

The Groupon dirty secret - blackysky
http://www.blackysky.com/the-groupon-dirty-secrets-should-your-business-join-groupon/

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gte910h
I take issue with the graph coloring. "Bad" should have the same color in both
graphs and should be on the same side of the graph on both. He uses red for
bad in graph1 and blue in graph2.

60% of businesses who try groupon like it enough and may use it again?

That's great for client acquisition for most types of businesses.

67% of businesses who _ran a promotion_ made a profit during that promotion?
That's _great_.

Lots of times you run promotions at restaurants to _make less of a loss_.
Every day you have a restaurant, your interest on the loan you took to buy
your equipment, every day you pay rent, you're in the hole. Every your kitchen
is open and staffed you're in a hole if those seats done fill, but you're in
less of a hole than if you stay closed (as long as you have some customers).
Some restaurants open on Monday and Tuesday _to lose less money_ then they
would if they were open only Wed-Sun. Some restaurants make money every day
they're open. Many do not. Most "live" for the busy Thurs-Sun afternoon.

This article/statistic keeps coming up: I think it shows _how well_ groupon
works.

33% of businesses lost money during the promotion, 40% of businesses didn't
like using the service/had a bad experience. What are the numbers for the
restaurants prior 3 weeks?

Those numbers are not bad at all.

~~~
alexqgb
If Groupon makes money by taking it away from advertisers, these numbers are
compelling. Just consider John Wanamakers famous line: "Half the money I spend
on advertising is wasted; the trouble is I don't know which half."

The fact that this quip still has plenty of currency a century later indicates
just how exposed the advertising business really is.

~~~
alexqgb
Correction: When I specified whose lunch Groupon was eating, I said
'advertisers'. I should have said 'advertising agencies'.

From an advertiser's perspective, Groupon's pitch is really compelling.
Instead of spending money on traditional media-buys to generate some interest
and a few sales, spend the same money generating a lot of actual sales, and
call it a day.

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pchristensen
[Groupon Employee Speaking]

Keep in mind that when that study was done (June 2009), Groupon was _9 months
old_. Since then, Groupon has expanded to dozens of countries and hundreds of
cities, raised over $1B, hired thousands of employees, and refined its
processes a zillion-fold.

It's no secret in the company that our long term success is based on a)
customers having great experiences, and b) merchants getting a return on the
cost of their discount and fees to us. _Everything_ is viewed through those
two values. Deals are scheduled so that customers are always delighted (e.g.
so there aren't 4 steakhouses in one week), and sized so that merchants don't
get raped by the economics (e.g. if a typical bill at a restaurant is $100,
then the deal might be $60 for $30. Also, quantity is estimated based on the
merchant's capacity as well so that merchants don't get overwhelmed and
customers still get a good experience. In the video for the recent Japanese
new year debacle (<http://news.ycombinator.com/item?id=2111609>), Andrew
mentions that deal sizing and scaling is already done in some markets and in
response to the Japan incident, will now be done in all markets to ensure the
experience continues to be good for everyone. Short-term profit maximization
isn't what builds lasting businesses, and the execs here know it.

With something growing as ridiculously fast as Groupon, data get stale fast.
It's like if you found a study from 2006 where someone complained that they
couldn't find anyone they knew on Facebook.

It's always wise to take a company's numbers with a grain of sale, but with a
fast growing company, the numbers they selectively release are usually the
best you're going to get.

~~~
nhangen
I have a friend in SF that loves your service. The only problem is that every
time she goes to redeem a groupon, she gets berated by the staff and feels
like she's a different class of customer.

This rainbows and unicorns thing isn't the reality from what I'm getting.

~~~
araneae
I've bought probably 5 or so groupons, and I've been happy with them. I do
feel a little sheepish using them, but the staff have seemed fine with it so
far.

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angelbob
Sounds like he's pretty much saying "Groupon is a great tool for a specific
purpose, but don't use it without thinking about it." Which is good advice.

Specifically, it will attract a _lot_ of customers, but runs the risk of
reducing customer perception of the value of your product. Sounds like a good
match if bargain-seekers are your target market -- your promotion ends, and
you're still among the best deals.

