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Why Groupon Not As Rosy As It Appears 190

Posted by Soulskill from the double-edged-sword dept.
Rambo Tribble writes "CNN is running an article detailing the dubious history of Eric Lefkofsky, Groupon's chairman and largest shareholder. It would seem Mr. Lefkofsky has an extensive history of taking investors' money for himself, then bankrupting the businesses invested in." Another article posted today at TechCrunch explores one businesswoman's story of how working with Groupon was the single worst business decision she ever made.
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Why Groupon Not As Rosy As It Appears More

Why Groupon Not As Rosy As It Appears

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  • Funny... (Score:2, Interesting)

    by joaommp ( 685612 )

    ... as I read this article with a "groupon" ad on the side...

    • Heh.

      I don't think I have the gene to see ads. Blacked out of my consciousness like crying kids on a cross-country flight.

      Oddly, I tend to avoid buying anything with a label, and remove the ones I do notice. Maybe I have an anti-ad gene?

      If you took off the labels can you still name the brand? if so, why label? If not, why pay a premium?

  • Damn I was hoping this was going to be about how coupon sites attract women to install toolbars and download viruses.

    I already assumed large consumer-whore businesses had crooked chairmen...

  • The 2011 tech bubble could very well help Groupon raise money.

    But remember the last tech bubble? During the dotcom days nobody would have bothered saving $10 at a restaurant. If this current bubble has any staying power, it could put Groupon out of business.

    • The 2011 tech bubble could very well help Groupon raise money.

      What 2011 tech bubble? The Nasdaq is down overall this year [marketwatch.com].

    • Re:Irony of Groupon (Score:4, Insightful)

      by Dahamma ( 304068 ) on Friday June 10, 2011 @11:08PM (#36408462)

      I wouldn't worry too much about consumers throughout the US not caring about saving (the current "bubble" is NOT in a general boom economy like last time!) What I'd worry about is the companies offering the deals realizing that selling hundreds of discounts that after a 1/2 off rebate and Groupon's cut give them about 30% of their normal revenue. That's a pretty steep discount for a bit of advertising, and I can't see Groupon continuing to find that many suckers, er businesses at that margin...

      • Re: (Score:3)

        by j-beda ( 85386 )

        That's a pretty steep discount for a bit of advertising, and I can't see Groupon continuing to find that many suckers, er businesses at that margin...

        In comparison however, running a regular advertising campaign can cost many thousands of bucks is straight cash payments - so potentially using that budgeted money for this type of offer might make sense. For a service oriented businesses the increased traffic could make up for the decreased margin. For example if your hair stylists are sitting around with empty chairs, putting a person into one at any price is a net gain since your overhead is a constant.

        It does seem however that these types of offers are

  • So what is the point here? (Score:5, Insightful)

    by fermat1313 ( 927331 ) on Friday June 10, 2011 @10:19PM (#36408196)

    It seems that the point of this story is you shouldn't get into marketing plans if you don't know what you're doing. She didn't have a computer, she doesn't understand how statistics works, she didn't know what to do with expired coupons (nicely say "no" and offer some other type of discount to make them feel like they are still getting,) she admittedly didn't do anything to convert Groupon customers to regular customers.

    The world is full of companies have failed because they didn't understand the market. It's not the fault of Groupon that she allowed herself to be talked into something that she clearly didn't understand. We're all adults here.

    • Re:So what is the point here? (Score:4, Interesting)

      by moderatorrater ( 1095745 ) on Friday June 10, 2011 @10:22PM (#36408212)
      Yeah, she made almost every mistake she could (including offering a groupon worth 8x what a normal customer paid), and then they make it sound like groupon is terrible. Yes, offering a large discount and sharing 50% of the revenue on top of that has huge potential to lose you money. If you mishandle it, perhaps you should look at yourself first.

      • Re: (Score:3)

        by MarkvW ( 1037596 )

        If you're looking at it like a priest, then I agree with you.
        If you're looking at it like a potential investor, then Groupon looks like it is gouging the very customers that it needs to sustain its business.

