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How to drive sales through incentives without destroying long term brand value…
Group Buying and other Daily Deals sites were built to address this issue, and they’ve done a pretty decent job if their multi-billion dollar revenues are anything to go by! Though, to some extent they are a victim of their own success in that it’s hard for a brand to discriminate on price discretely when so many of its regular customers are Daily Deals customers.
Further challenges with Daily Deals include the fact that the Brand doesn’t typically control the creative, meaning they are often a Supplier to the Daily Deals Site not a Client. And, the Daily Deals site will leave a permanent record of the Sale in their back catalogue which will appear in Search and therefore undermine brand value. Further, the Brand owner is asked to give away quite a lot, more often than not the Retail price is discounted by more than 50% and a further 20% – 30% is given to the Daily Deals site as a commission.
Clearly there are a number of scenarios where this channel works well for a business. The unit sales volume can be significant with no marketing effort from the Brand Owner hence they are appealing in a lot of ways, especially if owning the customer is unimportant.
A radical new tilt at the problem is Entertainment Shopping, where the retail price is used only to describe the Size of the Prize, but is otherwise irrelevant. One example of Entertainment Shopping is Penny Auctions, where users purchase Bids which they use to win items, theoretically being able to win and items for a single bid, which may cost less than a dollar. The reality though is that these Auctions are super competitive and the likelihood is that you will lose many more auctions than you win, yet the bids you used on lost auctions still cost real money – in that sense it’s more akin to gambling than shopping. For the Auction site this means the overall yield per item is greater than the retail value, thus favouring the Penny Auctions themselves more than the Brand Owners or the customers, albeit customers may choose this purchasing route for the sheer joy of the Auction!
In the Entertainment Shopping category Australian Statup Wynbox has a much more evolved solution for Brand Owners. The genius of the Wynbox solution is that they provide their Buy-to-Win platform as an integrated shopping engine for an existing website, meaning the retailer retains end to end control of the user experience.
Buy-to-Win involves the retailer setting a ratio of free items to full paid items, meaning anything from 1 in 2 to 1 in 10 or more may be free, equivalent to a direct discount if that number are purchased by a single customer, or a lucky dip if you are buying just one.This is a simple way to provide a strong purchase incentive without discounting the product, and it can be fun too, so it ticks the box for the user who plays Candy Crush between shopping missions!
There are a number of interesting scenarios that underline the power of the Wynbox platform, such as in the sale of concert tickets for instance. As sales begin to lag for a concert, the ratio is introduced. The ratio can be cranked up to 1 in 2 if necessary to drive sales, but at no point is the ticket price discounted, meaning the customers who purchased the concert tickets at full price never feel cheated and the Talent and the Promoter are happy.
In fact, Wynbox works in a number of scenarios, including Fashion where margins on Full Price products are high but the vast majority of purchases normally occur at a substantial discount, with Buy-to-Win the discount can exist without an overt discount.
All retail businesses should be thinking about the entertainment value of their shopping experience as consumers explore less boring ways to shop for discretionary items. Wynbox offers a fresh solution that can be “plugged in” to an existing site, meaning a fast track to an Entertainment Shopping experience that would otherwise be very hard to achieve.
Sneeze and you may have missed it.
The Click Frenzy frenzy came and went in a matter of days, yet in that time it managed to reach the consciousness of some 20% of online Australians! That’s quite an achievement.
Their PR machine had triggered something in Australia’s uber-price-sensitive media which led to an incredible amount of coverage in the days leading up to the sale – it really did become a frenzy.
Even before the site ran into capacity issues on their woefully inadequate servers, their business model meant they would only ever make moderate returns. Choosing an all-up-front fixed-fee suggested they doubted the results they could yield for their retail partners preferring instead to cover their costs and hope for a modest return.
All in all, they clearly had no idea how ready the Australian market was for Click Frenzy!
Click Frenzy founder Grant Arnott explained in a rare and touching mia culpa that 300k visitors was their top traffic estimate, so the 1.6m visitors they actually saw blew their infrastructure wide open. To be fair, I think only a handful of sites around the world would cope gracefully with 1.6m concurrent users! The fact is the 7pm launch time was a big part of the problem, internet infrastructure hates concurrency!
Aside from the access issues suffered by many hundreds of thousands of bargain hungry shoppers, many found their way to the registered retailers and boy did they spend!
One retailer example I was shown paid less than $3,000 to participate but yielded over $80,000 in sales. An equivalent Group Buying offer would have cost the business $24 – 30k in commissions! A pretty good outcome for the retailer!
The chart below from Quantium shows the direct impact on participating retailers versus non-participating retailers.
