Groupon. How it nearly devastated our business.

We have never experienced as much difficulty as we have since using Groupon to promote our business. The problematic incident has left us in complete disgust and in utter shock at the haphazard manner in which Groupon conducts business. Our business has suffered complete damage due to the Groupon promotion we ran last year and ot only did we experience extreme problems with everything resulting from the promotion, but Groupon decided it was in their best interest to breach our contract and not pay us as agreed for the promotion.

August 2011 marks exactly one year from our Groupon promotion ran. The more we recall our decision to use Groupon to promote our business, the more regretful we become. We had refrained from telling this story for several reasons. Firs, we were too inundated with the crazy work hours that resulted from having to keep up with the Groupon demand of 3085 vouchers. Yes, you read correctly, 3085 vouchers! It is a large number considering it had to be handled by our small, three person operated company. As time went on, the problems only got worse; we spent most of the year exhausted and disenchanted from the damage that was being done. Groupon purchasers have repeatedly called us “frauds” and “idiot business owners.” However, we never told our side of the story.

After an entire year of being blamed by our consumers for a promotion gone terribly wrong and Groupon misleading consumers in order to appear blameless, the truth must be told. It is our sincere hope that this story gets out to fellow business owners who are considering a Groupon promotion to enhance their business. There is so much you may not know and lack of this knowledge could severely harm or threaten your business.

There really is no such thing as overnight success. No business, big or small, can say they have had tremendous success easily or quickly. Certainly the recession does not help matters. It only furthers the struggle of attaining clients when consumers stop spending their dwindling disposable income on items that would be deemed “luxury” or “elective”. You quickly find that your once best clients no longer can afford to buy from you. Experiencing such decline in patronage led businesses to become more open minded to the advantages that the world of social media could offer. Social marketing via daily discounting sites were seemingly non-existent in the business world prior to 2009.

Groupon, the mega-giant who in less than two years has grown to yield $878 million in revenue in just the second quarter of 2011 alone (see Forbes). The deep discounting site negotiates deals from businesses of all types, with usually one being featured each day; in each city. Discounts typically range from 50% to 95% off the regular price and are usually available for only 24 hours to purchase. This marketing scheme creates a tremendous buying frenzy fueled by consumers’ desire to obtain an amazing discount which often leads to consumers obtaining discounts for things they don’t even need or particularly want. Consumer-demand for Groupon’s daily deal has intensified like wildfire, and in just a matter of months, they have gained an opt-in email audience of 33 million subscribers in 35 countries (See Reuters).

This tremendous growth has garnered the attention of many business owners who see Groupon as a potential tool for new customer acquisition. You see it every day; where a small business sells thousands of these coupons in just a matter of hours, and in some cases selling an insane amount such this Chicago Bagel Cafe who sold close to 10,000 Groupons (See Chicago Tribune).

It has become nearly impossible to shop online without being directed to Groupon.com or one of its hundred clones where thousands of popular and large businesses such as “The Gap” are electing to be featured. This alone brings one to believe that the Groupon model is working regardless of the fact that Groupon has yet to turn a profit, and in fact, as of August 2011, it is accelerating its rate of loss (See BBC News Business).

Groupon poises itself as the authority in discount retailing, offering deals that dwarf the deals available from businesses such as the dollar stores, Wal-Mart, Target and Forever 21. Groupon salespeople sell a “who’s who” by making business owners believe they should feel “honored to be chosen” into what seems a genius and proprietary marketing strategy.

Groupon: The worst business decision we have ever made.

Our business, The Laser Genie, a Laser Aesthetics Clinic in Beverly Hills, has suffered complete disaster in the form of brand erosion, as well as incredible financial loss as a result of a Groupon promotion. Such an outcome was in no way our expectation, nor wish, and the damage done is irreparable. If any of this was forewarned or thought possible, we would NEVER have agreed to do business with Groupon in the first place. We trusted Groupon and their employees who positioned themselves as those who care for the businesses they feature; In turn, we suffered and nearly lost our business from their blatant lies.

Bleeding Discounts

· Only your best-selling items/services will be considered
· You need to offer at least a 50% discount; a bigger discount will garner a chance of being “featured” as main deal of the day.

