Bait and Switch Tactic

In the book Mind Programming author Eldon Taylor shares his experience selling sewing machines using bait-and-switch:

It started with an offer too good to be true.  In the 1960s credit depended upon a deposit– a down payment of 10% in those days.  Credit was freely available.  Getting the down payment became the most difficult part of making a sale, so the company I worked for designed a system to obtain this fee.

How was this done?  Prospects entered contests.  A drawing at the local grocery store, a “count the hidden faces” challenge in the Sunday paper, and various other media served this purpose.  Someone received a first prize.  Everyone else won second prize, a coupon worth $170 toward the purchase of a new sewing machine, nationally advertised for only $199.99.  We could show these “winners” the ad, usually in a popular home magazine.  For only $29.99 everyone in second place could enjoy the benefits of owning a new sewing machine.  Such a deal!

The machine available for purchase for $29.99 was a piece of junk.  In the trunk of my car, however, was a new, top-of-the-line machine, advertised nationally at $499.  If you were a second-place winner, by trading in the shoddy machine you’d just purchased, this superior model could be yours for an additional $299.  And you’d already paid the 10% deposit of $29.99.  Therefore, you’d only pay $10 per month until you’d paid off the additional $299.  Even though you only spent $29.99 for the first machine, you received its fully nationally advertised price as the trade-in value.  Wow- what a deal!

This means of selling worked so well that it became illegal.  You may have guessed that the national ads existed only for this purpose.  No one ever actually tried to buy one of these machines at the inflated price in the advertisement.

PS: I Love You. Get Your Free Email at Hotmail.

Viral Loop is a new book by Adam L. Penenberg.  I’ve not read it yet but did go through the author’s guest post on TechCrunch.com (article link).  The Hotmail story is relevant to BetterRetail.  A summary:

Hotmail initially raised money through the VC firm Draper Fisher Jurvetson.  While considering advertising Hotmail founder suggested billboards.  Draper (founder of Draper Fisher Jurvetson) suggested putting PS: I love you. Get your free e-mail at Hotmail at the bottom of every email.  The Hotmail team did not like this approach and didn’t include it in launch.  Hotmail.com launched Independence Day 1996 and was adding couple of hundred users a day.  Draper still insisted on adding PS: I love you. Get your free e-mail at Hotmail.  Finally, the Hotmail team agreed; though they dropped the PS: I love you bit.

The impact was almost instantaneous.  Within hours Hotmail’s growth took on the shape of a classic hockey stick curve.  They started averaging 3,000 users a day, compounded daily.  By Labor Day they registered 750,000 users and within six months they were up to 1 million.  Five weeks after that they hit the 2 million user mark, adding more than 20,000 signups a day.

The rest is history.

A Brief History Of Ecommerce

Stage 1: The big bang.  Somewhere in the early 90’s technology emerged which allowed people to inexpensively launch digital neon stores.

Stage 2: The long tail.  First shops to open for business catered to customers left out my mass retail.  There was now a place (2bigfeet.com) where men with extra large feet could shop in leisure.  Chris Anderson would later coin the term “The Long Tail” to describe this market.  And while online shopping was the biggest disruption in retailing in the last century only early adopters were using it at this point.

Stage 3: Rule of the technologists.  Shop owners quickly discovered a seductive equation; traffic = sales.  They hired geeks to device strategies to pull customers straight from search engines.  Geeks love boiling things down to a formula and naturally took to SEM and SEO.  But they aren’t marketers and the stores they created looked awful.  Luckily, shoppers were so glad to discover hard to find items they forgave woefully poor shopping experiences.  This is one reason stores with designs like this…

fabulousyarn.com

watchbandsonline.com category page

chagrinvalleysoapandcraft.com

…pulled in thousands of monthly hits.

Larger multi-channel retailers were still avoiding the web because they viewed it as cannibalization of their other channels.

Stage 4: Unchecked growth.  Once you reduce something to a reusable formula someone is bound to exploit it.  We now had enterprising companies like CSN Stores which were running hundreds of specialty stores.  Each had a finely crafted exterior but ran on the same engine.

Stage 5: March of the elephants and birth of peer to peer review networks.  Eventually the Best Buys of the world started investing serious money online and brought in their product photographers, brand marketers and catalog circulation specialists who helped convert the first wave of mass consumers.  Mass consumers had a totally different value system, they came looking for recognizable brands, expected great service and shopped around like crazy.  The adage “bring them in, the sale will happen” no longer applied.  Many ecommerce pioneers adapted to the new environment but most stubbornly held on to old ways.  Market movements are inefficient and the old venus fly trap still lured enough to keep the old model alive.  But, for the most part, tables had turned and veterans with their SEO/SEM automating technologists where finding it hard to pull in mass consumers.  Don’t get me wrong, they were still making serious money, it’s just that they were used to so much more.

During this time another event took place that exacerbated the pain of the veterans; peer to peer review networks.  You see, mass consumers want to know what other mass consumers are doing and services like Yelp!, BBB.org and epinions.com allowed them to share experiences.  The veterans who had invested so heavily on bringing people in now had another fire to deal with.  Back in the day power of word of mouth (WOM) was faint so poor service didn’t have any real downside.  But WOM magnifying networks have shifted power to the customer.

