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Offering Groupon Deals Can Lower Your Yelp Rating

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Last month, Minyanville’s own Diane Bullock wrote about why customers are turning against Groupon (GRPN), citing poor customer service and inflated savings claims as some of the reasons.
 
It now turns out that perhaps business owners, too, might want to give the deal-of-the-day website a pass, because a study conducted last fall shows that businesses that have offered Groupon deals often see their Yelp (YELP) rating plunge afterwards.
 
The study of more than 7 million Yelp posts, conducted by three computer scientists from Boston University and Harvard, revealed that Groupon users typically give a 12 percent lower Yelp score compared to regular customers.
 
Why did customers who used Groupon deals give lower Yelp ratings to businesses? Of course, it has everything to do with poor customer service.

“We found strong evidence that suggests Groupon users often give lower Yelp ratings because the businesses they patronize aren't prepared for the flood of customers that Groupon deals tend to attract," John Byers, a Boston University professor and co-author of the study, told the Huffington Post.

The ultimate example of small businesses that are unprepared for an avalanche of Groupon deal-seekers is, of course, the British cupcake shop, Need a Cake, which offered customers a 12 cupcakes for 6.50 pounds Groupon deal. The shop promptly received 8,500 orders. That was 102,000 cupcakes it had to make, when it usually produced 100 a month.

It’s not just Groupon’s fault that businesses might see their ratings on Yelp lowered. Byers and his study co-authors also believe that a contributing factor is the numerous fake Yelp reviews that artificially pump up the ratings of businesses that do not use Groupon deals.

“Reviews from Groupon subscribers are lower on average because such reviews correspond to real, unbiased customers, while the body of reviews on Yelp contains some fraction of reviews from biased or even potentially fake sources,” the authors said in their study.

Whether or not fake Yelp reviews play a part in this equation, businesses should think twice about offering Groupon deals -- as long as they're concerned about their online reputations. And Yelp reviews are very important.

At the very least, if you’re a cupcake maker, be prepared to scale up your production.

(See also: 5 Reasons Customers Are Turning Against Groupon)
POSITION:  No positions in stocks mentioned.
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