Too much of a good thing?

Traditionally, the biggest problem for most small businesses is getting customers in the door. Now, Groupon has presented some businesses with an entirely new problem: what happens when you have _too many_ customers?

There have been a [handful of stories](http://detnews.com/article/20100805/BIZ/8050370/For-shops–group-coupons-can-overwhelm) lately documenting the struggles of cupcake shops running out of batter or sushi restaurants who don’t have enough rice to meet the demand brought on by their Groupon feature. We haven’t written about those stories here because it’s not a common experience – the vast majority of businesses we feature, while certainly busy, do just fine. 97% of the businesses we feature ask to be featured again, including many of the businesses mentioned in the stories.

But earlier this week, one of our [merchants](http://www.groupon.com/deals/posies-cafe), after a bad experience, called Groupon “the single worst decision I have ever made as a business owner” on [her blog](http://posiescafe.com/wp/?p=316). Understandably, the article [caught the media's attention](http://techcrunch.com/2010/09/16/groupon-photography/), as well as ours. I thought it was worth responding.

Now that we know Posie’s had a problem, we have reached out to them so we can help. We’ve featured hundreds of businesses similar to Posie’s with great success, so we’re eager to learn what went wrong. Here are a few in Portland:

* [$4 for $8 Worth of Breakfast and Lunch Fare at FlavourSpot](http://www.groupon.com/deals/flavour-spot) (2,348 sold)
* [$7 for $15 Worth of Fresh Deli Fare from Elephants Delicatessen](http://www.groupon.com/deals/elephants-delicatessen) (7,206 sold)
* [$7 for $15 Worth of Fresh, Wholesome Smoothies and Café Fare at Tropical Smoothie Café](http://www.groupon.com/deals/tropical-smoothie-cafe-portland) (1,015 sold)
* [$10 for $22 Worth of Hawaiian Fare at Aiea Grill](http://www.groupon.com/portland/deals/aiea-grill) (505 sold)

Here’s an email the owner of the last business, Aiea Grill, sent their Groupon representative shortly after being featured:

> Hi John,

> Thank you for setting us up on Groupon. The concept is sheer genius. The web-savvy, interactive format is so well thought out forwards and backwards. Who ever heard of aquiring 516 new, quality customers in one day with no money up front? You were also right about the Groupon member being a high grade customer, operating at a sophistication level far above that of the typical bargain hunter/coupon cutter. Viral, positive word of mouth would be a fantastically welcome result of this strategically targeted blast onto the Portland radar screen.

> We experienced 2500 hits on our website on the day of our feature. The daily average has been 35. Even on the following day residual interest it seems led to 250 hits. And then today is still high at 85. There is much more to what Groupon generates for participating businesses than what occurs only on the day of the feature, isn’t there?

> Thank you again for bringing this amazing opportunity to us and for your into the after-hours support on the discussion board during our feature run.

> Mahalo,
Gerrick Adachi
Aiea Grill

For some reason, those four merchants – all offering similar services at similar price points – had positive Groupon experiences, but Posie’s did not.

Of course, we have heard from merchants who felt Groupon sent them **too many** customers. We responded to those concerns by creating [merchant preparation materials](http://www.groupon.com/pages/merchant-welcome), including this video featuring a Groupon merchant who sold 10,000 bagel Groupons in a day:

Also, to clarify one important point: it has always been Groupon policy to allow merchants to cap deals. If a merchant sells too many Groupons, they’ll have a bad experience, the customer will have a bad experience, and therefore, Groupon loses. We’re longer-term thinkers than that. In fact, we have the opposite problem more often – where merchants protest a cap we recommend, convinced they can handle more customers than we think they can.

Ultimately, most businesses look at Groupon as a form of advertising – they’re deciding between us and running a radio commercial or newspaper ad. In all cases, the business pays in hopes of getting new customers in the door that will hopefully love their service and come back again. When merchants choose Groupon, it’s because we’re the best in the world at getting a large number of [desirable customers](http://grouponworks.com/why-groupon/demographics) in the door, there’s no upfront cost, and the total cost per customer is lower than other forms of local advertising. We tell merchants that we get the customers in the door, and from there, it’s up to them – and that’s exactly what most great merchants need. If they have a great business, we’re the best amplifier out there.

