Psst... We're working on the next generation of Chowhound! View >
HOME > Chowhound > Food Media & News >
Aug 18, 2011 03:06 PM

Is Groupon Heading For A Financial Crash & Burn?

  1. Click to Upload a photo (10 MB limit)
  1. Oh, God, I hope so. No company could deserve it more.

    50 Replies
      1. re: Joanie

        Google them and you'll see all the horror stories from the merchants they have exploited and driven out of business. They prey on desperate small businesses (and greedy consumers who will do anything to save a buck and try to get something for nothing) and keep all the revenue by making false, unsubstantiated promises that have no chance of ever coming true, and rather than build businesses, kill them. Scumbags.

        I like to save money as much as the next guy, but I won't do it by breaking the backs of my local merchants.

        1. re: acgold7

          "Google them and you'll see all the horror stories from the merchants they have exploited and driven out of business"

          Did those merchants have a choice of saying "no" before they signed up with Groupon?

          1. re: Fowler

            They were lied to and misled about the potential benefits. That constitutes fraud. Morally and ethically if not legally.

            1. re: acgold7

              Those are strong accusations. I have two friends that own restaurants and understood the simple math involved with the offer from Groupon. Your experience is obviously diiferent. How did Groupon lie or mislead you?

              1. re: Fowler

                They didn't. I don't have a dog in this fight. Just do the research and form your own opinion, as I did. Based on the way they market their "services" to business owners, I think they are lowlifes. Your opinion may differ.

                1. re: acgold7

                  That is fine if you think they are "lowlifes". But you also said Groupon lies and misleads restaurants. How so?

                  1. re: Fowler

                    Really, just read the stories. They're not hard to find. If you don't see anything wrong in what they're doing and how they sell their "service," then you must be from New York.

                    There isn't any evidence that the bottom feeders who are only interested in half-price food will convert into regular full-price customers. None. Yet this is what Groupon sells, and coerces restaurants into not only buying into this but giving all the revenue from this discounted food scam to Groupon. So that $20 worth of food for $10? The restaurant doesn't even get the $10... Groupon does. And the server gets stiffed too, because no one tips on the $20 ordered, or even the $10 paid for the Groupon, most of the time. Everyone but Groupon gets screwed.

                    If after doing the research you have an opposing argument, make it. You're totally entitled to your own opinion. That's what makes these forums great.

                    1. re: acgold7

                      "If you don't see anything wrong in what they're doing and how they sell their "service," then you must be from New York."

                      What the heck is that suposed to mean?!? If you have something against people from New York that is your own issue.

                      Groupon did not force any restaurant to subscribe to their service.

                      1. re: Fowler

                        Wow... sounds like I struck a nerve... Relax. I'm from New York and so is my entire family. I just know that different parts of the country have different moral and ethical standards when it comes to business, which is why I chose not to live in that part of the country anymore.

                        BTW, the original quote is a cultural reference; if you don't get it, I'm sure you can Google it, or maybe someone can clue you in.

                        >>>"Groupon did not force any restaurant to subscribe to their service."<<<<

                        That's like saying if you're scammed at the Supermarket, well, nobody forced you to shop there.

                        1. re: acgold7

                          No nerve was struck here and I suspect you are a nice person.

                          Please help me understand what the Groupon company said to the various restaurants that was untrue? If I owned a restaurant I would not partner with Groupon but how are they "scamming" them? Is Groupon not paying them what they said they would pay them for every Groupon sold?

                          1. re: Fowler

                            I believe I've said it all above and I don't want to bore people by repeating it. Much more detail is available simply by doing the research and reading all the articles from people who've been through it. Perhaps re-reading my posts would help, as I have edited them for clarity since my initial posting of them.

                            1. re: acgold7

                              Yes, I did see that you changed your posts for "clarity". Thanks, but I still do not see how any restaurant is being forced to participate in the Groupon program. Just as I do not see how I am forced to purchase a Groupon. Free will and all of that just seems to be the case here.

                              1. re: Fowler

                                No one ever said anyone was forced to do anything. Just that I'll be perfectly happy if they go away. Just as I'd be thrilled if cigarette makers go away. No one forces anyone to buy or sell cigarettes either, but I won't cry if they all go under.

                                Caveat Emptor isn't the ultimate justification for any sort of shitty behavior. You can't always blame the victim for getting scammed. Unless it's by a Nigerian Prince.

                                1. re: acgold7

                                  Hey, that Nigerian Prince is my now rich Uncle. Leave him out of this...

                      2. re: acgold7

                        I don't groupon, or any other purchased discount plan, but I do use cupons and advertised dollar-offs with ad offers, etc. I have to disagree with you about stiffing the server. I always tip on the undiscounted price, and everyone I talk to also considers stiffing the server because of a coupon to be the lowest of low life action. I guess we are not bottom feeders.

                        1. re: therealdoctorlew

                          No, you are not, and I applaud you. You are, however, an unfortunate rarity, according to most servers who post here and elsewhere.

