Find Local Events (pick a date)
 
Browse Boulder real estate by neighborhood, school and zip code along with other homes for sale in Colorado on COhomefinder.com
Browse Boulder real estate by neighborhood, school and zip code along with other homes for sale in Colorado on COhomefinder.com.

 

 

 

 

 

 

 
Home / Articles / News / News /  Groupoff
. . . . . . .
Give Through iGivefirst
Thursday, August 4,2011

Groupoff

Some business owners say they lose money on Groupon and other coupon deals

By Jefferson Dodge

Some Boulder County employers are airing concerns about Groupon and similar group discount programs, citing costs that they say can be debilitating to small businesses.

Groupon and similar outfits, like LivingSocial and Best of My Town, are pitched as a way for businesses to get their names out there and create repeat customers by getting people in the door with significant discounts — 50 percent or more — on products and services.

“It’s been the single worst business decision I’ve ever made,” Rachel Bacchus, owner of Boulder-based ELDO Esthetics and Waxing, says of her experience with Groupon.

Bacchus says she wanted to offer $20 worth of waxing services for $10, but a Groupon sales representative talked her into offering $40 of services for $20. After the offer ran in June, Bacchus says, every time a customer walked in with a Groupon, she lost money, because Groupon’s 50 percent take meant she saw only $10, which didn’t cover her costs. She says her customer service suffered because she was inundated with clients.

“We were in survival mode,” she says. Ted Palmer, owner of the Roundhouse Distillery in Boulder, is more optimistic about the Groupon special he ran last week. He’s offering a distillery tour and tasting that includes two cocktails, valued at $10, for only $5. He told Boulder Weekly that after two and a half years of being in business, the distillery wanted to raise awareness about its presence in town, which the Groupon offer is intended to do.

“Groupon is just a way to get people in the door,” he says. “If you’re using Groupon to actually sell your product, and you’re discounting heavily, you’re probably not going to see much return on the investment.”

Palmer acknowledges that he will take a loss with the cost of the drinks and tour (Palmer is getting half of the $5 and splitting the cost of Groupon’s credit-card fees.) But he also says one in three visitors buys a bottle of the gin, agave or coffee liqueur that the distillery makes. If that trend holds up, he says, it will be a profitable arrangement.

Coupon shoppers

But some say the type of client attracted by Groupon is the person who is not likely to spend more than the amount of the coupon — and who is not likely to return to the business unless there is another deal.

“They’re not spending the money like they should,” says Frank Kaven, owner of Martini’s Bistro in Longmont, which has used Groupon and a couple of similar programs offered by local daily newspapers. “I’ve had people leave that didn’t even spend the entire coupon. … I can tell you my employees don’t like it, because they’re not getting tipped on the entire bill the majority of the time. And I’m getting the sense that most are coupon shoppers and are not coming back.” (Groupon vouchers advise customers to tip on the full amount of the bill.)

The amount that Groupon collects is subject to negotiation. In Kaven’s case, the deal was $15 for $30 of food/drink. He secured a deal in which he keeps more than 50 percent of the coupon price, $8.50, and he flat-out declined to cover Groupon’s credit-card fees.

“I said, ‘Heck no,’” Kaven recalls. “Are you going to come over here and all of a sudden pay my credit-card fees when these people come in?” He says he also balked when Groupon wanted to take 60 days to pay him his share, even though the deal was only running for 24 hours. (Groupon officials say they pay out over a period of time because sometimes they have to give refunds, and they also want to avoid cash-strapped businesses looking for a quick fix.)

“The way they structure the program is not the best, because you have to play by their rules,” Kaven says, adding that he wishes he could have excluded Fridays and Saturdays from coupon use, to funnel customers into days when business is slower. “Unless you stand your ground with Groupon, you can be taken advantage of.”

He says that after expenses, he expects to have discounted his product by 40 to 45 percent in the Groupon deal.

“Aug. 26 is my last day for Groupon, thank gosh,” Kaven says. “It’s great that all of a sudden you may have some money up front. The problem is, it’s an ongoing expense until it’s done. A new business, for sure, would not want to get involved in this type of program, because it’s just too expensive.”

“We don’t do Groupon, because it’s ruining our industry,” says a representative of the Laughing Grizzly Fly Shop in Longmont who declined to give his name. “It’s complete trouble. You gonna make your guide go out and guide clients for $15? Guides can’t make a living on 15 or 20 bucks.”

