Why are Groupon's sales crashing?

After two years of meteoric performance, its daily deals seem to be losing the attention of bargain hunters. What could be going wrong?

By doubleace Mar 25, 2011 1:20PM

This post comes from Lynn Mucken at MSN Money.

 

What's gone wrong with Groupon? Just a few months ago, the online daily deal deliverer peddled 411,000 $50-for-$25 coupons for Gap in just one day. More recently, the two-year-old company rejected a $6 billion purchase offer from Google.

 

Now the numbers look a lot different. Groupon's U.S. revenue fell 30% in February from a month earlier. This week, Yipit, a daily deal aggregator that indexes more than 400 services, reported that Groupon sales are down another 32% in March.

 

Surely, the world cannot be tiring of getting $40 worth of restaurant chow -- sorry, fine dining -- for $20. Or could it?  Post continues after video.

Maybe we have just figured it out:

  • False economics: You are spending, but not necessarily saving. If you were planning on going school-clothes shopping at a specific store anyway, Groupon definitely is a good deal. Jumping in and "saving 64%" on pole-dancing lessons -- I'm not making this up; it was in my mailbox yesterday -- means you are spending $25, not saving $45.
  • The "gotcha": A few years ago my wife and I successfully bid $50 at a school auction for a $125 coupon to a well-known upscale restaurant. After dinner, drinks, taxes and tip, we still got a bill for $125. Oh, I forgot the valet parking. And do you really think you can take your teenager into Gap and hold spending to $50? This is why companies offer these deals.
  • It's impulse buying: Groupon has it all figured out: Buy now (or at least by midnight) or it's gone forever; get some for a friend; save, save and save. We are just low-hanging fruit, and eventually we realize it.  
  • Buyer's remorse: The excitement is gone and now you're left with the coupon for something that doesn't seem like such a good idea (pole dancing?). You have options, however. You can eat the coupon; industry experts estimate 15% to 20% of coupons go unredeemed. Or you can go to a secondary market such as Lifesta, where you can sell off your mistakes -- or buy others'.  The charge, to the seller, is 99 cents, plus 8% of the selling price. See "Useless Groupon? Cash it in" for more markets.
  • Oh, the clutter!: Groupon is not alone in offering you deals. Copycats have proliferated: LivingSocial, BuyWithMe, Rue La La, ideeli, Beyond the Rack, Swirl, HauteLook, DailyCandy, Thrillist, UrbanDaddy, Glit Groupe, Travelzoo, OpenTable. Like the bag on the vacuum cleaner, the mind eventually fills up and shuts down.
  • It's no longer shiny new: Americans get tired of even the most-enthralling things; remember Paris Hilton (I actually had to go to Bing to look up her first name)?

But the geniuses at Groupon will cope. Time.com reports there soon will be a Groupon Now, which just might flash you alerts on "immediate" deals such as half-price food at the Chinese buffet if you eat within two hours.

 

More from MSN Money:

VIDEO ON MSN MONEY

20Comments
Mar 25, 2011 3:48PM
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I have bought a few Groupons, but most of the deals do not appeal to me.  It seems like almost half of them are for things like spa treatments which I have absolutely no interest in.
Mar 25, 2011 6:30PM
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They should have taken the $6 billion when they had the chance.  Dumb. Dumb. Dumb.

Mar 25, 2011 3:01PM
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The other thing is that for some deals you won't pay the MSRP even on a regular day.  For a recent deal on a Bed&Breakfast I went to the place's website and checked the room rates.  The deal was for about 10% off - nowehere near the 50% claimed.

Mar 25, 2011 7:16PM
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My girlfriend used to get groupons for movies and restaurants. Now it seems the only specials are for things we wouldn't otherwise be using. We are not gullible. And will not purchase a discount to anything we wouldn't normally be going to. We were thinking that the movie theatres and restaurants we would go to no longer consider groupon a worthy investment for advertising.
Mar 25, 2011 4:03PM
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I got a groupon for carpet cleaning.  They run a special 4 rooms for $100, my groupon was $40 for $70 worth of services.  Well when I went to use my groupon, low and behold, "Oh no, the groupon doesn't apply to that price, the groupon price is $30 a room).  So I paid for 4 rooms, $90, sure, I got a $10 savings, big deal, I could have gone elsewhere and gotten a better price.
Mar 25, 2011 3:53PM
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I guess they couldn't SAVE themselves.
Mar 25, 2011 5:46PM
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I, and a whole bunch of other folks, thought they were DUMB to turn down $6 Billion for this operation while it was still red hot.  It had the look of a flashy meteor then and it appears life is now getting tougher for Groupon.  My own experience involved getting mildly excited at first, buying some restaurant deals, and a kayak outing.  They were O.K., as long as you remember to use them, but I tired of the incessant pedicure, hair salon, etc. offers.......especially since I'm a male.  I still take a look, but it's been a while since I've bit on anything.
Mar 25, 2011 5:15PM
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I bought a dentist exam and teeth cleaning Groupon.I went to the appointment and there was a big sign in front of the dentist office offering the same exam, teeth cleaning anf teeth whitening special to everyone. What Groupon advertised as a savings of hundreds of dollars turned out to be (not so special).
Mar 25, 2011 5:32PM
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Problem with GroupOn and all those deal coupon websites is they were supposed to generate "returning business" for the companies offering the deals. 

But studies have shown otherwise.  People will not go to that same place. They will go where the next deal is. Of course there is still a percentage of people going back but for many businesses, it does not worth it. GroupOn and all will have to get creative if they want to get businesses to offer great deals. Not sure how GroupOn think they will get an IPO of 25 billion.. 

