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Groupon Disaster: Baker loses 12 months profit and is driven to brink of ruin by Groupon "success"

by Thomas
33 replies
A good example of what not to do, methinks...

Groupon baker nearly ruined after bargain hunters flock to her 75% off web deal | Mail Online
#baker #brink #disaster #driven #groupon #loses #months #profit #ruin #success
  • Profile picture of the author mrjosco
    Agreed. Never agree to sell a product for less than cost.

    Of course, that should be the first thing any business owner learns.
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    • Profile picture of the author Andy Money
      Originally Posted by mrjosco View Post

      Agreed. Never agree to sell a product for less than cost.

      Of course, that should be the first thing any business owner learns.
      Seriously. Someone like that would have put themselves out of business anyway, given enough time.
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    • Profile picture of the author Mark Hess
      Originally Posted by Thomas View Post

      This story really hit home for me as my mom had a small bakery for years... I can just imagine the hell they went through...

      Originally Posted by mrjosco View Post

      Agreed. Never agree to sell a product for less than cost.

      Of course, that should be the first thing any business owner learns.
      It's called a 'loss leader': Loss leader - Wikipedia, the free encyclopedia
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      • Profile picture of the author mrjosco
        Originally Posted by Mark Hess View Post

        This story really hit home for me as my mom had a small bakery for years... I can just imagine the hell they went through...



        It's called a 'loss leader': Loss leader - Wikipedia, the free encyclopedia
        Loss leaders work when you plan in advance. It doesn't do any good to sell a product at below cost only to be overwhelmed and unable to provide quality.

        This business owner has a bad relationship with many of those who purchased the product. The article even mentions how they had to assign an employee to field unhappy calls because product wasn't being delivered on time.

        Also, typically, a loss leader is used to draw customers who are then upsold or purchase other items that are profitable - making the total transaction profitable. A 'loss leader' is rarely an excuse to conduct sales that bring in less revenue than the cost of the transaction. They are bait. Not only did she not offer a profitable upsell, but she would of been unable to handle the work load of a profitable upsell. It doesn't look like she packaged profitable items with this sale either.

        a "loss leader" is a strategic approach that offers a portion of the transaction at a loss so that you can generate transactions that, in whole, are profitable. This owner had no plan to turn this into a profitable transaction.

        The idea of a 'loss leader' for a small scale retail marketer is really dangerous. Especially when the promotion is being run by a third party so your contact with potential 'future' clients is only through the middleman.

        I have another term for it: A bad idea. For most industries there are much better ways to spend 'marketing' dollars without leaving a bad taste in customers and employees mouths.
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        • Profile picture of the author Mark Hess
          Originally Posted by mrjosco View Post

          Loss leaders work when you plan in advance. It doesn't do any good to sell a product at below cost only to be overwhelmed and unable to provide quality.
          I was simply referring to the strategy of using Groupon in the first place to attract business and responding to this comment:

          Originally Posted by mrjosco View Post

          Agreed. Never agree to sell a product for less than cost.

          Of course, that should be the first thing any business owner learns.
          Obviously, this business owner used the 'loss leader' strategy without much thought or planning...
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  • Profile picture of the author Melissa82
    With all this attention she is getting now I hope she flourishes in the future.
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  • Profile picture of the author pacelattin
    Article didnt mention that hasn't been paid by Gropon yet.. they are 4-5 months behind payments.

    She should have at some point refused to take anymore, or limited the offer on groupon to a limited amount of people.. really, wtf?
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  • Profile picture of the author Dan Bainbridge
    Err, isn't everyone overlooking the fact that shes now got 8,500 new buyers... she paid £12k for that list... a little expensive, but not bad.... for sure, if she sends them all an email with another offer on it (a profitable one) then she will make the money back pretty quick...

    Isn't this what we all do? Make a loss to get a subscriber and make 5x, 10x over the <insert timescale>
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    • Profile picture of the author KabirC
      Originally Posted by Dan Bainbridge View Post

      Err, isn't everyone overlooking the fact that shes now got 8,500 new buyers... she paid £12k for that list... a little expensive, but not bad.... for sure, if she sends them all an email with another offer on it (a profitable one) then she will make the money back pretty quick...

