After a company runs a daily deal through Groupon or Living Social it can expect a Yelp star decline of 10% -- despite a 44% increase in the number of Yelp reviews if it already had at least one -- according to a study by computer scientists from Boston and Harvard universities.
Average rating scores by reviewers who mention daily deals are on average 10% lower than their counterparts -- those reviews that specifically mention both "Groupon" and "coupon" were 20% lower on average, according to John Byers and Georgios Zervas of Boston University's Computer Science Department and Michael Mitzenmacher of Harvard University's School of Engineering Applied Science.
This rating can decrease in some cases by a half-star.
Another study indicates that a full star increase in an independent restaurant's Yelp rating equals about a 9% revenue increase for that company. But there is no clear data on how a lower star rating will affect a company's revenue.
Update: The study itself does not examine the "Yelp effect" on Living Social merchants, a Living Social spokesperson told Launch via email. "To cite it as evidence any merchant using LivingSocial will see a decrease in their Yelp rating is both factually incorrect and dismisses the conclusions of the study itself."
"There are a wide range of conflicting and contradictory numbers out there, but none of them have access to our internal metrics, and thus they should all be treated with deep skepticism," a Living Social spokesperson told LAUNCH via email.
Daily deal sites provided an opportunity where there was clearly a great deal of interest and a significant amount of data could be collected, Mitzenmacher told Launch via email.
Launch has asked Groupon for a comment regarding the findings of this study. We will update if we receive a response.
The BU/Harvard study, first reported on MIT's Technology Review, "Daily Deals: Prediction, Social Diffusion, and Reputational Ramifications" analyzed the data of more than 19K daily deals [ Groupon (16,692) and Living Social (2,609) ] in 20 cities between Jan. 3 and July 3, 2011, and more than 56K reviews of more 2K+ merchants who ran the same number of deals on Groupon.
Businesses are under constant pressure by the ever crowding daily deals space, which offers increased patronage and additional revenue from deal sales -- though merchants typically offer discounts between 40% and 60% that can hurt their own bottom line.
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