I like saving money and getting bargains. (Is this a surprise to anyone who knows me? No).

So you might think that I’m really really into sites like Groupon. (If you’ve been somehow living in an underground bunker for the last couple of years, Groupon and the many many knock-offs of Groupon let you buy gift certificates for outings, restaurants, hotels, etc at a large discount – usually around 50% off).

And I’ve bought a few Groupons here and there (one just recently for this little food truck called MamboBerry in Austin – the menu will make you want to die of happiness), mainly because somehow some people signed up long ago through my link and I got some credit. And so by “bought” I mean, “not bought, but rather got for free.”

Also, I have a little stash of credit to the more local Morgan’s Deals because they kept giving out coupon codes for $10 off, so I’d “buy” something for $10 and then tell other people about it and THEY’D get free stuff too and I got credit for that, etc. Bart and I went on a couple of nice little dates for free ice cream, pizza, and cupcakes (including one memorable night at Baskin Robbins where Bart barely got through his double scoop and I put away, almost effortlessly, a triple scoop (and each scoop was the size of a tennis ball). He was impressed. I was a little horrified. Also full.).

Additionally, I have some Mamapedia credit which I will likely never spend because they never have anything I’m interested in.

And, Juice in the City just recently launched in Austin and by signing up early I got some credit there which I’ve already spent because they’ve actually had some interesting deals (although you don’t get referral credit on their extra-good deals which makes SHARING their good deals less tempting, which is, I think, a mistake on their just-launched part. But what do I know?).

(By the way, I don’t get emails from any of these places – I’ve filtered them all straight to my trash folder, so I just look at the sites when I remember to).

So yes, I like the concept of getting big discounts to restaurants and things.

But I can’t stop wondering how good of a deal this is for the businesses themselves.

I understand, of course, that the idea is for people to try out somewhere new and be so enthralled that they go back again and again. And that they’re only paying for customers who actually come in, rather than, say, advertising on a billboard where they pay up front, regardless of how much traffic it drives.

But it’s a high cost for businesses, since you pay about 50% of the regular cost and then they only get half of THAT. So they’re generally getting around 25% of your meal food, comping the other 75%.

(Also, I recognize that lots of restaurants expect you to buy some beverages of the adult variety when you go out to eat, and since we don’t drink, well, that doesn’t work out for the restaurant’s bottom line very well).

I’m conflicted on the whole thing – not so conflicted that I won’t use my free credits, of course – but I’m not really wild about supporting Groupon and the like either, since they’ve basically just put themselves between the business and the consumer (which is why I like the free credit because then Groupon isn’t paid; the discount comes entirely out of their pocket. I think).

Of course, in a crowded marketplace, businesses need SOME way to get their name out there.

On the other hand, as deal sites pop up like crazy (one of the Austin blogs I read listed FORTY ONE local deal sites recently), I wonder if people are just more likely to hop from one Groupon-ed meal to another, trying tons of new restaurants and outings, instead of, as the restaurant probably hopes, developing a deep and long-lasting loyalty to a particular place, where they will return month after month to spend scores of real money.

I try to ease my guilt by leaving really good tips when we go out, but still, I always feel badly about paying by Groupon (except that one time we went with Landen and Adam to this cupcake and ice cream place that was so terrible I would have been angry for days if I’d paid real money for it. The ice cream appears to have been made with flavored Crisco. All four cupcakes with sub-par).

Am I the only one who is way over thinking this?  (And of course, if you sign up through my links and I get credit, I won’t be complaining about that either. So maybe I’m just a raging hypocrite).

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  1. I don't think you are over thinking. (I do the same thing.)

    First, the proliferation of sites is ridiculous.

    Second, I think businesses have to think of it as an advertising expense–instead of spending X on a billboard, they are spending it on giving away their product. At least that gets people really in the door.

  2. We were raised with a strong sense of our power as a consumer in my family–if I like a place, I'll shop there. If I don't, no matter if they will notice my absence or not, I won't. It's the limited power I have with my few dollars. While many people might Groupon hop, I think if you find a restaurant you really enjoy, you can express that with repeat business (even if it may be infrequent, since I know you run a tight ship budget-wise).

    Also, Josh has worked in restaurants most of his working life and says giving away a completely free meal isn't even a drop in the bucket for them. He also says that many places actually lose money if you don't order alcohol (that's where the big money is at a place like Chili's), so you're probably already costing money when you eat out anyway.

    As usual, I love thinking about these things you bring up.

  3. I agree, I think they have to view it as advertising that actually brings people in. My mom made a good point, too, in that it seems like most of the businesses offering Groupons are fairly new. So maybe it's mostly new companies trying a new way to get their name/ product out there. And also, some people will decide they really like that restaurant/ ice cream shop and go back and pay full price. So they will definitely get some repeat business from these Groupons. It will also bring in people who wouldn't otherwise come in.

