• "No Cash" Catching On

    In Sweden only 20% of all transactions in the country are conducted in cash, but in the United States? No such luck. We, as a nation, are still struggling with using the chip card machine, which was about 10 years overdue, and soon we will have to grapple with having to input a pin number every time we use our credit card. I'm certain that this will take another 10 years. In some ways, Europe is ahead of the curve; but Americans are a more individually-oriented bunch, and as such are notoriously a bit slower than our friends in Europe in widespread adoption of new behaviors. But what about the idea of taking cash out of the equation? Is this really happening to any meaningful degree?

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    The U.S. Federal Reserve reported that non-cash transactions have increased by over 5% each year since 2012, so the trend is clearly moving away from cash and towards credit. Surely at larger retailers, cash is no longer king, but many smaller retailers still encourage the use of cash instead of credit so that they can avoid paying the 3% surcharge and make more money on each transaction. Some of these retailers believe that raising the price point of merchandise by 3%, an obvious solution, would make them less competitive. Is this an archaic way of thinking? We here at KnowNow! Marketing say yes. Indeed some small businesses in "progressive" places like New York City and Boulder are dispensing with the cash altogether in favor of providing more efficient customer service. But can refusing to accept cash payments improve customer service?

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    Visa thinks so. The company claimed in a recent report that businesses in NYC could save more than 186 million hours of labor and generate an additional $6.8 billion in revenue by refusing to process cash transactions. If this is even partly true, then it won't be long before marketers of all shapes and sizes begin to embrace a more efficient business model. Of course, the percentage of the buying public that is considered "un-banked" would be excluded by such a move, and so some marketers that wish to serve a lower-income population would have difficulty making such a shift. But with preference for cash most prevalent among the over 55 crowd, it looks like a largely cashless future is indeed on the horizon. It seems to be only a matter of how quickly it happens.

    Discussion:  How often do you use cash? Would a refusal to accept cash stop you from patronizing a certain retailer? Do you think this strategy is a good idea? Why or why not?

  • Tip Pooling To Threaten Servers?

    Tipping for food service isn't unique to the United States, but overall, the practice of shifting most of the cost of labor onto the customer in the form of a "gratuity" (expected, but not mandatory) is something that most people around the world don't quite understand. Why not just pay servers and bartenders a "living wage" or at least a realistic market price for their services rather than an artificially low "tipped wage" that relies on gratuity to round out the compensation package? But if you ask almost any server in America he/she will tell you that they like it that way. They like to earn tips. And many servers make more money than many people with college degrees. Is this all about to change?

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    The U.S. Labor Department has proposed a "tip-pooling" rule which requires that employees who receive tips share them with those not fortunate, skilled or legal enough to work at the point of purchase. It certainly seems fair that all of those workers involved in delivering the service should share in its spoils, but servers and bartenders have long enjoyed far better wages than cooks, bussing staff, greeters, etc. Do they really add that much more value? More than the people actually making the product?Servers do commonly "tip out" staff, but the allocations aren't exactly what most folks would consider "equitable".

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    The proposed rule is something that restaurant owners generally support because the staff who don't interact with customers will get an immediate raise across the board from the shared tips (but yet so will servers who will have to make the minimum wage rather than the lower "tipped wage"). Since there are far more support staff than front-line staff in the typical format, the regulation will remove some wage pressure on the business. And of course for the severs and bartenders themselves, the proposed rule does have much larger implications for those among them who believe that waiting tables and serving drinks should be a viable, long-term middle-class career. I have met these people. In short, serving and bartending, excepting the few high-end positions at the swankiest of locales, will no longer seem as attractive or be as lucrative as it once was.

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    And huzzah for that! It's a thankless job, for the most part, even for the young and patient, but as these semi-skilled and unskilled workers age into their 30's and 40's, gainful employment at high tipping places becomes increasingly difficult to find. Some young people don't want to hear this because the lure of accessing quick, relatively easy and abundant cash is difficult to pass up, and young folks can make good money while working relatively few hours. But a short shelf life is the nature of food and beverage service and everyone over 40 in "the industry" knows it. So if this regulatory action, iterations of which already exist in some states, does occur on a federal level, what are the long-term implications for customers?

