How does Groupon work?

By: Dave Roos

Buying and Redeeming Groupons

Our adventure begins when local consumer Bob visits and signs up to receive daily e-mails featuring deals in his city. One morning he opens his Groupon e-mail to find a deal for $20 worth of food from Eatsa Pizza for only $10. Bob loves pizza, but hasn't tried this place across town, so he clicks "Buy" and enters his credit card information. The first big difference between a normal coupon and a Groupon is that Bob pays the discounted price up front, even before he's in the restaurant. The $10 is split between Eatsa Pizza and Groupon itself, which usually involves both companies taking 50 percent [source: NPR].

The second big difference between a coupon and a Groupon is that Bob will only get the deal if 20 other people click the "Buy" button. This is the "group" element of Groupon. By setting a minimum number of purchases, Eatsa Pizza is guaranteed a minimum dollar amount of sales, or else the deal is off. In this case, Eatsa Pizza wants to make sure it gets at least $100 in sales (20 people x $10 - 50 percent) if it's going to offer such a steep discount. To help reach the minimum, Groupon encourages Bob to share the deal with friends on social networks like Facebook and Twitter. Lucky for Bob, the deal "tips" in a matter of minutes, meaning the deal is on.


Every Groupon deal has two expiration dates. The first expiration date restricts how long the deal is available for purchase. Deals remain "live" on the Groupon Web site for a limited number of days (the Groupon Web site provides a countdown clock). Once the deal is purchased, there is a second deadline by which the deal must be redeemed. After that date, an unredeemed Groupon is just a useless piece of paper (or barcode).

To redeem the Groupon, Bob either prints out a Groupon redemption code from his e-mail or uses the Groupon app to upload the barcode to the screen of his smartphone. At this point, the Groupon is just like a regular coupon. Bob orders a large pizza and a drink for a total of $22. With the Groupon, he only has to pay $12 (the $10 Groupon plus $2 over the $20 deal). Groupon etiquette dictates that Bob should tip for the full amount of the bill, not the discounted price, but that's only a suggestion.

Next, we'll look at a few different types of deals that are typically offered through Groupon and other daily deal sites.