The Groupon Effect

Last week this headline caught my attention: "Pizzeria Eschews Groupon, Offers Own Half-Off Deal". The article is about a gourmet pizzeria in Arlington that will offer half-price pies every Monday... all you have to do is walk in and ask for the deal.

(from afagen on Flickr)

There's nothing novel about businesses offering discounts on slow days. These discounts have been around for as long as there's been commerce. Groupon and it's endless copycats have been around for about 2 or so years, and already we've forgotten about what life used to be like before they existed.

When I was in college, I ate 40-cent wings every Monday. That's more than 50% off the menu price, and no coupon required, just come on any Monday after 3pm and order them. This bar also had specials on Tuesday, Wednesday and Thursday. Half-price pizzas, steak dinner for under 10 bucks, and 5-dollar burgers. It was designed to bring people in during the slowest part of the week, and from what I could gather, it seemed to work pretty well.

What Groupon effectively changed was a few things.
  1. Removed blackout dates from discounts
  2. Applied discounts to the entire menu
  3. Offered a one-time email blast advertisement to a huge mailing list of people
The first two benefits don't necessarily help businesses. A restaurant that's expecting a full house on Saturday night doesn't want a bunch of people coming in and redeeming Groupons. They want them in on a Wednesday evening when there are seats to fill. Similarly, bars sell half-price wings and burgers as a loss leader, knowing that people will still order drinks, the real money-maker. When Groupons apply to drinks, it really distorts that logic.

I'm not sure how anyone can be surprised that businesses are going back and doing what they've always done. Groupon seemed like a good idea, and like I've written before, is probably dying a slow death. Everybody wanted to try it at least once. And those businesses that didn't like it will probably never do it again.

That said, I do find the "Instant Deal" technology that LivingSocial rolled out a few months ago to be pretty interesting. Unlike the daily deals, the instant deals can be used as a sort of "revenue management" tool for businesses. If a restaurant has empty seats to fill, the manager can log into an account and run an instant deal. If the place is packed, they don't need to offer anything. If there's a reason to think these websites will continue to thrive, I expect it to be the result of these instant deals.


    The assumption here is that Groupon is "dying" because the model may not be optimal for restaurants. Except that restaurants are just a small portion of the economy. Many businesses lack "rushes"that restaurants have, like bike shops, dentists, salons etc etc