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    While the net effect on the quality of customer service is likely to be nil (expected tips don't affect the level of service provided by staff very much), owners would have to pay higher wages to servers, but could probably afford to pay lower wages to support staff since these folks would be getting shared tips from the servers and bartenders. The threat that many might overlook, however, looms in the fact that the practice of tipping might eventually begin to wane and, if that happens, restaurants might have to pay higher wages over the long run to compensate for the lack of tipping. Or perhaps labor-reducing, cost-saving automation will be ushered in at a faster pace. If there is less tipping, a possible result might be higher menu prices for consumers, but with less tipping, the net effect on prices would also be nil. Of course this is all educated speculation, but the Law of Unintended Consequences (not really a law) always comes into play. One thing is for sure. This is a massive industry with tens of millions of employees, and any regulation is likely to have all kinds of effects, some positive and some negative. But first, let's see if this regulation becomes a reality.

    Discussion: What effects do you think this regulation will have? As a customer, would you rather tip or pay higher menu prices? Does it matter to you? As a server or a more skilled bartender (almost half of whom are college graduates), would such a regulation make the industry less attractive to you as a career?

  • The Big Spenders of 2017

    Although the holiday buying season isn't yet finished, the bulk of the shopping has been done. And it looks like the economic gains of 2017 (combined with the fact that Americans are saving less than in previous years) have enabled the best Christmas in recent memory for a beleaguered retail sector.

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    Consumer holiday spending is up almost 6% from last year, far above any of the estimates, and even department stores are doing well this holiday season, with a 3.6% increase in revenue over last year. And unlike 2016 when retailers were stuck with too much leftover stuff , brick-and-mortar operators are doing a much better job at managing inventories this year, which means fewer items offered at steeply-reduced prices. 

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    All of this is very good news for relatively healthy retailers like Kohl's and Macy's, but it's really good news for the likes of Sears, J.C. Penney's and other brands that many observers believe might soon be dead. The healthy brick-and-mortar survivors will be the stores that successfully and seamlessly integrate online and in-store merchandising, offer the right mix of products to the right market segments, and provide superior sensory experiences for their customers. Many experts believe that the U.S. has far too many retail locations for its population and that at least 25% of the current retail space will likely be gone in 10 years or so; but e-commerce is still only 11% of total retail sales, which suggests that brick-and-mortar and e-commerce will eventually achieve a healthy balance. And an economy that continues to improve? That certainly helps too.

    Discussion: Are you surprised that e-commerce is still only 11% of total retail sales? Are you spending more this holiday season? 

  • Bringing You The Gas

    It was just a matter of time before direct-to-consumer delivery reached the fueling industry, and with the widespread adoption of apps among the buying public, it appears that consumers will soon have the ability to order up just about anything.

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    Gasoline delivery, although not a new idea, is one of the latest perks for Americans with marketers using what one startup calls an "unstationed" distribution model. That is, we now have app-based fuel delivery services such as Filld and InstaFuel so that consumers don't have to be bothered with stopping at a filling station. Certainly, re-charging services for electric cars can't be too far behind.

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    Some regulators are concerned about the safety of having so many flammable materials being driven about (especially when it comes to delivery in residential neighborhoods) and so, like many new product ideas, legal issues must be sorted out. But they will be sorted out as they are right now with ride sharing services. The concept is really catching on at privately-owned corporate campuses across the country where any issues regarding safety can be more controlled and companies can assume liability. And of course, we are quite used to the idea of having propane delivered, which is also a highly flammable material, so safety concerns aren't likely to destroy the business model. Nothing can stop consumer-driven progress, and gasoline is just the latest product that convenience-minded drivers can pay a little extra to have delivered to them.

    Discussion: What other market segments might want this delivery service? What other goods and services might be slated for delivery in the near future?

  • If You Build It, Will They Come?

