The Economics behind Groupon

by Deepak Sharma on Sunday, November 28, 2010

A week back an article in NYTimes discussed the math's behind Groupon and the parameters you need to be watchful of to make sense of Groupon.

NYT - Doing the Math on a Groupon Deal

Groupon is advertising. If you don’t need or believe in advertising, there is no reason to look at this. It costs money. Instead of writing a check for an ad, you are choosing to lose money on sales. This can wreak havoc on the brain cells of a good retailer who is always watching profit margins. It can feel wrong, especially when the coupon customers don’t spend more than the amount of the coupon.

Eight key calculations:

1. Your incremental cost of sales — that is, the actual cost percentage for a new customer. If you are giving boat tours and have empty seats, your incremental costs for an additional customer are next to nothing. If you are selling clothes, your incremental costs might be 50 percent of the sale price. Food might be 40 percent. In any case, don’t include fixed costs that you would be incurring any way.

2. The amount of the average sale. If the coupon is for $75, will the customers spend more that that? I have seen more than one retailer complain that nobody spends more than the value of the coupon. That’s unlikely but I am sure it can feel that way, and that is my point: Keep track.

3. Redemption percentage. You don’t really know until the end, but from my experience and from what I have heard, 85 percent is a good guess.

4. Percentage of your coupon users who are already your customers. I’m sure this number varies tremendously depending on the size of your city, how long you have been around, and the type of business.

5. How many coupons does each customer buy? (The more they buy, the fewer people are exposed to your product or service.)

6. What percentage of coupon customers will turn into regular customers? Again, it can seem as if they are all bargain shoppers who will never return without a discount, but that’s almost impossible. Is it possible 90 percent won’t return? Sure.

7. What is the advertising value of having your business promoted to 900,000 people — that’s the number on Groupon’s Chicago list — even if they don’t buy a coupon?

8. How much does it normally cost you to acquire a customer through advertising? Everything is relative.

Naughty or Nice–Which list are you on Retailers?

by Deepak Sharma on Wednesday, November 24, 2010

imageWal-Mart does make the cut in Nice lists sometime. Just in time for the holidays, Consumer Reports has released a list of 10 companies that it believes have been naughty to shoppers, and 10 that have been nice. The list is not derived from any exhaustive Consumer Reports study or survey. Rather, it’s based on input from Consumer Reports in-house reporters and editors, who cover shopping, travel, hospitality, telecommunications, and other franchise areas.

Consumer Reports notes that the Naughty & Nice Holiday List is not an exhaustive list and that just because the list mention a particular policy doesn’t mean Consumer Reports endorse—or dislike—everything else about that company or the way it does business.

Retailers in the Nice List:

2 L.L.Bean. 100 percent product satisfaction guarantee. Return anything at any time for any reason.

3 Free shipping and free returns, including prepaid return label.

4 Costco. Open-ended return policy for virtually everything the warehouse retailer sells minus some home electronics, which come with a still-generous 90-day return period.

6 Orvis. For customer service the old-fashioned way, shoppers can call a toll-free number and speak to a human being without wading through an arcane automated menu system. Alternatively, Orvis offers live-chat with support staff, e-mail queries, and a guaranteed response time of two hours or less.

8 J&R. The electronics superstore and e-retailer has a straightforward price-match policy without the many caveats and fine-print exclusions of some other merchants: Find it at a lower price at an authorized seller (the exception being a warehouse membership club) and “we will do everything possible to meet or beat that price” via a special telephone hotline. J&R also gives customers 30 days to ask for a price adjustment on existing orders if they unearth a lower price.

9 Walmart. No receipt, no problem. Customers can return most items to a Walmart store for a cash refund (for purchases under $25), a gift card (for purchases over $25), or even exchange. There’s one catch: More than three such returns within 45 days requires a manager’s approval.

10 Publix. It’s no fun being sick, but if you need an antibiotic, the Florida-based supermarket chain will have its pharmacies dispense up to a 14-day supply for some of the most common generic ones free. All you need is a proper prescription.

Retailers in the Naughty List:

1 No returns for “oversize” TV sets, defined as any model 27 inches or larger. If you fail to inspect set upon delivery and sign shipper’s release, says it’s your problem and go deal with the manufacturer. Its website also lacks a phone number for customer contact.

2 CompUSA. For imposing unusually punitive restocking fees of “up to 25 percent” of the purchase price on any product the retailer decides doesn’t meet its return criteria. Nowhere is it spelled out which specific products are subject to such a fee.

3 Best Buy. Offers a 14-day grace period to return computers, monitors, camcorders, and digital cameras.

8 Macy’s. Proving that high shipping fees are not necessarily a thing of the past, the department store chain calculates its freight charges on the dollar amount of the order, not the size and weight of the package. The base fee is $5.95 for orders under $25, to as much as $23.95 for those $300 or more. And that’s standard delivery.

What do you think of these practices?

