The Groupon Lesson

I think there is a great lesson I’ve learned from Groupon. **Don’t sacrifice long term relationships in exchange for short-term profitability.**

Everyone in tech knows the ridiculous margin’s Groupon takes. They demand a 50% discount and then take 50% of whats left, often leaving the restaurant, skydiving instructor or whoever their client is operating at a loss.

What it has lead to is a lot of angry restaurants who after running one Groupon, never want to run another one. It led to stellar growth of Groupon as a company, but there are only so many small vendors that Groupon can take advantage of and discard, and their growth peaked and then their stock plummeted. There are many theories as to why, but my personal one is that they could get the margins they demanded, but it wasn’t sustainable for many of their vendors, who ended up walking away from the interaction bitter and resentful. I can’t even count the number of times I’ve heard a “We used Groupon once and we will NEVER use it again.”

Most of the grievances center around how they were operating at a loss and the steep discount attracted the wrong type of customers. Groupon made a boatload off the deal but they practically sunk the small business owner in the process.

I have to hold myself back everyday from trying to push my luck too much in our deals with transportation providers.

Our commissions range from 5-20%. Some volunteer to give 20% to get more exposure. But there are others who can only afford 5-10% because their margins are already so small. We work with each one individually to make them understand that if they don’t give high commissions then they won’t get wide distribution, but then give them the choice.

The last thing we want to do is get them to agree to a 20% commission and then have the entire relationship be unsustainable, which was essentially what Groupon did.

This is the case with our customers as well: we charge no fees on top of the fare of the shuttle, taxi or limo. Our competitors often charge a $5 fee, which means they often have margins twice of ours.

However, this results in a lot of cancellations and bitter customers once they realized they paid $20 for a $15 shuttle. Our competitors can probably get away with charging that fee, they have obviously calculated that most people don’t figure it out and cancel.

However two of that competitors clients have since switched to us since it was affecting their conversion rate. And the long term happiness of our customers will be better than theirs when they know they are getting the best rate.

Long term not short term.

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