5 Things Small Businesses Need To Know To Avoid The Groupon Curse

April 10th, 2012 | Rachael Seda | 28 Comments

Perhaps it was an episode of Extreme Couponers or the explosion of social commerce sites such as Groupon that sparked my addiction to a good deal, but either way, I’m hooked on them.

One night in February I was perusing Groupon and found deals galore capitalizing on the upcoming holiday. As any good female friend should do, I reminded my clueless friend Steve that Valentine’s Day was around the corner.

Steve had been dating his girlfriend for a couple months and neither of them struck me as the typical flower type; so I was thrilled to have found what I thought was the perfect Valentine’s Day deal for him – Fancy Fortune Cookies.

Image: Mash Potato via Flickr, CC 2.0

I had never seen anything like it. The company offered an assortment of fortune cookies of all sizes stuffed with your own custom fortune. I quickly convinced Steve that this was an awesome idea.

That is until I received an email on February 13 at 4:30pm stating the following:

Let’s back up.

I thoroughly read the Groupon terms to make sure this coupon was valid when I needed it. I even emailed customer service and was told my order would arrive on time.  By the time I received this delivery notice,Valentine’s Day was less than eight hours away.

I was frustrated and concerned.

I promptly contacted Fancy Fortune Cookies via email and followed up with multiple unanswered phone calls. Desperate for answers, I did what any customer in 2012 would do and looked to Facebook and Twitter. Hopefully I could at least determine whether other customers were experiencing the same frustration.

To my dismay I found their Facebook wall was disabled.

Without saying a word, Fancy Fortune Cookies told myself, and every other customer that visited their page, that they didn’t care what any of us had to say.

As a digital communication professional, I resisted the urge to call them and ask why they even had a Facebook presence to begin with (mainly because I realized no one was going to answer anyway).

Two days later I finally received a call back from a nice, apologetic woman. She explained that they were a small family business and that Groupon had actually misunderstood their offer dates, posting them incorrectly.

The result? They were overwhelmed with calls and a flood of customers they weren’t prepared to handle.

To the small business owner, Groupon might seem like an easy solution to drive business and increase sales.

According to this New York Times article, most businesses make very little money off the deal (if any at all). “On average, a business only sees about 20 to 25 cents on the dollar of retail value,” says author and business owner Jay Goltz.

I hate to see small businesses suffer by blindly falling victim to the seemingly innocent Groupon curse. So what can they do?

1. What’s the point?

“I want to bring in more customers and make more money.” Seems simple, right? But in order to attain this goal you need to come up with a concrete business objective and work backwards to figure out your strategy.

Then ask yourself, is Groupon a cost effective and ample approach to reach my objective?

2. Know what you’re getting into

Before calling Groupon, do your research, know how they work, learn from the mistakes of others and make sure you agree to, and can handle, every contract stipulation. If not, it’s time to bargain.

Remember, social commerce sites are only as good as the product or services they sell.

3. Prepare for the worst

My mom used to always say, “when you least expect it, expect it.”

A small business should not only expect but be ready for an influx of inquiries. Have extra staff on hand or on call, especially  customer service representatives (and I mean trained customer service staff, not just your neighbor down the street).

Make sure your staff is listening and responding efficiently via email, phone and online. A while back, Shonali said it best: You need to prepare for a Groupon deal like it was a crisis.

 Your responsiveness will be the difference between losing a customer and gaining an evangelist. And for goodness’ sake, if you have a Facebook Page, your Wall better be enabled and you better be monitoring it!

4. Wow factor

Let’s face it, most people buying Groupons are just looking for a good deal. The likelihood these couponers will pay full price to return is low. At the same time, this is your opportunity to prove to these new customers that your product or service is worth it.

If you’re an upscale restaurant, you want these new customers to have such an exceptional experience; they decide to return for their next special occasion. If customers walk away recommending you to others, you’ve won.

5. Hook ‘em

How will you follow-up with your new customers after they’ve used their Groupon? This goes back to planning.

If you’re an online business you should track who used a Groupon and contact them to see if the product met their expectations. If you’re a service you could ask that the Groupon users fill out a comment card to capture their information before leaving. The idea here is people want to feel like you care about them individually, even if they used a coupon.

So reach out, learn from these new customers and make them feel special.

For Steve and his girlfriend this story actually has a happy ending.

On February 22, Steve’s girlfriend finally received her belated Valentine from Fancy Fortune Cookies.

He sent me a picture text message: “She got her cookies. Loves them. Said it’s bigger than her head! Thanks Rachael!”

