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Groupon in Retrospect (posiescafe.com)
135 points by morisy on Sept 16, 2010 | hide | past | web | favorite | 54 comments

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?)

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.

> 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.

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.

You're right, but, a nit: coffee shops aren't selling a cup of flavored caffeine water. They're selling a service that produces flavored caffeine water, to order, in a coffee shop (read: high rent) environment. When you factor payroll and rent into it, the cost to serve a cup of coffee isn't actually a great deal for the shop. Most of them fail.

That's neither here nor there for the one case of a loyal customer asking for a discount; of course this business owner is sorely mistaken (and also doesn't appear to understand the concept of a marketing budget, or figuring out what that marketing budget can buy).

Indeed, there was a great (anecdotal) Slate article about the economics of opening a coffee shop: http://www.slate.com/id/2132576/

I think she's making unwise business decisions, especially in her treatment of her best customers. If she's a good, loyal customer, I would honor the coupon even if it's expired. She's trying to alienate exactly the wrong people. Loyal customers, you're special--we don't this for everyone because we like you.

She could even still invalidate the coupon, but say, because I value your business (and return customers are the lifelines of restaurants), I'll take $12 off the bill, just for you. The Groupon is still expired, customer receives discount and is happy, and business enjoys continued business from loyal customer, and perhaps even a customer's obligation to bring more business to the coffee shop.

To outright deny the coupon or some other good-will gesture just seems bizarre. If someone is spending on average $8 and shows up 10 times a month, why risk a $1000 in business for a $12 coupon?

Not only this, but this seems like it might be against the Groupon terms of service to deny the coupon outright.

According to the fine print on one of the Groupons I have, after the expiration date the coupon is still good as a voucher worth what the customer originally paid.

You're not entitled to the advertised deal, but that coupon is worth money toward goods and services. For example, your $25 coupon is no longer good for a $75 spa treatment, but you still have $25 credit at the spa.

It's not clear from the post that she didn't take it as a $6 credit. It seems that way, but the author never says that and it's not the point she's trying to get across.

They do that because it is a specific law in many states.

I'm sure Groupon will make a similar exception for Posie's Cafe.

What Groupon wants doesn't particularly matter to the situation. Unless Groupon has somehow convinced you to sign a contract promising that you'll never give anyone a better discount than the Groupon, you can handle regular customers however you want - including customers who aren't doing business under Groupon terms, because their Groupon is expired and doesn't apply. So: "Sure, Lucy. Here you go."

Now, there is a real barrier to just giving Lucy the deal. The entire point of the blog post is that the discount was ruinously unaffordable and didn't attract customers. When you can't make payroll, maybe you genuinely can't afford to comp six dollars of flavored water! Or maybe you don't want to set the public precedent of honoring expired coupons when the coupons were bad business even during their active dates and an entire line of customers is listening to this exchange while waiting behind Lucy. Maybe you get a flood of people digging out their expired coupons, or just demanding to be treated as well as Lucy - exactly what you can't afford. If something is unsustainable then you need to stop sustaining it, and that means there has to be a first person you tell "No."

I suspect that was the sense in which the original poster said she "can't" give Lucy the deal: The deal can't be continued - it's been a disaster - it can't go on. Strictly speaking, you have the power to treat customers however you want, but at the end of a bad business decision related to customer discounts, it's only human to frame everything in terms of "we need to get out of this bad deal."

But taking the Groupon deal at a bad price, such that she painted herself into a corner with her best customer, was still the original poster's own mistake.

I feel it would be unambiguously better, in a social and moral sense, if Groupon provided more advice and guidance to discount providers so that they don't risk going out of business. The mistakes may have been the responsibility of Posie's Cafe, but problems are problems, and Groupon wasn't exactly an uninterested bystander in the issue. I think it would probably be better for Groupon's long-term economic interests as well; if you burn your business partners, you earn a bad reputation, and eventually you run out of people who haven't heard the nasty rumors.

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.

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.

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.

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.

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.

If we were back 50 years you could make for a very good billboard salesman.

Yes but if 1/10 of the people come and stay, and you get 10 people coming, you retain one.

If you get 30,000, you retain 3000, which could potentially be the 3000 that you need to gain traction and start gaining new users organically.

And if I can just marry .01% of the women I meet, then I can potentially have 300K wives if I just travel enough!

Made-up percentage numbers aren't an accurate means of prediction. Doubly so since the "customers" that Groupon brings in are looking for freebies.

I doubt you'll see this since the thread is old, but you aren't making a valid comparison.

You could not have realistically have 300k wives at the same time, but you could have 300k customers.

What you're saying goes completely against any type of advertising or promotional model that I am aware of. This is why there is more than just Cost Per Acquisition ad models.

and if you get 10k/day? For nearly free! Sounds like a deal to me.

Although, it's more like 99 times out of 100 and is still a bargain.

