Understanding Smack Shopping – Deal of the day

The first thing that comes to your mind as soon as you read about Jellyfish’s Smack Shopping – Deal of the day is Woot. Woot was a very innovative concept which took the consumer market to a new paradigm. It was just a limited time, cant-miss deal, which had the users hooked for the one main reason – one product, great discounts. It made great sense to the wholesalers too, for one day their product is assured to be sold.

Since we dont have any details on the discount rates on items by the W00t retailer, lets just say W00t buys the products at some x% discount on the market price from the wholesaler. And then W00t sells the items to its consumers at y% discount on the market price. The final profit that W00t nets is (x-y)/100 * N * Cost of each item.
However, Smack Shopping Deal of the day (SoTD) makes this number game much more interesting. The main reason is the number of variables involved is more than two {x,y}. Lets now consider SoTD here. For instance, consider the statistics provided here. In the first three days, the lowest cost has risen from 0$ to 60$ to 100$ (agreed though that the items are different on each day!).

Because of the many different variables involved in this market, the major play is by the consumers, the questions im having are:

  • Is there a standard price at which the users might stabilize? Will the prices hit a plateau in the long run?
  • Can the system be gamed? Of course, in India, people would not go on a shopping spree and wait to buy the items for free.. he he.

Lets consider for a second how the mathematics might work:

First the variables.

  • x% is the percentage discount price that SoTD gets from the wholesaler. To make a profit on the deal, on average the item should sell for more than (100-x)/100*Unit Price
  • We dont have a y% here as the reverse bidding on the item starts from its Market Price.
  • Whats tough to quantify will be the users response; because here’s its the race between greed of one consumer and the wisdom of the community. In the general case, when the wisdom overwhelms the greed, there will always be customers who will buy the item for zero [Heres the point where Smack gets Gamed]. When the greed overwhelms the wisdom, the customers will buy the item for the least possible discount; maybe even for less than the y% discount price .
  • Mostly the average cost of item bought will mostly be the region where the consumer feels he has got the best buy. On Woot, we understand that 62% of customers buy 1 of an item, 14% buy 2, and 24% buy 3; i.e for every 100 users, the number of items they buy are 162 (62 * 1 + 14 * 2 + 24 * 3) implying on average every user buys 1.62 items to get a standard discount of y%. This unit price / unit profit made on W00t is not important to us; the point is can this statistics of user behaviour predict how it will extrapolate for SoTD? Can we without no useful data on SoTD, extrapolate that of W00t to SoTD? Can it correspond to that
    • 62% of the users buy the item in the first time slice.
    • 14% buy it in the second time slice and so on?
  • Also is there a pattern that will emerge to the number of items that SoTD puts on sale? I dont think the variation will be a lot, or that the numbers will be less. Mainly because if SoTD has to survive it has to get large numbers on sale to reap the benefits. An occasional rapid random decrease of the number of items on sale will keep consumer on their toes.
  • The SoTD market looks very much like the stock market, Im guessing that overtime, there will be a definite pattern that will emerge that will behave the stock market tendencies – rewarding consistent study and effort and punishing small time investors who follow the herd.

SoTD will emerge as a very interesting social experiment in the consumer space not only because the consumer deals with escalating discount but also with the uncertainity of the number of items involved in the sale. User patterns that will emerge will for sure show

  • How users react to uncertain buying deals?
  • On average, there will always be the high risk-high reward folks who wait till the end, which might actually be the 24% of W00t. The average buying pattern in general will be those individuals whose asking price on SoTD is marginally less than the discounts they get at other areas. This might consist of the 62% that W00t had. The losers might be the early birds who on getting a good enough deal buy it – that might be our 14%.

Other links:

More about W00t

PS

Though not an economist, I sometimes assume supereconomist role to the T. However, my excitement is at seeing a simple product like SoTD exhibits properties of many other markets mainly the free markets existing today – stock markets, job markets.

– kopos

2 Thoughts to “Understanding Smack Shopping – Deal of the day

  1. Hey – loved your post on Woot and JellyFish. If you haven’t already, check out Tanga.com as they do a daily deal with a different twist. They also sell games and entertainment type of products.

  2. hey matt
    thanks for your comment! and really sorry about this delay in replying to the comment.

    till date i was only thinking that w00t was the only surviving deal a day model based website. tanga definitely looks amazing, the deals too! but is that the brand new goods? at such astronomical discounts, are they goods used or refurbished?

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