Why Groupon is Bad for Business…and Consumers

Do the math, think it through.

Yesterday, I got a phone call from a Groupon representative. He’d been trying to reach me for about a week and had left two voicemail messages, which I ignored. Yesterday, he reached me at my desk while I was working on the finishing touches for my latest book.

Groupon, in case you don’t know, is an up-and-coming business that has combined social networking with discounts. The idea is that they get a group of people to buy into a special discount offer. The people prepay for whatever it is they’re buying and get vouchers to redeem. They then take the vouchers to the merchant and get the products or services that were in the special offer.

Groupon makes its money by taking a cut of the amount it collects for the merchant: 30 to 60%. To feature a merchant offer, the merchant must discount its products or services by at least 50% off regular price. This can be a real attractive deal for people who want to save money.

There are Groupon clones popping up all over the place these days; Living Social is one that called me several months ago. Oddly, I got a call from yet another one yesterday as well.

Groupon’s Sales Pitch

Groupon cons businesses into signing up with them by pointing out that it’s risk-free advertising for the business. Indeed, it doesn’t cost a thing to list with Groupon. The cost comes when they start selling for you. So you’re only paying for results.

Yesterday’s Groupon guy pointed out that they have hundreds of thousands of subscribers in the Phoenix area, so my special offer would reach all of them. For free! According to him, this was great exposure for my business. People who bought Groupons would undoubtably come back for more of my great service. Even if someone didn’t take advantage of the Groupon offer, they’d learn about my business. According to him, it was win-win.

I’d already given this a lot of thought, so I was prepared. I let him do his whole sales pitch. Hey, if he’s going to interrupt my day, I may as well put him to work. It’s a good thing I did. Because along the way, he made it clear that he had no idea about the negative impact of a Groupon offer on my business.

He asked me what Flying M Air‘s most popular trip was. I told him it was my hour-long Phoenix Tour, which sells for $495 for up to three people. He asked how many helicopters we had and how many flights we could do in a day. I told him one and asked how many hours there was in a day.

As part of his pitch, he told me that Groupon normally wants 50% off the amount it collects for the offer. But because he “realized that there are a lot of costs associated with operating a helicopter, such as fuel and pilots,” they would take only 30%.

Fuel and pilots.

Doing the Math

It was right about then that I grew tired of the conversation. I could do the math; he didn’t even know what numbers to plug in. All he saw was a sweet deal for Groupon: $495 x 50% x 30% = $74.25 per voucher sold. Multiply that by, say 250 vouchers, and Groupon pockets over $18K — just by making a phone call and doing a bunch of things that are likely handled by its computer systems. Cha-ching! On to the next business!

On the flip side of that, I’d be pocketing $173.25 per voucher sold. For an hour of flight time.

To understand just how bad a deal this is for me, let’s talk a little about my actual costs. I won’t go into deep detail here; instead, I’ll just talk about my three biggest direct operating expenses. No, fuel is not number one and pilot expense doesn’t even make the list.

  • Reserve for Overhaul. Think of this as part of my maintenance expense. Every 2200 hours of flight time or 12 years, a Robinson helicopter has to go back to the factory (or authorized service center) for an overhaul. For my model of helicopter (R44 Raven II) that currently costs about $218,600 plus any required upgrades or other non-covered items. Let’s do the math: $218,600 ÷ 2200 hours = $99.36 per hour.
  • Fuel. You might get sticker shock at the fuel pump for your car or truck, but try filling up with 100LL at the local airport. On my most recent trip, I paid anywhere from $4.50 to $5.65 per gallon of 100LL. The helicopter burns about 16 gallons per hour. Using a conservative average of $5 per gallon, let’s do the math: $5 x 16 = $80 per hour.
  • Insurance. Think your car insurance is costly? Try insuring a helicopter for commercial operations. Last year’s insurance bill was $14,950. I fly about 200 hours a year. Let’s do the math: $14,950 ÷ 200 = $74.75 per hour.

Now let’s add all these numbers up: $99.36 + $80.00 + $74.75 = $254.11 per hour.

This does not include the routine maintenance that’s required to keep the helicopter safe and legal, such as oil changes, 100-hour inspections, and annual inspections. It doesn’t include the unexpected repairs like the starter and ring gear, auxiliary fuel pump, upper bearing, and countless other components that needed repair or replacement in the six years I’ve owned the helicopter. It doesn’t include hangar rent, charts and other documents required by the FAA, office expenses, or advertising expenses. It doesn’t include monthly loan payments for the helicopter — which is twice as high as my mortgage. This amounts to thousands of dollars every year.

And no, it doesn’t even include a salary for the pilot — me.

But we’ll put all that other stuff aside for a moment and go with the three biggest direct operating expenses summarized above. They add up to $254.11 per hour. The Groupon deal would pay me $173.25 per hour-long flight. That means that on every flight, I’d lose at least $80.86. Multiply that by, say 250 vouchers sold, and I’d lose at least $20,215.

And again, this doesn’t include the other direct and indirect operating expenses of my business. Add those and this loss number would likely increase by at least 50%.

The Non-redeemer Argument

When I pointed out on in Twitter in basic terms how bad a deal this would be for me, one of my Twitter friends responded:

But you factor in those who pay and never cash in the coupon, no?

Many businesses do this. Groupon was very careful not to suggest this was a possibility, although most Groupon proponents say to expect at least 20% no shows.

But look at it this way: if you paid $10 for a $20 voucher toward a meal at a restaurant across town, using that voucher might not be very high on your priorities list. Over time, you might forget you have it or even lose it. No big deal. It’s $10 out of your pocket.

But if you paid $247.50 for a $495 helicopter flight, how likely are you to forget about it? Very unlikely. I sell gift certificates every year at Christmas time. They all expire at the end of March. Around mid-March, my phone starts ringing. By month-end, I’ve done all the rides paid for at Christmas time. People who are looking for discounts don’t forget expenditures that large. I’m sure I’d redeem at least 95% of the ones sold on Groupon.

The Return Customer Argument

Another Twitter friend said:

The hope with Groupon is that the resulting customers would be repeat customers at the full price in the future.

Indeed, that’s what Groupon is suggesting. They’re pushing themselves as a means of advertising. They seem to think that once the customer knows about your business, they’ll keep coming back for more.

I think that in most cases — and certainly in the case of my business — this is simply not true.

Look at it this way: the people who subscribe to Groupon’s service are willing to spend time every day reading e-mail messages from Groupon that summarize the daily deals. These are people who are very interested in saving money. They’re buying because of the 50% off dealnot because they want the product or service. True — that Groupon voucher will get them in the door. But are they likely to come back and pay regular price for the same goods or services in the future? When they know that they could wait around and probably get another Groupon deal for the same product or service there or elsewhere in the future? I seriously doubt it.

As if to re-enforce this notion, a Twitter friend said:

So your saying to not take advantage of the deal that is offered?

I replied:

Yes, that’s what I’m saying. I’m saying to STOP using Groupon unless you want to HURT a business.

To which he replied:

This could get into a lengthy conversation so I’ll just drop it now. I’ll just say that I wish I could always afford to pay retail.

This confirmed my suspicion: that Groupon users are only interested in buying at discount. This particular Twitter user likely has no intention of being a regular customer for any Groupon merchant. He’s just in it for the deals.

And how many repeat customers do they honestly think a helicopter charter operator would get among the kinds of people who buy only when prices are 50% off? How many helicopter tours of Phoenix does a person need? And that’s my lowest price item — if these people were only willing to open their wallets for $247.50, would they do the same for a $795 Moonlight Dinner Tour or a $1,095 Sedona Tour or Day Trip? If I had 1% repeat customers I’d be shocked.

A helicopter operator friend of mine saw the harsh reality of a Groupon deal. He runs a flight school and offered introductory flights at $69 (regular price $225), with the thought that buyers would come back and take flying lessons. He had to “beg” Groupon to stop selling them when they reached 2,600 vouchers sold. True, he’s operating smaller, less expensive equipment than I am, but even if his intro flight times are only 30 minutes, he’s still losing money on every flight — all 2,600 of them. He goes on to say:

A huge number of customers telephoned the office to ask if they could buy the $69 intro lesson deal directly from us. We tried gently to explain that we weren’t quite sure how we were going to serve 2600 customers and that adding a 2601st would not help. We then offered them the $225 standard intro lesson price, which is already discounted to some extent. Nobody was interested at that price. So unless we can figure out how to sell them 2nd, 3rd, and 4th lessons at $69, perhaps this will be the first and last flight for nearly all of these folks.

And how many of these people are going to shell out $8K or more for a private pilot license?

As another Twitter friend said:

Good for you – from what I can tell Groupon can be a disaster for small businesses.

I’ve seen reports of small busiensses that went under after doing Groupon. Losing $$ on large volume of one-timers isn’t good.

What if I’d done it and sold 2,600 vouchers? I shudder to think about it.

The Exception: Fixed Cost or High Margin Businesses

Of course, this is just my business and another one similar to it. Clearly, businesses that have fixed costs or high profit margins can afford to get only 25¢ or 35¢ on the dollar for their products or services.

One guy who contacted me the last time I wrote about Groupon or Living Social has a rock-climbing business. He already has the equipment and the storefront. His operating costs don’t change based on the number of people who show up to use his facility. The extra few dollars per person he received through his deal could actually help him make ends meet. People paid $8 for a $16 service; he got $3.60 per voucher. He told me he expected 20% to 40% no shows and was happy with his deal. Of course, he only sold a few hundred.

Restaurants might also do well, since they often have high profit margins. (What does it really cost to make a latte?) But at least one restaurant owner suffered badly after a Groupon deal, primarily though larger crowds than she could handle, people using multiple Groupon vouchers to pay for an entire meal, and gratuities to servers based on the discounted amount rather than the full price (which didn’t make the staff very happy at all).

I wonder how many others have had similar experiences but just haven’t blogged about it.

Fiddling with “Regular” Price

Of course, one way to guarantee that you make money on every item sold is to fiddle with your “regular” price and make sure your profit margin is high enough to cover the discount and Groupon cut. Yes, I mean inflating your retail price.

I admit that I tried this last year. My problem was that in order to get hotel concierges to book flights for their guests with me, I had to give them a 20% commission. My margins really are small — I’m not just blowing smoke here. If I paid them 20%, I wouldn’t make any money at all. And hotel guests are definitely not return customers. So in order to make enough to pay them the commission and earn a little money (but still not as much as the concierges would), I raised my prices. This turned out to be a mistake because it (1) made me too expensive for the average customer and (2) made my services more costly than my competition’s. So this season, my prices returned to normal and I simply cut the commissions I’d pay the hotel concierge staff.

But you have to wonder how many businesses are making Groupon — and other deep discount deals — work by inflating their prices. And what does that do for them — and the consumer?

Basic economic theory proposes that the more expensive something is, the fewer people will buy it. (As I saw, raising prices turned off “retail price” customers, thus reducing the total amount of business.) There comes a point where the additional unit revenue for the higher prices won’t make up for the unit sales lost because of higher prices. If the only customers are those buying at a discount, the net effect is a reduction in revenue.

Let’s look at an example. Suppose an item costing $20 normally sells for $75 for a $55 per unit profit. The merchant sells an average of 100 units a week for a total profit of $5,500.

To ensure a profit when selling through Groupon, the merchant raises the “regular” price to $100. For each item sold through Groupon, the merchant gets $25 so he’s making $5 profit from them. Regular retail customers are paying $100, so he’s making $80 profit from them. At the Groupon price, he could sell 1,000 units in a week, but his retail sales drop to just 20 units a week because his competition sells the same item for a lower price. Total take: $5,000 from Groupon sales + $1,600 from retail sales = $6,600. Looks good, right?

Now suppose the Groupon deal is over and there are no more discounted sales. He’s still selling just 20 units a week for $1,600 in profit. Not so good anymore, is it?

Of course, these are just numbers pulled out of thin air. You can play what-if forever and never get an accurate indication — until you try it.

Deep Discounts Hurt Consumers, Too

As more and more businesses inflate their prices to cover the costs of discounts and special offers, the average prices of goods and services rise. Ironically, this means that the consumer’s thirst for deep discounts could be causing overall price increases that make items unaffordable without the discount.

Think of my Twitter friend wishing he could afford to pay retail. He later tweeted:

It would be nice if prices were just fair and coupons didn’t exist. Making purchasing decisions would be simple.

News flash: coupons aren’t going to go away if people keep using — and relying on — them.

In addition, the demand generated by oversold vouchers can exceed the merchant’s ability to redeem them. Overcrowded restaurants, out-of-stock items, long delays in scheduling — I still wonder how my friend will schedule 2,600 intro flights, given that each one requires at least 30 minutes of ground school and 30 minutes of flight time. Not only is this a nightmare for the merchant, but it certainly does not make for good experiences for customers.

What consumers don’t seem to realize is that their thirst for deep discounts can be fueling a market trend that is, over the long term, destructive.

  • Businesses desperate for sales and willing to take a loss on deep discount sales will fail when repeat business does not materialize at regular prices. This means fewer businesses and less competition in the market.
  • Businesses that manipulate regular prices to ensure profit on deep discount sales will inflate retail prices beyond what many consumers are willing to pay. This means less affordable products and services.
  • Business that oversell deep discounted products or services may fail to provide products and services timely or satisfactorily. This means a lower level of service.

How does any of this benefit the consumer?

Crap Offers to Get Customers in the Door

Of course, the really savvy businesses will try to use Groupon as a means to get customers in the door by offering nearly worthless items at a discount. Another one of my Twitter friends alluded to this:

I signed up for Groupon and not impressed. Feels like daily spam with nothing of value.

Could it be that some businesses are getting wise to the pitfalls of using Groupon? Could it be that the ones that aren’t desperate for customers are keeping clear?

Why I’m So Passionate about This

As you’ve probably figured out by reading between the lines, I’m angry about this Groupon thing. (And not just Groupon; all of its copycat companies, too.) It took me a while to figure out why.

  • Groupon is misleading business owners. Groupon pushes itself as a marketing tool that you pay for only when you get results. But a true marketing tool would get long-term results, not one-time results.
  • Groupon is extremely expensive. Don’t just look at the 50% commissions on the sale price. Instead, look at the whole cost, which is 75% of the retail price. Offering a Groupon deal is the same as giving customers 75% off.
  • Groupon is making a lot of money — far more than its clients. Is it right that any advertiser should make more on a business’s products or services than the business itself?

It bothers me that so many small businesses are being hurt by Groupon-like deals. In many cases, these are companies that are cash-starved and desperate for revenue. The idea of selling a 1,000 vouchers at $50 each — $50,000 cash up front! — is extremely appealing to these people. They don’t think about what it will cost them to redeem these vouchers: products, equipment, services, employees, scheduling. They don’t think about how crowds and word of the discount might affect their relationship with current customers.

And Groupon doesn’t do a thing to enlighten them about the potential drawbacks.

