

Groupon in Retrospect - morisy
http://posiescafe.com/wp/?p=316

======
patio11
_Today one of our most loyal customers, Lucinda, came in and asked if she
could use her Groupon that had expired the day before. I felt terrible, but I
had to say no._

"Sure Lucy." There, I did it. What was the hard part? The part where you say
yes or the part where you comp your most valuable customer six bucks in
flavored water?

Good customer service starts with accepting that you are no longer an employee
and that any rule causing bad customer service is your personal fault, because
ultimately, you wrote the rule.

See also a customer walking in and offering you six bucks cash for the Groupon
deal. That is _strictly better_ than selling her a Groupon for six bucks and
paying $3 to GroupOn. Yes. I think we can make an exception for you, ma'am.
Just this once... and for anyone else asking the same.

Edit: Worth the read for description of a sales call between an
unsophisticated consumer and a business with 90% margins, though. ( _cough_
Who do they think they are, coffee sellers?)

~~~
ghshephard
My mother owns a coffeeshop - Her loyal visitors come in about once a day,
spend on average $6, of which 50% is margin - That is, they bring in around
$1000 gross profit/year. She has about 30-40 of those customers, upon which
her entire business depends upon for it's "cover the nut" revenue.

She goes out of her _way_ to make those customers feel loved, and would never,
ever, do something so insane as to jeopardize that $1K in annual profit over
something as stupid as a $13 comp.

~~~
lionhearted
> She goes out of her _way_ to make those customers feel loved, and would
> never, ever, do something so insane as to jeopardize that $1K in annual
> profit over something as stupid as a $13 comp.

I used to live in Brighton, Massachusetts in a place with no internet and I'd
go work at a cafe. The nearest place was called CafeNation, and it was pretty
good. I'd go in there 5-6 days a week when I wasn't traveling, and usually got
a crepe and then a coffee or tea. I was a regular, most people knew me.

One day I was in and out real fast to confirm something on email, I set my
computer up, jammed away for 30 minutes in a hurry, didn't buy anything that
time. Very, very unlike me, I was just absorbed in work. Whatever it was, it
was semi-urgent.

The girl at the counter was new and didn't recognize me, and as I was packing
up, she said, " _Excuse me_ , are you going to _buy something or what_?" I was
kind of shaken by this. I bought a juice to go, but then I started going to
CafeNation a lot less.

Thing is, in retrospect it was totally silly. It shouldn't have made a
difference - one employee who didn't know who wasn't even that rude from her
perspective. I didn't even reply to her that I was a regular, I just gave her
$2 and grabbed the orange juice and left, and then I started going to
CafeNation a whole lot less. Kind of irrational of me, actually, since I see
how her actions make sense from her perspective, but I just had a bad vibe
about the place after that.

~~~
fookyong
I think your reaction is reasonable.

In exchange for loyalty to a venue, customers expect and deserve a little
"extra", be that in the form of benefits over-and-above, or simply taking
extra care to not be rude!

If it's a new employee it's obviously a grey area - it's no one's fault
explicitly, but management could have prepped the new employee better. The
employee thought they were doing the right thing, which is unfortunate.

------
gkoberger
Groupon reminds me of a real-life "Slashdot/Digg" effect.

What benefits were there to being Dugg? Sure, you got exposure- but it was
exposure from Digg users, unlikely to actually care much about your site or
subscribe to it. And Digg users don't click ads, so there was no money to be
made- in fact, it could even hurt your rates in Adsense.

All the site was left with was a large bandwidth bill and an Everest-like (yet
meaningless) Google Analytics spike.

~~~
patio11
The main benefit to being Dugg, especially prior to Twitter, was watching
thousands of people reshare your content through blogs. These links were SEO
manna from heaven, which was why gaming Digg was a cottage industry.

~~~
j_baker
Even SEO seems to be a pretty terrible way of attracting new readers. Nine
times out of ten, they go to your blog post, find what they were looking for,
and leave.

~~~
patio11
This is a pretty common misconception among geeks. Let's say we have two sides
to a business: a blog and something which isn't a blog. If there is a
competent SEO in the room, links to the blog (or other linkbait) benefit the
non-blog part of the business, too.

