I’m a big fan of any kind of service that saves me money, and accordingly I have used Groupon almost since they started. If you don’t use the service, here is how it works. Every day you get an e mail with an offer. Most offers are for local services; 50% off an oil change, a haircut, or a yoga class. But more recently Groupon has also signed up national clients, so for instance you can often buy $50 worth of stuff for $25 from big national chains, which really pumped up Groupon’s appeal and their revenues.
So it seems like a win / win / win for everyone. Consumers get a really good deal. Retailers draw in new consumers to try their business. And Groupon builds a sweet business model, taking 50% of the sale with payment up-front.
But my pessimistic side can’t help but think that a deal where everyone wins seems a little too good to be true. “Is Groupon really a good deal for everyone?”, I began to wonder.
Well, if you own Groupon things could not be better. They recently turned down a $6 billion dollar offer from Google. This seems a stunning valuation for a new company that is based on a good idea as opposed to a proprietary technology. Groupon is certainly a hot commodity with traction, and they do have over 40 million subscribers, but their are a lot of competitors nipping at their heels, so personally I would have had a lot of trouble turning down a $6 billion dollars. Still, it would be sweet to be Groupon right now.
But lets turn to the consumer. 50% off stuff you want is a great deal, right? Well, on the surface it would seem so, but I have been having a little Groupon regret lately. The problem is that purchases from Groupon carry a lot of fine print, and if you don’t read the print carefully you can get a 50% discount on nothing. Groupons carry different expiration dates, and if you don’t use it you lose it. A few months ago I purchased a couple coupons for art classes. Shame on me – I did not check the expiration date carefully, and when I went to redeem them they had expired. More recently, I tried to redeem coupons for spa treatments. Though I still had a couple weeks until the expiration date, I was informed they were fully booked until after the date and would not allow me to redeem (seems like there is a problem with this one), and I am still in negotiations to settle the issue. A couple months ago I bought Groupons for spa services at a different new spa. Although they had a long redemption period, they only allow a few redemptions per week during their very slowest times, so scheduling is a real problem. For me, the hassle of using Groupons (and the loss of money for those I just could not use) is not worth the potential savings, so I will probably only buy Groupons for products (not services) that I intend to purchase immediately.
Finally, is Groupon a good deal for the company issuing the deal? On the surface it would seem like an incredible way to build business, but sometimes too much business can crush a company. Many companies fall for the allure of the rush of business Groupon can provide, but they don’t fully calculate the numbers and the potential losses they will incur. Recently I talked to the owner of a small massage studio. She had just opened, and wanted to use Groupon to build a clientele. Hundreds of people bought her Groupons, but after she had offered 50% off and then gave Groupon 50% of that price, she is unable to make a living and is now contemplating going out of business. And I have found that companies sometimes get a kind of “Groupon Anger” against the consumers that bought their coupons. They go into the deal with the best of intentions to expand their business, but when they realize that they are working at cost or below they take their anger out against their new customers. So they end up breaking even or losing money on the sale, and then alienating their new customer so they never come back, which defeats the purpose of the entire endeavor.
So while Groupon can be a win / win / win for everyone, the issuing company and the consumer need to really understand the numbers and be comfortable with the potential downside.