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Groupon Review: Worst Marketing For Your Local Business- Case Study

[This is an excerpt from my new book, Groupon: Why Deep Discounts are Bad for Business] groupon for business book

Just because millions of merchants have fallen under the spell of Groupon, a PR juggernaut, and their like, it doesn’t mean you should. It’s a killer alright, a profit-killer.

And while I’ll give you my opinions afterwards, here is an actual Groupon merchant story not glowing with anything but red ink.

Meet Kim, Owner of a parent teacher store. I met Kim at a conference and she joined my Facebook Fan page awhile ago. Here is her Groupon story:

The Background
“First off, let me say that 2009 was a bad year for me.  It was my first full year in business after buying the store in 2008 from an owner who had it for 28 years and was letting the store go out of business.

So, in 2010 I was in transition, making changes to cut out all the loss I had in 2009.  An employee came to me and said we should talk to Groupon.  I liked using it as a customer but I put it off for months.

Finally I decided to make the call.  It seemed like a good deal, I had to do virtually nothing and they would send me a check, plus I would get my name out to tons of people.  I agreed to do it.  My offer? $40 worth of merch for $20.  We thought maybe, if we were lucky, we’d sell 150.groupon for business

One thing I didn’t think about was timing-  July and August are my busiest times of year. Plus it is the time of year I need the most cash flow since all the bills are due Sept 1.

Our Groupon hit on July 21st.  I woke up at 7am and the deal had already tipped at over 50, making it active.  20 minutes later there were over 100 sold.

I started to panic…

Help!
I tried to call Groupon in Chicago and of course they weren’t open yet.  People were buying 5, one for them, and then 1 for each of their 4 kids.  The fine print was ALL WRONG.  It should have been 1 per person, per household and that they could buy 1 for a gift.

groupon business casePlus all the people I saw first on the list that were buying were current customers!

By the time I talked to Groupon almost 400 were sold under the wrong terms and they said I HAD to honor them.

Luckily they agreed to change the fine print, but still made it that you could buy 2 as gifts.  At this time I asked them to cut it off at 500 and they wouldn’t.

By the end of the promotion we sold 1158, the most “successful” retail Groupon in the retail market of my city;  the first independent retail store to sell over 1000.  Yay me :(

That’s $46,320 of merch at retail or roughly $23,160 at cost…of that I get around $10,000 because of course I only get 50% of the deal minus credit card fees (ugh!) Groupon gets their 50%.

Groupon told us to strictly enforce the 1 per household rule, unless they were one of the first 400 to buy.

A lot of people have been very kind and gracious. We are very grateful for our current and new customers that purchased more than $40 and will shop with us in the future.

Redemption
Redemption is a nightmare!  We have a huge binder filled with over 1000 names and so many people bought multiples.  They get so nasty when you ask for ID and when we tried to enforce the 1 per household/person rule they made a scene…so we ended up taking it anyway.

Groupon said they will refund anyone who bought multiples and tries to use more than one, but I think they just hand it to a friend and have them buy the merch anyway. Many only spend $40 to the penny and we can tell they will never be back.

I ran my numbers for July and August so far and was happy to see we were up, until I saw it was the exact amount spent on Groupons redeemed so far.

 

There’s more…
Groupon doesn’t send you the money after the promotion; they send it to you in 3 installments over the life of your Groupon.

And even more bad news…
They don’t expire until January…about 700 more are still out there!  Yikes!!”

The Retail Doctor’s  Take & The Real Costs
We are so fortunate that Kim would allow us to share her cautionary tale to all of you ready to join the Groupon bandwagon. I mean with all the press this site has gotten, it would be easy to look past the real costs of these promotions.

But that’s usually what you find like this quote in the NYT article from April 13,2011 Wise For Some Restaurants, Coupons Are a Drain at Others, “Our life changed after Groupon — we would do it again,” said Michele Casadei Massari, 35, an owner of two Piccolo Cafes in Manhattan. Groupon sells its online coupons for half their food value and then Groupon takes an additional 50 percent of the discount sales. On March 1, in a timed deal, Piccolo Cafe sold 1,142 coupons for $14 worth of food in 24 hours.“You don’t make money on the deal,” Mr. Massari acknowledged, “but in the end we are even.”

Reality Check
As I cover in my book, The Retail Doctor’s Guide to Growing Your Business (Wiley), the average American business makes about three cents on the dollar in profit. Yes, that is a really good business in average times.

In Mr. Massari’s example Groupon collected $7994 for what normally would have been $15,998. That means after clearing the cc fees, he gets about $3677. If food costs are the standard 30% in a restaurant that would make it $4799 or a real loss of about a dollar a customer – that’s just in food costs. Far from being even.

Kim will gift her customers $46,320 worth of merchandise.
Groupon will receive about $11,530
Kim will receive net around $10,000

She has to come up with $11,530 to pay the bill on the first class merchandise that is leaving her store. For her to make that back, she would have to sell nearly $400,000.

As a business model for Groupon, it is a great way to get 50% of the revenue off a website while providing none of the fulfillment.

For her store’s employees, it is bound to make them uncomfortable when they find “one of those people.” Especially if they are now battle-scarred from the first 400 customers.  (Remember less than 1/2 of those issued have been redeemed).

Is that how you want your employees to feel? I don’t think so. I doubt Kim gave it any thought in the beginning either. I doubt anyone else considers that while reading about the “crush of customers” businesses receive.

This promotion also stole sales from regular customers who would have bought more later in the year impacting her bottom line during the crucial bill-paying month of September.

And can you blame them? $20 for $40 worth of merchandise? Why not buy 5 and plan your holiday shopping?  As we’ve seen Groupons can be great if you are the buyer but terrible if you are the business.

Yeah Buts
Those of you saying, “What about the incremental sales?”  She has reported ZIP. Coupons clippers are notoriously thrifty.  They chase the “deal of the day” not you.

Those of you saying, “What about all that great exposure to those millions of people? Isn’t that worth something?”

  1. For the amount of money Kim is losing, she could have gifted 600 customers walking through her doors with a $20 and received probably as great a word-of-mouth.
  2. You don’t need millions to make you money, you need your local trading area of 5-10 miles, people that will drive past a competitor because you are such a great business.

Those of you saying, “Yeah but if she’d created the offer better it wouldn’t have been so bad.” I’ll give you it could have been tightened up but the main point is who you are attracting are not lifetime premium customers but discount lifestyle customers. Those people could just as easily been attracted by a 50% off sale without having given an additional 50% of Kim’s needed money to Groupon.

Those of you saying, “How about all those raves from other businesses?” Look deeper, it is rare for anyone to mention hard numbers of the costs of the promos.

GAP is freely mining the discount bin.
Those of you touting that even the GAP recently used Groupon should bear this from venerable blogger Mashable, “… with sales of around 300,000 Groupons, Gap lost $7.5 million in revenue on the pay $25-get-$50 coupon deal.” Since then they updated the post to 441,000 Groupons sold for more than $11 million.Gap Groupon

GAP made headlines earlier this week too when it announced a 25% discount for Foursquare users who checked in at one of its retail locations in the U.S. or Canada.

I’m sure they will move a lot of product but are they cannibalizing their target market,  acquiring unprofitable customers and training them to look for the deal? I think so.

[Update April 13, 2011] - Wall Street Strategist Brian Sozzi downgraded GAP from BUY To SELL in part because, “We think Gap overall has ramped up its promotional cadence in recent months to move merchandise and if this is sustained, places risk to consensus EPS estimates.”

Is that who you want to model your business after?

Final thought
Just because you see lemmings, doesn’t mean its a good idea to follow them off the cliff.

You’ve been warned…

[Update April 26, 2011- This blog started a quest to help businesses of all  sorts find out what the perils were to using these online discount sites.  That's why I created a new e-book Groupon: You Can't Afford It Why Deep Discounts Are Bad For Business - And What You Can Do Instead.]
This is an 11-part series on Groupons and their ilk, discounting and couponing in general and why they are all so damaging to your business.  That’s whether you are a large brand like GAP or a regional chain or local independent retailer. Here are the balance of the posts in case you missed them:
[Update 11-4-11 Checkout my new post The Groupon IPO - Bad News For Main Street? ]

Bob Phibbs, the Retail Doctor®, has helped hundreds of businesses in every major industry, including hospitality, manufacturing, service, restaurant and retail. He is a nationally recognized expert on retail sales training, customer service, sales, and marketing. With over thirty years experience beginning in the trenches of retail and extending to senior management positions, he has been a corporate officer, franchisor and entrepreneur.

Learn how to improve your retail sales with Bob Phibbs the expert retail consultant.

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Posted by Bob Phibbs, the Retail Doctor on August 25, 2010.

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274 Responses to “Groupon Review: Worst Marketing For Your Local Business- Case Study”

  1. MissDazey says:

    Best and most honest review of Groupon online. These type of promotions are almost like mass hysterical behavior, in my opinion. Has anyone from Groupon commented on this article?

    • After ten years of faithful clients, I am now worried that I may lose clients to these ridiculous deals from my competitors! I will not support this type of marketing nor will I ever buy a “deal” from another business. Small businesses need to band together and stop this madness!

  2. RV says:

    This is just a story of a business owner who acted without thinking. Just because an idea looks great on paper or from a marketing standpoint, doesn’t mean it makes financial sense. For Groupon to make sense within your business model, you should account for costs, both fixed and variable, and opportunity costs, when determining your pricing and promotions. Blindly setting up a deal that “sounds” good is a recipe for disaster, and this business owner should have understood how to segregate her cost and done some analysis of how much return she could have expected from new, repeat customers.

    • bobphibbs says:

      RV, I know of no study from Groupon or anyone else with any evidence of how much of a return could be expected from new, repeat customers, especially when coupled with discounting. I don’t see how any business owner could project such a thing either. I maintain similar stories are being played out a lot more times than not since small businesses are their target.

      • Nick says:

        We evaluated Groupon for our business in about 5 minutes and saw the pitfall. We declined using it. I wonder how this business person evaluates anything.

    • jasonatbbi says:

      Hear hear RV.
      What a load of old tosh this article is! Big nasty Groupon ran an offer for a client and because she hadn’t thought it through, she lost money.
      Take a bit of responsibility for your own actions – research what you are doing, think about all possible outcomes, then (and only then) dive in.

      • Daniel says:

        If Groupon is serious in helping a business to sustain and make a profit. They should work with the client to prepare a Cost/Benefit analysis. Failing to do so means they don’t care, and this is why many establishments are burnt because they are not all fully conversant about the internet buzz, and hearing only all “hesays”
        Good PR & marketing companies offer advisory services to bring in profit.
        And not “I keep your profit, you handle the problems and the loss”

        • chris says:

          They “should” why if clients don’t demand it? Google doesn’t do this with adwords? just some website where you calculate some stuff.

          I agree with the other poster, buyer be aware.

      • keyaren says:

        of course the business owner needs to take all responsibility for such a mess! i run a small restaurant. the groupon sales team had approached me a month ago for a deal through groupon. if u r very good with number crunching u get the figures right and walk away, else i can imagine how easy it is for someone to fall into that sales person’s trap.
        a well known quote – a good sales person can sell sand to the arabs and refrigerator/freezer to the eskimo.
        good sales team is what andrew mason sourced out in 2008 october, with a budget of $1 million given to him by eric lefkofsky.

    • nicole state says:

      I was on the internet looking to do a review on dealfind from a buisness aspect. The economy has effect our buiness this winter. Things have been slow so I found myself turning to dealfind hoping this would help. It started with a contract with dealfind where we would offer 6 laser hair removal treatments for $99.00. Two weeks later they contacted me again and said if I dropped down to $89.00 they would put my ad in sooner and promised me the dates. Desperate to see some cash flow I agreed. Two days before the ad was going to be posted on there website I recieved another phone call from dealfind asking me to drop down to $79.00 dollars or they would put another laser company on instead of us. Well needless to say I cancelled my contract with them. Please beware of dealfinds unprofessional sales staff that promise things they do not keep. I should of went with my original instincts and stayed away. They are not looking out for small buisness and making it really tough on us to make any profit. Considering they take 50% plus 2.5% merchant charges and we would do all the work. I wanted to make sure that companies know what they are getting into.

      Beware of deals that seem to good to be true. Remember you get what you pay for. If companys are giving there service away, you will not get quality service with these coupons. Merchants and consumers need to be aware.

    • Chris Nelson says:

      RV….spot on. As a SBO myself I know what my costs are. Therefore, I know what discounts, deals, ect… I can offer without losing money. It’s simple economics. If any business owner doesn’t know the cost of his/her goods then maybe it’s a matter of time before the business goes under anyway. I love how everyone forgets that other forms of advertising aren’t free. Direct mail, radio, TV, print, even SEO has a price. Look at the measurable returns for those mediums. Oh wait, it’s not trackable. Bottom line, YOU the business owner should have a better handle on true costs, proof read all advertising before it runs, and most importantly, if you have a product such as wine don’t do a daily deal on the bottles of wine that have high fixed costs, do a deal on something with a low fixed cost like wine tasting. Come on people think outside the box and get creative.

  3. BW says:

    “One of those people”? If Kim and her employees view any of her customers with that kind of disdain, I’m not surprised that Kim’s business isn’t doing so hot. Like it or not, these customers were not informed that there was a Code of Customer Etiquette for Groupon buyers wherein they are to altruistically spend the amount the retailer expected to bring in from the coupon.

    For a niche retailer that may not really have all that much room to grow its market anyway, maybe Groupon isn’t such a hot idea. Especially in a recession when shopping at this type of business is likely perceived as a luxury and thus customers defer their purchases as much as they can unless there’s a great deal to be had. But for something in a massive and very competitive field, like a restaurant? I bet the benefits are much bigger. You can only buy so many kids’ books, but if you find food you like you’ll be back again and again.

    • bobphibbs says:

      BW for the record, that was my comment, not the owners. There was strictly a code of who and how many times a groupon could be used. They battled to get the staff to look past that, which they did.

    • dsw says:

      BW and others, it is the business owners own fault that she had the results that she recieved. She should have done alot more research and thinking as well. What needs to understood here is that groupon is not a marketing strategy, its not advertising, it is not a way too get your name out there, It IS A COUPON and who doesn’t like a coupon in todays economy. What the problem is that most people who use coupons only go on to the next one and are not repeat customers. BW, you may think that if the food in a restaurant is great that the groupon user will come back(you might)
      the majority won’t. I own a restaurant and have friends who restaurants. They advised me not to do it. They both lost money, and will for the rest of the year the coupon is good for. What you have to ask yourself is, Will you work for 37-38% of you normal salary that’s what a $40 coupon sold for $15 to groupon who sells it to you for $20 is. And I for one don’t mark my food up that much to where I can afford to take that kind of a loss on any let alone hundreds of transactions. If could then I would be way over priced to begin with.

      Just my view

    • linda says:

      u know this kind of attitude that brings us to greed and all
      the corporate pigs that exist in our country, that will one day
      destroy decent humanity, BW. Live and let live That Kim wrote
      this to open your eyes to what she learned the hard way.
      Lighten up u perfect person .

  4. Sara says:

    This case study seems pretty fishy to me. The terms & conditions issue is a big one, and she takes no responsibility. She said her terms & conditions were “all wrong.” Whose fault is that? Did she not write them herself, or at least sign off on the final wording? If she did, and they got it wrong anyway, they can’t force her to honor the coupons – that would be Groupon’s fault. Everything else that happened she didn’t expect, but she should have counted it among the possibilities — that she’d sell a lot of coupons, that people would try to get around the system. That happens with all coupons. Perhaps Groupon wasn’t the best fit for her business, but she’s the only one that could have figured that out. This might have been a very positive case study if she specified the following: limit 1 per household, IDs will be recorded/checked, no gift coupons, scheduled it during her least busy time of year, with a short expiration date (say, three months, before her busy summer season returned). To condemn Groupon because the business owner made a bunch of mistakes is really unfair.

    • bobphibbs says:

      Sara, any promotion where you lose money on the dubious claim of getting “exposure” or repeat business needs to be closely examined for any business owner. There were very hard, real costs this program incurred; it was not fishy. The glowing testimonials online present this as “it didn’t cost me anything,” my point is it does. Thanks for your comments.

