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.

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