Groupon Client Goes Public With Beef at SXSW, Staffers Scramble


Sunday's Groupon panel on the Fast Company and PepsiCo stage took an unexpected turn when Travis Kalanick, a longtime Silicon Valley entrepreneur who runs online car service Uber, spoke frankly about his negative experiences as a client of Groupon—and several Groupon staffers in the audience took issue with the story he told.

The panel was framed as a post-game discussion of Groupon's own panel on its creative, quality-based approaches to marketing and copywriting, which are helping the company keep market share in the face of an army of clones. But it quickly got real.

"In marketing, in the stories you tell, you guys are nothing but winning," Kalanick said. "But there is such a disconnect with operations." He said that Groupon representatives had promised him primary placement and not delivered, didn't run the offer on the dates he wanted, handed him a data dump in a clunky Excel spreadsheet, and gave him an initial estimate of proceeds from the offer that was ten times higher than what the group deal actually delivered. "That's money I spent to put cars on the road that we didn't need."

Darren Schwartz, Groupon's SVP of sales, above, grabbed a mike in the middle of the panel to respond that Groupon's hiring a team of merchant managers to improve the oversight process from sales to the completion of an offer.

"The reality is that Travis has identified the same stuff we have," Schwartz told Fast Company afterward. "We need to merge our marketing excellence with our operations excellence and get it all to the same level." They're rolling out new tools to help local businesses better track their ROI from each offer.

It's too early to tell whether Groupon is simply the harbinger of a huge trend in social consumption, or itself the winner of the race. Its ultimate success or failure is sure to rest on the quality of its relationships with tens of thousands of local merchants as well as customers. In this way all business, like politics, is local. That's why I was a little taken aback to hear Schwartz describe Groupon's approach.

Travis Kalanick spoke with Darren Schwartz after the panel

"We want to help them not only understand how to use Groupon," Schwartz said, "but how to run their business better." Whoa, I said. Does the local pizza guy who's been around for 20 years really need you to tell them how to run their business?

Follow @fastcompany on Twitter; see live coverage of SXSW.

Read More: Most Innovative Companies: Groupon

[Photo: Flickr user Carol Pyles]

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  • OP_ED

    I've see this over and over. This is nothing new, just highlights the facts. The sales and marketing team for Groupon is a top act. They should as they and all sales departments get the Lions share of investment cash and bonuses.. Lets face it, Sales and Marketing are just below VP's and CEO's with big gold umbrella checks. It's the working Manager and Employees in the Operations Department that get short shifted on cash flow. Startups put very little into these guys and expect the sun and the moon delivered if their glossy foto ad's can actually sell it. They dont want to spend their millions on an actual infrastructure and the brains who know how to run it. No...they hire people who are doing their best with excel spreadsheet deliveries.. At least Uber understands that much.

  • dsm-iowa

    The Groupon model is horrible for small retailers. For those not wanting to pay any up front cost, great, but when they start redeeming coupons, you better have the inventory or services in place. Groupon wants half of the money the customer is paying plus the credit card transaction fees. So if you do a $20 for $40 deal and 200 people purchase the offer, the retailer will be paying out at least $4000. Seems pretty expensive to me for an "email blast" that garners you "bargain hunter" customers (at $20 a pop---as most profit is already gone with the coupon). For retailers, it simply doesn't make sense.

  • Noemi Pollack

    This is the problem when a young company moves so fast forward that it is not prepared for potential scenarios that may be damaging for a company. Schwartz' response is an example of that. Although quick and a "mea culpa" of sorts, it was clearly off the cuff with no thought or evaluation given to possible reactions. Schwartz' remarks as in, "We need to merge our marketing excellence with our operations excellence" implies all is excellent. A bit of humility, rather than arrogance, would go a long way to assuage complaints. As a PR professional I can "hear" a sound bite that had no chance of resonating with customers.

  • Gen Hendrey

    These are all really valid criticism of Groupon, in my experience, but there seems to be a good splash of schadenfreude there, too. I love using Groupon. I have purchased about 25 groupons over the past 18-months and haven't had a negative experience with any of them.

