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LivingSocial deal debacle a warning for start-ups

Monday, 3 October 2011 | By Michelle Hammond
Start-ups have been reminded of the perils of advertising on group-buying sites, after an attractive deal for Havaianas thongs led to a severe backlog of deliveries, angering customers.

 

Two months ago, group-buying site LivingSocial advertised a deal for OzThongs, which carries popular thong brand Havaianas.

 

More than 100,000 pairs of the thongs were sold, creating a huge backlog in deliveries and resulting in an angry backlash from customers, many of whom took to online forums to voice their complaints.

 

LivingSocial, which was contacted by NSW Fair Trading, admitted it would not be able to fulfill all the orders and would offer refunds or credits to customers.

 

A company spokesperson said the large volume of sales “took everyone by surprise” and LivingSocial had emailed all customers to notify them of a delay.

 

“LivingSocial and [local partner] Jump On It are concerned that some customers are unhappy with the delivery time and, as per our policy, are prepared to fully refund … should they want to cancel their purchases,” the spokesperson said.

 

In light of the incident, Fair Trading Minister Anthony Roberts says his department will now be monitoring the activity of group-buying sites.

 

Fair Trading has received almost 200 complaints about such sites.

 

“I am warning people to tread very carefully with these sites... If you buy something on the spur of the moment, you might not get what you were expecting,” Roberts told Fairfax.

 

Earlier this year, group-buying giant Scoopon came under fire after failing to limit the number of vouchers available for a deal at a Perth beauty salon.

 

The salon was forced to extend trading hours, hire three new staff and add another month to the voucher expiry date, all the while jeopardising the existing customer base.

 

“[Scoopon advised] it’s better to uncap it and let it go wild [because] the amount of people who actually redeem what they purchase isn’t high but we’ve found the opposite,” salon manager Cheri Hodgson told StartupSmart.

 

Adam Schwab, co-founder of Deals.com.au, says although these incidents can occur when deals are oversold, they have become much less common.

 

“I think companies have really tightened on that lately. Ultimately, it comes back to the deal and whether people can be offered a refund,” he says.

 

“I’ve had arguments with some businesses when we say we want to cap the deals.”

 

“The last thing we want to do is sell too many vouchers, like a lot of our competitors do, and cause the business to suffer a loss.”

 

“There’s always a relationship between making sure the deal works so the customers come back, but also is good enough to make them want to buy it in the first place.”