I apologize for the poor audio quality in the video. Yes, I know I should have put a mic on her, but this was shot with a point-and-shoot digital camera without an external mic jack.
The TechCrunch story has biggest takeaways. Here are my other notes from the video. The number in brackets refers to the video segment in which the comment was made.
Why Groupon?
- [1] She signed up for Groupon because a pizzeria across the street had run a Groupon and a friend who worked at Posies said that the pizza place had been busy since the Groupon.
The deal launch
- [1] In Jessie’s case, Groupon was an anti-yield management play. Because Groupon dictates the scheduling of a deal, her deal started about the same as another local event. It added more demand at a time of peak demand versus providing customers when the business was otherwise empty. Between the two events, there was a line out the door the whole weekend.
- [2] She didn’t make any effort to get people to follow her on Twitter and Facebook.
Existing versus new customers
- [1] She had no real way of tracking existing versus new customers.
- [1] She didn’t advertise the Groupon to Facebook or Twitter followers.
- [2] She had no way of tracking if Groupon customers came back and paid full price.
Customer quality
- [1] Customers abused the system with some buying more than one deal in violation of the terms. Others printed multiple copies and tried redeeming them. Sometimes it was easier to take the loss than fight with customers in line.
- [1] Groupon told her that something like 98% spent more than the value of the Groupon. “You think maybe like $5 above the value, not like 10 cents.” In her experience, customers tried to get as close to the $13 mark as possible.
- [1] One customer tried to use three Groupons at once. She said, “What are you going to get for $39? Do you want the whole shop? And they were really offended.”
- [1] “Most people took a trek here. This is definitely a neighborhood shop. People don’t come here from other parts of town just to get coffee.” … [2] “They would come and want to spend all of the money at once because they wanted a deal and not because they wanted to make this a regular spot.”
- [3] “Even though we’d gotten some good customers, we had a lot of really bad customers that exploited the system, were rude to the staff, didn’t tip the staff at all.”
Reputation
- [2] Groupon customers lowered her ratings on Yelp. “Things did not look good for Posie’s on Yelp after doing a Groupon.”
Interactions with the Groupon team
- [1] She was advised by her sales rep that they didn’t usually do small amounts like $5 and that consumers responded best to deals that were 50% off.
- [1] Groupon initially asked for 100% of the sale value, which Jessie said she couldn’t do. After negotiation, email from her rep said “I gave this some more thought. Understanding that your business in newer, I decided to split the revenue with you. So, you’ll be getting $3 of the $6 we charge the customers. Also, we incur a standard credit card processing fee of 2.5%. So your check will actually be for half the revenue less the cc fee (it only comes to 15 cents per transaction) This should make this campaign even better for your business.” Note that Groupon is charging the merchant credit card fees even on the portion of the transaction it keeps.
- [1] Groupon’s merchant training was a video link. It provided advice to bulk up on staff, but not when typical peaks occurred. (At the start of a deal and right at the end before promotional value expires.)
- [2] Groupon did not provide any guidance on laws about expiration of Groupons. “The onus of responsibility shouldn’t be entirely on this little business that doesn’t know the laws in the first place.”
- [2] Groupon recently called her to ask if she wanted to run a Groupon. She suggested that he Google “Posies Cafe.” The rep responded a few hours later with “A simple Google search showed that I’m an idiot. I’m really sorry.”
- [3] Her rep didn’t tell her about the ability to cap the deal.
- [3] In interactions with Groupon CEO Andrew Mason: “This isn’t a newspaper ad where most people know how to do that. You’ve revolutionized marketing. So nobody knows the parameters unless you tell them. No one told me the parameters.”
- [3] Her Groupon rep told her that she could only do one Groupon in the life of the business.
Reaction from other businesses to her blog post
- [4] “A lot of them had had similar experiences. What was the saddest part of it for me was that this had had happened to a lot of businesses but because no one had ever said anything we all just assumed (and myself included) we just assumed we were bad business people. That we just didn’t know what we were doing. If everyone loves Groupon so much, we must be wrong.”
- [4] “In all honesty, relative to a lot of these people, I didn’t lose as much as most of these people. We did lose $10,000 hard cost.
Other
- [2] “There is no risk on anybody’s part except the business. In the product that you give away, the follow up with customers who are upset. It’s all in us, even though we only get a very small fragment [of the regular price].”
- [2] A longtime customer her encouraged her to write the blog post after hearing about the economics of the Groupon deal.
- [3] “I think it’s helpful for people to know that you’re not actually giving someone $6, you’re giving someone $3 in our case.”