    That said, I had a less-than-great experience when I was on the client end of the deal, trying to *set up* a groupon offer. And I've also passed up many groupons based on the offers' user comments and fine print.

    Personally, I think what puts Groupon most at risk is exactly this new direction they have--that they think they can teach other businesses how to do business. The problem is that their profit model relies on selling awesome Groupons (obviously) while their "business guru" model relies on bringing flailing and floundering companies into the fold. How awesome can the groupon be when the company doesn't yet know how to do business? How is a salon, restaurant, or dry-cleaning company like that going to handle the massive influx of post-Groupon customers? If Groupon actually can become a force for small-business improvement, then that's terrific. It just seems like a tall order and a likely way to lower the average quality of the groupons.

    When I visit these days, it's a real turn-off for me to see the sidebar so junked up with low-end offers from crummy-looking salons or hotels with bait-and-switch weekend offers that still cost more than what the same hotel is going for on, or wherever.

    Give me back the lone, no-choice, daily offer from a top-notch eatery I haven't tried yet. I'll buy that any day over my choice of so-so offers from a dozen poorly-run businesses.

  • Don Jarrell

    The story that Groupon (with which I admit I'm not intimately familiar) is choking on their own marketing is not a new one. Neither is the one that very young people, drunk with a big (though imperfect) success, think they know everything about everything and can improve even the 20-year pizza veteran's biz - but the latter is far more scary and offensive and a better predictor of Groupon's decline.

  • Frank McMains

    Groupon and its imitators are a blight on small business. A recent study by Rice University (not to mention tons of anecdotal evidence) suggests that they siphon much needed cash off of companies with the promise of "social media" exposure and leave the little mom and pops with an logistical and financial mountain they can't climb. It can work for places like the Gap or other firms that have established methods for handling bulk demand, but more often that not they will just create the illusion your customer's mind that your core product is worth much less than you normally sell it for while most of the ravenous new customers have just moved onto the next "deal." It's bad brand management and new technology hucksterism at its worst.

  • Kathy Zang

    This is the same disconnect that happens in many companies. Sales people go out and promise the moon and operations doesn't deliver. I have seen it in health insurance, in machine components, and it happens in Groupon apparently. Sales racks up an order for 30,000 of something, and operations can't get it to the client in time. Or overstates figures about profit or overstates coverage.

    Why such a disconnect all the time? The different parts of a company need to meet regularly in my opinion. Marketing and sales have to know the capacity operations. Lousy customer service is a hard label to shake.

  • Nick Corcodilos

    Puleez. Gimme a break. ?? "We need to merge our marketing excellence with our operations excellence and get it all to the same level." ??

    That's the best doubletalk Schwartz could manage on the spot? Kalanick just told him Groupon has no operations excellence, and the last time I looked, "excellent" marketing doesn't qualify as an excuse for lousy customer service. Reminds me of a company I once worked for that couldn't deliver the right products to the right customer on time. So the head of the company renamed the Shipping Department "Efficient Delivery Department."

    The world moves very fast. Kalanick raised a legitimate complaint. Schwartz blew it. If I were an investor, I'd be taking my money out.

    When you get nailed during your dog and pony show, and can't recover, it reveals a fundamental problem with how you run your business.

  • Dennis Tracz

    I spent a few years as a licensee for a restaurant discount program called Transmedia now known as the Rewards Network owned by Sam Zell. In the beginning the deal was appealing to restaurants owners. They received cash upfront and they paid it back via food and beverage credits. So for $5,000 in cash they had to allow Transmedia card holders to spend $10k in food and beverage. The cardholder received a 25% discount, Transmedia received their $5k cash and the other 25% was profit for Transmedia. Transmedia became a NYSE listed company. Thousands of restaurants signed up and major newspapers like the Chicago Tribune and New York Times issued branded cards to long time subscribers. Soon the restaurants were flooded with discount diners. Saturday night looked busy but many of the diners were using their Transmedia card so no cash for the restaurant. Eventually the program had to be retooled. Not a good deal in the long run.

  • mahkinlov

    Uber's experience will surprise no one who's dealt with Groupon. You just can't screw your customers (the stores, not the coupon buyers, are the real customers) and expect them to let you off the hook.