When Michael Small offered a discount through Groupon.com last summer, he was hoping to increase sales of patio furniture as well as generate business for his new store in Natick, Mass.
But things didn’t work out quite like he had planned.
“I was trying to reach a large amount of people with a small amount of expense,” says Small, a partner with Seasonal Specialty Stores. “You can go spend $30,000 on a radio campaign, and if it rains that weekend, forget about it. You won’t get anyone in the store.”
The offer, $100 worth of products for $50, was snapped up by 99 shoppers. But unfortunately, 80 percent of them redeemed the coupon at Seasonal’s Foxboro location, which had been operating for more than 25 years. And 60 percent of them were already in his database as existing customers.
Further, although he did close a few sales on patio furniture sets, a majority of the buyers only spent $102 and never returned.
During the Christmas season, Small gave Groupon another try, and lowered the offer to $15 for $30 worth of merchandise.
This time, he received twice the response. And although he says Groupon was very easy to work with, he’s still uncertain if the service is effective for the pool and spa industry.
“I’m on the fence about doing it again,” Small says. “I didn’t think it was the right thing for us.”
He’s not alone. A number of retailers and service companies jumped on the bandwagon after hearing the numerous, and practically unavoidable, stories regarding the emerging Internet giant. But by and large, their experiences mirrored Small’s.
Groupon is a Chicago-based Internet service launched in November 2008 by CEO Andrew Mason. It works on the principle of collective buying, meaning a minimum number of people must purchase a deal or “coupon” before it becomes valid. In 2010, Groupon made headlines when it turned down a $6 billion buyout from Google. That same year, analysts declared Groupon the fastest growing online company in history. When its initial public offering of $28 a share hit the NASDAQ on Nov. 4, 2011, the company was valued at $13 billion, the largest IPO for a U.S. Internet company next to Google.
But since going public, Groupon’s growth has slowed; its stock had dropped to $17.04 as of March 30. The firm still reported a $492.2 million fourth-quarter revenue, a 194 percent increase over 2010, but it also had a net loss totaling $65.4 million for the last three months of 2011.
The company currently operates in 48 countries and has approximately 10,000 employees.
The early excitement surrounding Groupon’s growth, coupled with no up-front costs to participate, has prompted more than 250,000 merchants to work with the service.
But based on the evidence, pool and spa business operators may be better off spending their marketing money elsewhere.
Locey Swim and Spa Co. in Portage, Mich., advertised its first, and likely only, discount in summer 2011 after an employee raved about the personal savings she experienced. Nearly 200 people purchased vouchers for pool chemicals and accessories at 50 percent off. The objective, says vice president Nicole Locey, was to add new names to their customer files.
But as with Small, the reality was much different.
“Ninety percent of the people who bought it were existing customers,” she says.
Locey also believes the program is too costly for a small mom-and-pop operation. For example, Groupon takes half of the dollar amount a customer spends on the voucher, plus a percentage in fees. In Locey’s case, Groupon banked $25 on each $50 voucher sold, with an additional 3 percent on top.
These details, of course, are shrouded by the mostly positive word-of-mouth regarding Groupon, including its tremendous expansion after acquiring a number of companies in 2011 and early 2012. These include Hyperpublic, a peer-to-peer, content sharing site; Kima Labs, which produces an app designed to make it easier to shop using a mobile phone; and Mertado, a social media-based shopping company that matches users to specific products.
Groupon also has taken steps to increase traffic by testing a paid-in loyalty program, as well as debuting a small business schedule helper.
Representatives from Groupon declined to comment for this story