Finally, for what it’s worth, it’s painful for us at Groupon to read stories like this. When we started this company three years ago, we were actually [a platform for groups to organize action and fundraise](http://www.thepoint.com) for causes and shared interests (one of which ended up being group purchasing). When we started Groupon, what got us excited about it is the win-win we’re creating – every day we’re breathing life into great local businesses, while at the same time making it easier for people to get out of the house and experience life. It sounds like corporate BS, but the only thing that makes this worth doing is that we’re helping people. We’re extremely proud that most businesses consider Groupon the best form of advertising out there, but won’t rest until we’ve made Groupon work for everyone. We welcome your ideas!

  • Andrew, this post is very well written and clear as can be expected from Groupon and all of their writers. It appears that miscommunication and misunderstanding were the cause of this atypical experience. I hope both businesses and consumers take this to heart as they continue to use your outstanding service.

  • Well done for responding so thoughtfully Andrew. There’s bound to be some business that it doesn’t work for, (or don’t present the right type of offer), but as you say, 97% want to be featured again. That is a phenomenal phenomenon.

  • It seems pretty obvious that businesses are not prepared to handle capping on their own. How about, you know, Groupon actually participate in the process a little bit more, hmmmm??

    You know, if you sell one small deal, and it goes well, then we’ll think about letting you do a bigger deal — you remember the line from Boiler Room, right?

  • Prediction: the margin that Groupon makes will go down. I’m thinking no more than 25% on big partners and 33% on little ones within a year….

    And an average discount of about 40%.

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  • Andrew,

    How do you know that Groupon is really good for small businesses?

    While I appreciate your openness, the argument you’ve made here is largely anecdotal. Have you really looked at the profitability of running a Groupon for small businesses?

    In my mind, there are two key questions that Groupon cannot answer (or has yet to):

    1) How many new customers from a Groupon return to an small business for make a repeat purchase, and how often?

    2) What is the profitability of those repeat purchases, ie. the lifetime value of a Groupon customer?

    I suspect most small businesses run Groupons at breakeven or a loss on a unit basis, in order to bring new customers in the door.

    Most small businesses lack the ability to answer these two questions for themselves, so we may even see a wave of small businesses go out of business in the next 6 months to a year, because they ran a Groupon.

    Unless you can provide data to support these two critical questions, I have a tough time believing the blanket claim that Groupon is “great for small businesses.”

    Alex

  • It’s good to see you responding to these stories.

    As a small business owner who recently discovered Groupon and was considering contacting you about running a promotion, I was disappointed to not see the most glaring issue with the Posie story addressed:

    After convincing a business to run a 50% off promotion, your starting point in negotiations with a business is 100% of revenue goes to Groupon.

    That’s…insulting. Even the 50% margin you eventually agreed to is extreme. The window your greed is leaving open to your competitors is going to be filled very quickly.

    “the total cost per customer is lower than other forms of local advertising.”

    How are you coming to this conclusion? There are plenty of opportunities to attract a dramatic number of customers if you’re willing to give away 100% of your revenue.

    Posies gave away over 75% of their revenue to run these ads. There’s no form of local advertising that costs anywhere near that. They could run a 50% off promotion on their own, advertise it on every local TV/Radio/Website they could find, get as many customers as Groupon gave them, and it wouldn’t cost nearly as much. Do you know why they don’t? As they found out, it’s not sustainable.

    If you continue treating your clients this way, you’re quickly going to find yourself only being able to attract extremely overpriced tourist-trap trinket stores to run campaigns.

    You posted links to success stories. They seem like they were extremely successful for Groupon, no doubt. How do these pages and numbers show they were profitable for the featured business? The Posie’s page looks just as good, all things considered.

    Of those that want to be featured on Groupon again, how many want to be featured a third or fourth time? I expect the new customer rate drops significantly each time they run a promotion since the group of Groupon customers who take advantage of these deals likely doesn’t change much. It’s not like that fourth promotion is getting another 1000 brand new folks to show up. It’ll be the same group of people essentially.

