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Oryoki Bowl
February 03
Quaker buddhist, kinda quirky, loves cooking and knitting and movies. Dr Who fan, Scandinavian-aquarian and cat lover. Would love to be paid to travel around the world and write about local healing cultures. While eating and drinking and dancing. One day I will have a health cruise in the fjords.


OCTOBER 19, 2011 6:08PM

Is Groupon killing small businesses?

Rate: 8 Flag

Every day my inbox is flooded with about 10 emails with coupons, deals, getaways, deep discounts, travel packages and ways to save $$$$.  Of course, most of the savings is really just spending less money on something you didn't think you wanted or needed than you would have, had you thought you wanted or needed it.  You are spending more, and somehow helping the local economy along while you treat yourself to something you deserve.  It's a win-win situation, right?

A few years ago, when Groupon hadn't yet burst upon the national scene, it was being tested out in a few major cities.  I lived in one, and saw the invitation for small businesses to sign up.  I contacted them, went through the "plan" with their coordinator, and was encouraged to sign up.  After crunching some numbers and trying to figure out how it would all get delivered, they turned me down.  And I am grateful that they did.

I have worked in the spa and alternative health field for 20 years, and have seen the ability to earn a decent living cut in half.  I was a successful massage therapist, having gone to school after college in the early 90s.  There were few massage schools, and there was little national demand.  Within a few years, every state had a licensing body, standards were being raised and massage schools were sprouting at every corner.  Luxury resorts hosted lavish corporate conferences, money was everywhere.

Soon enough, the market was glutted.  Experienced and better trained therapists, like myself, had to compete with newbies for pay that was lower than what I what I was making years before.  Massage is physically demanding, and there are maximum hours you can work.  It is hard on the body, and few people can last in the business for more than 5 years without incurring injuries.  The way to mitigate that is reduce hours, and charge more, because your skills and expertise are higher.  You become a Master Therapist, or a specialist.  And add a teaching position on the side.

I saw the writing on the wall, and decided to go to med school.  After going through premed, and planning to relocate to another city depending on my acceptances, the state licensing laws in Arizona expanded the scope of practice for Naturopaths.  They had been licensed to practice family medicine for about 80 years, but increases in education allowed them to be trained as full family practictioners.  I chose what my heart knew was the right path, and changed from osteopathic medicine to naturopathic.  I could do more for my patients, without having to participate in the insurance system.  I had seen how much private health insurance had driven up the cost of practice, decreased the reimbursement of doctors, and increased their hours.  Additionally, they were often restricted to prescription over education, in order to fit more patients in.  They know patients are non-compliant, so they didn't want to pay for counseling that would be useless.

My years in massage, treating people from all over the spectrum, taught me a lot about the human nature and behavior.  My capacity to explain science easily helped my patients understand why they needed to change some of what they were doing.  Massage is more effective if the patient is also doing some things to help themselves, and I had a steady and devoted following of successful, ambitious, athletic and professional clients.  It also taught me that I would be good at integrative medicine, helping clear up the myth from the material of what people needed to understand.  

On the other hand, my experience working in spas, physical therapy offices, and earlier in restaurants, taught me a fair amount about service and business that many of my med school colleagues didn't have.  The small details, the customer service aspect, and personal touches do make a huge difference.  My new office welcomed patients into a soothing environment, where comfortable chairs and freshly brewed tea helped them open up to the more individualized processes of naturopathy.  I still incorporated massage into my business, because it was a way to get my existing clientele in the door, and introduce them to the world of acupuncture and alternative options.  Groupon wanted to exploit that feeling, but they didn't want to pay me to do it.  They really wanted me to pay them to put people in my office, people who didn't want to pay for things at all.

The premise of Groupon is that you (business owner) offer a really sweet deal, typically 50% off of the retail price.  You cannot jack up the price on existing services, so you must either take a huge hit, or offer a "new" service that is overvalued, so that your 50% off is a little higher.  Then they offer the sale.  If a certain amount of sales are made, let's say 100, then the deal is a go and they collect the money- and pay you 50% of that.  The belief is that people will come to your office on a really sweet deal- and then you can lure them with your other services.  They would allow you to re-offer after 12 months, and would not run a comparative service within a one month period.  That didn't seem to last long.

