“Groupon is so 2011.”
Those four words made me laugh this morning. It was a tweet in response to Mike’s suggestion that the 11th scam of 2011 should have been Groupon — I agree on both counts. Groupon ascended to great heights in no time flat and fell just as quickly. I decided last summer that I’d bought my last Groupon and that I would delete my account once my remaining deals were used. Those expiry dates are coming up pretty fast so I felt it was time to spill some ink on the topic.
I recently got a message congratulating me for earning a referral — unfortunately, the value of $10 can only be redeemed on Groupons. Sigh. Memo to self: remove affiliate links from websites.
I won’t be redeeming that $10 and I don’t advise anyone to buy into the model any more. Although I was initially pretty excited by Groupon and its digital brethren, it turns out the concept was pretty toxic.
Five Reasons I’m Done With Groupon
1. Groupon uses the age-old model of artificial scarcity to convince people to buy stuff they don’t need. Phrases like “limited quantities” and the image of the ever ticking countdown clock showing the time remaining create a sense of urgency — and a snap decision is seldom a good decision.
2. Groupon pressures businesses into considering some pretty questionable deals. For many businesses this has proven to be particularly damaging where the price of the Groupon, less Groupon’s cut, means businesses may be forced to provide goods and services for less than their cost — especially when staff time is factored in. There are also examples of misleading tactics by sales staff that resulted in a deal being promoted in far greater quantities than anticipated. The result is overwhelmed staff, a run on stock, and in the worst cases, full business collapse.
3. Groupon’s promise of new customers is empty. Customers who purchase half-off deals for meals, salons, tanning, or golf are not interested in paying full price. Rather than return to the business that bent over backwards to offer the deal, they will go back to Groupon and shop there.
4. Groupon has encouraged some pretty miserable customers. Not only are the customers that Groupon brings in not loyal to the new businesses but there is a subset who are almost unbelievably vindictive. Rather than contact Groupon to offer feedback about a deal, these customers run to sites like Yelp and Urban Spoon or to offer reviews that are scathing, often on days when a retailer is already hurting from the unexpected popularity of a given deal. By no means am I suggesting that all customers exhibit this behaviour but nor is it isolated.
5. Groupon may not even be making any money. It seems like the world’s biggest shell game and while some of the mystery was exposed when the company went public last fall, shareholders still aren’t sure whether they are getting anything for the money they invested. With their sharp rise and continued fall in popularity, I would not be surprised if they closed shop without warning.
What am I doing instead?
If I see a Groupon offered for a business I already support, I will make every effort to visit them during the same time as the promotion (just not within the first 48 hours) but pay full price — I already know they’re worth it.
I’m going to buy the stuff I want/need on my schedule. I will not be duped into buying something I might need right now. I no longer open the emails from Groupon, they just go straight to trash.
As I said above, I will be pulling all the affiliate links to Groupon from my websites; the only ones I won’t be able to have control over are the ones that pop up as part of other ad services (e.g. Google Ads) and I will be directing people to this blog post instead of suggesting they buy into Groupon or any other collective purchase deal site (SwarmJam, EthicalDeals, etc.).
Further reading:
- Business Week (Oct 2011) “Groupon’s fall to earth swifter than its fast rise“
- Forbes (June 2011) “Those are Groupon’s customers, not yours“
- BBC News (Feb 2012) “Does Groupon Make Money?“
What I cannot believe: how this couldn’t make money. Groupon has businesses offer deep discounts. Groupon collects money from consumers. In most cases, Groupon doesn’t give any of that collected money to the business. The business has a bunch of value trolls decimate their business. Groupon, unscathed, latches onto the next host.
It’s all done from telemarketing offices. These sales staff close 365 deals per year per market. The deals rake in $100 to $1000 per deal for Groupon (sometimes much more). How labour intensive is this stuff that Groupon cannot be making scads of cash?
In a recent foray into a B2B consumer product, I did the math and found that we would have to maintain a list of 500 customers for the business to do well enough to stay afloat. The marketplace has over 5,000 potential customers. And if we sold to less than 500 customers, we could still make it viable, it just wouldn’t be a full-time concern.