Group‐buying coupons considering consumers’ perceived ease of use

• Published date: 01 May 2020
• Author: Qin Wan,Yu Xia,Yi Liao,Shilei Yang
• DOI: http://doi.org/10.1111/itor.12482
• Date: 01 May 2020

Intl. Trans. in Op. Res. 27 (2020) 1638–1663

DOI: 10.1111/itor.12482

INTERNATIONAL

TRANSACTIONS

IN OPERATIONAL

RESEARCH

Group-buying coupons considering consumers’ perceived

ease of use

Qin Wana,b, Shilei Yanga,YiLiao

aand Yu Xiac,∗

aSchool of Business Administration, Southwestern Universityof Finance and Economics, Chengdu, Sichuan Province, China

bDepartment of Mathematics and Information, China West Normal University, Nanchong, Sichuan Province,China

cD’Amore-McKim School of Business, Northeastern University,360 Huntington Avenue, Boston, MA 021125,

United States

E-mail: qinwan@cwnu.edu.cn [Wan]; syang@swufe.edu.cn [Yang]; yiliaosuwfe@gmail.com [Liao]; y.xia@neu.edu[Xia]

Received 17 December 2016; receivedin revised form 2 July 2017; accepted 8 October 2017

Abstract

This paper examines the design of the online discount coupon, which is a popular marketing tool that offers

consumers group-buying (GB) discounts when they prepay for participating firms’ goods and services. We

develop a two-stagemodel for a market in which consumers are heterogeneous in their valuationof a product.

In our setup, consumers make purchase decisions at the first stage and update their perceptions of the

product. As a result, they adjust their repurchase decisions at the second stage. Through the analysis of price

discrimination effect and advertising effect, we demonstrate that consumers make their purchase decisions

based on not only the discount rate but also the degree of perceived ease of use of the coupons. We then

examine both single-time and double-time GB mechanisms, and recommend the optimal design for the firm

to increase its profitability. Our model also accommodates uncertainty of the degreeof consumers’ perceived

ease of use and shows that the conditions for the optimal GB mechanism are robust.

Keywords:group-buying coupon; perceived ease of use; repeated purchase; consumer behavior

1. Introduction

In retail industry, merchants are inclined to acquire more profit through various promotional

vehicles, such as pricing, rebate, and advertising (Arcelus et al., 2006). With the development of

information technology, group-buyinghas become a popular promotional tool in recent years. Since

2008, Groupon.com has been offeringprepaid discount coupons for consumers to purchase a variety

of services at local restaurants, bars, bakeries, cafes, hotels, fitness centers, clothing stores, and spas.

This kind of coupon is called an online group-buying (GB) coupon by some scholars. In a nutshell,

∗Corresponding author.

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Q. Wan et al. / Intl. Trans. in Op. Res.27 (2020) 1638–1663 1639

a key difference between an online GB coupon/voucher and an offline traditional deal is that

consumers usually acquire traditional coupons free but have to prepay for a GB coupon/voucher.

Despite Groupon’s success, a contrarian view of its model has emerged. Many critics have ques-

tioned the effectiveness of the GB coupon as a marketing tool for the affiliated firms. Numerous

cases have demonstrated shortcomings of this tool, such as unprofitability, failure to attract new

consumers, low return rate of consumers at full price, and uncertain consumer loyalty (Dholakia,

2010; 2011; Jessie, 2010). As Edelman et al. (2014) point out, discount coupons are likely to be

profitable if they predominantly attract new consumers who regularly return with full price pay-

ment on future visits; however, coupons could also sharply reduce profit for firms when offered to a

large number of long-time consumers. Hence, when designing discount coupons, firms would like to

pick up the targeted consumers and discourage the untargeted consumers from using the discount

coupons.

There is no surprise that we can find a variety of redemption limitations in the “fine print”

for the GB coupons on Groupon.com as well as on other GB websites in practice, which plays a

role in identifying targeted consumers at some level. For example, a typical restaurant GB coupon

usually has redemption restrictions such as “limit one per table,” “dine-in only,” “not valid on

federal holidays,” “not valid for happy-hour specials,” etc. (Groupon.com, 2015a); a massage

coupon specifies “one per person,” “online appointment required,” “24-hour cancellation notice,”

or “$25 fee applies” (Groupon.com, 2015b). In general, these redemption limitationsfor consumers

will in turn influence the degree of consumers’ perceived ease of use, which is quoted from the

Technology Acceptance Model (TAM) (Davis, 1989) and has been applied in the studies of mobile

coupons by a number of scholars (Ha and Im, 2014; Im and Ha, 2013; Jayasingh and Eze, 2009).

Inconvenience caused by redemption limitations usually leads to a low degree of perceived ease

of use and subsequently a low consumer utility, which definitely influences consumer’s purchase

decision. Meanwhile, from the standpoint of a firm’s operations, there is an opportunity for price

discrimination among informed consumers who know about the firm and its product. On the

other side, there always exist some uninformed consumers who barely know about the product

and its affiliated firm. Thus, a GB offer may also serve as a tool to deliver the product’s details

to uninformed consumers, i.e., the advertising effect. Thus, through the GB’s advertising effect,

uninformed consumers may make purchaseswhen first stopping by the store and some of them may

keep buying on future visits.

By incorporating the fact that a consumer’s perceived ease of use affects his behavioral intention

toward acquiring GB coupons, this paper presents a two-stage model with consumers’ repeated

purchase behaviors to describe the process. In our model, when a firm designs a GB coupon, two

key questions are considered: (1) how to determine the discount price of the coupon to attract

consumers who will not buy the product atfull price; (2) how to determine the degree of consumer’s

perceived ease of use to influence a consumer’s behavior towards choosing a GB coupon. On one

hand, a well-designed discount price is supposed to attract consumers with low product valuations.

On the other hand, the degree of perceived ease of use can also be used to discourageconsumers who

are willing to pay at full price from redeeming a GB coupon. In addition, since some firms provide

GB coupons in a short term (e.g., only a single time) and others mayoffer GB coupons in a relatively

longer term (e.g., lasting for several months or a whole year), we compare a single-time GB coupon

(only at the first stage) with a double-time GB coupon (at both stages) in this research, which might

shed some light on basic structure of coupon design for management. Our analysis indicates the

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2017 The Authors.

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2017 International Federation of OperationalResearch Societies