This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

All You Ever Wanted to Know About Groupon

But, let's get one thing straight: Groupon can be a great option for some businesses. There are no upfront costs, and in almost all instances, there is an implicit guarantee that Groupon will deliver a significant amount of people to your door. Ever run an ad in the local newspaper? Something time-sensitive, maybe? Of course, there's the upfront charge, leading to a virtual guessing game as to how many sales will be made.

With Groupon, a merchant gets targeted local advertising that produces almost guaranteed results. As the No. 1 deal provider, Groupon has so much leverage with its user base that businesses are literally knocking down the doors to get a deal listed. According to Groupon, there's a nine-month waiting list for companies that want to be featured on the site.

Many forget about incremental margins when thinking of Groupon and merchants. Most are focused on the fact that on an average $50 coupon (sold for $25), a business owner only collects roughly $12.50 per deal sold. Doesn't seem like a lot, especially if you run a business that has low margins to begin with.

But let's think about a typical restaurant. In most circumstances, labor costs will remain fixed no matter how many people you're serving. If your restaurant is consistently running below 100% utilization, the fact is that this sort of promotion can be worthwhile.

Bringing in customers who may never have visited your business can be invaluable. An empty restaurant is a morgue. But one that's bustling with laughter can be a good thing, especially for a restaurant. I myself will never walk into a restaurant that's empty. But if its crowded, I want to wait. Food must be good, right? Sure, it's a loss leader, but so is any form of advertising, and sometimes, as with newspaper ads, the results don't pay off.

Of course, there are the Groupon horror stories (I spoke of Posies cafe in my last story), and there will continue to be. The business owners that don't crunch the numbers or put a limit on the number of deals sold will end up suffering. A recent MIT study noted that a company's Yelp rating declined significantly after conducting promotions with Groupon. (See chart below.)

In sum, Groupon probably will survive. By spending extreme amounts of money in building a huge subscriber base, the company has established itself as the leader in the deals market. While the market has some obvious challenges, it is also evolving. There will always be deals on food, travel and services, yet the format in which the deals reach a customer will likely change.

3 of 4

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,960.57 -123.23 -0.72%
S&P 500 1,978.34 -9.64 -0.48%
NASDAQ 4,449.5640 -22.5440 -0.50%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs