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Mar 2017

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March 1st, 2017

WHY COUPONS ARE BAD FOR BUSINESSES AND CONSUMERS

My wife has been using coupons since they started to be popular, or even before. I have never been a big fan of them because I thought that in the third millennium it was simply crazy to print out coupons and then call to book an appointment. Furthermore, it is always difficult to get the time slot you are looking for.

I never understood how bad coupons could be until my wife bought me a massage. The spa looked dodgy, but the massage initially seemed okay. Well, until she offered some “extra-service”, which I politely declined.

So, what happened?

I thought that it was time to find out why most of the “nice” businesses stay a thousand miles away from companies like GROUPON or LIVINGSOCIAL. The results of my research are the basis of what we do here at booqu, to improve the experience for consumers and merchants.

Here some of the shocking things I found out about coupons:

HOW MUCH DOES IT REALLY COST?

The classic Groupon deal requires a discount of 50%, after which the merchant and Groupon basically split the revenue. If you are shocked about that, you will be even more shocked to know how long it takes Groupon to pay its merchants. According to the Groupon website: “Most of our merchants are paid 33% in each of their first two checks, which are sent immediately and about 30 days post-feature, respectively. A third payment, sent at about 60 days post-feature reconciles refunds and refund escrow funds with additional units sold through our Private Sale”.

Three months! That’s right. No wonder why the Small Business Administration reports that 10 percent of small business fail each year. They pay taxes, salaries, and products to provide a good service today - just get 25% three months later. Simply crazy!

WHY DO YOU DO IT?

Group coupon companies are quite expensive. But the reason businesses run a campaign is because it helps them acquire new customers, right? However, there is data that doesn't support that argument. Groupon’s own research once estimated a return rate of just 22% while others have estimated a number much lower. At booqu, we believe that this happens because consumers have a “piece of paper” which says the value of a service is $50. They will not pay $100 for that service and they will come back only if the business runs another campaign. Therefore, we think that Live Deals (link) are the way to go, since consumers are paying for a confirmed appointment.

I will stop here. But simply Google, “Why Groupon is bad for business” to get more info. What you find will be really shocking. So next time they offer you to sell coupons, you better think twice!

Article by Mattia Mauceri - Instadeal, Inc. Founder/CEO