Pricing Strategy at Amazon / Zappos

I looked at these shoes on Zappos, an Amazon-owned business. $75.

Then I thought to myself, "hey, those shoes are probably available on Amazon." So I visit Amazon. And they are available. $44. Two-day shipping via Amazon Prime. Done! I buy 'em.

Fifteen minutes later, I go back out to Amazon to look at the shoes again. This time, the shoes are $69.99.

Now, how much do you think you learn when the same pair of shoes cost $44, $69.99, and $75 across two brands, within fifteen minutes of elapsed time?

The omnichannel movement is killing us. Killing us. Folks demand that we adhere to the same pricing in all channels at all times, the same creative, blah blah blah blah blah. Meanwhile, the one company that is mulching the competition does the opposite ... dynamic pricing within a brand, different prices across brands.

Just remember, it takes a lot of software and management expertise to integrate everything into a big 'ole bowl of omnichannel goodness. Somebody is profiting from all that integration.

Do what is right for your customer. If organization-crippling integration is truly what is best for your customer, have at it! Otherwise, pay attention to what folks not fettered by omnichannel alignment are doing. And for crying out loud, think about the impact of low prices vs. the impact of 40% off plus free shipping. Both outcomes get you to the same place, but you sure do end up in a different place, don't you?

UPDATE - January 10, 2014 - 8:50am PST: Many of you correctly point out that there are several sellers offering this pair of shoes on Amazon, at vastly different prices. True. This gives Amazon even more data points to observe how pricing elasticity impacts sales.

And then we have retargeting ... even though I already purchased the shoes, the retargeting world loves the best practice of showing me the shoes, once again, over and over again, as I traverse the internet ... because there's nothing like reading about health care website contractors to inspire a person to buy shoes. Oh, and look at the price ... lower than most sellers on Amazon.

A Diet For The New Year

Show of hands ... how many of us are changing our dietary habits in the new year?

That many? Wow.

If you're starting a diet, you're trying to get away from this stuff, right?

... and you're trying to move toward this stuff, aren't you?

Let's put this into marketing terms.

• Pop Tarts are chocked full of vitamins and minerals - which are good for you in the short term ... but in the long-term, the high fructose corn syrup is going to wreak havoc, isn't it? Pop Tarts, then, are like discounts and promotions ... great in the short-term, bad for long-term health.
• Oreos ... you can take 'em with you, anywhere. They're portable. Oreos are mobile. And all anybody focuses on with mobile is the flashy stuff ... apps and data and using social to spread the word.
• Campbells Home Style Soup ... this is omnichannel, isn't it? You do a bad job of blending the chicken and vegetables and chowder and you've got garbage. So we spend all day guessing what the right mix is, never testing, mind you, just plowing forward trying to please mythical trade organizations and vendors and consultants who will turn on you the minute a new hot trend comes to the forefront.

Meanwhile, we have alternatives ... healthy alternatives.

• Spinach is merchandise, isn't it? Spinach makes you strong. Without merchandise (or product, or content, depending upon your business model), you have no reason for customers to ever interact with your business. Merchandise is everything. Everything! Load up on merchandise, folks.
• Carrots. We believe carrots help with vision, but Snopes tells us otherwise (click here). Instead, carrots are loaded with Vitamin A. You can get vitamins via empty calories (Pop Tarts), or you can juice the carrots and simply infuse yourself with health. Carrots are like Service, aren't they? When we inject our business with good customer Service, our merchandise sells better.
• Apples. An apple a day keeps the doctor away. You only need a doctor when you are not healthy. Chasing discounts, promotions, marketing "strategy", social, branding, these are things that eventually erode the health of a business. By focusing on the basics (like eating apples), you stay healthy, and you won't need to hire a consultant (like me) to come in and diagnose the problem.
• Onions. If you cut a lot of old-school onions, your eyes tear up, don't they? In marketing, onions are like Story - if you tell a compelling story, the customer may well feel emotion. When you have good merchandise, sold with great service, and a wonderful story, customers spread the word for you, amplifying your social media presence, generating low-cost new customers.

The images make it clear what we should do in 2014 - our diet needs to focus more on spinach, carrots, apples, and onions.

