I have known of Groupon for awhile now but until recently, it wasn’t available in my local area.  I used to check out the site and see what deals were available in Philadelphia, which is about an hour and a half from us, but with two kids, work and a very tight budget, we don’t get the opportunity to go into the city as often as we used to.  I was pretty excited when Groupon starting offering deals right in our town and it looks like it plans on launching sites for many of the surrounding areas very soon.  The company seems to be growing at an amazing pace, hopefully the people behind it are able to manage that growth so they don’t become the next dot com fatality but only time will tell.

Groupon Deal of the Day

For those of you that don’t know, Groupon is a “deal of the day” web site that provides huge savings in your local area.  I have seen the savings range from 25% to 75% off with most being close to the 50% off range.   Each deal has a tipping point that activates the offer.  In other words, if enough people don’t buy it, then the deal is null and void.  Most of the time, more than enough people jump at the deal.   The deals can be for almost anything.  In the short time it’s been available in my local area I have seen discounts for restaurants, local stores, flying lessons, spa treatments, and more.  It’s part of the attraction of the site, every day brings something new and you feel compelled to read the emails, check the Twitter feed or view the site to see what the days deal is.  It’s the perfect execution of a viral marketing plan.

It’s hard to see how some of the companies that use Groupon actually make money.  To keep the math easy, let’s say a local restaurant offers a $100 meal for $50 (a pretty common deal on Groupon) the restaurant doesn’t get $50.  They split that money with Groupon so Groupon get’s $25 and the restaurant get’s $25.  After selling that particular deal, they still have to offer the $100 meal that was advertised.  It’s not unusual for hundreds of people to jump on a deal like that so if you do the math, it’s quite a lot for a small business to absorb.  Talk about eating into your margins!

Despite all that, there seems to be no limit to the number of companies interested in offering a huge discount on sites like Groupon.  So, how do they make money or at least hope to make money, offering such huge discounts?  I have a few thoughts this:

• It’s a service or product that has huge margins and they can afford to offer big discounts in the hopes of gaining a new customer
• The company knows it will lose money on the deal but hopes it will make up for it by the increased exposure and the chance to capture new and repeat customers
• As with most coupons/gift certificates, a certain percentage of people will buy the deal but will never actually use it.  When that happens, it’s pure profit for the business offering the deal.

The only negative press I have been able to find online is from companies that have used it and failed to turn a profit on their particular deal but is that really Groupon’s fault?   They seem to be pretty up-front about what they have to offer companies but I have no first hand experience.  I am sure I am missing some strategies that businessmen smarter than me have been able to take advantage of and I would think that a good portion of the companies that use it must make out alright for the company to be growing as fast they are.

How to use Groupon

Okay, so enough about how Groupon works for the businesses that use it, let’s take a look at the customer, the end user for the service.  Can you really save that much using Groupon?  Absolutely!  That I know for certain.  The deals they offer are legitimate and easy to cash in on.  Before you give them your credit card number and start buying up discounts and special offers, we do have a few tips on how to best use the Groupon site:

• As with any coupon, don’t get sucked in by the deal and spend money on something you didn’t need or never intended to buy in the first place.
• You can get $10 just for referring other people to Groupon who make a purchase.  I signed up and referred my wife, my sister and my parents.  If they opt into any of the deals that come along, I will get $10 to spend on any deal I want.
• The site can be fun and addictive, don’t let that overrule your own common sense.  If you can’t really use it, it doesn’t matter how good of a deal it is, don’t spend your money on it
• If you do buy it, make sure you pay careful attention to the expiration date.  They are counting on a certain percentage of people buying into the deal but never getting around to actually using it.  If you aren’t sure you will be able to use it before the expiration date, don’t buy it.
• Take a look at what other customers have to say about a particular deal before you purchase it by clicking on the “Jon the Discussion” link.
• I never buy into the deal the first time I look at it.  I typically check out the Groupon site first thing in the morning before work.  If I am not interested, I don’t go back until the next day.  If I am interested, I wait a few hours and go back to the site on my lunch break.  It gives me time to think about whether I will really use or need the offer and helps to remove some of the emotional excitement from the transaction.
• Make sure you read the fine print so you know exactly what you are getting and what the restrictions are.
• If you are interested in the service, make sure you register and create a profile, it will make it a lot easier to purchase deals and keep track of what offers you have available to you.

I highly recommend Groupon, if you can exercise a little self control, it’s a great way to save a LOT of money.  You can check out their web site and sign up by going to Sign Up with Groupon

Do you use Groupon? How do you make it work for you?