Dear Retail,
The days of enclosed systems in which you, your supplier, and your customer were the only moving parts are over. The ever-present competition and outside marketing influences that arrived with the Digital Era have wreaked havoc on the comfortable little market you signed up for, and things may look grim. But there’s some good news. Although you’re no longer the only one speaking on behalf of your products, your products are speaking louder than ever for themselves. And although online and mobile content has a head-start, content is still king and is still your specialty. Although the communities which used to center around your storefront have migrated, they are lost, scared, and can be brought back home. Yes, there are obstacles, but there are also opportunities. To demonstrate these highfalutin platitudes, I am going to try to put them in context for you as a Retailer of the Digital Era. If we’re lucky, inspiration will appear along the way.
Wagging the Long Tail
Good music has a funny way of sneaking up on you. When I was a young Luddite, I inherited (or rather liberated from a corner of the basement) a few dozen vinyl records from my mother and father. Many of the artists were, and some still are, completely new to me. So imagine my joy when I started to discover good music on the strange and musty old petroleum wafers. This is how iTunes works. No, they don’t sell pressed dinosaur droppings; iTunes sells the joy of musical discovery.
Good music is its own context. Defining that context is how iTunes succeeds. A system of sophisticated algorithms called iTunes Genius recommends that a customer buying an Adele song might also like Nina Simone [1]. A big leap? Maybe, but recommendations like that are, and always have been, how new-to-you music is discovered. The innovation and the other half of this conversion process is the Long Tail business model made practical by the Internet [2]. Because iTunes has millions of songs available without physical inventory, connecting the dots for the customer and delivering the product has nothing to do with supply and demand. A ‘popular’ sku and an ‘unpopular’ sku for iTunes are one and the same [2]; nothing need ever be discontinued. The value is determined by the context.
Don’t fill your sheet music displays with Nina Simone songs, but don’t fill your bargain bin with them either. The era of the Internet should not stop you from buying popular products; if anything it increases their mass appeal and exposure. What should stop is the need to unload a slow but worthy product at any price. The success of iTunes’ model has caused nearly every other online content delivery company to start wagging their Long Tails (Hulu, Netflix, Pandora, etc) and because of this, once-popular artist collections and even instruments (ukulele, anyone?) that you thought were dead are talking louder than ever. No, this doesn’t mean that there aren’t bad products [3], but it is up to you to be your own Retail Product Genius and assign some relevance and context to your inventory and to your customers’ requests.
The bad products, on the other hand, can stay online. Variety is not good for variety’s sake; the ragged fringe of what is and is not publishable or marketable is not a place you necessarily want to tread in the store, but it is definitely the place to be on your website. Ask your manufacturers and publishers how you can participate in online sales of their hard good or digital catalogs. They are in it for the Long Tail and the fringe demographic, and physical inventory precluded, you should be too. The more help you can give your vendors the better (because they know that all the fringe-market weirdos shop at your store).
The Part Where I Say Amazon (Spoiler Alert)
But first, back to my vinyl addiction. Deciding early on that smelling, tasting, and watching my vinyl collection would be nowhere near the rewarding experience that listening could be, I set out to find a turntable. Armed with a modicum of product research and the reassuring knowledge that vinyl was on the verge of Renaissance, I set off to the nearest Big Box electronics store, convinced that the experts would steer me in the right direction. To my surprise, the look I received in response to my inquiries on the whereabouts of the phonograph section bordered on vegetative (I have, in fact, seen a turnip give a better account of itself to a barking dog). Giving up a feeble attempt at pantomime and fearing the Big Box employee might start robotically touting the superiority of mp3, I turned and fled into the waiting and comforting arms of the Internet.
Content is king but Amazon’s court is full of jesters. Amazon’s secret weapon and the grease that keeps their wheels turning is UGC [5]. User Generated Content is just what it sounds like: content added to the Amazon listings by its customers. UGC is what keeps Amazon at the top of the search results, leading to more traffic, leading to more sales, leading to more UGC. Of course Amazon never points out to you that online user reviews are not statistically viable sources of information [8] or that they typically are comprised of amateur subjective generalizations. Neither does Amazon broadcast that the vast majority of their users do not share what they really think about a product. In fact, it takes Amazon on average 1,300 sales of a product for every single user review [4]; that’s .0008% of Amazon customers sharing what they think. Nevertheless, those consumer reviews and the free content they provide are the SEO (Search Engine Optimization) keystone to Amazon’s traffic and in turn their success.
