Search and Learning at a Daily Deals Website

Forthcoming in Marketing Science

66 Pages Posted: 14 Apr 2019

See all articles by Mandy Hu

Mandy Hu

The Chinese University of Hong Kong (CUHK) - Department of Marketing

Ivy Dang

The Chinese University of Hong Kong (CUHK)

Pradeep K. Chintagunta

University of Chicago

Date Written: January 19, 2019

Abstract

We study consumers' purchase behavior on daily deal websites (e.g., Groupon promotions) using individual clickstream data on the browsing history of new subscribers to Groupon between January and March 2011. We observe two patterns in the data. First, the probability that a given consumer clicks on a merchant in the emailed newsletter declines over time, which appears to be consistent with the notion of consumer "fatigue''--a phenomenon highlighted by the popular press. Second, the probability that the consumer makes a purchase conditional on clicking increases over time, which seems contrary to the notion of "fatigue.'' To reconcile these two observations, we propose a model that rationalizes these patterns and then use it to provide insights for companies in the daily deal industry.

When consumers first subscribe to a daily deal website, they are unlikely to be fully informed about the quality of the deals offered on that site. The daily newsletter provides only the price and some limited information about that day's featured deal. To learn more about quality, consumers need to click on the e-mailed newsletter; this takes them to the deal's website where they invest time and effort to learn about the deal's quality. Such a search for information is costly. Furthermore, consumers do not know about the quality of deals they may receive in the future. Given the cost of searching and the uncertainty about the quality of future deals, consumers are more likely to search early on (i.e., click on the newsletter) in their tenure. As they learn about deal quality, they require less searching, resulting in a decline in clicks over time. As learning accumulates, consumers are better at recognizing the position of a deal in the quality distribution of Groupon deals and are therefore more likely to purchase the clicked deals. This results in an increase in the conditional probability of purchasing. We formulate a dynamic model of search and Dirichlet learning based on the above characterization of consumer behavior. We show that the model is able to replicate patterns in the data. Next, we estimate the parameters of the model and provide insights for managers of daily deal websites based on our findings and policy simulations.

Suggested Citation

Hu, Mandy and Dang, Ivy and Chintagunta, Pradeep K., Search and Learning at a Daily Deals Website (January 19, 2019). Forthcoming in Marketing Science. Available at SSRN: https://ssrn.com/abstract=3355049

Mandy Hu (Contact Author)

The Chinese University of Hong Kong (CUHK) - Department of Marketing ( email )

Room 1101, 11/F, Cheung Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
China

Ivy Dang

The Chinese University of Hong Kong (CUHK) ( email )

Shatin, N.T.
Hong Kong

Pradeep K. Chintagunta

University of Chicago ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-8015 (Phone)
773-702-0458 (Fax)

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