Groupon offers deep discounting for local entrepreneurs who need to jump start their businesses. It is a great way for small firms who are just starting to get noticed.
The offers are too good to be true.
In the end, there is no such thing as a free meal!
For this particular advertisement, it is promoting a 50% off discount.
If stores continue with deep discounting, demand will eventually escalate, and not keep up with supply. The deep discounts lower the average total revenue. Consequently the more the firm produces at the discounted rate, the more money they will lose. However most of the discounting offered at groupon is for intangible services or one time uses. On the website there are very little discounts for tangible merchandise. In a way the firm is discounting their services not their products.
This tactic is very smart. If customers are satisfied with the business, they will tell their friends and the firm is already building brand name.