But it sounds like a terrible thing if you're selling the equivalent of a
Lexus or Acura in your market -- luxury products defined by the perception of
their extreme worth/status.

~~~
oiuhjyftgrdgh
Not necessarily - groupon being on the internet and relatively 'cool' still
doesn't have the public perception of a newspaper coupon.

I have used it to buy stuff at high end clothes stores (well Gap - but
anything other than $3 black T shirts is high end for me!). If I ever needed
more clothes I might go back to Gap, it did get me to go into a store I
wouldn't have entered and was probably cheaper and more effective than them
putting their name on a yacht race.

~~~
jarek
Gap is hardly the issue here. Most people who shop at the Gap won't really
care if people wearing $3 black tshirts descend on the store every now and
then and start wearing the clothes. For actually high-end products, making it
more popular with the hoi polloi can mean the end of popularity with the
original target audience, and the new market can often be more difficult to
make decent profit in.

If everyone who heard about it on the internet could afford a Lamborghini, no
movie star would own one, no matter how fast it went.

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asanwal
This article is of negligible value and not sure I found any "dirty secret"
contained, but the title did make me click.

Summary:

(1) Marketing tactics are not always effective. Groupon is a marketing tactic,
and like other marketing efforts, it is not fullproof.

(2) If you give 50% off to customer and 25% to Groupon, you may not make
money.

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bmr
Groupon's real "dirty secret" is that they've brilliantly navigated the seedy
world of affiliate marketing. As far as I know, Groupon uses the same
affiliate networks as Acai scam artists (as opposed to say, building their own
a la Amazon) and is (was?) willing to pay several dollars for a single email
address.

How they managed that is the real secret and I would be extremely interested
in that story.

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sedachv
As Groupon Employee pchristensen has pointed out in this thread, Groupon has
hired thousands of employees. According to the Wall Street Journal, "about
half" of them are in sales (I suspect it's more). The real measure of Groupon
(which I haven't seen yet, and it is probably because it's too early to
measure) is going to be small business retention rate. Groupon is very much in
the same space as web Yellow Page/directory companies, but with a much more
profitable business model. It is likewise vulnerable to the problem of churn.
Those thousands of telemarketers can burn through all the local businesses
fairly quickly. How many will stick around 2 years from now?

<http://news.ycombinator.com/item?id=1968491>

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meterplech
You know- Groupon offers an incredible service to many small businesses.
Particular to those with high-margins or where the marketing of lifetime value
of customers makes up for the potential loss in revenue. It seems like they
have put together a top notch salesforce and technical team to bring their
business model to market.

But, they really need a better team helping clients make their decisions on
whether to use Groupon. While this article I thought offered little in the way
of a "dirty secret" and wasn't particularly different than others on the
topic, it shows a PR problem endemic to Groupon. This definitely needs to be
fixed to ensure the long term success of Groupon, which I guess will be
include a Yelplike/Yellow Book service.

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ernestipark
He's using a _local survey_ and comparing it to Groupon's full statistics.
Very biased comparisons.

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samd
How trustworthy is the feedback from these dissatisfied businesses?

People have a strong tendency to blame others for their problems and this case
is no different. Groupon and its "disloyal" customers are an easy scapegoat
for the business' own problems.

Groupon just brings customers in, they don't magically make the business
better.

When analyzing the effectiveness of Groupon we should be most concerned with
how well businesses with a good product or service did using Groupon.

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iwwr
The Groupon CEO is saying that businesses have a chance to make more bulk
sales. I can't see what's wrong with that.

Distributors will normally set a hefty markup to cover the costs of goods
_not_ moving. If you have a semi-guarantee that they would move, that markup
can be lowered.

~~~
rapind
Agreed, and isn't that the whole point of _group buying_ in the first place?
Groupon didn't invent the group buying model, they're just enabling /
automating it. I see nothing wrong with that. If a business can't benefit
enough from the higher volume guaranteed buys to cover the fees, then they
probably shouldn't expect miracles from any group buying service.

Using it purely for advertising / marketing seems secondary and questionable
to me.

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zandorg
I think Groupon has one small problem, and that's when they sell a holiday in
Wales in an offer in, say, Sheffield. So the business isn't actually in the
city it's selling into.

Also, Groupon offering deals in towns (not just cities) would be great for us
non-city dwellers.

But it sounds like an honest business, and I hope I find a deal I like.

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trptcolin
ooh, pie charts!

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alnayyir
I recently stated that I would very much like to short Facebook.

I would like to add that I would also like to short Groupon.

I'll let you guys draw out the parallels, I have some roti canai to nibble on.