I couldn't physically do the work that would guarantee all the massages and acupuncture purchased, so I asked my coworkers if they were interested in going for it.  But, it would mean they would realistically make $10 on the massage, a huge financial hit, and likely not make the tip they were accustomed to.  There was still the same rent to pay, and if the schedule was overfilled, it would decrease revenue while taking up more hours.  A lot more work for a whole lot less pay.  More importantly, once patients pay for a service at a very low price, they expect to keep paying that price- or go elsewhere.  Groupon and similar services were offering up the same deals all over the neighborhood.  Eventually, you could end up competing with yourself in order to run another deal. 

I work part time for a private family practice, and I work part time for a spa where weight loss, hormone replacement and aesthetics are the services.  The pay is okay, not what one could make in private practice, but it meets a need for the clientele that they cannot afford elsewhere.  Typically, patients pay a small amount of money for the medical visit, and then buy products.  A successful doctor is part physician, part entrepreneur.  Conferences for hormone replacement, weight loss, and anti aging are filled with primary care physicians and specialists, who are tired of working longer hours for less pay and no way to make any more money than to have a cash business.  What's the point of becoming an expert if your hours of study and thousands of continuing education dollars mean less reimbursement?  The cost of staff and running the business continue to increase, and patients are reluctant to pay any more money for medical care.  

I stopped using Groupon, after buying a couple deals for restaurants I would otherwise never heard of or tried.  The food was excellent, the service spectacular, but there was a real person on the other end of that service who was going to get paid a whole lot less than they were used to.  I worked for tips for too many years to be naive enough to think your waitstaff and server hasn't earned a tip.  Large tips still go to people who make the service memorable, but I don't always want memorable service.  I felt like I was stiffing people- even when I paid the "real" tip, and could see their eyes glaze over when the word "Groupon" was mentioned.   It's easy for a large restaurant chain to absorb the cost of a deep discount, but very hard for a small place to discount their food that much without giving it away.  Using the services for mani, pedi, massage seemed like a betrayal to all the women I had worked with over the years who sweated their asses off for the low pay they were already getting.  I didn't think they should work for free.  

Soon, I started hearing stories about places that opened up, and signed up for Groupon or similar to generate buzz, and ended up shuttering sooner than later.  Or, an older joint hoping to get some new clients joined the fray and wiped out.  The discount price cost them more than they were making, and the crowd was busy chasing another deal, another day, another place.  Food is food, and the quality isn't going to go down because you are paying half price- until you are only selling at half price.  The same can be said for spa services, as it is impossible to pay a professional staff on minimum wages.  Quantity is swapped for quality, and service levels go down.  Sure, getting people in the door does help for cross over marketing, especially when people realize that actually paying for the services they actually want is really worth it.  Sadly, the lure of the deep discount at other locations will just as quickly pull them out as it pulled them into your store.  Once you offer an expensive treatment at a super low cost, it will almost be impossible to ever get full price again.

I was really impressed with the quick success of Groupon.  It was suddenly worth billions of dollars, and I think about the billions of dollars we spent shopping other people out of business.  You deserve good service, I deserve getting paid for it.    I still look at those offers as they roll into my email every morning, get away packages, luxury spa treatment, dinner for two at a 5 star restaurant.  None of these offers don't bank on the fact that they are exploiting people who already do physical labor by paying them even less.  A business owner won't make a deal that doesn't make them some money- or they go out of business.  So, they stiff the staff, or offer lower quality product.  I don't care as much if the quality of my $5 burger is now ground chuck instead of sirloin.  I do care if the woman doing laser hair removal knows how to adjust the settings on the machine.  

