Cake or death?

Interesting article by Stan Schroeder at Mashable about how GroupOn can screw over some businesses, appearing under the delightful headline “Large GroupOn Discount Leads to Excessive Cupcake Baking.” Well, if you’re like me, excessive cupcake baking doesn’t sound like too much of a problem. Ah, but you and me aren’t trying to run a cupcake business:

The discount obviously sounded too good to Grouponers, 8,500 of whom signed up to buy 12 cupcakes for £6.50 ($10), down from the standard £26 ($40) price. Rachel Brown, who operates the Need a Cake bakery in Woodley (near Reading, UK), had to hire extra workers and try to bake the cupcakes to satisfy the swarming customers.

“Without doubt, it was my worst ever business decision. We had thousands of orders pouring in that really we hadn’t expected to have. A much larger company would have difficulty coping,” said Brown, who lost up to £12,500 ($20,000) on the deal.

“We approach each business with a tailored, individual approach based on the prior history of similar deals,” Groupon’s international communications director Heather Dickinson told the BBC, adding that there was no limit to the number of vouchers that could be sold.

We’ve heard of small businesses having similar experiences before, and many of them aren’t too happy with Groupon. The lesson is clear: Groupon is a business tool like any other. It’s not for everyone, and its use requires careful planning – too large a discount, for example, can have unwanted consequences.

I’d heard before about GroupOn provoking some irritation from companies, but never read about how that happens and why. Makes more sense to me now.

Update: How very apropos. Felix Salmon, someone who actually knows stuff about math, numbers and IPOs, just published a post about GroupOn.

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