Measuring Effects of Observational Learning and Social-Network Word-of-Mouth (WOM) on the Sales of Daily-Deal Vouchers

In recent years, daily-deal sites that help sellers offer deep-discounted vouchers have become an increasingly popular marketing vehicle. To investigate their effectiveness on sales, this study hypothesizes two different mechanisms, i.e., observational learning and Word-of-Mouth (WOM) via online social networks, affect shopping behaviors and sales of daily-deal vouchers. Using a unique panel data set consisting of accurate sales data of more than 500 deals from Groupon.com, this study empirically tests saliency of the two mechanisms. The findings indicate that while both mechanisms have a significantly positive association with voucher sales, the effect is stronger for Facebook-mediated WOM than for observational learning. We find that one Facebook Like on a deal, on average, is associated with two additional voucher sales and thus an increase of $215 in revenue. However, we do not find consistent evidence that Twitter-mediated WOM has any impact on the voucher sales.