Signalling effect of daily deal promotion for a start-up service provider

Ming Zhao, Yulan Wang, Xianghua Gan

Research output: Journal article publicationJournal articleAcademic researchpeer-review

13 Citations (Scopus)

Abstract

In this paper, we consider a start-up service provider that decides whether to advertise its service product by offering temporary daily deal promotion. Based on the repeat purchase mechanism, we show that both the commission rate (ie, the revenue-sharing ratio) charged by the daily deal site and the discount level offered by the service provider play important roles in signalling the initially unobservable quality level of the service provider. A high commission rate can facilitate the signalling of the daily deal promotion, and in equilibrium only the high-quality service provider would do daily deal promotion. We find that if the daily deal site adopts a two-part tariff charging scheme, the high-quality service provider can always signal its quality by offering daily deals. And the two-part tariff leads to a lower signalling cost but a higher repeat purchase rate than those under the revenue-sharing if the variable cost of the low-quality service provider is not too large.
Original languageEnglish
Pages (from-to)280-293
Number of pages14
JournalJournal of the Operational Research Society
Volume67
Issue number2
DOIs
Publication statusPublished - 1 Feb 2016

Keywords

  • advertising
  • daily deal promotion
  • quality
  • repeat customer
  • signaling

ASJC Scopus subject areas

  • Management Information Systems
  • Strategy and Management
  • Management Science and Operations Research
  • Marketing

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