Maybe it is time for us, as business leaders, to try a marketing diet in 2014 as well?

Story

Take a look at a screen shot from Zappos from December 20:

Every image, every link, every sentence communicates a story. Zappos is telling you why you should buy from Zappos. Now, you may not like the story - you may not care for Coach, or you may not ever buy Coach from Zappos - that's fine. But it is still part of the story - from the penguin and showshoe in the logo to guaranteed Christmas delivery to advertising Coach as a way of communicating a broad merchandise assortment, Zappos is telling you a story.

Story is going to be critically important, moving forward. Story is where Social Media has a place. Story is where the marketer matters. Story is where the creative professional regains authority.

Here's L.L. Bean's Pinterest page - what do you "feel" when you look at this?

You can certainly feel the outdoor spirit of L.L. Bean, can't you? And based on how often each image has been pinned, you can get a feel for the imagery that customers prefer. If I'm in the creative department, this information is GOLD! Merchandising, Creative, Marketing, and Customers are all working together to tell the L.L. Bean story.

Hint - the story cannot be told without Merchandising and Creative. This is what is different than the past ten years ... previously, we let Marketing do the heavy lifting. Going forward, the Merchant must have a point of view, the Merchant must lead, with passion, demanding that her Story be told. The Creative professional must translate merchandising passion into imagery that the customer cares about. The Marketer blends a fusion of Merchandising and Creative genius, making the Merchandise and/or Story easy to share.

This requires a collaboration that has largely been missing for the past decade.

Here's an example, from J. Crew Discovered (click here).

Heck, they go so far as to tell you the story behind their gloves, don't they? In fact, J. Crew tells a story, and then Karla Gonzales (on Pinterest) spreads the story for J. Crew (see below):

Not only is Karla spreading the story for J. Crew, but J. Crew gets to see what Karla likes - this feedback loop helps the Merchandising, Creative, and Marketing team identify trends, product opportunities, and creative strategies.

This all starts with the Merchant having passion for a product. It is fueled by a Creative professional who writes heartfelt copy and generates appealing imagery. The Story is spread by the Marketing department, and is then moved through the Social ecosystem by the Customer.

This collaborative Story ... Merchant + Creative + Marketing + Customer ... has been largely missing for the past decade. Yes, social has been there to spread the word, but the strategy behind the story has been largely missing. In 2014, the Story becomes critically important.

Business success in 2014 comes from a three letter acronym:  MSS.

Merchandise + Service + Story

You recall my discussion about Clarity (click here).

I have enough clarity now to structure discussions around what I call "Merchandise + Story + Service".

In other words, we have our three ladies:

• Judy, now 61 years old.
• Jennifer, who just turned 45.
• Jasmine, who is 29 years old.

The way we market to Judy, Jennifer, and Jasmine is fundamentally different. We all know this, intuitively, in spite of everything we read that tells us we must do everything for every customer to be successful. We know Judy doesn't care about Foresquare, we know Jennifer likes Amazon, we know Jasmine doesn't care about catalogs.

So let's simplify the message.

Above, I outline what I call the "MineThatData Strategy Grid". We have our three ladies (Judy, Jennifer, and Jasmine). And across the top, I outline what continually comes up in my projects ... Merchandise + Service + Story.

Merchandise, of course, is what we sell. Too few of us even bother to think about it, but I assure you, customers think about it. Merchandise is probably responsible for 70% of our success. It probably gets 7% of our mental bandwidth. In my projects, the merchandise purchased by Judy, Jennifer, and Jasmine is fundamentally different. Perform a demographic overlay, and discover this truth for yourself.

Service is all about how we take care of the customer. Live chat, your social media response team, the call center, not sending catalogs to Jasmine, not forcing an app upon Judy, how you price merchandise, everything about taking care of your customer folds into the Service category.

Story is critically important. If you sell the same merchandise that Amazon sells, and you can't beat Amazon's delivery options, then Story is the only thing you've got. By the way, the Story that motivates Judy is fundamentally different than the Story that motivates Jasmine.

In 2014, we're going to talk a lot about Merchandise + Service + Story, especially as it relates to Judy, Jennifer, and Jasmine. Your job is to fill the nine squares in the image above, crafting your strategy for each cell.

