3 Common Price Promotion Pitfalls

With the holiday shopping season upon us and innumerable discounts being offered on goods, it is an appropriate time to point out some pitfalls to cutting prices on products learned from a number of years of selling goods online. Three pitfalls to beware are:

1) Forfeiting profit without increased volume

Discounting products or orders should trade profit for increased volume in the form of larger, more frequent, or new purchases. Unfortunately when offered to customers who already had purchase plans, discounts can simply decrease your profits without any upside. To minimize this from occurring it is a good idea to offer discounts for purchases above a certain amount, purchases made within a short time frame, or purchases from individuals who are not already buying from you.

2) Trading tomorrow's sales for today

Increasing purchase frequency is a good outcome, simply shortening the time before someone makes their next planned purchase may do nothing more than decrease your profit and disrupt your cash flows. Consistently running promotions on the same day of the week or month can cause customers to simply delay their purchases until a scheduled promotion. If you experience a significant lull in sales following a promotion this is a pretty good indication that you traded tomorrow's sales for today rather than generating new business or greater volume. Try changing up your promotion schedule, and more importantly, check to be sure that the people using your promotions are actually increasing their purchase volume as described earlier.

3) Devaluing products

By offering promotions too frequently or too long you can inadvertently decrease the perceived value of your products, making them unsellable at their original price. Cutting too deeply into the price of a product can have a similar effect. When a product is particularly unique and without a lot of competition, customers will associate value to the price.  Be careful about the message you are communicating with your promotions. Sometimes discounts on shipping or accessories can stimulate sales as effectively without destroying a product's perceived value.

In a lot of instances discounting goods is a necessity of doing business in a competitive market, however it should always be done with care and these three pitfalls in mind. Monitoring you customers' behavior during and after a sales promotion can speak volumes about how to more effectively generate profit in the future.


3 Metrics For E-Commerce Success

If you've ever logged into your webstore traffic tools and felt overwhelmed by all the information there, you're not alone. What I am going to share with you will allow you to filter out 90% of that information for what really matters, three metrics that you can influence that will determine how successful you are at the end of the day: Visits, Conversion Rate, and Average Order Size.

Visits is a measurement of how many times a someone "walks" into your virtual store, like the door chime on the front door to a shop, but it's a chime that only rings when someone comes in. It doesn't matter if it is the same person coming back or different people.  The Conversion Rate is a percentage of visits to your site that translate into sales.  If your software doesn't give this to you, just divide visits by your number of orders.  Average Order Size is exactly that, just be sure you're not including taxes and shipping.

To show why these metrics are important in the end, let me show you how they come together to :  Visits x Conversion Rate x Avg. Order Size = Gross Sales.

In plain English, if I had 100 visits to my website, 10% of the visits translated into sales, and on average each sale was $100, I made $1000 in that time period.  You can see how a small change in any one of these metrics will have a big influence on the total.  Now we're getting to why these are important, read on.

THE APPLICATION (This is the most important part!):
Hopefully you'll already have a good idea of what your sales are in a period, but what we've derived are three components that each multiply the final value, each one of which can be influenced.  Consider this translation of these metrics:

Visits = How successful I am at getting people onto my site through email, magazines, television, etc.
Conversion Rate = How successful I am at getting the people who visit my site to buy something.
Average Order Size = How successful I am at getting the people that buy to buy a lot.

Are these things that you can control?  Absolutely!  And the powerful thing is that each one has an equal impact on your overall sales.  So if you can't focus on them all, choose just one.  For example, if you can't afford to spend more on advertising, then pay more attention to the user experience (conversion rate), or do a better job at promoting add-ons and accessories (average order size).  Maybe you decide to bring in a better line of products to sell (conversion rate and/or visits).  Think about the opposite effects of lowering your prices and how you'll need to compensate with either a larger conversion rate or more visits.

The way these three metrics work together is powerful!  The marketer who is constantly aware of changes in these numbers, what influences them, and creates a marketing plan with these metrics in mind will be an e-commerce marketing superstar!


