NETTING IT OUT

Groupon, a fast-rising business star, offers deep discounts on “deal of the day” offers. When enough people have signed up for the deal, it becomes active.

Consumers get great discounts on events, restaurants, spas, etc. in an easy-to-buy and easy-to-redeem fashion.

However, merchants who participate can get burned if they don’t think clearly through the deal and what they want to accomplish. Although there are many Groupon merchant success stories, more and more horror stories are emerging from merchants who faced financial disaster from honoring these discounts without reaping the rewards of up-sales or new customer acquisition and repeat business.

AN ADDICTIVE MODEL FOR CUSTOMERS

I am a person who has managed to avoid getting sucked into eBay. To be honest, the whole process of bidding on things I want simply seems like too much work. I have therefore never paid much attention to offers like Groupon, since I assumed that there was effort involved and/or a catch—some hidden cost or other “gotcha” that would come back to bite me.

But I was delighted with the Groupon process and have been a happy buyer and redeemer for several months now.

How I Came to Groupon

I had heard about Groupon from a number of people and had seen ads on various Web sites, but I hadn’t really been interested. Then my cousin Phil invited me to dinner, and I could choose the place, but it had to be a restaurant where he had a Groupon discount. He explained to me how he had been able to try a lot of restaurants around the Boston area that he either wouldn’t have been able to afford without the Groupon discount or that he had never thought of trying before, and that he had found a few that he really enjoyed and would go back to. Phil is great at discovering bargains, so the next time I saw a Groupon offer on the Web, I actually clicked on it.

HOW GROUPON WORKS

A (Group) Deal a Day

Every day, Groupon offers one or two deals of the day to people who sign up for the service. Signing up is free—you just provide your email address to get the daily offers in your inbox. Deals are localized in major markets (including the first site in Chicago, soon followed by Boston, New York, and Toronto). There are currently over 150 Groupon markets in the U.S. and Canada and over 100 markets in Europe, Asia, and South America.

A Minimum Number of Accepted Offers Required. The deals only become available when a threshold of members purchases the deals. For example, today’s deal in Boston—$195 for Three VelaShape Treatments at Finesse Cosmetic Laser & Lipo Center in Waltham ($1,050 Value)—required 50 people to buy in order to “tip” the deal. (As of 2:26 p.m., 197 had bought, and the deal is on!) If the predetermined minimum is not met, no one gets the deal that day. Each Groupon has an expiration date, which can vary from several weeks from the date of offer to a year or more later. (See Illustration 1.)

A Groupon Daily Offer

© 2010 Groupon

Illustration 1. The daily offer from Groupon is unique to your city of choice. Sometimes there are multiple offers each day.

Offer Good for Today Only. Unlike stores that tout “buy now before the deal is gone” sales and then keep the sales price for months, Groupons are truly daily deals. Some might be available the next day, but there is no guarantee. If you wait too long, the offer is gone.

Buying a Groupon. It’s as simple as clicking the “buy” button and specifying a credit card (or gift certificate) number. If you have purchased before, your credit card is on file, but you can add other cards. It’s nice that you are given the chance to confirm the payment method after choosing to buy—it gives you the option to reconsider, which is a blessing to impulse shoppers. For some of us, one-click ordering/confirming payment is a dangerous thing! It also lets you use different forms of payment for different types of offers—gifts vs. items for yourself, for example.

Each offer has a limit of how many you can buy and use for yourself and how many you can buy and give as gifts. These are strict limits and must be followed. The merchant will (most likely) know if you violate the limits.

Redeeming a Coupon. When you purchase a Groupon, you are sent an email (see Illustration 2) which includes a link to a Web page with all your current Groupons, where you can print them or mark them as having been used. A nice option is Groupon Mobile, which allows you to simply download your Groupon to your Smart Phone, bypassing the need to print the Groupon. When you are ready to use the discount, you simply go to the venue and, when it is time to pay, hand them the print out or show them the Groupon on your phone, and the discount is applied to your bill. To give a gift, you simply ...