July 3, 2011

Selling value, not price

Filed under: groupon, marketing — Rakesh Agrawal @ 7:55 am

I had an interesting Twitter exchange this morning with Milk and Honey Spa in Austin, who recently started following me.

Have you run a Groupon or daily deal?

No. The economics have never worked out and risk to brand has been too great.

When you say brand risk, what are you referring to?

We create a luxury experience and hire and train employees to deliver that experience. That’s not compatible with discounting

Would you consider Groupon if they gave you 100% of the revenue and you just had discount?

Never say never, but probably not. We tend not to discount up front, but offer a rewards program to regular customers.

See for our reward program details. Regular customers get nice discounts for certain behaviors and actions

That’s terrific! Did you design rewards program yourself or you model after someone?

We designed it ourselves, but within the parameters of the spa management software that we use (Millennium by Harms)

How many times a week are you called by deal companies?

It’s slowing down a bit, but about 2-3 times per week.

Do you do spafinder?

We did a couple of years ago, but stopped. We prefer to manage our customer experience and not cede it to other vendors.

With an elegantly designed Web site, strong Facebook and Twitter presences, Milk and Honey is doing a lot of things right. They are posting availability, introducing customers to their staff, talking about events and interacting with customers. The pictures on their Facebook page not only show off the business, they include examples of community involvement.

The structure of the rewards program incents a lot of desirable behaviors:

  • Referring friends and family to the spa.
  • Pre-booking appointments.
  • Trying out new services.

Other businesses would do well to emulate Milk and Honey’s practices. Next time I’m in Austin, I’ll have to go for a massage.

About these ads

June 1, 2011

The experience is the product

Filed under: apple, facebook, marketing, product management, strategy — Rakesh Agrawal @ 4:44 pm

Apple retail stores celebrated their 10th anniversary last week. The stores have defied all analyst expectations and have become the highest grossing retailers in the world. The company’s market cap exceeds all of the other players in tech. Its $5,000 in sales per square foot leave Best Buy ($1,000) and Tiffany’s ($2,700)  in the dust. Even in the midst of the worst recession in my lifetime, stores are packed and sales are through the roof.

Why did Apple succeed when most others have failed at retail? Apple understands the importance of the end-to-end customer experience. Marketing, product, retail, packaging and services all work together to form a cohesive customer experience.

When you walk into an Apple store, you can actually use its products. Want to make a call with a phone? Go ahead. Want to surf the Internet? There’s free WiFi. Want to talk to someone about product problems? Sign up. Want to learn about a product? There’s a class for that.

As a result, not only does Apple sell more of its products, it also gets to keep the retail margin.

In contrast, when I went to a Best Buy to look at a Google TV, there was a sign next to it apologizing for the store’s poor broadband network and promising that the product wasn’t really that slow.

Apple’s television advertising is elegant, emotional, evocative and educational. Take a look at this ad:

Not only does it tell a compelling story for people thinking about buying an iPad, it also works for people who already have one. I get a glimpse of apps I might not know about. But the experience doesn’t end there. In the App Store, there’s a section devoted to apps from the TV ads. If something catches my eye on TV, I can quickly find it.

Unfortunately, too many companies are bound by organizational boundaries and don’t think holistically about the customer experience.

I was interviewing for a product marketing leadership role. The interviewer asked me how I would market their finance product. My response: I would create a widget that would automatically scan a blog post for mentions of public companies and then present live quotes and charts in a module on the page. I would then work with financial bloggers to incorporate that on their sites. It provides value to the blogger (live market data), value to the reader (instant, relevant information) and value to the company (an introduction to potential customers in a meaningful way).

The response: “That’s a product idea. Give me a marketing idea.”

No, it’s both. Yes, I could run banner ads or do search advertising. With a large enough budget, I could advertise on CNBC or Bloomberg TV. Those are traditional marketing ideas. But I can guarantee you that they will be less cost effective than this “product idea.”

