I’ve seen a lot of links to MassDrop sales over the last few months, offering substantial discounts on fountain pens (amongst other things) that seem almost too good to be true. Recently, they had a Lamy 2000 for US$115, compared to a street price of $160 and list price (MSRP) of $200, and a Pelikan M800/805 for $360, compared to a street price of $570 and list price of $715. These weren’t the first huge deals on MassDrop and won’t be the last, so I thought today we might have a look at the company, how it works and whether it will last.
First though, I want to rebut the company’s claim that they are not just another GroupOn. From my perspective, there doesn’t seem to be a great deal of difference between the two: both offer rather large discounts for a very short period, and take a commission. MassDrop claims to be different because they create enthusiasts and are a platform for community rather than a deal site. This seems to be more aspirational than factual; the discussions around their site are largely about current or upcoming deals rather than the passionate enthusiast discussions you see on reddit and FPN. If they didn’t offer deals, I can’t imagine anyone sticking around. So it seems fair to say they are a deal site, and I’m not sure why the company wants to pretend otherwise.
There is one interesting different with GroupOn: whereas they were really dependent on the buyers, MassDrop seems to have no trouble attracting FP users eager for a deal. They are instead beholden to the brands and distributors who are willing to seel directly to them. Without their support, MD has very little to offer the pen community; those relationships are their strength today but their weakness tomorrow.
It is a weakness because MassDrop isn’t just another sales or distribution channel for brands, it won’t last for the long term (no discount site ever does). It offers retailers a few benefits (a quick boost in sales and revenue) but they come with costs. First, it alienates the retailers, who – unlike MassDrop – are actually in a long-term relationship with the brand, and who brands depend upon. Second, it doesn’t build the brand in any way or their reputation, and could arguably harm it – can anybody imagine Montblanc putting a Meisterstuck on the site with a 40% discount and retaining their reputation for premium and luxury? But, perhaps most importantly, it cannibalises sales.
Discounting works for two main reasons: it attracts the buyers who previously felt a product was not good value at the retail price and it accelerates purchases by those who are waiting (for whatever reason). The first group of buyers are new buyers, people who would not otherwise have purchased the product; the second group are existing buyers, people who would have bought the product at some point in the future.
As firms are generally revenue-maximising, discounting works best when the brand is able to discriminate between these two groups or when the discount attracts a lot of the first group and not so many of the second. If a sales event brings in a lot of the full-price buyers and not so many price-sensitive buyers, it could mean the company actually loses money, compared to what it could have made without the sale. This is what we mean by cannibalisation.
For a brand using MassDrop – and a few of the big players obviously have – the question surely has to be how many of the sales are to price-sensitive buyers, how many are simply cannibalising sales from other channels, and whether selling through MassDrop is worthwhile.
The answer to this question is going to vary with other brand and their strategy, but my instinct is that some FPs – particularly iconic pens like the 2000 – have a lot of pent-up demand from buyers who simply can’t justify the expense, and a big sale will draw them in once. That tactic will only work every now and again though; a brand will have to wait a long time – possibly years – for that amount of demand to build up again and justify another sale.
This narrative seems to fit with the sales figures that MassDrop conveniently publishes on their website. The Lamy 2000 has been sold twice, six months ago and recently: the first sale sold a huge amount, 856 pens, while the current sale has sold just 170 (with hours to go). Admittedly, there was a slight price difference ($109 vs $114) and the second was closed to buyers outside the US, but it certainly seems like most of the price-sensitive buyers were attracted to the first sale and that pent-up demand has been sated. The second sale (and any more that happen in the near future) is likely to attract people who would have bought the product at full price, and therefore probably isn’t worth pursuing.
If the Pilot Falcon (219 buyers) or Vanishing Point (171 buyers for one model, 173 for another) were to relist anytime soon, we might expect a similar outcome: most of the price-sensitive demand has been satisfied, and so future sales will only accelerate purchases by those who would have bought the product at full price through other channels. For sales to achieve anything like the kind of volume that they moved the first time around, it might be necessary to wait a year or two between drops. If this were the case, it would suggest that MassDrop could actually sustain itself if it can establish a rolling schedule of products, such that each only lists every 24 months or so. It would be a legitimate sales channel, just one that can only be utilised every now and then.
But the evidence from their 2015 sales doesn’t support this view. There has only been one FP to sell more than 100 units (the latest release of the 2000) and many of the recent products to list have been fairly underwhelming, compared with last year. This makes me think there are a few factors in play: first, the big brands (Lamy, Pelikan) are realising that there isn’t a lot of price-sensitive demand left in the market. Second, discount buyers are usually price-sensitive or cash-constrained, and aren’t spending as easily as they did last year – perhaps their pen budgets have all been drained by purchases last year. Third, some people who would otherwise buy from the site are seriously unimpressed by the time it takes to receive a product after purchasing it.
Ultimately, I think MassDrop has a valuable role to play in the community, but only for a single sale per product. There will probably be a few more big deals this year but I don’t see them being as active in 2015 as they were last year, and I certainly don’t see them being terribly active at all in 2016. Discount sites provide some great value to consumers but the value they provide to brands is not as clear-cut or as sustainable as you might think.