It also bothers me that so many consumers who are obviously clueless about the costs of running a business will snap up these Groupon deals with no intention of becoming loyal customers — paying retail, imagine that! — of any Groupon merchant. Don’t they see how they’re potentially hurting the businesses they visit with their Groupon voucher? Don’t they care?

And finally, it bothers me that Groupon called me three times before finally making contact, told me they wanted to “feature” me on their site, and had no idea about how my business operates or what my services cost. It bothers me that later the same day, a Groupon copycat company also called me and tried to reel me in on the same deal with the same lack of knowledge. Or that yet another copycat company called me months ago, also trying to sucker me in. Blood-sucking leeches doesn’t seem so far off-base.

The Final Straw

What really got me angry yesterday, however, was an article I read online called “Groupon gripes: Are daily deals headed for disaster?.” In it, the author discusses the problems that Groupon causes for businesses. He admits that many businesses “don’t even break even.” Yet he finishes up the article by encouraging consumers to take advantage of Groupon deals:

Skeptical as I may be, the limited funds in my bank account make me a consumer first and an observer second. As companies line up to split prices in half and make them even easier for consumers to find, I’ll be there right alongside soaking up the deals. I did, after all, milk AllAdvantage for triple digits before the goons running the place depleted their venture capital and shuttered the place for good.

In other words, if this ship’s going down, I’m raiding the buffet before hitting the lifeboats. Join me for an oyster?

Or: Fuck the businesses and the economy that they fuel. Suck up all the cheap deals you can while the businesses stupid enough to offer them are still around.

Not exactly the kind of insightful commentary I expect from a journalist.

And the Winner Is…

As one of my Twitter friends said:

“The only one who wins with Groupon is Groupon itself.”

I couldn’t agree more.

One more thing: If you plan to comment on this piece with some sort of defense of Groupon or its copycats, be prepared to back up your opinion with facts. If you’re a business owner and it helped you, share some real numbers about profits/losses, repeat customers, and how you benefited. If you’re a consumer, share some experiences about saving money, positive redemption, and becoming a repeat customer. Simply throwing opinions that aren’t backed by facts isn’t going to convince me or anyone else.

143 thoughts on “Why Groupon is Bad for Business…and Consumers

  1. Bravo!

    As a business counselor, I find that cost analysis is the most important item for decision making, but so rarely done. Thanks for sharing not only your experiences, but posting the financials along with it.

    • Karlie: Remember, this is only PART of the financials. My actual loss would be much higher, but I thought the partial numbers I presented were compelling enough to make my point.

    • I agree not a good roi for you. I’ve used multiple groupons and actually interviewed 6 of the owners. While none were helicopter tours, they were spas, kayaking, glass blowing, painting class, and not one was unhappy and ALL said they would do it again. I dont think you can trash all of groupon if it doesnt necessarily make sense to your particular business. (no, i dont work for the company, i work for a yellow page company)

      • I own a small massage and bodywork studio and was unlucky enough to be suckered into offering a Groupon. I was definitely NOT happy about the results and I find it odd that any spa would be happy with the type of clientele typically attracted to deep discount deals – i.e. cost-conscious bargain hunters. My experience has been that the majority of deal takers who purchase deep discount deals are discount-chasers and not very conscious of service quality. A common characteristic of these sort of clients is that they book/cancel/rebook at a far higher rate than typical, are frequently late for appointments, or don’t show up at all but still insist they should be able to redeem their coupon at a later date. Perhaps this works for spas in your area, but my business is better off without that type of client. It would take far too much time, money and effort to turn a client like that into a repeat customer. I fear the return on investment from deep discount deals just isn’t there.

  2. I totally, completely, 100% agree with you. I work at a chiro/physical theapy wellness center as a sports massage therapist. The Doctors I work with signed up for living social, selling a 50 minute massage for $29. They sold a lot. Their hope was that we could inform people that their insurance could possibly cover their massage therapy, which, granted, a lot of people don’t know. Here’s the kicker. *I* took the financial hit. The doctors didn’t earn anything on any of the massages sold, but it was still a HUGE paycut for me. I started getting angrier and more resentful at the bargain-hunters themselves because it was making it difficult to pay my bills. I always appreciate honesty, but every time a client would inform me that they were just looking for a cheap massage, I wanted to scream and tear my hair out. I think there was only one or two people who became regular patients at our office.

    Sorry for the long diatribe, but you really hit the nail on the head with this for me. I’m linking and re-tweeting this post as the perfectly worded argument against these services. Thank you for allowing me to vent.

    P.S. The kicker? They rarely tipped me too…..

    • Bonnie: I really don’t see how the doctors could sell YOUR services at a price below what you normally accept (or are willing to get). I would have refused to do the massages at that price.

  3. This is a really well thought out and presented argument about Groupon. I read that the company is being valued by some at a truly ridiculous $25 billion now. I honestly can’t see their business model holding up over the long term. Part of me feels bad for having bought into a few Groupons over the last few months because I am part of the problem.

    But I definitely know that there’s no way we are going to do one for my wife’s hair salon since we’re barely making anything there as it is (though the repeat customer argument is much more compelling there).

    • Fenriq: I also can’t see how this business model will hold up over the long term. Sooner or later, they’re going to run out of sucker companies to sign up with them. Or they’ll start getting complaints about merchants and will have to issue refunds. (This actually happened with a “professional” photographer who turned out to be not so professional; I’m sure it’s happened other times as well.) Or they simply stop offering deals that are worthwhile to consumers.

      If Groupon expects to cash in on an IPO, they’d better do it soon. I seriously doubt that their formula will hold up, especially with so many copycat organizations coming into the picture.

  4. The biggest shame of all of this is tha the consumers and voters are the same people… and that this is just a furtherance of an epidemic in our county. Lack of scope and range of vision.

    Just like capitalism has been hijacked by apathetic voting and savvy business people… Now, the average person is using that same cultural issue to attempt to jion the “fat cat” 1% portion of the country.

    I can’t really spell it all out here but the bottom line is, I appreciate this article/post very much and am no longer intending to participate in predatory businesses like Groupon.com or it’s copy cats. Thank you for articulating this issue so beautifully (thou I am not a fan of the “angry” edge… I like what you had to say).

    When people realize that long term vision is mor inportant than short term profits… this country will awaken to it’s true economic potential!

    • Brian: Thanks very much. I think that part of WHY I wrote it was to educate consumers so they could understand how deep discounts affect businesses and the economy in general. Every time a business goes out of business, people lose jobs. Realizing how Groupon works and how little the merchants actually get in each deal is what convinced me never to buy a Groupon voucher again. The big picture is so much more important than me saving a few bucks at the expense of someone else.

  5. Thanks for the detailed analysis Maria. I am not a coupon person, and haven’t paid much attention to Groupon.com but you have easily convinced me that this is not good for anyone but Groupon. Brian: I’m not sure people WILL realize that the long term vision is more important than short term profits until its too late.
    (I’m a fan of the “angry” edge).

  6. This is interesting. I recently became self-employed again after working at a Broadway marketing firm, and they used Groupon rather successfully from time to time. However, that business is completely and totally different than a brick and mortar style business. It also was done strategically at a point between launching an on-sale and not having enough patrons to fill the theater. In some ways, not using Groupon would have cost them ticket sales. However, at what point do people expect crazy discounts and buy late? There are certainly risks.

    I think Groupon could stand to have an open dialogue or guidelines for small one-person operations to small shops all the way to large corporations, but I don’t anticipate seeing that anytime soon, if ever.

  7. @Jake
    Sadly, I think the average person cares far more about himself than the well-being of small business owners and the economy as a whole. But, at the same time, I think there are far too many really dumb small business owners. You can’t really blame Groupon. They’ve made being a middleman extremely lucrative for themselves at the cost of business owners, with the support of consumers. The only question I have is how long they can keep the con going.

  8. @Jake
    I think that a theater is a GREAT match for a Groupon deal. First, they can easily set a limit on the number of seats or dates of performances to zero in on days and performances that are hard to sell. Second, it costs the same to run a show with 5 people in the audience as 500. In this example, a Groupon deal could prevent disaster with a poorly received show. But then, people would be buying tickets for a show other people didn’t want to see. Now sure of the value to the consumer in that.

    As for Groupon opening a dialog with small business owners — that ain’t gonna happen. They’re running a solid con and the last thing they want their marks to do is THINK about the implications and results of their deals.

  9. @maria, if u were offered a R44 for the price of R22, would you not be tempted? that is the whole point. everyone including u and me look for deals.
    i run a small south indian restaurant in scotland and yes the groupon sales chap wanted to get me on his band wagon. thankfully, mathematics having been my favourite subject all my life, it wasnt too difficult to offer him a FREE cup of coffee and show him the door. i am glad i actually spoke to this guy cause i had a much clearer picture of how groupon works.
    a restaurant sale break down –
    sale price = £25
    cost of ingredients = £7.5
    profit = £17.5
    a 60% deal through groupon, figures will look like this –
    actual cost of sale = £25
    selling price = £10 (of which £5 goes to groupon)
    cost of ingredients = £7.5
    so ur account currently stands at -£2.5
    500 vouchers sold = loss of -£1250
    spreading the 500 vouchers over 30 days will give my restaurant (75 seat capacity) an extra 16 customers/day for which i need at least 1 extra staff on the floor @ £720 + over time for kitchen porter @ £180.
    so now the restaurant sits at a loss of -£2150 (1250+720+180) during that month.
    even if i were to get 20 of 500 groupon voucher customers as repeat customers to spend £25 on their future visits, each of them would have to come back more than 6 times for me to break even. (20×6.14(25-7.5))=2150 a customer not loyal to the restaurant will not go to the restaurant more than once in 2 months, which simply means it would take me 1 year to make up the loss made through groupon vouchers circulated for 1 month.
    in simple english and simple mathematics, signing up with groupon for 3 months = absolute disaster!!!
    another insight to the groupon side effects = when 1 restaurant offers a ridiculous deal, that restaurant is making a loss. at the same time because many people are channelled to that deal, other restaurants make lesser income cause some of their customers have gone to the deal. end of the day when 1 restaurant signs up with groupon, all restaurants in the locality get hammered!
    p.s.- maria, i did my chopper lessons in an r22. it is my dream to buy one, and when i am ready i will be looking for a good deal…but am sure will not go down the groupon way ;)

    • Krishnan: I love your calculations — especially that you went the next step to calculate how much future business you’d need to offset your loss. Few people think that far ahead.

  10. Groupon’s sales tactics are just a revisiting of the old School fundraiser books, BOGO and the like. They NEVER generate repeat business, because, as you so eloquently pointed out, they are used primarily by people who are looking for discounts, not for a new business to patronize.
    A small point: for most restaurants, a realized profit of 6% is a good day’s work, which is not achieved by charging 60% above food cost. As Krishnan pointed out, the extra customers come with a steep price tag of extra staffing, but generally, by the time you add up the actual costs, 2-3 times food cost may not even keep the doors open. A thin margin business indeed.
    As far as theatres go, it is viable, IMO, to use Groupon or TIX in NY (1/2 price day of show), as tickets can get too expensive easily, and people really DO want to see the show. But not for a non-fixed cost business.
    Sorry about the extra commas! I’m off to read the rest of your site.

    John, rusty ASEL

    • John: I’ve been reading a lot of negative reviews of Groupon from the point of business people lately. I think the cons will soon outweigh the pros. It’ll be interesting to see how long Groupon and its copycats survive when small business owners just say no.

  11. This article makes me so mad. Long Term ROI. You cannot track advertising dollars in Short Term ROI.

    A small business that is barely getting by SHOULD NOT put all their eggs in one basket and hope that Groupon will be the END ALL BE all of advertising. That business owner is DUMB if they do.

    Groupon had to have worked for some. WHY would it still be in business?

    PS I dont work for Groupon, I used to work for an Online Legal Advertising firm and had to deal with the scummiest attorneys across the states. They always had similar arguments.
    And its funny because the attorneys that werent scum bags never complained. They spent more money and always made more money working with us too.

    • Frank: I don’t see why you’re mad. The simple truth is that a business needs a 300% profit margin to fulfill a Groupon deal without losing money. Evidently, some businesses have those kinds of margins. I don’t. Most others don’t, either. In fact, I read just today that the average business nets just 6¢ on the dollar.

      Groupon apparently does work for some businesses. But will it continue to do so? For how long? And how will it affect the market in the long term? If people ONLY buy when they can buy at a discount, how will that affect long term profitability?

      Or maybe you just read the first paragraph or so and stopped reading? All this is discussed in the post. You need to look at the BIG picture — I seriously doubt that there’s a long term benefit to using Groupon.

  12. What Groupon is doing is a modern internet version of something called “dumping” which is prohibited by law in many countries.
    How can a business give away 75% of their income for promotion? You’d have to have an astronomic profit! Which, let’s face it, most companies don’t.
    The company I work for got contacted by Groupon and we flat out said no. It’s a dangerous option that not only hurts businesses but also creates spoiled consumers that will only buy something if they have a “deal”.
    I refuse to use Groupon and add my $ to their already existing fortune. Hey Groupon, isn’t it easy to make money over hard working businesses?

  13. Extremely discounted deals tend to attract transactional buyers regardless of the manner in which these deals are promoted. These types of buyers are interested in offerings on a deal by deal basis. They have little if any loyalty and the majority will not be back for a repeat purchase once prices return to a reasonable level.

    There is a very old saying in marketing that everyone in business needs to never forget,”If they come for price they leave for price.”

    If only more business owners would follow your example and do the math they would soon arrive at your conclusion.

  14. You are a very intelligent small business owner, most are too preoccupied with day to day responsibilities to even realize the impact such couponing behavior can have on customer loyalty, brand perception and your bottom line.

    A recent study on Groupon Effectiveness stated “where the customer base is a relatively limited pool of small businesses with strongly interconnected social networks that could quickly spread news of dissatisfactory results, may need to modify its overall strategy” (Dholakia,Uptal, 2010.) However for all the harm Groupon can cause a small business there seems to be little or scattered protest– in order to bring about change in the social buying, deal site marketing world there needs to be a singular forum through which to share experiences and warnings. Please check out the facebook page at http://on.fb.me/ggAGlb to become a part of the dicussion.

    • Zidan: Thanks for your comments.

      Just want to note that the link you provided would be a lot more useful if it pointed to that group’s WALL rather than an oversized and borderline tacky graphic that provides no information. When I followed the link, I found nothing of interest. It wasn’t until I poked around a bit that I actually found CONTENT. Just saying.

  15. It’s late and I shouldn’t still be up, but stumbling upon your article is worth losing sleep over! I have been pursued for months by Groupon and countless others of the same ilk whose names I can’t remember. I’ve spent the better part of 3 years building a strong customer base by offering an excellent product for a fair price. Can I really be expected to undo all that by signing up for a Groupon deal? I don’t think so. Thank you for articulating what has been running through my mind – I’m happy to know there are plenty of others out there who believe that cheapening their brand is not the way to build a business. I can only hope that these schemes will run their course and eventually disappear.

