Why Groupon Sucks for Merchants and LivingSocial Doesn't | Hacker News Reader

Why Groupon Sucks for Merchants and LivingSocial Doesn't

venturelevel.com

128 pointsventurelevel40 comments

Longish article, summary:

- Restaurateur tests both Groupon / Living social

- Groupon only phone solicitations, unresolved issues after a month vs. LivingSocial took time for in-person rep visit, excellent merchant service.

- Groupon at 50/50 split, LivingSocial 60/40 in merchant favor

- LivingSocial charges no CC fees, Groupon charges 2.5%

- Non-scientific "LivingSocial customers [have] a little more IQ it seems [than Groupon]."

- Merchant concludes LivingSocial taking more of a Zappos approach to stand out, and is succeeding.

It's worth reading, in my opinion.

Thanks, this summary is a useful recap.

I think a lot of this article is colored by the author's positive experience with his LivingSocial rep and negative experience with his Groupon rep, which may be just the reps he was working with. And, reading between the lines, it sounds like his impression of Groupon customers was created largely by one problem customer (could be a couple, but not many).

Of course this tells you something, but to use an overused phrase it's "just one datapoint."

It is, though, an interesting datapoint... I'm curious if this is truly a general trend.

You missed the part about the Groupon rep encouraging fraudulent Yelp reviews, which I feel is an important point.

Shortish article summary: no information about which performs better.

How much do you get to pocket on people not redeeming their groupons/livingsocial coupons? As in, what percentage are bought but never redeemed?

50% seems like a big hit, so for these to make business sense, the merchant must either make up for it by people buying more than the minimum, getting repeat customers, or getting some cash from people that pre-paid and never bothered to claim their goods/services and having that subsidize the others.

Also, speaking as a customer, you should not be bothered by those who use the deals without buying more than the minimum. It irritates me to no end when someone offers a deal to promote their business or to try and hook you, then treats you like a second class citizen for taking advantage of the terms that they offered. If I like it, and feel that it is a good value without the discount, I will come back.

Realize that many of these offerings can push things into different affordability ranges, so you will definitely get non-repeat customers just because the deal is too good to pass up. Granted, this probably doesn't apply to a "$5 for $10" deal.

The accounting term for this is "breakage".

http://en.wikipedia.org/wiki/Breakage

Any business that runs a coupon campaign will usually account for breakage. It's factored into the numbers of whether a campaign is executable or not.

The percentage will vary for every business / every campaign even for the same business.

"The percentage will vary for every business / every campaign even for the same business."

Obviously, but for the same business, controlling for external factors (season, ...) and with sufficiently large sample sizes of customers, there must be an indicative spread?

50% is a huge hit, particularly in low-margin high-volume businesses. Obviously anecdotal, but it's not hard to see 93% of consumers (FTA) using the deal and never returning.

That's why something like TheLevelUp (https://www.thelevelup.com/merchants) makes more sense to me - the ultimate goal is return business, it seems shortsighted to essentially pay people to come in the door and then hope they stay. The value comes from thinking about how to get people to visit a second and third time. Good service and product at a fair price works wonders, but I'm curious to see what happens when some of these services throw other incentives into the mix.

IMHO, this is what I would wish for either Groupon or LivingSocial to do. Instead of just throwing it back on to the business once the groupons are sold, be involved beyond that point. Infact, know which customers fit in to that top 5% who actually consistently spend beyond the value of the groupon. Those are the customers that you would want to refer to your clients. If there was a feedback loop back from the businesses back to Groupon or Living Social, then they could curate this list of customers and either start targeting them with better deals or charge more for businesses to get access to those customers. This way, Groupon/LivingSocial has a list of customers that are highly desirable for local businesses to reach, and businesses have a steady roster of customers who dont stiff them on these deals.

I am sure this can be done. Just not sure whether either of these two know how to do it.

Actually, I think Groupon does this. I don't know what they do with the information, but along with the "flag as bad customer" they have an option for merchants to mark good customers, too.

This is a very good idea, but let's push it further. Groupon could let people collect points and badges for their continued patronage at stores that were featured by Groupon. These badges would identify the best customers, and Groupon could offer them rewards. People may feel even more motivated to continue shopping at such stores, and Groupon will know who the loyal customers are. Groupon could literally become an Air Mile card of sort.

The venomous use of the word "copycat" when it comes to competitors permeates the Groupon culture, from the C-Suiters to the sales folk. It's really something. They would be better off, IMO, dropping the nastiness, and simply continuing to find ways to dominate.

Several questions spring to mind:

1) What kind of impact is had by running first a Groupon, then a LivingSocial deal in rapid succession?

2) Is it possible that the merchant just got a bad Groupon representative (ie, is that service representative of Groupon's interactions)?

3) Are the customers of QSR (ie, fastfood) group-deals different than those of higher end services (ie, day spa, hotel)?

In regards to 2, the author mentions the same concern, and a possible reason for the difference in service, way at the end:

> Or maybe my account rep with Groupon is just to blame? Perhaps Groupon grew too big, too fast, to consider the value of communication and treatment with merchants...

3) The customers might not be different, but they're also not as locked into the product as in the case of a spa or hotel.

You can send a burger back and say "I changed my mind, I want the filet mignon." Not as easy to stop a prepaid pedicure halfway and say "can I have the facial instead?", or walk out of a hotel at midnight and ask to be relocated to the Fairmont down the street.