      • Sara says:

        I don’t disagree with you. I do not think Groupon is for all businesses, and it would be bizarre for a business owner to think there are no costs incurred here just because there’s no up-front advertising costs. I just think this is a bad example of how Groupon might fail. The business owner made some obvious bad choices, for example, offering a large discount during the height of her busiest season.

        Also, the main reason I think this particular promotion was so damaging to her business was because she failed to set limits on it. She seems to be blaming Groupon for having the wrong terms & conditions, but it sounds like it was her fault for not being specific enough. We can’t know for sure because she doesn’t say. She could have been successful if she’d gotten her fine print right and done it during her slowest season. Maybe it would have still failed for her — and that would be an actual good case study for this article.

        • bobphibbs says:

          Limits would not have altered the financial implications when you are paying a vendor for merch and not recouping costs to cover them Sara. This is very different then running your own 50% off sale where your costs can be reclaimed. As to her offer, it seems typical on these types of sites from what I’ve seen.

          • But in this instance Bob, where a retailer offers their own 50% off sale (thereby not having to cut Groupon in), they STILL have the problem of marketing expenses to get the word out about their sale and to get enough customers coming in the door to make the effort worthwhile.

            Still not a case for “Groupon is Great” (I’m not sure that it is in many cases) but there is more to doing it yourself than just running a sale.

            Thanks for starting an interesting (and LIVELY) conversation about this!

            Paul

    • keyaren says:

      @sara – groupon isnt right. it will bring instability to the economy.
      what people tend to miss out here -
      1. groupon targets small business becauses they r very vulnerable as they dont have too much money to market/advertise their business to generate more income. imagine if groupon approached ferrari and asked them to sell their car at 60% discount and kept half of that to themselves?
      2. when a small business has a deal through groupon the returns are so low that it will take ages before they break even with the so called return customers. so that small business is making an immediate loss. also at the same time, because many people are forwarded to that deal through groupon, other small business in the same town/city will make lesser income due all the people heading towards the deal. end result = all the small business lose money and groupon makes it all!
      3. the people have to pay groupon upfront, so why cant groupon pay the business too quickly? why do they hold back the money and split the payment into 3 instalments and spread it over the duration of the deal (in some case it goes into a few months)?
      4. if a person pays groupon for a deal of the day, and the person forgets to use that coupon, groupon does not give anything to the business nor do they return part of it to the person.

      • Mad Joanie says:

        I find it hilarious that people keep calling small businesses “vulnerable”. I don’t think that is the word you are looking for- by context you mean “stupid”.

        Any business owner should do research and pay attention to the contracts for anything in which they will be spending money (and while they are not spending money upfront, the discount is, essentially, spending company money). They must think “do I have the money to spend on this, if I get no repeat customers?”. Then they take the chance, just as they would on an ad in the paper or on tv, that people will come because of the advertising. This isn’t a business model- coupons are advertising.

        They must also make sure the limitations on the groupons are stringent enough that people can’t get around them. If, in fact, you can’t decide on the limitations, and do not get them in writing in a contract, I don’t know why anyone in the world would sign up for it- that’s suicide. If that’s the case, and only conscientious business owners considered groupon, groupon would get no business, and either change or go out of business: These are the basics of a free market.

        I would think that groupon would be a good idea (as long as you can make limitations on the groupons) for companies that have a large markup (let’s say, maybe wine at a restaurant, which is marked up 200% or more from wholesale?), or for services that there would be a real incentive to go back for (such as the intro class to a series of classes?). Also, if you made the groupon for an amount too small to pay for any item you sell (Lets say a $50 groupon at a boat shop- you can’t buy a boat for $50. Obviously you would have to say no more than one coupon per person, or per purchase). Or maybe even if you had a large quantity of something that you probably weren’t going to sell anyway- have a groupon just for that item, but it would bring people into the store and tempt them with other items.

        By the way, I, in no way, shape, or form think that small business owners are stupid- quite the contrary. I have many friends who own small businesses. However, I do think a lot of businesses research groupon before they use it, which is evident in the fact that I have seen many companies using it more than once. I don’t think anyone would do it more than once if it didn’t work well for them.

        And for the people who googled groupon because they were interested in using it, and got this website, maybe this website will help them look hard at the contract and details of it, and make them more easliy aware of the pitfalls.

        • bobphibbs says:

          Your suppositions at the end are typical of the halo effect of anecdotal evidence. Businesses are now using these online coupon companies as their marketing. If they have owners with very deep pockets who want a loss – that’s fine. As I state in various places in comments, this blog and the ebook you don’t hear about the bad precisely because it is so directly tied to social media.

    • Lizmar33161 says:

      Sara — no, no, no in the beginning, the business owner does not get to sign of on the fine print… Groupon writes all the descriptions and all details about the businesses they feature themselves, and NO they do not allow the business to make any changes to the “funny” words/anecdotes they use. I know for a fact because that happend to my company.

  5. Judson says:

    My guess is that most people are not looking at this as a business and simply as profit loss. If you run a business of any sort you should have a business and marketing plan. Within that plan should be outlined the best marketing practices for your business. Groupon is viable for many business models and a complete nightmare for others. You have to know which one you are. You can claim Gap is going to lose money but if you know anything about the retail business the cost of clothes and the markup they’ll still come out way ahead. Kim is an example of people in business not researching every aspect of a service before using it and not thinking through. There’s a reason most small businesses fail in the first few years and this is one of them.

    • doug says:

      Agreed. Margins at retail clothing stores are close to 70% which is why they can offer 75% off sales at end of season…Gap is still making a profit at 50% off and bringing in customers who may not have bought jeans there otherwise. A large portion probably would have, but there is no way to tell exactly how many new customers they got…They could have also brought in way too much stock with terrible sales and needed to move the merch anyway…

  6. jjsabee says:

    I am a Groupon user and in PR. I think businesses who use Groupon need to go into the deal with a clear understanding–this is about marketing. Groupon is a marketing tool such as commercials, print ads, promotions, etc. You set up a deal that fits your marketing budget and don’t exceed your budget. I have seen deals with limits on the number of sales so it is possible, if you do it from the start. If a business owner doesn’t have a marketing budget, do not use Groupon! The Groupon site clearly states is for marketing.

  7. Scott says:

    Sounds like the owner was not the best marketer to me. Why would you do this type of offer during your “busiest time of year”? Wouldn’t you clarify things like maximum number allowed to sell and terms of the offer?

    Also you did not seem to cover other points like the wash factor of the Groupons. Of those 700 still outstanding that is 60% of what she sold. It is likely half of those will never redeem which could be a big upside not included in your ROI analysis.

    Since the Groupon is a one-time offer that generates an incredible amount of interest and is only available for one time this seems like a better type of marketing versus the “ValPak” coupons the owner seems to mention in her comments. This puts out a regular (monthly + web) discount that someone can look up whenever they are looking to go to her store. Talk about trade-down.

    Also, your article contradicts itself in a few places. You say that most of the purchasers were her loyal customers who would have bought anyway and “how can you blame them” and then you say : “Coupons clippers are notoriously thrifty. They chase the ‘deal of the day’ not you.” – Which is it?

  8. bobphibbs says:

    Checkout Christine Fife’s blog, “Groupon Nearly Killed My Small Business” at http://idiomstrategies.com/Idiomatic/archives/358 which said in part, “One spa owner told me, “Had I understood all of the implications that running a deal-of-the-day would have on my salon, I would not have done it!”

    The point of my blog post is to show the hidden implications in all the hype that is being heaped onto the hopes of small business owners through these sites.

    • Tim says:

      Bobbo,
      Just because these business owners didn’t crunch the numbers and/or don’t understand performance-based marketing isn’t a reason for you to bash on a company like GroupOn for the service they offer. You should have taken a neutral stance and pointed out both the pros and the cons. Now, however, you have a ton of extremely well-versed marketing experts beating you up on your own post…

      • bobphibbs says:

        Tim, with all the praise running around this $6 BILLION company, its hard to be neutral. CX Digital Media defines Performance based marketing as marketing that “allows businesses to test specific marketing techniques, and to use only those which yield positive results. By testing marketing techniques, businesses see which ideas are winners and which are losers.” I submit perforamce-based marketing is much more complex that getting a bunch of people to show up by giving up 75% of your sales.

        As to marketing experts…a story. I worked with a small independent going up against a much larger multi-national. The local Cal State did a marketing survey as a class project of the effectiveness of our marketing campaign. Out of 1000 shoppers polled, 85% knew our slogan, our location and product. When they asked why we stopped couponing I said it didn’t build sales. They asked,” how do you know if your marketing is working?” I told them because sales were up 50% over the prior year along with profits. I then asked why they were so concerned with coupons. I was told they were taught that coupon redemption was the only way to tell if your marketing worked. I replied, “that only shows there are coupon clippers out there – not profitable customers.” I’m happy to have the dialogue on this site with whoever chimes in. Thanks for commenting

    • Lizmar33161 says:

      Whereas I agree that business owners needed to do more research before going ahead with Groupon, it is not possible the business owners can predict how any deal will do….BUT Groupon can — because they know exactly which deals sell alot, and they they choose not the tell the business owners. Anyway, here is another site that shows how cheeky Groupon can be with their “deals.” http://posiescafe.com/wp/?p=316

  9. EASY says:

    Bob’s Twitter post intrigued a client of mine to decide to use it in spite of the warning. Fortunately when he went to sign up he was told that Groupon isn’t in “our area” yet. Lucky we live in this remote place called Hawaii.

  10. Sally says:

    I’m confused! First Kim complains that most of the Groupon users were already current customers and then a paragraph or two later she complains that most people will only come into her store to use the coupon and never come back.
    I am sure Kim is losing a lot of money on this deal, but she should stop complaining and making her current and new costomers feel bad about redeeming the groupon. The merchandise in her store is WAY overpriced anyway and it’s nice for us underpaid teachers to get a break every once in awhile! And for the record… I will be one of those people who spend exactly $40… I’m certainly not giving this lady one extra penny of mine!!

    • bobphibbs says:

      Hi Sally. How do you know what WAY over priced is? This is a common thread of people dismissing the costs of discounting because they perceive merchants are “raking in the dough.” The truth is they aren’t. It also illustrates the dangers of discounting because some customers feel the discount brings the prices “down to earth,” and will only shop when such a discount is offered.

    • Daniel says:

      As a teacher supply owner, I have to comment. I don’t know Kim and I’ve never been to her store. Maybe her stuff is WAY overpriced, but it probably isn’t. Nothing in our store is above suggested retail, but our closest competition marks everything 20% above suggested retail, so there are certainly places that are overpriced.

      I know many teacher store owners in the industry and most of them price like us — at (not above) the suggested retail.

      Does Sally expect a teacher discount? All teachers do. That means I’m selling the vast majority of my inventory consistently BELOW (***not*** over) priced.

      Did you ever notice that one of the major teacher-discount catalogs will list nearly every item like this:
      MSRP: $24.99
      OUR PRICE: $12.99
      but if you do your homework, the MSRP is in fact 11.99 or 12.99
      It drives me CRAZY because it’s just a flat out lie, but it makes them look like some kind of hero.

      One indicator in our industry is that something like 25% of all teacher stores have closed during the past two years. One of my reps was reporting a figure a lot closer to 70-80% in his territory! If we were all “WAY overpriced,” we wouldn’t be dropping like flies and I wouldn’t be wondering how to pay rent in 5 days.

      I had a customer this week who was furious I wouldn’t give her an 80% discount on a $2.00 purchase. That’s just completely unreasonable. It cost me 30c just to process her credit card. Another 3c for the bag, and a penny for the receipt.

      • bobphibbs says:

        Why do people begrudge others making a profit? Yet moan when they leave? Customers can’t have it both ways. The goal of any business is to make a profit first and foremost, not find ways to give it away in hopes it will return “some day.” Its no wonder so many restaurants and retailers fail in the first year.

      • Amen Daniel! Some teachers have developed a reflexive discount mentality, a form of self-pity that makes it very difficult to provide a quality shopping experience – I would love to dine out, and when the check arrives complain that as an independent retailer, I don’t make much money, can I pay 20% less?

      • Jacob says:

        “Suggest retail price” *is* overpriced. Discounting is widespread and expected. It’s a silly way to run an economy, but it’s where we are. Compete with internet prices, offer better service (very difficult when selling commodities), or go out of business.

        And Kim sounds like a very careless businessperson. Bob, how ’bout a similar groupon example with a savvier “customer”?

        • bobphibbs says:

          Jacob, Look no further than yesterday’s Wall Street Journal for the headline Groupon Merchant: There’s A Flaw in Their Business which details a similar experience from a toy store in the midwest. And this “very careless businessperson” is a former AOL executive. The story is repeating I’ll bet in many more areas but business owners are afraid of coming forward to share their experiences.

  11. [...] Retail Doctor, Bob Phibbs, has a great analysis of one retailer who used daily deal site Groupon and saw less than stellar results. Through all of the hype of Groupon and the sites that are starting to follow, this is a good [...]

  12. Hi Bob,
    Great analysis of Groupon! I know this business owner and know that she is ethical, honest and fair in her business dealings. Amd as a longtime follower of your blog I also know that many of these comments are plants from the Groupon people who are obviously following through Google Alerts anything about Groupon.

    To answer some of the posts about which customers – loyal or thrifty – the answer is both, and neither gain her a penny of new business.

    The loyal regular customers would have bought without a coupon, so she lost money there. The thrifty coupon people ONLY bought because of the coupon so they won’t be back.

    What most non-retailers don’t understand is that she LOST serious money on EVERY SINGLE SALE. It isn’t like she sold it for her costs and just didn’t make any profit. For her to recoup just her own costs, each customer would have had to buy almost $80 worth of product. Then add in the need for increased staffing, the difficulties of dealing with some of the customers who you know are never coming back anyway, and it can be tough.

    Thanks for pointing out the harsh realities of this deal.

    And as for Groupon being a “marketing” opportunity – it’s an expensive and lousy way to reach new people. There are plenty of other ways to get a loyal following of happy customers who give you great repeat business and fabulous word of mouth. It starts with having an outstanding staff (which Kim does) and taking great care of the customers – something the Retail Doc knows a lot about!

  13. [...] Groupon: Worst marketing for your local business [...]

  14. I understand why Groupon would bite someone like Kim hard – but there is a lesson she can learn: Groupon is all about “The Tipping Point”, it is the real world business model of the book. Teachers as a group love deals (free is even better!), and love sharing deals with each other. Kim created the perfect storm with her Groupon – so no wonder the teachers loved it. She needs to take that information and turn it into a promotion that doesn’t cost her an arm and a leg and draws the same response.
    My opinion of groupon (as a consumer I love it, but I loved Webvan too, right until they ran themselves into the iceberg) is that it will work if you can expect regular repeat business from your customers, (ie: a reasonable expectation of getting them hooked.) I don’t think retailers have that ability in this economy. Classes, or personal services have a much better chance.

  15. Dave Young says:

    TNT is dangerous. It can kill you if you don’t know what you’re doing and it can be extremely useful if you know how to use it. Groupon is like TNT. If you don’t think through the scenario, you’ll get hurt just as Kim did. Unless she received a lot of pressure from the Groupon folks to create the offer in this way, I’d say it all rests on her.

    On the other hand, if your systems and pricing and staff can handle it, a well-crafted offer could move mountains. The experience you deliver had better be pretty darned amazing or you’ll just have a spike in sales and be back to business as usual. It’s that first experience which will determine if a customer ever has a second experience with your brand.

    In Kim’s case, a well thought out marketing plan would have been a much better use of her money in the long run.

    • bobphibbs says:

      Thanks for your comments Dave. I don’t see how having a rush of people sign up for your bus tour and yell at you for not being able to take them, or a rush of spa customers so deep that your other clients are pushed off to make room, or a surge of people at your restaurant where the wait staff plays catchup is anything but a blip – not a marketing strategy. You want buzz – buy Cameron Diaz to dine at your restaurant. You’ll get a lot more out of it.

