I recently found out that smaller local business can actually take a loss on social buying site deals. The sites take 50% of whatever the customer pays, which means it’s pretty easy for a company to go in the red to attract new customers.
When it comes to deal sites, I’ve spent years gladly voucher hopping. I’d go to whichever company offered me the lowest price for a service. Unless that company put out a new deal, it would never see me again.
Of course, loss leaders aren’t exactly a new concept. But usually it’s only bigger companies that have them. Those can take a bit more of a hit — and you’re more likely to use that company in the future anyway. That’s not really the case for, say, a massage therapist that normally charges $70.
I know that companies on deal sites have are there voluntarily. It’s a calculated risk that will hopefully attract new customers. And they’re well aware that there will be one-time customers.
Still, this new knowledge has changed how I think about social buying offers.
That’s not to say I want to spend more money. I’m certainly not abandoning deal sites. But we’re not broke anymore, so I can afford to be a little less bottom-line oriented. Besides, it’s exhausting having to find a new place every time you want a service cheaply.
If it’s at all plausible that we’d be return customers, I’ll buy a voucher for a business. But if it’s a one-and-done, I’m trying to be more circumspect.
That’s not to say I won’t take deals on big things. We saved $300 on a deal for yard work. We also saved hundreds to tint the car windows. Great deals, but I wouldn’t use those companies again at full price.
I guess there will always be some boundary shifts.
In the future, I’m going to try to compromise by trying to negotiate the same rate directly with the business.
If I get a service that I like, I’ll ask the business if I can buy it again at the same rate. At least that way, they would get 100% of the discounted rate.
If they accept, they’ll get a repeat customer — who tips based on full price thankyouverymuch — and I get a good ongoing deal without the muss and fuss of constant deal scouring.
If they decline, then I’ll either bite the bullet and pay full price or, more likely, go back to the deal site when I want the service again. Maybe the next place I find will be willing to wheel and deal.
So what do you think: Do I have an overactive guilt complex? Do you use vouchers mainly as indulgences or as ways to find good local businesses?
Image credit: Robert Couse-Baker
guest says
While I don't "groupon", I do struggle with… well… sort of a moral dilemma of online shopping versus local small business shopping. Let's say, for example, I can save $20 with no tax and free shipping for a pair of men's jeans in a size/style to fit one or more of my guys through an online site for a department store based in Florida. I live in CA, and am willing to wait a week or so for the package to arrive. Our nearest department store (I'm small town, coastal) is a 30 minute drive, and our gasoline is well over $4 per gallon. The frugal decision is, of course, to go with the overall savings. Doing that, of course, means our local stores won't get my cash, plus the county and state won't collect needed tax. Which is more important to me? Our own bottom line, or the fiscal health of local business? Many businesses here have been hurting since the recession, in part, I think, because if some shoppers can find a lower price via internet searches, they'll try to save money. BUT when a local store goes under, it means several folks are out of jobs. What's a frugal gal (or guy) to do? I'd love to know how others balance online versus local.
Abigail says
It seems like a lot of people have been asking that question, especially as more and more businesses go online. I definitely have to cave sometimes to expediency, but by and large I try to buy online for the savings. Then again, most of the stores in Phoenix are chains, so I'm not really screwing over local businesses. Also, we are supposed to declare online orders so that takes care of the tax issue. I'm sure plenty of people don't bother, but I did the math and it was $70. I decided that was worth my peace of mind on the off chance we're ever audited.
Rob Sorbo says
I pretty much only use deals like that at restaurants, then I make sure to tip on what would have been the full cost. I do feel guilty when I go to small, independent restaurants, but not at large chains.
Abigail says
Well, as long as you enjoy the restaurant, there's a good chance you'll come back. So I don't see that as a big deal… unless you only go to restaurants with a deal. Then you're back to the moral dilemma. And, yes, you HAVE to tip based on the full amount. It's the decent thing to do.
Kara says
The first guest should check with his/her tax professional because the State of California is happy to collect a "use tax" on purchases bought online/mail order for use within the state. I think there is a line on your state tax return.
As far as the groupons go, if you like the service, tell people about it. I always read yelp reviews, particularly for small businesses like window detailing, etc. I would rather pay a higher price for a service that people are happy with than take a chance on an unknown business.