Of course, not everyone who works at places offering deep discount services is a newbie and a hack.  Sadly, I see my seasoned colleagues in various fields having to take these deals in order to keep the jobs they have, or stay in their profession.  I have already seen gifted therapists have to resort to working at places like Massage Envy and work for much less in order to have some kind of regular paycheck.   They are still having to jockey for tips, in an economy that doesn't reward hard work, and makes generosity a leveraging tool.  I know that never buying their services leads to no income, but I also know it is up to me to make up the real difference in cost by giving extra tips.  The "I got lucky" feeling from the coupon steers people away from rewarding their servers, and using that money to buy another deep discount elsewhere. 

I hope these discount services aren't really here to stay, not at the rate of rip off they seem to offer.  I would rather be able to reward my regular patients with an extra service at no extra charge, or thank them for their referrals with a treat.  These are the clientele who have earned the the break, not the savvy shopper who has seen one too many episodes of Extreme Coupon. 

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There are s many coupon places now like Swag Bucks and the list goes on. We have "extreme couponing" on TV and people are getting pumped up in using them. I have one Groupon coupon here for AMC. If 50 people use this ticket how much money do they lose? I so agree this is getting out of hand.
Really great blog.
I had little understanding of Groupon before reading this, so thank you for such a thorough explanation of the vendor's point of view.

You make a compelling case that there is so much more to consider than just the price we pay for something. A coupon frenzy only diminishes the human element in the transactions.
I have found that the requirement to mention the use of a "two for one" coupon in a restaurant prior to ordering seems to garner lesser service. Mid -level places at the most so there's not too many ways to screw up a second glass of ice water. But it seems to set a tone. It's unfortunate, because my intention is always to tip in accordance with the regular pricing. So one begets the other and nobody seems pleased.
More of the Walmartization of consumaer markets. I haven't used Groupon yet and am now disinclined to do so.
really interesting--our whole society is now incorrectly, based on getting something for nothing
there is no such thing
years of ads offering mortgages for nothing
till it all went belly up as it had to
Americans have now been told that you can buy anything for nothing
that means that someone will get paid nothing, and anyone who is paid something will be out of a job soon
it is a false promise
I have not used these yet but if I did for a service, I would tip the
person the same as I would on the full price of the service.
Excellent argument, I will think twice before using Groupon.
rated with love
No country for old people.

If you are starting from zero, then this can be your chance.

If you are a service provider and have excess capacity, then it seems like an efficient type of marketing. You trade your free time for a shot at new customers.

The flip side is that firms now just refuse to do reverse auctions. It was simply too bad a deal for the sellers. Reverse auctions are dead on the net -- as far as I can tell.

But it is obvious. NEVER do it if you have alternatives. If there is too much competition, you gotta lower your price. Or differentiate you service.

The invisible hand and all.
This isn't exactly new:


It's a brutal world.
Thanks for this thoughtful and informative post. I never really thought about Groupon (and the others) from this perspective. I'll be more attentive.
You're totally right. What's wrong with Groupon will be subject matter of books for years. It's all smoke and mirrors and the small retailer is who takes the hit.

Of---and there is this. It doesn't work.

Adam Sorkin's piece in yesterday's NY Times explains a lot of it.

I personally know 3 people who got hired there and walked out on their first day. The culture of the company is rampant frat house arrogance. No one is over 30. And the business model has ZERo sustainability in it.

When it falls, a lot of people will say "Why didn't we see this?"

But while its hot---there is a lot of money involved.

Too bad, cause it could have worked.
Excellent and honest post. This is about more than Groupon.

In 1992 the going rate in Sacramento for Psyc/MFT therapist sessions for major health plans was $ 80 or so. Now it's $50 to $60.

Have we devalued the work of the "helping professions"except when Rx drugsnor surgery are being applied?
Hi folks- so glad to see the comments here. I just spent my evening at an open house at the office, meeting potential future patients, who were really there for other services.
I feel in some ways that the "genius" mentality we reward is really just piracy applied to technology. I had a cousin who worked for Google for a year, in Ireland, and the company expects unreasonable hours, to be followed by comraderie in the bars after. Everyone is young and hyper and has no concept of sustainability. The company planted in Ireland in order to avoid huge taxes, and like a lot of the other .com business busters, just throw their weight around and play hardball with actually paying their due to society. As far as they are concerned, they don't have one.