      Seriously, How can your business possibly shine through all that overload? When I worked with coffee houses, we had a training day for the crew. We called it the free day because, well everything was free. The trouble was the crush of people who arrived had long waits and got irritated. That’s what they remembered about that location, that crew, that business. Being remarkable is a heck of a lot more than having people who don’t know you get a big discount.
      There’s a reason this type of discount is now being called “disruptive marketing” Like TNT is “disruptive.”

  16. Bret Wingert says:

    Bob,

    I liked the summary – There have been a lot of stories about Group*N lately. In fact, I have seen no less that 7 salespeople come through my door selling the exact sme thing. This model is incredibly inexpensive to implement and pose virtually no risk to the company offering it.

    We tried a similar thing here with a firm the donated part fo their piece to local charities. Nothing particularly different from the retailers POV. The good news is that since they are less popular it did not generate the crazy numbers in your article.

    the results? 25 deals sold, 17 to exisitng customers, 5 new cusotmers and 3 “unknown”. We will track sales in the tiny experiment but those 5 will have to make up for the $500 in foregone revenue.

    For us, we have very mixed feelings. $100 in revenue each for 5 new customers is pretty steep and time will tell if it worth it.

    Going forward, if we use this, we will structure deals that really are aimed at new customers and use bundled products that existing customers are less interested in like a “starter kit”, etc.

    My advice? start small scale if you want to experiment. Also, consider a local provider that brings some other benefits

    Bret Wingert

    Souvia Tea

  17. EASY says:

    “If you are losing just a “little bit” of money on every sale you CANNOT make it up in volume.”
    -My Daddy

  18. [...] read an interesting case study on Bob Phibbs ” The Retail Doctor’s” blog entitled: Groupon in Review: Worst Marketing For Your Local Business – Case Study. As an [...]

  19. I agree — I think Groupon preys on the stupid — social darwinism – really said to see restaurant owners take the bait.

    My company – All Around Media, LLC. gives restaurants and golf courses dollar for dollar advertising credits for food trade – we sell the trade at 50% off as Dining Perks [promotional sites removed by ED]

    I think groupon smells wrong – don’t know why — just does not pass the smell test for me – joe somerville ceo/founder

  20. DC says:

    Wow, interesting take on a phenomenon that is taking the deals/coupons space by storm. Do you mind if I re-post some of your blogs at my own blog at – with proper attribution ofcourse.

  21. Phid says:

    When I heard about Groupon-type of numbers crunched in the past, the projected percentage of Groupon-users who actually redeem their coupons is around 70%. I’m not sure if that is typical, but if it is, the numbers in the case study given here should take that into account.

    • bobphibbs says:

      Thanks Phid, I think it also depends on the type of business and the offer. $2 for $5 worth of hotdogs, who cares? $50 for $175 massage – probably they knew exactly when and how they’d use them.

      • Rob says:

        I think this is a very shallow evaluation.

        I have been involved with 2 different Groupons.

        First it makes absolutely no sense to give away sale-able retail merchandise below cost.

        Specifically in regards to Groupon, it is really much more applicable to service businesses. Also, even with a $50+ purchase, many Groupons will never be redeemed.

        • bobphibbs says:

          I would suggest to read the rest of the series Rob, I’ve taken many things into consideration including a sports club touting Groupon as a success. Also the professional photographers comments about how impossible it is to be making money on these deals and how it is giving a false impression of true costs for photographers.

        • Shannon says:

          I think for services businesses (like mine) it might be worse! Basically, 50% of my revenue goes to the wages of the people who provide the service – in my case a cleaning business. So if I gave 50% off a first time cleaning (typically $300), I would earn $150, pay $150 to the staff that did the job (because they don’t work for 50% off), then I would pay the additional 50% fee to Groupon, putting me in the whole. We do offer smaller coupon discounts from time to time ($50 off first time, minimum $250) but we’re not paying a fee to anyone else on top of that.

        • John says:

          Groupon is a decent concept for the service industry, but doesn’t make sense for retail/restaurants unless you structure major contingencies.

  22. Sandra says:

    Hi Bob,
    I have to say she willingly went down that path, no one held a gun to her head, and your account seems very one sided. “The big bad company took advantage of the poor little naive business owner…” Your trying to play on everyones sympathy because she suffered a loss. Where’s the other side of the equation, why don’t you name any positive examples? Because it would lessen the impact of what your preying on? Aren’t you trying to convey slanted information to “sell” your account of this story? H-m-m-m, sounds a lot like what your accusing Groupon and others of doing…painting the picture you want people to see.
    This isn’t her first rodeo is it? Businesses are targeted everyday with “offer” after “offer”, she should have been responsible and thought about all possible scenarios, in black and white if needed, before she agreed to anything!
    Who knows her business better than she does, the best timing, her customer base, the limits of what she could handle, her costs? She sounds clueless and is now whining and trying to blame her lack of business savvy on someone else.
    It reminds me of people who blame fast food chains that their fat, or tobacco companies for lung cancer or Starbucks because the coffee’s too hot. Maybe they are offerings are not the “best”, and maybe worse for some than others and too much of anything is bad. The answers are simple, stop putting it junk in your mouth, stop inhaling the smoke, be careful it’s hot and if you don’t know what your doing don’t sign anything…let the buyer beware!
    What about being accountable for your free will actions?
    Thank you for the chance to reply,
    Sandra

    • bobphibbs says:

      Wow Sandra, I’m not sure what got you so angry at this story. This account was one incident – if you read Groupon or view their “success” stories it is all perfect. I hope you read the rest of the posts on this subject so you can see there is a bigger picture here than this one account. Thanks for stopping by though.

  23. Ana says:

    Very good article. I was considering using groupon and had even contacted them about possibly doing a coupon deal with them. (The customer service sucks there btw) After learning that they take 50% I was shocked and thought who could possibly do a deal as such for any sort of profit. I will not be part taking in any sort of groupon deal. Thanks for this article as it was def assurance in my decision. I will however buy groupon deals as a customer.

  24. bobphibbs says:

    Just got a link to a coffeehouse owner’s story about Groupon which is not that different from Kim’s http://posiescafe.com/wp/?p=316 .Interesting how comments are similar to these with some smug posters saying it is the owner’s fault and Groupon delivers. Read the rest of this 11-part series and learn why the hype doesn’t match reality.

  25. Robert Scott says:

    Hi Bob.
    Just finished reading your Groupon series and have to say it really seems too narrow focused to have any actual value.
    As a small business owner I just finished working withing a similar company and found it extremely beneficial, much moreso than almost any other promotion I have ever done.
    I run a specialty bookstore with an emphasis on comics and graphic novels and am always looking for ways to make new customers aware of my business. With all of the recent movies based on graphic novels we felt movie screen ads might help so we made a screen highlighting graphic novels that had recently been made into movies or TV series and included a discount offer when they presented their ticket stub and ran it on every viewing of every screen at the theater a half mile down the street from us.
    In one year the $6,000 investment earned us less than a dozen redemptions. Many of our regulars mentioned seeing the screen but did not follow through on the offer.
    With Buy With Me, in less than 1 month I have already had dozens of new faces come in TO BUY. In fact as I track sales I see that 75% of the redeemers to date are brand new customers and cumulatively all customers have spent on average an additional 40% above the value of the coupon.
    Not only that but they now have a frame of reference and I’m willing to bet that the next time they think about purchasing something they think I stock, they’ll think of me first, coupon or not. The value of having new folks experience our shop, selection, staff… is worth far more than the price we have/will pay for this campaign.
    I will grant you that any business who fails to understand any promotional campaign they initiate is probably doomed to harm themselves but you would have better served your readers and possibly gained me as a regular (and buyer of your books), if you had not only pointed out the limitations of a “Groupon” campaign but also presented practices that could have been used to mitigate or enhance the limitations you mentioned or how to gauge the effectiveness of ANY campaign before committing to it.
    This particular series failed retailers even more spectacularly than you feel Groupon failed Kim.

    • bobphibbs says:

      I don’t know what your average check is, your margins, your traffic or other numbers are Robert but you are happy doing deals like this so great. I’m adding a download of Top 10 Things To Do Beside Groupon in a day or so. If you want to shoot me an email, I have a few suggestions for your website that could bring you more traffic with no money or discounts . Thanks for commenting.

  26. Caitlin says:

    What would be a way Groupon (or a company like them) would be worth working with? How could they help the business. It is easy to point out a problem. You have an excellent point, I would be really interested to see what you could come up with for a solution.

    • bobphibbs says:

      Hi Caitlin, Thanks for stopping by. I do not think they are the way to build your business for the various reasons the series continued with. The way to grow your business is promote to people who know you , who pay your bills day in and day out – that’s who you reward. No it’s not as glitzy as getting 1000 people buying your discount but no brand worth its salt can ignore the fundamentals. I would suggest you take a look at downloading my top 10 ways to build your business using the button above.

  27. Adam says:

    I’m probably jumping into a fire, but I’ll take a chance here and ask you to critique a new group deals site we’ve recently launched in [ED-location and brand removed from this comment]. We are sensitive to many of the concerns your raise about Groupon, but rather than throwing the baby out with the bathwater we decided to re-make the baby. We’re hopeful that the group discount model can be adjusted so that it is a win-win for the consumer and for the merchant. We are always looking to improve it, and we know we’ll get some serious feedback by posting here, so here goes…

    [ED-brand removed from this comment] is a combination of a discounted deals site and a loyalty card program. The site, [ED-location and website removed from this comment], promotes locally-owned businesses using a directory of incredibly discounted offers to attract new customers, and a universal loyalty card to track and reward repeat customer purchases. Consumers can browse and purchase deals at their leisure — there is no time pressure to buy, which smoothes out the new customer flow for the business. But each deal can be purchased only once, then it becomes locked. In order to earn additional discounts, consumers have to shop at full price until they reach a spending level set by the business. This removes the risk of selling at a discount to the same customer multiple times without any associated repeat business at full price. We also provide merchants with a report each month showing them how many SayLocal cardholders made purchases, and how much they purchased, so the merchant can measure the effectiveness of the program. This gives merchants the freedom to continue with the program if it is profitable for them, and discontinue or adjust their deal and loyalty points threshold if desired. Like Groupon we take a commission on vouchers sold, and there are no out-of-pocket expenses for the merchant.

    I’m curious to know if you think we’ve adequately addressed one or more of your concerns about Groupon as we are working hard to build a sustainable business that works for all involved. Thanks!

    • bobphibbs says:

      Adam, if you read the series you know I do not believe in discounting to lure new customers for a myriad of reasons. Even with your tie in that they must purchase “at full price” whatever that means until they get another discount. From the looks of your site you are still trying to convince small businesses that this all pays off in the long run. I don’t think it does but thanks for jumping into the fire. i would suggest you read the rest of my posts on the subject.

  28. Adam says:

    I respect your opinion Bob, but we will have to wait and see if it pays off for local businesses because we are both speculating at this point. At least, with [ED removed name of site], consumers must show continued loyalty to a business in order to receive ongoing discounts, and businesses large and small have used discounting in this way for as long as commerce has existed, so we know it can “pay off” when done correctly. Hopefully we can at least agree that [ED removed name of site] represents a significant improvement over the Groupon model for merchants, and does so without destroying the value proposition for consumers. I encourage you to keep an open mind and check in with some [ED removed name of site] merchants in a few months to get their thoughts rather than casting doubt prematurely.

  29. Wendy says:

    Hi Bob,

    I’m glad someone pointed me to this series of articles. My thinking is along your lines. As a consumer I think Groupon and other lead generation tools are wonderful. I can’t always see how it makes sense for the merchants. I agree the success varies. Restaurants are the one example that should prove successful if the restaurant can get the lift while the consumer is in the store. Otherwise there are so many restaurant options currently available it must be tough to get the customer to come back. Any tools for that?

  30. [...] the problem with Groupon celebrity for local businesses. Another article tells the story of how one merchant was almost ruined by their Groupon experience. And Econsultancy looks at the Dark Side of [...]

  31. [...] you’ve been following the horror stories of businesses who participate in Groupon promotions, you won’t know whether to laugh or cry [...]

  32. Susan says:

    It is interesting to read all of the finger-pointing comments towards Kim’s decision to use Groupon, give her a break, she is in year one of a new business! Her intention is clear and founded – get customers through the door with incentive to buy. My family business has been hounded by Groupon over the past two months – I put them on the back burner and have been following Groupon in my area to see which businesses were advertising and what the promotions were (and listening for feedback). From the consumer standpoint there are some excellent deals to be had but when you crunch the numbers, its clear it is not profitable for most retail business. This being observed I would never know that when I talk to the Illinois rep who calls me weekly (I live in Edmonton) – its so easy, I do nothing, they put together the promotion and its a win – win, I give NO MONEY upfront (sounds great to a new or small businesses without a marketing budget) and they pay me – wow, that’s like Vegas for the first time – Ca-ching. We have all heard it before, if it sounds too good to be true, it probably is. The truth is, Groupon does incur a cost, as Bob has pointed out. Groupon is a marketing business out to make money and you are signing a contract binding you to sell a product or service (yikes! – another thing to stay away from) and doing so during a recession, everyone wants and needs a deal right now, bad idea. I am proud to say that our Family business is entering its 35 year, we know that success comes from building relationships with your customer base, providing excellence in customer service, using an in-house loyalty program and having faith in word of mouth advertising, as it is still the best form of advertising we don’t pay for! And for the record, we have also made mistakes – it happens and its a part of the roller-coaster ride that business owner’s ride. Stop pointing fingers and take some good advice!

    • bobphibbs says:

      Excellent points Susan! Today Rice University found a large discrepancy between Groupons claims that 97% of businesses would use them again versus Rice’s just published study.

  33. [...] price sensitive) new customers “only one time”.  And you lose money on each one (just like this real world example using Groupon).  Plus your existing customers are displeased as well.  Had you kept an eye on the nature of the [...]

  34. Jamie Turner says:

    Ouch! That’s a tough story. Thanks for sharing it.

    There are a good number of other case studies outlining mistakes made with social/mobile tools like Groupon. But overall, I’d say most of the case studies are positive.

    Your readers might be interested in a chapter in my new book called “HOW TO MAKE MONEY WITH SOCIAL MEDIA.”

    In it, I outline 52 different social media tools that companies are using to grow sales and revenue.

    By coincidence, I didn’t mention Groupon. Based on your post, that might have been a lucky thing.

    Keep the good information coming. Thanks!

    Best,
    Jamie Turner
    Author of “HOW TO MAKE MONEY WITH SOCIAL MEDIA”

  35. Jay Goltz says:

    Bob,
    As a retailer and small business blogger for the New York Times, I enjoy your newsletter. You are correct that Groupon can cause serious problems for a company if they don’t understand the math. Your example states that to make back the $11,530 she lost in profit she would have to take in an additional $400,000, using a 3% profit. That is the wrong number to use. The 3% is net, after all of the fixed expenses are taken out. Those fixed expenses are not going to go up with incremental revenue. The right number to use would be her gross profit, which is 50%. For instance, if she sold another $23,060 in aggregate to the people who came in because of the promotion, she would net the $11,530 and hit “breakeven”. Using the $400,000 number, she would net $200,000 of gross profit, making it a virtual “gold mine”. The question is, how likely is it that she will sell an additional $23,060 to the 400 customers(1000 coupons=400 customers?) That is about $58 per customer. I agree with the previous commentor that it is like playing with TNT. You better know what you are doing, or at the least have the ability to deal with the potential consequences- staffing, cash drain, customer problems.. Jay Goltz

  36. I have been approached by several of these website coupon groups and have always refused to participate because it seems like such a bad deal for the business. I can understand how a business person could be swayed by these groups if they are economically weak and desperate for new business. I am glad to see that my gut feelings about these operators are correct – a terrible deal for me, and that’s why I avoid them like the plague.

