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Why Groupon Not As Rosy As It Appears
Rambo Tribble writes "CNN is running an article detailing the dubious history of Eric Lefkofsky, Groupon's chairman and largest shareholder. It would seem Mr. Lefkofsky has an extensive history of taking investors' money for himself, then bankrupting the businesses invested in."
Another article posted today at TechCrunch explores one businesswoman's story of how working with Groupon was
the single worst business decision she ever made.
It seems that the point of this story is you shouldn't get into marketing plans if you don't know what you're doing. She didn't have a computer, she doesn't understand how statistics works, she didn't know what to do with expired coupons (nicely say "no" and offer some other type of discount to make them feel like they are still getting,) she admittedly didn't do anything to convert Groupon customers to regular customers.
The world is full of companies have failed because they didn't understand the market. It's not the fault of Groupon that she allowed herself to be talked into something that she clearly didn't understand. We're all adults here.
Take a look at how Groupon works. It cannot possibly be truly beneficial to any business. For every "groupon" purchased for a business, the business takes a loss and the people looking for a deal rarely come back. So you're paying a lot for "advertising" that you'll never possibly see a return on investment from because you're never going to get new, repeat, life-long customers from it.
It's a shame and a scam. I pity the businesses that use Groupon, LivingSocial, and the ilk, they'll never survive the long haul.
He would have taken the $6,000,000,000 that Google offered him for Groupon.
hey, that's the world we live in. Suck it up.
We can do better.
That's our life, the big wheel of shit. - The Fat Man, Blue Tango Salvage
I wouldn't worry too much about consumers throughout the US not caring about saving (the current "bubble" is NOT in a general boom economy like last time!) What I'd worry about is the companies offering the deals realizing that selling hundreds of discounts that after a 1/2 off rebate and Groupon's cut give them about 30% of their normal revenue. That's a pretty steep discount for a bit of advertising, and I can't see Groupon continuing to find that many suckers, er businesses at that margin...
Oh it's great for consumers. I use it all the time (and Living Social) to get great deals at places I either already go to or will go to once. But I own a couple of small businesses and would never in a million years sign up with these people. It is a sure-fired money loser, because you lose money on every coupon, and the kind of people who buy and redeem these things are deal hunters who will most likely not make good long-term customers.
We don't have a state-run media we have a media-run state.
When a buyout offer happens one company to another, having the offer made and accepted is only the initial stages. It is kinda like buying a house. Google's people would then meet with Groupon's people, NDAs would be signed, and Google would start looking over the books, technology, and so on before committing to a final purchase.
They could have very well realized that things wouldn't stand up to Google's scrutiny and Google would have backed out. Now that would really screw them because then if they try to go public everyone would ask "But why did Google back out?"
In Poland one of well-known barbers, Jaroslaw Budny, opened a new barber shop and wanted a bit of promotion. He talked with Groupon, and based on their advice he issued haircut coupons at 29 PLN (instead of usual 70PLN). He only got 10 PLN out of each sale (33%) . Barber was however convinced by Groupon salesperson to not put any limit on number (they earn by number of coupons sold) who said things like "you will be lucky to sell 300 coupons, 100 is more realistic number, no need for limit". Sales were limited to 48 hours though.
Guess what? People bought over 1600 coupons.
Mr Budny is now working 7-22, not making any money, getting angry calls from thousands of "groupon customers". His name is now shattered and smeared all over internet for not keeping promises instead of being promoted. Waiting time to get a haircut done by him is now about a year.
Did he make a bad decision? Yes, he did not limit his offer, but he did so on explicit advice by Groupon. It is scary that Groupon doesn't have any internal audits to make sure they don't do that to businesses - they should have if they have some ethics.
Only after country-wide media ran the story he was contacted by Groupon who offered him some help (hire him a secretary to take calls, run another promotion without taking money, send email to coupon buyers explaining why waiting time is so long, offer money back and "sorry" gifts). Condition was that he no longer talks with any media about Groupon.
*) disclaimer: above information based is based on articles widely available in Polish press.
Groupon has a simple mechanism it tries to sell: Get people in your store at any cost, then make a profit when they return.
Normal advertising with discounts works differently, take for instance the special deals from your local super-market: We buy a larger amount then normal, at a discount, then pass this discount on to you, making less on the individual sale but more real sales.
3 for the price of 2 is a typical format.
Any side affect of attracting more customers is welcome BUT the supermarket owner will NOT think that customers who come in specially for that deal will convert to regular customers at any significant rate.
Some other forms of discount are: We have to much stock and keeping it costs more then selling it with a smaller profit or even at cost. We want to shift a lot in a small time frame so we "pretend" to give you a discount but really we are not. And We need the sales so we give a massive discount to be able to close the books of a period with mass amount of revenue (In holland large chains holding "no sales tax" days.)
Most of these discounts are aimed purely at selling an item, the discount is a way to make a sale that delivers a profit then and there. NOT some mythical future increase in your customer base.
Groupon therefor is based on a rarely successful attempt of advertising, getting the cheap who look for deals and convert them into full paying customers. Contradiction in terms? What can possibly convert a bargain hunter into a loyal customer? Amazing service? Sure, if your amazing service is worth a 50% increase in price. Lets not forget that groupon discounts are also often insanely high. And on top of the discount, you also got to pay groupon a premium rate well above any other form of advertising.
And then it is aimed not at large companies that can make long term investments but mom&pop shops that struggle to reach the end of the month in the black.
It is a scam and Groupon will fail soon enough because it has decided to go world wide where the laws are a bit more protective of people and small businesses. In the meantime, if you own a small business and get contacted by Groupon. Don't.
The pizza place mentioned in the story? A success because they did it twice? I wouldn't assume that. Lots of small business owner have no real way to track costs and benefits. They just know there is X in the register at the end of the day and that is a LOT more then normal. The real costs of making the X amount of revenue comes later.
Simple example, from personal experience. Had a guy very happy who was selling power tools over the internet he had made a small fortune in revenue in the first week. And the cost of ordering the powertools was even LESS then the revenue, even with shipping costs substracted... pure profit!!! He forgot about returns, and warranties and etc etc etc. Do you know just how much a single customer complaining and needing to be talked to for an hour costs? Why do you think companies want as little customer support time as possible? Because it costs are high and it all comes out of the tiny amount of profit you thought you made on the sale.
In business, you can make a ton of cash and still go bankrupt. Groupon is the perfect way to do this. Stay well clear.
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You may solo them, I prefer them in a group.