I don't have it handy now but on the recent thread about the Portland coffeeshop owner, most posters seemed to feel it was the proprietor's mistake rather than Groupon's fault.

What did you end up deciding, though, did you use a Groupon clone and if so, how did it work out?

Honestly, I'm still on the fence. I've said this elsewhere, but I'm in China and the Groupon clone market here is really saturated and interesting to watch. Basically, the Chinese clone market really resembled the American market for a while (w/ a winner, Meituan, pulling ahead), but then just about every site with a large email list or userbase joined the fray. Even my local expat magazine is running a Groupon clone. The original players are now getting clobbered by RenRen (a Chinese Facebook) and Dianping (the Chinese Yelp). I can tell because I know a Groupon clone owner who's basically dropped out of the contest and because the other clone salespeople (including Meituan's) have become increasingly desperate and have offered me increasingly better terms.

I'm currently leaning towards using some of them, because I believe I've gotten some of them to the point where I can have the Groupon require customers to buy from my website, which gives me customer information that I really want.

Customer data aside, I still think these sites are causing the equivalent of a price war in the industries they're targeting. During some periods when a competitor is being featured, it almost seems like it's directly hurting my volume. I guess it could be coincidence though.

That said, some of the specific advice might be useful. In particular, edw519's point that you should ensure that you collect customer information to continue the relationship is likely pretty wise.

If there's any sour grapes its a dislike of companies gaining traction through aggressive viral marketing rather than novelty, usefulness or technical proficiency. I don't see too much ill-feeling towards Google, Amazon or Skype, for instance.

I can't comment on the group think or not on Groupon here.

One thing though, as a user of groupon type deals (well meituan, lashou and enjoymeitian), I find that most deals I bought didn't bring anything for the shop owner... Either the discount was too steep and in that case I'm unlikely to ever want to pay the full price to come again or it's a shop I already know and enjoy (happens to me a lot with restaurants deals).

So, I think that Groupon and clones are a useful tool to have, but one needs to think very carefully on how to formulate the deals. The discount shouldn't be too big or you'll attract people who are too cheap (or don't have enough money) to pay for your service at normal price. You also need to find a way to make them come back. For restaurants and cafes, this can be done with adding them to a mailinglist and organizing regular events...

I think they're a great, valuable service, despite the large amount of negative press I've read about them recently.

I'm not very interested in trying to convince anyone on HN, though.

And have any of the individual people from that earlier thread -- only 7 people! -- changed their advice, or is it a new and different group that's now vocal with negative sentiments?

It'd be a mistake to take either the small sample of the earlier thread, or the people piling onto recent Groupon news items, as accurately representing a single consensus "HN community attitude" towards Groupon.

Amazon merchants have been doing this for years. Pay Amazon their commission for the first sale, then move the name to their permanent data base. 15% of the first sale is a reasonable customer acquisition cost; 15% of every sale is not sustainable (unless you have ridiculous margins).

Since many Groupon merchants meet their customers in person, an extra step is required: collecting personal info. Skip this step and you've just lost 2 things: your money and a name on your customer list.

This Saturday I went skydiving, and used a Groupon I purchased last month. The skydiving school had nothing but bad things to say about Groupon. According to the school, they were told that they would sell somewhere in the neighborhood of 200-300 skydives--they ending up selling closer to 1200. Now the fact that the number of Groupons wasn't capped at something more reasonable was most likely an oversight on the part of the merchant. However, Groupon's sales staff should have at the very least alerted the merchant to the potential risk. In this situation, it seems that Groupon was attempting to extract all possible value from merchant--Groupon had to have had some inkling that the deal was not going to be mutually beneficial.

Can you extrapolate this to all merchants using Groupon? No, but the study results certainly didn't surprise me.

Groupon have info online for merchants, advising them on how to deal with what they'll experience, but again it wouldn't surprise me if most merchants completely ignore it. People won't read instructions or advice unless you hold their eyelids open and force them to take it in. And small business owners (I'm one of them) are usually busier and more stressed than others, meaning we're even less likely to make use of such guides.

Regardless it sounds like a great challenge for Groupon to have. I'd rather have a near-endless stream of customers in this situation, than be at the beginning of it all trying to attract anyone to the site at all.

Did the merchant have a program in place to turn the one-time customers into continuing customers?

If they did, more customers would have cost them more in the short run but helped them more in the long run. If they didn't, one would assume it was a failure regardless of the numbers.

