I have been a huge fan of Groupon, a coupon system for local merchants, since I first heard about it last year. The site provides consumers with a way to tap into group bargains without a group, and local merchants with a way to gain new customers and increase store traffic. Strategically deployed it can enhance visibility for local merchants. One business owner, however, has shared her story of how offering a deal nearly sunk her business.
Cafe owner, Julie Burke used Groupon to offer a deal of $13 of product for $7. More than 1000 consumers bought the deal and the amount of consumers coupled with the failure to account for costs left Burke $8,000 in the red and having to withdraw from personal savings to cover payroll for the month.
According to Burke, she was hesitant about the deal and the revenue share (Groupon would keep 50% of the revenues) but against her husband’s advice decided to do it. Burke does not blame Groupon for her bad experience but shares her experience so that other business owners can learn.
Below are 5 quick takeaways from this business case:
- Know your cost to provide your product/service. If you do not have the in-house capability to develop cost data it is worth it to hire an accounting or financial professional to do this for you. VA Firms or Accounting Agencies can provide you with project based help.
- Know your capacity. Promotions when successful will result in an influx of business. Do you have the infrastructure, staffing and supplies needed to manage an increase in business.
- Never let someone else override your instinct about your business. Burke was hesitant to do the deal but moved forward because other trusted businesses had done it successfully. This is a classic lesson. Just because a bigger, higher visibility, or longer established business does something does not mean that it is right for you and your business. Trust your instincts and judgment.
- If you don’t like the terms, ask for new ones. Burke indicates that she was told that the deals could not be capped. The Groupon CEO indicates that is incorrect. People can be wrong. The sales person may have been new, overly eager to sell a deal, or just misinformed. Even if the sales person has the information correct ask for different terms. If you really want to move forward in a deal, negotiate the sticking points even if means pushing to a higher level.
- Discount carefully. Discounting to drive traffic seems like a low cost and effective solution but as Burke’s case highlights it may not make sense for every business owner. Discounts may bring in new customers but they may also bring in bargain addicts who will never support your business long term.
To their credit, Groupon’s CEO left a comment on Burke’s post with an apology, explanation and promise to “make things right.” Groupon has done a nice job of leveraging social media for marketing and it’s nice to see that they are also actively listening and responding.
I encourage you to read Burke’s account and see what other lessons you gain from her experience. Please do share your insights in the comments so that we can all learn and grow together.
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