Tuesday, March 19, 2013

My First Channel IQ Podcast

I just completed my first podcast for Channel IQ this morning, with host Anthony Capozzoli.  The show is called "Add To Cart | Blog Talk Radio Feed", and you can subscribe for FREE on iTunes.  It was about a 25 minute conversation, and it will appear there very soon.

While I love writing, those that know me well know that I love to talk even more.  I've been accused of being able to talk perpetually by speaking with both breathing out and breathing in.  This format allows for us to have a natural conversation about the seemingly endless topics that surround Brand Protection and Minimum Advertised Price policies.  Fortunately, Anthony is an excellent host that can keep me from going on forever on these topics in one sitting!

The conversation was held over Skype, and I used a Bose SIE2i Sport Headphones to connect to my iMac for my audio.  I was quite pleased with the sound quality - crystal clear.  A couple times, I did have the infamous echo that gave me back my own words in a whisper of an echo.  While this can be disorienting at first, I've learned over the years to "play through", as the other person (and in this case, the audience) can't hear what I am hearing.

I think what I enjoy most about this format is the open flow of conversation.  Brand Protection is such a rich topic, that intertwines so many disciplines, strategies, and points of view, that while some of the same topics can come up frequently, the context changes when the needs of the three primary player groups are considered - Marketplaces, Manufacturers, and Retailers/Distributors.

And, because the strategic landscape is forever changing, the conversation may never stop!


Monday, March 18, 2013

Talent Scout: The New Role of the Marketplace Retailer


Just a short 10 years ago, in the Golden Age of eCommerce, people in their pajamas were able to write half-baked descriptions with pictures of products taken on their living room floor and sell wild amounts of consumer products.  Success was largely nothing more than homesteading on the frontier – being the first person to think of putting something up on eBay.  Large unit sales and margins were possible for the simple reason that demand exceeded supply.

When competition did emerge, it generally took the form of other pajama-clad Micro-Business people who copycatted the pioneers.  A price war between these retail entrepreneurs was a game of chicken, where neither party had an interest in wrecking the market.  Someone always blinked, and often prices would bounce back to normal levels.

By 2007, disgruntled eBay Sellers were eagerly looking for alternatives to the heaving oceans around the SS eBay ship.  Annual policy changes rocked business models, putting some out of business overnight.  Yet, no other marketplaces measured up by delivering buyers in large numbers no matter how slick their web design or checkout system.

Amazon took notice, and boldly attended eBay conferences whispering to sellers about the ease of listing products, no listing fees, and promises of high demand.  It was the lifeboat from the sinking of the SS eBay, and many jumped overboard head first.  To their delight, Amazon was right – an epic exodus of buyers was leaving eBay’s nightmare called “Checkout” for 1-click nirvana.

Only after investing significant time and energy into Amazon’s platform did they learn that Amazon was sending Sharks that appeared to be lifeboats.  The Sharks would steal their suppliers from under them, and then drive prices not just to wholesale, but below wholesale.  It felt to some like they had been tricked into giving Amazon free data entry to build their catalog, so they could then measure sales and take the best suppliers away by using economies of scale to get a better wholesale price with the manufacturer.

The reality was that Amazon wasn’t looking myopically at transactional profit, widget by widget.  Instead, they prioritized the goal of attracting new fiercely loyal long-term customers.  Since customer acquisition has an expense, they justified discounting near or even below wholesale as being less expensive to getting a buyer to create an Amazon account than traditional advertising.  If it cost an average of $9 of advertising to get a buyer to sign up, giving away a product for $5 under wholesale was actually not insane – it was a cost savings!

Brilliant.

When Amazon’s self-interest is factored, the savvy logic trumps all conspiracy theories about tricking sellers into building a catalog for free, then stealing the suppliers.  The problem for the small independent retailers is that no longer could they ride the wave of a sourced product for years.   The product’s Pricing Life Cycle had to be considered, and a plan had to be developed to overcome the fact that in a matter of weeks or months, competition would drive prices to unsustainable margins by Amazon.  This occurs most often when the na├»ve manufacturer fails to anticipate Amazon’s self-interest by having Brand Protection in place in the form of a MAP Program.

Successful Marketplace Retailers no longer rely upon finding a widget they can sell in high margins at high profits for years on end, but rather engage in perpetually finding brand new products from entrepreneurial companies.  They have to become sourcing experts who can see new trends, identify those who have done their IP homework, have the resources to produce them in sufficient quantities, and have innovated and imagined into being things that can be forecast to sell in high volume.  They have become, in effect, Amazon’s Talent Scouts.

