href=”http://www.groupon.com” target=”_blank”>Groupon, the popular, online coupon service that launched less than two years ago in Chicago, has become a hit with money conscious consumers. But as it continues to expand to more and more cities including right here in Phoenix, local business owners are discovering the service isn’t without its downsides.
A Local Story
Dana Mule, part owner of Hula’s Modern Tiki at 4700 N. Central Ave., recently participated in a Groupon deal offering $30 of food for $15. The resulting hoard of customers that descended upon Hula’s to take advantage of the 50 percent off deal created havoc for Mule’s restaurant.
“Initially, it was disaster,” said Mule. “Far more people showed than we could accommodate, which made for long wait times … and angry people (which counteracts any benefit you’re supposed to get from this kind of marketing).”
How Groupon Works
The way Groupon works for consumers is relatively simple. Every day, a new local deal is featured on the Groupon homepage, sent to subscribers in a daily email and updated daily on the Groupon iPhone app. If the pre-determined minimum number of people purchases the Groupon within the established time frame, then the deal is active. If the minimum isn’t reached, then the deal is cancelled.
Mule initially decided to take part in Groupon to get additional exposure for his business and to expand his customer base, which are two of the key selling points Groupon uses to attract businesses. But as some experts have pointed out, there can ultimately be a backlash if the discount price ends up taxing a business’s ability to serve its customers, thus eroding their brand.
“The race to the bottom is never the way to get to the top,” said Ellen Malloy in a recent Reuters article regarding the Groupon phenomenon. Malloy promotes high-end restaurants in Chicago and blogs about the topic of discounting for Restaurant Intelligence Agency.
Groupon Threatens Customer Experience
According to Malloy businesses risk a cheapening effect on their brand and that the customer experience can be threatened if an oversubscribed offer ends up producing a short-term spike in demand.
Mule’s own experience with Groupon was uncomfortably akin to Malloy’s cautionary advice.
Groupon provides the business no tools to help manage the number of coupons sold – they up sell you to drive the value of the coupon up (making them more money),” said Mule. “They are not responsive with concerns – the amount of the sell given to the restaurant doesn’t even cover food/liquor cost – and they will not let you put a limit on the total number of Groupons you’d like to sell (we had to beg them to stop it at 1,000).”
After his initial experience with Groupon, Mule said he wouldn’t participate in the service again. He also advised businesses that require appointments, such as salons, to avoid Groupon altogether.
“We’ve talked to other businesses where they had sold so many Groupons that those were to only appointments they could accommodate for months, allowing them to take no additional new clients who would more likely become repeat customers,” he said.
So what do you think?