Half-Off Cupcakes And More: The Lure Of Web Deals Deep discounts from Web companies like Groupon and LivingSocial have brought thousands of customers to stores and restaurants. But when thousands of people take up an offer, the results can be overwhelming.
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Half-Off Cupcakes And More: The Lure Of Web Deals

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Half-Off Cupcakes And More: The Lure Of Web Deals

Half-Off Cupcakes And More: The Lure Of Web Deals

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And now for a story about things that are selling well, and in some cases too well. Last week, an email came out offering a $50 gift card to the Gap for just $25. The response was immediate. Half a million people clicked buy. That email was legitimate, but it didn't come from the Gap. It came from a company called Groupon. It's one of several companies offering consumers some amazing deals, and changing the way businesses market themselves. NPR's Tamara Keith reports.

TAMARA KEITH: The Gap deal was Groupon's first big national promotion. And the response overwhelmed the company's servers. Rob Solomon is Groupon's president.

Mr. ROB SOLOMON (President, Groupon): We thought it would do well. We had no idea it would do as well as it did. And now we're getting calls from every national retailer out there about how they can get in on the fun with Groupon.

KEITH: Up until now, Groupon has built its business with a local focus. It partners up with small businesses in the dozens of cities it serves, then offers hard-to-resist savings to the people on its massive email lists. Solomon says the customers buy directly from Groupon. [

Mr. SOLOMON: Traditionally the cupcake bakery or the Pilates studio or the Brazilian steakhouse wasn't able to sell on the Internet, and they maybe promoted themselves a little bit on the Internet, but nothing really moved the needle until this thing came along.

KEITH: And move the needle it has, sometimes a little too far. Philip Greenspun is the chief helicopter instructor at East Coast Aero Club, a flight school in the Boston area. [

Mr. PHILIP GREENSPUN (East Coast Aero Club): They called us at roughly the same time we were thinking maybe something like that would be a good idea.

KEITH: They put together a deal: $69 for an introductory flight lesson. That's 70 percent off the regular price.

Mr. GREENSPUN: We priced it so that we wouldn't lose money, that was the hope, you know. If we got everybody to kind of volunteer to come in and teach, that we would basically recover the cost of running the helicopter for these short intro flights.

KEITH: Greenspun thought the flight school would sell maybe 200 of these lessons. He says the folks at Groupon told him to expect more like 500. After all, these emails go out to hundreds of thousands of people. But what happened took everyone by surprise.

Mr. GREENSPUN: At 6:00 a.m. the phone started ringing and I guess by about 11:00 a.m. we begged them to cut it off. And that was when about 2,600 had been sold.

KEITH: Groupon may be the leader in discount group buying on the Internet, but it does have competitors. LivingSocial recently sent an email to its customers in Washington, D.C. offering $50 worth of fancy cupcakes for $25.

Unidentified Woman: The feature is a mango cake with a mango chocolate panache.

KEITH: More than 2,000 people responded - double what the managers at the Red Velvet Cupcakery had been expecting. Tracy Wilson says it's been a wild ride for the pastry chefs.

Ms. TRACY WILSON (Red Velvet Cupcakery): They were literally sleeping in their car outside for a nap and coming back in to start it all over again. They were literally working around the clock.

KEITH: She says in the first weekend after the deal went out, they made more than 10,000 cupcakes.

Tim O'Shaughnessy is the CEO of LivingSocial. He says online marketing firms like his take a cut on each transaction. The business model is based on two fundamentals: people can't resist a bargain, and small businesses are always looking for more customers.

Mr. TIM OSHAUGHNESSY (CEO, LivingSocial): It is probably a more powerful marketing method than just about anything out there. And, you know, if you work with us, the next day you will start seeing new customers.

KEITH: For some businesses, there can be a downside. Some complain the response was overwhelming and they lost existing customers who would have paid full price. LivingSocial and Groupon say they're working with merchants, but having too many customers is generally a good problem to have.

Tamara Keith, NPR News, Washington.

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