When Designers Become Artists and Clients Waste Their Money

Deep down inside of every designer is an evil temptation which, if left unchecked, can mean hours of frustration and thousands (or even millions) of wasted dollars. The evil temptation, which may not sound so evil, is to create art.

Let me briefly explain my terminology. By "art" I mean those works embodied in painting, sculpture, music, etc. which are crafted to express an idea or feeling. By "design" I am referring to the process of creating something to serve a function for someone else, and "designers" are those who facilitate that process. Artists and designers are cousins to each other because they often employ the same talents, tools and techniques to serve their purpose. For this reason designers frequently come from the school of fine arts and deep down see themselves as artists, but this is where the seed of temptation is planted.

What happens when a client receives art from a designer? You get buildings that are incredibly beautiful, but are the subject of unending complaints by those who work or live in them. You get television commercials that are creative but leaving you asking what or who it was advertising. You get mobile phones that are the symbol of high fashion but cannot be held without losing reception. Is this a rare occurrence? No, it happens all the time! I've been there and done it, and I would bet most designers have at some point. In each case where this happens a designer gave into the temptation and forgot his or her first and foremost role, which is to serve the need of a client and user.

Does this mean that we should breed a generation of designers that don't care how things look and what message they convey? No! We already have have those people and they're called engineers (I know I'll get in trouble for saying that, but be honest with yourselves, you engineers out there, you don't stay up at night worried about whether something you've created looks bad). This is where opportunity arises for great design.

Great design is achieved when something not only is incredibly beautiful and communicative of feeling and ideas, but when it is incredibly effective at serving the purpose it was designed for. When modernists pass around the phrase "Form follows function" they're not suggesting there should be no appeal to the form, but that the function must come first! It will require much more work, but it will be all the more satisfying in the end for the effort.

So all you who hire designers, don't be distracted by the special effects; expect what you're paying for, but also recognize that it will not come easily. All you designers out there let's get our act together and stop giving into the temptation to create art, and usher in a new age of great design. It can be done and the world will be better for it.


The Field of Dreams Fallacy

When I am talking to people about their marketing plans and what we can do together to grow their business, the topic of websites frequently comes up.  With the amount of sales estimated to take place online (see "US Web retail sales to reach $249 bln by '14-study" on Reuters) it should come up.  Even the potential residual benefit to brick-and-mortar retailers, though less quantifiable, should be reason enough for most businesses to have some kind of presence on the internet.  However, there is one problem.  I call it the Field of Dreams Fallacy, which is the idea that "If you build it they will come."  I hate to be the bearer of bad news, but just putting up a website is not going to automatically entitle you to a slice of the quarter-trillion dollar pie.  There are a couple big reasons why:

1) You're building a website and that is awesome except... so is everyone else.  According to VeriSign an average of 90,000 domain names were registered every day in 2007 (see BizReport).  Those are just names, not sites, but you get the idea of the growth the internet is undergoing daily.

2) Your site is up and running, but... it's not showing up on Google.  Unfortunately most new websites are not going to have both key attributes to getting ranked at the top of searches, which are relevance and popularity.

So should you take your ball and go home?  No!  But better be realistic about your expectations and have a plan for building your online presence.  Here are a couple tips to deal with these two challenges:

1) Find your online niche.  It is so tempting to be everything to everyone, but as far as the internet is concerned, someone already is everything for everyone--and it's not you.  Unless you have the millions to buy your ranking among the top brands, just get it out of your mind that you're going to be able to compete head-to-head right away.  Focus on the people you most want to attract to your site and offer them something different the big guys can't offer.  This is not just a good idea for your website, but a good idea in general, and it will bring your site more relevance and help it stand out in the crowd of lackluster sites.

