Groupon discounts working too well, overwhelming small businesses

Businesses that market themselves through bargain web site Groupon are finding that the strategy works a little too well.

Last year when Philz Coffee of San Francisco offered Groupon users discounted gift cards for in-store pickup, the owner expected a few hundred takers, not the more than 2,000 that came through the door. Jacob Jaber, president of the San Francisco coffee chain, told Bloomberg Businessweek, "I nowhere near projected the amount of people that showed up. We just weren't prepared for it." He ran out of cards, irritating customers, and says he'll probably stick with word-of-mouth marketing from now on.
Groupon sells coupons for about 50% less than they're worth in the retail environment. So a coupon for $30 worth of food at a restaurant is sold by Groupon for $15. The deals usually last 24 hours, but are only sold if a certain number of people buy in. Buyers can then redeem the Groupons later -- sometimes as much as up to a year later.

Groupon was founded in 2008 and has sold nearly 6 million online coupons since then. Many small businesses use the site to bring in customers. Yet, some are finding themselves overwhelmed by bargain hunters because they didn't set a low enough cap on how many discounted coupons they wanted to sell.

Mission Minis, a San Francisco bakery that opened in January, was bombarded with 72,000 cupcake orders after a Groupon offer in March, the Bloomberg story reported. The upshot: before the offer, it was baking about 800 cupcakes a day, and now it bakes as many as 1,700 a day.

To help businesses and customers deal with the rush, this month Groupon started a rating system for both parties to rate the experience. Groupon also has a merchant services area and Groupon Chamber of Commerce with a related video to help businesses prepare for the Groupon rush before their coupon is listed on the site. Among the tips: create a separate area to redeem the Groupons, ask employees to get extra sleep, offer extra training and stock up on extra products.

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