The Danger of Discounts: My Decision Not to Groupon

by Stacy Altiery of InkSpot Workshop

To Groupon, Zulily, Scoutmob? (just to name a few) is the question of the day and what it all boils down to is….are you pricing your products and participating in marketing programs in a manner that is profitable for your small business?

I’ve recently been asking myself this question as I ponder fully entering the wholesale market. Up until now I’ve always felt like why wholesale? It’s the same amount of labor for less profit, right? Then I had dinner with a friend/mentor who runs a very successful online boutique and buys wholesale from both large and small companies. She flat out told me in order to wholesale I needed to raise my current prices. Light Bulb moment! Aha, that’s how to do it? As a result I have been gradually raising my prices and honestly, I’m not sure why I didn’t do it sooner. My prices at InkSpot Workshop have hovered around the same mark for the past 3 years. Many items (hand lined envelopes) are time consuming and it was time to increase the cost. I also used to offer free return address labels with a few of my personalized stationery sets, but most customers never even realized they were getting them for free and neglected to give me the info needed to print the labels. This meant more work for me to constantly keep up with getting this information from them, meaning a delay in producing their order.

Then there’s the daily barrage of “great deals” from the aforementioned sites. There are many social coupon websites out there that promise customers 50% or more off their purchase. Seems like a great way for a small business to market as you only pay if someone is interested and buys your coupon. As a customer, who doesn’t love a sale? Seems like a win, win for everyone, right? As the shop owner or restaurant that issues the coupon, you share the percentage of the coupon price with the coupon site (typically 50%).

At first I was on the Groupon bandwagon (still have a few I need to use before they expire) then I discovered ScoutMob, where you don’t have to pay for the deal upfront, just when you use it. I felt lucky on the days where I got a deal at a restaurant or salon that I already frequented, which lead me to ask the question… are these good marketing strategies or just eroding current profit margins? I guess if the deal brings you in more “new” customers compared to “existing” customers, then the answer is yes, this is a good strategy.

Recently, I was contacted by a well known social media coupon company about doing this type of discount in exchange for free marketing and I decided against it. It was a tough decision because we all want the publicity and I’ve even seen some of my fellow online artists/sellers participating. Their selling point was the fact a good 15% of the people who buy the coupons don’t even use them, basically money for nothing, right? Here is where I stand, I am not going to do it!

I want to share a testimonial from another small business, this seller details her Groupon experience and it confirmed my suspicions about it not being good for small business. I thought about my personalized party invitation sets and did the numbers and thought for free marketing would I want to do this? Then I wondered whether or not any of the Groupon buyers would ever be back. How would I handle the additional workload in addition to my current volume. Then what would I do after all the Groupons were full and I was back to my normal volume. Here is Posie’s Bakery and Cafe’s story and how she lost thousands of dollars. I also found this post called The Good and Bad of Groupon and Small Businesses interesting.

Which brings me back to the question… am I pricing my products in a proper manner to be profitable? I’ve gone through times of frustration in not knowing how to price my items, we’ve all been there but I feel that my pricing accurately reflects where I am in my business. I see other designers selling their items for what I can only imagine did not even cover the cost of materials, let alone their time and I feel sad. Sad that they devalue their own work and treat their business more like a hobby. costs. So how much is something really worth and how do you accurately price your items? Here are a few fantastic posts from Etsy on this topic…

Three Helpful Etsy Pricing Exercises
Reevaluating Your Prices
Hodge Podge of Pricing Related Posts From Etsy

To sum it all up…. please don’t devalue your own hard work! I’d love to hear your thoughts on pricing and especially if you have had success with social coupon sites.

Stacy Altiery
Owner, Imagination behind InkSpot Workshop
and The Inkspot Workshop Blog
Dog Lover? Checkout my charitable shop Fire Hydrant Press
I’m always having an ADD party on Facebook
plus you can follow me on Twitter

12 comments

  1. Viv Smith says:

    I find pricing really hard. Having made and sold jewellery for a number of years at a hobby-ish level (sorry!), I launched Poppy Sparkles last year and from the outset I’ve been working to make this a sustainable business. It’s so tempting to slash my prices, offer wild sales…. but that’s not the way to a viable business or to secure wholesale orders, which is my next step.

