I am inspired to write this rant after just being called by Groupon late this afternoon on my mobile phone. I can only assume that they got my mobile from the email footer I had when running DLL. The fact they opted to call my personal number and not the business line says a lot about the way they do business.
First some history: When Groupon appeared they became one of the fastest growing companies in the world. They had a simple but brilliant business model. find a small business and promise to deliver them a vast number of new customers in exchange for discounting their services. Groupon would put the deal up for a limited time to their huge mailing list and in return take a commission on each customer who bought the deal.
It was a simple, effective idea that inspired a wave of followers. Just like the spread of fascism across Europe as the Nazis came to power.
As a business, the numbers were incredibly enticing. However start to look deeper into it and problems begin to form. When I was running DLL, we were approached a few years back by Living Social (think Richard Hammond to Jeremy Clarkson, seemingly more likeable but ultimately just as odious, bigotted, useless and hateful). They wanted us to discount our try dives to £10 from £25 and give them a 30% cut. So in other words we would make £7 per person. In reality this didn’t sound too bad. At the time, we weren’t really doing very well with try dives, we were running a 2 for 1 offer anyway and as we all know someone on a trydive is giving diving a go to see whether they should sign up for a full course right? Wrong.
The deal went live for a couple of days and the numbers we signed up were impressive. In total 350 people signed up for the deal. We had made £2450 (which they paid up front unlike Groupon who pay out per voucher redemption meaning that if people don’t show up, they keep the money).
Happy days. And then everything went to shit.
We were inundated with calls. For the first 2 weeks after the deal all I did was book people onto try dives, answer questions about trydives, rebook people who’d changed their minds about trydives, make people understand that a trydive requires a medical, no a trydive is not a diving qualification, no a trydive doesn’t take place in the sea, yes you do need to be able to swim to do a trydive- why? Because it’s in a swimming pool- the clue is in the name etc etc.
Every pool session was packed. People wouldn’t turn up, sometimes they would arrive with extra people they hadn’t mentioned, they would go to the shop instead of the pool, they would be late, they would turn up drunk. Everyday it was something else, sometimes it was my fault, sometimes it was theirs and sometimes it just wasn’t clear why instructions hadn’t been understood,
By the middle of the summer all the instructors hated me and didn’t want to do it anymore, all the kit had been trashed and we were still overwhelmed by the people wanting to do their trydives and now beginning to get arsey because of the time that had elapsed since booking and us being able to fit them in.
I had begun to despise the whole process and dreading answering the phone to the usual opening gambit of ‘I’ve got a voucher diving thing, can I do it this afternoon?’ James Snelgrove who was working with us at the time became a saint and upon watching the life drain out of me after answering the phone simply removed it from my hand and began to deal with them.
After a year of this we looked at the stats: Out of the 350 sign ups we did about 200 trydives. That means a staggering 150 people never even bothered to redeem the voucher. We converted 2 people onto a full open water course, one of whom was lovely, the other pressed continually for discounts and special treatment. It was a monumental waste of time, effort and resources.
Next year rolled around and they called again. Groupon wanted us to do a deal on a referral course, again the figures were very enticing but thanks to a discussion with John Carlin at PADI who did a tremendous job of allowing me to see reason we refused. But that wasn’t final enough for them. We were plagued by phone calls from Groupon and the others, had we changed our minds? Could we discuss it again? Livingsocial reached a level of desperation where they actually produced an ad and had it all set up to go and I had to contact them to tell them that they did not have my permission to proceed. Instead we relaunched the website, making a point of saying that we didn’t touch Groupon with a barge pole, and ended up having the best year in business we ever had.
So after the dust had settled, why did it fail so badly? Well first I need to accept some responsibility. I simply wasn’t prepared for the volume of people and we spent too much time dealing with logistics and scheduling cock ups than actually following up to see if people wanted to continue. However when we did all we received back was a conspicuous silence. It eventually became obvious that almost everyone doing the session was involved in a box ticking exercise: ‘I’ve tried diving, job done’. Many weren’t interested, some were but simply couldn’t afford the full course. The cheapness of the deal itself hopelessly undervalued the experience. This was the reason that people came along late or simply couldn’t be bothered to turn up. It was just a tenner, who cares?
And this fundamentally highlights the issue with Groupon and the entire voucher culture. In London a few years back there was a craze of restaurants offering half price deals and vouchers were everywhere. My wife and I were given a ‘Taste London’ card as a present and at the beginning it was great. 50% off in nice restaurants but gradually the experience turned sour as the dark looks on the faces of the staff grew as you produced your card. Restaurants were quickly realising that they simply can’t give 50% of their earnings away and that the idea that someone will pay less, enjoy the experience and then come back and pay full price is false. What actually happens is you devalue your product and train your customer to think that a high quality meal is worth half what it actually costs.
Everyone know’s the old adage that ‘you get what you pay for’ and that still holds true. Ask yourself how it is possible for any business to repeatedly offer a service to customers at a 60% discount of the normal price? There simply is no way to do this without a drop in quality.
There are many stories of Groupon deals trashing small businesses who drown under the weight of too many customers and not enough margin. Another big issue for us is that we lost focus on open water courses at the expense of managing the trydives and our business suffered as a result. Groupon just doesn’t care, they get the discount, make the money and then roll onto the next deal. Making it work is your problem.
These days I don’t see so many huge deals repeatedly advertised and especially by small businesses. The discount voucher culture has become the preserve of highstreet chains who have the volume to adapt to this kind of business model. Small businesses are much better off maintaining price and offering a specialised service to differentiate themselves from the volume players.
So there you have it. Next time you want a haircut from a trainee at Toni and Guy at 10.30 on a Tuesday morning then knock yourself out at Groupon but venturing under the water for the first time on life support? Perhaps not….