Are Group Discounts Going Away?

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By Emily Fredrix, AP Retail Writer

NEW YORK (AP) — Shoppers are enjoying new bargaining power thanks to the online group discount craze.

But retailers signing up with websites to blast out these daily discounts may end up deciding group coupons are a better deal for shoppers than businesses because they don't produce loyal customers, experts say. And merchants may soon shut the spigot.

So enjoy the bounty now of half-price facials and yoga classes and deep discounts on fancy dinners, bike rentals, boat rides and more.
Here's how.

THE BASICS

Groupon.com is credited with starting the trend, which now includes such sites as Buywithme.com, Lifebooker.com, livingsocial.com. Typically, a group coupon site operates in multiple cities and features one merchant's discount per day per city in an e-mail to subscribers. Past offers include a $20 certificate for a specific restaurant or a $40 massage, both at half price, and $180 worth of pilates classes for $45, or 75 percent off.

Just visit the site and register your e-mail address to get daily notices. You'll usually have 24 hours to buy the discounted item from the site in the form of a gift certificate or coupon. Most of the deals are for locally owned service businesses like spas or restaurants, rather than products, and some expire fast or are limited to a single event. But national vendors like car rental company Zipcar, the National Basketball Association and Blockbuster video rental chain have signed up.

Groupon started in November 2008 serving just Chicago, where it is based, but now sends out deals for 140 cities in 18 countries to some 6 million subscribers. Cities range from New York and San Francisco to Wichita, Kan., and Omaha, Neb.

There are 50-some similar sites, and new ones appear daily, said Dan de Grandpre, editor-in-chief of discount guide dealnews.com. And that's good for shoppers because it means participating businesses must offer better and better discounts.

"Eventually this will slow down, but right now it's like the Wild West," he said.

WHAT MAKES SOMETHING A GROUP DISCOUNT?

Merchants set a minimum number of customers — from several hundred to several thousand — who must sign up for an offer to work. They often set a maximum too.

If the deal doesn't get enough interest in the allotted period, would-be buyers get their money back. But some 90% of Groupon deals do go through, said spokeswoman Julie Anne Mossler. So shoppers may feel they need to rush to sign up before the quota fills, which generates a marketing buzz for both the stores and the websites.

WHAT'S IN IT FOR RETAILERS?

Free marketing, at least up front. The websites typically give retailers half the money they get selling the deals.

"A lot of them are willing to cut their profits to zero or possibly lose a little bit of money just to get new customers," de Grandpre said.

That is, a half-off coupon, for instance, typically brings the retailer just one-fourth the price it usually charges for a given item and could end up costing the business money. And there's no guarantee shoppers will come back. They may just go to another spa, with a better deal, the next time they want a facial.

Mossler said Groupon doesn't promise merchants they'll make money through Groupon. Instead, the site encourages merchants to seek other ways to retain these new customers, such as honoring the discounts for future visits.

"We deliver this influx of new customers, but once they come through your doors it's up to you to figure out how to offer a great experience so they return," she said.

THE BOTTOM LINE

Shoppers should get the discounts while they can, said de Grandpre, who gives the craze another 12 months of growth.

Even so, he cautioned shoppers not to buy discounts for their own sake because unneeded spending never saves you money.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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