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kellytree

Living social, groupon, etc. etc.

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I don't even know if this is the appropriate place in the forums to be posting or not but what does everyone think about these groupon/living social/blooming something or other deals?

I am back in the States for an "extended" visit with quite a bit of time on my hands and a little cash in the wallet... so I wonder - should I take the plunge and take advantage of the deals or what?

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I use groupon and twongo for all kinds of deals and a lot of restaurant deals. I always jump on them if I see a favorite restaurant. I have never had an issue using them. Generally whatever "fine" print stipulations for the deal are listed on the Groupon or Twongo page. With most restaurants it is generally that you have to spend a minimum amount and that you cannot use your "deal" on alcohol. Also, generally they won't accept more than one deal per table (i.e. everyone with you can't get $10 off or whatever the deal is, rather it is that amount applied to the total bill.

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I love me some Groupon. I got three pounds of the best cured bacon in Arkansas, along with the best cured (spiral-sliced, yet) half-ham in Arkansas, from Petit Jean Meats, for $35, plus about $6-something shipping. Believe that I jumped on that. I've cooked half the bacon, will get into the other package this weekend; the ham's reposing the freezer for future use. I use their restaurant deals on a regular basis, as well as several others. We're starting a new, similar service here in Hot Springs (the nearest one is for Little Rock, which is an hour from me), called Try It Local, so you might see if you have one of those in your area as well.


Don't ask. Eat it.

www.kayatthekeyboard.wordpress.com

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Kellytree, tell me what you think of this hypothetical situation:

You are a store owner of say, a bookstore. Some one contacts you and wants to sell you some new kind of advertising. Here's the deal. The third pary will spend your money and charge you for it, the third party gets all recognition for the giving away of your money.

Here's how most group coupons work: The Group coupon (or gc's, as I call them) have their subscribers, usually via smart phone. In order for the gc to attract these subscribers, they offer dramatic discounts on products or services, usually in the range of 40-50%. This does not cost the gc one cent, the 2nd party--the store, has to bear this expense. On top of this, the store must pay another 25% of the coupon cost to the gc, which is the cost of doing business with the gc. Basically the coupons are what keep the gc going. O.K.?

The gc's like to call this "advertising" or "marketing".

Problem is, with each coupon that is sold to the customer, the store loses money--big time money, usually around 75%. No gc has yet given out facts as to the return rate of coupon customers--the % of customers who paid discounted price the first time, and are now coming back and paying full price--the full price that is neccesary to keep the store in business. The gc customers are just there for the discount. Many are reluctant to buy anything else, many are reluctant to tip, or even to pay applicable taxes, many make reservations and change them several times. They are just there for the discount. And the business/store loses money with each coupon

Now, if a store was selling last year's fashions, or milk with 2 day's expiry date left, it might be possible to make some kind of money with a gc. Problem is, a restaurant makes a made-to-order product with a made-to order service. It doesn't come out of a box, and go back into a box on a shelf if it doesn't get sold that day.

So, for customers, gc's are a good deal. For the business, a bad deal.

Choose wisely.....

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I use the coupons. One of the coupons I purchased was for a higher-end restaurant I had always wanted to try but could never justify the cost. We used it for a lunch. It was superb, and we have been back about four times since, without coupon. We tip on the amount BEFORE discount.

We also have a couple of coupons to use at a butcher's. We bought them a while ago and have yet to use them. However, this butcher has repeatedly, through Groupon, or a company like it, issued many more coupons which suggests that they certainly aren't losing any money on the venture. This is a high-end shop selling quality meats but their prices are probably the highest in the city. I plan to only buy lamb shanks and whole organic chickens.

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I started with restaurant.com several years ago, and though I still buy once in a while I buy more from Groupon. I will admit to buying some and letting them run out.....so watch out for that.

Mostly I buy for "places I always wanted to try". We do tip correctly, I think restaurant.com adds on 18% automatically now. We have gone to places we never would have gone to......have we gone back.....not much.

I understand about places being overrun with couponers, and that they lose on every coupon sale. So I hope the store/restaurant owners are also well informed about what they are joining in on.

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...which suggests that they certainly aren't losing any money on the venture....

Oh dear...

In the past 6 mths or so I have been "contacted" by no fewer than 6 gc's, and on various other forums dedicated to food and cooking, have been solicited by another 3.

I had only two questions for them, the first being how do I make money by offering a 50% discount+ a 25% commision, and the second question, what is the return rate of ex gc customers?

