How Good Groupon Leads to Bad Yelp

(Photo: Groupon)

A paper by Georgios Zervas, John Byers, and Michael Mitzenmacher explores the relationship between a Groupon surge (like when a small bakery has to make 100,000 cupcakes) and a drop in Yelp ratings. Tim Worstall at Forbes explains:

Imagine that you are an enthusiastic and regular consumer of the finest chimichangas that you can find. You’ll likely have scoped out your neighbourhood, tested the chimichangas on offer and zeroed in on those places that make excellent ones. You might even provide reviews on Yelp pointing other enthusiasts for the comestible so as to guide them to the good places.

Now imagine that you’re not actually very worried about or interested in chimichangas. Or even, as with myself, not entirely sure what they are. And you see a Groupon deal offering, say, 50% off at Jimmy’s Chimichangas and you take it up. Heck, why not, it’s a good way to try them out with a decent saving attached. But if you’re uninterested, not sure what it is that you’re about to get, it’s not all that difficult to imagine that your subsequent Yelp review is less than glowingly enthusiastic.

If you prefer, a Groupon is going to attract in the marginal customers for whatever it is. And marginal customers are likely to be less enthusiastic simply because they are marginal customers. They’re marginals because the basic offering is not exactly aligned with their interests: thus the finding that marginal customers find the offering not exactly aligned with their interests or tastes is not entirely a surprise.

(HT: Mark McCrery)

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  1. Aimal says:

    Sure, they are marginal customers who “find the offering not exactly aligned with their interests,” but isn’t the cost-savings set up to offset that? So, if they didn’t invest heavily into their visit (or the perception is they received a good discount), they could likely take an “enthusiastic” approach to using the Groupon. Subsequently, their Yelp reviews may not be more negative than a non-Groupon customer’s review.

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    • Tim Chak says:

      I think what Worstall was getting at (and you seem to concur) is that reviews will become tempered.

      But would a marginal customer still be impressed if they didn’t like what they tried, even if it was a good “deal”? How do they place a value on something they don’t really care for? My friend, for example, tried sushi at a Japanese restaurant when it was half off. She still hated it, so she would not have given that restaurant a good review, even though it was a good deal. I’m not sure there is a tendency for people to take solace in the deals they get to offset bad experiences.

      You bring up an interesting situation though – if they had an okay experience, but a good deal, would that bring them to give a better than okay review? Maybe I’m just a pessimist, but I’m not sure that would be the case.

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  2. Chris M. says:

    This could not be more true. I run a small company and we get incredibly marginal customers all the time from our Groupon (or other daily deal) moves. Many of our vendors report they will no longer use it because of the issues with Yelp and other things.

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  3. Brian says:

    Yes, but won’t that be somewhat mitigated by the fact that I obviously enjoy spending $5 on dinner. If the mere fact of saving money on food didn’t please me to some degree, then I wouldn’t have bought a Groupon for an item I had little interest in. I’ve seen plenty of reviews stating something to the effect of: “Thank God I had a Groupon; the food was good, but I’d have given it 3 stars if I had to pay full price for this.”

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    • Seminymous Coward says:

      Those “if I had to pay full price” reviews do not sound positive to those that actually read them. I always read the top few reviews for restaurants that meet a ratings floor when I use internet reviews.

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      • KO says:

        The problem with this is that subjective information such as general positivity/negativity of the review (e.g., if I had to pay full price…) may not be conveyed using the summary statistics provided by an online word-of-mouth platform (e.g., Yelp). As the number of reviews for a respective business increases, it becomes more and more costly (opportunity cost and cognitive effort) for the prospective consumer to read everyone’s review. If reviews that have a mismatch between their objective rating (e.g., stars given) and the tone of the review (e.g., how a review actually reads), then this introduces noise into how a consumer judges whether or not to chooses to use a business. Much of the research has been conducted already by marketing academics (e.g., Chevalier & Mayzlin, 2006; Hou, Pavlou, & Zhang, 2007) if anyone else is interested in this topic.

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  4. J1 says:

    I can see where this irritates Jimmy’s Chimis, but a larger quantity of marginal customers will result in a more accurate assessment of how good Jimmy’s really is to the general public. A customer who is Jimmy’s greatest fan may have idiosyncratic tastes I don’t share, or even find disgusting.

    In addition, if the review is accurate a lower rating won’t necessarily harm Jimmy’s business. When I’m buying something on Amazon, the first thing I look at are the negative reviews, to determine if the dislike is the result of something I don’t care about, if the reviewer an idiot who doesn’t understand what the product is supposed to do or if the complaint is otherwise irrelevant (note to Amazon customers: DO NOT PUT COMPLAINTS ABOUT SHIPPING IN THE PRODUCT REVIEW SECTION!!!!!). Sorry for yelling. The key here is that the review website must emphasize that reviewers indicate exactly what they liked or disliked, particularly on negative reviews. I would even advocate the removal of reviews that weren’t specific.

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    • YX says:

      The problem is that some of the offering are NOT aimed at general public. Most American would give an unfavorable review to Smalahove place just because they don’t eat goat’s head. This is even true semi mainstream ones like authentic Chinese food or Raman. The discrepancy in view between people with ethnic origin and normal white people is absurd.

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      • J1 says:

        That offerings are not aimed at the general public is actually valuable information both for the general public and for customers looking for oddball stuff that’s tough to find in their area. If reviews, positive or negative, contain that information, how are they a bad thing? If you were into smalahove and read a review on it, I think it would be apparent whether or not the reviewer knew what they were talking about.

        “between people with ethnic origin and normal white people is absurd”

        “Normal white people” isn’t an ethnic origin?

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      • Malice in Wonderland says:

        I’m white, but ethnic. Does that make me abnormal?

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  5. Roger Rohweder says:

    A small business should also take into account the impact on service / product. If service is a significant part of why your existing customers come to you, do you really think you can provide that experience to the dramatically higher volume the deal might bring? If your product is that much better, can you provide the same level of care at a higher volume? You could drive away existing customers during the several months of higher volume, and find it hard to impress the new customers at the same time. We have all seen reviews plummet for a business, and those using the review to make a decision (months later) will likely not know the cause…

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  6. Betty says:

    Lets face facts, the majority of Groupon users are regular Groupon users. Sure I’ve done the occasional car detailing or whatever but the problem with a company offering a Groupon is the people who generally buy them will only go with a Groupon. They will never pay full price for their meals or Brazillian blowouts or things like that. So they will not be loyal customers. They will hop around from restaurant to restaurant, salon to salon for the deal. Sure an establishment might financially benefit from the temporary surge in business, but to what “cost”? Your regulars can’t get a reservation and the food is subpar due to the high volume. As a business, I think when you’re really good and really worth the price, your business will be successful. No Groupon needed.

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  7. Rob says:

    When I read reviews I go directly to the negative reviews. While reading them I ask myself “are these people complaining about things I care about”. If not I disregard them. I think this is much better than reading the, usually, more plentiful and perhaps biased positive reviews.

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