6 Things You Should Know About Groupon

Maryalene LaPonsie

At a time when many Americans were feeling the financial pain of the Great Recession, Groupon promised deeply discounted limited-time offers on everything from fine dining to car detailing. Founded in 2008, the daily deals website had a legion of devoted followers.

Laura Jones of Lawrenceburg, Indiana, was one of those fans. The 42-year-old would regularly buy Groupon deals, but eventually got tired of the restrictions she encountered when redeeming them. The final straw was when she purchased a photo package for use while on vacation. "They only had so many slots a day to use the coupon," Jones explains.

Other buyers had similar experiences, and Groupon was hit with a class-action lawsuit in 2011 alleging it failed to disclose expiration dates and other fine print; the company settled the suit for $8.5 million. Retailers also accused the company of using aggressive sales tactics, and businesses offering deals were often overwhelmed with people trying redeem deal vouchers. In some cases, people encountered long lines at establishments unprepared for an influx of customers, leading to negative business reviews online for perceived slow or subpar service.

However, in recent years, Groupon has strived to reinvent itself and revamp its business model, and developed a loyal customer clientele. "My neighbor used it for a vacation and had rave reviews," Jones says. That convinced her to give the site another try, and she's been a regular customer ever since. "My husband's Easter basket was also entirely from Groupon," she notes.

[SEE: 9 Ways to Live Well and Spend Less in 2019.]

If you're contemplating using Groupon, here's what you need to know about the company.

What Is Groupon?

Originally, Groupon offered a single deal per day. In order to activate the deal, a certain number of people would have to buy in. These daily deals were available for 24 hours, and early offers included two-for-one pizzas and 50% off at local retailers. Once a deal was activated, anyone who purchased it would receive a voucher that could be redeemed later.

How Does Groupon Work?

Today, you can still find daily deals on Groupon, but they no longer require a minimum number of buyers to activate them.

Here's what you need to know about Groupon:

-- Both goods and services are sold on Groupon.

-- Read reviews.

-- Understand the fine print.

-- Not all deals are created equal.

-- Promo codes and cash back sites offer additional savings.

-- Groupon may not be ideal for all businesses.

Whether you're buying or selling, read on to learn the ins and outs of Groupon.

Both Goods and Services Are Sold on Groupon

While you can still buy vouchers for discounted services or savings at local stores, Groupon now offers a wide selection of physical goods such as comforters, cookware, jewelry and clothing.

Before purchasing goods from Groupon, make sure you understand what you're getting. "Groupon does not acquire, own or stock this inventory," says Derek Wall, founder and CEO of HUBX, a marketplace platform that connects sellers to B2B buyers. "They are merely a marketplace platform which sellers upload inventory and deals for Groupon's customers to purchase."

Read Reviews

If you buy goods on Groupon, check the reviews to see whether other customers believe the item is represented accurately on the website. As for services, watch for red flags that could indicate a fraudulent deal. Be wary of buying a deal that has no reviews or very few purchases. Also check the company's website and social media accounts to confirm it matches the details on Groupon and if it seems too good to be true, contact the business directly to confirm they posted the offer. If you find yourself on the receiving end of counterfeit goods or a fake voucher, contact Groupon.

Understand the Fine Print

Don't buy any deal vouchers until you've reviewed the redemption requirements. "Every deal has limitations in terms of when its promotional value expires and what the deal can and cannot be used toward," says Kelly Goldsmith, associate professor of marketing at Vanderbilt University's Owen Graduate School of Management. "It may be associated with a minimum spend at the vendor, and not all vendors within a chain may accept the Groupon."

Other fine print details include additional fees and charges, restrictions for new customers only or access to a limited menu or selection of products when redeeming a Groupon voucher. Some Groupon deals may only be used on specific days. Be sure to check the refund and cancellation policy, too. If you are on vacation and purchase a Groupon for a weather-dependent activity, like whale watching, what happens if the company cancels? If you don't live in the area, you may not be able to reschedule, so make sure you can get a full refund.

"Groupon allows their sellers to dictate fine print," Wall says. That means there are no standard terms for deals sold on the site, so buyer beware.

[See: 12 Shopping Tricks to Keep You Under Budget.]

Not All Deals Are Created Equal

At its start, it wasn't unusual to see deals on Groupon for 70% off retail prices. Nowadays, you might find 35% off admission to a trampoline park for the kids or 10% off a city attraction pass.

Deeper discounts may be found on travel packages and physical goods. However, be aware of inflated retail prices. Just because something is listed on Groupon at a substantial discount doesn't make it a good deal. Customers still need to do their research, compare prices and read reviews to ensure they are spending their money wisely.

Promo Codes and Cash Back Sites Offer Additional Savings

Customers can save even more by using promo or coupon codes when ordering from Groupon. Though not always available, these codes can be found on free deal aggregators such as Slickdeals, DealCatcher or the browser extension Honey. A typical coupon may take 20% to 30% off the price of Groupon purchases.

"One of the things I like about Groupon is that it participates with Ebates (a cash back and rewards company)," Jones says. Ebates offers up to 6% cash back for purchases its members make on Groupon. The free site also offers its own coupons for additional savings.

[Read: 7 Insider Secrets to Booking Cheap Airfare]

Groupon May Not Be Ideal for All Businesses

While Groupon has made changes to improve the experience for merchants, such as staggering expiration dates to avoid a rush of customers, the site might not make sense for all businesses.

"When a vendor runs a Groupon (discount) that has small to zero margins, the vendor is taking on a lot of risk," Goldsmith says. "He tells himself, all of the sacrifice will be worth it because surely they will reap the downstream rewards of these customers ... coming back and paying full price later." However, the reality is that Groupon users may not turn into repeat customers but will rather move on to the next company offering a good deal.

For that reason, Wall says Groupon isn't a good option for small mom-and-pop businesses. Still, larger companies with bigger budgets may find Groupon a useful venue to drive sales. Savvy consumers who read reviews and watch for the deals they offer will undoubtedly benefit, too.