Reason 2 Groupon will Kill Your Business

Imagine a sales person comes into your office.  He has this great idea for you to get new clients with no upfront expense.  He has developed a network of hundreds of people that will hand out coupons for a $100 of cleaning all over the city.  All he wants in return is the right to sell this coupon for $50 and to keep half the money himself.  You will lose at least $35 on each coupon client you work for but imagine all the people that will try your service and buy more at full price.  It is an interesting idea.  So you ask some questions.

Service Owner:   Where are these coupons going to be handed out? 
Sales Person:  We have thousands of people that wait for us on the street corners every day.
Service Owner:  But where, exactly?  Do you do Highland Park?
Sales Person:  We have too many users to track, they are all over town but we always sell at least 200 of these.  
Service Owner:  Will you sell them in Over the Tracks?  I do not service that area.
Sales Person:   We will sell all over town but you can clearly state on the coupon that it can only be redeemed on this side of the tracks.

Now would you sign up for this?  You have no idea who is going to get these things.   This guy could be standing in the welfare line.  He could be going to the local college.  He could be going to the worst most dangerous neighborhoods in town.  You have no idea where he is going to hand these things out.   Let’s be 100% clear, this is EXACLTY what Groupon does.  They do not care who buys the certificate.  They will sell to anyone.   I think this is part of the reason a FEW cleaning companies have had some success with Groupon, they got lucky.  In their area Groupon happened to go a slightly better demographic.  I did a small Groupon like offer and it seems they all sold to college kids in my area because that is who subscribed to Groupon. 

Even worse, Groupon is least appealing to the people we most want to attract.  What we are selling is really free time not cleaning.  We are selling the time and relaxation they are going to get from not cleaning their own home.  These are people that value their time more than money.  These kinds of people are the kinds of people that do not have time to read a bunch of emails and offers every day to try to save a few bucks.  They do not want to print out coupons or keep track of codes.  The customers we really want are seeking to make their lives simpler and Groupon does not make their life simpler.  Simply put you have no control over who is going to get your message and even worse, the people you really want are not going to use a service like Groupon.  And this is reason 2 of 5 why Groupon will kill your business.

Why groupon will kill you part 1

I am going to write an entire series on why not to run Groupon.  Part one, it is bad for your reputation.  All of these sites are designed to encourage impulse buying.  There is a time limit ticking down and a deal they will lose if they not act now.  People are busy and they DO NOT READ THE OFFER!  No matter how clear you think you may be in the offer, they are not going to read it.  They are going to skim it an make assumptions then press buy and their credit card gets charged.  Then they call you to schedule the serve. 

Compare this to how we normally sell our services.  Someone calls us and we talk to them either in person or over the phone.  Some people have crazy expectations.  Some people are outside our area.  Some people call the day before a major holiday and want to be scheduled before the holiday.  In each of these cases we explain what we can and cannot do and let them know we cannot help them.  They then move on to another service.   Bullet dodged.

Let me explain what happens with Groupon.  They skim the offer and read “house cleaning $75”.  They go great, my mother in law is coming this weekend and I really need more 6,000 square foot house 30 miles away from town cleaned and they press buy.  They almost never call BEFORE they buy.  I know people that sold 1,400 coupons and 12 people called before they bought.  Now you are thinking, but Derek, my offer was very clear.  When they call I will just explain I cannot give them what they want and they can get a refund from Groupon or give it to a friend.  Well yes, that is what would happen if we were dealing with a rational person but lets be clear, this is NOT a rational customer we are talking about.  This is the person that calls you for a quote and you decline their business and suggest they call your worst enemy to cuase them pain and torment.  This is evil impossible to please customer has already bought and paid for your service.  No one screaned this impossible to please customer out of your system.  These people will tear you to pieces on line because you did not deliver on their EXPECTATIONS. 

I did a small test with a Groupon like deal.  I am thankful every day I did a small test and only sold 54 of these.   I had one man that I sold a coupon just like I described above.  I kindly explained that I could not do what he needed done and to call Groupon and get a refund.  We did not even try to clean this guy.  I even pointed out that the offer said on it we could not guarantee days, we only services these areas, and the offer was for only 4 hours.  It did not matter.  This man was FURIOUS.  He had company coming.  He bought a coupon to get his house cleaned and we were letting him down.  He needed his 6,000 square foot (plus basement) house cleaned tomorrow on Friday and it was 20 miles outside our service area.  I very calmly pointed out the details of the offer but it did not matter.  I even told him how to get a full refund.

