Something has gone terribly wrong in the flash sale buying space.
The business model initially built upon the win-win scenario has devolved into something more akin to a scammer’s bait and switch – but not for the consumer. It’s the merchants that are falling victim to these ploys.
As a Pilates studio and service based business we’ve had every opportunity to test out the daily deal retailer market. The first big name to hit us up made a great argument and really educated me about the mindset of the group buying culture. Key to the sales pitch were the following:
1) This is advertising dollars. You may actually lose money by cutting your service price but you get brand new customers in the door rather than just an ad on paper
2) We would get paid on every sale. So if someone bought it, we got paid, even if they never came in the door. More likely than not, a bevy of brand new customers would be arriving.
3) Brand New clients were absolutely guaranteed via their huge database.
The terms were simple. Discount your service by 50%. And then split the take with them. Yikes. Making just a quarter of my usual amount in an industry with exceedingly lean margins was alarming at first. We were assured; the clients would literally be pouring in.
The first deal we did fared ok. Clients came, services were sold. And then they left. Just like that.
The second deal we did with an altogether different company. Looking to improve upon our first go round, we tweaked our original offer and sold a different product. And this time we negotiated. Well enough to keep a slightly larger percentage. More clients came. This time, a few stayed.
The next company that approached us sold us on the importance of creating an “irresistible offer”. They defined the mindset they were trying to create, explaining that their ideal buyer would see the deal, and think “why not” before clicking to purchase. Why not, indeed?
Our next online deal was both our most successful and our biggest disappointment. The concept of “why not” pricing brought in hundreds of Pilates-lovers who without the benefit of the deal, simply couldn’t afford Pilates. Retention was nil. The customers simply left and waited for the next great deal. And to be fair, why shouldn’t they?
Fast-forward past a few more deals with various outlets and I realized that things were changing. Deal terms began to be more rigid. Sale sites were demanding we provide steeper discounts. One site actually only paid us on redemption rather than sales. I marveled over the fact that they simply pocketed the money earned off of advertising our product when the customer never redeemed their coupons.
The landscape was morphing into something ugly. With so much competition, these group-buying organizations were cannibalizing each other. Consumers have become immune to the myriad offers littering their inboxes each day. At the same time, deals need to be even more dramatic in order to get anyone’s attention. These days, vendors are inundated with offers from these sites. In the last month alone we’ve had no less than a dozen solicitations.
Our most recent deal illuminated the desperation and ferocity with which this business model is now operating.
It was the eleventh hour. The night before our deal was set to go live and I was required to proof the terms and details of our offer. I noted that the deal needed some edits and made them. Most notably, our offer was created for new clients only and that fact was absent from the draft copy I was sent. I made the changes and hit “send”.
Moments later, I received an email saying that wouldn’t be possible. The other changes however, were perfectly fine (oddly). I was informed that it was “too late” to make these changes, and that my deal was already “in production” prohibiting further changes.
Now I ask you, how can it be too late to change some text in an online sale that hasn’t gone live yet? My sales rep and I had a short exchange and I was bumped up to his boss.
His boss re-stated his argument and also added a few well-rehearsed sentences. I was told that they never run a deal for new clients only. Since I was looking at one online from their very website, I promptly debunked that myth.
Suffice it to say that there was a lot of resistance to my demands. But the statement that really set me on my heels was when the manager told me that they couldn’t restrict the deal to new clients only because “they had to meet their revenue” as well.
Wait just a minute here. Isn’t the entire premise of the flash sale to drive new business to a merchant and not take money from their pre-existing customers? Why would a business choose to pay a third party to advertise to clients they already have?
Merchants take heed: Daily deal companies are literally targeting the vendors they serve as a source of revenue. Rather than relying on the database they generate to earn their dollar, flash sale sites are counting on money from your database in order to pay their bills!
There are plenty of reasons to employ a daily deal for your business. Keeping traffic flow consistent during slow times. Getting the word out about a new product. Capturing ancillary sales or exposure through a secondary item or service. But if you are looking for a daily deal site to bring you brand new clients, these days, that’s anything but a done deal.
