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No Free Lunch

 

For years retailers have used “buy one get one free” and other coupon offers to attract new customers and generate repeat business. Groupon, and its competitors Living Social, Gilt City, Tippr, and Buy with Me, have taken traditional couponing to another level. While there are variations in how the deals work, consumers who sign up typically receive daily emails which offer, on average, a 50% discount at local merchants. The two coupon offers I received this week were $5 for $10 off $20 worth of meat at a local butcher and $2.50 for $5 off $10 worth of sandwiches at a local sandwich shop. After factoring in the cost to purchase the coupon, the real discount to the consumer is 25%, not the implied 50%. But it’s still a pretty good deal if you remember to redeem the coupon.

From the business owner’s perspective, the advantages are less obvious. Merchants split the coupon revenue with Groupon and, when the coupon is redeemed, break-even on most transactions. However, because the coupons are purchased in advance, there is breakage in the model. When you consider the breakage, participating merchants can actually realize a profit on a buy one get one free offer. That’s what is so clever about the Groupon concept.

For high fixed cost businesses, health clubs for example, the Groupon model works very well. For businesses with high variable costs, my local sandwich shop, for example, the coupon offers can significantly reduce profits if most of the coupons are redeemed. For every break-even transaction with current customers, these businesses need to attract and get an incremental purchase from at least one new customer. Is that type of incremental lift possible? I guess it depends on how far people will travel for a free sandwich.

With over $1B in revenue in a few short years, Groupon is the fastest growing company EVER. When the company announced it was planning to go public, its estimated valuation soared to $30B. The estimates are lower now reflecting current market conditions but, whether the value is $30B or $20B, it’s clear that quite a few people are betting that the Groupon model not only works, it is sustainable and will become a standard business practice. There’s even talk of a similar business to business coupon model on the horizon. A $20B valuation for a company still racking up huge losses does make you pause and think. There’s no question that discount coupons will always be part of the promotional mix. But will millions of consumers continue to purchase coupons the Groupon way? In our opinion, they probably won’t. There is no free lunch. Somebody has to pay. If discounting the Groupon way becomes widespread, retail prices will eventually reflect the discounts. It’s simple economics. And if everyone is doing it, there is no competitive advantage. Product and service excellence will always be the primary drivers of customer loyalty.

A Social Media Game Plan

The Mallett Group’s tag line, “Putting Lasting Relationships First®”, which was penned nearly fifteen years ago couldn’t be more relevant today. Social media, which is all about relationships and bringing like-minded people together, is having a profound, and often unsettling, impact on the way companies and brands communicate with customers. Consumers in every age cohort are on social media sites every day, at all hours. To be heard and relevant, marketers must also be there to participate, but not control, the dialog.

Social media is also changing customer loyalty programs by allowing companies to listen to what customers are saying about their products and services in real time. Instead of reacting, we now have the ability to join the conversation, demonstrate that we are listening, solve problems, and say thank you to loyal customers.

Dave Raffaele, a former colleague, shared a customer experience with Jet Blue that demonstrates a best practices approach to using social media. On a Jet Blue flight from Boston to Denver the cabin temperature was 80 degrees. Arriving tired, damp, and angry Dave shot off this tweet.

“@JetBlue…you need to turn down the heat on your 7:55 flight from Boston to Denver. It was rough ”

Less than two minutes later he got this reply.

“JetBlue Thanks for the heads up! (sometimes flight crews get over zealous going from cold to cold)”

It was a small thing but for Dave the fact that someone, a real person, was listening made a difference.

While it is safe to say we are all still learning how to maximize the value of social media, we are beginning to see proven best practices from forward thinking brands. Here are six that resonate with us.

  1. Establish a Mission and      Objectives. Identify the customer segment(s) you are trying to reach and      establish what you want to accomplish with your social media program.
  2. Develop an Editorial Strategy.      Create a content strategy that reflects the information needs of the      customer segments you are trying to reach. Keep the content simple,      relevant and shareable. Strive to stimulate conversations.
  3. Create a “Listen and      Learn” Framework. Good listeners make the best conversationalists.      Design a framework, and allocate resources that allow you to listen to conversations      about your brand, program and service levels.
  4. Establish a Conversation-Driven      Work Flow and Decision Matrix. Based on what is being said, identify who      should react and how they should react. Minimize ambiguity and provide      company designated representatives with a well-defined path that will      facilitate real-time engagement with customers and prospects.
  5. Focus on Tonality and Timing.      All the research indicates the timing and content of tweets and Facebook      updates are directly correlated to the reach and level of engagement.      Social media puts a premium on relevance, immediacy, and brevity.
  6. Design Performance Metrics.      Monitor how well your social media program is doing relative to your      mission and objectives. Adopt a listen, learn and improve approach and      make iterative improvements as required.

