Groupon Poised For Collapse? Interesting Article.

25 replies
Imagine you’re a small business owner. You have to choose between two propositions:

1. You can pay $62,500 for marketing. You’ll get a whole lot of customers coming through your door. No guarantees if they will ever come back, but they’ll come once.

2. I’ll pay you $21,000. You get $7,000 in about 5 days, another $7,000 in 30 days and the remainder in 60 days. In exchange, you’ll give my customers cheap products for the next year.

I’ve been working on local for a long time and I know it’s hard to get small businesses to spend money on advertising. Really hard. Even getting $200 a month ($2,400 a year) is a high hurdle to meet.

There’s no way a business will sign up for #1. Most merchants would laugh you out of the store if you asked for $60,000.

Except they are. In droves.

FULL ARTICLE:
Why Groupon Is Poised For Collapse
#article #collapse #groupon #interesting #poised
  • Profile picture of the author palmer9999
    Great article! Thank you!
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  • Profile picture of the author omk
    very interesting article!
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  • Profile picture of the author hotjay
    Groupon abuses these small businesses and the problem is that many of them do not see that it is actually costing them more money in the long run. I know here in town we have had about 20 different sites pop up in the last year or so that are trying to do the same thing, and are doing well. I don't see them going any where any time soon since so many businesses are blind to the whole setup.
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  • Great article thanks for sharing.
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    soon people... Relax...
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  • Profile picture of the author Charles Harper
    I saw that, and we discussed in on my TMN show last night. So much of what we could do for businesses and their marketing has nothing to do with websites, social media or online coupons. How many of these guys know their metrics well enough to do a deal (groupon) like that on a regular basis. This is a great time and opportunity for consultants who work on converting existing traffic, and getting higher dollar volume on individual sales. Groupon, unless done with a very good knowledge of one's metrics is a bit of a fad anyway. CT
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  • Profile picture of the author JohnSchoemann
    Yes. I don't particularly like the Groupon and Living Social business model.
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  • Profile picture of the author sbucciarel
    Banned
    Hmmm ... maybe Groupon should have taken the $6 billion Google offered it. lol
    A lot of negative articles coming out about Groupon's finances.
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    • Profile picture of the author LegitIncomes
      Originally Posted by sbucciarel View Post

      Hmmm ... maybe Groupon should have taken the $6 billion Google offered it. lol
      A lot of negative articles coming out about Groupon's finances.
      If I were in charge of Groupon, I would have taken it. No doubt.
      Even if the numbers in many of these articles are only HALF as bad as they claim...I'd still easily take the $6 billion.
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      • Profile picture of the author High Horsepower
        I hope Groupon, Living Social, and all these other "daily coupon sites" stay here forever. I started exploiting Groupons weakness about a year ago and I'm killing it. Look at Groupon as an opportunity.
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        Never give in--never, never, never, never, in nothing great or small, large or petty, never give in except to convictions of honor and good sense. Never yield to force; never yield to the apparently overwhelming might of the enemy. Sir Winston Churchill, Speech, 1941, Harrow School

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        • Profile picture of the author jrobconsult
          Originally Posted by High Horsepower View Post

          I hope Groupon, Living Social, and all these other "daily coupon sites" stay here forever. I started exploiting Groupons weakness about a year ago and I'm killing it. Look at Groupon as an opportunity.
          I see it as a way to make me stand out from the other marketing consultants and get my foot in the door. There are so many ways to make money with this and have been working for an angle the past month. Thanks to Richard, I have found several ways.
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          • Profile picture of the author LegitIncomes
            Here's a twist that I haven't seen on Groupon or similar types of sites.

            Check out this daily deal: Half Off a Punch Card to Orange Leaf!

            It's for a frozen yogurt place, and they are selling cards at 50% off, that have 10 punches on them. Each punch is worth 3oz of free yogurt. Now, if you've ever been to one of these places before, and are like myself, you get a LOT MORE than 3oz, it's more like 12-16oz!

            So this type of deal seems bettered structured for Orange Leaf to not lose money on the front end, imo.

            And if you look, they've already sold over 1,400 of these cards!
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    • Profile picture of the author Charles Harper
      Originally Posted by sbucciarel View Post

      Hmmm ... maybe Groupon should have taken the $6 billion Google offered it. lol
      A lot of negative articles coming out about Groupon's finances.
      Businesses will still opt for it because it is easy.

