Groupon? Just Say No
Jesse Cornett
I read an article this week about Groupon and did a quick Facebook post about my understanding of and dissatisfaction with daily deal sites such as Groupon. Quickly I learned that I’m not alone. As a business owner, I’ve previously blogged that big business is the problem for small business. Not only is Groupon no exception, they are the leader of the pack --- the worst offender.
There are a couple of great ways to get daily deals out there especially here in Oregon. At The Guild Public House, we use something called a Merc Perk. It’s a similar concept. As the customer you get 50% off. As the business, I get the same amount from the customer coming in the door. But the portion that goes to the Mercury? I get 100% credit toward advertising that my business would have been purchasing anyway. What else? I can limit the overall number of Perks. Think Groupon would limit the number available? Not a chance. A fellow small business owner in North Portland shared her experience using Groupon and their refusal to limit the number. It’s worth the read.
What are the other ways to find deals right now that are a win-win for small business and the consumer? ZapHour is one example. I’ve used them from the get-go. It’s founders referred to me recently as an early adapter. Heck yes I am. What else is out there? I haven’t tried Supportland yet but may in the future. As a business, I have to pay to be a part so that’s a tad bit of a blocking point for me but I expect I’ll get there.
As progressives, we can truly support small business beyond the right wing business rhetoric on business, which aims to help the behemoths who need it the least. Come to my place or go to your neighborhood pub. Use the deals out there responsibly and know that you are part of improving our economy.
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2:18 p.m.
Mar 25, '11
Well, I think there are scenarios where businesses might use a loss-leader to jumpstart their business.
The problem is that too many of these businesses don't plan ahead - and end up swamped with too many customers in too short a timeframe, and then those customers end up getting crappy service. And then, end result: the loss leader doesn't actually lead to new customers.
After all, there's nothing wrong with a loss leader - as long as it actually leads to profits down the road. (That's what a happy hour is! Cheap drinks lead to food purchases...)
That said, I suspect that GroupOn appeals to bargain vultures - who won't come back after the deal is up. In many cases, that makes GroupOn a bad deal for merchants.
(One minor point: While I think it's true that GroupOn didn't use to allow merchants to cap sales -- a disastrous choice for so many -- I think it's the case now that they do allow a limit. I'm starting to see more and more that say "limited quantity available".)
2:25 p.m.
Mar 25, '11
I was discussing GroupOn with a user of the service and it went something like this: A business won't sell a product at a price it can't make a profit at. If they can sell me a product for half the normal price, then they can sell it to me for that price all the time.
4:02 p.m.
Mar 25, '11
That's nonsense. If you are running your business caring about the profit margin of each item, then you are doing it the wrong way.
Ultimately, you need to make X a week/month/quarter/year (doesn't matter, different people figure it different ways). X being the amount you have to pay out. Bills, rent, payroll, and so on. It doesn't matter what percentage of your item is X, just so long as you have X by the end of the period.
If you don't plan on something like Groupon, then yes, you can get hurt. But Groupon (any ad campaign) exists for one reason: To put bottoms in seats. Once there, sure you are taking a loss on the meal, but you might set up a 'special' on drinks or dessert, you might run a 'special' on items with a higher margin for you, thus reducing your loss.
...in the end, it doesn't matter if you sell 2 items at $50, or 10 items at $10. Both get you to $100, which might be our X.
7:59 p.m.
Mar 25, '11
You are treating sales expenses like they are all fixed, which they are not. You are ignoring variable sales expenses. Your example is requiring the business to do 5x the number of sales to bring in the same revenue.
Let's make the business a restaurant, just to make the example simple and it makes $100 per half hour. It used to clear 2 tickets per half hour and now it must clear 10. Fine, except that a server can only handle 4 tables at one time. Now you have to add another 1.5 servers to meet demand. What about consumables like napkins and paper plates and drink cups? 5x as many used. Or, if the dinnerwear is washable, an extra dishwasher plus a higher water bill and electric bill. What if there are only 8 tables? etc,etc...
4:10 p.m.
Mar 25, '11
There was quite a discussion on DamnPortlanders (a LiveJournal group [ http://community.livejournal.com/damnportlanders/ ]) when the issue at Posies went down. There were several points in the blog entry that didn't jive. Groupon at the time DID allow limitations, the company renegotiated with Posies after she started, and she admits that she jumped in without planning. Frankly, I think Groupon gets quite a bit of bad rep that it doesn't deserve. That said, using local business is always preferable. And hey, getting other perks like free/discounted advertising? Sold.
10:01 p.m.
Mar 25, '11
My friend Jamie Cooper, a local writer, just published an article in Entrepreneur Magazine on a Portland Business having similar issues. http://www.entrepreneur.com/article/219257
2:22 p.m.
Mar 25, '11
There is some spirited debate happening down here amongst Salem business owners on this very topic. Most can't seem to figure out how a business benefits since you have no way to track the first-timers to see if they ever come back.
6:43 a.m.
Mar 27, '11
The inability to track first-timers would be a deal-killer for me as a business person.
1:28 p.m.
Mar 27, '11
How do you track them now?
3:06 p.m.
Mar 25, '11
I found out about a new independently owned coffee shop in Salem via Groupon, and that got me to go in and check them out (with relatives over the holidays), and I've gone back.
I think warning businesses of the risks and helping them make smart decisions about which promotions to take part in is important. And as a consumer it is good to learn of other deals, but I don't think consumers are at fault if they use Groupon.
Taxpayers in Washington state should regularly checkout http://www.livinggreedy.com
7:13 p.m.
Mar 25, '11
I think blaming Groupon on right-wing Republicans is a stretch, to say the least. (It's almost as if they're just the easy target.) My wife and I use them and have patronized many small businesses because of it - and I echo Chuck's comment about being a return customer.
Kari, I know a lot of people who use Groupon and aren't the "vultures" you describe.
I'm seriously lost as to how the hell this is the fault of big business Republicans.
2:08 p.m.
Mar 26, '11
What the heck are you talking about?
You're the only person in this thread to use the word "Republican".