Buyer beware when dealing with Groupon
Thursday, Dec 16, 2010 - Posted by Rich Miller
* It’s kinda difficult to lay all the blame Groupon for this because apparently somebody didn’t do that math over at Navy Pier…
Navy Pier officials blame Groupon for a drop in revenue for its biggest annual festival, though they credit the daily-deal site for generating more traffic.
With Winter Wonderfest ticket sales up 12% in volume, but event revenue down about 8% so far, Navy Pier officials are reconsidering whether future partnerships with Chicago-based Groupon are worthwhile.
Groupon offered Winter Wonderland tickets for $9, half the price, one day in early November. Mark Thompson, senior director of marketing for the Pier, estimated some 7,500 Groupons were sold that day — a 283% increase from the same Groupon deal offered for last year’s Wonderfest.
Overall ticket sales are running 12% ahead of last year to date.
But revenue is down considerably: Wonderfest has netted $420,000, compared with $455,000 during the same period in 2009.
More…
While pier officials expect to garner more revenue than last year for the indoor holiday fun fair, which runs through Jan. 2, they plan to evaluate whether to use Groupon again, at least at those deep discount levels.
Well, duh. Groupon claims it is always willing to make a deal with its clients, and that’s what should have been done here to begin with. It’s not really Groupon’s fault that Navy Pier officials didn’t consider that so many tickets could be sold at such a low price.
Groupon has been criticized for this before, but every time I’ve seen a story, it’s about a businessperson who was overwhelmed with the response to its offer and ended up losing money. They either figured that coupon holders would buy other items when they were in their shops (which didn’t happen because the shoppers just wanted the steeply discounted stuff) and/or they simply sold too many items at less than the cost of providing them. From Chicagoist…
We’ve taken advantage of one Groupon that we can remember and have talked with chefs and other entrepreneurs who have felt similarly burned after doing a Groupon. We were also at a recent brunch at a local restaurant where we were also the only person in the restaurant who wasn’t there because of a Groupon deal.
But that’s the Catch-22 with Groupon. It should introduce businesses to valuable new customers, but once the half-off deal is cashed in, does it?
Groupon users are apparently cheapskates. So, buyer beware.
* Speaking of Groupon, they’re helping spark a tech boom in Chicago, according to WBEZ…
In this building, Watermelon Express is like a tiny barnacle stuck to the side of the Groupon battleship.
It’s an example of how Groupon is transforming the culture of Chicago, creating the right atmosphere for small companies like this one to get a start.
RANGNEKAR: I would say the last nine months have been phenomenal. I would not want to be in any other city but Chicago right now.
And here’s the lineage to Groupon.
Eric Lefkofsky and Brad Keywell are serial entrepreneurs who bankrolled Groupon.
They discovered Rangnekar at the University of Chicago business school and funded his company in July.
It’s one of eight startups they’ve invested in this year out of a new $100 million dollar fund.
Keywell says Chicago’s tech scene is starting to get the ego it needs to rival Silicon Valley.
- PPHS - Thursday, Dec 16, 10 @ 10:54 am:
I thought that the purpose of participating in a Groupon was to try and get repeat customers, w/o the coupon.
So, I buy one from Massage envy. I pay 25% of the normal price. They are not making a profit from those people that buy it and use it. They make money from generating repeat business.
- amalia - Thursday, Dec 16, 10 @ 11:03 am:
actually, business beware when dealing with Groupon. How Groupon gets the blame for this I can’t figure. It’s becoming really great that Andrew Mason is a personal community figure in Chicago. he seems quite interesting, is starting to share his spirit, and, of course the jobs and the coupons for us regular folks to enjoy.
Re Wonderfest, there is probably an increase in “concessions” but that money does not go to Navy Pier itself. But it does help your businesses to keep in good shape. Have the Navy Pier officials taken furlough days? How about the person/s who are complaining about their Groupon “error” deciding it is time for them to help their “business” bottom line.
