Groupon Having Trouble Living Up to Its Prices

Attacks on Groupon are coming from all sides. LivingSocial is eating up marketshare. Foursquare is becoming an able broker and has vanquished Facebook Places. Google Offers is positioning itself (whose Android is in a big chunk of smartphones) with better terms for restaurants. But the biggest sign of weakness is that Groupon is letting some merchants get better terms than others.

The rumor is some merchants get as good as an 80/20 splits from Groupon for their daily deal service. 80/20 is a far better than the 50/50 that most restaurants have come to expect. If we multiply that difference over 1000 $25 dollar coupons (from a $50 order) that comes $7500 It’s far easier to end up ahead when a restaurant keeps 40% of a discount than 25%, as economies of scale make 40% just uncomfortable under the right circumstances. Making 25% work is a nearly impossible task for a restaurant.

Groupon claims that they always negotiated with vendors. If saying 50/50 or we’ll take the next restaurant in line is negotiation, then Groupon has not used their market position to muscle small restaurants.

This all was broken by a recent article in Business Insider that has seen compelling evidence that Groupon has eased prices for some customers. I wouldn’t however give your Groupon representative a call and expect a different bargain. Groupon probably changes their pricing for vendors that their users particularly covet. This refreshes customer’s interest in Groupon along with proving to their users that they can get lucrative brands. Unless you are already cruising on your laurels, this price cut will most likely not be open to you.

Groupon seems therefore to be playing favorites and letting some cut to the beginning of the line. Of course, that is business and Groupon is a business. But let Groupon acknowledge that Groupon’s interests don’t align with that of the restaurants that use it. The pain isn’t being spread around evenly and that makes Groupon’s tactics uglier.

But at the end of the day, it shows the illusion that not every business is banging on Groupon’s door and many need a sweet deal to use the service. Let’s hope that a couple chips in Groupon’s armor might one day allow all those that market on Groupon to get a fair shake.