Since its start in 2008, Groupon has seen massive success. The site’s concept is that it saves people money on services they’d be using anyway, while drawing customers to local businesses. Although it’s been around for a few years now, many people still don’t know exactly how it works or whether they should join.
Here’s a simple overview of the company, along with the pros and cons of jumping aboard this popular coupon craze.
What is Groupon?
Groupon is essentially a middle-man service that helps businesses draw in customers.
What many smaller businesses lack is the ability to reach the customers who are most likely to be interested in their products or services. By hiring Groupon to deliver a “deal of the day” that offers one of their services at a discounted rate, businesses can experience a surge in their customer base.
Even though they may be taking a hit by offering their products and services below profit, the sales volume makes up for it. When working with Groupon, businesses hold the power: if the number of interested customers for a particular deal doesn’t reach their goal, they’re not obligated to offer it.
One possible problem occurs when the customer quota exponentially exceeds expectations. There’s no way to predict how viral a particular deal will become, so businesses occasionally end up with a higher demand than they’re prepared to supply. Unless they can react quickly, they may end up with many dissatisfied customers who give poor reviews — instead of the increased business they were hoping for.
How does Groupon make money?
While they don’t charge for membership, Groupon makes money when deals go through. Groupon’s arrangement with businesses is commission-based. If they help a business draw enough customers for their deal of the day, they make a profit — usually 50% of the coupon’s selling price.
This is motivation for Groupon to create convincing advertising, with a sense of urgency, targeted at the right members. If Groupon is unable to secure enough purchasers, the deal falls through and their time and resources are wasted.
Should you be using Groupon?
Groupon members can take advantage of short-window discounted services they use on a regular basis. One of the best member advantages is the ability to pick and choose which offers you want. You’re not obligated to choose a certain number of deals a month, and you don’t lose money if the deal doesn’t meet its quota.
Many of the services offered are deeply discounted, often as much as 50%. Based on your input, you’ll be solicited for deals in the categories that interest you. Ideally, the money you spend on Groupon represents a savings on services you’d be paying for anyway.
The biggest danger to Groupon membership is the temptation to give in to the sales pressure of one-day deals — whether or not you need the product or service. The amount of money saved is always relative to what you would have spent had there not been a special deal. Even if you’re “saving” money, you’re still spending it. For this reason, Groupon is best for people who have good self control and the ability to turn down a good deal if they wouldn’t have otherwise spent the money.
If you’re curious about Groupon and want to give it a try, go ahead and join. Just prepare yourself to be bombarded with constant pressure to spend money in order to save it. If you’re a recovering shopaholic or trying to eliminate debt, you might want to steer clear of yet another “money-saving” spending trap.
Are you a member of Groupon? Why or why not?
Editor's Note: Did you know about the service called $5 meal plans? For $5 a month, they send you recipes of delicious, healthy, yet cheap food that costs just $5 a meal.
Several of my friends signed up and they are able to eat at home more because the instructions are easy to follow, making everything convenient. The deal also comes with grocery shopping lists, which saves them so much time. Check it out yourself by clicking here and you too may be able to save more and become healthier at the same time.