Groupon in trouble again for 'misleading' ads

The group buying website has come under fire for misleading customers over some of its deals. Will this hurt its IPO bid?

by Emma Haslett
Last Updated: 31 Oct 2011
Its rock-bottom deals for hotel stays and fish pedicures might have entranced an estimated six million customers, but according to new figures from the Advertising Standards Authority, all is not necessarily well at discount site Groupon. The site, which works by sending out a daily email promoting certain deals from partner businesses, was apparently responsible for nearly half of the 60 adverts for voucher and discount sites banned in the last six months by the watchdog. Considering it’s spawned dozens of imitators, you can’t blame it for going for the hard sell. But discount sites seem to be increasingly coming under fire for slightly dodgy dealings…

There have been complaints about Groupon and its rivals rumbling around the Twittersphere for a while, and it seems the ASA agrees. Deals considered by it to be misleading included one offering subscribers a ‘94% discount’ on orthodontic treatment: a mailout by Groupon said customers would pay £98 for £1,650 worth of treatment. Rather confusingly, though, the deal was in fact that customers paid £98 for a £1,650 discount on £3,500 worth of treatment. So in fact, the total they’d have to pay was £1,948. And some ads were just plain fictional: take, for instance, this one reported in the Telegraph back in February, which offered an ad for flowers, when in fact there had never been any deals on flowers in the UK.

To be fair to Groupon, it wasn’t the only culprit: the Office of Fair trading took action against Groupola and LivingSocial. Part of that, of course, is down to the sheer volume of deals being consumed: last week, figures by Halifax Home Insurance suggested Brits save £51bn a year using discount codes, special offers and freebies – which equates to a decidedly downturn-friendly £1,196 each. Apparently, as people rein in their spending even further, the idea of coupons (particularly for treats like spa treatments and meals out) has become rather trendy among the middle classes. So there are bound to be more complaints.

The question now, though, is whether the number of complaints will have an effect on the $750bn flotation Groupon is gearing up to launch over the next few months. At the end of last year it turned down a $6bn offer from Google, saying it wanted to launch an IPO instead. Unfortunately, though, that might prove to be a less-than wise move: this morning, figures by Hitwise showed that Groupon’s web traffic has declined by nearly 50% in the last few months, while traffic for daily deal-style sites on the whole has fallen by 25%. Bill Tancer, the general manager of global research at Hitwise, pointed out that the decline could be something to do with the ‘high level of complaints’ the services have received. Doesn’t bode well, does it?

That said, it has bounced back from worse damage to its reputation. In February, it ran an ad during the Super Bowl (the most sought-after ad slot in US TV – this year it had 111m viewers) that was considered to be more than a little distasteful. We don’t need to go into the mechanics of it (you can watch it here) – but suffice it to say that if it can bounce back from that, it can almost certainly bounce back from a few complaints…

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