The business ethics of Groupon

December 2nd, 2010 § 0 comments

A few weeks ago I wrote about Groupon and how it has flourished as an entrepreneurial business. Groupon serves two groups of customers: the consumers who buy the coupons, and the small businesses that run deals with Groupon.

Posie's Cafe and owner Jessie Burke

While Groupon does a pretty good job of satisfying the first group, there are a few recent incidents that have emerged putting Groupon’s relationship with its small business partners in the spotlight. Portland-based Posie’s Cafe ran a “$6 for $13 of Bites and Beverages” deal in March 2010, and with almost 1,000 vouchers bought, the owner made claims that she lost over $8,000 at during one month of the process. Groupon also sold 2,000 vouchers for a photography business in Marietta, GA, when it emerged that, not only could the business possibly serve that many consumers in a year, but the owner was advertising with stolen photographs.

Groupon’s blog post in response to Posie’s brought up a good point that had been lost on me as a consumer: Groupon is essentially an advertising service, more so than a coupon/discount provider. Small businesses pay (or sacrifice) by splitting 50% (usually) of the coupon’s revenue with Groupon for getting its name out there to Groupon’s massive emailing list/network. The profits only roll in once Groupon customers become repeat ones or buy more than the $13 of discounted products.

This, in my mind, begs the question: are all of Groupon’s business practices ethically sound? The situation with Posie’s raised the point that Groupon takes 50% of a deal’s revenue for a pretty low value-added service. Regardless, it is the responsibility of business owners to critically consider the opportunity costs of offering a Groupon for their business. Hopefully they will learn from Posie’s and others before making any rash business decisions.

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