He says a guide could take on dozens more people for each fly-fishing trip, “but then people don’t get a good, quality guided trip, so we do not participate.”

He adds that the Laughing Grizzly did try a Best of Longmont deal, with the condition that customers could not use coupons for trips or licenses.

“It’s been OK,” he say of that program.

“It’s just a way to get your name out.”

But there are some satisfied customers. Deena Garcia, who co-owns the Boulder County cleaning company Simply Clean with her husband Anthony, says they were quite happy with their LivingSocial deal, primarily because 83 percent of the coupon customers are re-booking with the company for cleaning services.

“It’s hard, though, when you figure they get half of your money,” she says. “But the whole point of it is you don’t have to do a whole lot of advertising, because you’re in the door at a lot of places where you probably wouldn’t have been with other advertising, so there are ups and downs.”

Garcia adds that LivingSocial is not charging her for any credit-card fees. When asked about Groupon, she replies, “Their fees are just stupid.”

Groupon responds

Groupon Director of Communications Julie Mossler told Boulder Weekly that it’s logical for businesses to cover Groupon’s credit-card fee because Groupon is generating customers for them, and Groupon must cover its costs, especially since businesses are not paying anything up front for the service.

In response to the concerns voiced by Bacchus and others who say they are losing money with each transaction, Mossler says, “There is a way to beat that, and it’s that you have to do your homework on the front end. It is really important to set up the right deal structure, and we do everything we can to encourage that, but there are a lot of blanks for you to fill in.

“And a lot of business owners don’t know that information, so they just say, ‘Give me a deal you think would work.’ And that doesn’t really work, because ultimately you know your business better than we do.”

In the Bacchus case, Mossler says she spoke to the Groupon representative who worked with her and maintains that the guidance given was sound, based on the information provided by the business. Mossler adds, however, that the information provided by a business, like how much the average customer spends, can sometimes be inaccurate, because the data is not tracked or the business owner is being optimistic, for example.

“If a certain deal structure was pushed towards, it’s because the rep was operating with the information the business gave her,” she says. “It should be noted that we’ve reached out to the business owner several times to help correct the situation. Certainly, if she’s in that bad of a financial situation — I mean, we’ve offered to change the split that we take or even extend the expiration date or anything that will help, and we haven’t heard back from her.”

She says businesses need to optimize the opportunity of the new customers by boosting the retail section, for example, training staff in a hair salon to recommend products or encouraging customers to set up their next appointment before they leave.

When asked whether Groupon sales representatives have an incentive to make more money by upselling clients from, say, $20 worth of goods to $40 worth of goods, Mossler responds, “I think that’s a very simplistic way of looking at it. We are driven to give the most compelling deal to a customer. We know that a $10 for $20 may not be as appealing as a $20 for $40. That being said, we don’t want to do something that is going to cannibalize the business or give everything away for free. We’re cognizant that if you’re not making money and you feel like this is creating an unfavorable financial situation for you, that’s not good for the merchant or for Groupon. We’ve learned that lesson.”

Mossler says the company is selective about which businesses it works with, and delivers an educated, high-income demographic, the vast majority of whom spend more than the coupon value when it comes to restaurants, for instance.

She says businesses that are unhappy with Groupon “shouldn’t go to the media with their complaints, they should come to us first. If we did something wrong and it’s the wrong deal structure, we will gladly cut you a check and fix it. If someone were to say, ‘I’m going out of business because of my Groupon deal,’ we would talk to them about reconciling some of that damage.”

Margaret Campbell, an associate professor of marketing at the University of Colorado’s Leeds School of Business, advises businesses to avoid giving a deal on their core product, because that targets only existing customers. She also cautions against discounting something with a low margin or making the deal too sweet, because businesses may end up with what she calls “brand-switchers and lookie-loos” who won’t be back.

The goal, she says, is to attract people who haven’t tried your product or service and get them to come back or find something else they like while they are there.

She says such deals are best for companies that offer items that have a short lag time — in other words, you may forget a brand if you only use the product or service every six months. Campbell also recommends fashioning a deal that requires multiple visits, like three rounds of golf. Finally, she suggests capping the number of participants to a manageable number.

