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Groupon’s Success Disaster

blog.redfin.com

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Re: Groupon’s Success Disaster

#11

Post by cludwin »

vaksel wrote: post #2

at this point groupon has more or less a monopoly so they can easily rape the businesses.. but this article seems to blame groupon instead of the business owner. 1. why would you price your promotion at a loss? 2. losing "$8,000" may sound like a lot...but in reality it should be looked at as $8,000 worth of advertising. And getting your message out to 200,000 or so local customers for that little isn't that bad.

By that logic you argue that $40 CMP's are reasonable for a email marketing campaign.

I haven't priced that kind of a service and on the surface it sounds pricey. However it may in fact be much cheaper than some other mediums with that type of each like radio or TV ads.

You could always advertise using google local which would be much cheaper, but something tells me that being the groupon deal of the day is a much more compelling proposition.

I guess I agree, it isn't a bargain but it's probably not the worst investment considering the the alternatives.

Re: Groupon’s Success Disaster

#12

Post by qasar »

im a chicago entrepreneur and had a crowd funding startup. i sat on a panel with andrew last year before groupon got massive and know as much as anyone about the inner workings of groupon (pun intended).

i write this to give some context to the comment below.

groupon (i dont think maliciously) uses the fact that they are sophisticated and the small business owner isn't to their advantage.

you might think "so what? all is fair"

well, the small business community doesn't live in a vaccum. they talk to each other and talk about groupon (especially here in chicago).yes, they don't know how to create promotions (one of the real values groupon sales people provide) BUT what they do talk about are these horror stories.

so whats the moral here? people aren't idiots and if groupon wants to make sure their two sided platform survives, it can't abuse one side for the benefit of the other.

Re: Groupon’s Success Disaster

#13

Post by pavel_lishin »

jlees wrote: post #6
eli wrote: post #3

Having a hard time seeing how this is Groupon's fault. Maybe a better job reminding business owners not to offer more coupons than they can actually support?

Well, the basic economics of giving away too many coupons is definitely the core of the problem, but it looks like Groupon aggravated it somewhat. By taking a high cut and targeting discount-minded (rather than repeat-custom-minded) clientele, the $8000 basically went down the drain, and the business experienced more headaches dealing with testy Grouponers than they would normal clients. Part of this is a learning ex…

> By taking a high cut

This is what confuses me. Shouldn't the split have been determined before the contract was signed? I don't understand how they could have made a deal with Groupon, but not worked out who would keep what percentage.

Re: Groupon’s Success Disaster

#14

Post by danilocampos »

I see three immediate problems:

1. The merchant didn't think through the consequences of their promotion. They made a deal that was too appealing to an unnecessarily broad swath of potential customers. A commenter on the blog points out that the better approach is to figure out how to bait the hook for a specific type of desirable customer instead of having a fire sale.

2. Groupon didn't look out for their partner merchant. Groupon's job is to be really smart about the business they're in and to share those smarts with their partners. Sure, they're relatively new at this too, but a part of their sales process should be qualifying the deals they're going to be running for people and saying "hey, you know, this might be giving away the farm."

3. People are dicks; doubly so in a down economy.

Re: Groupon’s Success Disaster

#15

Post by il »

cludwin wrote: post #11
vaksel wrote: post #2

at this point groupon has more or less a monopoly so they can easily rape the businesses.. but this article seems to blame groupon instead of the business owner. 1. why would you price your promotion at a loss? 2. losing "$8,000" may sound like a lot...but in reality it should be looked at as $8,000 worth of advertising. And getting your message out to 200,000 or so local customers for that little isn't that bad.

By that logic you argue that $40 CMP's are reasonable for a email marketing campaign. I haven't priced that kind of a service and on the surface it sounds pricey. However it may in fact be much cheaper than some other mediums with that type of each like radio or TV ads. You could always advertise using google local which would be much cheaper, but something tells me that being the groupon deal of the day is a much mo…

Not sure about Groupon but FYI a well-targeted list usually goes for about $60-$80 CPM for a single mailing.

Yeah, they're that valuable.

Re: Groupon’s Success Disaster

#16

Post by espadagroup »

cludwin wrote: post #11
vaksel wrote: post #2

at this point groupon has more or less a monopoly so they can easily rape the businesses.. but this article seems to blame groupon instead of the business owner. 1. why would you price your promotion at a loss? 2. losing "$8,000" may sound like a lot...but in reality it should be looked at as $8,000 worth of advertising. And getting your message out to 200,000 or so local customers for that little isn't that bad.

