Daily deals and group-buying sites are sexy, there's no doubt about that. But to paraphrase an old junior-high poster: What is sexy isn't always right. With the omnipresence of Groupon and its many imitators, there's been a rise of another entity: the company that didn't do its research, ran a Groupon and was forced to shut its doors. It's redundant to rehash all the ones I've reported on before, but trust me: This is a thing that happens far more than you might realize.
So, who's to blame? The company or the deal-slinging intermediary? Blame doesn't matter so much as just learning how you, as a business owner, can make sure you've calculated the risks and aren't just offering a deep discount blindly. It demands precision. Keen instincts. Savviness.
Rather than examine what went wrong in each individual case, I gave City Treasurer Stephanie D. Neely a call to get her take on what entrepreneurs can do to assure they've done their homework and only run a Groupon if they're truly ready. Lilia Chacon, the treasurer's office director of public affairs also joined us. Take notes, folks.
To start with, what's your experience with these sorts of sites?
Stephanie D. Neely: I'm not signed up personally for Groupon, but I get Amazon and I get Yelp and I get a lot of them. I must admit, every morning when I get them, the first question that comes to mind is: "Who's really taking advantage? Who has the flexibility in their day to go drop what they're doing to go get a manicure or a massage or a haircut if it's not really scheduled?" In theory it's a great idea, right? It's a great way to get your company's name out and people in if they have a great experience. But a lot of the feedback we're hearing is that they're inundated and the company or the entity is not even staffed to handle this huge influx of people.
What can businesses do to prevent deals from backfiring on them?
Stephanie D. Neely: I think they first have to understand that they may be inundated, so they shouldn't get involved unless they have the staff and the facilities ready to handle this large influx of people. The last thing you want is for people to come in and have a bad experience. Then the exact opposite of what you wanted to happen will happen. They start talking about you: "Oh, the food was bad. The service was bad. The place wasn't clean." You need to make sure you are ready for it.
Before the whole Groupon thing, especially here in downtown, you would see people going in to City Hall or especially some of these larger buildings, handing out coupons for a free lunch. You'd see lines wrapped around the block because of this one-day free lunch. But it seems like they have to be ready for that.
Well, but you know what they say about free lunches.
Stephanie D. Neely: [Laughs.] That's right. They just have to be ready. I think that's the first thing business owners need to know. Also, if it's too good to be true, it probably is. You want to make sure you're getting the right kind of clientele in there. But you're getting someone in there on the cheap, who's not going to spread the word. So, that goes back to making sure it's a good experience.
Lilia Chacon: They lose money. Especially people who are providing food or a product, and because the structure with Groupon you may end up losing money.
Stephanie D. Neely: If you are a salon and you're offering 50 percent off a haircut, the whole purpose of that is to make sure the person comes in, has a good experience, spreads the word and comes back to pay at the full price. If you're giving all of your money to Groupon, it's more like you're getting a quarter of what the cost is, so you could potentially lose money and not even have the bang of a repeat customer. It will upset your client base. So you just have to be prepared for the downside. As you jokingly said: There is no such thing as a free lunch.
There's been a recent rise in reports of businesses running Groupons and then being forced to shut down. People say, "They should've done the research." But what does that actually mean? How would you suggest business owners research whether they're ready to run a Groupon?
Stephanie D. Neely: We offer classes about this for small business owners, to make sure you're asking other entities about their experience and learning from their mistakes so you're not doing the same thing over and over again. The last thing we want is for your branding to be diluted. So if you're a salon offering $150 haircuts, and now you discount it for $75, how is that a place I would want to go to for a $150? You just have to be careful about diluting your brand.
But [people should be aware of] some of our social media classes that we've partnered with Constant Contact to make sure you're learning from other entities about what their experience has been, with the foot traffic and the pricing and the gouging so you're not doing this blindly.
Are you familiar with Drew's Eatery and what happened there?
Stephanie D. Neely: Yes, I saw that on the news.
They were located in a neighborhood that doesn't have a chamber of commerce anymore. If the chamber was still around when Drew's was falling on hard times, could it have done anything to help?
Stephanie D. Neely: I think chambers are really good at pooling information for small business owners. Getting the word out. I think chambers of commerce are a great source of information, are really good about passing that information out, and they've got their fingers on the pulse in terms of scams. That's interesting -- I didn't realize that particular place was in an area without a chamber of commerce. In all honesty, that was not reported in the news.
Yeah, the chamber shut down in early 2011.
Stephanie D. Neely: It's hard. Groupon is a for-profit entity and businesses are for-profit and they're trying to get the word out and are using Groupon to do it, but there are definitely some downfalls that you just have to be aware of. Hopefully the chambers around in Chicago are passing that information along. In fact, you've just given me a great idea to make sure we talk to the chambers to make sure they pass along that information
But some are seemingly blindly running these deals. Why do you think that is?
Stephanie D. Neely: I think they really think it's going to be good for getting their name out there. I don't think they're looking for that one great day when they're going to have a $100,00 day. I don't think business owners are like that. A friend of mine owns a restaurant here in Chicago and he's a finance person who's very savvy. He decided not to do a Groupon for the very reasons we're talking about. Everyday matters to them. They can't afford to have a day where even though volume is really up and they're really digging in. He did research and found out doing Groupon does not increase traffic over the long haul. That going out downtown and giving out coupons directly is actually better because at least you're still getting people in with a $2-off coupon as opposed to a 50-percent off coupon. So there are other ways of doing it. And also, from my standpoint, just having my email address out there and in databases being passed on, from a consumer standpoint, it's not the best position to be in. I just don't think the trade-off for the short-lived exposure is worth it for some of these companies.
You've mentioned these classes a few times. If folks reading this weren't aware the city offered classes, what's the first one you'd recommend they check out?
Stephanie D. Neely: We partner with Constant Contact to teach people how to navigate social media. We teach them how to succinctly put their idea, we call it an elevator pitch. The playing field is changing for small businesses. How you can get your email blast read? I always jokingly say I wake up in the morning typically between 4:30 and 5:30, and I start deleting. All the email blasts that I get. Yes, they have gotten their email blast out, but I haven't read it. They do these every day. So how do you make sure you're distinguishing yourself? Because right now social media is free. So people are starting to learn how to navigate it and getting their message out, but you want to make sure it's read.
So when should small businesses use Groupon?
Stephanie D. Neely: I think if the business has done its homework and is prepared for the onrush of temporary customers and if they can follow up that onrush -- you get people in the door and you give them a frequent-eater card that will incentive them, don't let that momentum die. That can't be the one-stop. It has to be part of a bigger plan. Again, going to our social-media classes is a great way. Then I could see how small business owners could love Groupon. Then it would fulfill the need of getting traffic in that one day and you're going to continue it. But just depending on that one day is a mistake.
David Wolinsky is a freelance writer and a lifelong Chicagoan. In addition to currently serving as an interviewer-writer for Adult Swim, he's also a columnist for EGM. He was the Chicago city editor for The Onion A.V. Club where he provided in-depth daily coverage of this city's bustling arts/entertainment scene for half a decade. When not playing video games for work he's thinking of dashing out to Chicago Diner, Pizano's, or Yummy Yummy. His first career aspirations were to be a game-show host.