Groupon Costs Bakery $19000!

Business By rlowry03 Updated 27 Nov 2011 , 3:50am by scp1127

rlowry03 Posted 22 Nov 2011 , 3:41pm
post #1 of 19

Something to consider for those who are interested in using Groupon to get their business name out there:

http://today.msnbc.msn.com/id/45398235/ns/today-today_news/t/cupcakes-small-bakery-burned-groupon/

I certainly hate to see something like this happen to anyone, but it's a good reminder that you have to remain very business savvy and read the fine print. If there had been a limit on the number of groupons she was willing to sell it might not have been so bad.

18 replies
KoryAK Posted 22 Nov 2011 , 6:31pm
post #2 of 19

It's really too bad they didn't plan better - especially after being in business for 25 years icon_sad.gif. IDK how it is across the pond, but here in the US you can always set a limit on how many to sell (I have run 2 groupons).

Periperi Posted 22 Nov 2011 , 7:43pm
post #3 of 19

What irks me is that Groupon is getting bad publicity for the baker's bad choice.

Claire138 Posted 22 Nov 2011 , 7:45pm
post #4 of 19

As far as I know you can set a limit on Groupon, she just didn't think it through. It's all over the news here (other side of the pond) and according to what the (poor) woman said, she just figured they'd get a few hundred more orders than there usual 100 a month and before she had time to turn around it was going into the thousand figure. The upside of this is that I'm guessing she gets lots of free publicity with this all over the papers so now she is definitely more well known.

FromScratchSF Posted 22 Nov 2011 , 8:08pm
post #5 of 19

Sorry, but the business owner is a complete moron. Stuff like this really makes me wonder how they survived as long as they have. Why on earth would you start out with something like that? Run one Groupon for X volume, see how it sells, then think about expanding it. I mean yeah, she'll get publicity from this, but not for having great cake. icon_biggrin.gif

CalhounsCakery Posted 22 Nov 2011 , 8:50pm
post #6 of 19

I have to agree that better planning could have avoided all this. It's not up to the Groupcon to determine what the company can handle. Doesn't make it sting any less, but hopefully she learned a lesson from all this.

rlowry03 Posted 22 Nov 2011 , 9:01pm
post #7 of 19

I read this part and thought that the business did not have any say about how many groupons could be sold: "Heather Dickinson, international communications director for Groupon, told the BBC there was no limit to the number of vouchers that could be sold.

"We approach each business with a tailored, individual approach based on the prior history of similar deals," she said, adding the company had been in "constant contact" with Need a Cake."

Now that I go back and reread that last part it made it a little clearer to me that the bakery was the one who didn't put the limit on! "She later told msnbc.com: "We work very closely with small businesses, but ultimately, they know their businesses best and what they're able to handle." She added: "Need a Cake wanted to run a national deal with us, but we advised them to feature in a few cities so they wouldn't overextend themselves."

I do feel for them considering they lost a great deal of money, but they sure did get their name in lights! I'm willing to bet it brings in more business, because it's always been said that bad publicity is better than no publicity!

Kelzky Posted 22 Nov 2011 , 9:17pm
post #8 of 19

That company is in my home town and I visit it regularly. Now I have no idea how they managed the colossal mistake but the company had been going from strength to strength. It's only just moved to a bigger premises and is set in a small town in the UK.

The staff are lovely there and don't really deserve to be called morons, they just made a mistake (as all companies do - maybe not as big but still) I'm sure they've learnt a very hard lesson.

I just hope for the sake of bakers in the local area that the company recovers as we have very limited access to such a great range of products

Relznik Posted 22 Nov 2011 , 9:35pm
post #9 of 19

I also feel very sorry for this lady.

I imagine that - as times are hard for many of us - that she wanted to drum up a bit more / new business.

I don't doubt for one moment that Groupon sales staff are VERY good at their job. I'm not suggesting they did anything wrong or dishonest. I'm just saying that they probably talk a very good talk and it's very easy to be drawn in when you WANT what you're being told to be true.

I do hope her business recovers.

LoveMeSomeCake615 Posted 25 Nov 2011 , 7:52pm
post #10 of 19
Quote:
Originally Posted by Kelzky


The staff are lovely there and don't really deserve to be called morons, they just made a mistake (as all companies do - maybe not as big but still) I'm sure they've learnt a very hard lesson.




This is the problem with the internet- it's so easy to read about a stranger thousands of miles away and make a judgement call about who they are based on our limited knowledge of the situation.

Yes, they should have set limits on the deal, but they probably truly didn't think they would get that kind of response from it. Groupon is a relatively new concept that many businesses have never encountered before. Give people a break!

Nyasalicious Posted 25 Nov 2011 , 8:26pm
post #11 of 19

Really feel very bad for the lady. But yes sometimes everyone takes a bad decision. But this was a huge one. Hope she had got enough publicity to recover.

MissCakeCrazy Posted 25 Nov 2011 , 9:34pm
post #12 of 19

Have any other CC'ers thought about selling or have sold from Groupon? I would be very interested in feedback to see if it was worth it.

FromScratchSF Posted 25 Nov 2011 , 9:58pm
post #13 of 19

Alright, I'm sure the owners and staff are lovely and they themselves might not be "morons", but jumping into this type of venture the way they did moronic. I'll take the heat because I said it, but lots of people are thinking of it. Anyway, I'm sure they are thinking it themselves, at least I would be.

I have no idea how long ago Groupon went international, it's been in my area for several years and lots of business owners have a been-there-done-that attitude (obviously including myself). But there is a ton of information about Groupon out there, all you need to do it a quick Google search and spend some time reading.

