My understanding is that Groupon's satisfaction rate is well above 50%. It seems that everyone forgets that, at worst, this is an advertising expense that guarantees revenue and foot traffic.
The only way it makes sense is if they are able to get large volume discounts on whatever they are trying to sell.
Just running some #s here. Local clothing ship buys jewelry for $5/piece and marks it up to $15. Groupon takes 75% of the $15. Groupon takes $11.25 out of the $15 and you just lost $.25 on the entire deal (not including expenses to find that piece).
Sure that same retailer could mark the piece up to $20 but groupon takes $15 of that and you break even. A $5 piece probably couldnt be sold for anything higher than $20...
I will agree that it generates foot traffic but most smaller businesses I have talked to who have done a Groupon or thought about it have had negative experiences or choose not to do it because of a scenario similar to the one above I portrayed.
Just my .02
A tire-kicker who has no intention of ever becoming a customer in the future, and just wants their 'deal' - no one wants those customers. Groupon doesn't seem to offer any way to segment or market your message/deal to subsets of people differentiated on any other signal besides those customers that "want a deal".
Should that be factored in to the groupon price? Absolutely. Will most people know to do that (and goes groupon counsel people on how to do that)? Based on most groupon horror stories, absolutely not.
If people have a bad experience with the Groupon at your store, the store gets inflicted with tons of bad reviews due to long lines, long checkout times, etc etc etc. While in theory this sounds like a good problem to have, its not and won't provide a sustainable stream of customers (i.e. majority of these customers come once, have an awful experience because of the aforementioned problems and never come back).
While my sample size is small (~15 biz owners) I saw it first hand at a restaurant in Somerville. My buddies and I stayed for 3 table turns around us. I overheard everyone that was there because of Groupon and every single table had no intention of coming back. They didn't mention the cause, but I am assuming it was slow service because the place had a 1.5 hr wait (normally 15mins).
You have to take into consideration the discount they are required to give as well.