And did school waste the time they could have spent talking themselves up with talking Groupon down?

If Groupon can't explain itself and how it differs from established marketing, the kind the merchants are used to, then it will fail. It has to provide value to real merchants. That certainly includes educating them about what is going on with their service, especially concerning the risks.

If Groupon is selling group-discounts as commodity, then that it. It's your job to figure out how to use them. Google sells click-throughs and Home Depot sells cement. They might each be perfectly good but if you don't use them right, they won't do you any good.

If Groupon is like personal trainer and provides ongoing value, then does need to assure that its buyers achieve success.

Both business model-types can make money. Neither is going away. I don't know enough about Groupon to say which type they are.

Another anecdote, my friends 1 year old small business approached Groupon to do a deal, they turned him away and told him to come back when he has more press.

They do if they want to get them away from Groupon.

I have e-commerce customers who love Amazon Merchant because it's cheaper to acquire customers than SEO or buying mailing lists. But nothing pisses them off more than a customer who comes through Amazon a second time, costing them all their profit. They need to save the customer info in order to make the second sale a direct sale.

The same dynamic works with Groupon, except in person. If you don't follow up with them directly, there's a good chance they'll just wait for the next Groupon promotion, whether it's from you or your competitor. There's anecdotal evidence that this is already happening. A fresh coupon in your in box every day can get awfully addicting.

But for lots of retailers like salons, specialty shops, services, even restaurants, Groupon can be an effective way of building their customer book. When you call them back yourself, you have a much higher probability of converting them into a permanent customer.

The same reasoning for websites periodically sending their users emails is at work here. Remember how Facebook used to send email notifications that you've received a new Facebook message, but wouldn't tell you the content of that message in the email? "Hey, we have more goodies back here - come visit again."

My wife's favorite spa has also figured out that sending me follow-on ads is a pretty effective sales pitch, as I semi-routinely say 'hey, she deserves another half-day at the spa.' They got my email address from an initial online sale.

I don't get any follow-on advertising from donut places, but there's a local restaurant who uses email to fill out slow nights with some really nice prix fixe dinners. Every now and then one shows up in my inbox, sounds delicious, and I don't feel like cooking, and they make an additional sale. They started doing so after I made a reservation on OpenTable, and our dining frequency jumped substantially.

One merchant I bought from had a direct store and an Amazon store. The Amazon store price was higher (by about $1.50 on a $20-ish item), but I still ordered from Amazon because I expected the merchant to take care of Amazon customers better wrt shipping time etc. :)

As a buyer, given a choice I would rather order from the Amazon store than directly from a no-name merchant.

I think your e-commerce customers just need to raise their Amazon store prices.

Those who sell commodities don't have that option. Every time any of them has tried, sales went into the toilet. You have to stay competitive when Amazon's web page shows your item right next to your competitor's.

So maybe 15% isn't much when you consider how difficult it is to build your own e-store?

15% isn't much when you consider how difficult it is to acquire a customer.

Everyone I've loaded onto Amazon already has their own e-store. But here's what happens...Sales increases 10 to 20% almost instantly. But profits don't because of the 15% commission.

If you have a premium product with a large margin and no e-store, Amazon can be a great way to get orders. Otherwise, Amazon should be used to acquire customers for future direct sales. 15% is just too high for a commodity product.

I agree with the OP that 15% is pretty high for selling commodity stuff, but amazon seems, ah, sub optimal for lead generation because they make it look very similar to just buying from amazon. Like you, I've never gone from buying through amazon to buying direct from a merchant.

I think in some cases, the 15% might work out. As far as I can tell, when you buy in small lots you can often get a better deal than larger, more "reliable" lots, just 'cause someone further up the chain from you took a loss, (like someone bought a bunch, then went out of business and liquidated the lot at below-cost prices.) or because corruption is such a large problem (the larger the corporation, the more kickbacks are expected, as far as I can tell. If I own the company, kickbacks aren't going to get me to choose an overall more expensive vendor, it's my money, either way.)

either way, from what I've seen, often smaller lots from smaller resellers can be had cheaper than larger lots from more reputable resellers, even after you amortise out fraud/misrepresentation losses, so it's possible that the guy who sold me the cheap ESD wristbands on amazon really has more margin on the product than amazon direct would have.

So, I think it can be done, I'm just surprised that not more company do it...

But I guess that if Amazon bought them, it shows they were good at what they did :-)

I bought a groupon 1/2 price coupon for a fancy clothes store (Gap). I wouldn't normally go in there but for $10 they got me to go in and buy $50 worth of shirts. I will probably even go back.

