Mark it up, price it down

Sale standeeMark it up and price it down.

That retail practice is alive and well. Thriving actually, according to an article in today’s Wall Street Journal (The Dirty Secret of Black Friday ‘Discounts’) that’s a great read for anyone planning to do some shopping Thanksgiving weekend.

It’s an interesting article about common retail pricing strategies, including how most deals are actually “a carefully engineered illusion.”

It also goes a long way in explaining why the Banana Republic near my house has a “Save 30%” or “Save 40% today!” standee by the front door seemingly every weekend.

This data really jumped out at me:

“The number of deals offered by 31 major department store and apparel retailers increased 63% between 2009 to 2012, and the average discount jumped to 36% from 25%, according to Savings.com, a website that tracks online coupons.

Over the same period, the gross margins of the same retailers—the difference between what they paid for goods and the price at which they sold them—were flat at 27.9%, according to FactSet. The holidays barely made a dent, with margins dipping to 27.8% in the fourth quarter of 2012 from 28% in the third quarter of that year.”

Not to take all the fun out of holiday shopping, but the article highlights the relevance of trying to determine true bargains (e.g., loss leader discounts) from illusory deals.

Shoppers are already wary of paying full retail prices. After reading this article, you may find yourself even more so.

Speaking of retail practices and holiday shopping, I’d like to share a book recommendation: Paco Underhill’s Why We Buy: The Science of Shopping.  It’s one of my favorites. If you or someone on your gift list enjoys marketing and/or business books, it’s a well-written and interesting look at shopping that’s based on his research as a retail consultant.

Do you have any favorite marketing books to recommend? It’d be great to hear. Please share in the comments or via the contact form. (Or just send it to me as a holiday gift. Haha, just kidding).

Give the people where they want

Mobile phone

Google’s third-quarter reporting fiasco last week certainly made for a juicy story.

Beyond the immediate news of the accidental early release of the report, what I found most interesting was the role of mobile ad prices in Google’s disappointing quarterly profit — and how this highlights a disconnect between the perceived value of mobile marketing by advertisers and the reality of consumer behavior.

As you may have read, Google’s ad sales were up 33% compared to the same quarter last year, but the corresponding profit dropped because advertisers on average paid less per ad click. These lower prices were largely the result of a shift in ad impressions from desktop computers to mobile devices.

Consumers are increasingly accessing the web and conducting searches via mobile devices, in particular smartphones. But there is less competition amongst advertisers for mobile ads so they cost less than desktop ads.

Why is there less competition for mobile ads?

For most companies, it’s probably some combination of the following:

  • Have not yet created a mobile-optimized site that they are happy with. (Not an app, but a site that can be seen via mobile browsers and to which ads can point)
  • Have decision makers/key influencers who believe a mobile site delivers a less powerful marketing impact than the company’s traditional website
  • Don’t believe they can sufficiently monetize mobile traffic

But companies must figure these things out

There’s no shortage of data points saying it’s imperative to develop a mobile plan.

Mobile’s share of Internet traffic is growing rapidly, and is up to about 20% in the U.S. and Canada in 2012. About ¾ of this is via smartphones, ¼ tablets (data source). This traffic will continue to increase quickly.

Mobile accounts for an even larger role in search queries.

I recently attended a conference co-sponsored by Google during which two of its executives referenced a research firm’s forecast that half of all U.S. searches would be made on a mobile device in 2013. Given Google’s knowledge of search data, I take its executives’ endorsement to mean the forecast is reliable.

Key point: consumers want and are looking for information via mobile. If they don’t find it from your company, they’ll look for it elsewhere.

Consumers are also getting comfortable with mobile transactions. According to Internet Retailer Magazine, in 2012 U.S. mobile commerce sales will increase 99% over last year, to almost $21 billion.

“In 2012 U.S. mobile commerce sales will grow nearly 10 times faster than U.S. e-commerce sales” and “will account for about 9.2% of all U.S. e-commerce sales compared with 5.4% in 2011.”

