OFT Action on Groupon Breaches

March 16, 2012

The Office of Fair Trading has accepted undertakings from MyCityDeal t/a Groupon to change some of its trading practices. It follows an investigation into the ‘daily deals’ company by the OFT, launched in July 2011, which included a referral of complaints about Groupon’s advertising by the Advertising Standards Authority in December 2011 following repeated breaches of the Advertising Code. The ASA were concerned about Groupon’s:

• Failure to conduct promotions fairly, such as not making clear significant terms and conditions
• Failure to provide evidence that offers were available
• Exaggeration of savings claims.

The investigation found widespread examples of Groupon’s practices which in the OFT’s view breached consumer protection regulations. The OFT identifies specific concerns over practices involving reference pricing, advertising, refunds, unfair terms, and the diligence of its interactions with merchants.

The OFT states that Groupon engaged openly and constructively throughout the investigation; the company has signed undertakings that it will change its practices to comply with the law. Groupon has three months to implement the changes.

The undertakings require Groupon to change its practices to ensure that in the future:

  • Reference prices (adverts that compare an original reference price against a sale price), including savings, are accurate, honest and transparent.
  • Groupon carries out an accurate, honest and realistic assessment of a merchant’s ability to provide goods or services in the quantity or time frame suggested.
  • Products display clearly, prominently and on the same screen or before purchase all the limitations which apply to any deal.
  • Groupon takes reasonable steps to ensure that health or beauty product claims are supported by adequate substantiation.
  • Terms and conditions are fair.
  • Groupon applies refunds policies and cancellation rights in accordance with the Distance Selling Regulations.

The OFT will monitor complaint numbers closely and has required Groupon to inform the OFT of any complaints it receives on each of these practices. Should evidence emerge of a breach of any of these undertakings, the OFT will consider appropriate measures, including applying to court for enforcement orders.

Cavendish Elithorn, Senior Director in the OFT’s Goods and Consumer Group, said:

‘Collective buying and discount schemes can offer real benefits for both consumers and merchants. The market is growing rapidly, but it’s important that consumers benefit from consumer protection law as well as from the discounted offers. Groupon has cooperated fully with our investigation and is making changes to its business practices to address our concerns. We will be monitoring the situation closely to ensure that consumers benefit from these improvements.’

For more information, see the OFT’s case closure notice. 

The Groupon company blog has responded in detail, with text that may well become a PR-training template:

‘Groupon’s business is beautifully simple: we feature daily offers on some of the best local businesses in the UK, giving customers more buying power and merchants more profits. This self-evident value proposition has propelled Groupon into becoming what some have called the fastest growing company in history. While we’ve endeavoured to meet the massive public demand for our offers while maintaining our bar for service, there are times we’ve failed.

The Office of Fair Trading (OFT) noticed, and recommended a number of changes based on incidents they observed last year that would improve our customer experience http://www.oft.gov.uk/news-and-updates/press/2012/19-12. Frankly, we’re grateful that any time someone takes the time to give us feedback on how to better serve our customers. Many of their suggested changes were already underway, and the rest we will implement with haste.

To the Groupon customers that experienced the negative side effects of our growth: we’re sorry. We believe that the only way to build a company that lasts is to provide the best customer experience in the world, and it pains us when we fall short.

Our commitment is this: we are going to get this right. We won’t stop until we are known for having the best customer service in the UK. And we appreciate your help in getting there. If you see ways that we can improve, or if you feel we aren’t living up to our end of the bargain, please let us know .


The Details: Where we messed up, and how we’re making it right

The OFT issued a statement this morning summarising where Groupon in the UK can improve, but we want to be exceedingly transparent about the issues the OFT identified and what we are doing to resolve their concerns.


Price / Discount Clarity

Groupon offers range from 50% to 70% off – but 50% to 70% off what, exactly? We originally took our merchants’ word on reference prices – the prices we use to determine our discounts – but the OFT observed that many merchants define retail value at different amounts in different places, and asked us to be clearer on where we’re finding our reference prices.