    In the movie Field of Dreams, the protagonist puts a baseball field in the middle of a corn field and attracts a bunch of ghosts to play one final game. The famous line "If you build it, they will come" seems especially appropriate when it comes to arenas and stadiums for professional sports teams. But as we found in the case of the Sprint Center in Kansas City, simply building a facility is no guarantee that a professional franchise will relocate there.

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    This notwithstanding, the Sprint Center is profitable even without a franchise, and the people of Seattle are still angry about the guy with the big hat who bought the Supersonics and moved them to Oklahoma City several years back. But they weren't angry enough to fund a new facility to replace the aging Key Arena with tax dollars, and so it's taken a few years for a group of private investors to step forward with $660 million to re-develop an existing facility that is currently home to a WNBA team.

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    But will it be enough to encourage an existing franchise to move away from a less-than-desirable situation and towards a sunny future in a cloudy city? In the NBA a league that already has 32 teams, Memphis, Milwaukee, and other cities currently play host to struggling teams that seem likely candidates for relocation. And the same goes for the NHL and its warm-weather cities whose teams consistently under-perform and fail to attract enough fans. The NHL, which recently expanded to 31 teams, needs one more to reach an even 32, if that matters at all. And even if the league doesn't expand, a move to growing Seattle by a struggling franchise might be very realistic indeed.

    Discussion: Can the new facility generate enough revenue to be profitable without attracting a major franchise? How can it do so?

  • Back To Books

    After a decade of trying to sell lots of items outside of the "books" category, Barnes and Noble has decided to "unclutter" its stores to make room for what it considers to be an excellent opportunity for future revenue growth. For Barnes and Noble shoppers, games and gifts soon will be increasingly hard to find. Simply put, marketers intend to sell more books.

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    E-books have largely failed to achieve widespread adoption among consumers. Indeed only a handful of my students purchase e-textbooks, and most observers believe that sales in the difficult-to-measure e-books category are falling. And new CEO Demos Parneros believes that his stores have "too much stuff" in them. Thus, a strategic re-focus on good, old-fashioned books (a sizable sector with flat growth but with far fewer retailers serving it these days) seems like a good idea.

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    New stores will be built much smaller than in the past, and some current  locations, at 26,000 square feet, will be remodeled and downsized to half their original size. Gone will be most of the educational toys, games and gift items to make room for a broader array of titles on fewer shelves. This is a major change in strategy, but it's often a good idea to focus on what you do best, especially when revenues aren't what you want them to be. It will be interesting to see what happens.

    Discussion: Is this strategic shift a good idea? Why or why not? How can Barnes and Noble compete with Amazon?

  • Cobalt Looms As Electric Threat

    Raw materials. They are used in the products we buy, and when demand outstrips supply, they get to become very expensive. But most business-to-business goods are inelastic, and thus when the price goes up demand tends to stay the same. Let's take cobalt, a key component in batteries used in electric vehicles, as an example.

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    We don't think too much about cobalt, an element that sits between iron and nickel on the periodic table, but if you are making electric car batteries, the availability and price of this element is always on your mind. And as you may have guessed, there is currently a shortage of the metal, which could affect the price and availability of the electric batteries that are dependent on it. How big of a problem is this?

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    It's becoming a very big problem as an increasing number of companies commit to making electric vehicles. And it doesn't help matters that the vast majority of output is concentrated in the highly-unstable and ironically-named Democratic Republic of Congo while the refining is done by China. Ack! This political environment is not favorable to U.S. marketers, and probably the supply chain will eventually have to find a substitute for this environmentally-unfriendly and difficult-to-obtain metal. But the current technological environment doesn't allow for such a substitute. So for now, marketers are very worried about meeting demand.

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    There is a bright spot here. There hasn't really been very much demand for electric vehicles over the past decades, as consumers have been reticent to adopt the technology despite massive government subsidies and incentives. the demand that does exist is instead being driven largely by legal/regulatory and political considerations. And so if we don't have enough cobalt people will still be able to drive cars, albeit not as many of the electric ones that some politicians and consumers prefer. Indeed the supply chain will have to work around this long-term problem if it wants to offer meaningful volumes of electric vehicles for mass consumption.

