Thoughts From The Cake Scraps

In negotiations, the goal is often to get the most value while giving the least. At first glance this seems like a zero sum proposition – anything one party gives up the other gets. However, the trick is in framing these choices in terms of value. When you begin thinking in terms of value, all parties can come out ahead.

Consider a simple example of clothes that no longer fit. Nostalgia aside, these items have little value to the owner since they do not fit. Let’s call it zero value for simplicity. If someone else needs those clothes, they are willing to pay for it. If the person who needs the clothing values a pair of pants at $5 and only has to give the owner $1 at a garage sale, both people are better off. The buyer got something they value at $5 for just $1 and the seller got rid of something valued at $0 and received $1 for it.

When you start thinking about the world from this perspective, you start seeing these dynamics all over the place. One of the most prevalent places where you see this in business is rewards programs. Often times the value to the company of fulfilling the rewards is negligible while the value to the consumer is quite high. 

Consider airline tickets – frequent flyers can redeem miles for tickets. This is a perfect example where the cost to the airline is often almost zero. Unless literally every single seat was sold on that flight, there is almost no additional cost to have a reward ticket occupy a seat. However, from a consumer’s perspective it is great since the reward ticket likely saved them hundreds of dollars.

Sometimes companies get the asymmetry wrong – this leads to consumers thinking the rewards programs are not worthwhile. It could be because the rewards are unattractive or it could be that the cost of those rewards is disproportionate to the perceived value. 

However, the item that has struck a chord with me recently is somewhere in between. When I have a bad experience, I have noticed a distinct trend of companies using credits rather than refunds to compensate. To me, this is quite frustrating – I must now use the service again to actually get the value. It has happened on ride sharing trips where the driver cancels my trip or when a delivery service delivers the wrong items. 

In these cases, where the company has messed up, it feels a bit disingenuous to offer a credit rather than refund what I paid. Worse still is what GrubHub does, which I now try to avoid. When a wrong delivery was made they provided multiple coupon codes (rather than a single code or account credit) with short duration expiration dates (~2 weeks). Since only one promo code is allowed at a time, giving me promo codes not only prevented me from using other promotions they had running, but forced me to make 3 different purchases if I wanted to redeem the full value of the credit.

So yes, there is great opportunity to use value asymmetry to everyone’s benefit, but it should also be used wisely to avoid unnecessary frustration. 

This has been a Thought from the Cake Scraps.  

As I laid out in my last post, the hottest business trend of showing deep discounts just leverages the current sale-oriented culture.  While one can find these deals in nearly every email that passes through the inbox, it is not more plainly laid out then with GroupOn where stuff is simply 50% (ish) off all of the time.  Everything they are selling, every day of the week.

Rather than delve into whether or not GroupOn takes advantages of small businesses, I am going to stay focused on the business concept that drives GroupOn – discounts compel people to buy.  Sometimes they need the item and most of they time they don’t.  The thing is, the deal is just so darn good and the discount so darn large people are left asking themselves “how can I not buy this?”

The reality, of course, is that we’re still in the early phases of this broad based discount solution and businesses are still trying to figure out if there is a way to effectively use it as a marketing channel.  Regardless of how it turns out, this is clearly a marketing expense and, therefore, will come out of the marketing budget as part of the promotion cost.  Small businesses may not have the data or wherewithal to figure out the true cost, but my guess is that they will find out via word-of-mouth or their own P&L statements, even if they don’t have the gory details.  With this in mind, let’s focus on the major players only for the sake of discussion.

When a company runs a promotion as significant as a GroupOn, they are surly going to be tracking everything they can to figure out if it was a good deal or not.  Did the promotion drive enough incremental sales to cover, not only the cost paid to GroupOn and the cost of the goods/service provided, but also of the subsidized behavior (people who would have purchased anyway)?  That’s a lot to overcome.  The business benefit, for the moment, is more that it can help make a company look cool and interesting.  It may even draw people back into the brand that have been away for a bit.

