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Morning Poll: Groupon Return Visits

by ARLnow.com — June 9, 2011 at 9:35 am 2,541 53 Comments

Now that Groupon appears poised to conduct a $1 billion initial public offering that will value the company at $20 billion, some have been questioning whether Groupon and other ‘daily deals’ web sites (like Living Social) are actually worthwhile for the businesses that offer the deals.

While consumers only see the great money-saving bargains — for instance, $40 worth of food at a local restaurant for $20 — merchants have to accept that running a Groupon-type deal is probably going to be a money-losing proposition in the short term. Since Groupon typically gives merchants 50 percent of its deal revenue, that means that Joe’s Restaurant is only receiving $10 for giving away $40 worth of food. Low-margin businesses like restaurants will often lose money on that — and the losses will add up, since Groupon can sell hundreds or even thousands of coupons at a time.

The silver lining for businesses that use Groupon — and the entire premise of ‘daily deals’ in general — is customer acquisition. The idea is that by getting a whole bunch of people to try your food (if you’re a restaurant) or services (if you’re, say, a yoga instructor) you can get a certain percentage of those deal purchasers to come back later and pay full price.

Very generally, businesses need about 10 percent to return to turn a money-losing deal into a money-making deal. But does that actually happen? The question is especially pertinent in Arlington, where lots of businesses have been trying out daily deals and where customers can simply jump from deal to deal, if they really wanted to.

If you’ve ever bought a daily deal (for a business you were not already patronizing) have you at some point returned to that business and paid full price?

  • Kyle

    Honestly, a lot of the deals I’ve bought through GroupOn or Living Social were for places I was already familiar with and planned on frequenting again anyway.

    The one or two experiences I’ve had with new establishments, I’ve had a great experience and no problems and really enjoyed so made it a point to go back.

  • charlie

    i’ve only done it once and it was for a place that i love. and i feel bad using it knowing the owners are getting shafted.

  • YoBimbo

    Yep, all the time. We find it to be a great way to discover new places and businesses we might not have tried. A small part of it is the deal, but a larger part is that the deals make us aware of businesses we never knew existed.

  • meh..

    South Moon Under & Pete’s are the only two times i’ve used Groupon. South Moon Under i’d probably go to again if they had a sale or something, but the Groupon did make me aware of the diverse clothing and products that they offer.

    Pete’s was a GREAT deal on great pizza. But bottom line is that Pete’s aPizza is just too expensive, so I likely won’t go back unless I score another coupon or deal of some sort. I guess the ritzy Clarendon crowd digs it though…

    • LyonSteve

      Agree with you about Petes. OK pizza, but not worth the $.

      • TreClarenDon

        Agree to Agree. I some how dropped $40 on 1 pizza and a couple of sodas… doesn’t float my boat.

        • Me Three

          They justify it by the large size, but they skimp on the toppings.

      • JS

        by the slice, it’s not too bad. you can get a couple slices for like 6 bucks, and they’re fairly large

  • doodly

    I’ve gone to places I’ve never been before using Groupon. That’s part of the fun, to find new places and take a risk for a discount. But I have yet to go back a second time. Too busy going to new places, with Groupon.

  • JamesE

    I’m probably the only human being who has never used Groupon.

    • jan

      No, James. Add me to the list.

    • http://www.iammike.org MikeC

      Are you sure you’re a human being?

      • JamesE

        only when I’m sober.

  • Stu Pendus

    Coupons are for the poor.

    • CW

      Sometimes I think that way and feel miserly when I present a coupon. But then I consider the details – it takes 10 seconds to cut out a dollar-off coupon. That’s a rate of $360 an hour. Not bad, even for you lawyers out there.

  • R. Griffon

    ARLnow – Why not drive this home and go out and interview some area businesses that have used Groupon to learn about their experiences? As stated above Petes and South Moon Under have participated. And I know we got some for Barupa too. I’m sure there’s more.

