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While im ranting and raving, some thoughts on the "Dash Deal"


Fornicola Butuzova
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So they want to do the Groupon mechanic in SLM.

Interesting, all I have to do is cut my price in half, and give half of whats left to LL.

Groupon is a scam in RL and it damages small businesses.  But in SL we have no real fixed material costs so what is the harm.

Well try explaining the some body that paid 15k ofr  a house yesterday, that they could have bought it today for 7500L less.  Not a fun conversation. 

They say they are focusing on popular items from poprulat mechants.  Hmm should i pay full price now for this house I like, or wait, this builder is popular on SLM, ill just wait to see if iot ends up on a "Dash Deal"

And if you do get in a "Dash deal", and sell a zillion units, good luck selling any tomorow, you just saturated your market, and earned 1/4 of the price to do it.

If I were a new merchant I would jump on it as soon as they let me, but as an established one it is an exploitaive and distructive practice,

Saturating your market, devaluing your mechandise, creating uncertainty about your  pricing, selling at 50% off, at a 50% comisson to fo it.

IMHO of course.

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As Darrius pointed out this is largely academic, but just curious to know what basis you have for making this statement...

 


Fornicola Butuzova wrote:

Groupon is a scam in RL and it damages small businesses. 

 

I am not sure why you feel it's a scam, there is nothing dishonest about it, all the prices etc are published in advance.

Groupon finally attracted me to start Scuba diving, they offered about 30% off the usual price, although I was soon talked into the up sell (an essential element of any Groupon Offer), and spent a bit more, the company I dive with are overwhelmed with bookings from their Groupon exposure, it's pretty much made their business rather than damaging it. Also I do wonder why a RL company would choose and pay money to 'damage their business'.

 

 

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Aside from the fact that this program got deep sixed, here is something to consider and to better understand online digital sales.  As inventory cost you nothing and there is very little in the area of Cost of Sales (CoS), any income derived is additional income.

When we closed down the SexGen sim for our remodel, we offered a 75% off sale and put out some of our most popular items as what we considered Loss Leaders.  The irony of this was that our income shot through the roof. 

I can make good money off a sofa I sell for $200 L which is reasonable however, if I set this to $L 50, the sales go through the roof. 

When it comes to digital sales, quantity is everything, regardless of the price.  By "saturating" the market, you get more of your products out in view and people do click on the object they like to see where its made. Ever one of my products that are rezzed is another point of marketing for me.

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A service sompany has no fixed material cost.  Try that model with a pizza company.  Beacuse the 50% off requirement, and the 50% discount create a situation where youare selling at about 30% BELOW you cost to make a pizza.  So sure you get 200 new people odering pizza, but you are losing money each time you sell one, it cost you money to participate if you have material costs.  You lose money. 

So while you are selling pizzas at a loss to hundreds, Groupon is making 25% of the cost of a pie.  The only cost they have is a website.  It is exploiting small business owners that are very anxious but also very ignorant to the "Social Marketing" craze. 

They have been overzealously selling Gropons and created a sitation, particularly with salons, where so many get the groupon that teh salon can not acoomodate them, they are booked for weeks or months with ap[pointments that pay 1/4 the renevue, and cant sell those apoointments to full paying customers as a result.  

Aslo the experience is terrible, as you have to wait forever and nobody ever comes back.

In one case they sold New Years dinner ni Japan, they sold so many that the comapny literaly could not fill the orders, they just tossed food in a box as fast and sloppily as they could and shoved it out the door.  The CEO had to apologize on youtube for what was a national embarrassment. 

That CEO apologizes a lot.

They are also morons, they are trynig to expand into China, a dictatorial comunist counrty, the biggest internet market in the world, and they do a Supoerbowl commercial drawing a critiacal eye on the Tibet situation, thats just dumb!

If they are "Upselling" a service then they are not really participating in a groupon, it is just advertising.

Groupon started as an activist organizing site, by a couple progressive kids.  They only became capitalists when they accidenatally found out that they could make money, and once they did, it didnt take em long to shed the clothes of those trying to save the world and start courting venture capital.  They have no idea how business works, and how what they sell hurts small businesses that have fixed material costs and no idea what they are getting into.

