Return to Barter

Have you ever wondered why we still use money? These days when I see an armored truck outside a bank it seems like an anachronism.

Debt is personalized, but money is not. Why is that? We have bank accounts which are really just records in databases. There is no cash waiting for us at the bank. Banks actually hold only a small fraction of the deposits of their customers in cash. This is why the run on the banks in 2008 was so dangerous. The whole system is based on trust.

These days we have fewer and fewer cash transactions in our lives. Credit cards, debit cards, paypal and so on are basically just sets of transactions between databases.

Database transactions are fundamentally different from cash. They are frictionless, and can be carried almost instantaneously, any time, and anywhere. It seems strange that database transactions are more expensive to execute than cash transactions, when they would seem to have fewer costs associated with them (no armoured cars!), but that’s a topic for another day perhaps.

So cash is on the way out, and at the same time, the emerging global supply chain is creating a situation where someone can request a batch of products from a factory in China or elsewhere and have it shipped by air in a matter of days. People can shop online from home in their pyjamas, and demand from a group of people can be aggregated into an order which can be manufactured or assembled from the wholesaler, or even factory, fairly quickly. This is leading to a flattening of the retail value chain. This chain can only flatten further as 3D printing technologies advance and people can make sophisticated products in their own homes.

Direct, or almost direct, connections between manufacturers and consumers, and frictionless transactions of stored credits. What are the implications of these revolutions in how people purchase products?

A return to bargaining and barter! We already barter privacy for points on loyalty cards, but in future it will happen more explicitly perhaps. People have always bartered. A Christmas cake in return for a hand-knitted cap for the baby, and so on. But now we may have groups of people approaching manufacturers for special deals and for customizations of products (pulling from demand, not pushing demand as happens with services like Groupon). And when everything is paid for by stored credits, how long can it be before we have a kind of Peer-to-Peer financial transaction where we generate a sale to one or more people in our social network in order to pay for a different sale, and where multiple transactions in the social network are balanced against each other to maintain the financial equilibrium of the network. And if social networks can smoothly aggregate demand for sets of products, then perhaps we are moving towards a system where retail is driven by demand pull rather than production push. From an environmental perspective this should be very welcome, as fewer products will languish in warehouses or retail shelves, and fewer products will end up in landfill.

Loyalty

I just read Mona Simpson’s Eulogy for Steve Jobs. Steve Jobs was her brother, but she met him for the first time when she was a 25, in a story that could have been straight out of Dickens and which will surely make a great movie. After reading the eulogy I had to cover it in this blog somehow, but how did it relate to shopping? I knew that Steve Jobs had his “reality distortion field” and was famous for tirades, but what I learnt from the eulogy was that he was intensely loyal. As Mona Simpson put it: “For an innovator, Steve was remarkably loyal. If he loved a shirt, he’d order 10 or 100 of them. In the Palo Alto house, there are probably enough black cotton turtlenecks for everyone in this church.”

I’d like to think that loyalty will be an increasingly important part of the future of shopping, not just loyalty cards where people are loyal because of an economic motivation, but loyalty to products, brands, and social groups.

Loyalty to brands is particularly important for online shopping for tangible products and especially for fashion items. If one cannot see the product in person and touch it, there has to be a strong element of trust to purchase the product online. Loyalty to a brand creates trust that can facilitate online sales. In this loyalty based approach, branding is very important to online sales success. Another component of loyalty is social interactions.

For those of you who are interested in academic research on this topic, Rowley (2009) reports on an interesting study on UK online fashion retail. Here’s a short excerpt from that paper:

“UK fashion retailers have embraced the online channel and their web sites establish online presence and brand awareness, but there is still work to do in developing dynamic and exciting brand presences online. They need variously to:

. take measures to register associated domain names and protect their brand online;
. communicate their brand values more explicitly and prominently through their web sites    to improve positioning through the “online shop window”;
. develop two-way communication between retailer and customers, and customer to customer; and
. further advance the notion of using the web site as a venue and forum through which retailers build brand community.”

Developing two-way communication between retailers and customers, and between customers, is a topic of particular interest to this blog. Social media are likely to be particularly important in the future of shopping.

Reference

Jennifer Rowley, (2009) “Online branding strategies of UK fashion retailers”, Internet Research, Vol. 19 Iss: 3, pp.348 – 369

Shopping vs. Investment

There was an interesting article in the October 28, 2011 New York Times titled “It’s Consumer Spending, Stupid“. The author of the article argues that, contrary to the majority of American public opinion, lower corporate taxes and greater profits do not lead to growth. He claims that consumer spending is a much greater engine of growth.

I’m no economist, but there doesn’t seem to be a lot of hard evidence that tax cuts for the wealthy and for corporations do in fact fuel growth. However, rather than musing about appropriate levels of taxation, which is outside the scope of this blog, let’s focus on shopping, the other side of the issue. Is shopping, and consumption in general, the main engine of growth?