      Isn't this what we all do? Make a loss to get a subscriber and make 5x, 10x over the <insert timescale>
      Groupon doesn't give you their information...
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    • Profile picture of the author JEasy
      Originally Posted by Dan Bainbridge View Post

      Err, isn't everyone overlooking the fact that shes now got 8,500 new buyers... she paid £12k for that list... a little expensive, but not bad.... for sure, if she sends them all an email with another offer on it (a profitable one) then she will make the money back pretty quick...

      Isn't this what we all do? Make a loss to get a subscriber and make 5x, 10x over the <insert timescale>
      Unfortunately, the people that take advantage of this Groupon type stuff are cheapskates and would have never stumbled across her business if it wasn't for cheap pricing. Once the price is back to reflect the true value of the service she provides...there outta there. They'll just go looking for the next cheapskate deal. These are also the same losers that will do the most complaining about service.

      I worked rental car for a number of years and faced the same issue with companies like priceline, hotwire, etc...

      Consumers need to stop being afraid and ultra cheap and pay for the value they're getting.
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      • Profile picture of the author Dan Bainbridge
        Originally Posted by KabirC View Post

        Groupon doesn't give you their information...
        They have to supply their details to actually receive the order right?

        If you're clever you have a coupon entry on your site and ask for their email upfront... im sure she probably didn't do this, but she still has their names and addresses at minimum...

        Originally Posted by JEasy View Post

        Unfortunately, the people that take advantage of this Groupon type stuff are cheapskates and would have never stumbled across her business if it wasn't for cheap pricing. Once the price is back to reflect the true value of the service she provides...there outta there. They'll just go looking for the next cheapskate deal. These are also the same losers that will do the most complaining about service.
        My businesses are DRIVEN by these cheapskates and freebie seekers... I love them. They join my lists for free products, they get educated on my product, how it works, how to use it, and then they receive offers... and then they convert like crazy - these freebie seekers are the staple of my business, I'd have nothing without them.
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    • Profile picture of the author Fraggler
      Originally Posted by Dan Bainbridge View Post

      Err, isn't everyone overlooking the fact that shes now got 8,500 new buyers... she paid £12k for that list... a little expensive, but not bad.... for sure,
      Aren't you overlooking the fact that she has to up her production by 1000% to meet the order; take a £21,250 loss; be unable to take on any new business until the orders are cleared (10 months); or have to pay for new staff to help clear those orders; take so long to deliver the orders for the 8,500 bargain hunters that they probably won't want to buy again after the 10month delay anyway.

      There are heaps of cases like this one. Groupon should start being proactive in helping their clients. They have a business which is leaving both clients and their customers unhappy and surely that will run out soon enough.
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      • Profile picture of the author fluffythewondercat
        The article in the Daily Mail got it wrong.

        It says the baker normally sells 100 cupcakes a month. That's impossible. She sells them by the dozen, at 26 pounds/dozen. That means she'd only make 8 sales a month! She has six people working for her normally.

        Now if they meant she sells 100 dozen cupcakes a month, that I would believe. It's still not great, but it's believable. No wonder she wanted to get more traffic.

        Groupon should have told her what could happen. But Groupon sales reps work out of boiler rooms and have quotas -- they'll say anything to get a merchant to sign up.

        I've said it before -- Groupon won't endure because there's not an unlimited supply of merchants for it to gobble up.

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  • Profile picture of the author TinMan100
    Guess she should have offered a dimesale and an OTO !
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  • Profile picture of the author danr62
    Groupon is a loss leader strategy. If you can't collect their info to continue marketing to them then you lose with Groupon.
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    • Profile picture of the author MichaelHiles
      Originally Posted by danr62 View Post

      Groupon is a loss leader strategy. If you can't collect their info to continue marketing to them then you lose with Groupon.

