

40% of Groupon merchants say "never again" - cwan
http://www.marketingpilgrim.com/2010/10/forty-percent-of-groupon-merchants-say-never-again.html

======
garply
I'm a physical goods retailer and I'd like to point out a bit of group-think
on HN's part. 3 months ago, I asked you guys if I should use a Groupon clone
(<http://news.ycombinator.com/item?id=1490096>) and I got overwhelmingly
positive responses (someone even called my concerns paranoid). Now the place
is littered with negative attitudes toward Groupon. I don't think the facts
underpinning my worries have changed, only the community's attitude.

~~~
marknutter
HN likes to turn against companies that become too successful - FB, Groupon,
etc. I assume it has a little bit to do with sour grapes and a little bit to
do with not wanting monopolies forming.

~~~
stanleydrew
HN likes Apple and Google a fair bit. I'd say HN turns against companies that
turn against their users/customers.

~~~
SwellJoe
I don't like Apple. But I agree with you. When I don't like a company it's
because of specific behaviors of the the company that I turn against them, and
not at all related to size or level of success. I don't like facebook because
they have a long history of playing fast and loose with customer privacy, as
well as turning a blind eye to out-and-out fraudulent and manipulative
facebook apps (Zynga, for instance).

------
RBr
Groupon is a new method of marketing. At the end of the day, no matter what
Groupon or anyone else says, there is not enough data about the results of
this marketing to make any predictions.

There are a lot of new variables to consider. Beyond numbers, the small and
medium local businesses that Groupon targets still aren't entirely web savvy.
Heck, most of these businesses just figured out how to put together a halfway
decent website let alone master an online community based method of marketing.

Groupon has come up in my regular day-to-day conversations with small, local
businesses. To each one, I've said the following:

1) Building your own online audience is more valuable than relying on the one
Groupon has. This isn't easy for the strong majority of local business owners,
but even a few followers on Facebook point your business in the right
direction. Imagine being able to carefully craft your very own Groupon. Even
if you only had 50 people following you around the web and even if those
followers were existing customers, you could extrapolate the data and gain the
experience needed to make a powerful Groupon style campaign successful.

2) On Groupon, offer a drastic discount on a product that you could afford to
give away for free. If you're not capable of doing this, don't do it. This is
surprisingly difficult many small businesses because they don't know the true
cost of their products. From labor to square footage, most small businesses
consider a sale profit without having a complete view of product costs
available.

As an example: Every year, a bakery near where I live prepares hundreds of
small Cannoli pastries. The store lines people up down the street and sells a
up to 12 at a time for nearly 75% less then what they regularly retail for.
The store could afford to give these away for free every single day - they
cost $0.06 each to make including labor, materials, packaging, etc. This would
be a smart Groupon - get a big rush of people in the store at once with a
Groupon then a trickle for the rest of the year. Upsell like crazy and give
each customer _another_ coupon for 50% off of their next order and you'll
encourage people to spend more.

3) When evaluating the feasibility and hard numbers behind a Groupon, do not
assign value to branding or repeat customers. Think toward data collection and
future marketing instead. I've seen a lot of companies featured on Groupon
that must be thinking "a percentage of these people will come back" or
"they'll know the name of my store after this!". Well, they won't. These are
people who every-day, check Groupon for the latest and greatest place to save
money. Sure, some people will come back and some people will remember your
name - but if you assign any value to these things when budgeting a Groupon
campaign, you're silly.

4) The smartest Groupons I've seen are those that can be scheduled. From
restaurant reservations to car detailing, if you can figure out a way to have
Groupon customers call to schedule a time, you'll be ahead of the game. Being
able to control the flow of customers can help ensure that 50% of Groupon
campaign problems go away.

In short: Your own audience is more valuable then that of someone else. Offer
products on Groupon that you can afford to give away for free. Don't get sold
on branding or repeat customers. Products and services that you can schedule
(even with creative thinking) work the best.

------
AlexMuir
A customer who takes a common deal on Groupon is highly unlikely to go back to
a business. At least here in the UK, Groupon's deals are all the same -
restaurants, teeth whitening, facials (it just doesn't seem right typing that)
and haircuts.

I can guarantee that there's going to be a teeth whitening deal every week -
so why would I ever go back to a dentist and pay full price? Long term, these
businesses are damaging their markets and industries. You'll struggle to build
a business from fickle, deal-hunting customers.

That said, with things that are unusual I think Groupon is a good solution - a
canoe trip, or climbing wall for example. There's less competition and it's a
great way for people to try something that they might grow to love. But
restaurants - come on!

It's like the reverse of a loyalty card - come again and we'll charge you
double.

~~~
awakeasleep
The benefit I can see to restaurants comes with people's preference for
familiarity.

