Groupon investigated by UK advertising authorities

Groupon is being investigated by the UK's Office of Fair Trading after breaching the Advertising Standards Agency code

Groupon, the online deals website, does not seem to be having an easy time at the moment.

The company offers coupons with discount deals on just about anything businesses want to offer. In return, Groupon takes a cut of the offer price; around 50 percent plus tax for some small businesses in the UK.

But not only has its share price suffered considerably since its initial public offering on November 4th, it has lost over $308 million over the first three quarters of the year -- even with $1 billion taken in revenue.

The company has also had a spate of high profile PR issues.

Recently, a UK-based local baker said that her Groupon offer nearly ruined her business. Rachel Brown had offered a 75 percent discount for a dozen cupcakes on Groupon in an effort to reach new customers.

The Need a Cake bakery in Reading, near London, received over 8,500 requests for the Groupon cupcake offer. The bakery had to make over 100,000 cakes and take on extra staff to fulfil the orders, wiping out profit for the year.

It's not only retailers who have issues with Groupon, though.

In the U.S. earlier this year, an offer on the FTD flowers website was criticised for selling flowers that were cheaper online than the discounted price the Groupon voucher offer gave.

Breaching the CAP code

Last week, the UK's Office of Fair Trading (OFT) announced that it is to launch an investigation into the online coupon giant, after the Advertising Standards Agency (ASA) made 11 formal rulings of code breaches, with another 37 informal breaches.

The OFT confirmed that it was continuing to investigate Groupon to determine whether any consumer protection laws have been broken.

In May 2011, one of the deals from Groupon offered:

"Today's deal in Manchester. Today's deal: £1,999 Instead of £5,000 for Cosmetic Surgery Such as Breast Augmentation and Rhinoplasty at Birkdale Clinic. View now. For £1,999. This deal is available until May 27, 2011 11:59 PM".

The accompanying countdown clock counted down until the deal ended 24-hours later. The Independent Healthcare Advisory Services, along with a member of the public challenged whether, "the offer was irresponsible because it encouraged recipients to hurry into a decision to purchase cosmetic surgery".

The ASA concluded that the ad was "irresponsible" and that it has breached CAP code (Edition 12) Rules 1.3 regarding social responsibility, and: "considered the very limited time in which consumers had to buy the voucher pressured consumers into making a decision to (to all intents and purposes) purchase cosmetic surgery".

Groupon moved quickly to address the ASA ruling and changed subsequent plastic surgery deals to extend the period they are available for to "at least three days".

There are a lot of great deals of Groupon, if you do your research properly and find the right deal for you. Many great deals are offered by businesses who intend to get new customers through the door and increase brand awareness.

This coupon based offer seems to work well too, with a rapidly expanding base and clone offer sites such as BuyWithMe and Google Offers.

But is our search for ever cheaper bargains driving this kind of behaviour from deal based sites, as brands strive ever harder to get our loyalty –- at whatever the cost?


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