For many businesses, Groupon promotions can help increase traffic and expand your customer base with no initial investment. But as one Portland, Ore., coffee-shop owner discovered, getting something for free can get very expensive.
Groupon, like other social buying sites LivingSocial and BuyWithMe, offers to dispatch daily deals with steep discounts to members of its email list on everything from spa visits to a night on the town. In exchange, the sites typically take half of the discounted offer price.
Although that doesn’t leave much left over for business owners who participate, the trade-off can be appealing. In some cases, thousands of new, potentially lifetime customers will be introduced to your business. But the question is: If they do come, can you handle them?
Jessie Burke, the owner of Posies Café in Portland, said her experience with Groupon proved to be too much to handle. Not only did she underestimate the number of shoppers her Groupon promotion might attract, the discount offer itself was too generous.
Groupon’s CEO Andrew Mason called the ordeal, which Burke detailed on a post to Posies’ blog that went viral, “painful.” Groupon seeks to be a win-win for business owners and consumers alike, he says. Although he acknowledges that the service isn’t perfect, he says Groupon is willing to consider new ideas. “It means a lot to us to make these promotions successful,” he says.
Meantime, business owners like Burke can pay a steep price for marketing experiments. While Posies’ foot traffic shot up by about a third after the promotion, the majority of her new customers did not spend above the value of the Groupon offer. Many of them used multiple Groupons at a time. They also neglected to tip staff members, attempted to use expired coupons and subsequently became irate with staff members when they were refused.
“I consider it the single worst decision I’ve ever made as a business owner,” says Burke. “I could have done a lot more advertising for $10,000 with a lot less frustration.”
It isn’t hard to see why Burke and thousands of other business owners have tried Groupon since the company launched its first discount offer to Chicagoans in 2008. The company claims to attract not only repeat customers but also those who tend to spend more when they shop.
Although business owners don’t generally expect to turn a profit with Groupon promotions, they also don’t expect to go into hock to keep their businesses afloat.