Smart of them to respond quickly and swiftly, but the core issue of this specific case wasn't addressed. A naive business owner was aggressively sold into a plan that wasn't sustainable for their business, and by all accounts wasn't aware of the cap system which Andrew says "has always been Groupon policy to allow merchants" to have.
So the PR responses read wells to people who have already decided Groupon did no wrong here, re-enforces to businesses that there is a model that could work for them, but does nothing to address people who found the whole thing unsettling/distasteful.
"A naive business owner was aggressively sold into a plan that wasn't sustainable for their business"
I agree with you here. However, as someone who has been on the ad sales side of the equation, I can tell you that all sales are emotional and the more time you spend explaining to people how to properly price out the product the less likely they are to buy. Literally the more rational you make it for the person to buy your product the less likely they are to actually buy it, because the rational part of the brain isn't the part of the brain that buys stuff.
In addition, I'd argue that what makes advertising not-unethical is that the vast majority of businesses lose money on any given ad buy. If advertising was just a license to print money for all businesses instead of, say, the best 5% of businesses then it would be pretty hard to argue that advertising was making the world a better place. While Groupon may well have been at fault here, the small business owner does have some responsibility to understand how advertising works, what the best practices are, what asset they are trying to build, etc. If the business owner in question understood this then it wouldn't really matter that they didn't understand every last feature on the site. It sounds like her real problem was that the people coming into her store didn't like her stuff; the fact that she was losing money on every sale would have been a non-issue to begin with if this weren't true.
I have to agree that it is great that Groupon did something so quickly.
However, I read their entire post as a backhanded criticism of the business acumen of the owner of Posie's Cafe. "97% of businesses would use Groupon again... Groupon is a great resource for solid businesses... this guy sold 10,000 bagels no problem because he was prepared".
I am very much pro free market, so it is hard to me to fault Groupon for penning the deal (beyond a few reservations based on long term business). But it is easy for me to fault Groupon for what I read as a thinly veiled attack on the owner of Posie's.
People who are blaming the coffee shop owner are missing why this incident is bad for Groupon.
First of all, she acknowledges that it was her fault for not doing the math.
However, what she learned from the experience (besides losing $8,000) is that Groupon customers are worthless. They are cheap (duh) and they don't come back -- probably off to the next Groupon deal. [1]
These are not people you want in your restaurant. You want people who will pay full price and come back. Especially at a coffee shop, where there is not a lot of room to upsell someone who has $13 worth of store credit!
This is going to make it clear to small restaurants that Groupon works for places with fixed costs that can use price discrimination to get people in the door, but not well for them.
In fact, it gives me a startup idea: the OPPOSITE of Groupon. People pay extra for a limited number of guaranteed spots at exclusive establishments. Want dinner on Friday night at the hottest restaurant in town? We've got it, but it's going to cost you 25% more.
[1] I attended an event where 4 people bought $30 Groupons to a local bar for $10. They invited everyone they knew for Sunday Happy Hour and bought 120 $1 mimosas and bloody marys. We all ordered food, but those $1 drinks were already loss leaders. Assuming a 50% Groupon cut, the bar made $0.15 on each one. Did the food orders make up for that? http://www.flickr.com/photos/lukefrancl/4897720841/
>In fact, it gives me a startup idea: the OPPOSITE of Groupon. People pay extra for a limited number of guaranteed spots at exclusive establishments.
If exclusive restaurants wanted to do this, they could easily do it themselves. (The fact that they largely don't is interesting and much-studied by economists.) What value would your hypothetical startup provide them that they couldn't attain simply by raising their prices or charging extra 'table fees' for popular times?
From PosiesCafe blog: "When I talked to Lucinda today, she asked if there was a cap on how many were sold to help protect the business from too much loss, and the simple answer is, no. When you sign up for Groupon, you are agreeing to sell as many as get sold… and why would Groupon want it any other way? They get half of the earnings."
From Groublogpon: "Also, to clarify one important point: it has always been Groupon policy to allow merchants to cap deals. If a merchant sells too many Groupons, they’ll have a bad experience, the customer will have a bad experience, and therefore, Groupon loses."
I do not get it. So groupon responds with some marketing spiel about how their offering have worked for a number of businesses, and like he say some corporate BS about win-win.
Nothing about speaking to the specific small business owners that got it wrong by using groupon and what groupon has done to prevent other small business owners from failing in the same manner. How groupon has extended or enhanced their offering to protect against a bad experience for all parties involved?