    • Dan Bryant says:

      Again, stop being so blinded by emotion and look at the whole picture. This is business and competition. I hate to use a sports analogy, but athletes are the best competitors….If I am running in a marathon and refuse to accept the hype about how well a new training program/aide works, calling it stupid and “avoiding it all together” without looking at it closely, i could really be hurting my ability to succeed. Call businesses that have tried it to see the truth. Don’t stick your head in the sand based on jealousy or lack of wanting to do the extra work. The Internet is filled with naysayers and critics. The athlete who is succeeding is happy not to share the truth about their success.Don’t be a Debbie Downer;)

  37. Kevinriopel says:

    Bob,

    I agree that Group buying sites can sometimes create havoc within a small business if the business is improperly managed.

    As a business, it’s goal is to make money, and as a business owner it’s important to make the right decisions and choose the right vehicles in sync with one’s business and marketing plans.

    Regardless of conditions, fine-print, the offer or Kim’s profit margins, the absolute first thing she should have done was to what? Examine the worst-possible case scenario.

    (Bob, as retail Guru, I’m sure you know that an exit strategy in any business endeavor is one of the most important things noted in a business or marketing plan).

    Now to Kim. As a person who’s bought from Groupon in the past, she never once noticed their deals’ massive results in one of the largest cities in which they operate?

    And when approached by Groupon, she didn’t once think ”If they sell 1500 of these, can I handle that from an operational point of view?”

    I’m sure she’s a very honest person, and practices good business, but when you own something, and run it, and manage every aspect of it, there’s only a certain amount of ‘being the victim’ you can get away with. I don’t get mad at myself if the recycling truck leaves without picking mine up, simply because I didn’t check what time they were coming..

    I work in business development for one of the most successful group buying sites in Canada, I have much experience with BOTH sides of the equation…but let’s be a little unbiased here:

    If you were looking to make mince-meat out of Groupon with your 11-part ‘Groupon bash’, I completely understand your point of view. But in terms of perspective, let’s just make sure that you’re using well-rounded examples where Groupon is completely at fault, because as someone with a lot of experience in this industry, I’m finding quite a few holes in your theories, and this particular story.

    Based on numbers from various sites, between 67-90% of businesses would like to repeat promotions with Groupon in the US. So, does the big bad wolf always have a habit of sweeping in and blowing little piggy’s house down? My answer: not usually.

    As mentioned before up top, Sites like Groupon’s and ours are marketing vehicles to bring people through your door. Sometimes these vehicles can run your right over, WHICH IS ALSO A PART OF OUR RESPONSIBILITY TO EXPLAIN TO A CLIENT…But as I say to many business owners, ”It’s important not to think about how much money you can make in one shot, but more importantly to ask how to create a huge PROMOTIONAL success, by spending less money than you would on less-effective Marketing and Advertising.”

    If a local newspaper charges 15k for a half-page ad for one day.. what guarantee does that give you? That someone won’t think twice about it as soon as they get to the comics section… If we can guarantee ‘x’ amount of clients experiencing your business, and at LEAST cover your costs… what makes more sense to you?

    -Kevin

    • bobphibbs says:

      Thanks for stopping by Kevin. No my point was not to “bash Groupon” but to give balance to the juggernaut news that this online coupon company – and their clones – like yours in Canada -are getting . For every Kim or Posie’s story there are nothing but breathless reporters falling overthemselves to proclaim how great Groupon is with “no money down.” The reality for small business owners is that the smart ones needed to look at all the angles these coupons can impact their business. That has always been my point.

      With all your talk about “huge promotional success” for attracting people looking for discounts, these same businesses should have fully functioning SEO websites so that real paying customers who can be supporting them at full price can find them. Many times in these online discount sites I find the merchants lacking in the basic web necessities. I think the analogy to a sugary drink for energy when you really need to have a balanced diet to sustain energy for the long haul it is apt.

  38. Trietze says:

    She sold about 1200 and 700 are still outstanding? How many of those will be redeemed before they expire and she can simply write the others off? Could be a worth-while, profitable deal for her after all. And I agree with many of the others – she should have understood the terms better. It’s not Groupon’s fault she didn’t understand how they make their money, just like it’s not McDonald’s fault if you’re fat. People need to take some ownership of the decisions they make and quit blaming everyone else.

    • bobphibbs says:

      Trietze, Groupon is aggressively promoting their services to local businesses. Groupon promotes itself as “no money down” marketing. In Kim’s case the terms were printed wrong, how is that not Groupons fault. More importantly, this series is designed to show all businesses the real effects of couponing and discounting on their bottom line. That’s not a matter of blame, its a wake-up call to owners easily seduced by the online coupon sites song. Thanks for stopping by.

  39. [...] will demand your deal be at least 50% off the regular price. Next, you have to pay Groupon 50% of the purchase price (unless your offer is less than $10 in [...]

  40. Diana says:

    Seems to me to be a better deal (for business owners that choose to discount) than paying big money to a publication or TV and discounting as well. At 50% off, they are actually discounting their products or service 25% and saving the cost of paying a more traditional venue.
    Consumers are bombarded with print at their home and in many cases that print is thrown right in the trash.
    In any scenario, there are consumers who are thrifty and just go for the deal never to return. However, the value of a few new lifetime customers who become word of mouth advertisers is priceless. Not to mention the consumers who come in with the deal and actually spend more.

    Just as paying rent, salary, bills and product advertising is part of the cost of doing business.

    • bobphibbs says:

      Diana that is not correct. They give 50% off their price so if it is $50, they determine a price of $25 say. After splitting with Groupon and paying all cc fees, they might get $12.50, that is not 25% but 75% off. The point of this series is that this is not just “a cost of doing business” based on a oft-repeated rarely seen yet hoped for “profitable customer return.” Thanks for commenting though.

  41. Michelle says:

    Bob,
    Perhaps you can comment on the effect that group buying sites are having on businesses that choose NOT to go down the steep, discounting road. I feel this phenomenon is eroding all of our pricing structures by forcing small business owners to lower their prices to try and compete with businesses (in close proximity) that are running Groupons. These ridiculous offers sometimes siphon off even the most loyal customer and while we usually see the client return (because their Groupon experience did not meet their expectation), we still lose revenue due to gaps in our book from clients who are redeeming their Groupon. We are sometimes forced to offer more specials and promotions to try and stay alive while our competitors are running their Groupon! (Yes, I know some Groupon employee will reply to this – posing as a small business owner and suggest that our prices are too high – we haven’t raised the prices for our services in years and are prices are middle of the road for our industry.) I don’t really have any sympathy for the business owner who has a bad experience with Groupon because it was their decision to jump on the bandwagon. However, I hate the fact that their decision to use Groupon is hurting all of us in the long-run. BTW – did you see that Pat Quinn, the Governor of Illinois just gave Groupon 3.5 million because (according to Pat Quinn)it is a company that helps small businesses? Illinois can’t fund it’s public schools and he is giving this profitable company 3.5 million!

    • bobphibbs says:

      Hey Michelle, thanks for pointing this out as well. I hated what competitors did to my trade market because they destroyed the perception of my prices. If you have to offer more discounts/coupons than you want, at least make it tit for tat. That is they have to give you their information to get it or be on your email list.

      I did not see she gave Groupon. Will search that now. Thanks for commenting Michelle!

  42. JR Griggs says:

    I would say the biggest issue is, as others have stated, that business owners need to know their numbers better. Like many advertisements you can lose a lot of money if you do not.

    Groupon can work very well for a business but you must know the right numbers you can afford to go with. Not only that but you should have an upsell so that you have the chance to make more money per transaction.

    Many advertisers thrive off the fact that a business owner does not know if they are making money or not off the advertisement. It is a business owner’s responsibility to make sure they know the numbers to make a proper decision.

  43. David says:

    I think that it’s silly to make a generalization that this type of marketing isn’t a good idea. I owe a daily deal site and many businesses have done the match, ran a deal, and LOVED the response. No out of pocket costs to be featured, and while payment is delayed it’s not over the life of the certificates as you say. I know how Groupon works and that isn’t the case with them either. All marketing has a cost, and this one is paid in reverse. Think pay-per-click. It’s a good model if you do your homework.

  44. [...] said she made $13k in one day from Living Social. This business is an exception; this business was almost bankrupt from an offer they ran (the article gives valuable [...]

  45. Rozana says:

    btw, Bob is grossly biased and all he wants to do is sell his book to stupid chairs like Kim who are under the impression that they can run a business.

    • bobphibbs says:

      Rozana, I am first and foremost a business consultant looking at helping businesses be profitable and yes, I have an opinion on discounting and couponing.

  46. Lisa N says:

    I could barely read through all the responses to this article without feeling sick to my stomach. The author’s description of Kim’s Groupon experience could have been an EXACT description of the experience I had when our restaurant ran a Groupon offer last summer–God, how I wish I had read it BEFORE I signed up with Groupon. The thing that makes me feel so ill though, is the vitriol that is being spouted at the business owner–proof positive that people who purchase these kinds of deals will NEVER understand what a small business owner goes through in attempting to bring people through their door (and get them to return again)! Times are tough and yes, many of us are desperately trying anything we can think of to keep our doors open. Our bad, I guess.

    I should preface by saying that the folks I worked with at Groupon were neither “predatory” nor “aggressive” to deal with. To the contrary, my Groupon rep was absolutely wonderful. She tried to help when we had people buy TWENTY EIGHT GROUPONS at a time, even though our offer clearly said “limit 3″. They may have developed a fix for this flaw (read: no way to “limit” the number of purchases) in their system, but at the time of our Groupon the “fix” was “Well, just keep track of who’s using and tell them NO MORE when they’ve reached their limit of 3″. Yes, keep track of the almost 2800 Groupons (ours was also the most successful Groupon ever in its class in our area) that were sold during our one day offer. I’ve got a hungry customer standing in front of me and all they want is their food. “Just hold on a sec while I scan through this 56 page binder and find out if you’ve already used your “Limit 3″. Right. YOU tell a hungry customer that they haven’t read the “Fine Print” correctly! So in the spirit of good customer service, we honored those Groupons, no questions asked. I could go on and on about all the issues this Groupon has presented since I ran it, and talk about the fact that my sales have actually DECREASED rather than INCREASED in the months since it was offered, but I’ll save you the sob story. It was 100% my choice to enter into this agreement and I will 100% be the one to suffer the consequences because of it. Believe me, I get it. The Author is exactly correct, though. Groupon only benefits the masses of folks who want something for next to nothing, and that’s exactly what businesses are left with…next to nothing!

    Fire away at me for my lack of business skills and the fact that I have no right to be in business anyway if I’m such an idiot. It can’t hurt any more than this Groupon already has…

    • bobphibbs says:

      Wow Lisa, so very glad you commented on this. Yes, the vitriol at the business owner has been remarkable and rather off-the cuff rude. The difficulties you mentioned further illustrate my thoughts on such massive couponing. My best to you and again, thanks for commenting.

  47. Matt says:

    Common sense rules. Kim easily could have put a cap on her deal but she didn’t think that far ahead when she signed the contract with Groupon. She didn’t want repeat customers buying multiple vouchers? Then make it one/person. (I realize she said that Groupon did not include the restrictions she wanted, but I guarantee she didn’t make sure of it in the contract–which is why it ended up on the site).

    It has to be looked as as an ad spend. If you spend $10k on a lousy TV commercial, and you don’t get any new customers out of it, then you made a bad decision and lost $10k. It’s not the TV station’s fault for running your commercial.

    My final point. Kim is worried about the 700 vouchers that are yet to be redeemed. Well impulse and lack of planning works both ways. Of the 1158 sold, I’m estimating 20% will not be redeemed. People purchase these things on impulse, then let them expire before they’re even printed. For those un-redeemed vouchers… as Randy Moss would say, “straight cash, homey!”

    I agree, these types of promotions are not for every business (retail in particular usually doesn’t have the margins to discount over 50%). But any smart business owner will plan ahead to avoid a debacle like this one.

    • bobphibbs says:

      Matt, I take issue with your idea of “smart” business owners. This is not a simple issue, in spite of some of the online coupon site employees who have posted to the contrary. Thanks for visiting.

  48. Galaxia L says:

    I am a small business owner as well. I own Rockzorz Salon & Spa, so I know what this woman is going through as far as having a deal that didn’t quite pay the bills. Sometimes business owners take losses just for advertising to hopefully gain clients. I tried to get on Groupon in the summer of 2010 and they said they were too full. So I tried Tippr, and I was completely dissatisfied because they too messed up my ad. Whatever happen to sending a client a proof of the ad? So we had several people buying the keratin complex treatment for $50, instead it was suppose to be $50 for $100 gift certificate. The service is normally $250. Luckily Tippr fixed this but it ruined our entire marketing for the deal. Next, I tried Adility.com, and they let you manage your own deals, but they charge 50%, which if you are a beauty salon the profit from selling to these companies is VERY SMALL.

    So I created a company called [removed] which is similiar to groupon, tippr, dealson, you name it BUT – we work with each company that advertises with us and make sure they profit more than us. We don’t charge you 50% and thats it, we want to know what % + transaction fees, will let the company that advertises with us make profit. It is only fair because your company’s service, is what keeps us in business. The BIG company’s don’t care because well let’s face it they are BIG and probably a bit greedy.

    We are also driven to help others, and not like donating to the american cross, or salvation army, we want to help local shelters directly, and families in need directly. I am against the lazy aspect of helping people (sure here’s a buck), I want to know that people in this world are getting help and my donation isn’t paying for someones salary, operating costs, or luxury vacation.

    Both of my companies [removed] are of course for profit, but have a humble helping side instilled in each of them. Take care and do A LOT of research before you involve yourself with ANY marketing company.

    Sincerely, Galaxia

  49. Amanda says:

    I also have had the same problem as an advertiser with Groupon. Those of you commenting that some businesses “just don’t get it is marketing” and should consider it marketing loss/expense are way off. Most businesses going in with that expectation, what they don’t realize is that Groupon is going to double-cross you. It happened to me, and now having researched over time, it is obvious that Groupon does this regularly as I see hundreds of businesses have said the same thing. We all are not idiots. Goupon supposedly “agrees” with the advertiser on the deal, but then publishes something completely different! Maybe some new businesses might not be as wise to carefully consider what they offer, but people with established businesses like ours don’t walk into marketing / advertising blindly. If I agree with Groupon that I want to offer one coupon per person for $25 for X product/service, it is WRONG of Groupon to then publish the ad offering X,Y and Z services for a $10 coupon that can be bought 5x over by each person. GROUPON IS NOT MAKING A MISTAKE – IT HAPPENS TOO OFTEN! GROUPON IS BAITING AND SWITCHING THEIR ADVERTISERS. Most small business owners are responsible and smart people, and are always looking for new ways to reach new customers. Groupon takes advantage of businesses, and then makes them look bad in the eyes of the customers by making the ‘deals’ something that wasn’t agreed on in the first place. They force businesses in the position of having an untenable obligation to fulfill unrealistic “deals” that they didn’t even agree on in the first place! If you are a business do not use Groupon. Just do social networking on your own. Make a Facebook page, start networking, then offer your own one-day deals anytime you want on your Facebook page or blog. You can do it yourself on your terms and at a more realistic level.

  50. Bill Bly says:

    This woman was clueless. She got swept in by the Groupon craze. I refuse to deal with them. They want too much. They call us all the time. You have to learn to read the contract upfront, limit the voucher purchases per person, even cap total vouchers you will allow, and NEVER let them talk you into free shipping or including it at that split. I’m not in business to lose money. Most of these customers are deal shoppers and many will never buy again unless they get a deal. These deal a days are great if you are a smart business person and can make it work for you.

  51. Jean Holton says:

    I agree with Bill from the previous post – if you’re going to consider something like Groupon you really need to make totally sure you are in as much control of the deal as you possibly can be.

    I’m not knocking those who have been stung (although I guess I had to wonder what Kim was thinking discounting during the busiet time of the year!!)and it does seems like the industry really needs to show a greater care of duty to those who use their schemes – it doesn’t sound like they have “best practice” at heart.

    However, as a fellow marketer and having worked with many, many brands, small businesses and major retailers over the past 15 years I would have to take issue with the assertion that Groupon is “The WORST marketing for your local business”. Claiming it is the worst would obviously suggest there is never any value in it and that no other form of marketing availble is as bad. Come on! I totally get that the over-hyped success stories are way too good to be true, but when have you ever seen a company promote themselves with bad or mediocre testimonials?

