Groupon Experiences

Hi all, I recently ran a promotion with Groupon.com. I was wondering if anybody else has used this website to promote their restaurant? Initially I was happy with how the promotion went, but recently it seems that the promotion has attracted a lot of cheap/problem customers. I justed wanted to hear other opinions or stories from owners who have used group-buying promotions.

James

I haven’t tried Groupon because I’m afraid of exactly what you mentioned - the cheap/problem customers. I think the odds of gaining a long term customer from that type of promotion are fairly slim.

I think if you search the archives you will find others that have had a similar experience…

Sorry to bump an old post, but I thought I’d take a few minutes to relay my Groupon experience this month.

Our overall experience has been very positive. If I had it to do over again, I would. We sold about 2000 during two different features (a long story that relates to my negative experience with Groupon - the company). We try to track whether customers using the coupon are new and my best estimate is that over 60% of the Groupon users are new customers. Additionally, many of our existing customers have come in more often because of the Groupon. The Groupon check average has been higher than average by about 14% and, for the most part, they tip our staff well. It allowed us to reach out across the metro area without the up front and iffy cost of traditional advertising. I would recommend it to any business that is starting out or trying to grow substantially.

Now, the bad:

  1. Cost. We sold $20 for $10. (we get $5). That means 2000 Groupons cost us $30,000. But lets say that our real investment is only 60% (food and labor) - $18,000. Let’s say my figure of 60% new customers is correct - I got 1200 new customers for $18,000 - $150/customer. Seems high. BUT assuming an astronomical 4% return on door hangers or direct mail, I’d have to send out 300,000 mailers on a budget of .06 each. Makes it seem like a bargain. But, with mailing and hanging, I get to ration the cost over time. We had 339 Groupons redeemed in the first few weeks. That can really impact your cashflow if you’re not prepared! I’ve heard of a local upscale burger chain flirting with bankruptcy because of the ridiculous amount of Groupons they sold…

  2. My initial experience with Groupon. It was highly disorganized. They acted (a bit) as if they were doing me a favor. I waited months with no indication as to when I would be featured. Suddenly, out of the blue, I was told to appear on a conference call Thursday for “next weeks feature”. On the conference call, the scare the s**t out of you - tell you to order 250% of inventory for the week, staff an extra person on the day of the feature just to answer the phone, etc. I called my salesperson to find out my feature was Tuesday. I confirmed verbally that we were the “feature” and not a sidebar deal (bc I didn’t want to buy 250% of inventory etc, if we were the 3rd deal). I was told we were. I woke up Tuesday to an e-mail from Groupon in each of my 3 e-mail boxes for a local spa. I was livid. We were the third deal. After a day of wrangling and threatening to pull the Groupon, my salesperson learned that my deal went only to those who had identified themselves as men. To their credit, they quickly agreed to make me feature within 2 weeks and to send a new e-mail out to everyone who hadn’t already received one.

So, on balance, I recommend doing Groupon - once. We have been swamped and our kitchen has reached it’s absolute capacity 3 or 4 times (cooks standing around because there is no room in the oven for pizzas and no peels or pans left to make them on) in the past 30 days. You must recognize that it is an expensive advertising campaign and take that into account on the books.

Hope this helps someone else…

Let me see if I understand.

$20 coupon is sold for $10 which you get $5. Last I checked that was a 75% discount. Where can you make a profit on that scenario??? Buy one get 3 free. Crazy.

Pizza,

I hear you. I think that’s why I tried to make it clear in my post that the discounts given are marketing dollars! If you try to look at them in terms of typical discount dollars or Groupons, it doesn’t make sense. But Groupon has a huge database of people who actually buy things. In fact, in my metro of 2.1 million, there e-mail database is almost 300,000 (290k I think). Imagine how much you would spend mailing or door hanging 300,000. So not only did 2000 people actually pay to try my product, I also got 300,000 impressions to folks who opted in to an e-mail list FOR THE SOLE PURPOSE OF BUYING SOMETHING.

I’m not trying to shill for Groupon, but t I think the problem I’ve seen with people that have tried with Groupon and failed is their expectations were misaligned. Do the math and I think you have to agree that, if you handle the business well, Groupon (and the countless imitation sites that have cropped up) can be effective marketing tools.