Still, it is all a marketing expense.  It comes from a marketing budget.  And this is what people fail to realize.  A good that is on clearance is discounted because the business needs to move through the inventory and is, therefore, not a marketing expense.  The loss of margin dollars comes out of a different part of the budget.  The consumer is actually getting a deal here because the goods used to be sold at full price.

This is not the case with a deal like GroupOn (or LivingSocial).  Since these are marketing expenses, the cost of a marketing is built into the cost of the product.  That fact that you, as an individual, get the full price product for 50% off doesn’t change the fact that, in total, it didn’t cost the company anything.  They simply didn’t run a “Buy one get one” promo or a “Gift with purchase” promo.

What this means for the sustainability of this heavy coupon culture is that it will only continue to work so long as there are enough consumers willing to continue to buy the product without a marketing promotion.  My prediction is not that the discount culture will go away (although I am skeptical of the long-term viability of operations like GroupOn) but that you’ll see the same companies or the same types of companies use that type of promotion and that it will become stale.

For the moment I, as a consumer, would – and do -  jump on that discount train but my prediction is that it won’t last as it currently exists.  After more and more companies run those type of promotions we’ll start to see clear trends emerge.  As those trends become more solidified even the less advanced businesses will start to see that “business of selling product/service A are never featured” and there will be more whitepaper style publications on the success or failure of the promotions.

While not as overdone as Black Friday, as Black Friday has a good 20 year head start, I would keep an eye on this.  The simple truth is that a company cannot give away goods at 75% off (50% discount and then 25% to deal provider e.g. GroupOn) and not raise prices.  The promotion is simply too deep and too short lived (versus a longer buy one, get one) to last.  The math doesn’t work.  So get the the deals now, while business still have not “marked ’em up to mark ’em down” and don’t fully understand what the expected cost really will be.

And remember, the “deals” at Coach Outlets actually have a higher profit margin than the full price regular stores on 5th Ave.

Did you get a deal recently?

This has been a Thought From The Cake Scraps.

As a marketer, I’m acutely aware of the benefits of a well ran promotion.  And as a (top 30 under 30) direct marketer, I know the coupon/promo code is a valuable tool for attribution.  Still, lately I have become frustrated with all of the discounting going on.  I’m going to break this up into at least two parts to make it digestible.

Case 1: Black Friday

Remember when Black Friday used to mean something?  Remember when it was a day of unheard of deals, available only that one day?  It was great, wasn’t it?  When it first started in the 1970’s, and really grew in the 1980’s, it was a day of great reveal.  Nobody, it seemed, knew what deals would await them.  Later, websites were created for the sole purpose of revealing the circulars which retailers tried to keep as quiet as they could.  And then, what started out as a heavy shopping day due to most non-retail employees being on vacation, started to creep.

The creep started in a fairly innocent way.  Stores would have day-after-Thanksgiving sales.  And then The sales grew bigger and door-buster sales started to emerge.  Stores needed the foot traffic and they needed people to shop with them before they shopped elsewhere.  Prices, for the moment, could only go so low.  Next, stores started to open earlier.  First it was 6:00, then 5:00, then 4:00.  Once the process started there was no turning back.  The every year the door-busters came earlier until they opened at midnight.  They could go no earlier.  Just kidding.  This year Walmart is opening at 22:00 Thanksgiving night.

While stores are racing to open earlier than ever, the tentacles of Black Friday started to invade other channels (including Cyber Monday).  Signs, circulars, and emails started proclaiming “Black Friday Like Prices”.  Amazon.com made the whole week a week of deals.  I even saw “Black Friday in July” slogans to tell me just how good of a deal I was getting over the summer.  As Black Friday neared, stores no longer strived to keep things secret.  In fact, they now actively release circulars early and those sites that used to leak the deals are now commercialized versions of their old selves.