Groupon is deserving of high praise, and use, from Illinois. glad they got money to stay.
- zatoichi - Thursday, Dec 16, 10 @ 11:04 am:
This is the exact scenario that Excel is made for. Then again just assuming you can make it up on volume takes less effort.
- Been There - Thursday, Dec 16, 10 @ 11:07 am:
Should I renew my CapFax subscription now or will you be offering a deal on Groupon anytime soon?
- Rich Miller - Thursday, Dec 16, 10 @ 11:07 am:
BT, there are no discounts. Ever.
- Anonymous - Thursday, Dec 16, 10 @ 11:11 am:
nice try been there.
- Phineas J. Whoopee - Thursday, Dec 16, 10 @ 11:13 am:
I’m not sure if I’m missing something. Is Navy Pier complaining because they sold too many tickets at a discount on a web site they contracted with to sell tickets at a discount?
How could that be anybody’s fault but Navy Pier management?
Is this is the new McPier era, maybe they need to go back to gouging tourist and conventioneers. At least they didn’t whine as much.
- Anon - Thursday, Dec 16, 10 @ 11:13 am:
I disagree that Groupon users are “cheapskates”. I don’t believe the business model benefits restaurants since most users only visit the restaurant once, with their Groupon, and won’t return unless it was the greatest food experience of their lives.
For restaurants to be successful using Groupon they should negotiate a cap on the number that can be sold. This way the restaurant gets the positive advertising/promotion that Groupon gives, while not being surprised by the number of purchases and the effect the huge discount has on their bottom line.
- wordslinger - Thursday, Dec 16, 10 @ 11:21 am:
It’s like the old Borscht Belt joke: The haberdasher complains “I’m losing $10 a suit. Good thing I’ve got volume.”
The hotels face the same issue with the online booking agents — they don’t dare not use them. It may raise occupancy, but it whacks their average daily rate. Managers are judged on both.
Winter Wonderfest at Navy Pier is anything but a wonderland — the concept must have been developed by Tim Burton. Unless schlepping to the end of the Pier in the middle of winter to enjoy interminably long lines in a claustrophobic space with thousands of screaming children is your idea of Bedford Falls.
At the end of the day, no one’s happy. The kids are crying they don’t want to leave, the parents are angrily dragging them out. I’ve seen more domestic violence at Winter Wonderfest than at a Back-to-School Sale at Wal-Mart.
The holiday programs at both zoos and the Museum of Science and Industry are much more civilized and enjoyable, with the added benefit that you can actually breathe.
- Pat collins - Thursday, Dec 16, 10 @ 11:22 am:
The business complaining about Groupon are like the Quarry near Harvard. They made a deal with the town that was good if the building economy kept up like 2006. When it didn’t’ they whined about needing a change.
What they need, is to consider a DOWNSIDE to their proposal. And limiting the number of discount coupons seems an excellent and easy way to do so.
Maybe Groupon ought to mention this when making a sale, since they seem to have many customers of less than stellar intelligence.
- Phineas J. Whoopee - Thursday, Dec 16, 10 @ 11:26 am:
Ah Wordslinger, your reference to Bedford Falls makes me wonder if Winter Wonderland would be more successful if it attempted to replicate Pottersville after dark. Now that looked like a town that would generate revenue.
- wordslinger - Thursday, Dec 16, 10 @ 11:31 am:
PJW, trust me, there are plenty of parents in the Navy Pier bars looking to calm the nerves after the Wonderfest experience.
- Fed-Up - Thursday, Dec 16, 10 @ 11:32 am:
So if I get this straight - NP wanted to use Groupon to increase ticket sales - Groupon was extremely successful in doing so - Now NP wants to drop them because they were too successful - you’ve gotta love the convoluted logic.
