Groupon's CEO Andrew Mason was just fired and to his credit he sent an open and endearing message out about it
Mason.
When Leaf, Barley & Vine was open I tried a Groupon program once. Hated it. No, let me be clear, HATED IT. As you can see from the picture my General Manager didn't care for it much either.
What you can see in the picture is the stack of Groupon's that were cashed in...on the last night they were valid. That's six months after they were bought. They equal about 40% of all that were bought. We got crushed. It was a Wednesday night which is normally moderate and we got killed. First time customers who came because of the Groupon probably never came back our service was so bad. Loyal customers just left and went elsewhere. Some came back another night.
We knew the number of outstanding vouchers and staffed up an additional person but it wasn't enough. If I would have called in every on-staff person it wouldn't have been enough.
That incident, however, is not why I hate the program. I hate the program because it's bad business. Great for the customer (except when they wait till the last night and get lousy service) and great for Groupon, but not for the business owner.
Reasons why:
One. Not profitable. The way the program works is you offer a service or package at a highly discounted price. Ours was $30 of appetizers and drinks for $15. The $15 was split between LBV and Groupon, so we made no profit on each one. The rationale for doing it it to bring in new customers who either don't know about you or wouldn't normally come in. And oh, by the way, most voucher carrying customers tip on the discounted amount not the value amount. If you're one of those. Stop it.
Two. One-sided. People go out and buy programs from Groupon. In our case about 500 people bought vouchers that were good for six months. So it generated $7,500. Groupon kept half and we got half. But not all at once. Groupon pays it out in thirds over two months. So they get all theirs up front and the float on yours for several weeks.
Three. Jellybeans. A long time ago as a young manager I proposed an incentive program for my employees that essentially paid them small bonuses in either cash or gifts for "doing good things". When I proposed the idea to my manager he said, "jellybeans". "Jellybeans?" I asked. "Yep, jellybeans". He went on to explain that programs like the one I was proposing was essentially a jellybean program in that if you always give your kids a jellybean to get them to do something - a chore or whatever - then all you're doing to teaching them to expect something any time they do anything. Over time they won't do anything unless there's a jellybean waiting. Groupon is a jellybean program. What we've learned is there's a large group of people that will only go out if they have a discount voucher in their hand. So you don't end up amassing a new set of customers because they go on the the next jellybean being offered.
Thus I'm not surprised that Groupon is not making their numbers, have a low stock price and fired their CEO. Too many of us tried it and said never again and then when asked by other business owners if they should try it gave them a resounding NO. Any time I'm asked if I ever tried Groupon or something similar I always answer "twice". (It's my line when asked if I've ever run a marathon. "Twice", I say, "1996 Detroit Marathon, my first and my last". Discount programs are a fad that's run their course and Groupon is on the down side of the fad.
Discounting is fine if you're a discount store and that's your business model but it's a horrible way to do business otherwise. Build your brand, deliver good service, demand quality, offer something unique and leave the jellybeans in the jar.
Posts
