Australian retailers need to buck up!

Mainstream Australian retailers need to improve: their online stores lag behind those overseas as well as those of Australia-based eBay traders.

A couple of weeks ago, I ordered two similar items online, one from a company in Sydney and another from Philadelphia. To avoid any trouble at home, let me be vague and just say that both of these items can probably be found on the same shelf in a physical camera store. The item from Philly arrived at my desk in just under a week. Furthermore, I received timely updates about my order, an email from the supplier when the package was shipped and a follow-up message after it arrived. Meanwhile, the order status from the Sydney store went through several stages and got stuck at “ready soon”. When when I finally telephoned them, a customer service officer mumbled an excuse and said it would be shipped soon. The item finally arrived today, a total of 15 days from start to finish.

I have had similarly poor experiences ordering a variety of products online from mainstream Australian retailers. Their online presence is often just an afterthought, with high prices, weak product variety, clunky websites and unhelpful customer service. As a result of the strong Aussie dollar, shoppers are increasingly buying online and from overseas. Rather than complain about poor business conditions, Australian retailers need to buck up. I don’t believe it can’t be done because there is a category of Australian retailers that is already as efficient as those overseas: eBay-based Australian stores. These are small and medium sized entities that use eBay as a storefront. One reason they are responsive is that when searching eBay, overseas competitors’ offerings appear on the same page as theirs, so rivals are not even a mouse click away. A second reason is user feedback. Each time a transaction clears, buyers and sellers can leave feedback about each another and eBay reports a breakdown of ratings over time (see sample image below). This generates an incentive to continually maintain good customer service so as to avoid a fall in reputation. It generally seems to work pretty well. I would go further and argue that we should expect even better service from big-name Australian retailers than from these eBay based stores, but we aren’t receiving anything close to it right now.
Sample eBay rating

e-books are overtaking printed books

Australia Radio National recently did a radio program on e-books at the Brisbane Writers Festival. Of the 4 panelists, only one actually owned an electronic book reader. A number of benefits were cited of e-books, including convenience of purchase, lower book prices (especially compared to the prices of printed books in Australia), and better access from rural locations. However, the overall the impression was that printed books and traditional bookstores will continue to exist for some time. One of the panelists stated that printed books will still constitute 70% of the market within a decade. Another panelist felt that bookshops will continue to exist because they are a nexus of social activity.

Let me be the first to say I love bookshops and have a large library of printed books. That said, these people clearly did not get the memo from Jeff Bezos that the number of e-books sold by Amazon has already overtaken hardcover books and it will overtake paperbacks by next year. The recent launch of the ipad, multimedia e-books, and this week’s launch of the third generation Kindle (only US$139) are going to accelerate the process. Having used both e-books and printed books for some time, all I can say is that many of the complaints people mentioned in the podcast have been addressed, or are being addressed, in the newer ebook readers. Change is happening faster than many people think. This week alone I bought 7 books on Kindle for a course I’m teaching, and I have no complaints.

One way to address the gap between perception and reality is to allow more customers to get their hands on an e-book reader, such as at retail outlets and other public places. From personal experience, people who complain about e-books are often surprised by how usable they are after I’ve put an actual device into their hands for the first time. I’ve also noticed that at a lot of places where e-book readers are sold, they are displayed all wrapped up or inside glass cabinets, rather than in a way that invites people to experience them. This is is something e-book retailers such as Amazon and B&N should address, maybe taking a page out of Apple‘s book to make the shopping experience much more hands-on.

Bait and Switch

News from Singapore this week made it all over the internet. A group of five diners were charged S$1224 (AUD1039) for a steamed fish at the new Resorts World casino. They had earlier ordered a different fish (which was presumably less expensive) but the waiter suggested a substitute without identifying the price. The diners later complained and received a 15% discount. But there are lots of people complaining online that the fish usually costs $6 per 100grams instead of the $60 per 100g charged by the restaurant.