    • Re:So what is the point here? (Score:5, Insightful)

      by larry bagina ( 561269 ) on Friday June 10, 2011 @10:32PM (#36408260) Journal

      I think she deserves some blame, but I've heard many other groupon merchants complain of the same problems. The douchebag salespitch where groupon tries to keep 100% of the revenue is new, though.

      Why doesn't groupon offer advice on what to expect, how to manage the sudden influx of customers, how to convert them to regulars, how to deal with expired coupons, etc? Ultimately it's in their best interest for the merchant to be successful.

      • I don't understand the problem, it seemed like a huge success, lots of people purchased her groupon and came. If you offer a coupon that results in you making a loss, that's insane. That's like taking out ads, knowing that even if people see the ads and purchase your product, you'll still lose money because the ads cost so much.

        • Re:So what is the point here? (Score:4, Insightful)

          by meta-monkey ( 321000 ) on Friday June 10, 2011 @11:54PM (#36408722) Journal
          But there's pretty much no such thing as a groupon that doesn't result in a huge loss for the company. Groupon generally won't sponsor your ad unless you offer a really huge deal, like 50% off. Something like "spend $50 and get a $100 gift card." And then they take half the money, so now you're providing $100 worth of service and only getting $25. What kind of business has that kind of profit margin where they can give hundreds or thousands of customers a 75% discount and still be profitable?

          Groupons are fantastic deals for consumers, and terrible deals for businesses. As more businesses realize this, Groupon will eventually crumble.

          • What kind of business has that kind of profit margin where they can give hundreds or thousands of customers a 75% discount and still be profitable?

            The kind that are always advertising 75% off sales?

            • Those sales are 75% off the crap that they couldn't sell at 0-50% off.
            • Yeah those are called "going out of business" sales.

              • The kind that are always advertising 75% off sales?

                Yeah those are called "going out of business" sales.

                Not necessarily. There was a business in the UK called "The Officers Club" [wikipedia.org] that sold all their clothes at comparable "discounts" for years. It was obvious that the "original" prices were way above what anyone would have paid (obscure/imitation brands being quoted at designer-brand prices) and equally obvious that the "discounts" were just a sales technique integral to the business model.

                Apparently the Office of Fair Trading eventually cracked down on this a few years before they went bankrupt.

                • Edit; sorry, just realised that you meant those *bogus* "going out of business sales" that some companies repeatedly engage in as a part of their business model.

                  We had a chain here called "Bargain Books" that did something similar, constantly advertising as "CLOSING DOWN SALE" with "for refit" in smaller letters below (presumably because simply saying "closing down" all the time when they weren't would eventually have got them into trouble, at least in the UK. Then again, as there were never any signs of
                • Has anyone ever bought a full price sofa from DFS who used to be Northern Upholstery?

                  Their commercials are pretty much the same as you describe ... All year round they're having a 50-75% off sale, and this is absolutely, positively the last chance to get these sofas and chairs at the bargain prices.

                  It's a point that a lot of comedians have used to get a laugh in the area.

            • Re: (Score:2)

              by DrXym ( 126579 )

              What kind of business has that kind of profit margin where they can give hundreds or thousands of customers a 75% discount and still be profitable?

              The kind that are always advertising 75% off sales?

              75% off sales are not the norm. They're to get rid of stock where the alternative is a 100% loss of profit when the item spoils, goes out of fashion or otherwise becomes unsellable at any price.

          • Re:So what is the point here? (Score:4, Interesting)

            by Machtyn ( 759119 ) on Saturday June 11, 2011 @12:32AM (#36408886) Homepage Journal
            Perhaps. I have a friend who runs a massage business. At the time her sale finished on Groupon for our area, she had amassed the most number of sales of anybody. The only reason she didn't have the highest margin is because there was an optometrist that had a higher price and sales even after the 50+% discount. She was booked up for months and, in her line of business, it is easy to have repeat customers (do a good job with the massage) and offer fair prices after.