  16. Maria, well said! THANK YOU SO MUCH FOR TAKING THE TIME TO WRITE all the details about how Groupon is sour for businesses! We, unfortunately, did Groupon a few months ago for our laser biz in Bev Hills, and the result has been devastating! Not only a financial suicide, but the damage to our reputation is just unfair! I cannot believe what negative, mean, rude, hurtful people have come into our business, not understanding these details yet assuming we made tons of money on the Groupon deal and not honoring Groupons.

    Customers then, feel some right to post slanderous and untruthful content about the all mighty Groupon they love so much, and this is so good. As one yelper wrote about us “. For some reason I’ve got more faith in Groupon then I do in the Laser Genie. I highly doubt Groupon wouldn’t put together a shame EVERYDAY and still be successful in the entire USA. I honestly believe they wanted the exposure but didn’t want to make good on their deal to people.”

    In any case, THANK YOU Maria. I really hope this blog gets more exposure to expose how Groupon is devastating for businesses!

  17. I would appreciate if you could share my contact information with any other biz owners, who unfortunately, have had a negative experience with Groupon. In one week, I have talked to over 20 different biz owners all across the US. I believe us biz owners need to stick together. If I had only made those phone calls prior to doing the Groupon by naively trusting Groupon, I would have prevented a disaster.

  18. I understand your point of view, however your narrow-mindedness annoys me. In the end Groupon is a form of marketing to reach new customers, not a tool to help you generate profits. To take advantage of Groupon you need to look at it from that perspective. It’s no different than advertising in newspapers or in the radio and paying upwards of $50,000 per advertisement. The difference with Groupon is that at the very least the customers that buy into your deal with Groupon are at least interested in trying out your service. What happens when you spend $50,000 on an advertisement and your sales don’t increase, how do you factor in a cost like this? If you try to look at it from a profit perspective, how the hell do radio stations still stay alive? They rely on businesses that pay for advertisements. You can’t take marketing expenses and group them as a normal operations expense. If your company is a small business and you never pay for marketing then that’s fine, Groupon is not for you, but don’t try to convince other people that the system itself is bad. If you’ve ever paid to advertise your business or plan to pay in the future, then you’re a hypocrite.

    • Alan: You obviously don’t own a business. It’s “not a tool to help me generate profits”? Then why they hell would I use it? I’m not in business to give products or services away — and I don’t think many other businesses are, either.

      Understand that a REAL businessperson knows what will and won’t work for their company. What happens when I spend $50,000 on an advertisement? What makes you think I’d ever do THAT? I KNOW that advertising dollars are money thrown out the window. How do I know this? By trying all kinds of ads and measuring results. With Groupon, I don’t even NEED to try. All I have to do is run a few simple calculations to see that I would lose so much money, I’d likely be put out of business. Like my friend with the helicopter company.

      Or did you not read far enough in my post to get to his true story? Exactly how much of my post did you read? Much more beyond the title? Or are you just another commenter who has to share his “words of wisdom” without even reading what he’s commenting about? Do you work for Groupon? Or are you one of its loyal Groupon buyers, worried that your cheap deals will soon evaporate as business owners get a case of the smarts?

      MY narrow-mindedness annoys you? That’s pretty amazing when I’ve done so much work on a clear analysis of the situation BEFORE making a decision. (Again, did you read anything I wrote?) Too many businesses just swallow the same line you and Groupon are trying to feed us — that it’s “no-risk advertising.” That’s bull. For any business with a profit margin below 300%, Groupon is nothing more than a way to sell products or services at a loss. The percentage of return customers for businesses that sell high ticket items is nearly ZERO.

      How is it that you can spout opinions on something you obviously don’t know anything about? How is it that you can argue this point without presenting any FACTS?

      As for convincing other people that Groupon is bad, I don’t have to do that. Most businesses that have tried it already know. You can read their stories all over the Internet. Do you copy and paste your comment to me into their blog posts, too?

      BTW, I suggest you read the Comment Policy for this blog before attempting to comment again. Your personal attack on me was right at the limit of what I tolerate here. Do it again and your next comment will not appear.

  19. Groupon is delivering solid results for a certain class of business.
    The ideal Groupon advertiser is a business that has high frequency, once or twice a month on average, clientele.
    That business must also deliver a first class customer experience.
    Most fall far short of that mark.
    Before doing business with Groupon be sure your customer satisfaction is at an all time high.
    If you meet the criteria then you should expect to see an increase in loyal clientele.

    • NHBill: I think you’re right on target. The ideal Groupon business has a high profit margin and the ability to do small-value coupons. An example might be a restaurant with a $10 coupon they sell for $5 (and get $2.50 from Groupon) with a one Groupon per person per visit limitation. This is enough to get customers in the door. If the customers like the product and service they get on that visit, I think a reasonable percentage of them might come back.

      The real problem arises — even for that kind of business — when the Groupons are oversold and the business experiences a crazy rush that not only lowers their level of service but creates a bad experience for everyone. That’s a repeating theme I’ve heard throughout Groupon complaints. The RIGHT way to do a Groupon is to limit sales to what you can handle. Don’t get greedy and sell as many as you can just to get that instant cash hit. This is something Groupon encourages — after all, the more they sell, the more THEY make and it doesn’t cost them a thing extra. Instead, do limited Groupons twice or thrice a year as needed to get a little boost.

      But I’ll say it again: do the math first. A business should not LOSE money on every Groupon sale, especially when they’re selling hundreds or thousands of Groupons. Doing so is financial suicide. If you go into a Groupon without counting on repeat business that might never materialize, you’ll make the right decision.

  20. Good info
    But here is something you can add to your list
    Groupon is not new I have been calling these guys to have me removed from there
    Calling list for the last ten years
    Here is what I mean I produce service parts for industrial machines so I do not see the end user
    I get calls and mailing from Companies that tell me if I quote a job thru them I can make
    Vary large profits (yea right) sounded interesting you know try possible ways to grow the company
    I Quote they submit the Quote and they take a cut. So I tried it this is how it went
    I quoted the job for 6000.00 with all of my cost included it was a 300 pc order
    And because I am a one man show my over head is around 40% lower than other
    Machine shops so I knew I would get the work.
    After a week the guy called me back and told me someone else (a machine shop) came back
    With a much lower price (Bull) so I had to ask how much lower when he told me that quote
    Came back at 3000.00 I told the guy that he better take that offer it is a great deal
    And in my mind I was thinking with that kind of price why he was calling me
    When I know that the martial for the work was just over 3000.00 and steel is steel
    You are not going to get it for less than I can I do not care how big a shop you have
    Something is not right here. So I told him I have work to do and I going to let you go
    He said hold on I have a offer for you ok what is it he told me if I come down to
    4000.00 He will give me the work (NOT) I told him it is clear to me you do not know
    What my costs are and this I some kind of scam to get me to lower my price
    We are done don’t call me for any Quotes are we clear.
    So yes always run the number ALWAYS
    So a few years went by and I got a call from a different co same thing so I thought I will try something
    To see if this is the same kind of thing(it was) I Quoted the work for 60% less then I would do
    Under normal conditions and he called me back in a week he told me he received a Quote back
    At a much lower price. And I told him he better take that deal it’s a good one
    I have to get back to work. And he said if I lower the price by 40% (note this =100%)
    He will give me the work, and then I let him have it I told him what I did with the numbers
    And he hung up on me

  21. Thanks very much for this article. I am currently in negotiations with Groupon, but we have not been able to reach a fair balance that allows both to profit. I feel I am on the loosing end of the stick here, and it was interesting to have used your same points of argument with the salesman on why it was not a good financial fit for me. While I do not need validation from others, it was great to read another persons perpective and find a common thread in the argument.

    • Dave: Glad I could help you make the right decision. I found that the guy who called me was very aggressive and used a lot of phrases that I’m sure people are convinced by. “Risk-free advertising” was one. But I can do math and knew that doing a deal with them would have shut me down for good. As long as you can do the math and believe the numbers, you’ll make the right decision.

  22. @Jake

    @Bonnie
    groupon is laughing all the way to the bank
    in this economy someone has to come up with away to do this with out the middle man
    groupon is taking way to much percentage and most of the general public is not aware of this
    can we some how make them aware how it is going to hurt
    small businesses who can not afford these 75% discounts?
    businesses have to stop useing them
    and people have to stop buying them
    businesses have to make their own deals for their clients
    cut out the middle man

    • Cory: You are absolutely right. Groupon IS taking too much of a cut and the public likely isn’t aware of it.

      For those of you not interested in reading the ENTIRE post above, READ THIS: Groupon takes 50% of what the customer pays for the coupon. This means that the merchant is only getting 25% — NOT 50% — on a 50% off deal. That’s 25¢ on the dollar. How many merchants do you think can afford to do this? And for how long?

      I’m not too concerned. If my competition does a few of these deals, they’ll likely be put out of business. I look at the whole Groupon thing as a way to weed out the dumb business owners and avoid dealing with cheap customers.

  23. Maria;

    I like this article because you detail the premises which lead to your conclusion. Overall, I agree with the tenor of this article. But, to be contrary, let me point out modifications of the groupon approach that may benefit your own business.

    1. First, never offer discounts to new customers is a good policy. But, what about rewarding loyal customers if the sign up in a Goldilock size group – not too big and not too small?

    2. Do you have a Goldilock’s opportunity to offer? Why, yes you do – your flight from Phoenix to Seattle on Memorial Day weekend! You need a Goldilock’s group – the amount of people who can fill up the helicopter. Each addition, subject to the limit, lowers everyone’s costs – so you can offer discounts based upon how many people show up. (This was the rationale for groupon to being with, it has been lost lately.) You know the math so you can construct the discount % based upon who shows up to take advantage.

    • Michael: Interesting idea about the Seattle flight. Let’s look at it a bit more closely.

      First, to satisfy Groupon’s requirements, I’d have to offer the flight at a 50% discount. So if the 10 hour flight were sold at retail, the cost would be $4,950. Half of that would be $2,475.

      Now Groupon usually wants 50% of the take, which would be $1,237.50, leaving me with the same. But to be fair, the offer Groupon approached me with would only take 30%, leaving me with 70% or $1,732.50.

      You realize that this is $1,262.50 LESS than the price I’m willing to accept, which is already conducting the flight at a considerable LOSS? I’ll be frank: $1732.50 would barely cover my fuel bill for the flight — and fuel isn’t even my biggest expense.

      Now let’s look at what Groupon wants. They want to sell quantity — the more they sell, they more they make. That’s how they zapped my pilot friend — he had to beg them to pull the plug and stop selling. Do you honestly believe they will run a Groupon for me for just ONE flight? Or, if I split it into a per seat cost, TWO passengers (remembering that we need space for luggage)? And how many Groupon shoppers — remember, these are people who are loathe to spend money — do you think would be willing to cough up $2475 per flight or $1,237.50 per person?

      So no, this wouldn’t work.

  24. @Maria Langer Maria, I am sorry I should have made myself more clear.

    1. Yes, I agree that selling goods/services for 75% discount, unless they are wasting, is a dumb idea. And the current Groupon sales model is brutal.

    2. i) However, the original idea which gave rise to groupon and its mimics was research done by Tom Schelling in 1970’s, sometimes wrongly ascribed to only Gladwell’s Tipping Point.
    ii) One outcome of this research was to show how “Goldilocks” groups could form – neither too big or too little which provided social benefits, despite the existence of free riders which threatened to either collapse or expand the group.

    3. You likely have your own email newsletter, and my suggestion was that you could create your own Goldilocks group – without giving any money to Groupon’s mathematically challenged sales staff. The 10 hour flight has fixed and variable costs, all of which you know. So, you can price the 2 intimate flight differently from the 6? person group flight – and you can use your newsletter to determine the audience for the 2-6 person flight. It is probably a better use than only putting an ad for it on the blog.

    • Michael: Thanks for the clarification. Actually, I do have an e-mail list and that offer did go out there. It also went out on the Flying M Air Web site, Twitter, and Facebook. And in press releases throughout Arizona and the Seattle area. The big problem is the cost. No one wants to spend that kind of money for a weekend away. Their loss. It’s an amazing trip that I’m offering for below my cost. At this point, if it doesn’t sell, my husband and I will likely buzz up there in one long day of flying.

  25. I’d like to share my Groupon experience as the owner of a home furnishings and interior design business.

    Our business sells a “design package” service, which is an effective means for us to build client relationships.

    I decided to run a Groupon offer of $50 for a Design Package valued at $250. The Groupon could also be exchanged for merchandise.

    We sold just over 500 units, and received a commission of $12,500 from Groupon. The majority of Groupon redemptions were for the design option of a one hour in-home consultation, for which we developed an online booking tool.

    Almost all Groupon redeemers purchased nothing from us (no surprise), but about 5% purchased over $10,000, and are now part of our client base. So for our business, it proved beneficial.

    Would I do it again? Not a chance in hell.

    Why? Because (except for a few wonderful new clients) the vast majority of Grouponers have been profoundly uninterested in our business and a drag to engage with, because they place no value in the exchange.

  26. excellent article. groupon and livingsocial is slowly ruining an almost ruined industry: carpet cleaning. all the bottom feeder con artists in our industry used to do their “marketing” in the coupons and pennysaver. in the past the customer had to go through the trouble of opening and sorting through the coupons or actually open the small magazine. now they just have to press a few buttons and there’s the “deal”. many people (except ones with common sense) now think the going rate to clean 3 rooms and a hall is $50. we can’t even get in the door with our $100 minimum charge lately, when getting calls from internet ads we run. thank god for word of mouth!! i can’t wait to see groupon and livingsocial die off

    • Bill:

      i can’t wait to see groupon and livingsocial die off

      Me, too. I’m just wondering whether some sucker will buy Groupon for megabucks before it happens.

  27. I’m a carpet cleaner and I’ve done 3 Groupon deals to date. 2 in the Dallas area and 1 in Sacramento area. I do agree with you somewhat in a that some businesses can be hurt with this type of deal. But some companies can benefit from it.
    I sold right around 90 Groupon with each deal. The deals were $99.00 for 6 areas of carpet cleaning. I received 50% of that. The deal itself would not have made me money….that’s where we agree. However, with my business model we seldom just sell a carpet cleaning job to a consumer. If they have extra areas like stairs or closets or extra rooms we charge extra. We offer things like Scotchgard, deodorizer, furiture cleaning, tile and grout cleaning and few other things on the menu. We will and did do only the cleaning on the deal when that’s what the customer wanted. No hassles and no hard sales at all. But the ones that DID buy more made up for those who didn’t. Plus, all the calls we received on the “side” of Groupon that scheduled with us directly. We were able to make money on the deal. I receive approximately $4000.00 from Groupon. I went on to make $10,000.00 more from those customers including more services, referrals, repeat customers etc. It works for some companies like mine but I will concede that it could be the downfall of many companies such as helicopter rides and the like. Will it hurt the entire economy? Maybe.

