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Comment by edw519 | Hacker News Reader

For a merchant to make effective use of Groupon, he must use it for one purpose: to acquire customers. Once someone comes to you via a third party, you must convert them into your own customer. This generally requires getting their personal info so that you can engage them directly in the future.

Amazon merchants have been doing this for years. Pay Amazon their commission for the first sale, then move the name to their permanent data base. 15% of the first sale is a reasonable customer acquisition cost; 15% of every sale is not sustainable (unless you have ridiculous margins).

Since many Groupon merchants meet their customers in person, an extra step is required: collecting personal info. Skip this step and you've just lost 2 things: your money and a name on your customer list.

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Groupon may be the one to bring them customers, and you're right, it's the merchant's responsibility to convert the incoming people to customers. However, Groupon should find a way to help with this. Because if they don't, merchants will continue to blame Groupon for the failures. If this continues to happen, Groupon will fail.

Some anecdotal evidence, about Groupon's inability to make these deals "work" for merchants:

This Saturday I went skydiving, and used a Groupon I purchased last month. The skydiving school had nothing but bad things to say about Groupon. According to the school, they were told that they would sell somewhere in the neighborhood of 200-300 skydives--they ending up selling closer to 1200. Now the fact that the number of Groupons wasn't capped at something more reasonable was most likely an oversight on the part of the merchant. However, Groupon's sales staff should have at the very least alerted the merchant to the potential risk. In this situation, it seems that Groupon was attempting to extract all possible value from merchant--Groupon had to have had some inkling that the deal was not going to be mutually beneficial.

Can you extrapolate this to all merchants using Groupon? No, but the study results certainly didn't surprise me.

Wouldn't surprise me, knowing quite a few small businesses, if they were told about the option to cap their sales, but ignored it ("How could more business ever be bad?").

Groupon have info online for merchants, advising them on how to deal with what they'll experience, but again it wouldn't surprise me if most merchants completely ignore it. People won't read instructions or advice unless you hold their eyelids open and force them to take it in. And small business owners (I'm one of them) are usually busier and more stressed than others, meaning we're even less likely to make use of such guides.

Regardless it sounds like a great challenge for Groupon to have. I'd rather have a near-endless stream of customers in this situation, than be at the beginning of it all trying to attract anyone to the site at all.

That doesn't really answer the point above.

Did the merchant have a program in place to turn the one-time customers into continuing customers?

If they did, more customers would have cost them more in the short run but helped them more in the long run. If they didn't, one would assume it was a failure regardless of the numbers.

And did school waste the time they could have spent talking themselves up with talking Groupon down?

The merchant also needs to know, "Am I in the business where an impulse buyer can be converted into a repeat customer?" I don't know what the user behavior is like for skydiving, but I can easily see it being the kind of thing people only want to try once. If you're in a business where impulse buyers don't convert into long-term customers, you need to find alternate channels for customer acquisition.

The problem is that we're not dealing with completely rational, all-knowing merchants here. We're dealing with real life, and people have other things on their minds, like the pressures of running a business.

If Groupon can't explain itself and how it differs from established marketing, the kind the merchants are used to, then it will fail. It has to provide value to real merchants. That certainly includes educating them about what is going on with their service, especially concerning the risks.

It all turns on whether Groupon sells at commodity level or at a service level.

If Groupon is selling group-discounts as commodity, then that it. It's your job to figure out how to use them. Google sells click-throughs and Home Depot sells cement. They might each be perfectly good but if you don't use them right, they won't do you any good.

If Groupon is like personal trainer and provides ongoing value, then does need to assure that its buyers achieve success.

Both business model-types can make money. Neither is going away. I don't know enough about Groupon to say which type they are.

Good point. Commodity business require sophisticated users - brick and mortar businesses are not sophisticated users of online marketing, so Groupon needs to be doing a better job at the service level.

I thought that Groupon doesn't cap their sales?

They do, but they'll pass on sales if thats a requirement. They have a waiting list of customers. Imagine that.

Another anecdote, my friends 1 year old small business approached Groupon to do a deal, they turned him away and told him to come back when he has more press.

They say here that they do allow caps: http://groublogpon.com/cities/too-much-of-a-good-thing/

I have seen Groupon deals with caps. Will append to this post once I locate it.

Do local retailers really need customer info? I thought the point of Groupon was more to supply the activation energy to transform people into regular customers: to get people in the door the first time to try a business's services or products, so they'd come back later of their own accord.

Do local retailers really need customer info?

They do if they want to get them away from Groupon.

I have e-commerce customers who love Amazon Merchant because it's cheaper to acquire customers than SEO or buying mailing lists. But nothing pisses them off more than a customer who comes through Amazon a second time, costing them all their profit. They need to save the customer info in order to make the second sale a direct sale.

The same dynamic works with Groupon, except in person. If you don't follow up with them directly, there's a good chance they'll just wait for the next Groupon promotion, whether it's from you or your competitor. There's anecdotal evidence that this is already happening. A fresh coupon in your in box every day can get awfully addicting.

But for lots of retailers like salons, specialty shops, services, even restaurants, Groupon can be an effective way of building their customer book. When you call them back yourself, you have a much higher probability of converting them into a permanent customer.

