I’ve had people on more than one occasion ask me why we don’t offer Groupon deals. Some people seem to do all their retail shopping from Groupon, Living Social and the thousands of other daily deal websites that are out there today. But for the most part what I keep hearing are negative experiences and horror stories from people who have ended up spending more money trying to fix the damage their daily deals have caused them. Believe me, the thought did cross my mind once Groupon burst onto the scene a few years ago. Who wouldn’t want new and excited clients walking through their doors. It didn’t take much research, though, for me to realize that daily deal sites like Groupon do no good for anyone–the businesses, or their customers. Here’s why:
1. How we think it works
Sites like Groupon survive by fooling businesses into thinking that if they offer their products and services at insanely low discounts, then the businesses will enjoy the benefits over time with an increase in the number of returning customers. Sure, this seems like an amazing idea if you’re a new business starting out or selling low cost items like hot-dogs and fries. But then service oriented providers like massage parlors, beauty salons and medical spas started offering their services at ridiculously low prices without thinking of the consequences. In fact, laser hair removal has become the best-selling service Groupon offers and you can even find deals on products like Botox and Dermal Fillers.
2. How it really works
Here’s how deal sites like Groupon work. They offer you the services of a local dentist, med spa, massage parlor, etc. at major discounts of up to 90% off the regular retail price. You then purchase those services and Groupon collects all the money. Then they take 50% of that money as a commission for themselves. The other 50% gets paid back to the provider in three installments spread several months apart. For example, if I am offering a $100 laser hair removal deal for $10, Groupon will keep $5 of that. So that leaves me with $5 which does not even get paid back to me in full right away. Now, let’s say that 800 people purchase that deal from Groupon. The business will still need to pay for the number of staff needed to serve the huge increase in customer flow, the cost of supplies, use of equipment, etc. At the end of the day you may be left with just $1 of a regularly priced $100 service. Many businesses actually end up taking a big loss on the deals that they offer. It’s no wonder Groupon has caused so many business to close their doors or jump ship because they can’t continue to offer their services at such ridiculously low rates.
3. Bad for the Business and the Customer
So imagine you went ahead and did the daily deal with a huge discount on laser hair removal. Within in a span of 2 hours, you sold 800 of these deals. Great for business right? Wrong. Not only are you making 5% of your original price, but how are you going to accomodate 800 new clients? Phones are ringing off the hook, the reception area is packed with new clients and staff needs to put in extra hours to be able to fit everyone in. It’s impossible to keep up so you have to cut corners somewhere–and that somewhere is in the quality of service. Appointment times are delayed for months because of the large number of new deal clients. Laser hair removal treatments are done quickly and carelessly with more pain, missed areas and even burned skin. Botox is diluted way more than it should be and lasts for 2 weeks instead of 4 months.
When the quality of service drops then you are left with an unhappy new client, and I don’t know anyone who would want 800 new unhappy clients. Because, guess where Groupon customers go when they are not happy? To online review sites such as yelp.com where their bad reviews will trash your business and leave you with a reputation that will be hard to reverse. A quick google search will turn up thousands of pages that are filled with people’s negative experiences with Groupon and the business involved with them.
The unfortunate thing here is that unlike the loyal long-term clients of many businesses, daily deal customers have no loyalty to you whatsoever. Groupon users come to your business primarily because they can purchase what you’re offering at an incredible discount. Not only are they more critical than your usual clients, they are also more likely to complain. Research has shown that less than 10% of daily deal customers ever return for a second visit. They are not the customers that will support your business through thick and thin, that will spread the good word to all their friends.
4. Is it even legal?
Let’s forget for a second that Botox and Laser hair removal are medical services which require adequate training and safety precautions which need to be in place, the lack of which can results in serious side effects like paralysis of your face or burning of your skin. It may actually be illegal for medical spas or healthcare practicioners to offer their services on sites like Groupon. Many states–California included–have laws which strictly prohibit a licensed physician from dividing, sharing or splitting any professional fee or compensation for medical services with anyone in exchange for a referral. This is called a “kickback”. We are allowed to advertise and market our services, but in order for it to be considered marketing it must be associated with a flat fee. Since Groupon keeps a percentage of the medical spa’s service fee, this would represent more of a “kickback” than advertising or marketing. Other states which do not require a medical spa to be owned by a physician may be able to get around this loophole. However in California, a law was recently passed stating that a physician must be the majority owner of any medical spa with which they are associated.
Groupon in particular is now feeling the effects of their business practices. Over the last year they have fired their CEO and seen a huge drop in their stock price as major investors are getting rid of their stocks.
At Z Center for Cosmetic health we pride ourselves on the personal relationships that we build with our clients and in our community. We value the loyalty of our clients and will always treat everyone fairly and equally. For that reason we save our “deals” for our current clients and will gladly go the extra mile to make sure our prospective clients are properly educated. The likelihood of a Groupon or Living Social deal is zero.
Have you had a bad Groupon or other deal? Share your experience with us by commenting below.