Judging by the experiences of some small business owners, Groupon has tremendous make-or-break power. A daily deal from Groupon can turn a business around, in ways that are good or, possibly, deadly.
This week, Groupon introduced a new version of Groupon Works, a “digital tour guide for merchants to learn how they can leverage the power of the Groupon brand.” Basically, it’s Groupon’s sales pitch, telling small businesses why it’s such a smart idea to work with Groupon. Bolstering Groupon’s spiel is a library of hundreds of video case studies—interviews with merchant owners that used Groupon, loved it, and recommend it highly.
The success stories of Groupon-using spas, salons, breweries, SCUBA outfitters, bagel shops, seaplane tours, dance studios, and other businesses are featured, but perhaps the most touching, if a bit over-the-top experience is that of the ZOOMARS Petting Zoo.
“In times of challenge, which everyone is going through right now, Groupon is hope,” says Carolyn Franks, owner of the Orange County petting zoo, on the video. “Although that might sound a little hokey, I know firsthand, when I was going through a challenging time trying to save the zoo, Groupon was there, and it was easy.”
“At the end of the day,” Franks says, “Groupon saved my zoo.”
All together now: Awwwww. It’s almost like the story could be an adorable feel-good family movie, nearly as cute as the zoo’s pettable baby goats and ponies themselves.
If small business owners aren’t moved by the idea of saving baby goats, perhaps they will respond to the numbers: Franks says that Groupon helped ZOOMARS increase its visitor count tenfold, from an average of 200 visitors weekly to 2,000 visitors after a Groupon promotion hit. Franks also says that visitors who found out about the zoo via Groupon turn into loyal customers: “They are back, 100%.” But it’s unclear if, and how, that information is tracked. A 100% return rate would be astounding, so it’s probably an exaggeration.
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The timing of Groupon’s new pitch via the GrouponWorks site is also noteworthy. After soaring in popularity during peak recession days, the question as to whether the Groupon business model is actually sustainable has been circulating for at least a year, and a recent Businessweek feature focused on concerns that, in light of months of plunging stock prices and Groupon CEO Andrew Mason’s publicity gaffes and questionable practices, the young, inexperienced leader may not be up to the challenge.
Earlier this year, a survey indicated that daily deals may be falling out of favor with small businesses, with the majority of owners saying they had no plans to offer such a deal in the six months ahead. The widely-referenced research of Rice University’s business school has indicated that Groupon deals are not profitable for roughly one-third of merchants using them, and that more than 4 in 10 businesses that worked with Groupon in the past wouldn’t run a Groupon deal in the future.
Over the years, various merchants have gone public with their regrets regarding the giving of the trendy Groupon model a try. Most infamously, an Oregon café owner described offering a Groupon deal as “the single worst decision I have ever made as a business owner.”
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Recently, another story has emerged about a business that’s also highly unlikely to run a Groupon promotion again—because it’s out of business. Craig Nelson, co-owner of Back Alley Waffles, points to Groupon as the reason why his Washington, D.C., closed. The Washington City Paper excerpted the angry, shockingly bitter message Nelson originally posted at its website about its experiences with the “obscenity known as ‘Groupon'”:
Grouponistas, sorry, but I’d rather have my hand slammed in a car door than honor your Groupon coupons. You’ll have to seek refunds from your new insect overlords. If you act quickly, you should get your money back by Christmas. 2015.
“According to our records, only 132 Groupons, or 18% have been redeemed since Back Alley ran [its deal] two months ago, and Mr. Nelson has received 2/3 of his share of the revenue to date,” wrote Julie Mossler, a Groupon spokeswoman, in an email to The Huffington Post. “We always hate to hear that a local business has decided to close,” Mossler added, “but the math does not point to Groupon as the cause.”
To which, Back Alley Waffles responded with a line-by-line refutation, including some context about what the 18% redemption meant to its business:
That 18 percent represents $2,600.00 worth of waffles for which we laid out the food and labor costs upfront while Groupon collected about $7,000.00 on line, pocketed half, then took our half, and pocketed that too. For 30 days, at which point they sent us a third (!) of our money. Then we had to wait another month (!) for the next third.
Small businesses fail all the time—restaurants especially—and Nelson has since issued a statement in which he accepts the blame for Back Alley Waffles’ failure, which still bashing Groupon:
Maybe it was the lousy location, or the awful waffles that put us under, but I don’t think so. I think it was our entanglement with Groupon. Whichever it was, lousy location, awful waffles, or Groupon, the share of the blame for the failure that is mine remains the same–100%–since I alone chose the location, determined the waffle recipe, and signed the Groupon contract.
Suffice it to say that one-time marketing efforts and promotions have the possibility of helping or hurting a small business—but no single deal has the power to save a business on the brink of failure.