160 retailers of varying sizes participated, and Click Frenzy probably netted an average of 3 – 5k upfront from each, meaning 480 – 800k in Gross Revenue. Not bad, however had they chosen to take a booking fee plus a moderate trailing commission, they would have netted anywhere from $800k ($1k upfront, 5% commission on $80k Average) to $2.4m ($1k upfront, 15% commission on $100k average)!
All credit is due to the Click Frenzy team, they were swept along by a frenzy of their own making albeit they we flattened in the stampede. Better luck next year.
In 1999 the ever cheery Brits (of which I’m one) were flabbergasted when their #1 Son Richard Branson lost a bid for the National Lottery. His manifesto for the People’s Lottery was based on it being run as a Not for Profit meaning that profits would be provided as donations to the lottery commission over and above the standard fun-raising efforts of the National Lottery. Even though these additional donations would exceed $1bn each year the Lottery Commission said no, instead they chose Camelot who had no such altruism in mind.
Surely something’s afoot, why would the Purpose driven Lottery Commission choose greedy toes Camelot over goody two shoes Branson? Isn’t that Greed before Good?
Not that simple.
The Lottery Commission figured that without the benefit of a Profit Engine behind Lottery Ticket sales, they’d be worse off taking the $1bn contribution from the Virgin effort. That their interests would be misaligned and the overall donation pool would be smaller as a result. A decision that has since been vindicated several times over.
If the collective interests are balanced, doing good doesn’t have to be unprofitable.
Recently I co-founded a business called BeyondCover. On one hand BeyondCover is an Insurance reseller for Global Underwriter QBE, selling CTP (The mandatory Motor cover in Australia), General Motor and Travel Insurance, on the other hand it raises money for causes by rewarding Cause partners when they introduce a new Insurance Customer.
The key to having the right incentives in place lies within the nature of Philanthropists. People who regularly support Good Causes are good people, they take fewer risks, cause fewer accidents and pay their bills on time. They make pretty good Insurance customers too!
Reinvention is bloody hard, rarely has a big business managed to pivot wholesale to a new them without causing a catastrophic collapse of their core along the way. History is littered by once great corporations hollowed by their failure to recognise the need for reinvention.
But this isn’t a cautionary tale featuring Kodak and their resistance to the Digital age, although that is a good story! This cautionary tale concerns those businesses that recognise the need for change but fail, fail because their big company DNA rejects the wide eyed organism growing within.
Clayton Christiansen describes the issue as the Innovators Dilemma. The central theme of his argument is that big businesses innovate within the constraints of their own expectations. Big business’ expectations demand an aggressive and predictable return on capital as well as a degree of polish that small businesses and startup entrepreneurs happily live without.
Those expectations limit their ability to innovate to the Sustaining kind only, meaning incremental improvements that result in incremental bottom line impacts. The new breed of competitor, i.e. startups, don’t live with those constraints and can therefore galvanise their new business around an untested way forward.
Things don’t always go well, no matter how passionate you are as a business owner. What’s important, is what you do next.
yabbit will help you to connect with your customers, on premise and off. Providing a platform to gather feedback about your business, and giving you a critical opportunity to respond when things have not gone well – before your highly connected and passionate customers turn to social media and their favourite ratings and reviews site to share their disappointment.
At no cost to you or your business, yabbit will provide an easy to use feedback platform that will encourage your customers to “tell it like it is” – simple, discreet feedback, straight to you, the one who cares the most, the business owner.
yabbit is looking for 100 passionate business-owners to get involved in a pre-launch Beta, to provide us with invaluable feedback that will help us shape this business into a game-changer for your business.
Go to www.yabbit.com to register.
I still have a soft spot for the Bellevue Behemoth, I enjoy a Windows Phone 7 after all! Yet I can’t hide my disappointment with their new G+/Pinterest competitor So.cl having logged in for the first time today.
There was a time only a few years back when a Consumer Preview or Beta could be rough-as-guts bad – and early adopters would still evangelise the intent even though they had to cut the execution some slack!
However I think the world has moved on. Looking at innovation through a Lean Startup lens it feels appropriate to cut features in favour of capability when time to market is important. Yet what Microsoft have done with So.cl is enabled 100% of the product features at the expense of capability, in fact, I get errors at pretty much every turn!
In such a competitive market, when trial, adoption and subsequent user engagement/feedback is so critical, I think Microsoft are about the blow the advocacy available from that first wave of geek-adopters as a result of their surprisingly poor execution, a potentially fatal blow for a Network-effects dependent platform.
As an innovator the formula to success seems straightforward, annoy fewer customers than you delight and your advocacy will grow.