True, it'll be a tough blow to serve all that food for cheap, but if you can
make people feel good about your restaurant for cheap, I think there is a good
chance they'll be back, even if they have to pay more.

It's the reason why national brands can charge such a premium over generic
stuff, even when it's exactly the same thing. People are risk averse and a
Groupon takes half the risk out of a meal purchase.

~~~
AlexMuir
Groupon is crack for struggling business owners. It's a minimal up-front cost
for a massive rush. But then the rush disappears and you're left needing
another one. It's a few months later that you realise you're more fucked than
you were.

------
awakeasleep
It seems like every piece of Groupon marketing says not to expect to make
money off the deal itself. Then we see people like this complaining that the
deal doesn't make money.

From what I understand, Groupon isn't trying to be a wholesaler for goods and
services. They're providing an effective advertisement, not moving merchants
up the supply ladder.

Though I can definitely see why people would be steamed if they expected that.

~~~
WarDekar
Groupon markets to you in a way that claims you'll gain long-term customers,
that's where the retailer is supposed to make money.

The problem is that doesn't end up happening for a variety of reasons, as has
been pointed out elsewhere in comments and the article. Of course Groupon
would never tell potential customers of these flaws in the system.

FTA:

"The 32% that said they didn’t make a profit from the program reported that
customers rarely bought more than the coupon deal and few returned to the
business at a later date."

Tough to make a profit from Groupon when you don't get any additional business
from the groupon customers on top of what the groupon was for.

------
pvg
Why is it that various media outlets find the whole 'hyperlinking' thing so
hard?

The study author's page -

<http://www.ruf.rice.edu/~dholakia/>

The study itself

[http://www.ruf.rice.edu/~dholakia/Groupon%20Effectiveness%20...](http://www.ruf.rice.edu/~dholakia/Groupon%20Effectiveness%20Study,%20Sep%2028%202010.pdf)

------
toby1
Groupon is pursuing a slash and burn strategy. They churn through merchants
and spit them out. Their only goals are to increase revenues through

more cities more offers more revenue per offer higher share

Ultimately their interests are not aligned with those of their merchant
partners. They refuse to cap the quantity on offers. They push for 50%+
discounts. They do nothing to discourage breakage. They use good businesses to
attract their members but then they punish bad businesses with predatory
pricing. So good businesses erode their brand.

Lots of problems here. Their model is far from broken (because there are so
many businesses and the unit economics still work for their members) but
someone will come along and fix this model for them.

------
brown9-2
Most of the complaints from the 40% that are saying "never again" seem to have
very little (if anything) to do with Groupon specifically, but rather the
entire idea of advertising on a group deal/bargain site:

 _Poor tips, too many customers, angry customers (due to lack of product or
wait time) are all potential side effects of a Groupon deal. The author of the
study, Utpal Dholakia said it was almost a given:

“Because the Groupon customer base is made up of deal-seekers and bargain
shoppers, they might not tip as well as an average customer or be willing to
purchase beyond the deal.”

This led to the finding that restaurants had the hardest time with Groupon
deals, where service business such as spas and salons fared better. The 32%
that said they didn’t make a profit from the program reported that customers
rarely bought more than the coupon deal and few returned to the business at a
later date._

It shouldn't be shocking to retailers that offering deep discounts on a
popular discount site is appealing mostly to people that only buy discounted
goods, but it seems that it is surprising to some.

------
Alex3917
If 60% of their customers want to participate on a regular basis then that's
more than enough to build a billion dollar business. I don't see where the
scandal is.

~~~
AlexMuir
It's not a scandal - I don't think this is a con. But I'd be interested to
know how many businesses actually do repeat deals. It seems obvious that
brands/chains (who probably do research and analysis) are not (yet)
interested.

~~~
systemtrigger
They're interested. I personally know a national brand manager who is creating
a new product for the sole purpose of running it on Groupon. Margin problem
solved.

------
singer
How is this any different than a company posting a 50% off coupon in their
local newspaper? Groupon is just a different advertising route. I'm not sure
why Groupon is being blamed for what follows after customers get the coupon in
their hands.

~~~
Jun8
It's _very_ different. When was the last time you cut off a coupon from your
local newspaper (I don't even know the name of mine -> Google -> Oh, it's
Daily Herald, cool!), saved it in your wallet and used it in the store a
couple of days later?

Groupon's difference is: (i) it's on the internet, fueled with great publicity
it has generated (ii) the brilliant social aspect of the groupon system and
(iii) the deal is instantly bought now, not later. So it's not a coupon at all
but a web-based deal.

Groupon is very good at creating hoards of customers; what it lacks, I think,
is the consultation that should be provided to businesses about how to limit
and handle the crowd. Even gap.com had a rough day when Groupon unleashed a
national campaign recently.

