The Groupon Effect on Yelp Ratings: A Root Cause Analysis

Abstract: Daily deals sites such as Groupon offer deeply discounted goods and services to tens of millions of customers through geographically targeted daily e-mail marketing campaigns. In our prior work we observed that a negative side effect for merchants using Groupons is that, on average, their Yelp ratings decline significantly. However, this previous work was essentially observational, rather than explanatory. In this work, we rigorously consider and evaluate various hypotheses about underlying consumer and merchant behavior in order to understand this phenomenon, which we dub the Groupon effect. We use statistical analysis and mathematical modeling, leveraging a dataset we collected spanning tens of thousands of daily deals and over 7 million Yelp reviews. In particular, we investigate hypotheses such as whether Groupon subscribers are more critical than their peers, or whether some fraction of Groupon merchants provide significantly worse service to customers using Groupons. We suggest an additional novel hypothesis: reviews from Groupon subscribers are lower on average because such reviews correspond to real, unbiased customers, while the body of reviews on Yelp contain some fraction of reviews from biased or even potentially fake sources. Although we focus on a specific question, our work provides broad insights into both consumer and merchant behavior within the daily deals marketplace.