Is Groupon is killing their golden goose?

Everyone knows the fable of the golden goose, it’s a common metaphor in business, get too greedy you may loose everything.  Of course in the real world that doesn’t always seem to hold as true as it does in fable (cough sub-prime mortgages cough) but nonetheless, in general, it’s still good advice.

The mega coupon site Groupon may be at risk of killing their own golden goose.  While what Groupon offers may seem like a sure thing for coupon lovers, it can often turn ugly for the businesses Groupon relies on to provide these deals. Groupon encourages (read: requires) their clients to offer absolutely huge discounts, usually at least 50%.  Then they take a cut of 50% of the remainder.  Businesses are basically selling their goods or services at 25% of retail at best in order to offer a Groupon deal. 

Just think about that for a second coupon lovers. Groupon explains that unlike traditional marketing, they guarantee you new customers, they neglect however, to mention they also guarantee you will lose money to each and every one of those customers. Now of course any business should expect to spend good money to get a new customer, that is pretty much marketing 101.  What has yet to be proven is if Groupon’s “guaranteed” customers really last.

Sure lots of businesses love Groupon, they clearly can help a business get noticed and give a much needed boost.  However, dig around a bit and you will hear about plenty of small businesses, wowed by Groupon’s pitch, who naively were coerced into selling far more than they could produce for far less than they can afford. Many articles have already hinted at the poor quality of coupon customers. One Reuters article goes as far as to suggest that coupon users are like addicts, they almost can’t go out anywhere without a coupon. So, it is debatable whether this sort of coupon marketing makes sense for business.

There are even stranger examples of Groupon’s questionable sales tactics, in some cases they seem to have actually recommended to businesses to lie about or simply increase their retail prices to make the deals seem better.

Now I’m sure many businesses have been successful leveraging Groupon to drive new business. The fact is coupons can and do work (supermarkets have used them with great success forever) but it’s possible that Groupon’s deals really are just too good to be true or at least sustainable. Furthermore, there really is nothing all that technologically amazing or unique about what Groupon does, not to say that just anyone could up and do it tomorrow, but you can be sure to expect some aggressive competition. 

Already, Yelp has their Daily Deals and LivingSocial, now funded by Amazon, appears to offer more flexibility and a better rate (apparently 40%, not good, but still better) and Google, its buyout offer spurned by Groupon, is rumoured to be planning their own Google Offers.  Let’s face it, In the end, to consumers a deal is a deal.  More competition in the online coupon market will hopefully mean fairer deals for companies wanting to get more online social media exposure for their business, and perhaps they’ll pass some of that saving along to their customers in the form of even better deals.

Groupon would be wise not to be seen as a big bully on the block as more competitors show up and attempt to woo all of its business away.