[cowboyhero]

Fair points, but:

1: This isn't exclusive to Groupon, and I'm not sure they're doing anything that CitySearch and AOL weren't doing in 1998.

2-3: Purely anecdotal but I've heard too many horror stories of small businesses being screwed by their groupon deals, essentially losing money on the discount and not attracting enough repeat business to justify the deal in the first place.

The problem with the model is that it attracts customers who are focused on price, not value. That's at odds with the proposition behind many specialty stores and boutiques (eg vinyl records, hair salons, upmarket clothing, etc).

Groupon as a standalone business just digitizes those local coupon books that used to come in the mail or be sold at bulk for ten bucks or whatever. That's a good web based business but not a great one.

[tzs]

There are also many stories of businesses that did well. It probably depends on the kind of business, and exactly what the deal is. The local NPR station did a story on this a while back, and looked at a couple businesses and how it worked for them.

One that was a success was a small auto repair shop. They did a Groupon deal for $30 oil change for $10, so they were only getting $5 out of it which doesn't even cover the oil. They expected to get about 90 customers. They got 2277.

After three days of not sleeping and throwing up everything he ate, the owner snapped into action and bought a second car lift, added more staff, and scheduled appointments for all those people (which had people scheduled out for 8 months).

Overall, it worked out. The owner told the reporter that before this, he was driving a '93 Ford F150. Now he's got a Mercedes convertible and his wife has a BMW, both paid for. Sales are up $200k over the previous year, and half of the people from the deal have become repeat customers.

Compare this to the other business they looked at. This was a cafe that sold crepes and coffee. They were trying to get people to think of them also as a dinner place. They did a Living Social deal that for $40 let you come in six times (no more than once in a given month) for two entrees and a bottle of wine or a drink of your choice.

They got 1200 takers.

Like the auto repair deal, this one is a loser, depending on the customers buying other things to turn it around. Unfortunately for the cafe, the customers with the deal did not buy other things. They would not buy appetizers or desserts. They would just come in once a month for their six months, get their two entrees and a drink, and that's it. The owner says she lost $100k.

[LiveTheDream]

    This was a cafe that sold crepes and coffee. They were trying to get people to think of them also as a dinner place. They did a Living Social deal that for $40 let you come in six times (no more than once in a given month) for two entrees and a bottle of wine or a drink of your choice.

    They got 1200 takers.

    Like the auto repair deal, this one is a loser, depending on the customers buying other things to turn it around. Unfortunately for the cafe, the customers with the deal did not buy other things. They would not buy appetizers or desserts. They would just come in once a month for their six months, get their two entrees and a drink, and that's it. The owner says she lost $100k.

This blows my mind. The cafe owner should know exactly how much she is spending for each deal that is purchased. It's a marketing expense; each deal also has some estimated upside (repeat buyer, up-sell on the original visit, etc). By not placing a limit on the number of deals sold, the owner gave herself an unlimited risk. Why not just place a reasonable limit on the number of deals, thus capping the potential exposure to an acceptable level?

[cookiecaper]

I'm curious if Groupon has some minimum discount levels, because I frequently hear that people lost a lot of money on Groupon, and logically if you're going to lose a lot of money on a coupon you're offering, you won't offer it. Obviously some reduction in margin is necessary, but if it actually costs money to provide the service after the Groupon, that's a bit past the point of reasonability. The same rules that apply to traditional coupons should apply to Groupon because it's a similar target audience -- coupon clippers have never really been known to be "great customers".

Is there a reason so many businesses provide such deep discounts to Groupon? Are they just caught up in the hype, and Groupon can demand huge discounts because so many merchants want to use it?

[dagw]

If everybody else is offering a 70% discount and you're offering a 15% discount, chances are people aren't going to bother looking at your offer. Also since there is a certain amount of hassle and risk (if its a business you've never used and heard nothing about) in using Groupon from the customer side of things, I'm guessing most people won't bother if the discount is to small. Saving 15% just isn't worth it, especially if you're saving 15% at place you're not even sure you really want to go to.