Meanwhile, mobile content has an even larger impact on in-person sales. According to a report from Deloitte, smartphones influence 5.1% of sales made in retail stores, and this influence will increase to 19% by 2016.

Mobile mindset

While some companies have embraced mobile marketing – from offering great user experiences and compelling content to achieving robust m-commerce sales – they are the exception to the rule in the U.S. market.

More typically, corporate thinking needs catch up with the new consumer reality.

In terms of comparing a mobile site’s branding impact to that of a traditional website, it’s important to understand that the users don’t expect the same experience with mobile.

What they want is a site that functions well – i.e., allows them to easily fulfill their objectives – on the platform they have chosen to use.

There is a brand benefit to ease of use. Just as customer service helps shape a brand’s image, in the digital world so does usability. A positive user experience is a positive brand impression.

On the flip side, 48% of people surveyed in July reported feeling “frustrated and annoyed when they get to a site that’s not mobile-friendly.” (data source)

Meanwhile, in terms of more ‘traditional’ web marketing activities, consumers do watch videos, look at photos and interact with content via smartphones when good content is offered in a mobile-friendly manner (for example, check out the user activity on Instagram).

It’s not necessarily easy

I can speak from experience in saying that creating a great mobile experience is not easy.

Most companies’ digital teams are already stretched thin trying to keep up with the growing number of platforms for which they need to create content.

Mobile adds complexity to that situation– for example, the need for mobile-optimized ad landing pages, the challenge of multi-screen analytics, figuring out how to enable transactions, etc., etc.

And of course there’s the challenge that doing mobile well requires securing additional resources. For example, the funding for additional call center agents since in many cases the best mobile call-to-action is a phone number (“click to call”).

But it’s undoubtedly necessary

It will probably take some testing and false starts, but more and more companies are going to figure out how to offer their users great mobile experiences.

The downside is just too great: customers and potential customers abandoning them for competitors.

It’s only a matter of time before enough companies embrace the mobile opportunity that mobile ads cost the same as non-mobile ads, especially search ads.

The Google earnings report with that news is likely to come in a not-too-distant fiscal quarter.

The Contrast Principle

The contrast principle (or contrast effect) says that when you experience two similar things in succession, your perception of the second is influenced by the first.

For example, when you pick up a heavy box and then a light one, the second one will feel lighter than it really is. Or to quote a colorful example from Robert Cialdini’s excellent book, Influence: The Psychology of Persuasion

If we are talking to a beautiful woman at a cocktail party and are then joined by an unattractive one, the second woman will strike us as less attractive than she actually is.”

(Sorry guys, the same holds true when women look at us.)

So why is contrast principle as the name of this blog?

Foremost because I find it to be an interesting insight into the way we perceive and experience the world. It’s a good example of how our perceptions are shaped and influenced by external experiences in ways we’re often only vaguely—or not at all—aware of.

I also like it for the title because my intention is to primarily write about marketing-related topics, and the contrast principle is applied in salesmanship. When you’re quoted a high price and then a lower one, the second seems lower than it really is.

An observation of this principle in the wild:  Costco’s watch case.

At my local Costco, the case always contains a handful of watches in the $5,000 – $10,000 price range. These watches are placed at the side of the display case near the main aisle, so they’re likely the first watches most consumers see as they approach the case.

Between their location and appearance, you can’t help but look at the $5,000, $6,000+ watches.

The $950 Tag Heuer you see two steps away looks surprisingly inexpensive. “I can afford that,” I always hear myself thinking. And the $89 sports watch? Why not pick one up for weekend hikes and working out — they’re almost giving them away.

I doubt there are many impulse purchases of the small selection of high-end watches, but my guess is that their main value to Costco lies in the comparison.

My local Costco store isn’t an anomaly — I saw the same set-up in other branches, including one in another state.

Lastly in terms of choosing “The Contrast Principle” for the blog name, I just like how it sounds.

If you read a post on this blog and then a post on another blog directly thereafter, hopefully the quality of my post doesn’t make the other one seem better than it really is. But if so, it’d be the contract principle in action, in both name and effect.