Rethinking Black Friday: A DIFFERENT Approach To Discounting, Couponing, And Short-Term Marketing Promotions

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Happy Thanksgiving, Pirates. We just wanted to take a quick moment before this week’s “mini-book” to say how thankful we are to have you aboard this pirate ship. When we started Category Pirates at the beginning of 2021, we had no idea what the outcome would be, or whether or not these ideas would grab hold. All we knew was that we were on a mission to help people make a meaningful difference in the world by being DIFFERENT—and we have been nothing short of amazed at how quickly Category Pirates has connected with so many different types of readers, entrepreneurs, executives, marketers, writers, investors, and creative thinkers (Category Pirates is now the #8 most-read paid business newsletter on all of Substack!). So, THANK YOU for reading, THANK YOU for sharing these “mini-books” with your friends and family members, and THANK YOU for evangelizing your “DIFFERENT.” Because the world needs you. 

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Dear Friend, Subscribe, and Category Pirate,

In the late 2000s, the United States ran one of the largest discounting (via couponing) experiments in entrepreneurial history.

A small startup based in Chicago came up with a radically different idea to help small businesses generate buzz, awareness, and customer acquisition. Instead of encouraging them to run ads on Facebook, or helping these small “e” entrepreneurs launch creative discounting campaigns, this startup turned the age-old marketing tactic of couponing, digital. 

These digital coupons were called Groupons.

Overnight, small businesses that ran Groupons saw a huge surge in business. Hair salons, pizza parlors, physical therapy offices, and sandwich shops suddenly had lines out the door and down the street. As a result, Groupon became one of the fastest-growing startups in history, climbing to an IPO just three years after the company’s founding at a jaw-dropping valuation of $13 billion (and along the way, rejecting a $6 billion acquisition offer from Google). Groupon lit the world on fire—and in the short term, seemed like the single greatest way of getting customers in the door.

10 years later, Groupon has become a thing of the past with a market cap of less than $1 billion.

What happened?

The category collapsed. Turns out flash discounts don’t work.

Groupon is Black Friday all year long.

In the beginning, small “e” entrepreneurs loved running Groupon promotions because it practically guaranteed a mob of customers.

But after running a few Groupon promotions, these same entrepreneurs realized the vast majority of the customers that showed up to take advantage of the discount weren’t the customers they wanted.

These customers:

• Were one-time buyers and weren’t very likely to come back and ever pay the normal rate (and also weren’t very likely to sign up for any sort of membership or loyalty program).

• Weren’t appreciative Superconsumers of the discounted product or service, and instead were unappreciative consumers only there because it looked “cheap.”

• Customers that only purchased when the product or service was heavily discounted, forcing businesses into a “race to the bottom” in a way that actually hurt their year-long economics—now “on the drip” and reliant on running Groupon promotions to drive revenue.

In a word: these customers sucked.

And in record time, Groupon went from being one of the most valuable startups in the world to being seen as an outdated, borderline irrelevant marketing channel. And the company’s story is a legendary lesson hiding in plain sight for marketers, entrepreneurs, and business owners: when you play the discount game, you boost sales in the short term and ruin your business in the long term. And almost every small business owner in America tried running Groupon promotions for nearly a decade, only for the conclusion of the experiment to be: couponing (aka discounting) doesn’t work.

Ask any hair salon or pizza parlor today if they want to run another Groupon promotion and they’ll likely say, “No way.”

But ask any company if they want to run a Black Friday discount promotion, and they’ll likely say, “Absolutely! Everyone else is discounting themselves—we should too!”

They’re the same thing.

Couponing = Discounting

Discounting = Couponing

By the way, there’s a chance Google’s acquisition of Groupon might have made the company work. Google may have been able to connect the data gathered by Groupon, connect it to their flywheel—”This person has searched for this type of thing 20 times in the past month but never bought, let’s give them a Groupon and get them in the door”—and used data + discounting as a way of generating net-new demand among the right kind of consumers: Superconsumers. So, to be clear, we’re not anti-discounting. We’re against discounting that does not attract potential Supers. Then, using the Super of 1 is a Super of 9 framework, Google could have leveraged that data again to present Groupon promotions to Superconsumers who didn’t even know they would be interested in other tangentially relevant products, services, and categories. This could have revolutionized digital marketing. Imagine being in the consideration stage of buying something. You Google the category “carbadigulator” and up comes a 15% off “Groupon.” Might that tip you into buying? Even if it tipped 1%, Google + Groupon could have helped to increase the revenue of millions of small businesses. Oh well. Nevermind.

Groupon’s story is a cautionary tale to companies that blindly discount their goods & services.

Every year, Black Friday comes around. And every year, big and small companies all over the world enter a zombie-like state of transactional discounting (and transactional discounting is doomed to failure) opposed to relational discounting, which allows you to build direct relationships with your Superconsumers. 

One is a coupon, the other is an intentional experience.

Same cost, different context.

(And context is everything.)

Which is why, in today’s “mini-book,” we would like to give you a DIFFERENT lens for thinking about Black Friday, discounting, couponing, and short-term marketing promotions.