Does Groupon beat frugality?

It doesn't matter how good a deal is, you're still spending money

A few weeks ago, I put out a call on Twitter and on Facebook for detailed posts that people would like to see. I got enough great responses that I’m going to fill the entire month of July – one post per day – addressing these ideas.

On Facebook, Kimberly asked about “Online daily deals (groupon, living social, restaurant.com) vs. Being frugal and saving all your pennies. Sometimes its 50% off discount but sometimes you end up spending more.”

I’ve only made offhand references to Groupon and such sites in the past, but this is as good a time as any to discuss such “daily deal” sites in detail. In fact, most of the remarks below apply to any form of coupon, but I’ll focus on the “daily deal” phenomenon.

Coupons – In Your Face!
So, how do sites like Groupon and Living Social function? Each day (or so), an offer is delivered to your email inbox. Typically, this offer is in the form of a coupon for a local business or an online business.

Examples of offers include buying a gift card at a local business for 50% of the face value, buying a service (or a package of services) from a local business for a significantly reduced amount, or something similar.

In each case, in order to participate in the deal, you have to buy that item. The email will include a link that allows you to hop onto a website from which you can purchase the gift certificate or package.

So, let’s say that one of my favorite local bookstores participates in Groupon. Groupon sends out a deal one day offering a coupon for a $50 gift card to that bookstore for only $25. I’m a frequent reader, so it sounds like a good deal, right?

Actually, it’s not. Here’s why.

You Don’t Save Money at a Sale
If I buy that certificate for $25, I’ve just committed myself to spending $25 on books. Yes, maybe I’m getting $50 worth of books in terms of their face value, but I’m still down $25.

It doesn’t matter how good the deal is. I’m still sinking some of my money into that deal.

I’ve just spent $25. What I will get out of it is books that I most likely don’t need.

Now that I have this coupon, I have to go use it. This means I have to travel to that bookstore sometime and use the certificate. Unless I’m extremely lucky, I’m not going to be able to hit exactly $50 on my purchase, which means I’m going to have to spend some additional amount or carry around a mostly-used gift certificate in my wallet forever.

So, in reality, I’m spending about $30 for about $55 (MSRP) in books. I also spent the gas to drive over there.

I’m spending $30 on something I don’t really need that I would have never been aware of without that offer appearing in my inbox.

That’s simply not a good deal.

“Well, I Wait for the Good Deals!”
I’ve been a subscriber to two different Groupon areas for the last six months and I’ve yet to see a single offer that actually matched something I needed.

On the other hand, I saw a lot of offers for things I wanted: reduced (but still high) prices on meals and massages and amusement park passes and the like.

Here’s the thing, though. None of these wants were really strong wants. They were things that I might do on a whim with friends, but they aren’t things that I’m planning for in my budget. Often, they aren’t even excellent examples of that type of experience – the restaurants have been a decided mixed bag, for example.

It could be that others have a completely different set of desires than I do and Groupon regularly hits upon experiences that they deeply want to have. For me, they’re just idle temptations, the kind that would easily drain my wallet without thinking about it.

I’d far rather go out once a month for a truly memorable experience than go out once or twice a week for a blah experience – and that memorable experience will (a) still cost less than several average experiences and (b) will never appear as a Groupon temptation.

Why Frugality Wins
The basic idea of frugality is that you’re trying to find the maximum value in the experiences you have in life. It means spending money when it’s something you truly want, but it also means understanding what you truly want and separating that from the idle day-to-day desires we all have.

Simply finding a discount on an experience that you didn’t really want before you heard about that discount is far from finding the maximum value in life. Groupon and Living Social and such services provide a never-ending line of those kinds of minor temptations, and those kinds of temptations are never a bargain at any price.

I’d far rather pay full price on a single experience or purchase that was really important to me than saving $20 on two different purchases that I didn’t really care about all that much. That important purchase was something that I thought about a great deal, enjoyed the anticipation for, and was quite sure that I would really enjoy when the time came. The other was just an email in my inbox alerting me to yet another thing that I might find a bit interesting but didn’t really need.

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