Archive for May, 2012

I’m from Groupon, and I’m here to help

May 8, 2012

I’ve been wary of Groupon from the beginning. If you’re a small business owner or an eager investor, I think you should be, too.

Groupon CEO Andrew Mason. Just had a spa treatment for 50% off.

Groupon has now convinced hundreds of thousands of local businesses to offer their goods at 50% off (and pay Groupon for that privilege). After the initial elation of seeing hundreds of bargain hunters at their doors, these small merchants have awakened to the havoc these promotions have wreaked on their income statements.

But wait. Groupon’s not done with you, Mr. Bill’s Bird Seed. There’s more, Ms. Signs R Us. Now that Groupon has shaved your profit margins down to almost nothing, they’re here to help.

In his most recent letter to shareholders, Groupon CEO Andrew Mason says, “we plan to offer a fully automated yield management system for every local business. [Booking management system] Scheduler embodies our intent to provide every mom and pop store with powerful technology solutions that were once reserved for sophisticated corporations with multimillion-dollar budgets.”

“Yield management” is consultant-speak for the process of analyzing and fine-tuning gross profits vis a vis promotions, discounts, coupons, and the like.

That’s right: now that Groupon has cut your margins to the bone, they magnanimously offer you sophisticated software (at a price) to help you scrape by.

If you’re a small business owner, the wise response to Groupon is, “thanks, but no thanks.” There are better ways to generate demand for your products and services. A steady program of solid advertising plus strategic use of social media will insure long-term viability. Let your competitors price themselves out of business with Groupon.

If you’re an investor, eager to jump on the Groupon bandwagon, note that that bandwagon is rolling downhill.