Coupon and voucher codes failing to deliver goods

Recession-hit Britons are latching on to online discount vouchers despite mounting evidence that consumers are being misled. In less than six months, the advertising watchdog has banned 60 voucher adverts by the burgeoning industry of websites offering alluring discounts on goods and services stretching from meals out and hotel stays to fish-based pedicure treatments.

The likes of LivingSocial and Groupon have spawned dozens of imitators in Britain and the United States and attracted valuations of billions of pounds. Groupon alone, which has more than 6 million British customers, was responsible for nearly half of the rulings by the Advertising Standards Agency.

Complaints have centred on the availability of the goods and services being offered and on the exaggeration of the available discounts.

The ASA banned an online banner advertisement by Groupon that promised customers “all you can eat in London £3”, finding that the company, which is planning a stock market flotation in the US, had not provided any evidence that the offer was available.

Luke O’Neill, 25, from London, paid £95 for a night for two in a hotel in Wiltshire, including dinner and breakfast — a supposed saving of £140. But when he tried to book he was told by the hotel that there was no weekend availability for the three-month duration of the offer. “That was £95 gone,” Mr O’Neill said.

In other cases the ASA has ruled that websites have exaggerated savings. On one e-mail, Groupon offered subscribers a 94 per cent discount on teethbracing. Customers were to pay £98 for £1,650 of treatment. The reality, confusingly, was that customers were paying £98 for a £1,650 discount on £3,500 worth of treatment — leaving them to pay £1,948.

The Office of Fair Trading has taken action against one voucher website. It found that Groupola ran a heavily discounted iPhone 4 sale that attracted 15,000 customers with only eight phones. At one point it showed a caption on its website stating that it had sold 202. The OFT found that a Groupola employee had even posed as a customer on its Facebook page.

Which?, the consumer magazine, accused staff at LivingSocial of masquerading as customers to write glowing reviews of the company for whom they work. This is in breach of consumer protection regulations. LivingSocial has launched an internal investigation.

Investors have been keen to buy into the explosion in online voucher websites. Last year Groupon turned down a $6 billion offer from Google while Amazon bought a $175 million stake in LivingSocial, valuing the company at $2.5 billion. Analysts say the stampede is partly the result of the normalisation of voucher use among better-off consumers during the recession.

Neil Saunders, retail analyst at Verdict Research, said: “The stigma has gone, to a large degree because of economic necessity — everyone wants to save money — but also because of normalisation. Middle class places for a quick lunch, like Strada, offer vouchers on such a regular basis it’s almost unusual not to have one when you go in.”

There is also some scepticism from businesses that they can retain enough of the customers that they have paid the likes of Groupon and LivingSocial to lure through the doors.

Martin Gill, an online retail analyst at Forrester Research, said: “All of the retailers I speak to are very, very sceptical about the deals because they don’t know if they are going to cannibalise existing trade. They don’t know if they’re giving discounts to shoppers who would have shopped in their stores.”

A spokesman for Groupon said: “We work closely with the ASA are other regulatory bodies to ensure all our deals adhere to all the relevant regulations and are a fair reflection of the customer’s experience.” Each company featured on Groupon was checked to ensure they are legitimate businesses, the spokesman added.