By that logic you argue that $40 CMP's are reasonable for a email marketing campaign. I haven't priced that kind of a service and on the surface it sounds pricey. However it may in fact be much cheaper than some other mediums with that type of each like radio or TV ads. You could always advertise using google local which would be much cheaper, but something tells me that being the groupon deal of the day is a much mo…

Thrillist charges $200+ for it's email ads.

Re: Groupon’s Success Disaster

#17

Post by xentronium »

vaksel wrote: post #2

at this point groupon has more or less a monopoly so they can easily rape the businesses.. but this article seems to blame groupon instead of the business owner. 1. why would you price your promotion at a loss? 2. losing "$8,000" may sound like a lot...but in reality it should be looked at as $8,000 worth of advertising. And getting your message out to 200,000 or so local customers for that little isn't that bad.

2. It's -$8000 net gain which means that advertising cost them $8000 plus any additional profit it brought.

I still don't get it why you would vouch for such a thing like groupon. For me, it's quite obvious that you'll get a line of people wanting to buy coffee and a cake for this coupon and nothing more. With zero conversion AND negative profits.

Re: Groupon’s Success Disaster

#18

Post by bkmartin »

brm wrote: post #5

Making a poor business decision and then somehow blaming Groupon for it is no better than building a house in a flood plain and not having flood insurance. Groupon works wonderfully for businesses with predictable fixed costs and decreasing marginal costs - bowling alleys, stadiums, art museums etc... It does not work well at all for businesses who need to source product, prepare goods, or provide service - restauran…

Great point. Restaurants operate on low margins to begin with, usually 12% or lower, and coffee shops can be worse (I found this out during due diligence for a shop I almost bought). To offer over %50 off already puts them in the red, then to let Groupon have %50 of the little revenue it generates is worse.

This is probably a case of the business owner not understanding the types of customers they would get and at what volume they could expect them to come. Some business owners think advertising=good, in any form. Knowing your business model and which advertising models support you best is very important.

Re: Groupon’s Success Disaster

#19

Post by jcnnghm »

vaksel wrote: post #2

at this point groupon has more or less a monopoly so they can easily rape the businesses.. but this article seems to blame groupon instead of the business owner. 1. why would you price your promotion at a loss? 2. losing "$8,000" may sound like a lot...but in reality it should be looked at as $8,000 worth of advertising. And getting your message out to 200,000 or so local customers for that little isn't that bad.

1. That's groupons business model. The average profit margin in the service industry is less than 10%. If you give people a 50% discount, you are definitely going to be losing money. The idea is that you let them try your place, then they keep coming back. In practice, most of the places I've talked to haven't seen it this way.

2. It's really expensive for what it is, and could easily tank a small businesses cash flow. I know of two different places that did $30 gift certificates for $15. Of the $15, $7.50 went to Groupon, so the businesses got $7.50 per transaction. Both sold over 1000 coupons. If half of those coupons are redeemed in the first month, and it costs $27 to service each $30 transaction, you would see a negative cash flow impact of $9,750, and a total cash flow impact of $19,500. The average restaurant spends about $850/month on advertising, so a single groupon would soak up their entire budget for two full years.

Everybody that I've talked to that has used groupon (~10 restaurants) has said that they would never use it again. It's too expensive, and the people that buy it aren't the people they want to attract.

Ultimately, I'd be surprised if somebody else didn't come in and offer the exact same service for free. It doesn't take a genius to sell stuff to people for less than it costs. Incidentally, I did a survey of some of my customers (http://barsannapolis.com) about offering the service for free, and they largely weren't interested because it doesn't produce the results they want.

Re: Groupon’s Success Disaster

#20

Post by Splines »

igravious wrote: post #10

Who is GlennKelman and why is he/shey only submitting redfin articles and who are redfin and why are the articles deliberately contrarian and who is upvoting them?

That's not hard to find out.

Glenn Kelman is the CEO of redfin, which has a very cool Google Maps-like real estate search. I haven't done business with them, but have used them as another tool during my house-buying searches.

I wager that Glenn (or someone on the redfin team) is using HackerNews as yet another place to market.

Personally, I don't mind. It's interesting reading.

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