It will be BIG BLACK FRIDAY this year

by Deepak Sharma

Signs are that this Black Friday will be a big one for retailers. Hitwise released report today which shows searches around Black Friday are up 31% and the share of visits to Black Friday websites are up 18% last week over the week before Thanksgiving and Black Friday last year.

Sm YoY WMS Bl Fri 11-20-10.png

The top 5 websites captured 81% of all visits to the custom category of Black Friday websites and traffic to and represented 46% of the total category.

More women than men are visiting the Black Friday websites with visits split 59% female and 41% male and tend to be younger with 59% of visitors under the age of 35. The audience also skews somewhat less affluent, with the highest share of visitors coming from the $30-$59.9k income bracket.

Yesterday comScore had forecasted strong numbers with 11 Percent Growth for 2010 Holiday E-Commerce Spending.

Ethan Allen Launches Interactive Tech in Stores Nationwide

by Deepak Sharma on Tuesday, November 23, 2010

Intava, a leader in touch screen solutions for retailers, announced that Ethan Allen has deployed Intava Vector™ interactive merchandising screens in its Design Centers across the country.

With the implementation of Intava’s technology, Ethan Allen Design Centers now have the ability to showcase and sell all available products (both online and in-store) in a visually compelling and informative way, regardless of store size. The touch screens inspire furniture shoppers by giving them the ability to discover, select, and visualize their dream home interiors through intuitive style quizzes and interactions with the screen. You can read the full release here -

Intava Vector in Ethan Allen Store

In a separate release, Intava announced the latest features and capabilities of Intava Vector 2.0, a visual merchandising and shopper assistance solution customizable for any product category. As illustrated with Ethan Allen, Intava Vector brings the best of online shopping to brick-and-mortar stores by seamlessly integrating with a retailer’s product database and quickly presenting information through simple and engaging interactive content. You can read the full release here -

Ethan Allen - Intava Screen Close-Up

Top Retailers more and more using Facebook, Twitter for Marketing

by Deepak Sharma on Thursday, November 18, 2010

More and more retailers are marketing using Social Networking sites like Facebook and Twitter. Between the middle of July 2010 and the end of September 2010, Media Logic surveyed social strategies deployed by 100 national retailers in the United States in the Specialty Apparel, Specialty Hardlines, Department/Discount, and Recreation (Sports/Hobby/Crafts) sectors. From the report which can be downloaded here:

Retailers are now able to use social media to connect their online and physical properties in ways not previously possible. Further, the sum of a retailers’ social media contacts can be leveraged to create a new media network – the owned media network1 – through which the retailer can connect to other owned media networks, including those of the manufacturers, designers, directors and artists who create what the retailer sells, as well as those customers and prospects willing to become fans and followers and participate in a cooperative marketing effort.

Total visitors to social sites now rival physical retail traffic and, in some cases, are approaching the reach of national paid media. Just one year ago, only Victoria’s Secret and its division PINK could boast a Facebook fan base of more than 1 million. By the end of September 2010, 14 retailers could make that claim (with several more joining since). And in most sectors – specifically Specialty Apparel and Recreations – growth seems to be accelerating. The 14 retailers surveyed by Media Logic with 1 million or more Facebook Likers averaged close to 40 percent growth between mid-July and mid-September 2010. The top 10 in Specialty Apparel averaged close to 50 percent growth.

The top 25 retailers by number of Facebook Fans:


Intel acquires Digital Signage company CognoVision

by Deepak Sharma on Monday, November 15, 2010

DailyDooh is reporting that Intel has just bought Toronto-based digital signage company CognoVision, acquisition price is around $17 million.

So why would Intel want CognoVision? TechCrunch writes:

The company’s digital signage offerings go beyond just providing compelling displays for marketing purposes. CognoVision’s computer vision technology provides customers with analytics and intelligence around customer interaction with displays, including data on the number of people who look at displays; how long people look for; the number of people who walk by; how long people stay near displays; and anonymous semographics of the display’s audience (gender and age bracket).

Intel and CognoVision actually have an existing relationship. Cognovision has partnered with Intel to show how processors are used in Digital Signage applications.

Wal-Mart pulls knock-out punch, offers free shipping with no minimum purchase.

by Deepak Sharma on Wednesday, November 10, 2010

Wal-Mart is offering free shipping with no minimum purchase this holiday season.

For years, Wal-Mart has used its clout as the nation’s largest retailer to squeeze competitors with rock-bottom prices in its stores. Now it is trying to throw a holiday knockout punch online.

Starting Thursday, Wal-Mart Stores plans to offer free shipping on its Web site, with no minimum purchase, on almost 60,000 gift items, including many toys and electronics. The offer will run through Dec. 20, when Wal-Mart said it might consider other free-shipping deals.

The move will definitely impact small retailers who with small number of warehouses will not be able to reduce transport costs and will take a hit on their margins if they were to match Wal-Mart’s move.

But given Wal-Mart’s scale and influence in the marketplace, its free pass for shipping sets a new high — or low — in e-commerce. And it may create an expectation among consumers — free shipping, no minimum, always — that would make it harder for smaller e-commerce sites to survive.