    I will close with this statement and please pay attention.
    If a company gets into Groupon and closes their doors because of the “deal” they made…they had no business being in business to begin with. Thinning the herd.

    In that case, it could be a wonderful thing because sometimes there are too many “hack” type companies messing it up for the rest of us quality oriented companies.

    Thanks
    Brian Robison
    Priority Carpet and Tile Cleaning

  28. I run a tour business in New Orleans that has only been open since June 2010, and suffice to say I’m in a very competitive field here and obviously not one with many repeat customers. I mean who takes a tour twice? We were, and still are struggling to get customers, so when we were approached by both Living Social and Groupon, we jumped at the idea. They sold it to us just like you said and they took 40%. They also sold us on the idea that 40-60% of the buyers will never redeem their vouchers, so we come out ahead. We did the deals, because it was guaranteed to bring customers in our door. You are correct as well when you talk about inflated prices. We had to raise the base price of the cocktail tour to $70 just to cover the reduced cost of $35 (-$14 for Groupon) to the consumer. A completely full cocktail tour of all vouchers (28 people) costs us close to $800per tour but we only made $588 a net loss of $212 per tour. Inflating the price was the first mistake and possibly the worst. Yet, we were hoping that with customers now taking the tours the happy ones would leave reviews online such as at tripadvisor.com (now another source of irritation, more on that in a minute) and other people would then take the tours at full price. Here is where all of our problems started.
    First, we sold about 1,900 tours between the two deals. People can begin redeeming their vouchers almost immediately and the tours were all completely full every single weekend after the deals ran. Groupon and Living Social on the other hand don’t pay you your money for up to a month. So here we are already cash strapped and I have to figure out how to pay literally thousands of dollars that I already didn’t have while I waited on money.
    Second point you are completely correct on, Groupon people have got to be the biggest cheapskates I have ever met and therefore some of the biggest complainers. They complain about everything from the minute they call to book a tour. They complain because the tour isn’t offered on the day they want to take it, because somehow their inability to read or research their purchase before hand is now all my fault. They complain about the size of the drinks, even though I’m feeding them over 5 shots of alcohol in just 2 hours; well over the national standard, which makes me now believe I have a bunch of alcoholic cheapskates on my tours, great. The things these people come up with to complain about are quite innovative really. These are also the people that cannot wait to get home and publicly crucify me on the travel blogs and their favorite and possibly the most widely used is tripadvisor.com which is linked to our website. Well, So much for getting customers based on rave reviews, and as a business owner, tripadvisor.com regulates exactly what you can say when responding to a customer, so you can’t just flat out call them a liar when they are, even better.
    Third, and this is really the best part, and it’s all in the agreement that you sign before the deal. Because I raised my price to do the deal, and tried to lower it after the promotion, Groupon called me and said if I didn’t raise the price back up to $70 they wouldn’t finish paying me my money because the price was now lower and therefore they would be overpaying me. Not only that, but I cannot run any other promotions greater than or equal to the Groupon deal and I cannot lower the price of the tour for (according to how I read my agreement) up to one year from when the last voucher that is redeemed! What?! So now Groupon is basically holding my business hostage for up to another year.
    Did it bring customers in my door? Yes. Are the customers I was hoping for? Not at all. Groupon customers are some of the worst individuals I think I have ever met. You are right that they have no idea how much money it costs to run a business, and I’m positive they have no idea how much of that money went to Groupon. So far the statistics show that about 50% of the vouchers have been redeemed. If the other 50% are redeemed, I’ll go out of business. That’s because I will now be losing money on two fronts, one from the Groupon deal and the other, because no one is buying my tour at $70.

    • Kim: This is a horrible story. I feel bad for you. I also wonder how many other businesses are in this situation. There will come a time — likely soon — when Groupon/Living Social/etc. won’t find any more sucker businesses — except bottom feeders, of course — and can’t offer anything of value to the cheapskates who depend on them for their cheap living lifestyles. I hope that day comes very soon. Every time I read an account like yours — or some of the others here — it reminds me how the American goal of getting something for next to nothing is destroying our ability to compete and succeed.

  29. Thanks Maria, I think the worst feeling is, I’m not a dumb person. I’ve had another successful business in the past. I have a BA degree, I passed micro and macro economics with flying colors and I understand marketing and supply and demand. I really feel like I made the mistake by thinking that a marketing plan that guaranteed customers in the door would lead to other business and it is so not the case. Groupon called me the other day and tried to sell me on the idea of becoming one of their “exclusive” partners which means I basically could only market my business through them from now on. Are these people insane? I’m certainly not! Once was enough. Thanks for your blog on this, other business owners need to read these blogs before climbing into bed with any of these discount companies.

    • Kim: What bugs me most about Groupon is their hard sell approach. They make it seem as if you’d be an idiot not to sign up with them. I think this confuses or fools a lot of people who should know better. Living Social’s approach to me was much more devious. They called and told me they had a risk-free advertising method where I only paid if I made sales. I had to use my caller ID to call back the woman to get the details; their site didn’t have ANY information. (This was back before this kind of thing exploded into popularity.) They “only” wanted 40% of the 50% customers paid.

      I really believe that if the general public knew how little vendors were getting on each sale, the people with a conscience would stop buying Groupons and Living Social deals. But maybe I’m wrong. Maybe everyone is just a cheapskate trying to get something for next to nothing.

  30. Just found this… and totally agree. Groupon have damaged the customers perception of the value in my industry and have driven the cost of google adwords relating to it through the roof.

    The only positive is that they will put so many of their “vendors” out of business that they won’t have any left.

  31. My 2 cents I have not even bought a groupon but I have the app on my phone and if I see a good deal I facebook and tweet it out by habit. It is a habit to see what the deal of the day is and I believe that what groupon wanted that is why they are worth 25 billion because people like me send it to different states I might go to philly I don’t live there but my sister does and so forth. It is not a bad business model when it cost you nothing to advertise and other people are driving customers to you it is up to you to keep the customer give them a $5 off coupon for a second return or something nice. I don’t agree with anything on here because if you don’t know what you products is worth than who does and it is the customer paying groupons not the business. The concept is great the businesses just don’t like 50% of they don’t like that they did not think of it first just saying. It is the same as affiliate marketing I am joining an affiliate with the same concept but I get paid for doing what I do for Groupons for free spread the word. Word of mouth marketing is the best marketing Network Marketing Companies have been preaching that forever but people won’t listen that is why they are rich people. I rather work a network marketing company than a job anyday. The payoff is 500% better for my bank account. Keep believing and don’t shop Groupons if you hate people are grown they can make there own decision in life.

  32. Even the Wall Street Journal is beginning to see the problem with Groupon:
    http://www.marketwatch.com/story/why-groupons-ipo-is-no-deal-2011-06-08
    Read down into the second page for key issues.

    Another take from a financial perspective:
    http://www.minyanville.com/businessmarkets/articles/groupon-groupon-ipo-tech-stocks-linked/6/3/2011/id/34936

    Trina: you leave me speechless, and not in a good way. Do you really want to be part of the largest online scam ever perpetrated? Let me know when you actually make enough money to pay your bills. I won’t wait standing up.

  33. While I appreciate everyone’s point of view on this matter, I find it disconcerting that anyone believes it is the consumer should stop using Groupon due to the damage it does to businesses. Just you understand, I’m not associated with Groupon, and in fact, I hate using coupons of any kind (or gift certificates for that matter) as I feel sellers make me feel that I’m trying to pay for food and/or other services with food stamps. Thus, I have never used Groupon, and never plan to.

    Cheap consumers are well-known problem with coupons. Furthermore, television shows (such as morning shows) praise the actions of super coupon users that try to exploit every angle to get items for next to nothing. Therefore, it is my opinion that any business that advertises on Groupon should already know what they’re getting. It is unfair to blame the consumer for “coupon shopping” through sites such as Groupon. The average consumer has no idea (and usually no idea of knowing) what a business’s profit margins are. Most of them honestly believe that nearly all businesses are operating at 50%-60% profit margins, and the business owners are just fat cats looking to take advantage of the little guy. Obviously, this consumer would have no problem “sticking it” to the man. You have to remember that your average consumer is pretty ignorant. Moreover, we live in a (somewhat) capitalist society. It really is unfair to blame consumers for giving businesses a bad deal when the consumer has virtually no recourse if they receive a bad deal.

    I personally get annoyed with any business that uses Groupon, since it will almost always mean slower service and/or higher prices for me. I’ve heard from several business owners that have used Groupon that said that they try to make money through Groupon by up-selling additional services, and referred to customers as “cheap” if they do not buy the up-sold services. As a consumer, I can tell you that I absolutely hate being up-sold, even in a non-aggressive manner (as the business’s idea of non-aggressive and my idea of non-aggressive are clearly different). There are several places that I quit going to because I hated being up-sold three times just to buy lunch. Moreover, I have purchased items online through Amazon just to avoid being up-sold on extended warranties. Refusing to be up-sold is not about being cheap, it is just about expecting good value for my dollar spent, and most up-sales have a very high profit margin.

    So, while I agree with most of your comments that businesses shouldn’t use Groupon, if a business does choose to use Groupon is unfair to complain about the type of customers you attract. Ultimately, businesses are in a far better position to determine what is it is not good for them long-term. It is not up to the consumer to “watch out” for a business that makes a bad decision.

  34. Maria this groupon wasn’t for you…

    You don’t need to bash groupon.

    Everyone knows how groupon work , if you are not ready to loose 75% off per

    item then do no deal with groupon.

    David

  35. Thank you, thank you, thank you! for writing this! I’m a self-employed piano technician and repeat business (biannual or annual tuning/service calls) is my bread and butter. My wife tried to get me to use Groupon. She explained how it worked, but I just didn’t have a good feeling about it. Glad I didn’t sign up! I’m much better at working on pianos than I am at the business side, but even I kind of knew that it couldn’t be good.
    There’s one word for it: cheapskate. It’s too bad so many Americans, without really realizing it, are turning into cheapskates. I think Wal-Mart and others have had a lot to do with this mentality. It’s a downward spiral, if people choose to follow it.

    • Daniel: You said it: CHEAPSKATES. America is turning into a country where everyone wants something for nothing — or as close to it as they can get. Don’t be a Groupon merchant, don’t use any Groupons. The failure of Groupon will be a real boost to small businesses and the U.S. economy.

  36. I’m in the middle of a living social deal for carpet cleaning right now. As far as the business part goes, you really have to look at the big picture. I’m not saying to go into it with a “lose money” attitude. I’m just saying you have to be ambitious once you’ve entered the deal. The one time deals etc are probably not a good fit for the “deal of the days” that’s seems obvious. But for any company…especially neighborhood companies just trying to get their name out there…this can be a very good thing.
    I sold 171 living social deals. 3 rooms carpet cleaning for $55 from which I get $27.50. Not a great deal for me but I made it so I don’t have to travel too far.
    Where I win is the well over 4000 hits to my website in 1 day ( I usually get about 30 or 40).
    I also had about 30 people call me directly because they saw me on LS and scheduled their carpet cleaning appointment. “Real customers”focuscuse on repeats, referrals and online reviews from anyone I service. I don’t hesitate to tell the customer that the reason the deal is so good is so they’ll tell their friends and family about me. I also want them to call me next time.
    I’m pretty good about marketing to my customers as well so that whole “stay in touch” factor is a must as well.

    I guess the point I’m trying to make is the deal of the day may not be a good fit for every company but it’s a great alternative to conventional advertising for some.
    If it’s not good for you, it doesn’t mebash ablebashable to everyone else.
    You have to look at the big phaven’t.
    I havent’ paid for advertising in years. I did “work” for advertising….and I’m OK with that.

    Of course the question is….am I making money and building my business?
    Yes. Nuf sed.
    Brian

  37. For the record. Just because someone takes advantage of a “good deal” does not necessarily make them a cheapskate.
    Hard to explain but once I get to a house to clean the carpets, most are willing to spend more.
    Think about it. If they can throw $99.00 willy nilly at an internet site then chances are they won’t be too worried about spending more when you get there.
    Again, every company is different and not all will benefit from the Deal of the Days.
    But to lump all companies together (or all people for that matter) is just plain irresponsible.

  38. Rose N. :

    Maria, well said! THANK YOU SO MUCH FOR TAKING THE TIME TO WRITE all the details about how Groupon is sour for businesses! We, unfortunately, did Groupon a few months ago for our laser biz in Bev Hills, and the result has been devastating! Not only a financial suicide, but the damage to our reputation is just unfair! I cannot believe what negative, mean, rude, hurtful people have come into our business, not understanding these details yet assuming we made tons of money on the Groupon deal and not honoring Groupons.
    Customers then, feel some right to post slanderous and untruthful content about the all mighty Groupon they love so much, and this is so good. As one yelper wrote about us “. For some reason I’ve got more faith in Groupon then I do in the Laser Genie. I highly doubt Groupon wouldn’t put together a shame EVERYDAY and still be successful in the entire USA. I honestly believe they wanted the exposure but didn’t want to make good on their deal to people.”
    In any case, THANK YOU Maria. I really hope this blog gets more exposure to expose how Groupon is devastating for businesses!

    I think this is another very important aspect of the Groupon debate – regular customers who see crowds of people at the business getting half off while they are paying full price. Then this leads to negative reviews for the business online – first from the disgruntled regular customer, second from those seeking discounts and then being unhappy with some aspect of the deal – as outlined above.

    It can then be very hard to combat the negative reviews on the net – it will cost a business to repair its reputation in the online world.

    This is another cost the business will suffer from the GREAT GROUPON deal.

    I know someone who makes great money doing “reputation management” for businesses. And hopes to retire from the revenue generated from this service.

    We all know now that positive social proof is v. important nowadays with the continued rise of social media. If a business has dissatisfied regular customers and demanding “discounter” groupon customers, a hard won reputation can disappear very quickly.

    Frank

  39. I’ve gotten 22 raving reviews out of the 48 living social customers that I’ve serviced so far. The others didn’t do reviews but I can tell you that they were satisfied customers because I serviced every one myself.

    Really as a carpet cleaner, a lot less than half of customers will do a review whether they love you or hate you. Just my experience.

    The negative comments here are either bad business people complaining of running their business poorly or good business people staying out of what’s not good for them.

    Either way, like anything you can’t blame the advertiser…..it’s usually the company placing the “ad” that is the problem…..and/or the ad itself.

    Living Social and Groupon are cutting better deals in favor of the company doing the deal now. I think they’ve weeded out a good amount of shady companies and this is a good thing.

    These deal of the day companies have been a blessing in more ways than one because some of the dirt bag competition has had to close their doors because they couldn’t run a business to begin with.

    I like to see legit businesses stay in business.