If they succeed all I can say is WOW
Mar 27, 2011 2:01PM
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I signed up for Groupon one day to see what they were about.  I received sooooooo much spam from them I couldn't deal with it and I cut them off.  I belonged for a few weeks and didn't see ONE thing I wanted to buy.  I'm not really an impulse buyer anyway, but this Groupon sure is a good test of your willpower.  I just don't see this company making it in the future.  Could be wrong, but I'll take the chance.
Mar 27, 2011 1:20AM
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If they actually offered something useful besides Yoga lessons and ridiculous food menus, maybe people might be more interested.  How about hotel and car rental discounts, or maybe a discount for pro sporting events.  That's right, things that most people really use!
Mar 26, 2011 12:29PM
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Groupon is just a glorified spammer, and people are finally starting to recognize it. I can't believe that Google wanted to buy them, and I bet they are glad the deal fell through. 
Mar 28, 2011 10:40AM
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Yikes!  Two consecutive months of 30%+ revenue declines?!  That is the kind of phenomenon that makes board members say, "Uh... Goog, could you maybe put that $6 BILLION dollar check back on the table?  Pretty please?"

I've never used Groupon, in fact never heard of them until NPR did an op-ed piece on them and Google's $6B offer.  Comments on this column notwithstanding, it does sound like Groupon has a damn good idea but they need to refine the model if they want happy clients.  And who doesn't want happy clients?

Maybe they could draw a distinction between gender specific opportunities and send the french manicures to the ladies and the basketball tickets to the gentlemen?  Or perhaps take some feedback from their client base on the relevancy of discounts being offered to minimize the "powdered sugar dog terd" opportunities?  I don't know... it's just a thought.

In the final analysis, the potential in this market is genuinely phenomenal and the technology is just making it better and better every day.  The day is coming when your cell phone will gently vibrate at 11:45 (your time) with a message from Groupon (or somebody like them) alerting you to a half-price deal at your favorite restaurant.

Don't miss the boat Groupon... you've already don't the hard part... dominant market share.  ($6B Really?!)
Mar 25, 2011 7:30PM
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LivingSocial has better deals on Services AND Travel! Not only are their deals better but they are for things like movies, restaurants, bakeries, cooking classes, photography, auto detailing, plays, river rafting, sports, resorts and travel. Oh! And kids stuff too (I just do not have kids so I tune that out!) Sure not everything will be usefull but I have purchased a lot more on there than I ever even thought about on Groupon. When I can get 2 movie tickets for $6.00 dollars and they are good for 4 months I am on it! There is literally something for everyone! It is not all just restaurants or spas. I got tired of that fast!
May 26, 2011 12:12PM
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What an irresponsible idiot you are higher gas prices only help big Oil,

The real deal is put them out of business. Figure it out.com

Mar 25, 2011 4:23PM
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The email deals I get from Borders Reward Perks are even better, they offered $25 restaurant certs at Restaurant.com for just $2 each a couple of weeks ago.  $3 for a $25 cert at Shula's Steak House.  Usually for $35 minimum purchase.  I had my pick of local restaurants--and ones that I usually go to anyway, not the untested places in far flung locations that Groupon offers.  Except for Shula's, which is a new restaurant for DH and me.  We ended up spending about $118 after the cert and taxes.

As per usual with these deals, what you "save" ends up being what you end up paying for the tip.

Last week they offered the same for $3, and $4.50 for Shula's, but I held off until I use up the other 5 certs I bought from the first round.  No sense going too nutso.

Groupon being Chicago-based, I am rooting for them, but folks will go where the best deals are.  And with lots of competition around, Groupon will have to innovate and offer something really special in order to dominate.

Mar 25, 2011 6:58PM
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Ever heard of the Hoola Hoop, or Betamax video tape movies?

Groupon is a fad folks, plain and simple.

Without investment capital they would owe millions.

They are BROKE, and coasting on speculation money.

Who has money to be spending on the crap they are hawking in this economy anyway.

 

Google could absorb the losses and keep on kicking like When CarMax was propped up by Circuit city and lost, and lost and lost - Now all that is left is CarMax as CC is dead.

Carmax will be next.

 

Conversely- By the way - Your 350,000.00 house that they say is now worth 200,000.00 is still worth about 325-350,000.00 90% of the time.

Just try to build it from materials from the open market for 200K, yeah, like that is going to happen.

Housing is the reverse of the value trend- Try to hang in there till after the vultures pick the bones clean, your house has true value - and so does the good ol US 0f A - don't let anyone tell you or sell you on otherwise.

Check out China and India if you want to see the REAL housing bubbles.

Groupon has a negative True value.

Oh, and Oil - No way worth more than 80.00 a barrell, no way, now how - It is a scam.

Stop driving when you don't have to and let them eat the 120.00 a barrell oil, and don't aid and abet this Groupon BS along with all the other scams out there.

My 2 pennys.

Mar 25, 2011 4:40PM
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Lately groupon offers have been pretty irrelevant in our GEO. Essentially they have not been landing any compelling deals to offer.

If the offer sucks or is for some small business in some obscure part of town... people don't get too excited.

Maybe they are not landing good enough deals lately. It could all come down to declining ROI for the advertisers or an unwillingness to take a chance with loyalty building discount advertising.

Mar 25, 2011 4:24PM
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I bought a Groupon just today for the Morton Arborteum.  I've been wanting to go (never been) and saving $18 on admission for the family gave me the push to buy it.  Now, we'll go. Groupon saves you money.  I've also bought Gino's East too, and that was a great deal.  You have to read the fine print and make sure there are no restrictions. 
Mar 27, 2011 1:00AM
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chris your an idiot, glorified spammer? I thought the premise was pretty simple even for someone dumb? groupon hasnt really lost anything, ALL companies start real strong out the gate then faulter a little, bottom line, they still offer great deals, and they are still a profitable company

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