Bad Daily Deal Causes Uproar

The daily deal business is a sizzling place right now.  We all read the headlines, the funding reports, and the buyout rumors.  Companies like Groupon and LivingSocial are in our face 24/7.  They send us emails, we hear them on the radio and we watch their commercials on TV.  And that’s perfectly fine, the system appears to be working and there’s a reason hundreds of startups are out there trying to replicate their success.  But beneath all the headlines, Google rumors, ads and emails, there is a growing concern with some of the business practices and internet chatter is rising with complaints, angry customers, merchants gone wild, and a growing sentiment of dissatisfaction.

In our “Daily Deal Industry Report” we’ve covered a lot of these growing concerns on a much broader scale, and highlighted some of the potentially serious legal challenges this industry could face on multiple levels.  Today we’re going to focus on a merchant in Houston, Texas, that’s caused an uproar from unhappy customers.  The experience hasn’t just left them unsatisfied with their purchase, but in some cases very uncomfortable and even unsafe.  We have received numerous emails and requests to cover this story from people voicing their concern and displeasure with this particular business which has soured their daily deal experience.  This isn’t a forum to judge or attack individuals and/or businesses so we’re not going to publish the owners name or start some witch hunt.  This is a case study and example of the wild west environment some daily deal companies are operating in, which will lead to much larger issues down the road for the industry if proper steps and precautions aren’t taken when doing due diligence on a merchant you’re about to send 5,000 customers to.

The Scripa Massage deal is a prime example of the mess that the pre-paid model can at times create.

Daily Deal providers, in this case Livingsocial, are providing customer monies so far in advance of services that the owner is able to make capital improvements to the business, build a new website, and lease new space.  So, in effect, customer money is a conduit to capitalize a cash starved business and puts money not into services but the business assets. This is closer to a bank loan than “group buying.”  Hardly the intent of the gift certificate buyers who just wanted a “high end massage” at a discount.

In this case everyone wins but the customers. The reviews demonstrate how deficient the service is.  His reputation on Citysearch has been destroyed, but whats stopping him from setting up shop under a new name?   There were initially over 5,200 sold, totaling a $156,000 gross.  On a 70/30 split that Living Social was supposedly offering businesses at the time, the owner may have pocketed $109,000.

Some key issues:

1. One person studio (3.5 years worth of massages sold -not including numbers with BuyWithMe), 6 month expiration- recently extended to Oct 17, 2011).  Potential for approximatively 80% or more of vouchers being unredeemable during offer period.  The value is so marked up, it is unrealistic to have to pay at face value.  Meaning, Texas law governing gift certificates would not offer customer adequate protection.

2. Owner typically does $39.00 massages  - http://www.scripawellness.com/

3. Allegedly inflated value to $250.00 to create a “perception of discount.” (created the massively marked up Spa Package to create perception of discount)

4. Allegedly created fake Reviews to entice customers and get Daily Deal companies to sign and distribute offer.

5. Real reviews (post offer) reveal that his studio is unclean, massage service unprofessional and not anything close to the the package that they paid for and expected to receive.

Please read commentary on YELP, CitySearch and some raving reviews on this site.  We have attempted to reach LivingSocial for their comment on the situation but have yet to hear back from them.  If we do, we’ll provide an update.