Lessons Learned from Anti-Consumer Practices/Technologies in Tech and eCommerce

One example of the anti-consumer practices by airline loyalty programs.

As more and more of our life consists of interacting with technology, it is easier and easier to have our time on an iPhone, computer or game device become all consuming. The good news is that it is so easy for each of us to interact with colleagues, friends and relatives; to shop from anywhere; to access transportation on demand; and to find information on just about anything anytime. The bad news is that anyone can interact with us: marketers can more easily bombard us, scammers can find new and better ways to defraud us, and identity thieves can access our financials and more. When friends email us or post something on Facebook, there is an expectation that we will respond.  This leads to one of the less obvious negatives: marketers and friends may not consider whether what they send is relevant to us and can make us inefficient.

In this post, I want to focus on lessons entrepreneurs can learn from products and technologies that many of us use regularly but that have glaring inefficiencies in their design, or those that employ business practices that are anti-consumer. One of the overriding themes is that companies should try to adjust to each consumer’s preferences rather than force customers to do unwanted things. Some of our examples may sound like minor quibbles but customers have such high expectations that even small offenses can result in lost customers.

Lesson 1: Getting email marketing right

Frequency of email 

The question: “How often should I be emailing existing and prospective customers?” has an easy answer. It is: “As often as they want you to.”  If you email them too frequently the recipients may be turned off. If you send too few, you may be leaving money on the table. Today’s email marketing is still in a rudimentary stage but there are many products that will automatically adjust the frequency of emails based on open rates. Every company should use these. I have several companies that send me too many emails and I have either opted out of receiving them or only open them on rare occasions. In either case the marketer has not optimized their sales opportunity.

Relevance of email

Given the amount of data that companies have on each of us one would think that emails would be highly personalized around a customer’s preferences and product applicability. One thing to realize is that part of product applicability is understanding frequency of purchase of certain products and not sending a marketing email too soon for a product that your customer would be unlikely to be ready to buy. One Azure portfolio company, Filter Easy, offers a service for providing air filters. Filter Easy gives each customer a recommended replacement time from the manufacturer of their air conditioner. They then let the customer decide replacement frequency and the company only attempts to sell units based on this time table. Because of this attention to detail, Filter Easy has one of the lowest customer churn rates of any B to C company. In contrast to this, I receive marketing emails from the company I purchase my running shoes from within a week of buying new ones even though they should know my replacement cycle is about every 6 months unless there is a good sale (where I may buy ahead). I rarely open their emails now, but would open more and be a candidate for other products from them if they sent me fewer emails and thought more about which of their products was most relevant to me given what I buy and my purchase frequency. Even the vaunted Amazon has sent me emails to purchase a new Kindle within a week or so of my buying one, when the replacement cycle of a Kindle is about 3 years.

In an idea world, each customer or potential customer would receive emails uniquely crafted for them. An offer to a customer would be ranked by likely value based on the customer profile and item profile. For example, customers who only buy when items are on sale should be profiled that way and only sent emails when there is a sale. Open Road, another Azure company, has created a daily email of deeply discounted e-books and gets a very high open rate due to the relevance of their emails (but cuts frequency for subscribers whose open rates start declining).

Lesson 2: Learning from Best Practices of Others

I find it surprising when a company launches a new version of a software application without attempting to incorporate best practices of existing products. Remember Lotus 123? They refused to create a Windows version of their spreadsheet for a few years and instead developed one for OS/2 despite seeing Excel’s considerable functionality and ease of use sparking rapid adoption. By the time they created a Windows version, it was too late and they eventually saw their market share erode from a dominant position to a minimal level.  In more modern times, Apple helped Blackberry survive well past it’s expected funeral by failing to incorporate many of Blackberry’s strong email features into the iPhone. Even today, after many updates to mail, Apple still is missing such simple features like being able to hit a “B” to go to the bottom of my email stack on the iPhone. Instead, one needs to scroll down through hundreds of emails to get to the bottom if you want to process older emails first. This wastes lots of time. But Microsoft Outlook in some ways is even worse as it has failed to incorporate lookup technology from Blackberry (and now from Apple) that always allows finding an email address from a person’s name. When one has not received a recent email from a person in your contact list, and the person’s email address is not their name, outlook requires an exact email address. When this happens, I wind up looking it the person’s contact information on my phone!

Best practices extends beyond software products to marketing, packaging, upselling and more. For example, every ecommerce company should study Apple packaging to understand how a best in class branding company packages its products. Companies also have learned that in many cases they need to replicate Amazon by providing free shipping.

Lesson 3: The Customer is Usually Right

Make sure customer loyalty programs are positive for customers but affordable for the company

With few exceptions, companies should adopt a philosophy that is very customer-centric. Failing to do so has negative consequences. For example, the airline industry has moved towards giving customers little consideration and this results in many customers no longer having a preferred airline, instead looking for best price and/or most convenient scheduling. Whereas the mileage programs from airlines were once a very attractive way of retaining customers, the value of miles has eroded to such a degree that travelers have lost much of the benefit. This may have been necessary for the airlines as the liability associated with outstanding points reached billions of dollars. But, in addition, airlines began using points as a profit center by selling miles to credit cards at 1.5 cents per mile. Then, to make this a profitable sale, moved average redemption value to what I estimate to be about 1 cent per point. This leads to a concern of mine for consumers. Airlines are selling points at Kiosks and online for 3 cents per point, in effect charging 3 times their cash redemption value.

The lesson here is that if you decide to initiate a loyalty points program, make sure the benefits to the customer increase retention, driving additional revenue. But also make sure that the cost of the program does not exceed the additional revenue. (This may not have been the case for airlines when their mileage points were worth 3-4 cents per mile).  It is important to recognize the future cost associated with loyalty points at the time they are given out (based on their exchange value) as this lowers the gross margin of the transaction. We know of a company that failed to understand that the value of points awarded for a transaction so severely reduced the associated gross margin that it was nearly impossible for them to be profitable.

Make sure that customer service is very customer centric

During the Thanksgiving weekend I was buying a gift online and found that Best Buy had what I was looking for on sale. I filled out all the information to purchase the item, but when I went to the last step in the process, my order didn’t seem to be confirmed. I repeated the process and again had the same experience. So, I waited a few days to try again, but by then the sale was no longer valid. My assistant engaged in a chat session with their customer service to try to get them to honor the sale price, and this was refused (we think she was dealing with a bot but we’re not positive). After multiple chats, she was told that I could try going to one of their physical stores to see if they had it on sale (extremely unlikely). Instead I went to Amazon and bought a similar product at full price and decided to never buy from Best Buy’s online store again. I know from experience that Amazon would not behave that way and Azure tries to make sure none of our portfolio companies would either. Turning down what would still have been a profitable transaction and in the process losing a customer is not a formula for success! While there may be some lost revenue in satisfying a reasonable customer request the long term consequence of failing to do so usually will far outweigh this cost.

 

Soundbytes

My friend, Adam Lashinsky, from Fortune has just reported that an insurance company is now offering lower rates for drivers of Teslas who deploy Autopilot driver-assistance. Recall that Tesla was one of our stock picks for 2017 and this only reinforces our belief that the stock will continue to outperform.

 

 

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