Or they could have hired some 17 year old super model I have never heard of, for $Ms to promote them in a magazine I never read - but that wouldn't have got me in the door.

I can guarantee that there's going to be a teeth whitening deal every week - so why would I ever go back to a dentist and pay full price? Long term, these businesses are damaging their markets and industries. You'll struggle to build a business from fickle, deal-hunting customers.

That said, with things that are unusual I think Groupon is a good solution - a canoe trip, or climbing wall for example. There's less competition and it's a great way for people to try something that they might grow to love. But restaurants - come on!

It's like the reverse of a loyalty card - come again and we'll charge you double.

True, it'll be a tough blow to serve all that food for cheap, but if you can make people feel good about your restaurant for cheap, I think there is a good chance they'll be back, even if they have to pay more.

It's the reason why national brands can charge such a premium over generic stuff, even when it's exactly the same thing. People are risk averse and a Groupon takes half the risk out of a meal purchase.

I bet the average person would go back and/or recommend the restaurant to friends if they had a good experience though.

a) We're given nearly zero visibility on how candidates were selected. Even on the Rice website they only list media mentions of the study, I would love to see the original sample, polling selection data, etc http://media.rice.edu/media/Dateline_Rice.asp.

b) Response Bias alone could swing the results up or down wildly with such a small sample size.

c) A piece of the article, reported as fact, is that restaurants are unhappy vs. other business types which they certainly do not have data to support. This is terribly misleading - from the article they surveyed "150 businesses spanning 19 U.S. cities and 13 product categories" indicating ~10 business in each category.

For the WSJ & others to report a half-baked study as pure fact without raising any of the questions above is mind boggling.

From what I understand, Groupon isn't trying to be a wholesaler for goods and services. They're providing an effective advertisement, not moving merchants up the supply ladder.

Though I can definitely see why people would be steamed if they expected that.

The problem is that doesn't end up happening for a variety of reasons, as has been pointed out elsewhere in comments and the article. Of course Groupon would never tell potential customers of these flaws in the system.

FTA:

"The 32% that said they didn’t make a profit from the program reported that customers rarely bought more than the coupon deal and few returned to the business at a later date."

Tough to make a profit from Groupon when you don't get any additional business from the groupon customers on top of what the groupon was for.

The study author's page -

http://www.ruf.rice.edu/~dholakia/

The study itself

http://www.ruf.rice.edu/~dholakia/Groupon%20Effectiveness%20...

more cities more offers more revenue per offer higher share

Ultimately their interests are not aligned with those of their merchant partners. They refuse to cap the quantity on offers. They push for 50%+ discounts. They do nothing to discourage breakage. They use good businesses to attract their members but then they punish bad businesses with predatory pricing. So good businesses erode their brand.

Lots of problems here. Their model is far from broken (because there are so many businesses and the unit economics still work for their members) but someone will come along and fix this model for them.

Poor tips, too many customers, angry customers (due to lack of product or wait time) are all potential side effects of a Groupon deal. The author of the study, Utpal Dholakia said it was almost a given:

“Because the Groupon customer base is made up of deal-seekers and bargain shoppers, they might not tip as well as an average customer or be willing to purchase beyond the deal.”

This led to the finding that restaurants had the hardest time with Groupon deals, where service business such as spas and salons fared better. The 32% that said they didn’t make a profit from the program reported that customers rarely bought more than the coupon deal and few returned to the business at a later date.

It shouldn't be shocking to retailers that offering deep discounts on a popular discount site is appealing mostly to people that only buy discounted goods, but it seems that it is surprising to some.

- what type of businesses are Groupon users after? Obviously restaurant coupons are very popular, but why are Groupon users on Groupon?

- what type of businesses benefit most from Groupon's model?

The issue here is that the businesses that present the largest draw for Groupon consumers may not in fact be the businesses that benefit most. In an eventual steady state, businesses that can't make the Groupon model work for them will stop using it, and I have a sneaking suspicion many of these business types are the main reason people are on Groupon to begin with.

* Groupon takes a large cut of the coupon purchase cost - up to 100% if Posies Cafe is to be believed. So it's more like a 80-100% off coupon as far as the shop is concerned.

* All income is realized up front. Costs of the promotion are going to be known 100% and quickly after the "coupon" is printed. The actual impact of that could be spread over a long period of time.