2) Don't forget there is an "offline" world too.  No, they have not yet found a way to completely substitute the physical world with a digital existence.  Until they do there may be a number of opportunities to connect with your target customers in the real-world as well.  Think about the traditional channels for advertising (e.g. trade magazines, newspapers, radio, television, outdoor, etc.), especially when you can do so in a targeted manner.  Network with businesses and individuals.  If you already have customers, let them know about your online presence and give them a real reason to visit your website.  Often the impression is given that internet marketing is sufficient in and of itself, but for us little guys it is not--at least not until we generate enough traffic that Google does start giving us those top positions in the rankings.

"If you build it they will come," may not be the correct assumption about starting a new website, but some thoughtful evaluation and planning can get you on the path to a thriving online presence.  With the amount of growth that is taking place and the billions of dollars of potential revenue to be earned, there is no time to waste getting started!


The Advertising Litmus Test

In chemistry a "Litmus Test" determines the acidity or alkalinity of a substance.  In regular usage the phrase has been adopted to refer to any "make-or-break" or "all-or-nothing" measurement or question.  I am neither a chemist nor an English teacher, so pardon the unsophisticated explanation.  I seem to hear the phrase all the time when it's time to appoint a new judge or government official, however we're going to apply the phrase to different topic and ask the question:  Is there a Litmus Test for good advertising?

My instinct says there is, but what is it exactly?  We've all seen the great commercials aired during the Super Bowl--which seem to generate more buzz than the game.  We know a good ad when we see one.  Often it will make us laugh or maybe strike some other chord.  It will always leave a lasting impression.  It will motivate us to an action or persuade us to think differently about something (if those who have paid for the ad will have their way).

So, whether we're trying to figure out why we like a commercial, or we're trying to create a commercial that works, what is the Litmus Test?  Try asking this question next time:  Is this ad relevant and unexpected?

This question is something I picked up from Eric Schulz, the VP of Marketing for the Utah Jazz and an experienced marketer.  It rings true to me and I think it may ring true to you if you try it on for size.  Is the advertisement relevant to me and does it motivate me to do what they want me to do?  Is the message communicated in such a way that it stands out and is memorable?  I'm willing to bet that if both of these components are there, or in other words, the ad is relevant and unexpected, it's probably an ad you like and will most likely act upon. 

Try it out and share it if you like it.


The Demise of the Wizard of Oz--The Open-Source Model

Remember the classic film "The Wizard of Oz?"  I sure do, and those flying monkeys still creep me out.  Well, skip past the flying monkeys in your mind and remember when the "gang" shows up at the Emerald City to meet with the Wizard of Oz.  A ghastly image appears, yelling and frightening everyone.  However, not long thereafter the real identity of the Wizard of Oz is revealed behind a curtain and he turns out to be an inventive, but regular, man.

This blog is the opening of the curtains at G86, where we can share our raw thoughts and experiences, which in a lot of ways runs counter to protectionist conventional wisdom of the market--but there are two important reasons why we're doing it:

Firstly, we can put up curtains and smoke, but ultimately our clients are going to meet us and discover that we're just people.  Sure we've developed capabilities and had experiences that are unique, but we're no wizards, and we're okay with that.

Secondly, we believe that the "open-source" model has greater power than the "proprietary" model.  Think of it as the difference between the internet browsers, Firefox and Internet Explorer.  Both are great tools for viewing the internet, but Firefox is able to compete toe-to-toe with Internet Explorer for a fraction of the budget because it has the power of community on its side, assisting in its development and improvement.  By opening a dialogue with a world-wide community, we hope to better refine what we offer to our clients and to help others (e.g. other design and marketing firms, consultants or freelancers) who are trying to do the same for their clients.

Join us, follow us, comment, and share your insights.  The only thing we ask is that if you're going to post a link elsewhere, please do so in the spirit of the open-source model of giving.  Using the site to "take" (e.g. advertising or fishing) isn't really respectful of what we're trying to accomplish.

We are grateful for the demise of the Wizard of Oz here at G86, and look forward to an open dialogue with our clients, peers and the world-at-large--as people having a dialogue with people, not wizards.


Hello World

In honor of programmers over the ages, the first official blog announcement is... "Hello World."