Over at Balloon Juice, Mistermix has a complaint about somebody waxing poetic about the virtues of Groupon:
Groupon sells coupons, not invisible condoms or no-hangover martinis. I have no doubt that Groupon can be quite profitable, but coupons have been around for a hundred years. Groupon competitors will spring up, just as they have in the real world. Retailers are going to get skeptical about whether coupon shoppers are potential return buyers or actual skinflint cheapskates, just as they have in the real world.
That’s not really a fair comparison. Traditional coupons are valued and printed on the basis that a certain percentage of them (I remember reading a while back that it was less than one in four) will be used, but have to account for the possibility that they will all be used, which is why most of them offer a relatively low rate of savings (usually about 12-20% of retail cost, although occasionally you get lucky and get a coupon for 20-30%).
Groupon, however, values its discounts on the basis that everyone who buys into it will use it and pays in advance for the privilege; it’s not a coupon so much as it is a floating group purchase rate in which anybody can participate, and most sellers working through Groupon are lowering their profit rate but not eliminating it entirely on the basis that selling more stuff to more people for less profit individually means more profit overall, especially if even a small fraction of them become return customers.
Groupon is simply more efficient than coupons for all parties involved, which is why the speaker’s sentiment – while florid – is reasonably accurate.
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I don’t think the return on Groupon usage is anywhere near 100%, actually — I can’t remember what the exact number is, but it’s a lot closer to 60%, if I recall. Which means that Groupon is an even more outstanding bargain for businesses, because 40% of the Groupons sold are pure profit, just free money. Maybe people like the idea of hiring a photographer or going to a wine bar, but find it hard to schedule and consider the ancillary costs to make it less exciting than it was at the time the Groupon became available*. But Groupon users seem happy, so what the hell? Everyone wins. Especially because that huge amount of up-front cash seems like it could have big benefits to struggling businesses. If I wanted to start a hamburger stand or something, I’d get on that shit immediately, on the principle that if I sold 500 Groupons at $8 a piece, the $4,000 I made off of it would keep me afloat for awhile during my start-up period, even if it meant that I was selling 300-500 half-price burgers for the next year.
Now, if you want a truly ridiculous article in which people soil their pants over Groupon, check out the one from The Atlantic about how Groupon is the new journalism. The Atlantic says that!
–d
*Hey, anyone want in on a can’t-miss website idea? Four words: EBAY FOR UNUSED GROUPONS.
Dan: It exists. I forget what it’s called, but there’s a site for selling Groupon (and Living Social, and all those other places) discount things.
The flip is that these businesses are only getting 25 percent of the listed value of whatever item (half of the groupon money goes to groupon and then items are at least half off, so..)
My fiance and I are kinda cheapskates (we’re “just starting out”, okay?) and we love Groupon. Like Dan said, I’ve bought restaurant coupons I didn’t find time to use, and I’m guessing I’m not the only one, but we’ve also found out about some great restaurants this way. I think it’s a win-win.
What a lot of people don’t know is that you can use your Groupons (Usually) after their expiration date. But then it works just like a normal gift card.
So if it was $10 for $20 worth of whatever and it’s after the expiration date, it becomes $10 for $10. So you’re not out any money (Unless you never go)
The big issue I see here is why did Groupon say “no” to Google’s offer of $6B? Groupon is new and different and could not have existed prior to now — but at the same time the concept is easy as pie for a Google or Facebook or Amazon that have a large customer base to copy and run with. Groupon will regret not taking the money.
Groupon really isn’t that great a deal for most businesses. Most of the discounts are so big, they sell the product below cost. What’s more, for services like spa treatments or restaurants, the sudden huge number of customers will – sometimes permanently – drive away regulars.
I’ve seen a few businesses try groupon to very I’ll effect – pissing off clients and employees alike.