The immediacy of the day has been going downhill for quite some time.  Then, Walmart pulled a game-changing move – again. In 2011 they will not only match competitors Black Friday prices on Black Friday (as they did in 2010) but are offering a price match that “is both forward looking and retroactive”.  Basically, as long as supplies last, you’re good to go all season long.  Talk about a lack of urgency.

Now, the important thing to keep in mind is that I’m not sure what the alternative is for these stores.  The fact is consumers have a finite amount of money to spend on gifts and if a store doesn’t attract them in and get the consumer to spend at their store, the consumer will just go someplace else.  Ultimately the consumer is the one who decides when enough is enough.

Will you be heading out at 22:00 on Thanksgiving night to shop?

This has been a Thought From The Cake Scraps.

I am pretty excited today because I am in a test group of the new Amazon.com “Add to Cart” process.  Instead of serving up a new page they are doing an overlay of the page you are on, a much better experience in my opinion.  As a web analyst I can’t help but wonder what sort of impact this is having on their conversion metrics.

It is clear they are testing it because a search on twitter for “Amazon new add” yielded only a few results, but it looks like more are coming in.  They must be opening up the gates a little bit since launching it a few days ago.  Perhaps as early as 9/26 for some users.  New stuff on one of the biggest e-commerce sites on the Internet is fun stuff!  We’ll know how it is working for them based on if they roll it out to everybody over the next few days  or weeks.  This would be key to have up before the holiday shopping season kicks into full gear.

As a side note (as you can tell from the image), I can’t wait for Gary Vaynerchuk’s new book – The Thank You Economy.

Do you have the new “Add to Cart”?

This has been a Thought From The Cake Scraps.

My posts with the most traffic are the ones that talk about these online ‘entertainment shopping’ sites.  They have come quite a way since I first blogged about them, but now you finally have a chance to strike back.

I first saw Off & Away in an article that TechCrunch wrote about.  It has the typical comments about it being a scam since you pay $1 for the bids that raise the auction price $0.25 and then the winner pays whatever the final cost of the room is.  Not sure if your bids are applied to paying the price of the room, but I assume not.

But here’s the thing: you want to lose.  Well, maybe you don’t want to lose, but there seems to be a nice loophole where this site, that many people call a scam, could actually save you money.  It all relies on the simple thing they did to not make it a complete rip-off: you can apply the money you spent on bids towards a hotel room.  Furthermore, it says right on the site that they have up to 50,000 partner hotels.  Clearly all of these are not as ludicrously priced as the $40,000 room they have up to launch the site.

So, if you know you want to go some place and you are willing to spend $200 on the room (for 1 night) buy $180 worth of bids.  Then, place the bids on the auction for the awesome room.  Let me state right away that you will probably not win.  But that doesn’t matter because of another gem they built into their business model:

“Apply up to 110% of your used bids towards a room at one of our 50,000 partner hotels.”

So, you don’t win the room you bid on but your $180 is now worth $198.  It may not seem like much, but 10% is 10%.  Not too shabby.  You spend less than you were going to spend and you have a shot at getting the awesome hotel room you bid on (if only a very small chance).

I will probably stick with a site like Priceline or HotWire for my hotel needs, as they are more of a sure thing.  But if you want to live a little and have minimum risk, this Off & Away thing may be something to check out.  Of course you might be better off just using a AAA discount…

So, do you think it is a scam?

This has been a Thought From The Cake Scraps.

FireFightingNews.com

Curse you Burger King! We had something so special together!  I had become more than a customer, more than a brand loyal, I was a brand ambassador.  I actively told people about how great you were and now you have betrayed me.  That makes me quite mad.

