Irreverent Retail Relevance in a Digital Era, Part 2

by Tim Cose, Hal Leonard CorporationTim Cose

Monkey See, Monkey Don’t

Returning home disheartened and skeptical after my unfruitful trip to the local Big Box, I punched ‘turntable’ into Google and was immediately funneled onto Amazon (see Irreverant Retail Reverence, Part 1) where I fully expected to have the choice of either a pink plastic suitcase with a speaker in the lid or a slab of knobs and faders reserved for drivers of slow cars that sound fast (sigh…kids these days). My search yielded some interesting results though, not the least of which were low prices. I didn’t see how Amazon could be making any money on the sales of those record players unless a.) I was somehow being ripped-off or, b.) someone else was somehow being ripped-off. Turns out, I wasn’t too far from the truth.

Amazon can make money on a sale by not making any money on a sale. Your cash and Amazon’s vendor’s cash make this possible. Several contributing factors, including the UGC/SEO machine just covered, encourage high hit-rates and fast turn for popular products on Amazon (by the way, Amazon also leverages a Long Tail sales model through their recommendation process). Within the standard retail terms of 45 days, Amazon’s traffic and inventory turn is (in some cases) so fast that they are able to sell at or extremely close to cost, invest the consumer cash, earn a return, and collect advertising revenue all before having to pay the manufacturer [10]. Ironically, on any given product a low margin lends itself just as well to this Amazon strategy as a high one because revenue, not profit, is invested and the money made on advertising depends on their listing’s traffic, not the margin of the sale. Combine this investment and advertising tactic with revenue from Amazon’s 3rd Party Marketplace sales model and it becomes clear that Amazon isn’t all that concerned with making top dollar on every widget [11, 12]. Despite these very creative approaches to retailing, Amazon reported a typical for them (or your local supermarket) 1% profit margin in the first quarter of 2012 [12]. Ask yourself: is selling like Amazon, even if you can, really a worthwhile goal?

Differentiate or Die

The shortest path to irrelevance looks a lot like the one that has led others to success; so differentiate or die. If you advertise based on price and allow it to define your customers’ experience, you will lose. It will not always be Amazon that beats you; because if they fall, and fall they may [12], someone else will replace them as the lowest common denominator. As part of the music industry, your passion and knowledge is the goldmine that Amazon cannot tap and as an independent retailer your one-on-one and face-to-face service is the value that a packer-and-shipper cannot provide. Connect with every customer that comes in the door and do not let your price tags do the talking. A sale-tag is not a sales-man. When it does come time to talk price with your customers (and that is NOT step #1), know their motivation.

Customers are always right but many of them might be unstable. Everyone from Kuala Lumpur to Kalamazoo expects prices to be lower online, and getting on the Internet these days is as easy as pulling your phone out of your pocket [15]. So why, when a customer shows up at the register, would you assume that financial gain is really what they are after when they mention a competitor’s price online? If price were the only factor, that customer should not be at your register at all because they know things are cheaper online. It stands to reason then that other motivations exist and that the customer intimating a threat to buy online is really just expressing those other motivations and attempting, however clumsily, to negotiate their fulfillment with you [14]. I refer, of course, to The Lost Tradition of Haggling.

There are many reasons to haggle, but only one of them is financial gain. The competitive customer has high personal standards and a need to surpass others; they see haggling as a game. The power-seeking customer sees haggling as a war in which they must gain control over or win the submission of their adversary. The uncertain customer seeks affiliation and haggles for acceptance and initiation as a savvy consumer [14]. Any of these customers/lunatics will mention a lower price online, but that lower price is not their motivation (not that they know this). These customers seek an emotionally equitable interaction that websites cannot supply and that is why they have shown up at your register. The next time a customer mentions online pricing, count yourself lucky that they have decided to do business with you. They have set your anchor price and want you to talk them up from it. And as far as the customers who are not showing up to berate you on price…

Further Down the Rabbit Hole

The more I researched record players online, the more I came to realize that there were lots of people in my situation. There were and are, in fact, entire online communities devoted to music lovers helping other music lovers figure out how, when and where to make wise purchases (Audio Asylum gets my pick as most aptly named organization). Given the slightly esoteric scope of my search, I was surprised and overjoyed to receive several recommendations through my cries for help on forums and Facebook. The majority of the advice came from complete strangers, people with whom I shared nothing more than a common passion for music. I was told by these Samaritans of the Digital Era exactly what stores and websites to go to (in some cases, even which employees to speak with) and how to describe or find exactly what I desperately wanted to purchase.

If knowledge is power and ignorance is bliss, where are all the melancholy despots? Probably updating Facebook. Google, currently the global information delivery super-guru, has the highest traffic ranking of any website on the Internet in the world…that is unless you’re checking on the weekends [19]. Because on the weekends Facebook, the global social networking super-guru, occasionally captures and retains the #1 spot for 48 hours or so. The recent addition of Google+ notwithstanding, these two Internet behemoths serve very different purposes. One is popularly the shortest path to any tidbit of collective Internet knowledge you could ever want to know and the other offers online social connection to both your offline friends and an unlimited palate of virtual would-be friends. Hmm…information and connection, you don’t say?