These are a few ways that they urge you to compete with similar offers/vouchers that have run in the past. Groupon’s great “no upfront cost” marketing strategy asks your business to offer at least 50% off your product or service; it then takes 50% (or in some cases 100% depending on what industry or price point your offer falls in). Groupon contractually agrees to pay you in 1/3 increments in net 5, 30 & 60 days from the date your deal goes live. So by offering a 50% discount, you are to take 75% off your product or service and to receive that money, not immediately, but deferred over time. This is in effect a loan from the business to Groupon at zero percent interest, while the businesses struggles to retain daily cash flow that no longer exists once Groupon’s redeemed are the bulk of daily transactions.

For most service businesses, a 30% margin markup is the minimum needed to cover the cost of rendering that service, and for retail products a minimum 50% markup is standard. It is what keeps the lights on, employees paid, etc. Such deep discounting puts a huge strain on the business, cash flow, resource management and many times forces the business to take loans or use credit cards to finance the business operational expenses in the interim. However, our decision to involve ourselves with Groupon was based on trust. Namely trust in their lie that “97% of businesses that are featured on Groupon ask to be featured again” (See Groupon.com). Groupon’s blatant lies led us to believe that such deep discounting was what would bring long-term customers to our business however it proved to be the opposite as well as mathematically disastrous.

Never Pay Retail Price Again

For consumers, it is smart, savvy and necessary to save money wherever possible. So why not buy a Groupon for a business you like or want to try out? In some cases, consumers opt to buy a product or service they normally would not purchase or even need; they believe the experience would be great and worth paying a discounted price for. Groupon has trained the market not to pay retail price again. Brand loyalty is overshadowed by money saving. Likewise, consumers are feeding their sense of adventure by buying Groupons for companies that are sometimes too far from their home or work to ever return to, let alone become a loyal client to. For the consumer it even makes sense to wait for the next provider to appear on Groupon to continue receiving a similar service, especially when the quality comes from businesses eager to attain new customers. Consumers do not know that businesses that run Groupon rely on future sales to offset the discount given in the first place. Such lack of client loyalty further exacerbates the struggles of a small business, and thwarts the business’ best efforts to remain price competitive.

Lack of Sales Beyond The Voucher

As a business, Groupon leads you to believe that Groupon purchasers will purchase beyond the Groupon voucher amount. After all, you the business owner and your staff are so cute and charming, right? Why wouldn’t there be future sales? Such does not always prove to be true. In our unfortunate case, Groupon led us to believe that a higher voucher value was best and strongly urged us to offer such. However, by offering such a high value on our voucher, we essentially killed any chance of future sales.

Additionally, people believe that a number of people will forget they purchased the deal, and never walk in to use their voucher, effectively giving the business “free money” as some call it. Likewise Groupon convinces you that a large number of customers will forget or probably not ever redeem their voucher. This does not prove to be true.

Groupon purchasers are by law, still able to use a Groupon voucher beyond the expiration date and in some states, these vouchers have been seen as a “Gift Card,” thus illegal to expire. Besides, Groupon’s contract declares that the business must honor the voucher past the expiration date, for the value of what they paid for it.

Gaming the System. The Business, (Not Groupon) pays for vouchers used and/or returned.

Liberal return policies work well for massive retailers like Groupon or Costco. It absolutely makes sense for some retailers to accept returns and offer refunds; it reinforces customer loyalty. Allowing customers to return to your retail market to receive a refund for their returns make customers feel more at ease at the time of purchase knowing they can always return if they change their minds. Such return policies generally count as a positive for the business, however this model does not work for service companies like ours because we cannot recoup the cost incurred to render the service in the first place if we issue a refund. If a customer wants a refund, chances are they are highly unlikely they will buy from you ever again.

When using a Groupon voucher, if a customer changes their mind, before or after the voucher is used, they can receive a refund with no questions asked. After our deal went live, and sold 3085 total vouchers, it only took a few weeks for our schedules to be booked three months out. Within a short amount of time, we had to tell our customers that they needed to wait several months before they could book an initial appointment. Certainly it was not our desire to keep clients waiting however we could only see a certain amount of people per day. This situation caused many clients to be angry and demand a refund for their Groupon voucher. In some cases, certain clients would use their Groupon in full, and then return to Groupon for a refund.

Groupon at which point told us they would pay for anyone who received a refund for these vouchers as well as any unused refunded vouchers. As time went on and the number of refunds naturally accrued, Groupon began refunding hundreds of clients who had already received their services from us, and in some cases, offered refunds to clients who continued to come back for services even after their voucher was refunded.