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

They can do it because there is no shortage of companies throwing themselves at Groupon. And Groupon knows it:

"And now there are many more businesses trying to join Groupon than it can handle. Owen noted that the company takes a big cut of the revenue (up to 50 percent) earned from these deals. But since Groupon has a waiting list of 35,000 businesses, Mason said, “If we were economically rational, we would take even more.”"

From http://venturebeat.com/2010/09/15/demo-the-secret-of-groupon...

And at the same time, they're clearly willing to negotiate, since Posie got 50%.

I've bargained at furniture stores for a leather sofa because I thought one of the cushions looked "off color" (it was, but just _barely), and my mother once bargained $100 off of a refrigerator at Best Buy, and she didn't even buy the damn replacement plan. You can cut up to $20/month off your cable bill just by threatening to leave.

Everything is negotiable, and everyone likes to be negotiated with (even the drama queens in car sales that yell in outrage in the back room with their manager then gives you your price).

99% of the consuming public doesn't give a damn about doing that, though; probably because swiping plastic doesn't feel like money until the end of the month.

Or maybe it's because negotiation and bartering are not commonly part of western culture in modern times? (at least not where I live, in Canada).

Either that or because we like businesses to be honest and not charge a "sucker tax" for customers who don't like haggling.

Come now, we don't call Microsoft or Cisco's (or any other) outsized profits a "sucker's chest" now do we? And, most of us either have or once bought a house or mechanized vehicle, and we didn't go there, look at the flyer and say "well, that's the price. Where's my wallet?"

Haggling is healthy, it's the lifeblood of commerce. If it's how retailers negotiate at the wholesale level, why can't we turn around and do it at the consumer level?

I think, if you call it anything, you should call it the "authority tax", because you're trusting their price as gospel because they're the big, scary faceless monolithic vendor of great success. They're just a business. We're all in business. We all should be looking at CDW, OfficeMax, Dell, Apple, as the same as us. It's American worship of the corporation that makes us roll over and give them all their 30% growth year over year, not the fact that they're "honest".

Sure, some people might be okay with the haggle or even expect it.

At my company, I've come across people who find it in their nature to haggle the price. There are only 2 ways to deal with them. Up the price and come down to your normal price or don't deal with those customers.

99% of the time, I tell that we don't negotiate price. We charge what we charge because we do a good job and you're going to love it when we're done. 1% it's a good friend so yea...

If they ask again, I tell them we're not a good fit for each other. 7 times out of 10, they try to convince me to do business with them after that. 3 out 10 walk away, which is awesome because they just saved me a shit load of headache.

Nothing personal but I feel cheat out of money if I give into hagglers and if I'm not happy, I find it harder to serve them as well as I want to. Better to refuse that business than to provide sub-par service.

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.

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.

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.

1. Yes sure - but this is a big bet. And in this case it didn't happen.

2. Understood. But the aggressive discounting is going to encourage a lot of people who just want to get something on the cheap, and will never go there again. As point 1, you've no idea how much repeat business you're going to get.

I would never do this unless I could cap or trial it first, so I could get a proper assessment of what the deal is worth.

Groupon lets you cap the maximum number sold.

Much like four bucks for caffeine water, that depends entirely on two parties agreeing it is worth that. (Starbucks certainly has a marketing spend over $10 per customer. LTV is in the hundreds or thousands for a daily latte drinker.)

Right. Because the beans pick, deliver, roast, grind and brew themselves.

I haven't been to Posies cafe, but the local independent coffee place I stop at most days on my way into the office charges less than $2.00 for all 3 size options (12, 16, 20oz), deals almost exclusively with organic sustainable save-the-planet type growers, has beans from around the world, and a top-notch large batch roaster in house (which someone has to staff for pretty much the entire roasting period).

If they were actually charging $4 for a "caffeine water", then they shouldn't be bitching about Groupon (IMO). If they're charging the more typical ~$2 for coffee, ~$4 for an espresso drink, then their prices are pretty reasonable, and you have to sell a fuck-ton of cups to make your rent.

Isn't almost everything entirely dependent on two parties agreeing that it is worth the given asking price?

Coffee at Starbucks is a lot less than $4. Also, you aren't just buying the beverage but also paying for a reasonably comfortable place to sit and drink it.

They're probably expecting a negotiation and start out as high as possible (well, they could charge for their service, but that would be too much).

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.

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??

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

>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.

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?

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.

The eternal lesson: profit trumps customer numbers

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

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."


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.... 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.

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.

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

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.

"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.

To be fair, other companies are less, well... stupid. Today on SF Groupon, I see a climbing gym trying to get new people to come for their first lesson by offering 2/3 off. That makes a lot more sense along the lines of the gillette / dealer model (the first one is free).

I think a coffee shop, or really anything selling a commodity, is particularly ill suited to groupon type sales whereas a climbing gym, or really any business with probably a monopoly in a geographic area, is particularly well suited.

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