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The Downside of Deals

By: Kaitlin T. Gallucci

Businesses offer limited-time discounts on sites like Groupon to generate sales and attract prospects. A small London-area bakery, Need a Cake, recently offered a Groupon discount on its custom cupcakes, and sales went through the roof! Sounds great, right? Proprietor Rachel Brown said it was “without doubt, the worst ever business decision I have made.” What went wrong?

Demand was unprecedented. Brown expected the deal to generate a few hundred orders, but 8,500 requests came in, which equates to 102,000 cupcakes (at 75% off). She and her eight employees were overwhelmed by the demand and had to hire temporary workers to fulfill the orders. Beyond being an arduous undertaking, it was an expensive one — the cost of hiring the temporary help depleted the bakery’s profits for the year, and money was lost on every batch of cupcakes sold.

In a sales model where repeat business isn’t common in the first place, the worst damage could be to the bakery’s brand. As Brown explained, “We take pride in making cakes of exceptional quality but I had to bring in agency staff on top of my usual staff who had nowhere near the same skills. I was very worried about standards dropping and hated the thought of letting anybody down.” If the cupcakes weren’t up to par, it’s unlikely that many of these thousands of consumers will come back, especially without a discount.

First of all, perhaps the deal was too good. Ten dollars for a $40 dozen of custom cupcakes is a steal. I’m a little shocked by the demand for cupcakes anyway, but perhaps a more reasonable discount would have helped to regulate the amount of orders. Second of all, this offer needed to be limited. I thought that was already common practice, but I’m sure it will be now. Especially for a small bakery with under 10 employees, redemption of the deal needed to be better controlled.

Of course, there are two sides to the story. Groupon's International Communications Director Heather Dickinson said that the company was in constant contact with the bakery and that they “approach each business with a tailored, individual approach based on the prior history of similar deals… We work very closely with small businesses, but ultimately, they know their businesses best and what they're able to handle. Need a Cake wanted to run a national deal with us, but we advised them to feature in a few cities so they wouldn't overextend themselves.”

The situation was utterly unfortunate for Need a Cake, somewhat negative for Groupon, and a lesson for all businesses utilizing deals. However, from a PR standpoint, maybe Need a Cake will bounce back — the story is getting a great deal of press, and Brown’s quoted dedication to maintaining quality is certainly admirable. This could become a Need a Cake brand “story.”

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About the Author

Kaitlin T. Gallucci is a marketing strategist, copywriter, and blogger located in New York. Get in touch by visiting her website or following her Twitter.

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