
Groupon Responds: Too much of a good thing? - lid
http://groublogpon.com/cities/too-much-of-a-good-thing/
======
alanstorm
Smart of them to respond quickly and swiftly, but the core issue of this
specific case wasn't addressed. A naive business owner was aggressively sold
into a plan that wasn't sustainable for their business, and by all accounts
wasn't aware of the cap system which Andrew says "has always been Groupon
policy to allow merchants" to have.

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.

~~~
Alex3917
"A naive business owner was aggressively sold into a plan that wasn't
sustainable for their business"

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.

~~~
exit
> _because the rational part of the brain isn't the part of the brain that
> buys stuff._

i think you might also be admitting that most stuff isn't worth buying.

------
100k
People who are blaming the coffee shop owner are missing why this incident is
bad for Groupon.

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/>

~~~
gabrielroth
>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.

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?

~~~
harryh
Interestingly enough, Aviary (Grant Achatz's new restaurant in Chicago) will
be charing more $ for more highly desirable reservation times. Curious to see
how this will work out for them.

------
pigbucket
From PosiesCafe blog: "When I talked to Lucinda today, she asked if there was
a cap on how many were sold to help protect the business from too much loss,
and the simple answer is, no. When you sign up for Groupon, you are agreeing
to sell as many as get sold… and why would Groupon want it any other way? They
get half of the earnings."

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."

~~~
houseabsolute
Must be some kind of miscommunication . . . I doubt either are lying about
their perception of the situation.

~~~
callmeed
I'm gonna sound cynical here, but why do you think that? People in business
lie all the time to cover their butts or prevent embarrassment.

~~~
travisp
Well for one thing, it would be easy to verify whether or not Groupon is lying
here, by talking to other companies that have used Groupon. If they are caught
lying, it will hurt their reputation, especially when they are in reputation-
protecting mode. They could be lying, but it would be a very bad business
decision.

~~~
smackfu
The lying one was probably the salesman, if my past experience is any guide.

------
maddalab
I do not get it. So groupon responds with some marketing spiel about how their
offering have worked for a number of businesses, and like he say some
corporate BS about win-win.

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.

~~~
daychilde
>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?

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.

------
ianferrel
Wait a minute. The email from a satisfied customer that Groupon features in
this blog post is quite misleading.

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.

------
tptacek
They're right. Where this went off the rails was whatever process that
convinced a coffee shop to invest in Groupons when they were so close to the
edge that missing their number by a couple thousand dollars caused them to
miss payroll.

~~~
greendestiny
I'm not a believer in any press is good press, but I don't think this will be
bad for groupon. The story made me say, wow, look at the numbers of people
they get through the door. So many that it nearly sunk a little business -
it's so successful that it's actually scary for a business. Groupon's
excellent response here helps make the message positive as well.

~~~
edkennedy
Also, the squeaky wheel gets the grease. I can imagine Posie's will get a lot
of support from their new customers by complaining to the press. And these
customers will buy meals, be model customers, offer their condolences....and
tip nicely.

------
jaxn
They did a nice job of trying to frame the problem, but they are dead wrong.

"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 is a bad deal for retailers because it puts all of the emphasis on #1
at the expense of #2. Obviously that is what happens with any discount
promotion, but when is the last time you saw a "75% off everything in the
store" promotion?

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.

------
staunch
How many thousands of companies have spent a combined hundreds of millions of
dollars on Google AdWords and not ever made their money back?

That isn't Google's fault and this isn't Groupon's.

~~~
potatolicious
It certainly isn't Groupon's fault - but if merchants regularly have negative
ROI on this sort of scheme Groupon's days would be numbered...

~~~
daychilde
If it's true that 97% of businesses want to do it again - it seems that
Groupon really isn't in much danger.

------
bl4k
and _thats_ how you respond to a PR crisis. wp groupon, wp.

------
joezydeco
Just out of curiosity: what do you think the actual usage rate is for these
groupon/coupons?

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.

~~~
travisp
Don't most of the groupons have a policy that if you don't use it by the
expiration date, you can still redeem it at the price you originally paid for
it?

~~~
joezydeco
Good point. I guess that means it's a wash for the business.

------
OoTheNigerian
I think more emphasis should now be but on training the shops that use Groupon
how to get the best value out of it. It is really no one's fault but it is
Groupons responsibility to make sure as many campaigns turn out well.

------
Jun8
Excuse me, but this post just doesn't cut it. He seems mystified by the bad
experience although such stories are too often heard to be a rare, mystifying
occurrence.

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.

------
brandnewlow
Haha. It's impossible to hate on Groupon when Andrew Mason writes so well and
so sincerely. Good luck haters. That's a good blog response.

~~~
kylec
I thought this bit was a bit condescending, and starts the response off on a
sarcastic note:

    
    
        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 possibly missed a Groupon story or two, but I don't remember any where
stores ran out of ingredients - the 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.

~~~
lionhearted
> I thought this bit was a bit condescending, and starts the response off on a
> sarcastic note:

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.

