Romil Patel's opinions on the tech industry.


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Apr 21, 2011
@ 12:39 am
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Why Groupon Sucks For Merchants and LivingSocial Doesn’t

Update: Groupon has reached out.

It doesn’t matter whether you like Groupon or LivingSocial as a consumer or not, because this post is discussing why Groupon is like dealing with a child, for merchants.

As many of you know, I own a few QSR (quick service restaurant) outlets. I also have diversified interests in internet companies. Put 1 and 1 together and you get curious. Since I am in both spaces, I wanted to really dig into the whole group buying deal business and see if it was truly a win for merchants, as it is for consumers. So is it? I took one of my outlets and did a Groupon for it, and then a LivingSocial for it. And let me tell you right now, it’s almost like polygamy- being married to two different women at the same time, but the one you genuinely like is LivingSocial.

First I will talk about Groupon and how it all started. I was contacted by a rep from Groupon about doing a deal for my QSR, so I pondered the thought and said, interesting. We went back and forth for a few days working on what to give a deal on, and by back and forth I mean the Groupon account rep just telling me what would “work” and what wouldn’t be accepted by their marketing dept. After a few days, we decided that $5 for $10 worth of product was going to be the deal. This was not what I had in mind, but I went with it. Groupons “regular” deal split is 50/50 with merchants, so in this case they would take half of $5. They also charge merchants a “fee” for people using their credit cards to buy Groupons. FYI I’m a hard negotiator. I mentioned that I was pondering doing a LivingSocial deal at the time, so my account rep said something like “we really want to work with you and hope you don’t do one with them because they are copycats.” Needless to say, I didn’t accept those terms, and would never. So Groupon came around the block on my terms for revenue split and credit card fees.

At that point, the final deal format was given to my QSR, in an email and all I needed to do was reply with the words “I accept,” then my QSR was put in queue for a feature date. Sounds straightforward? Pretty much. 

Later on, after the terms were accepted by me, my rep emails me and asks me to create Yelp reviews for my QSR, by having either my employees write how good my QSR is or having my “best” customers write them. I’m not too sure, but I’m confident this has to be against Yelp’s terms of service since this would be considered creating fake and biased reviews. Needless to say- I thought this was an ethics issue, and I didn’t do it.

Then comes the feature date, my QSR was featured; Groupons were sold.

At the end of the feature, merchants are given a list in their account dashboard, telling them what everyone’s voucher number is and their name next to it.

Once people start redeeming their vouchers, things start to get complicated. There are customers who are awesome, who redeem their voucher, and spend a little extra beyond it. There are customers who spend just the amount of the voucher or a few cents over. Then there are those who say: “I’d like this, but I’m not at $10 so can you pay me back the difference?” And lastly, you have those who order something and change their mind, and then order something different and expect that they can do whatever they want.

I’d say less than 5% of customers fit the first criteria, 93% of customers fit the second, and the remaining fit the “problematic” type. Overall, this leaves a sour taste in the merchants mouth, especially when you see people who are just coupon cutters buying deals, and really showing their dullness!

However this is not why Groupon sucks. Groupon probably has little control over their subscribers personality. Note: Groupon has this policy where merchants are reimbursed for fraudulent redemptions, and the ability to “flag” problematic customers.

So when a customer decided to order something, then change their mind after the products were made, and demand something new be made because “they changed their mind”, I contacted the account rep that is assigned to my stores deal, explaining the situation that occured and that I had submitted the issues in the flag section of the dashboard, and said something along the lines of:

Did you receive the “flagged customer” issue yet?
Is Groupon going to reimburse for the loss of product?

to which the rep replied:

No, I have not. Can you send me the customers name, voucher number and receipts.

to which I replied:

I submitted it in the account dashboard where you can flag customers or reward them.
If you have not got it there I will send you the information later today.

to which the rep replied:

We should be good then— I will keep you posted!

Exactly ten days went on and I heard nothing. Then there was a day where the issue of fraudulent redemptions arose. So I decided to contact my account rep again and tell the issue that I had two additional Groupons than that of which was showing in my dashboard as number of redeemed Groupons. This time I mentioned in detail the voucher numbers, the name of customers, and other details in my email, so my account rep replied:

Romil,
I will check in on this issue and get back to you shortly.

Keep in mind, the first issue still isn’t addressed. So I think, okay, that’s fine. However, I heard nothing for days again! This time it was exactly 28 days. I’m the kind of person that gives people more than ample time to get work done, but in my opinion, if 28 days isn’t enough then I don’t know…maybe I’m rushing things. After this time has passed, I decide to contact the rep- yet again.
I say something along the lines of:

I haven’t heard back from you on the reimbursement of the two extra groupons I have.

The rep responds:

When you flagged it online did it not work? If not, please send me the voucher #’s and the two customers name where this happened. Thank you!

At this point I’m a little bugged, mainly due to the fact that is has been 28 days, and I already submitted the voucher number in the email, 28 days ago. Why was I being asked if the online flagging didn’t work? I thought the rep was going to get back to me “shortly.”
Note: The issue is yet to be resolved at the time of writing this post.