      CT
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      • Profile picture of the author LegitIncomes
        Originally Posted by Charles Harper View Post

        Businesses will still opt for it because it is easy.

        CT
        I also wonder how other businesses (local to each area) doing the same thing will effect Groupon.

        For example, in my area there is a local magazine, and 3-4 other local websites that are affiliated with TV stations, etc... that all offer these "daily deals" from various local merchants.
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  • Profile picture of the author Jack Duncan
    Interesting article for sure.

    I also read an eye opening news article a couple of days ago where the small business owner said Groupon was the worst decision she ever made.

    She explained why, and it made a lot of sense.

    The biggest eye opener in that specific article was that Groupon originally requested 100% of all profits, and suggested she make her profits on the back end sales.

    Unfortunately, the business owner was surprised that most of the customers didn't spend more than a few cents, on average.

    It will be interesting to see how long they do last...

    All the best,
    Jack Duncan
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    • Profile picture of the author Michael Shook
      The profit in Groupon has already been made in the IPO. This sure look slike one of those hot potato deals, where you do not want to be left holding the bag of Groupon shares.

      If they are turning over new money to pay older short term debts, they are already in a pickle.

      Where's my sock puppet?
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    • Profile picture of the author LegitIncomes
      Originally Posted by Jack Duncan View Post

      Interesting article for sure.

      I also read an eye opening news article a couple of days ago where the small business owner said Groupon was the worst decision she ever made.

      She explained why, and it made a lot of sense.

      The biggest eye opener in that specific article was that Groupon originally requested 100% of all profits, and suggested she make her profits on the back end sales.

      Unfortunately, the business owner was surprised that most of the customers didn't spend more than a few cents, on average.

      It will be interesting to see how long they do last...

      All the best,
      Jack Duncan
      Do you have a link to that article?
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  • Profile picture of the author MichaelHiles
    Yes, there are many business owners who are little more than flea market booth operators who've not understood the program.

    And it's no secret that Tech Crunch hates Groupon.

    I have done several hundred Groupon deals with business clients in many sectors. All of them have performed extremely well.

    First of all, trying to make money on the Groupon deal itself is simply idiotic. That's not the point at all. Never was the point.

    They are one of the largest localized EMAIL marketing companies with gigantic databases for each market they're in. You're buying EXPOSURE in the form of a loss leader deal.

    And what makes it work is this... instead of writing a check to the local radio station, newspaper, Val-Pak, et al... for the entire amount of the ad campaign on the front end... Groupon permits a business owner to AMORTIZE THE MARKETING COST OUT OF OPERATIONS.

    So in essence, THAT MAKES GROUPON THE BANK... holding the paper for the finance cost of a giant local marketing email campaign that would have otherwise cost the business owner thousands of dollars out of pocket on the front end.

    You actually get paid some money on the front end... and you don't really have to incur the cost on your own books until the voucher is actually redeemed. This means for businesses that are operating at less than peak capacity (most of them), they can leverage the fixed overhead costs (things you're paying for regardless if a customer is there or not... labor... rent... utilities...) to introduce new customers to your business. You have the option of paying those costs without any new business... or you can cover the very basic variable costs of your service or product with the sales of the actual deal, get the cash on the front-end, and then absorb the "loss" into operations across a period of time.

    The alternative is, of course, to just take a big chunk of money out of your cash flow, pay for an ad campaign with no performance basis attached to it, and pray for the best.

    But somehow or another that is supposed to be a better option?

    Listen, it's certainly not for every business.

    And unless you've really got a good back-end strategy to capitalize on the new influx of business (repeat business deal to train a return visit customer), then maybe you're not really a fit for the Groupon model.

    But let's be clear... the system works extremely well for those who understand how to make it work.

    One of my clients did $35K in laser vein treatment. They had plenty of scheduling capacity and it didn't affect the top line paying customers at all. They essentially broke even on the front-end deal, and then went on to create $130K of new annualized business - BECAUSE THEY UNDERSTAND THEIR LIFETIME VALUE OF CUSTOMER.

