What Is Groupon?

What Is Groupon?

Let me explain what Groupon is directly to you: it's a website and mobile app that provides coupons, cashback on purchases, and group deals to consumers like yourself. Restaurants, retailers, and manufacturers use these Groupon deals to draw you into their establishments or to get you to buy their products.

The term 'Groupon' comes from blending 'group' and 'coupon.' The company teams up with providers of goods and services by hosting discount deals and taking a cut of the profit as a marketing fee. That cut varies, but on average, it's reported to be 50%.

Unlike a regular coupon, a Groupon requires you to pay the discounted price upfront by buying the deal. The typical Groupon gives you a 15% to 30% discount, though it can go as high as 90%. For instance, a merchant might offer $50 worth of food for $35 or a $200 spa package for $90.

Key Takeaways

Groupon began in 2008 as an online coupon site focused on daily deals as marketing tools for local businesses. In recent years, I've seen it shift away from just daily deals; now it's more of a coupon and cashback site with offers on a wider array of products and services, even including vacations. By the end of 2019, there were rumors that Groupon was looking into acquiring Yelp, the online review site, due to stagnation in its core business.

Understanding Groupon

The core idea of Groupon, as I understand it, was to harness collective purchasing power by giving a big discount to a group of people if they all buy a product or service—that's where the 'group' part comes in. Merchants were supposed to benefit because the discount would be balanced out by the influx of new customers.

Up until 2016, Groupon deals had a 'tipping point,' meaning a set number of consumers, say 200, had to buy in before the merchant honored the discount. This setup helped businesses cover upfront costs with initial profits. After 2016, they dropped the tipping point since most deals hit high sales volumes quickly anyway.

Real-World Examples of Groupons and Grouponing

You typically get daily deal ads through the Groupon app, location-specific emails, or social media. The company puts out at least one local deal each day with a purchase window from a few hours to a few days. Usually, the discount lasts up to six months, and the Groupon value can be redeemed indefinitely.

To redeem, you use a code or printed voucher at the time of service. Since you've prepaid the discount, you only owe the merchant for anything over the Groupon's value. Check the 'fine print' for specific restrictions like excluded days or products, but be aware that merchants might add unadvertised limits, such as a restricted menu or higher prices for Groupon users.

In the past few years, Groupon has introduced features that go beyond its original model. Groupon Goods gives discounts on merchandise, Groupon Live handles ticketed events like concerts and sports, and Groupon Getaways covers vacation packages and travel deals.

Pros and Cons of Groupon for Businesses

Groupon takes a percentage of the deal's profit in return for exposing merchants to a large customer base via its extensive email lists and social media. As a business owner, you could profit if those Groupon customers return, spread the word to friends, or spend more than the voucher's value.

On the downside, these deals can be unprofitable for businesses with variable costs, as they might need extra staff and supplies to handle a sudden demand spike. Also, daily deals often pull in customers outside your target audience, which lowers the chances of repeat visits.