To Groupon or Not to Groupon: The Profitability of Deep Discounts

Edelman, Benjamin, Sonia Jaffe, and Scott Duke Kominers. “To Groupon or Not to Groupon: The Profitability of Deep Discounts.” Marketing Letters 27, no. 1 (March 2016): 39-53. (First circulated in June 2011. Featured in Working Knowledge: Is Groupon Good for Retailers? Excerpted in HBR Blogs: To Groupon or Not To Groupon: New Research on Voucher Profitability.)

We examine the profitability and implications of online discount vouchers, a relatively new marketing tool that offers consumers large discounts when they prepay for participating firms’ goods and services. Within a model of repeat experience good purchase, we examine two mechanisms by which a discount voucher service can benefit affiliated firms: price discrimination and advertising. For vouchers to provide successful price discrimination, the valuations of consumers who have access to vouchers must generally be lower than those of consumers who do not have access to vouchers. Offering vouchers tends to be more profitable for firms which are patient or relatively unknown, and for firms with low marginal costs. Extensions to our model accommodate the possibilities of multiple voucher purchases and firm price re-optimization. Despite the potential benefits of online discount vouchers to certain firms in certain circumstances, our analysis reveals the narrow conditions in which vouchers are likely to increase firm profits.

Understanding the Purposes – and Weaknesses – of Online-to-Offline Discounting

Understanding the Purposes – and Weaknesses – of Online-to-Offline Discounting. PYMNTS.COM. October 26, 2011.

Daily deals sites often promise discounts exceeding 50% — mobilizing millions of consumers spending billions of dollars. Yet this model faces growing resistance, particularly from merchants concerned that “deals” offers are unprofitable. The natural question: When and how are large discounts sustainable?

Deals services seem to envision delivering new customers who return paying full price, yet they’ve done little to demonstrate that return visits actually occur. And there’s reason to doubt whether customers enticed by a discount will actually return to pay full price. I explore the implications, including the requirements for a profitable discounting model grounded in price discrimination rather than full-price return visits.

Online Discount Vouchers – Letter-Writing Tool with Paul Kominers and Xiaoxiao Wu

Following up on my recent article about consumer protection problems in discount voucher sales, I’ve posted a letter-writing tool to help consumers resolve their voucher problems. From expiration to cashback to day-of-week, time-of-day, and unexpected terms added after purchase, there are quite a few ways consumers can end up dissatisfied with the discount vouchers they buy. Many voucher services offer refunds only if consumers complain vigorously. Our tool helps consumers write concise but persuasive letters, including drawing on applicable state law where appropriate.

Give it a try:

Discount Voucher Problems – Letter-Writing Tool

Consumer Protection in Online Discount Voucher Sales with Paul Kominers

We evaluate five areas where online discount voucher services — Groupon and similar sites — risk falling afoul of applicable consumer protection law. We present applicable laws from selected states and evaluate compliance by voucher services and their affiliated merchants. We examine voucher services’ attempts to limit their liability, and we explain why consumers and regulators should find current practices insufficient.

Details, including specific legal requirements, vendors’ practices, and assessing responsibility:

Consumer Protection in Online Discount Voucher Sales

Restaurant Promotions in 2015 (teaching materials)

Edelman, Benjamin. “Restaurant Promotions in 2015.” Harvard Business School Case 909-034, January 2009. (Revised July 2015.) (educator access at HBP. request a courtesy copy.)

A variety of services offer consumers discounts when dining at participating restaurants. This case examines four such services: Entertainment Book,, Rewards Network, and Groupon. Despite key functional similarities, each of the services chooses an importantly different approach–different pricing, different benefits to consumers, different benefits to restaurants, and different underlying technologies.

Teaching Materials

Online Restaurant Promotions – Teaching Note (HBP 909063)