While this may be great for the consumer and increases their loyalty to Groupon, what many people do not realize is that Groupon does not actually foot the bill for these returns; instead they deduct the amount from what they owe to the business at the 30 and 60 day points when additional checks are due. This results in the business losing money every time someone gets a refund from Groupon, after the service has already been rendered.

False Groupon Vouchers

We had an unbelievable amount of Groupon vouchers that would not work upon entry into the online system Groupon gave us to use. “Groupon already redeemed” and “Groupon no longer valid” were just some of the error messages that popped up when entering a Groupon number into the Groupon system. Such situations leave the business and representatives in the awkward place of confronting the client and having this escalate to an argument. The alternative method of determining if a Groupon was valid was to check the “customer list” that Groupon provides. The customer list contains a single line with a 7-digit number identifier and the customer name for each person who purchased the Groupon voucher. The problem here is that many of the names are just initials or slang names that people go by, making it almost impossible to verify whether one person is attempting to redeem the ONE Groupon voucher. While this may not be a large inconvenience when dealing with a list of a few dozen people, our list contained over 3,000 names and the reality is that attempting to sift through this list for every incoming client while they are waiting for service is impractical at best.

No Show and Appointments Missed

A cancellation within 48 hours leaves an empty slot in the schedule without any time to reschedule another client. Therefore, when a client misses an appointment, we kindly remind them of our cancellation policy, although we always allow a subsequent appointment for them without a penalty. However attempting to follow the same policy with the Groupon purchasers was next to impossible. We found that a large percentage of the 3,085 people who purchased the Groupon vouchers were not honoring the 48 hour cancellation policy (regardless of two reminder emails and sometimes a phone call). Given that the practitioner who renders the service is paid on an hourly basis, these no shows became a massive cost of over $10,000 in losses every month which forced us to enforce our 48 hour cancellation policy as our business could no longer afford to do otherwise. This only angered the clients and caused tremendous conflict. While we totally understand things happen to undermine even the best planning, we simply could not afford to lose the business in trying to bend this rule.

Ridiculous Requests

It was sheer amazement to us to see the tremendous amount of abusive and rude clients coming to us through our Groupon deal. It became commonplace to have a client wave their finger at us, or order us to do what they wanted regardless of whether it was medically sound, ethical or within our ability to fulfill. We faced threats of negative online postings if we did not comply. We regret to say that such threats did scare us into quickly complying with a myriad of random and sometimes insane requests. For instance, we had a client who was about to receive a liver transplant come to us for laser hair removal through her Groupon voucher. The client emphatically tried to convince us that she should receive the service even though our medical doctor advised her that it would be best for her to refrain from our service.

Or the lady who came to her appointment with her 6-month old baby (after a webpage specifically dedicated to Appointment Ettiquette had been published and this specific issue mentioned in that text as well as an email appointment confirmation). She was scheduled for a 1pm appointment, however showed up at 8:45am. A staff member had notified the scheduled nurse and was able to get her to come earlier to accommodate this patient. This patient was then seen at 9:30am, and wanted to bring her child in with her while she was to receive the treatment. We gently reminded her of our policy and even explained in detail WHY we do not allow children in the treatment room. She fired back with “well I’m a nurse and certified to do laser treatments and what you are saying is wrong” and since we did not render the service for her and told her to come back at a later date, she decided it would be best to mention that she would post negatively on Yelp if we did not give her the service on that particular appointment, to ultimately leave angry and post on Yelp, saying that we 1) did not have her appointment in the books, 2) the nurse arrived late for her appointment, and that 3) our decision to not render the service for her was ridiculous given the fact that she is a nurse as well. Now some might say we should have just given her the service. However, for us, such would never be the case. While there are studies that prove there are no contraindicating factors for laser hair removal radiation, we believe such is best for a 6month old baby to refrain from, as well as the fact that the protective eye-wear that is required to wear while in the laser room, would not fit the child.