And since he was writing in response to the Posie cafe story, something about the specifics about the case making it a bad experience for Posie's would have been so much more interesting.
I have not used groupon and probably will not after this response.
>Nothing about speaking to the specific small business owners that got it wrong by using groupon and what groupon has done to prevent other small business owners from failing in the same manner. How groupon has extended or enhanced their offering to protect against a bad experience for all parties involved?
Well, here's some things you apparently missed:
>Of course, we have heard from merchants who felt Groupon sent them too many customers. We responded to those concerns by creating merchant preparation materials, including this video featuring a Groupon merchant who sold 10,000 bagel Groupons in a day:
and
>Also, to clarify one important point: it has always been Groupon policy to allow merchants to cap deals. If a merchant sells too many Groupons, they’ll have a bad experience, the customer will have a bad experience, and therefore, Groupon loses. We’re longer-term thinkers than that. In fact, we have the opposite problem more often – where merchants protest a cap we recommend, convinced they can handle more customers than we think they can.
and
>Now that we know Posie’s had a problem, we have reached out to them so we can help.
So they didn't specifically mention talking to the 3% that didn't want to do it again, but they most certainly did address the other concerns you raised.
Yeah, it's basically a standard blog BS post bragging about their service with a bit about the controversy tacked on the front so it gets linked all over.
Wait a minute. The email from a satisfied customer that Groupon features in this blog post is quite misleading.
It was sent only a few days after the advertisement, and the writer is gushing about web stats. Given that Posie's didn't seem to realize the mistake they made until the Groupons coming in started to drain at their finances, this doesn't really prove anything.
The writer is excited about the spike in traffic and assumes that the "web-savvy" customer will be good for business, speculating about viral, positive word of mouth. But none of that could possibly have happened in three days.
This customer hasn't been satisfied by the effects of Groupon. They've bought into the marketing of Groupon. Now, maybe they'll be satisfied once they see how those 505 coupons they sold turn out, but theres no way to know at the time of writing.
They're right. Where this went off the rails was whatever process that convinced a coffee shop to invest in Groupons when they were so close to the edge that missing their number by a couple thousand dollars caused them to miss payroll.
I'm not a believer in any press is good press, but I don't think this will be bad for groupon. The story made me say, wow, look at the numbers of people they get through the door. So many that it nearly sunk a little business - it's so successful that it's actually scary for a business. Groupon's excellent response here helps make the message positive as well.
They did a nice job of trying to frame the problem, but they are dead wrong.
"Traditionally, the biggest problem for most small businesses is getting customers in the door."
Actually, the primary concern of most small businesses is keeping the doors open.
Once the doors are open retailers have two things they need to maintain:
1. The number of customers
2. The amount of money the average customer spends
Groupon is a bad deal for retailers because it puts all of the emphasis on #1 at the expense of #2. Obviously that is what happens with any discount promotion, but when is the last time you saw a "75% off everything in the store" promotion?
Groupon's terms are too greedy and it will be their downfall unless they change it. It is way too easy for someone to come behind them and just offer better terms to the businesses and run Groupon out of town (without businesses Groupon has no benefit).
The company offering the best deals from the most desirable places will win the daily coupon market.
Just out of curiosity: what do you think the actual usage rate is for these groupon/coupons?
I'm sure it's way way higher than a coupon printed in a paper or offered online, but there has to be a certain % that don't get (or forget) to use the coupon before the expiration date and the business benefits outright.
Don't most of the groupons have a policy that if you don't use it by the expiration date, you can still redeem it at the price you originally paid for it?
I think more emphasis should now be but on training the shops that use Groupon how to get the best value out of it. It is really no one's fault but it is Groupons responsibility to make sure as many campaigns turn out well.
Excuse me, but this post just doesn't cut it. He seems mystified by the bad experience although such stories are too often heard to be a rare, mystifying occurrence.
Actually, this is a very good opportunity for Groupon to create a new revenue stream. For a (small( fee they can offer consulting services for small business. Say, for $250, before you invoke the Groupon horde, you have Groupon prepare a brief case study on your with expected numbers of customers, expected revenue, etc. It's easy for Groupon to create this, since they have all the data. Not only this will stop the bad publicity ("Hey, you had a chance to get consulting, but chose not to"), then they can turn around and sell these reports to larger consulting firms, too.
