Patch Blog: To Groupon or Not To Groupon

Some words start as nouns and become so common place that they become verbs.

For example, the word Google at one time was just another search engine, but now it is the search engine used by more than one billion people worldwide which processes over one billion searches every 24 hours. Google is not just a noun anymore, it is now a verb, as in “let’s google your name and see what comes up.”

Groupon is now in that same category. Certainly not the only on-line or first coupon sales channel, but they are surely the biggest and the most valuable (on paper) and control about 50 percent of the “coupon” category. That category now numbers more than 600 competitors according to MSNBC, with Living Social #2 with about 25 percent of the market. That means 598 (give or take) coupon type companies are fighting for about 25 percent of the remaining market. But oh what a big market it is. Billions of dollars are transacted every day, including many right here in our backyard. So the question is, as a business owner is it worth it?

Last year we got our own first hand education when one of our clients, a mobile auto detailer, wanted to do a Groupon campaign. The problem was that he did not have a big crew, nor customer service department, nor back end support. But he did it anyway and then called in the SWAT team (us) to fulfill all his needs. Bottom line he sold over 2,000 detailing jobs in one weekend, grossed over $80,000 and we helped him train a team of 20 detailers and customer support persons. The lesson learned:

• Do not enter into any coupon type deal unless you are prepared for massive success.

We all want the phones to ring off the hook and have customers lined up, but sometimes too much success can hurt you worse than no business at all. At one time if you disappointed just one customer it would not travel that far. Not so today. With Social Media channels and YELP, one PO’d customer can hurt you dramatically.

• Be sure each deal can “stand on its own.” That means that if you lose money on every deal you cannot make it up on volume and you cannot count on developing a repeat and returning customer to make it up.

There once was a radio and TV commercial where the announcer said “we lose money on every car but we make it up in volume.” That is absurd of course, but aside from that, money losing volume in small or large numbers does not make a good business model.

And if you would like to hear about one Groupon client that broke BOTH rules, imagine being a bakery owner that puts out a Groupon promotion and ends up selling 8,500 dozen donuts- that’s 102,000 donuts- at a loss of $3.00 per dozen over just a few days. Rachel Brown, owner of Need a Cake bakery outside London, did a promo offering a 75 percent discount and was so overwhelmed that she needed to bring in extra help just to fulfill her orders. She ended up losing almost $20,000 in this fiasco and to quote her- and hopefully you’ll not make the same mistakes: “It’s been an absolute nightmare,” she said. “Without doubt, the worst ever business decision I have made.” 

The upside to this? As they say, there is no such thing as bad publicity, so here she got not just local or nationwide coverage, but worldwide exposure. You can be sure that sympathetic cravers of sweets will go out of their way to give her business and she will probably do well in this unintentional mess.

Have you got a coupon success story or maybe one that was not quite a success? Please share for a follow up article: norm@OPISmail.com and tell us about it in the comments.