These Talent Scouts attend trade shows, network with importers, and make their top priority to find exciting new products before anyone else.  They then bring those products to Amazon’s marketplace, and enjoy high profits and margins for brief periods until other small retailers, and eventually, Amazon itself notice their success.  Once Amazon has a supply of that product that is not protected by MAP, the retailer finds that their sales often drop to zero until the manufacturer wakes up and puts a MAP program in place.  Meanwhile, to keep their business going, they must continue to find more new talent to put on the conveyer belt.

Some manufacturer’s get chewed up and spit out in the process.  It’s usually the ones who fight hard against the concept of MAP programs, claiming they are impossible, ineffective, and too expensive.  Those that wait too long suffer the consequences, and in some cases lose their business.  Others who discover the problem in time salvage what they can, but it’s the ones who can see that no widget is immune from this process that are able to create and sustain programs that insulate their products from price devaluation that occurs as Talent Scouts feed the Sharks over at Amazon.

By recognizing that no product is immune from the cycle of having Amazon offer it up as bait to attract new loyal lifetime buyers, savvy manufacturer’s who anticipate Amazon’s self-interest are able to have a MAP Program in place before damage is done to their brand.  Success requires development of closed distribution practices, strictly enforced MAP polices for the entire supply chain, and automation of reporting and policing with services from companies like Channel IQ.

In effect, the retailer who acts at the Talent Scout is the only party who preaches and promotes the inherent overlapping self-interests of the Manufacturer, Amazon, and the Retailer.  All parties can win, and success is sustainable with a proactive plan.

Wednesday, December 5, 2012

Retail Phantoms - The Scooby Doo Principle

This is the first in a series of articles I am writing for Channel IQ.  The topic is one that every MAP Program Administrator eventually encounters - Retail Phantoms.  The good news is that there are sound strategies to unmask these phantoms.  Read more here:

http://channeliq.wordpress.com/2012/12/03/retail-phantoms-the-scooby-doo-principle/

Thursday, May 20, 2010

Pricing Issues On Amazon When They Merge ASINs Incorrectly

One of the more frustrating experiences as a seller on Amazon in 2009 was the increase of cases where the buyer receives the wrong item because Amazon has merged two SKUs together incorrectly, assuming they were the same product. 

What's even more frustrating are the times when a seller receives less than they intended on a transaction, because the merge has caused the seller to offer a more expensive item for a lower price.  Not only does the seller have to pay for retreival of the incorrect item, but they are forced to honor the impossibly low price on the item the buyer thought they had purchased.

The reason Amazon merges them together is because they have a desire to reduce clutter on their website by having only one listing for each unique product on the site.  They have instituted a system that catalogs items by UPC code, and requires sellers to associate a product with the UPC code before it is uploaded to the catalog.  This would logically result in a catalog that is limited by the fact that any attempt to launch an item with an identical UPC code would result in linking to the existing listing.

The problem is the fact that the database at Amazon isn't really looking for authentic UPC codes, but rather is using the validation of the check sum number at the end of the UPC code's string of numbers to verify that the code is inherently valid by it's mathematics - not that it honestly represents the product being advertised.  As a result, in order to create a duplicate listing, all one has to do is create a fake UPC code that has a valid check-sum number at the end, or purchase a UPC from numerous vendors at inexpensive prices.

As a result, Amazon's effort to curb duplicate listings is a never-ending game of whack-a-mole.  Or in this case, whack-an-ASIN.  So far, their ability to merge listings for like products, while significantly more efficient with new automation launched in 2009, is still at best a draw in the war with merchants who have a financial motivation to create the clutter Amazon hates.  In the battle for the buybox, having your own listing, even if just for days or weeks, may mean significant additional orders that would not be obtained by being seller #14 of 26.

I can't say I have any inside knowledge about how the decision-making tree is laid out at Amazon, when they decide to merge two listings.  But, what I can say is that we can't seem to go a week without an error caused by a bad merge.

Amazon definitely fixes things back once we report them, and sometimes with lighting quick response times.  That is impressive for a company of their size.  But, the havoc wreaked on buyers who need things by a deadline, or for sellers who already have razor-thin margins, this practice is more than just annoying. 