Starbucks loves getting in the New York Times for being socially conscious
latte liberals who are in favor of small furry creatures, artisan coffee
farmers, and other South American mammals. Is there anywhere on the page to
buy coffee? No. Does it sell coffee? Yes. SEO is like that, except many orders
of magnitude more efficient.

~~~
rubyrescue
I can't upvote enough. People on HN really don't understand the true value of
backlinks, and hence the value of the 'bad traffic' people who generate them.

------
vaksel
100% commission for Groupon if the price is under $10? Groupon must be smoking
crack...

~~~
retube
Yeah, insane. When I first heard about Groupon, I assumed their cut would be
~10% mark. I couldn't believe it was 50% - and that's on top of a 50%
discount! So the retailer is only getting 25% of normal income.

What kind of business has advertising overheads of 75%? I can't see how this
could work for anyone. And you can't cap the number sold? wtf??

I feel really sorry for her. She got sold the deal by Groupon, against her
better judgement. I know how that feels, we've all done it. She wont make that
mistake again.

~~~
immad
Two factors that mitigate the 75%:

1\. They are betting people will spend above their groupon value. So if you
have a $30 that give you a $60, they are hoping you will buy $90 worth of
food.

2\. They are trying to get loyal customers that will come back every month and
have a greater life time value than that first sale.

~~~
uxp
For many businesses, betting that people will spend a percentage above their
discount is a reasonably safe bet. For a coffee shop though, I can't remember
the last time I spent more than 20 dollars for a couple cups of coffee and a
sandwich over an evening hacking in the corner. For this shop to bet that most
people would spend 20+ dollars with 13 of that being the 6 they spent on
groupon is insane. If your average sales are $50 or more, than this particular
deal might have been viable, but it seemed that many were walking out the door
having spent only 6 to groupon for their entire purchase.

I feel for the business, however. I've had to turn down customers that I know
aren't going to be repeats, and it is difficult. But at the same time, I would
never ever agree to a 75% reduction to my sales. My repetition period for
returning customers about 4 years due to the nature of my business, so maybe I
don't have the market for that kind of thing though.

------
ghshephard
The type of Retail Coffee business that will benefit from their $10 (or $20,
or $50) spend on customer acquisition is the one that offers something unique
and innovative that will make them want to come _back_ after they made their
first purchase. If all you are is a typical coffee shop, then you're probably
better off not spending any money on advertising, but instead relying on foot
traffic that is already in your location.

If, on the other hand, you are not offering a commodity experience, and you
can reap some significant and repeat benefit then $10/customer is absolutely
nothing.

For Example - I've been looking for Hookah Bars in the Bay Area for 5+ years,
and have visited most of them, and returned to 90% of them a second time only
one or two times - but, my current hookah Bar, I come to two-three times a
week, with an average spend of $60/visit, on products like hookahs that have a
75% margin. Take that 18 months * 8 visits/month * $60 * .75 = $6480 Profit
off of me. If only 1% of their customers who came in with a $20 groupon coupon
became loyal customers like me, that is still a major win for the business.
Actually, at 75% margin, the breakeven on a $20 groupon coupon would be about
$30 of additional business - that's about 1/2 of one visit.

For businesses that are right on the edge, that don't do anything to encourage
repeat visits - groupon may not make sense. But, for those unique little niche
business, that may have phenomenal repeat visits, and just need to get people
to come in and see how awesome they are - groupon is precisely what is needed
to make them successful.

~~~
noahth
I don't know if this was secretly your intention but on the basis of the
hookah credentials presented in this post I am sold on that hookah bar. Name
please??

~~~
ghshephard
Waterfront pizza - best hookah hangout I've ever been to.

------
blhack
>Today one of our most loyal customers, Lucinda, came in and asked if she
could use her Groupon that had expired the day before. I felt terrible, but I
had to say no...this experience made her never want to come back.

So not only did she kindof make one of her customers unhappy, she actually
made her unhappy to the point of _never wanting to come back again_?

This is terrible, terrible business practice.

