A Follow Up About the Living Social Deal--I am not alone!

I am writing this post partly because I received an anonymous comment on my previous post that said I was not taking responsibility for this failing. The person left no email address, and it was not a name I recognized. I wanted to just put this behind me, but that comment bothered me so much, I felt the need to write a follow up to show that I am not the only one who has experience what I did with deals like this.

True massage & Wellness is closed because we could no longer pay the rent. Everything was fine until my accident of Sept 1, 2010, and my subsequent decision to run the deal. Four of my six massage therapists left because I asked them to take lower pay and they could not--and I was not going to be the sort of place that would pay therapists only $10 per hour. Seven months after burning through our portion of the "revenue share" from the deal, we were still doing massages that would generate no new revenue on people that neve had any intent on returning to pay full rate--no matter how good their massage was. Money was going out, but not enough coming in. Since I did the deal, and in light of the Groupon IPO, some journalists have been interviewing businesses about their experiences and guess what? It turns out that other businesses have experienced the same thing. I am not alone.

I also mentioned in my previous post that I was going to talk about the clientele. I'll just say that most of the people were wonderful, but there were a handful who were some of the most demanding, nastiest people I have met during the time I ran True Massage--and in my life, actually. Interestingly, some of these people are also the most vocal and wrote negative reviews that contain not only exaggerations, but plain lies. Not errors, but Lies. I have asked the reviewers to correct what I thought were innocent inaccuracies, but they refused. For over five years we had been in the top 5 in Yelp natural search results for the keyword "massage" in San Francisco and that drove a lot of wonderful new clients to us. After the deal we dropped to number 16. At the bottom of the second page. This just killed us. It's not so much each individual review that was damaging--the reviews actually say more about the reviewers than about us--nor was it that we went for the first time to a 4.5 stars from our long time 5 star rating--but the fact that we dropped in the search rankings is what did damage. I could see the change in our new customer flow as we dropped.

At the time I did the Living Social Deal, there was not much information out there about other business' experience with it. All I knew was that I would probably get a huge influx of new clients, and they would be coming at a huge expense to me. But that was a risk I was willing to take--given that my rep, Colm, implied there was no reason to be concerned by reminding me that we had so many positive reviews that people would surely return to pay full price! That was not the case--and it is not typically with these deals, I have come to learn. Most of the coupon bearers had no intent of spending anything more than the value of their coupon, and had no intent of ever returning to pay full rate--the same as the findings of the Rice University Study.

When I booked the deal, Colm, my Living Social rep, assured me he would try to get me a date in October. I emphasized that if it did not run in October, I could not do the deal, since November and December were our busiest months. October 15 rolled around, and I had not heard from Colm about a date yet, so I called to express concern and tell him it was getting too late. I had also by then noticed that other businesses who were in the same business as I was had received a high proportion of negative reviews after running a deal. I asked Colm if we could just not do it. He never directly said "no", but he used an intimidating "You've signed a contract, Mary". In retrospect, I realized I should have pressed harder to get out of it, and I probably could have.

In that same call, I asked if we could at least cap the number we sold, but he would not allow me to do that either. We sold over 850 of them. I cringed that morning as I watched the counter go up on each refresh.

Some articles:
=> A Rice University study done on Groupon, Living Social and the like. In it, they find that "Although close to 80 percent of deal users were new customers, significantly fewer users spent beyond the deal’s value or returned to purchase at full price." among other interesting findings.

=> The blog of Jessie Burke, the owner of Posie's Cafe. In it, she discusses how people were rude and they spent very little over the value of the coupon.

=> Tech Crunch Writer Rocky Agrawal's Interview with Jessie Burke. He summarizes her experience, which I found helpful. Her experience was very similar to mine. When people tried to get around the system, I had to cancel appointments and tell them why. Some people didn't like that. Some of them were really mean. One was downright crazy.

=> An Entrepreneur article. Finally, someone is writing about the pitfalls cautions of running one of these deals.

=> An example of a nail salon client's bad experience. Incidentally, by the last few months we were still open, I was so tired of dealing with people that were angry that they could not get in when *they* wanted to, and didn't understand that we needed to save prime time for our paying clients, that I also, perhaps more gently, suggested that if waiting made people unhappy, they were welcome to call Living Social to get a refund.

So, to that anonymous poster: I take full responsibility for making a bad business decision in a panic less than two weeks after I had been in a serious accident. I should not have done it, but honestly, the reality that I was not going to be able to work for three months had just set in--I had just hired several new people and expanded by adding a third studio--I was completely freaked out and needed to get new clients in. I regret not having pushed harder to cancel the deal with my rep before it ran.

But that's about it.