    Think about it. If a company has to shut down because of one advertising campaign that they knew the details to before getting into it shouldn’t be running a business anyway.

    Natural Selection

    • If Living Social and Groupon are cutting better deals for merchants, it’s likely because they’ve received so much bad press that it’s the only way they can attract reputable merchants. As a Twitter friend of mine noted, Groupon offers seem like a daily spam for discounts on goods and services he has no interest in. If the only merchants doing deals with Groupon are merchants desperate for business, that brings down the perceived value of Groupon.

      I’ll stand by what I’ve said: Any merchant that does a Groupon-like deal and takes a loss on each sale deserves to go out of business. It’s not just survival of the fittest; it’s survival of the smartest.

  40. Loss leaders only work when there is sufficient highly desired high mark-up items to sell as well. For the carpet cleaner, he uses Groupon/Lving Social to get in the door, and then upsells to make a profit. For his business, it was always like this, which is why it’s no problem for him now. You, Maria, and most other businesses including restaurants, don’t have that type of business.
    Brian, don’t get too smarmy: it’ll come back to bite you in the ass. You clearly don’t understand why Groupon works for you and not for others, nor how Groupon works in general if you think they are “weeding out shady companies”. It’s great that things are working for you, there’s no need to put others down, especially when their businesses are built completely differently than yours is. People screw up, you are no exception.

  41. @maria Langer
    I mostly agree with you. If you don’t play the Groupon game smart, you will lose and deserve to go out of business.
    Most people who bash this type of advertising don’t realize the cost of conventional advertising.

    They are cutting better deals because the smarter companies are staying in business and the others are failing. It’s a win win if you ask me.

    • I don’t agree. They’re cutting better deals because the smarter companies aren’t taking their crap anymore. IT’S NOT RIGHT that an advertiser should make more money on a sale than the company providing the product or service. A smart business owner won’t sell at a loss — ESPECIALLY in quantity.

  42. John, I said earlier that I understand that it works for some and not others. It’s the smart business owners that know whether or not it will work for them. That’s my whole point.
    By the way, restaurants have appetizers, add ons, desserts, drinks and even tips for the server. So really it should work better for them than anyone. If the food is good, the people will come back.
    It’s not only weeding out the “shady” companies but also the incompetent ones. I see no problem with that.
    Your one hit wonder type companies should stay away from deal of the days.
    The whole point of doing a deal of the day is to gain customers, get exposure AND sell more to the new customer. I can’t tell you how many new customers I’ve gotten from the deal of the day companies that DIDN’T buy the deal. It’s a win win win for me and for some other companies.
    Really, you won’t see too many people argue FOR the DOD deals…why? Because they don’t want other companies getting in before them. Some companies have to wait months to get in.

    Maria, How do you figure the advertiser is making more money? If they are then more power to them. If you utilize the deals and stay creative and ambishious…You should make more than the advertiser and more than your advertising “costs”.

    • Brian: You’re definitely off the mark on restaurants. Understand that the kind of people who use Groupon are NOT usually interested in any kind of add-ons. (It surprises me that you can sell them additional services at all.) Most restaurant owners have complained about the cheapness of Groupon customers and, in the articles/blog posts I’ve read, specifically noted that they seldom buy more than what the Groupon covered. As for tips, you need to remember two things: (1) Groupon users almost always tip based on the discounted amount (not the amount they were served for)– this is a universal complaint among restaurant people — and (2) tips belong to the servers, not the restaurant owners.

      How do I figure the advertiser is making more money? Clearly you did not READ my post. I did all the math. Groupon is the advertiser, isn’t it? Why don’t you re-read what I wrote and focus on my explanation of how Groupon would be making money while I’m losing it. It’s simple math. Do the numbers for your deals. Groupon is making more money than you are on every deal where you can’t sell additional services — unless you have zero costs for your time, materials equipment, etc. I don’t need Groupon to get me customers. I have customers willing to pay full price. My business grows every year. I turn down jobs, sometimes just because I don’t feel like doing them. I also turn down potential clients trying to cut their own deals with me. I don’t want to cheapen my services in any way, shape, or form.

      As for your explanation of why people don’t argue in favor of the deals, all I can say is WOW. They don’t want other companies getting in before them? I guarantee that I’d have no trouble making a deal with Groupon, Living Social, or any of the deals. Groupon called and left messages for me at least three times before connecting with me. I never called them back. Another company called the same day. Since turning them down, they called me yet again. And Living Social found me months before that. These companies are desperate for the big ticket deals that’ll make them big money fast. The only people they say no to are the ones offering deals that won’t sell.

      I’m not quite sure why you’ve decided to use my blog to spread the word about how happy you are with Groupon, but it seems to me that your view is rather one-sided. You need to get a better understanding of what most merchants are saying about Groupon. There’s plenty of material elsewhere on the Web to read about it if the comments here aren’t enough to give you a more thorough picture.

      My belief is that Groupon and similar businesses, in the long run, will hurt both businesses and consumers by requiring businesses to settle for less pay than they should get to stay profitable and grow, which will result in a reduction of product or service quality for consumers. I can’t find too many people who will argue with that using FACTS beyond their own limited experience or hearsay.

      At this point, your repeated comments here are starting to look like spam or something being paid for by Groupon. You haven’t convinced me and I don’t think you’ve convinced anyone else. Each comment you share demonstrates how little you understand the Groupon situation beyond what you’ve experienced in your small business. Unless you have something NEW to add to this discussion, you might want to take it elsewhere.

  43. Maria…I just stumbled onto the blog and found it interesting.
    If you don’t want conflicting views then maybe I should just not respond?
    But I will once more because you’re right. I’m saying the same thing. It’s just nobody wants to hear the truth. I understand that. It’s much easier to blame the big bad advertiser than yourself for bad business decisions.
    Do you think that Groupon doesn’t have any overhead? Do you understand how hard they worked to get that precious email list? They did the work and now get the grief because they were successful. Do you know what a border bully is?

    I choose to stay positive and not blame others for anything thing I fail at.
    Anyway, you’re dead wrong about Groupon users. I’ve found that people do buy more, re-use my service and refer me to others. But I provide friendly and professional work.
    If your view of Groupon users are a negative one then guess what…you will have negative consequences.

    I assure you that I have nothing to do with Groupon as far as them paying me to post these things….I am just a carpet cleaner in Richardson TX that loves cleaning carpets for his clients. I also have a company in Sacramento CA where we do the same.

    Not all Groupon customers are perfect…but not all customers are perfect to begin with. It all comes down to how you project yourself and business to others. Do you promote quality work or or dirt bag practices…people can tell.

    Did you take the time to make the deal worth while or did you just jump into it willy nilly?

    In business, as a business owner you have nobody to blame but yourself for failures or success.
    Let me know if I’m “allowed” to keep in this discussion. If not, then you may ban me or censor so you can keep up the pity party that seems to be the favor.
    Good luck.

  44. By the way. If Groupon is bad for business or customers…it will get weeeded out.
    Custmers will find out that paying less isn’t better and companies will find out that offering lower prices isn’t better.

    Isn’t that a good thing? There are too many people trying to run businesses that shouldn’t be anyway.

    There’s my other side to the one sided opinion.

  45. Actually, the funny part about Brian is that his business is BUILT around getting in the door cheap, and then adding on upsell items like deodorizer etc. So, he has a built-in lossleader. Restaurants don’t because the Groupon doesn’t limit the items you can use it for, not just entree, etc. If you try, the rep will fight you tooth and nail.
    Look, the whole groupon/social living stuff is old wine/new bottle: we used to have coupon books that we bought as a fund-raiser for the school, or church, whatever. They stopped working when the local businesses caught on the that the users were VERY unlikely to come back unless there was another discount. And while I agree that the blame ultimately rests with the owners, being lied to about how and whether the deal will work is another nail in the coffin. Groupon reps know darn well that if they are upfront, they’ll lose the sale, so they’re not upfront at all. Many good businesses aren’t ready to be scammed like this, as the owners simply aren’t suspicious enough. I hope they learn. I fear they won’t.

  46. Just because I run a deal doesn’t mean my business is built around “getting in the door cheap”. It’s just a deal…Companies will do that sometimes.
    The biggest thing with getting repeat business is first doing an amazing job and then marketing to those customers. If I were a restaurant I would try to get those customer on my email or regular mailing list. I think most would sign up. Just let them know that there will be other deals. Yes, every company needs to offer something…Even if it’s a free desert with your dinner etc.
    My company is built on quality customer service. My regular prices reflect that. This is just one way to show people the quality work that we do. Then they can choose to have more done. It’s called “paid advertising” no matter how you slice it.

    Carpet Cleaning is a necessary inconvenience. Even eating can be that for some. So make it easy, pleasurable, valuable and noticeable and people will be back.

  47. I see where you are coming from, Groupon does not work for every business, but I did a Groupon for my Wine shop in December 2010, it expired June 21 2011 After looking at the numbers it was great for business. I just did another one. Without question if the deal is not structured correctly it will kill you. Mine was a simple $20 gift certificate for $10 only good on Wine, not on liquor or beer. I have my greatest margin on wine (around 28%) so it makes it a little easier to absorb. They sold 235 groupons. My Take was $1145.63 That left me having to keep a $36 average reciept to not lose money. I finished up at $38 average which equated to an additional $430 profit and I converted a dozen people to repeat business bringing in $1600 in sales over the past six months as well as getting 100 plus people signed up for our e mail list and club card, which is free but gets me contact info. This not a get rich quick scheme this was a calculated marketing tool. I was lucky that I worked with someone at groupon that was very helpful. I also spoke with other merchants in my area who had used them before I pulled the trigger. The format has its bugs and it is not an option for many types of businesses, but it worked well for me. Cheers

    • Gregg: This seems to have worked out well for you — and you definitely crunched the numbers! I think there are at least two key points that led to your success:

      • The value of your Groupon offer was low, thus minimizing the potential loss. If you’d done a $50 Groupon for $25 dollars, the potential for loss would have been much higher.
      • Groupon didn’t sell a huge number of deals. It might have been tougher for you if you’d sold 2,300 instead of 235. (I’m thinking of stocking shelves and paying suppliers while waiting for Groupon to pay you.)

      I really think you made some good decisions there. Would you do it again? I’m curious. Thanks for sharing.

      • Maria, Yes I just put one out yesterday. The key for anyone who is thinking about doing one is to really look at it and see if it fits your business model. I spoke with other local merchants who used them to get a feel, and tried to see the potential downside. I also looked at what it would cost to do a traditional paper ad campaign. And it worked out that if the groupon cost me $5 per person it still would have been cheaper than a print campaign and with groupon I could quantify how many new customers I got from it and how many repeat customers. Again for many businesses this is not a good option, but really look at it and do not jump in blind or dismiss out of hand. Also for any small indeopendant brick and mortar business check out 350project.net. I do not work for them or get any financial support from them it is just a great organization supporting small business. Cheers

        • Thanks very much for sharing this. It’s really refreshing to hear from someone who has clearly done his homework about Groupon and is proceeding cautiously — with good results.

  48. Brian, are you under the impression that Maria has ANY obligation to let ANY of us post here? Regardless of our “sides”?

    Anyway, you’ve made your point repeatedly: Groupon works for you. Fabulous. Those of us with a different, and possibly much longer experience in business (for me, about 20 years) feel differently. On to other things.

  49. @john Beaty
    Not at all.
    I’ve been in business since 1990 and know a thing or two. Not ALL things but I do have an opinion. Going against the grain isn’t popular. Others have made their point as well but I may have gone to the point of convincing.
    For the record, I was just responding to comments made towards my posts.
    No Harm either way. I was just sayin.

  50. I could not agree with you more. Groupon is BAD for business . I did one for my business with eyes open it brought bottom feeders and discount hunters, although we did get return business that was based on the quality of work we do, on another note I had to have two scammers followed up by the cops for scamming us via one of these crappy vouchers and refusing to pay when they presented invalid vouchers. I hope grouping goes down and soon.

    • Hi Kelly,
      I was wondering what kind of business you are in? Because this is not a great marketing format for alot of businesses. I have done it twice and i own a Wine Shop and it so far has worked out well. Of course there are the bottom feeding cheapos, but you will get those with any marketing offer. The repeat business has been huge for me. Without question this is a fad and will die down. Hope all is going well with your business and for many more years as well.

  51. I agree that most business will lose money if they are offering their services for 25% of their retail price. Some businesses have no idea what they are getting themselves into when they are offering their services/products on Groupon. There are some ways to use Groupon to your advantage.

    1. You mention that your flights are $495 each. Why not offer a coupon for $100 dollars off for $50? You could still earn a profit of $395 +$25.

    2. There are also restaurants where they offer a $15 off $30. From this model, they would earn $7.5 for each Groupon. This could be effective if the price of each dish they serve are higher. Resturants should not offer $15 off $30 if their dishes range from $5-10 dollars. If their dishes range from $20-$30, there is a greater chance that they will be profitable. For example, if two people eat at this resturan using a $30 coupon, their total bill might come out to $80 (includes appetizers,drinks). Your total revenue would be around $57.50.

    I do not work for Groupon. I am work for a internet marketing firm that helps small businesses increase their revenue via internet.

    • Jon: Groupon wasn’t satisfied with anything less than a full tour discounted 50%. And frankly, the sales guy really annoyed me with his complete ignorance and the way he tried to scam me with the “risk free advertising” line.

  52. Maria,

    great input and I hope other business people take note.

    if you don’t have the right business, business model, good people, and good (realistic) strategy with the right #’s…. to turn 1st Time customers into long term business and referrals….. don’t do it.

    An old joke to myself when I was young, but always ethical upon seeing bad deals for small business :

    Groupon = We take our experience and your money, and turn it into our money and your (bad) experience.

    PS- I wonder what the salespeople make? my guess as a former inside salesperson….75k+

    • Kirby: I suspect their salespeople are paid pretty well. After all, Groupon might take in a ton of cash, but all the articles I’ve read about it say it isn’t profitable. Where the hell is all that money going?

  53. I agree with your logic but the math you do when calculating your costs for the helicopter business is certainly unfair, at least with respect to the cost of insurance. You claim you fly about 200 hrs a year, which translates to about 1 hr a business day. The number of hours would go up significantly thanks to the groupon deal, thus lowering your cost per hour of insurance

    • I “claim” a fact: I fly approximately 200 hours a year. That’s not 1 hour per business day. I have 365 business days a year. There are no weekends or holidays off in my business. I fly when I have paying customers — even if they want to fly on Christmas Eve or Labor Day — and once in a while when I just feel like going flying. That means I don’t fly every day — but on some days, I could fly 5 hours or more.

      How can including insurance be “unfair”? It is a cost of operations. So is my monthly hangar rental. And my cell phone expense. And the gas I put in my truck to get to the airport to conduct the flight. I picked the three largest expenses for this post to keep the calculations simple. My actual hourly operating expenses are much higher. My overhead expenses (hangar, cell phone, transportation, etc.) are another part of doing business and I didn’t even add those in.

