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Flash sales: Gone in an instant?

About the author

Ari has written about financial products and investing for The Wall Street Journal, Forbes, and Pensions & Investments. Find him on Twitter.  

(Harley Schwadron)

(Harley Schwadron)

This autumn not only marks the five-year anniversary of the financial crisis, it also ticks off another significant five-year milestone.

Groupon, which helped reinvigorate local marketing, launched in October 2008.

Many other “flash sale” and “daily deal” sites also started months around the nadir of the Great Recession. Each put their own spin on the age-old concept of promotion, offering consumers limited-time or exclusive bargains to get new customers through the door.

From Zulily to Gilt to Living Social, this new breed of business was breathing fresh life into discounting and demand generation, the various tactics companies use to drum up business, with smart copywriting and countdown clocks that made the deals almost breathless.

Everything looked like a steal. And, for a while, it was.

Hard-up consumers willing to divulge their e-mail and their location could swim daily in a sea of “exclusive” bargains. Sites featured rock-bottom prices on the most fashion-forward brands or unbelievable deals at the latest macaroon shop.

“In the heat of the moment, resisting a flash sale is difficult because it combines scarcity (limited quantities and limited time) with competition,” said Dr Erica Carranza, social psychologist and market research director at Boston-based Chadwick Martin Bailey. 

Now, if you’re like most consumers, you’ve been suffering from “deal fatigue” and have dropped out of the market or narrowed your deal focus, smarting from a few too-many unused restaurant vouchers or trendy shoes that fit just well enough not to return.

The fading hype around these businesses reveals two things about our nature. First, some business models have just one right time and place. Second, we’re all becoming smarter — both consumers and businesses — about how and when to engage our inner deal-monger.

Disappointments

When it comes to purchase satisfaction, consumers are no more likely to like a product just because it seemed scarce when they bought it, Carranza said, citing studies. So, the disappointment factor comes into play.

“Like any form of promotion, customers find that sometimes the purported values do not live up to their billing,” added Robert Cialdini, Professor Emeritus of Psychology and Marketing at Arizona State University and author of Influence: The Psychology of Persuasion.

Merchants, too, have gotten smarter about digital marketing, forming new bonds with current and potential customers via Facebook and Twitter, cutting out the expensive emergent middlemen. And many retailers have stepped up their game when it comes to in-house promotions or exclusive deals.

Now consider Groupon. The company reportedly turned down a $6 billion buyout offer from Google in December 2010. It went public the next year, but then saw its share price sink precipitously.

Only recently recovering to be worth over $7.5 billion, with an expectation of $2.5 billion in revenues this year, Groupon’s core business of offering limited-availability, limited-time deals to local merchants is down 17% in 2013.

Local merchants, backed in to a corner by the recession, had been willing to pay dearly to access daily-deal subscribers on the chance that their hot offers would bring in new customers. Many stores found, however, that the deal buyers rarely came back without the incentive.

While each site tried to stay true to the core concepts of scarcity and exclusivity, collectively they drowned each other out. And it all happened as we, too, began to realize that our deal dabbling had become a burden, as our bulletin boards filled up with unused coupons or our closets grew cluttered with last-year's fashions at this year's prices.

New model

So, it’s no surprise that business models and partnership terms have been re-jiggered. Once exclusive, invite-only sites have dropped their guards and let in anyone with an email. AmazonLocal went so far as to cull its email list. Groupon is selling more goods directly as local deals decline.

Groupon is also looking more and more like a Sunday circular (remember those?) as general couponing finds new life online.

Now, haute fashion deal sites reveal much more to “non-members” on first glance, gliding slowly toward first-generation online outlets like Net-a-Porter, Yoox or Bluefly. Elsewhere, online retailers run consistent, predictable sales and promotions. (Missed the 20% off dog food in April? Just buy 2 bags in May!) Others, even department stores, are making far more clearance inventory available online than in the past.

As consumers, we are all susceptible to phenomena and fads, learning from our experiences and adjusting. We’re also very transparent in providing evidence to businesses and marketers on what works and what doesn’t.

So it should be no surprise that an even newer model is popping up, combining exclusive experiences with subscriptions. For just $20 a month, you’ll get access to the most imaginative date nights we can sell!

With a subscription — think warehouse clubs, cable TV, Amazon Prime — you’ll often feel like you are more invested in the service. And the businesses themselves actually get a steady stream of revenue that tends not to leave in a flash.

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Like any form of promotion, customers find that sometimes the purported values do not live up to their billing. — Robert Cialdini