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

Author

Listed:
  • Ming Zhao

    (The Hong Kong Polytechnic University, Hung Hom, Hong Kong)

  • Yulan Wang

    (The Hong Kong Polytechnic University, Hung Hom, Hong Kong)

  • Xianghua Gan

    (The Hong Kong Polytechnic University, Hung Hom, Hong Kong)

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.

Suggested Citation

  • Ming Zhao & Yulan Wang & Xianghua Gan, 2016. "Signalling effect of daily deal promotion for a start-up service provider," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 67(2), pages 280-293, February.
    • Handle: RePEc:pal:jorsoc:v:67:y:2016:i:2:p:280-293
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    Citations

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    Cited by:

    1. Khouja, Moutaz & Subramaniam, Chandra & Vasudev, Vinay, 2020. "A comparative analysis of marketing promotions and implications for data analytics," International Journal of Research in Marketing, Elsevier, vol. 37(1), pages 151-174.
    2. Yao Tang & Xu Guan, 2022. "Seller Organization and Percentage Fee Design in the Daily Deal Market," Information Systems Research, INFORMS, vol. 33(4), pages 1287-1302, December.
    3. Tang, Yao & Chen, Rachel R. & Guan, Xu, 2021. "Daily-deal market with consumer retention: Price discrimination or quality differentiation," Omega, Elsevier, vol. 102(C).
    4. Han Zhu & Yimin Yu & Saibal Ray, 2021. "Quality Disclosure Strategy under Customer Learning Opportunities," Production and Operations Management, Production and Operations Management Society, vol. 30(4), pages 1136-1153, April.
    5. Niu, Baozhuang & Xie, Fengfeng & Chen, Lei & Xu, Xin, 2020. "Join logistics sharing alliance or not? Incentive analysis of competing E-commerce firms with promised-delivery-time," International Journal of Production Economics, Elsevier, vol. 224(C).
    6. Avinadav, Tal & Chernonog, Tatyana & Khmelnitsky, Eugene, 2021. "Revenue-sharing between developers of virtual products and platform distributors," European Journal of Operational Research, Elsevier, vol. 290(3), pages 927-945.
    7. Yao Tang, 2023. "A product strategy for daily deal campaigns utilizing demand expansion and consumer leakage," Electronic Commerce Research, Springer, vol. 23(3), pages 1861-1883, September.
    8. Song Huang & Shuting Chen & Lei Xiao, 2020. "Manufacturer product quality information disclosure with channel encroachment in the E‐commerce age," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(5), pages 744-761, July.
    9. Zhao, Ming & Dong, Ciwei & Cheng, T.C.E., 2018. "Quality disclosure strategies for small business enterprises in a competitive marketplace," European Journal of Operational Research, Elsevier, vol. 270(1), pages 218-229.
    10. Dong, Ciwei & Yang, Yunpeng & Zhao, Ming, 2018. "Dynamic selling strategy for a firm under asymmetric information: Direct selling vs. agent selling," International Journal of Production Economics, Elsevier, vol. 204(C), pages 204-213.

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