      You think the only thing I should include is the cost of fuel? You think that’s all it really costs to operate an aircraft? Read this.

      Do you operate a business? If so, do you know what your operating and overhead costs are? Why shouldn’t the direct expense of operations be calculated when decided whether Groupon is a good deal? I would lose money with every single Groupon sale — just as my friend did. Sure, I can play with the numbers and pretend my costs are lower. But they’re not.

      Yes, if I sell 200 hours worth of Groupon flights, I’ll lose less money per flight because my hourly cost of insurance will be lower. But I will still lose money on every Groupon flight. Why would I want to do that? Who am I working for? Myself? Groupon? Or cheapskate clients who will only buy my services when I’m selling them at a loss? What do you think?

      I have enough clients willing to fully compensate me for my services. I see no reason to make concessions to attract others. And I see no reasons for companies to fall for Groupon’s misleading sales pitch and sell their products or services at a loss.

      • There is an easy way for small business owners to calculate their expenses and get a handle on what some of the hidden expenses might be. In the world of business it’s known as a cost analysis or simply “the financials”

        The SCORE organization has a handy spreadsheet you can download for free and I’ve written about how to use it in my blog at http://karlierobinson.com/2011/03/29/score-financial-projection-model/ The download link is included at the end of the post.

        • Thanks for this, Karlie. I’m sure it’ll come in handy for folks who aren’t quite in tune with their business’s finances as I am. I also need to recommended basic accounting software like Quicken (or similar; preferably similar) for folks managing a small business. Pay for everything with a credit card and let the software download those transactions for you from your bank. You can really see how much money you spend and where it goes.

  54. Hi, thanks for this analysis. My company (which does marketing consulting for small businesses) was considering a Groupon for one of our clients. Now, after reading your post, I am not sure this makes sense!

    In addition, I have contacted Groupon twice to ask about how the program might work for this account, and have yet to get a return call or email. So, maybe that’s just as well…

    • You’re lucky. I felt, at one point, as if they were stalking me. Perhaps they’re attracted to businesses that are least likely to benefit from their services? (Just being snarky, of course.)

  55. This really opened my mind up to how groupon isn’t so great. As a consumer, it’s always just been seen as a good deal to me. Now, not so much.

    That being said, I can think of some instances when it would work, such as the theatre, as mentioned before. Another – I once saw a deal for 40 for 200 towards lasik for both eyes, or something of the sort. The whole procedure would cost 4000+, I believe? So the business would lose 200 but could still make a profit on the rest.

    I think, honestly, it’s up to businesses to consider the pros and cons and choose wisely. It’s not likely that customers that use the site ever will. Like you said, they only want a good deal.

    • I agree that it could work for theater tickets in that it might not result in a loss for the theater company. After all, the show has to be put on anyway — there’s little incremental cost if some tickets are sold at deep discount. The additional revenue from those sales could actually help the bottom line. But the whole repeat business reasoning for doing the deal becomes invalid — after all, how many times would you see the same show? Why not just offer half price tickets at the box office at the day of a show? Why cut Groupon in on the deal?

      It really dies depend on the business. But I think a Groupon deal — especially one sold in the quantities Groupon wants — is more likely to hurt a business than help it.

  56. I hear a lot of “why don’t you just run the half off deal yourself and not go through Groupon”. If you have 100,000 or more people on your email mailing list then I say go for it. The whole point of using Groupon is because they’ve done the work to attract the people.
    And I still think it’s ok for them to make money….Even if it’s “more money” than the company running the deal. Why shouldn’t they get paid for their efforts?

    • Are you a merchant, Brian? As a merchant, I take offense to an advertiser making more money on MY efforts than I do. Especially when they so clearly misrepresent the benefits of their service.

      But hey, if it’s okay with you, then go for it! After all, every business owner has to do what’s right for his company. Or what he thinks might be right.

      • Isn’t the advertising THEIR efforts? What if you make a million and they make 2 million BUT their extra million doesn’t come from you? Their extra million comes from the people they advertised to for you. Your million isn’t effected by it.
        As long as I make my money, I don’t care how much they make.
        Why should you care?
        It would be different if it were you who were actually writing a check.
        With conventional advertising you would have a point. It wouldn’t work to give them 2 million and only make 1 million from it.
        Get the difference?
        Please don’t argue that the extra million is still coming out of your pocket…that’s just their cut from the income…NOT your bank account.

        • You said:

          As long as I make my money, I don’t care how much they make.

          And that’s my point. I would not be making money. I’d be losing money with every sale. Did you actually read the post? For many — if not most — Groupon merchants, they would lose money on every sale. Only Groupon would make money. Do you really think that’s right?

  57. Just me again. I just wanted to comment on the repeat business from Groupon. You are rgiht that for many types of bussinesseslike yours the return rate is nil. The only potential is word of mouth, other than that you do not get any real return. For a retail enviorment there are ways to track repeat business. I have to say I have had a nice rate of return business so far. Your business has high overhead and limited chance repeat business in a six month period, so groupon clearly is not good for your business model. Nothing is a one size fits all solution. What I would say for groupon sales people is that they are like all sales people, in that they will give you the best case scenario regardless if applies to your business. So anyone out there thinking about groupon think about it in real terms. Do not listen to the ROI they tell you, it is nonsense. You know your business, think about your costs, think about your margins, and think aboout what is the probability that the groupon user will be back in the next 6 months to buy full priced goods and services. Groupon is neither good nor evil it is a tool. And like any tool if not used properly it can remove your hand.

    • Agreed: Groupon is a tool. It’s up to the merchant to do the math and see whether it’s a tool that can benefit — or hurt — their business.

  58. Thank you for posting this. I am not a business owner and this helped to educate me with respect to the impact that Groupon has on businesses. I can afford to pay retail for most services and will support my local businesses by doing this. Thanks!

  59. I have never used groupon and probably never will. I have always wondered how it could be good for businesses or consumers (me personally, I coupon, but I tend to let things expire, so buying something like this up front, I would probably forget about it). I also have heard many horror stories of small businesses (like photographers) selling on groupon at a loss to just unimaginable numbers of customers. I prefer to talk to businesses myself and see what deals they can offer me if they can. Sometimes I can’t afford a certain business and sometimes I can. And if I get good service, I always return. But I am not a groupon shopper either. I appreciate this detailed analysis that you provided here. Very interesting.

  60. This brings up another great point. The word is getting out to the public how Groupon does things. When I ran a Living Social deal I ended up getting over 30 “regular” customers who saw me on the deal and decided to go through me directly. I had around 4000 hits to the website and that helped me with SEO as well. So the money that you make from Groupon isn’t just from the initial deal. It’s all the extras that come along with it….This example would be mainly exposure.

    Another thing that happens that some have not talked about yet. In my industry there is about 60% of the public that don’t think about it….Carpet Cleaning.
    Groupon will actually get people thinking of carpet cleaning where they may have never thought about it otherwise. Whenever I see Stanly Steemer commercials it’s the same idea…And my phone starts ringing. So Groupon just getting the word out that there are companies like mine that offer a service is another golden factor.
    Let me say again, I don’t think the deal of the day deals are for every industry or every company IN a certain industry. I just defend my usage of the service to show that it CAN be and HAS been beneficial to me AND my customers.

  61. I read some statistics that included something:

    If the Quality of the customer experience (the employees and how they treat the people) was good the better chance of turning the grouponer into a repeat customer.

    any thoughts on this or ways to make this “conversion” happen

  62. If anyone is interested. I was contacted by a review company for Groupon to ask me a few questions. Pretty detailed I would guess and they are paying me $150.00 for my efforts (full disclosure. lol). My guess is Groupon is trying to get a real point of view of how their merchants really feel by getting a second party company to do this.
    Anyway, I will let everyone know the questions…or at least the type of questions they ask. It’s an assignment I have to fill out and then a webcam inerview.
    I’m actually looking forward to it. I will be totally honest with every question. Some of which are NOT in favor of Groupon. Nobody’s perfect.
    It’s scheduled to happen this week or next…I have to check my calendar.
    Is that cool Maria?

    I’m interested to see what they want to know. As you may have noticed, I don’t pull punches no matter who or what you are. But I’m friendly and I don’t mean harm to anyone…physical or mental.
    Thanks

    • Apparently, all of your positive promotion of Groupon is paying off! They’ve recognized you as a supporter and are paying you for your loyalty. Congratulations!

  63. Kirby, can you post those stats? Because I don’t think they tell the whole truth. I think you have to have the right type of business, with good customer service, and limit the number of Groupons sold to have ANY chance of making it work. Some restaurants, anyone who routinely uses a loss leader can potentially make it work. Businesses with high fixed costs, low repeats, etc. have almost no chance of making coupons work, especially when they are lied to about the way the Groupon works. And saying that YOU weren’t lied to isn’t to say that many people are being lied to and have been in the past.

    Maria, the top picture is stunning.

  64. Maria, You may be right but I seriously doubt I make a blip on their radar. Here and 1 other forum….that’s it.
    They are sadly mistaken if they think I’m going to shill their service. I don’t think they are good for every business….I would venture to say not good for MOST businesses.
    My whole arguement has been NOT to generalize an advertiser as “bad for everyone” AND the fact that a good business person should know if it will work ahead of time.
    It’s awesome for some, not so much for others.

  65. VERY interesting read, I came across this while doing research for a post I was about to write describing why Groupon (UK) is bad for small business.

    Having an interest in a local Driving School we have used Groupon once before a few months ago, and while it was not such a terrible deal on first impressions e.g. first 3 hours for £15 (usual price £17 p/hour) Groupon took 50% which when Fuel and car expenses are taken in to account actually costs the instructor money to teach for those 3 hours.

    So that does not sound good BUT with something like a driving school your going to get repeat business ras no one can learn to drive in 3 hours and its not unusual for schools to offer the first few hours free as a hook….. oh how wrong could we have been.

    The bottom feeders that lap up the groupon deals are interested in 1 thing and 1 thing only ‘They want everything on a plate for next to nothing’

    So what actually happened was that at least 70% of them only wanted the 3 hours, then they just went to the next offer with another school and sucked the meat off their bones too then likely moved on, they were not even holding back most of them said that’s what they wanted to do so they could learn to drive for almost nothing.

    the other 20% just got angry and demanded a refund because they could not get lessons at 1 hour notice and at a specific time to suit themselves or they had bought 10 vouchers thinking they could have 30 hours for the price of 3 (1 per customer in the terms).

    The other 10% were bought by parents as presents for kids to get them started and these ones were worth the effort however with such low numbers of genuine customers this actually ended up costing in the region of £5000 in lost revenue.

    So Groupon rang back around 2 months ago to see if we would be interested in putting out another offer, we thought about it and decided to go for it but with air tight terms and conditions attached to the offer they would massively cut down on the time wasters and flesh suckers, Groupon agreed and both parties signed the contract only to be met with a phone call today saying ‘Head Office’ wants to change the terms of the deal, they wanted us to either give them 100% commission or offer 10 hours for £15…. the question was asked directly… “do you realise how damaging that could be to a small business?” to which the reply was.. “I cant do anything about that”

    Obviously the offer was refused and I have now been trying to get through to their head office to lodge a complaint for an hour with no answer.

    Groupon could not care less about the damage they cause its as simple as that.

    • Thanks for this story. It’s an excellent example of what I’ve been talking about. Bottom feeders indeed. Who needs customers like that?

    • BTW, please do come back and post a link to that blog post when it’s online. I’d like to read it. Heck, your comment above is almost enough for a blog post!

  66. There will always be the bottom feeders or priceshoppers as we call them. Was it every customer that did this or are those the ones that just stick out?
    At the end of the day it does come down to how much money is made. Headaches are a part of business even though we do what we can to prevent them.

    Groupon and Living Social are giving in a bit. I just signed another deal with Living Social. My last deal was $55.00 for 3 rooms carpet cleaning with restrictions and city limits. 50/50 split. This deal that I just agreed to uped the price to $65.00 for 3 rooms with a 60/40 split in my favor….And I dropped 2 cities that were undesirable.
    So I think they are “getting it” and needing to give in somewhat.
    With carpet cleaning and most service industries it’s very hard to give an exact price to anyone before seeing the work. That’s what makes the deals a deal. I take a better case scenerio and give the half off price from that.
    Anyway, we’ll see how it goes.

    PS. I started the assignment from Groupon for their survey they are doing. Not sure it’s worth the $150.00 bucks they are paying. lol. It’s an outside company doing it. I’ll let you know how that goes if you like?
    Brian

    • I knew you wouldn’t let Anthony’s comment and my agreement go without coming back to yet again repeat your mantra about how much you like Groupon. But seriously, aren’t you tired of haunting this post’s comment thread? You’re not adding anything new. And now you’ve become predictable.

      I think it’s a damn shame that the only way you’re able to drum up business is to scatter crumbs for the bottom feeders. If I had to rely on coupon-wielding cheapskates for my business to stay busy, I’d be miserable. Working day after day for people who don’t understand the value of what you’re selling them? That’s got to suck. It should be interesting to see what happens to businesses like yours — business that have come to rely on Groupon and Groupon Clone sales — when Groupon and the clones go down. You might want to read Why Groupon is Bad for Small Business and Groupon is a Straight-Up Ponzi Scheme for two other points of view. (Both of those posts accept comments, too.)

      And, for the record, I turned down another Groupon clone the other day. They only wanted 30% off the top. I refuse to undervalue my services. And I refuse to let an “advertiser” profit more from my business than I do.

  67. Maria,

    I disagree. not ponzi,
    but a way for people to seperate small business owners….. from their money.

    it’s easy to do. 1 success story touted by the company, and the salespeople on the phone, is all they need to sell whoever they can and feel ok about it and not an illegal ponzi scheme.

    what does Groupon and other providers have? they have and email list!

    can you build you own and do exactly what they do and eliminate that cost?

    • I think the author of that piece means that it’s a Ponzi scheme in its own operations. It’s using income from today’s sales to pay for tomorrow’s expenses. Eventually, as small businesses catch on and stop doing Groupon deals, the revenues will start to decline. SInce Groupon spends nearly $1.50 to make every $1 of revenue, it’s bound to go under. The piece I linked to is more of a warning to investors than to business owners who might use Groupon’s services.

      • in any “growth” (easy market) industry companies sell 1st, make the most they can.
        if it was illegal(ponzi) it would not of made it this far.

        it’s in the business of seperating owners from their money, until they have to change or go to market (ipo). it’s like a bubble ..were have all heard of those.

        my opinion

        • You have a good point there. But it does remind me a lot of Silver State Helicopters, which was identified as a Ponzi scheme after the fact. (I wrote about it in “On Helicopter Training and Broken Promises.”