But first one more thought about taxation. Could the article be part of Amazon’s campaign to eradicate sales taxes for online retail? Probably not, unless you are a conspiracy theorist, but perhaps we are seeing the beginnings of a switch in the anti-tax movement from corporate and individual taxes to sales taxes.

Personally, I’ve tended to think that sales taxes are a relatively good way to raise money, especially when they are placed on luxury items or items such as tobacco and alcohol which are harmful in large quantities. An example of the benefits of a sales tax is given by the government of Canada, which, after heading towards a fiscal meltdown in the early 1990s managed to run some surpluses and improve its books on the back of the newly introduced Goods and Services Tax.

So what’s an advocate of shopping to think? Are sales taxes an evil restraint of trade or the price of civilized society? And more generally, how good is consumption?

Economists tell us that growth is good and they target growth rates of around 2% both in economic activity and in inflation of the currency. Will this be true in the era of declining or steady population that much of the world has or will be entering?

In this blog we will continue to argue that shopping is good, and that consumption, particularly when it is related to gifting and to quality items, that demonstrate good taste, can’t be wrong. Putting people to work and giving them meaning in their lives is one of the most important functions of any society. Retail is one of the largest sources of jobs. And online retail? Well, that’s an interesting question. But by giving people a place to spend their dollars easily and efficiently it is making retail more efficient, and it gives people a motivation to work in order to earn those dollars.

So let’s not get caught up in a debate between yachts and handbags, shopping is the one area of life that continues to advance and improve. No matter which side of the political spectrum you are on, you probably love your smartphone.

Apple, Google and Digital Media

One of the many innovations largely due to Steve Jobs and Apple was the monetization of digital content through it’s iTunes store. It’s easy to forget now but there was a time when people were starting to believe that “information wants to be free”. That may still be true to a large extent for newspaper content, but it is no longer true for music, many software applications and games, nor is it true for best selling books. By monetizing content at lower prices iTunes put a firewall around the free content movement.

By all accounts the new biography of Steve Jobs paints him as fiercely competitive (how could it have been otherwise?). This must have led to some interesting encounters given the many people with Apple connections who had moved to Google in the past decade.

Of particular interest in the book is a meeting Jobs had with Google’s Eric Schmidt in 2010. Jobs reportedly told Schmidt, “If you offer me $5 billion, I won’t want it. I’ve got plenty of money. I want you to stop using our ideas in Android, that’s all I want.”

It must have been an interesting meeting given that Schmidt had been on the Apple Board of Directors between 2006 and 2009.

More on the Kindle Fire

With Apple currently holding 80% of the Tablet market Amazon’s new Kindle Fire may be the best bet to shake up the emerging monopoly. We said recently that the new tablet Kindle could be a powerful mobile shopping platform and that comment was echoed in a recent article seen on BBC News. Excerpts shown below.

According to reports, online retailer Amazon could announce the release of its first tablet as early as Wednesday.

“Provided the pricing, screen size and hardware design are right, Amazon can be one of the main challengers to Apple’s dominance,” said Neil Mawston, director at Strategy Analytics.

“Like Apple, Amazon has a strong brand, compelling content, sophisticated billing systems and widespread distribution.

“In effect, Amazon’s new tablet product represents a good opportunity to place an Amazon shopping cart in the hands of American consumers, offering optimised access to purchasing digital content or physical goods from the Amazon online store.”

However, Amazon has paid the price for the expensive investment required to bring the Kindle Fire to market with profits at the online retailer dropping by 73% after the company invested heavily in its new tablet computer.

Seasonality

I had the privilege to live in Japan for a year or two and one of the things that amazed me about the place was the emphasis on seasonality. As a society it seems to mark the changing of the seasons far more intensively than I was used to.

But shopping is an industry that is built around seasonality. From seasonal collections in fashion and footwear to sports memorabilia and a host of other activities. In Western countries Christmas is the pre-eminent shopping season and the annual profitability of retailers often hinges on how good the holiday period is. There’s no reason to believe that things are any different in the world of online retailing.

In the US the two big shopping days occur the Friday and Monday after Thanksgiving. They are referred to as Black Friday and Cyber Monday respectively. Why Black Friday? Well one story is that you can get black and blue from being trampled by other shoppers in the rush to get sale items on that day.

The following excerpt discusses Cyber Monday.

“Cyber Monday is definitely a online marketing term to make the Monday rigtht after Black Friday, the Friday right after Thanksgiving Event in america, produced by corporations to tell customers to make an online purchase. The definition of Cyber Monday made its introduction on November 28, 2005 inside a Shop.org website article known as “‘Cyber Monday‘ Quickly Becoming One of the Biggest Online Shopping Days of the Year”.Based on the Shop.org/BizRate Research 2005 eHoliday Mood Study, “77 % of online stores announced that their sales increased significantly during the past year over the Monday after Thanksgiving holiday, a trend which is driving serious online discount rates and special offers on Cyber Monday this year. In 2006, Shop.org reported that it released the CyberMonday.com portal, a one-stop shop for Cyber Monday deals. In 2010, comScore.com revealed that shoppers spent $1028M online on Cyber Monday (excluding travel, 2009: $887M), making it the highest spending day of 2011. Cyber Monday is usually used to be a marketing term in Canada, united kingdom, Portugal and Germany.Throughout these countries, except for Canada, Cyber Monday sales last for eight days, typically through the last Monday in November towards the first Monday in December. In Canada, the sales period mirrors that relating to the U.S.