    For you to keep these companies coming back to Groupon, you’re going to have to develop more clear and open pricing and you’re definitely going to have to drop this “go f yourselves, give us all your money” attitude that you’re leading your negotiations with.

    Really man? It’s disappointing to read this is how your company interacts with their customers, because it seems like a great idea.

    Best of luck.

  • Groupon preys on small businesses…eventually they’ll wise up and Groupon will make their rates more realistic.

    Seriously, expecting a business not only give a huge discount of 50%..but then to demand to be paid HALF of any actual sales is very scummy. And half is just the starting point, according to that article, the policy is to have you pay 100% if your service costs less than $10.

  • I think many have a different view of Groupon than a business owner should. It is an ideal tool to get new people in the door and be a loss leader in many cases. I look at it as the same as buying an advertisement for a few thousand in the local newspaper except you also get those people to sample and show up at your location. I think the mindset in which the business owner thinks of it makes a huge impact on their satisfaction.

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  • It’s true that there were mistakes made by Posie’s but she also said she was explicitly told she could not cap the Groupon.

    I have no reason to doubt her word, particularly since, and let’s be honest, the Groupon rep is really a salesperson for Groupon.

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  • So did Cory the owner of the New York City Deli pay Groupon $40,000 to give away $100,000 worth of free bagels?

    “When the consumer pays less than $10, Groupon usually takes 100% of the money.” — http://posiescafe.com/wp/?p=316

    I think Cory is a very experience small business owner with two locations and touch screen POS. He also has the cash flow to handle the new business. A little more savvy then posies cafe or some brand new cup cake shoppe.

    Either way this concept is evolving like Friendster did.

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  • Boo Hoo – Groupon gave us too many customers.

    Let me pull out my violin for you.

    Keep up the great work Groupon staff – You are awesome!

  • Andrew, you don’t get to $1 Billion dollar valuation without making a few enemies.

    You know what you’re doing is right on point, ethical and PROFITABLE. So I wouldn’t focus on the < 1% who’s not benefiting from your product.

    BTW Do you guys need any twitter API developers, SEO or SEM pros! Hit me up on FB!

    Big Fan,

    Ben Joven

    PS Want to be entrepreneur like you some day: got an awesome idea for a start-up!

  • “After convincing a business to run a 50% off promotion, your starting point in negotiations with a business is 100% of revenue goes to Groupon.

    That’s…insulting. Even the 50% margin you eventually agreed to is extreme. The window your greed is leaving open to your competitors is going to be filled very quickly.”

    Couldn’t agree more.

  • After reading this post, it seems you are committed for the greater good but I have to agree with ARIA, sweeping this under the carpet won’t help Groupon. You should certainly have a relook at the rep training process and have random checks to ensure that they are upto the mark.

  • I want to start this comment by commend Andrew for his openness and congratulate him and the rest of the GroupOn team for building a great company. Perhaps even an industry.

    I work at a technology accelerator in Atlanta and have been helping a few companies that are offering GroupOn like products. Based on the interviews that I have conducted with merchants I am not sure if Posies experience is completely atypical. I wrote an article about it last night. http://bit.ly/byPmc2

    Managing the type of growth GroupOn has been experiencing is extremely challenging. GroupOn seems like smart people that have the lead in the market and a lot of money in the bank. They want to do the right thing. Given a little time they will make it work for everyone of their customers

  • @ Alex Partiquin:

    Do you have any experience in running a business? (I’m really asking, not being facetious)

    Running a Groupon is running an advertisement- if your business runs a full page ad in a newspaper, you run the risk of having no additional income because of it.

    With Groupon, instead of paying for the ad upfront in cash, you are paying for it in product, which should have a healthy profit margin, thus reducing cost. You once again might not see any revenue, but everyone is at least trying your product.

    “so we may even see a wave of small businesses go out of business in the next 6 months to a year, because they ran a Groupon.”

    If a wave of businesses go bankrupt because they ran a single ad those companies had a terrible business plan to begin; could you imagine pinning the future of your business on running ONE advertisement?