They pump the struggling small business with the promise of hundreds of new customers, the unsophisatcated and isolated merchant with  the excitement of global "Social Networking" and brush off the un avoidable loss as "Costs associated with marketing".  It is deceptive, and it is done to make a ton of cash, as goupon gets paid whether the promotion works or fails.

If you have a service business, and can accomodate a sudden wave of one time clients, if you can sell people OFF the groupon, go for it, but if you pay for what you make and sell, its a loser all day, well for you, not for groupon.

They take 25% of your revenue, and leave you with teh fininacil loss, disappointed customers and an overwheling back log of money losing appointmets

 

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What you are assuming is that the market for your products is infinite. It is not.  Everyone uses shampoo, not everyone owns a boat.

You can put a sofa in a 512m house, or on a 1/4 sim house, but when you sell houses your market has a finite limit that scales directly with land use.  Not everyone in SL has 4096sm, or 8192.

Also it assumes that everyone will want to have the same thing.  In a sofa sure, but not everyone wants to live in the same houses.  You can definitely saturate a market in SSL.  My Big wood store is EVERYWHERE in Sl,  so it has run its course, it is hard to sell now because it is everywhere, people will not just buy the same thing over and over.

Also price plays into this, it is easy to say to a person buying a pack of gum, it s 50 cents today, but yesterday it was 25 cents with a groupon. Who cares.  Nobody, it is not sufficient enough to matter.  Apply that to a house, 15k today, 7500l yesterday, not so easy to ignore now.

Also when you say that quantity is EVERYTHING, in digital sales, then why not sell for 1l

You would sell more for sure.  Who wouldn't buy a nice sofa for 1l.  But to break even you have to sell 100x more.  To register an increase you now have to do better than 100x more.  Are there 100x more people looking for a sex sofa, looking for YOUR sex sofa, maybe, maybe not, but even if there are, you have to sell all of them just to break even. So quantity is not EVERYTHING.  You have to balance saturation with pricing.  You have to find the sweet spot.  To cheap and you sell more but can't pay your mortgage, too expensive you bank on each sale but can't pay your mortgage either.

What this has told you is not that lowering prices always increases income, in all situations, and there is no end to the marketplace, it simply is telling you that at 200l SL decided you were overpriced, and at 50l you are priced right, or closer to value anyways.

That's fine if you have small store and sell a few times, if the income doesn't need to meet any goal, if an increase is "Nice" and few more buck to spend, but if you are managing from the standpoint of meeting monthly revenue goals it is critical.

If you have tier on entire Sims to pay to keep the doors open every month,

You have to really try to zone in on your price, and the depth of the market.  If I cut my prices to 25%, I have to sell FOUR times as many homes as I do now, just to be even.  That plays directly into demand, you can't ignore that.  Are there four time as many people looking for a 4096sm house at any given time,that want YOUR 4096 house, can you do all the work you need to harvest back 4x as many customers.

Also, what do you tell people who payed full price.  The people who believe in you brand messaging that your products are superior and worth the extra price they paid.  Those people you have invested in for years as customers for life.  Sorry suckers, Im going try a low ball thing for a while, sorry you paid way more than even I thought it was worth?

Again, on a 200l sofa not so bad, but try that on a 4000 home.  You would kill the prestige of your brand overnight.

It is easy to think that you can not saturate a market in SSL if you have never actually saturated the market.  Lower prices, sell more units, more units rezzed more sales yay its a party.  But that only works when you are far below the maximum market penetration, when you are far blow revenue potential and when you have nothing to lose by low balling your customers. When there is nothing but sky above you.

The irony is that low balling will increase your sales if you are way behind your potential, but ultimately it keeps you from ever maximizing.  You don't want to be selling at below value, you want to be selling as close to perceived value as you can reasonably estimate.

If you lower prices, and your revenue, not just sales increase, all that says is that you were priced above value.  Once you got in line with value, more people bought, and you made more money.   If you price below value, despite increased sales, your revenue, at some critical point will fall as the increase in sales can not overcome the loss in revenue per sale.

Bringing this back around to groupon, it preys on NEW businesses.  Those who are not anywhere near their potential.  Why, because they are desperate.  They are afraid of failing and losing their dream.  They bundle it up as helping you discover a "hidden gem" but what it is really saying is that larger, more successful more established businesses are not interested.  If those who have figured out how to win, how to succeed think it is a loser deal, how can it be a good deal for those who are struggling.  