MissCakeCrazy, do a search on CC, there have been many threads about Groupon and the failures of fellow CC members (I recall seeing very little positive, but that's my memory).

step0nmi Posted 25 Nov 2011 , 10:03pm
post #14 of 19

i read that article and knew right away that it was supposed to be about Groupon but it was definitely about that business. this is probably a lesson learned for them! but, i've heard that groupon can really do a number on a business because it doesn't have much payback

IWRBB Posted 25 Nov 2011 , 10:30pm
post #15 of 19

My understanding is that Groupon keeps 50% of whatever the offering is. I would encourage everyone to use "business sense" when determining if something like this is worth it. We've decided that for our bakery that this is not the best avenue to take. You will be working for free when trying to fill the orders. I saw a Groupon from a local cupcakery in my area and I happen to know that she is a very small start up (I don't even think she has any employees). She offered a dozen cupcakes for $12.00. I thought to myself, WOW, if Groupon is keeping $6.00 then her cupcakes are basically selling for 50 cents each..OUCH. Consider the cost of your packaging and your ingredients. We us a high-end flavoring for our product and we have really nice chocolate brown packaging. We would lose money if we were making cupcakes for 50 cents a cupcake. The labor alone...this is a painful learning experience.

LoveMeSomeCake615 Posted 26 Nov 2011 , 2:08am
post #16 of 19

Yes, Groupon requires that you offer at least 50% off, and then they take 50% of every sale, meaning you are left with about 25%. For us, this would MAYBE cover cost of ingredients, depending on what the product was, but we would probably end up loosing money with every deal when you factor in overhead.

The rep we spoke to about it told us that the intent was never to make money on the deals, but it is meant as "low-cost" advertising, to get new customers in your door. The problem is that although you're not paying up front like traditional advertising, what you do pay in giving product away can make it not so "low-cost" after all.

It can also be argued that the customers you do get may be bargain hunters who would not be willing to pay your regular prices.

BoozeBabe Posted 26 Nov 2011 , 3:37am
post #17 of 19

I have a retail wine/liquor shop. We did a Groupon. NEVER again. We did limit the amount of Groupons available for a wine tasting. We specified that the tastings were available on Tuesday only and other specifications. They were all written out in our contract. We were supposed to be able to view the actual ad before it went on the internet. Hadn't heard from the sales rep in a while so I called her. Her response was, "Oh I didn't think you "really" wanted to see it first. It started running today." After chewing her a new one we decided to let it run as is. We didn't really have the money for a legal fight. And I think they know that. In our case the customers just thought they could come in when ever they wanted to for a wine tasting. We just stuck to our guns and only did them on Tuesdays. Also when customers printed out the Groupon it didn't have all the specifics that the internet ad did. Thats what caused most of the confusion.

We are in a small community and several other retailers did a Groupon. EVERY SINGLE ONE of them had some sort of negative issue with them. We ALL said never again.

So those of you who think it is all the fault of the retailer, don't be so quick to judge. I think Groupon has grown too big too fast.

KoryAK Posted 26 Nov 2011 , 11:28pm
post #18 of 19

This was a response I posted in another Groupon thread: They were totally up front with me and I also asked questions and made sure I knew exactly what was happening. We ran two Groupons. The first was the inaugural one for our state (and we got into an article in the paper about it too - bonus!) so their distribution was only about 10000 which is why we ran the second 6 months later (distribution of 60000 or something). We will not be running another just because we don't want to be a "coupon" place.

The first one was $10 for 6 cupcakes (retail $22). Most of the people came in and just got the 6 cupcakes so we changed the deal for the second one. We sold about 150 and had about 100 redeemed. We got $4.50 from Groupon for each one sold regardless of if they were redeemed. $4.50 covers my cost for 6 cupcakes since I am an open shop with staffing, lights on, and products on the shelves anyway - and it brought about 75 new faces into the shop. Even if those people never come back they still have had an experience with us and when a friend mentions us they can say so. So we received $675 and gave away $2200 worth of product but our COST on that product was about $880 - meaning I paid $205 for 75 new faces. Not too shabby.

The second one we ran was a straight $10 for $20 of product. Most people are spending at least the $22 for 6 cupcakes and the average high ticket is $42. When they spend additional, that greatly offsets the discounted cost. We sold 500 (we limited the number available and sold out by 2pm) and have so far seen about 174 redeemed (still good until December). If the trend on these matches the last one, we will be paid $2250 for $6700 worth of product - that really cost $2680 meaning $430 paid for about 250 new faces. Considering one 30 second radio commercial costs $38 to play, I'm ok with a guaranteed warm body for $2 icon_smile.gif

scp1127 Posted 27 Nov 2011 , 3:50am
post #19 of 19

KoryAK, we are like minds. The cost of anyone's new customer is over $2.00. Most people don't know how to analyze the cost, even though every business has one. And from there calculate the lifetime revenue of each customer, giving you the value of each new customer, factoring in the percent of retention of customers.

This is why I get blasted all the time for my refund policy (which I have never had to use). The value of a satisfied customer far outweighs the cost of a new customer, and most definitely the huge cost of a dissatisfied customer.

I actually have a mathematic formula I use to calculate cost of a new customer, value, and retention. I can then use that number to know what I need to do to increase business.

I started this years ago when I owned a marketing company. My husband (how I met him) and many of my customers from 15 years ago still use the formula I set up for them. One of my majors was economics. I learned it in my "Price Theory and Resource Allocation" class. Big businesses use this formula every day and they always will. Math never changes, and money is math.

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