Some of the best product ideas are also the best marketing ideas. My favorite example of this is the people tagging feature on Facebook. Before more than 600 million people were on Facebook, it encouraged people to sign up. Consider the many functions that people tagging supported:

  • Acquisition. Because you could tag people with an email address if they weren’t already on Facebook, it served as a user acquisition tool. And instead of a generic “Hey, you should sign up for Facebook!” message, it was directly relevant to you. People’s vanity undoubtedly increased open rates.
  • Retention. Keep in mind that photo tagging came out before people lived on Facebook all day. The notification you received prompted you to go to the site and check out the photo. Once you were there, you could leave a comment. … Which would trigger a notification to the person who posted the photo. And the cycle repeats.
  • Education. The messages served to educate users about the photo tagging feature. If you got an email, you became aware that it was possible to tag people. This encouraged more people to tag people. And the cycle repeats.

With Internet marketing, we have a huge advantage in that we can use data to create custom messages that introduce new products, ensure satisfaction with existing products and measure how we’re doing.

For example, Square is introducing a new product called Card Case that gives customers a digital wallet, complete with loyalty programs. Square has already been sending email receipts when people use a credit card. Instead of sending a generic message that says, “Hey, sign up for Square’s Card Case and loyalty offers,” the message could be “Thanks for eating at Chili Inside. You’re only 5 more purchases away from a free hot dog… Click to download Card Case and keep track.” (I haven’t seen Card Case in action yet, but this is what I’d like to see.)

Even shipping data can be used to create a better end-to-experience. APIs from the post office, UPS and FedEx will let you know that a package has been delivered. How about reaching out a few days later thanking the customer again for the purchase and offering product setup information and help links? Not only will this create a good impression, it can cut down on customer support costs. If a product requires online activation and you haven’t seen the customer activate it, it would also be a good time to reach out and figure out why. (This could also reduce return costs.)

Consumers don’t make a distinction between the marketing that gets them to a page, the sign up flow, the product features and the support that a company provides. Part of this is the result of a blurring of the lines in experiences. You could buy shrinkwrapped Microsoft software from Staples. If the store was loud and dirty and had a 25 minute wait to check out, you didn’t blame Microsoft. If the software was difficult to install or crashed a lot, you didn’t blame Staples. Online — as far as the customer is concerned — these are done by the same entity. Of course there are different groups of people behind the scenes. But customers shouldn’t see that.

In the early days of the Internet, I could easily tell which sites were likely to fail. If I could faithfully reproduce your org chart simply by looking at your home page, you were doomed. It’s rare to see cases that egregious these days. But it’s also rare to see user acquisition, marketing, product and customer care working seamlessly.

See also:

February 23, 2011

Innovating with market research

Filed under: marketing, research — Rakesh Agrawal @ 1:23 pm

One of the things that people often ask me is how does someone goes about creating innovative product concepts. What are the research methods and tools to use?

One of the most powerful tools is just watching what customers do and identifying problems and opportunities for improvement. Many customers have a hard time articulating needs. Or they will incorrectly estimate their needs. Every time I’ve done survey research asking about local tasks, 30% of consumers claim they would check movie showtimes daily. No one does that!

The solutions consumers articulate are also typically much more limited than what’s possible.

A great example of that are the new apps that let you take a picture of a check to deposit into your account. (USAA had one of the earliest ones; Chase has been advertising theirs heavily.)

If you were to ask customers how you could improve the check deposit experience you’d likely get answers like:

  • Make the lines at the bank shorter.
  • Have an express lane for simple transactions.
  • At the ATM, put a pen on a chain so I don’t have to find a pen to fill out the deposit envelope.
  • Get rid of the deposit envelope and let me put checks right in the ATM. (Newer ATMs now allow you to do this.)

But you’d be unlikely to have customers tell you “let me take a picture of the check with my iPhone and put the money in my account without the bank ever holding the check.”

They don’t know enough about banking regulations to know that this is even possible.

Everyone I know who has seen the iPhone check deposit thinks it’s magic. That’s how truly innovative products should feel.

July 30, 2010

Groupon personalizes the daily deal

Filed under: advertising, local search, marketing — Rakesh Agrawal @ 12:10 pm

Groupon announced a shift from its approach of the same deal for all email subscribers in a market to personalized deals in select cities. CEO Andrew Mason says that there is a backlog of 35,000 businesses waiting to be featured on Groupon and that 7 businesses are turned away for each that is featured.