    I think the discussion would be better served with a more balanced opinion piece ie: there is clearly a major, major interest in this form of, dare I say it, “mass media” and through use of social networking tools, word of mouth etc etc access to a wide and varied market so how best can the idea be adapted/utilised to work for businesses (and what businesses would it best suit).

    Depending on your business/brand then sure, discounting can be a surefire way to mortgage whatever brand equity you have built up but to totally (for want of a better word) discount it as a marketing/sales/promotional tool is, in my opinion, as short sighted as entering into a Groupon deal without reading the fine print. It can be invaluable in encouraging trial, in re-engaging consumers in products/services they had forgotten about and as a way to bring in customers both new and old who then maybe potentially upsold to. You show me the worlds top 100 brands and then count among them those who never do any form of discounting at some stage or another and it wil be a pretty small list.

    Discounting is a tool, no more than that. It’s not a full solution – and neither is Groupon or any of their competitors. It is merely a tool to be used as part of a mix of marketing activity.

    You will always get bad case studies be it ad campaigns in local press, TV exposure, mailshots, live events, etc etc and you can never hope to use discounting as a primary source of building your business. However, I have seen enough genuine examples of collective or group based buying having a positive effect on local businesses to have to reject the idea the it is the WORST marketing for your local business. To say that is to do an injustice to the market.

    Things can certainly get better with these companies to help their customers better understand the metrics involved and the likely consequences of not properly policing the deals. Still then there will be people for whom it simply won’t work. There is no magic bullet in the often subjective world of marketing and to buy into the hype would be as big a mistake as to condemn these companies as the WORST marketing for your local business.

    Just my opinion Bob, no disrespect intended :)

    • bobphibbs says:

      None taken Jean, everything on balance. I used the word in the context of being furthest from an ideal marketing vehicle. I would submit that my opinion is that there are no vehicles that have so many issues that affect profitability as these online discount coupon sites for what it does to the marketplace, the brand and the general shopper perception of value. Thanks for stopping by and commenting!

  52. jess says:

    The story sounds a little fishy…not that she is lying, but I’d like to hear the other side of the story. If groupon wrote the ad wrong, that is a very simple lawsuit. For a business to lose thousands of dollars because groupon wrote a differnt ad….you wouldn’t even need court. Just the threat of taking it to court would make groupon settle. And that seems to be the biggest problem here. Along with not putting a cap on the deal. I’m not sure why she didn’t do that to begin with.

  53. Kathleen M. says:

    Hi Bob,
    I am sure most of the people criticizing this woman have no idea what it’s like to own a small business especially in hard times. You feel desperate to increase business and yes the Groupon people sell it well. I did it for my restaurant December 2009 and barely survived it. This is not marketing your business but Groupons is very good at marketing it as such to small businesses. The fact is nothing they told me would happen did happen. They said there is about 50 to 60% redemption. Mine was closer to 90%.

    They said this would introduce new customers to my business some who would then become return customers, but why pay full price at my restaurant when they have another Groupon somewhere else?

    They said people would spend more then the Groupon, we found most people did not. I have heard way more horror stories from other business owners then success. I noticed you mentioned a gym had good success. I do have a friend who owns Pilates studios and she had some success with “Buy with me” but for retail and restaurants this is the road to hell. It is particularly dangerous for restaurants since we operate on such a thin profit margin as it is and have such a large over head.

    There is no cap on the amount that can be sold for Groupons so we were luckily we only sold 780. I know other restaurants who sold anywhere from 3000 to 17,000 and long after the small sum you get from Groupons is gone you are still giving away food. It keeps your regular customers away since you’re full up with Groupons.

    Also while people are out getting big discounts from one restaurant they are not patronizing other restaurants.

    None of these people return because they are on to their next Groupon restaurant.

    At first it seemed like a great deal. We were very busy and people loved the food and the restaurant we figured this would help get the word out about our great restaurant. We remained busy through February but by March things began tapering off.

    I noticed something else too, we were broke.

    Even though we had done a lot of sales we brought in little actual revenue plus we had a big increase in overhead, particularly payroll taxes, since we pay taxes on our server’s tips. In fact the service staff is the only ones who benefit from this. By May of 2010 we were in worse dire straights financially then before we did the offer. We were praying that revenue from our busy graduation season would help pull us up. The Groupons were set to expire the first week of June, but at this point redemption was a trickle so we weren’t really thinking about them any more. Then in the first week of June we were inundated with Groupon holders who had received an email from Groupon telling them they were about to expire. Groupons never told us to expect this so we were caught completely off guard.

    Instead of getting the revenue bump from our usual graduation dinners we ended up doing 25% of our revenue in Groupons. It was devastating. Do I think Groupon was a bad idea, yes but hindsight is 20/20. When you’re struggling to meet your payroll and keep your doors open it’s easy to be seduced by the appealing story these people tell you about how this is going to help your business. I also found Groupons completely nonresponsive regarding questions or problems once the deal was done.

    All you hear in the media is “what a great deal for the consumers” without any thought to how this is affecting the small businesses it purports to help. It’s not going to be great for consumers when all these wonderful small businesses have to shutter their doors for good because they got the bad end of the consumer’s good deal. This is a serious threat to small businesses and no one in the news is talking about it and there are new sights popping up all the time. This isn’t great for everyone involved and that part of the story needs to be told too.

    To all you business owners considering Groupon or any deal like it DON’T DO IT and to all you critics of this woman, unless you’ve sweated meeting the bills while operating your own small business you really have no idea what you are talking about.

    Thank you for shedding light on this serious menace to the small business community.

    • bobphibbs says:

      Thank you Kathleen, while I may be the lone voice out there, but it is because of stories like yours that I wrote these posts to balance the fawning praise that the juggernaut continues to receive. I’m curious if businesses that didn’t do well with LivingSocial, Groupon or the rest are much more reticent to publicly air their feelings because of the fact all their customers are local and tweeting, etc. Do they fear getting a bad reputation? Just a thought and thanks for sharing Kathleen!

  54. [...] by working with them. But there are also numerous horror stories describing how using Groupon was a disaster for small [...]

  55. Quora says:

    What is the best way for a small business to use the Internet to increase sales profitably? YelpAds + Groupon = new money Good question Murray. First off, both Groupon and Yelp now offer deals. Second, the case study you’re worried about [1] illustrates the dangers inherent in confusing the best with the easiest ways to advertise for small b…

  56. [...] Posie’s isn’t the only example. There are more out there. And there are even some frustrations from the customer perspective when Groupon and the retailer [...]

  57. [...] belong to the restaurant or gym, or does their loyalty lie with the deal site? Many retailers are finding out that it’s often the latter. When users start to focus on the deal site first, the local [...]

  58. Nicky says:

    Serious menace? Are you serious? I am a merchant who used Groupon and did very well with it. I still am and it’s brilliant. But I did it the right way, was strategic and didn’t use it for a make money quickly exercise as most businesses seem to be doing. My customers are coming back and they are great people. They are bringing their friends and referring them to us. My name is Nicky and since I found this blog via Jason Fall’s write up where he linked to this you can go and check out my responses to his post on his blog if you’re interested in an alternative view.

    • bobphibbs says:

      Nicky, I checked out your groupon $25 for 5 beginning dance lessons ($75 value) on your own site you offer 3 trial lessons for $20. I have no idea how you got to $75 as the value but it looks like you have a discount pricing structure to begin with. I don’t think that is apples to apples to any of the businesses present in these posts. Thanks for stopping by.

  59. [...] 10:01 AM Here are a couple of articles about groupon: Groupon Reviews: Worst Marketing For Your Local Business – Should Your Company Use Groupon to Increase Sales? | BNET What you need to get your Groupon [...]

  60. blla says:

    What a load of bullshit.

    A business owner who cannot calculate her returns from a marketing promotion is unfit to run the business. It doesn’t take rocket science to calculate her profit or loss. Underestimated how many Groupons would sell. Overestimated how much each person would spend. Underestimated the number of Groupons that would be redeemed. DON’T EXPECT OTHERS TO DO THE MATH FOR YOU! Do it before you offer a deal.

    Plus as another person notes, if the owners’ attitude towards people who trusted their business and bought the Groupon is so cold, she’s going to be in wading in red ink! For the people who voluntarily write here about how you suffered, it won’t take long for people to track your business and rate it a zero.

    Plus Kim talks as if she gave Groupon the responsibility of crafting the deal. “all wrong?” hello? If there is any accusation of Groupon holding back profit sharing information or them being unethical, this business owner should have been indignant and taken this up with a court, not accede to Groupon’s wishes to honor the deals. I have seen caps on Groupons before. If they do not allow capping, and unlimited won’t be good for you, don’t offer the deal!

    There is definitely a lesson to be learnt – don’t be scatterbrained and do a promotion because it seems great on paper. Do your homework – Groupon might not be great for all. Groupon is a for-profit business not a charity or your gaurdian angel. Blaming someone else for your stupidity is going to alienate you even more.
    No one forced you to use Groupon. If Groupon’s high visibility actually affects you adversely, use one of the smaller deal sites.

    As a Groupon subscriber who has started using these deals, I have to admit that I move from restaurant to restaurant or store to store to get what I want for a bargain. I’ve had my fair hsare of difficulties in 2010 and you are going to have to fight harder for my money. Moms and pops who complained about how internet shopping ate into their profits or chains made them buckle may have a point, but the way people shop is changing. And keeping up with such changes is YOUR responsibility. Not customers’. Wake up to business in the 21st century.

    • bobphibbs says:

      Even though you couldn’t use a name blla I’m so very glad you could come clean and let us know what your opinion as a Groupon subscriber who, “move from restaurant to restaurant or store to store to get what I want for a bargain.” Thanks for stopping by and sharing your opinion.

    • Brian Crouch says:

      Hey business owners, don’t you wish you had a guy like blla in your store (taking your hard work to send profits away to Groupon)? What a catch.

  61. [...] Thoughts?   Bob Phibbs I wrote an 11-part blog about this with the first starting at http://www.retaildoc.com/blog/gr… . While one case study showed a few errors, the larger questions that arise; is it worth the risk, [...]

  62. Quora says:

    What do small business owners think of Groupon?…

    Actually the bad don’t typically speak up. Think about it, an email has gone out to your entire city, customers have used social media to tell each other about it, they’ve enjoyed your big discount and you’re going to openly say something like they …

  63. [...] Groupon and why I believe it is the worst way to market your business starting with a case study at http://www.retaildoc.com/blog/gr…Insert a dynamic date hereView All 0 CommentsCannot add comment at this [...]

  64. [...] Groupon and why I believe it is the worst way to market your business starting with a case study at http://www.retaildoc.com/blog/gr…Insert a dynamic date hereView All 0 CommentsCannot add comment at this [...]

  65. [...] Groupon and why I believe it is the worst way to market your business starting with a case study at http://www.retaildoc.com/blog/gr… No Groupon and the rest are not like advertising – if you take out an ad in your local paper, there [...]

  66. [...] Great for customers, okay for people selling a service, rubbish for people selling physical goods etc – Groupon charges huge commissions to retailers: http://www.retaildoc.com/blog/groupo…ting-business/ [...]

  67. Kasia says:

    And this is why Groupon shouldn’t be used by shops and other bisnesses where people buy GOODS for their vouchers. It should be used by companies and people who work ‘by hand’ and offer services rather than products! Cosmetic treatments, physiotheraphy, restaurants, etc. – when you do your Maths well, you can always get a bit of money out of it and you only can have a LIMITED number of customers a day anyway.

    Everything aside – Groupon helps in EXPOSURE of your bisness, it’s not really a money making machine!

  68. ross says:

    we are launching a groupon promotion for cosmetic procedures. groupon is not for eveybody.
    groupon works well for well run businesses that can become destinations for consumers. cosmetic procedure must be repeated and thus become an annuity. also when trust is developed you have the opportunity to cross market. There are dilemmas such as what to do with existing customers. we will offer a smaller discount to existing customers.
    the groupon customer is not just looking for the lowest price but quality and service.
    bottom line- konw your business and calculate the minimal retention rate and have a back up service that is less expensive and desirable to the customer.

  69. John says:

    Sounds like a useless Groupon bashing article. If the process didn’t work then 97% of Groupon users wouldn’t want to use again. This argument would have a lot more validity if you shared a success story. They are out there by the way, lots of em.

  70. TomD says:

    First, as many have said here… Groupon isn’t really to blame for Kim’s dilemma. Kim should have done a bit of simple math before she came up with her offer.
    When my business signed on for a Groupon deal, the folks at Groupon sent us multiple sample test emails and had us preview the webpage to confirm that all the information in the fine print was as we liked. So there would’ve been ample opportunity for Kim to see that her terms on the deal were “all wrong”. Admittedly, it would’ve been cool if Groupon would have helped her out when she discovered there was a problem, but, really, I could imagine it’d be very difficult to change the terms of a deal once it’s already running.
    Second, Kim (and Bob Phibbs) is looking at Kim’s $11,530 shortage as a “loss”, when, really, it has to be looked at as an advertising expense. If I run a radio ad, it’s going to cost me nearly that much. AND, with Groupon, I have tracking… that radio would never give me. If I run a standard coupon in a local paper, I would still need to calculate what the business could bare. Why should a Groupon be any different.
    And lastly, Kim seems pretty predisposed to the fact that certain customers were never going to come back. That kind of pessimism shows through to those customers… bringing Kim’s very fears to reality. Whereas, if she treated each customer that handed her a Groupon as the best customer she could ever hope for, chances are she’d be quite surprised at how many became valued, repeat buyers. Particularly if she’s running a parent teacher store. Parents and teachers are always looking for that “home” store that treats them well.

    • bobphibbs says:

      Please Tom, this is the same stuff I deal with in the other 10 parts. No it isn’t just a “marketing expense.” An ad can’t come back and lower your rating in Yahoo, Yelp or all across social media by people who want even more from the Groupon – combined, using multiple email addresses, past the expiration date – you name it.

      It is insulting I think to suggest they are to handle every Groupon as the best customer they could ever hope for. From the Rice University study, “Businesses with unprofitable promotions reported low rates of spending by Groupon users beyond the deal’s face value and low rates of return to the business again at full price.” Those are hardly the best customers. The best customers are the ones who come in 24/7 without a deal, ready to spend more – not less. The ones who basically subsidize all the Groupon holders coming in for he discount. Thanks for commenting.

  71. Bob, the problem is retention of those customers once they purchase something at your business. Groupon says that only 22% of their customers ever come back to a business they redeemed a Groupon at. That’s horrible ROI for that kind of ad spend as you can realize. What I tell local businesses is that they must be setup to collect mobile phone numbers or emails of those Groupon customers before the deal starts. This way they can encourage those customers to come back in the future.

  72. Eugene says:

    Thank you, Bob. I only hope we can spread the word and urge our fellow businessmen not to use the sites like Groupon. These sites are like Ponzi scheme where neither customers nor businesses win. I was surprised to learn they deduct credit card charges from your part! Outrageous! I simply thank you for sharing and hope you all the best!

  73. Pete P says:

    Ouch… thanks for the informative post. I was thinking to use Groupon to drive customers to my new ecommerce site. But with a program like this I’d be out of business in no time. Let us hope these groupon type sites gain in popularity and more player enter the market with better terms for the seller. For example I would condider giving the Groupon-like site 25%, but 50% is ridiculous IMO.

  74. Boshu says:

    hi Bob,
    Your article has really opened my eyes to what goes on behind a groupon. However I would like to believe that the right kind of business can be helped by a groupon. Maybe a business that is trying to open up to a different customer base from what they already have and companies who are not trying to build loyalty. Like a tourist company etc. As a savvy customer I would like to beleive that. I must say that I am spending more towards new businesses and services now after seeing groupon or eversave or living social or any other company into group marketing. The downside for me as a customer is the everyday surprise of these sites which got me addicted to online deals spree. It kills my productivity as a person. But I must say that I have myself to blame for that. Still,thanks for giving me a peek into the merchants’ pain in this group buying business.