Monday Mailbag

It's our new Monday tradition here ... your questions answered, and where appropriate, some simulated questions to make a point! Email your questions to kevinh@minethatdata.com.

An Anonymous CEO asks this: "What happens if I shut down my catalog, and focus instead on selling on Amazon instead? Can I grow my business faster?"

• #OhBoy!
• No right or wrong answer here.
• Audiences, however, are very different. The catalog audience is 55+, and rural. The Amazon audience (though age 18-80) averages a decade younger. So the merchandise assortment that works with catalogers may or may not work so well with the customer attracted to Amazon.
• Why not create a separate brand that sells on Amazon, and see what happens? It can be the same merchandise, right?

Seth has a question for us: "You are constantly preaching about profit. Doesn't your stance on Merchandise Forensics contradict profit? You want us to invest in creating more new items, new items that are terribly risky. Wouldn't we be better off riding our winners as much as we possibly can?"

• Interesting! Have you had a chance to read this article about the movie industry (click here). Fewer and fewer movies ... more and more profit. Every industry has a magical "inflection point". Every company has a magical "inflection point". Go too far, and you're over-assorted, and that's expensive. Cut back too far, and you starve your customer base. We're constantly trying to find that magical inflection point. It's always moving. And it can be found. That's the point of Merchandise Forensics.

Sherri asks, "Why do you think marketing professionals should even bother with understanding merchandising? Don't we have enough to figure out with mobile and social and online marketing?"

• I worked with an individual. An accountant. This person learned catalog circulation. Then she parlayed circulation knowledge into meetings with the inventory team, which became meetings with the merchants. With marketing data, she told the merchants what worked, and what didn't work, from a customer standpoint. This earned her a job as General Manager of a merchandise category. Several jobs later, this person was in charge of Creative and Merchandising. This person founded a company. A half-decade later, the person sold the company. The pivot from marketing to merchandising launched a career. And most of the upper-level Execs I work with respect merchandising brilliance more than marketing brilliance. Merchandising knowledge is awfully, awfully important. And it has a disproportionate influence on profitability.

And finally, William asks, "I think it's wrong to ask catalogers to shift to a younger audience. First of all, it won't work, younger customers hate catalogs. Second of all, what's wrong with generating profit from Baby Boomers?"

• Here's what I know. When I analyze the age distribution of catalog shoppers, across time, I see a rapid and frightening aging of the customer base. In 2000, the customer was maybe 50 years old. In 2014, the customer is 61 years old. I repeatedly observe 0.7 years of additional age for every year that passes - and it's been this way for at least a decade.
• I don't need to be a visionary forecasting wizard to project what the customer file looks like in the year 2028 ... it's probably 72 years old ... the average customer, mind you, would be 72 years old.
• We need to turn this question around ... what is your solution? How do you prevent your catalog-centric business from becoming Montgomery Wards?
• Give this article about Marriott a read - they're dealing with the same issue you're dealing with (click here). What would your solution be to their problem? How does that relate to your problem?

Project Focus - 2014

I created this image a year ago, and for good reason.

Look across the bottom row of the pyramid ... Merchandise ... Creative ... Finance ... (Customer) Service.

How often do you read about those four, key, foundational tactics?

In 2014, my projects are likely to center around a concept I'm calling "MSS" ... or "Merchandise + Service + Story".

Let's start with Service. For somebody with my skills, customer service means saving catalog expenses and adjusting email marketing contacts. Now, you're familiar with this, correct?

Well, in 2014, I will combine catalog contact strategy with email contact strategies and paid search budgets, yielding a combined contact strategy that increases profit and increases the likelihood of a customer (Judy / Jennifer / Jasmine) being contacted appropriately. Your favorite vendors do not have an algorithm that does what my algorithm will accomplish. Contact me now (kevinh@minethatdata.com) to get a head start - I've just finished up a series of projects that resulted in the development of a new product - Hillstrom's Contact Strategy.

The impact of the contact strategy yields a future trajectory that may be unanticipated.

