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More Bad Press for Groupon

Barely a month has passed since Groupon took a beating in the Japanese media over one of its New Year’s food deals. Now they’re making headlines again, this time for a deal that was cancelled before most of the customers could use their coupons:

Groupon was offering a deal through which one could purchase 1000 yen worth of taiyaki for 500 yen. The taiyaki store set a limit at 1,700 coupons, but concerns about losing money made it cancel the deal and only accept 400 of the coupons. The remaining 1,300 coupons, which were supposed to be valid until June, are now worthless.

The store claims that Groupon was very aggressive in making them agree to a very high number of coupons, arguing that it would really help their business. Apparently the deal was set up so Groupon would take 250 yen “handling charge” out of every 500 yen sale, meaning that the store only received 250 yen for what would normally be sold for 1,000 yen. The store agreed, believing that new customers who used the Groupon deal would buy extra stuff. Instead, the Groupon customers were supposedly quite stingy and most limited their shopping to the coupon deal. The store says it had to cancel the deal because the survival of the business was more important than honoring the coupon.

Customers who were unable to use the coupons will receive refunds from Groupon.

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23 comments - What do you think? Posted by James - February 23, 2011 at 9:42 am

Categories: Japanese Food Tags:

craig

This groupon will be gone within the year
Vonskippy

How is this Groupons fault? The store chickened out of the deal it agreed to, knowing all of the numbers and costs up front. The store is to blame, not Groupon. Next time, maybe run it thru a spreadsheet before signing the contract.

RMilner

That doesn’t matter. Groupon sold the coupons. They are going to be blamed.

mike

“The store agreed, believing that new customers who used the Groupon deal would buy extra stuff.”
lol
yankdownunder

Groupon gets the money when the coupons are sold.
When does the shop get their half of the money?
When the coupon is sold?
Does Groupon keep all the money if someone doesn’t use their coupon?

Did Groupon sales tell the shop they had research to prove that the shop
would get additional sales from this deal?

grreen

I work for a company that has turned down solicitations from Groupon several times. Believe me, the stores know what they are getting into, or at least they have no excuse for not knowing. I’m almost certain that Groupon never promised the store they would get extra sales from people using the coupon. The idea is that the coupon brings new customers into the store who will then become regular customers, just like any other kind of promotion–you take a small loss in the present for a large gain in the future. The problem is that this shop didn’t actually think about how much money they would lose until the promotion had already started. Of course Groupon is going to push for a large number of coupons to be offered–that’s how they make money. At my company we looked at the numbers and decided that a. we probably wouldn’t gain enough new regular customers to make it worth what we would lose on selling cheaper products, and b. this isn’t the kind of service that we want to be associated with. I think if the taiyaki shop can’t make those decisions for themselves, or was intimidated by Groupon into doing the promotion against their wishes when they knew it would be bad for business, then perhaps they should consider a new line of work. Food and drink businesses are cutthroat.

Cryptnotic

This is the same Groupon that turned down a 6 billion dollar buyout deal from Google less than three months ago. Google is now reportedly working on its own Google Offers competitor. I feel bad for the employees at Groupon who might have all been millionaires, but instead will be looking at unemployment in a few months.
Demazin

Oh and I see Groupon’s name mentioned quite a bit throughout that report but what was the name of the Taiyaki store?

Annon

They probably didn’t display the name on purpose just like they didn’t put show any of the faces of the workers. But looking at the logo displayed at 1:11 and also on the T-shirts of the employees, I’d say it’s this place:

http://taiyaki-taishow.com/

I’m just guessing.

RMilner

The Groupon concept only works for high value services and products where there is a large margin to be discounted.

It’s not surprising that a taiyaki store is going to have trouble selling 1,000 yen worth of food for only 250 yen. They probably make a loss on 250 yen. It’s only worth doing if people buy extra stuff at the same time.

It’s not surprising that people who want super-cheap deals won’t buy extra stuff. Taiyaki is basically a kind of fast food snack. Why would you want lots of it all at one go.

This kind of bad customer image will kill Groupon in Japan.
Karina

I have a feeling that Groupon’s reputation is now irreparable in Japan…especially in a country where people care about food…mishaps involving food, food safety, food related coupons etc, are hard to regain trust in this country.
Blake

Bye Groupon! =/
Rob A

A copycat company came through a store I was in the other day and I took a look at their contracts.