  4. I live in a very small town in the middle of nowhere (go look it up on google maps, seriously, middle of nothing.) We don't have groupon here. Or anything else. I am occasionally jealous of the good deals I see my friends finding. Second, a friend of mine frequently buys deals on Heartsy and urges me to do a Heartsy promotion as well. While I think I'd certainly get people buying the deal, I can't imagine that any of those people would become repeat customers. For this reason alone I have not done it. I don't want to give away a ton of stuff at cost, just because I can.

    I really have no point here.

  5. I think a decent percentage of people who buy the Groupons forget to use them before they expire, or don't end up using the entire thing.

    We finally took the kids to get Italian ice with ones that expire in about a month and only used $17 of the $20. And we still have another $10 one than won't be used if we don't get back over there in time.

  6. I wouldn't feel at all guilty. Those restaurants aren't forced into offering Groupon deals. I don't completely understand the business model, but it must be working in some sense since all of these new Groupon-like sites are popping up and businesses keep using them.

    Honestly, I don't think I'll become a repeat customer at any of the places I've gone to with a Groupon. They are either too expensive at regular price, or they were (in the case of restaurants) just not that great.

  7. Apparently there have been several news stories along the same lines recently (I heard one on NPR not too long ago). In many cases it's NOT a good deal for businesses, especially not in the short term. They take a financial hit to do what they do, but Groupon markets itself as a way for small or struggling companies to get the word out, a way to get people in the door. After which it's up to the company to keep them coming back with a quality product.

    I don't often buy Groupons, but I don't really have any qualms about doing so looking at it in the light of a marketing deal. I had no idea there were so many social deal sites though!

  8. Well, I can definitely see your argument, but I really do think that businesses make a pretty good amount of money off these deals for the most part.

    I am a member of a small, locally-owned gym, and a couple months after opening, the owner did a deal through living social. A monthly group-class membership is normally $79, but he did a deal for a month at $35. He had about 75 people sign up for the deal – And from that, gained 3 or 4 new clients that actually signed on as members. He was very happy with the results, and got a nice fat check from the deal that he wouldn't have received otherwise!

    I also heard about a deal they did months ago here, for a local yoga studio, and over 800 people bought it!!! Whether or not they actually use it doesn't matter – that yoga studio totally banked on the deal they offered! There's no way they would have generated even half as much business, even in a month's time, without the daily deal that was offered.

    So even if it's not a place that you decide to frequent regularly after that first discounted visit, you really are still doing these businesses a service by purchasing the deal – that small percentage the business receives really adds up because of the number of people that purchase it!

  9. Oh, there was a big article in the WSJ a while back about how bad Groupon is for business, but they can't really do anything about it because they the need promotion.

  10. I don't think you're overthinking it… I think it's a flawed concept. The only one who really profits in this deal is Groupon. Check out this article from Forbes:

    I'm in a field where we definitely see the effects of "freeloader syndrome." Some people are only interested in the deal. If they can get it for free (or at a discount), they'll jump on it – whether or not they are actually interested in the product or service. So proprietors are shooting themselves in the foot. Instead of attracting loyal, long-term customers by virtue of their products or services, they instead attract freeloaders who will likely never be converted to paying customers.

    Okay, I know it works SOMETIMES. But overall, I think it attracts the wrong kind of customer. Why not just concentrate on bringing in the people who will really benefit from your product/service – enough that they will pay anything you ask?

  11. I'm the same way, in that I don't buy groupons frequently. And if I do, I certainly don't become a repeat customer, which has to be what they're going for, to make the discount worth their while.

    I had no idea there were so many social deal sites!

  12. Huh. I had never actually thought about all the coupon sites and their percentage of earnings from the company. You're right, though.

    I don't think you're over-thinking it. When you are involved with a certain type of venue (the coupon sites)—just as others are with crafts stores, technology sites, etc.—it is good to think about the ins and outs of the retail stores you are frequenting.

    I'm glad you wrote this. It gives great insight, without pushing me to be sold on an idea. 🙂

  13. I think I've bought maybe 3 groupons ever. I've never bought one for a restaurant, even though that's what most of them are for. The first one I ever bought was for a book from Shutterfly, and because I joined them they keep sending me emails to get free prints for this or that or whatever…so I've kept returning to them, but only to get free prints- hundreds of them. Is that bad? I say whatev, they keep offering them so of course I'm going to take it!

  14. I recently read an article about how the whole deal site thing is set to implode. It's a terrible business model and it can't last. So I'm enjoying my Groupons while I still can (and that's the only one I bother using..too many other ones!). I never would have been able to afford laser hair removal without it!