Stage 6: Contraction.  This is happening at the present time.  Here in the US we have twice as many retail stores as are needed by the population of the country.  I believe the number is even more skewed online.  As a result there are fewer consumer dollars per etailer to go around.  On the flip side inexpensive automating strategies have been exploited fully and the only way to generate disruptive growth now is by investing money on specialists.  Etailers are so used to the idea of clear ROI that hiring an expert who charges $150/hr but does not give explicit guarantees makes them nauseous.  Like I mentioned in an earlier post many etailers are addicted to the unsustainable 200% growth story.  I predict a big contraction is on its way and 30% of online stores in business this morning will cease to exist two years from now.

Stage 7: The NumeratiStephen Baker’s book with the same title dives deep into the subject but the summary is that the Numerati is a select group of people with equal skills in mathematics, psychology and marketing.  These super crunchers are redefining traditional customer segmentation models and designing new ones that better define consumers.  The future belongs to agile companies that are constantly testing assumptions about customer behavior and have structural flexibility to adapt to new discoveries.

We, The Super Crunchers

I’ve just finished reading one of my favorite books this year.  It’s called Super Crunchers and I believe it has  some very valuable lessons for retailers.  The central theme is that through statistical tools like regression analysis it’s possible to test for the co-dependence of variables.  Finding these dependencies allows companies to exploit them.  Let me explain through my made-up example…

Borders (the book store) knows sending a mailer with a 60% discount lifts sales.  The discount variable is directly related to sales.  This is a no brainer and gives no strategic advantage to Borders as Barnes & Noble knows that too.  However, let’s assume Borders analyzes my transaction history and notices that every time I make a store visit and buy coffee odds of my purchasing a book increase 3x.  Now this is a solid marketing gold-mine.  Borders knows the average margin on each book I buy and can compare that to the cost of coffee.  They can now send me a coupon with 5 free coffees at their store.  Further, since they know what I get, mocha latte, they can specifically offer 5 mocha lattes in their promo.  I’m sure this will improve conversions.  Super Crunching gives Borders a tool to exploit my behavior and drive their bottom-line sales.

In the book, the author Ian Ayers cites numerous examples of Super Crunching.  He shows how Super Crunching accurately predicts good wine vintage, legal outcomes and even airline ticket prices.

Ian Ayers is brilliant and I also recommend you read his other book Why Not?

So whether you are a small etailer with no stores or one with 500 think of ways to deep dive your data and discover relationships you never knew, or expected, could ever exist.  Your customers will love your intuitive ability to predict their desires and they’ll reward you by opening their wallets.

Borrowing From Andy

Andy Sernovitz is a passionate advocate for Word Of Mouth Marketing (WOM) and his book Word of Mouth Marketing: How Smart Companies Get People Talking is a must read for all niche ecommerce retailers.

So how does small retailer with a limited marketing budget ignite a following?

The first thing to seriously consider is the caliber of the product.  No amount of WOM helps an ill-conceived idea.  The second step is to concentrate on finding evangelists (an article about finding evangelists).

Alright, now that you’ve done the groundwork and identified a nice list of passionate customers you need to dream up creative ways of using them as brand propagators.  Here are two ideas:

Give away one item for free
Pecard prides itself on being an awesome leather horse saddle polish.  Mary, who lives in Ypsilanti, Michigan is an evangelist who orders on a regular basis.  The polish itself is inexpensive ($4) but matching shipping costs make it unattractive for the non-Marys of the world.  So, next time Mary orders I’d send her two free bottles accompanied with a hand-written note requesting she share the polish with a close friend.  Passionate horse lovers almost always know other passionate horse lovers.  If next month you find a mysterious new order from Ypsilanti, Michigan you’ll know your strategy worked.

Get evangelists to sign up as spokesmen – I love my dry-cleaners and if they made a local TV commercial I’d be more than happy to endorse them in front of a camera.  So, if you sell great bonsais ask your evangelists if they’d mind being local references.  Those who want to participate could even provide their email addresses and give on-the-fence customers a good reason to buy.  If you think asking for an email address is a little extreme just remember people do it all the time on message-boards.

Collaborative Shopping

When I read the book Why We Buy the author talked about how women shoppers tend to shop in groups heavily influenced by collective peer opinion. It has always bothered me that if this is how women like to shop then why is it that neimanmarcus.com does not allow it (no website allows it). Group shopping with multiple people looking at the same screen is not very efficient. So here is my idea….

Hypothetical Case: Neimanmarcus.com should have a ‘collaborative shopping’ feature. Once I click on this I am asked for my preferred time slot and email addresses of friends I’d like to invite. Once the time slot has been selected an email calendar invite is sent to my friends (just like on Google calendar). Once all friends accept the invite at the selected time slot when the invite originator browses Neimanmarcus.com friends see screen transitions from the originators perspective. Here is how collaborative shopping is performed: As the originator browses a certain category friends not only see the same items but can use a chat module for yay or nay votes. They can also make their own picks for the shopper. Ultimately neimanmarcus.com can further monetize by offering custom discounts based on the size and segment of the group.

This idea already exists in a completely different platform: console gaming. Boys play multiplayer games where they see a common screen and IM and chat through headsets. Why not extend the functionality to online shopping?

What situations best suite this feature?

– Friends that are dispersed geographically
– Family members shopping for a common family event
– Shopping for high consideration items
– Men shopping for their spouse and using her friends for help
– Girl who want to have a girls day out while they are still in the office