Every business owner is responsible for their own actions and the amount of research they put in before trying any marketing avenue—this includes Groupon. However, from what we’ve discovered, even the savviest business owners can be been scammed by last-minute bait and switch scams from shady sales reps.
Daily deal sites like Groupon are a little bit like one night stands. A Groupon salesperson calls you up, they make a deal, your business gets tons of foot traffic, and then they’re gone. While some businesses are equipped to handle a one night stand, others have been publicly speaking out about their broken hearts.
Jesse Burke, owner of Posie’s Cafe in Portland Oregon says that Groupon was “the single worst decision” she has ever made as a business owner.
Burke wrote on her blog about her experience with Groupon, which included a sales representative trying to swindle 100% of the money from the deal because her offer was too low. Groupon claimed that people would spend more than the coupon price, which is where Burke would make her money (she didn’t). Let’s keep in mind that she’s a coffee shop. If Groupon doesn’t want deals under $10 then they shouldn’t be targeting businesses where the average bill is under $5.
After taking the “bargain” rate of 50%, she only ended up being able to account for product hard costs, which didn’t include payroll or rent. She ended up having to withdraw $8,000 from her own account just to cover payroll because of the fiasco. Her recap on how she’s been treated by some Groupon customers who don’t understand an expiration date (the only saving grace) will make you rethink whether your business is fit to handle a daily deal.
TechCrunch’s interview with Burke offers a great breakdown of exactly why Groupon didn’t work for Posie’s Cafe and it makes you wonder how deeply Groupon cares about their real customers – the small businesses that their entire business model depends on.
Tom Rowlandson, owner of Eyes on Walls thought Groupon was “a total waste of time”.
So what happens when your deal isn’t good enough for Groupon? As from Burke’s story, you can see that sometimes they’ll try to take 100%. Other times, they might just cancel your contract.
According to Rowlandson, “We went through the whole process with Groupon. We agreed on the terms and the deal price, at the last minute they came back saying they wanted to change the deal amount to something we would have lost money doing, and run us as a “side deal” instead of a feature. We refused and so they cancelled the contract. Total waste of time, and overall they were very arrogant to deal with.”
Elise Pritikin from GoCoffeeGo.com says, “if you have hard cost items, it is brutal.”
As a business owner who was approached by Groupon, Pritikin spent some time analyzing how a deal at her coffee supply store would benefit her. “They want you to discount your product 50% off and then they collect the other 50% and then split it with you. For example: “Buy $20 of GoCoffeeGo.com coffee beans for $10.” The customer pays $10 to Groupon and Groupon keeps $5 and the business keeps $5. That is below the cost of the coffee.
“The challenge with Groupon is this… If you have hard cost items, it is brutal,” she says. She notes that daily deal coupons attract a certain type of customer—bargain hunters—which won’t necessarily turn into long-term customers. “Bargain people are always looking for the next bargain. It’s a high cost for customer acquisition,” says Pritikin.
Kim from The Parent-Teacher Store & Kids Too says Groupon refused to set a limit on her coupons – selling 1158 coupons and losing $13,160 dollars.
When Kim’s deal was published, it ended up going live with the wrong fine print, which allowed people to buy many more coupons than she’d wanted. Expecting to sell about 150 coupons, she topped the Louisville charts with 1159 sold after struggling to get Groupon to change the limit at the last minute.
Rather than work with her, they simply told her no, which generated “$46,320 of merch at retail or roughly $23,160 at cost”. Minus credit card fees and Groupon’s 50%, Kim says she got about $10,000. That’s a $13,160 loss. Or perhaps just an expensive marketing campaign? Unfortunately, many of the people who bought the Groupon were already frequent customers. Read more about her experience.
Carmen Lane from Three Cedars Day Spa thinks her offer denial was a blessing.
It’s all about customer service in the sales industry. Most people don’t enjoy being bullied by car dealers, so why would business owners like being bullied by what appears to be a glorified advertising agency?
Carmen says, “I tried creating a Groupon deal for 50% off cosmetic teeth whitening at my day spa. After jumping through their hoops to create a Merchant ” store” at Groupon.com and I had to wait a month and leave several messages before someone finally contacted me about it. I have to say I didn’t much appreciate being badgered by their sales rep about the service I had chosen. I wasn’t going into this new marketing concept blind. I stood my ground and refused to be told how to run my business and what service to put on sale. [The sales rep] informed me he’d run it by his sales manager for approval and get back to me. He never did. I think another type of person would have been bulldozed by [him], as he was very persistent and argumentative and tried to convince me he knew what was best for my business. I never heard back from [the sales rep] or any other Groupon rep. And maybe I should consider it a blessing.”
A business model like Groupon’s really depends on customer service. Every business owner should be equipped with materials required to make an informed decision. Would it kill Groupon to take some of the money they’re bringing in and create an online calculator for business owners that would give them an optimal “deal”? One that would take into account all of their costs, and what they can truly afford to “give away”?
If you were already planning to drop thousands of dollars on a marketing campaign, then Groupon may be the route to go. However, if your business isn’t equipped to handle the traffic and doesn’t give customers clear guidelines on how to use the coupon, then the negative online reviews and word-of-mouth chatter that you’ll get from the experience may do more damage than good. Be prepared and do your research before investing in any type of marketing strategy.