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Confessions of a Grouponaholic

By LZ Granderson, CNN Contributor
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Confessions of a Grouponaholic
STORY HIGHLIGHTS
  • LZ Granderson says he loves the discounts consumers can get through Groupon
  • The rapidly growing service is attracting consumers and investors, he says
  • Granderson: Retailers give up a lot to attract consumers through Groupon
  • He says retailers should focus on gaining customers through top service, not deep discounts

Editor's note: LZ Granderson writes a weekly column for CNN.com. A senior writer and columnist for ESPN The Magazine and ESPN.com, he has contributed to ESPN's "Sports Center," "Outside the Lines" and "First Take." He is a 2010 nominee and the 2009 winner of the Gay and Lesbian Alliance Against Defamation award for online journalism and a 2010 and 2008 honoree of the National Lesbian and Gay Journalists Association for column writing. Watch him on CNN Newsroom at 9 a.m. ET Wednesday.

Grand Rapids, Michigan (CNN) -- There's a deliciously seductive power to Groupon, isn't there?

It creates an illusion of urgency by using flashy fonts and touting retailers who limit the number of people able to take advantage of the tantalizing discounts. So instead of stopping to ask, "Do I need this?" there is an overwhelming sensation to grab it before it's too late. It's like Black Friday, except instead of standing outside in a long line at 4 a.m. for a 6-inch waffle maker, I'm getting my shopping thrill online.

My partner and I bought six coupons -- worth a total of $360 -- for $150 at a fancy steakhouse here in town. The problem is we don't really like fancy steakhouses -- never have -- so we've only been once. The remaining $300 worth of discounts will soon expire, but hey, at least we didn't miss our chance to "save."

It's a brilliant concept really and builds on one retailers have been using for years, such as offering rebates knowing a good percentage of the customers won't bother to mail them in. It's easy money -- which explains in part why Google tried to buy Groupon for $6 billion. That may be a bit generous of an offer until you factor in that Groupon charges the merchant a hefty 50% of the sales made through its website. It's a lucrative business and one frugal customers like me love.

What I can't figure out is what does the company offering the discount get?

Besides screwed.

If you take a service that normally costs $100, the company may end up with as little as $25 once everyone else gets his or her share, assuming all the coupons get used. And that's before staff or utility bills are paid.

"There is an initial hit, but over the course of the year, there is a return," said Julie Mossler, a Groupon spokeswoman. "You can blindly spend a lot of money advertising on the radio or something like that, but Groupon does the best job exposing your business to thousands of people who may not be aware you even exist. That's the service we provide -- amazing exposure. And we work with our clients to help them retain those new customers.

"But our clients have to take responsibility, too. We can get the people in, but if the service isn't good or the quality isn't good, you're not going to benefit. ... If you suck, there's nothing Groupon can do."

Ouch.

But she's so right.

It shouldn't take long for mom and pop shops to see they may be cannibalizing what little business they have.
--LZ Granderson

Joining Groupon's increasing mainstream popularity will likely bring in a rush of new customers, making it easier for small business owners to overlook the fact that they're getting squeezed between Groupon's fat cut of the take and the huge discount offered to consumers. And while initially Groupon may seem like a smart investment for small, struggling companies looking for a jolt, it shouldn't take long for mom and pop shops to see they may be cannibalizing what little business they have.

That's because the loyal customers who used to sustain the business at full price are now coming in with 50 percent-off coupons. But if it does take them long to figure that out, well, Groupon is probably the least of their worries. They're probably not a very good business to begin with, and they're paying Groupon and opportunistic customers to highlight that fact.

Now as I said, I'm a Grouponaholic so whatever problems I have with the company's practices is not enough to get me off the sauce. I love waking up each morning to see what new deals Groupon, Living Social and the other similar sites have are out there.

But truth be told, if I were starting a small business, I wouldn't do it.

Why?

Because the problem with attracting customers like me is that we're not loyal.

We're cheap. That's why 40 million of us signed up for discounts in the first place.

So even though Groupon works with merchants to help retain new customers, if we're offered a similar service or good from another company at a cheaper price, chances are we're gone.

Groupon's great at getting a customer's attention, but loyalty can only be earned.

It can't be purchased.

Groupon's great at getting a customer's attention, but loyalty can only be earned. It can't be purchased.
--LZ Granderson
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There's a boutique men's clothing store I frequent that doesn't do Groupon and only occasionally has sales. But I'm a regular, full-price paying customer because it does an amazing job.

It's like that line from the Oscar Wilde essay, "The Decay of Lying": If one cannot enjoy reading a book over and over again, there is no use in reading it at all.

For a new business owner the goal should be making the few customers believe whatever is being offered is worth the price, as opposed to selling the goods and services short to a lot of customers who may not even come back.

It's one thing for a company to see Groupon as a marketing investment. But if management believes it has to shell out upward of 75 percent of the receipts to get people to dine at their restaurant, then something may either be wrong with what's on the menu or with the people serving. And as Mossler said, if you suck, there's really nothing Groupon can do about it.

Besides something feels odd about a business model in which a restaurant owner stands to make more money if people don't show up to eat. At least not with the coupons sent out to attract people to show up to eat. That fancy steakhouse I mentioned earlier may make a profit off of my unused coupons. But it didn't earn repeat business, which in the end should be the most important thing.

Face it, if you're a businessperson struggling to make ends meet, Groupon's less of a solution and more like a magnifying glass.

The opinions expressed in this commentary are solely those of LZ Granderson.

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