* People feel obligated to use the coupon because they paid money for it. I'm sure the redemption rate is a lot higher on Groupons - it feels like an awesome deal when you buy, it has the urgency of time running out so people are more likely to buy if they are on the fence, and then they want to spend the bought coupon, because otherwise it's lost money.

If you can get around the (allegedly) absurd Groupon cut (which it looks like you can with negotiation), and you can price your discount so that you break even, Groupon could be a great way to drive business. The only thing Groupon is doing that seems even slightly "evil" is the high cut, but any business owner should look at that and make a decision based on the numbers and either negotiate a better cut or walk away.

But while Groupon might be a great way to drive business, I'm not convinced it's a good way to drive GOOD business for all businesses. The site draws extreme bargain hunters, and those are the sort of people that are not going to be loyal and aren't likely to come back without a coupon.

So I'd say that the blame is even more on the business owners if a Groupon goes wrong. The fact they know their total maximum liability before they even start the process makes this even better than a newspaper coupon campaign. With the tools they have at their disposal (not doing the groupon, negotiating the cut, setting a max number of sales), they are to blame if they lose money on the deal.

It sounds like (from the article) that most companies manage that aspect ok, they just don't realize how bad a set of customers they are going to get out of Groupon. That's purely the numbers influencing them into running the campaign, but if they broke even, then so be it. They can just mark it as a lesson learned and move on.

Groupon's difference is: (i) it's on the internet, fueled with great publicity it has generated (ii) the brilliant social aspect of the groupon system and (iii) the deal is instantly bought now, not later. So it's not a coupon at all but a web-based deal.

Groupon is very good at creating hoards of customers; what it lacks, I think, is the consultation that should be provided to businesses about how to limit and handle the crowd. Even gap.com had a rough day when Groupon unleashed a national campaign recently.

That's kind of scary. I just got a Sarah Palin flashback.

"Groupon is very good at creating hoards of customers; what it lacks, I think, is the consultation that should be provided to businesses about how to limit and handle the crowd."

Maybe they just need to allow businesses to put a cap on the number of coupons that are sold? Since a lot of companies are only advertising to their local market, I wouldn't even think this would be an issue.

I think they already have the cap thing. However, it's not as simple as that. A lot of businesses possess neither the experience nor the theoretical skills to analyze what-if situations involving hundreds or thousands of new customers. When you say the companies are "only" advertising to their local market you are making teh same gross underestimation that some of these poor small businesses do: local can be huge! For example, AFAIK Chicago metro area is around 3M people, when you throw in the suburbs it around 9M. When you advertise to Chicago groupon, all those people have access (e.g. I live 30 mi outside Chicago but still bought the Tall Ship Wendy deal at Navy Pier this summer, they were quite overwhelmed with the demand.)

Now it's pretty clear that in this instance they are talking about when the money is collected from the sold groupons - not the overall economic benefit that the business will see in the future (although it's questionable that even that will be favorable). From the Posies story and finding out that groupon takes at the bare minimum a 50% cut, this video is incredibly deceiving, borderline flat out lying to the business owner from the start... No wonder business owners are disenchanted with the whole process.

Click on "How it works" http://www.grouponworks.com/

Maybe for a new entrant to a geographic market where they are willing to settle with much lower margins? So you would in that case use Groupon to get your initial customers at the expense of neighboring competitors. And by keeping prices permanently low you would potentially keep those customers.

Presumably, if you can keep that up and competitors cannot compete, you could drive them out of business and then raise prices. Sort of a Walmart 2.0 strategy.

A new startup in the field can disrupt the market...

You claim users will never forget, but they rarely remember. As fervently as some users denounce companies, most users are going to (likely rightly so) forgive, accept their token gift, and forget. There's always a big buzz, but the sting tends to fade quickly.

I've been messing with one (in Rails) and I can get approval to be a 3rd party payment aggregator (we already do this with one of our products).

----------------------------------------------------

Does that remind anyone else of digg traffic?

There are a lot of new variables to consider.  Beyond numbers, the small and medium local businesses that Groupon targets still aren't entirely web savvy. Heck, most of these businesses just figured out how to put together a halfway decent website let alone master an online community based method of marketing.

Groupon has come up in my regular day-to-day conversations with small, local businesses.  To each one, I've said the following:

1) Building your own online audience is more valuable than relying on the one Groupon has. This isn't easy for the strong majority of local business owners, but even a few followers on Facebook point your business in the right direction. Imagine being able to carefully craft your very own Groupon. Even if you only had 50 people following you around the web and even if those followers were existing customers, you could extrapolate the data and gain the experience needed to make a powerful Groupon style campaign successful.