In my case, I will help fulfill the service side of the "MSS" equation by showing you how your attribution tactics result in a five-year business trajectory that may not be anticipated. Too many of us are looking backward, busy assigning beans to various channels. I care about what the beanstalk will look like. I hope you join me on this mission.

You remember this topic, right?

Well, that's the "Merchandise" portion of the equation. It's the most important aspect of the businesses we manage, responsible for 70% of our success. And it's essentially ignored by everybody but the merchandising team. In 2014, this will be a major focus of my work. I will demonstrate to all of us just how important merchandise is to our businesses. Interestingly, the evolution of merchandising into old-school e-commerce channels (search, email) resulted in a shrinking of the relevant merchandise assortment. Mobile is only going to exaggerate this dynamic - you can only focus on "winners" to "optimize" the mobile experience. This will cause untold long-term problems for businesses focusing on Jennifer, and especially on Jasmine. I will work on a lot of merchandise-centric projects in 2014. Hint - new items are critically important!

What I am going to experiment with in 2014? It is something that I call "story".

Merchandise is obvious ... 70% of the total equation ... Service is all about how you deliver your value proposition to the customer - it might be 30% off plus free shipping, it might be delivering a package to your home next-day, it might be the work I do on forming a contact strategy for each individual customer. Story, however, is very different.

E-commerce is easily the "coldest" of all channels. There's almost no story - and how could there be? The minute you try a new story, customers revolt, you measure it in real time, and you go back to what you were previously doing ... calling it "optimization".

Story, based in merchandise and service, amplifies all that is good about a business. Think Apple, for a moment - think about their story, how it amplifies merchandise sales, how it creates social media discussions that are measurable.

Or think about how businesses we know use Pinterest (click here). Here, the story unfolds on Pinterest (as opposed to being a Pinterest strategy). We have everything backwards. When we have a story, mobile and social become useful. When we don't have a story, sales struggle, so we're stuck with 30% off plus free shipping - which becomes the story (this business is desperate for my business).

Story is maybe the only place where a catalog brand has an advantage.

Story is a place where e-commerce is at a supreme disadvantage, compared to retail.

Story has yet to be defined in a mobile world.

Since Story will be so important, as a differentiator, going forward, I have no choice but to spend time researching it in 2014. It is likely that I'll offer experimental products at significantly lower-than-normal rates in 2014, products that center on the stories we tell.

In 2014, my projects will hang off of the "MSS", or "Merchandise + Service + Story" framework.

• Merchandise via Merchandise Forensics.
• Service via Hillstrom's Contact Strategies - optimizing catalogs + email + search.
• Story, showing how creative and social and mobile and imagery lead to improved merchandise/marketing productivity.

This thought process (MSS) aligns across our three personas ... Judy, Jennifer, and Jasmine. There should be a strategy for Merchandise, Service, and Story for each persona, leading to nine different tactical directions in 2014.

That's where I'm headed in 2014. Get your project requests in early in 2014, because my calendar is rapidly filling up!! (kevinh@minethatdata.com).

Social Media

I've spent the past five years soundly criticizing social media, as it relates to commerce, and for good reason! We were told that social media would be responsible for a ton of business.

Then it didn't happen ... so the social media experts blamed the victims ... the businesses they sold their mess of promises to ... it's their fault, they implemented strategies incorrectly.

All of that is largely behind us, now. The future is clear.

1. If you are a business with under $10,000,000 in sales and Jasmine as a customer, social media means everything.
2. If you are a business with Judy as a customer, social media is meaningless.
3. A $10,000,000 business with Jasmine as a customer might generate 20% of their business via social media. Meanwhile a $1,000,000,000 (billion) business might generate between 0.2% and 1.0% of volume from social media. Let's go with 0.6%.

Pretend you are a billion dollar business, generating 0.6% of your volume from social media.

• That's $6,000,000 in annual sales.
• That's between $900,000 and $2,400,000 (depending upon the business model) in annual profit.

What does this mean?

• Social Media gurus: STOP TALKING ABOUT ENGAGEMENT! It causes Execs and just about anybody else to TUNE OUT!
• TALK ABOUT PROFIT. If you work for a major mall-based retailer, your social media work is responsible for a ton of profit. Use this as a case to get you the resources you need.

Thoughts?