The trend that is apparent on the Internet as a whole also holds true at the individual virtual community levels (forums, bulletin boards, etc). Whether these online communities are founded on shared hobbies, professional fields or abnormal anatomical growths, empirical data shows that information acquisition and social interaction are the primary motivating factors for participants [16, 17]. People tend to cling together in communities. To Al Gore’s surprise, the system originally intended as an information exchange platform that lacks any direct physical contact between users has been permeated by humanity’s seemingly intrinsic need for social interaction. Think about that the next time you use DARPA’s technology to stalk your ex’s Facebook profile.

The proliferation and adoption of the Internet has changed nothing more than the way in which we disseminate information. You can find an explanation in a highly influential sociology paper written in 1973 by Mark S Granovetter entitled “The Strength of Weak Ties” [18]. One point central to Granovetter’s theory: relative to one another, the people with whom you have closer ties have less new information to share with you than the people with whom you have weaker ties. It is reasonably safe to infer from this that you can cast a wider marketing net by promoting to and interacting with people you do not know than by promoting to the people you know very well. Common sense, right?

You don’t have to be a friend to befriend. In application, Granvetter’s theory holds tremendous promise for the power of social media.  Being a visibly active participant online gives you share-ability and share-ability is your link to ‘weak ties’. From a consumer perspective, voting-with-your-wallet is not gone, but it has been largely usurped by voting-with-your-likes in terms of effective word-of-mouth guerrilla marketing. To draw the migrated customers back into your store, you are going to have to put on your rubber pants, wade out, and cast the net (pun shamelessly intended) into social media. There is far less competition in this realm than you may think [20]. But, you must bring your compelling (shareable) retail experience and expertise to the table, not just a logo and a slogan. The social media tools available to you today (Facebook, Google+, Twitter, WordPress, ad nauseum) make this easier, cheaper and more effective than ever.

Connection

I love my record collection. I love the content itself, but I feel good when I can pick up the sleeve in all its unique, wrinkled, and age-stained glory. It’s MY record, not a faceless digital approximation. It’s a real, tangible connection to music. Connection. I wrote 95% of this little research paper about a year before finishing (immediately after my first RPMDA, if you’ll forgive the plug), not fully understanding where it was headed or what theme I could extrapolate. I did so as much for my own betterment and research as for the purpose of sharing with others. As I read back through it now, the common thread is glaringly obvious. We live in a world and reality of connections. We want to interact, to know what others think, to haggle, to find help, to give help, to discover.

We are social creatures. In retail, our product is ourselves, not a widget. To lose focus of that fact is to lose focus of society’s desire to connect. While inventions like iTunes, Amazon’s UGC, or Facebook’s social networks approximate a social connection, just as an mp3 approximates music, it is not the same as true, organic interaction. These tools and concepts have reshaped the landscape of the retail world; but they are just tools. We must turn them back inwards to help consumers rediscover us, our passion, and our content. Retail is a business of fulfilling the needs of the market. Identifying those needs is about connecting with the customers desperately waiting to express them. You must be the retail expert and social hub that you have always been, but you must also appreciate and apply the new wealth of services at your disposal. Above all, do not forget that at the end of the day your industry is an industry of passion and sharing, made up of people.

Connect.

 

[10] Spool, Jared 2009 “Revealing Design Treasures from the Amazon”http://www.slideshare.net/jmspool/revealing-design-treasures-from-the-amazon

[11] Blodget, Henry for Business Insider 2012 “Look Out, Google—’Amazon Is Already Doing More Than $1 Billion In Ad Revenue” http://articles.businessinsider.com/2012-03-05/tech/31122707_1_google-search-results-google-ads-core-search-business

[12] Zakowicz, Halina 2012 “Why Amazon is Headed for a Fall” http://beta.fool.com/halina23/2012/05/21/why-amazon-headed-fall/4662/

[13] Ahmetoglu Et Al for the Office of Fair Trading 2010  “Pricing Practices: Their Effects on Consumer Behavior and Welfare” http://www.oft.gov.uk/shared_oft/business_leaflets/659703/Advertising-of-prices/Pricing-Practices.pdf

[14] Jones Et Al 1997 “NONECONOMIC MOTIVATIONS FOR PRICE HAGGLING: AN EXPLORATORY STUDY” http://www.acrwebsite.org/volumes/display.asp?id=8075

[15] Kamarulzaman, Yusniza 2011 “A focus group study of consumer motivations for e-shopping: UK versus Malaysia” http://www.academicjournals.org/AJBM/PDF/pdf2011/18Aug/Kamarulzaman.pdf

[16] Ridings Et Al 2004 “Virtual Community Attraction: Why People Hang Out Online” http://jcmc.indiana.edu/vol10/issue1/ridings_gefen.html

[17] Gulnar Et Al 2010 “Motivations of Facebook, You Tube and Similar Web Sites Users” http://yayinlar.yesevi.edu.tr/files/article/392.pdf

[18] Granovetter 1973 “The Strength of Weak Ties” American Journal of Sociologyhttp://sociology.stanford.edu/people/mgranovetter/documents/granstrengthweakties.pdf

[19] Alexa Top 500 Global Sites http://www.alexa.com/topsites,http://www.alexa.com/siteinfo/google.com

[20] Wikipedia 2013 “1% rule (Internet culture)” http://en.wikipedia.org/wiki/1%25_rule_%28Internet_culture%29

 

One Response to Irreverent Retail Relevance in a Digital Era, Part 2

  1. Very interesting article. This would certainly apply to a lot of businesses. Selling on availability, service, and connection (relationship) are still the driving forces that help us. Now, we simply have to use technology as a tool, and not as a competitor!
    Great points, here.

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