    Would love to get real feedback from business owners.

    • http://www.arlnow.com ARLnow.com

      That’s a great idea for a follow-up. Hopefully we can get businesses to speak candidly with us about their experience.

  • y8s

    I’ve used it for both places I wouldn’t normally go as well as places I go frequently.

    I thought I might feel bad for the owners getting the shaft but then I realized they are getting new people in the door. Advertising generally is considered an expense and doesn’t guarantee people sit down at buy your product at any price.

    I also like to use it for restaurants that are expensive or otherwise off my radar like a one-place restaurant week.

    • JS

      you also have to factor in overspending. i know when my wife and i use a groupon for dinner, we tend to order appetizers, multiple expensive drinks, and larger entrees that we normally wouldn’t buy. i’ll spend well over the value of a 30-50 dollar groupon voucher in many cases, especially if we’re getting good service.

      • CW

        Exactly. Many places seem to value the groupon at about 50% or less of what it actually costs to eat there. So they get you in the door and then still get high-margin business on the incremental spending that you do over the value of the coupon.

    • don’t feel bad

      Living Social sometimes pays the entire cost for the business, just to promote itself. Say you pay $10 for a pizza coupon for $20 of value. Often, LS will pass on the whole $10 to the business instead of splitting it. So they only “lose” part of what their production cost is–which is small.

      These businesses wouldn’t do it if it didn’t work out for them. That’s why I use LS, Groupon, Ent Guide, whatever I can find.

  • Southeast Ben

    Hard Times and Whitlow’s have both used it as well. Not sure how well it worked out for them. They seem to have strong customer bases already. Perhaps they made money on the extra booze sold.

    • JS

      that was probably it. the whitlow’s one was only good for 20 bucks, so i’m sure a lot of 20somethings (like myself) went in there for a weekend night and wound up with much higher tabs than that. plus, booze is a high margin item anyway

    • CW

      Hard times also has a perpetual groupon in the form of gift cards that it sells at costco – four $25 cards for $80. I guess they ran the numbers and they think the volume is sufficient to make up for the decrease in margin.

      • Foolish Consistency

        “Hard times also has a perpetual groupon ”

        You know you are supposed to go see your physician if this occurs !!!

  • CW

    I don’t use groupon as frequently as I use the coupons that come in the mail. With some places I almost feel like they build the use of the coupons into their pricing structure. I’ve only gone to ZPizza a couple times, and that’s always been when they give 2-for-1 coupons. No way I’m paying $18 per pie for that garbage. I’ve always thought Quiznos was overpriced, and I’ll only go to it when the one nearest me (Wash Blvd, home of the $35k meals tax debt) sends out 2-for-1′s.

    Coupons don’t make me a regular customer at a place; they create specific instances where I am incentivized to visit places whose prices I normally believe to be unreasonable.

    Also, with the exception of when a place is brand new (like Pete’s) and are trying to drum up some buzz, if a restaurant offers a groupon it’s usually a sure sign that it sucks…

  • Aaron

    I can’t answer the poll because I’d really hate to send the wrong signal with the “I’ve never gone back option.”

    The groupon deals that have “worked” for me have been opportunities to get re-acquainted with a place I’m already familiar with but perhaps haven’t patronized as frequently or intensely as I could have. In one instance, the groupon prompted me to try the food at a bar/restaurant that I only ever drank at previously, and now getting food there comes quite naturally. It’s a win-win.

    On the other hand, I think that every time I’ve used a groupon “cold” on a completely new place, it’s turned out more like a blind date — there’s usually not been any follow-up. I don’t think it’s any different with the Clipper magazine or any other offer though, you’re hitting up a place at price point that you like and the thought of paying double that is often much less appealing.

    I’m starting to be a little peeved at the extent to which groupons have become like DC Restaurant Week all year round: the staff sees that you have a groupon and immediately decides that you are unworthy of being treated like a full-fledged customer, completely defeating the purpose of trying to lure in new business.