  75. Vee says:

    The author failed to point out the obvious good part about Groupon. Why is is that so many retailers love to sell Gift Certificate/Card. Sure there’s a cost to manufacturing these giftcards. But the best part is that 30% of giftcards never get redeem. Kim should be happy that “They don’t expire until January…about 700 more are still out there! Yikes!!” Because there will be a good percentage (maybe not 30%) which won’t get redeem and that’s pure profit for her.

    Also, not all new customer will not return. There are some who will return many more time as long as she continues to provide exception service.

    • bobphibbs says:

      Vee those are the same old adages being foisted on small business to justify this across the board. Final tally – only 10% of Kim’s groupons were not used. And as far as returns, from Groupon’s own figures, 78% never do as reported in the WSJ http://online.wsj.com/article/SB10001424052748703447004575449453225928136.html?mod=WSJ_article_MoreIn_Tech

      • Bill says:

        I did Groupon and this blog is right on. I have completed 2 surveys from Groupon on whether I would recommend their service to other businesses – absolutely not. Groupon was disengenuous and told me that most buyers were repeat customers and spent well above the Groupon. Groupon cusotmers violated the limit of one per person numerous times, argued about applying multiple groupons on one purchase (they weren’t supposed to have multiples). I didn’t receive a payment from them for over 2 months. Their excuse – they didn’t know where to send the checks. It’s funny that they knew where to send the Groupon redeemers.

        • bobphibbs says:

          Thanks for sharing Bill. I wrote that blog over a year ago as a lone voice in the wilderness. It went on to be an ebook and many have used the points I raised then only now. Yeah, it’s funny…

  76. [...] Bob Phibbs offers and example of one business owners experience on his blog… [...]

  77. I would have to say that retail is not a good fit for the Groupon model. It would seem that companies that sell services benefit the most. Any company with a margin on a product will most likely not profit from this type of advertising.

    Spa services, Tanning, Travel, Instruction, Fitness, Recreation etc are better suited to reap the rewards of group buying. By discounting their time and labor cost and not having a margin on a product, makes group buying a reasonable and potentially successful avenue for small businesses that fit the mold.

    I do agree with Bob, retail businesses should carefully contemplate group buying or only do so if they can negotiate the split. Groupon, to my knowledge will only do this for restaurants. Though, there are many competitors like LivingSocial and even Google getting into the space. If history repeats itself like it did with Myspace & Facebook or Alta Vista/Yahoo & Google, then the first to market doesn’t always determine long term success. There is always a bigger fish or a better mousetrap. We will have to wait and see for now. Only time will tell us if the Groupon phenomenon will last.

    • Mike Q says:

      Will it last? Non copyrightable idea, and from what I can judge is now happening in Canada, just in my market area, there are now 6 companies offering these types of deals with new ones to come, including sites set up by local newspapers who already have local sales forces. Its a terrific business with very low entry and operating costs, but the margins will succumb to competition. In the meanwhile the hype is incredible. Can you smell bubble?

  78. George says:

    The argument that Groupon is not good for retail is ridiculous. Groupon, and sites like it, are excellent options for businesses that advertise. In this case the person obviously did not advertise.

    With Groupon you get all the benefits of advertising and branding and only pay for the customers. Try running a full page ad in the paper and see how that works out for you. Try radio or tv. Try banner ads online. Or even Google Adwords.

    All of the above require an up front investment with no guarantee of customers. With any other advertising model you will lose money initially on the customers’ first visit. The thing is you don’t know how much. With Groupon you only pay for customers.

    The problem with the example in the article is she did not put a cap in place. Her mistake, not Groupon’s.

    • bobphibbs says:

      Thanks for sticking up for Groupon – and the two Groupon ads on your own site.

      • George says:

        Wow, that is a great reply to my argument. Especially since my email is not published and I did not promote the website. Obviously I like the Groupon business model, but I did not come here to promote my site. So great counter to my argument. Kudos to you.

        • bobphibbs says:

          George when you say I’m being ridiculous and it is good for business, I think it is important to acknowledge that you are getting ad revenue from the company ( I assume you aren’t giving the space for free.)

          As to your original statement, you do not only pay for customers, in many cases you pay with your reputation because if those discount seekers don’t get what they want, they will flame you on SM which actually hurts your business. No ad will do that that I know of. Thanks for stopping by again.

  79. Mike Q says:

    Dear Bob,
    Excellent article and good analysis of what I read so far. I would like to state though that your 3% profit figure for a typical small business is completely out of whack and irrelevent to the point you are making here. Investing in marketing is one of the best things any small business can do, its simply that they have to be smart about it and understand how it fits into their business plan. Lets face it, reverse the thinking in your example above, and ask yourself what business would not be willing to invest 11K for a 400K increase in sales? Of course, the real point for readers is that its rather unlikely to happen. Mind you a lot of people seem to believe in magic, and in the case of Groupon hocus pocus…

  80. [...] laquelle il se rend, celui pour qui seul ne compte la valeur de la promotion. Pour ces clients là, Bob Phibbs, un expert du retail marketing, offre une comparaison tout à fait pertinente, celle du marchand de [...]

  81. [...] Some companies reported success – others not so much. Especially revealing was a comment by Bob Phibbs, The Retail Doctor, who reported on a small retailer whose Groupon experience quickly went from bad to worse.   [...]

  82. Dan Bryant says:

    I am utterly amazed at the lack of understanding by so many commenters that I am struggling with where to start. But mostly I can’t get past the obvious biases of the blogger, not to mention the business owner.

    As humans I get the fact that we are highly emotional and that so often what we see depends on where we sit – or more accurately, what we decide to look at. This being the case it is very easy to choose a side and “dig-in”. It is part of our sad nature to be prideful and to let our precious, fragile little egos get in the way, but it is very important for a good business person (and especially a retail “advisor”) to be unemotional and logical. To be logical means to deal in fact, and to have a willingness to see all sides.

    This being said, and knowing i am stirring up more emotion and polarizing the sides, i see very little logic by the “haters” of groupon.

    First, every single day a business is faced with competition. Competition from those selling the same or similar products, or simply competition for consumers disposable income, a business has to deal with the fact that they have to play the game. Once the business is started, the game begins, and there is no getting around the need for some sort of marketing. People will not just know about you. Whether it is putting a sign on the door, or mentioning the business to a friend, you must market. So the question becomes not only “how”, but “how do I do it efficiently and effectively with my limited resources”. What we are looking for is the maximum ROI.

    From this point, we need to look closely at how much business we need to generate at each profit margin. Are we looking for volume at low margins, or a few good clients at high margins. How much are we wiling to spend to create a new customer or to retain a current one? And what can you do to measure results?

    Given the scope of what all goes into this, I will just try to limit my comments to a few logical thoughts to counter what I see as the emotional errors of those opposing daily deals…

    1. Control. You as the business owner can always control the risk. You can decide on restrictions, you can limit the numbers, or you can ultimately say “no” to the daily deal company.. So don’t miss the fact that these complaining business owners were clearly unwise in many cases. If you gamble big, you can lose big.

    2. Marketing Expense. You are always going to have a marketing cost. I don’t care if you want to print flyers and hand them out on the street, there are still man-hours and printing cost involved. TV, radio, groupon… they all charge you to access their consumers and they can all reach more people a lot faster than you can on your own. You have to pay to play. If the costs is to rich for your blood, then go to a table with a lower minimum.

    3. Discounting. There is obviously good and bad here. Discounting can be a good, and sometimes essential, to get consumers to try you, or your stuff. We are all creatures of habit and it is not easy to get people to try new things. I always seem to order the same things for lunch because the occasional times I try something new are inevitably the times I am disappointed. If we are not willing to become wholesaler at times (limited times and limited amounts) then we will often miss-out on people not willing to try something new. I know of very, very few shops that never run a sale.

    4. **Tracking** There is never going to be a way to fully track effectiveness of an ad, and often we make huge mistakes and assumptions here. You may think a daily deal was horrible because you only had a handful of new customers, but here are some things to consider…How many people saw the deal, read about it, and were interested in your business, but never made the purchase right then and there.. You have to understand that daily deals shift risk to the consumer and away from the merchant. Often up to 20% of buyers never redeem their vouchers! They are taking a risk pre-paying for goods or services they may never even get. Why do you thing the business owner never has to write a check for the advertising? There are many more reasons people may not buy right then and there. Theredisposable income may be gone for the month, or they may have just bought a product you sell, so they don’t need it. The fact is that although daily deals purchased can be tracked, there can still be an influx of new customers that come from the interactive email pitch. Not to mention the word of mouth that may follow and long time repeat new customers that may come as a result. And remember, you are only splitting revenue on what is purchased online, not on what is purchased at full price in the store.

    Bad Assumptions. Often we make horrible assumptions, like saying “my groupon only got me so much new business”. But we have to look at each transaction as independent of past and future transactions. There is no way you can tell me as a business owner that a current customer will continue to be a currrent customer, or that a visit and purchase would have happened regardless of whether you had offered a discount or not. You may think a customers is loyal when they may be spending twice as much with a competitor. For example, I purchase a few items from a local health foods store routinely, but there are many times i buy those same items at my regular grocery store if I am there and don’t feel like making an extra trip. Could a discount have changed my mind and brought me to the health food store, were i might have bought more than expected. Of course! Consumer behavior is difficult to track. Every day and every second we are competing for top of mind awareness.

    Risk. A daily deal, if done right, truly can allow you to take little risk with huge potential. As i mentioned above, you have control. But the real great thing is you have little to invest. These are in-fact DAILY deals. You can try running one just one time and if it works, great, if not, tweak it and try again, or forget it. With TV or print, thee is the production cost and lack of traceability that faces you to try it longer without knowing if it was good. Daily deals let you try with no commitment. Plus, if you sell, none, you still get the advertising and pay nothing!

    My opinion is to be smart about what works and what doesn’t. Don’t let a ignorant business owner or an emotional “advisor” scare you from what could end up being a good thing.

    Dan Bryant

    • bobphibbs says:

      I guess from your lengthy comments Dan you think Groupon is just another vehicle to market and a good thing. If you read the entire series, you’d find I am far from just an advisor Dan, that’s why the best brands come to me to increase sales, not give the same hackneyed arm-chair advice found in so many consultants and writings. My bias is that discounting below your costs to people who don’t know you doesn’t work, let alone build a profitable business. Thanks for sharing your thoughts.

      • Dan Bryant says:

        Sorry if i was harsh with my words, but when articles seem to be presented as black and white it usually tells me there is some underlying bias behind it.

        Most advertising and marketing consultants, just like financial advisors, have their opinions skewed by monetary influences, such as a potentially good marketing idea that is not structured to allow them a take (commission).

        I too am a marketing consultant that unfortunately does not get paid a commission by a good Groupon deal, but i still have to be honest with my clients about it good points.

        Skewing something to the point of making it sound horrible in the face of it being the most popular way for a small business to advertise in today’s market is a huge stretch. We can hate it for many reasons, but it does not change the truth about it.

        Again, it seems clear to me that the business owner in your example was clearly inexperienced in marketing and made serious mistakes, and she topped it off with bad assumptions.

        On your end, it is obvious that you are sharp and good at what you do, but i think a personal bias may has gotten the best of you.

        Do i think Groupon is a good this. Yes and No. It sure is not a bad thing to try if you do it right… And if you can get past their waiting list of 35,000 businesses.

        Thanks for your blogs. I do enjoy them.

        • bobphibbs says:

          Dan, I will agree to disagree with you. No marketing person worth their salt would recommend any business take 25% of what they normally get 100% of or lose money on each and every sale in some misguided belief “we’ll get it back some day.” This is a black and white issue for me and my clients. It has nothing to do with a personal bias – it has to do with profitability and the PR that is Groupon is only anecdotally supported. Thanks for stopping by.

  83. [...] tools as a way to build business.  There’s a great series on this topic over at the blog of Bob Phipps, The Retail Doctor.  I recommend reading it if your thinking about offering one of those [...]

  84. [...] another, even better in-depth analysis of the toxicity of Groupon: Groupon Reviews: Worst Marketing For Your Local Business – And there are 10 more parts to the story, pretty well-written, very [...]

  85. David H. says:

    Bob,
    I just came across your blog and it confirms some of my thoughts on Groupon and whether or not it’s right for my business (children’s toys, clothing, gear, etc.) Curiously (and I didn’t read all the replies so maybe it’s in there somewhere): Now that it’s after January, did you ever find out how many of Kim’s Groupons ended up being unredeemed? Might be interesting if she was able to squeeze a little revenue out of those forgotten ones.
    Thanks,
    Dave

  86. [...] Groupon Review: Worst Marketing For Your Local Business. RetailDoc.com Tweet Tags: Commerce, couponing, Publicité locale [...]

  87. Groupon says:

    [...] Check this out before you decide to run one of these promotions. Groupon Reviews: Worst Marketing For Your Local Business – You can't rush perfection. Reply With Quote [...]

  88. [...] Groupon Review: Worst Marketing For Your Local Business. RetailDoc.com [...]

  89. I couldn’t agree more with your post, and all I want business owners to do in the local Greenville market is the math. I’ve blogged about it a couple of times lately (upstatesc.townplanner.com/blog) because as former engineer math is my friend. Yet I’m shocked at the deals coming out through Groupon, and how happy some owners seem to be giving away 75%. Groupon has it place and works well for some businesses, just do the math first, please!

  90. I have to disagree. I own a very unique Fast Food Mexican Restaurant in Venice, California, with very authentic Mexican food, and I ran the $7.00 for $14.00 deal, and it brought it a lot of new customers to my restaurant. Even in the first 2 days that in ran, I had repeat customers.

    Owners just have to figure out their food cost, and their fixed costs that as we all know they will not change. As long as i can get the 30 % food cost back, and get a new customer to try my restaurant we are good.

    Groupon did a great job, for us,and is still doing it, since my offer is still running. 1258 deals sold so far. Customers spend a lot more then the $14.00 initial $’s they bought with the coupon. Hope this helps restaurant owners. Benny

    • bobphibbs says:

      Glad you feel there is value in your Groupon promotion Benny. Using your example though, the numbers just don’t add up. For a $14 order – 30% of your food cost is $4.20. Groupon gets their $3.50 and you take that minus all credit card fees so you’re netting about $3.22 losing just about a buck on each order. That of course doesn’t include any extra help to handle the demand. I’d also be curious, with exact figures from your POS, how many “a lot more than $14 initial $’s they bought with the coupon” when you regularly have specials priced at $6 and $7 on your website. Again, glad that you’re happy with what you’re doing.

  91. Maria says:

    I blogged about this extensively the other day after receiving a phone call from a Groupon sales guy. They supposedly wanted to feature my business. But unlike so many other people, I know how to do math. I don’t have the 300% profit margin necessary to come away from a Groupon deal without losing money. And I KNOW the bargain hunters will not return to buy my services (helicopter tours and charters) at full price in the future.

    I think it’s very important that we warn business owners who don’t do the math or don’t think about the consequences about the dangers of deep discounting with organizations like Groupon. Over time, deep discounting will destroy businesses and markets. Then no one wins…except Groupon.

  92. Dean says:

    Groupon is moving quicly into the service secter. Soon thay will have a Section specificly geared twards home services, landscape, tile work, hardwood floors, carpenty, painting etc. These services will be expensive and they will make alot of money! They being Groupon. From what I have seen of how they are promoting contractors they are encouraging the worst methods of professional business behavior.It seems they get the contractor to offer a service at a deep discount and explain to them that they will be able to make it up in extras. This is a most unethical method of contracting. Yes extras happen, yes the contractor should make money for additional work that was unforseen or added on. However to enter someones house when the clear intent is to give an unreasonably low “bid” for a job intending to make more moneyin “extras” is just wrong. This is the direction I see them going. Honestly, whether the deceite is intentional or not we may never know. However the result is clearly predictable.

  93. [...] muy críticos con la empresa (en inglés) en Gawker, en el blog de una cafetería en Denver y Bob Phips (éste último en realidad tiene toda una serie de entradas sobre el tema). Sobre el problema de [...]

