Groupon Puts You In The Driver's Seat
November 9th, 2012 • Posted by Seth Gardenswartz • Permalink
Apparently, sucking the margin out of spas, restaurants and other small businesses is not a good strategy for the long run. The Wall Street Journal reports today that Groupon's share price has dropped 85% from its initial public offering. The Journal calculates that the drop has "erased $10.7 billion of [Groupon's] market value." Consequently, they have effectively done to themselves roughly what they do for a small business on the average Groupon promotion. Karma is a bitch.
When things start to go bad, most businesses first deny, then lash out and ultimately move on to desperate behavior. Andrew and his gang are following the script. Clients have told us that Groupon is offering an 80/20 split rather than its traditional 50/50 "deal" for established merchants. Such a deal! Now you are only paying 60% of your margin to offer deals to your existing clients and people who will never shop with you at full price.
However you feel about Groupon, it will likely survive after a merger (Google could buy it today at a fraction of what they offered just two years ago). There will always be a market for someone who wants to charge you a lot for what you can do for yourself with better results. While we don't generally advocate this kind of marketing, Groupon is desperate for offers from good businesses right now so you can negotiate a deal with much better economics for the time being.
Bill Bice Featured on CNBC
September 20th, 2012 • Posted by Bill Bice • Permalink
Groupon Isn’t a Good Deal for Businesses
Groupon made big news with their IPO. What's happened since then? It's gone from an initial offering price of $26 to around $5, an 80% drop. Wall Street knows what a lot of small business owners do: Groupon is bad for business. Their meteoric growth in deals has stalled as business owners have gotten tired of paying Groupon to just move customers around between themselves and their competitors.
In a post on CNBC, I describe in depth why I think Groupon isn't a good deal for businesses:
Groupon makes dough for pizza, tears for spas
July 9th, 2012 • Posted by Seth Gardenswartz • Permalink
The first deal they covered was Creative Hands, a day spa in the Washington DC area. Creative Hands offered a fairly standard Groupon, get a facial or a one hour massage for half price. The Groupon sold 4,000 units, overwhelming the spa and forcing Ailie Ham, the owner, to borrow $150K to cover expenses while devoting her entire spa to providing "deal" treatments that actually cost the spa $50 each to deliver. However, what bothered Ham the most was the abuse by Groupon buyers, bringing her to tears, for not meeting their expectations of good service.
Contrast Ham's travails to "Pete's Apizza," the other business covered in the NPR story. Owner Joel Mehr ran a $10 for $5 Groupon good only at a new location. His experience was "unequivocally good."
What's the difference?
Pizza is entirely unlike a massage or almost any service-intensive business, including fine dining, but for this example, let's focus on scale, margin, frequency and price point.
Regarding scale, if you're giving one massage to a client at 2:00pm you need one therapist. If you have two massages booked at 2:00pm you need two therapists. Since your massage therapists are most likely 1099 independent contractors who make 50% of your list fee for the service, most of your direct costs for the massage are labor. Contrast that to pizza where you can make 10 or 20 pizzas in an hour with roughly the same amount of staff. The marginal cost per pizza is just the dough and toppings. And what about that margin? The gross margin on a massage is about 50%, mostly in direct labor, but the gross margin on pizza can be above 85%!
Next, let's consider the frequency of purchase. Slightly less than 40% of Americans visit a spa at least once per year according to International SPA Association. However, pizza is the food of choice for cash-strapped and time-crunched families, with 93% of Americans eating at least one pizza per month! Consequently, your odds of getting a repeat visit are much higher with the pizza Groupon.
Finally, we have price point. Mehr believes most of his Groupon buyers spent more than the value of their voucher. Shocker! When you go to a pizza restaurant with a $10 voucher and the price of the cheapest full pizza is $14.50 before drinks and extras, people overspend! Its easy to program a deal for overspending in the pizza business because the price point is low and the options for add-on sales are plentiful. It's much harder in the spa, salon or even fine dining category.