    The other thing is... smart business people understand that even Groupon deals are NEGOTIABLE. I've done deals with Groupon taking 30% of the voucher sale.

    So before we run down the road singing Tech Crunch's hatemail gospel song, let's consider the source, and also consider the bigger business picture.
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  • Profile picture of the author Cash37
    Groupon's CFO and CTO quit within 2 days of each other.

    The company runs it's financing like a Ponzi scheme.

    The actual product is great for the consumers but their customers (the business owners) are starting to find it not worth the hassle to run Groupons, get flooded with business they have to give out at half off only for the customers to run to the next Groupon and never return.

    I will not be investing in their IPO.

    House. of. cards.
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    • Profile picture of the author LegitIncomes
      Originally Posted by Cash37 View Post

      Groupon's CFO and CTO quit within 2 days of each other.

      The company runs it's financing like a Ponzi scheme.

      The actual product is great for the consumers but their customers (the business owners) are starting to find it not worth the hassle to run Groupons, get flooded with business they have to give out at half off only for the customers to run to the next Groupon and never return.

      I will not be investing in their IPO.

      House. of. cards.
      It would seem to me...that if I had a superior product customers WOULD indeed return. But for your "average" business, that is indeed "average", Groupon wouldn't be a good fit. And I think that's the problem, most businesses are just "average", or worse.

      I would also think Groupon would be a good fit for very high margin products. Now, I've never worked in the field of cosmetics, but it seems to me that those probably have a very high profit margin. I'm talking about things like laser hair removal, cellulite removal, etc.... These high margin businesses could have such high margins, and such high value PER CUSTOMER, that even at 50% off, they still make money. Upsells/Future purchases would also be a big profit boost.
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      • Profile picture of the author jrobconsult
        Originally Posted by LegitIncomes View Post

        It would seem to me...that if I had a superior product customers WOULD indeed return. But for your "average" business, that is indeed "average", Groupon wouldn't be a good fit. And I think that's the problem, most businesses are just "average", or worse.

        I would also think Groupon would be a good fit for very high margin products. Now, I've never worked in the field of cosmetics, but it seems to me that those probably have a very high profit margin. I'm talking about things like laser hair removal, cellulite removal, etc.... These high margin businesses could have such high margins, and such high value PER CUSTOMER, that even at 50% off, they still make money. Upsells/Future purchases would also be a big profit boost.
        It works better with high margin services and products such as gym, entertainment places/parks, but can work for many other businesses with some creativity. The biggest problem is the small business owner runs the deal without planning and trying to get the customer's contact info.

        Ask people who use groupons, how many businesses tried to get their email. In my case, having used coupons with more than 10 companies, zero have tried to get my info. This is the recipe for disaster. If groupon and the other deal of the day sites were smart, they would have a division of their company that would offer other marketing services, but that is good for us, they don't.
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    • Profile picture of the author packerfan
      Originally Posted by Cash37 View Post


      The actual product is great for the consumers but their customers (the business owners) are starting to find it not worth the hassle to run Groupons, get flooded with business they have to give out at half off only for the customers to run to the next Groupon and never return.
      So the problem here is the business owner got a ton of leads, got those leads in the building, got their product or services in the hands of those leads, and the people never come back... Do I understand you right?

      If that's the case, then maybe they need better products, service, or salesman.

      I mean this is like 101 stuff. I can't believe some of the crazy comments in this thread.
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      Nothing to see here

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  • Profile picture of the author triste
    I don't think Groupon's business model is sustainable...like someone said, you can't keep selling a dollar for 50 cents and run a successful business.
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  • Profile picture of the author barache
    I have client who was approached by them. At first he liked the sound of the deal, but talked to his accountant, and changed his mind. He feels there was too much long term liability with customers down the road.
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  • Profile picture of the author WebPen
    Sure Groupon's finances are a Ponzi scheme, but think about it from the small business's perspective.

    If they provide very high value, the customer is likely to come back. Its the same reason we build email lists, right?

    It's all about building trust and credibility.

    And people aren't going to come to your store "just because you have a Groupon". They're going to come to your store because they want coffee, Italian food, whatever and it just so happens they can get it for dirt cheap today.

    Impress them and they'll be back.
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  • Profile picture of the author charlie39
    Good Article!Thanks!
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