Groupon CEO Andrew Mason apologized to users in Tokyo for a deal that went bad a few days before the New Year’s holiday. The deal involved the delivery of food, and became too popular for the business providing the deal to handle.

They sold 500 "Groupons", and the business was unable to process the orders, leading to late deliveries, and deliveries of product in "terrible condition", as Mason describes it. 

The incident reflects concerns many businesses have had with Groupon, which Mason recently referred to as the "savior of small business". A common line of thinking is that while Groupon may be a great way to get customers in the door. It might be too great a way, leading to too many customers and not enough supply to meet demand – or not enough resources to meet demand. 

When demand isn’t met by a supplier using Groupon, it’s not good for anybody. The customer doesn’t get what they want, or doesn’t get the standard of quality for what they expected, and they are unsatisfied. The business is damaged by taking a shot to its reputation (and has to worry about the unsatisfied customers telling all of their friends), and Groupon’s reputation takes a hit as well, though probably not to as large an extent as the business who failed to live up to demand. 

The subject is not lost on Groupon though. "We’ve had to help businesses grapple with an entirely new class of problem – what happens when you have more customers than you can handle – and to do that, we’ve developed capacity planning formulas to help merchants figure out (based on how big their restaurant is or how big their salon is) the number of customers they can handle over a period of time," said Mason. 

Update: We’ve spoken with Groupon more about these capacity planning formulas. 

"Now, while we have that in place in the United States and in many of our other countries, we haven’t rolled it out in Japan yet, basically because the popularity of Groupon Japan has grown so quickly, it took us of guard. We weren’t expecting to run into this problem so quickly."

See the irony?

"So, we have now begun the process of educating all of our representatives on how to work through capacity planning, so a merchant doesn’t end up selling more Groupons than they can handle – not only in Japan, but we’re doing this in all of our new countries as soon as we launch," added Mason. "Groupon is kind of an uncharted territory. We’re on the forefront of figuring out how to bring local commerce to the Internet, and as we do that, we’re going to hit bumps in the road. We’ve made mistakes before, and we will make mistakes again, but the one thing I can promise you is that we’ll do everything in our power to make sure we’ve learned from these mistakes, and don’t repeat the same mistake twice."

Groupon also hit a few snags in the UK, as some of its ads were flagged by an advertising watchdog in that country as being misleading. In response to this, the company indicated that there was a likelihood of some degree of human error, but that they would seek to address this through staff training and incorporating quality control safeguards (via Advertising Standards Authority). 

It’s interesting to note (as Mason did in the video) that the Japanese business who was unable to meet demand in the incident discussed, had been featured by Groupon in the past, successfully. (Hat tip: Hacker News)