The most problematic request was from clients who wanted to “rearrange” the deal we had structured. Our deal was for 6 body contouring treatments, and 4 small-area laser hair removal treatments. A client would say “well I don’t want body contouring, can I trade those treatments for laser hair removal” to which we first replied “no, the deal was SPECIFICALLY structured for body contouring.” On a side note, the reason we even wanted to do a Groupon in the first place was that we had just gotten the Body Contouring Laser, and the service in particular had not been purchased as much as our laser hair removal. We contacted Groupon because we wanted to showcase THIS specific service, and they continued to insist that we bundle it with laser hair removal to have the strongest selling point (for Groupon that is). While we continued to explain that laser hair removal was a very strong seller, and in fact, we did not need any more clients for that service as we were near capacity, Groupon continually insisted. So we eventually agreed to our chagrin. So the clients would then say “since the deal is for $2,080 of services, and I do not want body contouring, that means I can get that dollar amount for laser hair removal.” This then escalated to “well, I only want underarms or upper lip laser hair removal, which costs $150 and $75 respectively, so that means I can either get 13 sessions of underarms ($2,080 divided by $150), or 27 sessions of upper lip ($2,080 divided by $75). So essentially, a client would ask that we honor their Groupon voucher for NOT ONE appointment, but 27 appointments!!!!!!!!!!!! Additionally, the majority of the 3,085 Groupon voucher holders that we interacted with in the 4 months we we were doing the Groupon appointments, asked for the same. So now, the Groupon deal was not just ONE deal, it was 50 different deals, all different based on what each customer was asking for. In hindsight, this was the causation of our problems, because the minute we stopped honoring changes to the Groupon deal, is when clients fired back. It was too late that one point to say “well now the Groupon deal is what we originally structured”. We painted ourselves into a corner, and there was no way out but to honor 27 appointments for an individual. If you can do the math, lets say 300 clients wanted 50 different deal types, so each of those 300 appointments would draw out to 10,20,30 appointments, and the nurses in continually confusion as they would have to continually recheck everyone’s file to see what each client was given. It was a nightmare to say the least, all while we tried so hard to please each and every client.

The stories go on and on, all with different nuances where a client would argued profusely with us, leaving us in a tough spot to argue back our position in the presence of other clients who had no idea what the whole story was all about. We ultimately denied certain individual the service; only for them to retaliate by posting a bad review on Yelp, conveniently omitting the truth in the story. Let it also be said, that there were, of course, many lovely clients who came to us thru the Groupon, who could not afford our services, and thus using a Groupon was the only way they could receive our services. We were delighted in the fact that our discount actually helped many to receive the services they wanted. However for such to almost bankrupt our company was not something we could do. Which is what precisely was happening.

Quality Assurance Depleted

In any business, there is an amount of resources dedicated to quality assurance. For us, this involved reviewing client files/progress, reviewing sales, balancing the budget and cash flow, and employee management as well as the myriad of other tasks that keep business owners inundated with analytic information.

Insane volumes that result from Groupon promotions thwarts a business’ ability and resources to deliver their best services. Before Groupon, we typically worked a neatly scheduled 4-6 days per week, one Saturday or Sunday per month, and one long evening per week. Under the Groupon stress, we were open and working every day for 10-12 hours per day, essentially leaving no time for other aspects of our business practice that needed to be in place to ensure a smooth business operation. (As time went on and exhaustion forced us to close certain days, we only receive more bad reviews because clients now thought we were “blacking out” dates in which they could get their appointment.)

Additionally, when you are in a frenzied pace to deliver a product or service, that time spent for quality assurance is spent for other aspects of the business. This puts the business in an extremely vulnerable position to make mistakes. Such a situation is sad, since what most business owners and representatives really want to do a good job; making people happy with their purchase. Being in a position like this is unfortunate, unnecessary and avoidable!

Colossal Losses From Groupon

Aside from the rude customers, the financial losses, and our company brand eroding, what we am most upset with is the fact that Groupon decided it was best not to even issue the third check that was contractually owed to us. A little over $60,000 was due for a third and final check, and they weaseled out of the payment through emails such as this:

Our accounting department has undergone some restructuring and has implemented a number of policy changes. From this point forward, prior to issuing payment we are requesting to review our vendor’s financial statements, including: (1) balance sheet; (2) income statement; (3) statement of cash flows and (4) credit report (if available). The information provided is solely for our internal use and shall not be disclosed to any third parties. If you desire, Groupon is willing to sign a confidentiality agreement in which we will agree to maintain the confidentiality of the information and data contained in the aforementioned financial statements.
Thanks,
Katie
(from kwest@groupon.com on September 8th, 2010)

With that email and two months of going back and forth with their representatives, all while footing the bill for hundreds of appointments given to the consumers in the interim, it became clear that Groupon had no intention of paying us the final check that rightfully should have been given to us. This situation forced us to stop accepting more Groupon vouchers which only led to more angry customers and Groupon writing their customers this email:

Unfortunately we’ve had to cancel your Groupon with The Laser Genie due to complications with scheduling. After several other Groupon customers requested refunds due to this issue, we’ve determined that this is the best course of action. We have automatically issued a refund for the full amount to the credit card that you used to make this purchase. I know how disappointing it is when a great deal is no longer available, but we at Groupon will do what it takes to ensure all of our deals are up to the Groupon standard.

