Got Your Groupon?

What is A Groupon?

Groupon is either the champion of small businesses or their destroyer, depending on who is speaking. The deal-of-the-day Web site delivers what it promises: lots of brand new customers. But you have to be careful what you ask for, whether you are a consumer or a merchant.

Groupon was founded in 2008, is wildly popular among consumers for good reason. In about 150 local markets, the firm offers awesome daily deals from local and national businesses. Groupon offers 50 to 90 per cent discounts. The catch is that you have to buy the Groupon ("group coupon") online that same day and a minimum number of Groupons must be purchased or the deal is off. If the minimum is not met, your credit card is not charged.

A lot of consumers like the Groupon deals. The company has over 50 million U.S. subscribers who receive a daily Groupon email. Groupon sales are approaching $1 billion per year faster than any other company in history has. I can understand your concern about MLM scams, but Groupon definitely doesn't fall into that category. If a friend forwards you a Groupon offer, most likely they're thinking you'll also be interested in the discounted product or service. And by letting others know, there is a better chance that the deal will attract the minimum number of buyers required. Groupon does offer a $10 bounty for new customers, so your friend might also be secretly hoping that you'll join for that reason. But there is no multi-level marketing aspect to Groupon.

Groupon's demographics are dominated by young, educated women, so many of its offers fall into the health, beauty, and fashion categories. Steep discounts at restaurants, bars, and nightclubs are also common offers, as are music, electronics, and other trendy items.

Why Buy a Groupon?

The benefit for businesses is new customers who might not try an unfamiliar business or product at regular prices. The hope is to turn first-timers into repeat customers, something Groupon claims to do very well. As a consumer, I've jumped at several Groupon offers. One got me to try a new pizza joint in my area, and I'm sure I'll be a repeat customer. Another offer was for a half-price oil change at a local service station. According to the company, 97 per cent of its business customers are satisfied with their Groupon experience and would run another Groupon offer.

But a Groupon can backfire on a business. First, Groupon won't even consider a discount offer of less than 50 per cent. Then, Groupon takes 50 per cent of the Groupon sale price for itself, leaving the business client with half of half, or one-quarter of the regular price. Most businesses lose money on Groupons, hoping to make it up in repeat business. An avalanche of bargain-crazed Groupon customers can overwhelm a small business, leading to dissatisfaction among regular customers.

None the less, Groupon is wildly successful. It recently turned down a $6 billion buy-out offer from Google, and has filed for an IPO. If imitation is flattery, Groupon must be blushing. Over 100 deal-of-the-day imitators have sprung up in the U.S. alone.

LivingSocial is Groupon's nearest competitor. Its unique twist is a referral program: buy a deal, get three friends to buy the same deal, and your deal becomes free. Other Groupon wannabes include BuyWithMe.com, Tippr.com, GroupSwoop.com, and TwoBuckDuck.com. Each Groupon competitor has its own wrinkle.

TwoBuckDuck, for example, charges you two dollars to buy one of its deals; but you may save dozens more dollars. DealQuad specializes in deals for college students. WeddingWire offers deals for brides. Dozens of other specialty "groupon" sites can be found.

Have you used Groupon or a similar service? Tell me what you think! Post your comment or question below...