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Title: Signalling effect of daily deal promotion for a start-up service provider
Authors: Zhao, M 
Wang, Y 
Gan, X 
Issue Date: 2016
Source: Journal of the Operational Research Society, 2016, v. 67, no. 2, p. 280-293
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.
Keywords: Advertising
Daily deal promotion
Repeat customer
Publisher: Palgrave Macmillan
Journal: Journal of the Operational Research Society 
ISSN: 0160-5682
EISSN: 1476-9360
DOI: 10.1057/jors.2014.47
Rights: © 2016 Operational Research Society Ltd. All rights reserved.
Posted with permission of the publisher.
This is an Accepted Manuscript of an article published by Taylor & Francis in Journal of the Operational Research Society, 2016, available online at You will also need to obtain permission from any co-author’s of this article.
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