Is Groupon a frugal choice?
A deal on something you don't really need is not really a deal at all.
This post comes from Trent Hamm at partner site The Simple Dollar.
A few weeks ago, I put out a call on Twitterand Facebook for posts that people would like to see. I got enough great responses that I'm filling the entire month of July -- one post per day -- addressing these ideas.
Kimberly asked about "online daily deals (Groupon, LivingSocial, Restaurant.com) vs. being frugal and saving all your pennies. Sometimes it's a 50%-off discount but sometimes you end up spending more."
Most of my remarks below apply to any form of coupon, but I'll focus on the "daily deal" phenomenon.
Coupons -- in your face!
So, how do sites like Groupon and LivingSocial function? Each day (or so), an offer is delivered to your email inbox. Typically, this offer is in the form of a coupon for a local business or an online business.
Examples of offers include buying a gift card at a local business for 50% of the face value, and buying a service (or a package of services) from a local business for a significantly reduced amount.
In order to participate in the deal, you have to buy that item. The email will include a link that allows you to hop onto a website where you can purchase the gift certificate or package.
So, let's say that one of my favorite local bookstores participates in Groupon. Groupon sends out a deal one day offering a coupon for a $50 gift card to that bookstore for only $25. I'm a frequent reader, so it sounds like a good deal, right?
Actually, it may not be. Here's why.
You don't save money at a sale
If I buy that certificate for $25, I've just committed myself to spending $25 on books. Yes, maybe I'm getting $50 worth of books in terms of their face value, but I'm still down $25.
It doesn't matter how good the deal is. I'm still sinking some of my money into that deal.
I've just spent $25. What I will get out of it are books that I most likely don't need.
Now that I have this coupon, I have to go use it. This means I have to travel to that bookstore and use the certificate. Unless I'm extremely lucky, I'm not going to be able to hit exactly $50 on my purchase, which means I'm going to have to spend some additional amount or carry around a mostly used gift certificate in my wallet forever.
So, in reality, I'm spending about $30 for about $55 (MSRP) in books. I also spent the gas to drive there.
I'm spending $30 on something I don't really need that I would have never been aware of without that offer appearing in my inbox. That's simply not a good deal. Post continues after video.
"Well, I wait for the good deals!"
I've been a subscriber to two different Groupon areas for the last six months and I've yet to see a single offer that actually matched something I needed.
On the other hand, I've seen a lot of offers for things I wanted: reduced (but still high) prices on meals and massages and amusement park passes and the like.
Here's the thing, though: None of these wants were really strong wants. They were things that I might do on a whim with friends, but they weren't things that I'm planning for in my budget. Often, they weren't even excellent examples of that type of experience -- the restaurants have been a decided mixed bag, for example.
It could be that others have a completely different set of desires than I do and Groupon regularly hits on experiences that they deeply want to have. For me, they're just idle temptations, the kind that would easily drain my wallet without me thinking about it.
I'd much rather go out once a month for a truly memorable experience than go out once or twice a week for a blah experience, and that memorable experience will A) still cost less than several average experiences and B) will never appear as a Groupon temptation.
Why frugality wins
The basic idea of frugality is that you're trying to find the maximum value in the experiences you have in life. It means spending money when it's something you truly want, but it also means understanding what you truly want and separating that from the idle day-to-day desires we all have.
Simply finding a discount on an experience you didn't really want before you heard about that discount is farfrom finding the maximum value in life. Groupon and LivingSocial and other such services provide a never-ending line of those kinds of minor temptations, and those kinds of temptations are not a bargain at any price.
I'd far rather pay full price on a single experience or purchase that was really important to me than saving $20 on two different purchases that I didn't really care about. That important purchase was something I thought about a great deal, enjoyed the anticipation of, and was quite sure I would really enjoy when the time came.
More on The Simple Dollar and MSN Money:
Copyright © 2013 Microsoft. All rights reserved.
Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.
Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by SIX Financial Information.
ABOUT SMART SPENDING
LATEST BLOG POSTS
Start of summer already? Better get shopping. But give the grills and new electronics a miss for now, according to the experts at Dealnews.