Groupon knows that most of us think a $10 voucher at a pizza place for half price is a good value. But a $10 coupon at a spa, where their average service is $70, is not so appealing. So Groupon's sales team pushed the spa to sell a voucher for $35 that buys a whole treatment worth $70. The customer gets a day, the spa pays out $50 and Groupon gets $17.50. The pizza deal also sold well but is much more profitable in the short and long run for the business. Groupon pushed the spa to offer deal that was less than ideal because it has to be concerned with "deal quality" which is code for how well an offer will sell.
The point here is that Groupon is an expert in selling Groupons, not in creating good promotions for small businesses. Any deal provider like Groupon is primarily concerned with how each deal looks to its customers, rather than how well it will help build your business. If Groupon really understood the spa business or cared about the long-term success of Creative Hands, they never would have let her sell so many deals at such a low margin. And why should they care? Tomorrow they will offer their subscribers a deal at a competitor's spa.
The lesson here is to be very careful when working with deal providers. Do not let them run the first deal they suggest. Make sure any deal you run will work out well for your business. The best option is to use third party providers sparingly and run some promotions with the help of people who really understand your business.
At SpaBoom we have run thousands of spa promotions and we know what works. If you have been burned by the daily deal machine let us talk to you about our newest program where we automatically generate a wide variety of content and promotions for your business every month. SpaBoom understands the spa market and we know what you need to run consistent and successful marketing. Most importantly, we work for you and are devoted to helping build your consumer base rather than building one for ourselves and renting it to you, which is what you get with Living Social or Groupon. Your brand deserves better.
Groupon Grasping for Growth
April 2nd, 2012 • Posted by Bill Bice • Permalink
Long time readers of our blog know that I'm not a big fan of Groupon. It's not because I don't like marketing or promotions — that's what I live for! I just think requiring a 50% discount and then taking a 50% commission is ridiculous.
Two major reasons why Groupon will be challenged to gain real growth in existing markets:
- Market forces will drive down 50% commission rates. I'd rather have 100 appointments with a more reasonable discount and a 20% commission than 300 with a 50% discount and a 50% commission and the inevitable bad reviews that come with it. Try it out yourself with the Daily Deal Calculator.
- Deal fatigue is setting in. Small businesses are tired of attracting bargain hunters that just move from deal to deal, and the real consumers we want are getting tired of being bombarded with deals.
These issues are starting to catch up with Groupon:
So, what should you do?
- One answer, of course, is just to not run deals. This can be hard to not do when everyone around you is doing it, so…
- Negotiate hard with daily deal sites. 50% isn't set in stone.
- Use the Daily Deal Calculator to really understand the impact of a potential deal, and follow the advice there for crafting more profitable deals.
What's your response? What are you doing with daily deals now?
Holiday Social Media Tips
October 28th, 2011 • Posted by Spa Kat • Permalink
Need some effective and engaging social media tips to quickly incorporate into your holiday marketing plans?
Blue Glass blogger, Kerry Jones, offers up 60 creative social media tips that will help you connect and share your unique brand of spa or salon this holiday season. Some of her tips are more applicable to spas and salons than others but her blog post will get you thinking about new ways to add social media to your existing marketing strategy today and throughout 2012.
SpaBoomer's have access to powerful tools to promote great deals so think about running a BoomTime Deal during the holiday. It's easy to set-up and will get your clients excited about your holiday promotions.
A holiday Facebook Sweepstakes takes about 5 minutes to set-up and allows your spa or salon to gather new Facebook fans in a short amount of time. It's viral in nature; the sweepstakes application creates an incentive for existing fans to invite new people to increase the chances of winning. A more robust fan base means more people get your Facebook posts on their news feed during the holiday. In addition, when someone enters your sweepstakes they provide an email address and can give permission for your spa or salon to market to them. Those new email addresses go directly into your SpaBoom account. That means a new set of customers will see your holiday promotional email campaigns.
Use Facebook and Twitter to promote your spa or salon as a gift-solution center. You can promote treatments, product/service packages and create the awareness that your business offers a last-minute gift solution with Instant Gift Certificates.
Yelp Rating Increases bottom Line, Unless You Groupon
October 10th, 2011 • Posted by Spa Kat • Permalink
Harvard Business School has released a new study finding that increasing your Yelp rating one star can boost revenue by 5-9% annually. The study also revealed that this was true for independent businesses in particular because consumer reviews have increasingly become substitutes for the supposed reliability and constancy of the chains. Consumers increasingly use review websites to determine the quality of your business long before they ever walk in your door.