Offering more deals makes sense for Groupon, for consumers and for businesses. It will lead to higher engagement among consumers, more revenue for Groupon and better results for businesses:

  • Higher engagement. As the novelty of the daily deal wears off, email open rates will decline. In my own usage, I’ve found that many businesses featured are outside the area that I’m willing to travel. If I know that deals are more local and more relevant, I’ll be more likely to open the email.
  • More revenue. Having multiple deals allows Groupon to capture revenue from more people because deals will be more relevant. The user data collected will also help with getting businesses on board — sales people will be able to say we have X thousand customers within a few miles of your business.
  • Better results for businesses. One of the concerns that small businesses have with offering big deals is attracting only deal chasers. The ideal customer is someone who will convert into a regular and pay full price. Someone who is willing to drive 30 miles to save $10 will likely have a low or negative lifetime value.

Mason says the first cut of personalization will be dumb, using limited data such as ZIP code, gender and age. While location is important, it does come with a couple of caveats:

  • Location is often directional. People living in Manhattan are much less likely to go to New Jersey for a deal than the reverse.
  • Its importance varies by business. People will travel farther to go skydiving than for a restaurant or bakery.

I’m not as convinced on using gender, age or other factors to target deals. Many of the deals have wide appeal and part of the value of products like Groupon is their serendipity.

July 29, 2010

Why small businesses are snapping up the daily deal

Filed under: advertising, google, local search, marketing, yelp — Rakesh Agrawal @ 1:05 pm

A sample daily deal from Living Social.

In recent months, we’ve seen daily deal sites like Groupon and Living Social grow like crazy. Groupon is valued at $1.35 billion. That’s more than 4x the valuation of the McClatchy Company, one of the country’s largest newspaper publishers. It also ekes out The New York Times Company. Others are scrambling to get into the business, including DealPop in Seattle and CrowdCut in Minneapolis. Yelp is also testing its own entry in Sacramento.

A while back, I wrote about why small businesses were reluctant to get online. So what changed?

Well, the daily deal providers addressed most of the challenges I laid out.

  • No one was asking them to get online; now they are. Groupon, Living Social and others are rapidly building up local sales forces to approach small businesses.
  • It’s a lot simpler. Bidding on keywords is beyond the experience level and time commitment most small businesses can afford. Putting together a special offer is much simpler and the daily deal sites are doing a lot of hand holding. Even Google has realized this, with simplified pricing for its Google Tags product aimed at small businesses.
  • There’s no upfront commitment required. Unlike most advertising products, businesses don’t have to spend hundreds or thousands of dollars on an ad and pray that it works. Instead, they get paid for the deals sold before they’re actually redeemed.
  • Results are evident and compelling. Businesses can clearly see how many people are buying their deals in real time. They can also see customers as they walk through the door with the coupons. It’s a lot more trackable than other forms of advertising.

On the consumer side, the daily deal sites have turned coupons from something that were looked down on to a fun, social thing. Friends who wouldn’t use coupons in the past are touting the great deals they’ve found online.

A big challenge for providers will be providing enough new businesses to keep the deals interesting. Many of the deals I see these days are too far to drive to; a metro area is too large a geography. As the novelty of the daily deal wears off, deals will have to be more targeted based on location to avoid becoming perceived as spam.

See also:

September 1, 2008

Your customers are Twits

Filed under: advertising, customer service, lbs, local search, marketing, social networking, twitter — Rakesh Agrawal @ 3:58 pm

Last year, I blogged about how local businesses could use Twitter to reach their customers. In that hypothetical example, a street vendor would let regulars know whether he was working or not.

A number of large companies, including Zappos, Comcast and jetBlue are already using Twitter to engage with their customers. As Twitter’s popularity grows, it will cease to be a tenable channel for customer service.

But for local businesses, it’ll be a great opportunity. Witness this exchange between Twitter developer Alex Payne and 21st Amendment Brewery.