------
ry0ohki
I don't understand how the owner was not able to see this coming, you are
offering $12 of product for a gross of $3 to you. Groupon lets you set maximum
amounts of coupons sold... did she assume many people would not use these?

Recently a supermarket offered a Groupon for $40 for $20 and it sold out at
$1,000. This promotion essentially cost them $20k... surely there is a better
way to get customers for $20k?

~~~
toolate
In the post they say each voucher cost them $8. So it costs them $11 to serve
up a coffee and cookie they sell for $13. At $2 profit per sale they are going
to need each and every voucher holder to make four additional purchases just
to break even.

Seems like this was doomed from the start. I think the real problem here is
that the small business owner thought Groupon was working for them. They
didn't realise that they're the ones being sold the product.

------
protomyth
The eternal lesson: profit trumps customer numbers

"make your partners more profitable" is a better long term strategy

------
dotBen
I think the coffee owner let her business down by not running some projections
through excel. "What is the financial state of the business if 100, 200, 500,
1000 groupons sell"

But I'm surprised that Groupon wants to take 100% of the payment if less than
$10, with no way for the local business to set an upper-cap.

A good parasite doesn't destroy it's host, a bad parasite does. To expect a
small business to sell $13 worth of retail-priced product for $0 seems like a
bad parasite to me.

Also this from the blog posts comments is quite a gem:

 _"what could I expect from the only establishment in Portland without a drive
through window that is using crisco and kraft “mayonnaise” while claiming to
be kid friendly."_

OOH SNAP!

------
TheRetailDoctor
I believe Groupon is the worst marketing for a small business. Read my 11-part
review that starts with a similar story of a toy store at
[http://www.retaildoc.com/blog/groupon-worst-marketing-
busine...](http://www.retaildoc.com/blog/groupon-worst-marketing-business/).
Businesses exist to make a profit, the more of them that go out because they
are looking for a magic bullet in Groupon, the worse for your neighborhood.

------
awakeasleep
This sounds like a bad story, no doubt about it.

I am interested to hear if anyone posting here will admit to working for a
Groupon competitor, though.

~~~
daychilde
As of two minutes after reading this article, I am now. ;-)

------
lotharbot
Related discussion: <http://news.ycombinator.com/item?id=1698588>

------
jw84
The deal is... let's disregard our COGS, halve the pricing, then send half of
the revenue to Groupon. This sounds so inanely stupid for a SMB owner that
every time I load up Groupon.com I'm just amazed. Amazed that there are so
many desperate businesses out there.

Groupon is to coupons as Digg is to traffic. One gives you bad customers the
other gives you bad traffic. Critical mass that few owners with sophistication
and expertise in managing.

I would like to know more experiences in dealing with account managers at
Groupon. They should hand-hold some clients more, explain to them the concept
after deals are posted online, teach them how to harness customer information
to prepare for all this. You know, being a good marketing partner,
establishing a working relationship to repeat business, and thrive.

But that's not aligning with Groupon's interests, Groupon's model only works
when SMBs don't think this through. That's why you hear hyperbole--you'll
never have to advertise again!--it's snake oil sales tactics. They want to
come off as being neutral good but end up lawful evil.

Groupon has said they have 35,000 businesses waiting to participate so I guess
the real lesson to making money isn't so much about satisfaction but
capitalizing on naivete. Last week I learned making money isn't about making
something good but copy what's out there until the numbers work.

~~~
let5ch
"But that's not aligning with Groupon's interests..." Have you visited their
site? Have you looked over the separate site for businesses? Groupon's
interests cover not just themselves but also their community AND the SMBs. How
else to explain the fact that 97% of businesses would do another Groupon
offer? Separating a Groupon offer from its residual effects is the same short-
sightedness that Posie's suffers. Like many other commenters have said here,
it's marketing - the cost of customer aquisition. What a company does with the
customer once they're through the door is critical.

The Posies blog post sounds like lots went wrong - misunderstood goals for the
Groupon itself, ill-conceived deal (perhaps even a bad fit for a Groupon at
all - too small of a deal), ill-prepared staff. Time will tell if the Posies
Groupon created any new loyal customers - that's the whole point.