- Just Observing - Thursday, Dec 16, 10 @ 11:33 am:
Well, I was all ginned up to comment, but everyone already said what I was thinking. But, I will reinforce what PPHS raised… absent from Navy Pier’s figures are repeat business and greater awareness of other non-Christmas stuff at Navy Pier.
- PPHS - Thursday, Dec 16, 10 @ 11:35 am:
How many of the people that bought the Groupon, would have been there w/o it? I bet very few. But, is it better to have a full venue or a near empty one?
- 47th Ward - Thursday, Dec 16, 10 @ 11:38 am:
“Nobody goes there anymore, it’s too crowded.”
Yogi Berra
- Rich Miller - Thursday, Dec 16, 10 @ 11:42 am:
PPHS and others aren’t seeming to understand that these Groupon buyers aren’t spending money like “regular” customers. They go for the discounts and little else.
- migwagin - Thursday, Dec 16, 10 @ 11:50 am:
*For restaurants to be successful using Groupon they should negotiate a cap on the number that can be sold. This way the restaurant gets the positive advertising/promotion that Groupon gives, while not being surprised by the number of purchases and the effect the huge discount has on their bottom line.*
I agree with anon on this one. Navy Pier officials are the ones to blame in this case. They should either put a cap on the number of tickets sold or make it so people can only use tickets on weekdays or days when business is down. I have seen other businesses like groupon and other like businesses (living social, you swoop) only offer deals for certain days of the week. For example many of the Wrigley rooftops offer discounted tickets for weekdays and Sundays when business is not as good. I have also seen restaurants tack on $5 or $10 more to the deal when used during the week. Groupon and other groups have demonstrated they are willing to work with businesses to make the deal something that works for the business. I am sure if Navy Pier officials decide to work with Groupon next year they’d be happy to do something that works for them.
- soccermom - Thursday, Dec 16, 10 @ 12:07 pm:
Perhaps Navy Pier should try the Google.
http://www.thestreet.com/story/10889100/done-wrong-groupon-can-cost-business-big.html
- Cincinnatus - Thursday, Dec 16, 10 @ 12:22 pm:
It is apparent to me that we need IMMEDIATE General Assembly action since nothing can happen in Illinois (no matter how predictable the outcome) without another law, rule, regulation, restriction, etc. We must retain our leadership in being one of the worse business environments in the US. An alternate scenario might be a Federal government bailout. Give Dick Durbin a call, maybe there is an earmark lying around behind a desk or under the carpet.
Navy Pier should live and learn and quite whining. There is obviously a “cross-over” point where the discount-volume increase results in a break even, beyond which Navy Pier would increase its profit. This year, they blew it, plain and simple.
Is Groupon at fault - absolutely not. Will Navy Pier learn and revise the terms of its contract - let’s hope so or their management team ain’t worth a damn.
- Chicago Bars - Thursday, Dec 16, 10 @ 12:31 pm:
Groupon should have taken the Google dollars.
I Have heard from many restaurants the Groupon customers spend as little as possible over the coupon value, and repeat business is minimal as Groupon customers are now chasing deals around town rather than becoming return business.
Businesses will still use it as a one-shot marketing tool for slow months or new openings but it’s suicide for any restaurant to use it more than once or twice to get their name in front of Groupon’s mailing list.
But I’m still holding out for the first political Groupon - “Donate $500 to candidate G but get $1000 worth of clout”.
- Christine Kaplan - Thursday, Dec 16, 10 @ 12:32 pm:
There was a case in Atlanta where a female photographer sold something like 2,000 sessions for some ung-dly cheap amount and in the end groupon had to refund all the money. What a lot of people don’t realize is groupon gets 50% of all sales.
- shore - Thursday, Dec 16, 10 @ 12:37 pm:
I don’t see how this is groupon’s fault.
- How Ironic - Thursday, Dec 16, 10 @ 12:48 pm:
@Christine
Groupon refunded the money because it was discovered that the ‘photographer’ in question was a thief, and had stolen many (if not all) the images used in her promotions.
