Retail, in the eyes of the everyday customer

I’m hoping my smart readers can help me out here.  Why does Overstock.com carry Sponsored Links?  Is it a good revenue stream? Do you think this is a good strategy?

A screenshot:

In my daily travels across the ecommerce universe I encounter many large traffic small etailers.  These companies have benefited heavily from the fact that they set shop a long time ago, so they’ve built momentum that is paying dividends to this day.  Ironically, many retailers with physical stores find it hard to compete against these cottage industries.  But many of these etailers have been unable to leverage this strategic advantage in any meaningful way.  The thinking seems to be something like this “I launched my site five years ago and in that time grew 200% a year, therefore only come to me with ideas if you can help me beat that trajectory.“  Here is my opinion on this thinking “Dear sir, you are a moron and will soon be out of business.“  What most of these etailers don’t factor in is that they’ve benefited from the explosive growth in ecommerce and the fact that the big boys have kept away (foolishly) for far too long.  In such an environment even mediocre etailers do well.  Two important events have developed in the last five years.  One, better, bigger and more specialized companies have entered the market and two, customers have become way more sophisticated and have access to powerful peer to peer review networks (like Yelp!, RipOffReport, BBB.org, epinions.com, blogs etc).  The other issue with these etailers is that they have the infomercial mentality.  You remember those real estate commercials where ‘real customers’ walk to their mailboxes and pick checks from people they don’t know?  Well, that’s what many of these etailers want too.  And while they did enjoy that lifestyle for a while I’m sure those days are gone.

But all is not lost.  These etailers still have one asset: thousands and thousands of monthly hits.  I just hope the smart ones realize trends are pointing in the other direction but they have the ability to transform.  So where should they start?  Here are some of my suggestions:

1. Understand that the rules that made you money so far are now obsolete so engage with an outside expert and listen to their ideas.  Be selective, be critical, but listen.

2. Look through your product mix.  If you have over 100 products start eliminating products where you don’t have a clear strategic advantage.  A store with 50 highly targeted products is way better than one with a random selection of 500.

3. Get off the new customer addiction and focus on keeping and deepening relationships with existing customers.

4. Have deep understanding of your immediate competition.  If you sell Moby Wrap and so do 75 other etailers consider the market overcrowded and discover harder to find newer products.  Think of yourself as a trend spotter, your job is to hunt the Internet and source products that match the needs/aspirations of your core audience.

5. Ask yourself, “why should someone buy from me?” Then ask that to your customers.  Ideally both answers should be the same.

6. Most small etailers have superb indexing advantages and excellent content but the experience wrapping the site is poor at best.  Have a design firm elevate your brand experience.  Explain clearly what you want to achieve through the redesign.  If your aim is to improve every metric take a six month vacation and come back with a list of top three ideas.  Any more than three is too much.

6. Read blogs like Get Elastic, GrokDotCom, Occam’s Razor, Seth Godin and Damn and I Wish I’d Thought of That! daily.  They will change your life.

Yesterday I enjoyed a great hamburger at Patty Burger, but I’m not sure it’s make-10-trips-for-a-free-one great:

Patty Burger punch card

The idea of a punch card is to build loyalty.  The business is placing a carrot of a free burger for any customer willing to make 10 trips.  A new customer who makes 10 trips should be counted as a convert, so the strategy is great.  The problem I have is that 10 is too big a commitment.  I think make-five-trips-for-a-free-one would have the same financial impact while encouraging higher participation.  As a company new to the Chicago market early customer participation could be the difference between huge buzz and no buzz.

For years I’ve been going to the same barber shop and getting my hair cut by the same person, Dana.  Their service has never been complaint worthy but I’ve always found them a little expensive.  The accountant looking over my transaction history has no way to knowing I am dissatisfied, all he sees are monthly transactions of $25 through a card ending in 6849.

But then, one day, I didn’t go.  On my morning walk I discovered another shop (a few blocks away) with a neon light advertising a $16 cut.  When I walked in I definitely noticed a different vibe; it was a first-come-first-serve model and people were walking in and out pretty quick.  Their staff of six was bigger than the other place that had two people.  I was also used to a little bit of chit chat and the customary question, “So how’s your wife doing?”  After the cut I walked to the counter and paid.  When I tried to add a tip the owner said “ah, no need for tip”.  At first I felt guilty but then realized tips were not part of this new place’s business model.  In effect, the new place works out to be 46% cheaper.  The question is, what is Dana thinking?

I bet she’s not worried.  Here’s way, she probably surveyed the new place and said “nothing to worry about here.  They are cheaper but their shop looks horrible with gaudy designs.  They run the place like a factory and don’t assign stylists to customers.  Factoring in for our nice clean shop, superior products and personalized service anyone should understand why our price is a real bargain.”  Dana is right, all the added elements to her business certainly justify why she charges $30 but Dana would do herself a huge favor is she had a few steepness nights.  I don’t know the owner’s name (let’s call him Steve) of the new place but he’s a brilliant man.  He has managed to slash his price without eliminating a single item that I care about.  I don’t care about having the same barber cut my hair, I don’t care the store does high volume as long as I don’t have to wait and I certainly don’t care about chit chat.  Dana and Steve are price engineering from two entirely different perspectives.  Dana is looking at her price and then justifying it and Steve is reading external market needs to determine pricing.  In downtown Chicago most office people come down for a quick trim so they can go back and continue work.  And Steve gets that.

Engineering price-points based on ever changing customer dynamics is a key strategy for a retailer.  Only if you base your price-point on what’s going on at the customer’s end can you get a reading of trends.  Dana’s rent, two person cost of operation and shampoos are fixed numbers and since they determine pricing she will never know when a tectonic shift takes place, until it’s too late.