- [3] “I feel like it’s a corrupt business model. My husband refers to it like locusts. They’re going to go through and tap all of these business until they can’t survive anymore.”
- [4] “Our most successful advertising is through Facebook. And that’s free. Even offering deals through Facebook, which is also free.”
Rakesh Agrawal's blog 
Rocky, WOW….did you strike a raw nerve in the collective local business owner establishment or what? I’m looking forward to reading more of your analysis of what the real issues are that underlying the devastating financial hits some merchants are taking. When does it make sense to run a Groupon or Living Social promotion?
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Rocky, I believe this is the Daily Deal sites’ sales approach, and part of the reasons behind their success. Perhaps unsurprisingly, it’s in large part emotions and small part economics.
I will discuss restaurateurs in particular, but believe the argument applies to most small business owners.
Restaurant owners are very busy and constantly being targeted by a large number of sales people. They have little time and no patience for economic arguments like incremental margins or variable costs. However, like any entrepreneur, they are optimistic.
Like aspiring entrepreneurs, actors, writers, etc., many restaurateurs believe they’d be successful if only they were given a chance. The operator of a less popular restaurant tends to believe he has great food and if only customers would give them a chance, they would see what they’ve been missing and become loyal patrons. If only.
Enter Groupon to capitalize (prey?) on that optimism with the promise of hundreds or thousands of 1st time customers at a discount that still covers food costs. Isn’t this that “chance” the restaurateurs have been waiting for? All they have to do is wow these diners, and convert them to repeat customers. Combined with city-wide exposure, cash upfront from Groupon sales, the emotional high of having a packed house, and the unquantifiably low ROI of traditional advertising, restaurateurs are faced with an offer they almost can’t refuse: partner with Groupon and live happily ever after.
So that, I believe, is the sales pitch. The reality of Groupon for restaurants is often quite different. After an initial rush, business returns to normal and Groupon has moved on to wooing other restaurants in the area. What’s worse, during that initial flood of customers, restaurants are often unprepared to handle the volume and end up offering sub-par food and service. Yet to be seen is whether small business owners develop an addiction or withdrawal symptoms from working with daily deal sites…
I’m sorry but this does seem like an excuse to remove blame. I’m with you regarding the impropriety of selling a 13 dollar groupon at a store with an average sale of 5. That was an irresponsible sale on the part of the Groupon representative and that rep should understand that inflating a deal only damages their company’s reputation, harms the client, and eliminates future deals “even if the wouldn’t run a second deal, a good experience from Jessie could lead to sales from other businesses whom she recommends to” Any reputable modern sales person should understand that their credibility directly affects future sales.
That said,
Jessie wasn’t very responsible either. She may have been suckered a bit but as a business owner that can only be viewed as her own fault. The worst business decision was not using groupon, it was using it ineffectively. Jessie mentions that her yelp reviews dropped. That’s when I started thinking about this. The moment the opportunity presented itself, she needed to think “how can I make this work best for me.” Ultimately Groupon is just advertising. You offer an awesome deal, make no money on 900 sales but get seen by tens of thousands of potential customers “in a city at least” Many times I have gone into work and the water-cooler conversation is about the coupon someone just saw or used. I’ve ended up going to places other people got a coupon for. Also there is the yelp aspect. If I go to an area I don’t know I check grub hub “which has yelp reviews” set it to view by rating and look at the top 10 or 20 to make a decision. By giving out 900 coupons, then giving those customers an awesome experience, you can inflate your reputation on Yelp. You will get more business from non-locals who do not have a coupon. And arguing with any customer is just going to feed the trolls. If you have 10 happy customers, 1 will write a good review on Yelp about your store. If you have 10 unhappy customers, 5 will write a bad review. You just gave all the trolls out there something to be angry about they have a way to get back at you in a way that hurts most. Even the scheduling issue that is mentioned was another huge missed opportunity. It was probably stressful and reduced the profitability of a big weekend but it was a great chance to send the masses streaming from your store raving. It’s amazing to me how much more reputation-based the world has become. We have reviews at our finger tips on our phones and we talk with others in normal social setting about those experiences. These are all things that have a rippling effect for month’s if not years.
