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The Worst Business Model Ever


 

 

No company has singlehandedly screwed over more small businesses with the myth of discounting than Groupon and their copycat sites.

I hate them all.

But if you can’t beat ‘em, join ‘em. There is a fantastic golf course near my house that I love to play. It’s not overly expensive at $80 a round, but when you add in a power cart and some drinks it’s easily a $100 day. They sell memberships for around $1500 per season, which isn’t unreasonable at all.

But I play there all the time for $40 a round, thanks to a Groupon knock-off site. Every week or so they offer an $80 package that includes 18 holes of golf for two, a power cart, and two bottles of water.

As an avid golfer, I am a perfect candidate for a membership at this club. But I will never buy one.

At $40 per round, I would need to golf 38 times per year to make a $1500 membership worth my while!

I don’t have the time to golf 38 rounds each summer! Maybe if I lived in Florida or Arizona that would be realistic, but in Canada I would have to golf twice a week all summer and I would probably still not get 38 rounds in.

So instead of having my $1500 in their pocket, the golf course gets $20… after they’ve split their $40 in revenue with the coupon site bottom feeders.

These sites will boast about bringing in new customers that businesses can turn into loyal fans. But there are a five main problems with that logic:

1. Your discount deal-of-the-day reveals to your customer what your product or service is actually worth, and they’ll never again want to pay full price. Even if you’re using it as a loss-leader, the customer’s perception is that the discount price is the value of the product.

2. These types of customers are transactional. They are not relational. Transactional customers go where the price is best, and the only way to keep them is to keep lowering prices. They are the reason Walmart is a giant. Relational customers follow quality and service.

3. The rush of coupon-wielding transactional customers puts pressure on your business to keep up, often making the experience worse for your loyal customers.

4. When your loyal customers discover that these transactional coupon customers are getting a better deal, they’ll feel ripped off. They are the ones that come back and keep you in business, and they deserve the best prices!

5. Once you’ve experienced the short-term rush of selling all of these discounted products, you’re faced with the reality of trying to do that again the next month. And the next year. It is like a drug, and the only way to get high again is to score another hit.

Lower profit margins and the crack cocaine of transactional customers do nothing to build long-term successful small (or large) businesses.

Great businesses are built on stellar products demanded by consumers who, thanks to smart marketing, rightfully believe that product will enrich their lives.

Great businesses are built on the larger profit margins that come from customers who trust you, believe in your product, and are happy to pay a premium for it.

The marketing book Brand Like a Rock Star can help you build a great business. Order it today with one click here.

 

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Five Reasons Groupon Sucks


 

I feel dirty.

Today, against my better judgement, I purchased something using Groupon.

I feel bad for the local business who just got completely and utterly ripped off by Groupon, and subsequently by me. As a marketing and branding writer and speaker, I am paid to help businesses succeed. So buying something from a service I ethically despise made me feel terrible.

Here are five reasons Groupon sucks:

 

1. They force your business to put a value on your product or service that is far below it’s actual value.  Once you’ve established that your $100 product is actually worth $25, you’ve screwed yourself out of any chance to charge $100 again with any credibility. In my case, I just bought a$1000 product for $199.  You can be damned sure that I’ll never pay $1000 for it again.

2. They reward bargain-hungry customers who have no loyalty to the business. Instead of giving your biggest discounts and best deals to your loyal customers, Groupon forces you to give your biggest discounts to those who have zero loyalty to you. How do you think that makes your long-term loyal customers feel?

3. They give you the perception of increased business thanks to a rush of transactional customers who are only concerned about finding the best price. The moment you stop offering the very best price, these customers will go elsewhere and never come back… until you drop your prices again. Every time you try attract a customer like that, your profit margins go down. Never has a great business been built on the back of low profit margins.

4.They create a rush of artificial business that, quite often, overruns your ability to care for customers in the manner you are accustomed. Because of the inevitable drop in customer service, you piss off your regular customers who give you the bulk of your business.

5. They are crack cocaine; highly-addictive with a short-lived bump. Once you’ve experienced the high, you want it again. And again. And the only way to get it is to keep going back to your dealer to hand over your profits to them. Pretty soon, you’re broke. And there’s no rehab for bankrupt businesses.

Rock Star brands would never work with corrupt concepts like Groupon.

