

Why Groupon Sucks for Merchants and LivingSocial Doesn't - venturelevel
http://venturelevel.com/post/4798285366/why-groupon-sucks-for-merchants-and-livingsocial

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aresant
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.

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

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lawnchair_larry
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.

~~~
fookyong
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.

~~~
roel_v
"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?

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Cherian_Abraham
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.

~~~
acangiano
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.

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Gaussian
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.

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r00fus
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)?

~~~
trobertson
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...

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itswindy
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

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

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ecaradec
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.

~~~
gergles
> 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.)

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GregBuchholz
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?

~~~
joeguilmette
Ours was a good 30%

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patio11
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.)

~~~
alanthonyc
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.

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dexen
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.

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tribe9
Dealing with groupons sounds about as bad as dealing with Yahoo Search
Marketing

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ares2012
Confirms everything I've suspected for a while. Great article.

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T_S_
Good user report.

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clistctrl
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.

~~~
spitfire
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).

~~~
trotsky
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.

~~~
johnx123
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.

~~~
spitfire
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.

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jprobert
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

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