They require you compensate them with 25% of the discounted price for each product. While this is better than 50% as Groupon appears to be doing, it still would have meant over $5000 loss for the company they were trying to recruit. If there is a $1 margin on a product from cost to price, you lose a TON of money on these things. If you have something like cables at a BestBuy store, where they are marked up 3000% of their cost, they have no problem throwing away the revenue for these and still making a killing.

For example: Cost of a 6′ USB cable for BestBuy: $0.37. Price on the floor? $34.95.

It’s almost as comical as the Verizon employee who denied there being a difference between .02 dollars and .02 cents. She actually believed they were the same amount.

william

I remember reading about the dollars/cents mishap. It seems like the same level of accounting here with the taiyaki…you dont need a spreadsheet or computer software to figure out that netting 250yen out of your normal 1000yen will lead to a loss.

Guillaume

The store agreed to the deal and renounced it. It is obviously the fault of the store. They should have made their maths and simulations. Too many small businesses here have no business sense. I was for a while manager in a small business in Tokyo. The owners had now idea whatsoever how to make money (even though I have no formal business training). For new contracts, I always made best/worst case simulations and showed them how much money they could risk / expect. After I left, they came back to their own way of doing things (no proper accounting, no simulations, random pricing based on intuition and not on calculations, etc…).
This is not the role of Groupon to advise them on their business. After all, they might have been ready to sell for a loss if it improved their local recognition. How could Groupon know? It just shows the managers of this shop have no clue. Groupon is under pressure because they are foreign and it is a common tactic here to blame on the foreign predatory business. I wouldn’t be surprised if you would see a local Groupon copycat taking advantage of this mini-scandal.

Roppongi Health

Can only agree with you. Its a simple math here – 250 yen divide by 1000 yen you got 1/4. Now reduce weight of each taiyaki by 3/4 and sell reduced size taiyaki for your 500 yen.
Rob A

It sounds like there were a lot of false, undeliverable promises made by the Groupon folks as well. There’s no way for them to know how much profit you can make, or how many items you can sell, but they have no problem with telling you these fictional figures upfront.

Piglet

Any reasonnable business people will tell you you should never take any commercial offer to face value. Business 101! Do your maths, and if you take some risks take responsibility for it. Groupon sells promotional tools, not commercial advice.

DougW

The Groupon representative pressured the store into a bad deal, but the store should have said no. As a minimum, that representative needs to be fired and Groupon needs to apologize.
vonskippy

“The Groupon representative pressured the store into a bad deal”

What? The store is run by a bunch of teenage school girls? If not, they need to man up and take responsibility for their OWN decisions.

It’s probable that they chickened out way too early. Of course they will lose money on the coupon items sold – it’s called MARKETING. Do they think other advertising is free as well? The whole concept for those that never took Marketing 101 is you need to lure new customers into your store. Once those new customers are in your store – it’s up to your product line, customer service, and prices to keep them coming back. Groupon did their part of the deal – the store fubar’d everything after that.

randomcommenter

The owners of the school need to learn more about business, but so do you, vonskippy. Of course they know they’ll lose money on the coupon items sold. And while you have taken Marketing 101 (selling at a loss to get new customers and repeat business), they have taken Business 101 (selling one product at a loss in order to get customers into the store, where they will buy other things that are profitable). The problem, apparently, is that you haven’t taken Business 101, so you aren’t aware of the concept of “loss leaders”, and they haven’t taken Marketing 102, so they aren’t aware of the concept of analyzing customer trends and behavior — hence their belief that loss leaders would lead to customers buying higher margin items, despite the fact that the customers they were targeting were extremely price-sensitive and not prone to impulse purchases (obvious from the fact that they buy coupons in advance online).

Colin

You know, the main reason I use Ponpare (by Recruit) over Groupon in Japan is because groupon just has really creepy commercials.

My comment is not very related to what this article is talking about.
zoglog

wow, I love all the ignorant comments here claiming groupon is going out of business. Japan is one small market for them. Groupon is incredibly successful back in the states.

And in this case, it’s all the stores fault. Groupon did the right thing and refunds peoples money. People who complain that isn’t enough are just a bunch of whiny babies

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