An App That Never Pays Retail

With consumer confidence now at a low not seen since March 2009, it is already clear that few will want to pay full retail this holiday season. Drop Down Deals—a hunter and gatherer of online coupons and codes—could have told you that already.

Daniel Pegg, the company's chief executive officer, is a guy who counts on coupons for a living, and is in a position to assess how low retailers may go. And this holiday season, he can see that merchants are in price-slashing, blue-light-special mode already.

Drop Down Deals offers a free app that consumers can download so that they may find coupons as they are shopping on a website versus having to find them ahead of time, or—worse for the merchant—trying to find them after they’ve already got a full online shopping cart. As the site name suggests, the coupons and clickable coupon codes drop right down for the deal-seeking shopper while they are shopping.

“We saw clicks picked up on September 31 almost immediately, and we noticed the number of coupons picked up too,” said Pegg. Typically, the number of coupons increases by 150 percent in October, doubles again in November, and doubles yet again in December, he says, but this year, the multiplying effect has started sooner.

The Conference Board announced Tuesday that its consumer confidence index unexpectedly dropped to 39.8 from 46.4, falling to levels not seen since March 2009, when wallet-sealing consumers were in the thick of the Great Recession. Analysts were taken off guard, but could it be that retailers sensed a skittish air in the aisles? Wal-Mart, already seeking to dominate, is offering a price guarantee to shoppers who buy items at the world’s biggest retailer between November 1 and December 25.

Benefiting from cheap chic is Drop Down Deals, which has over 9 million users, and it is already a profitable company, company officials said. At launch, it received funding from Sambreel Holdings—Pegg wouldn’t specify how much, but said it was below $500,000. John Arana, the site’s 28-year-old founder and the techie behind the operation, launched the company just a year ago. Pegg, a 27-year-old MBA graduate and retail industry veteran who had already launched two companies himself (one sold, one flopped) came on board in January.

They have apparently been making money off consumers’ endless quest for better deals ever since.

The startup earns a small fee through each transaction, typically a version of revenue share, which can range from 1 to 10 percent of the transaction depending upon the retailer. Some retailers offer a flat cost per acquisition fee, it could be $1 per transaction, for instance. And others offer no revenue at all to Drop Down Deals, but they run their coupons and codes anyway, because they know customers will want them, says Pegg.

As for the app’s ability to know what site the user is visiting, Pegg says that the company conforms to all the highest security procedures and doesn’t get any personally identifiable information. Now as for the retailer, different story. “Everyone’s planting cookies now” he says.

The site is offering an exclusive one-day deal in December—Pegg wouldn’t say for what—but in the meantime, the company is looking for other retailers’ deals.

“I’ve always been a couponer, and that person that searches for that deal on anything,” Pegg says. “You just have to work those angles.”

And while retailers like Wal-Mart may be less than thrilled at having to beat competitor’s prices, Drop Down Deals comes from a different perspective. “For us, it’s how can we get people into thinking that paying retail is not the thing to do anymore?” Pegg asks.

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Teresa Novellino writes for Portfolio.com