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September 28, 2021

Is Groupon designed to exploit small businesses?

For consumers not checking out Groupon daily, you’ve gotta get there.

1098660_tag_icon_set The super-coupon site has almost changed how retailers dole out discounts, and the deals speak for themselves. A few recent Canadian bargains the forum has offered: $25 for $50 worth of apparel at nationwide Gap stores; $49 for $300 worth of teeth whitening at a Toronto dentist; $15 for $30 worth of tapas and wine at a Calgary bistro.

Yet while the savings ring sweet for us, no doubt, what about businesses using the site? Too many customers can’t be bad for many companies, but could using Groupon be biting off more than some smaller retailers can chew?

It turns out, Groupon is indeed a double-edge sword, and one that independent retailers should heed a lot of caution before wielding.

As Groupon continues to grow (its value has now ballooned to $1.35 billion and its co-founder, Chicago investor Eric Lefkofsky, can boast a net worth of some $750 million, according to Forbes) so, too, have the complaints against it.

For instance, you’re not likely to hear many peeps about Groupon from big-time outfitters like, say, Gap, because they can handle the influx of new customers from their mass-purchased coupons. But for independent businesses, Groupon’s far reach and allegedly unfair practices make promotion through the site a case of Be Careful What You Wish For.

A café owner in Portland has become the defining Groupon cautionary tale of late, having her blog post on her dealings with the discounter go viral this month.

Her story, in a nutshell: after negotiating a “$13 worth of food/drink for $6” deal with a Groupon rep, the café owner was bombarded with customers when 1,000 coupons were sold. It sounds like a great deal, but an underpublicized clause in Groupon contracts allows the coupon distributor to keep as much as 50 per cent of the revenue from sales under $10. Further, the café owner alleges Groupon wouldn’t let her cap the amount of coupons sold, so 1,000 units at only half the profit was more than she could handle. She lost $8,000 on the deal.

Now, the café owner’s story may not be typical – and Groupon’s other co-founder and CEO, Andrew Mason, has disputed some of her accusations – but the Internet is also rife with tales of Groupon gone wrong. In another case, for example, a retailer alleged Groupon hid behind tricky fine print to sap her of some $46,320 worth of merchandise.

In almost all of these cases, it stands to note, Groupon appears to have plausible deniability to the negative claims against it. Yet that may not change the bitter taste the site has no doubt left for some of its clients.

So, if Groupon turns many of its profits with creative fine print and stubborn policies designed to expose smaller businesses, is it the fault of those companies for getting in bed with the coupon site to begin with, or should Groupon shoulder some of the blame for its controversial practices?

By Jason Buckland, MSN Money



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...