            I tried to advertise my computer repair shop, but they refused me saying they didn't see how there would be a mutual benefit. It was a cop-out, I think they just didn't want to deal with it (have any of you seen any tech related or repair related deals go up?) or they felt that my desire to have a limited number of coupons was not beneficial - they're probably correct.

            In any case, I knew what I was getting in to. But all I was losing was my time - no resources or capital (no employees). But I can easily see how this may be a serious detriment to a normal small business.
          • I always just assumed businesses would do something like that and put it under their marketing budget. If you are a competent business owner you should be able to use Groupon(esque) deals to generate a lot of new business. If people like your products, a lot will come back.

      • Re:So what is the point here? (Score:5, Informative)

        by Anonymous Coward on Friday June 10, 2011 @11:30PM (#36408590)

        Social coupons like Groupon are businesses that feed off of other businesses. If you are lucky, you can make the relationship symbiotic instead of parasitic.

        We negotiated a groupon a little over a year ago. Our classes usually sell for $150 a month. When I talked to the groupon rep, they initially wanted me to offer a 50% deal ($75 gross revenue), and then give them %50 of the gross ($37.50), with no upper limit on the number sold and a year to redeem. I got a fair amount of pressure to sign the deal that day. I told him I needed a few days to run numbers on it.

        Long story short, when I ran my numbers I figured out that if I spend 2 months worth of our advertising budget on this, limit it to 200 groupons and restrict it to new customers only, keep classes at 60-100% capacity, then I need to take in $65.08 per student for the month to break even, and then I would have 200 new people that have tried my classes. Even if we only keep 10% of these students, we would come out in a much better position.

        I said no to Groupon's initial offer, and sent a counter proposal - a %50 deal for $75. We keep $65, groupon gets $10 per groupon, minimum of 50, max of 200. We also added some additional conditions:
        - 1 per person plus 1 as a gift
        - Groupon students must pre-register for a class (they can't just show up)
        - Groupon students will be admitted on a space available basis
        - Groupon would only be valid for a specific 3 month period, to coincide with our slow season and the start of a semester.
        - Our standard class cancellation policy would be in effect (class canceled if fewer than X students sign up for it). Rainchecks would be offered to students canceled on under this policy - essentially we extend the expiration date for these specific folks
        - We would add a number of beginner classes to our schedule for the 3 months after the groupon.
        - Groupon not valid for product purchases.

        They accepted the deal, and we sign the contract.

        Then I get a call from a supervisor, who wants me to change back to the %50 @ 50% deal, with no upper limit. I said no.

        Our groupon never ran - despite having a signed contract.

        Living Social did run the deal, and we did very well with it. We sold 133. Of that, 86 were used within the time frame (15 people tried to use them outside of the time frame, which we said no to. 3 more were used outside of the time frame, but that's another story having to do with a pair of social workers, 3 foster kids and Christmas). We converted 33 into additional sales, with 18 of those converting into long-term students, most of whom take several classes with us.

        Will I do it again? Yes, I think I will.

        • Re: (Score:3)

          by Machtyn ( 759119 )
          Ahh, it's too bad you didn't sign your name to the post. It is very insightful. I tried to run with Groupon after a friend had very positive results (at least with initial sales - she had more sales than any Groupon sale before hers in our area), but I'm not sure what the aftermath of it was. I'll see her soon and ask.

          I tried to advertise my computer repair shop, but they refused me saying they didn't see how there would be a mutual benefit. It was a cop-out, I think they just didn't want to deal with
        • Comment removed based on user account deletion
          • For what? The damages are going to be too small to pay lawyer's fees.

            • Re: (Score:2)

              by Surt ( 22457 )

              Even the punitive damages?

              • Re:So what is the point here? (Score:4, Interesting)

                by demonlapin ( 527802 ) on Saturday June 11, 2011 @03:10AM (#36409400) Homepage Journal
                Generally limited to 3x actual damages, IIRC (though IANAL). If the business had to pay up front for the advertising, they'd have a stronger claim, but since it's no cost to the business until the Groupon runs... I wouldn't count on winning much. Maybe if you just wanted satisfaction in small-claims court you could get it, but even that's probably not worth it.

