The presentation of a daily deal from Groupon, LivingSocial, and others is fairly standard. Along with a description of the deal, there are always three numbers displayed prominently: the original price, the discounted price, and the percentage that would be saved by snatching up the deal. Deals, of course, are more enticing when the gap between the original and discounted price is larger. But if the original price listed is an inflated rate that no customer ever really pays, then the offer at hand isn’t quite as good a deal as you’re being led to believe.
Thumbtack, an online marketplace for consumers seeking to find and book local services like housecleaning and handyman help, says that in many cases, the original prices listed in Groupon and LivingSocial are, in fact, inflated.
Focusing strictly on local services—which account for 11% of all daily deals—Thumbtack gathered five sample offers from Groupon, and five more from LivingSocial. The deals included photography sessions, carpet cleaning, auto detailing, and housecleaning. Then, it called each of the services featured in the deals, and asked for a price quote for the same exact service listed in the daily deal.
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Since this was an apples-to-apples comparison, the “original price” listed at the daily deal site should have matched up perfectly with the price quoted over the phone. But that only occurred in 2 out of the 10 deals. With Groupon, all five deals subjected to the price checkup were shown to be inflated; in the most egregious case, a two-hour housecleaning service in Phoenix was listed by Groupon at an original non-discounted price of $150, yet the company quoted a price of $80 for the same service when Thumbtack inquired by phone. The price of Groupon’s deal, by the way, was $49. So the offer was still arguably quite a good value. It’s just not nearly as impressive a discount as Groupon and the housecleaning service said.
Retailers have been known to mislead customers in a similar way, through a practice known as “anchoring.” This occurs when a store lists an inflated “original” or “retail” price that few customers ever pay right next to a cheaper price that “You Pay Only!” The purpose is to trick the shopper into thinking the discount is more substantial than it really is—that the deal is just so good that it can’t be passed up.
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Now, did Thumbtack really select the Groupon and LivingSocial deals it focused on in truly random fashion? I doubt it. They probably looked over dozens of offers and then cherrypicked ones to check up on in which the original price seemed inflated. To some extent, this is what a smart consumer should be doing anyway: When an original price seems overpriced, it’s worth investigating what’s really going on. A deal that sounds too good to be true is often just that.
Also, notably absent from Thumbtack’s investigation are daily deals for retailers and restaurants, which account for a far higher percentage of the daily deals purchased. Why weren’t some of these deals price-checked too? Because their original prices cannot be manipulated in the same way that a maid service or auto detailing operation can. A restaurant participating in a daily deal in which diners pay $10 for $20 worth of food could not hand one menu to the general public, and a different menu with inflated prices to customers paying with daily deal vouchers.
Well, at least it couldn’t do that and get away with it for long.