  94. [...] muy críticos con la empresa (en inglés) en Gawker, en el blog de una cafetería en Denver y Bob Phips (éste último en realidad tiene toda una serie de entradas sobre el tema). Sobre el problema de [...]

  95. [...] If you are interested in the Groupon phenomenon, Bob Phibbs the retail doctor has quite a lot to say on the matter too. [...]

  96. [...] muy críticos con la empresa (en inglés) en Gawker, en el blog de una cafetería en Denver y Bob Phips (éste último en realidad tiene toda una serie de entradas sobre el tema). Sobre el problema de [...]

  97. [...] lol @ col, have a look at these 2 blogs before you make up your mind simple http://mashable.com/2010/08/19/gap-groupon/ http://www.retaildoc.com/blog/groupo…ting-business/ [...]

  98. Barbara Saunders says:

    There seems to be a lot of hating going toward the business owner. Yes, she made bad decisions. Yes, like MANY small business owners, she evidently was not savvy about marketing or number crunching. The point the author is making here is that Groupon’s business model is predatory.

    • bobphibbs says:

      Actually I’m not commenting about Groupon one way or the other as a company but the business owners who sign up and what they may not be considering. Thanks for stopping by Barbara!

  99. [...] muy críticos con la empresa (en inglés) en Gawker, en el blog de una cafetería en Denver y Bob Phips (éste último en realidad tiene toda una serie de entradas sobre el tema). Sobre el problema de [...]

  100. R farah says:

    I often purchase groupons.. Many business still come out ahead. The numerous amounts of cutomers who forget to use their groupons and what about those businesses that are mainly labor, hair stylists. A box of color and foil doesnt cost much so when a stylist charges a groupon price of $40..It has to still be a large profit for them!

    • bobphibbs says:

      You have no idea what you’re talking about R. Businesses cannot come out ahead when they are taking 23% of what they used to get 100%.

      Grouponers do not forget Groupons – one because they purchased them, two because they already decided to use it and three Groupon emails them 3-4 weeks before they expire to use them up. Then Grouponers who miss the expiration berate the business owner to give it to them anyway.

      Readers – this is definitely representative of the “take”mentality that is prevalent with these customers. You’re kidding yourself you can build a business on them.

  101. Johnny says:

    From a customer point of view, I sense a lot of the business using Groupon are struggling businesses. The moment they get an instant shot of large amount of business, their resources get stretched thin and we get lousy services and mediocre results at best. We don’t even know what’s the quality of the business to begin with before the Groupon “marketing” kicked in. They might not know what they are doing to begin with thus the struggling business. I think Groupon should be resposible for checking the quality of the businesses before they decide to marketing them.

  102. [...] retail blog has compiled a lengthy study as to why the group-buying model is bad for small business and [...]

  103. [...] only sane reason to sell your services at half price, and pay someone like Groupon or LivingSocially half of what’s left is to create new customers. [...]

  104. [...] have started to crop up everywhere. The harshest critics of the formula boil it down to a matter of marketing principles or reject it outright based on simple calculations. Incidentally, the need to diligently crunch the [...]

  105. [...] un peu partout. Les critiques les plus féroces de la formule en font une question de principe en marketing ou la rejettent plus volontiers sur la base de simples calculs. La nécessité de bien calculer sa [...]

  106. [...] Groupon: Worse Marketing for Your Local Business Are Coupon Sites Damaging or Destroying Retail Businesses? [...]

  107. [...] when I think of Groupon or Living Social, I think group buying is a bad idea–like many others. Too often companies are overwhelmed by an influx of new customers. This can result in a loss of [...]

  108. Joshua says:

    Critics and Supporters need to see Group Buying as an option and quit with the one-sided blanket statements

    Businesses who participate in Group Buying must:

    1. Understand the terms and conditions
    2. Forecast the cost and risk, worst-best case scenario
    3. Forecast the Benefit(s), worst-best case scenario

    Conclusion: Group Buying COULD be good for your business – or not.

    • bobphibbs says:

      Joshua, I don’t believe it COULD be good because it is much more involved than your points #2 and #3. That’s why I wrote the book, the risks outweigh the buzz. Thanks for sharing.

      • Jonathan says:

        The company I work for recently went live with a Groupon deal, and this has been both profitable and helped grow our database for future marketing. And no I do not work for Groupon.

        The problem for the majority is that their deals involve considerable cost of sales.

        Our deal, for an amusement park, saw a situation where we had spare capacity and therefor no real cost of sales attached to the deal. The venue was already open and we were down on footfall, the deal allowed us to bring our visitor numbers up. In turn the visitors spent whilst in the venue on food and drinks.

        I can see the dangers where large cost of sales are involved, and if you do offer a service with minimal cost of sales attached, a groupon deal can really help.

        Just my thoughts.

        • bobphibbs says:

          Jonathan, amusement parks as I understand them frequently are giving 2-4-1 and half off admissions to juice sales so they’re really just using a different vehicle to deliver their discounts. Thanks for commenting.

  109. Bill says:

    its too hard to judge how many Groupons will be sold. You could get 5 or 5000. You just have to be ready for it. Groupon might work for you if you look around and see what you can afford to give away. Which in most cases is practically what you are doing when you put up a Groupon deal.

    Most buyers only want what is offered on the coupon, nothing additional, they probably wont be back as a regular, they probably wont tip, and most are the rudest customers you will ever have the pleasure of dealing with. I know this from personal experience and a few family and friends with experience.

    Thanks for exsisting Dr. Bob!

  110. Crystal says:

    Yes it sounds like Kim might be an informed business owner. Most small business owners are, I know, I do small business accounting for many companies. If I were in Kim’s position, knowing how many groupons were sold, I would have been up all night, changing my prices. I would have been moving merchandise around that clearly stated, these items excluded from the “groupon”. People who use coupons are not loyal customers. I know I am one of those people. I never eat out unless I have a coupon and I never pay retail for anything. In this day and age you can find a discount code for everything. I am a discount shopper and I am a business owner, it is my responsibility to know my business. For those of you that are going to be offended that I suggest she change her profit margin. Next time you shop at the grocery store, pay attention to how prices change during certain times of the month. Never shop at a grocery store during the first 10 days of each month. They raise their prices on many necessary items because that is when all the food stamps purchases are made. Just a tip, business are responsible for adjusting. I hate when people say “Corp Evil” all business are out to make high profits with a good business model. Socialism, should we limit the profits that corporations can make? Please this is what makes America Great, Be Smart and Be Profitable.

  111. Jeremy Day says:

    Hi Bob,

    I bought a Groupon once and only once (actually my girlfriend bought it). Being the curious cat I am I started doing research about Groupon and got really mad really quickly.

    Even if Groupon is “giving” a business all these sales a 50% cut off an already steeply discounted coupon is ridiculous.

    I got so upset that I immediately went and started a website so local businesses could advertise their coupons for free! 0% cut.

    I agree with you. If they are already steeply discounting their price through the coupon why lose even more money to Groupon?

    Cheers,
    Jeremy

  112. Rod says:

    Simply a case of good deal for the consumer, bad for the retailer. Seller beware !

  113. Fred says:

    To all businesses, why not just run a 75% off deal for first $40 worth of goods. The word of mouth would be off the charts, and you would lose just as much money, and Groupon would get nothing. Just a thought!

  114. Darrell says:

    Great article. I find it frightening what is happening to major industries. I spoke to a Camp owner the other day who was getting phone calls because their competitor was on a deal site, offering a $800 for $300! The problem is that the camp costs is already over $1000 and they get it subsidized by DONATIONS! This means that they, as an industry, will be more dependant on donors as Groupon killers push the site down.

  115. Raja says:

    This article seems to carry just a slight amount of bias. Seems like the business owner didn’t do a very good job to manage the potential risks involved. It should also be noted that the business was struggling to begin with – perhaps a sign of a inexperienced owner.

  116. [...] faired even worse. While other businesses may be reluctant to step forward right now, I think the wave is starting to crest. I’ve already had two coupons ‘expire’ because the business went bankrupt, and while I got my [...]

  117. [...] from publicized Grouponmares, 40% of businesses who have advertised with [...]

  118. [...] Rather than work with her, they simply told her no, which generated “$46,320 of merch at retail or roughly $23,160 at cost”. Minus credit card fees and Groupon’s 50%, Kim says she got about $10,000. That’s a $13,160 loss. Or perhaps just an expensive marketing campaign? Unfortunately, many of the people who bought the Groupon were already frequent customers. Read more about her experience. [...]

  119. Mindy Charles says:

    Groupon is a nightmare for customers also, not just for businesses. As a customer, when I purchase a coupon with certain terms and conditions, and then when I try to redeem it the terms and conditions have changed – of course I’m going to throw a fit, that’s illegal and unethical business practices. Regardless of who makes the mistake (Groupon, or the business), the fact is, when customers purchase under certain terms and conditions those terms and conditions MUSt be honored – according to law.

    Also, I have purchased coupons from groupon and found out a month and a half later when I tried to redeem the coupon that the business was no longer in existence….no business is thriving one day and a month and half later closes the doors. There’s talk that many businesses, who know they’re about to close up shop, advertise on groupon and such places to get a quick cash grab in the door and then within a month before most customers redeem the coupons they go out of business, walking away with customers money…..Groupon take no responsibility after the 30 day mark, and the customer is left with the losses. Fraud at it’s best.

    I have personally requested that the Ministr of Consumer Affairs branch of the Ontario government do an investigation into these unethical business practices and implement control to prevent consumers from being ripped off like this by groupon and the businesses they market for.

    • T.B.R. says:

      I Don’t know how it works in Canada, but in Australia, the business don’t get a penny before they get a security code from the customer, so if the business closes, Groupon is the winner. Well, Groupon is always the winner

  120. [...] it doesn’t mean you should. It’s a killer alright, a profit-killer” says Bob Phibbs of The Retail Doctor website. When it’s said and done what do you have to show for it. One woman had 1100 sales of her [...]

  121. [...] Now again, you can certainly argue that the bar should have thought about what they were offering, and I could be sympathetic if this was the only example of this sort of backwards economics.  But it’s a common story among small, local businesses that using Groupons to bring in new customers means they lose lots and lots of money. [...]

  122. Chris says:

    I’m beginning to get a better picture of this Group-Coupon-ing craze, and it seems to me to be advertising/marketing gone amok.

    If it is true that 40% of the buyers will never redeem their coupons; it seems to me to be banking on the same philosophies as gift cards. But in this case there is little or no regulation possible.

    In the long run it is wasted consumer $$ that go into the pockets of a few savvy marketeers, business developers and cold-calling market-making team members. It is also apparent that false statements are being made to make a sale. In my opinion giving away 75% of a product’s or service’s retail price, to bring in one customer, is highway robbery.

  123. [...]  When this strategy first came out there has been numerous complaints from small business owners and the lack of knowledge on how to price their products and treat their customers lead to many negative responses. [...]

  124. Vickkie says:

    Groupon is the very reason I started [Ed-site removed] Groupon doesn’t take smaller businesses nor do they take businesses that are “Mom and Pop”. I wanted to offer a coupon site for local businesses where they don’t have to give 50%off, just whatever they feel they can do, but still be able to offer customers a savings on their normal purchases. Plus, it’s not rushed. The coupon goes up for as long as they want, expires when they want, and doesn’t require bidding from the customers. Just a simple click and print and redeem at the business.

    • bobphibbs says:

      It is funny how many coupon companies either contact me to say how “ours is different” or try to post their link in a comment. Sorry coupon companies, not interested in giving you free press.

  125. [...] 除了 publicized Grouponmares, 在Groupon上投放广告的企业中有40%不会再次投放。瞧, 这仍然会有60%的企业潜在得会选择再次投放广告,对不对?如果没有一个良好的用户粘度策略,Groupon就会浪费了这些关系。 [...]

  126. [...] how the business media painted any businesses who hadn’t yet joined the creepy #FF love fests and inconclusive Groupon mega sale sale SALES! Sadly the real strategic message about social media hasn’t gotten all the way to business [...]

  127. Jon says:

    This is great. I work for a provider of products in the Spa industry and have been telling my reps for years how the only person who makes money in a Groupon deal is Groupon, and the consumer. It is a net negative endeavor! So I decided to do research on this for our clients, so they know Groupons true costs. Thank you for the info, it is nice to be right.

  128. CastroLive says:

    It seems that the business owner didn’t planned the offer very well… Buying a business that is about to go under, you always need to find the root of the problem before you actually purchase it.
    Groupon is a Marketing firm. So you will be paying for marketing through your product and trough your merchandise, thus you need to figure out what is your goal before you set up the Offer. If it is to make a quick buck, then groupon is not for you. Groupon is a great way drive customers to your store for retailers when rent is one of the main costs.
    Groupon can have a backlash when poor business owners or managers meet Groupon predator sales reps.

  129. Jerry says:

    Groupon can be a small business owner’s worst nightmare or it can attract plenty of new customers. It works better in certain business that don’t have physical products unlike retail stores and restaurants. Here are a few tips to success.
    1. Get the contact info of people redeeming the coupon- I have not been to a place that has done this. You make money on the future visits not the first visit. Most small business owners fail with groupon just based on this.
    2. All employees must know what to do with the coupon and how to handle the customers and transaction.
    3. Offer a Bonus or upsell to the customer when they visit your business.
    4. This is a one time small business marketing strategy. Need to have other plans in place.
    5. Do not upset your loyal customers.

    • bobphibbs says:

      And how exactly would you not upset your “loyal customers” Jerry? Don’t post your signs “no Groupons on this item”? Don’t tell them you gave a better deal to the dirt-scratchers? Thanks for stopping by.

  130. David Henry says:

    Bob,
    Are you familiar with Booqoos, an Austin-based site that launched last week claiming to be a more retailer-friendly option that gives businesses total control over their online deals? If so, does this seem like a viable alternative to Groupon?

    • bobphibbs says:

      Hi David, I just checked and see the retailer can do whatever deal they want. While that sounds good, the power of Groupon and the rest is the 50-90% off each offer. That would seem to be much more customer-driven which would get more eyeballs. From their press release, “Booqoos makes it easier for discount seekers to find and purchase the deals they want through a digest email of deals defined by the consumer’s preferences and a searchable database of aggregated deals.’ Again, do you want to court this market hoping it will return profitable sales or do you want to follow the advice I’ve used to increase sales for so many businesses which is to reward people who already shop with you?

  131. T.B.R. says:

    I’m the latest victim of groupon, even though I did my homework and tried to structure a deal that would not brake my bank account, they didn’t comply with our agreement, I was told that their art department would create a voucher with information that they got on my website and that I’d receive an email with the art for approval prior to the promotion date, never got it. I was told that they would contact me and set a date for the promotion to go online, they called me alright, 3 days before and the only thing they said was that the voucher would go online “soon” and at the time I requested a few changes on the voucher, one of the changes was made, but the one that would put some cash in my pocket wasn’t. So the end result is that I woke up a sunday morning with dozens of people calling to book carpet cleaning and I had no idea that the “soon” that they referred was that soon, they promised things on the voucher that are not even applicable to carpet cleaning and because I never saw the voucher before I couldn’t fix it, the changes that I had requested were not done and now they won’t return my emails or phone calls. I was naive by believing on everything that they told me and how I wish I had seen this article before signing the contract, we had a “very successful” promotion (for them of course) with 200 vouchers sold. Live and Learn…

  132. Sam Smeagol says:

    This blog just about sums up what I think of all the on-line ‘deals’ perpetuated by Groupon et al. I’ve written an article on this that appears to be tongue-in-cheek but is quite the opposite. It’s here if anyone is interested:
    http://www.thedailydross.com/html/vancouver-riots-1304.html

  133. [...] get a discount, the business gets people trying their products and coming back for more, and the deal website makes out like a herd of thievin’ bandits for doing next to nothing.  More often than not, though, it ends like [...]

  134. [...] have shaken up how far businesses and restaurants are willing to discount (for better or for worst), and how the big boys, Google and Facebook are jumping the game as [...]

