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back to article Memo to Groupon: Best cheapo deals have a premium tag

The biggest problem with Groupon isn't its accounting. It's also not Groupon's shrinking margins on new products, concerning as they are. No, Groupon's biggest problem is that it fetishes bargains in lieu of building real customer value. Groupon's business model is simply not sustainable, which is why its stock is now on sale. …

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sales are like heroin?

Depends what kind of sale. If its a DFS "sale" then no, not really. If it is a "I can buy X for 10 in the sale or for 15 next door" then obviously your store will do better.

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Anonymous Coward

Re: sales are like heroin?

Can we call it 'DFS syndrome'?

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Anonymous Coward

What's new in this article?

Everyone with any sense knows

Businesses lose money because those that take the deals are Groupon customers and not theirs.

They never develop repeat customers when the deals are gone.

Groupon customers flit from deal to deal, only interested in paying nothing.

It is a no brainer, a zombie would know this. In less than 12 months Groupon will be no more.

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Anonymous Coward

Reminds me of debenhams

The big problem with JC Penney, and one that Johnson has thus far been powerless to stop, is that over the years it had fostered consumer dependence on deals. The company offered 20 to 30 different prices for the same product in the course of a year, but always a deal. Always on sale. In fact, Johnson told investors that most of JC Penney's merchandise was being sold at discounts of 50 per cent or more.

Same thing at debenhams. There's a sale on pretty much every day, there's maybe 1-2 weeks a season without any sales on, and during those periods the store is empty. Personally I couldn't stand it, mostly because even on sale the clothes were the same quality as peacocks at double the price (that's the sale price not the original tag)

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Facepalm

People still use Groupon

Who knew? Most people try it once, realise what a sham it is and never go back.

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USP - the clue is in the acronym

Yup, we're talking Unique Selling Proposition.

The thing you have that nobody else has. The problem with discounts or Groupon is that giving people money off something is not unique. As a consequence you can't really build a success story on it - there'll always be someone else who can do it a little cheaper or for a little longer.

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FAIL

And still so many jump on the bandwagon

Almost every day a new entrant into the online voucher market spams my inbox. Today's Great Deal, Amazon deals, Timeout deals, KGB, Wowcher... the list keeps growing. Why are so many people desperate to copy a failing business model?

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Anonymous Coward

Re: And still so many jump on the bandwagon

Because they make nothing of their own. Without your own stuff (which people actually might want), its a race to the bottom.

The problem with dept stores is that even if your set of white bowls are unique, there are a million sets of white bowls available from other places. If quality control is not an issue, its hard to present a USP.

Also, when the costs are in making the sale (shops, staff, advertising) not the product, people soon work out that the margins are massive and resent the store's markup (even if its needed) and so loyalty fades - if it was ever there.

Perhaps this is the end of the rule of economies of scale. People already have so much stuff they are happy not to keep purchasing. Perhaps land prices in the cities have just gone too high and commerce can't sustain it.

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Anonymous Coward

Re: And still so many jump on the bandwagon

Re: And still so many jump on the bandwagon

The thing to remember is that not all of the new entrants are new businesses. Take KGBDeals for example, their parent company owns 118.com. Wowcher is particularly interesting actually. Their parent company is DMGT, the company behind the Daily Mail, Metro and several radio stations. I've had clients who have been pitched to by them; a core part of that pitch is exposure in other group media. One client who did go with them against my recommendation was thrilled at the radio coverage they got, coverage that they could not have afforded to buy normally. As a means to supplement falling newspaper and radio advertising revenues it's not actually quite as me-too and flawed a business model as it appears on the surface.

Of course their adverts are still profoundly irritating.

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Re: And still so many jump on the bandwagon

Groupon's problem is they hyper expanded and were far too greedy. I suppose these competitors exist by keeping their focus and margins lower and offering a better deal to businesses. It's still insanity IMO for most businesses to contemplate them.

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Anonymous Coward

Groupon turning you good customers into unsustainable tyre kickers!

I have seen the Groupon (and other Voucher type sellers) type effect with local businesses, once a business appears on Groupon the clients tend to value the products and services the business sells less.

The good clients paying sustainable prices object to paying over the odds - sometimes they even feel cheated by the business using Groupon - selling cheaper deals to Groupon clients (and not them as they have been loyal).

The typical Groupon client is only loyal to a deal, not Groupon and not the business selling services through it - want to shift boxes fast with very low margin - Then Groupon is for you - Desperate for cash (ignoring long-term profit and just covering variable costs) - Then Groupon is for you.

Want to be still trading in 3 years time profitably - then reconsider the voucher deal route as the main route to winning new business - the clients have no affinity to you and just want a deal.

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Re: Groupon turning you good customers into unsustainable tyre kickers!

Well said AC.

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Bronze badge

Back in the day, when IBM sold PCs,

I might have this wrong, but I understand that you could negotiate to buy IBM PCs at EIGHTY PER CENT discount if you haggled, but it was a $1000 PC priced at $5000, or whichever. So with the discount, you got to pay just $1000, for a class of computer that you could buy elsewhere for just $1000 - only without being the smart negotiator that got the terrific discount.

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the irony with the heroin analogy

Is that heroin is one of the few things that would be worth promoting on Groupon.

The USP of physical addiction would keep customers coming back long after the deal ended.

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Freeloaders follow the bargains

Groupon expects business to discount their prices by 50% of which Group keeps approximately half and only pays the rest out in staggered amounts. So the business is supposed to provide the same service for 25% of the full price which they might not receive all of for months. Then these freeloaders descend like a swarm of locusts and disappear as quickly when the deal is gone. Is it any wonder so many go under?

About the only kind of business which can sustain this model are "service" ones, e.g. beauticians where the full price totally made up and there are low overheads to worry about. Oh so the eyebrow waxing was €60 and now its €30 - bargain!

For restaurants or businesses selling actually goods it is commercial suicide.

I've seen at least one restaurant locally killed by these coupons and I wouldn't be surprised if there were a few more. Businesses that want to survive would be better off printing some 50% off flyers or advertising a set menu deal on a board outside their door. It's the same deal to consumers but the business gets to keep all the money and gets it instantly.

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Freeloader's paradise

All the people that I know that use Groupon are addicted to it, and if they don't get a "deal", they just don't go. So a business that is offering whatever for a fraction of the normal price is just not going to see that customer any more. Useless and expensive advertising method that just attracts freeloaders.

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