          There’s a fine line that can be drawn between poor management of finances and an intentional defrauding of investors (or helicopter student pilots and the financing bank) to take the money (while it lasts) and then run. I don’t think Groupon is intentionally defrauding investors — at least not yet. But it’s clear that they’re burning through more money than they’re bringing in and financing future growth with today’s revenues. If revenues catch up to spending and they become profitable, talk of Ponzi schemes should go away — after all, most businesses do operate at a loss for some time before becoming profitable. But if they do an IPO for more cash and continue to burn through it as revenues begin to decline, I’m sure talk of Ponzi schemes will only get more prevalent.

          Groupon should have taken Google’s money when it was offered. I don’t think Groupon’s future is so bright — especially with all the bad press they’ve been getting.

          • love your stuff maria and your input.

            how about if you have lots of money to set aside a “slush fund” and to hire the best attorneys so that scenario is avoided or at least handled.
            focus on good business decisions

            in my circles of business and research (marketing)
            …groupon people are desperate, in need so open to the sales pitch, and easy to sell to.

  68. sorry for the duplicate reply above.

    The Bigger Groupon Gets, the More It Loses

    by John Shinal
    Thursday, August 11, 2011
    from Market Watch, yahoo finance

  69. Thank you, Maria, for this informative post. I had no idea how it worked between businesses and Groupon. The percentage Groupon takes for merely providing an online service is too high, and the story recounted by the New Orleans tour business owner about Groupon controlling what they can charge after the Groupon deal ended is wrong, pure and simple. However, did these damaged business owners read the agreements they were signing? If they didn’t, or they misjudged, how is that the customer’s fault?

    When they tried to get a better deal and they were refused, were they willing to walk away, to be in control? If not, how is that the consumer’s fault? Ultimately, it is the business owner’s responsibility. If Groupon misled, then legal action is in order. If Groupon hid the truth in the small print, then these business owners are just like all the rest of us being ripped off by almost every big business, bank, and warranty company around in this current culture of savage capitalism. Except signing up with Groupon isn’t a necessity for doing business or life; the owners should have read the small print before signing on. Resenting customers is misplaced anger.

    I don’t know what Groupon’s future is going to be, but I do know that Amazon lost money for years before it became the behemoth it is. Jeff Bezos was criticized during those years by many financial pundits. He’s had the last laugh.

    I realize I may be too late for this discussion, but after reading the post and all of the comments, I’m going to take the time to add my $5.00 from a consumer’s viewpoint. (Sorry, it won’t be two cents because I have too much to say.)

    Although I am not a business owner, I excel at customer service whether it is meeting the diverse needs of families in crises as a medical social worker, working in a retail environment, in schools (where children, parents, and administrators all have needs and expectations), or waiting tables. I’ve done all of those things and more, and ultimately, they all are customer service positions.

    Whenever I read business/retail/restaurant blogs and comments, I’m always uncomfortable and appalled as I go through. (How much to tip sites are the worst when it comes to trashing customers and potential customers.) What makes me uncomfortable is reading the judgmental, harsh, pejorative adjectives and motives applied to customers. It is discomforting to know what people providing services are really thinking and saying about their customers. I tell you, if I owned a business or managed a department of one, and I ever found out an employee was talking about customers in general in a sweeping, negative manner, they would be given only one chance to change their attitude. The reason being, not only is there a small chance current and potential customers might find out, but more importantly, the rush to resentfully generalize and negatively stereotype customers without regard to their diverse needs, levels of knowledge, and economic realities, would ultimately hurt my business. Their attitude would be apparent to at least the more perceptive customers, if not all of them eventually.

    Consumers do not owe businesses our patronage. It must be earned. It is not the customer’s job to meet the desires and demands of a business and/or its individual employees, but the other way around. Marketing any sort of deal and then resenting those who use it with the expectation that they will get what was offered, smacks of a sense of entitlement. Contemporary businesses feeling entitled to patronage and payment regardless of shoddy service, or the hope of up-selling and then punishing with a lousy outcome those customers who refuse to purchase more than agreed to in the initial offer is bad business. Neither will earn repeat business.

    Employees who view customers as “cheap,” “cheapskates,” “mean,” “bottom-feeders,” and so on are not employees focused on the goal of customer satisfaction so that customers will keep coming back. I would never keep employees who routinely felt that way about customers not meeting their standards, expectations, or hopes.

    I worked for Costco for a spell and I remember the trainer telling us it is a Costco employee’s job to avoid saying no to a Costco member if it is at all feasible because there are other places Costco members can take their money and employees must not forget it. I’d already been a Costco member for 20 years when I sat in on that training and it supported the experience I’d had with the company all those years.

    When I worked there, did I think the guy who decided at the check-stand that he should have bought bananas and was going to make the line of people behind him wait so he could saunter back to get them was an arrogant fellow? Yes, but that didn’t stop me from offering to get them for him, then running full bore all the way across the warehouse and back, all with a smile on my face as I handed them to him, pretending I was a triumphant Rocky as I arrived at the cash register to laughs and applause from those in line behind him. He never had the slightest inkling I thought he was a jerk, or that the other people thought he was either because my interceding prevented a dispute between them. If we’d just let him saunter across the warehouse and back, some of the other customers would have challenged him and they would also have blamed us, not him, for allowing it at their expense. A really good customer service attitude makes the arrogant ones happy, the other customers happy too, and it smooths over bad feelings between customers so they all leave satisfied, wanting to return. I never focused on negative thoughts about members no matter how difficult they were being, so they never felt anything but positive, helpful vibes from me. I made it my mission to make them happy by solving their problems. (BTW, at that job, save one sweet 19-year-old boy, even with Costco’s training none of the employees under the age of 45-50 were as committed to finding solutions that would provide the highest level of customer satisfaction. They just didn’t get it; nor were they willing to go the extra mile without being told to. Only older employees and the one 19-year-old did. He was not a good student in school either and got a lot of grief for it at school and home, just to rid people of another myth about what makes people valuable employees.)

    It is the same with Nordstrom, and I’ve been a customer of theirs for over 30 years. I will take risks with purchases from both companies because I know that if what I purchase does not meet my needs or not what is claimed by the manufacturer, I can return those purchases without a hassle and without being treated as anything less than a highly valued customer whose business they want to earn. In these last 30 years, both companies have made far more money from what I’ve purchased and kept than they’ve lost from what I returned. And it is the same reason I order directly from Amazon instead of Amazon sellers. (All three are WA State companies now that I think about it.)

    While it isn’t possible for small businesses to offer all of the same return and exchange policies as can large businesses, some are still more customer friendly than others. I like to give those small businesses my money, and I will forgive an occasional snafu too. Those who do not accept returns or exhibit a bad attitude when they do; who do not offer to make right a mistake; who will say, “I don’t know” instead of, “I don’t know but I will find out for you;” who tell customers why they are an imposition or act like their customers are for any reason, lose the business of people like me. Business owners or employees who are defensive when customers have a complaint, interrupt customers, argue with customers, or tell customers subtly or directly that they are already getting more than they deserve, lose my business. Even those who won’t provide a restroom lose my business. I’ve walked away from piles of intended purchases left at check-stands before merely because I was refused a restroom for me or my child. Businesses that engage in any of the above listed behaviors, I won’t give them my money, period.

    I don’t like businesses that use commissions to pay their employees. It distorts the relationship between customers and the salespeople. We can’t trust them because they are understandably desperate to make a living. That is the single biggest reason I avoid furniture retailers. The second I enter, I feel the employee’s desperation and I feel hunted, just like I do at an auto dealership.

    I dislike up-selling a lot. If I know a company needs me to buy more than I want or need in order to justify selling to me, I won’t do business with that company, and that includes hair salons that are aggressive about pushing products. Salon employees who make me feel less valued because the $150-$200 plus tip I spent for services wasn’t enough, because I said no to added products, guarantee I won’t return. I understand there is a need for some businesses to do up-selling, but the customer should never feel it, be made aware of it, or be treated disrespectfully for refusing.

    I’ve experienced enough stained carpets from furniture places back on wet carpeting and outright fraud by carpet cleaners over the years that I bought my own Rug Doctor machine and I do an excellent job of cleaning my own carpets. Too many shady handymen businesses and contractors to recount here, but I will remind people that not everyone is knowledgeable or experienced with those sort of businesses and why they offer deals so it is unfair to blame consumers for taking them up on offers and then not accepting up-selling. That is the sort of thing we learn from experience, usually bad experiences. Most of us learn the hard way that we are less likely to find quality window cleaners and furnace repair companies through coupon ads in our local papers and online. Therefore, snap judgments about the motives of customers using coupons is misguided.

    During the toughest economic times we’ve seen since before almost all Americans alive today were even born, not taking risks with our money has become even more important, yet it is also a time when businesses routinelyrip Americans off right and left.

    In an economy on the verge of a worldwide depression, it is unrealistic to provide luxury and/or nonessential services and not expect consumers to be looking for good deals.

    Any business offering a luxury or non-essential service has to be especially careful to not judge customers. If they do, they don’t know which customers they might be wrong about as their ensuring the customer dislikes them. It is important not to judge those who may not be able to afford their services, until said customers are suddenly offered a deal, and if so, then to provide good service with a smile because who knows what they might be able to afford later, who they know, or who purchased them the business’ services.

    Regardless of the fix you find yourselves in, it isn’t the customer’s responsibility so it is unethical and bad form to impose it on them. Make a customer feel bad for using your Groupon, then also expect them to tell everyone they know, to never return even if they can afford it, and to write bad reviews online, because if you make them feel bad, you’ve humiliated them. No customer forgives that.

    If I purchase a service and the service provider makes me feel bad for using it, guilt trips me, complains to me, in any way makes me feel responsible for the business, I won’t return. That is just bad form in customer service, plain and simple. Whatever problems the business is having, the customer should not know about it from anyonewhile using that business’ services.

    If a business is overwhelmed and cannot keep up, then it should post a professional, polite explanation that does not criticize the advertiser (in this case, Groupon) on your websites, and leave a phone message on your answering machines, explaining you sincerely apologize but you received more customers than expected and because you care about the quality of your service you will not be able to provide appointments for all right away. Tell customers what you can do for them to make things better, what customers can do to get in the hopper, or they may have a refund. (Groupon has refunded me three times, and each time it took only one email from me telling them my problem.)

    A professional approach that also does not make consumers feel bad or weird about what they may have gotten themselves into is far better than providing poor service, or saying nothing and disappearing, as one business in Alaska did when they were overwhelmed. Instead of providing an explanation, they just pulled any mention of Groupon from their site and did not return calls for appointments, which earned them suspicion and bad reviews. Were the Groupon customers being cheap, mean, jerks? No they weren’t. The business owner handled his crisis poorly.

    As for Groupon purchasers: I think, Maria, you and your readers who agree with you are being scathingly unfair in your generalizations. I’ve purchased a lot of Groupons since it came to Alaska a year ago. All services in Alaska are expensive and many are poor quality, therefore I’ve purchased Groupons for restaurants I already go to, and others I purchased in order to try new businesses without as much monetary risk. I’m a responsible consumer who tries to be informed before I make purchases. I expect businesses to provide what they offered and I accepted with my credit card.

    I’m biased, so I don’t go to medical providers offering coupon discounts. Any sort of business that requires a stellar professional or luxury reputation taints itself by offering those sorts of deals. There are, however, many other sorts of businesses that it doesn’t matter.

    In restaurants, my spouse and I always order more than the amount of the Groupon and we alwaystip on what the bill would have been without the Groupon. I am a generous tipper in general and more than generous in salons, both with and without Groupons. More often than not, in salons the tip far exceeds what is deserved based on the lousy service I received. (That’s especially true in Alaska, where lousy service and poor quality for all businesses in general is notoriously too common. When I do occasionally get good service with quality outcomes and a good attitude, I’m actually grateful. That’s how bad it is up here. Not enough competition I guess.)

    Of three salons I’ve used Groupons to try out, I’ve been repeat business for all three of them, visiting each three times. One is permanently written off as a waste of too much money and will receive a negative review from me on Yelp. Of the other two, I’ve already written a positive review for one and soon I will do the same for the second. One of them has become my regular place to go because that is what I was looking to find when I purchased the Groupons in the first place.

    An example of excellent customer service is a restaurant we frequent. The night my husband I went to use the Groupon, I found a long, curly hair in my food. I set it aside to show the waiter later and ate my food anyway. When we were finished, I showed it to the waiter and asked him to tell the kitchen in case someone wasn’t covering their hair or whatever, but that I wasn’t upset and intended to pay for the meal. (My son is a restaurant cook, and my own hair has ended up in guests’ food in my house after-all.) The restaurant deducted the meal from the bill anyway, in addition to the Groupon discount, and when I protested because I told them only to help, the waiter insisted, leaving us with a bill of about $3.00. We added the full cost of the meal that we’d intended to pay to the waiter’s tip. We were not cheapskates, and the restaurant left us with a very good impression despite losing money on our dinner, guaranteeing we would be back.

    We gave a Groupon for this same restaurant to our niece but could not remember which one we’d already used so we printed both of them and told her to ask them when she went in to use it. Well, the restaurant forgot to record that we’d already used one and told her we’d not used either one of them yet. We could have used ours again, but we didn’t. We shredded it because it was wrong to cheat the restaurant. We were not bottom-feeder, cheapskates only looking for a deal.

    One of the salons I liked offered a 10% discount to Groupon users if and when we made a follow-up appointment. I did make a follow-up appointment and kept it, but I did not tell the receptionist that I was a returning Groupon customer, thus I did not use the 10% discount. I’ve returned to that salon two times since I used the Groupon, paying full price both times. Yet, I’m a bottom-feeding cheapskate for having used a Groupon at all? My only motive for buying Groupons was to try to get something for nothing?

    I’ve given Groupons as gifts to a couple of people in town living so close to the bone that they can never go to a salon or out for a meal, and everything is decidedly more expensive in Alaska than it is where you live. Am I cheap because I give them a Groupon instead of a direct gift certificate? Hell no! Baby-boomers who’ve lost large chunks of income and investment savings to the lousy economy over the last 10 years, with children to put through college and help in early adulthood (because they’ve entered a much more vicious economy than the one we entered in young adulthood), and our own impending seniors status looming ahead require some money management while trying to help others have some nice moments now and again.

    As a consumer, I saw local businesses offering their deals via Groupon and because they made it more affordable, I gifted people I do not normally give gifts to. My use of what was offered to me makes me a bottom-feeder? Those I’ve gifted happily using what I gave them for a rare treat are inherently cheapskates? Are business owners really so deluded they really believe customers who do not know them personally or know nothing about their professions know the details of their finances? That we even think about it? How distasteful can one be? Making offers to consumers and then resenting them for accepting the offers! Talk about displacing blame!

    Suddenly this new business emerges: Groupon. I would like to be a coupon person, but I’m not because I always forget to use them. They just clutter my house until I recycle them, so I gave up on that score. But this new business, I can use more easily. I can also use it to show small kindnesses and to try new businesses without as much risk. Do I, as the consumer, know what sort of business arrangements are made between Groupon and local businesses? No, I don’t. Is it my job to ask first before I purchase and use what a local business offered to me through Groupon? No, it isn’t. I’ve got my own life to manage. I can’t be doing the thinking for companies seeking my business.

