Groupon Responds: Too much of a good thing?
groublogpon.com
groublogpon.com
So the PR responses read wells to people who have already decided Groupon did no wrong here, re-enforces to businesses that there is a model that could work for them, but does nothing to address people who found the whole thing unsettling/distasteful.
I agree with you here. However, as someone who has been on the ad sales side of the equation, I can tell you that all sales are emotional and the more time you spend explaining to people how to properly price out the product the less likely they are to buy. Literally the more rational you make it for the person to buy your product the less likely they are to actually buy it, because the rational part of the brain isn't the part of the brain that buys stuff.
In addition, I'd argue that what makes advertising not-unethical is that the vast majority of businesses lose money on any given ad buy. If advertising was just a license to print money for all businesses instead of, say, the best 5% of businesses then it would be pretty hard to argue that advertising was making the world a better place. While Groupon may well have been at fault here, the small business owner does have some responsibility to understand how advertising works, what the best practices are, what asset they are trying to build, etc. If the business owner in question understood this then it wouldn't really matter that they didn't understand every last feature on the site. It sounds like her real problem was that the people coming into her store didn't like her stuff; the fact that she was losing money on every sale would have been a non-issue to begin with if this weren't true.
i think you might also be admitting that most stuff isn't worth buying.
However, I read their entire post as a backhanded criticism of the business acumen of the owner of Posie's Cafe. "97% of businesses would use Groupon again... Groupon is a great resource for solid businesses... this guy sold 10,000 bagels no problem because he was prepared".
I am very much pro free market, so it is hard to me to fault Groupon for penning the deal (beyond a few reservations based on long term business). But it is easy for me to fault Groupon for what I read as a thinly veiled attack on the owner of Posie's.
First of all, she acknowledges that it was her fault for not doing the math.
However, what she learned from the experience (besides losing $8,000) is that Groupon customers are worthless. They are cheap (duh) and they don't come back -- probably off to the next Groupon deal. [1]
These are not people you want in your restaurant. You want people who will pay full price and come back. Especially at a coffee shop, where there is not a lot of room to upsell someone who has $13 worth of store credit!
This is going to make it clear to small restaurants that Groupon works for places with fixed costs that can use price discrimination to get people in the door, but not well for them.
In fact, it gives me a startup idea: the OPPOSITE of Groupon. People pay extra for a limited number of guaranteed spots at exclusive establishments. Want dinner on Friday night at the hottest restaurant in town? We've got it, but it's going to cost you 25% more.
[1] I attended an event where 4 people bought $30 Groupons to a local bar for $10. They invited everyone they knew for Sunday Happy Hour and bought 120 $1 mimosas and bloody marys. We all ordered food, but those $1 drinks were already loss leaders. Assuming a 50% Groupon cut, the bar made $0.15 on each one. Did the food orders make up for that? http://www.flickr.com/photos/lukefrancl/4897720841/
If exclusive restaurants wanted to do this, they could easily do it themselves. (The fact that they largely don't is interesting and much-studied by economists.) What value would your hypothetical startup provide them that they couldn't attain simply by raising their prices or charging extra 'table fees' for popular times?
From Groublogpon: "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."
That's fair, though it may tempt small businesses with only a rudimentary understanding of their own margins to over-market.
Having said that, of course it is in Groupon's best interest to avoid doing business in those kinds of situations. Pretty frightening PR for them.
1. She didn't see this coming. Apparently she has no instinct for due diligence.
2. The way she handled one of her best customers, Lucinda. This woman does not seem to understand the most basic principles of successfully running a small business.
I've seen Jessie make essentially 2 business decisions and both have been horrendously embarrassingly bad.
Nothing about speaking to the specific small business owners that got it wrong by using groupon and what groupon has done to prevent other small business owners from failing in the same manner. How groupon has extended or enhanced their offering to protect against a bad experience for all parties involved?
And since he was writing in response to the Posie cafe story, something about the specifics about the case making it a bad experience for Posie's would have been so much more interesting.
I have not used groupon and probably will not after this response.
Well, here's some things you apparently missed:
>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, including this video featuring a Groupon merchant who sold 10,000 bagel Groupons in a day:
and
>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.
and
>Now that we know Posie’s had a problem, we have reached out to them so we can help.
So they didn't specifically mention talking to the 3% that didn't want to do it again, but they most certainly did address the other concerns you raised.
It was sent only a few days after the advertisement, and the writer is gushing about web stats. Given that Posie's didn't seem to realize the mistake they made until the Groupons coming in started to drain at their finances, this doesn't really prove anything.
The writer is excited about the spike in traffic and assumes that the "web-savvy" customer will be good for business, speculating about viral, positive word of mouth. But none of that could possibly have happened in three days.
This customer hasn't been satisfied by the effects of Groupon. They've bought into the marketing of Groupon. Now, maybe they'll be satisfied once they see how those 505 coupons they sold turn out, but theres no way to know at the time of writing.
"Traditionally, the biggest problem for most small businesses is getting customers in the door."
Actually, the primary concern of most small businesses is keeping the doors open.
Once the doors are open retailers have two things they need to maintain:
1. The number of customers
2. The amount of money the average customer spends
Groupon's terms are too greedy and it will be their downfall unless they change it. It is way too easy for someone to come behind them and just offer better terms to the businesses and run Groupon out of town (without businesses Groupon has no benefit).
