Online daily coupons: Understanding how prepayment impacts spending at redemption

Online daily coupons (ODCs) (e.g., Groupon) differ from conventional coupons, in that they require customers to make a prepayment for a product or service to receive a substantive discount at a later point in time. Drawing from escalation of commitment literature, this article examines how ODCs’ unique prepayment structure might affect customers’ spending upon redemption. The results reveal that a high prepayment enhances redemption spending, but only if the temporal distance between the prepayment and the redemption is small. A high prepayment also can enhance redemption spending if the consumer purchases the ODC (versus receives it as a gift). In combination, this evidence reveals a joint impact of the prepayment amount and redemption spending on the revenue generated for the ODC provider.