My sincere apologies, and thanks for using Groupon (See Groupon Letter).

Joe Harrow.
Director of Customer Experience

Hardly the truth, since we only began denying appointment requests until after Groupon confirmed they would not pay us the third check. All after multiple communications from our lawyer to Mr. Eric Lefkofsky himself. Maybe he was too busy cashing out the hard earned money from the millions of businesses like ourselves that have given Groupon a free loan, to ever care to respond. “family have already cashed out $382 million from Groupon before the IPO filing. (The other founders, Brad Keywell and his family cashed out $156 million, Andrew Mason, $10 million).” (See Social Beat).

Light at the end of tunnel.

It’s been close to nine months since we stopped honoring Groupon vouchers, and it hasn’t been easy. We still get bad reviews from angry Groupon clients. Really bad reviews.

Although we understand their position as a consumer, from a business stand-point, it’s certainly unfair. Hundreds of clients were given thousands of dollars of free services from us and a refund from Groupon for the vouchers they purchased.

We did our very best to get ready for the Groupon influx. We contemplated what our “best case scenario” would be for our Groupon sale, and we adjusted accordingly to get ready for the sudden increase in demand. Among some of the things we did: we purchased additional and very expensive ($90,000+) equipment needed to render the services, enlisted a prominent online booking software to allow clients to book themselves directly online, and hired several staff members to handle the appointment intake, calls and emails and to render the service. We even waited on running our Groupon deal until after we moved into a bigger and better location (much to Groupon’s chagrin and subsequent sassy attitude about delaying us in queue).

How We Have Changed.

We think “organic.” As in, the way the business runs is focused on natural growth. We have chosen this as the best business model to use in our attempt to gain clients. Like the good ol’ days when sweat equity and hard work were all you needed to build a successful business. It was the business that had agility to change, speed in improving with new knowledge and technology and err on the side of conservatism that brought business practices to “success” in the financial terms. Oh, so much has changed with the economy.

The past couple of years have been tough both as a business owner and as a consumer. However, with time and resilience, our troubles will soon slowly fall behind us. Above all else “tortoise wins the race” mentally is our new strategy to get our business to flourish over the years, and we will take what anyone tells us “is the thing to do” with a grain of salt.

For the business owners who read this and still want to carry out a Groupon promotion, here are some things you may want to consider to prevent falling prey to this system.

• Put a cap on it. Limit the deal. Limit the deal. Limit the deal! For
small businesses, keep it under 250. Medium businesses with multiple locations 500. Never go beyond 500, regardless of what the Groupon sales rep says “works best”. Remember, the sales rep cares only to sell as many as possible, and has zero experience running a business.
• Sell no more than 1 voucher per person; anymore and you will be making money for Groupon, and not your business.
• Charge tax and 20% gratuity on the value of the item/service (when applicable) before the voucher gets redeemed.
• Get acquainted with other business owners. We were absolutely shocked to see how generous people on the phone could be when you inquire about their business. Most people who answer the phone in a small business are the owners or managers and know the score. Introduce yourself, ask questions; you will be surprised to see how much they open up. Coincidentally, after we spoke to several other businesses who also issued a Groupon, we heard very striking similar horror stories.
• Set strict redemption guidelines. Stick to those guidelines no matter what.
• Personal service industries should never participate in such deal sites; restaurants, theaters, and dance studios seem to get the best response.
• Do a discount for something that you may already give deeply discounted, or for free. We have seen dance studios do very well with Groupon, generally because in normal situations, the first class is usually free. So offering a discount for this, make tremendous sense.
• Be prepared for bad reviews. Grouponers complaining about the most unimportant aspects of a business, for instance, the building paint is chipping, or the front office girl does not have a 24 hour smile plastered on her face at all times. Develop a thick skin or refrain from ever checking review sites.
• Finally, if we may quote the famous adage by Andrea Del Sarto, “less is more.” We believe its far better to have a few great clients than a lot of bad ones.