They have created a system where they get a guaranteed payment for almost no work and have no burden of delivery.  It  makes business harder for the little guy they prey on by creating confusion with established customers, attracting those who are one time buyers at a loss, and lowering the level of service by overloading the new business with a massive in full of loser deal they now have to struggle to fulfill.

There is no free lunch.  There is no easy way to business success.  There is no magic pill that will pack your restaurant with "GOOD" customers.  Everything comes at a cost. 

 

 

 

 

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I think you're forgetting that these are digital products we sell. There are no production costs after the first one. Once the cost of your uploads is covered (if you even uploaded anything), that's it. Everything else is profit.

Something to keep in mind.

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Fornicola, interesting points. But here's something you overlooked -

You can apply your theories when posting in these forums too. Saturation also occurs when you say the same thing over and over again. A point is a lot stronger and more valuable when it is made concisely and clearly. Repeating yourself only diminishes its value.

 

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Gadget Portal wrote:

I think you're forgetting that these are digital products we sell. There are no production costs after the first one. Once the cost of your uploads is covered (if you even uploaded anything), that's it. Everything else is profit.

Something to keep in mind.

I seem to continue having overhead tho -- tier on 4 sims, advertising, etc. Also, I count the cost of my time, since I am an employee of the store -- it takes a lot longer to pay for my time than it does to cover the cost of uploads.

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Fornicola Butuzova wrote:

A service sompany has no fixed material cost.  Try that model with a pizza company.  Beacuse the 50% off requirement, and the 50% discount create a situation where youare selling at about 30% BELOW you cost to make a pizza.  So sure you get 200 new people odering pizza, but you are losing money each time you sell one, it cost you money to participate if you have material costs.  You lose money. 

So while you are selling pizzas at a loss to hundreds, Groupon is making 25% of the cost of a pie.  The only cost they have is a website.  It is exploiting small business owners that are very anxious but also very ignorant to the "Social Marketing" craze. 

 

Obviously there are fixed costs associated with any business, service or not, in the case of Scuba there are pool fees, Air fills, Equipment depreciation etc. I am not sure where you are going with your example, you talk of a 50% off requirement AND a 50% discount, either these are the same thing or people are giving stuff away free?, in any case there is no such thing, most Groupon discounts are for less than 50%.

Most Pizza businesses will be making more than 50% Gross Profit on their sales, 60 - 70% is a far more likely figure for that type of business. There may be a few businesses that use Groupon offers as a loss leader, most from what I have seen will be making at least a small profit.

Are you sure that Groupon's only cost is a web site?, I am pretty sure they employ Sales reps, Admin Staff, Accountancy Staff, have a telephone bill, office rentals, and their own marketing costs to name but a few.

I think its quite arrogant to believe that all small business owners using Groupon are ignorant, easily exploited people who cant do basic profit and loss calculations, while you apparently, are the only one who really understands it.

 


Fornicola Butuzova wrote:

 

If they are "Upselling" a service then they are not really participating in a groupon, it is just advertising.

 

Almost every offer has an up sell, thats how it works, you offer something at a great discount, people buy it and then you try and tempt them with something else, and err yes, it is just advertising, what did you think it was ?.

 


Fornicola Butuzova wrote:

They have no idea how business works, and how what they sell hurts small businesses that have fixed material costs and no idea what they are getting into.

They pump the struggling small business with the promise of hundreds of new customers, the unsophisatcated and isolated merchant with  the excitement of global "Social Networking" and brush off the un avoidable loss as "Costs associated with marketing".  It is deceptive, and it is done to make a ton of cash, as goupon gets paid whether the promotion works or fails.

 

I think most business owners have far more knowledge of their businesses and modern marketing techniques than you give them credit for, your entire argument seems to revolve around the idea that small business owners are just too stupid to realise what is happening to them. Very often I see the same companies featured again and again in Groupon, how do you explain this, suicidal tendencies?

