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Groupon’s Success Disaster

blog.redfin.com

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Re: Groupon’s Success Disaster

#31

Post by noodle »

qasar wrote: post #12

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? al…

so, then, would you think that there is a place for a business similar to groupon but focuses more on trying to cut deals that encourages the growth of repeat business and/or good customers?

Re: Groupon’s Success Disaster

#32

Post by clistctrl »

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?

I'm OK with redfin submitting their own post as I found this particular entry to be interesting, and thought provoking.

Re: Groupon’s Success Disaster

#33

Post by ladyada »

If you try to get new customers with price-cutting deals, you will get customers who want & expect price-cutting deals.

If you try to get new customers with quality goods at a fair price, you will get customers who will pay a fair price for quality goods.

Re: Groupon’s Success Disaster

#34

Post by [deleted] »

reitzensteinm wrote: post #23

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…

[deleted]

Re: Groupon’s Success Disaster

#35

Post by BobbyH »

One thing the article does not mention is "breakage": "Breakage is a term used in accounting to indicate gift cards that have been sold but never redeemed. Revenue from breakage is almost entirely profit, since companies need not provide any goods or services for unredeemed gift cards." http://en.wikipedia.org/wiki/Breakage

This article (http://www.journalofaccountancy.com/issues/2007/nov/accounti...) says that the average breakage is 10-19%. Let's say it's 10% to be conservative. Posie's Cafe said that over 1,000 customers bought the promotion. A 10% breakage implies that at least 100 customers bought but never used their Groupon coupon. Posie's Cafe only gets half of this, but it does give them a free $300. I guess that's not that much, but if breakage is 19%, 190 customers would have given them a free $570.

EDIT: using kareemm's datapoint of 30-40% below, the breakage would be $900-$1,200.

Re: Groupon’s Success Disaster

#36

Post by potatolicious »

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…

> "It’s because we cannot afford to lose any more money on this terrible decision I made"

Quote from the end of blog post. Having read through the whole thing I do not believe at any point she blamed Groupon for her predicament - she walked into it eyes wide open and appears to acknowledge this.

It does, however, raise interesting questions about Groupon's relevance to the small businesses they purport to help. Groupon is supposed to be a win-win for consumers and small businesses alike, but it would appear this may not be the case. Seeing as how this is core to their business model, if this is a regular case I would expect this to sink Groupon sooner or later.

Re: Groupon’s Success Disaster

#37

Post by maukdaddy »

dailo10 wrote: post #27

The merchant should NOT have run the promotion at a LOSS. The promotion should have been at least break even, if not slightly profitable.

Merchants run promotions at losses all the time. What the merchant should have done was set a cap at the dollar value of the loss they were willing to accept. For example, I'm willing to lose $2000 therefore I will sell only 200 groupons.

Re: Groupon’s Success Disaster

#38

Post by vidar »

bradly wrote: post #21

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 o…

If someone offers you a bad deal, you reject it. Simple as that.

Re: Groupon’s Success Disaster

#39

Post by brk »

dailo10 wrote: post #27

The merchant should NOT have run the promotion at a LOSS. The promotion should have been at least break even, if not slightly profitable.

This is a nice statement to make, but how do you propose they could have done that?

Groupon seems to demand at least a 50% discount on normal prices, and then seems to want to take between 50 and 100% of the actual groupon coupon cost. That leaves the merchant able to collect somewhere between 0 and 25% of their standard pricing. Other than software businesses, there are few few shops that have enough of a markup to be able to sell something at 25% of face value and still make money on the product itself, much less cover all the additional overhead.

Re: Groupon’s Success Disaster

#40

Post by jlees »

reitzensteinm wrote: post #23

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…

The item they're selling for $13 could be a low/zero margin product usually used to bait further purchases or tips. Another issue they noted was people not tipping as if they had paid $13, but tipping as if they had paid $3.
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