                          1. re: acgold7

                            You seem to make a lot of assumptions and throw a lot of accusations out there, and when called, say "research it". Well, I have read articles, including an article about a restaurateur that thought groupon was helpful for his business. :shrug: Are you going to actually present evidence of real fraud? or just throw out charged accusations of things that aren't really fraud?

                            If a groupon salesman came to my business and said that his product would cost me a certain amount upfront, but would lead to drastic increases in business, what should be my response? Should I believe him? Or should I do the math and due diligence myself? Do you always believe salespeople? All of the complaining I have seen seems to come from people who thought groupon was a magic pill that would bring them a wealth of business. A good business person would consider what type of customer the promotion will bring, and what type of return business that customer will bring.

                            As for the servers getting screwed, that's a lame criticism of groupon. That argument could be used against any and all restaurant promotions. Restaurants should never offer happy hour, or nightly specials (like a "burger and beer night" for a discounted price), or certificates, or coupons in the newspaper, because patrons will never tip on the original amount. Give me a break.

                            1. re: LurkerDan

                              Well, you make a lot of interesting points, some of which seem valid to me, and some of which don't.

                              That a flaw is common to other couponing schemes as well doesn't make it any less valid for Groupon. So that doesn't negate any of the evilness there, and that Groupon has rapidly achieved cult-like status so quickly and become nearly ubiquitous makes it even more evil.

                              You accuse me of making assumptions and accusations, but I am doing neither. I am making conclusions based on the reports of others, just as you are. We have come to differing conclusions and that's fine. I'm not trying to change your opinion, and if you wish to buy Groupon stock please do so.

                              My understanding of the sales process is that the Groupon reps didn't actually *have* any data and merely promised that their scheme would bring in tons of new customers, and the reality was it cost most of these poor suckers a fortune while Groupon raked in the bucks. Perhaps a few vendors did well but the preponderance of the stories I've read seem to show this isn't the case.

                              So while we all like to think we'd do proper due diligence when confronted by a Groupon rep or anyone else selling us just the thing we need to build our businesses, in these cases, the data just wasn't available, from Groupon or anywhere else. You may have facts to the contrary.

                              I urge others to do their own research and come to their own conclusions because I have no vested interest in this and have nothing to gain or lose either way. I'm not a College professor whose only goal is to shove his dogma down your throat, although I do have very clear opinions and I posted them because no one else had and I thought it would be fun to spark some debate in response to the original post.

                              1. re: acgold7

                                I don't plan on buying their stock, because I don't think their stock is worth buying (nor do I have the money to do so!). And you most certainly do make accusations, how on earth could you now argue that you aren't? "They prey on desperate small businesses (and greedy consumers who will do anything to save a buck and try to get something for nothing) and keep all the revenue by making false, unsubstantiated promises that have no chance of ever coming true, and rather than build businesses, kill them. Scumbags." "They were lied to and misled about the potential benefits. That constitutes fraud. Morally and ethically if not legally." those aren't accusations?

                                Regardless, I'll take your word for it that groupon sales reps were pushy and made promises of sales. And I suppose that makes them unethical, but not any more unethical than many salespeople in many different trades. Most of us, and certainly any business owner, should know not to trust salespeople's promises of a pot of gold. "Fraud" to me says that groupon didn't pay the vendor the agreed upon amount, or that groupon sold way more certificates than they were permitted to sell, or something similar. A salesperson making a promise of returns that he or she knew to be false, well, that's certainly wrong, but I still see it as the business owner's responsibility.

                                The business owner decides how many to sell, and at what denomination. And the business owner has to decide whether they can afford to take that loss, and whether that loss will be a good loss leader or not. That groupon may have been pressuring them with promises of tons of return business is unethical, perhaps, but ultimately the responsibility lies with the business owner.

                                And I categorically disagree with the notion that groupon represents a "flaw" common to other couponing schemes. Coupons and deals are not flawed, they are time tested means of providing value to customers and businesses alike. Sometimes they even benefit the waitstaff, by bringing in lots of business on what would otherwise be a slow night. The fact that sometimes the staff doesn't receive as big a tip cannot be laid at the feet of groupon, IMO.

                                1. re: LurkerDan

                                  Well, now we're just arguing semantics, and that's a losing battle. Seems to me you're just trying to pick a fight and I'm not going to get involved. My conclusions are just that, mine, and whether you agree or not is your decision. It's really fine either way. If you've read the published articles and have come to a different concussion, well, then, good for you.

                                  But your quote: "As for the servers getting screwed, that's a lame criticism of Groupon. That argument could be used against any and all restaurant promotions."

                                  is in direct conflict with your other quote:

                                  "And I categorically disagree with the notion that groupon represents a "flaw" common to other couponing schemes. "

                                  Pick one. It's either the same as other coupon promotions or it isn't.

                                  1. re: acgold7

                                    Wow, I'm not sure I've ever read a series of posts that rely on such an array of unsubstantiated assertions and ad hominem attacks. Though I can't substantiate that.