The goal is to get new customers…But in talking with a couple city friends, they rarely repeat because they h have so many offers to choose from…So it will be an uphill battle to keep these “bargain shoppers” active as clients…

Royster - I think that is spot on. I do believe, however, that Groupon has become more ubiquitous - it is now squarely within the “Overton Window” such that lots of ordinary people are using Groupon. There was a time when E-bay and Amazon were only for a certain nerdy demographic. Now, each is a household name. Not saying Groupon is there yet, but the $6 Billion offer by Google is an indicator. Heck, my parents bought some Groupons the other day.

The other problem with Groupon is regulars who purchase multiple Groupons - that just costs me money. I’m sure somewhere in the fineprint that I’m prohibited from just offering the same deal directly to my regulars (at least saving me $5 on each one). That is frustrating.

One other thing I didn’t mention, there will probably be 10% who do not redeem their groupons (but I still get paid). This decreases my net investment by a not-insignificant amount (200x5 = 1000 and 1000/18,000= 5%)

Groupon Do’s and Don’t’s

Personally, having just done a groupon in October, I would advise against it and I would not try it again.
But if you must, this is for you;

Do limit the groupon to purchase of one. If the focus is to bring in “new” customers, then what do you gain by losing double the money to one person and don’t allow buy one as gift either. You will see the same people use them.

Do set your own deal. Don’t let groupon pressure you to do $20 for $10. Do $17.50 or even $15 for $10 if that is what you are more comfortable with.

Do have some working capital to make it through your major rush on your first couple of post groupon weekends. You will burn through inventory fast and remember you don’t even collect on that measly $5.00 for a month paid out over a three month period. So you are better off having all money up front, don’t look for your groupon take to recoup the losses. The math will not work for you.

Do expect to receive about 15% of the groupons in your area to be redeemed by people coming from far and wide and likely not return, regardless of how great your pizza is. I actually had a customer plan their hotel location around proximity to my shop to use the groupon.

Do expect to have customers try to manipulate the system anyway they know how. They get upset when they order specials and can’t use the groupon. Mine was set up to exclude all other offers or coupons. I would recommend this, but prepare yourself and staff. Some people never mention the groupon til they hand it to a driver or counter person. Then they get double discounts. When I told one customer that he could not combine offers, he said he wanted two seperate orders. I told him as politely as possible, "Look, I am not Papa John’s, we are a mom and pop! I just can’t absorb those kind of losses. Have a heart.

Do restrict your groupons to Monday through Thursday if possible. You know Friday and Saturday will be busy, you don’t want your base to suffer due to groupon influx.

Lastly, prepare yourself for a small, small percentage of scammers. People that will use copies of groupons and people that will just print the ad and not the groupon. You would be surprised how many people tried that move.

After frying groupon on my survey, they were excellent at responding to me and taking my feedback. Who knows what will happen, but they do need to improve. From what I have heard, they are taking steps into the right direction.

Again, if you must, it is a great way to market your company with no initial investment. But know that it is not cost free by any means.

Well my feature finally expired on Dec. 1 . I was counting down the days. About 5 days before the expiration date, Groupon sent out an email to all of the people who hadnt redeemed their coupons yet(thanks Groupon). I would never recommend Group to any small business owner. The customers seem to be nothing more than coupon hunters. Lots of scammers trying multiple times to get counter people to accept 2 and 3 of them with a single order. Also, living in a metro area(New Orleans), I personally redeemed 39% of them to hotel guests. Groupon reps claim that you will be targeting internet savy local customers. I didnt realize that people from other areas could purchase Groupons for my area(guess I should have looked into it a little more closely). Either way…its over…lesson learned and move on. No more Group buying for me.

I was researching the conversion rate experienced by other small-business owners using Groupon and came across this: Calculated Cost Of Using Groupon, Group Buying Deals To Promote Your Business

If you accept his assumptions at face value, the numbers are pretty bleak…

In the end, the business owner’s total earnings from the group buying deal reach $4,190 ($1,300 + $2,500 + $390) but his total net profits are -$5,810 (-$10,000 + $4,190). In order to make up for these losses, the owner would need those 65 returning customers to come back 9 more times ($5,810/65/[$20 x 50% profit margin]) and spend at least the same amount of money ($20). If those 65 customers don’t return 9 more times each, he is essentially losing $11.62 ($5,810/500) for every voucher that’s sold or $17.88 ($5,810/325) for each voucher that’s redeemed.

Many of the comments attached to these articles talk about how other group buying sites are popping up and their rates tend to be more reasonable. After all, these sites are really just charging for the right to use their e-mail list - is that worth 50% of the redemption price?

Edit: And here’s a list on that same site.

