Last week, in a deal that sounded too-good-to-be true, group-buying website Groupola was offering the new iPhone 4 for a mere £99, sim-free. Users had to simply register interest on the Groupola website, where they would then be emailed a link to buy the new must-have iPhone on Friday.
With such a tempting deal on offer, on Friday morning, the Groupola website faced major meltdown, and that's essentially what happened.
A Groupola spokesman said 5m unique users tried to access the site between 9am and 9.30am. That number seems incredibly far-fetched to us but obviously the website fell apart as a result of the demand.
With thousands (if not millions) of users unable to access the site, it's unsurprising that a wave of angry consumers took to social media channels to voice their outrage on Twitter and Facebook.
The process was mismanaged from start to finish, resulting in a PR fiasco for the company. So what could Groupola have done to avoid such an unmitigated disaster?
It all started so well. On Wednesday last week Groupola announced that it had purchased a number of sim-free iPhone 4 handsets and was able to offer them as a loss-leader, at a heavily discounted price. It made for some excellent PR: the offer was covered by a number of high profile sites, including Thisismoney.co.uk, The Guardian, PocketLint, and other prominent discount blogs. Users simply had to sign up for Groupola's daily deal alerts and then check their email on 1 July.
On Friday 2 July, at 9.30 am - as "more than five million" users clicked on the link - the Groupola's website promptly crashed with users stuck at different stages of the buying cycle. Some were unable to visit the page itself, while others could not get through after clicking the "Buy Now" button. Others managed to enter credit card details only to find the site crashed before confirming their purchase.
The sale started at 9.30am, and with people who were sitting at their computers before 9am unable to access the site, it is somewhat unsurprising that users smelled a rat. To compound matters, many users found that clicking on the link in the email simply took them to the Groupola homepage, leading people to believe that they had been sent the wrong link in the first place.
Groupola says that the high volume of traffic to the link resulted in "an auto-redirect to the next available page". However, another separate link was floating about on Twitter (that in fact allowed users to hit the iPhone page), and this led customers to believe they were being duped.
On top of this, a series of other major failures led to the erosion of customer trust. The number of iPhones available wasn't disclosed until after the sale, when it emerged that only 200 were available. However, upon visiting the site, the site tracker in fact said that 202 had been sold. According to Groupola, this was merely a technical glitch.
This, coupled with the mixed messages that Groupola was sending out through Twitter and Facebook (initially telling customers to keep trying even though they could not connect to the site and later saying that the iPhones has been sold out when the website said they were still available) meant that customers were in complete confusion about what was going on. Perhaps worst of all, a rogue Twitter account with only a handful of Tweets and only a single follower (Groupola) sprung up on Friday morning, claiming to win an iPhone, leading to further accusations by customers that Groupola were trying to pull a fast one.
And the series of disasters for Groupola didn't just stop there. One Twitter user claimed to have got through the buying process, only to receive an email from Groupola telling them that their order had apparently been cancelled. In addition, the broken unsubscribe link in the initial email certainly did not help matters. The fact that there appears to be no easy way to delete a Groupola account after the initial sign-up is also creating cause for concern. Subsequently, consumers have set up various Facebook groups to express their wrath against the site. Some publishers and partners have also withdrawn their support.
Needless to say, the whole debacle has been a major PR fiasco for Groupola. Unlike other companies before them, Groupola did have the right channels (Twitter and a Facebook page) for crisis management to respond to customers, but the manner in which they responded could undoubtedly have been better. For example, replying to every single message over and over again (not dissimilar to Vodafone before them) using a copy-and-paste approach did little to convince customers that the company was being sincere. Other blog commenters on Bitter Wallet claimed that Groupola had deleted their Facebook comments.
And in the latest development, Bitter Wallet goes even further, suggesting that Groupola is now astroturfing on its Facebook page getting staff to "pose as punters".
What can start-ups and discount sites learn from Groupola's mistakes?
From a customer acquisition point-of view, Groupola managed to gain an unprecedented volume of new registrations. The company was selling the iPhones as loss-leaders, which meant the strategy for the campaign revolved around the value of sign-ups and customers being higher than the £80k loss incurred purchasing all 200 phones in the first place. However, Groupola failed to recognise the value of customer trust and loyalty, and the value of long-term reputation. The key question here is, is there really any value in acquiring a high volume of customers, who don't trust you and therefore, are ultimately unlikely to transact with the brand again?
Building customer trust is even more crucial for a recent start-up than it is for an existing incumbent. The group-buying concept works by offering a huge discount on products and services, but a certain threshold of customers need to purchase before the company takes money from your credit card and the deal goes through. Given that the concept is relatively new, there is a higher barrier for customers to overcome before making a purchase. In addition, entering credit card details before the customer knows whether the deal has gone through or not requires a higher level of trust than elsewhere online.
Other group-sharing websites such as competitor, Groupon and private sample sales website, Vente-privee.com seem to understand this. In order to gain customer trust and fuel further future sales (thereby focusing on customer retention rather than acquisition), such websites must offer an impeccable level of customer service in order to compensate for the initial pain factor.
For example, Vente-privee.com offers huge discounts on luxury brands and designer products. The downside is that the delivery time can take anywhere from six to eight weeks. However, many consumers are willing to purchase regardless because the private sales website is open and transparent about the delivery stages, and offers good customer service in return for having to wait a long time for delivery.
In Groupola's case, the whole process was mismanaged from start-to-finish, leading to a catalogue of failures, making the company appear to be disingenuous and resulting in diminishing customer trust. According to Groupola's PR company, some winners from the deal have emerged, but perhaps this is too little, too late. In the end, Groupola fundamentally failed to estimate demand and prepare accordingly. It failed to prepare for such high volumes of traffic, which inevitably led to customer disappointment.