This week, Facebook dropped their (ill-conceived) “Deals” program—a relief to those of us who understand how financially crippling these hit-and-run-discounts are for the vast majority of brick and mortars. My post on The 3/50 Project’s Facebook page about the topic resurrected the debate between consumers who love getting things at cost (or below) and the business owners who have been financial crushed by these so-called “deals.”
Bottom line? Consumers don’t see the bottom line. They have no idea what these “deals” cost a merchant, how many big chains use them to crush local merchants, or how little return business actually comes from these “deals”…which is why I’m going to stick my neck out and share an analogy that will hopefully put this in perspective.
Let’s say you work five days a week, $150 per day (before taxes). Let’s also say the company you work for is fairly large in size, and that you’re somewhere in the middle of the power pyramid.
Your product is your work. High quality, well done work.
Now let’s say that one day, your boss tells you there’s an opportunity for you to become more visible in the company, which will hugely increase the number of shots you have at paid bonuses in the future, but to get there, you have to give him one work day for half your normal wage.
And since increased visibility (which leads to future bonuses) requires more than just him being pleased, you’ll also need to offer a day of work at half your normal wage to at least 399 other company employees.
Plus, you’ll need to purchase all the materials, tools, and gadgets you need to do your job—none of them will be provided by the company.
Plus, you’ll have to pay whatever expense is involved in getting those materials, tools, and gadgets to your office, including freight and taxes.
Plus, you’ll need to pay your payroll taxes on all 400 work days—including those normally paid by your employer.
Plus, you need to pay your boss an exorbitant fee up front to “get” to do this wonderful thing that’s going to propel you to the corner office with the big, bright windows.
After the boss walks away, thrilled that he’s helping you become the most recognized person in the company, you grab a calculator and start doing the math:
The number of weeks it will take you to fulfill the 400 half price “deals”:
80 (1 year + 8 months)
Wages you sacrificed to fulfill 400 half price “deals:”
$30,000
…minus the cost of all materials, tools, and gadgets needed to do your job…
…minus the taxes and freight to get all those materials, tools, and gadgets…
…minus all payroll taxes associated with those 400 work days…
…minus the up front fee paid to your boss so you can offer this fabulous “deal” …
…minus your own taxes, gas/taxi/subway/toll/bus/parking for 400 days (since those are required fixed costs, whether you offer a “deal” or not).
If there’s still money showing up on the calculator, you missed something.
Oh. Nearly forgot. There are two items you can add:
…plus you take 100% of the heat if any third party you rely on for materials, tools, or gadgets fails to perform their role perfectly…
…plus the 400 people you sacrificed half a day’s wages to impress have absolutely no obligation to ever give you a second glance in the future, let alone put you up for a bonus or a raise.
Somehow, a 50% off deal doesn’t look so great when you’re the product being sold.
(Heads up, since this is the kind of post that sometimes inspires wrath: Anonymous or fake name/email comments will not be displayed, as noted on the About page of this blog.)
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Thank you so much for your posts on Groupon! Our little shop just recently did our first (and most likely only) Groupon Deal on sewing classes that we teach in house. The classes are taught by me, the owner, so I’m not having to pay employees to teach (thank goodness!) but I am still essentially giving my time away. For the most part the students have been great and purchased most of their class supplies from us rather than the large, corporate sewing stores. The deal did seem to peak some interests in sewing lessons and we have a considerable amount of people (who did not purchase the Groupon deal) signing up for sewing lessons as well. So, I would have to say it’s been a positive experience but I can’t imagine trying to do a Groupon deal for our inventory! That would be shear madness!
You are very right about how this impacts the business. The one thing you forgot to add is the consumers who try to scam the offer. The offer will say one per person and may give 2 as a gift. So, mom buys 3 and brings her 1 year old twins in with her and uses 3 groupons. Technically she can do that.
Or she buys three and comes in once a month thinking you won’t remember her.
The truth is you will retain a very small portion of the customers that walk in your door. They are not looking for service, quality… they are looking for cheap, a bargain, what they can get for free.