      Bingo. Unless you have a very deep understanding of your customer (particularly your lifetime value, etc..) you shouldn't be wading into the Groupon waters.

      Most small business owners that I've seen venture out into the deal of the day land have such a skewed perspective. Most are trying to figure out how to actually make money on the Groupon itself.

      Groupon allows a business to amortize the marketing cost out of operations. Instead of writing a check to the local TV station or newspaper on the front-end of an unquantifiable ad campaign, Groupon allows the business to pay for the marketing out of each transaction when the customer redeems the voucher. Most businesses are operating at far less than peak capacity, so you're already paying the overhead whether that Groupon customer shows up or not.

      You can run a loss on the Groupon transaction as long as your true LTV for the customer is much greater.

      From the sounds of it, this business owner had no idea what they were doing.

      Unfortunately, there are a lot of Groupon reps out to only make a commission, and won't alert a client of the potential pitfalls in their campaign.
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  • Profile picture of the author Melvin San Miguel
    Any business should know its all about covering their costs, I suppose we all learn from our mistakes and never do them again.
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  • Profile picture of the author onSubie
    Hi

    Great article! Nice find.

    This is similar to a Toronto, Canada butcher who offered $400 worth of beef for $99. He sold $2.1 million worth of coupons for almost $9 million of pre-ordered meat.

    Here is an article from the local paper:

    http://www.thestar.com/article/10163...-t-meet-demand

    The thing merchants need to think about before entering these deals is "do I do better if more people take the deal?". Depending on the business, you could be in trouble if you treat it as a loss leader.

    Especially with these groupon-type sites, most deep discount coupon users are a one-time customer who is just seeking the best deal. Then on to the next bargain.

    In the OP article, the woman was still making £2.50 per order, but the extra staff and costs ate that up and more.

    Another Toronto butcher published this excellent article about how discount coupons are not sustainable in the food industry. The article gives a great overview of Gross Margin and Operating Costs with a nice chart showing the percentages for various industries:

    Live to Eat - Volume 39

    Both excellent articles. All offline marketers and their clients should read the second.

    Mahlon
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  • Profile picture of the author onegoodman
    Groupon is a way to get a lot of people with a lot of losses. I think a business must not use Groupon if he doesn't know how to utilize the people coming the best to come back.

    One more mistake I saw many shops do it as a desperate try to survive which is just wrong. Unless you have a good amount of cash and in a good stand you shouldn't jump into it. It cost 75% to go with a camping with Groupon. It is a hell of a money business owner are risking.
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  • Profile picture of the author AceOfShirts
    I was really close to offering a Groupon deal on my custom shirt printing business. This has definitely opened my eyes a little more. I kind of figured out is was going to require basically a 75% discount, but the other little things I've learned in this post really make it look bad.

    I guess the thing is to learn from other people's mistakes.
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  • Profile picture of the author Fraggler
    The business makes more than cupcakes but yeah - I think they meant 100 packs of cakes. It's the dead time and direct loss that will hurt businesses taking these opportunities. A lot of hair dressers have been burnt by over committing (or not being properly advised on how popular the offers are).
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  • Profile picture of the author E. Brian Rose
    What this woman failed to do was set up a proper sales funnel. It's OK to have a loss leader on the front end, but only if you have a high converting profit item or items as the upsell.

    #WINNING
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    • Profile picture of the author E. Brian Rose
      Originally Posted by shiningshaw View Post

      you guys have a competitive discussion
      Wow. Thanks for the input. Are you trying to get your post count up to PM spam or sig file spam?
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    • Profile picture of the author Fraggler
      Originally Posted by E. Brian Rose View Post

      What this woman failed to do was set up a proper sales funnel. It's OK to have a loss leader on the front end, but only if you have a high converting profit item or items as the upsell.

      #WINNING
      Why isn't Groupon educating their clients about this? Everyone loses when situations like this occur. The vendor ends up broke; the customer ends up with no product, poor service or no service; Groupon churns through one more client who won't come back and the negative media that follows it.