2) On Groupon, offer a drastic discount on a product that you could afford to give away for free.  If you're not capable of doing this, don't do it. This is surprisingly difficult many small businesses because they don't know the true cost of their products. From labor to square footage, most small businesses consider a sale profit without having a complete view of product costs available.

As an example: Every year, a bakery near where I live prepares hundreds of small Cannoli pastries.  The store lines people up down the street and sells a up to 12 at a time for nearly 75% less then what they regularly retail for. The store could afford to give these away for free every single day - they cost $0.06 each to make including labor, materials, packaging, etc. This would be a smart Groupon - get a big rush of people in the store at once with a Groupon then a trickle for the rest of the year. Upsell like crazy and give each customer another coupon for 50% off of their next order and you'll encourage people to spend more.

3) When evaluating the feasibility and hard numbers behind a Groupon, do not assign value to branding or repeat customers. Think toward data collection and future marketing instead. I've seen a lot of companies featured on Groupon that must be thinking "a percentage of these people will come back" or "they'll know the name of my store after this!". Well, they won't. These are people who every-day, check Groupon for the latest and greatest place to save money. Sure, some people will come back and some people will remember your name - but if you assign any value to these things when budgeting a Groupon campaign, you're silly.

4) The smartest Groupons I've seen are those that can be scheduled. From restaurant reservations to car detailing, if you can figure out a way to have Groupon customers call to schedule a time, you'll be ahead of the game. Being able to control the flow of customers can help ensure that 50% of Groupon campaign problems go away.

In short: Your own audience is more valuable then that of someone else. Offer products on Groupon that you can afford to give away for free. Don't get sold on branding or repeat customers. Products and services that you can schedule (even with creative thinking) work the best.

I wouldn't be so quick to judge if I were the writer. This will just be one of many discoveries as this type of business grows and gains in popularity, and I have no doubt they will learn and react with their best judgment.

40% of the merchants say they wouldn't do it again. 66% said they were profitable. This means some of these profitable merchants would not do it again. 32% said they were not profitable. We don't now how many of these would not do it again.

Of course, their is no information regarding the actual businesses themselves. A suffering business using GroupOn probably has a good chance of suffering afterwards. Advertising, whether through radio, GroupOn, or other sources, isn't a magic bullet.

60% happy rate certainly sounds closer to reality than 97%, but am I the only person who thinks that's really, really good? Are there any forms of media/advertising that first time purchasers have above a 60% rate? I've tried different kinds of media and deals in the past, and had many things go abysmally bad. Print in particular. I think mature industries like newspapers, magazines, and TV commercials only have a higher satisfaction rate because they attrition'ed out some people who attempted that form of media. Once people figure out what businesses perform really well on Groupon, success/satisfaction rates will go up.

I'm thinking Groupon will work for businesses with high fixed costs and no variable costs (Chelsea Piers), businesses with insane margins (spas), and places that think they can replace a regular part of someone's life and get a returning customer (centrally located bagel shops, pizza shops, etc). Right now a lot of high variable cost unique experience type businesses are trying Groupon, and that seems suicidal to me, but eventually people will figure out what Groupon works for and what it doesn't.

It's not worth your time chasing such elusive bargains, unless your time is not worth a lot. (Exception, the "excitement of the hunt". See Atlantic City, Las Vegas, etc.)

If your time is not worth a lot, you're not going to be buying much (no resources). I.e. you're a low value acquisition as a customer. (And if you're into the "excitement of the hunt", then you're not too interested in settling down with a particular merchant, are you?)

It eventually follows that success for Groupon consists of promoting itself, not its customers' (the businesses contracting campaigns) long term interests. (Once again, the site's users are the product, not the customers. And while they may be nice enough people, they are not a good product.)

Also, users (the merchant's customers) associate their success with Groupon, not the contracting merchant. One-off bargains don't build customer loyalty.

P.S. Having now read the brief, linked article, I speculate further than an overwhelmed venue may actually be counter-productive; shoppers stick it out to get their bargain, but tell themselves, "Man, what a pain. I'm never coming back here again."

Most recently, OMSI (local science museum in Portland) offered half off admission to their adults only evening admission. The place was crawling with trashed people complaining about too much reading and that there needed to be more hands on exhibits.