They say you can tell more about the lack of an answer than by an actual answer. None of the gc's answered my two questions. Some gave me a "wall of voodoo": B.S., accusations, assumptions that I hadn't heard of f.b. or twitter, contempt, anger, etc. but no one could answer my questions.

So lets do the math:

Say I have a $25.00 entree. If I do a gc "deal" it is now $12.50 and less the 25% commission, it is now $9.37. Food costs typically range from 20-30%, 30% of $25.00 is $7.50. Fair enough, but I still haven't paid my overhead costs or my labour costs, which typically are another 60%. I am loosing money with this deal.

I don't know, maybe there's an algebraic equation or so kind of wierd trig that can explain how I can possibly make money with this deal, but I've yet to hear of one.

The second one is more important. Lets say I designed a car that could get 100 miles to the gallon of gas, but cost $100,000. The price is a hard sell, but the low fuel costs over a 10 year period would be more than enough to convert the most miserly car driver to buy my car.

No gc. can give me the return rate of their customers. This is the main selling point of doing business with a gc, as I have already established that it is impossible to make any money--let alone cover costs, with a coupon deal. The only real way I can make money is to sell at my normal selling price, which is not the gc's "forte". Of course there are other ways, marking up high, buying inferior product, using bad staff, but this is not conducive to a succesful business.

So why do some busineses do it, use a gc?

Honestly, I don't know.

I do know, as most everyone elses knows, of relatives or friends, otherwise very intelligent and finacially savvy, get "taken in" by bad invetments, scams or really lousy overpriced telemarketing products.

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Kellytree, tell me what you think of this hypothetical situation:

You are a store owner of say, a bookstore. Some one contacts you and wants to sell you some new kind of advertising. Here's the deal. The third pary will spend your money and charge you for it, the third party gets all recognition for the giving away of your money.

Here's how most group coupons work: The Group coupon (or gc's, as I call them) have their subscribers, usually via smart phone. In order for the gc to attract these subscribers, they offer dramatic discounts on products or services, usually in the range of 40-50%. This does not cost the gc one cent, the 2nd party--the store, has to bear this expense. On top of this, the store must pay another 25% of the coupon cost to the gc, which is the cost of doing business with the gc. Basically the coupons are what keep the gc going. O.K.?

The gc's like to call this "advertising" or "marketing".

Problem is, with each coupon that is sold to the customer, the store loses money--big time money, usually around 75%. No gc has yet given out facts as to the return rate of coupon customers--the % of customers who paid discounted price the first time, and are now coming back and paying full price--the full price that is neccesary to keep the store in business. The gc customers are just there for the discount. Many are reluctant to buy anything else, many are reluctant to tip, or even to pay applicable taxes, many make reservations and change them several times. They are just there for the discount. And the business/store loses money with each coupon

Now, if a store was selling last year's fashions, or milk with 2 day's expiry date left, it might be possible to make some kind of money with a gc. Problem is, a restaurant makes a made-to-order product with a made-to order service. It doesn't come out of a box, and go back into a box on a shelf if it doesn't get sold that day.

So, for customers, gc's are a good deal. For the business, a bad deal.

Choose wisely.....

Nobody forces any restaurant to participate with Groupon (or any other) coupon. It's their own choice to work together with Groupon.


Edited by Honkman (log)

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We've bought them occasionally, and never had any trouble using one. The mechanic who owned the oil-change place we recently tried (on a Groupon) explained that he wasn't making any money on the deal, but that it might keep his guys a little busier during the slow times and he was hoping for some repeat business. He told us that Groupon charged him 50% of the face value of the coupon, but didn't mention any other costs or commissions.

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Nobody forces any restaurant to participate with Groupon (or any other) coupon. It's their own choice to work together with Groupon.

A-yup. Totally agree with you on that.

But... But, no one can tell me how a restaurant or any other business can cover costs (or make a buck for that matter) when they "do a deal" with a gc.

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I'm not sure they do it to make money. I think they think of it as advertising that is cheaper than radio, tv or print ads.

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Every consumer/retail business has a product that they sell as a "loss leader"...the thing that they know brings customers in but they don't make any profit on. They count on the customer seeing all of the other, more profitable items on the way to check out and impulse buying. Same reason that the combination gas station/convenience stores exist. They charge a penny or two less per gallon for gas because they count on you going in to buy a Slurpee while you fill up.