  • Thanks everyone for the feedback. I tried to pick a few responses that address the issues raised:

    ALEX PATRIQUIN: How do you know that Groupon is really good for small businesses?

    They tell us so: We survey featured businesses and 97% report a positive experience.

    D:After convincing a business to run a 50% off promotion, your starting point in negotiations with a business is 100% of revenue goes to Groupon.

    This is not true – we don’t take 100%. I’m trying to get to the bottom of where that came from, but this is in no way our policy.

    That said – we certainly have merchants offer to give us more than 50%. We have a 6 month waiting list to be featured in many cities, so if we were economically rational, we would raise our margins.

    There seems to be a weird misconception that merchants are too dumb to understand the economics of their own businesses – our experience has been the opposite. Merchants offer the discount and pay the Groupon commission because they understand the value of being featured.

    Groupon isn’t free – it’s a valuable advertising service for these businesses, and they’re happy to pay for it. If there was an article for every time a merchant ran a newspaper ad and felt like it was a bad decision, there wouldn’t be room to print anything else. We’re really proud that Groupon works for 97% of businesses (including the businesses mentioned above), and we’re working hard to understand how to make it work for the other 3% like Posie’s.

    D: You posted links to success stories. They seem like they were extremely successful for Groupon, no doubt. How do these pages and numbers show they were profitable for the featured business? The Posie’s page looks just as good, all things considered.

    All of those merchants consider Groupon a success – you can call any of them and ask them about their experience.

    IRA: It’s true that there were mistakes made by Posie’s but she also said she was explicitly told she could not cap the Groupon.

    I’ve confirmed that this isn’t true – we never told Posie’s they couldn’t cap their deal.

  • The only thing this excellent blog post is missing is just a tiny bit of humility.

  • Sorry Alan – we certainly recognize that we are imperfect and we are eager to learn. The only reason we’ve made it this far is by listening to and respecting each and every customer like they’re the only one we’ve got, and that’s not going to change.

  • I’m a big fan of the Groupon concept and I think that the business owner needs to fully understand how to plan for and deal with the influx of new customers that they’ll get because of their deal.

    If you know a product or sale is a loss leader, as a business owner it’s necessary to upsell properly in order to make some profit on the sale.

    If you know your average order is less than $10, don’t give people a $13 coupon… I’ve seen restaurants give away a $5 off, no minimum order, coupon on Mondays, when their average menu item is under $7. The lunch special is only $4.75… They were giving away free lunch every Monday! But… they retained a majority of the customers and in the long run made more money from offering a deal that was basically losing them money on the spot.

    How about collecting business cards, cell numbers or e-mail addresses of the new customers so the result is a nice database to market to in the future…

    Pretty much, the only way to make a loss leader situation work is to properly upsell and re-market to the client base in order to make back the cash lost on the front end offer.

    Not to assume that Groupons are loss leaders all the time… they probably aren’t but they are usually crazy sales that bring in tons of new customers… without preparation (like the video says) and after-sale monetization, it could have a poor result…

    They key is to create repeat business out of the new customers… That’s my take on it.

  • Having done a Groupon sale, Groupon does lay out the downside of their program. You know going into it you will most likely lose money on the actual event.

    Barry Friedland, the sales guy I dealt with, was great.

    In fact he specifically asked if it made business sense to do this promotion. Barry was concerned I would not get the benefit from Groupon.

    Even after my designer screwed up the redemption landing page and I the response to customer complaints,Barry was willing to take another chance on me.

    As small business folks we have to own the bad with the good results.

  • Great response Andrew. It seems like the biggest issue with Posies is that the shop owner underestimated demand for the groupon from both new AND existing customers. My guess is that a lot of her existing customers came in with Groupons and that caused an additional loss of cash flow over and beyond what she expected to lose from new customers. I’d also say that she didn’t compute the cost of providing the service as well as necessary. She took too much of a loss to buy new customers. And if the customers don’t return, that’s not Groupon’s fault, that’s HER fault. If the merchandise is good, the customer service adequate and the price is right then there is no way you can’t convert new customers. If that didn’t happen you can’t blame your ad agency, their job is just to get the customer to show up.