Can you imagine Apple offering a Groupon discount on the iPad?

Can you even dream of Harley-Davidson offering a Groupon discount on a Fat Boy?

Can you fathom Starbucks going to Groupon to sell more Vanilla Bean Frappacinos?

Instead of the short-lived rush of a hundred new bargain-hungry discount shoppers, start building a rock star brand.

Rock Star brands don’t compete on price.

Rock Star brands provide value to the customer, regardless of price.

Learn how to build a Rock Star brand by reading Brand Like A Rock Star, available now for digital download or home delivery.

 

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The Danger of Discounts


 

Think back to your teen years, when few things in life mattered more than your favorite band. When a new album would come out, you rushed out to buy it, sometimes waiting in line to get your hands on a copy. When they came to town in concert, it was the same routine.

Did price really matter? Of course not. You simply saved your pennies so you could experience the music you loved.

Even today, when tickets to see a top-tier band can run in the hundreds of dollars, those top-tier bands sell out every show. U2′s recently-completed 360 Tour was the most successful tour of all-time… with an average ticket price of $108 US. Even at that price, every date on the tour sold out. Completely. Every. Single. night.

When you are a top-tier brand, price doesn’t really matter much.

That’s why the iPad can thrive despite an onslaught of $400 tablet computers.

It is why a bottle of Glenfiddich 18 year-old ancient malt is $100 and still outsells the $50 bottles.

It explains how Starbucks can charge $4 for a coffee while Dunkin charges $1.50.

Rock star brands have it made. They never have to discount prices or bicker over nickels and dimes. Because rock star brands are all about creating value, as long as the price they charge reflects that value, customers will line up to pay it.

Unfortunately, most businesses get sucked into the price vortex.  It is sad, really. They advertise their sales and discounts, they make the terrible mistake of using Groupon, and fight to the eventual death against competitors like Walmart that can out-discount them all day long.  Customers who choose you on price alone aren’t loyal to you, they are loyal to the price tag. They’ll be gone as soon as a lower price appears, and you won’t get them back until you discount some more, cutting into your profits and margins. The price vortex sucks.

Don’t go there. If you do, your business might not escape alive.

Brand Like A Rock Star is $14.95, but that hardly matters. It is available now for immediate delivery.

Catch the “Brand Like A Rock Star” presentation in a city near you, or invite me to speak directly to your company or conference.

Join the discussion and click “like” on the Brand Like A Rock Star Facebook page.

 

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What Price Says About Your Brand


On Monday Lady Gaga fans overwhelmed Amazon as they clamored to download her entire new album for just 99 cents. Fans were frustrated because many of them couldn’t download all 14 tracks. Others suffered through painfully slow download speeds as the system crashed.

While it is wonderful to see such enthusiasm for actually buying music, this stunt exposes a problem all businesses face.

What is your product really worth?

Price isn’t just a number. It isn’t just your profit margin.

Price is a critical part of your story.

Price tells your customers what your product should be worth. If you insist on a higher price, you create the perception of higher quality and higher demand. Lower your price, and you lower the perception of quality and demand. We naturally think that less expensive products are not as good, even though that isn’t always true.

Rolex wouldn’t be a Rolex if it cost $500.

Walmart wouldn’t be Walmart if it didn’t offer astonishingly cheap products.

There is a yoga studio that my wife and I go to quite often. They charge $10 per class, which seemed reasonable to me until this morning, when I purchased 5 classes for $29 on Groupon.  Now my perception is that a yoga class there shouldn’t be more than $6… not the $10 I was paying last week. What are the odds I’m ever paying full price in the future?

Lady Gaga has sent the message that her album is only worth 99 cents. And if you’re only stealing something worth 99 cents, you might as well download it illegally for free. That’s not a message that helps her or her industry.

I’m pretty certain you won’t crash any servers if you pre-order Brand Like A Rock Star now at Amazon.  And it will cost you $14.95, no matter what Lady Gaga is charging.

If you enjoyed this post and are passionate about music and business, please consider subscribing to Brand Like A Rock Star by email. I only will never share your contact info. You can also subscribe by RSS feed using the button on the upper right portion of the page.

Photo: Cover of Born This Way by Lady Gaga on Interscope/Universal

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