This post yesterday on TechCrunch highlights the story of Posies Bakery and Cafe in Portland, Oregon, after running a Groupon campaign last year. Her shop's aggressive deal campaign ($13 worth of merchandise for $6) set her back $8,000 and caused her to need to withdraw from savings to make payroll and rent. She calls it “… the single worst decision [she has] ever made as a business owner thus far …”
Sites like Groupon and LivingSocial aim to get great deals for consumers. The deal I took advantage of when it was offered was the 50% Amazon.com deal from LivingSocial. We purchase things from Amazon all the time, so why not? It was practically a free $10 gift because there are so many things available there. For smaller businesses, the discounts can be even higher, and usually are. Posies' discount was 54%. No matter how you slice it, Groupon and other sites like it do bring visitors to your place of business.
Now, of course, Groupon doesn't do this for free, and the monetary washboarding that businesses take when selling their services and goods at a loss — plus paying for the privilege to do so — is apparently just the start of a business owner's struggle.
But I tend not to care how much a business loses on these kinds of things. It's not my problem.
A few years ago, we went to sell a few things at our local flea market. I knew there was a charge if we had wanted to rent a table, but I asked if there was a charge if we brought our own tables. The person I spoke to said no.
The day of the flea market, though, the story was different. Someone came around to collect money. When we said that we had brought our own tables, she said there was still a charge for selling even if we brought our own. I contested this, and said that an employee at the citizens' center said otherwise. At this point, she said something to the extent of: “You honestly thought that you could just come here to sell stuff for free?” To which I replied: “It seems a little odd, but who am I to argue?”
Exactly.
Likewise, who am I to argue if a massage parlor (hypothetically speaking) sells a $60 massage to me for $15? Hey, I just got a $60 massage for $15! It doesn't matter to me that massage parlor had to pay half of the discounted price ($7.50) as a commission to the middleman discounter-advertiser. It doesn't matter to me that the owner had to pay the masseuse $30 (or more) to provide the massage. It doesn't matter to me that the owner shelled out money for the essential oils, the electricity for the calming music, the rent for the building, the whole nine.
That business offered the $15 massage to me. It was a calculated business decision on their part to get me in the door in hopes that I'd come back. If they added the figures wrong when making that business decision, that is completely not my concern.
And if you're the beneficiary of a great deal, I don't think it should be your concern, either.
(Thanks to A Gai Shan Life for including this post in the Carnival of Personal Finance!)
The business owner complaining about Groupon being a bad deal has only herself to blame.
I would consider it an advertising cost. If you can’t afford the price, then don’t make the deal.
No one is forcing any business owner to do deals on the social buying sites. They also are NOT forced to discount so much that they lose money.
If an owner cannot do BASIC math they should NOT be in busness and/or the business will fail in a short time anyway.
I agree with your post – I’m not too concerned about a business’ owners wins or losses either – only if that particular business can sell me a product or service that I want. I would go a step further, though: the excitement over Groupon (especially with regard to it’s recent IPO) makes me think that this particular web business is creating it’s own niche bubble. I can’t get excited about “group discounts” for one day that weren’t selected by me. I think the tendency for users of Groupon might be to purchase goods or services that they otherwise wouldn’t bother with. And so, they end up spending $15 for a $60 massage – when they might have spent $0.
I completely agree with you and the other commenters…the business should have known what the cost was! It is ridiculous to blame anyone else.
To be fair, she was recounting her experience. She did own the decision and does not blame Groupon.
Any decent businessowner would do the math before doing a Groupon deal. The point of Groupon isn’t to make money off that deal itself, but to use it as advertising. If you buy $8000 worth of advertising, it’s considered an investment in future sales, not potential revenue-producer itself. Groupon salespeople should explain this to businessowners and help them tailor a deal that will not put them under. Perhaps a small business could put a cap on how many people can buy the deal.