By Molly Beauchemin
Portland Yoga Studio, a division of The Montavilla Wellness Center in Portland, Oregon, announced recently that its decision to partner with Groupon is what ultimately led to the studio’s closing.
“When the founder’s circle promotion was cut short because of the last minute rush of Groupon activations,” says one source of the celebrated Portland studio, “I knew things would be tight in 2012, but I never thought it would come to this…”
The story of the Portland Yoga Studio is the latest in a flurry of bad press surrounding the goods and services coupon purveyor known as Groupon, a daily-deal coupon engine that markets itself as a cure-all for small business looking into attracting new customers through one-time discounted offers. Groupons, which are advertised and marketed for free through Groupon’s high-traffic website, offer high-value services (like a $20 yoga class) at as little as ten percent of their market value. The company opts to offer the Groupon deal in exchange for Groupon’s free publicity and the possibility of attracting new customers.
The financial breakdown, however, can be a bit murky and the transactions often have negative effects for the business offering the deal– a tough reconciliation for those of us who love Yoga but are too cheap (or broke) to always pay full price:
When a merchant offers a coupon for $20 worth of service at $10 through Groupon, the business receives half of the $10 revenue while Groupon keeps the other $5. Merchants are also subject to a 2.5% credit-card fee (and who ISN’T buying these coupons online?), as well as a contractual agreement that if the tab at the end of the sale is under $10 (a distinct possibility) then Groupon keeps 100% of said tab.
The mounting transaction fees, moreover, can spell financial disaster for small businesses like start-up run yoga studios. In some cases, merchants are giving away their products and services at a quarter of their value (a $20 yoga class offered for $10, when Groupon keeps half, means the studio makes $5) and in most cases, customers stop patronizing the business once the deal runs out, leaving the merchant with a financial deficit that– if enough people buy the coupon and then fail to return to the studio– can amount to monetary bloodletting. A Forbes report recently found that one-third of businesses have lost money on the Groupon experience. As we’ve now seen in Portland, this could mean your local yoga studio.
But is a Groupon’s inherent risk really Groupon’s fault? Or should business be more careful about opting into financially-risky agreements?
In an Atlantic Wire piece titled, “More Evidence Groupon Is Bad For Business”, Rebecca Greenfield notes that Groupon bills itself as “a win-win-win for merchants, customers and, obviously, itself.”
“Businesses get exposure, coupon purchasers save dollars and Groupon acts as the money-making middle man. But like anything that sounds too good to be true, this situation doesn’t exactly play out in favor of all the parties involved. Especially for participating retailers, whose online reputations are at risk post-Groupon.”
According to Technology Review, Harvard and Boston University researchers ran a joint analysis whose results demonstrated that while a business’s “number of [online] reviews increases significantly due to daily deals, average rating scores from reviewers who mention daily deals are about 10 percent lower than scores of their peers.”
“Part of the Groupon allure,” Greenfield qualifies, “is that [Groupon] provides marketing for small businesses. But looking at the stats, these flash deals do just the opposite, hurting a merchant’s ratings that future potential customers might see.”
Yelp, of course, has one-too-many grammatical errors to serve as an adequate barometer of a business’s future success: As Business Insider‘s Pascal Emmanuel-Gobry has pointed out, online reviewers tend to have either a very positive or very negative view of what they’re posting. Meaning: you only take the time to “review” something if you’ve had an inordinately fantastic or terrible experience with it. That doesn’t change the nature of publicity, Emmanuel-Gobry points out: exposure, good or bad, is still exposure.
Groupon isn’t the only daily-deal site that has many studio owners concerned for their business.
DC-based yoga teacher Mike Graglia wrote a post on his blog titled “Is LivingSocial Killing Yoga or Just Devaluing It?” in which he organized the “unintended consequences” of daily deals into three categorical problems:
First, existing yoga students tend to purchase Groupons when they are offered, which means they will stop paying funds to the studio even when the coupon says “new students only” (a designation that often goes unenforced).
Second, if you’re only chasing a deal, you’re not building a relationship with the yoga studio (as Graglia phrases it, you are simply “gobbling up classes”).
And Thirdly, daily deals drive studios into competition with each other, devaluing the quality of experience in the process and uniforming hurting all the studios. “When a new yoga studio opens,” says Graglia, “you know the Google Offers are coming. Everyone’s economics take a hit.”
The only party guaranteed to benefit from the transaction is Groupon.
Graglia also points out that like Groupon, LivingSocial can also bankrupt a studio through it’s subsidiary transaction policy: “The class you paid $15 for is offered for half, half of that money goes to LivingSocial, $15 / 2 = $7.50 / 2 = $3.75. Pay the teacher and that class was free. Who pays rent? Insurance? Utilities? etc?”
It’s a tough bargain to reconcile when you consider that local studios most often mean better class quality and more one-on-one attention. You are more likely to get a personal adjustment or thoughtful advice when you go to a Yoga Studio instead of a Yoga class offered through a large gym (not that we’re hating on gym yoga). But it’s worth remembering what Graglia points out at the end of his post: we want to “support yoga, not LivingSocial”.
Groupon has racked up 13 million subscribers since July 2009, and it currently has over 50 discount offers for yoga classes in New York City alone.
Utpal Dholakia, a professor of marketing at Rice University, points out that even though many disgruntled proprietors reported that Groupon customers were also less likely to tip wait staff, (and that normal full-price customers were distraught to find their favorite locales swamped with hordes of newcomers who only had to pay half,) two-thirds of vendors are still very happy with Groupon.
“I’m a little more skeptical about its competitors,” says Dholakia in one Forbes Magazine report. “In the long term, the industry is going to be a lot smaller. I think Groupon is going to be fine.”
The only question now is: what about your local yoga studio?
image: screen grab from an actual picture in a promotional Groupon email.