    None of these issues are Groupon’s fault. I’m glad to see her taking responsibility for the bad decisions but I think that disparaging the company that ran the best ad campaign in her company’s history as well as the customer’s who took advantage of her discount offer is a sure fire way to go out of business. It’s sad really.

    Malcolm Lloyd

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  • To the best of my knowledge Groupon doesn’t approach businesses, the businesses (of all shapes and sizes) approach Groupon. If they’re not clear in what can happen, or what the deal can mean for them, they should probably avoid trying to take advantage of it.

    If you lose money making one widget, stop making widgets, and definitely don’t go looking for a partner to help you make thousands of them!

  • Andrew, you are handling this situation very well.

    It is up to the business owner to handle the effects of running any ad campaign. The bangle guy in the video sums it up nicely.

    Even if your Groupon campaign completely craps out, at least you have measurable statistics. What kind of metrics can you get from buying an ad in a newspaper, on the side of a bus, radio or TV?

    I wonder how much additional web traffic this blog post is sending to Posies?

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  • Who chose your domain name? That is horrendous!!! Seriously, you’ve got to change it.

  • Wow all these comments just caressing the ego of Groupon. Personally there has not been one offer on Groupon (at least in Portland) that I would even consider buying. They are all second rate businesses who no one visits in the first place and they will just go once because of the discount.

    I must thank Groupon though for all the advertising it does on Adsense. You guys blow through so mujch money advertising and it keeps going into my pocket whenever people click on the adds on all my websites. So I thank you for that.

    Resturant.com is much better then this wanna be woot ripoff.

  • A rep by the name of Tracy ran our groupon promotion without approving it. Our last conversation ended with us saying “we need to think about it.” Your company has offered no system to track serial numbers, or any sort of infrastructure for small businesses at all. After running the promotion, we had no choice but to accept them because it was our name on the line. Tracy also took it upon herself to copy and paste information from an obsolete website and offered products we no longer had. Your company sucks.

  • But how many customers who use Groupon become repeat customers of the business??

    I used Groupon twice. The first time I completely forgot to use it. The second time, I used it, and the experience was fine. But I’ve never been back to revisit the business!

    As a business owner, I want REPEAT clientele. And not DISCOUNTED clientele. Seems to me that most people who use GroupOn DO NOT become repeat customers.

    I’d be careful if I were a small business using Groupon.

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  • “All of those merchants consider Groupon a success – you can call any of them and ask them about their experience.”

    If – in your first post – instead of links you’d have posted a list of phone numbers, do you think that would have counted as proof? Why would having me take an additional step to go to a separate page to get the numbers myself be any better than that? Expecting me to go research this on my own as proof isn’t particularly compelling evidence.

    I get what you’re saying about the wait list and how it all makes sense on paper to take this big of a cut since you can. That makes it a difficult decision, I’m sure.

    You’re going to damage a lot of relationships treating small businesses like they need you. You have an expensive service and you don’t seem to back it up with long term sales figures anywhere. I don’t think that’s going to fly for very long once a certain number of companies go through the process and there aren’t any raving “Groupon saved my business!” postings anywhere to balance out the Posie’s one, especially since hers DID have numbers.

    Your only testimonial sounds like it was written a few days after one of these promotions. Even though she sounds very impressed with those traffic numbers, there’s a pretty drastic trend downwards in them, no? I’d be interested to find out how many of those 500 she has around 6 months later and how much profit she’s made from them. That’s a way more valuable testimonial.

    I hope this Posie girl is the only one who feels this way. I’m not so sure. Good luck sir.

  • Andrew I’ve heard your Andrew Warner and Jason Calacanis interviews and was always intrigued with the original idea that got Groupon started. Only now, from this blog post did I come to realize that ThePoint.com is still an active site! I think it’s a great idea and am writing to encourage you to promote it in your interviews and press. Best.

  • @David

    “As a business owner, I want REPEAT clientele. And not DISCOUNTED clientele. Seems to me that most people who use GroupOn DO NOT become repeat customers.”