If a retailer can figure out a way to reduce price without diluting the customer experience they must either tweak their pricing or add to the customer experience.

With the current economy it’s likely more people are eating at home, which is why it’s strange the phrase “eat at home” has no paid ads on Google.

For a majority of shoppers buying online is still a strange new experience.  When I walk into Best Buy I don’t have to worry about the company’s credibility which helps focus on the buying process.  But when I click on a Google result and visit a site for the first time there is no way to know if they offer good service, what other shoppers think about them or how they back promises.  Some companies have reviews and others virus free security seals, but there is no real standard, which leaves the shopper to assume the retailer is cherry picking.  I personally like using bbb.org but unless the etailer has a BBB link on their homepage looking up info is a multi-step process (translation: people will not use it).

BBB should develop a browser plug-in which shows company ratings when I land on a site (or reveal if the company is not listed).  The reason BBB is my recommended solution is because it is a trusted source most consumers already know about.  The other benefit is that BBB is two sided, customers can complain and companies can respond:

Retailers are working extra hard these days.  On my afternoon walk I saw two guys standing near the station selling $3 Jamba Juice smoothies out of a white box.  I know Jamba Juice wants to drive sales but I think this is a penny wise pound foolish strategy for three principle reasons:

– Brand dilution: I thought the unique selling proposition of Jamba Juice was that one could walk up to the counter, order a smoothie and have the juice expert prepare it right in front of us?

– Authenticity: How do I even know if this is a legit setup? The guys were wearing Jamba Juice tee-shirts but there was no specific branding on the box itself.

– Price point: Is $3.00 for a Jamba Juice smoothie too high or too low? The only people who could really answer this are Jamba Juice regulars.  So, in effect, this promoted price means little to non-customers.  The whole idea of setting up a stand on the street is to get non-customers to try your product once.

Here is what I would have done:

— I would have made a nice little Jamba Juice banner, slapped Jamba Juice stickers on the box, slapped another sticker on the smoothie itself and given customers an authentic proof of purchase receipt.

— Instead of saying “$3 Jamba Juice Smoothies” I’d say “Pedestrian Special 25% discounted Jamba Juice Smoothies for only $3.00“

My dad asked me to buy 3 GPS accessories for him.  He gave me the name of the equipment and the web address of store.  I had never heard of buygpsnow.com and though it violated quite a few of my ecommerce essentials I knew dad had done his research.  I made the purchase.

Data can be highly subjective.  Looked one way it says something, looked another way something entirely different.  How much money buygpsnow.com makes off me depends entirely on how accurately they segment me as a customer.  Under one view my transaction was quite standard and I couldn’t fault them for assuming I am a typical site shopper and sending communication messages intended for GPS enthusiasts.  But this view is inaccurate, and a brief review of the transaction proves it:

— This was my first purchase on the site and I bought 3 GPS units.  [Why did I buy 3?]
— I completed my transaction in 32 seconds and spent $150. [This speed of transaction suggests I knew exactly what I wanted]
— I used expedited shipping. [Arguably, I was in a rush]

If I was working with buygpsnow.com I would have stored these extra bits of data in my customer file.  I would also add a field called “inactivity”.  If Rishi does not open our emails or make another purchase for the whole year it would clearly indicate he is not a GPS (or gadget) enthusiast and made this purchase as a gift for someone else.  Just knowing this could help me make more money through Rishi.  See, they’ve been sending me emails assuming I bought the GPS for myself and this is one reason I don’t read them.  However, if I got an email that said “Hi Rishi, six months ago you bought the GPS 33.  We believe this was a gift purchase and wanted to inform of a new accessory that would be a perfect gift for someone who already has the GPS 232 unit”.  Suddenly I am interested and would love to gift this to my dad.  Context is everything.

Related article: Capturing Intent

Back in the day radios had two dials, one which moved quickly between channels and another which was used to fine tune a channel.

For years I have been hearing about the magic of testing and how retailers like organize.com are seeing improvements in conversion rates by simply changing Buy Now to Add to Cart.  These amazing stories emphasize the power of the fine tune dial.  There has been so much buzz about testing that retail CEO’s who’ve picked up the gossip in magazines and conferences believe that by simply changing their site’s head banner from blue to orange will somehow make more people convert.  Look, I am a huge fan of testing, testing is critically important but sometimes you have to look at the main dial before fiddling with the fine tune.

As a small retailer you have to resist the temptation of playing with the fine tune dial till you’ve crisply articulated your unique value proposition and defined core strategy.

I’ve been a big fan of the Road Warrior segment in Fortune magazine for a long time.  It’s such a clever idea: interview frequent travelers on their favorite travel companions (items) and publish it for readers.

I would launch an ecommerce store that played on this idea.  The site would be very similar to the Fortune segment but customers will be able to buy products.  First time visitors would get an introduction like:

“We only sell travel items real people recommend.  Our opinion counts for squat, but once an expert reveals a gem we do a test run to make sure our fine customers are buying the best possible product.  That said, if for whatever reason you don’t love it just send it back”

I would have intuitive categories:
— light travel
— weekly travel
— local travel
— international travel
— travel mode (air, train, cruise, drive)
— new items
— customer favorites
— top sellers
— top items from last year

Imagine for a moment what happened here.  I would start off by interviewing road warriors (free and original product testimonials), from amongst the interviews I would build a product list, then build an online store (for approx. $3,000) and organize it such that it satisfies the four buying modalities, and finally, I’d source products for shoppers.  A traditional retailer would have to go about this in the exact opposite way, starting off with first renting a retail location.