While I have been running businesses I have been offered advertising deals on everything from the local paper to the Pins at my local bowling alley, not one of these offered any kind of guarantee as to how much business I might get from advertising with them, nor did they offer any money back if the advert didn't do too well, thats just how advertising works

 

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Pamela Galli wrote:


Gadget Portal wrote:

I think you're forgetting that these are digital products we sell. There are no production costs after the first one. Once the cost of your uploads is covered (if you even uploaded anything), that's it. Everything else is profit.

Something to keep in mind.

I seem to continue having overhead tho -- tier on 4 sims, advertising, etc. Also, I count the cost of my time, since I am an employee of the store -- it takes a lot longer to pay for my time than it does to cover the cost of uploads.

Well, having 4 sims isn't a requirement for running a business. That's on you. You could do it on a reasonably sized parcel with temp rezzers and a catalog. Sure, it wouldn't look as nice, I won't argue that. But it is possible.

The argument for time is kind of flimsy, too, since it doesn't have a defined fix price. It's set by opinion- what you feel your time is worth.

Like it or not, the only real costs of creating are uploads. It's why I enjoy scripting. All it costs is time, and for most of us hanging around in SL, we've got plenty of that.

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Gadget Portal wrote:


Pamela Galli wrote:


Gadget Portal wrote:

I think you're forgetting that these are digital products we sell. There are no production costs after the first one. Once the cost of your uploads is covered (if you even uploaded anything), that's it. Everything else is profit.

Something to keep in mind.

I seem to continue having overhead tho -- tier on 4 sims, advertising, etc. Also, I count the cost of my time, since I am an employee of the store -- it takes a lot longer to pay for my time than it does to cover the cost of uploads.

Well, having 4 sims isn't a requirement for running a business. That's on you. You could do it on a reasonably sized parcel with temp rezzers and a catalog. Sure, it wouldn't look as nice, I won't argue that. But it is possible.

The argument for time is kind of flimsy, too, since it doesn't have a defined fix price. It's set by opinion- what you feel your time is worth.

Like it or not, the only real costs of creating are uploads. It's why I enjoy scripting. All it costs is time, and for most of us hanging around in SL, we've got plenty of that.

I am not talking about the bare minimum "requirments" to be able to set things for sale.  I am not making any "argument" that my time is worth what I say it is.  I am not making any argument at all  -- I am just telling you what my "real expenses" are to run a business that supports my family (and pays a PT employee $16 an hr). What you think that has to do with some operation run on the cheap out of catalogue I don't know.

 

 

 

 

 

 

 

 



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Depending on what you make, there are always costs. I pay models $200/hr to help me with my motion capture. Do I have to? No, I could pay them alot less, and they will be less quick to run right over. I also, pay my business partner a %, and my sister to do work for me in some other worlds. I have also paid over 5 grand in equipment, just in the past year. Again, do I have to? No, but my goals are not small. What about my time? You don't just sitdown and make a complete motion capture AO in 1 day or even a week. There are many more expenses and I don't have a problem at all paying for them nor am I struggling in anyway.

I also don't have to drive anywhere, accept all my son's softball games. I'd say that some of us have a pretty damn good life making things in SL. The other day I was trying to get my son to an activity and it took an hour to get there. Why? Because It was rush hour and all the corporation slaves were on their hour long commutes home. I would never go back to that.

Now, onto the OP's topic. I agree wholeheartedly. Every product has a market, and it is up to the merchant to guage how that market works, and where their product fits into the mix. The more they know about the market the more profit they will make. Saturation of the market is probably the most misterious part. In my field, I've seen it all, or I am seeing it all, lol. I watch as some prominent animators go for the low ball game, and I see the results. The funniest part is, this hardly affects me at all. When some1 else in your market makes some super cheap, yeah, every1 buys it. What are the consequences of that? The affect is that the customer paid less than 20 cents or whatever, and they own something every1 else owns. Even if the product is awesome, it is going to get real old, real quick, when you see it everywhere. So, essentially, they made a throw away item, not a treasured gem.

What I do, is I give people a good deal, not always a cheap deal. I actually have people tip me on some of my most expensive products, and some of them will buy every product in that peticular field. If you think that degrading your products is going to help you, you are crazy.

But, then again, I also think apple products are WAY over priced and it is all marketing to the corporate slave world. :matte-motes-shocked:

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  • 2 weeks later...



I did so more research into groupon.