I always tip on full price, too.
Abigail says
Yep, Arizona has the use tax, too. I decided to pay it for peace of mind, though I doubt it'll ever be an issue. I definitely like the idea of sharing the good word on Yelp. That could help ease some guilty feelings!
guest says
An accountant explained that if there's a brick & mortar store or distribution facility in the state, then CA sales tax is required to be paid either by the company or the customer. If, on the other hand, it's from a regional store that doesn't have distribution in CA and is shipping from another state, it's no different than if I'd bought the item or items in Florida, Hawaii, etc. on a trip. That was a few years ago, though. Thanks for the "heads up".
My husband and I do refer local businesses for auto repair, appliances, electricians, plumbers, etc. we've been happy with, and I've plugged small, local grocery chains in food columns. Our town has a population of 10k. Those referrals help, and I notice most folks here do the same. What I like most about "I Pick Up Pennies" is exploring issues like this one. It applies whether using Groupon or not, because even in small towns, there'll be coupon offers to attract business.
Abigail says
Aw shucks! But do be careful because it’s possible the use tax has been implemented in the last few years. They do it to help give local businesses a fighting chance. Well, that and the state always likes money.
Debt Blag says
Yes, I'd say so. In particular, I think you're a bit off with this calculation:
"If it’s at all plausible that we’d be return customers, I’ll buy a voucher for a business. But if it’s a one-and-done, I’m trying to be more circumspect."
Part of what the business should take into account is that you might enjoy your Groupon service/product so much that you become a return customer, even though you hadn't planned on it.
Abigail says
Yeah, I know that businesses go in with their eyes wide open. They're hoping that the deal generates enough return customers to make up for the voucher hoppers. And I'm sure that's often the case. Still, it makes me a tad squeamish to know I'm making local businesses lose money — even if it's just on me. And you know there are plenty of others who are determined to only use the deals. Overactive guilt complex, I'm sure. But something to think about, nonetheless.
@JoeTaxpayerBlog says
You are very kind to think about this the way you do. I've used Groupons for restaurants, and when you go over the coupon amount and add the tip, you're still out of pocket a reasonable amount. In effect, that coupon for $40 dinner for $20 turns into $20 off a $60 total bill. Not bad, but you're not ripping off the owner.
I've had it both ways, a restaurant bad enough I'm glad I didn't pay full price, and one so expensive, the Groupon made it reasonable, and I'd go back, but only if there's another deal.
Abigail says
I know they’re usually not out too much money. I just wonder how many other people they’re not out too much money on. That said, it’s a form of advertising, and arguably it’s a much better way to recoup some of the advertising cost.
Linda says
I've never used Groupon or any of the other services like that. I just prefer to patronize businesses on their own merits (which means checking reviews, asking friends for referrals, etc) rather than trying something new out just because there is a coupon. Like most coupon deals, the product/service is rarely a need, so if I'm spending on a want then the decision isn't based primarily on price. However, I'm not on a super tight budget, so I can understand the temptation that leads to using coupon sites.
Abigail says
Yep, another danger of deal sites is that it becomes easy to rationalize things. I try to buy only if I was already needing a particular service. It doesn’t always work, but usually I do okay. And Groupon has turned me on to some businesses that I wouldn’t otherwise have known about. Then again, I was, as I said, already looking for those services.
Kat says
I actually don't use deal sites much. For things like personal services- massage, chiropractic, hair, etc. and even home services (plumber, electrician, etc)- I work really hard to find someone who I'm comfortable with, who has a great level of service, and charges fairly. From what I've seen in my Groupon happy friends' experiences, I'm getting a better product, and chances are I'm not paying any more than that reduced rate. Being a repeat customer who is polite, understanding, and willing to work with the person usually means that I'm given a great rate. My plumber flat out told me that he has built up a regular following, and he can work for people he likes a little cheaper- it saves him the hassle of bad customers.
The places I do use deal sites for are testing the waters. I had a friend who wanted to try hot room yoga. I wasn't willing to sign a contract with a studio unless I'd tried it. We got a groupon deal, and it turns out I throw up and faint from the heat and humidity they pump into the room. My friend ended up hating the pervasive smell of must, and we resold the rest of the deal on Craigslist for most of our money back. I have fund a few great places through deal sites (mainly tiny restaurants, and two stores). However, at least 60% of the time, I've found that the place was using deal site advertising, and not giving me any reason to return. When someone is polite, asks about the best time to schedule, etc, and tips well… That's someone to cultivate as a return customer, even if she's testing the water with a coupon.