    • Thomas Carlyle

      It’s possible that the staff feel stiffed on the tips they get with Groupon customers. If someone just figures 15 percent of their total, a $20 groupon costs the server $3 in tips.

  • Chipper J.

    I prefer LivingSocial to Groupon. I think they have higher quality businesses and better deals. They are also a local DC-based company!

    I don’t feel bad for the restaurants. They already have high markups in so many industries. I think it’s like trading some of your profit margins for a new customer. If you’ve got a great business that will pay off for you as more will return, tell their friends, etc. If you’ve got a poorly run operation you may lose money and damage your reputation. Either way any business featured on these sites gets big social media the day their deal runs.

    Overall I think the concept is genius. Just wish I thought of it first!

  • Hank

    Let’s not forget to account for the number of people that buy the coupon and never use it. I am familair with 1 company that made a killing offering something on Groupon and about 1/3 of the peolpe never came in to use the coupon. That is pure profit for them.

    • Chipper J.

      Good point.

      • Rebecca

        That’s why I stopped buying groupons. Because you get caught up in a quick deal with a limited expiration and forget about it.

        I did get a groupon to Layalina on Wilson Blvd. Had I never gotten a groupon I would have never known about that place. I have gone back once, since.

  • Dood

    There should be an option for “I already knew and frequented the business, and buying the coupon only meant it would be cheaper next time I went there.”

    I’d say pretty much all of my groupon purchases fall in that category.

  • http://twitter.com/ClarendonBlvd ClarendonBlvd

    Hank’s point is right – there is a percentage of people who never use them.
    We haven’t used ours at Pete’s, but I agree w/ the comments about it – it’s my incentive to go, but I normally wouldnt.
    Whitlow’s is a place we goto monthly anyway.
    We have one for Chez Manelle – a place we’ve wanted to visit for a long time, so the Groupon may make us a repeat customer if we have a good experience.
    I prefer the LS deals b/c they are local and seem to have a variety of options. We’ve gone on a local cruise and gotten movie tix from it…

  • Ballstonia

    Mad Rose Tavern has been using Capitol Deal and Living Social to drum up business. Ate there last weekend using one and the food and service was definitely a step up from when it first opened. I’d go back.

    My worst half-price deal experience was at Sangam. Despite the restaurant being 75% empty on a Saturday it took more than a half hour for a waiter to show up to take our order. The food took another hour. Then when we presented the coupon, they tried to tack on an automatic 18% gratuity to the bill. When I finally complained the owner gave me a sob story about how the deal was costing the restaurant so much money and how they are stuck in a bad location and can’t afford to hire more staff. I wouldn’t go back there if it was free.

    • JS

      maybe they’d make more money if they didn’t give away entire plates of food at taste of arlington for two tickets…

    • Sangam

      Similar experience. Despite there being no mention of it in the fine print, they refused to allow us to use our LS credit on a weekend, because it turned out there’s a buffet then.

      We had shown up planning on ordering from the menu, but the waiter (not knowing we had a LS deal) suggested the buffet. Not like we ate much more than we would have otherwise. We could have insisted, but the waiter gave us the “we make no money on the buffet” thing and made us feel guilty. If you make no money on the buffet, then don’t offer a buffet! And put in a buffet exclusion when do you Living Social!!

      I’m sure running a business is hard, but just be up-front about exclusions, and everyone will understand.

      • http://www.arlnow.com ARLnow.com

        The irony is that the whole point of the ‘deal’ is to convince customers to keep coming back, not to make money in the short term. Offering inadequate service to coupon customers is incredibly self-defeating.

        • Oui Gnar

          Bingo. And we’re actually repeat customers. Their food is pretty good, but this experience left a bad taste.