I don't believe that would be true except for local businesses that are selling a commodity. Those who hope to convert me into a repeat customer based on the quality of their donuts or haircuts will do it after one visit.

Even for non-commodities, customer contact information can be invaluable. Often would-be repeat customers just forget you exist, but if reminded about you they would happily continue to buy.

The same reasoning for websites periodically sending their users emails is at work here. Remember how Facebook used to send email notifications that you've received a new Facebook message, but wouldn't tell you the content of that message in the email? "Hey, we have more goodies back here - come visit again."

My barber sends me a coupon at about the time I need my next haircut. That coupon converted me to a regular, even though I always forget to bring it with me. It reminds me to make an appointment with him, not one of the many other haircut options that I consider acceptable. He got my home address by flat out asking if he could have it after I was a walk-in one day.

My wife's favorite spa has also figured out that sending me follow-on ads is a pretty effective sales pitch, as I semi-routinely say 'hey, she deserves another half-day at the spa.' They got my email address from an initial online sale.

I don't get any follow-on advertising from donut places, but there's a local restaurant who uses email to fill out slow nights with some really nice prix fixe dinners. Every now and then one shows up in my inbox, sounds delicious, and I don't feel like cooking, and they make an additional sale. They started doing so after I made a reservation on OpenTable, and our dining frequency jumped substantially.

Interesting. But I don't necessarily agree that all merchants are pissed off.

One merchant I bought from had a direct store and an Amazon store. The Amazon store price was higher (by about $1.50 on a $20-ish item), but I still ordered from Amazon because I expected the merchant to take care of Amazon customers better wrt shipping time etc. :)

As a buyer, given a choice I would rather order from the Amazon store than directly from a no-name merchant.

I think your e-commerce customers just need to raise their Amazon store prices.

I think your e-commerce customers just need to raise their Amazon store prices.

Those who sell commodities don't have that option. Every time any of them has tried, sales went into the toilet. You have to stay competitive when Amazon's web page shows your item right next to your competitor's.

Thanks, that's a good point.

Does Amazon really take 15%? I hate dealing with store sites directly when I can just go to Amazon, search a bunch of stores at once, and buy what I want with one click. I have a vague idea of who I do business with, but I would never think to search for them directly.

So maybe 15% isn't much when you consider how difficult it is to build your own e-store?

So maybe 15% isn't much when you consider how difficult it is to build your own e-store?

15% isn't much when you consider how difficult it is to acquire a customer.

Everyone I've loaded onto Amazon already has their own e-store. But here's what happens...Sales increases 10 to 20% almost instantly. But profits don't because of the 15% commission.

If you have a premium product with a large margin and no e-store, Amazon can be a great way to get orders. Otherwise, Amazon should be used to acquire customers for future direct sales. 15% is just too high for a commodity product.

Interesting. Everyone I've bought from on the Amazon Marketplace has totally failed to "recruit" me as a customer. I typically get a box with what I ordered in it, and maybe an invoice. Nothing asking me to visit their website or anything like that, ever.

This is my experience as well. the amazon site seems to make it look like I'm buying through amazon, though it's actually sold by 'some company in the small print'

I agree with the OP that 15% is pretty high for selling commodity stuff, but amazon seems, ah, sub optimal for lead generation because they make it look very similar to just buying from amazon. Like you, I've never gone from buying through amazon to buying direct from a merchant.

I think in some cases, the 15% might work out. As far as I can tell, when you buy in small lots you can often get a better deal than larger, more "reliable" lots, just 'cause someone further up the chain from you took a loss, (like someone bought a bunch, then went out of business and liquidated the lot at below-cost prices.) or because corruption is such a large problem (the larger the corporation, the more kickbacks are expected, as far as I can tell. If I own the company, kickbacks aren't going to get me to choose an overall more expensive vendor, it's my money, either way.)

either way, from what I've seen, often smaller lots from smaller resellers can be had cheaper than larger lots from more reputable resellers, even after you amortise out fraud/misrepresentation losses, so it's possible that the guy who sold me the cheap ESD wristbands on amazon really has more margin on the product than amazon direct would have.

A long time ago, Abebooks recruited me as a customer like this.. They were selling on amazon market place and with their follow up to my order convinced me to visit their website.

So, I think it can be done, I'm just surprised that not more company do it...

Ironic that Abebooks, of all sites, managed to convert you: they are an Amazon subsidiary.

They are now, but they weren't back then (I think it was around 2005)...

But I guess that if Amazon bought them, it shows they were good at what they did :-)

One issue Groupon have is to review their cut to the lower, recurring complaint is the fact that they charge almost at least 50% of the sale, for most small businesses the discount + Groupon cut is just unsustainable.

They also need to stop the hard sell tactics reported by some small business owners. It's unacceptable to lie and say they aren't able to limit the number of groupons sold, or not explain up-front that the minimum split groupon will take is $10. It really seems like they prey upon the less savvy business owners, and it will cost them in permanent reputation damage.

You don't need mailing lists - it works for bricks and mortar stores.

I bought a groupon 1/2 price coupon for a fancy clothes store (Gap). I wouldn't normally go in there but for $10 they got me to go in and buy $50 worth of shirts. I will probably even go back.

Or they could have hired some 17 year old super model I have never heard of, for $Ms to promote them in a magazine I never read - but that wouldn't have got me in the door.

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