I thought this bit was a bit condescending, and starts the response off on a sarcastic note:
There have been a handful of stories lately documenting the struggles of cupcake
shops running out of batter or sushi restaurants who don’t have enough rice to
meet the demand brought on by their Groupon feature.
I possibly missed a Groupon story or two, but I don't remember any where stores ran out of ingredients - the problem is not so much that they can't satisfy the demand (though there is some of that in some cases) but that it's a cost sink that didn't generate the promised increase in "regular" customers.
I think it is horrible. It shifts blame entirely onto the shop, doesn't explain how it went wrong, isn't clear about what what GroupOn is doing to help this business, and doesn't give any clue how they will avoid this situation in the future.
If I were a small business owner looking to use GroupOn I wouldn't feel comforted by this response in the least.
[+] [-] alanstorm|15 years ago|reply
So the PR responses read wells to people who have already decided Groupon did no wrong here, re-enforces to businesses that there is a model that could work for them, but does nothing to address people who found the whole thing unsettling/distasteful.
[+] [-] Alex3917|15 years ago|reply
I agree with you here. However, as someone who has been on the ad sales side of the equation, I can tell you that all sales are emotional and the more time you spend explaining to people how to properly price out the product the less likely they are to buy. Literally the more rational you make it for the person to buy your product the less likely they are to actually buy it, because the rational part of the brain isn't the part of the brain that buys stuff.
In addition, I'd argue that what makes advertising not-unethical is that the vast majority of businesses lose money on any given ad buy. If advertising was just a license to print money for all businesses instead of, say, the best 5% of businesses then it would be pretty hard to argue that advertising was making the world a better place. While Groupon may well have been at fault here, the small business owner does have some responsibility to understand how advertising works, what the best practices are, what asset they are trying to build, etc. If the business owner in question understood this then it wouldn't really matter that they didn't understand every last feature on the site. It sounds like her real problem was that the people coming into her store didn't like her stuff; the fact that she was losing money on every sale would have been a non-issue to begin with if this weren't true.
[+] [-] SHOwnsYou|15 years ago|reply
However, I read their entire post as a backhanded criticism of the business acumen of the owner of Posie's Cafe. "97% of businesses would use Groupon again... Groupon is a great resource for solid businesses... this guy sold 10,000 bagels no problem because he was prepared".
I am very much pro free market, so it is hard to me to fault Groupon for penning the deal (beyond a few reservations based on long term business). But it is easy for me to fault Groupon for what I read as a thinly veiled attack on the owner of Posie's.
[+] [-] vaksel|15 years ago|reply
[+] [-] unknown|15 years ago|reply
[deleted]
[+] [-] 100k|15 years ago|reply
First of all, she acknowledges that it was her fault for not doing the math.
However, what she learned from the experience (besides losing $8,000) is that Groupon customers are worthless. They are cheap (duh) and they don't come back -- probably off to the next Groupon deal. [1]
These are not people you want in your restaurant. You want people who will pay full price and come back. Especially at a coffee shop, where there is not a lot of room to upsell someone who has $13 worth of store credit!
This is going to make it clear to small restaurants that Groupon works for places with fixed costs that can use price discrimination to get people in the door, but not well for them.
In fact, it gives me a startup idea: the OPPOSITE of Groupon. People pay extra for a limited number of guaranteed spots at exclusive establishments. Want dinner on Friday night at the hottest restaurant in town? We've got it, but it's going to cost you 25% more.
[1] I attended an event where 4 people bought $30 Groupons to a local bar for $10. They invited everyone they knew for Sunday Happy Hour and bought 120 $1 mimosas and bloody marys. We all ordered food, but those $1 drinks were already loss leaders. Assuming a 50% Groupon cut, the bar made $0.15 on each one. Did the food orders make up for that? http://www.flickr.com/photos/lukefrancl/4897720841/
[+] [-] gabrielroth|15 years ago|reply
If exclusive restaurants wanted to do this, they could easily do it themselves. (The fact that they largely don't is interesting and much-studied by economists.) What value would your hypothetical startup provide them that they couldn't attain simply by raising their prices or charging extra 'table fees' for popular times?
[+] [-] pigbucket|15 years ago|reply
From Groublogpon: "Also, to clarify one important point: it has always been Groupon policy to allow merchants to cap deals. If a merchant sells too many Groupons, they’ll have a bad experience, the customer will have a bad experience, and therefore, Groupon loses."
