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.

Comments

So what is the point here?

[fermat1313]

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.

Re:So what is the point here?

[larry bagina]

I think she deserves some blame, but I've heard many other groupon merchants complain of the same problems. The douchebag salespitch where groupon tries to keep 100% of the revenue is new, though.

Why doesn't groupon offer advice on what to expect, how to manage the sudden influx of customers, how to convert them to regulars, how to deal with expired coupons, etc? Ultimately it's in their best interest for the merchant to be successful.

Re:So what is the point here?

[Anonymous Coward]

Social coupons like Groupon are businesses that feed off of other businesses. If you are lucky, you can make the relationship symbiotic instead of parasitic.

We negotiated a groupon a little over a year ago. Our classes usually sell for $150 a month. When I talked to the groupon rep, they initially wanted me to offer a 50% deal ($75 gross revenue), and then give them %50 of the gross ($37.50), with no upper limit on the number sold and a year to redeem. I got a fair amount of pressure to sign the deal that day. I told him I needed a few days to run numbers on it.

Long story short, when I ran my numbers I figured out that if I spend 2 months worth of our advertising budget on this, limit it to 200 groupons and restrict it to new customers only, keep classes at 60-100% capacity, then I need to take in $65.08 per student for the month to break even, and then I would have 200 new people that have tried my classes. Even if we only keep 10% of these students, we would come out in a much better position.

I said no to Groupon's initial offer, and sent a counter proposal - a %50 deal for $75. We keep $65, groupon gets $10 per groupon, minimum of 50, max of 200. We also added some additional conditions:
- 1 per person plus 1 as a gift
- Groupon students must pre-register for a class (they can't just show up)
- Groupon students will be admitted on a space available basis
- Groupon would only be valid for a specific 3 month period, to coincide with our slow season and the start of a semester.
- Our standard class cancellation policy would be in effect (class canceled if fewer than X students sign up for it). Rainchecks would be offered to students canceled on under this policy - essentially we extend the expiration date for these specific folks
- We would add a number of beginner classes to our schedule for the 3 months after the groupon.
- Groupon not valid for product purchases.

They accepted the deal, and we sign the contract.

Then I get a call from a supervisor, who wants me to change back to the %50 @ 50% deal, with no upper limit. I said no.

Our groupon never ran - despite having a signed contract.

Living Social did run the deal, and we did very well with it. We sold 133. Of that, 86 were used within the time frame (15 people tried to use them outside of the time frame, which we said no to. 3 more were used outside of the time frame, but that's another story having to do with a pair of social workers, 3 foster kids and Christmas). We converted 33 into additional sales, with 18 of those converting into long-term students, most of whom take several classes with us.

Will I do it again? Yes, I think I will.

If he was looking for a quick buck...

[olsmeister]

He would have taken the $6,000,000,000 that Google offered him for Groupon.

Re:Thanks capitalism . . .

[HangingChad]

hey, that's the world we live in. Suck it up.

We can do better.

If it walks like a duck...

[gklinger]

I highly recommend reading an article titled Groupon is Effectively Insolvent in which the author draws a compelling parallel between Groupon and a Ponzi scheme.

Re:+1

[meta-monkey]

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.

Because it wasn't a done deal

[Sycraft-fu]

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?"

Groupon salespeople trick people?

[Moskit]

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.