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Who Doesn't Love Groupon?

Matt Schwartz has a really great article in Wired about the growth of Groupon and its many competitors, but also the resurgence of clip-out coupons. There's not a lot of people you'll meet that won't say "I love Groupon!" (though many others may have never heard of it). And really, what's not to love? You can get awesome stuff for deep discounts with rarely any issues. It's like the deal that seems way too good to be true, and amazingly, it's legit.

(from camknows on Flickr)

Ultimately, there's one big underlying question: how do businesses that sell groupons make any money? After all, if you're selling $50 meals for $25, or hundred dollar yoga classes for a fraction of the price, that's gotta be seriously slicing into your profit margin.

To this question, there are many explanations. Some people say that retailers can make it up through volume. Others say that vouchers attract new customers who become repeat customers. A few believe that vouchers attract people, but then when they arrive, they wind up spending well in excess of what they're allotted. Plus there's the fact that not everyone redeems their vouchers before the expire. A redemption rate less than 100% means that at least some of the cash is getting pocketed.

The best thing about Groupon, and its copycats, is that it allows people to experience places in a city they might not have ever been, planned to go, or even knew existed. I can really only afford to eat at so many of DC's restaurants on an entry-level salary, but having a voucher means that maybe I can visit a few more.

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