[Quizzy]

Anecdotally, the first generation of sales rep have nothing but depressing things to say about this entire market segment now. The first year sales numbers were gangbusters, until their clients called back complaining, swearing never to do another Groupon deal, ever again.

It's not just Groupon, this entire business model is unsustainable: asking a retailer to discount his products for a fee in the hopes that he will attract new "local deal" customers willing to pay full retail next time, when the ONLY reason these customers came in the first place was because of the discount.

[notJim]

Not only that, but I suspect that people who are loyal to businesses and like interacting with local business owners are less likely to use sites like groupon, because they know that the businesses often get screwed, and because they don't want to be thought of as bargain-shoppers.

[muraiki]

A friend sent me a Groupon for a local bakery. It was something ridiculous like $20 worth of food for $10. Since I had heard about the bad relationships between businesses and Groupon, and since I actually like this little store, I declined to get the Groupon. I'd rather pay full price to support a local business!

[MatthewPhillips]

There's nothing ridiculous about using sales as a customer acquisition strategy. What is unsustainable about GroupOn, etc. is the requirement for extreme discounting that crushes the retailer.

[jaxn]

Two more problems with the model:

1) Groupon taks a large cut on top of the big discount. It used to be that GroupOn wanted a 50% discount and then 50% of the revenue. This is like running a 75% off sale.

2) The customers are poorly-qualified leads. All we know is that they are local and like a good deal. That doesn't give the retailer much indication that they would be a good customer (and I think we have seen that they aren't).

[StacyC]

I'm guessing that some of the "new customers" that Groupon delivers are customers you don't want.

I remember my girlfriend many years ago working in a restaurant that offered a ‘kids eat free’ deal one night a week. People would come in with their kids and their neighbors’ kids, order one burger and let the restaurant feed a bunch of kids for nothing. Obviously the restaurant needed to put some terms around the deal, which they later did, but some people are just a blight on humanity in this way.