Times aren’t as good as they could be for Groupon. Shares in the daily deal site have dropped 35 percent this week alone, and are already worth less than their initial public offering price, prompting some to speculate that the latest tech bubble has burst. Now another Groupon horror story has surfaced out of the UK, and it’s not doing the company any favors.
A 75 percent discount coupon backfired with a vengeance on Rachel Brown, baker and owner of Berkshire-based Need a Cake bakery. The baker offered said discount on a dozen cupcakes, an order of which normally starts at £26 ($40 USD). It’s definitely a deal, but here’s the catch: no limit was set on how many Groupon deals could be sold.
Over 8,500 hungry customers signed up for the deal and descended upon the bakery with an insatiable hunger for cupcakes at a rate far beyond what Brown and her staff could keep up with. The Need a Cake crew worked long hours into the night, and even hired temps, to accommodate customers bearing Groupon vouchers. All told, between the extra hires and the drastically slashed cupcake prices themselves (she ended up losing $3 USD on every dozen produced), Brown estimates her total losses to add up to almost $20,000.
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"Without doubt, it was my worst ever business decision," Brown 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."
But while this certainly isn’t a high point in Groupon’s story arc, how much are they really at fault? In the aftermath of a similar story, Groupon CEO Andrew Mason asserted that merchants are fully capable of setting a limit on how many deals can be sold. “It's company policy to never prevent merchants from capping their deals,” Mason told Business Insider. If Brown wasn’t deal-savvy enough to know herself that setting a cap was the way to go, was it Groupon’s job to step in and suggest it for her? Shouldn’t it be up to the business owner 100 percent? After all, no one knows what your company is capable of better than yourself.
Ultimately, no one comes out looking good in this PR blunder. But as far as cautionary tales go, it’s a good one. Do your homework before entering into any deals. Make sure you understand how they work, and take the time to develop a plan for the deal that won’t leave you overwhelmed. If you know how to use them, they can be a boon for your business. But they’re only required to look out for their own profits, not yours. As such, they’ve also been the undoing of far too many un-savvy business owners who couldn’t see the pitfalls for the profits. In short: proceed with caution.