Merchants are not happy...Are the buyers?
GROUPON BUSINESS MODEL IS FLAWED?
A Groupon happens between a Merchant and Buyers. - No Merchant! No Groupon!
1. Merchants Loose?
75% off existing Selling Price didn`t make sense, but inflating the price does. Caveat Emptor!
2. Buyers Loose?
Multi State Class Action Lawsuits accuse Groupon of selling gift certificates with short expiration dates.
If Groupon comes apart before the IPO, is it worth doing an IPO?
Friday, January 28, 2011
Is Groupon Misleading Buyers & Merchants?
Now a class action lawsuit accuses Groupon of selling gift certificates with short expiration dates, knowing full well that many consumers won't use them in time.The suit, filed in federal court in the Southern District of California, takes issue with Groupon's so-called “Daily Deals” -- offerings sent out by e-mail to its “massive subscription base (comprised of tens of millions of consumers nationwide).” The offers cover a wide variety of products and services -- “restaurants and bars, salons and spas, clothing and other retail items, and ... instructional lessons” -- and are sent, as the name suggests, on a daily basis. The deals are only activated if enough consumers decide to take advantage of the offer. The suit notes that “the Credit Card Accountability Responsibility and Disclosure Act ('CARD Act') and the Electronic Funds Transfer Act ('EFTA') ... specifically prohibit the sale and issuance of gift certificates, such as 'groupons,' with expiration dates,” as does a California consumer protection statute. see the whole story at http://www.consumeraffairs.com/news04/2011/01/class-action-takes-on-groupon.html. "Class Action Takes on Groupon" -Says site's coupons contain illegal expiration date -01/28/2011 | Jon Hood | Consumer Affairs.com
If the coupon dates are extended so all coupons will be redeemed, then the merchant has to honor all the coupons. This could make the difference whether a merchant will do a groupon. The cost of doing a groupon severly impacts the merchant's bottomline as they give up 50% of the selling price and then give another 50% of the balance to Groupon. If the merchant hears that 30% of the coupons are not going to be redeemed, this changes the cost of doing a groupon and would attract more merchants as it will cost them less if they only need to honor 70% of the coupons issued. This could be a game changer for merchants thinking of doing future groupons.