                                    1. re: Cachetes

                                      I'm sorry you find spirited debate offensive. I thought that was the purpose of these "discussion" boards and my hope was that it would inspire people to do their own research and form their own opinions. Nothing I've said is unsubstantiated and a simple web search will back this up.

                                      As for ad hominem attacks, you may wish to double-check the definition of this. To make another cultural reference, "I do not thin' it mins what you thin' it mins." I did not attack anybody personally, only their arguments.

                                      However, if you find all this in violation of CH policy, you should flag the posts and repost them to the moderators, and if they agree they can remove them.

                                      1. re: acgold7

                                        This discussion between us can lead nowhere positive, so I'll end it now, before it continues. Peace to you and yours.

                                    2. re: acgold7

                                      I don't know what you're missing in my quotes? I think groupon is no different than other forms of advertising, which, when in the form of coupons or nightly specials, could also hurt servers tips. And I think none of those are bad, they are just part of running a business. So, I think it's lame to criticize groupon because servers' tips go down, and I don't think that there's anything wrong -- there's no flaw in any of these -- with offering discounts of all sorts. What is in direct conflict with what?

                                      While recognizing that anecdotal evidence isn't worth much, I still find it interesting that anecdotally, many of the people in this thread report positive experiences with groupon (both from buyers and sellers). And I think there are people who don't fit into your neat little 3 boxes. What of people who have been to a place before, but kind of got out of the habit (or never got in the habit)?. A groupon can put a place back in their regular rotation. What of the goodwill built up by giving a discount to even a regular customer? They will like the place more, go there more often maybe, introduce friends to it perhaps, and be willing to cut it a little more slack if they have a bad experience there in the future.

                                      There are all sorts of customers who may use a groupon. Some may just be losses to the restaurant, some may bring a profit. It's up to each owner to decide.

                                2. re: LurkerDan

                                  Excellent points, LurkerDan. From what my two friends that own restaurants have stated, yes the Groupon saleswomen were rather persistent but they never mislead them about what they would have to pay in return for their voluntary participation in the program. The costs were made clear unfront and like most intelligent people they did a cost/benefit analysis and came to their own conclusion about whether or not it would contribute to a long term profit or loss for their business.

                                  If the OP thinks Groupon is running a scam or acting fraudulently, they should contact their Attorney General and pound their fist on the table demanding that he/she look into the matter.

                              2. re: therealdoctorlew

                                x2. We've never tipped on anything less than what the check would have been without a discount.

                              3. re: acgold7

                                Some of those stories are told in the links on this thread

                       has a really good example of how it can go wrong.

                                1. re: acgold7

                                  These businesses have the option of saying yes I would like to do this or no I would rather not. If they can't read and understand what they are signing up up for is Groupon to be blamed?

                                  1. re: Mother of four

                                    I think the issue is that there's a hint of predatory salesmanship going on in getting these businesses to sign up for Groupon. It's like saying all those people who signed the dotted line on homes they couldn't afford that eventually defaulted are completely at fault. Some of these business owners may not have the business acumen to do at least some kind of accurate cost/benefit homework before signing up. In some cases this has backfired on the businesses - yes they signed the dotted line but they may not have all the facts and are ultimately signing up for a sales pitch being brought to them.

                                    1. re: Bunson

                                      I don't think that business owners not having the business acumen to do cost / benefit homework is a good enough reason to fault Groupon and accuse them of predatory salesmanship. Has Groupon crossed between slick marketing and outright fraud, where flase claims are made about the effectiveness of the program? I don't know but I'd love to hear how Groupon markets its services and what claims are actually made.

                                        1. re: Chris VR

                                          But that's my point... while it was a bad experience, I don't see any claim by the business owner of false advertising by Groupon.
                                          1) Fine print wasn't what she wanted - Presumably she reviewed the fine print. There's a reason things are in fine print and that's why you should read every single word in it. Now, if Groupon showed her one set of fine print and then used another set, that's another issue and I'd hold them to it. But she doesn't really say that
                                          2) She sold more than she wanted to. Again, unless Groupon specifically said, you will only sell X, then she should have known there was the possibility of selling more than X
                                          3) Groupon doesn't send money right away. Again, I assume that's in the contract
                                          4) Doesn't expire until January. Wouldn't that also be in the contract? Maybe in the fine print of the contract?

                                          Unless she's claiming Groupon lied / changed the contract on her, I don't see how Groupon is to blame. That's just bad business ownership on her part.

                                          I was originally going to post something along the lines of chowser, in that business owner without business acumen shouldn't run businesses and probably won't be running businesses for long. I thought it was too snarky at the time, but I am increasingly disgusted by people shifting responsibility to others.

                                          1. re: FattyDumplin

                                            Regarding point 2, Groupon policy is to allow owners to cap their deals. So why didn't she do that if she wanted to only sell 50 or 100 or whatever?

                                      1. re: Bunson

                                        "Some of these business owners may not have the business acumen to do at least some kind of accurate cost/benefit homework before signing up."

