Tuesday, August 3, 2010

The Deal Or No Deal Groupon Dilemma

Well hello!  I hope all is well!  Have you visited our Facebook page?  There is more fun there than you can shake a stick at: great posts, great conversation and the occasional prize!

Speaking of prizes, have you ever watched Deal or No Deal?  It is luck at first but really about understanding risk.  Initially, the contestant picks a briefcase that has an unknown dollar amount inside and is set aside.  Onstage, models hold twenty plus cases all containing dollar amounts from $1 to $1 Million.  The contestant has to choose a series of cases for the model to open.  The amount revealed is "lost" to him/her.

After the first cases are opened, the show makes an offer to the contestant based on what's left to be opened and the contents of the contestant's selected case which he contestant can accept or reject.  And this is the shift from luck to strategy, understanding risk and reining in a bit of greed.  If the first opened cases are really high dollar amounts, the contestant might consider taking the offer because chances are decent that it will go downhill from there.  If not, the contestant should reject the offer.

Theoretically beautiful but humans sometimes let things other than strategy and risk stand in the way.  Here's a particularly bad example of not seeing things clearly (see below).  I couldn't find an official clip so this is the next best thing.

Ouch.  It would have been smart for him to take the $603,000 final offer and recognize that he was $603,000 richer than before.  When the show started, Howie Mandel, in an interview, said was most interesting was the level of risk (or greed) people accepted in spite of the realities of what cases were opened, what remained and the show's offer to the contestant.  He wasn't suggesting that we should all be math geniuses.  What he was suggesting was knowing our risks based on realities.

Which brings me to this article about the danger of businesses wanting too much!  See, this manicure place had good intentions: make an offer via Groupon to raise awareness, increase foot traffic and convert a portion into repeat business.  But, like Deal or No Deal contestants blinded by dollars, this business couldn't or wouldn't strategize as to the odds of a "run on the bank", as to capacity nor as to some limits to give them some practical operational relief but also provide good service to prospective customers.

In other words, it didn't have the skill or will to consider offer management on the path to marketing and business success.  Now, sure, I wasn't privy to the conversation between Groupon and the overwhelmed business so I can't and won't judge.  But, models like Groupon make a business owner want to have access to as many new customers as possible disregarding information from Groupon, the coupon customer's "fit" with the business, the current capacity to serve the coupon customers who might keep your lights on in future, the current capacity to service current repeat business who do keep your lights on now and the long term capacity to service the new (and old) repeat business.

Is the space large enough, do you have enough inventory, do you have the right staff levels, can your managers handle the new volume, etc.?  These are all good questions to ask.  A bird in hand is worth two in the bush.  This scary economy makes all of us want to do scary, risky things in the search for a relief inducing payoff.  We're all eager to keep the lights on.  We're all thinking about doing things in the short term with nary a thought to longer term consequences.  This isn't Las Vegas, it's business.  It's how mortgages are paid, kids are fed and retirements are funded.

In other words, we're all thinking about turning down the $603,000 offer to go for the $1 Million prize.  But should that eagerness make us lose sight of what our capacities are and what risks we can tolerate?  Never.  Because the alternative is much much worse as evidenced by the video above!

What's your take?

Parissa Behnia
Idea Chef



  1. This is interesting. Groupon can really spur a business in the short term but without knowing if you can handle the inflow of new business you could lose all your customers and put out bad buzz. Yesterday I was reviewing YELP and the poster mentioned reviews of local spas. She had very poor things to say about one local place she purchased a Groupon for and also mentioned that this is how she ends up in many new places. Are people accounting for the fact that most local business are not prepared to handle 100+ new customers in a week. The staff will be over worked, give poor service and ultimately not earn repeat business. They should send emails to all their current happy customers before the groupon goes out and mention that for the next 2 weeks, don't bother coming in because we'll need you back after that.

  2. Hi Joe! Thanks for the comments. There are so many ways that businesses can win with these types of offers that satisfy both the new as well as the loyal customer. It's about knowing how much you can bite off and understanding both the upside as well as what could go wrong.