More Than One Will Get You One
Expecting consumers to derive entertainment from paying more for a product than it is worth seems like a terrible business model, but the funny thing is: It works.
According to a recent investigation by watchdog organization Truth in Advertising (TINA), DealDash.com, a “penny auction” site, adheres to precisely this business model and has profited handsomely as a result. Website members participate in auctions hosted by DealDash, bidding on items by using “blocks” of hundreds of bids typically purchased at $.60 per bid. A timer on the product page counts down for 10 seconds, within which time new bids can be placed.
Website members use their pre-bought bids to raise the price of the product by $.01 and to reset the clock; if no one bids again, the last bidder takes home the merchandise for the final price.
Nonetheless, according to TINA, in most cases members wind up paying more through their purchase and use of their bids than they would have paid for the object in a store or online. But the chance at securing a real bargain through the auction is enough to keep people bidding, in spite of the overall bias of the system against them. In one case, for example, a DealDash member purchased a $100 Walmart gift card for $115.19, plus the undisclosed cost of bidding.
A feature that DealDash believes sets it apart is the “Buy It Now” option, which allows auction losers to buy the same item at DealDash’s price-point, and apply all the bids used in that auction against the price. However, according to TINA, it is only a poor disguise, as outlined in their report sent to the FTC on June 5.
The report notes that the “Buy It Now” option, rather than legitimizing the service, adds to the damage it causes, because it disguises the fact that illegal pay-to-play gambling is at the heart of DealDash’s business.
According to TINA, DealDash engages in deceptive marketing, including failing to disclose bid costs in the final cost of the item won at auction, misleading customer testimonials, conducting perpetual sales for “bid blocks,” and failing to disclose material connections between DealDash and the sellers of some of the products up for auction.
DealDash is one of the largest “penny auction” websites, with tens of millions in annual revenue and an advertising budget to match. And that budget is put to effective use, with ads and taglines asserting that the site is “fair and honest.” But the website—and others that may follow in its path—may now face difficulty maintaining a reputation for honesty considering TINA’s allegations.
As of this writing, the FTC has yet to post a formal announcement of an investigation, or file a complaint