Thursday, September 8, 2011

Groupon - a necessary monster?

Soo.... Groupon is one of the most successful companies of our recent, recession-feared times.  I once thought it was a great idea: saving 50% or more on my favorite activities and stores?  Sign me up.  No surprise why their model is being copied by more and more segmented groups around food, entertainment and who knows what else...

This perspective has changed now that I've been to the inner layer of the beast, and back.  After my marketing efforts (consisting mostly of social media, walking the streets of Minneapolis, and passing out flyers at beaches) did little to bring in paying customers, I almost felt summoned to prostrate myself before the specialists at Groupon.

Don't get me wrong, working with Groupon was a semi-pleasant experience for this college-educated business owner.  They let me propose which service to offer, which price, how many, and when they would expire.  One of the main caveats, and first major surprise, was a promise to let them write the script and pay them 50% of total revenue from the sale.  [So, if you have a service that is worth $100.  You discount by up to 50%, bringing in $50, $25 for Groupon and $25 for your business to provide $100 in value.]  While this might be practical for low-overhead businesses like fortune telling gypsies, we could not pay this rate and talked them down to 20%.  Look at me!  What a businessman, or so I originally thought.  I barely understood that we are still paying them 20% for their email list and screwing around with our, already affordable, prices.

It felt pretty phony to increase our prices by 30% in order to be able cut them by 42.35%.  But this is exactly what I did.  And it worked.  We sold 197 packages for $98.  Not bad for 2 days of marketing!  It ended up costing us over $4,000, but at least we were in business!  The next puzzle came in the form of providing 394 people with $32,640 in value with only $15,366.

(I will have to provide a breakdown of our costs in another post, because this is getting long)

One of my main concerns is for the small business owners who don't know they can negotiate, or what others have been paying.  They tell everyone that 50% is required...  I've met people on tours who have signed up with a discounter out of desperation and end up giving all of their profits away, getting discount shoppers who may not return again, end up skimping on the service and end up shooting themselves.
I could sit here, listening to Ben Folds, and argue this survival-of-the-fittest competition is always bound to produce collateral damage in the form of dead businesses, but it hurts to know that this is being done and that small business owners are being, dare I say, unknowingly put to sleep by the collective American dream of a free lunch.

 NPR did a story on how these businesses change how we shop, and I wonder if it has changed the way we shop or if the way we shop has changed the supply.  Isn't a common critique of America (and maybe capitalism) one of instant gratification, shortsightedness and spendthrift?  It's hard to defend America (or myself) with a negative national savings rate (shown below), rising child obesity rates, Costco and Walmart loyalty, and current federal and state deficit issues.

Enough with the problems, let's talk solutions. After all, September is obesity awareness month.

This experience may not change your perspective, but as for me?  I try to not use Groupon, Living Social, or any other discounter, always tip any service provider 20%, pay for the value I receive, ask everyone before signing anything, automate repetitive processes, self-schedule appointments, clearly state policies, cry to my friends, over-perform for my clients, and no matter how phony it can feel at times, keep on smiling...

- listening to Ben Folds

1 comment:

  1. I forgot to mention why discounters may be necessary, if it wasn't already made obvious. We are, I am, Stand Up MN is, grateful to Groupon for putting us on the map and bringing us business as promised. It has been a successful, and expensive marketing tool. One I'm glad was used, yet hope to never again.