Groupon will drop the fees as soon as their shine fades. For now they need to show revenues and profits to fool the suckers to the tune of $15-$20 Billion

Definitely a serious ramp up going on here. We'll see if they can hold their ground.

It keeps surprising me that Groupon still find merchants given their current revenue share. Most deals are 50%, the share is 50% of 50% - 2.5% for credit card fee processing leaving the merchant with 22.5% of the original price.

If you sell anything that you buy, you'd need to have a 77.5% profit. Most restaurants only do a 10 to 20% benefit usually.

They'd be better served by pinning a huge promotion on their front like :'50% percent on friday'; they'd reach more customers in they neighbourhood, who would be more likely to come back and they'd keep a much better share of the deal.

It's not even nice for your actual customers who come the same day and pay the full price just to discover that they got screwed because they could have paid half by going to groupon.

> It's not even nice for your actual customers who come the same day and pay the full price just to discover that they got screwed because they could have paid half by going to groupon.

Precisely. I went to a burger place in SF the other day and the line was 20 people deep, all paying with Groupons. The restaurant's price was already relatively high, so I felt annoyed at having missed out (even though I was planning on eating there anyway.)

I think it may be detrimental to run ridiculous coupon deals ever -- if you have ever given away (or basically given away) your product, then people that know about that recalibrate the 'real cost' of it to that. This is especially true, I'd wager, in places that 'seem like' they should have a high margin anyway (like tours, or spas, or other more service-oriented places.)

What I've never heard is the redemption rate on those coupons. Do 100% of the buyers use them before the expiration date? Or do those count as super-awesome customers who gave up money and got nothing in return?

I've done some research on this since Groupon doesn't release the redemption statistics. 20-30% breakage (non-redemption) seems to be the estimate, but some people go as low as 10% and as high as 40% in their estimates.

Ours was a good 30%

The number quoted by Groupon to vendors is 15%.

Why on earth is the CEO of anything engaged in a long-running email discussion over two fraudulent coupon redemptions of $10 coupons? Mentally chalk it up to "cost of doing business" and move on.

Shrinkage should not be a new experience to the owner of a fast food restaurant. (Neither should pathological customers, although I could see a Groupon getting you more of those than usual.)

In an e-commerce business, fraud is the main risk and also the main problem to solve. Especially in a company that is essentially printing money.

Three emails regarding two separate incidents over the span of 28 days (and counting) does not seem excessive to me.

As far as the CEO being personally involved: he's evaluating the effectiveness of a potential long term strategic tool. His issue is with the process in place by Groupon for dealing with said incidents, not the specific incidents themselves.

Yeah, I was really turned off by the whiny "those Groupon customers sometimes come in and want to change their orders after they order!"

OK, so say "No, I already started making it" and done. Why he kept banging this point in that Groupon users were somehow trying to cheat him is beyond me.

This is insightful post, but I think this kind of difference between service quality is to be expected.

Compare Groupon -- a well-funded company and relatively well-known brand, which seem to consider themselves to have strong position on the market, with LivingSocial, who seem consider themselves fighting an uphill battle against an incumbent.

No wonder LivingSocial works hard on differentiating themselves form the competition. No wonder Groupon tries to cut the costs by providing what they consider bare minimum service.

I think you'll find similar example everywhere you go, where imbalanced markets and competition are at work.

Dealing with groupons sounds about as bad as dealing with Yahoo Search Marketing

Confirms everything I've suspected for a while. Great article.

Good user report.

Prediction: Groupon will eventually become old news, and irrelevant. A "Copy-Cat" will focus on developing a customer base consisting of quality niche customers, and become the dominate player.

prediction on top of prediction. There'll be multiple players, in multiple niches and a few larger players in the general market.

prediction on top of prediction on top of prediction: Market forces and economics will come to play. (nature abhors a vacuum, where there's money people will flock).

prediction^3: Interest in group buying wanes both from consumers and business owners. Groupon branches out to a more traditional ad network/ad services company with a local focus to try to leverage their sales staff. Living Social accepts reduced margins compared to todays market and sticks it out in some of the niches that work well like day spas.

Another prediction: Most merchants will start their own deal website like http://thesuperdeal.com/birmingham/deals/recent

Read somewhere that these guys use agriya groupon software, part of their ideas were copied by real groupon in their 2.0 release.

prediction^5: We're all right. All of the above will happen, and many things we didn't see coming.

Also, coupons will still be boring.

That doesn't make sense. The main benefit of Groupon, et al is finding new customers.

Some great points in the article and I agree that Livingsocial is better all around than Groupon, not only from a merchant perspective but also with innovation and creativity in the group buying space.

At the same time I believe that daily deals are unsustainable for the large crowd that is out there. Groupon and living social will survive but many will die. My company is providing an innovative solution that complements daily deals and is another good source for marketing.

At Zooyan.com we are creating a marketplace for deals where people can go and search for or browse 100s of ongoing offers near them. All of the offers last on average for 6 months and provide similar discounts to daily deals. We allow customers the ability to buy what they want, when they want it and we allow merchants to have a long term marketing source that provides consistent and manageable sales. I'd love to know what others think. Www.zooyan.com

You couldn't even put the http:// in your spam post for your link? Fail.

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