Every business owner should make a point to stay up with Seth Godin’s blog. His style is usually very short and always razor sharp; and his points are even sharper than his style. Read at least one of his books too. My choice, if you read only one of those books, would be All Marketers are Liars.

I’m mentioning that today in particular because Seth’s post yesterday was a lot longer than most of his posts, and it contained a serious lesson in pricing in an analysis of the significance of Groupon and similar new-wave social shopping sites. Talking about high margin items, he says:

One of the challenges of selling to new customers cheap is that you might end up with a price shopper, someone who is always cheap, someone who will never convert into the kind of customer your high margin business needs to survive.

Maybe that’s why expensive restaurants don’t appear in the local 2-for-1 coupon books. Seth explains how Priceline get’s around that problem:

The reason the original Priceline was so incredibly difficult to use (with blind reverse auctions, etc.) was that they wanted it that way. Anyone who was willing to go through that hassle and anxiety to save $100 bucks for a ticket on Delta was clearly not someone Delta was going to have an easy time selling a regular ticket to. The alternative to Priceline was a bus ticket or no travel at all… And Delta was fine with offloading excess seats to them, because they didn’t have to worry about alienating their core customer.

That’s one of those insights that seems obvious only after you see it. Seth has said what he does is put labels on things you already know. In yesterday’s post he goes on to highlight a new marketing phenomenon:

Groupon is a very different thing. Here, it’s not a hassle, it’s the fun factor. .. As a result, many Groupon customers in fact do convert to becoming long time patrons of the place they tried, because they’re not inherently cheap shoppers. If you offer an astonishing product and great service after they try you, they may convert into shopping with you for the long haul, not because you’re a Groupon replacement, but because you bring them more than the alternatives.

Which takes Seth to the following conclusion:

The net, once again, is making it easier to find and organize tribes of people, even for short durations. When you intersect these aligned groups with high-margin products, you can create fascinating commerce opportunities.

That makes sense to me, although it still takes creativity and implementation to make it work for any specific business case. Can you think of how to make it work for your business?

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Tim BerryTim Berry
Tim Berry

Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.