The company offering the best deals from the most desirable places will win the daily coupon market.
That isn't Google's fault and this isn't Groupon's.
I'm sure it's way way higher than a coupon printed in a paper or offered online, but there has to be a certain % that don't get (or forget) to use the coupon before the expiration date and the business benefits outright.
Actually, this is a very good opportunity for Groupon to create a new revenue stream. For a (small( fee they can offer consulting services for small business. Say, for $250, before you invoke the Groupon horde, you have Groupon prepare a brief case study on your with expected numbers of customers, expected revenue, etc. It's easy for Groupon to create this, since they have all the data. Not only this will stop the bad publicity ("Hey, you had a chance to get consulting, but chose not to"), then they can turn around and sell these reports to larger consulting firms, too.
If I were a small business owner looking to use GroupOn I wouldn't feel comforted by this response in the least.
Seeing as she negotiated the terms down from Groupon taking 100% commission to 50%, I don't think the Groupon rep could have had an inkling that the woman was the type to be taken advantage of in the manner you're describing.
> And it is unfortunate that our national character has changed to the point where we lionize people who became rich selling shady financial instruments, and pushing bad loans.
Lets not stray into the melodramatic shall we? ... its a step too far to equate Groupon with people pushing bad loans. In 95% of cases or so, the businesses benefit greatly from doing business with Groupon ... they weren't uniformly getting screwed over like case of the punks selling Mortgage Backed Securities and Subprime Mortgage loans.
Still, a partner that drives you out of business is not good to have. This is not good for groupon, they should have done things better, made sure that the owner could afford the deal for one. If margins are that thin, maybe they should be looking at not such a good deal, or no deal at all.
What do you suggest they should have done differently? Should they have filed her Taxes for her, balanced her books and determined her cashflow before turning her down. Maybe then she would only have written a blog post about how the Groupon people were a bunch of elitist asshats that wouldn't do business with her instead?
> If margins are that thin, maybe they should be looking at not such a good deal, or no deal at all.
I'm sorry but this is arrant nonsense. What is she .... five? She's a business owner for goodness sake ... if she couldn't do the math and see that it wouldn't be beneficial to her business to do a deal with Groupon then how is it Groupon's fault?
A partner may understand my business and be in a position to help me improve it. A vendor is not. When I buy yellow pages ads, AdWords, or direct mail postcards, I don't expect my supplier to give me advice on my business. Why should Posie's expect Groupon to give them financial advice?
Its clear from the writing that she didn't know what she was getting into when she struck a deal, she set her deal at a price point that she could not possibly sustain (against the advice of her husband/business partner) and never once contacted Groupon for help with the situation.
What was Groupon supposed to do? Read her mind?
To be fair, I'm sure going forward Groupon can put up big bright red signs warning sellers that they will send them a ton of customers (the horror!) and that they'd better plan to appropriately deal with it or pick a price point that they can sustain, but the implication in your post that Groupon is somehow at fault for the situation makes steam come out my ears.
edit: looks like they already have something like this for sellers "We responded to those concerns by creating merchant preparation materials, including this video featuring a Groupon merchant who sold 10,000 bagel Groupons in a day:"
There have been a handful of stories 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.
I didn't read that as sarcastic or condescending, but maybe it's because I already spent time watching all the Groupon site videos? There vibe is pretty friendly, lighthearted, and helpful - I bet there actually was a cupcake place that ran out as a notable experience, and that's why they write about it.
> he problem is not so much that they can't satisfy the demand (though there is some of that in some cases) but that it's a cost sink that didn't generate the promised increase in "regular" customers.
This is true, yes. I think a business owner should look at their desired customer base - the bagel shop it's a great play, because everyone buys quick food, and maybe Groupon users can shift to buying their bagels. For a slightly formal upscale cafe like Posies, you're trying to capture people's "sit down at an expensive environment" [1] time, which seems like it wouldn't convert as well long term. Groupon users might do it once for the experience, but people generally budget much less time and money for formal relaxing experiences, so you'd have a harder time displacing it.
[1] http://posiescafe.com/wp/?page_id=76 - Their coffee is compares reasonably to Starbucks at $2 to $3 a cup, their sandwiches around $9... they've got wines and beers from $3 to $7 per glass. I think this puts them in a tough spot where they're both upmarket/a slight luxury in most people's eyes, but still don't have crazy profit margins like an ultra-premium place.
My analysis:
I think Groupon is good for businesses that do high volume that want to replace people's regular common routine (a sandwich, hot dog, drink, whatever), low cost businesses that the Groupon demographic would keep using (inexpensive nail salons), and for places with no marginal cost (Chelsea Piers for instance, museums, other places where all the expenses are operating the place and there's no significant space constraints). I think slightly upmarket, not quick places would be one of the worst performers in Groupon if they couldn't at least break even on the Groupons.
The thing that gets me is when he says "If they have a great business, we’re the best amplifier out there." Every small business owner thinks they've got a great business! I'm sure their number one sales tactic is to exploit people's vanity, which may be perfectly legal, but it's a still pretty messed up thing to do.
And then he says "But we used to be all about helping people raise money for charity, we're good guys!" Yeah, but now you're pocketing other people's money, I guess things change.