Small businesses, consider yourself warned. A successful deal with Groupon can wreak havoc.
Last night, we highlighted the tale of Posies Cafe in Portland, which ended up losing $8,000 thanks to a big Groupon according to its owner. She had to withdraw money from her savings account just to cover the payroll.
Andrew Mason, Groupon’s CEO/founder, reached out to her. His response, in short: It’s “painful” for us to read about this, and we hope it never happens again.
Here’s the full response from Groupon’s blog:
Traditionally, the biggest problem for most small businesses is getting customers in the door. Now, Groupon has presented some businesses with an entirely new problem: what happens when you have too many customers?
There have been a handful of stories lately documenting the struggles of cupcake shops running out of batter or sushi restaurants who don’t have enough rice to meet the demand brought on by their Groupon feature. We haven’t written about those stories here because it’s not a common experience – the vast majority of businesses we feature, while certainly busy, do just fine. 97% of the businesses we feature ask to be featured again, including many of the businesses mentioned in the stories.
But earlier this week, one of our merchants, after a bad experience, called Groupon “the single worst decision I have ever made as a business owner” on her blog. Understandably, the article caught the media’s attention, as well as ours. I thought it was worth responding.
Now that we know Posie’s had a problem, we have reached out to them so we can help. We’ve featured hundreds of businesses similar to Posie’s with great success, so we’re eager to learn what went wrong. Here are a few in Portland:
- $4 for $8 Worth of Breakfast and Lunch Fare at FlavourSpot (2,348 sold)
- $7 for $15 Worth of Fresh Deli Fare from Elephants Delicatessen (7,206 sold)
- $7 for $15 Worth of Fresh, Wholesome Smoothies and Café Fare at Tropical Smoothie Café (1,015 sold)
- $10 for $22 Worth of Hawaiian Fare at Aiea Grill (505 sold)
Here’s an email the owner of the last business, Aiea Grill, sent their Groupon representative shortly after being featured:
Thank you for setting us up on Groupon. The concept is sheer genius. The web-savvy, interactive format is so well thought out forwards and backwards. Who ever heard of aquiring 516 new, quality customers in one day with no money up front? You were also right about the Groupon member being a high grade customer, operating at a sophistication level far above that of the typical bargain hunter/coupon cutter. Viral, positive word of mouth would be a fantastically welcome result of this strategically targeted blast onto the Portland radar screen.
We experienced 2500 hits on our website on the day of our feature. The daily average has been 35. Even on the following day residual interest it seems led to 250 hits. And then today is still high at 85. There is much more to what Groupon generates for participating businesses than what occurs only on the day of the feature, isn’t there?
Thank you again for bringing this amazing opportunity to us and for your into the after-hours support on the discussion board during our feature run.
Mahalo, Gerrick Adachi Aiea Grill
For some reason, those four merchants – all offering similar services at similar price points – had positive Groupon experiences, but Posie’s did not.
Of course, we have heard from merchants who felt Groupon sent them too many customers. We responded to those concerns by creating merchant preparation materials, including this video featuring a Groupon merchant who sold 10,000 bagel Groupons in a day:
Also, to clarify one important point: it has always been Groupon policy to allow merchants to cap deals. If a merchant sells too many Groupons, they’ll have a bad experience, the customer will have a bad experience, and therefore, Groupon loses. We’re longer-term thinkers than that. In fact, we have the opposite problem more often – where merchants protest a cap we recommend, convinced they can handle more customers than we think they can.
Ultimately, most businesses look at Groupon as a form of advertising – they’re deciding between us and running a radio commercial or newspaper ad. In all cases, the business pays in hopes of getting new customers in the door that will hopefully love their service and come back again. When merchants choose Groupon, it’s because we’re the best in the world at getting a large number of desirable customers in the door, there’s no upfront cost, and the total cost per customer is lower than other forms of local advertising. We tell merchants that we get the customers in the door, and from there, it’s up to them – and that’s exactly what most great merchants need. If they have a great business, we’re the best amplifier out there.
Finally, for what it’s worth, it’s painful for us at Groupon to read stories like this. When we started this company three years ago, we were actually a platform for groups to organise action and fundraise for causes and shared interests (one of which ended up being group purchasing). When we started Groupon, what got us excited about it is the win-win we’re creating – every day we’re breathing life into great local businesses, while at the same time making it easier for people to get out of the house and experience life. It sounds like corporate BS, but the only thing that makes this worth doing is that we’re helping people. We’re extremely proud that most businesses consider Groupon the best form of advertising out there, but won’t rest until we’ve made Groupon work for everyone. We welcome your ideas!