Online discounter “Groupon” made its debut trading on Nasdaq Friday, and the company’s stock has since shown solid growth. Leading up to Groupon’s initial public offering, the company’s business model and accounting had come under a lot of criticism. Analysts called Groupon a scam and a disaster. Customers grumbled about deals gone wrong and many business owners chimed in that they had had a terrible experience with their deals. How is Groupon working out for local business owners?
Life is a discount paradise for consumers these days. They can find deals on everything from a slice of pizza to upholstery cleaning to a nose job.
Customers get a cheap meal or service–and businesses, so promises Groupon, get great advertising, lots of business, and new customers. Wesley Tudor, who owns Raja Yoga in South Philadelphia decided to use Groupon to offer class packages–costing the consumer only $2 a class, which he says is a bargain-basement price for yoga classes in a city where customers typically pay $12 a class.
When people buy a package of 20 classes for $40, Groupon takes half of that. That means, Tudor earns a dollar per class. Still, he says, it’s a good deal for him.
“In my industry, it’s a win-win, because I am teaching the classes anyway, it’s a matter of whether I have five people in the class, or 15 people in the class.”
Tudor sold more than 500 deal packages. He has hired more teachers to accommodate new students, and to make sure that they have a good experience. Selling class packages, he said, encourages people to start making yoga part of their schedule–and to keep coming back.
Bargain hunters rush in
Wharton business professor Dave Reibstein is not so sure that will happen. He said Groupon and other deal sites attract a certain type of customer–hard-core bargain hunters.
“I am coming to your venue because you are offering a good deal. When you go back to offering it at full retail price, I am going on to the next deal because I am a deal-prone customer,” explained Reibstein.
Dalton Castano who owns a Center City sandwich and dessert shop called “More than Just Ice Cream” agreed. “You feel like you get a lot of bargain hunters who don’t want to come back who are using these every week from ump-teen different sites that there are,” Castano said.
Business owners could end up angering their regular customers who are paying full price, Reibstein added. “There sort of is this sense of ‘wait a minute, why am I a sucker, being a loyal customer of yours!'” he said.
And sometimes, those who come in, coupon in hand, might feel a little sheepish–and like lesser customers, said Will Caden who owns Machismo Burrito Bar in Manayunk.
“People nowadays are buying coupons left and right especially in this economy, just to make ends meet,” he said. “But they seem to be coming in here and almost feel slightly embarrassed to be using a half-off coupon, even though we are the ones who offered it.”
Businesses can also be overwhelmed by an onslaught of customers after a coupon deal. That happened to stylist Janelle Ring at AMS Salon and Lounge in Center City Philadelphia. She said a Groupon deal for a hair-straightening treatment was just a little too popular.
“We sold 250, and we did so many, and I was the only stylist who did all of the treatments, so it was just so overwhelming,” recalled Ring. “Maybe if we would have done less it would have worked out better. It was just very hectic.”
Reibstein said business owners have to think things through before offering a deal: How many customers can they handle? How much will the deal cost them? What kind of customer will they attract? And what’s their long-term goal for the deal?
Business owners report that they are learning how to do deals that work for them. And–the deal makers have to compete hard for their business these days.
Great deal of deals in the offing
“More than Just Ice Cream” owner Castano said he is getting calls every day from new discount deal companies looking for his business. That has translated into better financial conditions, said Castano, when it comes to splitting the revenue with Groupon and other coupon companies.
Other business owners report that Groupon has worked really hard to understand and address their concerns.
And for the future of this fast-growing industry? Wharton’s Reibstein said it will likely hit a peak and then shrink as the novelty wears off. Plus, he says, getting constant deal emails is starting to feel like spam.
“I am receiving these Groupon offerings of Brazilian blowouts,” he said. “I don’t know what a Brazilian blowout is.”
He said Groupon and other discount companies will have to work to tailor offerings for customers, and continue to work with business owners to make sure they are benefiting from the deals.
And, for the record, a Brazilian blowout is a very trendy, hair-straightening treatment.
Megan Pinto and Ashton Osby contributed to this report.