    With regards Groupon – I read this a few days ago, which I think can add to what you’ve raised, especially for people offering bespoke or custom design as part of the deal – http://www.meejahor.com/2011/05/08/beware-of-the-groupon-piranhas-eating-you-alive/

    Thanks for reminding about not underselling my work – I needed that reminder today, Viv 🙂

    • Jessika says:

      Thanks so much for sharing that link Viv-a cautionary tale for sure!
      “It’s so tempting to slash my prices, offer wild sales…. but that’s not the way to a viable business or to secure wholesale orders”<—-it's that urgency to get moving, get sales, make connections, grow bigger- that has people jumping all over discount sites. Cheap marketing & a big market, sounds good at first glance. But there is a bigger story there and deeper issues, about how much handmade is worth, and how we value our own creations. And time spent making those orders for people who may or may not be your real market at full price is time away from making those real contacts & wholesale orders. I am happy to hear you are not undervaluing yourself (even though that can be hard!) and are laying the foundation for your business to grow organically: )

  2. I feel similarly about this topic, but I especially love the stories you’ve shared about your own thought processes and the experiences of other small business owners. I think that’s a big part of what’s missing from this conversation (not this specific one on OMHG, but more widely) – the stories from people who have tried it and who have good records to tell us what happened, good or bad.

  3. MOXIELisa says:

    I have to admit that I have grabbed up a deal at Zulily but I think of that as more of businesses getting rid of excess stock at a discounted price. I could be completely wrong though.

    I have never done the Groupon thing (although I do subscribe to it). Now, after reading a lot of the articles online I definitely will decline and cancel my notices.

    I definitely wouldn’t recommend a small business using something like this or discounting their prices drastically because I do believe that it undervalues their work and makes it harder for others that may be doing something in the same field (ie. stationery) to sell their work at a reasonable value.

    Great article Stacy!

  4. Isa says:

    Great post as always! While I don’t like these sites as a business owner, I can see the benefit from a consumer point of view. For some these discount sites are the only way to afford something they want (although most of the time it is not something they need). For businesses however I think it really depends on your product. I look forward to reading your post Sara. I think a business like yours is much more suited to a site like this since you have a wide range of products to offer which is essential for ensuring repeat custom.
    I think there will always be a problem with pricing for small businesses. It is hard to realise your worth when it is you creating/producing it. I was the same when I started my marketing business. I grossly undercharged! I was unhappy because I was putting so much effort and hard work into every project but my per hour rate was not even close to minimum wage. Now that I actually charge what I feel I’m worth, my business has taken off, I love my work, the projects and clients and I can give my all to a project without being resentful that I can’t pay my bills!

  5. Thanks for your comments everyone! I really enjoy hearing from both sides of the story. I spent the weekend in NYC with a fellow small biz owner who actually has had amazing success with a similar group discounter located in her area. In fact she’s done the couponing twice. I guess it really just depends upon how much you are charging in the first place. Keep the comments coming:)

  6. Lisa says:

    Great article and great links.
    On the food side of things we constantly hear from people saying “so and so’s prices have all gone up” – to which we respond “haven’t all the prices gone up in the grocery store?”.
    I honestly don’t think people realize how much time and energy going into producing most things. I can look at most things and make them, how much time and energy goes into making things is another story. I do shop around on Etsy, and will be shocked by people who really over price just as I am shocked by people who under price themselves. As for sales, yes I love sales, I love fairly lower priced shipping when you buy a second item. I also really appreciate when buyers contact me and tell me they have other similar products. For instance I was buying fabric, and the seller contacted me to say that she had similar just not listed fabric at the same amazing price. I bought 5 more yards because she saw the style I was purchasing.

  7. La Alicia says:

    lots of important stuff to consider. something about the discounters + handmade just doesn’t make a lot of sense to me. i make each product with love by hand…why would I discount that?

    the only place I can see it being very successfull is for an illustrator selling prints.

    anxious to hear more thoughts!

  8. Shelley says:

    Thank you for this wonderful & very thoughtful article. Some of the discount coupons are great deals, but would I go back, at full price, once I’d used the coupon? Probably not, if were talking about handmade items or art, anything that wasn’t a service (if it was a food establishment, I might return). Why? Because these are coupons for things that I can’t normally afford. I am not the target market for that business, so the coupons are probably not a good idea, for the businesses. They would be better off targeting their ads to those who can afford their product, at full price.
    I’ve looked around Etsy (a lot since I have 2 shops) & several other similar sites, rarely do I see something overpriced. More often than not, things are far under priced, at hobby prices, many not even covering the cost of materials, let alone time involved. I’ve even caved in to pressure & lowered prices because I’ve been undersold by someone else. I’ve run sales, which did little to nothing. I’m not sure what the answer is, but I feel better about selling something, when my prices reflect the time, thought & materials that go in to making it. Maybe, we have to find where our real market is & let go of marketing to bargain hunters (even when we’re bargain hunters, ourselves)? Thank you for giving us food for thought!

Leave a Reply