I feel the need to write an update about Groupon and similar deal sites
since my article earlier this year because I wouldn’t give the same
advice today. In the past, we’ve done many new customer acquisition
strategies with which we’d make little or no money on the first order.
However, when we entered these new customers into our marketing funnel,
many became regulars.
I feel the need to write an update about Groupon and similar deal sites since my article earlier this year because I wouldn’t give the same advice today. In the past, we’ve done many new customer acquisition strategies with which we’d make little or no money on the first order. However, when we entered these new customers into our marketing funnel, many became regulars. Initially, we thought that Groupon was a good way to expose ourselves to a bunch of high-end, new customers, and with our ongoing marketing efforts, that some would turn into regulars. But, what we found with our experience was that the Groupon, and similar deal sites, customer is a different breed altogether.
A pizzeria’s typical cost of product is 30 to 33 per cent. The cost of labour is 33 per cent. Add in fixed expenses (rent, utilities, etc.) and the profit margin is driven down to the single digits, five to eight per cent. I have found that Groupon and similar deal sites sell $20 gift certificates for $10 and give the pizzeria $5. This means the pizzeria is receiving just 25 per cent of the menu price, which falls far below even covering the cost of the product. When you consider that the pizzeria has to increase staffing to cover the surge in sales that the ‘deal’ creates, costs increase even more. I was sold on the claim that my Groupon deal would bring in ‘high-end’ customers, but this couldn’t be further from the truth.
Many customers ignored the terms on the certificate. It clearly stated only one Groupon could be redeemed per household, per day. Some threatened to post negative reviews online while they were still placing their order – they hadn’t even tried our pizzas yet – but because we insisted they honour the terms of the deal they became irate and unreasonable. Some refused to give us any information to allow us to follow up and invite them back again, citing: “I’m only here for the deal.” This made extra work to track the redeemed ones. Some attempted to redeem the same one multiple times. Some didn’t even buy the deal, but tried to redeem the e-mail advertising the deal. Several acted like dictators: “You will do this or else!” And, to salt the wound, almost all new Groupon customers spent only the value of the Groupon and not a penny more. Some of our regular customers also took advantage of the deal, although all spent more than the value of the Groupon.
The deal was valid for six months and we tracked it down to the last one redeemed on the last day. Of course, plenty were redeemed on the last day by what should have been “happy-I-got-a-deal” customers, but instead, my staff dealt with begrudging comments that their Groupon expiration date wasn’t long enough. Ironically, printed on each Groupon voucher were the words: “Our customers are big tippers, that’s why we’re the best!” You can ask my drivers about that one. In the end, we couldn’t wait for this promotion to be over. It was like we’d invited the worst of the worst of humanity to come on down, treat our staff poorly and act as if they were entitled to dictate whatever terms they wanted because they had a piece of paper from a deal site.
Since our experience I’ve seen several reports about other small business owners in different industries who participated in a deal site promotion with the same good intentions of receiving exposure to a bunch of new, qualified customers, but ended up with a similar experience to ours. A local nursery owner had to shut down six weeks early because a deal site didn’t cap the number of vouchers offered and everyone who came in with a voucher spent only the face value and stated they weren’t coming back. She was picked clean. This deal site promised to help to build her business, but instead destroyed it.
You may not have heard that the Alberta government has been talking about passing legislation forcing the issuing business of a daily deal site to buy back the voucher at full face value after the expiration date. That means that technically people could just sit at home and buy these vouchers for half price, wait until the expiration date has passed and show up demanding cash for the full face value. Let’s hope most people wouldn’t do such a thing, but it’s a slippery slope and we’ve all seen bad behaviour from our customers. These legislators are oblivious to the number of those who will be attracted to easy money at the high cost of destroying small businesses and the jobs they create. Just one more example of how out of touch so many legislators are with small business owners.
Needless to say, we will never sign up for any type of deal site promotion again. We will, however, continue to run our own new-customer acquisition strategies, which always work well for us.
Diana Coutu is a two-time Canadian Pizza magazine chef of the year champion, internationally recognized gourmet pizzaiolo, co-owner of Diana’s Gourmet Pizzeria in Winnipeg, Man., and a member of the board of directors for the CRFA. In addition to creating award-winning recipes, Diana is also a consultant to other pizzeria owner/operators in menu development, creating systems to run a pizzeria on autopilot, along with marketing and positioning to help operators grow their business effectively and strategically. She is available for consulting on a limited basis, for more information contact her at Diana@dianasgourmetpizzeria.ca.
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