So I’m sorry Jessie, I’m sure Rocky is right that you are pretty sharp but I don’t think you thought this through. You had an irresponsible sales person and that sucks. But you could have turned this into something that benefited your business for years to come and instead it sounds like your decisions have hampered your business. If you want to repair your online reputation even as a small business you are going to need to do this again with other venues like living social etc. Negotiate hard with the sales person setting up the deal. Be very shrewd, try and get as much as you can because that is what they are going to do you during those negotiations. Then make certain every person and coupon is well tracked on a computer. Even if they did this for you I would say try to track it yourself, it’s your money that’s lost on extra sales not theirs. And even when someone tries to take advantage, evaluate if it is worth the conflict. How many people are there to view the conflict? How will it affect their view of the store as well. If you could pay to remove a negative review how much would you pay because that is what will happen. View it as an advertising expense. When people you don’t recognize come in, cheerfully ask “where’d ya hear about us?” Track that to see what tangible benefits come from the advertising. Make certain above all else that you don’t feed the trolls. That guy with the 39 dollars in coupons is a tool… I’m totally with you there. But remember that person knows they are a tool and what they’re doing is exploitative. They literally get off on it. Just give them a smile, give them what they want and tell em to please come back again and tell your friends! What you just paid for there is disabling someone who wants to write a bad review. Seriously, the’re just itching to rip somebody apart online and feel righteous doing it.
So there you have it. I hope you can turn this around but like I said, I think you had the wrong outlook. Groupon and the like is advertising. Potentially awesome advertising. But it becomes up to you to figure out how maximize the value of it.
Poly, very interesting. First off, a few things. Have u ever run a coffee shop? Have u ever been in business and had to lose money on 900 customers/clients? Forget about the groupn/smupon deal there are so many other costs associated with 1 person walking through the door not to mention 900! You make valid points about the restaurant industry, etc. however, not every person in the world lives to wake up to see who is doing what to who on Facebook, tweeter, mylife, yourlife, etc. I do agree this groupon thing used correctly like u stated can work. However, is this not true about every thing else in society? We had a small sandwich shop and made money and even sold the business after 8 months and still have some of this same cash from the sale. Food business is very LABOR intensive. If you have good people and communication skills then select a service profession and choose your clients and work when convenient for you versus being tied to a retail location. On another note, we never ran one ad and it was all word of mouth (no facebook or tweet) and we could not keep up with the new customers and in a short time we got burned out but were smart enough to recognize if you take care of one person (physically not virtually) they will not stop telling people about you. Till this day several years later we still have people come up to us and wish we had not sold! Think about that actual people. I love the internet, email, etc, however, the face to face, person to person will always be king in sales, referrals, etc. In closing, I learned this long ago, every person walking the planet has a somebody and at the end of the day what do you think they will speak of? The people who made an impression on them…priceless…and it has worked since before my time. Respectfully yours, Roger
Always someone interested in blaming the victim, poly. Groupon isn’t proper advertising, because the people who come into the shop have no interest in ever coming back again. For small businesses it’s a purely exploitive profit model, with the “customer” and Groupon taking all the profit, and the shop getting nothing but the empty promise of return business – something that Groupon seems to know doesn’t actually ever materialize.
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This is pretty interesting to read but I would counter that there can be good experiences with groupon but as someone else here said as a business owner you need to understand how you will make money. Group on likes to do 50% off and they will take 50% of your remaining half so you need to know you can break even at 25% of normal rates. If you can then there is some real upside. We did a deal with Groupon and sold about 800 coupons. They expire after six months. It’s three months in and over 70% have still not yet been redeemed and of the 30% that have been we’ve averaged about $7 a head over the group on value which is pretty good since our average sale is around $18. We’ve used the online and iOS apps to redeem so no fraud risk and the reporting tools that group on offers are first rate. It’s hard to know for sure but it seems the majority of group on redeemers are new to us as well. The real upside will be when the groupons expire though… at the current burn rate I expect a full 25% to go unredeemed… that’s a major bonus that we didn’t even consider when we started. I’d love to know on average for group on how many go unredeemed.
Groupon can work but as a business owner you need to make sure you are ready and understand the model and your true costs of doing business.
Groupon is a complete waste of time. I am surprised that businesses have not noticed this on just veiwing the offer prices they have to put out- ok you are increasing your sales, people will come rushing in to get the deal.. but at WHOS cost? Yours.
Just by looking at the price of the services on offer with Groupon, I can see the losses… why cant anyone else? What is the selling point that people are going mad for here?
People who want cheap will always go for cheap, they will not become return customers who will then pay full price 99% of the time.
Cheap looks for cheap, cheap will travel all over the place to get cheap… your Groupon deal is just playing a part in that cheap parade
Using this logic, we can also say that all Sales are a ‘waste of time’, because ‘cheap is cheap’.
Since retail sales do work, we can then infer that you actually do not know what you’re talking about.