                • Re:So what is the point here? (Score:4, Informative)

                  by Galvatron ( 115029 ) on Saturday June 11, 2011 @10:33AM (#36410798)

                  Actually, while I'm not a lawyer, I am a law student (though this is not legal advice, retain your own counsel, etc.), and it's actually even less than that. Under most circumstances, contract violations provide for damages ONLY. I believe the 3x damages bit you're remembering is for RICO violations, which I doubt would apply here (however, I haven't studied RICO, so I honestly don't know). Had the guy been unable to find anyone else willing to run the same deal, he'd have an argument for expectation damages (damages for not receiving the benefit he expected from the ad), but since he ended up getting the same deal from someone else, there were no real damages.

                  This sounds shocking to a lot of people, I know, but the courts generally view contract violation as a value-neutral situation. Courts refuse to "punish" breachers, their only interest is in making the other party whole (and even then, only if the party has done everything they can to mitigate their own harm). Again, in this case he was able to go to someone else and get the same deal, so the only conceivable harm is the trivial amount of time and effort to approach a competitor and ask them for the same deal. The courts are not your daddy, here, where you run to them crying "but he promised!" You're expected to be an adult, do your best to solve the problem yourself, and turn to the courts only to resolve any real material harm you suffer from the contract breach.

    • Re: (Score:2)

      by Mitreya ( 579078 )
      she didn't know what to do with expired coupons

      I have talked to someone who ran a groupon promotion and she seemed to know how to handle expired coupons quite well. Ingenious, really. A groupon bought for $X and worth $2X of services reverts to the original paid value of $X after it expires. Seemed like a perfectly fair solution to me.

      • A groupon bought for $X and worth $2X of services reverts to the original paid value of $X after it expires. Seemed like a perfectly fair solution to me.

        Really? Because if Groupon took half of $X, you're getting $X/2, and if you'd let them have it at the original $2X, you'd be earning $X/4. Unless your markup is obscene, and you sell a boatload and generate repeat business, I don't see how vendors make any money at this.

        Reading the article, I can see why certain business just aren't suited to this. In t

      • In many states in the US, if someone pays you $X, you are required to provide $X of service, and you can't have an expiration on it.

        So, you can advertise a coupon where someone pays you $X for $2X of services, and you can put an expiration date on it, but you're still legally required to redeem the $2X coupon for the $X paid for it even after expiration.

    • Re: (Score:2)

      by cas2000 ( 148703 )
      you must be an american. only yanks think that caveat emptor is an admirable business strategy rather than a warning against scumbags.

      • Our mindless devotion to "FREEEEDOMMMMMMMM!" while giving little effort to reason, as the Founding Fathers clearly wanted, is why it's the American Way.

    • Re: (Score:2)

      by DrXym ( 126579 )

      The world is full of companies have failed because they didn't understand the market. It's not the fault of Groupon that she allowed herself to be talked into something that she clearly didn't understand. We're all adults here.

      I realize it's naive but I expect most small business owners would defer to Groupon's judgement and experience of the market when they were entering a deal. The biggest red flag in the story was how the salesrep said the business could only have one promotion ever. That's not a company interested in building a relationship, that's a company only interested in taking the money and running. The funny part is if they fuck over enough businesses like this then word will get around and their profits will head so

    • The article starts with pointing out this business owner has no computer.

      A bit further down it seems this same business owner is running a blog, advertising on facebook, and using twitter to promote the business. Also it appears she has been communicating with the Groupon sales by e-mail.

      This just doesn't add up.

      The point that she bought something without really understanding what she bought, I won't contest. That's the core of the problem here for this business owner.

  • um duh (Score:2, Insightful)

    by Anonymous Coward

    Take a look at how Groupon works. It cannot possibly be truly beneficial to any business. For every "groupon" purchased for a business, the business takes a loss and the people looking for a deal rarely come back. So you're paying a lot for "advertising" that you'll never possibly see a return on investment from because you're never going to get new, repeat, life-long customers from it.

