Updated April 4, 2019
If one were to look at DTC wine sales a decade or so ago, one would see that flash sales sites were all the rage. Some of those sites still exist, but they are not enjoying the popularity they once had. Is this just because they were a flash-in-the-pan trend? Or have economic conditions and competition changed the DTC landscape?
There is evidence of both a dying trend, and of a changed economy. But one could also argue that flash sales have become normalized. The industry has seen a lot of innovation around the online sale of wine, as well as it’s delivery. Many wineries and online wine merchants offer their own sales and promotions instead of relying on flash sale sites, thereby protecting their margins.
So why care about flash sales, then? For the same reason anyone should study history: Because those who do not are doomed to repeat it. Diving into some of the details about the rise of flash sites can give us some insights, not just into that model as a way of selling DTC, but also as a kind of case lesson.
Understanding the trajectory of flash sites will help us understand the forces at work behind other wine clubs, eCommerce sites, and delivery apps, too.
The Rise of Flash Sales Sites (for Wine and Other Goods)
The first flash sale site was created by online retailer Woot.com in 2004 (although Sam’s Club had a similar “deal by email” model as early as 2000). This site had a “deal-of-the-day” format in addition to the company’s online store. Each day a special product was offered at a heavily discounted price, and consumers had 24 hours to pull the trigger on the deal or lose it.
The rationale behind the deal-of-the-day format made good sense. For the consumer, it meant heavy discounts on desirable items. For the seller, it was a way to offload extra inventory. Also at work was the psychology of scarcity: Because the discounts were steep but lasted only 24 hours, consumers felt they had to act quickly or else lose the deal on that particular item. It was the ultimate embodiment of the salesperson’s old pitch, “Act now! Supplies are limited!”
Since 2004, many other deal-of-the-day sites have sprung up. Some of these were additional offerings by established retailers, while some were “flash sale only” sites offering goods from multiple brands.
Importantly, flash sales enjoyed much success because of the way the economy was headed. Flash sales really began to take off in 2007 and 2008 when the market crashed and recession hit. Consumers, for their part, needed to tighten their belts, and so flash sites were a way to splurge a little on luxuries while still getting a really good deal. The “buy it or lose it” aspect also made the sale itself fun and exciting. For retailers, flash sales were often an easy way to move slow-moving items—a very important strategy when inventories were becoming backlogged with unmoved goods. Thus, flash sales fit with the scarcity mindset that came with the recession.
Another twist to the flash sales trend was the rise of social media. Because some deals required a “participant quotient” for the deal to activate, it became popular to share them across social media and invite friends to participate. This amounted to a kind of inexpensive word-of-mouth marketing.
The wine industry was no stranger to flash sales, either. Sites like WineShopper, Last Bottle Wines, Wine Woot, and Wines ‘Til Sold Out sprang up during the flash sale craze, and several of them are still with us today. Many of these companies offered wineries a chance to offload inventory and get cash on hand to improve cash flow but still offered steep discounts to consumers.
Non-Wine Flash Sales Hit Hard Times
Flash sales are by no means gone, though the players have certainly changed.
For example, many flash sale sites are being bought out by larger, better-leveraged retailers—and at a rate that is far less than their peak valuation. Gilt Groupe, for example, once valued at $1 billion, was bought by retail conglomerate Hudson’s Bay Company for $250 million in 2016 and then subsequently scooped up by its competitor, Rue La La. Likewise Fab.com was valued at $1 billion but sold for $15 million in 2014.
Even Groupon, a remarkably well known and successful site, has seen its stock value plunge about 80% since it went public. Though the platform remains popular, it has become clear that Groupon cannot sustain the kinds of deals that brought in traffic to begin with.
The question is: Why? Part of the story is outright burn-out. An occasional barn-fire deal is an exciting thing; but one a day can be exhausting. As consumers were added to more and more marketing lists, triggered by their single flash sale purchase, the deluge of offers became too much for some.
Another part of the story is the recovering economy. A better economy meant less “excess” inventory laying around, and more discretionary spending. Deep discounts thus became harder to justify.
A final part of the story was, frankly, greed. A number of flash sale sites tried to widen their margins even as they offered huge discounts by marking up shipping rates and restocking fees. But those huge shipping and return fees devalued the deals in the eyes of the customer, further eroding customer loyalty.
In retrospect, though, that “greed” makes sense. Flash sales need a sustained marketing effort to re-engage past customers. But the average customer simply doesn’t drink wine fast enough for the model to be sustainable. Thus, there was always a mad drive to get new customers, and to squeeze more revenue out of existing ones. Still, how quickly companies could add customers dictated their ultimate success.
Using People’s Natural “FOMO”
Despite all this, the idea behind flash sales sites is a solid one: Create a sense of urgency in the consumer through the combination of short supply, deep discounts, and timed deals. To put it colloquial, flash sales hit people’s “Fear of Missing Out” button.
So what can we learn from flash sales? Is there a way to tap into this fear of missing out, but apply it more strategically to current sales channels such as tasting rooms and wine clubs?
We think that there is. Today, the sense of urgency is created through:
Social media. Social-media-savvy brands use these platforms not only to create a story around their wines, but also to announce special releases and limited-time shipping deals, as well as to invite loyal customers to events and tastings. These create a feeling of exclusivity and urgency without extensive discounting of the brand. New apps are bringing social engagement and gamification to the enjoyment of wines, too.
Special events. Events happen at specific times, and so wineries can use the same “fear of missing out,” but in a more positive way. Winery teams can host or otherwise get involved in local events and leverage the national press buzz to reach a larger audience of prospective customers. (A good example of this can be found in our interview with Sandra Hess, Founder of DTC Wine Workshops Consulting Agency.)
Seasonal “specials.” Many wine clubs have seasonal specials that are only available to wine club members (or available to them much earlier than to the general public). These can be wine products (such as the holiday gift sets that Flora Springs puts together) or non-wine products and services. Because such offerings are only around for a limited time, consumers are still motivated to “get in on” the offering before it is no longer available.
Lessons from the Past
There are still flash sales sites for wine today. But the see-saw of their public popularity should hold some lessons for us. Namely:
- Scarcity and the “fear of missing out” can work, but there has to be thought and reasoning behind it. A daily deal works well for a site like Last Bottle Wines. But if a winery itself has a sale every day, it can cheapen the brand and lessen the feeling of a missed opportunity. And, consumers will feel the burnout, too.
- Yes, you can use promotions to sell off excess inventory. But think outside the box too. What can you offer as a special promotion to your most loyal customers? Or your most affluent customers? What can you advertise as a seasonal special?
- Make your special offers part of your overall marketing strategy. Use them to augment your story and get your audience excited. But don’t rely on them exclusively.
Keep in mind, too, that the regulatory environment is very different from what it was even 10 years ago. Flash sales sites that were able to ship to many states in the past may not be able to do so now because of the current regulatory environment.
If you are interested in a more straightforward comparison between flash sales and the rise of wine subscription services, we recommend our article “Are Wine Subscription Services Today’s Flash Sales? The Evolution of Two Models.”
If you would like to discuss the logistics around any of these DTC methods, or to discuss other options for keeping your customers loyal, feel free to contact us for more information.