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I agree with Poly, this business owner was naive. If she tried to research about it before she agreed to it, why would she not talk to the business near her that had already run the groupon? She seemed to believe in groupon completely without figuring out how it would impact her own business. Back management if you ask me!
This is just silly.
“[1] She had no real way of tracking existing versus new customers.”
Did she think she was omniscient, and surprised to learn that she wasn’t?
“[1] Customers abused the system with some buying more than one deal in violation of the terms”
As far as I know, it is impossible for a groupon user to buy more than one groupon when the terms clearly say “limit 1 per person”. I think the likely explanation here is that she had no such limit.
“Sometimes it was easier to take the loss than fight with customers in line.”
Speaking from experience, I’ve had situations when I’ve attempted to use a coupon, only to be told that “Sorry, it’s been used before”. In one instance, they kept a book with a list of purchased coupons, and initials next to each “used” coupon. The initials were clearly not mine. I chalked these up to just poor record keeping on the businesses part – that’s most likely what happened here too.
“[1] One customer tried to use three Groupons at once. She said, “What are you going to get for $39? Do you want the whole shop? And they were really offended.””
You’re chastising a customer for wanting to spend $40 at your shop? I think this is proof of being a “bad business person”.
“[2] “They would come and want to spend all of the money at once because they wanted a deal and not because they wanted to make this a regular spot.””
I suppose the owner did indeed think she was omniscient.
“[3] “…. were rude to the staff, didn’t tip the staff at all.””
With an owner like that, I’m not surprised. Also, is the owner suggesting that purchasing a groupon spontaneously turns someone into a rude person?
“[2] Groupon customers lowered her ratings on Yelp. “Things did not look good for Posie’s on Yelp after doing a Groupon.””
The evidence of the owner just being a “bad business person” just keeps on stacking up…
“[1] Groupon told her that something like 98% spent more than the value of the Groupon. “You think maybe like $5 above the value, not like 10 cents.” In her experience, customers tried to get as close to the $13 mark as possible.”
It certainly makes you a bad business person if you actually believe that people will purchase a groupon, and then “spend $5 more” than the groupon. You can’t blame anyone else for that one, that’s just naivety.
“[3] Her rep didn’t tell her about the ability to cap the deal.”
Since most Groupon deals have a cap and this cap is clearly visible on most coupons, one would think the owner would visit the website before diving in head first…
“[4] “In all honesty, relative to a lot of these people, I didn’t lose as much as most of these people. We did lose $10,000 hard cost.”
If you don’t realize that groupon and similar sites are meant to be used as marketing tools, then you ARE a “bad business person”.
“[4] “Our most successful advertising is through Facebook. And that’s free. Even offering deals through Facebook, which is also free.””
You can’t track which users coming into your store are from Groupon, but you can track which users heard of you from Facebook? Do you poll every customer or what? Regardless, Knowing when to use certain advertising mediums (and when not to) is the owner’s responsibility. You can’t make poor decisions and then say “Oh woes me, Groupon did not educate me enough!”
sorry to hear you had a bad experience. Groupon is a shark.
Online coupon Codes
I’m a co-founder of an up and coming company which will be competing directly against Groupon, Living Social, and all other companies which have the same business model of group couponing. We’re going to offer the same idea where customers can come to a website to find local deals. Our business model however is your business is your business. We’re going to provide a means in which users can download a limited amount of coupons from our site. That limit would be determined by a company and be redeemed by their customers in person. Customers will be paying companies directly at time of service and they’d keep their profit. We would only bill on a month to month basis, no contract or any kind of obligation to continue beyond their first month.
We’re basically allowing businesses the perks of running group deals while being able to keep their profit. They’ll only be paying for the service of running group deals on our site. Companies would decide how many coupons to make available and they can cap it off at anytime they see fit. They’re in total control of what’s being offered through our website. Our website is also going to function as a business directory and a social media platform. The social aspect of our site is that people can favorite your business and recommend their friends to also check out different companies. People who favorite business profiles will receive messages, discount opportunities directly from those companies. The business directory comes into play when people do local searches for things to do, places to visit, etc. We’re trying to take everyone’s perspective into consideration. Both the consumer looking for deals and recommendations from their friends, and the businesses need to have a good steady flow of new clients and repeat customers.
Our website is currently being developed and we should be up and running by the end of the year. We’re just now in our initial phases of reaching out to local businesses and letting them know what’s soon to come. Any feedback from you would be greatly appreciated. Also any advice from you would be very welcomed as our services are truly meant to benefit the local community and local businesses throughout the country and hopefully eventually even the world.