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[11 comments]

Drop 'Til You Shop Reinvents the Clearance Rack

December 9, 2013

Likened to the last 30 seconds of an eBay bidding war, a new website, Drop 'Til You Shop, launched last week, bringing gamification to bargain shopping.

Through a patent-pending pricing algorithm, shoppers compete against each other for limited-time offered products in a "rapid-fire" barnyard auction scenario.

[Image: DTYS]

The site features three deals going on at a time. Each item is initially assigned a suggested retail price, but the price quickly heads down, cent by cent, until a bidder "freezes" the item. The shopper is then transferred to a checkout page where they have three minutes to pay. Failing that, the item gets re-released back on the website.

The bidding process generally lasts less than 60 seconds, but ends any time a bidder claims the item. Determined by user activity, the price-drop descent also runs faster as more shoppers participate. Feeding the frenzy, the site will say "almost gone" and then "gone" once a deal is claimed. Once "gone," a new deal pops up.

The website initially plans to hold two daily, three-hour shopping events (9:00 a.m. to 12:00 p.m. in the morning and 9:00 p.m. to 12:00 a.m. at night).

"Really the most exciting part of eBay is the last 30 seconds of bidding," Nick Rosenthal, CEO of Drop 'Til You Shop, told Yahoo Finance. "We're really allowing users to have that experience all the time." The site recently saw a $300 iPad Mini go for $170.

For participating retailers, the gaming aspect promises to bring in much higher margins than traditional clearance efforts. The algorithm takes into account the total average margin targeted by the retail partner against user behavior.

"Drop 'til you Shop bridges the gap between first discount and final clearance for retailers," said Mike Theilmann, current investor and former group EVP of J. C. Penney, in a statement. "What used to take three-six months with stair-step discounting can now happen in just one week."

According to TechCrunch, retailers will soon be able to embed Drop 'Til You Shop on their own sites. The startup takes between 8 and 10 percent of each sale on a retailer's site and an 18 to 20 percent cut if the sale is completed on its own website.

In beta, user sessions were lasting up to 35 minutes, which Mr. Theilmann described as "simply unheard of in the online world."

Apparently, the activity overwhelmed DTYS's team as the website crashed last week upon launch. The website page now indicates that products and services are being updated to enable more live events. "Secret Sales" invites are being offered to those providing an e-mail address.

Discussion Questions:

What do you think of using online gamification to speed the discount price-cut process? What do you see as Drop 'Til You Shop's pros and cons for retailers?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

How would you rate online gamification as a potential tool to improve clearance efforts for retailers?

Comments:

Gamafication is very popular across the mobile space. From Angry Birds to what we now have - the new "Angry Shopper"? For retailers, this technique helps to move select inventory and draw the shopper into their site and thus less time for the shopper to be at competitive retailer's sites. The 18-35 year old target audience thrives on many forms of gamification and this will fit well. Trick is getting them to come back more than one time.

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Tom Redd, Vice President, Strategic Communications, SAP Global Retail Business Unit

The biggest question right now is if the site can scale without crashing. No retailer is going to want to touch DTYS until they know it will work. The fact that it launched and promptly crashed is not a good sign.

With retail's hesitancy to embrace new technology, I wonder how many retailers will test DTYS.

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Max Goldberg, President, Max Goldberg & Associates

Pretty cool. We'll be seeing more of these gamified interactions in digital retailing in 2014. Even today's headlines show that international espionage operations are infiltrating games, which they suspect are being used for terrorist communications. Used for good or ill, game structures are transforming traditional interactions in many arenas. Retailing and brands are poised to play catch-up.

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Liz Crawford, VP, Strategy & Insights, Match Drive

As a consumer and former retailer, I love the sense of urgency this brings to the shopping experience. It also plays well with society's "speed of technology" syndrome where you can get whatever you want instantly, from a car service to same-day grocery delivery.

If in fact this can deliver higher margin items for the retailer, it's a huge gain. The downside is will we train customers to wait for the discounts or buy a portion of inventory at full price?

