The story of the $10 iPad from FabFind

After a brief introduction to Groupon and an explanation about why their business model is currently being cloned faster than sheep, I review FabFind’s $10 iPad giveaway and explain how harmful some forms of marketing can be. This is an explanation about how a small local startup ran an evil marketing campaign and how a seemingly positive marketing idea can quickly have a negative impact on community centred services. The observations, thoughts and conclusion are drawn from my view of Fab Find’s iPad giveaway. I’m in no way affiliated with Fab Find and as a result, my conclusions may not be accurate.

What is a Groupon?

Groupon is a marketing company based around an online community. The service offers a completely new form of marketing. Local businesses list a significantly discounted product or service on Groupon.com or a Groupon clone such as FabFind.com. Every day, Groupon’s large and growing audience of deal seekers review the deal of the day (aka Groupon) available in their neck of the woods.

Taking note of the success that Groupon.com has enjoyed, Groupon clones such as FabFind have launched. Relying on local connections while leveraging skills in both online community building and regional sales, these clones build on Groupon’s initial success by further regionalizing the model. Similarly, large websites with local connections such as Zagat and RedFlagDeals.ca have independently cloned Groupons model by offering similar “Groupons” to the stores, restaurants and services that they have access to.

I’ll be using the term Groupon as a verb to describe a web based daily deal that is offered to the public at a significantly reduced price. Much like Kleenex or Vaseline are both product names, they are canonical names for common products offered by a variety of manufacturers.

The pro’s and con’s of this new form of marketing

When a Groupon launches, retailers prepare for an onslaught of customers. After the Groupon ends, hundreds and often thousands of customers print their Groupons and visit the sponsoring store to use them. Retailers are often surprised and overwhelmed with the sheer number of new customers. From coffee shops that are lined up around the block to restaurants that need to turn away regulars in order to accommodate an onslaught of reservations, this form of marketing funnels what seems like the entire Internet onto one retailer or service provider a day.

Beyond the initial stress and long-term trickle of coupon redemptions, the other issue that was brought to light by retailers is the true value of these deals. In order to have your business featured, a negotiable portion of the deal price must be given to Groupon. Drastically reduced prices upward of 75% are required to be listed on sites such as Groupon and when you add in the service fee that is charged, retailers and service providers are left with a very small piece of the pie. Groupon.com and their clones keep a portion of the price of the product offered in exchange for listing the deal on their website. Groupon usually keeps half of the deal price. For example, if a business offers a $100 regularly priced item for $50, Groupon will keep $25 from each sale.

Sources:
http://www.barbusinessowner.com/public/Groupon_Promotion_For_Bars.cfm
http://blog.redfin.com/blog/2010/09/groupons_success_disaster.html
http://posiescafe.com/wp/?p=316

There are however benefits to Groupon.com and services such as FabFind that have cloned their model. First, having a heavy volume of customers is attractive to many businesses – especially those that often rely on a handful of regular customers. When properly leveraged (in the form of data collection for further marketing), the cost of new customer acquisition can be attractive. Additionally, Groupons open the local retail outlet to a brand new set of customers that the business would not otherwise have access to. If carefully crafted, some Groupons can even break even or turn a profit without having to rely on tertiary efforts.

What happens when a Groupon gets Grouponed?

One such Groupon.com clone is Toronto based startup FabFind.com. With an attractive design and slick user interface, this Groupon clone tried a familiar but exciting way of marketing itself. There are two ways that Fab Find differentiates itself from Groupon: First, Fab Find reserves quantities more often than Groupon. Also, Fab Find currently markets small, local Canadian businesses. Other than these two minor details, the sites are functionally identical.

On Wednesday October 6th, 2010, they surprised Toronto with a special group deal. Rather than focus their community of deal hunters on a local restaurant, spa or gym, FabFind held their own Groupon. They started the day saying that they were going to give away an undisclosed number of Apple iPad’s for $10 each at random times throughout the day.

Understandably, their website, FabFind.com was hit with their own onslaught of visitors. Shortly after FabFind made the announcement of nearly free iPads was distributed on Twitter, Facebook and to their daily email subscribers, their RackSpace hosted website went from slow, to unavailable to intermittent. FabFind was obviously unprepared for the event.

In this video, YouTube user ClubSeries records
the experience that the majority of users had during FabFind’s iPad promo.

This is a familiar sounding proposition. Retailers who use services such as FabFind often find themselves in a similar predicament. FabFind offered a product at a significantly reduced price. They were met by a crippling number of customers. Trying to meet the demand of long lines and impatient customers, FabFind found themselves in the exact position that their customers do.

Giving away a handful of iPad’s sure must have sounded like a great idea when the staff gathered around their board room table. Free iPad offers (especially legitimate ones) create a frenzy of excitement. People told their friends both online and offline about FabFind’s $10 iPad deal, shared the URL of the company throughout the Internet and generally created a lot of seemingly valuable buzz.

