Groupon’s ad fiasco is a lesson learned – for the rest of us

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Word comes that Groupon has pulled its controversial ad campaign featuring famous stars selling out on big causes – things  like deforestation of Brazilian jungles, and self-determination of the Tibetan people – in exchange for big discounts at restaurants and the like. I’d provide a link to some of the ads, but Groupon has already made them hard to find online. But here’s a parody by Conan O’Brien that gets the point across:

Groupon still insists on calling the campaign “quirky” – implying that it’s somehow everybody else’s fault for failing to see the humor. But it wasn’t quirky; it was horrifying and illuminating.

Illuminating in the way that Amy Chua’s parenting memoir, Battle Hymn of the Tiger Mother,  shed light on the insecurities of American parents. Horrifying in the way that hatred of former BP CEO Tony Hayward is so easily bent into self-loathing for the demands we put on oil companies to keep finding new supplies of crude at any cost.

What really killed Groupon’s ad campaign is that it revealed something Groupon users would rather not admit: They’re just fine selling out a few million Tibetans if it means getting 50% off at their favorite Chinese restaurant.

The fact is, if you like the restaurant so much, it’s in your best interest to pay a fair price for a good meal. Or do you really think the restaurant business is so profitable that half price is fair?

There is a Cleveland Heights/University Heights angle to this. Groupon is popular here, and I know a number of local merchants who have used it – some successfully, others not.

Here’s how Groupon works
A merchant comes up with an big offer – like 50% off dinner or a massage or a bouquet of flowers. When people pay for the coupon, Groupon keeps half the money and sends the other half to the merchant. So, if a bouquet normally costs $60, the merchant is now taking in $15 for doing a lot of work, and Groupon takes in the same $15 for doing very little.

Sounds good, right? Except that $15 probably doesn’t even cover the cost of the flowers, let alone rent, insurance, payroll, taxes, etc. So why do merchants use Groupon? After all, nobody is forcing them.

  1. To bring in new customers to sample their goods and services, in the hope of converting them to regular, full-price customers.
  2. To fill excess capacity (like empty space in a yoga class), or to get rid of goods that are growing old on the shelf and need to be sold fast (like flowers).

So here’s the local angle: One of the things that gives the Heights its character is the variety of independent stores that provide goods and services you can’t get everywhere else.

The people who own these local businesses tend to live locally too. They employ people from the Heights; they spend their earnings at other merchants in the Heights; they contribute to fund-raisers for kids in the Heights; they participate in non-profits and important causes in the Heights.

Could they continue to do all this for 25 cents on the dollar?

I talk to a lot of independent merchants here – especially in the Coventry, Lee Road and Cedar-Fairmount neighborhoods. They want to look prosperous and lively, because that’s good for business. But the truth is that even the best and most established merchants are struggling. That’s what happens in a hard-hit city in a hard-hit region in a hard economy.

So merchants are trying to be creative in their effort to attract new customers. That leads some of them to Groupon, which I suspect does more harm than good.

The problem isn’t that Groupon offers ridiculous deals; it’s that Groupon institutionalizes them. People come to expect a $60 bouquet for $30, or a nice restaurant meal for $15. They won’t pay full price for these goods, because they know Groupon will offer another half-price deal from someplace else. So while Groupon claims it helps businesses grow, it’s long-term effect will be to reduce the perceived value of what the businesses offer.

There is a precedent for this. My first 10-speed bike came from the old Al’s Bicycle Shop (Lee and Euclid Heights Blvd.) for $129 in roughly 1975. Thirty-five years later you can buy something that appears comparable for $79 from any big-box store.

Hidden in that low price is the fact that companies like Wal-Mart have already done what Groupon’s ads so proudly claim; they’ve given us unbelievable deals by selling out on little things, like U.S. manufacturing jobs, living wages for their employees and involvement in their communities.

Groupon’s genius is that it’s doing the same thing, but without going to the trouble of building thousands of stores and creating global supply chains. It has managed to enlist small and independent merchants to handle that heavy lifting.

I’m grateful for these small businesses. I like the services and products they provide, and I like that the owners are my neighbors and friends. Thanks to Groupon’s revealing ad campaign, I think full retail is a pretty good deal.

Comments

  1. MHagesfeld says

    Bob,

    This is an interesting take on Groupon, and I would be very curious to hear about the experiences retailers have had when they sign up for Groupon. As both a Groupon user and a big fan of Cleveland Heights and our local merchants, I look at my own experience. Have I taken advantage of Groupon to get cheap goods that I would have bought anyway at regular price? Yes. Have I bought things I would not have bought before and might never buy again? Yes. However, there have been other occasions where I have found out about and tried a retailer or dining establishment I’d never heard of, and am now sold on their service, quality, etc. and will use them and/or recommend them highly to friends.

    It may be true that people are being conditioned to not pay full retail price, and will be sucked into a world of Chili’s 2 for $20 blandness. Or, it may be true that Groupon serves the same purpose as the “20% off” sign in the window used to: come in, take a bite out of my overhead now, find out you now know a place with great service, quality, selection, and come back again and again.

    Looking forward to reading retailers’ experiences with Groupon, positive and negative…

    —Mike Hagesfeld

  2. bfw says

    There are two sides to everything. Groupon gives those unique local businesses exposure, in many cases to targeted markets (Groupon asks users to fill out a form to help focus offers on their interests) which helps them compete with chains that can buy their own Super Bowl ads. I’ve never actually bought a Groupon coupon, but I’ve added several local businesses, of which I was formerly unaware, to my list of places to check out, because, while the particular offer didn’t fit my needs, their goods or services sounded interesting. For instance, I received an offer for a glass blowing party from a local glass studio, for half price. The party format sounded like it was too much socializing, not enough learning for my taste, and limited to certain dates, but I’ve always wanted to learn glass blowing, and when I have the time to try it, that studio will be the first place I call.

    As for the whole Wal Mart rant, no less luminary of the enlightened progressive world than Obama’s economic adviser Jason Furman had this to say:

    “Wal-Mart’s low prices help to increase real wages for the 120 million Americans employed in other sectors of the economy. And the company itself does not appear to pay lower wages or benefits than similar companies, or to cause substantially lower wages in the retail sector… [T]o the degree the anti-Wal-Mart campaign slows or halts the spread of Wal-Mart to new areas, it will lead to higher prices that disproportionately harm lower-income families… By acting in the interests of its shareholders, Wal-Mart has innovated and expanded competition, resulting in huge benefits for the American middle class and even proportionately larger benefits for moderate-income Americans.”

    If you want to know who killed American manufacturing jobs, it was the unions. Notice that the largest creator of manufacturing jobs in Ohio in the last 20 years, without any layoffs so far, is a Japanese auto company, whose non-union workers take home as much annual compensation as any UAW member, but without the union make-work rules.

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