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Robert DiPietro, GVP Product Strategy & Business Development, Affinion Group

Gambling is one of the three largest cash businesses in the world. Gamification, as it is called in the discussion, will bring the kind of profits sought with a little more experience and tweaking. Manufactures should look to join in on these efforts with their best product offerings to maintain and prolong heightened consumer visibility and demand on a world-wide basis.

'gjarnoldjr'

With the love of gaming, fast paced action, and a chance to get a bargain there will be a segment of the marketplace that will love this site.

The question is, will they be able to take advantage of the holiday season and scale before consumers lose interest?

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Mel Kleiman, President, Humetrics

Why should shopping format variety be limited to physical stores? Think of this as a 'new' online format built around excitement and redefined value for a select audience weaned on eBay type shopping and gaming.

Strong potential if they deliver on their tag line of simplifying shopping and deals "no bidding, no hidden fees, no catch" (wondering about shipping fees). Time will tell how suppliers and retailers will respond to this approach of moving end-of-season or clearance merchandise and if it really meets the CEO's promise of an "addicting, pulse pounding experience" for shoppers.

Now if they can match the creative format with better web technology and infrastructure so potential customers can actually use the site....

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Mohamed Amer, Vice President, Global Integrated Retail Unit, SAP

This is very interesting. Some of the previous comments rightly focus on the technological challenges of getting the site's interaction to operate robustly. But, being a price optimization geek, I am intrigued by the possibilities for the pricing model.

I assume that, generally, there are multiple instances of the same item available for purchase. If so, does the retailer broadcast how many units remain available (beyond saying "almost gone")? The description of the algorithm implies that the price may only drop with time, but it would be interesting to consider also a paradigm where the price can actually rise as supply gets near zero. Also, why drop the price faster with more participants? This seems counter intuitive, and is certainly counter to how traditional markdown algorithms work. Perhaps the article's description oversimplified the actual workings of the algorithm, but there seems to be much potential for building more sophistication into this pricing algorithm.

What metric is the retailer attempting to maximize - is it always maximization of immediate profit? Perhaps driving participation in the "game," even at the expense of short-term profit, will often be a pricing criterion. The ability to have private auctions tailored to certain customer segments also is intriguing. This opens a world of possibilities for customer-targeted auctions, with different pricing algorithms customized to optimize different criteria. For example, some auctions might be designed to increase the interest and reward of our "best" customers, or to bring new customers into the game with future profit in mind.

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Dr. Paul Helman, Chief Science Officer, KSS Retail

This appears to be similar to the concept of a penny auction operation with the exception of using a reverse auction to lower the price. The concept sounds exciting at first but as you see, selling iPad Minis for $170 is where the model falls apart and become unsustainable.

I actually think this would be a great brick and mortar interactive digital signage application instead of an online e-commerce venture. Have an overhead digital signage that lists all of the items in clearance and the consumer can place a bid on their mobile phone to take the item away from the physical store.

Ed Dunn, Founder, (Stealth Operation)

Although this may be an effective strategy for clearing unwanted inventory, there are many risks that retailers will undertake if they put products on this site. The heavy discounting combined with the impulsive, gambling-type transaction may cheapen brand image and will do anything but lead to loyal customers and brand champions.

Penny bid sites began with a frenzy similar to this as well, but quickly faded into a category which many think is illegitimate and counter to the rewarding experience a deal site should provide.

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Jesse Karp, Omnichannel Consulting Manager & Loyalty Practice Lead, Cognizant Business Consulting

I think Drop 'Til You Shop is an innovative approach that has several advantages going for it as a model such as:

  • It uses gamifaction, which has become incredibly popular, particularly with the pervasiveness of smartphones
  • It creates a sense of urgency and excitement for the shopper
  • It gives the customer less time to price compare across sites

Most importantly, it seems to be creating higher clearance prices and is better able to read the market demand than if the retailer simply establishes a clearance price.

In terms of cons, they are clearly going to need to address the scaling issues. They are also likely going to need to find a way to enable shoppers to easily find the products of greatest interest as they become more popular and add more products to the site.

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Alexander Rink, CEO, 360pi

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