I once worked for your mail order business, from 1990 to 1995. I recall being taught one of your most important principles of doing business (click here):
- Principle #2 = We price our products fairly and honestly. We do not, and have not, and will not participate in the common retailing practice of inflating mark-ups to set up a future phony 'sale'.
Now, I know you have more important things to tend to in Heaven, things like averting the end of the world on December 21 and helping our leaders avoid the fiscal cliff, but I thought you might want to see how Principle #2 evolved in the past decade.
Wow, that's some serious action! Let's do the math on a $105 purchase.
- Normal Business = $105 merchandise + $14.95 shipping and handling = $119.95.
- This Promotion = $105 merchandise - $40 discount + $0.00 S/H = $65.00.
- Savings = 46%.
- Merry Christmas!
If the cost of goods sold is 40% and shipping/handing is assumed to truly cost about $7 per order (ignoring the human costs to pick/pack/ship merchandise), then we're looking at about $71 profit under normal business conditions, and $16 profit via this promotion ... requiring the promotion to drive a 340% increase in orders to equalize profit.
If my assumptions are off, they're not off far enough to fundamentally change the story.
Mr. Comer, you might be surprised to learn that, in 2012, this is considered a "best practice" in the e-commerce industry. Trade journalists, bloggers, vendors, research organizations, and consultants achieved consensus on this topic around the time of the Great Recession. Because we have consensus, it has to be a best practice to accept $16 profit per order over $71 profit per order in order to maintain market share.
Experts will point to JCP, who eliminated discounts and promotions in favor of fair, everyday pricing, and saw same-store sales drop 25%. Experts conveniently ignore companies like Apple, who adhere to your principle and have more cash on hand than the US Treasury.
Mr. Comer, I recall spirited discussions that leadership had with you in 1992. They asked me to analyze tests where we priced mock turtlenecks at $12 each, or 2 for $23. We had extensive debates whether this strategy violated Principle #2. Those were great times. In 2012, with the advent of Cyber Monday and now Green Monday, our industry believes that Principle #2 places the industry at a competitive disadvantage. We used to argue about ways to discount one product out of ten thousand by 4%. Twenty years later, we discount all products by 40%, plus free shipping.
At the current rate of promotional acceleration, we'll be discounting by between 75% and 80% in the year 2032.
Thank you, Mr. Comer, for taking a few moments from your busy schedule to hear this update about modern e-commerce.