Friday, November 12, 2010

The Groupon Paradox

I was having a quick lunch with a few of my closest friends a few weeks ago when the conversation wound around to the topic of Groupon.

I'm sure that by now, most of you are aware that Groupon isn't some kind of 1970s lingo for a swingin' good time. The social buying service has been around since 2008, and it's become a popular method of local advertising and deal hunting for today's cash-strapped consumer.

But for you nifty neophytes, the basic premise is that a business will agree to give a deeply discounted price on a service or product in exchange for a guarantee that a certain volume of that product or service will be purchased.

For example, today's deal was a 50% discount on carpet cleaning from a local service company, but only if at least 50 people bought the deal. As of this writing, they had sold 257 of the deals.

So you can see that for the savvy shopper, you can save a lot of money on some useful and neat stuff.

Except, there's a bit of a flaw in this plan, at least for me.

The first (and only... so far) time I bought a Groupon deal was when a new bakery in my neighborhood advertised a special. Natasha's Mulberry & Mott (which is fantastic, by the way) was selling $10 worth of pastries, coffee, ice cream or whatever for only $5. You could buy three of the Groupon's for a total outlay of $15 for thirty bucks worth of fancy pants breakfast.

Which is what I did. And apparently a lot of other people thought this was a great deal as well since they sold 1,451 of this particular Groupon. A little quick math puts the total take for Natasha's at a cool $7,255 American in just a few hours.

It was a few weeks before I made it down to the bakery to cash in on my deal. I printed out the receipt and stopped by on my way to work one morning. When I opened the door, there were about half a dozen people queued up in front of me.

And here's the thing: They all — every last one of them — were holding the same kind of Groupon receipt that I had. When I first noticed this, I kind of smiled ironically to myself. "Heh, we're all cheap bastards aren't we?"

But as I waited in line and watched everyone peruse the bill of fare, make their choices trying to get as close a possible to the $10 spending limit and then watch the harried woman at the check-out counter perform acts of mathematical heroism to get any additional money owed by the patrons, I just became more and more uncomfortable with my own cheapness.

After all, I don't need $10 worth of pastries. I don't even need $5 worth. Truth be told, my doctor would prefer I eat a bowl of oatmeal or an apple for breakfast.

And dire as the financial times are, I don't really need to save $5 on the pastries that I shouldn't really be eating in the first place. Don't get me wrong, we're not rolling in caviar and champagne. But we're gainfully employed and sticking to our financial plan, so if I wanted to drop a Hamilton on some expensive coffee and croissants it's not going to break the bank.

When it comes down to it, the only reason I bought the Groupon in the first place was because I could get for $15 something that I perceived to be worth $30. It was like getting free money.

But as I had time to stand there and stew in my guilt, I realized that another way to look at it was that I only bought the Groupon to screw the owners out of $15 worth of food (food that I don't particularly need).

When it was my turn at the counter, I ordered the items I'd been considering while waiting. Then I deliberately ordered a little bit more so that I ended up paying more than the five-dollar bottom line on my Groupon coupon, just to prove that it's not all about getting free stuff for me.

I've still go two more to cash in, and I'm sure I'll do it before they expire in January.

But the guilt will probably kill me.

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  1. I try to buy nothing on sale that I wouldn't pay full price for.

  2. Weird, I felt the same way-guilty. And I bought more than I had to but not out of guilt but because Natasha's is overpriced, and I didn't really care for it, although I was looking forward to a good pastry. My only excuse was that they went into this deal knowing the money breakdown, so hopefully they achieved whatever their goals were. I used 5-6 groupons so far and spent more than I had to in every place.

  3. @M.V.—

    True, and thinking about it a little more, maybe that was the whole plan. Count on peoples' guilt to make them buy more than they actually wanted.

    They got me, those slick marketing geniuses.

  4. As M.V. notes, a merchant would not advertise a discount contingent on a quantity without knowing how much money s/he will make. Further the purpose for advertising and sales is to get bodies in the door. The deal may even be a loss leader, (hence the quantity contingency) but if you love the goods, you'll be back and pay full price them another time or try something else. I think it's a brilliant plan. Even better if the buyer hands me money and then feels guilty about it and leaves without the pastries!


  5. The problem is that a lot of customers don't come back for full price and there is another group of customers who were already regulars; they take a discounted meal in place of the one they would've paid for anyway. And the place better be good, most of the groupon users won't hesitate to complain online.

  6. Just to add to your little guilt trip, the merchant only gets about half of the amount you paid, so the merchant would only get about $7.50 for the $30. The real cost is the way the employee have to deal with the extra load, cause there is no "new" money to add help, only severely discounted goods, that if the quality slides on will not bring folks back. Groupon is for guiltless couponer's who life their life to save a penny.

  7. @Janet - I would be shocked if you or any other American could look at his/her wardrobe and say that.

    To take m.v.'s comment a step further, I would say MOST new customers won't come back at full price. Most coupon users are on to the next discount, not trying to discover their new favorite place.

    And anonymous is right - the restaurant typically gets only 25% of the sales price. Groupon gets the other 25%. People argue that it's advertising, not a way to make money. Okay. Show how many of these restaurants are busier 3 months after they Groupon.

  8. It is incredibly unpopular amongst restaurant servers. Here is why:

    When a restaurant offers a $50 gift certificate for $25 it sells like crazy. The guests come in and have a $60 meal which becomes a $10 meal. Feeling generous after all their savings they leave a 30% tip of $3. The server does no less work and the guest leaves happy not realizing that they actually left a 5% tip

  9. Tips, I always tip 20% of the total amount of meal, regardless of how the bill gets paid, crappy service excepted. Servers deserve/need the tips, so I don't punish them if the food is bad or other issues outside of their control.



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