    It's a shame and a scam. I pity the businesses that use Groupon, LivingSocial, and the ilk, they'll never survive the lo

    • So, it's just like every other form of advertising?

      Coupons lower the barrier to entry for trying new things. If you have a really good product, but relatively few people know about it, offering a good deal is a reasonable way to get exposure. The coupon reduces the risk to the customer, because they don't lose as much if the product is bad. No, the business won't profit much from the initial coupon run, but it shows people that their product is worth the higher normal price. Ideally, at least.

    • You could say that about any sale. And yet, successful businesses run sales all the time. They pay out for advertisements that are unlikely to directly recoup their costs, and they promote loss leaders that lose them money every time they're bought. The objective isn't to make lots of money in the short term, it's to increase the long-term prospects of the business.

    • From the article, it sounded really bad, this person had a rough time of it. She lost $10,000 in the deal. But as the article also mentions, the pizza parlor across the street had much better results, and decided to do it again.

    • Re: (Score:3)

      by qubezz ( 520511 )

      What I don't get is the success that Groupon has had in getting their name out there. Maybe they have a cute buzzy name. A similar scamlike operation is already being run by restaurant.com: they have pushy salesmen come in to small businesses and sign them up for marketing services (for 'free'). People go to the restaurant.com site and pay half-price for gift certificates to restaurants. restaurant.com keeps all the money. Small businesses are forced to feed people for free and will have a hard time getting

  • If he was looking for a quick buck... (Score:5, Insightful)

    by olsmeister ( 1488789 ) on Friday June 10, 2011 @10:33PM (#36408272)
    He would have taken the $6,000,000,000 that Google offered him for Groupon.

    • +1 (Score:2)

      by artor3 ( 1344997 )

      Came to post exactly this. You don't turn down a multi-billion dollar offer if your goal is to get rich quick. I think some people in the media just want Groupon to turn out to be a big scam, because that's a more exciting story than "tech company makes money".

      • So which is it? Is groupon any good (for customers, as opposed to business owners)? I haven't used it yet and would like to hear what people in here think.

        • Re:+1 (Score:5, Insightful)

          by meta-monkey ( 321000 ) on Saturday June 11, 2011 @12:04AM (#36408762) Journal
          Oh it's great for consumers. I use it all the time (and Living Social) to get great deals at places I either already go to or will go to once. But I own a couple of small businesses and would never in a million years sign up with these people. It is a sure-fired money loser, because you lose money on every coupon, and the kind of people who buy and redeem these things are deal hunters who will most likely not make good long-term customers.

      • Because it wasn't a done deal (Score:5, Insightful)

        by Sycraft-fu ( 314770 ) on Saturday June 11, 2011 @04:21AM (#36409610)

        When a buyout offer happens one company to another, having the offer made and accepted is only the initial stages. It is kinda like buying a house. Google's people would then meet with Groupon's people, NDAs would be signed, and Google would start looking over the books, technology, and so on before committing to a final purchase.

        They could have very well realized that things wouldn't stand up to Google's scrutiny and Google would have backed out. Now that would really screw them because then if they try to go public everyone would ask "But why did Google back out?"

    • Re: (Score:2, Insightful)

      by Anonymous Coward

      Except if that would expose your business as the giant worthless scam it is, and make a company that thinks you owe it $6 billion chase your sorry ass around the world. ^^

      You may scam some idiots. But Google is a bit too big of a enemy.
      It's like being in the forest, meeting Rambo asking for food in exchange for money, and selling him your shit in a bag.
      BAAAD IDEA [youtube.com]. ^^

      • Re: (Score:2)

        by tibman ( 623933 )

        It's like being in the forest, meeting Rambo asking for food in exchange for money, and selling him your shit in a bag.
        Oh god, that was great.. thanks.

    • Wrong. He'll make more selling to the public via the IPO vs what he would've made selling to google. Google is a more diligent purchaser than Joe six-pack and his brokerage account.

    • Re: (Score:2)

      by geekoid ( 135745 )

      Depends. If at the moment most of the money will go to investors then it's not worth it. If there is a period where they get a percentage, then wait for the period, payout the investors, then look for the multi-billion score.

