The Most Expensive Groupon? The One You Forget to Redeem

As Groupon prepares its initial public offering, DailyFinance wanted to offer the company's original public investors -- the bargain buyers -- a gentle reminder:


DailyDealMedia, which tracks online group discount sources, reported that the percentage of those not cashing in on Groupons they'd purchased rose from 18% to 22% between July and September. The sampling involved just 100 Groupon clients surveyed six weeks apart -- but the results still underscore a problem in the digital bargain world. Many users aren't getting what they pay for.

"That's pure profit for the company," says Boyan Josic, CEO of DailyDealMedia.

While Groupon could not give numbers because of the pending IPO, spokeswoman Julie Mossner likens the Groupon redemption rate to that of gift cards. That means about 7% of Groupons dissolve into the cyber-ether without services rendered, if we go by one gift card study. Industry types call the unused value "breakage."

Whatever the percentage, Mossner says, "We structure deals and train merchants to anticipate 100% redemption so that they're prepared to handle the traffic."

Groupon's IPO is expected to reap $540 million at $16 to $18 a share, according to reports Friday. While Wall Street pundits debate the company's value, we can say with certainty that Groupon's customers will lose money if they don't redeem their offers.

Too Easy to Ignore

You'd think David Erickson would know better than to let Groupons expire. He's the director of e-strategy for a market research outfit called Tunheim in Minneapolis. But just a few days ago, Erickson realized he had forgotten another Groupon -- $10 for $20 worth of dry cleaning. He also let two Groupon theater tickets lapse.

"My attitude is sort of 'Well, that's on me,' " he tells DailyFinance. "I had plenty of time to get it done. I had plenty of time to redeem it."

Erickson is sure the rate of unused coupons is going up. Growing competition among deal-aggregating platforms is stuffing our email with temptation, he says. People are too busy to take action. And once a deal gets tucked under several screen-fulls of email in your in-box, it's even easier to ignore.

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The social media specialist is juggling about 10 other deals for personal use from Groupon and similar sites, and has begun using Google's calendar function to remind him when they're due. Groupon also offers its own expiration alarm for those who sign up.

But sometimes, that is not enough. Whether we are deal-diving on the Internet or clipping old-school paper coupons, we are complex creatures who don't always follow through, says Lars Perner, a University of Southern California marketing professor. He recalled an experiment where shoppers could take a coupon right next to a product in a supermarket aisle. Less than half of the shoppers who bought the product bothered to bring the coupon to the checkout line.

Even those who spend money on an electronic coupon sometimes need a kick in the rear to redeem it. Perner believes the perceived open-endedness of cyber-deal due dates (often six months on Groupon) keeps procrastinators from cashing in. "Some of the coupons are given as gifts and people don't get around to scheduling them," he says. "It's also a matter that these are things that require days off. People just don't get their act together."

No, I Don't Need It, but the Deal Is So Good

Groupon's Mossner says the redemption rates fluctuate according to the type of offer. For instance, a skydiving introduction that requires a specific appointment forces the issue far more than a flexible restaurant discount.

Perner and other experts recommend that Groupon buyers target a day to take advantage of the discount and circle it on their virtual calendars. That way they feel more obligated. On the business side, Perner wonders if Groupon-style sites might increase their redemption rate if they further limited the window to use the coupons.

The forces that govern cut-rate e-commerce are powerful enough as it is to squash a couponer's initiative, according to the professor. We are suckers for what he calls transaction utility economics. When we see deep discounts on items we don't normally buy, we rationalize that they'll come in handy at some point. Perner once found a deal on computer discs so compelling that he ordered them in absurd amounts. They wound up stacked in his office, and he begged colleagues to take them.

There is also a competitive impulse to Grouponing, he adds. Some gain pride in finding deals that others can't, creating a false need.

"When some people shop, the adrenaline starts racing and it has a mindless grabbing quality to it," says Joan Ingber, a New York City psychologist.

Erickson, the social media strategist, has pledged to redeem himself by redeeming more Groupons. Now he often includes friends in the deals as a backup measure. "Then we have each other to remind ourselves about the deal," he says.