I remember it like it was yesterday.  I was traveling and I was hungry and in a rush.  I was passing through the Milwaukee airport.  I just needed a little something to keep me going and I was not in the financial position to shell out $12 for a chicken wrap and a soda.  I quickly located the fast food options.  It wasn’t time for Cinnabon, so Burger King it was.  I looked over the (overpriced) menu to see what I wanted.  Being an airport location the menu was quite sparse with very little detail.  I decided on a double cheeseburger, not the deluxe one shown on the menu.  I didn’t see any signage for a meal combination and sometimes airport locations have limited options, but I wanted the soda so I asked the server, who waited patiently while I surveyed the menu, if I could get the double cheeseburger in a meal.  He looked at me and said, without missing a beat, “Sir, this is Burger King.  You can have it your way.”  And that was my introduction to Burger King as a brand.

To put it plainly it was awesome.  I just thought to myself, “that is amazing how he did that without missing a beat.”  Skip forward a few years and McDonalds $1 double cheeseburger enters the picture.  Delicious!  What a deal!  The $1 burger got me in the door and I loved it!  Then McDonalds made 2 critical miss-steps with me.  The first was the Monopoly game (I will link to this in the future when I write on it).  The second was the switch to the McDouble.  I hated them for it, but at least I could understand given the tough economic times that were upon us.  Plus, it had been on the dollar menu for quite some time.

Then, on October 19, 2009 Burger King burst on the scene with the $1 double cheeseburger.  I was still slightly loyal to McDonalds at that point.  Mostly because there is one on almost every highway exit but also because they still had a $1 option.  But, the aggressive advertising by Burger King during the football season got me to stop during one of my many trips.  Everything the commercials had promised was true.  It was bigger, it tasted better, it had 2 slices of cheese, and – best of all – it really was $1.  It was at this point I became an brand ambassador.

Every time fast food was brought up I would chime in with my opinion on BK.  I also told people about how the $1 burger at BK really was better than the $1 McDouble at McDonalds.  While driving I would actually wait to eat so that I could eat at a Burger King rather than a McDonalds.  In fact, not only would I wait to go there, but I would then buy items that I knew they had killer margin on.  I loved the value and I wanted to support them.  All of this love, and then they stabbed me in the back.

Well, to be fair it was National Franchisee Association (represents 80% of the Burger King locations).  They claimed they could not make enough profit the burger.  They demanded it be changed and, due to the heavy pressure, Burger King complied.  This change happened on April 26.  They had the $1 double cheese burger, spent tens of millions advertising, for 189 days, or about 6 months.  Wow.

I understand that a company has to make money, but this is just wrong of the National Franchisee Association.  Why not just change the double cheese burger to have 1 slice of cheese and then make a “cheesy double” that has the 2 slices of cheese?  The change intentionally confuses customers.  I still feel dumb every time I have to order a “McDouble”.  It just sounds silly.  And the BK Dollar Double is just as bad.  Plus, now if you ever have to raise the prices, you have to change the name!  So the move by the NFA not only burned tens of millions of dollars spent on advertising, they are now spending millions more on advertising the BK Dollar Double, they created confusion among customers, and forced a move to a menu item that cannot have its price changed.  How stupid and short sighted can you be?

In addition to confused customers, think of the lost productivity – a critical issue during peak hours.  Whenever somebody orders a double cheeseburger it must be clarified if that person really wants a $1 or the more expensive one.  They then might ask what the difference is and this takes even more time.  The alternative is to just take what the person orders at face value and deal with angry customers who thought they were getting the $1 item.  In a business where efficiency is measured in seconds or less, all of these small issues add up.

I am not happy with you Burger King and I think I will check out Taco Bell the next time I hit the road.

Do you think this whole thing feels like a bait and switch?

This has been a Thought From The Cake Scraps.

All sorts of talking heads have been in the news recently discussing what the impact will be of the decision that Spirit Airlines to charge people up to $45 per carry on.  They talk about how other airlines will watch them to see how the program is received by the public.  Then of course there are the Southwest commercials that only talk about how they don’t have bag fees.  But all of these people, in particular Southwest, are missing the boat.

