Saturday, October 29, 2011

Volume 3 Issue 44: Intelligent Investing

Groupon Is A Disaster

Can't really say I didn't see this coming. Here is an earlier post on Groupon. In short, this is what I said:
A strong profitable company will still be around 5-10 years from now. It also does not need to make up a way to measure its own profitability. In other words, let the numbers speak for themselves.
It still holds true now. Read this:
Adding to growing customer discontent, Groupon, which was initially seen by small mom-and-pop shops as a way to drum up new business, was losing favor with some of them. Merchants began to do the cruel math on the daily deals. 
Restaurants offering $50 of food for just $25 only collect $12.50 -- not even enough to cover the cost of the food. Some businesses also complain that the deals for new customers anger long-time patrons. And some say that the bargains attract high-maintenance types who don't turn into loyal customers. 
"Your restaurants are full packed with people who aren't making you any money," says Paul Evans, a Kansas City marketing executive who advises clients against using Groupon. 
Take Jessie Burke, for instance, Last year, the owner of Portland's Posies CafA(copyright) offered a $13 coupon for $6. The cafA(copyright) was deluged with customers and Burke ended up having to take $8,000 out of personal savings to cover payroll. 
"It the single worst decision I have ever made as a business owner," Burke said in a blog post that quickly went viral. 
Andres Arango, founder of natural jewelry company, had a similar experience. He sold 80 coupons -- $35 of jewelry for $15 -- in two days. But of that $15, he only got $7.50. And he still had to dole out $35 worth of jewelry. 
As far as customers? "They never came back," Arango said.
HT: Business Insider

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