Possible Shortcomings of Groupon

The other day I was reading an article titled Grouponed to death? at The CX Rx. It hit a lot of points that I've always thought about these deal sites like Groupon, Living Social, and the 100's of other clones that have been popping up.

To put the rest of the article into context, it's important to know that Groupon works by selling coupons for a business's service. The business agrees to give a discount of at least 50% and also agrees to give Groupon 50% of the revenue they take in from the coupons. This means that the business gets 25% of the list price for their product or service. At least, that's how I understand it.

I'm not a business owner, but it's hard for me to rationalize why any business would give up 50% of their, already cut in half revenue, providing their product or service for 25¢ on the dollar of their normal prices.

It's hard to believe that you would actually turn over loyal customers and instead it seems like you'd get plenty of people coming to get a good deal, then never coming back. As Jay Ehret puts it:

The thought process goes like this: I get a new customer by giving them a discount: 50% off. They will appreciate the discount, see how great we are, and become a new customer. But that’s not how the customer thinks. They get their coupon, buy your stuff, and they like it. Then you ask them to buy again, but now you’ve doubled the price! At the same time, you're alienating your current customers by giving deep discounts to new customers, and offering nothing to the loyal customers that have been keeping you in business up until then.

I'm sure this isn't a new idea, but I would like to see tools that allow your current customers to tap into their own social network. Reward both the current customer and the new customers they're able to bring to your business. Provide coupons to both. If you're not giving a middle-man 50% of the reduced profits, you might even be able to offer discounts comparable to Groupon, without going out of business.