    Great point! Exactly my thoughts. However, I wouldn’t underestimate the power of Groupon and Groupon-like sites as a very useful method of efficient publicity. For small businesses, too.

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  • Groupon’s 97% vote of confidence by it’s business partners is all you need to understand the value of the model. If 3% of the businesses don’t see the value – or worse can’t figure out how to leverage the new customer traffic after the fact – then they likely have a bigger issue with their business.

    Causeon.com is soft launching today in Portland and we have spoken to dozens of businesses that get it. Some don’t. The margins and players may change but social group buying or whatever one may call it is here to stay. Our twist is giving back, locally, and it is resonating. Yelp will be formidable, and other big names will not ignore the space.

    It’s a win-win for businesses and customers, plain and simple. Throw in automated philanthropy and you have a win-win-win. (shameless, but relevant, plug)

  • Do you think it’s fair to charge mom and pop stores a 100% fee -seems empirically wrong.

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  • Clearly this small business owner, as she admitted in her own post, does not understand cost accounting. She was basically offering a price lower than the variable cost of her product. This means that the more she sold, the more she lost.

    It’s not Groupon’s fault that she did not understand her numbers. That being said, she apparently didn’t know she could cap her groupons. Sometimes, it’s ok to sell a product at a loss to bring in first-time customers. In those cases, you want to limit the loss to something your overall business can absorb, and write it off as a marketing expense.

    Google Adwords allows you to very easily set a budget limit for your ad, so that too many clicks don;t wipe out your business. Groupon should set an easy option to cap groupons and thus the cost of any campaign, so that small businesses can limit their potential costs. This should be an obvious and easy UI element.

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  • I’m trying to get in touch with you. I purchased today’s special and I haven’t received any kind of confirmation. Can you help?

  • After the recent groupon disaster with Dana Dawes Photography, with the long list of photographers you have ready to advertise with you (per what you said to several photographers who have asked if they can advertise), why did you pick her to advertise? You have to know that if a photographer is offering what she did, her profit is anywhere from 50 cents an hour to $5/hour, and she would have to spend 60 to over 100 hours per day for an entire year to handle the 1200 groupons she sold. Obviously, you can see this (see math at photographerscam.blogspot.com ) as you yourself are a “business owner”, it’s not hard math to do.

    anyway, why did you chose her to advertise? If she would have capped her sales at 100, would you have advertised her when you have a long list of photographers in line that may have higher caps? $$$ speaks, doesn’t it?

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  • I’m a Groupon user who frequently purchases restaurant offers. My wife and I almost always spend over the Groupon amount due to one word: alcohol. Doesn’t it fall upon the business to upsell and push items that have a higher profit margin?

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  • As someone that just worked with Groupon for the 1st time on behalf of a client I have this feedback – although our Groupon hits on Thursday so I can’t give feedback on the final result.

    I can say the communications from Groupon have been incredibly clear and professional. And it’s blog posts like this one that make me like the company quite a bit for its open communication and transparency.

    However, having worked with small businesses for many years I know there is a risk of the business not fully understanding the bottom line impacts in the short term for certain financial deals. Groupon is not in essence “free” – although there is a strong message from Groupon that it is. While yes, small businesses do have a responsibility to run their own numbers and make sure they have the capacity to cover Groupon I know that small businesses don’t always have these skills.This is what can lead to situations such as the Posie’s one.

    My one negative feedback is while Groupon did a terrific job of selling my client on the benefits, they did not outline any risks or hard costs, or suggest items such as caps or different Groupon scenarios. In fact, I really had to push my rep to put a cap on our coupons. I mean really push to the point where it got heated. And when I did, the Groupon rep just put down some marketing 101 BS (“but let me ask, do you spend money on advertising…blah blah”). This was, really total BS talk and left a bad taste in my mouth since advertising is a finite expense laid out at inception, whereas Groupon’s lack of mentioning the option of caps is a completely different formula than “advertising”.

    One thing I think would go a long way in assisting these businesses and avoid discussions like the one I had to have, is that if Groupon could develop a simple online formula financial model. (much like those mortgage calculators and other financial calculators online). This would give small businesses a very clear picture of the hard costs, options and profit possibilities.

