Groupon and Living Social may artificially inflate prices

The online coupon web sites Groupon and Living Social are under fire for potentially inflating the regular prices of its advertised companies. In a study conducted by Thumbtack.com 10 of the vendors featured on Groupon and Living Social (5 from each) were called and asked about their prices concerning deals found on the respective sites. In each case, the vendors quoted prices were far lower than those found on the sites.

This marketing scheme is done in an effort to increase the percentage savings that can be advertised. The sample taken by Thumbtack.com is not statistically significant because of its small size but it does demonstrate a potential issue within the sites.

Groupon was also under fire from critics for its unique accounting methods taken on in order to hide its marketing cost. These accounting metrics were called adjusted consolidated segment operating income (ASCOI). Groupon’s investors were incensed with the marketing costs of the company but representatives claimed the business model requires an intensive investment on the front end on marketing in order to get enough customers.

Groupon and Living Social representatives have no responded to the Thumbtack study.

Sources:

Business Insider: Noah Davis

http://www.businessinsider.com/groupon-says-it-will-spend-less-on-marketing-2011-10

http://www.businessinsider.com/are-groupon-and-living-social-inflating-regular-prices-to-make-their-deals-look-better-2011-10

Thumbtack.com