Jessie Burke runs a small cafe in Portland and she decided to try the group deal service in hopes of getting some new customers. What she got was an endless stream of people who came for the deal and probably never returned after that.
In a recent blog post that has gone more viral than the author had hoped, Burke says that working with Groupon was the biggest business mistake she’s ever made. She takes full responsibility for her choices but still outed the company for two policies which may or may not be true.
The coupon deal was $13 worth of food for $6. What a bargain. According to Burke, the Groupon sales rep said that on deals under $10, Groupon gets 100% of the profit and the client gets the advertising. Huh? She and the sales rep came to a 50/50 agreement but the real problem came in the fact that there was no cap on the deal. To her surprise, more than 1,000 deals were sold (wow) putting her well into the hole after deducting her costs. $8,000 in the hole, says Burke.
BusinessInsider published a letter of response written by Groupon CEO Andrew Mason that states that the company does indeed have caps for deals. And because they’ve experienced this problem before, they have a set of materials to help train customers before they set up a Groupon deal.
Since the complaint made it around the web, people have commented on Burke’s post saying they’ve had similar experiences, like a spa that couldn’t handle the number of people they had to book, but many blame her for making a bad deal.
One comment suggests that losing money is part of promotion and that’s an interesting thought. I always assumed that companies took a financial hit when setting up a Groupon coupon and chalked it up to advertising costs. The idea that Gap makes a profit even when offering 50% off is bothersome. On the other hand, I also assumed that there was a cap on these deals. A cap makes sense from both a financial and marketing standpoint. The financial reason is obvious, but from a marketing standpoint, limiting a deal makes it more urgent and interesting. Only 10 left! Don’t wait.
In Burke’s defense, I wouldn’t expect 1,000 people to buy a deal for a local cafe, either. And I am surprised by the high commission that Groupon takes off the top. Gotta wonder how flexible that is because it sounds like a little pushback might have earner her a better deal.
What I take away from all of this is that you’ve got to fight for everything. Upon reading both sides of the story, it seems that she could have said you get 25% and we cap the deal at 500. That, or I walk away. Groupon doesn’t lose anything on that deal, so I imagine they would have taken her up on the offer.
Does Groupon ever publish a Groupon coupon for Groupon — 50% off commission on all deals over $10. But hurry, this offer is only good if you call within the next ten minutes.