Snapup says that no one should pay full price! Don’t you want to pay only 20% of retail price?
Everyone wants to get a deal. But at the end of the day, someone needs to pay for each item that Snapup sells. So who’s paying?
Snapup breaks down their projected expenses: everyone wants a new $200 DVD player, but they only want to pay $40 for that item. So they basically run an auction: everyone pays $5 for a lottery ticket (they call it a “buy-in” but it’s effectively a lottery ticket). And the one person who wins gets to buy the DVD player for only $40.
So what’s the catch? If they get 60 people to buy into the scheme for $5 each, then they actually collect $300 in fees plus $40 from the “winner” – meaning that together everyone paid $340 for a $200 item.
But, you may ask, isn’t it worth taking a chance? I’m willing to risk $5 in the hopes that I could save $160!
Actually, it’s not worth it. Sure, someone needs to win. But it’s just like the lottery. Almost everyone loses. And in the case of Snapup, they expect people to pay $5 and another $5 and another $5 until they finally win. But according to the numbers, statistically almost every single person will wind up spending more money than they save.
But wait, you say. Snapup says that they have a special algorithm: the more losses you have, the greater the chances of you winning the next time!
Congratulations. It looks like Snapup may have graduated from a loser’s lottery to a Ponzi scheme. You know, the kind of scheme where the people who paid first get some profits, and the newbies all pay so the founders can get disconts. But then the newbies want to profit, so they need to bring others into the “game” – because if you want to pay only 20%, you need to find someone else to pay the other 80%. And that’s all the new suckers.
Bottom line: Some people will get good deals. But almost everyone gets to be a sucker before they get the discount.