I just came across this post abour these deals, not sure if this was posted yet.
The Reason Stellar is Closing
Posted on June 20, 2011
The surface story is that I closed Stellar to transition to a private massage practice.
Of course, being an incurable optimist, I always put a positive spin on things. But there’s not really a positive spin to the real reason we’re closing: selling vouchers on Groupon-like sites lost me a lot of money.
“A lot” means several thousand. That means I not only made zero dollars for the whole year Stellar was in business, I actually paid to work for a year. I’m sure some of you are cringing at that thought.
How could this happen? My practice in North Carolina was so successful I was able to sell it for a tidy sum. The new owner is now happily making a living doing his own thing. Did I suddenly become a bad business person, or bad at massage? (These were the first things I wondered about myself.)
What happened is that I bought into an overly-optimistic advertising idea. Groupon-like deal websites sold me on the idea that if I got enough customers in through the door, I’d be able to convert a good chunk of them to regulars. Then I’d have a thriving business.
This seemed reasonable. My return rate (percentage of clients who became regular customers) was around 75% at my practice in North Carolina. I estimated that even if only 25% of voucher redeemers became regulars, I could make it work.
When I was approached by these deal sites, there were virtually no statistics like this. I searched around online for business’s experience with running deals; there was very little info. So I took the risk. I knew I could lose several thousand dollars. And based on my previous experience, I knew I delivered outstanding work that most people wanted to come back for.
Months after running my first deal, I began compiling some sobering statistics.
It turns out only 7-8% of voucher redeemers return to become regular customers. I knew people weren’t coming back, but I didn’t know it was that bad until I did the numbers. Still having faith that people would return if I fixed whatever I was doing wrong, I spent a lot of time trying to improve my offerings, my customer service, my marketing and sales. I even moved to a new massage studio thinking the better location would be enticing.
Eventually, I noticed that one of my voucher deals had a return rate that was TWICE as high as the other two. This was the TravelZoo deal. Now, 10% return rate isn’t good, but why would there be a clear cut difference? The other two each had around 5% return rate.
The difference is in the demographics. TravelZoo is a travel site that runs deals, not a deal site primarily. Their list (as I was told by the TravelZoo rep) is older, more stable, and more affluent than that of Groupon and related sites.
Bingo. The deal sites pulled customers from the wrong demographic.
My voucher customers wanted really nice, high-quality stuff for half price. Nothing wrong with getting a good deal. But since there are so many places to get a half-priced massage, there’s no reason to be loyal to me.
Naturally, I can’t run a business on half-price massages. I’m firmly in the Quality camp. I’m not in the race-to-the-bottom competition on prices, because I’d have to make very major compromises on quality.
I also can’t run a business if voucher redeemers don’t come back. My biggest mistake was in being overly optimistic about that happening.
However, I will say this: the Groupon-like websites I worked with could have given me a lot more honest information. I’m willing to deal with losing money; a business owner must take risks, after all. But I feel strongly that they take advantage of small businesses. Here’s how:
■Taking a very large commission on the sales of vouchers. That’s 40-50% in my case. Meaning that for a customer’s $85 value massage, Stellar was paid about $20.
■Painting an overly rosy picture. Groupon, for example, claims 97% of businesses are happy with they deals they run. I have to wonder if they collect this statistic immediately after they pay the businesses.
■Not collecting statistics on how many voucher-redeemers become regulars.
■Steering you into making decisions that are in their best interest, not the small business’s interest. For example, I wanted to offer a deal value that was below the cost of a massage so that voucher redeemers would spend some money at my business. The TravelZoo rep told me people would respond better if they could “see themselves in an experience.” So I ran a deal that was for the full value of a massage.
Now I’m finding out I’m not the only business who’s had a poor experience running deals. In fact, there’s a lot more information coming out about Groupon-like deal websites:
■Groupon Was “The Single Worst Decision I Have Ever Made As A Business Owner” (Tech Crunch)
■Groupon anxiety (The Economist)
■Why Groupon Is Poised For Collapse (Tech Crunch)
■How Effective are Groupon Promotions for Businesses? (Social Science Research Network)
There are a lot of comments on these articles. Many people are able to see both sides. The commenters who fault only the businesses for their failure basically say the business owners should have figured it out. Either “your products/services weren’t good enough” or “your marketing wasn’t good enough” or “you should have realized the deal was bad for you.”
That last one has a little bit of traction for me. But, I can’t honestly say I wish I’d never done it. It was an expensive lesson that made me work super hard on customer service and retention! I don’t think I would have pushed myself so hard otherwise. I’m much better at it than I was a year ago. My non-voucher clients almost always return, and I get great testimonials from my work.
So where does that leave my customers with unredeemed vouchers?
At some point, I have to mitigate my losses. That point is now, while I feel I can still turn things around rather than declare bankruptcy.
Hopefully I’ve done a good job at explaining the situation without offending deal-hunters. I understand personal economics, and there’s no shame in finding great deals. I’ve had some unreasonable people come through the door with their vouchers, but mostly people leave very happy.
I am still doing my best to take responsibility without shooting myself in the foot. I will bend over backwards for customers who are interested in becoming regulars. If you write to me and say, “When can I get a series of Structural Bodywork?” you might find that I convert your unused voucher into a pretty nice discount (hint, hint).
Otherwise, my commitment is to redeem unused vouchers at the price that was paid for them (e.g. if you paid $79 for 2 massages and used one, it’s now worth $39.50).
If you write to me and say, “You should redeem my voucher because I wasn’t expecting to pay full price,” understand that it costs me real money. Also know that, hell, I GET that you can’t afford to pay $80 for a massage! (Guess which business owner who’s writing this blog made negative income last year?)
But, after doing so many massages essentially for free, I feel that my karma is in damn good shape. If I take a few karmic hits by leaving people unhappy, well… Again, there’s always risk when running a business. I’m not glad people are unhappy, but the alternative is worse.
So, what now?
A bit of advice. If you’re a massage business owner reading this, I suggest bypassing deal websites. I know they work for some types of businesses, but I don’t think the risk is worth it.
And if you’re a person who loves small, local businesses like I do, consider using deal websites only for businesses you truly want to become a regular at.
Thanks for reading. You can check out my new massage practice at