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August 6, 2012

Groupons, Coupons, and the Illusion of Savings


Picture the scenario: It’s a hot day, and you walk into a convenience store to buy a drink. When you get to the display case, you see that there’s a special deal for two of your item, promising a savings of $1—two drinks for $3, as opposed to $2 for one. Would you buy the additional drink to gain the $1 savings?

I know all too well from experience that I would make the purchase. On more than one occasion this year, I walked into the CVS near my dorm intending to purchase a Powerade or two and instead walked out with ten, lured by the promise of “savings.” I certainly spent less on the 10-for-$10 deal than if I had bought ten at their normal price of $1.40 each, but had I really “saved” money by buying more of the good?

Here’s another example, again from my visits to CVS: I would occasionally stop in—say, once a week or so—and purchase a few protein bars. If I went more than two weeks without purchasing them, however, I would receive a coupon via email promising me 20% off my next purchase. Of course, I would often head to the store that night and buy more protein bars than I otherwise would have, trying to capitalize on the savings. But if the coupon was causing me to increase my spending by more than 20%, it was not “saving” me money at all; it was increasing my value, but it was costing me money.

Stores know all too well that coupons and special rates can increase spending. This is why prices in supermarkets are often marked 5/$5, rather than 1/$1—the store hopes that by framing the special price in terms of a larger quantity, it can get a consumer to purchase more of the good. (There are some stores where you must purchase the larger quantity to get the special price, although my home supermarket honors the “unit price” on any quantity.) I believe that the business Groupon operates on a similar principle.



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Groupon is a “Daily Deals” site that offers consumers discounts on restaurants, entertainment, travel, and a variety of other goods and services.

One of Groupon’s main selling points is the amount it “saves” consumers: every product has listed its market value, the discount from that market value, and the total amount of savings at Groupon’s purchase price. For example, purchasing a DVD for $15 from Groupon that normally sells for $20 would be a 25% discount and a savings of $5.

Groupon sounds terrific, and that’s part of why it has racked up well over 35 million users. I use the service quite often, and I would recommend that everyone sign-up. Still, not everything about Groupon is perfect. As with the coupons discussed above, there are some specific lessons that should guide consumers in getting the most out of their discount-shopping experience.

When trying to save money, focus on whether you really need the product or are just enticed by the savings. For instance, if my dad and I were about to sit down to a nice lunch at home, it would not be saving us money to instead go eat at a restaurant, not even at a discounted rate. A $24-for-$12 lunch special still costs $12, despite the $12 “savings.” The purchase might be a great value, but if your goal is saving dollars, you should probably pass.


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Look for deals on specific purchases you were going to make anyway. To use the above lunch example, that $24-for-$12 deal if my dad and I had already decided on going out to lunch and were just deciding on where to eat.

Similarly, looking for discounts on Hallmark cards around the holidays would be true savings, rather than just good value, because I was going to purchase a card regardless of the deal. In these cases, I am not enticed to purchase by a deal, but am using a deal to make the most of my already-decided purchase.


Only purchase deals that you are likely to use in the near future. Many consumers waste money on Groupon by purchasing deals that they never use. Although it is easy to picture, say, taking ten yoga classes in the next two months, a lot of purchasers just never get around to it. Things will come up. You’ll be busy. And by the time you know it, your purchase will be gone. What do I recommend instead? Try sticking to the “Groupon Now!” section, which offers short-term deals available over the next few hours or so. That way, you can be more sure that you’ll use them. (And if you don’t, they’re automatically refunded.)

Don’t read the daily emails that Groupon sends out. Although this piece of advice is more of a build-off of the other rules, I think it’s important enough to say separately. If you make a habit of reading through the deals that Groupon sends you, you will be far more likely to make impulse purchases than if you only use the site when already making a purchase. Reading the subject line can be smart to get a sense of that day’s deals, but I would avoid tempting yourself by reading the entire message.

Although coupons and deals can offer consumers great value in their purchases, they can also cause consumers to spend more money. Impulsive buyers should be particularly cautious about this trend to limit their spending. The important thing is that young people think about their reasons for purchasing goods and make sound decisions, not ones guided by the promise of “savings.” I know from personal experience that it is hard to resist that promise, but I hope that giving more thought to our decisions can help some consumers avoid similar pitfalls.

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