The mistake that all these small businesses(doing Groupon) are making is a very simple one. They are getting great exposure at a big cost and haven’t figured out that they are not harnessing this new traffic into becoming repeat customers. Its a one day rent of someone else’s data base. I built my database for ME and the only people in there are my customers. I don’t need an offer to 300000 people. I sent postcards to 10000 people and got 4000+ to respond. I control the discounts. I just need my 4000 people that are local and loyal and willing to act on my offers. 20% redemption on my 4000 is 800 discounted customers per offer, and everyone else pays full rate. SIMPLE. Reward loyalty not bargain one time shoppers.

Amen. Internal marketing to your own customers is far superior to any coupon deals. It took me a year to get out from under restaurant.com and we still have people trying to use expired certificates (over a year old).

No Peek program gives us over 5,000% ROI to existing customers and MAKEs our January. Giddyup.

The worst promotional/marketing decision I have ever made. At the time of our offer there was no “checks and balances” system in place to hold purchasers to the “Limit 3” we had agreed on. Our offer “tipped” on May 27 with a little over a 3 month expiration window, so we were done with the offer by then end of August. I actually had a woman call the restaurant on Xmas eve wondering if she could redeem the TEN GROUPONS she had “forgotten” she purchased on May 27…

WOW.

If you like that one, you’ll LOVE this: had a drunk guy come in a few weeks ago raging and swearing up a storm at my 15 year old daughter working the cash register that night (yes, actually cursing at a child) because our “deals” weren’t good enough. Said he “comes here all the time”-checked the trusty POS and yup, the only other time he’s been in was to redeem his GROUPON.

If you love customers like this, then Groupon is the way to go! Thanks Groupon, for the headache that just won’t end…

checked the trusty POS

  • you mean you didn’t wade through boxes of legal paper orders to see how often he ordered??? (I’m dumbfounded).

Okay, so the sarcasm is a bit high, but I couldn’t resist considering recent posts about running the business ‘old school.’

I think this is a great thread & subject. Thanks for sharing your experiences to the rest of us.

I agree whole heartedly with – anselmospizza

Before Groupon the local tv and radio stations were doing something called Just Pay Half. A viewer goes online and purchases $50 in GC’s for $25. The benefit to us was airtime (tv or radio)…now you did get hefty play time BUT BUT BUT.

Just like anselmospizza stated…you get a TON of Couponites or Coupon-Rich customers. YES…they try to manipulate the game by ordering over the phone and asking for your daily special…then they come in and hand over the certificate. NO MATTER what you do the come back with an arguement as to why they deserve to have ALL special pricing even with disclaimers on the certs and online. The will almost always say that if I won’t give it to them I will have to throw the food away…true but I send it to the local police department. Hmmmm, funny how they change their mind when they see you really aren’t over the barrel. The worst part is this…the cert is worth 10.00 and they intentionally spend 9.99.

All-in-all these types of offers are NOT beneficial in the long run. If you look at your ROI you hopefully break even, but most likely you are on the losing end since the majority of these “new” customers are Couponites and will go to the lowest priced shop.

BTW…the disgusting part is that prior to owning pizzerias, I was a VP of a large ad agency and thought that I was saavy…hmmmmm.

Groupon Shocked to Find it is Actually Losing Money.

Instead of earning $60.6 million for all of 2010, as Groupon originally claimed in papers filed for its IPO, the firm now says it incurred a $420 million operating loss.

So as a result they were the 2nd largest IPO in history, behind only Google’s…

http://i2.cdn.turner.com/money/galleries/2010/technology/1003/gallery.dot_com_busts/images/pets_puppet.gi.jpg
“Because investors can’t derive!”

Our local newspaper runs a similar program. After trying to figure out how you know if the customer actually has this offer when you are talking to them on the phone I decided to pass.

We did decide to try it out in our retail store. One of the key differences is that our local newspapers program allows you to limit not only the number of certificates a customer can buy but also how many are sold in total.

The offer we are running in our store is a $50 coupon for $25. Like groupon, we will see $12.50 on this transaction. The difference is that we have set up this deal so that the $50 coupon is only valid on a purchase greater than $80 at regular price. With typical retail margins, this means that on an $80 purchase we will receive $42.50 which does cover our basic cost of goods. Assuming that the average transaction will be similar to our normal average transaction the actual discount given will be in range of 20 to 25%.

I would be willing to try a similar model in our pizza restaurant if I could figure out how to keep track of the coupons without dealing with all the nonsense mentioned by the posters above.