Effectiveness of daily deal acquisition campaigns and reactions by existing customers

This research investigates the effectiveness of acquisition-oriented daily deals and reactions by existing customers to such campaigns. Utilizing purchase history data from a company that ran a Groupon acquisition campaign targeted at only prospective customers, we find that the campaign’s long-term return on investment was substantial despite losses for the company during the redemption period. Although Groupon customers had lower lifetime value than those acquired via other channels, their relationship with the company was front-loaded. Consequently, they were similarly valuable as organically acquired customers in the first year, and their relative value increased with a firm’s discount rate of future incomes. Moreover, the campaign did not lead to a reduction in existing customers’ lifetime value, due to the company’s approach to minimizing potential resentment and enhancing fairness perception by honoring Groupon redemption requests of existing customers. Our research offers empirical evidence that daily deals can be an effective acquisition tool without alienating existing customers.