Can Groupon, a website that leverages the concept of collective bargaining power to offer daily deals on local businesses work for lawyers? To date, I’ve seen at least one law firm that gave Groupon a try, though no word on the results of the firm’s participation. Meanwhile, the North Carolina Ethics Committee recently opined that Groupon violates state bar rules’ prohibiting fee splitting. As I’ll discuss in this post, though I don’t think Groupon is a particularly promising way for law firms to market a practice (in addition to ethics hurdles, it’s also a costly proposition), there is one way that lawyers can benefit from Groupon: as buyers of Groupon discounted servicers, rather than providers of it.
What is Groupon?
By now, most lawyers are probably familiar with Groupon, an online company that offers daily deals at local businesses. One of Wall Street’s current darlings, it’s been described somewhat derisively as darlings of the tech industry;a modern version of an online coupon book. Basically, Groupon teams up with local businesses who provide a coupon for 50 to 70 percent off a product or service. Groupon emails the deal to registered users, and if enough users commit to purchasing the coupon, the deal goes through. Groupon and the participating business split the proceeds.
How Groupon Benefits Non-Lawyer Businesses
As described here, retailers benefit from Groupon in a number of ways. First, the coupons bring business in the door, and as a result, customers are likely to spend more than just the face value of the Groupon. Second, first time customers may either become repeat customers or refer friends, so the loss on the first, discounted sale can yield future sales down in the line.
Groupon also spares retailers up-front costs of advertising. Though to be sure, Groupon ain’t free, the money comes from sale proceeds and not out-of-pocket. If a deal doesn’t go through due to insufficient numbers, retailers don’t pay. Moreover, even if consumers don’t buy a Groupon when offered, they may learn about your business and patronize it even without the discount. I know that I’ve learned about a couple of activities in my area through Groupon that I later visited even though I never thought to purchase a coupon at the time because I didn’t have an immediate use for it.
Still, even though Groupon can benefit businesses, it can also be a big bust. That’s because, as discussed here, not all consumers spend in excess of the Groupon or return after having used the coupon. Most importantly – Groupon can be costly to providers. Let’s say that a restauranteur offers a $50 meal for $25 and 100 people accept the offer. That’s $2500 in proceeds (100 x $25), but the restauranteur only receives $1250. That means the restaurant is obligated to provide $5000 in services for $1250.
A Harvard Business School paper (December 2010) offers a more extensive cost-benefit of Groupon, summarized here. What’s interesting is the study found that discount vouchers work better for some businesses than others. Merchants will low cost of goods and highly perishable products – like restaurants, spas, gyms and hotels – fall within that category – every table or room unfilled is lost revenue that can’t be recovered. By contrast, retailers of clothing or manufactured products can hold items for future sales, so the marginal business that other providers gain from Groupon is not as urgent for them.
How Can Groupon Work for Lawyers
Selling legal services via Groupon poses somewhat more of a challenge than other items. Since customers have to pre-pay for Groupons, they’ll want to purchase a service that they need or might like to use. So whereas a spa can sell a $200 Groupon for a $500 “Day of Beauty,” since customers may want to sample that type of service, a customers are unlikely to pay $200 for “$500 Worth of Legal Services” unless they have an immediate need for legal services. Second, most of the Groupons that come to my box are priced so that recipients can redeem the groupon for a full product without spending more than face value. For example, if I buy a $10 Groupon for “$20 worth of food at XYZ Restaurant,” it’s usually enough for at least one, if not two meals. That’s what makes Groupons so appealing. By contrast, if a ten dollar Groupon offered $20 of food at a five-star gourmet restaurant, I doubt that many people would buy it, because they’d have to spend more money at the restaurant in order to get the value of the Groupon.
It’s that dynamic that makes Groupons less appealing for legal services. When customers buy a $200 Groupon, they want to receive the full service in return. Presumably, that is why this lawyer anticipated the possibility that a will might not be appropriate, and offered prospective Groupon purchasers a discount on other services. However, consumers might not want to purchase the more expensive service (or simply, might not have the money for it), and might demand a refund of the Groupon instead.
In addition, a Groupon is a form of advance payment for a service. If a lawyer offers a $100 incorporation on Groupon, and fifty clients accept the deal, the lawyer receives $2500 (fifty percent of the $5000 total) once the deal goes through. However, clients might not use the service for another three months. Would that require the lawyer to place the funds in a trust account?
The North Carolina ethics committee identified another ethics problem with Groupon, characterizing it as prohibited fee splitting Consumers pay one price for Groupon and lawyers subsequently split that fee with Groupon, a non-lawyer provider, a practice that violates North Carolina’s rules. Though personally, I don’t find much mischief in fee splitting as a way to spread advertising costs, I can easily see many other bars taking the same approach.
Though to date, North Carolina is the only disciplinary body that has expressly addressed Groupon, others have ruled on the ethics of other types of discounted services. A number of state disciplinary bodies don’t approve of the practice, finding that discounts may be deceptive (for example, offering a “free” consult when a lawyer never charges for consults anyway), or can give rise to a conflict of interest or constitute a “fee” in exchange for referral if given to a third party, like a realtor, for distribution.
So What’s the Bottom Line on Groupon for Lawyers?
Personally, I don’t really see how Groupon can prove profitable for lawyers. Unless lawyers can offer a discrete service at a discounted rate, it seems that lawyers are bound to lose money. More importantly, unlike restaurants or hotels, will Groupons yield referrals or repeat business for lawyers? I’m skeptical, though if your experience differs, please share it in the comments. Finally, the potential ethical pitfalls associated with Groupon further diminish its desirability for lawyers.
Still – there is one terrific way for you or your law firm to use Groupon: as purchasers, rather than providers of Groupon deals. You can buy Groupons as thank-you gifts for clients and referral sources. Or snap up a bunch of Groupons to a restaurant or coffee shop at the beginning of the year, and use your Groupons throughout to treat colleagues or potential referral sources to a meal. Not only will you keep your costs down, but because you need to pre-pay for Groupons, you’ll have more incentive to actually follow through on get togethers or networking meals.
So there you have it, the scoop on Groupon.