    While there are many benefits to using Groupon that do not have immediate known benefits (reach, raised profile, potential to build long term customer loyalty, CRM, etc), there are risks and both hard costs as well as soft costs (additional time for business, staffing, etc). It would benefit both Groupon and these businesses if Groupon was more upfront and had a way for businesses to assess these.

    Otherwise, my client is excited about our first Groupon and we’ll know soon if this is something we will use again and recommend to others in the future.

  • I addressed the “underbelly” of group coupon buying for small business in a recent post. It seems to me there is much Groupon and similar services could do to prepare a small business for what may happen, accentuating the positive as well as explaining the potential risks. That, in my view, is true transparency.

    It seems the determining factor as to whether this is a winning approach long-term is in getting repeat business from these discount seekers. When pitching small businesses does Groupon provide recommendations for how to accomplish that task?

    My conjecture is that people are more loyal to the deal than the business offering it. A new day, a new deal. It can become addictive. But leaving smaller businesses like Posies lying in the wake of a failed effort isn’t cool and I believe that Groupon (and others) has a responsibility to ensure to the best of its ability that doesn’t happen.

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  • We are just wrapping up our Groupon promotion at the restaurant where I am the General Manager. For restaurants, depending on your pricepoint and level discount you are offering, I think it can be a positive tool. But, I do think the salespeople could do a better job helping business owners understand the pitfalls and help them prepare for it. The calculator idea above is very good for example. I also think that the timing of a groupon is critical, we set ours up during the summer, our slowest season, which was a boon for the waiters obviously. And I had pretty much been committed to repeating this experience next summer. But the last few weeks of this promotion has made me ready to reconsider this decision. Approaching the final weeks of the expiration (which is not a TRUE expiration, purchasers can redeem the “discounted” or purchased amount for up to 5 years), over 1/3 of our 3,000 buyers had not redeemed the coupon. Now this situation is not a simple problem of escalating staff to deal with additional business. This puts us in the position to try to accomodate as many people as possible despite the impact it will have on their experience and the staff. Despite having been fully booked for the final two weeks of the promotion, we have had on some nights over 100 walkins insisting on being served. Despite having over three months to make a reservation, many of these folks come in with an attitude that they have a right be served no matter what. We have received nasty letters and phone calls from people who INSIST they be allowed to dine, again despite having waited until the last minute to NOT make a reservation, and in many cases, just show up. We have extended the promotion for one more week, but it absolutely puts the business owner in the position of being greedy or uncaring if they enforce the expiration date. And in a customer service-based business such dining, this can be a devastating situation. I would be eager to start a dialogue about this Andrew as I can see you care about how this affects your business partners.

  • Where is the data on how many consumers who use GroupOn become repeat customers for that business?

    Where is the data on how well businesses perform in terms of sales once the groupon promotion has expired?

    There is so much more critical analysis that needs to be done here to prove of Groupon’s inherent value as a business money maker for the seller.

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  • Posies cut a bad deal – with Groupon’s consent. Checking the menu, most items are under $5 and the most expensive sandwich is $9. A get $13 for $6 is too rich for their menu. They are a coffee shop with low average tickets! The owner should have known it and so should have Groupon’s rep. Also Posie’s owner seems to think that overhead should figure into her “losses” which is inaccurate. The variable cost of food and the increase in utility costs are what to factor in when figuring the ROI.

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  • Warning to all business users, this type of advertising can wreck your business or maybe at best break even.

    You will never get fat & rich with this type of marketing…..never good luck!

    B

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  • I probably won’t run another Groupon again, but am glad I tried it out, despite it being an expensive (and probably somewhat harmful) experience. We were taught in biz school to not coupon premium, higher end items, as they can devalue your product and brand, and thus diluting equity you’ve built into your brand, and I will pay more attention to this if I ever consider this again!

    That said, as a cafe owner, I was approached a by Groupon reps to be featured. Aware of the costs of this scheme, I did try to renegotiate the 50% commission, and eventually gave in, the economy being what it is and knowing that we were headed into a slower summer season. I don’t really believe in print advertising, as most of my marketing & advertising is more of the hands-on, grassroots type.

