If I had been the founder of Groupon when Google offered up $6 billion for it, the door wouldn’t have hit me on the back-side as I rushed to the bank to cash the cheque! While I think Groupon is an interesting concept, they are really greedy, and ultimately, it will be their downfall. Let me explain.
Groupon seeks out businesses that are willing to offer deep discounts for their goods and services. Usually, the discounts are around 50%. Groupon takes another 25% or so for publicizing the offer and collecting the funds from the bargain-hunters. That leaves the business with only 25% of what it would normally take in on a sale.
Groupon talks businesses into signing up by claiming that they may lose a bit on the first sale, but they will make it up on subsequent sales. Nonsense. Alternatively, if businesses have excess capacity, they can accommodate lower-paying customers, because they only have to cover the incremental (or marginal) cost of servicing the customer. This works for spas and other similar businesses. There aren’t too many businesses that have a marginal cost less than 25%.
What about restaurants? They are probably the most popular Groupon category, based on demand. Is it worth it for a restaurant to sign up for Groupon?