People  get upset when new fees are implemented.  Some fees, like for checked baggage, are just frustrating while others, like charging for bathroom use, are silly, and still others are illegal (like charging for handicap assistance).  But these fees only make people upset for the moment and then they pay.  I would argue it is in danger of becoming a confusopoly.

What makes it worse is that the pointless TSA rules force you to discard items (like beverages) and yet provide no oversight on the cost of the beverage on the other side of the gates.  Meanwhile they are spending $1 Billion on scanners that, by all accounts, don’t work, are able to transmit ‘nude’ photos (as specified in the requirements document in the original proposal), and could damage your DNA.  And of course this is tax dollars and additional security fees at work.

Whatever, the point is there are lots and lots of fees which brings me to the point of this post: all of the power is in the hands of Kayak and Priceline.

Think about it for a second.  Airlines are imposing these fees so that they can get the lowest far shown, which should drive business.  This clearly is based on the assumption that price is the most important thing to customers that are traveling.  And yet nothing is being done on these comparison sites to expose this.

Which brings me to my secondary point: Southwest is getting screwed.  If I ran Southwest starting tomorrow, the first thing I would do would be call up Priceline and Kayak.  I would get an estimate of what it would take to add “how many checked bags”, “how many carry-ons”, “how many in flight meals/snacks”, “how many in-flight bathroom uses”? and similar things to the site and I would pay to develop that functionality.  The prices people see now are simply no longer valid.  There are too many additional add on costs to just keep ignoring them.  And for an airline like Southwest, to not expose that more in a pricing engine is a HUGE miss.

While I like the lower costs, and I like the idea of only being charged what I use, I also think I like to feel like I got a deal, or at least am not being taken for every cent I have.  It is a very delicate balance, and probably depends on the point of the trip (business or fun).  This could get interesting.

What do  you think about the more a la carte structure (besides that cable companies should offer it)?

This has been a Thought From The Cake Scraps.

I love to get a good deal. There are few things more pleasing than knowing that you were able to negotiate to a place where both you and the seller were comfortable with the agreement.  And despite what some may have you believe, a company really does want you as a customer; this is the case now more than ever.  So take your business elsewhere is you are unhappy, try and be reasonable, try to get a great deal if you can.  But don’t be a jerk about it.

I recently had an experience with an online retailer that I have recently taken quite a liking to.  Martin & Osa is part of the American Eagle company.  You know kind of like Abercrombie and Hollister or Gap and Banana Republic (Old Navy too!).

Anyway, they have a really great site that I like quite a bit.  It is easy to navigate and includes many great subtleties that  I won’t go into here but that I appreciate as a web analyst and novice usability analyst.  The other thing I like is that they have free shipping on orders over $100, they include clearance items in there % 0ff promotions, and they have free returns (you may have had to purchase over $100 to get that, I’m not sure).

On New Year’s Day they ran a 20% off and Free Shipping (no min) promotion.  Like I said I really like some of their stuff so I loaded up on around $100 worth of stuff.  It arrived a few days ago and literally the same day then ran a 30% off promotion.  I checked online and they were still in stock of each item that I ordered.  I kind of felt ripped off.  Sure I was happy with the 20% off but then to contact me again with 30% off within a week.  On the same stuff?  It just rubbed me the wrong way.

So I placed another order with them with the exact same items in the order and a few extra that I decided I could get with 30% off.  The plan was to just return all of the other stuff I purchased since I was getting the same stuff but with an extra 10% off.  But, being in the e-commerce business I know how much returns cost and shipping.  So I didn’t want to be a jerk and take advantage of their policies.

I called up their 24 hour number (excellent job M&O!) and asked if I could just get the credit on the stuff I bought earlier and then cancel the whole new order.  Sadly, they cannot price match to a promotional price.  This probably makes sense in most cases because people wear the stuff they purchased (and take off tags) so they can’t return it anyway.  Since I just got my stuff I could still return it.  I was also a little sad (but understood) why they could not price match my full price shirt I bought at retail (and linked to my online acct. via email) that was just send to clearance for a $30 price reduction.  They could match it in store, but not over the phone.  Oh well.