It may sound a bit harsh, but in my opinion the diners exhibited a lack of bargaining skills. I would have refused to pay any more than for whatever fish it was the substitute for, after all it was the restaurant’s fault for running out of stock. It is also evident that the restaurant manager needs to do an MBA. It is a failure in marketing if people are complaining about your firm’s prices based on the cost of the raw materials used. My former MBA students would have learnt that in a well-run restaurant, customers would be happy to pay for the skills of its chefs, quality of the dining experience, and the ambiance. After all, if you’ve dropped by a high-end restaurant in Japan and eaten fugu (poisonous pufferfish), a price like US$100-200 per head is not unreasonable.

Singapore, June 30, 2010- THEY feasted on a fish named sultan – and were made to pay a king’s ransom for it. Well, not quite a king’s ransom, but a whopping $1,224 for that single steamed fish dish. And the bill left a sour aftertaste. The diner, who only wanted to be known as Mr Liu, 35, had taken his four friends to Resorts World Sentosa’s (RWS) Feng Shui Inn restaurant on June 12. The group had initially wanted marble goby, better known locally as soon hock, but the waiter said there was no stock for the fish. The waiter suggested the white sultan fish instead. The group agreed, without asking how much the dish would cost. They were stunned when the bill arrived. The single sultan fish, which weighed 1.8kg, set them back by $1,224. Source: http://soshiok.com/article/12333

ps: remember to ask the price before ordering at a restaurant.

Video Podcast – IPRIA Seminar on Banning Tobacco Logos

Last week, IPRIA organized a public seminar on the banning of tobacco logos. I have just posted videos at http://vimeo.com/album/232376. Drop by for an interesting debate on private versus social costs, Government policy and WIPO/TRIPS. Details of the seminar and Powerpoint slides from each presenter are on the IPRIA website.

The Australian Government recently announced its intention to ban the use of artwork and logos in the branding of tobacco products, effective from 2012. In this seminar, four distinguished speakers, comprising: Professor Mark Davison (Law, Monash University); Professor John Freebairn (Economics, University of Melbourne); Associate Professor Angela Paladino (Marketing, University of Melbourne) and Mr Tim Wilson (Institute for Public Affairs), consider the economic, legal, ethical and marketing implications of this decision.

Why Smart Firms Should Experiment

My AFR op-ed today is on the use of experiments by businesses as a means of improving productivity. Full text over the fold.

Joshua Gans and I have been contemplating running a conference on this topic in 2011, so if there are Australian academics out there who are doing this kind of work, please drop me a line.

Continue reading “Why Smart Firms Should Experiment”

Maybe Murdoch wasn’t that crazy

Last week, Rupert Murdoch gave an interview with Sky News where he repeated his claim that aggregators like Google and Microsoft were ‘stealing’ his content and that putting up a paywall will limit that. This resulted in an blogosphere frenzy as to his craziness. After all, if Google and Microsoft are driving traffic to your site why would you want to limit that?

I listened to the full interview today and while that opinion is expressed Murdoch clearly understands the implications of it. Moreover, he bends over backwards to point out that Google and others are respecting his copyright and that he has a choice as to whether his sites turn up in Google or not.

What was more interesting was his rationale for why he might want to throttle that traffic. His view was that those visitors pushed up count numbers but were not as valuable as loyal readers. He did not go into much more detail but in my recent work on this industry, I think that he might just have a point. Continue reading “Maybe Murdoch wasn’t that crazy”

Google inflation?

This wasn’t your average ABC News Story:

The world’s most powerful internet company, Google, has been accused of overcharging its advertising clients and inflating the number of hits to their websites.

The story was reporting about this paper by Ben Edelman of Harvard Business School. The story argued that Google was either directly or allowing (encouraging?) practices that led to more users clicking on ads and so higher ad payments.