The bottom line is, merchants don’t have the time and shouldn’t need to deal with minor issues like these, and Groupon reps should get things done— faster! This is hugely why Groupon sucks. But other than this, they also suck because they don’t have their lists in alphabetical order with customers names on it and merchants have to do it themselves. I had this issue, and wanted to see if my account rep would be kind enough to send me the list of Groupons sold with people’s names in alphabetical order. However, the rep responded, that they were, “unable to download the list.” Someone pinch me please- if Groupon doesn’t have access to a list of people who bought a certain deal, then how do things work at Groupon?

You should also note, I thought it was a little sketchy that my rep constantly reinforced that LivingSocial was a “bunch of copycats” and we needed to work around their “copy-cat ways.” I’m all for pointing out why business X is better than business Y in any industry, but definitely think no business should constantly rag to customers about how their competition is just “copying” them. It kind of made me felt like I was dealing with the mob (LivingSocial), when they kept being referred to in this way. Here’s a paste of a part of an email where LivingSocial and their “ways” were mentioned. Note: the word “copy-cat” was specifically highlighted in yellow by the Groupon rep when I received the email. It was also sent from their Verizon Wireless Blackberry, which might explain some typos.

O’ no! What made you want to do Living Social too? I feel its important to evaluate Groupon and Living Social separately and I guarntee Groupon will give you so much exposure to (QSR city mentioned) subscribers which currently we have over 215,000 sunsbribers. Also, we ask that you don’t run with a competitor within 90 days. So if there is a way to work around their copy-cat ways, thatd be great!

Anyways, whatever. Onto LivingSocial.

Now with LivingSocial, things run a bit more smoothly. At least from my experience. In this case, a rep had also contacted me, but decided to do it in PERSON! They dropped into the same location that the Groupon ran for, and asked if they could speak to the owner about “LivingSocial.” Sadly I wasn’t in the store, since I usually am not, but a the manager sent me the contact information left on the business card for this rep, and I decided to contact the rep. We decided to meet after a few days and ran through the options of doing a LivingSocial deal. 

This was a major step up- because when merchants deal with Groupon, the reps never actually come talk to you in person, everything is done over the phone.

So we decided to run a deal that I wanted to run, not something that would “be approved by some marketing dept.” because frankly, I had already done that with Groupon. The rep submitted the deal for approval. It didn’t get approved, because the marketing dept. thought it was not the right “season” for the deal to sell the best. So my rep told me they would contact me again during the spring time, when they felt the deal would run better. Sure enough- I was kind of confused, I mean if they weren’t going to do the deal why waste my time by having a meeting in November? However, the rep came around in spring and we did the deal.

Now with LivingSocial, they are also more proactive, the day the deal runs, they tell merchants it’s running from 5AM, for 24 hours. They also send you an email when the deal is over, what you need to do after and when to expect the funds to be mailed to you, etc.

Communication is key. And LivingSocial does it really well.

The list that LivingSocial provides IS automatically in alphabetical order, so there’s no going back and forth trying to get it done.

Onto the customers that LivingSocial brings in. They are kind of similar to the Groupon one’s but a bit more positive it seems. It hasn’t happened yet that someone orders something, and when that is made, they order something else instead, because they have a change of heart— I mean what is this? The Bachelor?. It also hasn’t happened they want cash back on their voucher, instead of redeeming the whole amount. To be fair- neither LivingSocial or Groupon has the ability to control what people will try to pull when redeeming their vouchers. However, I tell it like it is.

In addition, LivingSocial gives a 60/40 split right off the bat for merchants, and charges no credit card transaction fee’s whatsoever.

In fact, the 2.5% credit card fee that Groupon imposes, is very high. Given they are transacting “billions” of dollars by selling Groupons throughout the year, their fee should be much lower. All large QSR chains negotiate their rates down to a minimum (way less than 2.5%), with credit card companies, so why not Groupon? When a company is processing billions of dollars through credit cards, it gives them the power to have lower rates, with processors. Either they are just trying to swindle merchants out of a few extra bucks, or they are too lazy to negotiate their credit card rates with companies. When I discussed this with my Groupon account rep in the early days, I mentioned that 2.5% was very high, and thought Groupon would be paying less, but the rep said it’s what Groupon pays.

Both deals are still being redeemed, so it’s yet to tell if there will be anymore development in terms of sourness for merchants. Either way, I’m hopeful that if there is anything that arises, LivingSocial will be better at handling it than Groupon is. Or maybe my account rep with Groupon is just to blame? Perhaps Groupon grew too big, too fast, to consider the value of communication and treatment with merchants and LivingSocial has to take that in high consideration if they want to be biggerbetter. I also think Groupon will hustle and do whatever they have to, to make the most cash. This is good and bad. I think businesses can grow very fast if they focus less on quality and look more upon quantity, but then the question comes to mind, how long can that be sustained? Who knows.

I believe that LivingSocial is trying to take a Zappos approach to business, which is being in the business of good service. I mean it would make sense since Amazon is an investor in LivingSocial, right?

  1. ruqaiyahn reblogged this from venturelevel
  2. kamikazemanagement reblogged this from venturelevel and added:
    Interesting user experience
  3. adenwatts reblogged this from venturelevel
  4. siddman reblogged this from venturelevel
  5. shedupree reblogged this from venturelevel and added:
    these issues now? Can’t underestimate...customer service. Should
  6. nickstarr reblogged this from venturelevel
  7. alyssapridgen reblogged this from venturelevel and added:
    Interesting comparison between...deals than Groupon. I’m definitely Team
  8. venturelevel posted this