In addition, the Harvard study also revealed that Yelp provides more comprehensive reviews than comparable sites. The researchers used government data, tracking revenue of Seattle restaurants between 2003 and 2009. They found that Zagat and the Seattle Times each had reviews for only 5% of all local Seattle restaurants while Yelp’s consumer rating penetration was 69% for the same geographical area.
But, doing a Groupon actually has the opposite effect, a recent study has shown that it can actually diminish your Yelp rating. This is just one more reason not to do a Groupon.
Key Takeaways For Your Business:
- Your Yelp rating has a big impact on your bottom line.
- Maintaining healthy consumer reviews has never been more important.
- Groupon can reduce your Yelp rating and have a negative impact on your business.
- If Yelp has a strong standing in a market, it will swing revenue away from chains and toward independents.
Running a Groupon? Expect a 10% Decrease in Yelp Rating
September 13th, 2011 • Posted by Spa Kat • Permalink
According to Launch Media, a study by computer scientists from Harvard and Boston University reveals that businesses running a Groupon or Living Social deal can expect a 10% decrease in their Yelp star rating.
The study beautifully illustrates what happens when businesses compete purely on price. Daily deals often result in unique, price conscious consumers who are less loyal and inconsistent. They are also more likely to give your business a lower rating. Ironically, Groupon won't work with many businesses until they have established hard earned reviews on sites like Yelp. It's a parasitic relationship that uses your online reputation to sell their coupons.
Daily deal sites might need to tone down their claims that these offers will help "jump start" a business because the deals deliver consumers who are less interested in a businesses and more focused on the price they'll receive for a specific product or service.
As we've said many times, these consumers get your deal one day and the next they'll be pitched a local competitor's offer. Add to it, newer businesses have fewer Yelp reviews so running a daily deal would likely skew their rating down farther than an established business. It's just not a great way to get valuable customers through the door.
Yelp CEO: Groupon Model Unsustainable
September 2nd, 2011 • Posted by Spa Kat • Permalink
First there was word that Facebook was eliminating their daily deals program and then this week we heard from Greg Sterling that Yelp plans to chop their deals sales force in half. Anyone else hear the bottom dropping out of this absolutely unsustainable segment?
The economics of Groupon and other Daily Deal clone offers are absolutely out of whack, falling way short of providing long term value for most businesses. They have clearly over promised new customer acquisition generated by the trumped-up lure of deeply discounted coupons. Most businesses just can't recoup the deal's cost in new business generated from the promotions.
What's the best way to use deals in your marketing mix? Run them yourself with BoomTime Deals, they produce more long term clients by selling intelligently discounted deals to a targeted demographic.
3 Success Stories of Promotions with Results: Webinar Downloads Available
June 9th, 2011 • Posted by Andrea Feucht • Permalink
You might have missed your chance to take in the webinar about secrets that helped local spas and salons execute successful online promotions and drive more sales than they ever imagined.
Seth and Janell used three wildly successful promotions as examples – what made them blockbusters and how you can easily implement similar programs in your spa or salon.
If you missed all the fun, just view and download our webinar files and catch up on your own schedule.
Watch the Video: Three Successful Promotions with Big Results
Download and follow along with our presentation [PDF]
(UPDATED) Face and Body Spa Conference, Chicago — March 12-14
March 7th, 2011 • Posted by Spa Kat • Permalink
UPDATE: If you'd like a copy of the presentation Seth used on Saturday, you're in the right place: Roll Your Own Groupon-Style Deal [PDF]
Please join our very own Seth Gardenswartz, a featured speaker at the upcoming Face and Body Midwest Spa Conference and Expo in Chicago at McCormick Place West, March 12-14, 2011.
Seth will identify key strategies to optimize the economics of a group deal and create a true win-win for spas.
Roll Your Own Groupon
Seth Gardenswartz, SpaBoom
Saturday, March 12 2:45–3:45pm
Group discount deals are raging, so get full access to the secrets that will make them successful for your spa and keep new customers coming back. Learn how to leverage the power of group buying to build your client base, increase revenue all while enhancing your spa's services and increasing your social media reach.
