Ramble On Ron

Diamonds, Music and other Facets of Life

Groupon From a Merchant’s Point of View

Posted on | October 29, 2011 | No Comments

I made a vow that after my daily deals were over, I would write a blog post about my experience as a merchant (and a jeweler) on the deals that we ran at Samuelson’s Diamonds. You read a lot about customers taking advantage of good deals, but not enough about about merchants and whether they made enough money OR brought in enough new customers to make it worthwhile.

THE SKINNY:

The merchant receives 50 or 60% of the coupon that is bought and the other share goes to the daily deal site. We negotiated a 60/40 split on this one.

THE DEAL

The deal was $40 for $100 store credit. Plain and simple. Click here to see the actual deal. From the very beginning, I told them that $100 store credit at a diamond store doesn’t really mean anything to anyone. The deals needed to be for a higher dollar amount. They insisted that they do this all the time and this was the deal to run. We ran it and sold only 36. Out of that 36 people 18 redeemed their coupons. That means that Groupon and Samuelson’s kept all of of the expired coupon money. That’s how these guys make a TON of revenue – only a 50% redemption rate! Some people did spend a little more and half never showed up, so I’d say we broke even on it. Remember, in this case, when a customer buys an item for $100, Samuelson’s Diamonds only receives $25 of that. So unless they spend more, we lose on the deal. One could argue that you may lose, but gain a new customer. The Groupon customers were not our customers, probably because of the lower dollar amount offered on the deal.

Now Groupon called me for another deal. They will no longer do a half off deal, but now they want me to do $199 for $500 – that means that I get $119 for an item that we sell for $500 – I can’t do it. Then, they asked that I do a “Grouponicus” deal which is a product deal. So basically I have to find a pair of diamond studs that cost me $120 that “retail” for $500 to break even. IT CAN’T BE DONE UNLESS I OVER-INFLATE THE RETAIL PRICE. I am not willing to inflate a so called “retail price” to satisfy Groupon.

Here’s an example of a bogus “Grouponicus” deal. They ran a deal on a strand of pearls that were $79 with a “retail price” of $450. IT WAS A LIE. That means the merchant was getting $40-50 for each strand, that’s it. No upsell, no nothing. Everyone in the jewelry industry knows that freshwater pearls are available for $15-$20 a strand. So he (and ultimately Groupon) was lying on the $450 retail, being that it only cost him $20 – that is not ethical.

I will say that the only advantage is that we got a huge increase in traffic to our website that day and a little advertising from it. I don’t think I’ll do another. It’s really just a one-off. The other thing is that running a Groupon can be brand damaging. We sell fine diamonds – not cheap stuff. Groupon is more suited to restuarants.

Now, I did run a Living Social Deal that is not expired yet. This was a $250 for $500 and a $500 for $1,000. This was a better deal for us as merchants because the dollar amount was higher and the customers were better. I will give a full report in January when it expires.

THE TAKEAWAY

If you’re a jeweler, stay away from these deals. They will only annoy you because you really do have to give some stuff away. If you’re a restaurant, it may work out for you. Just remember, it’s to get a customer in the door for the first time, not to make money…

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