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What’s wrong with Groupon?

This blog post originally appeared on Donald Strachan is a member of the Hub community and has chosen to republish his content with the Hubble.

It seems to be time to put the boot in on Groupon. The share price is tanking. Businesses have had bad experiences with the online daily-deals service (though this is hardly new news). Schadenfreude is doing the rounds. Last week I was speaking to a London restaurateur about how she uses the service. And you know what? She is delighted with the results of her two offers. But then:

1. She’s done her maths. She knows that the Groupon voucher breaks even for her, at best. That’s all. There’s no chance she’ll lose money on the deal, but if she wants to make a profit, well, …

2. Not everything you could ever want from an evening in the restaurant is on that voucher. There’s an up-sell/cross-sell strategy in place before anyone walks in the door.

3. She knows when she’s busy, and when she isn’t. There’s no point in her shipping in break-even customers when regulars are fighting for a table. For her, November is a great month to run a Groupon deal. December would be nuts.

4. She’s taken second-order effects into account. Nobody wants to eat in an empty restaurant. If her place is half-full with Grouponers on a Tuesday night, she knows that window-browsers are more likely to stop in for an unplanned dinner. Or to come back some other time, to what they see as a “popular, buzzing” local restaurant.

5. She has already decided what happens next. She has her Grouponers’ email addresses, and knows what to do with them. Groupon isn’t a one-shot deal. It’s the beginning of a relationship for her. That’s the only way it makes financial sense.

6. She’s realistic in her expectations. The money quote: “About 20% of our Groupon customers create all the complaints on the night. And they are the ones that spend nothing on top of the offer and never come back.” She’s already accounted for these customers, and shrugs them off.

None of this is rocket science. But it requires thought, planning, and a strategy, of which Groupon forms just one part. If your total strategy is “Let’s do a Groupon,” you’re going to fail. Whether Groupon itself is a sound business is beyond my ability to assess. But it strikes me that the daily-deals model can be very useful for the right small businesses. The haters are probably just doing it wrong, or shouldn’t be doing it at all.

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