I see it from both sides of the coin. I have purchased Groupons in the past and enjoyed a discounted meal or two. But, the one’s I purchased were for restaurants I already frequent. So I gained and the restaurant lost.
As a retail owner, I cringe every time one comes in. They don’t want to spend a penny over the amount of the Groupon. I was smart though, I put a higher dollar value on the Groupon than the company wanted which limited my sales. I have not been devastated by the Groupon because of this. But, I would also never run another Groupon type offer again. Potentially, it could have bankrupted my company had I not known to put the bargain in my favor.
I have also noticed the “customers” my Groupon offer has brought in. A handful have been wonderful to deal with. A good portion have been very polite and others have come in and made it clear they were only there for the deal.
Groupon has left a very sour taste in this retailer’s mouth and because of that, I won’t buy more Groupon’s as I won’t help push another local business over the edge.
Thank You!
If we could go back to selling a fair product at a fair price and illiminate the gimmicks everyone would get a fair deal!
THANK YOU! As an owner (and sole employee) of a brick and mortar (boutique), I was so happy to see this. I understand wanting to get a deal, but it is getting way out of control… What many consumers don’t think about, (in regards to (B&M) brick and mortar stores – big and small), is that not only do we have the price of the goods to pay for (and stock) – and the shipping (we B& M’s do not get free shipping) — we also have rent, insurance, electric, phone, credit card processing, advertising, cable (for internet usage) – plus the cost of packaging (bags, gift boxes, wrap, tissue – this is not cheap), displays — and lets not forget about promotional items etc… And — taking time to have to go out and find the goods ( $$ for transportation to and from trade shows, hotel costs etc.).
Sometimes I get the impression that consumers thing that B & M’s are spending nothing on the product and marking it up 1000% (especially when an on-line “store” is offering it for so much less). How are they doing it? Well, lets say they work from home — work from home cuts out all of the above expenses (minus the cost of product) – maybe they are happy to be making less than what is considered a normal profit because the do not have the expenses that a B & M have – AND, they know they can secure the sale because they are offering it for much less than the B&M — So the consumer relies on the B&M to try on/ touch / feel / view in person etc., and then proceeds to buy it from the online supplier… It is frustrating (to say the least) – Many wholesalers simply do not care if the retailer has a B&M because they just want to sell sell sell (though the “better” wholesalers may require a B&M for those who request to sell online), but then there is always someone who KNOWS how to manipulate that rule….
I would LOVE to see a blog in defense of the “small business” in regards to the wholesalers that actually sell and compete against their own buyers (retailers of their product) — (not only with their own websites but will all of the FLASH sale sites). How horrifying for a client to say “oh – I saw that brand on “blah blah flash sale site” for “a ridiculously low low price” — (lower than our wholesale price). It makes the B&M look like we are inflating our prices like crazy (absolutely NOT the case)…..
We have not tried groupon but have done some deals with some of the companies we buy product from. We got great traffic but they only wanted the deal and all the customer service -free gift wrapping etc.My employees were happy they were making loots of sales but I was losing on every sale.The only people that have come back in wanted deep discounts that I can’t afford.We give good value for the money and have always done free gift wrap,free cards, free engraving and sometimes free delivery. I love my store but I still like to get a pay check. Thanks for explaining it so well.
To “better believe I won’t”–
Yup. You’re right. Your lengthy missive submitted under a fake name, email, and website isn’t being posted. Swing back and try again—this time with legit contact info—if you’re willing to stand behind the words, and I’ll put it up (as well as read it, since I stopped by the third sentence…not a big fan of anonymous tirades).
Cinda
Great analogy! Having been both on the corporate side and the retail side, I’ll repeat what one hears so often amongst retailers (including me!): “I’ve never worked so hard for so little money.” So applying the coupon math to a ‘regular’ job gives a sense of how ridiculous it can all be when everyone wants deep discounts, all the time. I’m all for good deals and saving money, but there’s a stopping point. Go beyond that and no one can stay in business.