While Fancy Fortune Cookies offers a unique and quality product, it’s unfortunate their customer service failure ended our relationship before it even started.

After all, if the cake is bad, what good is the frosting?

As for Groupon – in 2010 Gini Dietrich said, “I think Google launches their own local online coupon model, Groupon decreases in value, two or three competitors gain steam on them, and $6 billion is lost forever.”

At some point lying, arrogance and greed catches up to you. I think the time has come for Groupon; perhaps it’s karma?

What do you think small businesses need to know before participating in social commerce sites like Groupon? And is it a good idea from a public relations and marketing standpoint? Why or why not? Any thoughts on the once fastest growing company’s 15 minutes of fame?

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Rachael Seda

Rachael Seda

Account Executive at CRT/tanaka
Rachael Seda grew up barefoot in Hawaii. Determined to find a career that put her creativity and social skills to good use, she double majored in communication and media arts and design at James Madison University and set out to do just that... and is now an Account Executive at CRT/tanaka. She shares her career experiences and journey at rachaelseda.com. Her ultimate weakness is cheese.
Rachael Seda
Rachael Seda
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26 comments
KevinGambin
KevinGambin

The group discount model never amused me much, however I did want to attract new customers to my services. So I just took a friends advice and am using this site call Totet. I know strange name.

 

However with their site and app, I can connect with people within 100m instantly and display my mobile ad that just appears to them when they are close by or just browsing. The best part is that this service is FREE for now. After 60 days I have to pay like $7.00/month for a web ad which is cheap as I used to host a website that cost me a lot more monthly.

 

I may not get the numbers as with these other discount sites, but those that do come do return and I keep more money in my pocket.

 

Perhaps this may help those who hate the other group discount sites. It's absolutely free to register and they have an app for Apple and Android users. Check it out at http://www.totet.com

 

Hope this helps.

 

Howie Goldfarb
Howie Goldfarb

I have a client who is approached by these deals and I reject them all. I once wrote the Living Social rep and said 'Here are our terms if you want our business' and he was unable to meet our very fair terms.

 

I rarely see the benefit. My mother loves them but she is the one off. She will not go back after the deal.

 

Great post Rachael!

Soulati | Hybrid PR
Soulati | Hybrid PR

I had a similar situation with my first Groupon. I set up my online food order and the site wasn't prepared nor was the etailers inventory. I called to speak with customer service and they thanked me for helping them with the problems. Gasp.

 

This is the biggest problem with Groupons; the business owner has no clue how many people will jump in to buy.

ginidietrich
ginidietrich

And, as it turns out, $6B is lost forever. They're really struggling right now for all of the reasons you mention PLUS they lied (or miscalculated) what they told Wall Street and it's catching up with them. When clients ask if they should use a daily deal site, we always recommend ONLY if they have excess inventory of something. Otherwise they cause more harm than good.

Erin F.
Erin F.

My roommate used Groupon when she went on her ski trip recently. Good experience? I guess. Repeat customer? Probably not. The problem with coupons is that they have a short shelf life. If those coupons aren't used to facilitate deeper connections, it's a loss for whatever company decides to use Groupon or a similar company.

 

I think if a business is going to use Groupon or a similar site, it needs to enter that relationship with eyes wide open. Even then, it sounds dangerous if the Fancy Fortune Cookie's story is any indicator. Groupon doesn't make sense for myself or the company where I work. Even if it did, I don't think I could bring myself to recommend it. Something's a little too shady, and the ROI seems slim to none.

jasonkonopinski
jasonkonopinski

Groupon reps are notoriously aggressive to the point of being repugnant - and too many businesses commit to deals without carefully considering the implications of that arrangement.  A well-executed Groupon *can* lead to continued success if treated as a loss-leader, but your typical Groupon user is a 'deal whore'; they'll move to the next big deal without so much as a second look. 

Latest blog post: Sip. Don't Slurp.

Ricardo Pobre
Ricardo Pobre

The big deal sites can work for companies with high fixed costs, where a surge in volume can overcome the compressed margins (from selling at a huge discount) and translate into profit and greater brand awareness.  But if the company is grouponing at a marginal loss, incurs significant additional costs staffing-up to handle unknown flows, and may not retain a meaningful share of the first-time business, it's likely a money loser. 

