“We were so new, and it was such a new concept for Oklahoma City that we were willing to use the service to bring in customers. It obviously did that, but so much comes with that traffic,” Paul said. “We got hit hard. Also, it’s a huge discount, and there was no proof it was bringing people back in.”
The group-buying trend has exploded in the last two years, with several services like Groupon vying for their share.
Groupon’s website claims to have sold 22 million Groupons in North America since starting. Company officials would not agree to an interview unless they had the names of specific businesses with specific complaints.
right, Greg Welchel inside Trichology Salon, 14101 N. May Ave.
Groupon subscribers are able to purchase coupons good for food, merchandise or services at discounted prices. Market C offered $15 worth of its specialty food for $7. Under the Groupon business model, the company would get $3.50 and Market C would receive $3.50. Only Groupon gets paid right away, however.
Paul said the number of coupons wasn’t the only problem his store had.
“The guests did not tip well, or at all,” he said. “People were buying four, five or 10 coupons.”
Are subscribers known to show loyalty to a particular business? According to one Wall Street Journal story, only 22 percent were likely to return. This is in contrast to Groupon’s advertised numbers claiming a rate above 80 percent.
Greg Welchel, co-owner of Trichology Salon in northwest Oklahoma City, used the service in the first quarter of 2009, partly to bring in new, repeat business, a goal that he said was not met.
“We found that the quality of the new clientele was not our target market,” Welchel said. “They just seemed to grab up whatever deal was next and showed no loyalty. Our return factor was very poor.”
He said the salon has a large social media following, and because the deal was advertised on social media, many of his regulars also bought Groupons. As with the food-service industry, Welchel said the tips his stylists received were “not great.”
“I’d never do it again,” he said. “It’s hard to make a living when you’re doing such extreme discounting.”
Nothing to wine about
On Groupon’s blog, CEO and founder Andrew Mason claimed that these negative experiences are the exception, writing, “97 percent of the businesses we feature ask to be featured again.”
One of those satisfied customers is Andrew Snyder, who runs Chapel Creek Winery just outside of El Reno for Redlands Community College. He has offered four Groupon deals: three winery tours and a wine-festival discount.
“I have been very pleased,” Snyder said. “The grape crush festival we had in September normally attracts 250 people, but we presold 1,000 Groupons. We had all but 50 of them show up, so we had nearly 1,000 new customers we would not have seen were it not for Groupon.”
He said the key is follow-up sales once the customer is in the winery.
“If I don’t sell them a bottle of wine, I’ll lose money,” Snyder said. “But considering it costs $1 per customer to get them through the door, that’s a good risk. What other advertising service costs a dollar per customer?” Kurt Fleischfresser, executive chef and owner of Coach House, said Western Concepts Restaurant Group, which he owns with Carl Milam, would not use the service again.
Coach House offered $50 worth of food for $25, Fleischfresser said. Problems started almost right away. The restaurant is relatively small, especially when compared to chain restaurants, and dinner is usually busy with reservations highly recommended. The restaurant sold 1,300 Groupons.
“We couldn’t physically accommodate all those people,” Fleischfresser said. “We had to extend the offer period for two weeks to get everyone in. It’s frustrating for guests and for us because we want people to have a good experience here.”
He said the service might be a good gamble for businesses who need to get a message out and have no established clientele, and he believes Coach House did get some return customers. He said small, local restaurants should plan carefully if they intend on using Groupon.
“I think we consider this sort of service because local restaurants are competing with chains, and we’re looking for equal footing,” he said, “but you can’t treat this like your homework and wait until the last minute. Figure out what your limitations are and customize the coupon appropriately.”
Customization is key
Customization is critical, especially for small businesses like local restaurants. Paul said Groupon has improved customization since Market C used the service, but he isn’t considering using it again.
Deep Fork Group has used Groupon on several occasions for Cafe Nova and Deep Fork Wood Grill & Seafood, and customization has paid dividends for both. Manager Lauren Hale said the group would continue to use it, but target strategic seasons and times.
“Our Groupon for Deep Fork could not be used after 5 p.m. on Friday and Saturday,” Hale said. “We made exceptions based on space, but the restriction was in place. Also, we offered them during seasonally slow periods, like the State Fair.”
She said her servers also had positive experiences with tips and treatment.
“We had almost zero negative tipping,” Hale said, “and that’s because we train our servers that every guest is a good guest whether or not they have a coupon.”
For Cafe Nova, Hale said Groupon featured another aspect.
“It enabled us to establish the dining atmosphere of Nova,” she said. “Among those customers were people who had never tried our kind of casual fine dining before.”
The reviews on Groupon are mixed, and online searches can turn up conflicting information.
Considering the dynamic of pricing, Welchel said Groupon is “single-handedly cheapening the service industry.”“Some salons offer keratin treatments for $325,” he said, “but I’ve seen Groupons for the same treatment for $99. Who would be willing to pay the old price ever again?” It’s an observation that former Duke University researcher Alex Salkever takes seriously. Writing about the impact of group buying on market prices, he wrote at dailyfinance.com: “What’s far harder to predict is what the impact will be on how shoppers perceive fair value in a world saturated by group buying. By fair value, I mean a fair price paid for services rendered: a meal prepared, a night spent in a hotel, etc.”
Meanwhile, Groupon has been the subject of criticism leading up to the company’s initial public offering. Barron’s wrote: “A $10 billion market value is a lot for a company with no profits and an unproven business model. This IPO is one deal to avoid.”
to The Wall Street Journal, Groupon recently changed its accounting
metric, which “means that Groupon’s reported revenue is half what the
company previously reported.”
Want to put your local money where your mouth is? Since its inception in 1977, the nonprofit American Independent Business Alliance (AMIBA) has blossomed across the United States to cultivate a quality-driven community based in local business support. AMIBA has developed “buy local” campaigns that marry local businesses and citizens for the purpose of sustainability.
Jeff Milchen, AMIBA cofounder, expressed a few concerns with business models like Groupon:
—Huge portions go to outof-state corporations, not local business owners.
—Customers are conditioned to expect goods at prices that aren’t profitable or sustainable.
—Lured customers are more concerned with price than quality.
“America Unchained,” a campaign to promote unchaining communities from reliance on chain stores and supporting homegrown businesses, starts Saturday. For details, visit amiba.net. —Jenn Scott
Photo by Mark Hancock