While the use of social media is still evolving, its rapid growth, across all consumer segments, has put marketers on notice. To be successful, brands and marketing teams must become experts in the use and proper management of social media channels and programs. Adopting the six best practices outlined above is a great first step

Loyal Customers On Sale

Two things caught my eye over the past few weeks. First, a NYT article  reported that some high-end retailers are resorting to “secret sales,  whispered discounts and discreet price negotiations between a customer and a sales person in the aisle of the store,  in order to convert browsers into buyers.  The reporter went on to suggest that this very personalized recession-driven pricing strategy is democratizing the time-worn tradition of offering a  Private Sale to a store”s best customers.   Most of the invitations to these private sales come in the form of targeted emails to a store’s best customers. Neiman Marcus,  for example, regularly invites “special” customers  to an, online only,  “Midday Dash” where they can get discounts of  up to 50%  on luxury items.

The second item was a comment by Greg Furman, founder and chairman of The Luxury Council, who said that  it wasn’t long ago that  many  luxury brands saw the internet as only a mass marketing vehicle but now, for many luxury retailers, more and more of the action on the internet is highly targeted.   An example given was the segmented e-mail messages Bloomingdales sends  to  its online shoppers  with offers like,  “Today only! Take $500 off your regular-priced online purchase of $1,500 or more in Mens.”

What struck me was  all the  retailers mentioned were using price as a primary promotional tactic and they were targeting their best customers,  the same customers who had been willing to pay a little more based on their perception of better product quality, more attentive service or  simply shopping convenience. During a recession, especially one as deep as the one we are in,  consumers  reevaluate all their discretionary spending. What’s the message being sent by these retailers ? All other things being equal … quality, service, convenience … we can now offer you the same merchandise for 30, 40, even 50% less than you paid twelve months ago. But once the economy improves, we expect you to go right back to paying a premium for shopping with us. My guess is that  for many of these customers the message is clear. For smart buyers, a price discount trumps all other considerations.  For luxury retailers, that is a pretty scary thought.

Mixing Media

I love books and book stores. My favorite airport stop is the book store. I have actually missed flights while I pondered  which books to buy. I also read the newspaper every morning and, creature of habit,  still get the New York Times delivered to my home.

Dave, my friend and former business partner,  is like minded,  although he’s never admitted to missing a flight over a book and he switched to the Boston Globe many years ago. Several weeks ago Dave surprised me. He confessed he had  gone Kindle. It wasn’t a proactive decision, Kindle was a gift, but now he is hooked and, like many early adopters, effusive in his praise for this new technological marvel.

That’s how I got interested in Kindle. Not interested enough to buy one yet,  but the electronic reader is now on my radar screen. And that’s why a recent Ad Age story, “Showtime Taps Amazon’s Kindle for Advertising” caught my eye.

Starting in June Showtime is offering Kindle users a free download of the pilot script for it’s new series, “Nurse Jackie”, featuring Emmy award winner (Carmela Soprano) Edie Falco. The offer is being promoted with banner ads on Amazon and on the Kindle storefront. The script comes with cover art,  show scheduling information, and a call to action to go to Sho.com to watch the pilot episode. The strategy according to Jon Haber, US Director of OMD’s Ignition Factory,  is to “use the client’s content as advertising”. From a marketing perspective,  I think this is pretty clever. From a consumer perspective,  I think it is one more example of the blurring of the lines between entertainment, editorial content, and advertising.

You may remember from previous posts that the White’s are masters of the universe when it comes to channel surfing, pre-recording favorite shows, and generally avoiding TV advertising at all costs. Around the dinner table, we recently discussed how advertising  has  also started to infiltrate the books we read, that discussion prompted by my decision to purchase a $54 bottle of Don Julio anejo,  the favorite drink of Dirk Pitt,  Clive Cussler’s  sophisticated adventurer and bon vivant.

Now that we have Kindle with direct internet access it’s not too far fetched to expect that the subliminal advertising included in our electronic reading will also  include links to websites where we can buy immediately.  It’s the next generation of the product placement strategy we now see all the time in  movies and on TV.  For some reason  this new technology-driven  strategy that mixes media seems more insidious.  Maybe because it’s an attempt to catch us when we are most vulnerable,  living vicariously through the adventures of a fictional character like Dirk Pitt.  I’m an admitted  Dirk Pitt fan but I’m not sure I can afford the quail pate and the ostrich tartare to go with my Don Julio anejo, chilled, served straight up with salt and a slice of lime.

Are we crossing the line by mixing media?

Used Car Chic

An article in the NY Times this weekend asks the question, “Can American drivers live without that new-car smell?” The answer seems to be “yes they can” as new car sales  have plummeted to below 10 million, a 46% drop from their peak a few years ago. Most industry observers are forecasting continued lower sales through 2010 and maybe even longer. The question being asked is, “What’s the new normal?” Are we  going to be content owning fewer cars and driving our  cars longer? Considering how many new car sales were financed by home equity loans … buy a new car now and get a tax deduction…or cheap short term leases,  it’s easy to understand why consumers are learning to love their old cars more.  The easy money days are gone.

