A Theory of Social Coupons YALE Customer Insights Conference May 11, 2013 Upender Subramanian, Asst. Prof of Marketing Jindal School of Management, University of Texas at Dallas create your future www.utdallas.edu Overview • In many (online) markets buyers are uncertain about the quality of sellers • An online platform can enable buyers to potentially learn from each other – aka “social learning” – E.g, Online forums, reviews, sales ranking, Facebook likes, Tweets… • When & why should a platform enable social learning?... And to what degree? • Today’s talk: Study this in the context of daily deals create your future www.utdallas.edu 2 Daily Deals Example • Offered by small and local businesses • Publicize business to an audience of potential (new) customers • Offers significant discount to entice consumers create your future www.utdallas.edu 3 “Social Coupons” • Daily deals may also reveal how many vouchers were sold • Can influence consumers’ perception about the deal create your future www.utdallas.edu 4 Social Learning… in Pictures create your future www.utdallas.edu 5 Social Learning… in Pictures create your future www.utdallas.edu 6 Social Learning… in Pictures create your future www.utdallas.edu 7 Social Learning… in Pictures create your future www.utdallas.edu 8 Social Learning… in Pictures 100 people bought BUY create your future BUY www.utdallas.edu 9 Social Learning… in Pictures create your future www.utdallas.edu 10 Social Learning… in Pictures create your future www.utdallas.edu 11 Social Learning… in Pictures create your future www.utdallas.edu 12 Evidence of Social Learning Industry Quotes Groupon - Statement on Approximating the Deal Counter As customers, we like the counter because it indicates how popular deals are. But some clever people are using the counter to make (consistently incorrect) estimates of our total company sales, which we don’t like for the same reason you probably wouldn’t like if people tried to guess your weight all day. This change is meant to continue to reflect deal popularity while making it clearly impossible to predict our sales. Troopswap - Field Experiment (VP of Research) We were considering removing the deal counter which displayed the number of purchases on our daily deal website. We were concerned that the counter was having a negative impact on the consumers' perception of the deal. When we A/B tested the counter, we found that it had a significant and positive impact on purchases, particularly for female buyers. As a result we decided to retain the counter. create your future www.utdallas.edu 13 Evidence of Social Learning • Observational Field Study (4-week Groupon data) – Hourly incremental sales correlated with past sales – Correlation higher when… … average sales level are lower … deal price is higher, discount is lower … fewer online reviews, lower review rating • Experimental Study (Undergrad students) – Evaluated two deals, 2 x 2 between subject design • [Hi Sales / Low Sales] x [Sales Revealed / Not Revealed] – More likely to consider buying the deal if it was popular – More likely to delay buying decision if sales would be revealed create your future www.utdallas.edu 14 A Model of Social Learning Key Assumptions • Online platform connects sellers to consumers – Sellers set price, platform takes a % of sales • Consumers are uncertain about quality of sellers – Each has an opinion, which in the aggregate is informative – Consumers are similar in how the value quality • Platform can enable social learning by revealing sales • Consumers can wait to see this information – But returning to the website is a hassle – Some consumers are too busy for this – Others face “hassle cost”, must decide whether to return create your future www.utdallas.edu 15 Main Findings: Consumer Behavior • Order emerges: Higher sales is indicative of a higher merchant quality – Social learning emerges as a natural & consistent behavior – Allows study of how firm + market factors impact social learning • Nature + extent of social learning depends on price – Influences whether and who engages in social learning – Social learning may unravel when price is high => Must lower price to enable social learning • Social learning can stimulate or suppress sales – People with favorable opinion about the deal may delay their buying decision to observe others create your future www.utdallas.edu 16 Main Takeaways: Platform Implications • Social learning can be a double-edged sword – May unravel when consumers anticipate social learning • Revealing sales increases website visits… • … but is profitable to reveal sales if consumer uncertainty about merchant quality is neither too high nor too low • “Sweet spot” in extent to which to enable social learning – Reminding consumers to return to website can be counterproductive – Making deal counter more informative can be counterproductive create your future www.utdallas.edu 17 Questions ? 18 create your future www.utdallas.edu