Should You Promote Your Business on Groupon?

groupon“Social media” is the buzzword of the moment in online commerce, thanks largely to the success of “The Social Network,” a movie about Facebook founder Mark Zuckerberg.

Just about every e-commerce website is looking to add a “social media” element and to find new ways to harness “the power of the collective” to create new business models.

One recent ripple in the “social media’ stream are online coupon promotion websites, the most popular of which are and

There are subtle differences between the Web sites, but most work like this:
? You, a merchant with stuff to sell, contact the site and offer a special deal to your customers ? an “exclusive” deal not available anywhere else ? usually at a steep discount (50 percent to 90 percent off list price is not uncommon).
? The site posts your “deal,” with a specific end date (similar to an eBay listing), and people sign up for it.
? If more than X people (you negotiate the “X” with the site) sign up for the deal by the end date, you are committed to offer it to whoever signed up.
? Each purchaser pays by credit card and receives in return a “voucher” with your coupon, which they can then present for goods or services at your establishment.
? You and the website split the proceeds (usually 50/50).

A great idea, no? Especially if you’re a new restaurant, club, tanning salon or clothing boutique in town who wants to attract lots of Internet-savvy young customers who don’t clip newspaper coupons or look at Valpaks.

But think about it . . . does it really make sense to offer your best stuff at 90 percent discount, and then split the few pennies left over 50/50 with a Web site?

I can hear some of you saying, “Well, haven’t small businesses always offered ‘loss leaders’ on certain merchandise to get customers into their stores?” And you would be right ? selling the blue-plate special to some people at cost (on Tuesday nights when nobody’s in your restaurant anyway) might attract some new customers who would then order a bottle of wine with their dinner at full price.

But historically, “loss leader” merchandise tends to be stuff that the seller wants to get rid of at any price ? older, discontinued, “past expiration date” or out-of-style goods, or the menu items people order only occasionally. A restaurant’s signature dish is not likely to be offered at cost on Friday and Saturday nights.

If you are new to coupon promotions, be sure to use the “return on investment calculator” most of these websites offer to make 100 percent sure you won’t lose money on the deal. Otherwise, why not? says they have 32 million registered users, even though their coupons are not available everywhere in the United States (I tried to find deals in my home state of Connecticut and couldn’t find any).

So are there any legal issues in using a social media coupon site?

The short answer is “yes”: the same rules that apply for paper coupon promotions. Every state has consumer protection laws for coupons, gift certificates and other sales promotion tools, and you are expected to know and comply with them ? the websites won’t help you with that.

So, for example:
? laws regarding expiration dates (laws requiring a minimum expiration date or requiring merchants to redeem coupons as long as they are in business)
? laws requiring merchants to maintain a sufficient stock of inventory to honor all outstanding coupons (or clearly state that they are redeemable only “while supplies last”)
? laws requiring that any limitations on redemption (such as “Tuesday and Wednesday evenings only” or “only one per customer”) must be clearly stated on the voucher the customer buys
? laws forbidding the intentional sale of merchandise below cost, or prohibiting sales below the manufacturer’s suggested retail price
? laws restricting or prohibiting discount promotions for alcoholic beverages
? laws prohibiting merchants from restricting consumers’ ability to transfer coupons once issued

Before using a social media coupon site, ask to see their “merchant terms and conditions” or vendor contract and have a lawyer review these before launching your first promotion. Most “social media coupon” websites do not have these documents clearly posted for public view; you will need to speak to a sales representative and ask for them.

If the Web site does not have a “merchant agreement” as such, here are some of the questions you should ask:
? Can I change the terms of an offer before the end date as long as I give notice of the change to people who have already bid and give them a chance to “opt out” of the offer?
? Can I withdraw an offer before the end date for any reason, even after some consumers have signed up, and what are the penalties for doing so?
? Can I “cap” the number of vouchers to a certain number of individuals?
? How does the site protect merchants against unauthorized transfer or purchases of vouchers by the same individual using multiple e-mail addresses?