There are four examples given. In the first, you click on an ad but the host puts in a bunch of similar ads that you need to click through to get to where you want to go. The advertiser ends up paying twice. In the second, a similar thing occurs but through a user-installed browser toolbar. In the third, a user types a web address in, incorrectly. Someone owns the typo’ed site and peppers it with Google ads for the real site. In the fourth, searches in Google’s Chrome browser appear above the actual web address leading to more traffic through Google.

Of these, the final one seems innocuous given the way Google lays things out and seems convenient to me. The first three are all things that are a problem for Google because they are a problem for advertisers. What they mean is that when advertisers look at how effective their ads have been — in terms of getting extra sales — with this stuff there they discount that effectiveness. The end result is lower bids for ad space and low revenue to Google even if their ‘partners’ make out well from the deal. I can’t see how it causes inflation.

The news report is odd. It is true that Edelman seems overly critical of Google in all of this but it should surely be the case that Google should welcome these examples being identified and pointed out so that they can be dealt with. This is regardless of whether Edelman has a Microsoft connection or not. After all, these issues will likely hit all internet advertising platforms one way or another.

Ads everywhere

img_0196Now in menus. I snapped this shot at The Cheesecake Factory in the US. The menu is a thick one with tonnes of options (overwhelming actually). But on the LHS of each page is an ad. They also offer a short, ad-free menu.

Are ads enough?

In the LA Times, Joel Stein asks, “what’s the deal with all the ads?” Surely, there is so much money they can extract? Along the way, he quotes yours truly:

According to Joshua Gans, an economist at Melbourne Business School in Australia, whom I could call by using free international Internet phone service, there’s a social norm against repugnant transactions, such as paying for a kidney. In the last few years, too many transactions have become repugnant. “And if you need to make money to pay for the content … and you can’t get the consumers to pay, what do you do? Sell a related product, advertising,” Gans told me. The good news is that at this point, I’m pretty sure The Times’ sales staff will sell space on their kidneys.

It is a little out of context. Here is the link to the paper that discusses this in more detail.

Advertising is failing on the Internet?

I guess we would call that the “Department of Huh?” But that is exactly what Eric Clemons of the Wharton School has said today. He starts of with some assertion that the decline in Internet ad revenues is not explained by the recession and that traditional advertising (of which the page of his post is littered) cannot translate over to the internet (which may be true). But he believes that the fact that content is not pushed but shared causes the whole model to collapse.

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I guess if he had left it with that, we might be OK, but the perennial question arises: What about search and Google? After all, that is hardly directed advertising.

Misdirection, or sending customers to web locations other than the ones for which they are searching.  This is Google’s business model. Monetization of misdirection frequently takes the form of charging companies for keywords and threatening to divert their customers to a competitor if they fail to pay adequately for keywords that the customer is likely to use in searches for the companies’ products; that is, misdirection works best when it is threatened rather than actually imposed, and when companies actually do pay the fees demanded for their keywords.  Misdirection most frequently takes the form of diverting customers to companies that they do not wish to find, simply because the customer’s preferred company underbid.  Misdirection also includes misinformation, such as telling a customer that a hotel is sold out when, indeed it is still available, if the hotel has chosen not to pay a promotional fee, and then allowing the guest to choose an alternative property.

What? Has he ever done this? The ads come up because of the keywords the consumer has typed in and the advertisers recognition that they may have something that can attract their attention. Then, the consumer, in the face of a column of explicitly unrated search results must actually choose to click an ad for anything – misdirection, payment and business model – to actually happen. Let me put the business model in as simple a sound bite as possible:

If the ads trick, consumers won’t click.

In other words, it had better not be misdirection and all of the evidence (in terms of Google ad revenues) suggests that they work just fine. Danny Sullivan reckons Clemons doesn’t actually use the net. It is hard to disagree.

I think search directed advertising works precisely because it matches the user activity – search – with the form of the content – both sponsored and not – search results. This is why banner ads have a much harder job; consumers want to avoid them. This is not necessarily the case with sponsored search.

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