), should go through with a Groupon deal.

As part of the case, the reader must consider both the potential upside of gaining new customers, plus several possible downsides, including displacing regular customers if the promotion is not carefully arranged. The negatives can be daunting.

Even after the firm reengineers the cost and value structure of its tours, it still must face the reality of revenue forgone when customers use a Groupon that gives them 50-percent off the price of the tour. However, if the deal brings in new customers who would not otherwise purchase a tour, the operator would enjoy a business boost and exposure to many new customers. 

To avoid the pitfalls of cannibalization and lost revenue, the tour operator joined with its winery associates to create an augmented tour offer, which added value to the regular tours, but also reduced the overall costs.

With this deal, all parties would potentially benefit, since customers (whether new or returning) would get a discounted tour, the tour operator would see new customers, and the wineries would have additional exposure for their wines. Plus, this tour was not directly comparable to the tour operator’s existing products.

Once readers have read the case, they are invited to use the CHR’s website comments feature to offer their own ideas on whether the tour operator should go through with the Groupon deal.

The report can be downloaded at http://www.hotelschool.cornell.edu/research/chr/pubs/reports/abstract-15879.html.

In “Restaurant Daily Deals: Customers’ Responses to Social Couponing,” Cornell School of Hotel Administration professor Sheryl Kimes and associate professor Utpal Dholakia, of Rice University, explode some of the myths surrounding the customers who purchase restaurant daily deals.

In a survey of a consumer panel of over 900 restaurant patrons, they found few substantial differences between respondents who have purchased daily deals and those who have not done so.

Contrary to the concerns expressed about deal purchasers, both groups said they would tip on the full value of the check (not the discounted amount), both said they felt equally well treated at the restaurant, and both said they would consider returning to the restaurant even if they had to pay the full price.

Kimes and Dholakia found some evidence of cannibalization of frequent customers who used the coupons, which is another stated concern about daily deals. The restaurants could recover some of that lost revenue, however, because the majority of respondents said they were either new to the business or were infrequent customers who had been drawn back in by the coupon deal.

The most intriguing major difference between the groups was that those who purchased daily deals could be termed “market mavens.”

It was important to these deal purchasers that they are on the front edge of trends and pricing information, and can share new concepts and restaurants with their friends. In terms of demographics, those who purchased daily deals were significantly more likely to be younger, be married, and have a higher income than non-purchasers.

The full report is available at http://www.hotelschool.cornell.edu/research/chr/pubs/reports/abstract-15899.html.

A unit of the Cornell School of Hotel Administration, The Center for Hospitality Research (CHR) sponsors research designed to improve practices in the hospitality industry.