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Not all restaurants suffer the ‘Groupon effect,’ study finds

Not all restaurants experience the negative “Groupon effect”—the phenomenon so named for consumers’ tendency to see companies offering Groupon-style discounts as struggling—a recent study from the University of Maryland suggests.

Newer and upscale restaurants, in particular, have proven somewhat immune to the perception that as a merchant, “if you’re willing to lose 75 percent of your revenue to get (a customer) in the door, you must be really desperate,” says Jorge Meija, a Ph.D candidate in the university’s Robert H. Smith School of Business and one of the study’s three authors.

The study, which analyzed real-world data in addition to online experiments, found that poor consumer impression is contingent on a few conditions: namely, a restaurant’s age and price point.

Pricier restaurants that offer daily deals don’t experience the same post-discount drop in reputation and may actually benefit by posting such an offer, Meija says, noting that “a deal for something that’s really cheap is less exciting than for something that’s really expensive.”

A similar positive effect applies to newer concepts, which customers assume need to work harder to attract customers and, thus, judge those offering a discount less harshly. “People react positively to deals from restaurants that are new,” he says.

Competition plays a key role in the perception of a daily discount as well. If a pizza concept, for example, is the only local restaurant of its type not offering some sort of daily deal, customers may be dissuaded from stopping in.

“The more restaurants in your competing set—the same cuisine, same price category, same geographical location—are offering a deal, the more you can take a hit (by not offering one),” Meija says. “It looks like you are offering a similar product for more.”

Consumers decide where to eat as part of a collective process, he adds, using Yelp!, Google Maps and other resources to weigh a variety of factors, such as how close a given restaurant is to them, how expensive it is and whether or not it’s running a promotion. As such, restaurateurs considering whether to offer a daily discount can benefit by viewing their restaurant not as a standalone operation but as part of its larger community and competitive landscape.

“What our study highlights is that while (daily deals) are now part of the marketing mix, they are not a good idea for everyone,” Meija says. “If your restaurant has a low price point and you’ve been in business for a long time, (daily deals) may be a more costly way for you to acquire a customer.”

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