                                        Some people are not meant to have businesses. Owning a business means making smart decisions and not falling for every salesperson who comes to the door. Why would any business sign on the dotted line before getting all the facts? I think any business that does it would eventually fold.

                                        1. re: chowser

                                          Groupon has an Amway/Quixtar/Vector vibe - the business assumes all of the liability and risk while they just reap the benefits. Sure they point out the success stories to prove that it works but how about the business that they put under? You go to an Amway presentation and they highlight the salesman who's pocketing 6 figures every year and hope that your eyes light up.

                                          Here's a really interesting article about groupon, the comments are worth reading too -


                                          1. re: Bunson

                                            You forgot to add Herbalife to that group.

                                            Mr Taster

                                            1. re: Mr Taster

                                              ha! just what I was thinking and then I read your comment, Mr. T. Herbalife is soooo guilty of that.

                                            2. re: Bunson

                                              It's ridiculous to accuse Groupon of "putting a business under." A healthy, well-run business can benefit from marketing; a business on its last legs blaming Groupon for its demise is a sad statement on its owners.

                                              1. re: ferret

                                                Bunson has a point, ferret.... business ethics are not a zero sum game. There are infinite shades of grey and depending where a business falls into the spectrum determines whether it operates with a little, average, or high amount of integrity.

                                                On the negative extreme is the business that engages in outright criminal fraud, and preys on vulnerable companies on the edge.

                                                On the positive extreme are companies which engage in fair business practices, which actively strengthen smaller companies, and reward the customer, the boss, and everyone in between proportionally and equitably.

                                                So is Groupon involved in outright fraud? Probably not. But it sounds like it's certainly operating closer to the negative extreme than the positive one.

                                                Mr Taster

                                                  1. re: FattyDumplin

                                                    oops. the rest of my post didn't make it. i agree with Taster on some aspects, but Ferret makes very valid points.

                                                  2. re: Mr Taster

                                                    I don't buy Bunson's analogy, and even if I did, it's still not the predatory business model that people here suggest. A business that's thriving doesn't really need Groupon, so by default it deals with businesses that are experiencing a slowdown or, occasionally, serious trouble. In the majority of cases I don't doubt that the business was on its way out with or without Groupon. Case in point, Va Pensiero, a fairly high-end Italian restaurant in Evanston, IL, offered a Groupon. I had eaten there several times in the past decade or so but it was easily a $100 meal for two so we didn't frequent it as much in the past few years. I was surprised to see it on Groupon and more surprised to see it closed a couple of months later. A casual observer would say that Groupon killed it, but what happened is that t offered the Groupon in a last-ditch effort to stay alive. And Groupon promptly refunded those with unused certificates.

                                                    Opening and operating a small business is a risky proposition in the best of economic times (restaurants especially). In a crappy economy it's tougher still. I find it hard to believe that Groupon is at fault and even the NY Times article Bunson linked didn't really fault Groupon for anything.

                                                    1. re: ferret

                                                      and even the NY Times article Bunson linked didn't really fault Groupon for anything.
                                                      What it does generate *quickly* is doubt...buyer beware...and threads like this that examine WHY. The associated press, digital mags especially, love this type of oops and btwn what is experienced and what is reported *usually* lies some truth.

                                                      1. re: ferret

                                                        This is a good point. I think it's skewed to look at unsuccessful businesses from Groupon because the bulk of those who need it are probably not doing well to begin with. As has been pointed out on these boards many times, many CHers don't bother going to places that put out coupons because if they were good, they wouldn't need it (I've yet to see a buy one get one free deal at the Inn at Little Washington).

                                                        Businesses that can successfully use Groupon:
                                                        1) Those that are new and want to bring people through the door. It might not be the best way, it might expensive but it can raise awareness. OTOH, when I was in LA (in the early 90's, I went to some restaurant "premiers" where the meal was free. Just show up and eat. That must have been expensive but it depended on word of mouth so no advertising costs, places were packed and it was mostly locals who went; the ones who were needed to keep the place in business. This might be a smarter way to go for restaurants, if it is affordable.

                                                        2) Ones where the person would most likely spend a lot more than the groupon. I see these often. These places often use discounts anyway (like 20% off purchase) so it's a large advertising cost but they're making money overall.

                                                        3) New owners of existing businesses who want to show people how much it's changed.

                                                        If a business is being run unsuccessfully, Groupon won't do a thing for it. If Groupon is misleading businesses and lying to them, that should be dealt with but as with most sales where salespeople get a cut, there will be those who exaggerate/lie and hopefully the company will care enough to take care of that.But, if it's a matter of a business person not being savvy enough to read the fine line, then at most Groupon might be speeding up its demise.

                                              2. re: Bunson

                                                I still say it's not Groupons fault if the business is not savvy enough to know what they are signing. Possibly these owners should not be in business in the first place. Usually businesses that are doing well don't get involved with Groupon. Just my take on the subject.