Twitter exchange between Alex Payne and 21st Amendment brewery

Twitter exchange between Alex Payne and 21st Amendment brewery

Three of the big challenges in getting local business online are that it’s too expensive, too complicated and too hard to prove the return. A Twitter presence can address all three:

  • It’s free.
  • It’s easy. You don’t have to create a Web site to reach your customers. If you don’t have one, your Web presence can be your Twitter page. Not ideal, but better than nothing — at least it’ll get you into search engines. If you do have one, you can autoflow Twitter updates to your Web page making it easy to keep your Web presence fresh.
  • It’s easier to prove return on investment. Twitter can improve both the “R” and the “I”. You can see who’s following your business, showing return. Because there is no cost and the effort is lower, the investment is lower.

There are a number of ways businesses can use Twitter:

  • Specials of the day. “Soup of the day: tomato basil”
  • Special events. “Windsor Cooley book signing Friday night” “Closed for private party”
  • New products. “Transcontinental IPA on tap at the 21A”
  • Problems. “Closed due to broken water pipe”

The immediacy of Twitter also offers a way to do real-time inventory management. Have an especially slow night and food going to waste? Send out a tweet with a special discount.

More on: Twitter

Why don’t local businesses use the Internet?

Filed under: advertising, lbs, local search, marketing, newspapers, yellow pages — Rakesh Agrawal @ 2:15 pm
John makes a burrito with his goose sauce

John makes a burrito with his goose sauce

Back in the mid 90s, I frequented The Weinery, a total dive of a hot dog place in the Cedar/Riverside area of Minneapolis. Jerry, the then owner, collected email addresses and would occasionally send out specials. Say the password when you placed your order and you got a discount.

The other day, I received an email from John at Pedro & Vinny’s. John ran a burrito cart in downtown DC. (I wrote about John’s honor system earlier.) He moved away a while back. Friday’s email announced that his burritos will be hitting the DC streets soon.

But John and Jerry are rare among small business owners. In the last 13 years, Internet use has exploded and tools have gotten easier and easier. Yet few local businesses do a good job of communicating with their existing customers and reaching out to new customers.

To be fair, they haven’t been in the habit of advertising. Before the Internet, the key local outlets were newspapers, television, radio and the yellow pages. You essentially had to buy the entire DMA for thousands of dollars. Direct mail (Valpak etc.) and Entertainment coupon books were among the few options that made economic sense.

The Internet has drastically changed the economics. Publishers can slice and dice virtually infinite inventory into smaller and smaller buckets and make advertising affordable for small businesses.

So why aren’t small businesses advertising online?

  • No one is asking them.  Publishers (by and large) haven’t changed their compensation systems for sales reps. If I were a sales rep, I’d much rather work on selling the full page ad for $10,000 than an online presence for $100.
  • It’s too complicated. Search advertising seems like a prime opportunity for local businesses because it can be highly targeted. But the interfaces and the structures are well beyond the skills or interests of small business owners. They’re too busy running their businesses to run keyword campaigns.
  • They’ve been burned. Most restaurant sites look like they were built solely to show off the Flash skills of the design firm. The restaurateur spent hundreds or thousands of dollars for a site that doesn’t drive any foot traffic because it’s unusable and doesn’t show up in search results (because everything is Flash or an image).
  • It’s hard to see the return. Online advertising is a slam dunk for businesses that can complete the transaction online. They can see what they’re getting for their money. It’s harder to show that value to businesses that rely on foot traffic.
  • No need #1. In a town of 500 people, there’s no need to advertise. Everyone knows who you are.
  • No need #2. If you’re the hot new restaurant in town and there’s always a wait to get a table, why spend money on ads?

January 28, 2008

What would you do with $600?

Filed under: marketing, personal finance — Rakesh Agrawal @ 1:10 pm

That question seems to be on a lot of people’s minds these days, thanks to the newly announced $150 billion stimulus package.

“I would like my check and I think everybody else feels the same way,” said David Wyss Chief Economist for Standard & Poor’s, defending the package.

Let’s be intellectually honest. Wyss is not getting a check. I’m not getting a check. Given the demographics of my readers, chances are that you’re not getting a check either. (Sorry.) The giveaway begins to phase out at $75,000 in income for individuals and $150,000 for couples. It’s also intellectually dishonest to call the giveaway a “rebate,” given that many of the recipients don’t pay federal income taxes.