    Having never had a coupon, and this being a fairly new mkg tool to us, the Groupon rep could’ve better advised us on caps, structure of product discounting, timing, limits of the offer, and so on.

    Yes, the cash upfront from our (roughly) 800 sold was nice. However, Groupon users proved to be overall pretty lousy: more of the bargain hunting variety (not that there’s anything wrong with that–just not our type of clientele), they didn’t tip, and clearly are not the most loyal, despite us doing everything we could to take the opportunity to offer a fabulous experience so they’d return.

    Summer was slow, and few Groupon users redeemed June-August. As the coupon expiration date approached in October, we were inundated with reservations, and actually had to tell some people that we just couldn’t fit them in during lunch, as we were booked solid. We didn’t experience too much grumbling, as we pointed out as kindly as possible that they had all summer to redeem. The staff was cranky about the whole situation, and very relieved when it was all over, to say the least.

    What isn’t measured, or even easy to measure is the opportunity cost, a cost that should’ve been factored in: how much $ is lost in a small dining room packed at peak biz hours w/ only Groupies? After all, you’re turning away full-price customers right and left on busy days…Lessons learned.

    Agree that Posie’s owner cannot factor in fixed costs in her loss calculation, but I think she was making the point more in a revenue lost context. Also, it was a poor biz practice of her to turn away a regular loyal customer like that–I’d have gladly given that customer an extension and then some for being so loyal, as those customers are like gold.

    As someone so astutely pointed out, remember that you’re paying over 75% of the cost of an item to promote it, so make sure your margins are high enough to be worth it. In the restaurant/cafe industry where you’re lucky to take home pennies on the dollar, this really is an expensive marketing strategy, and perhaps for some, cost prohibitive.

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  • There is no better targeted platform for the restaurant industry than groupon – you cannot fault a company for giving you thousands of new real customers vs a newspapers potential customers?

    The restaurants complaining are because they did not have the cash flow to support the acquisition cost of the customer which includes product, training and ensuring you convert the groupon to a recurring customer. You are not doing an ROI on the one visit, its an ROI on the cost of getting the customer in the door.

    If you don’t have the cash flow to advertise and are looking to groupon for some short term cash then don’t be surprised if it does not work for you.

  • I think I am in a business that could benefit from Groupon, but their lack of customer support surprises me. I put in a request to be featured on their site over 3 weeks ago and have yet to be contacted. When I called the sales number on the site it redirects me back to the form I already filled out. You call that customer service? Wow!

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  • B.S. Demographics, bargain hunting, VERY poor tipping, disloyal customers, regulers not returning, unhappy staff, staff leaving for better jobs, managers with huge headaches giving away promos to bitching “groupies”. These are all things you get from being featured by groupon. The worst part is we don’t want these new customers! Groupon has brought only the most undesirable customers and made the good ones come in less. Thanks.

  • Groupon is a scam. I bought a voucher for a cinema and the cinema wouldn’t honour the voucher. When you email Groupon they don’t respond and when you ring them they have a message saying: “Due to very high demand all lines are currently busy. Please ring back shortly.” You just have to Google Groupon scam to see how many people have been ripped off.

  • Groupon is a horrible idea for any business who cares about protecting their brand, and for the entire industry that the business is operating in. To me it feels like a last ditch “Hail Mary” effort to save a company that is already falling apart. A competitor in my town participated and we ended up having to clean up the mess on many occasions when he either did not show up to render the service, or told them that they could not go out because they arrived “too late”. Luckily we were able to help some of them out, but how many others now associate our town with a rotten experience?
    I feel bad for this business for getting sold on a bad deal, but I caution other companies that they need to buck up and still provide a good service even if they are giving it away because of Groupon. Better yet, just don’t do it!
    Maybe it works for cupcakes and bagels, but most businesses should steer clear of this value destroying idea.

  • Cheers, That was a great post, I really enjoyed reading your website. I am going to save it and will make sure to visit weekly. It would be great if you can add Facebook ‘Like’ (couldn’t fint it ) so I would be able to track new posts. Bye bye

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