However, what happened at FabFind on this chilly Wednesday created a truly negative and somewhat evil impact on their community. Remember, Groupon clones such as FabFind rely on the communities they build and the traffic they receive based on their daily deals. Without a strong community of daily deal hunters who regularly purchase deals, the value of their service is worthless to their customers.

How FabFind Produced an Evil Marketing Campaign

1)
FabFind set a poor example of their service. They were advertising their service but they devalued it by ignoring their own business model. They didn’t have a community based daily Groupon deal; they had a blitz contest for a couple of iPads. Rather then highlight the strengths of their model, they showed the weaknesses of it. Similarly, FabFind showed large potential advertisers that they do not have the capability to host large scale deals. If PepsiCo, Marriott, General Mills, Starbucks or any other large company was considering hosting a national or even regional deal using FabFind’s infrastructure, they will certainly look past FabFind knowing that they do not have the technical resources to facilitate either volume or scale.

2)
FabFind hid details in order to encourage participation. In order to avoid saying “we only have 5 iPads to give away today”, they enticed their community to sign-up to the e-mail newsletter, Twitter feed and become friends on Facebook so that they wouldn’t miss out when new iPads were released. In reality, FabFind only released a single iPad randomly every few hours. This wasn’t a black-and-white lie, but it was a shady marketing trick.

3)
FabFind hid behind a contest. Saying things such as “good luck to everyone” and “we hope you win”, FabFind turned away again from their own Groupon clone model by treating their service as a contest rather then a community based deal finding service. Hiding behind a contest was a knee jerk reaction to server latency and the general disapproval of their users.

4)
The product that FabFind was promoting (their online service, FabFind.com), was not prepared for the marketing campaign. In 2010, folks who work online know that any amount of unexpected traffic can have a crippling effect on a website. Years ago, we braced for things such as the SlashDot effect while recently, we’ve come to understand the power that communities such as Digg and Facebook Groups can have. Using things such as load balancing, caching webservers, content delivery networks, slice based hosting and load testing services it is not only possible for online companies to anticipate huge spikes in traffic, it is inexcusable not to.

5)
As their website went up and down, users became frustrated. FabFind communicated directly with their community using Twitter. This was a pro-active, upbeat countermeasure showing that FabFind understands how valuable community is to their success. However, the person responsible for managing the Twitter account for the company thought that it would be best to answer all of the @replies sent to FabFind. Rather than molding and shaping outgoing communication during what could equate to an emergency situation, FabFind replied publicly with statements such as “I am not in IT, sorry, I’ll forward that along to the appropriate people” and “Sorry it didn’t work out for you”. In emergency situations, PR specialists are trained to form a predetermined message while careful replies and statements shape the conversation into that message.

6)
Finally, after the promotion ended, FabFind ran damage control. First, Fab Find stopped @replying to everyone on Twitter asking users to simply email them with concerns. Next, Fab Find started to police and delete comments on their Facebook page in the hope of managing the fallout. They also offered 200 “FabFind Points” to people who complained about the iPad giveaway loudly enough. I’m still not sure what 200 FabFind Points equates to but know that these points are only redeemable for FabFind deals. One of the most interesting things that happened after FabFind’s community erupted in disappointment was a series of comments and blog posts from people connected to FabFind saying that this was a “brilliant marketing move”. In short, the authors of these comments and posts claim that FabFind’s botched marketing initiative was purposeful. Making a mistake, even a large one, is forgivable. However, purposefully planning a deceptive marketing campaign isn’t.

In summary: In exchange for flash-in-the-pan marketing, FabFind sacrificed their reputation in a sought after online community. FabFind ignored their own business model while trying to promote their service. Rather then shape conversations through communication to deliver a message, they tried to inject apologies. They did not anticipate the technical demands of the Internet and as a result, lowered the value of their product.

Was Fab Find honest? Is ethics important?

I’ve preached for years that trust is extremely important online. Trust is second only to content when considering online business; people will only purchase, click, or engage when the user trusts the website they are viewing. Ethics and trust go hand-in-hand and in the points above, the threads that connect each point are trust, ethics, and responsibility.

In response to some of the negative fallout from the iPad deal, the Fab Find CEO stated:

“Simply put, we would never do a purposefully deceptive marketing campaign and put our reputation at risk [...] We sold $10 iPads to create excitement, not to deceive people.”

Was Fab Find deceptive? Purposeful or not, it turned out that they were. They set out to attract the most attention they could for the lowest cost possible. Generally, this is the goal of every marketing campaign and can be an honest way to reach people. However, Fab Find’s campaign deceived their audience in a number of ways before, during and after the campaign. Reading the 6 points above while considering honesty will result in specific examples.

However, I don’t think that Fab Find purposefully set out to deceive the community of deal-hunters that they rely on for their business to function – it just turned out that way. In my mind, I see a young, scrappy company trying to differentiate themselves in an extremely competitive niche. I imagine a couple of people sitting around a boardroom table with a small stack of iPad’s saying, “how can we attract the most attention to ourselves with these?” Rather than purposefully mislead people, poor planning and knee-jerk damage control resulted in such a negative marketing campaign that everything seems evil.