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Groupon’s Success Disaster

blog.redfin.com

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Re: Groupon’s Success Disaster

#21

Post by bradly »

I spoke with a business owner recently that had used Groupon and he shared a similar experience with me.

He said that with Groupon you must discount your offering by at least 50%, and that you must share 50% the sales with Groupon. That means the most you can sell your goods is 25% of there normal price. Where they made the mistake, he said, was in not thinking it would be very successful. You are able to put a max on the number of sells, but they only thought they would sell ~40 so they left it open. They ended up selling over 800.

He said you have to think of Groupon as a marketing cost. Multiply the max you are going to sell times the discount and make sure you are okay spending that much on a marketing campaign.

Re: Groupon’s Success Disaster

#23

Post by reitzensteinm »

The numbers do not add up. Assuming 1,000 customers;

$8,000 in losses is an $8 loss per customer. With $3 of revenue. So they're claiming $11 in variable costs to service each customer, for $13 worth of product. No way that is correct - if it is, Groupon is merely the straw that broke the camel's back. Their markup on product should be way higher.

Also, that's assuming no increase in follow on transactions, and that all coupons were cashed.

I don't buy it. Although it definitely could have been a net loss, it wasn't of that magnitude.

Re: Groupon’s Success Disaster

#24

Post by annon »

danilocampos wrote: post #14

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 me…

Agreed. She should have constrained what it could be applied to so she could manage her losses. If I was going to embark on a Groupon campaign, I'd want to look at how much money I would lose per Groupon and then figure out how many Groupons I could afford to sell.

If you just open the floodgates without calculating how much you can afford to lose, it's not Groupons fault, it's your own. Even a layman should be able to understand that you're going to take a loss in the short term, so don't allow yourself to take a bigger loss than you can afford.

She even makes it clear in her facebook post that this is entirely her fault:

"...I hung up and thought it over. I called him back and said we would have to get at least 50% to cover our costs of product… to this day I don’t know why I thought even 50% would be a good deal for us. Maybe because I thought since we were covering our food costs. What I didn’t think clearly enough about was that that margin we mark up is what covers all of our other costs… like staff, rent, utilities, etc. Our overhead is roughly $25,000/month, and this decision was about to make it so that we didn’t cover any of those other costs."

Re: Groupon’s Success Disaster

#25

Post by pchristensen »

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?

CEO of Redfin: http://www.redfin.com/about/management

In his defense, they have been two good articles so far.

Re: Groupon’s Success Disaster

#28

Post by marcusbooster »

yock wrote: post #8

The problem isn't Groupon or the shop in question. People were creating multiple Groupon accounts in order to get multiple copies of the offer from this shop. Dishonest consumers are the problem here, though this is a problem that Groupon could do more to curtail.

But this is exactly what a small business is buying from Groupon. If the quality of their lot is worse than other advertising, then more the reason not to partner with them.

Re: Groupon’s Success Disaster

#29

Post by dasil003 »

itblarg wrote: post #7

Groupon CEO re: their cut: “If we were economically rational, we would take even more.” http://venturebeat.com/2010/09/15/demo-the-secret-of-groupon...

I immediately thought of this quote too. I see this as sort of a honeymoon for Groupon while people figure out how it really benefits (or doesn't benefit) their business. Over time their margins will probably drop considerably, so why shouldn't they take what they can get now? I can see how this sucks for small businesses who get flattened by the runaway train, but is it Groupon's responsibility to sabotage their own business model by performing due dilligence for their customers? From what little I know everything seems clearly above board.

Re: Groupon’s Success Disaster

#30

Post by webwright »

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?

Glenn also won a "best startup blogger" award in seattle.

He's got some really fabulous posts.

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