On CNN last week, anchor Tony Harris asked CNN personal finance editor Gerri Willis (neither of whom are likely to be getting checks) what he should do with his check. Her answer: use it to pay down credit card debt. And if you don’t have debt? Invest it.

That’s sound personal finance advice. If I were getting a check, that’s what I’d do. Unfortunately, if everyone did that, it wouldn’t accomplish the goals of the stimulus package. There are a lot of questions about whether the giveaways will stimulate the economy anyway, but they certainly won’t if people just put them in the bank. Good thing few Americans ever listen to personal finance experts.

Another challenge with the giveaways is that different types of spending have different impacts on the economy. $600 spent at Wal-Mart has a much lesser impact on the U.S. economy than $600 spent taking a trip to Chicago.

The marketer, economics geek and fiscal conservative in me thinks there’s a better way. Instead of mailing out paper checks at taxpayer’s expense, do a deal with VISA, MasterCard or American Express to issue the giveaways as debit cards.

The credit card companies pick up the administrative costs of the program in exchange for the interchange rate on the transactions. Because it’s a debit card, you can’t just take the money and put it in the bank or use it to offset fixed expenses like rent or a mortgage. You pretty much have to spend it. And economists and policy wonks could get hard data on where people spend money that’s dropped in their laps.

You could even code the cards so that they can only be used on purchases most likely to stimulate the economy, such as domestic travel and eating out.

January 5, 2008

Weekly Reader – Jan. 5, 2008 – Pricing, advertising and DVRs

Filed under: advertising, marketing, television, weekly reader — Rakesh Agrawal @ 11:13 pm

This week’s interesting reads:

  • Some thoughts on pricing (Redeye VC) – First Round Capital’s Josh Kopelman examines pricing strategies. He starts with pricing of soda in a hotel and found a range of $1 to $4.50. The overall range is incredible — you can get the same amount of soda for 35c to $6. Even airfares don’t vary this much on a percentage basis. How do you pick among various choices if the only thing you know is the name of the company and the price? When it involves child care, he goes with the most expensive.
  • Ad Houses Will Need to Be More Nimble (WSJ) – The Journal takes a look at the challenges facing ad agencies as clients demand more accountability and integrated campaigns. Agencies have largely been slow to adopt to the rapidly changing media environment and audience fragmentation.
  • Looking at Data Through a DVR (WSJ) – The advertising business continues its slow march from relationship-based buying to data-based buying. As DVRs and settop boxes proliferate, they increase the amount of real data advertisers have to work with. Services like Tivo’s StopWatch allow advertisers to get second-by-second response data.
    The right way to do TV advertising is to insert commercials dynamically at playback instead of a static recording at the time of transmission. Unfortunately, there are many structural barriers to this happening. This is likely to happen first in Web-based playback and will migrate to the TV.

December 8, 2007

Buying physical space for online products

Filed under: fun, marketing, random — Rakesh Agrawal @ 9:14 am

PhotoStamps kits at Costco

This time of year, there’s always a lot of talk about driving clicks to bricks: how online affects offline purchases. Whether it’s an actual purchase that is picked up in store or just online research that influences store purchases, the Web has undoubtedly had an effect on in store shopping.

What is less talked about is the increasing trend in the other direction. Online retailers are putting their products on store shelves. For a few years, you’ve been able to find iTunes gift cards and Rhapsody subscriptions at electronics retailers like Best Buy.

I was at Costco the other day and ran into the boxes of PhotoStamps pictured above. Each unit gets you three boxes, each of which can be redeemed online for a sheet of 20 personalized stamps that are sent by mail.

From a marketing standpoint, it’s brilliant. You get to put a cute baby in front of thousands of gift shoppers and drive impulse purchases.

From an environmental standpoint, it’s highly wasteful. It’s mostly packaging. Each box is mostly air; there’s a cardboard insert to keep its shape. Inside there’s a one page pamphlet explaining what PhotoStamps are and a CD. (You don’t even need the CD, you can just go to the Web site.) On the CD sleeve is the redemption code. The 13-digit code is all you need to get your stamps.

It could just as easily be sent as email. In fact, you can get an email gift certificate from the PhotoStamps site. But email doesn’t look as good under the tree. And without the Costco discount, you’ll pay more buying direct.

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