I have personally witnessed buyers who otherwise would have gotten a great deal on something that delivered very quickly after the order was placed turn into cases where they promise never to come back again - it's just so difficult to understand why the effort to make the site less cluttered can justify the collateral damage to buyers and sellers who have no ability to control or navigate the situation.

My solution is that if there must be tolerance for something, it should be for a small degree of clutter in duplicate listings that take a little longer to merge, rather than all these bad buying and selling experiences that are driving people away.  The drive to be hyper-efficient in policing the site for like items means that mistakes are made - because machines still are dumber than humans.  For the moment.

I think the insane drive to have the lowest price on Amazon is a factor in this too.  Without an algorithm that so heavily weights the lowest price, sellers would not be creating the massive amount of clutter in extra listings because they would instead get more of the buybox percentage by staying on the primary listing.  Just like anything, the behavior changes with the winds of the profit motive.

In the end, we know that Amazon isn't about to change their marketing away from having the lowest price.   It's the one thing we can count on going forward.  The only way to overcome this is by someone either developing a universal product catalog that is a true authority on UPC codes, or with new programming that helps sellers identify mismatches and fix them before buyers become entrapped in a bad merge transaction nightmare.

I just wonder how many people have to have this experience before action is taken.

Wednesday, April 28, 2010

MAP Pricing, Competitive Intelligence, and Anti-Trust Legislation

I became interested in MAP pricing in 2001, as we saw a continual downward pressure on retail prices.  The introduction was a rough one - having our eBay listings pulled under the VeRO program by the manufacturer who claimed we were violating their intellectual property.  We weren't - we were just selling a product at a competitive price, and they didn't like that.  At least that was our story at the time.

Obviously, it tainted my opinion about the subject.  But, over time, I started to see how MAP programs become necessary to protect the long term value of a consumer product, allow the manufacturer and their retail network to maintain reasonable profits, and to deliver consumers with a positive experience overall in purchasing and owning a product.  It wasn't about greed, it was about survival.

I have been helping companies create MAP programs for 6 years, and have extensive experience in determining policies and best practices for enforcement, as well as interactions with marketplaces such as eBay.

At the core of any good MAP program is software to gather intelligence on what the price of an item is at any given time.  While in the past, prices would change on a long-term schedule (maybe over weeks or months), the past 5 years have seen the introduction of software that literally moves the price of an item as though it was a commodity on the exchange.  Prices move in real time, and it is literally impossible to say that any single static number is the "price" or even "market price" of an item.

Internet retailers have become day traders in mundane consumer products such as blenders, cat toys, and even rubber gloves.  If you put an item in your shopping cart on Amazon and come back 6 hours later, you might find the price has changed by up to 20% over that short period.  Anyone who wants to survive in eCommerce in 2010 has to be using some form of software the guides them to the market price, and hopefully automatically moves their price to be in parity with the going rate for an item.

The problem with this software is that when two or more competitors use it, it tends to drive the price down to wholesale.  More sophisticated floors can be programmed, but there is no doubt that it drives prices to absolute minimum margins.

For many manufacturer's, the Internet accounts for less than 10% of overall sales.  It's not surprising that a price is lower on the Internet, but when it remains low for long periods, it eventually negatively affects sales in brick and mortar businesses.  Once those businesses either slow purchasing or stop purchasing due to the benchmark being set on the Internet, the manufacturer is forced to do one of two things - sell for less to the brick and mortars - giving away their margin, or convince retailers on the Internet to raise their prices.

This is often a difficult choice, and most choose MAP programs in some form.  Some are informal, where they just let the word out that it's not acceptable to sell below a certain price on an item, some have full-fledged legal contracts.  Enforcement varies, but it can be snitch-based, with competitors tattling on each other, or fully automated - with software and/or services from companies like Channel IQ.

Companies like Amazon attempt to paint this as an anti-consumer issue, but it's really a smokescreen to cover up the fact that they know MAP is like kryptonite to their loss-leader marketing strategies.  Of course they want MAP illegal - not for the consumer, but for their own competitive advantage.  It's a really smart strategy, not an evil one.

So, legislators who hear the voices of those who donate the largest amounts or pay the most lobbyists are tricked into thinking that they are eliminating MAP for the protection of consumers.  It's not true - for the vast majority of products, there are a gazillion ways to get a discount.  And, smart retailers know the acceptable end-runs around the minimum price.  The manufacturer's just want them to market more than a low price to get a sale - that is all.

I am hoping this blog helps educate all parties, and opens the eyes of many to this interesting new business problem of the 21st Century.