We hope to see you there!
Ready to Run Your Own Group Deal?
Download Our Webinar!
March 3rd, 2011 • Posted by Andrea Feucht • Permalink
If you attended our webinar today on group-based deals, thank you!
If you couldn't make it, you really should try to attend the next – Seth and Janell are usually a lively duo, leading through the presentation with tons more info than you'll see on the slides. But, you can relive the magic by viewing our slideshow or watching the video of the webinar that we recorded live. You won't hear the Q & A at the end, but feel free to call us and one of our group deal experts can handle your questions from the nuts and bolts to "I am not a client yet but want to be". We love those calls! (It is 800-940-0458, if you've forgotten.)
Watch the Video: Ready To Run Your Own Group Deal?
Download and follow along with our presentation [PDF]
Google Places now shows your old Groupon deals
January 25th, 2011 • Posted by Bill Bice • Permalink
One of things that has always worried me about Groupon deals is what happens after the deal is over. If it's easy to find your old deals, what will prospective customers think about paying your regular prices?
Groupon leaves old deals out there (forever, as far as I can tell), but fortunately those pages don't tend to rank well in searches at this point. Unfortunately, Google has decide to fix that, and is now including reviews from Groupon and a link to your old deal. Note after CitySearch and SpaFinder, the link to Groupon:
Not only does it expose your old deal in a search result that will always rank prominently on the first page, it also highlights reviews from Grouponites, which are a notoriously difficult group of customers to keep happy. This has the additional negative effect of lowering your overall average review rating that Google shows.
Now, to make things worse, your old Groupon page features links to current Groupons from your competitors.
What should you do about it?
Alternatives to Groupon:
- Use a local group deal site that is more targeted to your city and clientele, and is therefore unlikely to get picked up and showcased by Google in the future.
- Focus on building your own list and partnering with complimentary businesses and run your own group deals with BoomTime Deals.
If you run a Groupon:
- Review our tips for selling a Groupon. It's now even more important to make your Groupon for a special package that is not normally available and cannot be easily compared to your existing menu.
- Set a limit on the number of Groupons you sell and make sure you are able to handle the volume.
- The old technique of limiting the number of open spots per week for Gouponites may no longer work: it's one of the most common reasons to get bad reviews on Groupon, and with those reviews now being aggregated into your average review on Google Places, you just can't afford to have bad Groupon reviews.
Roll Your Own Groupon Webinar: Download New Slideshow
October 22nd, 2010 • Posted by Andrea Feucht • Permalink
We know you can't get enough of our Groupon "love" – we had a great repeat of our webinar this Wednesday by Seth Gardenswartz and Janell Loving. You can follow the whole presentation with our newly updated slideshow, downloadable below.
Download and follow along with our presentation [PDF]
Roll Your Own Groupon — Free Webinar
October 7th, 2010 • Posted by Spa Kat • Permalink
Tired of being fleeced by Group Deal sites? You provide the discounted service and they take 50% of the profit. We have a better solution. Join us as we discuss the five steps to intelligent discounting and give you the ability to build your client base and make a profit by rolling your own deal.
Space is limited.
Reserve your Webinar Seat NOW!
Title: Roll Your Own Groupon-Free Webinar
Date: Wednesday, October 20, 2010
Time: 1:00 PM — 2:00 PM EDT
SpaFinder's version of Groupon is coming
October 4th, 2010 • Posted by Bill Bice • Permalink
Last week's Club Spa email from SpaFinder highlighted "Spa Rah Rah":
Spa Deals to cheer about
Exclusive offers hand-picked by spa experts
The name got more jeers than cheers around the office, but it sounds like SpaFinder's rumored Groupon competitor is about to appear. I suspect it will be on similar terms, with a significant commission to SpaFinder to promote your heavily discounted services. SpaFinder has an important advantage, however: they'll be marketing to a more exclusive list of actual spa goers, which should offset somewhat the crazed bargain hunting of Grouponites.
I'm not sure that's enough to make it a good idea given that your competition's deal will be promoted to the same list, but I would certainly like associating my spa's brand with SpaFinder more than Groupon.