How we’re making it right

  • Since June 2011, we now check and recheck the reference price, which the discount is based on and make sure that what we say is being offered, is actually being offered.
  • In addition, we clearly show the source of all our reference prices on our offers.


Merchant Capacity Planning

It’s not uncommon for merchants to struggle with a lack of customers, but with Groupon’s popularity, some have faced a new challenge: what happens when you attract too many? The answer is bad experiences for customers – who sometimes can’t get a reservation for months – as well as merchants, who are overwhelmed by the stress. Overwhelmed merchants are unhappy merchants, and unhappy merchants result in unhappy customers, neither of which makes us here at Groupon happy.

How we’re making it right

While we’ve always allowed merchants to limit the number of Groupons they sell, many merchants are unfamiliar with how much capacity their business can actually handle. As pioneers of the industry, we take it as our responsibility to help merchants learn to plan around capacity and properly set deal limits, by doing the following:

  • We run the merchant businesses through a capacity calculator and consult with them to determine the right limit for their business.
  • We will provide merchants with a free online scheduling system allowing customers to book appointments at the time of purchase.
  • We confirm with the merchant prior to the offer being promoted, that they are capable of fulfilling the offer.
  • We have started an ongoing due diligence programme that incorporates live and continuous checks based on customer and operational feedback at all stages of the deal.


Deal “Time Remaining” Clarity

When we started Groupon, all offers were only available for 24 hours. Responding to customer feedback that 24 hours wasn’t enough time to make a decision, especially on higher price point offers like Lasik eye surgery or hotel packages, we decided to expand the availability of some of our offers to three days – and sometimes other periods. However, due to limitations in the way we built our website in Europe, it was far easier to run three sequential 24 hour offers than make changes allowing us to run a single deal for, say, 72 hours. This was a sloppy shortcut, and the OFT understandably concluded that the three sequential 24 hours created a misleading sense of urgency.

What we’re doing to make it right

  • We’re now making the changes to allow us to run offers for many time periods, including the 72-hour offer.
  • We are updating our FAQs to explain how our “time-remaining clocks” work.


Errors in Deal Descriptions

Groupon UK features over 250 offers every day across more than 500 types of business in more than 50 UK cities and towns. While we have a team of 70 people committed to our quality control and fact checking processes, the OFT identified a number of mistakes in offers we’ve featured that our teams didn’t catch. We missed important details of offers and had to email customers with corrections after they made their purchase. For example: giving customers a misleading perception of the deal and its value.

What we’re doing to make it right

We’re committing to beefing up our quality control processes by doing the following:

  • Credit checks on every merchant, reducing the risk of unsavoury businesses being promoted.
  • Every offer is fact-checked by the Groupon editorial team prior to launch.
  • Prior to launch, we confirm and agree the fine print of every offer with the merchant.
  • Emailing a preview of the offer to all merchants in advance of the feature, giving them the opportunity to point out errors we overlooked.


Substantiating Marketing Claims

At times, we’ve taken the marketing claims of our merchants at face value when we should have shown more scepticism. Particularly with health and beauty products, we’ve reprinted merchant claims of efficacy without doing the research ourselves.

What we’re doing to make it right

  • We established an internal compliance database on 4 January 2012 to track the claims that our merchants want us to make when we describe their offers.
  • We will continue to populate this database and provide extracts to regulators like the OFT for compliance reporting.
    The Groupon fact-check team confirms that all health and beauty claims are backed by scientific evidence and we are working with the Advertising Standards Authority on this.


7 Day Refund Period

While “The Groupon Promise” grants any customer a full refund for their Groupon if they have a bad experience with a merchant, we also grant customers a refund for any reason within 7 working days. Sometimes, like last Christmas, we were overwhelmed with people phoning in with questions and some people couldn’t get through who wanted a refund.

What we’re doing to make it right

  • We have expanded our customer support so that all our callers can be answered.
  • We are constantly reviewing our customer support metrics to ensure that customers receive high levels of service.’