In my last post I talked about the need for reinvention. I’m think it is unlikely that consumer spending will rebound to prior levels. This recession has frightened  many people to their core. The long held belief that things will always get better,  I’ll get that guaranteed raise or a big bonus, has been shattered. With nearly 6 million Americans out of work, many people are downsizing, doing without, focusing on value, and actually trying to save money. From a marketer’s perspective, it looks to be a permanent change in consumer behavior.

With change, comes opportunity. Recent spots by Auto Zone target the “do it yourselfer” with the message that Auto Zone  provides the quality parts and expert advice to help you get it right the first time.  And , not unexpectedly, Auto Zone recently reported better than forecasted quarterly results with sales up 9.3% and net income up 9.5%. In an article in Ad Age, ” Marketers Fear Frugality May Just Be Here to Stay”, P&G Chairman A G Lefley, commenting on declining department store sales says, “”My belief is some of that (department store sales) is gone forever. And it’s gone forever because [the consumer] has changed her pattern of shopping. She’ll still go to get advice and counsel, maybe even see new products and new brands at department or specialty stores. But she’s replenishing online and she’s quite comfortable using our [less expensive] Olay lines. I mean, let’s face it, those Olay products test as well or better.” That’s a pretty glum outlook for premium brands sold through department stores but it also speaks to a big opportunity for value brands sold through lower cost online channels.

Maybe we should all  stop looking back and instead focus on the many opportunities that come with change. It would certainly speed the recovery. Do you know what your customers need? Do you know what they want? Time for reinvention!

I was reading some of the online news  this morning and I came across  a recent article on Forbes.com titled ” To Reinvent Your Company, Reinvent Yourself ”  .  The authors, Scott Anthony and Michael Putz, write that companies are beginning to recognize that to survive  turbulent times like we’re experiencing now requires a “process of continual reinvention”. They describe the challenge of building a  “dual core culture” that excels at creating new growth businesses while still maximizing the potential of your existing business. The process calls to mind the words of F Scott Fitzgerald, “The test of a first rate intelligence is the ability to hold two opposed ideas in the same mind at the same time and still retain the ability to function”.

As I prepare for the departure of David Melnick, co-founder of March Second, and my friend and colleague for many years, I too am thinking about surviving turbulent times and the continual process of reinvention that is required to be a successful entrepreneur.  When I take inventory of what we have accomplished   for our clients , it is clear that we have been most valued in the role of strategic advisors who have helped companies assess  their marketing technology infrastructure and have provided unbiased advice on required  investments and process improvements. It is also clear that the rapid growth of social  media and  and the need  for accurate measurment and timely analysis have made decisions about technology even more important. 

Many CMO’s I have spoken with recently tell me they are beleaguered and living lives of “quiet desperation” in an attempt to evaluate and optimize their marketing mix. Too much data, too many conflicting reports, and too little time is the common complaint. Sounds like there’s a need and it’s time for some entrepreneurial reinvention. 

What’s your opinion?

Without much fanfare Sears launched a networking hub called MySears at the end of March and quickly registerd about 200,000 users. This past week it launched a similar site called MyKmart. A company spokesperson said that the chain’s goal is to “glean new insights from customers and give the brand more of a human face.”  Sears said they have already used information gleaned from the site to restock items and to help improve the shopping experience.

I was curious about what Sears customers have in common and what they want to talk about so I visited the site this morning. I found lots of reviews, good and bad, and discussions on topics ranging from “Kenmore Dryer Timer Not Working”   to “Complaint About Poor Automotive Service. There’s a product focused blog where I’m guessing  most of the contributors are employed by Sears. What is interesting is that Sears has linked MySears to other social networking sites like Facebook, Twitter and Linked-In. If your goal is to build a community it’s smart to leverage communities that already exist rather than trying to create new ones from scratch.

It’s hard to say how successful Sears will be but I was impressed by their first efforts. Some industry analysts have  doubts about their long-term success. Josh Bernoff, svp-idea development at Forrester Research, has said that he believes Sears will have a tough time with MySears. “It’s pretty hard to start a community in the context of a retail site unless your customers have a lot in common,” he said. “If you look at Sears, a Craftsman tool community would probably work out better than a Sears community. Do we really want to get together and talk about vacuums?”  

 I didn’t see any vaccuum related comments but one that did catch my eye from “concernedconsumer” reported that her oven refused to turn off. Maybe she got so over heated trying to connect with a live person at Sears customer service she desperately logged into to MySears to register her complaint.

My fifteen minutes of MySears research did leave me with one lingering question. Who are the 200,000 people who have  the time to do this?