    • Re:If he was looking for a quick buck... (Score:4, Insightful)

      by Paradise Pete ( 33184 ) on Saturday June 11, 2011 @02:22AM (#36409242) Journal

      He would have taken the $6,000,000,000 that Google offered him for Groupon.

      Unless he knew that it wouldn't stand up to the Due Diligence. Taking the deal would have meant Google doing an in-depth inspection of the business and the books before cutting the check. I'm not saying that it's necessarily the case here, but in the go-go 90's I saw a company turn down a buyout offer that was insane. I later came to realize it was because they couldn't have stood up to the pre-closing scrutiny.

      I have no special knowledge of the Groupon situation, and the deal may well have been turned down for legitimate reasons. But that's not the only possibility.

  • A winner in some situations (Score:5, Interesting)

    by lucm ( 889690 ) on Friday June 10, 2011 @11:15PM (#36408504)

    The only winning scenario for retail on Groupon is when you have excess inventory which will end up spoiled or heavily discounted anyways. In this case Groupon is awesome because not only do you make a few dollars on lousy stuff, you also take a shot at hooking a repeat customer or two. Just look at the Dell deals or at the bargain table outside your local bookstore... they've done it for years!

    Using Groupon to give away your good stuff does not make sense.

    • Re: (Score:2)

      by geekoid ( 135745 )

      naw. I use Groupon. It has gotten me to try new places. Some I go back to, and some that weren't my cup of tea.

      I am hesitant to drop 10 - 15 bucks fo lunch at some hole in the wall; especially when there are several other good lunch places I got to regularly.

      But a groupon for 10 dollar lunch for 5 dollars. I'll try it. If it's worth the normal price, it will go into me normal 'rotation' of lunch selections.

      If I do some place and it's crap I won't go back. putting out you bad stuff for new customers never

  • If it walks like a duck... (Score:5, Interesting)

    by gklinger ( 571901 ) on Friday June 10, 2011 @11:17PM (#36408520)
    I highly recommend reading an article titled Groupon is Effectively Insolvent [minyanville.com] in which the author draws a compelling parallel between Groupon and a Ponzi scheme.

  • Groupon: Flashback to 1999 (Score:2, Interesting)

    by Anonymous Coward

        The whole Groupon thing reminds me of all the sites giving away stuff in the fall of '99.

        Like $25 off a purchase of $25 or more with free shipping.

        Not very many of those sites survived that Christmas.

  • Webvan 2.0 (Score:3)

    by rudy_wayne ( 414635 ) on Friday June 10, 2011 @11:57PM (#36408736)

    Eric Lefkofsky may have a 'dubious history', but how is this any different from what's been going on for the past 15 years? From Pixelon to Webvan it's been one fraud after another.

  • Business owner didn't understand her business and made several mistakes.

    Every groupon I have used I have asked the owner or manager how they liked it, all of them where very happy.

    OTOH, they all new it was a customer grab, so they took steps to bring them back.

    I would imagine if they didn't asked fo he deal the was appropriate for the business it would have been a mistake.

    You're a business owner; may people make a living selling business owners services/goods. If you can't bother to understand those goods/

  • Groupon salespeople trick people? (Score:5, Insightful)

    by Moskit ( 32486 ) on Saturday June 11, 2011 @04:59AM (#36409680)

    In Poland one of well-known barbers, Jaroslaw Budny, opened a new barber shop and wanted a bit of promotion. He talked with Groupon, and based on their advice he issued haircut coupons at 29 PLN (instead of usual 70PLN). He only got 10 PLN out of each sale (33%) . Barber was however convinced by Groupon salesperson to not put any limit on number (they earn by number of coupons sold) who said things like "you will be lucky to sell 300 coupons, 100 is more realistic number, no need for limit". Sales were limited to 48 hours though.

    Guess what? People bought over 1600 coupons.

    Mr Budny is now working 7-22, not making any money, getting angry calls from thousands of "groupon customers". His name is now shattered and smeared all over internet for not keeping promises instead of being promoted. Waiting time to get a haircut done by him is now about a year.