                                                1. re: Bunson

                                                  "Some of these business owners may not have the business acumen to do at least some kind of accurate cost/benefit homework before signing up. "

                                                  Then they should not be in business. Just as someone that does not have the acumen for dentistry should not be a dentist.

                                                  1. re: Fowler

                                                    or they should have someone handling their business affairs.

                                                    1. re: FattyDumplin

                                                      Absolutely. I wonder how many restaurants go out of business for that reason. You go there, have a good meal,return many times, then boom it's gone! You can serve the best food, have the best wait staff, but if you can't manage expenses you are doomed.

                              4. Aside from the moral judgement of the company, i'm curious to hear what others think about hte question posed. I would've assumed that Amazon, which to me was the previous dotcom poster child of building scale at a loss, also had the same kind of balance sheet back in the day. but they were obviously able to achieve that scale and then gradually bring margin into the business. I personally don't believe GRoupon can achieve the same thing and think it will ultimately peter out because i don't see the company really adding much value to people's lives. Even as Amazon was losing a ton of money, you never really heard bad things about the business model, just how easy it was to use the service to buy books. With Groupon, the opinion seems much more divided.

                                Anyways, i rambled but would love to hear other viewpoints.

                                6 Replies
                                1. re: FattyDumplin

                                  There's nothing inherently faulty about the business model. Businesses often offer deals to get people in the door, and a company that facilitates that -- by broadcasting those deals to an audience that the business can't reach -- has a viable service to offer. But the craze over groupon seems sure to lead to a crash. It feels like 1999-2000, where everyone under the sun started a web business and gave away tons and tons of merchandise, with the belief that signing up customers and bringing in eyeballs would suddenly lead to profits. It doesn't really work that way.

                                  1. re: LurkerDan

                                    It just feels that the "satisfaction ratio" on this product is a lot lower than you need to grow this into a profitable business. Although some people are clearly happy with the service, many who have used it, both on the seller and buyer side, appear to be vehemently against it. At some point, if you can't convert enough of these 1st time users into loyal customers, then you churn through the entire population of potential users and the whole thing falls apart.

                                    in fact, i'd be curious to see what their churn statistics are, i.e. on a rolling basis, how much of their seller / buyer base is repeat vs. first time.

                                    1. re: FattyDumplin

                                      "At some point, if you can't convert enough of these 1st time users into loyal customers, then you churn through the entire population of potential users and the whole thing falls apart."

                                      Isn't that true of all businesses whether they use groupon or not? Groupon gives them an avenue to get more people in the door. It doesn't help them run their business. I see it no different from running an ad. It costs money and businesses have to decide whether it's cost effective. FWIW, I've only used it once, for a new running store and I would go back. If it weren't for groupon, I would never have known about the store.

                                      1. re: chowser

                                        My point was more it seems like both the companies and customers of Groupon have pretty high dissatisfaction rates. Not say it doesn' t work at all, but based on articles, web forums, friends and family, it tends to generate a pretty strong response, one way or hte other, which seems like a bad way to build a business of scale. Not saying Groupon will crash and burn, but i just don't see it being the game changer that google / amazon / apple were.

                                      2. re: FattyDumplin

                                        I've used Groupon several times.

                                        Once, to utilize a service (bodywork)I had been contemplating but unsure as to which vendor to use. I've been a repeat customer ever since and the vendor said it was a successful marketing exercise as he's relatively new to our area.

                                        Another was for a restaurant whose owner said it was successful because the Groupon reminded many of his former regulars in the neighborhood to patronize his establishment while bringing in some newbies who expressed satisfaction and plans to return.

                                        The last Groupon I was gifted was to a business (retail/wholesale) where I spent about 3 times more than the coupon value and have returned to multiple times since.

                                        Hence, I conclude that sellers should carefully consider what market they're trying to reach and conduct their business with careful due diligence. Ditto buyers.

                                    2. re: FattyDumplin

                                      As a matter of fact, Amazon signed up - I bought a Groupon (or possibly it was an Eversave or other Groupon clone) that was I think $10 for $20. There was one for Barnes&Noble too.

                                    3. As for turning 1st time users into loyal customers - in restaurants at least, there seems to be a not small segment of the population who ONLY goes out when there is a promotion. Restaurant week, happy hour, groupon, whatever. Not that there is anything wrong with that, but I would suspect that the repeat business just is not there. Why go back and pay full price when you can get a half price groupon somewhere else? Without people coming back and paying full price time after time, it's expensive for the restaurant. It's good to get butts in seats, but you still need to make a profit, and sometimes those promotions are just not worth it.

                                      In my understanding, when they sell $50 of food for $25, the $25 is split between the resto and groupon, so the resto is selling $50 of food for $12.50, and really really hoping people order a lot more and drink a lot of wine. If your food cost is above 25%, you've already lost $$, and 25% is running a very tight ship - closer to 30% is more likely for an upscale resto. Some patrons will use the groupon as an excuse to pig out, some will try to meet the bare minimum.

