Study Shows that Groupon and Living Social Deals Feature Inflated Discounts

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By , dealnews Features Director

Sometimes, the daily deals offered by Groupon and Living Social seem like a regular feast of too-good-to-be-true discounts. And according to a recent study by Thumbtack, in many cases they might be.

Thumbtack ran a price check on several local service deals, to find out from the merchants themselves how much the service would cost a customer without the group-buying discount. It turns out, a majority of the actual values for these offers were much lower than the "retail" prices advertised by Groupon and Living Social. Thumbtack thus posits that the deals on these sites offer less bang for your buck, with deals less thrifty than they appear.

The Study

In September 2011, Thumbtack investigated a $49 home cleaning service deal advertised on Groupon — a bargain at more than half-off the stated retail value of $150. However, after calling the merchant, Thumbtack researchers discovered that the real value of the 2-hour home cleaning was just $80 — a full 47% less than Groupon's listed retail price.

So instead, Groupon's deal for the service was just 39% off — rather than the site's stated 67% off. For some folks the perceived value of a deal is inextricably linked to the services offered. But for many others, a deal is all about savings. The difference between Groupon's "advertised retail value" of $150 and the merchant's "actual retail price" of $80 is $70.

It should be noted that the local stores themselves may be the cause of the discrepancy, as PCWorld speculates. But the fact remains that value manipulation exists. Does this effect whether you will buy from Groupon or Living Social? Does the news of potentially inflated discounts bother or surprise you? [Thumbtack]

Front page photo credit: ToMuse.com

DealNews may be compensated by companies mentioned in this article. Please note that, although prices sometimes fluctuate or expire unexpectedly, all products and deals mentioned in this feature were available at the lowest total price we could find at the time of publication (unless otherwise specified).

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6 comments
pickleno75
I think Groupon takes about 50% of the price the consumer pays for themselves, and they only advertise deals that cost consumers 50% or less of the "retail" price. I've heard of plenty of local retailers raising their prices on a website, and telling Groupon they are higher, just so they walk away breaking even - but if you call and talk to them they'll sell the same product or service for less than you'd buy it on Groupon, and they'll make more money in the process. Groupon is phenomenal for advertising and getting new customers, and they are by all accounts a truly great company. That said, very few business owners can choose to operate at a loss in order to gain customers.
October 17, 2011
beckola
These types of 'offers' have been going since advertising/couponing was invented. Any offer that is for a dollar amount off a product or service with a fluctuating price, is inherently going to be relative to what the prod/service could be acquired at that time without the 'deal'  For instance, an offer for a bike may be for $200 (a 80% saving off MSRP).  Which is a true statement.  However, if that offer is in October and it's last years bike, you could probably find it for much less than $1,000 without the coupon). Same with the cleaning service stated in the article, hotel rooms, oil changes, dentist visits, etc.

I usually stay away from anything like that on Groupon/LS.  And instead stick to fixed costs that do not change.  Such as the $20 for $50 food at restaurant.  My bill will be what it is regardless if i have the Groupon.  But with the Groupon i pay $20 on the first $50.  Which is why they limit the time you can use it.  The vendor is offering a great deal to get you in the door.  Hopefully, you'll like it and come back.  But they're willing to take the chance by offering a great deal.  Gap, same thing.  Come in and by clothes, you're first $50 with Groupon is $10.  But guess what, you'll end up buying more.

So to me this in not some earth shattering report.  It's basic 1st year Biz school stuff.
October 15, 2011
Twig
This technique goes to a corrupted company core value and is a "red flag deal breaker" in my book- no matter what I'm looking to buy.
October 15, 2011
cowykillr
agreed, i always check to see if its a deal.  Like a particular resteraunt for example...i will scour ta interwebs for coupons and such to see if it is comparable.  When not, like in the Little Tokyo deal, it is stellar.  20 for 40 of hibachi style food?  cant beat that, and it isnt an inflated price.  HOWEVER, most of the service offers ie oil changes, cleanings, etc, do seem to follow that trend, where sometimes it doesnt even seem like a deal at all if you look into it.  just gotta do your homework, is all. 
October 15, 2011
bil castine
i always check the company before buying a groupon. a deal is a deal, and I'm not that concerned with the size of the discount, just that i'll be able to use the group on to save money. i buy a lot of restaurant groupons, so i check the menu first to see what the groupon will actually get me. of course when it's a cash value groupon, the value proposition is much easier to discern.
October 14, 2011
Brian Moon (DealNews)
I have always kind of assumed that this was going on. I evaluate the deal based on the price I pay. Not the proposed discount.
October 14, 2011