The Trouble With Groupon

I think if you have a basic knowledge of what stuff should cost you can find deals that make sense, things that you actually want to buy.

If you mark up an item 60%, then sell if for 40% off the marked up price, you're losing money, not making 20%. A $10 item marked up 60% becomes $16. Mark 40% off of $16 and you're now selling it for $9.60

Good point, Bob. Thanks for the correction. I'll just fix that little item. I blanked out on the math.

Have you VISITED groupon?

Your comparison from Valpak tells me you checked out the website once after your friend told you to, the deal that day wasn't worth buying and you never went back.

Yes, Anonymous, I have visited Groupon. I do realize that there is potential for more targeted deals based on a profile of the things that I might want - but unless it is something that can be marked up in a big way, it is crushing to small businesses. A lot of people, I'm sure, love Groupon but it's similar to saying "What do you mean you didn't like Black Swan?" Some people like to buy a bunch of crap that they don't need (at a great discount). I don't and wish Groupon was more like Coupon and had 40% off milk at the store.

I aggree with you Jill. I have bought Groupons before and every time I present them I always feel like I'm getting teh "groupon deal", it always feels like the quality is less because they know I got it a ta steep discount and they dont' make much money.

I agree with most of what you say. I must add that once people realize how much money they waste when they forget to redeem their Groupons, Groupon will be doomed. Whether this is before people get sick of all the competing offers in their inboxes and start ignoring them, I don't know.

Now Jill there are times when I do need to buy picture frames. The problem is the 50% off price is often the same price it would be if I bought the same frame from Target.

Great analysis. When I found an offer that was semi-interesting - discount on window washing - I decided to give it a shot and went for the offer. Of course, I like most others, assumed that the offer I got was for the whole cost to wash my home's windows -- I'll admit it -- I got roped in and probably would have noticed that was not the offer if I read the fine print.

But, when I called to have my windows cleaned, the $40 for $80 worth of window washing meant that I'd have to pay $120 for $160 worth of window washing; definitely not a super sexy offer, nor one I'd consider. In the end, I'm going to eat my $40, and will end up washing my own windows one of these weekends. Groupon will get $20, the vendor will get $20 and I walk away having learned a big fat lesson.

Until I can get 1/2 off an In-N-Out Burger combo or my mortgage payment, I'll likely be staying far away.

Great analysis.

The markups are what really blew me away. It's the oldest trick in the book to set the price high then knock off 50%. How have people not learned this tactic by now?

You're exactly right about lack of grocery/car groupons. It will never happen. By the rules of their system, Groupon cannot give deals on things You Would Have Bought Anyways. It would ruin businesses. In rare cases, my wife and I DO find groupons for things we would have bought anyways(say, movie tickets). Needless to say, I'm sure we're the worst possible customer for the theater.

I don't know if this will last.

In Cincinnati, they have had some good groupons, such as $25 for $50 in merchandise from Nordstrom Rack and $25 for $50 from a great local restaurant.

What Groupon (and deal sites for that matter) actually lacks is the possibility of personalizing its service and offer deals to different consummer targets. If instead of sending an email with the deal of the day every day, Groupon sent mails with deals that may result interesting to every consumer, it could become a far more interesting service.
Regarding the IPO that was announced today, investors apparently see big potential in the deals industry, which will most likely continue its expansion and improve over time.

I could not agree more and I have reviewed this from the merchant side where the deal is really questionable especially for restaurants....earning only .25 on the dollar on a 50% off deal is a loser unless it increases loyalty moving forward. Not sure merchants will continue with service once they understand the real economics.

What are your thoughts about Open Table from an investor perspective...seems overpriced with new competitors on the horizon like Village Vines. P/E for OPEN is thru the roof.

I could not agree more and I have reviewed this from the merchant side where the deal is really questionable especially for restaurants....earning only .25 on the dollar on a 50% off deal is a loser unless it increases loyalty moving forward. Not sure merchants will continue with service once they understand the real economics.

What are your thoughts about Open Table from an investor perspective...seems overpriced with new competitors on the horizon like Village Vines. P/E for OPEN is thru the roof.

@Jill: you are quite right: Groupon is almost spam as it intrusively promotes deals and stuff you don't have a demand for.
people may look into it once, twice but the third time they don't even bother - except maybe the Natural Born Clickers (80% of all ad clicks are from 16% of the population http://www.comscore.com/Press_Events/Presentations_Whitepapers/2009/The_Click_Remains_Irrelevant )
The best deal from Groupon: invest your money in the IPO and try to sell it the very first day as you might make 15%. Don't keep the shares as it will drop.

I don't like them because their name sounds like an STD.

There are some interesting points in time in that clause but I don’t know if I see all of them eye to centre . There is some validity but I will take hold opinion until I look into it further. Good article , thanks and we want more! Added to FeedBurner also.

Oh, really, Jill? You -- a Lehman Bros refugee -- have the audacity to predict what will succeed or fail? You look a bit like Ann Coulter...I wonder if you haven't stolen a page from her playbook insofar as sensationally outrageous comments often get the author more ink.

Hey BC Cloutier (or should I call you 'Groupon Employee #867!') - yes, even someone who used to work for company that failed has opinions, too. Stunning, eh? I'm sorry you don't appreciate that freedom.

On a Groupon point, do you realize I received over 25 spam offers that were similar to Groupon deals. "Great Deal" fatigue has already set in to the general population.

Excellently said Jill. I'm a student and I wrote a paper myself for one of my business classes entitled "Groupon's 6 Billion Dollar Mistake." I think you touched upon a very important point which was "who are the people to value these deals?" Sure, 70% off a "speed reading" class sounds like a great deal, but why was a speed-reading class valued at $200 in the first place?
Other factors that I believe will lead to Groupon's downfall include the fact that the market is just way to easy to penetrate. The emergence of hundreds of similar sites as soon as groupon's concept took off is indicative of the fact that the barrier to entry is extremely low in this realm. Amazon's 175 million dollar investment in LivingSocial, Google's plans to create a similar service as well as AMEX's plan to create a group buying concept, will only propel this downfall even more.
Lastly, Groupon does not have a real social aspect to it, which unfortunately for them, won't commit its users to their site. And what I mean by that is when you speak about Facebook having a 50 Billion dollar valuation, it's conceivable as we are all locked in to Facebook - I'm not leaving anytime soon and either are you because that's where our network is. However, with deals I'm going to where the best deal is, and nothing else matters - taking away any real competitive advantage.
Whether group buying is the future or not, I can't say I strongly agree with Jill, as only time will tell and there hasn't been enough statistical proof that it won't last. However, in the event that group buying is the future I can say with almost certainty that Groupon won't be the "Band-Aid," "Xerox," or household name in this realm..

Thanks, Sam. Excellent post. Great points. It seems that the only people really defending Groupon are Groupon employees who are hoping to cash in (and I would probably be in the same boat if I were one of them). I think they know it has to happen fast before (another cliche) the bloom comes off that rose.