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Image: Employees and guests celebrate Groupon's IPO on Nov. 4
Mark Lennihan  /  AP
Employees and guests celebrate Groupon's IPO on Nov. 4.
msnbc.com
updated 11/22/2011 5:33:14 AM ET 2011-11-22T10:33:14

A bakery owner was forced to make 102,000 cupcakes after being swamped by customers taking up her cut-price Groupon offer, according to reports Tuesday.

Rachel Brown offered a 75 percent discount on 12 cupcakes, which normally cost $40 (£26), the BBC reported.

However, Brown under-estimated the popularity of the deal and was unable to cope when 8,500 people signed up for the $10 (£6.50) bargain.

Video: Who gets the real deal with Groupon? (on this page)
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Brown's Need a Cake bakery, which employs eight staff in Reading, U.K., had to bring in temporary workers through an employment agency to fulfil the orders, at a cost of $19,500 (£12,500) — wiping out her profits for the year.

She also lost between $2.90 (£2.50) and $4.70 (£3) on each batch she sold, the BBC reported.

"Without doubt, it was my worst ever business decision," she told the BBC. "We had thousands of orders pouring in that really we hadn't expected to have. A much larger company would have difficulty coping."

Story: Groupon raises $700 million in massive IPO

Chicago-based Groupon sells Internet coupons for everything from spa treatments to cosmetic surgery.

Firms sign up in the hope of getting new repeat customers out of the initial deal or selling additional goods to shoppers during their first visit.

Groupon went public earlier this month at $20 a share, valuing the business at $13 billion.

Story: Groupon shares surge but concerns linger

Brown, who has run the business for 25 years, was quoted in the Daily Telegraph saying: "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.

"My poor staff were having to slog away at all hours — one of them even came in at 3 a.m. because she couldn't sleep for worry," she told the newspaper. "We are still working to make up the lost money and will not be doing this again."

Heather Dickinson, international communications director for Groupon, told the BBC there was no limit to the number of vouchers that could be sold.

"We approach each business with a tailored, individual approach based on the prior history of similar deals," she said, adding the company had been in "constant contact" with Need a Cake.

She later told msnbc.com: "We work very closely with small businesses, but ultimately, they know their businesses best and what they're able to handle."

She added: "Need a Cake wanted to run a national deal with us, but we advised them to feature in a few cities so they wouldn't overextend themselves."

© 2013 msnbc.com Reprints

Video: Who gets the real deal with Groupon?

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    >>> our next story now is about a little company that in just a couple of years has changed the way we bargain hunt . it's called groupon, and it has done so well and expanded so fast that google offered to pay $6 billion to buy them out. incredibly, groupon turned down the offer, and they're now preparing to raise billions on their own by going public. how do they do it? and do the numbers add up? here's nbc's kevin tibbles.

    >> reporter: perhaps the only thing that could beat a romantic dinner is a hot priced romantic dinner.

    >> what brought you in?

    >> groupon.

    >> reporter: groupon is the leader of an online explosion in what is called the daily deal business. pushing prices down by guaranteeing a certain number of customers.

    >> i've gone everywhere from chinese restaurants. i went paintballing. gotten discounts on hot dogs . all the way up to steaks and dinners.

    >> reporter: instead of clipping old-fashioned coupons, groupon negotiates lower prices and then e-mails the discounts free to its subscribers.

    >> in the same way that facebook has redefined communication on the web, groupon is in a way allowing people to redefine the retail business.

    >> reporter: for geja's cafe in chicago , it brings new customers and more.

    >> of the 2,400 new customers, 900 of them have come back in multiple times.

    >> reporter: so how big is the daily deal revolution? well, in just three years groupon has gone from a tiny chicago startup to a company operating in almost 50 countries.

    >> reporter: and groupon isn't alone. today some 500 companies dish up the discounts.

    >> about a year ago there were only 50. in two years we expect that there will be thousands.

    >> reporter: but some retailers report headaches.

    >> they offer massive discounts. they take a loss on their services or their products. and then they end up getting inundated with customers for a very brief period of time, and then those customers don't return.

    >> reporter: after paying groupon its percentage and paying the instructors, this chicago yoga center didn't make much profit. but that wasn't the goal.

    >> groupon was an excellent way to expose our studio to new students.

    >> reporter: and that may be the point. daily deals may bring the customers. but it's up to each business to keep them coming back. kevin tibbles, nbc news, chicago .

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