 Now the coupon was very clear.  If this went to court I would win in 45 seconds.  But in this case I get tried in a new court called on line and social media.  This gentleman, and I use the term very loosely, then went online to Yelp, Google, City Search, and anywhere else he could find and posted terrible reviews on how he had scheduled a cleaning service with our company and we refused to deliver what he was promised causing his big family reunion to be a disaster.   Yes I responded on line but it lowered my star rating and a lot of people do not read the comments and now my average is lower.

Some people I have shared this story with said I should have cleaned him just to keep him happy.  I disagree.  This man was impossible to please and basically an evil human.  If I had managed to get the 10 hours of labor clear on 24 hours notice to clean his home for $37.50, this is the kind of person that does not treat people well.  He would have mistreated my employees maybe causing me to lose some employees.  I would have had to bump other good full price paying clients.   I would have lost hundreds of dollars and he probably would still write a bad review.  I was *&%$ the second he pressed that buy button.  All I could do is minimize the damage.  For this reason Groupon, Living Social, and any other web platform that sells my service without having the client first talk to me, is doomed to fail.  We must always talk to the client first to make sure they have realistic expectations before they buy because no matter what disclaimers you have, if you cannot meet their expectations after the purchase they will not be happy.

Groupon is causing me flashbacks to 2000 and not in a good way

UGH!  Another cleaning company is running a Groupon today.  It is immensely hard to sell my services at full price when it seems like once a month someone is offering deeply discounted services.   It seems like every company in my area runs one of these offers once, gets burned, and never does it again.  However it seems like Groupon finds a never ending string of victims.  The last 3 companies are little start ups I have never heard of before and they probably will not survive the experience.   I know Groupon and the copy cats will die because they are not delivering enough value.  But in the meantime it is just no fun to be getting my butt kicked my people losing money on purpose.  It also brings back memories.

My Maid Service is not the first company my brother and I have worked on together.  Way back in the frontier days on the internet, my brother and I had a web site called www.theaquaticshop.com.  Shawn is a very serious animal enthusiast and breeds fish, reptiles, has a dog, a couple frogs, and a falcon.   His house is literally a zoo but he takes fantastic care of his animals.  Shawn saw an opportunity to set up a web site to sell hard to find high end supplies needed by people that keep fish rooms, not fish tanks.   It was a small community and Shawn had a great reputation.  My home just happened to be near the largest distributor of pet supplies in the world.  Shawn would run the community and I would pick up and ship the orders.   It seemed like a great idea.  We would provide a far greater catalog than the local store and at better prices.  The high end stuff we were selling was not in most stores and if it was they sold 2 or 3 a year so they marked it way up. It  We opened our doors in November 1998 and it was a huge success….. for three months.   Then in early 1999 Pets.com opened.

Pets.com was backed by venture capital funds and Amazon.com.  Our most profitable items were medications.  Pets.com was selling them for 25% less than our cost AND offering free shipping.  They were killing us.  We could not figure out how these guys were making money.   We tried to hold on but in March of 2010 we declared defeat and shut down the shop.  You can provide the best service in the world and offer great advice but when the other guy is selling 50% less than you, there just is nothing you can do.  Pets.com had over $100 million in venture capital funding and they went public at $14.00 a share raising even more money.  It was the dot com boom and Pets.com was everywhere.    In November 2010, after just 18 months and it was over .  Pets.com burned through hundreds of millions of dollars and shut down.  Once it all fell apart it became public that Pets.com was selling most items for 25% less than COST.  Hah, just what we always knew.  But it was too late for us.  We had closed up shop.

So what does this lesson have to do with Groupon?  Well I think Groupon is pets.com part 2.  They are growing like mad but they are losing money on every sale.  The businesses they buy from are by and large not happy with the results.  And they are causing pure havoc on every industry they touch.  Pets.com just hurt the pet care industry.  Unfortunately, Groupon is hurting every small business in America.   The good news is I do think the ride is nearly at an end for Groupon.  Just like Pets.com, the news is coming out that Groupon is losing money, their suppliers are not happy, and the glow is coming off them.  So hold in there.  Every now and then I wish Shawn and I had kept theauquaticshop.com.  We knew what Pets.com was doing was not sustainable but we just could not tolerate the pain anymore.  Don’t make that mistake.  Hold on, Groupon will fade just as Pets.com did.  In the meantime.  DON’T EVER FALL FOR IT AND RUN A GROUPON!  I will run another article on why later but please do nothing that feeds the beast and keeps it alive for another day.