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Why Groupon Competitors are Bad for Customers

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As competition among daily deal sites heats up, the half-priced offers consumers have become used to seeing in their inbox each morning could soon start disappearing.

Practically unheard of two years ago, there are now more than 600 sites offering a daily rotation of limited-time deals at local businesses, usually with discounts of 50% or better. The battle is fierce enough, reports The Wall Street Journal, that industry leader Groupon has been steadily losing market share, from 52% nationwide in April to 48% in May. In Boston, one of its bigger markets, Groupon’s revenue per subscriber dropped from $20 in the second quarter of 2010, to $15 during the first quarter of 2011.

At first glance, more sites offering 50% discounts would seem to be a win for customers. But the bigger market has brought with it problems such as disreputable businesses that make it through the sites’ checks, and inflated prices to cover the steep discounts.

It’s the competition among all those sites for businesses that could lead to fewer good deals, says Utpal Dholakia, a marketing professor at Rice University. “My hunch is that the discounts consumers are getting right now, at 50% off, are temporary,” he says. “It doesn’t make sense to keep offering these huge deals.” His new study, “How Businesses Fare with Daily Deals,” found that 27% of businesses lose money running a daily deal promotion and another 18% broke even. Businesses also reported that most customers didn’t spend more than the deal value, and didn’t come back. As a result, 73% of businesses said they would consider a different deal site for their next promotion, especially if they were offered more favorable terms like a bigger cut of the revenue or the ability to restrict the deal. That might mean a lower discount or limitations on who can use the voucher (new customers only) and when (weekdays only), he says.

Pay Dirt readers, what’s your daily deal site of choice? Do you think deals are getting better, or worse?

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    • As a single income household Groupon works for me.
      I actually got some good local deals through Groupon and i am able to take my child out to eat sometimes at a very cheap price. I also got a good deal on fun things for my child to do for his birthday that otherwise would have been out of the question because of the expense. I will check out Livingsocial,but so far i am a favorite of Groupon.

    • Sounds like insurance to me, just another scam.

    • I never heard of them. I get a blank when I look for local deals

    • We’ve run a locally-focused half-price deal site in our city for more than six months before Groupon appeared here. We share more of the profits with the businesses than Groupon does, we allow businesses to set the terms, and we stand behind our offerings 100%. Not to mention we have dozens more daily deals than Groupon does. I’d say that the “competition” you’re referring to need to be qualified, because Groupon itself has its own issues compared to some of the longer-running, locally-established deals sites.

    • They sell the coupons with a discount but require you to pay extra for the tip and the cost of the meals is inflated where you end up purchasing a meal and it is overpriced compared with other restaurants. I paid more than the lousy meal was worth and more than I would have paid at a legitimate restaurant.

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  • Pay Dirt examines the millions of consumer decisions Americans make every day: What to buy, how much to pay, whether to rave or complain. Lead written by Quentin Fottrell, the blog examines these interactions, providing readers with news, insight and tips on shopping, spending, customer service, and companies that do right – and wrong – by their customers. Send items, questions and comments to quentin.fottrell@dowjones.com or tweet @SMPayDirt.

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