The downside to Groupon
Certainly, outside Groupon the company's figures are disputed. An independent study conducted last year by Rice University found that Groupon dealings were only profitable for 66 per cent of businesses. More than 40 per cent of Groupon clients would not run such a promotion again, the survey concluded.
That last number, however, may not be as damning as it suggests. Groupon admits businesses aren't likely to use its service month after month. And, there are some past clients who say that while they wouldn't use Groupon again, it's not for the reasons you'd think.
"I don't think I'd use Groupon again, but that's because we feel we've already captured that market," said Peter Tassone, owner of Toronto's Utopia Café, which sold almost 1,500 Groupons last spring. Tassone said he would consider other online coupon sites in the future, but would "do things differently" next time - including shortening the deal's expiry date (Utopia's Groupons are valid until May 31, 2011) and limiting it to one per customer. "It's very hard to make money out of a Groupon deal in the long-term," he said. With the terms typical in a Groupon negotiation, Tassone added, there's "no money to be made."
Still, the Utopia owner admits his Groupon experience went "very well," and it's these kinds of reviews that make grading the deal site so difficult.
"Using Groupon is definitely a double-edged sword for small businesses," said Raymond Pirouz, a lecturer in new media marketing at the Richard Ivey School of Business. "In one sense, from a traditional marketing perspective, having Groupon send an email promoting your business to tens of thousands of subscribers in your area is a good thing. The problem arises when too many people go for the deal ... That's when your capacity as a business gets challenged."
Julie Mossler, a spokesperson for Groupon, says the site is aware of possible hiccups with small businesses, and it continues to work with merchants individually to make sure deals are structured best for each party involved. Groupon has "solved the puzzle of online marketing" for many fledgling companies, she said.
But what's becoming increasingly apparent as Groupon continues its rapid ascension to Web stardom is this: the site isn't perfect.
Just last month, U.S. Toy Co., a family-owned business with three generations of experience in the marketplace, blasted Groupon in the The Wall Street Journal, alleging that "there's a flaw in their business."
"I really wanted it to work," company co-CEO Jonathan Freiden was quoted as saying on the newspaper's website. "It didn't drive in new people, and the people that were coming in didn't spend even our average sale. It was just sad."
News like this doesn't please Burke, but it does offer some kind of validation for Groupon's most spurned merchant. That a business with decades of seasoning could also flounder under Groupon's Midas touch told her, once and for all, she wasn't alone.
"I just didn't like how Groupon continued to dismiss that any bad scenarios could even happen with them," she says. "They're the darling of the online coupon world but they shouldn't be the darling of anything. They haven't actually owned and operated a small business; they just had a good idea that went viral.
"My husband calls it a confidence scheme. They say they have this magic formula and if everyone believes it, it's right. Well, it's not always right."
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