                                      I am not planning to buy Groupon stock, if they owe 2x their cash flow but execs still get big bonuses it doesn't seem like a good risk to take. I will occasionally use such deals, though, I recently bought $50 for $25 at a new-ish neighborhood restaurant that I've sort of wanted to try just because they were in the 'hood, but the menu didn't look amazing enough to try it for full price.

                                      4 Replies
                                      1. re: babette feasts

                                        I think you've summarized the situation pretty accurately.

                                        My understanding is that while there is usually a 50-50 split now, it wasn't always that way, and may not even be that way all the time now. Early reports were that Groupon kept *all* the money, and may start their negotiations that way to this day. That policy may not be the same now. May be worth further research.

                                        When someone uses a half-price coupon of this sort, there are basically three scenarios, it seems:

                                        1. They're your regular customers already, and are just enjoying a discount on stuff they'd normally get anyway

                                        2. They're coupon chasers, who come in for the discount and won't ever return; they're off chasing next week's deal

                                        3. They're people who've never been in before but came in because of the deal and now will become regular customers

                                        Groupon and everyone else who sells these things wants you to think that possibility #3 is mostly what will happen. Problem is, this is established to be the smallest group, about 1%. Nearly everyone who buys and redeems these things is in the first two groups.

                                        Moreover, the hope is always that those who redeem will buy stuff far surpassing the face value of the coupon, but reports from many if not most of the merchants involved -- and advice from most of the super/extreme couponing websites suggest -- that this isn't the case. They get really only as much as the discount is for in order to maximize the percentage discount value (even though the actual dollars they save is the same).

                                        So the benefits of all these discount schemes are way overblown, and in an economy like this, businesses that are teetering on the edge can easily be persuaded to go for a scheme like this as a last ditch effort to save a faltering restaurant. It's fair to assume that a small mom and pop shop is relatively unsophisticated, business-wise, or else they might be in better shape financially.

                                        In a business where it costs you money every time someone sits down in a chair, it seems to me this isn't a great idea for advertising and promotion.

                                        But as has been pointed out elsewhere, it does seems to work for some, although it has proven disastrous for others.

                                        1. re: acgold7

                                          "3. They're people who've never been in before but came in because of the deal and now will become regular customers

                                          Groupon and everyone else who sells these things wants you to think that possibility #3 is mostly what will happen. Problem is, this is established to be the smallest group, about 1%. Nearly everyone who buys and redeems these things is in the first two groups."

                                          Once upon a time when I worked for a company that have a highly-qualified database, 1% was considered a worthwhile response, and justified the marketing expense. Of course, that's not true of most businesses.

                                          1. re: Stephanie Wong

                                            Sure, in some forms of marketing that's considered great. Not sure about restaurants, where the loss involved from the other 99% can quickly put you out of business. Not like handing out flyers or making phone calls from a database at all.

                                            I think one really important point you've made is "highly qualified." In this case, I'd submit that highly qualified would mean pre-selected to omit those in groups 1 and 2 from the get-go. But Groupon (and most coupon) users are self-selected to favor those groups.

                                            In any event, I'm guessing the Groupon reps don't come in proudly touting the 1% success rate figure.

                                          2. re: acgold7

                                            and 4) They're people who've never been in before and came in because of the deal but were not wowed or don't live close or just don't go out that often. Might be back in six months or a year, or two, might tell a friend about it, but won't really become regulars.

                                            So do the 1s and 3s outweigh the 2s and 4s? You don't need groupon to get the 1s in, they liked you enough to pay full price from the beginning, and if they really are regulars they probably get some extras already. You are losing money there - if your regulars were going to spend $100 on dinner, why (on a $50 food/drink for $25 groupon) give them half of it for $12.50, taking in $62.50 and losing $37.50 to the middleman and the deal? Better to give them a glass of wine or a dessert that cost $2 to make. As I see it, you have to be at least breaking even on the 2s and 4s, and have more 3s than 1s for it to be worthwhile.

                                        2. Meanwhile, why is/did Groupon fail? There are dozens of online sites playing middle man with a product they don't actually produce for the buying public. I recently read about one that is getting into the specialty foods category as middleman with a similar sell it cheaper until it runs out premise and it's ridiculous. I recall at the height of Groupons popularity some big tech firm was thinking of buying it for a ungodly price...hype city people.

                                          At the end of the day, we can all bargain shop, visit a company website, jot off an email and ask for a discount, clip a coupon, sign up for a newletter alerting us to specials. We don't need a middle man to get us to the good stuff...all we need to do is ask for the good stuff. I do it all the time.

                                          19 Replies
                                          1. re: HillJ

                                            The difference between one person personally asking for a discount and something like groupon is the number of people groupon can reach. It's advertising, pure and simple, no different from clipping coupons when you come down to it. I've found out about a lot of businesses through groupon, though I didn't buy it, but now they're on my radar and I would try them out. What many of the above criticisms of groupon leave out are the people like me, who might try something/some place out because of groupon, without ever having bought. It's not just converting those who do buy to regulars.