    • Groupon Lover

      Hey, I had the exact same exact same experience at Sangam. I still have that (*&^$%$% unused Groupon because they wouldn’t accept it on a Saturday. I will probably just throw it away. Their food was OK, but the slow service and Groupon refusal ticked me off, so I will find another Indian restaurant that wants my business.

      • Sorry to hear that…

        Groupon will refund your money, though. In fact, I think it was done automatically if you didn’t use the coupon.

    • http://www.twitter.com/ahwahoo2006 ahwahoo2006

      I have no problem with the automatic gratuity, since a lot of people forget to tip on the pre-discounted total. I run into this a lot since I tend to go out as a group often. Its my general policy to not tip more than the automatic gratuity, even if I would have tipped more (and a lot of places where I am a regular I tip 35%+). I then tell the server to pass on to management that they would have had a bigger tip if they didn’t have an auto gratuity.

  • 4Arl

    Does anyone know if DC picked up the tab for the CaBi promo? It seemed that there were a good number of people who would have paid the normal price or were picking up a renewal.

  • JimPB

    We’ve had good experiences at all the restaurants at which we used Groupons, BUT we have not returned, with one exception, and that was when we got another Groupon for the same place; the reason: the appeal of trying more of the so many interesting restaurants in the area.

    (There are a couple of restaurants to which we occasionally return, but this is usually when convenience is the dominant consideration.)

    So, what would work fora restaurant in the area to increase business?

    • Dan

      “So, what would work fora restaurant in the area to increase business?”

      Good food, good service, nice atmosphere and of course reasonable prices……but to do that and turn a profit, there is the rub !!

  • Evil

    I’d be curious to know how much money these places typically “lose” because of these discounted coupons.
    For one, typically hundreds of people will buy these coupon deals, but not everyone uses them before they expire.
    Secondly, most businesses raise up the price of an item to cover their costs and gain revenue… so I wonder if they’re “losing” money, or maybe just breaking even.
    And for the advertisement they receive and potential new business that comes from it, I’d think it’s totally worth it.

    • ArlLiver4

      I’ve “heard” that the rate is around 35%. I don’t actually know for sure. If they have in fact filed for an IPO, I could go to the SEC website and read through their filings. I don’t really care much more than to make a quick posting about it.

  • Tabby

    A LivingSocial deal brought me BACK to a hair salon and stylist I’d been away from for more than a year. I keep going back. She’s so good that I don’t need haircuts as often!

    On the other hand, I’ve lost money by not using ones I’ve bought and then they expire. So I’m not a huge fan of them in that sense.

  • ArlLiver4

    Groupon is for impulsive women.

    • ArlLiver4

      and impulsive women is redundant.

  • Ballston Girl

    @ArlLiver4. That’s really funny :)

    I see Groupon, LivingSocial and CityCiao more as a vehicle to get people to the door. Its up to each store to upsell customers or blow us away with great service that they want to come back.

    It amazes me how people can be so critical of a business when they are eating for half off. The party with the highest benefit in any scenario is us as consumers. All we have to do is buy it and show up!

  • http://www.twitter.com/ahwahoo2006 ahwahoo2006

    Ive had some great experiences with Groupon and some not so good ones. Highlights: discovering Thai Curry, Arrowine, and Layalina – all places to which I will definitely return.

    IIRC an article I read stated that merchants get around 25% of a Groupons face value, but some of the low value ones (e.g. $5 for $10) they get nothing. If they think about it in terms of an advertising spend instead of sales, it it probably pretty good for them. I would be really interested in an ARLNOW article following with some of these businesses.

  • Tom M

    There’s an interesting post on Techcrunch that goes into one business’ experience with issuing a Groupon and how it cost them financially and with their reputation.

    http://techcrunch.com/2011/06/09/groupon-single-worst-decision/

    I think the newness of Groupon and the local offer industry puts small biz at a disadvantage. Many want to jump on board the cool trend to connect with customers without fully understanding how much money it will cost them.

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