Anyone been pitched on "Spa Rah Rah"? What do you think?
Intelligent Discounting Strikes! (Case Study — Elixir Organic Spa)
September 28th, 2010 • Posted by Janell Loving • Permalink
Recently we received an email in response to the blog post If you must, tips for selling on Groupon, from Lynn Schulman of Elixir Organic Spa:
Using an intelligent discounting strategy Lynn was able to develop an advantageous group deal for her spa. Here are the three key discount strategies that turned the deal around for her spa.
Know your goal and reasons for participating
The desire to attract new clients and increase revenue was her main goals through the group deal "…I was prepared to walk away from the negotiations of the deal if they couldn't work with my pre-determined requirements…."
Margins set the standard
She based her deal on what she would require to achieve her desired profit margin after covering all of her expenses. This provided "…the advantage of a correctly aimed price point at potential new clients rather than only deal seekers…."
Upsell and Rebooking
The deal she created was never in direct competition with her existing service menu, so the therapists and staff were able to easily up-sell at the product level and rebook for services on the existing menu based on the experience received during the discounted service appointment.
If you are considering rolling a group deal — consider this: BoomTime Deals (available w/your SpaBoom Online Marketing Suite) offer you control, preferential new client targets, and the best part of the deal — you pay under 5% commission.
The Real Cost of Doing a Groupon
September 24th, 2010 • Posted by Seth Gardenswartz • Permalink
Groupon and its many clones claim to expose your business to new customers by offering deeply discounted coupons for your business. But before you follow the masses and try a Groupon style deal, you might want to understand their economics.
First, Groupon will demand your deal be at least 50% off the regular price. Next, you have to pay Groupon 50% of the purchase price (unless your offer is less than $10 in which case Groupon keeps 100% of the revenue). So if you agree to sell a $100 Groupon for $50 after paying Groupon $25 you will have just $25 to pay wages, and overhead.
Lets figure the profit margin on this deal. If your direct cost of sales is 50%, each Groupon will cost you $25 in negative gross profit. If your deal is “successful” and you sell 500 units, your total loss will be $15,000.
Think you can make that up in new business generated from the promotion? Think again. The average net profit margin for most businesses is 5%, so you would have to sell $175,917 in full price treatments to make up the loss generated by your Groupon. However, Groupon’s own PR predicts that just 22% of Groupon users will become customers. That translates to just 132 new clients for a dismal $6,204 in net profit from your new Groupon clients. All in all, after your original loss and tiny profit from new clients, the Groupon will cost you $8,796.
If this makes Groupon sound like a ridiculous promotion for your business, we agree. Consider the alternative. If you do your own own Groupon-style deal, you can make a profit by carefully controlling the margins, the total number of sales and the people exposed to the offer.
First create your own package (something not on your menu) so you can still offer a great deal, without cheapening your brand or eviscerating your margin. If you can develop a high margin package, you may be able to get your direct costs down to 40%. By using BoomTime Deals to handle your deal mechanics, each sale will cost you 3% instead of 50%. And since we will not be targeting Groupon’s massive list of bottom-feeders, you'll sell a smaller number of units to gain a similar number of long term clients. The end result would be a $850 profit.
Sound too good to be true? Want to learn more? If you missed our free webinar you can now download, Roll your own Groupon-style deal, and follow along with the presentation. We show you how to strategize and create a plan to Roll your own flash sale and outline the four steps to intelligent discounting. Learn how to increase profits, establish new business and create brand awareness.
If you don't like the numbers we used, plug in your own! Try our group deal calculator to see what a Groupon brand (or clone) deal will cost your business.
If you must, tips for selling on Groupon
June 8th, 2010 • Posted by Bill Bice • Permalink
I've already made the point that I think Groupon is a horrible, soul-sucking deal for small businesses, but I'm still going to share some tips if you've decided to do it anyway:
- Stop, don't do it! Here's a great example of the attitude of deal websites: Never have to pay full price for massages, facials, pilates classes or tanning ever again. But, if that didn't dissuade you, here are some actual tips:
- Look for a better deal: At last count there were some 90 Groupon clones. If one is established in your city, see if they take less than a 50% cut of the already huge discount.