                                            1. re: chowser

                                              good point.

                                              I've only used groupon a couple of times, in both cases for businesses I knew nothing about before. In both cases I ended up spending quite a lot more than the groupon amount. At one of them, a nursery, the guy at the counter (owner) seemed quite happy to see the groupon, and said he'd had a lot of people say they'd never heard of his business before the groupon. I've even seen the same place run another promo on groupon a few months later. So he was apparently happy with it. I've got one already bought for a local restaurant that I'll probably use next week, and again I'm sure I'll spend at least double the face value of the groupon. As many say, it's simply an advertising cost.

                                              1. re: DGresh

                                                Yeah, for the only groupon I've bought, I spent far more than the amount of the groupon, too.

                                                1. re: chowser

                                                  A couple of my Groupons have said , for example, $12.50 for $25, must spend $35 not inclusive of alcohol. So they are forcing you to spend about the coupon level, which is how I figure the restaurant is at least breaking even.

                                              2. re: chowser

                                                chowser, I understood that. Any Groupon-ish vehicle as a PR/advertising/promo/grand opening/etc. tool sure. Heck, using the Internet has turned me onto hundreds of resources a year. But as a shopping tool, meh. I would always and I do mean always go to the company directly. I don''t necessarily believe that using a middleman is the only way to reach many people. Company websites post offers (hotels immediately come to mind) for a period of time and hundreds of people benefit from a weekend special they offer, or a spa, or a cruise or an online florist, etc. The last direct campaign my dh and I enjoyed was the hot air balloon show in RI. 1/2 thru an RI travel agents site.

                                                1. re: HillJ

                                                  I agree that the middle man isn't the only way to go but it can be helpful for businesses to reach to reach larger groups of audience. I had no idea that pole dancing was offered in my area, nor did I think to look but now that I know it's available, thanks to groupon, I have it in my mind. It was a way for the company to reach me, and I it.

                                                  The middle man might be unnecessary but in many cases, it's helpful--think, Realtors, brokers,your hot air balloon show, etc. If I think the deal on groupon is good, I'll take it, rather than then contacting the company directly and cutting out the source of information. I also use eBay and buy through them. I don't contact the seller directly because i think that would be wrong.

                                                  1. re: chowser

                                                    The RI hot air balloon was a direct seller as are the hotel, florist examples I gave. Chowser, I don't understand your comment about going directly to a business/seller as wrong. Who better? If the seller is offering specials on their company website, why would I need Groupon or the like? If the business is providing a contact info page, why wouldn't I contact them directly?

                                                    I appreciate your shopping choice but I don't see the issue with working directly with any seller/business.

                                                    1. re: HillJ

                                                      If I frequent a place like eBay, a realtor, stock broker, etc. who make money off of providing a service, and I use their service free of charge then I'm taking advantage of their business. I don't think groupon is the same category exactly but it's along that line. I guess I know too many people who own businesses (say running stores, ski stores) and/or provide services like stock brokers, with the intent of making customers when people then turn around, use that advice for free and cut them out of the loop. I have a friend who had a ski shop and had to close it because people would do that. There's no problem if people didn't go to the business to get advice and go directly through the vendor. But, it's another to use the middle man but refuse to give them any business.

                                                      1. re: chowser

                                                        Who said free? I was always referring to a coupon type discount. The middle man is making a profit on the business person. And, the same business person is offering a discount to the customer. How much profit is left? The price of doing business can get expensive...sink or swim. So if the price of paying a middleman to help you advertise your wares costs you along with the customer discount how long can a business afford that type of advertising?

                                                        With my preference, I'm more than happy to learn about new businesses thru online portals, ads, news article but would rather go directly to the establishment making a discount offer. I never said free.

                                                        As for customer loyalty, well if I'm happy I'll be back and if I'm not I won't...but I'm willing to pay the business directly rather than a middleman to figure that out.

                                                        Thanks for explaining your experience to me, chowser. I appreciate the different perspective.

                                                        1. re: HillJ

                                                          Free, I mean in that if I used, say Ebay to find a vendor and then cut them out of the loop by going directly to the vendor, I've used what they provide without paying for it. I don't quite put groupon in the same vein but I do think, if I'm using them, as is the business, I shouldn't cut them out of the loop. As middle men go, I don't think of them as vultures. They provide a means for the vendor to meet the customer. I think, if I don't want to use their services, that's fine. I do often go directly to the source. But, if I do use them, I think it's only fair for them to get paid. Subsequent business, I'll go directly to the source.

                                                          " So if the price of paying a middleman to help you advertise your wares costs you along with the customer discount how long can a business afford that type of advertising?"

                                                          If the business can't afford that type of advertising, imo, they shouldn't use it. Free advertising, at the expense of another company (the middle man), shouldn't be an expected part of a business model. EBay has strict policies to try to guard against this, though it doesn't always work.

