Wednesday, July 13, 2011

Diapers Direct and the Perils of Groupon

“We sincerely apologize about the delay on your product delivery.” These are not the words that you want to see when you open your email, particularly with something as essential as diapers. At the beginning of June, we purchased a $25 Groupon for $50 worth of product from We promptly placed our order (as many others did as well), and received our diapers in mid-June. Apparently, we were one of the lucky ones, as we discovered that this was the fourth email that Groupon customers had received regarding unfulfilled orders. So, we did a little digging and this is what we found:
• A quick Google search indicates that Diapers Direct offered a Groupon in Amarillo on May 11 which was purchased by 1,396 Groupon-ers. Over the course of the next 3 ½ weeks, this deal was featured in at least five other cities and purchased by over 900 additional customers. As we read the email mentioned above further, Diapers Direct goes on to state, “An estimated 98% of Groupon customers at our website have used their coupon within one day of purchasing it. The steady stream of customers over a six month period that we had planned for became a tidal wave of orders all made in the past thirty days.” Recent data from Groupon is consistent, with only 10% redeeming their coupon within one month, but if nearly 1,400 orders were placed on day one, this leaves us scratching our heads as to why Diapers Direct didn’t pull the deal after the first tidal wave of orders.
• Diapers Direct is a small business (with only 3 employees, according to their email) that presumably used Groupon in order to get a couple hundred new customers. “We have had commercial customers that purchased as many as 110 Groupon coupons.” Unfortunately, they didn’t set a limit on how many people could purchase their coupon and they instantly became overwhelmed.
• In a recent study on daily deal sites conducted by Rice University, nearly 80% of coupon users are first-timers, and only 20% of them become repeat customers. This conversion rate does not bode well for Diapers Direct (particularly since so many customers still have open orders). “We are by nature a recurring order company. A company designed to make monthly deliveries to a regular repeat customer base.” We’re betting the commercial customers mentioned above were not planning to become repeat customers. What’s more, any pre-existing customers are likely having a difficult time placing non-Groupon orders, damaging their existing customer base.
So what are the lessons learned?
• Know how Groupon works. Understand everything from what percentage Groupon will take of your profit, how many coupons the deal is limited to and how many coupons are available to purchase for each customer.
• Ensure your business can cover the discount you will offer. Diapers Direct planned to “lose a little money on every transaction and expected to do so as this was our way of introducing ourselves to all of you.” They likely did not plan for as many transactions as they got.
• Plan for best and worst case scenarios. Can you accommodate 1,000 new customers? Have you ordered additional stock for the initial wave of orders and the final month of your deal as customers try to use their soon-to-expire Groupons? Do you have enough staff to accommodate the influx of orders? Even if Diapers Direct had all product in stock, three employees could not efficiently and effectively fill all orders in a timely manner.
Groupon is bigger and more powerful than most of us understand. It’s either a quick way to double your sales or to go out of business.
There’s no question that Groupon, Living Social and the myriad of competitors are nothing short of a global phenomenon in retailing, service and foodservice businesses over the past two years or so. It is equally clear that there is much that’s unknown about these offers, particularly as it relates to both short and long-term success. We know the old saying Caveat Emptor (buyer beware!). In this instance, Caveat Venditor (seller beware!).

This is a guest blog from Felicia Greenbaum, McMillanDoolittle Business Manager

Monday, July 11, 2011 devil is (apparently lost) in the details

It is wonderful to see how well Macy's Inc. (parent of Bloomingdales) has been doing of late. They are in their second year of comp store increases and they do seem to have the company heading in the right direction. In their last press release, they also made note that their e-commerce division is performing even better--up a spectacular 40% year to year.
As a retail consultant, we tend to live in the kind of numbers above. As a customer, things tend to be a little different. We recently bought some California King sheets during a great sale at Bloomingdales...good item, great price, etc...
When the sheets arrived (in a horribly oversized box with no padding, by the way), they were not the "latte" clor we wanted but a very lovely purple. This is despite the fact that the bar code tag said latte...oops.
So, now what?
1. Called our local store who nicely explained that they don't sell Cal Kings in Chicago but we could try and call a California store...
2. Returned the item (at our expense) and explained they got the color wrong
3. A few weeks later, the replacement comes...and yes, still purple! Two observations--they clearly mis-tagged the product and; there is no human checkpoint to distinguish between latte and purple..
4. Return the sheets to a local store and (again) explain the problem. Their advice? Wait about 30 days before ordering again and HOPEFULLY, they will have figured out the whole latte/purple mix up by then
5. Receive a Bloomie's gift card (no credit refund) for an amount that is less the cost of the original shipping, return shipping, etc
6. Bottom line--no sheets, an enormous hassle and out money
What's wrong with this picture? It's almost impossible to figure out where to begin--failures in process, quality control, customer service, and so on.
It's nice to hear that on-line sales are up 40% but how will they be able to position themselves in the long run against a growing number of competitors who have figured this stuff out?