 

I also have a weakness for cheese. 

megmroberts
megmroberts

Hi Rachael - Great tips on how small businesses can enhance their overall experiences when using daily deal sites. I am a bit torn on the effectiveness of these sites. I have purchased my fair share of deals, mostly for restaurants and fitness classes. Interestingly, the deals for fitness classes have resulted in me purchasing additional packages or returning to the studios 4 out of 6 times. As for restaurants, it's a bit dicier as to whether I'll return. I think I'm spoiled now and unless the experience absolutely blew me away, I most likely won't go back to the restaurants unless I have another deal or discount.  

Tamra Cornwell
Tamra Cornwell

I completely agree that if you can't handle the fire, get out of the kitchen. I will say I have not been nearly as disappointed with my Living Social purchases as I have with some Groupon deals. I'm very curious to see where the future of online couponing/grouponing goes. In my eyes, it has no monetary value to a company whatsoever - it's simply another way to advertise, but with an added headache. 

KenMueller
KenMueller

This is exactly why I advise my clients not to use services like Groupon and Living Social. It is rarely good for the actual business. I would much rather see a business create their own deal, under their own terms, and use things like Foursquare, Facebook Deals, or even Google Places coupons. And THEN you direct your customers there.

rachaelseda
rachaelseda

 @HowieSPM Thanks Howie! I love how you wrote Living Social with your own terms, that's awesome. It would be better if they would be willing to compromise! 

rachaelseda
rachaelseda

 @ginidietrich Aww yes and look at your projection just coming true. I bet they wished they listened to you Gini! Thanks for the comment and insight. Having excess inventory of something is a good point to make, if not you're more than likely going to lose.

rachaelseda
rachaelseda

 @Erin F. Yes and see you've done your research on the ROI and what works for your company and this type of deal doesn't seem to tie back to your goals, objective or company bottom line and I think that's what missing. People think by using a coupon site it will be a simple transaction that brings in more business, unfortunately this example and many others demonstrate how important it is for small businesses to really think it through before jumping in. Thanks for the comment Erin!

rachaelseda
rachaelseda

 @jasonkonopinski Yes I think the key is as a business you have to be cautious, strategic and prepared. If you are blindly hoping for an easy fix, you're going to be in trouble regardless of whether you choose Groupon or not. Unfortunately, I have heard of too many small business horror stories in regards to Groupon and I hate to see a small business pay a bunch of money to hurt their business and instead of help it. 

rachaelseda
rachaelseda

 @Ricardo Pobre Yes, you're right. For the big companies that can afford to do this, that's one thing. But for all the small businesses out there just trying to get their name out and bring in more business this type of advertising could be detrimental if not planned out strategically. I personally agree with @KenMueller 's comment on advising his clients to take care of their own deals using their own terms and platforms such as Facebook Deals etc. 

 

 

Awww I knew I wasn't alone in my weakness! Thanks for the comment Ricardo!

rachaelseda
rachaelseda

 @megmroberts Thanks Meg! I find that I mostly purchase gifts to send such as flowers or restaurant deals. I know things like fitness classes can be quite expensive without a deal so I would imagine I'd need to be blown away to return as well. But hey if you return they must've done something right and that's a good thing. If it's worth their time and money I'm all for it. I just hate to see small businesses being taken advantage of or not being prepared for the tornado that could be Groupon if they're not fully aware of what they're getting into.  

rachaelseda
rachaelseda

 @Tamra Cornwell Thanks for the comment Tamra! As a consumer, I typically love the coupons and hey trying something at half price is always worth it to me (even if the experience isn't so great). What I care about is helping small businesses avoid being hurt by a seemingly innocent coupon that they hoped would bring in business and unfortunately, it may just do the opposite. 

rachaelseda
rachaelseda

 @KenMueller Yes! Doing your own deals is a much better idea and although it may seem like more work, it's really much less of a headache and gives the business more control.

rachaelseda
rachaelseda

 @jasonkonopinski Yes exactly, one of my best friend's is a finance guy and he refuses to buy a Groupon because he has continued to rant about how it's a faulty business model. Indeed it is and sooner or later a flawed business model will crumble. 

jasonkonopinski
jasonkonopinski

 @rachaelseda :)  I've been critical of Groupon and Living Social since they first hit the scene. One of the first lessons I learned during my career in consultative sales was that a business model built on steep discounting just isn't sustainable (retail notwithstanding). 

Latest blog post: Sip. Don't Slurp.

rachaelseda
rachaelseda

 @KenMueller Yes as my 5th grade teach said...one who only seeks instant gratification will reap the consequences! Thanks for letting me know. I'm going to check out your post now!

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  1. […] also have to make sure they can fulfill the demand that might be generated. Groupon is a case in point. A business offered a Valentine’s Day special via the site but wasn’t prepared to offer the […]

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