~~~
singer
"I don't even know the name of mine"

That's kind of scary. I just got a Sarah Palin flashback.

"Groupon is very good at creating hoards of customers; what it lacks, I think,
is the consultation that should be provided to businesses about how to limit
and handle the crowd."

Maybe they just need to allow businesses to put a cap on the number of coupons
that are sold? Since a lot of companies are only advertising to their local
market, I wouldn't even think this would be an issue.

~~~
Jun8
:-) I doubt you read your local newspaper with the same zeal as, say, WSJ,
Economist, etc. Local newspapers are quite irrelevant unless you are really
tied to the community.

I think they already have the cap thing. However, it's not as simple as that.
A lot of businesses possess neither the experience nor the theoretical skills
to analyze what-if situations involving hundreds or thousands of new
customers. When you say the companies are "only" advertising to their local
market you are making teh same gross underestimation that some of these poor
small businesses do: local can be _huge_! For example, AFAIK Chicago metro
area is around 3M people, when you throw in the suburbs it around 9M. When you
advertise to Chicago groupon, _all_ those people have access (e.g. I live 30
mi outside Chicago but still bought the Tall Ship Wendy deal at Navy Pier this
summer, they were quite overwhelmed with the demand.)

------
edw519
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.

~~~
jonpaul
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.

~~~
minouye
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.

~~~
jonursenbach
I thought that Groupon doesn't cap their sales?

~~~
djb_hackernews
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.

------
tgriesser
One thing that I think is ridiculously misleading, is that when watching the
video for "how groupon works for busineses"... they have the "we only make
money when you make money" premise, and show bags of money piling up on both
the business owners side and the groupon rep's side, at what looks to be a 5-1
ratio in the business owner's favor

Now it's pretty clear that in this instance they are talking about when the
money is collected from the sold groupons - not the overall economic benefit
that the business will see in the future (although it's questionable that even
that will be favorable). From the Posies story and finding out that groupon
takes at the bare minimum a 50% cut, this video is incredibly deceiving,
borderline flat out lying to the business owner from the start... No wonder
business owners are disenchanted with the whole process.

Click on "How it works" <http://www.grouponworks.com/>

------
petermarks
My startup -- <http://feastery.com> \-- was founded to address these problems
for great restaurants. In general the issues around retention and customer
quality have been around since the beginning but have been largely ignored by
most writers. We match high-quality customers with great restaurants, and
economically sensible offers. We help restaurants deliver a unique experience
(not merely a discount) and we track retention so we can definitively prove
ROI. It's a better model for our members and our restaurant partners. If you
love food, request a membership here: <http://feastery.com/request_membership>
</shameless startup plug>

------
antidaily
Fast growing company ever according to their CEO. Hiring 100 new employees a
week. Uh oh.

------
jakarta
It's interesting to think about ways in which using Groupon would be
beneficial.

Maybe for a new entrant to a geographic market where they are willing to
settle with much lower margins? So you would in that case use Groupon to get
your initial customers at the expense of neighboring competitors. And by
keeping prices permanently low you would potentially keep those customers.

Presumably, if you can keep that up and competitors cannot compete, you could
drive them out of business and then raise prices. Sort of a Walmart 2.0
strategy.

~~~
systemtrigger
Another merchant strategy: introduce a high margin product/service to your
line for the sole purpose of selling it on Groupon.

------
Kilimanjaro
Groupon is abusing their position as leaders in that niche. That will backfire
for sure and users will never forget.

