A Reading bakery has spoken out about its involvement with online discount voucher website Groupon, warning other small businesses to steer clear of such enticing promotional offers.

Need a Cake ran an offer with the US-based company to offer bargain-hunting customers the opportunity to purchase 12 custom-made cupcakes for £6.50, a 75% discount on its normal retailing price of £26.

Rachel Brown, the small bakery firm’s owner, was inundated with around 5,600 orders, and was unable to fulfill all transactions. As a result, the business made a loss of up to £3 per batch of cupcakes, while forking out an additional £12,500 to hire 25 agency staff and fund additional distribution to cope with the high order demand.

Steve Consalvez, a spokesman for Need a Cake and business trouble shooter, warned similar small bakery firms and start-up companies not to be drawn in by such discount offers as a way of promotion: "The Groupon voucher made no impact on the business other than cost it money. Prior to running the offer, Need a Cake was at a 30% increase in profits in the first year, but we are now back on track.

“Small businesses might not understand their own resources, plus they don’t ask enough questions about areas for potential problems with such discount voucher offers. I’m concerned other businesses might get into the same situation as Need a Cake, discounting prices heavily and gaining the wrong type of customers who won’t come back for repeat business.

“The processes behind such discount voucher websites don’t support the partner and, as a result, the end customer suffers. This needs to change.”

Groupon is now being investigated by the Office of Fair Trading (OFT) after breaching the Advertising Standards Agency (ASA) code and breaking UK ad regulations 48 times in 11 months.

The advertising watchdog has made 11 formal rulings of code breaches against Groupon that have been published, with a further 37 informal breaches that the ASA has addressed without making any details public.

Consalvez added: "If businesses want to make sure they are going to benefit from doing such promotional activity with discount voucher websites, the owners really need to be asking questions, such as ‘What if we sell all the vouchers and the majority of customers want to claim it on the first day?’

“Need a Cake is now looking forward since the Groupon deal. We have moved to new premises, which are quadruple the size of the existing location. We have also taken on two new members of staff, with hopes of further expanding the team in 2012.”