Friday, November 11, 2011

Why Groupon is Rubber Candy

Those of us who eschew shopping at the Big Box Stores feel good about supporting small, local businesses. We have our reasons: supporting the community, trying to buy locally sourced goods, energy savings, providing ourselves with a context for presenting more thoughtfully chosen gifts. What a cute idea is Groupon (and similar daily-deal coupon services)! You join their service for free, they send you deals via email, you go try fun new things like paddle-boarding, and the local paddle-boarding business has a new customer.  The elevator pitch is easy.
So easy, in fact, it raises my first objection: why them? Daily-deal providers like this are easily copied, and are being copied by local newspapers, local community shopping districts, and department stores. Groupon also gets to compete with Facebook and LivingSocial and the monsters Google and Amazon.  If you like one of these daily-deal services, there is no reason not to belong to all of them.
Last month, you didn’t get a facial. But this month, you have a coupon for it and you get a facial. You saved so much money with the coupon, like 30%! Except if you hadn’t gotten the facial, you could have saved 100% of the money you spent.
Oh, but now with all the paddle-boarding and facials, your life is better, right? At least until you use up the coupon and move on to something else. And it is at this point that I start thinking about Manny’s Facials Emporium and Elizabeths’s Paddle-Boarding Paradise, and the money they spent luring you in as new customers.  Manny’s appointment books are full of new customers, but they are receiving services at a reduced rate, making the amount of profit these new customers contribute to his business minimal. Most of the new customers will move along when they’ve used up the Facial Four-Pack Deal, because they belong to Groupon, and they’ll get another deal someplace else. Meanwhile, Manny’s devoted customers, who’ve been booking regular appointments for years can’t get the appointments they were able to get in the past. The waiting room is packed with new people, all talking about something called Groupon. The regulars perceive that others are getting special, new customer bargains, and once they get around to talking to the new customers, they’ll learn about joining Groupon and go someplace else (with a Facial Four-Pack Deal).
Over at Elizabeth’s, some of her regulars started complaining that all the best instructors are over-booked and no longer able to do make-up lessons. Elizabeth decides that her loyal customers need their own coupons, too. Suddenly Elizabeth and all of her instructors and staff, down to the janitor and the reservationist are working harder than ever and the business is making less money than ever.
Rubber candy looks amazing. It does not melt in the sun. You just can’t eat it.

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