March 16, 2012, 11:09 AM

Groupon comes under fire from U.K. regulators

The daily deal operator agrees to make sure its offers are clear and accurate.

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The daily-deal provider is addressing the issues raised by the regulator.

Groupon Inc. U.K. subsidiary MyCityDeal Ltd., which operates, has agreed to ensure that its offers are “accurate, honest and transparent,” following a determination by U.K. regulatory agency the Office of Fair Trading that some of the daily deal offers were misleading and breached consumer protection regulations.

“Collective buying and discount schemes can offer real benefits for both consumers and merchants,” says Cavendish Elithorn, senior director in the OFT’s goods and consumer group. “The market is growing rapidly, but it’s important that consumers benefit from consumer protection law, as well as from the discounted offers.”

The OFT began its investigation last July after receiving several complaints from consumers. In December, U.K. advertising regulator Advertising Standards Authority added to the complaint after finding what it viewed as multiple breaches of U.K. advertising codes.  

One of the main charges is that the daily deal service is overstating the full price of the goods or services offered in its vouchers, making the discount seem larger than it really is. “If an item is advertised as being discounted 90%, Groupon needs to be clear about what that means,” says an OFT spokeswoman. “That implies that if a consumer regularly purchased that good it would cost 90% more. But sometimes that wasn’t the case.”

Groupon also has to ensure that merchants can fulfill the goods or services offered in vouchers in the quantity or time frame suggested. That means that shoppers buying vouchers for tickets to a play in London’s popular West End theater district, for example, have to be able to redeem these certificates at an agreeable day and time—unless those limitations are explicitly spelled out. “It isn’t enough to say that the show is sold out or only valid for a matinee on a Tuesday when most people are at work,” says the spokeswoman.

Groupon also has to ensure that health and beauty product claims are supported by clear evidence, says the OFT.

“It’s really about giving people, when they look at a deal, a clear understanding of what they’re getting,” says the spokeswoman.

The daily deal operator has three months to change its practices, after which it could face legal action. That won’t be an issue because the Groupon is making the necessary changes, says a Groupon spokeswoman.

“As a young and innovative business, Groupon acknowledges that our processes and procedures have not always kept pace with our rapid growth,” she says. “We have independently made many improvements since early 2011 and have worked transparently and constructively with the OFT to identify areas that require further changes.  We take their concerns very seriously and will be willingly implementing the recommended changes."

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