  135. John says:

    I like how this woman is complaining because she didnt do her due diligence and crunch the numbers. no one forced her to use groupon, suck it up you made the mistake. When you own a business you are responsible for all successes and failures, the above seems perfectly preventable to me if the proper planning was done…

    • bobphibbs says:

      That’s where you’re wrong John. There is no way to do “proper planning” to address all of the multi-headed beasts that can appear with the discount deal platforms.

  136. Larry T says:

    If this is bad, which I agree it is, why do businesses still sign up in droves for the deals?

    I am working on a way that would put businesses in control of their own advertising and offer deals at a fixed and lowest possible cost. It would have features that would allow merchants to communicate directly with consumers who could sign up for whatever deal a merchant wanted to offer at whatever discount. Deals could be any % or just advertising and all of the revenue for the deal would go to the merchant because the advertising would be fixed price. Do you think it could catch on or do you think the deal sites are here to stay in their current format.

    • bobphibbs says:

      Businesses are desperate for sales. “Everyone is doing it.” They use deals themselves so why not join in? Personally I think the barriers to entry for you are rather great. Even the big G is having trouble with cash flow and people who have become numb to their offerings – which let’s face it were huge. We all want you to succeed, just don’t think giving deals is the target – its a distraction. Thanks for commenting.

  137. Tim says:

    Groupon just approached me. I run a recording facility, and charge USD40 per hour to my customers who use my recording facility. Groupon recommended a 50% discount, which means i have to advertise it at USD20 per hour. And so i have to split a 50%/50% with Groupon which means they get USD10 and i keep USD10.

    So for every hour that i rent out, i’m giving a 75% off.. and that is my basic cost that covers utilities and manpower.

    Let’s be fair here… this is good for consumers but not applicable for my business… it SHOULD work for say a new restaurant who needs customers as part of their marketing campaign, or a beauty treatment facility (so they can cross sell more products when the customer is physically at the outlet) or even for businesses who wish to clear out their out of date / old stocked products.

    That’s my 0.02 cents.

    • bobphibbs says:

      Except new restaurants are attracting the low-ball, dirt scratchers, not the loyal customers who will return time and again and tell their friends about the experience – not just say what a deal they got. Glad you didn’t take the bait Tim!

  138. [...] Bob Phibbs, The Retail Doctor:  “Groupon Review: Worst Marketing For Your Local Business- Case Study“ [...]

  139. Buz Psathas says:

    My wife and I recently opened a causal fine dinning restaurant in sandy springs GA. The coupon posy from Scout Mob, Urbon spoon, yelp, to Groupon have been badgering us to sign up for their coupon programs. None of them make business sense to me, and after reading the your blog we feel we have been making the right choice by not signing up. Thank you and keep us informed.

  140. groupoff says:

    I started my business (service industry – Therapy) about 8 months ago and was eager to have some new clients after trying the traditional advertising channels that gave no results. I ran my ad with 4 daily deal websites and sold about 900 vouchers, that’s $10 an hour for me to spend with a client when my regular fee is about $120 an hour. I thought worst case scenario i will get 20% repeat customers and referrals. I dedicated extra time and energy to please my new clients hoping they will come back to pay full price or at least refer other people. As time went by i understood that these deal only attracts cheapskates THE WORST KIND …..
    I only got 0.3% to come back and pay full price. What pissed me off the most was so many of them calling back to tell me what a great therapy and service it was and when am i going to advertise again so they can buy more coupons …grrrrr.
    My personal opinion is GROUPOFFFFF cheapskates

  141. Sybil Fowler says:

    Having only made one purchase via groupon for a a very low value box of greetings cards my customer experience is extremely poor. it wasn`t clear that on placing the order, providing a delivery address and paying that I had to do anything else but await the delivery of said cards. Did they arrive, no they didn`t. Groupon customer service has just been polite but not helpful. I am just wasting time trying to recover my out going. I would not use the service and would not actively encourage my clients to do so.

  142. Team Buying Guy says:

    I work in the group buying industry. I have read many of the posts above and agree with some and totally disagree with others. It is all about creating an offer that is sustainable for the business and attracting new clients through the power of social media and discounts.

    This model does not work for all businesses and you have to choose your promotion wisely. Although Groupon is a juggernaut in the industry, there are far better and more understanding group buying sites that don’t just flog the offer. You have to be diligent in understanding your offer, reading the fine print carefully and requesting a proof for approval prior to the offer going live. It is usually a best practice to offer a price point that is less than the value of the product you are selling.

    If your best seller is Slappy Meals for $10 taxes in, and your cost is $4 for each meal, you should offer a $4 for $8 deal, collect the $2 from the group buying site and recoup the other $2 in cash. This way you are not running a loss and by providing exceptional service, your clients are much more likely to return and pay full price if they have never tried your Slappy Meal before. If you can afford to take a loss as a loss leader, but not a big loss, limit your purchases to the number of Slappy Meals you can take a loss on, this will still create a great awareness for your product to thousands of people that may not have known your business existed before.

    You can also make your offer by-appointment only and extend the length of time your offer expires. For restaurants, a great example might be that you have a slow lunch, by filling seats with a $10 for $20 offer that is only valid during lunch hours on Monday to Thursday, limit it to one per table of two (Because nobody eats alone or rarely), you can attract new clients and pay for your lights to be on. You could also put together an a al carte menu that you can be prepared for. By ordering your product in bulk, you save money and by only offering certain menu items, you can really control your costs.

    You have to undervalue the offer a bit so people are more likely to spend more than the value of the offer. There are many benefits to group buying offers as long as you are dealing with a reputable company that has its best interest in its’ clients and not in flogging numbers, making cash and harming the small business… My best advice is do your homework first, know your true costs and find out how other similar offers have done in the past as far as volumes go.

    • bobphibbs says:

      Chris, trying to lock down customers to come to slow times of your restaurant or have to buy two when they only want one is not great marketing. In the extreme couponing world of dirt-scratchers – they will simply get to your manager and demand you give it to them during your prime hours or on your best dishes. Your final paragraph is a bit ingenuous isn’t it? I mean a group buying site that is after their clients best interest? They are doing it as a business based on a lot of hope and hype. The profitable businesses are build around servicing and attracting profitable customers, not cheapskates and opportunists.

    • John says:

      I have read most of these posts, in part because I am considering using Groupon myself. I am not persuaded that it is a bad idea to use Groupon. It is just a marketing tool that is probably best used for new customer acquisition especially in a start up launch. In many businesses new customer acquisition costs more than a dollar per dollar of revenue. So factor the cost-to-benefit into your cash flow projection for the next 12 months and then make a decision.

      Saying Groupon is bad is like saying a hammer is bad. Sometimes yes, sometimes no. It just all depends on what you are strategically trying to accomplish. If Groupon represents itself as a kind of revenue cure-all then of course that is false. And to be fair, nothing Bob Phibbs says is a cure-all either. The bank isn’t going to say, “Oh, no problem this month. I know you were just doing what so-and-so told you to do.” Magic wands are only real if you are Harry Potter. C’mon biz owners: let’s just all get a little smarter. Know your situation, consider your options, then make a calculated decision.

      • bobphibbs says:

        Sorry but I think you’re wrong John. It is not the same as a hammer. A hammer can be proven to drive a nail, build a home, make someone more productive. We can all see a hammer works. It’s not built on the “hope” of driving a nail. It isn’t something that could potentially bring the house down. Thanks for dropping by and enjoy your experience with Groupon – good luck getting profitable customers from your decision – you’ll need it.

  143. rose says:

    Bob, here is our blog about our Groupon experience

    http://www.thelasergenie.com/blog/?p=169

  144. John says:

    So how much responsibility is hers?
    she didn’s read the agreement?
    Bob, there appears to be a strong bias and your credibility just took a dive.

    She didn’t think it through. Why run a deal in good times. Run it in slow times.

    Do something with the list she was given, add email addresses & /or postal addresses & interact via facebook now with theses customers.

    If her margins were that thin, she should not have pursued this. It isn’t calculus, it’s adding & subtracting. She jumped into a fire & you blame the fire?!

    This is not a good fit for her but to imply that it is bad for all is foolish of you.

    • bobphibbs says:

      John, my mission is to help businesses remove obstacles to their profitability. Simple. That can come in their personnel, their merch, their display abilities, their financials – you name it. So when a “marketing” program comes along that saps that – my credibility is in my saying – “don’t do it ” and giving the thorough reasons why I say so.

      The foolish ones are those proffering discounts to build their business to people who don’t know them. Trial is not everything – in fact it is nothing. You reward the people who pay full price for you 24/7, 365 – not the dirt scratchers serially looking for a deal. I guess from your comments you think it does. We agree to disagree John and thanks for commenting.

  145. JASON says:

    well, well, well, from the 239 responses that I read we have to be real and face the facts.The so call victims or losers to this case are less then a handful.Feedback and comments given are hear say or happen to see this articles like me. If it is that bad and terrible marketing tools I believe we should get more responses. The reason why we are not is because those who participated with any of the deals company knows what they are in for the better or for worse.
    There are no failures or losers only the results.The cause and effects factor here is offer and acceptance.It is a situation whereby the retailers hoping to make profit and get more traffic to their stores. to understand the purpose and objectives of the program it is to drive traffic then you making profits.Specifically you are using your services or merch in exchange for marketing efforts its term as barter trade.There are so many ways to skinned the cats and your choice is with groupon.

  146. [...] floating around the internet of huge losses incurred with no up-tick in business (see here, here and here, for example). A study by Rice University also found that Groupons are more beneficial for [...]

  147. RT says:

    I am a marketing consultant based in Australia. Even with my quals and years of experience i still got sucked into the mass appeal of Groupon. The media here in Oz have been raving about it. Of course they have. Their viewers and readers get to buy stuff at 75-80% discount but what about the business owner?

    I found the entire process disasterous on so many levels. Terrible support, redemption was a nightmare, and most importantly, the business loses profit, and trains their market that they are way overvalued, and only meet market value when discounting.

    I won’t be recommending any more clients to do this form of marketing. Traditional marketing costs more, however you keep the profits and determine the sell price, while maintaining the integrity of your brand.

    Discount sites, please go away!

  148. chad says:

    A groupon rep approached me once to sign up for a deal. 50/50 share of revenue is what stopped me short of joining after you tally up the net — payroll, overhead, worker compensation insurance. While it could be a good PR, the cost of doing business involving my employees to keep up with the quality service in mass is impossible in the automotive industry. We have one of the industry’s highest cost in worker compensation. That was other thing to take into consideration. One shop that did this groupon thing — I felt sorry for this owner. Groupon thing just seems to emit air of desperation — not a good sign.

  149. Andy says:

    I have a small glassblowing business.I do not really follow a traditional business model. Groupon called yesterday wanting me to take part in their pyramid scheme. After lengthy conversation the salesman asked me about profits for my business. When I told him that the business does not really make a profit he asked if I was in the right line of work. It was offensive but also made me laugh. Sometimes people just do what they love.

  150. Ewa says:

    Does anyone have a full terms and conditions with all attachments if there are any. Is the written agreement that merchant gets is the same as on the groupon website. Many companies give their customers or users the short version of their terms and conditions. But when the issues arise than they pull out the full version. Many banks use such methods and it is really hard to get the full version of the agreements.

  151. Renee says:

    How do you feel about register tape marketing? It also targets any area you choose.

    • bobphibbs says:

      Register tapes seem very passive. Yes they could reward customers but frequently in grocery stores, are to get you to buy something similar to what you really purchased. I think that has made them less valuable over the years. Starbucks puts a bounceback coupon on their register receipts for $1 off a drink if you come back in the slower afternoon times which could alter your customers’ behaviors.

  152. [...] Worst marketing for your local business [...]

  153. Anu says:

    Thanks for the review. I think choosing Groupon is up to one. Whether you like it or not, it is up to individuals.

  154. Victor says:

    My competitor is running these almost every month. I think he got caught up in expanding too much and too fast, needing an immense influx of cash. At first I thought he was just trying to fill up unused capacity, but now he has cut back on his advertising. I think he’s in trouble but it’s killing all of us because he is basically selling a $100 product for $50, and netting 1/2 that. He’s churning money, probably cutting costs to stay even.

    I feel he’s taking everyone down with him.

    • bobphibbs says:

      Oh my gosh Victor, we think alike. Now that the Groupon IPO has netted millions there will be a huge expansion of their marketing. As if proof it works. You are seeing what I predicted nearly a year a go that using these types of daily deals on the “hope” it would make a business work would make for a quicker demise.

      You are spot on though because he is wrecking your market by essentially telling people you are over-priced. These deal sites train your market of customers to be uncompromising deal seekers.

      • Victor says:

        He’s gotten some bad Yelp reviews, and then there were a slew of glowing 5 star reviews from brand new registrants that read just like advertisements…about 10 of them that Yelp filtered out.

        I offer a superior product and my marketing approach brings in a nice clientele. But there are people who fall for the gimmick and miss out on what I and other dedicated, ethical providers offer.

        I don’t see how you can manage your services and products when you are swamped with people paying less than cost.

        This reminds me of the dot.com debacle 10-12 years ago when companies were burning through cash to get market share. Didn’t work then and won’t work now.

        Anyway, I bookmarked your blog. I’m going to read more over the weekend. You do a good job, thank you.

  155. Franc says:

    When it was explain to me by my director about the groupon’s deal (he’s about to accept) I just kept quiet and though he was a stupid fool not to work out the cost and the terms of contract and trully it was a gun on our head. We had lost so much money on this deal that has kick the cause of shutting this business.For traders, stay away from this deal man!!! It only benefit groupon’s group and discount lifestyle customers. Money lost and much busy period used is better spent on local adverstiment.

  156. [...] And of course, there are many commentators who say that Groupon is a bad form of marketing. [...]

  157. purplerainbow says:

    well, there is still other online discount site that wont give your company as bad effect as groupon. this portal act as your marketing partner without having you to give more than 50% discount on your product n service. fix marketing fee thru out the year which promise 8 deals per month n the customer pay directly to you..

  158. Tonya says:

    Merchants should beware of the hidden costs of group-buy deals! Companies like Groupon are like sharks, if you’re a merchant and you’re considering dealing with these predators you just may find that it’s your blood in water…

    http://healinghealthharmony.blogspot.com/

  159. Hee Yach says:

    Quite a few of these replies are garbage, You might want to filter them out.

  160. [...] Groupon Reviews: Worst Marketing For Your Local Business – “Just because millions of merchants have fallen under the spell of Groupon, a PR juggernaut, and their like, it doesn’t mean you should. It’s a killer alright, a profit-killer.” Read a real case study on RetailDoc.com. [...]

  161. [...] right product at the right time, as the situation when you have too much of a crowd may end up, like here in [...]

  162. sucker says:

    GROUPON SUCKS. Selling now deals for out of businesses. Check now deal in Houston for “Really bright smiles” 1-10-12

  163. sucker says:

    P.S they’re customer servive is the worst

  164. [...] how the business media painted any businesses who hadn’t yet joined the creepy #FF love fests and inconclusive Groupon mega sale sale SALES! Sadly the real strategic message about social media hasn’t gotten all the way to business [...]

  165. Lynda says:

    I am a business and the Groupon rep lied to me when I was making the contract, claiming I couldn’t put any restrictions on or Groupon wouldn’t put out the deal, they also said my groupon would be sent to the entire Boston group (it was sent to a small percentage). Needless to say I lost my shirt trying to make the groupon customers happy at the expense of my other customers. I requested compensation and they have avoided me until my contract ran out and now say they can’t consider compensation unless I spend an inordinate amount of time copying data and calculating losses over a 1 year period. I will never recommend Groupon and have since used a few other sites that allow me to make the details of the deal and have a much better profit split.

    • bobphibbs says:

      Thanks for commenting Lynda. I would suggest you don’t look for more deal sites but provide more value to your customers who frequent your business 365 days a year.

  166. Anon says:

    some deals felt not worth it and over demand

  167. GV says:

    Nice article – could it be seen also that if your business has used Groupon to drive sales, could be seen as a sign that your business is struggling especially as business get more desperate to sign retailers on the quality of them worsens.
    Anyone?