- BRW Lists
Published 27 February 2013 11:21, Updated 21 June 2013 16:27
One Cent Flight founder Matthew Donazzan says its predecessors have been marketing to the wrong crowd. Photo: Jesse Marlow
Australian consumers are developing a taste for the “penny auction” where bidders pay for the right to bid – and kiss their money goodbye if they don’t secure the goods. And women, it turns out, are the prime audience.
Since the concept emerged several years ago, international sites such as QuiBids, Bidideal and PennyAuction have made their money offering jaw-dropping deals, particularly on consumer electronic goods. They have also generated a small but growing number of complaints to fair trading authorities from consumers who didn’t read the fine print and lost hundreds or even thousands of dollars.
But the founders of Australian penny auction start-up One Cent Flights say its predecessors have been marketing to the wrong crowd. Their research shows it is most commonly women who gamble on these sites. And the products likely to do well are leisure items such as overseas flights and other luxury consumable goods. “When we did our research on penny auctions, the market was 18- to 35-year-old women specifically,” says One Cent Flights co-founder Matthew Donazzan.
The 27-year-old started the business in August last year with his 20-year-old cousin, Elliott Donazzan, and his father, Roger Donazzan. They did their research by looking at Google Analytics and a range of internet research tools. “That was a big surprise to me. In almost every instance across the world it was always women.”
The penny auction differs from a regular auction because the bidders pay to make each bid. On One Cent Flights, which offers domestic and international flights, each bid costs $1 and raises the price of the air ticket by 1¢. The eventual winner buys the ticket super-cheap but all the others who have bid for it have done their dough.
The site’s highest-priced auction was a return ticket to London for one person, which sold for $75.32 – a phenomenally cheap price that came about from $7532 worth of bids. Its cheapest auction was for a flight anywhere return between four Australian capitals, which sold for 15¢ after $15 worth of bids.
Donazzan claims his monthly revenue will reach up to $3 million from 2000 auctions by the end of 2013 if sales continue as they are.
“The growth has been pretty phenomenal,” Donazzan says.
“In August, we were doing two or three auctions a week. We’re now doing just over 40 auctions a week.
“When you participate in one of these auctions, it’s quite an entertaining and exciting way to buy something.”
A recent backer is Pearl Laughton, a 20-year IT veteran who was formerly Flexigroup chief information officer, and is now directly involved in One Cent Flight’s team.
She says she was impressed by the company’s early growth, as well as its plan to expand into other luxury goods.
“I felt compelled to join the team at One Cent Technologies after learning of the highly motivated entrepreneurs with a clever business model and strong focus on delivering a great customer experience,” Laughton says.
“They had quickly proven the business model with OneCentFlights.com and developed an aggressive and viable business strategy for diversifying the business and expanding overseas.”
Flight Centre provides most of the tickets.
Penny auction sites have been criticised for their dubious marketing practices, with sites such as YouNeverLose, Quibids, PennyAuction, PennyGrab, Bidideal and others presenting themselves to consumers as a place to save money.
This is statistically impossible – like all forms of gambling, from the humble bingo game right up to high-roller casinos, most people necessarily have to lose money for the model to work.
One company, bidrivals.com, collapsed last year leaving expensive products such as iPads and iPhones undelivered.
There are reports of some sites using bots to bid against users.
The prices paid can be misleading, with the winner of the auction not only paying the final price but also the cost of all the bids they placed to get there. Online forums are full of claims that the sites are scams.
Fair trading authorities in various states are aware of the emergence of penny auction sites and warn consumers to read the fine print.
A Consumer Affairs Victoria spokesperson said: “Users of these sites should remain aware of how much they are spending, as bidding can cost as much as $1 per bid.
“This can also add significant costs to the total purchase price if you are the winning bidder.”
Between July 1, 2012, and January 31 this year, Consumer Affairs Victoria had at least 78 calls and complaints regarding online auctions, although a smaller percentage of these were penny auctions.
A NSW Fair Trading spokesperson says only a “small number” of complaints have been received relating to penny auction websites in recent years.
The most common complaints are about items that have been won but not supplied, misunderstandings of the terms and conditions and in some cases suspicion that the website owner was bidding against them.
“Fair Trading advises that penny auctions are still a reasonably new phenomenon in Australia and so it is important that consumers proceed with caution and make sure they read all the terms and conditions for committing their hard-earned money,” the spokesperson says.
Donazzan says a typical spend is between $10 and $30. The site is monitored for “big spenders” who are informed that individuals are limited to participating in six auctions in a calendar month.
“We don’t want people to blow themselves up,” Donazzan says. “We want people to come and have a good time. If we can build a business growing as quick as it is and do it honestly and transparently, that’s sustainable.”
He says the site is transparent, and that all the auctions are available for anyone to access. The business absolutely doesn’t bid against its customers, he says, and there is no reserve so if an auction gets a poor turn-out, he loses.
“We see ourselves as e-commerce 2.0,” Donazzan says. “You started off with traditional retailers coming online. But what I’m excited about is there’s starting to be more people saying we don’t need to do it the way they do it offline, we’ve got more information, and the ability to have users interact with each other, so we can bring in the social aspect.”