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Business Analysis & Features

Groupon: coupon culture in the UK

American online voucher giant Groupon is making moves to attract British bargain hunters. Stephen Foley signs up to be discounted

It was the kind of flash mob that only the internet can generate. A few days after Christmas, at a heretofore obscure dry cleaners in the London borough of Islington, a horde of trendy young folk turned up with their laundry, overwhelming the staff of the Drycentre on Southgate Road.

What was it that had caused this sudden outbreak of demand for dry cleaning services? It was a special offer selling £30 worth of Drycentre services for just £10, an offer advertised to local residents via an email from an internet company called Groupon.

Maybe you haven't heard of Groupon yet, or have only just come across it. You are going to hear the name again and again. In the US, Groupon is already a sensation and it is taking the UK by storm, too. More and more people are signing on to receive its daily diet of special offers from local businesses. It currently covers 500 cities in 35 countries. It boasts 50 million users who have signed up to get emails who, between them, have saved over $1.2bn (£740m) in total thanks to the company, since it was founded two years ago. Despite its low-profile, Groupon already boasts five million users in the United Kingdom. By most reckonings – including that of Forbes magazine – it is the fastest-growing company in the history of the world, in terms of the revenues it is generating. Late last year Google offered to buy the company for $6bn, but its founders were unimpressed and turned the offer down. Instead, it raised $950m for investors who believe it will be the next big internet sensation. Among those was the founder of Starbucks, Howard Schultz, who – it was announced last week – is joining the Groupon board.

In the awful management consultant jargon of the moment, Groupon offers a "win-win-win": customers get more than half off on special deals at their local restaurants, shops or other businesses; the local merchants get an influx of new customers that advertising in the local paper would never have generated; and Groupon takes a cut of typically half of whatever monies change hands. Essentially, Groupon has made it trendy to seek out a bargain. However, its progress is being watched by the Advertising Standards Agency in the UK, which is keeping an eagle eye on the claims it makes for its deals. Just this week, the regulator chastised Groupon for promising buyers a 74 per cent saving if they paid £24 for a voucher for a four-course meal at a Nottinghamshire pub. The 74 per cent was calculated against the most expensive possible meal, so the savings on most menu choices would have been much lower. Groupon agreed it would put "up to" x per cent in the blurb for similar deals in the future, adding: "We have no interest whatsoever in misleading our customers, because if an offer was poorly described on our website it detrimentally affects our relationship with both customers and our business partners alike."

The ASA's ruling has not been the only headache for Groupon recently. With much hoopla, it premiered its first-ever TV advert during breaks in the Super Bowl last Sunday and has been apologising ever since. In a tone that the company's bosses presumably thought was as adorably whimsical as its website blurbs, the ad featured actor Timothy Hutton bemoaning the plight of the Tibetan people under Chinese rule and then saying: "But they still whip up an amazing fish curry" – on which you can get big Groupon discounts in local restaurants.

"We hate that we offended people and we're very sorry that we did," Groupon founder Andrew Mason wrote on a company blog on Thursday, announcing the premature end of the TV ad campaign. "While we've always been a little quirky, we certainly aren't trying to be the kind of company that builds its brand on creating controversy – the quality of our product is a much stronger message."

Mr Mason might be forgiven a youthful misjudgement. He is only 30 and looks set to take his place in the pantheon of baby-faced internet gods, alongside Mark Zuckerberg of Facebook and the Google founders, Larry Page and Sergey Brin.

A Philadelphia native, Mr Mason found himself in Chicago running a start-up called ThePoint.org, which tried to encourage groups of people to get together to do charitable works, until he realised that selflessness was no match for the self-interest of bargain-hunting. Now, around the globe, Groupon fans are rushing out to local restaurants or stores that they would never otherwise go to and loading up on goods and services that they would never otherwise buy, besotted with the excitement of getting a bargain.

New Drycentre customer, John Ryan, for one, is trying to keep a cool head: "I'm only going to use it if the deal suits me – and it usually doesn't.

"At the moment, I'm getting a lot of deals on women's hair reduction. But I haven't rushed out and had anything waxed yet."

How we became a coupon culture

Even before the emergence of Groupon in the United Kingdom, younger bargain hunters in Britain were already likely to be using affiliate marketing websites such as vouchercodes.co.uk to seek out supposed bargains on the high street or on the internet.

These sites act as shop windows for goods or services on offer from providers, who pay the voucher website a fee for each person who downloads their money-saving code. And, despite only being active for little over thee years, have proved highly popular with consumers. Consultants Nielsen estimate that around 9.8 million Britons used an online savings code last year.

Although, supermarket loyalty cards remain the saving scheme of choice for 20 million bargain hunters in the UK, the arrival of Groupon may radically alter the discount marketplace. But before the US giant entered Britain, one pizza firm had already bolstered its takings with some inventive vouchering. When Pizza Express, part of the Gondola Group, approached British marketing agency Ashley Bolser, they had a few sacks of postbags with customer contact details on them.

By sending out some forwardable two-for-one vouchers that were downloadable from the firm's website they attracted 4.5 million diners (plus a database of 3m customers' details) keen to take them up on the offer. Other restaurants in the group – Zizzi and Ask – were quick to follow suit and the trend soon spread to other high street restaurants like Wagamama.

Groupon's model is different. Instead it aggregates offers on its site and chooses a single one to be the coupon of the day. This coupon must then be downloaded by a certain number of users on a particular day to trigger the discount. If not enough people download the voucher, the offer remains inactive.

The upshot of this is that markdowns have become ever larger, as companies can precisely calculate what revenues certain reductions will bring in. Samuel Muston