Groupon a great marketing tool, but be careful…

A cupcake pan, made of tinned steel.
Image via Wikipedia

If you’re a new small business owner chances are you’ve considered offering a discount through Groupon. The format is basically perfect. It gets the word out that you exist while drawing new customers in with a one-time outlandish deal that will hopefully hook them to your product for life. That’s the whole point of Groupon. It’s a win-win-win. You attract customers, Groupon makes some money, and the customer gets a sweet deal on everything from teeth whitening to a college education to a bagel with cream cheese.

The only thing to be careful of as a small business owner is that you don’t make your deal so sweet that you can’t afford to follow through.

That’s what happened to Rachel Brown, owner of Need a Cake bakery in Reading, U.K. In an effort to capture new customers with her amazing cupcakes she offered 75% off per dozen.

Considering Brown’s cupcakes normally cost $40/dozen (which is kind of silly—you can do it from a box for $10), a 75% discount made the offer irresistible for a full 8,500 Groupon members.

What happened next, as described by NBC:

  •  Brown’s Need a Cake bakery, which employs eight staff in Reading, U.K., had to bring in temporary workers through an employment agency to fulfil the orders, at a cost of $19,500 (£12,500) — wiping out her profits for the year.
  •  She also lost between $2.90 (£2.50) and $4.70 (£3) on each batch she sold, the BBC reported.
  •  “Without doubt, it was my worst ever business decision,” she told the BBC. “We had thousands of orders pouring in that really we hadn’t expected to have. A much larger company would have difficulty coping.”

The moral here: figuring out what to offer the Groupon community is a delicate science. This deal was definitely a win for the 8,400 customers who got to stuff their faces with Brown’s ten-buck cupcakes. And I’d imagine everything still feels like a win for Groupon, which is currently basking in its $13 Billion IPO. But for now at least, it was definitely a loss for Brown, who can’t hope to recoup her losses before next year. Hopefully some of those 8,400 will be back next year.

Source: Death And Taxes, 49 W 27th Street, Studio A, New York City, NY 10001

About Kelly Business Advisors, LLC

Early in his career John started-up and sold 7 years later a Moving and Storage Company in Milwaukee. He acquired and was President of Kelly Pickle Company f/k/a Bond Pickle Company, in Oconto, WI for 12 years. Built a monthly round-table networking group of manufactures in Oconto. Developed marketing plans, sales plans, products and implemented lean manufacturing practices with many North American companies. Worked with non-profits as both a front line leader and behind the scenes. He is active in his church, a member of the Green Bay Chamber of Commerce,Business Networkers International (BNI) and now is joining the Green Bay Downtown Rotary.

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