When e-commerce began to take off, it wasn't long before entrepreneurs figured out how to translate the wholesale outlet model to an online business. Daily deal — or "flash sale" — websites, where a limited quantity of a product is sold for a limited period of time, started gaining popularity several years ago, and it soon became clear that they weren't just a "flash" in the pan.
These sites are based on the idea that a short-term sales event drives consumer interest while keeping inventory and operating costs low for the retailer. Like the old traveling salesman who came to your door, offered goods for sale and then moved on, the daily-deals industry operates on a "get it before it's gone" mentality.
"Customers understand that the same dynamic is in effect as in outlet malls, or buying from the sales rack," said Salim Mitha, co-founder and chief operating officer of health and wellness community and flash-sale site Wahanda. "Consistency of inventory is not the main driver of these types of sales, but instead, it's the thrill or potential to score a value item — a treasured, stylish or desirable item at a fantastic price." [Tools Behind the Trend: Flash Sales]
While each daily-deal website is unique in both its specific sale model and in the kind of items it sells, their common ground is in the flexibility they can have in both pricing and their product offering. The model allows the sites to keep inventory costs low because the company negotiates great deals on a limited quantity of merchandise.
"We're partnered with over 300 brands," said Jason Ross, founder of JackThreads, a site that sells discounted men's fashion. "We're able to negotiate great prices and pass that on to our members in the form of great savings."
Shoshanah Posner, of jewelry flash-sale site Shadora.com, noted that one key advantage of daily-deal sites is that many traditional retail operating costs don't exist. Not only are inventory costs low, but they also avoid the costs of having a physical location (like any e-commerce business) and inventory storage space.
Evolution of an industry
Daily Steals, a site featuring deals on consumer electronics and lifestyle products, was born out of a wholesale e-commerce business in late 2008. Matt Wiener, the company's CEO, has watched the industry evolve over the last several years, and believes the future of the daily-deals sites lies in consolidation.
"The market has changed," Wiener told BusinessNewsDaily. "The daily deals space got overpopulated. There wasn't enough product available for everyone to sell, which either led to shutting down or raising prices. Strategic partnerships will be the game changer for many businesses in the daily-deals industry. Sites will see consolidation and migration, and there will be alliances formed."
A focus on service
In Wiener's experience, success in the daily-deals market is dependent on a strong emphasis on customer service.
"There's a stigma [in daily deals] not to expect the best service because you're getting great deals," Wiener said. "Today, customers want exceptional service and amazing products at steal prices."
Deeon Brown, Daily Steals' communications manager, added that companies need to have transparent relationships with their customers, and deliver what their customers want.
"We're taking customer feedback and applying it to our operations," Brown said. "Being nimble enough to make a strategy jump toward what your customers want is key."
Originally published on BusinessNewsDaily, Dec. 9, 2010. Updated Jan. 29, 2014.