Original URL: http://www.theregister.co.uk/2011/11/22/groupon_cupcake_profits/

Groupon offer burns cupcake baker’s profits

Be careful what you wish for

By Iain Thomson

Posted in Small Biz, 22nd November 2011 18:58 GMT

A British baker has seen her entire annual profits wiped out after a Groupon deal went horribly awry.

The Need a Cake bakery in Reading, Berkshire, signed up with Groupon to offer a 75 per cent discount on an order of a dozen cupcakes, cutting the cost from £26 to £6.25. Unfortunately for the small bakery, the offer proved too tempting – over 8,500 sugar-craving people placed orders before the baker was forced to end the offer early.

Owner Rachel Brown told the Daily Telegraph that the Groupon deal was “without doubt, the worst ever business decision I have made. It's been an absolute nightmare.”

Faced with such a massive spike in demand, Brown was forced to work all hours and hire extra staff to meet Need a Cake's shipping dates. Complicating matters was the offer of customer choice of sponge flavor, icing, and decoration options. Some staff were beavering away at 3am, trying to catch up.

Brown took a loss on each order, and estimates the Groupon deal has cost her £12,500 – her annual expected profits.

“We take pride in making cakes of exceptional quality, but I had to bring in agency staff on top of my usual staff, who had nowhere near the same skills. I was very worried about standards dropping and hated the thought of letting anybody down,” she said.

Ms Brown is hardly the first to be caught out by an ill thought-through marketing idea. The unofficial record for marketing cockups is held by the Hoover vacuum cleaner company – an example that's still in textbooks today. The company lost £50m and incalculable amounts of good will after promising two free transatlantic flights with every vacuum cleaner purchased, and then trying to weasel out of the deal after failing to realize the obvious point that when the promotional item is worth more than the product, people get smart.

McDonalds, too, has fallen into the seductive trap of marketing hitting reality. During the 1984 US Olympics, the fast food giant came up with the idea of giving away scratchcards that revealed an event, and then offering a free Big Mac, fries, or Coke if America won a medal in that discipline. Unfortunately for Ronald, however, the Soviet Union and Eastern Germany, the usual winners of the biggest medal total, decided to boycott the games, leading to America winning 174 medals. The ensuing chaos was later parodied by the Simpsons.

Nevertheless, El Reg feels it would be in Groupon’s interest to examine deals such as Ms Brown’s for sanity before letting them run. Salespeople are obviously keen to sign up new retailers, but they should have the sense to say “that’s a great idea, but…” if they want repeat business. ®