[+] [-] houseabsolute|15 years ago|reply
[+] [-] sethg|15 years ago|reply
[+] [-] maddalab|15 years ago|reply
Nothing about speaking to the specific small business owners that got it wrong by using groupon and what groupon has done to prevent other small business owners from failing in the same manner. How groupon has extended or enhanced their offering to protect against a bad experience for all parties involved?
And since he was writing in response to the Posie cafe story, something about the specifics about the case making it a bad experience for Posie's would have been so much more interesting.
I have not used groupon and probably will not after this response.
[+] [-] daychilde|15 years ago|reply
Well, here's some things you apparently missed:
>Of course, we have heard from merchants who felt Groupon sent them too many customers. We responded to those concerns by creating merchant preparation materials, including this video featuring a Groupon merchant who sold 10,000 bagel Groupons in a day:
and
>Also, to clarify one important point: it has always been Groupon policy to allow merchants to cap deals. If a merchant sells too many Groupons, they’ll have a bad experience, the customer will have a bad experience, and therefore, Groupon loses. We’re longer-term thinkers than that. In fact, we have the opposite problem more often – where merchants protest a cap we recommend, convinced they can handle more customers than we think they can.
and
>Now that we know Posie’s had a problem, we have reached out to them so we can help.
So they didn't specifically mention talking to the 3% that didn't want to do it again, but they most certainly did address the other concerns you raised.
[+] [-] smackfu|15 years ago|reply
[+] [-] ianferrel|15 years ago|reply
It was sent only a few days after the advertisement, and the writer is gushing about web stats. Given that Posie's didn't seem to realize the mistake they made until the Groupons coming in started to drain at their finances, this doesn't really prove anything.
The writer is excited about the spike in traffic and assumes that the "web-savvy" customer will be good for business, speculating about viral, positive word of mouth. But none of that could possibly have happened in three days.
This customer hasn't been satisfied by the effects of Groupon. They've bought into the marketing of Groupon. Now, maybe they'll be satisfied once they see how those 505 coupons they sold turn out, but theres no way to know at the time of writing.
[+] [-] tptacek|15 years ago|reply
[+] [-] greendestiny|15 years ago|reply
[+] [-] jaxn|15 years ago|reply
"Traditionally, the biggest problem for most small businesses is getting customers in the door."
Actually, the primary concern of most small businesses is keeping the doors open.
Once the doors are open retailers have two things they need to maintain:
Groupon is a bad deal for retailers because it puts all of the emphasis on #1 at the expense of #2. Obviously that is what happens with any discount promotion, but when is the last time you saw a "75% off everything in the store" promotion?Groupon's terms are too greedy and it will be their downfall unless they change it. It is way too easy for someone to come behind them and just offer better terms to the businesses and run Groupon out of town (without businesses Groupon has no benefit).
The company offering the best deals from the most desirable places will win the daily coupon market.
[+] [-] staunch|15 years ago|reply
That isn't Google's fault and this isn't Groupon's.
[+] [-] potatolicious|15 years ago|reply
[+] [-] bl4k|15 years ago|reply
[+] [-] joezydeco|15 years ago|reply
I'm sure it's way way higher than a coupon printed in a paper or offered online, but there has to be a certain % that don't get (or forget) to use the coupon before the expiration date and the business benefits outright.
[+] [-] systemtrigger|15 years ago|reply
http://adage.com/digital/article?article_id=145552
[+] [-] travisp|15 years ago|reply
[+] [-] OoTheNigerian|15 years ago|reply
[+] [-] Jun8|15 years ago|reply
Actually, this is a very good opportunity for Groupon to create a new revenue stream. For a (small( fee they can offer consulting services for small business. Say, for $250, before you invoke the Groupon horde, you have Groupon prepare a brief case study on your with expected numbers of customers, expected revenue, etc. It's easy for Groupon to create this, since they have all the data. Not only this will stop the bad publicity ("Hey, you had a chance to get consulting, but chose not to"), then they can turn around and sell these reports to larger consulting firms, too.
[+] [-] brandnewlow|15 years ago|reply
[+] [-] kylec|15 years ago|reply
[+] [-] JeremyChase|15 years ago|reply
If I were a small business owner looking to use GroupOn I wouldn't feel comforted by this response in the least.