 The plan was for it to "GO Viral", the next big low cost high profit web sensation. The point of a net biz is that the idea is so revolutionary and original that it can thrive on the net driven by the satisfaction of the service. The low overhead creates the incredible valuation. People use it, like it, tell somebody and it spreads by appropriation or the product, at an extremely low cost to the company.

Groupon is reality is “Anti Viral”. They have a sales force of 7000+ knocking on doors in the real world. Persuading and closing merchants on the deals. It is not spreading by word of mouth, it is not spreading by Twitter, or even email, it has to be SOLD to people. Real people sucking salary to persuade merchants to try it out. The very opposite of “Viral” and in reality Groupon is not even a web business. It is a “boots on the ground” door to door marketing service with more people and higher costs than any other marketing firm.

So much so that Groupon has not only failed to turn a profit, but they lose money in the HUNDREDS of million each successive quarter. They filed their papers for the IPO and the tricky thing is they did not count “Marketing costs” in the profit and loss. As it is now, they have to spend $1.43 to make a $1. They lose 43 cents for every dollar they make. The biz in now completely dependent on steady flow of NEW customers as the return customer rate is very low. They can't seem to gain momentum because previous customers are not returning and they have to spend a ton of money constantly hustling new faces with massive army of “boots on the ground”.

So far they have lost over a half a Billion dollars. The last round of venture capital they received, again another couple hundred million was used for one purpose, to pay back earlier investors, making it a sort of legal Ponze scheme. The general thought by pendants is that this is clearly an unsustainable business model.



So why in the world is everyone lining up to invest in a loser? It depends on how you define loser, if you think Groupon is a great company that will return real shareholder value, you are betting on a loser. But if you think it will perform like the recent Linkedin IPO, double in share price the first hour, and you plan is to ride the wave up, cash out and place all bets shorting or buying puts on the fall back it a pure winner.

Without turning a profit, with a model that costs them 1.43 to make every dollar, with the highest cost in manpower of any “Web” company, they will likely get an initial market valuation of 20-30 Billion.

Not because they are a great company, but simply because there is high demand for the shares, not by investor or “Longs” but by those who will trade both the up and down side simultaneously to huge profit. They can't wait for this play.



As to the charges of “Arrogance” that I assume new and small businesses are too dumb or simplistic to realize a bad deal, I am not arrogant, well not about this point anyways. If “Most business” were smart enough to look at a simple deal and make a good decision, then “Most” would be a success in the first 18 months. The failure rate for new businesses would be less than 49% percent as “Most”, 51 percent or more would be successful.

The fact is that most, and in this case most means 90% of all new businesses fail in the first 18 months.

New business owners fail 9 out of 10 times. My comments were not arrogance, it is just recognizing the facts in the situation. A person who has invested his savings the dream of owning his own business and is failing is a desperate person. They can be brilliant people, thoughtful people, creative people many many times, they are just bad business people, failing business people and bad failing business people make bad decisions, and 9 out of 10 of them are bad. Groupon knows this, and knows how to sell into that crowd, knows how to make them think it is a good deal.

If Groupon was a good deal they wouldn’t need 7000 people in the REAL WORLD selling ONLINE coupons. They would sell it to established market leaders that have survived by making good decisions. They would have a high rate of return and would not need to constantly sell new people.

Has Facebook ever called you, or knocked on your door to tell you about the befits of their service. Does Linkedin send you direct snail mail to let you know how a profile on their site can help your career. Of course not, they don’t have to, they offer a great product that everyone talks about.

As it is now all my Groupons are for the same type of business. Low start up cost, high failure rate, new businesses. Spray tans, Pedicures and that sort of thing.

Big established businesses have tried it, FTD for example. High quality flowers. Great products, from a proven market leader. So what went wrong? The Groupon was a loser deal for them as it stood, they would have lost money on each sale. The only way they could actually make money with Groupon was to jack up the regular price on their products, making the deal deceptive to the Groupon buyer.

Before this is all over the FTC is gonna make life more difficult for these kinda things to continue.

 

As to the charges that I need to remember that what we sell is digital and therefore is all profit, you can split hairs on the fixed costs of SL business but the heart of the matter is this. By way of example ill look at digital audio.