As a consumer, I have a slightly different perspective. I have only participated in one Groupon, and it was awful. It was a group “adventure” trip and plagued with safety issues, disorganization, poor planning and problems from the get go. I was very upset as a customer, and expected some compensation from the business since the trip was a colossal FAIL. They told all of us that were upset that since we purchased it through Groupon, we were out of luck. That pretty much soured me on Groupon. I’d rather pay full price and have good customer service. The thing is, these sort of adventure trips are usually very expensive (our 50% discounted rate was $165 per person), and without the Groupon I doubt I’d ever have thought to try it.
It never occurred to me that bigger businesses use them to push smaller ones out of business. That upsets me, and now I am firmly anti-groupon. Thanks for the perspective.
I have to say that I did a groupon in April for my flower shop. There are a few things I would do differently, but on the whole, I have been very pleased with the results. In my industry, some people prefer to “try before they buy”. People are more likely to try a new business if they have the opportunity to try it out at a discount. Yes, some of the people who purchased the groupon probably won’t return- they just bought it for the deal. One of the grouponers tried to scam me and use a groupon she didn’t even buy (long story) and then when I called her on it, she complained about the arrangement, thinking I wouldn’t charge her for it. I gave her a slight discount for her “disappointment” but charged her for the difference. I doubt I’ll ever hear from her again and that’s fine. But I have also come in contact with a few of the grouponers who were looking for a local B&M flower shop and will gladly do business with me again. Also, some of the grouponers only spend the amount of the groupon, but I have to say that some of them spend more, knowing that they got a deal. The purpose of Groupon is simple: It is meant to be a means of advertisement that directly targets the consumers of your products. It is not necessarily meant to be a money maker. It is intended to get new customers to try your product/ service and it is your job as the merchant to impress them and make them want to come back due to your unbelievable customer service and the outstanding quality of your product. The premise is that then if they are happy, they will share their experience with 5 friends, etc… So from my perspective, selling 114 groupons to 97 NEW customers (some of whom are probably duplicates), what doing a groupon may have cost me vs. the return on my investment is much more favorable than any other “traditional” advertising I have done in the 4 years I have owned my business. Word of mouth is the BEST form of advertisement, so the more you can get people talking about how great your business/product is, the more visibility and ultimately, the more business you will get. Like with anyting else in business, just be sure to read the fine print and make sure you carefully and thoughtfully design your deal so that you don’t lose out. You won’t get RICH from a groupon, but in my opinion, it is a very valuable form of ADVERTISEMENT.
@Keri:
Thanks for sharing your experience—it’s interesting to see how, occasionally, a daily deal works for someone.
As a point of clarification, however, the effectiveness of advertising—regardless of whether it’s print, air, or something like Groupon (which I don’t consider advertising, since it’s really a sale)—is unknown short term. It’s value becomes apparent only later, based on a sustained increase is your customer base, year-over-year sales, and inventory turns.
Unless, of course, the goal was to only bring those things in for one day, over one deal. Most merchants need more.
A very successful jeweler in Ellijay, Georgia shared his secret for doing so well the past two years, in spite of the down economy: Consistent, repeated advertising. When most businesses backed off from their prior ad campaigns (or looked for quick fixes like Groupon), they failed. In his case, however, he and his wife/business partner committed to sustained visibility and continuity. And it worked. Their year-over-year numbers are extraordinary, and continue to climb.
A daily deal is a short term sale. Advertising is a long term form of communication. The two are quite different, with different goals…and entirely different impacts.
There is also the other side to the coin – I recently purchased a Groupon for a 1/2 price auto detail – I had the service done at my office. To his credit, the guy showed up and did a fantastic job – so good that over two dozen people from our office stopped by my car to ask about detailing services – the guy did not have one business card, flier, or anything describing his company and services with him. He did nothing to promote himself to the full priced customers.
We used a second coupon for house cleaning – supposedly a “deep cleaning” service. The firm cancel the first appointment at the last second, after my wife had left work to meet with them. When this did come, they came late and rushed the job – nothing was even close to cleaned, just a superficial cleaning at best. And once again – no pitch – nothing to attempt to get us to sign up for further services.
Why would a business even sign up for these deals if they do not intend to use them as a proper marketing tool?