Group coupons are a calculated risk for a restaurant owner, they hope that the deal entices someone to try their restaurant who might not have otherwise, and then they will enjoy it and return (and hopefully tell their friends). During slow periods like the summer, I have to believe they would rather have a couple of less profitable checks than an empty dining room. My husband and I use these types of coupons, finances are tight and they enable us to eat out in some nice local places. In the end, it's about local businesses trying to get people in the door.


"Only dull people are brilliant at breakfast" - Oscar Wilde

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Let's go through the numbers again:

50% reduction of a regular sales price

25% commission from what's left over.

This isn't a few cents below sales price, this is a significant reduction, over 60% reduced from the sales price, it's guaranteed to loose money.

Whom does it benefit?

The gc and the customer

The retailer is guaranteed to loose money with each coupon sold.

Is no one upset with the gc? They are spending the retailer's profit, overhead, and some of the labour costs to attract their own customers.

And you call this "advertising"??????

Is no one going to scream out "The emperor isn't wearing any clothes!"?

This isn't advertising....

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Let's go through the numbers again:

The alternative is traditional advertisng where you simply throw out money into the abyss. Or you can forego advertising, which is not a very practical methodology. It seems to work best for new restaurants with limited exposure and clientele, who gain significant publicity amongst their often hard-to-reach target audience. A good example would be a vegan restaurant in a town known as the home of the deep-fried cheese curd and the world's largest brat-fest.


Edited by jrshaul (log)

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This is true, but just the same a lot of money has been spent, albeit in other ways.

The whole reason for the 50% discount is to attract people. It is these people that are the gc's customers--notthe merchant's, since it is the gc who recieves money and doles this out (less the commission) to the merchant.

In other words, they (gc's) are spending opm (other people's money) to attract and maintain thier own customer base.

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This is true, but just the same a lot of money has been spent, albeit in other ways.

The whole reason for the 50% discount is to attract people. It is these people that are the gc's customers--notthe merchant's, since it is the gc who recieves money and doles this out (less the commission) to the merchant.

In other words, they (gc's) are spending opm (other people's money) to attract and maintain thier own customer base.

Spending $1,000 on groupons is no different than buying a $1,000 advertisement.

You forget another potential source of gain - the number of people who never cash in. I had a groupon to a restaurant expire before I could use it. I'd be willing to bet this occurs fairly often amongst less accessible establishements, greatly reducing the total cost.

For most businesses, this isn't practical; many are issued by less than savvy individuals trying to get in on the latest fad. The same could be said of websites ten years ago or radio last century. It doesn't make either of them any less valid.

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I agree with almost everything you say.

However I need to point out one obvious elephant in the room.

"Traditional" media--newspapers, radio, TV, etc., produce a product/service that is attractive to their customers.

Gc's do not produce any such product or service. The only thing they produce to "appease" their customers is to offer significant discounts. Not their money of course, other people's money. They are charging the merchant to spend thier money.

Scratching your head? I am.

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I agree with almost everything you say.

However I need to point out one obvious elephant in the room.

"Traditional" media--newspapers, radio, TV, etc., produce a product/service that is attractive to their customers.

Gc's do not produce any such product or service. The only thing they produce to "appease" their customers is to offer significant discounts. Not their money of course, other people's money. They are charging the merchant to spend thier money.

Scratching your head? I am.

When was the last time you saw a 27-year-old Goldman Sachs vunderkind reading the village paper? And how many restaurants can afford to produce a quality television ad - or match McDonalds' bid for airtime? Groupon is expensive, but it's highly targeted to a demographic with enormous discretionary income. In an age where corporations own the airwaves and no one of means pays attention to neither advertisments nor reviews in local print media, it's either that or pray Google shows your hideously expensive banner ads to the right consumers.


Edited by jrshaul (log)

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Edward J - Your analysis assumes that the customer's check is limited to the amount of the coupon, which is not necessarily the case. I have used exactly one groupon, to visit a restaurant that I had wanted to try. Paid $30 for a $60 groupon. Total bill before tax and tip was ~$125. The discount built in to the groupon made me less likely to order on the low end of the menu.


Those who do not remember the pasta are doomed to reheat it.

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My analysis is based on conversations with many merchants who used gc's.

General concenus among all was that less than 5% came back as "regular" customers.

General conclusion: gc customers are only there for the discount.

Should a gc offer any statistics or contradictory findings to my "seat-of-the-pants survey", I would be most interested in hearing it.

As I have said in my above posts, I have been solicited by several gc's, and no such information was included in their "sales pitch", inspite of my requests.

Perhps we could get some input from other merchants who are e-gullet members?

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