Groupon: is buying together better?

Shama Kassam

Silhouette Writer

‘Team-buying’ websites have been picking up speed over the past few years, offering consumers a way to save up to 95 per cent off the regular price of a multitude of different products and services.

Websites such as groupon.com, wagjag.com, teambuy.ca and livingdeal.ca have become common ways to take advantage of group purchasing power.

The theory behind it is that any establishment that chooses to market its products or services through these websites serves to benefit by attracting these customers to come back again and pay full price.

It encourages a new demographic to come in and people who might otherwise never know about a business can try out different places at a great discount. If they are satisfied with the service, they can come back and become regular customers at full price.

This, in theory, should work flawlessly. Group-buying websites benefit from being the middleman, with the idea that bringing buyers and sellers together is mutually beneficial.

In actuality, the stock price of groupon.com in specific has been steadily decreasing and has plummeted to 45 per cent below the IPO (initial public offering).

The problem is, Groupon has questionable profitability. For small businesses especially, team-buying deals give them money up front from the coupons bought, but require them to offer their product or service at a deep discount for the following cialis discounted year or pre-assigned period.

Companies end up losing way more than they make initially and companies with unstable cash flows have even closed down after making a team-buying deal available. In essence, these websites offer companies a loan, with a very high interest rate. The money they make up front often blind sides companies to the commitment they have made to maintaining this low price until the purchased coupons have run out.

For a company, expenses usually increase when they have more customers, fixed expenses stay the same and variable expenses such as paying wages and expenses used to running the business increase. At the same time, they are taking in far less money and have likely not allocated their initial money to last for the following year. Trouble ensues.

The problem with the market now is that with a ‘sluggish economy’ businesses are keen to use Groupon as a way to make money upfront.  After the deal closes, and customers begin coming in to cash this deal, they are out even more money than they had initially anticipated and they still need more money. This often leads them to a cycle of following up for subsequent Groupon deals. It puts small businesses into debt and puts them in the same situation as individuals who don’t have the money to pay their credit card bills, max out their card, and then apply for a new card.

For team-buying deal users, keep this in mind. When you go to an establishment be aware of the fact that they are giving you a large discount and tip according to the original service price if in a service establishment. If you enjoy the product or service, try and go back again and pay full-price and definitely recommend it to you friends. In these small ways we can help to turn our economy right-side up again.