  15. I don't buy groupons much either. The first time I bought a set of bootcamp weeks- which I never went to. So I pretty much donated the money to bootcamp running place.
    The second time I got a $50 credit at The Gap for $25. I went to Gap to pick up $50 worth of stuff, and left paying over $80 even after the coupon. So Gap won that one, too.

  16. There are several articles about how Groupons are usually really bad for the company. This one is particularly definitive.

    I have purchased a groupon or two, but I am usually in the camp of "if I want it bad enough I'll pay full price." And if it isn't worth full price, I can do without.

    This simplifies my life immensely. 😉


  17. I'm not gonna lie – every time I purchase a Groupon or LivingSocial, I almost always regret it, since I afterward feel FORCED to go somewhere I probably wouldn't have ever gone, and I end up spending money that I never would have spent in the first place. One day, I was craving fish & chips, and then lo and behold, a few days later, there was a Groupon to a fish & chips place. So of course I HAD to have it. Weeks go by and we FINALLY make the 30 minute drive into the city to eat said fish & chips before the Groupon expires, JUST to find out that we went to the WRONG location, and they therefore wouldn't take the Groupon. IT WAS FOR $5.00 OFF. I was so upset I honestly cried. (ps I'm pregnant.) I've hated those websites (and that restaurant) ever since.

    I will say this. The only Groupons (or was it LivingSocial?) that I ever loved and appreciated were Fandango movie tickets, since we like to see movies all the time anyway. (And, by the way, we have also taken advantage of those Friday Visa Signature deals! I'm so bummed it ends soon, if it hasn't already).

  18. Ya know, it doesn't bother me. Those businesses voluntarily offer deals on Groupon. And if we go to a place with a Groupon that we really like, we're very likely to go back again and support them. On the other hand, if we go with our Groupon and are disappointed like your experience with the cupcakes place, we will definitely not return.

  19. You're not over thinking. We (my family's restaurant) did a similar deal through our local newspaper, and the sales lady was less than honest (very misleading). We misunderstood (our fault), but ended up selling a ton of gift cards through them and ended up losing a lot of money on the deal.

    Thankfully most of the people who bought the deal were regular customers, so they did keep coming back. Hard to stay ahead when you're a small mom-and-pop operation.

    Thanks for bringing this up!

  20. I heard an interesting thing on NPR about this a few weeks ago. They basically said that for most of the businesses that offer Groupon deals, they hope to bring in traffic, increase awareness of their business, and that the customers will spend more than the Groupon is really worth. We've done a few, but they are generally with things we'd be interested in getting anyway.

    I also filter mine to my archives folder, so I usually don't even know what the deal of the day is unless I remember to check. I lucked out a couple of weeks ago when the deal was for the VERY restaurant that Eric wanted to go to for his birthday.

  21. We only have three very reliable sites of this type here – which kind of makes sense, since our population is only 4 millionish…

    …and we use them. Sometimes I think the sheer volume of sales makes it work, for all the reasons you've listed, other times I'm CERTAIN it doesn't.

    Haki and I recently paid $19 for {two movie tickets and $20 of food} at a boutique theatre that recently opened. We were the only people there. The two people working, the movie, the entire cinema was lit up and operating for us. Kind of special (since it was our first date since baby 2 was born WITHOUT baby 2), but twangs of concern for how long the (lovely) establishment would stay open!

  22. Hope I'm not repeating others' comments.
    *Most places limit the number of Groupons they sell, so if they are smart the business won't sell more than than they should.
    *There is an expiration date. A certain percentage of people won't ever use the coupon they purchased.
    *Groupons allow for other spending such as adult beverages, but depending on the coupon there could be extra guests (customers)involved or more expensive items/services purchased.
    *"Super great" and rather inexpensive form of advertising.

  23. Yeah the once-in-a-lifetime restaurants I do feel kind of guilty. But for services. . . like water parks, indoor skydiving, etc. I figure they've got the place up and running all day anyways and I would NEVER go there otherwise, so even with the 25% they get from me they are still getting more than they ever would have.

    Here in Utah 7 peaks started offering the "Pass of All Passes" last year. A season pass to a waterpark and other entertainment venues for $40, which is recouped in two visits. Everyone in the entire state of Utah bought a pass. I think it was brilliant on 7 Peaks' part. I certainly wouldn't have spent $160 there this summer if they hadn't offered the deal. We wouldn't have gone at all. But they would still have to have as many lifeguards, and just as much water. Plus they got me on paying for tube rental…others who weren't willing to walk for two miles had to pay for parking, and many bought concessions.

    But yeah, restaurants, you just can't help but feel bad for them.

  24. I feel this way about going out to eat simply to get the "Happy Hour" deals on food. Our little family can eat for super cheap. I just know the wait staff totally roll their eyes when we say we won't be drinking any alcohol.

    I think Julie M. Smith is right when she says it's cheaper then mainstream advertising.

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