We gave an honor roll of companies that we predicted will have the best restaurant marketing tools in 2012. Now we will look at companies (Groupon, Yelp and LivingSocial) that, if you rely on them for marketing, are most likely to wreak havoc rather than bringing prosperity. They are not safe bets. These are the tools and companies that aren’t improving restaurant marketing. In our opinion, they are more hype than substance. With Groupon and LivingSocial, the expense is enormous; it is a promotion on steroids. The payoff, and it is just as likely there is none, is much much smaller. A conflict of interest is at the center of Yelp’s business model. But what earns restaurant owners anger most is that Yelp stands behind a filter that seems unfair and does nothing to encourage customers to review restaurants with care. It is like the early days of Wikipedia, when the average joe can write on a very important entry anything they want.
Groupon
Groupon is the daily deals site that has become astronomically popular very quickly. It offers customers extreme discounts for entire meals (50%). Groupon takes a big share (another 25% off normal price). Restaurants are left with 25%, a burst of traffic and the hope that customers will return. It stresses your regular customers and your staff without any guarantee of success.
Short-term Fix for Long-term Problems | For us, it is a gamble and a distraction. Restaurant owners should not be looking for quick fixes. It wastes precious time in making your business experience sustainable growth. Restaurant owners who ask “if only they got in the door, they will see how great a place this is” are missing the point.
Asking Why Do You Need It | First, you have to ask why they are not coming in the door without Groupon. Groupon isn’t going to fix that, and any business that isn’t always acquiring new customers is eventually doomed (you can only do Groupon so many times). There are different problems for different restaurants, but Groupon puts off the hard marketing work that will lead to success.
Be Objective | Second, why aren’t your customers telling their friends? Obviously, you haven’t been earning word of mouth marketing (which determines a restaurant’s survival). There is something wrong. It’s time for you to find out what (if it’s quality of food or service or value). There are probably 1,000 restaurant owners in NYC who believe they have the best food in NYC. That means we have 999 restaurant owners who are delusional (some more than others of course).
Groupon is like copying the other kids’ answers. You may get a good grade this time but you have learned nothing.
Yelp
Yelp walks around like its the final authority on restaurants, even though it has major flaws. For restaurants, this is discouraging because Yelp has been largely successful in convincing millions that their assessments are fair. The truth is customers don’t have anything else to chose from.
No Other Choice | Yelp is one of the few complete sources online. Yelp reviews however don’t need to meet any standards and are at time enormously inaccurate. At times, Yelp blocks reviews without any discernible logic (if they showed restaurant owners the factors behind each decision, it would be beneficial). They feature others that go against the consensus. And reviewers are given no structure and write what they want without any guidance from Yelp.
We Pay You to Judge Us | To add insult to injury, Yelp lives off advertising, often from restaurants. Rumors have circulated that Yelp gives privileges to restaurants who advertise. This may or may not be true, but the conflict of interest will remain. But your Yelp advertising is only as good as your Yelp rating, creating a vicious cycle. We don’t look favorably on Yelp advertising in marketing terms as it hasn’t benefited our clients much.
Anti-Restaurant | We aren’t against customer reviews, but what is the big deal in giving reviewers guidance and creating an environment of responsibility? Why can’t owners be told the general categories of why reviews are removed? Why can’t Yelp farm out their advertising to another company? I don’t think restaurant owners are asking too much (they’ve lived with brutal newspaper critics for a long time); Yelp just seems to act above it all, as if they weren’t a business with competing interests too.
LivingSocial
A lot of what was said about Groupon applies to Living Social as two biggest daily deal sites are almost identical. They aren’t that different because they copy each other’s ideas.
A Person Not A Call Center | They may emphasize different things (but that is in flux because of geographic considerations), and perhaps Living Social has the advantage in that you get a face to face meeting rather than dealing with a call center. This means a representative can see what your business is like and hopefully, give you sound advice (so it isn’t a disaster).
Better But Only Slightly | In money matters, Living Social is a little bit more restaurant friendly. They send out a check in the mail in 1 month after the deal closes rather than the 60 days that Groupon makes you wait. Obviously that is very helpful for cashflow reasons. Also Living Social is negotiable when it comes to percentage fee rather than the 50%-take-it-or-leave-it Groupon attitude. However, expect the negotiations to begin at 50% and also expect that Living Social isn’t going to give you much better terms than Groupon.
No company cannot make itself more friendly to the restaurant industry. The steep discounts and fees of Groupon and LivingSocial are counterproductive, and they could find new formats that don’t ask so much of a restaurant. Yelp could greater explain its filter and challenge reviewers to give a balanced report on their dining experience. Until then, they make the list of the worst marketing tools of 2012.