She was attempting to drum up business using images she stole from others, and represented them as her own work.
Not Groupon’s fault. They did the right thing.
http://www.petapixel.com/2010/09/15/photographer-offers-groupon-deal-using-stolen-photographs-chaos-ensures/
- jerry 101 - Thursday, Dec 16, 10 @ 2:06 pm:
Wait a second. This doesn’t pass the smell test.
Navy Pier did the Groupon thing back in november, and sold 7500 tickets. If all those tickets would have been sold at full price anyway, then that would result in revenues of $135,000. Instead, NP sold them for $9 each. Applying the normal Groupon fee, that means that NP netted $33,750, a loss of $100k in revenues. If sales are up 12% over prior, and if we’re to assume that’s primarily driven by the groupons, then they would have sold 55000 tickets last year at $18 each, for about $990k. A 12% increase over prior year would mean total ticket sales of about 61,500. Total revenues would be about $1,006k(7500 tickets @ $4.50 each plus 54,000 tickets @ $18 each), $16k greater than prior year.
But, net income is down $35,000 compared to prior year. This tells me that NP’s costs have increased, not that the revenue stream is to blame. If net income is down $35,000, while revenues are up $16,000, then expenses have increased by $50,000. I don’t know the cost structure of this event, but I would imagine that the costs don’t change much when additional people attend (in other words, the costs are largely fixed). Each additional attendee results in more income, but little more cost. If anything, the Groupon failed to attract enough attention.
So, Groupon’s now an easy scapegoat to blame if you have some trouble reaching budgetary expectations.
That said, I don’t expect Groupon to be a big deal in 5 years (maybe less). I think the founders were pretty stupid for not taking Google’s offer and running. A combination of competition or reluctance by businesses to participate will result in this cash cow seeing its margins slashed and the value of the company drop like a rock.
- anon - Thursday, Dec 16, 10 @ 3:55 pm:
Something earlier commenters seem to be missing is that Groupon *does* allow businesses that contract with them to set limits on the number of deals they sell. Obviously Navy Pier chose not to or set the limit too high. So that’s Groupon’s fault?
Plus how many of those people bought a Groupon and never even went to Winter Wonderfest? I seriously doubt the redemption rate was 100% on this one. That is free money for Navy Pier even if those people aren’t attending and spending more at the actual event.
- Christine Kaplan - Thursday, Dec 16, 10 @ 4:05 pm:
I never implied that it was Groupon’s fault, just how easily it is for a company to become over committed with groupon. The theft aside she booked over 2,000 sessions. There is not a single photographer anywhere in this world that could handle that many sessions over the course of an entire year and do them on location. It is an impossibility.
- amalia - Thursday, Dec 16, 10 @ 4:16 pm:
actually, many of us who use Groupon go on to patronize an establishment, give more to one we currently use because they gave us a break, or hear about companies from friends who use a groupon and talk about it. the business needs to factor this into their plan, it’s not the fault of Groupon. it’s a service which a business and a customer may or may not use.
- Moving To Missouri (f/k/a Vote Quimby!) - Thursday, Dec 16, 10 @ 5:13 pm:
As Groupon’s business grows, imitators will appear and eventually eat into their business and their owners/investors may rue the day they spurned Google’s $5 billion offer. The tech world is littered with companies who peaked and crashed (IBM, AOL and Yahoo! come immediately to mind).
- amalia - Thursday, Dec 16, 10 @ 8:51 pm:
oh,oh, now there’s a report that Groupon is looking for hundreds of miliions. maybe they expanded too fast. or maybe The May Report is wrong….
- Lee Perry - Friday, Dec 17, 10 @ 1:43 am:
I am a new user to this outfit. They ran a ad ” saying I could get $20 for $50 in food and drinks.” Well, that should have been a great deal.
When I signed onto the site, it said $10 f0r $20,
$40 for $60. I took the ladder. They billed my card $40 for $50! this insn’t going to fly with me.