What I must say is that during this whole experience I valued his honesty.  He flat out told me to return the other stuff and keep the new order.  He answered each question without hesitation and was very clear in his answers.  Way to go Christian!  You did a great job.

So the moral of the story is always try and get a good deal (like getting 30% off instead of 20%) but also be reasonable.  It didn’t work this time, but sometimes all you have to do is ask.  Oh and by the way, my second order was actually twice the size of my first order with 30% instead of 20% so I don’t think M&O did too badly in the whole thing.

Do you love to get a great deal?

This has been a Thought From The Cake Scraps.

Oh Shoemoney, you are a money making machine.  And while I don’t think you are a prodigy of some kind, it is fun to see you at work.  Let us take a closer look at the e-mail you sent out last week.

Hi David,

I can’t tell you how excited I am!

The number of emails and calls I’ve been getting from people
telling me how they can’t wait for the ShoeMoney System
going live on the 26th, has been mind-boggling…

We’re going to do a LIVE Chat  tomorrow, share more details
about what’s inside the ShoeMoney System and answer all
of your questions.
Trust me, you’re going to be sorry if you miss this one…

******************************

**

SPECIAL ANNOUNCEMENT:
Live Chat with Jeremy Schoemaker
Thursday January 14, 2pm CT, 3pm EST
********************************

IMPORTANT: We can only support 300 users in the room,
so please signup now to reserve your spot.

==> http://www.shoemoneysystem.com/live-chat/

See you tomorrow!

ShoeMoney Media Group | 5550 S. 59th St., Ste 21 | Lincoln, NE 68516 | US
Unsubscribe from future marketing messages from ShoeMoney Media Group

I think the best way for me to review this is just in a simple list.  Now remember, Jeremy is a testing machine.  The structure of this e-mail is not an accident.  It is the result of many many tests with e-mail, or display advertising, or whatever advertising he does.  It is a highly optimized contact and it shows.  So here are 10 of the things that I picked up on:

1. Personal greeting: “Hi David”
2. Build curiosity…what is he excited about
3. Say that everybody is already doing it, don’t feel left out.
4. The system going live is “mind-boggling” implies that it is some how extraordinary.
5. Answer all “your” questions not only personalizes it but shows he’s going to give something to you.
6. “Special Announcement” which, interestingly, is the whole point of the e-mail so it’s really not so special.  But it sounds nice.
7. Uses his full name to establish credibility.
8. Has an arbitrary limit of 300 users.
9. Have to sign up up so he captures e-mails (in case you pass the info on)
10. “See you tomorrow” again makes you envision you will be there.

It is amazing how much optimization and tricks you can put into a single e-mail.  Did you see any others?

This has been a Thought From The Cake Scraps.

Branding.  It is a very interesting thing; it is what the people associate with a product.  This seems simple enough, but all in all, it is a very odd concept.  The legal system allows for one to sue for defamation, so one would assume that this means that somebody must own the reputation.  But can you really own a reputation?

I mean, reputation is just a collection of other people’s thoughts about you.  Can you really own that?  Then you are asserting you own other people’s opinion.  It is all very odd.  But it is all very important.

That is why today is a very special day for Lands End, my employer.  Today was the official launch day of the new brand called Lands End Canvas.  It has some very interesting clothing coming from Lands End.  I think that this is a great step for Lands’ End.  It speaks to our vision for the future and a new avenue to reach our customers.

I wish LE Canvas the best of luck.  Obviously I will not be able to give any updates on it here, but keep your ears and eyes open and you just may come across it.  I have already got my order and will be sure to share my thoughts on it with you.  But no matter how it turns out, it is an exciting next step for LE.

What do you think of the LE Canvas site?  And check out the My Canvas section when it’s live!