A new startup in the field can disrupt the market...

~~~
crystalis
You've used some popular words, but I'm not sure you're saying anything. The
Groupon "problem" is somewhere between businesses making poor decisions in how
or if they participate and Groupon taking too much of a cut. What can a new
startup disrupt? Offer better terms for fewer users? Groupon can match or cut
below the terms and offer more users, and they won't have any friction
involved... Not take businesses that wouldn't do well under a Groupon? I'm not
sure how not getting businesses to sign up is going to hurt Groupon either...
Without anything there, you're doing little more than 'Happy Birthday! Stock
Message!'.

You claim users will never forget, but they rarely remember. As fervently as
some users denounce companies, most users are going to (likely rightly so)
forgive, accept their token gift, and forget. There's always a big buzz, but
the sting tends to fade quickly.

------
callmeed
Anyone interested in working on a Groupon-like platform that let's merchants
sell their own vouchers on their site (or be licensed to smaller chambers of
commerce / newspapers)?

I've been messing with one (in Rails) and I can get approval to be a 3rd party
payment aggregator (we already do this with one of our products).

------
trustfundbaby
The 32% that said they didn’t make a profit from the program reported that
customers rarely bought more than the coupon deal and few returned to the
business at a later date.

\----------------------------------------------------

Does that remind anyone else of digg traffic?

------
erikpukinskis
If customers haven't educated themselves about the danger of space-time
accidents when they try to take a Toyota Maxwell 2033 out on the interstate,
well that's just their fault. This ain't no internal combustion engine.

------
aresant
Wow, is it really that easy to get the media to go into full attack mode?

a) We're given nearly zero visibility on how candidates were selected. Even on
the Rice website they only list media mentions of the study, I would love to
see the original sample, polling selection data, etc
<http://media.rice.edu/media/Dateline_Rice.asp>.

b) Response Bias alone could swing the results up or down wildly with such a
small sample size.

c) A piece of the article, reported as fact, is that restaurants are unhappy
vs. other business types which they certainly do not have data to support.
This is terribly misleading - from the article they surveyed "150 businesses
spanning 19 U.S. cities and 13 product categories" indicating ~10 business in
each category.

For the WSJ & others to report a half-baked study as pure fact without raising
any of the questions above is mind boggling.

------
hkuo
"It smacks of a desperate attempt to jump on the trend-wagon and less of a
well-thought out marketing move and that is the real crux of the problem."

I wouldn't be so quick to judge if I were the writer. This will just be one of
many discoveries as this type of business grows and gains in popularity, and I
have no doubt they will learn and react with their best judgment.

------
neovive
I think the Restaurant.com model works better for restaurants since a minimum
purchase is typically required and the tip is automatically included based on
the actual (non-coupon) price. Although, I do find it hard to get coupons for
the more popular restaurants.

~~~
toby1
I have never heard of anyone using restaurant.com

------
jasonlotito
The numbers in this article, and in the WSJ article aren't very clear.

40% of the merchants say they wouldn't do it again. 66% said they were
profitable. This means some of these profitable merchants would not do it
again. 32% said they were not profitable. We don't now how many of these would
not do it again.

Of course, their is no information regarding the actual businesses themselves.
A suffering business using GroupOn probably has a good chance of suffering
afterwards. Advertising, whether through radio, GroupOn, or other sources,
isn't a magic bullet.

------
lionhearted
> What do you think of these numbers? Do you think Groupon’s satisfaction and
> return rate is closer to Mason’s 97% or 60% as the survey says?

60% happy rate certainly sounds closer to reality than 97%, but am I the only
person who thinks that's really, really good? Are there any forms of
media/advertising that first time purchasers have above a 60% rate? I've tried
different kinds of media and deals in the past, and had many things go
abysmally bad. Print in particular. I think mature industries like newspapers,
magazines, and TV commercials only have a higher satisfaction rate because
they attrition'ed out some people who attempted that form of media. Once
people figure out what businesses perform really well on Groupon,
success/satisfaction rates will go up.

I'm thinking Groupon will work for businesses with high fixed costs and no
variable costs (Chelsea Piers), businesses with insane margins (spas), and
places that think they can replace a regular part of someone's life and get a
returning customer (centrally located bagel shops, pizza shops, etc). Right
now a lot of high variable cost unique experience type businesses are trying
Groupon, and that seems suicidal to me, but eventually people will figure out
what Groupon works for and what it doesn't.

------
pasbesoin
Here's my quite speculative thinking on the whole mess, admittedly also
without having followed it in much detail.

It's not worth your time chasing such elusive bargains, unless your time is
not worth a lot. (Exception, the "excitement of the hunt". See Atlantic City,
Las Vegas, etc.)

If your time is not worth a lot, you're not going to be buying much (no
resources). I.e. you're a low value acquisition as a customer. (And if you're
into the "excitement of the hunt", then you're not too interested in settling
down with a particular merchant, are you?)

It eventually follows that success for Groupon consists of promoting itself,
not its customers' (the businesses contracting campaigns) long term interests.
(Once again, the site's users are the product, not the customers. And while
they may be nice enough people, they are not a good product.)

Also, users (the merchant's customers) associate their success with Groupon,
not the contracting merchant. One-off bargains don't build customer loyalty.

P.S. Having now read the brief, linked article, I speculate further than an
overwhelmed venue may actually be counter-productive; shoppers stick it out to
get their bargain, but tell themselves, "Man, what a pain. I'm never coming
back here again."

~~~
cullenking
I agree with your last point - I won't purchase Groupons for events anymore,
as they are miserably packed, and many of the people aren't enjoyable to be
around (obviously anecdotal).

Most recently, OMSI (local science museum in Portland) offered half off
admission to their adults only evening admission. The place was crawling with
trashed people complaining about too much reading and that there needed to be
more hands on exhibits.