                                                          Thanks for your perspective. I've never thought about this in much detail but just have gone by instinct. And, as I've said, I've known middle men who provide a service but then lose out because people cut them out.

                                              3. re: HillJ

                                                not sure it's failing yet. i think google offered $6bn and its now valued at a substantial premium to that.

                                                1. re: FattyDumplin

                                                  FD, How did we get so off the OP article linked above? The first sentence reads:
                                                  Groupon plans to sell itself to the public at a $30 billion valuation. It's worth noting, then, that the online discounter has accumulated liabilities that greatly exceed its assets and is now running low on cash. The technical term for this is "broke ass poor."

                                                  1. re: HillJ

                                                    obviously it's not "broke ass poor". when was the last time someone paid $30, let alone $30billion to own something that is "broke ass poor"?

                                                      1. re: HillJ

                                                        Same article. My only point was it hasn't failed. Clearly there is a population of investors that believes the company can achieve massive scale and ultimately become the de facto deal aggregator, at which time it's customer acquisition costs will be heavily reduced, margins will creep into the business and will generate positive cash flow. The Amazon model of growing a business if you will.

                                                        LIke you though, I am a skeptic and believe that it is on the road to failure. I just don't think it's there yet, was all I was saying.

                                                        1. re: FattyDumplin

                                                          It's hard not to be a tad skeptical given the # of third party tech firms that do sink and often take investors and customers down a ill-gotten path. Not all, there are good ones...but, I'm not a big fan of Groupon.

                                                          1. re: HillJ

                                                            Totally agree. It's pretty fascinating to me to see investors salivating all over again for these internet-y companies. it seems so blindingly obvious that this company will not become the next apple, facebook, google, amazon, yet somehow, it seems like a $30bn price tag has been slapped on. Hard to believe.

                                                            1. re: FattyDumplin

                                                              Isn't this reminiscent of the late 1990s/early naughts when internet companies had inflated worth? Only to come crashing down?

                                                              If Groupon does come crashing down, there will be people left holding the bag. And I feel badly for those.

                                                              I guess as in any free enterprise, some make hordes of money while others lose big. I have never bought anything on Groupon but have friends who love it. I'd just hate to see another financial crisis.

                                                              1. re: globocity

                                                                Totally, although on a smaller scale than in the late 1990s. And like last time, there should be survivors, this generations Googles / Amazons, if you will. I just don't think Groupon will be one of them.

                                                                But yeah, to me, this is the beauty of capitalism. People who are business savvy can make a lot of money. People who are not business savvy will lose it. Know yourself and if you're in the latter category, don't go chasing that hot internet IPO and make your money the old fashioned way...

                                              4. Reading that article, Groupon's business model seems reminiscent of a ponzi scheme. When they run out of business to sign up for Groupon it will be game over.

                                                7 Replies
                                                1. Hi HillJ,

                                                  I purchased a Groupon for a local restaurant and later learned that they were going out of business. When I contacted Groupon they said they would refund my money if I did not dine there before they closed.

                                                  1. re: Fowler

                                                    Hi Fowler, thanks for your reply!
                                                    And, did Groupon refund your money or did you use the deal? Or haven't you gotten that far yet?

                                                    1. re: HillJ

                                                      I was able to use the Groupon before the restaurant closed. At first I was hesitant to do that because I thought the food and service might be poor since the employees knew they would soon be out of a job. Everything was fine though.

                                                      1. re: Fowler

                                                        Happy for you; sad for the restaurant. At least you had a good Groupon experience. I had a similar situation with a offer before the restaurant closed and the meal was somewhat bittersweet. I felt a tad guilty and wound up leaving more $ than I owed.

                                                        1. re: HillJ

                                                          Maybe I am just lucky but I have only had two less than perfect experiences using Groupons. One was for an oil change and when it was done and it came time to pay they said the Groupon did not cover the disposal fee or tax so I had to pay extra for that. The other time was at an expensive restaurant and they tacked on 19% on top of the food, drinks and tax. In neither case were those fees revealed up front but I suspect that was due to trickery on the retailers part and not something Groupon purposely did not disclose.

                                                          1. re: Fowler

                                                            Fowler, I think it's incredibly decent of you to excuse Groupon in the two examples you gave when their customer "Promise" clearly states that if you aren't happy they are responsible enough to help you get your money back.


                                                            That kind of customer service should be the responsiblity (in part) of the middleman who sold you the offer. If customers don't provide feedback on their experience how would the service improve?

                                                      2. re: HillJ

                                                        A couple of places in Chicago closed not long after the Groupon was offered and in those cases Groupon promptly issued refunds. Most of the Groupon horror stories come from naive business owners. It's not difficult to calculate what your potential financial risk is with Groupon. You get roughly 25% of the Groupon price and need to provide goods/services at face value. You either have the budget for marketing your business or you don't. It's like saying "my local TV station said I'd increase business if I paid for commercial time." Sure, you're taking the risk with the expectation that business will improve but if it doesn't you shouldn't act like you were tricked into doing it.