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    The obvious solution lies in finding additional sources for cobalt beyond having to deal with a historically unstable region and China; or, better yet, finding one or more substitutes for cobalt that will make the industry rest a little easier. It doesn't appear that the electric car is going away, and so a solution must be found.

    Discussion: Do you think that consumer desire for electric vehicles will increase? What are some of the barriers to adoption? Solutions?

  • Shiploads From The Supply Side

    When we talk about marketing, it is almost always about companies that operate further downstream in the supply chain suchas  retailers and branded product manufacturers.These are the cool companies to talk about since we see them every day. Indeed the suppliers of components and ingredients, packaging companies and others the "supply side" of the equation get very little respect from the media.

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    But it's these sorts of companies that make the stuff that goes into the products we buy, and we here at KnowNow! Marketing endeavor to cover these entities at least somehow. Even less celebrated are the logistics companies that make efficient supply chain management possible, and these are happy times indeed for those moving things from A to Z in the industrial sector. Whether it be moving industrial goods on land, over water, or through the air shipping is gaining steam at a rocket pace not seen in many years. 

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    Why is this happening? A simple matter of gross domestic product, our highly-flawed but best available measure of an economy's overall well being. The U.S. economy grew 3.3% last quarter, which means that this year will be the best we've had since before the Great Recession. And more consumer spending at the very bottom of the supply chain works its way up the chain, all the way to the suppliers, a concept called "derived demand". Demand for supply side goods and services increases when consumer demand increased and therefore is derived from that end-user demand. 

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    Some ports are breaking records for cargo volume, and ground freight carriers have raised prices by over 5% to reflect rising demand for trucked and rail freight. This is great news for everyone, and most economists would agree that a healthy economy combined with lower business taxes will likely stimulate income growth and hiring even more than it has already this year. And this news is particularly good for 2017-2018 graduates who are facing the healthiest job market in over a decade. Gainfully employed graduates will spend more. And so it goes until the next recession happens, which is unpredictable, but nevertheless inevitable.

    Discussion: Can you name any business-to-business shipping companies? They do tend to be rather obscure. Have you noticed any visible positive changes in the economy over the past two years? Discuss a few of these.

  • Email Missing Mark

    Now that long lines at retail stores are becoming a thing of the past, one would think that holiday shoppers would be a much happier bunch, but smart marketers know that is always something for customers to complain about. And to a smart marketer, an identified problem is also an opportunity to improve critical "touch point" functions like customer service and one-to-one marketing communications. 

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    Believe it or not, email communications in the early days of e-commerce used to be very effective. But as it became ubiquitous, we grew weary of non-targeted e-communications, and most email is now largely ignored. But some marketers have improved their technique since then, and with behavioral targeting the new normal in digital advertising, it is easier to predict what people might want to see as far as marketing messaging goes. But as for traditional retailers, in addition to having trouble with their brick-and-mortar operations, many are also struggling with e-communications.

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    According to the folks over at Forrester Research, 90% of organizations say that they are focused on personalizing customer experiences, but only 40% of shoppers say that what the messages they get from marketers is relevant to them. That's quite a knowledge gap! What is actually going on is probably more like "mass customization", a business concept from the early age of digital (the mid-90's) that described where marketers basically offered a modular approach to goods and services so that the end product could be "customized". Think "Build-A-Bear". These marketers are assuming that a shopper who buys boots might also want to see promotions about dresses, a concept called cross-selling that we have been teaching in marketing classes for decades. But perhaps things are changing. Perhaps in this age of "true customization", where behavioral tracking leads to behavioral targeting, consumers who are used to the idea of being followed now want messaging to be hyper-targeted based on their purchasing and web browsing behavior. And to think that only 10 years ago, privacy was a prevailing issue. Attitudes have clearly changed.

    Discussion: Should consumers be concerned about the issue of privacy in behavioral tracking and targeting? Are you concerned? Why or why not? Do you like to receive highly targeted communications or do you think it's kind of creepy?