Do your customers know what your customers think? Studies show that ‘earned’ advertising (i.e. word-of-mouth) vastly outweighs the confidence inspired by any other advertising format. The next runner-up in the who-a-consumer-trusts race is the online review [9], ostensibly a similar idea with a different delivery. Solicited customer reviews are nothing more than content enriching your shopping environment and reassuring your shoppers; whether that environment and those shoppers are online or in the store does not matter. If the Smiths stopping in to buy reeds don’t know what the Joneses think of that new step-up saxophone they just bought their pubescent Honor Student, you are missing out on a marketing opportunity.
Seeing stars and being stars can sometimes be the same thing. While it may not be practical to survey every customer walking in the door in order to hang gold-stars from their favorite products (but consider the possibilities if you can limit the choices), getting a customer to share their opinion with you and the rest of the world may not be as hard as you think. One of the motivating factors behind the customer review process, an aspect that works both to its academic detriment and its marketing strength is the reviewer’s need for social and self-approval. Your customers want to share their rationalizations, their shopping savvy and their altruistic advice with others [8]; it makes them feel good. Even better is that the rest of your shoppers want to be reassured by the thoughts and opinions of others at one time sitting in their purchasing position.
You don’t want to try to beat Amazon at the game it has created, but you can beat Amazon at the game that has always been your own, namely real and meaningful customer interaction. Get your customers involved by asking for written reviews of big-ticket items to be posted in your store. Offer incentive for Tweets or Facebook posts about purchases. Run raffles for YouTube product review entries (and don’t forget to post the links in the store as QR codes). Get your customers socially involved and invested in your store and in your products both online and offline. The probability that you will see a return in valuable User Generated Content at the local level and probably also win some points with your customers is a lot higher than discovering a way of teaching monkeys to do it instead. And speaking of 500 pound gorillas (taxonomy disregarded for pun’s sake, you nerd)…
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 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 inventory turn is in some cases so fast that they are able to sell at or below cost, invest the consumer cash and earn a return 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 being invested. Combine this investment tactic with revenue from Amazon’s 3rd Party Marketplace sales model and the revenue gained through selling ad space on their website 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?
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 rest of the reasons are better categorized as emotionally or socially motivated: a need for achievement, a need for dominance or a need for affiliation [14]. 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 a virtually 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]. Throughout the tangled and roiling mass of popular knowledge that is the Internet, people tend to cling together in communities, even when those communities are simply proxies provided by a few lines of programming. To Al Gore’s surprise, the system originally intended as an information exchange platform that, by design, 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, but it probably hasn’t changed it as much as you think. 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]. Without attempting to summarize the entirety of the paper here, one point central to Granovetter’s theory, and much if not all of sociology’s subsequent understanding of how social networks function, goes something like this: 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 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 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 article about a year before finishing, 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 connection, just as an mp3 approximates music, it is not the same as true, organic connection. These tools and concepts on offer today 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.
[1] Nick at The Vly House “The iTunes Business Model and its Widespread Effects” 2011 http://www.thevlyhouse.com/2011/01/the-itunes-business-model-and-its-widespread-effects/
[2] Anderson, Chris at Wired Magazine 2004 “The Long Tail” http://www.wired.com/wired/archive/12.10/tail.html
[3] Anderson, Chris at LongTail.com 2005 “What the Long Tail isn’t” http://www.longtail.com/the_long_tail/2005/06/what_the_long_t.html
[4] Bustos, Linda at Get Elastic 2010 “10 Reasons Not to Copy Amazon” http://www.getelastic.com/10-reasons-not-to-copy-amazon/
[5] McGee, Matt at Small Business Search Marketing 2007 “How Amazon.com Became the SEO-Smartest Retailer Online” http://www.smallbusinesssem.com/how-amazoncom-became-the-seo-smartest-retailer-online/945/
[8] Chen, Fay, Wang 2003 “Marketing Implications of Online Consumer Product Reviews” http://plaza.ufl.edu/faysa/review.pdf
[9] Grimes, Marisa 2012 “Global Consumers’ Trust in ‘Earned’ Advertising Grows in Importance” http://nielsen.com/us/en/insights/press-room/2012/nielsen-global-consumers-trust-in-earned-advertising-grows.html
[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 Sociology http://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
Sheet Music Today 