- Create a special package: To avoid direct comparisons with your normal services, create a special package ahead of time. Make it margin-rich to blunt some of the damage from the huge discount. Consider including a slow-moving retail product.
- Limit the deal: Only provide the number of deals that you can reasonably service with a high level of service. Grouponites are notorious for wanting special treatment to go along with their special deal. Be very clear on limitations in the original offer, like appointments only on Tuesday and Wednesday.
- Focus on the upsell and rebooking: Being willing to do the hard sell on Grouponites is a prerequisite — the only way you'll ever make money is with a high retention rate. If your culture isn't focused on selling, don't use Groupon.
- Sell the first in a series: Facials, therapeutic massage, specialty treatments — any service that is process based is a good option to create a series. Discount just the first treatment in the series, creating built-in retention and relationship building.
- Participate in the Discussion board: Grouponites are pretty active in talking about deals — make sure you're there to answer questions and immediately respond to any criticism. Read the discussion board for your city before doing a deal to get a feel for what it's like.
- Consider your existing clients: The point of Groupon is to attract new clients. However, it has the potential to annoying your existing, loyal clientele if you limit it to only new clients. But if you don't, you'll be providing heavily discounted services to clients you already have. Consider having a client-only special for which you don't give up 50% to Groupon.
- Rev your marketing engine: If your deal is well received, you'll get a burst of website traffic from Groupon. Make sure your website is ready, and focused on conversion, along with Facebook, Twitter and email signup links. As Grouponites schedule, make sure and get their email addresses. Then let your email and social media marketing take over to drive new business.
- Be ready for the calls: Plan for extra support on the phones for the day your deal goes live.
If you've used one of the deal sites, what has your experience been?
Groupon makes $1M a week
April 16th, 2010 • Posted by Bill Bice • Permalink
Groupon is outrageously profitable. They've won the lottery out of the group buying websites, garnering the most attention and the most users. By taking half of the cut of deals from small businesses which are already discounted 50%-75%, Groupon has found a great formula for raking in the cash. Groupon wins, small businesses lose.
Fortunately, I don't see this continuing to work. Groupon's success is attracting competition, and it won't be long before someone delivers Groupon-style results but only takes a 10% cut instead of 50%. All of the group buying sites will run out of small businesses to prey on, and this will become a small niche discounting backwater.
Groupon insiders are getting out while the getting is good, selling their stock now to outside investors.
Don't sell your soul to the discount devil
February 25th, 2010 • Posted by Bill Bice • Permalink
Or, why Groupon sucks…
We all love to get great deals. But it's one thing to take advantage of them personally, and another entirely to take your spa down the slippery slope of discount oblivion. It can be tempting, especially when you see your competitors doing it, to start throwing some ridiculous discounts out into the marketplace.
The current craze in discounting devils are new websites like Groupon and BuyWithMe. They sign up a small spa, restaurant, etc. to sell coupons at a steep discount:
Balani Custom Clothiers Inc., a Chicago men's suit and shirt tailor, offered a promotion through Groupon where, for one day in October, consumers could spend $95 on a gift certificate from the tailor shop valued at $225 that's redeemable for up to one year. But at least 50 cards needed to be purchased for any to become valid … "We were all over Twitter and Facebook that day," says owner Sonny Balani … Still, Balani paid a hefty price for the exposure—50% of the earnings generated from the promotion went to Groupon—which means the tailor received just $47.50 per gift certificate sold. —Wall Street Journal
It's great for exposure if the deal is really good, but it also stays out there forever. Every future client entertaining coming to your spa will know that you're willing to sell your services for dirt cheap. Why should they pay the full price that your services are worth? Discounts only work in one direction and only from some established value. Once you are exposed as a discount seller, you have lowered the value of your brand and begun your slide. Sites like Groupon feed on nice local brands like the devil. You get exposure, they get your soul.
Instead, use intelligent discounting that rewards loyal clients or is likely to generate repeat clientele. BOGOs are one of my favorite techniques: you sell your services at full price, with the added bonus of an additional, small gift certificate which generates an additional visit to your spa (and an almost guaranteed upsell).