In 2011 Cyber Monday is on November 28th, exactly 26 days before Christmas. A growing number of online shoppers have grown to be aware about and getting benefit of this great deal online shopping event. Cyber Monday is an excellent chance for online retailers store to provide and advertise their a great deal discounted items and take on other big online retailers store who hold their unique special Sales.”

Should the seasonality of online retail follow the seasonal structure of bricks and mortar stores? It could be argued that online retail should have key shopping days that are a little earlier to allow for shipping times. Also, online retailers could try and pre-empt bricks and mortar retailers by trying to collect purchases earlier. Not having to ship inventory to many specific locations should give them an advantage in this respect. However in the transitional phase that we are in at present a lot of people want to check out products in stores before looking for the best price online.

The Passing of Steve Jobs, and Why We Shop

Thanks Technorati for indexing this blog. Maybe now it’s just one in a million, but it’s a whole lot easier to find than it used to be.

Lots of posts are waiting but I wanted to start this post with a quick note on the passing of Steve Jobs (he died on October 5, 2011 at the age of 56) and what an impact he has had. First he launched the personal computer revolution with Steve Wozniak, then he tranformed the graphical user interface from the Xerox Parc research vision to a highly successful product. And if that wasn’t enough he transformed consumption of digital content and mobile telephony, not to mention the use of computer graphics in movies. Of course, none of those achievements can be attributed to just one person, but working with others he had a transformational effect on a wide range of activity. And we shouldn’t forget the iPad. From the perspective of the future of shopping, the smartphone and tablet revolutions that he helped to launch will likely form the basis of mobile commerce as an increasingly important component of shopping. He died too young, but what a cornucopia of achievement! And when I heard about his complicated background and life it just made me respect his achievements even more.

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(back to shopping)

As we have seen in our analysis of the history of shopping, technologies of shopping have changed considerably over the centuries and that change (as in many other areas) has accelerated considerably in the past few decades.

Another source of change with respect to shopping is occurring in shoppers. In affluent societies shopping is no longer carried out exclusively to satisfy physical needs.

James Pooler, in his book “Why We Shop” has characterized the nature of the modern shopper as follows:

“Modern shoppers by things to reward themselves, to satisfy psychological needs, or to make themselves feel good. Modern shoppers buy things because they are expensive. They buy things to make a statement, to show off their personality, or to boost their self-esteem. Purchased items have become an affirmation of the psyche. Buying an item because you have a real physical necessity for it, in the way that our parents used to shop, has become the least of the modern shopper’s concerns.”

Pooler, J. (2003). Why we shop: Emotional rewards and retail strategies. London: Praeger Publishers (page 1).

Understanding modern shoppers is likely much more complex because of the loosening of the association between shopping and needs, but it also opens opportunities for creating new kinds of satisfying shopping experience.

Tablets as mobile shopping devices: Amazon

While Apple has largely owned the tablet market with the iPad family, content and apps have been king. But with Amazon rumored to be about to release an Android Tablet the role of tablets as mobile shopping platforms may soon come into sharper focus. With Amazon already owning around a third of the online retail market in North America, Amazon may be hoping to create the kind of synergy between its ecommerce catalogue and a mobile device that Apple achieved between iTunes and the iPod.

The US Online Shopping Market

Online Shopping is exploding worldwide, and here we present recent figures from the United States based on the Wikipedia article on Online Shopping.

Recent U.S. E-commerce B2C product sales totaled $142.5 billion, representing about 8% of retail product sales in the country. The $26 billion worth of clothes sold online represented about 13% of the domestic market. Forrester Research estimates that the United States online retail industry will be worth $279 billion in 2015. The size and growth of this market makes the future of shopping an extremely important topic.

Shopping Search Engines

We continue looking at the problem of how to bring customers in to the online store. Advertising is a key method, but another important method is search. Often advertising and search go together, for instance, a company may pay for it’s site to appear near the top of the list when a search is executed with a a keyword that it relevant to its products.

Another approach is to use specialized shopping search engines that allow users to search for products rather than things in general. Shopping search engines can also carry out specialized searches, e.g., to look for particular locations or price ranges, and they can be integrated with shopper comments, reviews, and other social media functions.

eCommerceOptimization.com lists a number of shopping search engines and product portals. One of the features of many of these sites is that merchants can directly add items or upload their catalog to these popular comparison shopping engines. Some of the portals listed there are designed for niche industries or only allow certain kinds of products to be listed (ie. Etsy is for hand-made items only).

Examples of shopping search engines/product portals include:

Pronto.com

Ask Shopping

Lycos Shopping

Excite Shopping

Google Product search

Bing Shopping

Bizrate

Dealtime

Shopping.com