Sadly, Microsoft are engaging on a very dangerous battlefield with So.cl, I imagine their their enemies are moving in for the kill already. Another Wave anyone?
Dan Sullivan’s 2005 book, How the Best get Better, contained some simple tips around improving your referability – I thought it would be useful to repeat here.
Four simple rules:
What struck me most about this framework is the absolution simplicity of its guidelines, and the no-brainer nature of the points.
So if the rules of the game are this simple, why publish them here? Tragically these behaviours are atypical – especially rules 1 and 4!
Every business, offline or on, generously receives up to 57 Signals from a prospective client at the point they touch your business, those signals are there to be read and understood allowing your offering to be optimised in real time – maximising the likelihood of purchase.
Find and adjust to just 5 Signals for short term gain, build a strategy to address all 57 to change your business altogether.
Finding and exploiting these signals has contributed greatly to our success at Cudo, and over the coming months I will be talking to retailers across multiple industries about finding this kind of value from their existing data.
More to follow.
Cudo set another new benchmark for the competitive group buying category today when exactly six months after launching it announced achieving $1 Million revenue in just 48 hours with an accommodation offer for the Outrigger Koh Samui Resort in Thailand.
The Outrigger deal went on to make $1.5M in sales overall, making it the highest grossing group buying deal in Australia to date. The high value deal offered consumers five nights at the new Outrigger Koh Samui Resort for $792, 74% less than the regular price of $3,000.
The Outrigger resort opened its doors on 1st February 2010 and ran the Cudo deal as a way to build recognition and demand quickly –through its above the line advertising across the Channel Nine network, ninemsn and its extensive member base. Cudo’s unique marketing offering has proven a huge success for the resort, with more than 10,000 room nights sold in less than four days – with no cash marketing outlay required.
Commenting on the success of their partnership with Cudo, Pieter van der Hoeven, Director of Sales & Marketing – Asia Pacific for Outrigger Hotels & Resorts said: “Cudo.com.au has delivered spectacular results for the Outrigger Koh Samui Resort and Spa, which only opened on February 1. The results from the short-term Cudo campaign have
dramatically exceeded Outrigger’s expectations.”
“The benefits to the property will be long-term, especially when our Australian guests return home and tell their family and friends about the services and facilities at the resort and the many attractions of Koh Samui.”
This is a record single-deal revenue for Cudo, Australia’s number one group buying site, which attracted more than 900,000 unique visitors in January. However, Cudo CEO Billy Tucker says this is a mark of things to come as the category’s value and breadth continues to increase.
Billy Tucker said, “While group buying deals have traditionally sat at a lower price point, the success of this offer confirms that if there’s a good saving to made, regardless of cost, the Cudo audience will buy it”
“This offer demonstrates that our members are very savvy indeed and more than willing to spend in the $1,000 range on an amazing offer. This was re-enforced when we sold almost 700 Silky Oaks Lodge offers at $969. Cudo brought accommodation to the Group Buying category and has continued to excel with great offers on these high end escapes. Previous outstanding Cudo deals include Voyages, Kingfisher Bay and O’Reilly’s Rainforest Retreat. Cudo offers a huge opportunity for premium businesses wanting to attract new clientele.”
“Cudo attracts the very best partner businesses and as a result we have the best members. It’s a winning formula that enables us to provide a wide variety of offers which in turn keeps our member-base interested and growing. Aussies have come to expect more from Cudo and we continue to deliver it.”
After almost four months of building, launching and now growing Cudo I feel that I have sufficient headspace to return to my blog.
Of course the irony of my last post is not lost on me, albeit I knew at the time of writing it that I was about to begin developing “yet another” Group Buying competitor.
I wrote, “Chances are a number of poorly funded Group Buying pretenders will come and go over the coming months, it will no doubt be fascinating to watch!”, and since then I have joined the fray with Cudo.com.au, a rather well funded effort jointly supported by my new masters PBLm and Microsoft. And it has been fascinating to watch!
11 or so months in, and none of the Australian Group Buying companies appear to have failed just yet. And like any fragmented marketplace the aggregators are in the mix too, capitalising on the lack of loyalty or differentiation. I expect they will start to lose interest at some point too having failed to build a decent living out of their thin affiliation! But for now, there still seems to be some room in the market as the shoppers keep shopping, and the Merchants keep signing up to their new found one-day wonder-spruik.
Even with all this new competition there’s no obvious downside to Cudo either as enthusiastic new entrants pour oodles more money into Google in an effort to harvest a precious click or two, while educating Consumers and Merchants alike for the greater good.
I still expect to we’ll see some consolidation soon, but for now, it’s 1pm on a Saturday, back to work I guess… Start-up life!