Groupon, the smash-hit crowd sourced bulk discount provider, has been slapped with a class action law suit over the company's short expiration dates.
If you're unfamiliar, here's how Groupon works: A company says they are willing to offer a big discount on a product or service, but only if a certain number of people commit to buying it. Sally's Hair Salon will offer 50% off on hair cuts, but only if they can sell 20 hair cuts tomorrow. Unlike Sam's Club, Costco, and other bulk discount providers that can sell bulk items to individuals, no one is going to pay for 20 hair cuts in one day, even with the discount.
So, Groupon gathers 20 different people together, and once they have all committed, they get the coupon. It would be like wanting the bulk discount on buying 400 rolls of toilet paper at Costco, but you don't really need that much, so you get 9 other guys from the same floor of your dorm to chip in, and you each take home 40 rolls, the amount you wanted.
The issue at the heart of the law suit is that with Groupon, you and your friends don't all show up at once. Instead, you pay for a coupon that you can then redeem at the store. The coupons generally have a short expiration date, typically 24 hours. This runs afoul of federal laws, and the laws of Illinois, where the suit was filed.
Coupons are legally required to expire in no less than five years.
A longer expiration period means that more coupons will be redeemed, hurting the business model. Businesses know that for a lot of people, something will come up at the last minute, or they'll change their mind, and end up not using the coupon. They've already paid for it, and then it expires. Groupon doesn't make any extra money, all that happens is the businesses save the expense of fulfilling the coupon, though Groupon does benefit from more vendors wanting to participate.
We propose a simple solution, not at all backed up by any sort of research into the relevant laws.
Instead of offering "50% off all hair cuts at Sally's Hair Salon, tomorrow only!" offer this:
"50% off all hair cuts at Sally's Hair Salon tomorrow, 5% off after that! (Expires in 5 years.)"