I am fascinated by Groupon. It’s a site that offers luxury lifestyle items – such as spa services and custom photo shoots – at steep discounts. The idea is that if a certain number of customers buy into a deal (usually 20 or more) then the deal is on… meaning groupon users now get a manicure for $10 or dinner at a five star restaurant for $30.
I first got curious about groupon when I noticed around the holidays, a Boston-area photographer was offering $40 photo shoots. That might not seem like such a deal, especially for the services of a photographer without an established business or style, but you have to realize that people can redeem their photo shoot for up to a year after the date of purchase – and the photographer has promised a custom session for each person which is MUCH longer time commitment than the 60 minutes or so you are on location with the clients. A San Francisco-are photography studio who does much better work and seems better equipped to handle the influx recently did a groupon for $35 photo shoots in their studio. Now they have 500 or so new customers to support this year.
Digging into the issue a bit further when angered over the Boston photographer who didn’t even seem to know how to take a technically sound photo – I discovered that Groupon keeps a cut of the earnings. So even though that photographer had 100 new customers to keep her busy, she’s not making $40 per session – Groupon may be keeping up to 50% of the fee. So she’s probably making $20-35 per photo session. The $35 studio is probably making $20 per session while Groupon walks away with $7500 for simply putting up a webpage and arranging the payments.
I remain fascinated by the groupon model. Is it shady or brilliant (or both?) to extort such a high percentage of the sales from business owners? They’ve done a good job of creating buzz and gaining subscribers which is of course why they can demand such a high commission.
I can see why groupon appeals to so many people – especially in the climate of the past couple of years. Everyone’s had to tighten their belts, and at this point they’re tired of sacrificing things. So back to luxuries – as much as you can get for as little as you can pay, of course.
And I realize that the business owners themselves volunteer to be put in this position. They are bullied by Groupon to put the price for their sale service at a sweet spot that Groupon customers will buy in bulk — meanwhile Groupon itself wants to guarantee that the service or product will sell well so they get their hefty commission. So me grumbling that Groupon is a ripoff for small business owners might be met by some who argue that the business owners put themselves there by choice.
This past week I took advantage of two different groupon deals — I got a haircut from the owner of a hip downtown salon for $30 and a 60 minute massage from a freelance therapist for $36. Both are services I previously wanted to have done. I went into the appointments ready to ask questions and find out some answers.
The salon owner let me know that she decided to do the groupon in order to bring in some new customers. She has had the same client base for years, and they tended to be men (not profitable cuts) and older ladies (not exciting). This cute, young, ambitious salon owner had lots of creative ideas she wanted to be able to try on a fresh crowd. The groupon set the phones ringing off the hook on a day when she was away with her son’s class on a field trip.
The massage therapist was a gem of an appointment. As soon as she started working I knew I had gotten way lucky! She rents a room in a commercial complex and it isn’t quite personalized yet, but as an independent business owner she was thrilled to go from 3 appointments every week to solid bookings every day. Groupon clients tend to be people who demand a lot even for the deal, and some customers were angry they could not reach her right away or schedule an appointment for that same week. 1500 people bought the deal; she’s now expanding her business location and sending out the clients to other massage therapists. Groupon pays businesses in three installments, one is the week after the Groupon sells, then the other two 1/3 payments follow. For the record, Groupon wanted 50% from the massage therapist, but she got them down to less. So of the $36, Groupon kept $16 and she got $20. For a full 60 minute massage! Yikes.
I feel qualified to comment strongly only on the photographers offering their services on the cheap, although I imagine the feeling often transfers to other types of businesses as well. When you tell clients that they can get a custom photo shoot for $50, then they start to expect that from other photographers. I feel like the market drops a few points every time a photographer shoots for cheap. Photography is already an industry where the true cost of running a business is not appreciated by clients or by new business owners who think they can turn a hobby into fast cash.
I’m not really sure where to take this and have no neat thoughts to tie up this post, but want to say that I honestly cannot imagine being put in the position of suddenly having 100, 500, or 1500 new customers without an elaborate business model, plus the experience to support it. In running a groupon deal, you promise that your business will provide a deal with no real end in sight. Of course some people will forget about their coupon or choose not to redeem it, but you’re stuck honoring people and their super sale item even 350 days later when you’ve moved on and sighed in relief that the cheap people are done and only the good ones will become regular full price customers.
I suppose this is another area that reveals my snobbishness, but no thanks… I don’t think I want Groupon-type clients. I’m probably a little bit jealous that some random photographer who still uses blogspot for a business page would suddenly have 100 new clients, but I’ve been in business long enough to know that those who come in for the deal are very unlikely to be willing to pay full price for anything down the road.