    Frankly, I don’t want to do business with people who think that way about customers. Besides which, it is a double standard because there is no way small business owners saying these things put all that detailed thought into the potential inner-workings and finances of the businesses they are customers of themselves.

    In Alaska, businesses can set limits on what the Groupon covers.

    Just because a salesperson says you can’t have a specific deal doesn’t make it true. His or her income is dependent on the deals they make so of course they are going to refuse a lower offer deal, at least at first. Walk away and see how long it takes for them to offer something better. They can’t force you to do business with them. Like Maria did, you can tell them to take a hike.

    My daughter looked into working for Groupon when they first were taking off big and she was turned off. She said it was an intense place full of young people who were being driven hard and put in a dog-eat-dog position. She lost interest immediately.

    Maria, I am glad you wrote this post because it explains some things about some of the responses and behaviors of companies I’ve purchased Groupons for. That includes a company I wrote to just this week to thank for their proactive customer service in emailing me to ensure I understood extra purchases I made are not covered by the Groupon. Their response to my telling them I did already understand that so please go ahead and charge my credit card was super enthusiastic. After reading your post, I realize they are probably being inundated with new customers who do not understand that; and also why their response was so elated over my telling them I intended to continue my membership after using the Groupon. I’d merely used it because I was considering signing up anyway and the Groupon reminded me, so I took advantage of the initial savings and went ahead and signed up.

    As for the business owner who hid from Groupon purchasers because he was overwhelmed–he deserved the bad reviews he got because of the way he handled it. He owed an explanation to the people he made the offer to. It was his responsibility, not theirs.

    I’ve always waited to use my Group-ons until a few weeks have passed, even close to the expiration dates, because it was a no-brainer to figure they were going to be hit hard. If I knew that in advance, though, why didn’t the business owners themselves?

    I don’t know see why knickers are in a twist over Greg R’s comments. His first comment to Maria wasn’t as diplomatic as it could/should have been, but he used far less insulting language than others who applied pejorative names to Groupon buyers. Other than his first comment, which he could have apologized for if he’d had a little more sense, I didn’t see anything he wrote that warranted such a strong reaction. His description of a small business providing a quality service and experience is the same as the sort of businesses I am willing do business with, because it is my money so I can set the standards i want met or give someone else my business. Also, he focused on specific points he disagreed with, not all points in the initial post and follow-up comments. It reads as though there was a little reading more into his comments than he actually wrote, and some of Maria’s defenders exercised a double standard.

    I can’t say that I won’t purchase more Groupons; I’ll have to think about it more. Nevertheless, if I do, I will read the language carefully and look at the businesse more carefully to decide if I think it is a business that knows what it is getting in to. Your post certainly makes me want to be more sensitive to that problem for small business owners.

  70. About Trip Advisor, Yelp, and other review sites: I write reviews on them and I use them extensively before I travel, especially Trip Advisor. I read reviews thoroughly, and when I’ve decided which businesses I want to use, I contact them directly. I never go through third-party sites offering deals. I just spent nights in Bed and Breakfasts in Cornwall that I found that way, and I loved them. They will be receiving positive reviews from me.

    Business owners should understand, though, that when they respond to negative reviews defensively, snidely, sarcastically, passive-aggressively, or with a snotty attitude of any kind, some of us immediately write them off and will not give them our business. That is because it is unprofessional, and therefore, their businesses are more likely to be places that will offer hassles and problems. I don’t want to stay, for instance, in a hotel where if there is a problem I will be ignored, treated dismissively, argued with, or even cheated. When I read a rude and defensive response from a business, it is a major turn off, and I can’t be the only potential customer who feels that way.

    Businesses that respond to complaints politely, expressing empathy over the dissatisfaction; perhaps, if the complaint is grossly unfair, a nonjudgmental explanation of what the problem might have been; offering a contact number or email with an invitation to please contact the manager so he or she can arrange something that will satisfy them, those are the businesses I respect and I will be less likely to believe the complainers were reasonable in the first place.

    About fundraising coupon books: My husband has been buying them for years, and we’ve almost never used them.

    About online reputation managers: What is it they do exactly? Do they write fake reviews?

  71. Win/Win ?

    grouponer gets good intro deal.

    groupon business owner get opportunity to provide quality product/service in order to find those loyal customers.

    10 people – some will just be there for the deal, some will not like the experience, some will like it and come back.
    hopefully, out of that 10 the business makes profit from the cost groupon and they have a strategy in place to inspect the results!

    PS- new coupon where I am from a restaurant chain (Elephant Bar, Portland Oregon). paying Groupon 15,000.00!!! boy…it better work considering what other marketing you can do for 15 Grand!!!!!

  72. Reputation Management.

    Big companies paying big money for these services (1,000.00’s /Month).
    when it 1st came out a few years ago, the strategy I heard was to:

    formulate more links and positive reviews to push down those negative reviews from the 1st page of google.

  73. If that sort of reputation management works, then Google and other companies need to come up with programs for recognizing fake reviews. Yelp has started doing so, but to to be honest, often when I look at those they flagged and took out of the equation, I can’t see what it is about them that is suspicious while I can see problems with reviews still visible, so I’m not convinced their program is that reliable.

    • Reviews need to be manually reviewed by a person, not a machine. My company was the victim of an obviously fake review; if a person had read 10 words of it, they would have deleted it and it never would have appeared. Instead, I had to go through the bother of getting it removed.

      Don’t get me started on online reviews.

  74. I am not sure that I fully agree with your sentiments. As you pointed out in this article, advertising with Groupon is not for every business. It’s better suited toward businesses with low expenditure and high margin products. Using the example of the helicopter flights is not what I would call an ordinary business. In the business world, both offline and online, plenty of businesses dedicate marketing budgets for branding ie. Companies bidding on PPC keywords to brand themselves in the search results, but they are not making anything from these PPC campaigns. Also if you look in the real world, many brick and mortar companies are paying a lot of money to lease property in the city business district where there are many eyeballs, so much so that specific business isn’t making anything. How is branding with Groupon any different? You mention in this article that you are only paying for results, but ignore the branding potential. What if the customer enjoys the product/service and returns and pays full price for it? I don’t think you should be so quick to say its a bad deal for the businesses participating in these type of programs.

    • I seriously doubt whether (1) a customer would buy a second helicopter flight and (2) that he’d pay full price for it. My flights in the Phoenix area start at $545 (was $495). People who use Groupon deals are NOT the kind of people who pay that kind of money for anything. My friend saw that first-hand with his offer. He had NO repeat business at full price — and lost tens of thousands of dollars on the initial offer.

  75. Maria, you should edit the title of this post. You are clearly only concerned how impacts your business. There are a large number of businesses that would benefit from this type of advertising via repeat business and word of mouth from happy customers.

    • In Maria’s defense she is correct she wrote in response to her bad experience with groupon and wanted to share it. I have posted numerous times on this page and I had a great experience with groupon. Posted here are many of the pros and cons of using a services like groupon. Maria is passionate in her deivery and god bless her for it.
      Cheers

  76. Since my previous comments I’ve talked to a friend with a salon in the PNW and the salon owner of the salon I settled on to be a permanent customer and I decided not use Groupons for personal services that require individual, hands on time, because those businesses are not going to be happy with their Groupon experience. I still don’t feel responsible for knowing their business for them, or saving them from their own mistakes, but I don’t want to be the customer of someone sorry I’m there and that they are stuck with me.

    Also since then, I’ve noticed restaurants in town have signed up again with Groupon, so for them, it must not have been such a bad deal.

    I think what comments disagreeing with Maria’s basis premise are saying is that Groupon doesn’t benefit some kinds of businesses but can benefit others, therefore they are disputing the blanket generalizations.

    I will, again, dispute declarative statements like, “People who use Groupon deals are NOT the kind of people who pay that kind of money for anything.” Because, as I gave multiple detailed examples of, I am living proof that it is not true of all Groupon users. In fact, I have paid that kind of money for mushing, which was an expensive one time experience. No, I will not go back and keep doing it because it is an expensive, luxury purchase for an experience, but we have taken visitors back to the same musher for their expensive experience, and in that way, he received more business from us.

    I don’t understand why it is so difficult to acknowledge different types of businesses will have different results, and I really don’t understand the need to keep stereotyping consumers negatively, especially after giving actual examples of why we don’t all fit the insulting stereotype.

  77. Let me start by saying that I do not work for Groupon. However, I am a sales person and social media marketer. Clearly groupon works for some businesses because they keep going back to them and running more ‘ads’ but as a marketer I’m not quite buying your argument against groupon.

    You say that you fly about 200 hours a year. So, in one year you are selling 200 one-hour tours for $495. 200×495 = $99,000

    $254.11 x 200 tours = $50,822 in expenses that you calculated in your article and as you mentioned that doesn’t take into account your pilot fees, office expenses, maintenance etc. If you add those expenses in then it sounds like you may already be operating at close to a loss.

    If I may ask, what are you doing now to bring in new customers that is better for you than Groupon?

    With Groupon, Living Social, etc. small businesses aren’t seeing the larger picture. We are in a social media age. Facebook, twitter, and blogs like this one are on top of the media world right now.

    Businesses pay a radio station thousands of dollars up front in hopes that their listeners will remember to write down their info after they finish driving home from work and then later inquire about their business. Daily deal sites reach millions of subscribers, however, you’re just paying on the back end for the customers that are actually interested in what you’re selling. Yes, people are looking for deals. Who isn’t look for a deal?

    Groupon is no different than radio or TV advertising. Their job is to bring people in your door. What you do after that point is completely up to you. It’s your job to up sell a number of these people to fly again at full price. Offer them an incentive to refer your business to their friends. You have to sell them. It’s the businesses job to capture these individuals information in order to contact them again at a later date. Get their email address and create your own email list. There are numerous sales tactics that should be taken here.

    I would assume that there are a number of referrals coming from your current customers. The same should hold true for the 250 new patrons that you estimate would come through your door from Groupon.

    Let’s look at the social media aspect. Each of them is going to tell at least one person (spouse, family member, friend, neighbor, co-worker) that they took a helicopter tour from your company. A large percentage of them will tell multiple people. Some will even post their pictures and experience to Facebook and twitter. Facebook reports that the average user has 130 friends. If 100 people post their experience on Facebook that means 13,000 people have just been informed about your business. Now add roughly the same number for twitter. Here is a great opportunity to offer an incentive for people to post to Facebook and twitter. Let’s say 20% off their next visit if the post to Facebook or twitter. If I got 250 people through my door, there are so many things that I could to get more business, it’s not even funny.

    How much value do you put on that? How much would it cost you to reach close to 30,000 people? You can’t reach that many people on your own, so you’re probably going to have to run an ad in a paper, on tv or on the radio in order to reach that many people and nothing beats word of mouth and that’s exactly what an endorsement on Facebook and twitter is these days.

    You say that running a Groupon ad would leave you $20,215 in the hole. I think it means you only need 40 customers at $495 from the nearly 30,000 potentially new customers that you’ve just been able to reach, thanks to Groupon. Although, you may need to consider hiring a qualified sales person.

    • Wayne, you are missing the point. Or maybe I should say POINTS.

      • My kind of business does NOT get repeat customers for the kind of sales Groupon would make: tours. My repeat customers are aerial photographers, wildlife survey folks, and agricultural clients. This is not the market Groupon can reach.
      • If I sell at a loss and don’t get repeat business, I will not make a profit from that customer at all.
      • Groupon’s customers are cheap. Period. They are not likely to ever pay full price for my services.
      • If a Groupon customer tells a friend about my business, that friend is likely to wait until the next Groupon offer I do — or one that my competition does — to buy. So no gain there, either.
      • A business cannot remain in business if it does not make a profit.

      I have already said that Groupon can work for SOME businesses. I KNOW it CANNOT work for MINE. As I mentioned in the post, my friend, with a similar business, was financially devastated by his Groupon deal.

      You’re also missing the simple fact that I cannot physically do 2,600 flights in a year (as my friend was required to do). I have one aircraft and can fly only 8 hours a day. The FAA requires rest periods. The most flying I could legally do in a week would be 30 hours. If I sold 2600 hour-long flights, that would be 86 weeks worth of work with each job LOSING money. Even if I only sold 500 of them, that would still be more than 4 months flying at a loss. So what if I reach 30,000 people if I don’t have time to fly for them?

      I don’t advertise on TV, radio, newspaper, or any other traditional print media. I don’t even put brochures in racks anymore. I get all my business by word of mouth and website via Google search. I’m on Twitter and Facebook — you don’t have to lecture me on the value of social media. My company was featured TWICE in Arizona Highways magazine. My advertising expenses are nearly zero these days. I get calls every day for flights and have to turn down most of them.

      As for your estimate of 200 flights at $495 each, that’s not accurate. I don’t do many hour-long tours, mostly because I don’t want to. I do longer photo flights, survey flights, and multi-day excursions. My rates are higher for this work — nearly double, in fact, for the ag work. Each job typically grosses over $1K and sometimes as much as $10K. I am not interested in catering to people who balk at my hourly rates. I’m not a bottom feeder anymore. I stay profitable by managing my time and spending it where I get the most revenue per hour of effort. That’s obviously NOT doing flights at a loss for Groupon cheapskates.

  78. At this point, I think enough has been said on both sides of this issue. I’m closing the comments for this post.

    If you wanted to comment on this post, I encourage you to read the other 100+ comments already here. I’m sure someone has already said something very similar to what you want to say.

    Do NOT contact me via email to continue this discussion. Your email message will be deleted unread.

    Thanks, everyone for making this an interesting, well-rounded discussion of this topic.

  79. This is an excellent article. But I wondered if anyone have a full terms and conditions with all attachments if there are any. Is the written agreement that merchant gets is the same as on the groupon website. Many companies give their customers or users the short version of their terms and conditions.

    • I didn’t get that far with Groupon to get the paperwork. I was told they normally get 60% and the merchant gets 40%, but they were willing to do a 50-50 split with me. Considering the numbers involved, that should have been more than enough for them. But with a 50% discount on the service, if they paid me 50% of what they collected, I’d only be getting 25% of the retail price. I’d need a 300% margin to break even. My margins are considerably lower.

  80. As it has been mentioned before, these deals also tend to bring out the worst customers possible. A recent study found that 6 months after a Groupon or Living Social deal was done, the average rating of companie’s on Yelp dropped by 50% becuase these are the worst kinds of consumers you can possibly attract. So not only do you lose money on every deal, it also causes your on line reputation to be trashed.

  81. Hmmm….I thought I’d closed comments on this, but I guess I didn’t. Am doing it now. Seriously, enough has been said here; there are other Groupon posts on this blog to comment on and share your opinions.