      I realise these vendors may be naive but Groupon (and similar spinoffs) aren't much better with what seems like little care to whether their service will suit certain businesses. How many horror stories need to be heard before their customers stop turning up...
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  • Profile picture of the author kirajx
    Well, at least this will make her shop famous ...
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  • Profile picture of the author Alfred Shelver
    I have seen Groupon offers of 50% and 33% why would she go so low, I am suer 50% would have brought more money and less clients. I guess hindsight is 20/20, but that is a shame and definitely a good lesson to be lEarned there for anyone who can grow too quickly
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  • Profile picture of the author Bruce523
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    • Profile picture of the author Your Brand Ebooks
      (apologies if someone else posted similar; I checked though and didn't see anything)

      Groupon is in trouble financially. Google for "groupon in trouble" and you'll see many articles from reputable sources like Wall Street Journal.

      Groupon was mis-preporting their revenue (almost by double!) which sent waves of mistrust, and realization that they weren't as profitable as they first seemed--both which hurt their future IPO offering. Plus advertisers are now running the other direction, after finally figuring out that customers sent to their restaurant or other business probably won't become regulars. This is because Groupon users don't become loyal returning customers of an establishment, instead they just go from deal to deal and will use whatever restaurants & services have groupon discounts that day.

      Also, when a restaurant for example offers a 50% off Groupon, they only receive 25% of the normal cost of that meal, after Groupon takes their cut. .....so, they're selling their food at 75% off to customers who won't be returning as regulars. Advertisers have finally figured this out, and the word is out.

      .
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  • Profile picture of the author Karan Goel
    I think it would have been a better option to
    giveaway cash to people, than to invest it in
    making stuff, marketing, selling etc.

    Karan
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  • Profile picture of the author The Copy Nazi
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    That publicity is worth a lot of money. She needs to capitalise on it - possibly through Social Media - get something viral happening. Call herself "The Cupcake Queen" or something. I'd be doing a press release saying something like "We're so proud of our cupcakes we were prepared to take a £XX,XXX loss to show the world how good they are". Then follow up with another promo - one that makes money. Or hold a competition - like the "Golden Ticket" in the movie "Charlie and the Chocolate Factory". I smell money. And I smell a Viral opportunity here. A natural for Facebook.
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    • Profile picture of the author Andy Hart
      Originally Posted by The Copy Nazi View Post

      That publicity is worth a lot of money. She needs to capitalise on it - possibly through Social Media - get something viral happening. Call herself "The Cupcake Queen" or something. I'd be doing a press release saying something like "We're so proud of our cupcakes we were prepared to take a £XX,XXX loss to show the world how good they are". Then follow up with another promo - one that makes money. Or hold a competition - like the "Golden Ticket" in the movie "Charlie and the Chocolate Factory". I smell money. And I smell a Viral opportunity here. A natural for Facebook.
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    • Profile picture of the author Alessandro Zamboni
      Uhm, this is not possible! How can a seller sell for less of what he pay?
      This would be a destructive advertising... Groupon has put many shop owners to bankruptc, but this depends just on their idea of marketing.

      Offering a discount it's good, going in loss it's not good! So is important to always sell on a discount, not in loss. And it's better to evaluate the maximun number of sales one can do before going crazy...

      Anyway, it's always a bad thing to see people close their companies for errors like this. I hope Mrs. Rachel Brown can save her shopping company, also because cupcakes are flavorsome and I love UK way to do business.

      See you,
      Alessandro
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    • Profile picture of the author sbucciarel
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      Originally Posted by The Copy Nazi View Post

      That publicity is worth a lot of money. She needs to capitalise on it - possibly through Social Media - get something viral happening. Call herself "The Cupcake Queen" or something. I'd be doing a press release saying something like "We're so proud of our cupcakes we were prepared to take a £XX,XXX loss to show the world how good they are". Then follow up with another promo - one that makes money. Or hold a competition - like the "Golden Ticket" in the movie "Charlie and the Chocolate Factory". I smell money. And I smell a Viral opportunity here. A natural for Facebook.
      I like the way you think ... lol
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