The other reason I haven't fallen in love with the whole deal site thing is this- what I'm likely to turn to them for- grunt work, manual labor, etc… We've got 5 different colleges in the area. The best one is the small private college- they have a rule on their job board- if you call in I satisfied, the money is refunded, and they send out another student to redo the job for free. We've had history majors who sealed grout better than professional companies.
As for shopping- food, I shop locally. I am fickle, my disease requires weird food intake, etc. it's worth the extra money to me for scratch hen eggs, because the lower sulphur content means I'm better able to avoid a migraine that can take me down for three days. For the rest of it? Pet food is ordered online- we need bulk discounts and you find the best deal on human grade ingredient foods online. Paper products- mainly Amazon, but Target for emergencies. Really, I just aim for quality at a reasonable cost. It usually ends up being cheaper in the long run.
Abigail says
Hmmm… I’ve always been pretty happy with the services I received and the rates. I do steer clear of rates that seem to be discounted from an inflated rate. I have an idea in mind of what I’m willing to pay. If I see a price that seems high, I call around to a couple of other places to see if it’s reasonable. I had to do that with the yardwork guys. Sure enough, the “inflated” price was actually pretty standard. I just had no idea yard work cost so much! You’re right that not all the businesses give incentives to stay. I did find my massage guy — and Tim has started going to his wife for massages — through a Groupon. But he offered a discounted rate for anyone who wanted to buy one massage for future use. So that was a good reason to stay. I can definitely see dietary restrictions making local stores important. We really have almost no local stores here in Phoenix. That I’ve seen, anyway. We’re a chain store kind of town.
Jessie says
I have no problem with using deals sites for the very reason you mentioned – the business signs up through its own choice, so presumably management has decided that whatever losses they sustain are made up for by the increased volume. I also think that if you compare the cost to the business of the Groupons redeemed to the cost of a similar level of advertising, you'll find that they haven't lost much. They also have the option of offering only a limited number of deals, thus controlling how much $ they will lose.
Abigail says
Yep, that's important to remember. All businesses pay for advertising, and I suppose plenty of service-based businesses offer specials to get you in the door — on or off deal sites. Logically, that all makes sense. For me it's more of a knee-jerk feeling.
Sony says
Hey its actually not that bad if you do word of mouth advertising of the place after using groupon. You see with these coupons, businesswomen actually reach out to people they wouldnt have. Thats actually very convinient marketing. If you feel you re on shaky moral ground, just go out and let the whole worl know you used her service.
Abigail says
It’s a very good point, and I do try to talk up the businesses I like.
FF @ Femme Frugality says
Honestly, I don’t feel bad 90% of the time. Most of the group deals I’ve looked at have been marked way the heck up before taking that 50% off. For instance, a $25 bracelet being marked up to $40 so it ONLY cost $20. Or a $150 photo package being marked up to $250 so $125 seems miraculous. I always check the vendor’s site now. Because if they’re being deceptive, I’d rather not give them or the deal site my business.
When they’re not, I’ve researched the company, and I have come back on a few of them as a repeat buyer. I know that’s the exception.
FF @ Femme Frugality recently posted…Quirky Gifts: Holiday Shopping Guide
Abigail says
Huh, I never even thought to check the website for the normal prices. The couple of times I did — usually to make sure they were near me or to call to be sure they had availability if it was time sensitive — the prices seem the same.
I just know that my massage therapist normally charges about $70 or whatever the standard rate is. (He charges $40 for future appointments if you book one in advance before you leave.) But for the Groupons or whatever, he gets about $15 per voucher when all is said and done. And a large percentage of the ones sold are people who never come back.
But now I’m definitely going to be checking the website. And of course, there are the places that just have Macy’s style pricing. That is, their default prices for anyone are outrageous because then they can offer deep discounts like 70-80% of the time. One place I go to charges $180 for a microdermabrasion facial. But at least every other week, it charges $29 for members or $39 for non-members. So… yeah.