Friday Rant: Spend Management and Supply Risk in the Land of Coupons

A recent article in my hometown paper, the Chicago Tribune highlights the group coupon distribution company Groupon, "credited with creating the group discount concept and still the ballooning trend's leader, typically keeps half the coupon's selling price and charges retailers a processing fee. It e-mails deals daily to 11 million shoppers in 150 cities in 19 countries and this month started tweeting about group deals to many millions more."

In an age where nobody can resist a deal, the service has actually worked brilliantly -- too brilliantly, in fact, in some cases. A nail salon here in Chicago experienced an overwhelming amount of responses (5,100 to be exact) to a coupon offering of a manicure/pedicure for only $28 (normally running in the $40-50 category) after opting to not put a cap on the number of coupons sold. This may sound great: you have literally thousands of new customers. The problem lies in how such a small operation can deal with the flood, so to speak. In this specific situation, customers were left less than satisfied at wait times and hurried polish jobs. So: though the owner of the nail salon netted $144K in sales by the end of the deal, he did so by sacrificing the quality and integrity of his services.

There's a latent spend management lesson within this state of affairs. As a consumer, I suppose, you can hope for the best (a retailer who has adequately prepared for an onslaught of customers and offers high-quality, on-time service) and expect the worst. This is a type of supply risk consumers face that could really only exist in a crowd sourcing-type world. But it's one we should all be aware of before buying a Groupon offer-of-the-day or any other similarly discounted coupon that could potentially overwhelm a vendor. And as the retailer offering the deal, it is absolutely critical to plan ahead to amass the necessary resources to serve a completely unknown number of consumers, or to set a cap on the deal. After all, it can actually be quite a gamble:

"CEO and founder Andrew Mason of Groupon says the company explains the risk shops take when they sign on. It tells its 30,000 clients not to expect to turn a profit on the deals and suggests they limit the number of coupons they sell. The company also thinks the risk of drawing too many customers will ease as it starts drilling down to offer coupons tailored to neighborhoods and smaller cities."

As someone who is a sucker for discounted anything, I recently took advantage of a similar deal for Bikram Yoga classes (30 days unlimited for $30; normally $15/class). I found the studio clean, the staff competent, and the class sizes completely reasonable. The value, however, was lost in thinking that I could withstand two sets of 26 contortionist poses in a sweltering 105 degree room -- for thirty days. In this case, I bet -- but the house definitely won.

Sheena Moore

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