August 1, 2011

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Let’s Make a Deal

Is Group Couponing Losing its Savor?

Tom Haraldsen

August 1, 2011

What if someone offered you a $20 bill in exchange for every $10 bill you handed to them? You’d be making that deal all day long, and who’d blame you?

That’s what led to creation of national couponing platforms like Groupon and its major competitor, LivingSocial. Both have heavy followings, especially in Utah, and have led to the creation of several similar local concepts. By offering retail deals for half of—or less than half of—face value, the craze has grown so popular that Groupon was tendered a reported $6 billion offer from Google last year for its purchase. The owners of Groupon turned it down. Not enough dough.

So Google, and its newest not best friend Facebook, have both jumped in on their own. Google Offers has been BETA tested in Portland, and Facebook Deals is currently being tested in Atlanta, Austin, Dallas, San Diego and San Francisco.

If you don’t already know, here’s how it works. A retailer uses a third party, such as Groupon or LivingSocial, to offer consumers a coupon worth a certain value. The third party sells that coupon to consumers for a reduced price—maybe a $60 dinner coupon for $30, as an example. The consumer purchases that coupon, the third party keeps a portion of the purchase price as its fee, and the retailer gets the rest. It’s easy to see why a $100 coupon for a nice dinner, one you can buy for just $50, is attractive to consumers. The restaurant hopes to make up the difference with add-on purchases at the meal and through repeat purchases. At least that’s the theory.

Over the past few years, offers have expanded way beyond food and entertainment. Coupons are now sold for everything from health and beauty treatments, services and travel, to furniture, home improvements, and legal services such as wills and living trusts—just about anything you can name.

The question now being asked is—does this platform still feel like a win-win deal for all involved? Some Utah companies who’ve participated in these types of programs, both locally and nationally, are starting to wonder if the saturation, and thus dilution, of the concept is causing it to lose attractiveness.

Buyer Beware
“I’d have to say that as a consumer, businesses are getting a little trickier with them,” says Nichole Coombs, a loyal coupon user and blogger who has hosted a local weekly radio talk show as part of a group called Utah Coupon Gals. “You really need to read the fine print, or you may find you’ve purchased a coupon that can’t help you with what you need.”

Coombs had that experience with a local nursery. She purchased a coupon worth $60 in value for $30, figuring she’d use it toward buying a couple of trees for her yard. When her offer arrived, it was for two $30 coupons that could not be used on the same day.

“So rather than making a $115 purchase, I eventually used them for something else and bought my trees at another nursery where they were cheaper,” she says.

“Groupon is a hard thing to assess,” says Carrie Brinton, co-founder and president of Elase Academy in South Jordan. The academy offers classes for those wanting to become master estheticians and operates a day spa for its customers. “It’s great at bringing in a lot of business up front, but the down side is they [hurt] you financially. We’ve had to offer a 50 percent discount, and then Groupon keeps half of that money as well. So you end up with about 25 percent of the value you’d normally charge a customer.” Such low-cost offers also hurt because, Brinton says, “You can’t guarantee that these offers bring in the types of customers you may want.”

There are a number of Utah-based companies operating the same way, including CW Deals, KSLDeals, and DailyDeals (owned by Utah Business magazine’s parent company, MediaOne of Utah), among many others.

A check with local merchants who utilize those platforms also yielded mixed results. The owner of one prominent Salt Lake City restaurant, who wanted to remain anonymous, says frankly that “there seems to be a ton of offers out there right now, and we’ve tried to track how many of these customers coming in with coupons and certificates return. Our guess is not too many. They simply move on to the next great deal when they want to dine out.”

“I love that I can afford to do things with my kids,” Coombs says. “They do give us more bang for our buck. They’re worth it for the splurges—that’s what it really comes down to—but not the everyday stuff. You have to weigh that when buying them. Movie tickets, for example, haven’t really made sense, because you can go to a matinee cheaper in most cases.”

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