“I think people need to give a lot of thought, up front, to what they’re trying to achieve,” she says.

Respond: letters@boulderweekly.com

  • Currently 3.5/5 Stars.
  • 1
  • 2
  • 3
  • 4
  • 5
POST A COMMENT
No Registration Required
REPLY TO THIS COMMENT

10:35 AM

This pill is a hard one to swallow as a small business.  Walmart can afford to loose 80% of their revenue on a purchase to get you in the door. Its clear that Groupon is making a lot of cash. What was the last TECH company you recall doing an IPO ….. GOOGLE? Mobsav is what I use in Chicagoland and it’s a good deal for the business. All they need is a monthly subscription, not half of each sale. 

 

Pam
I'll let you know when I see a Groupon for spelling lessons. Lose vs. Loose ( I am more worried about businesses not being able to figure out if Groupon is a smart marketing strategy for their particular business/situation and the fact that correct spelling and proper punctuation seem to be of little concern for many.)

 

REPLY TO THIS COMMENT

It takes a lot of planning and execution to have a successful Groupon promotion. Here are a few things to consider.

1. How much is a new customer worth and based your campaign on this.

2. Must try to upsell and downsell and capture the contact info by being creative. I have purchased over 20 Groupons and zero small businesses have tried to get my info.

3. Employyes must be trained and have a plan for your regular customers.

Just spending a few minutes with planning your Groupon campaign is a diaster for success. If you want to know the 10 profitable factors to a Groupon, go here:

http://www.marketing4smallbusinessowners.info

 

 

 

 

It seems to me that a business having to get half of it's regular price would be a strain. It sounds crazy to ask them to split that half with someone else. I haven't heard any mention of at least one new company that is going against the grain on this. Is someone planning to interview them next?

 

Pam
Again, I am still more concerned with businesses not being smart enough to decide if this type of advertising is right for their situation, as well as the fact that people do not know the difference between its and it's: "it's regular price".

 

ADS
Pam, you are annoying. Quit nitpicking everyone's spelling and respond to the actual content of the comments.

 

REPLY TO THIS COMMENT

I continue to see these types of articles all over the interwebs and frankly they're dumb. Repeat after me..."IT"S A DISCOUNT" so of course you'll lose money. THAT"S WHAT DISCOUNTS DO!!! They destroy margins and brand value.

In every segment of business, especially restaurants & hotels, leaders are making money by adding meaningfully differentiated value to their guest experience without discounts.

What else do you expect when you wear a sign on your forehead that screams "Help me I'm desperate for customers because no sees value in what I offer!"???

Time to get real folks.

 

 

REPLY TO THIS COMMENT

Don't worry... PaidPunch is coming to the rescue.

www.PaidPunch.com

 

A discount should not put you out of business. I spent 20 years in business and was able to find a way to discount my services enough to get people to try them, and still pay my help enough that they showed up early for work everyday.

 

PaidPunch, what is it that you guys do?

 

Adina, you're exactly right. It's all about creating loyal repeat business (the 80-20 rule). With current platforms this doesn't happen. Tony, we're creating a sustainable coupon which creates value for both the customer and the business. It's very exciting! Follow us @PaidPunch and watch us grow!

 

REPLY TO THIS COMMENT

Only 43% of restaurants saw a profit from signing on with Groupon? Ouch. Those numbers are pretty grim. I bet if merchants had more control over their deals, they'd make more profit. And then, the savings would be passed down to customers. That's exactly what this new deal site is doing, BigTip is doing: providing their merchants with powerful tools to customize the way they interact with potential consumers. Maybe Groupon should adopt this approach, it seems to be the best way to go.

 

I don't know anything a out PaidPunch (yet)/ I DO know about a company that's giving over half it's profits back to the people that tell others about them. So if a person joins the group (free to join) and tells another person about the group(free for that person to join) and that person happens to have a business they can register their business (free) and offer a daily deal to members only. Eveytime someone purchases a daily deal, everyone involved gets a part of the profit. This makes everyone involved interested in being sure the offers don't put anyone out of business. All are members of a group that only benefits if everyone is making money. It's nice because there is some accountability and sensitivity. Deal of the day w/ Residual income No money to start. Honest Company. http://www.freecouponbiz.com/o/?u=115385

 

 
Close
Close