Archive for May, 2012
You might have seen recently that iconic retailer JC Penney is slumping badly. You almost certainly have seen the reason why: A massive, creative and aggressive new advertising and pricing campaign that promises simplified prices.
No more coupons or confusing multiple markdowns. No more 600 sales a year. No more deceptive circulars full of sneaky fine print. Heck, the store even did away with the 99 cents on the end of most price tags. Just honest, clear prices.
Sounds like a sales pitch aimed at consumer advocates and collectors of fine print frustration, like me. As it turned out, it was a sales pitch that only a consumer advocate could love.
The campaign, which launched on Feb. 1, appears to be a disaster. Revenue dropped 20 percent for the first quarter compared to last year. Customer traffic fell 10 percent. Last year, the company made $64 million in the first quarter; this year, it lost $163 million.
Could we have a moment of silence please for what might be the last heartbeat of honest price tags?
Not only did Penney’s plain pricing structure fail to attract fair-minded shoppers – business reporters wrote with seeming glee during the past few days that it “repelled” them.
Don’t blame Ellen DeGeneres, the spokeswoman for the Penney’s plain pricing campaign. If only executives at the firm were familiar with the work of behavioral economist Xavier Gabaix and the concept of “shrouding,” all of this could have been avoided.
Seven years ago, Gabaix and co-author David Laibson wrote a brilliant (if depressing) paper on shrouding and “information suppression” that should be required reading for all consumers and executives considering a harebrained new pricing strategy. The principle is simple, and shows why cheating is rampant in our markets and why honesty is rarely the best policy.
First, a definition of shrouding:
In days gone by, price tags were simple. An apple cost 10 cents. A cup of coffee cost $1. But today, the consumer marketplace is far more complicated, giving sellers the opportunity to create confusion. Many items have follow-up costs that make the original price tag meaningless.
Computer printers are the classic example. You might get a great deal on a printer, but if the ink is expensive, you lose in the end. In fact, Gabaix argues that it’s impossible for consumers to intelligently shop for printers. No consumer knows how much ink costs — the cartridges don’t come in standard sizes, the amount of ink used to print varies and ink costs are unpredictable. That makes the true price of a printer “shrouded,” in Gabaix’s terminology. Not quite hidden, but not quite clear, either. Advantage seller. It’s easy for printer companies to lowball printer price tags and overcharge for ink, enabling them to print money.
If you think about it, shrouded price tags are everywhere. The hotel website might say “$99 a night” but you know the bill will be more like $120 or $130. Pay TV companies promise $30-a-month service, which ends up costing more like $50. And what happens when you buy a TV with a store credit card that offers an upfront discount but a complex interest charge? And so it goes.
Facebook’s public offering will be the largest and perhaps most highly anticipated Internet deal in history. But faced with great expectations, Facebook is staring down some potentially unnerving obstacles when it comes to key areas of monetization and growth: public distrust and display advertising apathy.
According to a new AP-CNBC poll, 57 percent of Facebook users say they never click ads or other sponsored content when they use the site, with another 26 percent saying they hardly ever engage in such activity. Only 4 percent of users say they often click on ads — results that are only slightly better than the 2-3 percent clickthrough rate some experts consider the benchmark for effective banner ads.
While the company makes money, in part, simply by displaying sponsored content, user clicks are a critical part of an advertiser’s calculus when gauging how effective those ads are and how much they’re willing to pay for them. In the first quarter, Facebook generated 82 percent of its $1.06 billion in revenue from advertising sales. In the company’s online IPO pitch to retail investors, CFO David Ebersman says the company is working to make ads “more relevant, more social, and more engaging” as it looks to grow.
And while Facebook has been able to decrease its reliance on sponsored content (down from 98 percent of sales in 2009), the hopes of expanding the company’s e-commerce footprint also faces public resistance, the poll shows. A majority of participants (54 percent) said they wouldn’t feel safe using the platform for financial transactions like purchasing goods or services. Only 8 percent said they would feel extremely or very safe in doing so.
Albert Einstein’s was estimated at 160, Madonna’s is 140, and John F. Kennedy’s was only 119, but as it turns out, your IQ score pales in comparison with your EQ, MQ, and BQ scores when it comes to predicting your success and professional achievement.
IQ tests are used as an indicator of logical reasoning ability and technical intelligence. A high IQ is often a prerequisite for rising to the top ranks of business today. It is necessary, but it is not adequate to predict executive competence and corporate success. By itself, a high IQ does not guarantee that you will stand out and rise above everyone else.
Research carried out by the Carnegie Institute of Technology shows that 85 percent of your financial success is due to skills in “human engineering,” your personality and ability to communicate, negotiate, and lead. Shockingly, only 15 percent is due to technical knowledge. Additionally, Nobel Prize winning Israeli-American psychologist, Daniel Kahneman, found that people would rather do business with a person they like and trust rather than someone they don’t, even if the likeable person is offering a lower quality product or service at a higher price.
Clearly an ever increasing number of people shop online which means a decreasing number of people shop and buy at Brick & Mortar stores including Mom and Pop’s. Many people use B&M’s as a place to look and feel before buying online.
As Best Buy is discovering; being the showroom for Amazon is not a viable business model. In addition we’re seeing a greater number of sites that empower the end user to create their own jewelry and shoes at competitive prices with a 30 day return window just in case the consumer doesn’t like their creations.
Right now the consumer has to work from templates but I think we’ll eventually be able to communicate directly with the robots cutting the cloth, sewing the jeans, building the car.
What will the world look like in 50 years? What will be done with all of the buildings that used to house merchandise? Will they be turned into parks? Corn fields?
There will probably always be those who need to touch, see, smell, hear and feel merchandise before buying. Where will they go? Amazon Showrooms? SuperMalls where entertainment is the primary attraction with shopping secondary? The Vegasification of the shopping experience? Will B&M’s stay in business by cutting rev share deals with online entities?
What ever happens, in my opinion, humankind is in the process of making an evolutionary leap forward unlike any other before.
What do you think the world will look like in 50 years?