For smaller retailers and Web sites, which pay regular mail rates and may ship from only one location, free shipping is not nearly as affordable and often must be added into prices.

“You’re trying to compete with the Amazons and the Zappos, who have so many different warehouses that they can significantly reduce transport costs,” said Gary Schwake, director of business development at the Distribution Management Group, a consulting firm that advises retailers like Eddie Bauer.

Retailers say that shoppers have already started to revolt against shipping fees. While consumers are sensitive to what an item costs online, shipping costs can have even more influence, according to market research.

Pain with names

by Deepak Sharma on Monday, November 08, 2010

Silly name, silly company, silly product?

The trickiest situation comes when companies cannot themselves decide what they are called. The retailer which used to be called J. Sainsbury now seems to have dropped the full-stop and calls itself J Sainsbury in many parts of its corporate website. But not on its supermarkets: they now have “Sainsbury’s” written over the door. Even some press releases talk as if Sainsbury’s were the company’s official name. Likewise, America’s biggest retailer regularly calls itself both Walmart and Wal-Mart in the space of the same press release. The company seems to have been in some sort of transition from one spelling to the other for ages now. Meanwhile, the name over its stores is WAL*MART.

Obama pitches for opening up India's retail sector

by Deepak Sharma on Sunday, November 07, 2010

President Barack Obama is in India this week. He spoke about lifting restrictions on Foreign Direct Investment (FDI) in multi-brand retail in India. India allows 51% FDI in single-brand retail. Foreign investment in multi-brand retail aka Wal-Mart kind stores is only allowed in wholesale.

Obama pitches for opening up India's retail sector

Mr Obama, while addressing the US India Business Council summit in Mumbai on Saturday, Obama flirted with the issue that raises bogey in India by saying, “Here in India, many see the arrival of American companies and products as threats to small shopkeepers and to India’s ancient and proud culture. But these old stereotypes, these old concerns ignores today’s reality.”
“Going forward, commitment must be matched by steady reduction to barriers in trade and foreign investment from agriculture to infrastructure and from retail to telecommunications,” he said.

RFID Ready for Retail

by Deepak Sharma on Thursday, November 04, 2010

Stores Magazine has a great story on how RFID seems to be finally ready for Retail. It has some great examples on how customers are using it and reaping benefits like achieving inventory accuracy of 95% or 17% improvement in inventory accuracy or 14% sales increases etc.

To describe retailers’ return on investment for item-level RFID projects as “impressive” may be the understatement of the year.

The Bloomingdale’s store in Manhattan’s SoHo district is achieving inventory accuracy of 95 percent, a lift in sales and margins and improvements in inventory shrink rates. At Dillard’s, a 17 percent improvement in inventory accuracy has been reported, along with time savings of 96 percent when it comes to performing cycle counts. And, with 100 percent of its merchandise tagged, American Apparel is achieving 99 percent inventory accuracy and a 14 percent sales increase.

RFID Data Integration comes as #3 in the list of Retailers planning for new technologies deployment after #1 demand signal technology and #2 predictive analytics.

Sahir Anand, vice president and principal analyst with the Aberdeen Group, says data his company has compiled reveals that an astounding 70 percent of retailers rate themselves “average” or “below average” when it comes to inventory management processes, citing lack of inventory accuracy, visibility and tracking capabilities as some of the key culprits. When asked about the technologies they would look to deploy in the next 12 months in an effort to enable better inventory management, 20 percent cited RFID data integration — less than the 30 percent who cited demand signal technology and 25 percent who intend to invest in predictive analytics.

Altimeter Report - Rise of Social Commerce

by Deepak Sharma on Monday, November 01, 2010

Altimeter Group has released a new report titled Rise of Social Commerce – A Trail Guide for the Social Commerce Pioneer which discusses the use of Social Technologies to connect, listen, understand and engage to improve the shopping experience. The report provides a four-stage process to assess where companies are at and the path forward.

  • Let’s Be Social: Programs are launched to drive brand advocacy and increase volume/market share.
  • Enlightened Engagement: Companies create interconnections of e-commerce and social platforms – both owned and in the wider web – to influence influencers, improve decision-making, and distill the voice of the customer for the enterprise.
  • Store of the Community: Fans drive assortment, selection, and services through open innovation networks and social networks.
  • Frictionless Commerce: Companies redesign the shopping experience across channels and categories, to create a truly customer-centric shopping experience.

Read More.

Meet the new shopper. Underneath the keys of the keyboard, they are shopping in a new way. Unleashing the power of the social network, the digital consumer is shopping with friends, sharing recommendations, and actively engaging in dialogue with brand owners on how they want to be served. But, can you listen? Can you serve the new shopper? Or are you so busy YELLING your brand message, that you will miss this opportunity to listen, engage and serve the consumer in new ways? With the rise of social commerce, you have new opportunities to anticipate, personalize and energize the shopping experience; but our finished research report documents that the biggest barriers are enterprise processes that are designed to broad-brush markets, push big-brand messages, and serve markets through conventional channels.