The Groupon Backlash Has Begun


Pop quiz: How many online daily deal services can you name off the top of your head?

Groupon, obviously. Then its competitors: LivingSocial, Trubate, Offermatic, Gilt Groupe, Bloomspot, HomeRun, and Capital Deals, plus TravelZoo (TZOO) Deals, Facebook Deals, Bing Deals, Google (GOOG) Offers ... I'm losing count here.

Daily deal services are popping up faster than lottery winners' long-lost relatives. What was once a reasonable way to save money has become a national obsession.

Not only do we like getting a good deal, we also like watching television shows about other people pursuing bargains, too. TLC's "Extreme Couponing" follows coupon connoisseurs whose moments of triumph boil down to this sentiment: I got a lot of stuff I don't really need or want for next to nothing!

Stockpiling Has Become the New Norm

Money magazine describes America's preoccupation with coupons like this: "It began nearly three years ago as a sensible response to an economic catastrophe but has since morphed into something more complex -- a national fixation with refusing to pay retail that has turned otherwise normal families into coupon-clipping ... stockpilers who march through grocery stores with bulging binders of coupons and fill shopping carts with more free jars of mustard and cat food than they could ever use in a lifetime."

What's surprising in all this is how many of those who obsessively "coupon" (a verb now, like Google), don't need to.

One "Extreme Couponing"-obsessed family interviewed by Money -- the Liggetts, a family of three from Missouri -- make six figures. They have in their pantry 288 rolls of toilet paper, 80 jars of tomato sauce, and 40 bottles of men's body wash. They claim to coupon for kicks.

But if the public's sudden, huge enthusiasm for coupons was indeed a reaction to the recession, it follows that the vast majority of us should stop using coupons when the recession passes.

Backing Away from the Sunday Circular

There are signs that such a backlash is already brewing. People are starting to realize that saving money can cost a small fortune.

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Websites that facilitate the sale of unwanted daily deals have been sprouting up almost as fast as new flash deal sites themselves. They are a way for purchasers to recoup some (if not all) of the money they spent in impulsively clicking for savings.

Groupon may or may not approve of their shadow market, but that the outlets exist at all highlights a major business-model flaw.

About a fifth of daily deal purchasers don't end up using the deals they buy. As Rice University prof Utpal Dholakia recently pointed out to BNet, "when 21.7% of deal buyers don't redeem vouchers ... the daily deal was a bust for shoppers and issuers alike."

So Much for Helping Local Businesses

The worst outcome of the coupon craze is that it may actually be hurting the local businesses people think they're supporting with their patronage.

Even when buyers redeem their vouchers, the customers brought in by daily deal sites rarely spend on other items or return for full-price purchases. It's no wonder that, according to Dholakia's research, fewer than half of the businesses who have participated in daily deals were certain that they'd do it again.

It's hard to make your money back when you're giving away cupcakes and wax jobs for $0.50 on the dollar. Gawker has pointed out that many local merchants are losing more than they can afford to the couponers. For Gawker readers, which number in the millions, the word is out, and the daily deal is no longer guilt-free.

For now, maybe, it's just hoof beats in the hipper parts of Brooklyn. But rest assured that the backlash is coming. When it does, it'll be swift, and it'll be painful for the Groupons of the world.

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Motley Fool contributor Catherine Baab-Muguira has no financial interest in any of the companies mentioned in this article. The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of Travelzoo and Google.