Groupon promotions mean boom or bust for local businesses
Friday, September 24, 2010
When Erika Diimmel opened Bikram Hot Yoga Vancouver she needed help finding new customers for her business, which opened four months ago at 1801 S.E. 164th Ave. in east Vancouver. So Diimmel, a recent transplant from Seattle, turned to the online coupon service Groupon.
After signing up, the yoga studio sold more than 1,300 coupons to new customers by offering 20 classes for $20, a $220 savings. The sale netted more than $38,000 in one day. Groupon took a 50 percent cut of the proceeds and sent a check to Diimmel for the rest, said Julie Mossler, Groupon spokeswoman.
“Bikram yoga is such a word-of-mouth business, just to get my name out there was huge — better than anything I’ve done,” Diimmel said.
Diimmel’s studio is one of a handful of Clark County businesses, including Roots Restaurant, Lapellah and 360 Pizzeria, that have used Groupon promotions to attract new customers in recent months.
The Chicago-based Web company sends an e-mail each day to more than 100,000 subscribers in the Portland-Vancouver area offering huge discounts for products or services from a local business. Subscribers log on to buy the coupons, then have a set period of time to redeem them.
For small businesses or startups, the service can bring in more traffic in a shorter time than traditional advertising and marketing methods. Because the subscribers have already paid for their coupons, they’re much more likely to use them than a free, clipped coupon. But the Groupon service also comes at a cost that some small businesses aren’t prepared to handle.
“Sometimes people jump on the Groupon bandwagon and don’t think through if they’re able to afford it,” said Jenny Tallis, a marketing consultant who organized the Groupon campaigns for the three Vancouver restaurants. “You have to look at cash flow.”
Groupon faced some criticism in the metro area this month when the owner of Posies, a north Portland coffee shop, wrote a blog post about her negative experience. The blog post spread rapidly among business owners and marketers online, attracting national attention and raising awareness on the drawbacks to using the service.
Posies’ promotion, which offered a $13 voucher for $6, sold more than 1,000 coupons, and the cafe suffered a huge financial hit from the rush of customers. After accepting Groupon vouchers for three months, the cafe was $8,000 in the red, forcing the owner to dip into her personal savings to make payroll and rent.
“After all of this, I find myself not even willing to buy Groupons because I know how it could hurt a business,” wrote owner Jessie Burke.
If a business depends on full-priced sales to pay fixed costs such as inventory, rent and payroll, an onslaught of customers can deplete its resources and even put it out of business, said Veronika Noize, a small business marketing consultant in Vancouver.
And for those businesses that can afford the discount, Groupon is only worthwhile if customers come back and pay full price — that’s what leads to profitability, Noize said.
Groupon works with businesses to structure coupons in a way that works best for their type of business, Mossler said. A deli will need a different type of coupon than a dentist, for example. But in the end, it’s up to the business to know whether it can handle the increased traffic, she said.
Roots, Lapellah and 360 Pizzeria put their staff through Groupon training in advance, said Tallis, the marketing consultant. The staff need to expect a rush and know how to answer questions related to the coupons, she said. They should also provide great customer service to encourage repeat customers.
Before Diimmel signed up, she did research, calling yoga studio owners in Seattle that had used the service. They all saw increased business after their Groupon promotions, Diimmel said. She also crunched the numbers, figuring out how much the promotion would cost the studio. Because her business is primarily a service — she sells class time with an instructor and not products with a hard cost — she calculated the increased traffic wouldn’t raise her costs by much.
Then, to prepare for higher customer traffic, she bought more yoga mats, printed more registration forms and brought in extra desk staff during the early days after the promotion. She plans to follow up with her new customers to gauge their satisfaction with the experience and track how well the campaign worked.
Her advice to small businesses about Groupon: “Plan it right.”