    Did he make a bad decision? Yes, he did not limit his offer, but he did so on explicit advice by Groupon. It is scary that Groupon doesn't have any internal audits to make sure they don't do that to businesses - they should have if they have some ethics.

    Only after country-wide media ran the story he was contacted by Groupon who offered him some help (hire him a secretary to take calls, run another promotion without taking money, send email to coupon buyers explaining why waiting time is so long, offer money back and "sorry" gifts). Condition was that he no longer talks with any media about Groupon.

    *) disclaimer: above information based is based on articles widely available in Polish press.

    • Re: (Score:3)

      by ledow ( 319597 )

      Sorry, but if that's how you run a business (totally believing salespeople that are leeching from you, without bothering to once pick up a calculator or estimate / limit demand yourself), then you deserve everything you get.

      If I phone up a company and convince them to let me issue coupons for their services as much as I like, they are the suckers, not me, because I won't have to do any work to cover those coupons whereas they will (and will get the bad press etc.)

      This is now the FOURTH sob-story I've read a

      • That's a moronic stunt. If you roll over your customers you don't have a sustainable business model. Especially as your offerings are not needed to run a successful business.
        And, no, that's not how every salesman operates: You'll be treated very differently by salesmen who want to have you as a recurring customer instead of a one-trick-pony.

  • How groupon works and why it is a fraud (Score:5, Insightful)

    by SmallFurryCreature ( 593017 ) on Saturday June 11, 2011 @06:28AM (#36409878) Journal

    Groupon has a simple mechanism it tries to sell: Get people in your store at any cost, then make a profit when they return.

    Normal advertising with discounts works differently, take for instance the special deals from your local super-market: We buy a larger amount then normal, at a discount, then pass this discount on to you, making less on the individual sale but more real sales.

    3 for the price of 2 is a typical format.

    Any side affect of attracting more customers is welcome BUT the supermarket owner will NOT think that customers who come in specially for that deal will convert to regular customers at any significant rate.

    Some other forms of discount are: We have to much stock and keeping it costs more then selling it with a smaller profit or even at cost. We want to shift a lot in a small time frame so we "pretend" to give you a discount but really we are not. And We need the sales so we give a massive discount to be able to close the books of a period with mass amount of revenue (In holland large chains holding "no sales tax" days.)

    Most of these discounts are aimed purely at selling an item, the discount is a way to make a sale that delivers a profit then and there. NOT some mythical future increase in your customer base.

    Groupon therefor is based on a rarely successful attempt of advertising, getting the cheap who look for deals and convert them into full paying customers. Contradiction in terms? What can possibly convert a bargain hunter into a loyal customer? Amazing service? Sure, if your amazing service is worth a 50% increase in price. Lets not forget that groupon discounts are also often insanely high. And on top of the discount, you also got to pay groupon a premium rate well above any other form of advertising.

    And then it is aimed not at large companies that can make long term investments but mom&pop shops that struggle to reach the end of the month in the black.

    It is a scam and Groupon will fail soon enough because it has decided to go world wide where the laws are a bit more protective of people and small businesses. In the meantime, if you own a small business and get contacted by Groupon. Don't.

    The pizza place mentioned in the story? A success because they did it twice? I wouldn't assume that. Lots of small business owner have no real way to track costs and benefits. They just know there is X in the register at the end of the day and that is a LOT more then normal. The real costs of making the X amount of revenue comes later.

    Simple example, from personal experience. Had a guy very happy who was selling power tools over the internet he had made a small fortune in revenue in the first week. And the cost of ordering the powertools was even LESS then the revenue, even with shipping costs substracted... pure profit!!! He forgot about returns, and warranties and etc etc etc. Do you know just how much a single customer complaining and needing to be talked to for an hour costs? Why do you think companies want as little customer support time as possible? Because it costs are high and it all comes out of the tiny amount of profit you thought you made on the sale.

    In business, you can make a ton of cash and still go bankrupt. Groupon is the perfect way to do this. Stay well clear.

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