The record industry in the 90's screwed up. They never delivered on the reduction of price that was promised when the much cheaper to produce CD format was introduced. A new release vinyl disc was and average of $13 and a CD was $17. Once CD's took hold, they also evenntually stopped releasing singles.

So if you liked the new Metalica song “Master of Puppets” you had to buy the album. You could not buy just that song. When CD sales over took Cassette and Vinyl sales, they discontinued releases on those formats, BUT, they never reduced the price as they assured us they would.

So people revolted, Napster was born and music was free to all. This changed the music content business forever. Acts now must tour to make huge money as the sales are severely diminished.

But music is not the only digital entertainment you can buy. The book publishing industry didn’t want to have the same thing happen. They know that digital text and audio books can be copied and distributed, so they took a much more friendly approach.

They discounted digital versions to reflect the lower manufacturing cost. They struck up more lucrative deals with authors, as they spend less to distribute the book digitally. The retailer makes more money, the author makes more money and the consumer saves more money. While kinks are still being worked out, they essentially did it right.



What I'm getting at is that just because it is digital the VALUE of it is not necessarily related to cost. There is a balance to be reached. If you make a building( and we will assume it is a top shelf quality build ), and you think the market will pay 10,000 lindens for it, but as a promotion you sell it for 500 lindens, the market never had a chance to value it. YOU have created the value for it.

Price and scarcity are the two things that you have to concern yourself with. They both relate to valuation. You set the price, and the price controls the scarcity. If everyone in SL gets it at 500l, even though you only planned it as a promotion, then the item becomes common. The price could not control the scarcity as it was too cheap, and everyone bought it. It is no longer the 10,000 house that is an object of envy and desire, it is the 500l house that everyone has.



At 500l you have to sell 20x as many just to keep pace. If there are not 20x the people looking for your house, you are screwed. To far in the other direction, lets say a price point of 25k, and you close out most of your market, and lose as well as you have an ever decreasing pool of potential buyers with 25k to spend no matter what the quality.

Saying anything you make is profit as a motive for pricing is just foolish. If anything you make is profit sell it for 1l, why not, “its all profit”. You don’t because it is not the simple act of making profit that helps you succeed, it is the ability to estimate “VALUE”, the number of people who are able and are likely to spend whatever amount of money on your item.

Back to the music example, enter Apple and iTunes. I love the new Lady Gaga song, but I don’t want to spend 10 or 15 or 20 bucks on an album, so I hit iTunes and buy the single for 1.99. iTunes is great because it allows you to participate at whatever valuation you perceive.

Audible has audio books for sale digitally for $14 a month. I would never pay $39.95 for an audio book so at that price they have closed me out, if they sell the audio book for $.99 then nobody makes enough money to make it worth doing. It is not “All Profit” just because it is digital. At $14 a month I get a new book every month to listen to as I build, thousands of titles, new releases, classics, whatever. It is a price I do not think about, it gets billed automatically and I'm happy as pie when I get my new credit every month. If they charge less they have left money on the table, for Audible, for the publisher, for the author. If they charge more I stop buying. That is what value means in a digital context.

 

Now for the “Concise is better” comments. You are probably right. But I don’t post that often, and typically when I do it is because those who are concise confuse “short” with “accurate”. Too often there are ill considered phrases like “It's all profit”, “Everything you sell it advertising”, or incidental comments like “Groupon is not predatory” are used to challenge my ideas. So I come back with evidence. Why I think the way I do. Usually simple quips are not the result of any real consideration, so I try to illustrate the reasoning. Is it long winded, yeah, but sometimes you need to paint a picture to say your thousand words.

If I make the case that selling your stuff at suicidally low prices kills success by saturating the market, destroying scarcity and diminishing the prestige of you brand, and you come back and challenge that idea with “Our stuff is digital so it's all profit”, I'm gonna explain why that doesn’t make sense. I'm gonna site real world examples that support my position. Im gonna paint the picture of your idea in a real world context and why it doesn’t work like the catchy quips says it does.

You don’t have to agree, you don’t have to disagree, and the bast part is you don’t even have to read it. But some will, and if one person says I'm dead on, or just plain nuts and can back that up, then its all worth it. And if you just read this, hung on for the last words of this mega post, then I suppose I'm right, lol.

 

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