The Savvy Consumer-group – how co-buying makes a difference…

With one of our highest page-view counts this year, each lasting an average of 2.54 minutes, yesterday’s NamNews announcement re Tesco’s new co-buying Wine initiative was by far our most popular NamNews item. It also indicated the high level of reader interest in what could be a new way of relating with a brand’s consumers.

Essentially, co-buying (cooperative buying power) provides a way of aggregating consumer demand and using the resulting power to influence all aspects of the offering (Product, Price, Presentation and Place), with cost-price reduction obviously making the news. (For other uses, see Pepsi, GSK, Pfizer, Sony, Warehouse, Achica and Mumsnet case-studies here)  

In practice, co-buying enables the savvy consumer to identify like-minded individuals, anywhere, all focused on your brand, and share views, experiences and especially perceptions of value. If that temporary grouping can then pool their demands, find a way of negotiating collectively with the supplier, and secure effective fulfillment of the order, then suppliers will have opened up a new two-way route to the consumer.

The new Tesco wine-buying initiative provides a way of removing some of these hurdles and road-testing the basic concept, with machinery that can scale and embrace additional categories in response to real demand, fast. 

It also gives Tesco extra buying muscle, but because of the two-way nature of the new channel, along with the 10:1 complain/praise ratio, the retailer will obviously be ultra-conscious of how they are seen to handle needs at each end of the supply chain…
…a potential win-win-win for consumer, retailer and supplier?

‘Amazon makes UK publishers pay 20% VAT on ebook sales’ – the real issues!

According to an article in The Guardian, Amazon is apparently forcing British publishers to cover 20% VAT on ebook sales, even though the company must only pay 3% to Luxembourg where it is based.

At NamNews we are not in the business of either  praising or criticising retailers, merely attempting to clarify business relationships as a basis for fair-share relationships between suppliers and retailers.

How VAT works
Experienced NAMs will appreciate that in practice,  VAT is an on-cost, and is paid by the  shopper, i.e. in the case of an ebook selling at £10, VAT inclusive, the shopper is paying £1.67 in VAT, resulting in a net retail price of £8.33.
This VAT is the retailer’s output tax.

The retailer collects the VAT, and in turn pays the supplier/publisher the net price (allowing for retail margin etc) +VAT at 20% i.e. assuming a retailer’s margin of 30%, the retailer pays the supplier £5.83 + 20% VAT = £5.83 +£0.97 = £6.80.
The £0.97 is the retailer’s input tax.

The retailer subtracts their input tax from their output tax and pays the difference to the government. i.e. in the case above, the retailer pays the government £0.70.

International tax implications 
As you know, it is not the business of the supplier to ensure that the retailer pays its required VAT. That is a matter between the retailer and the VAT people. In the case of Amazon, the article suggests that they are collecting at the 20% rate and paying at 3%. This will inevitably become an issue for Amazon as the ebook sector grows and UK VAT authorities possibly attempt readjustment to UK rates and clawback.

The fact that suppliers are fulfilling their obligations by paying at the full UK VAT rate means that they will have no issue with the VAT authorities.

This means that publishers can focus on optimising the ebook pricing model that, thanks to Amazon scale and easy-buying facility, has allowed ebooks to be charged at approximately the same price as hard-copies, rather than what would be justified by the almost zero incremental production costs of the electronic versions.

How publishers can negotiate  with Amazon
No-one is in any doubt that Amazon are tough negotiators, with increasing power to use their consumer-gateway role as a vital route to shoppers. Any extreme abuse of this privilege will eventually mean more trouble with the competition authorities than is worthwhile, despite the additional revenue...

Increasing supplier leverage
Suppliers/publishers can 'even-the-balance' by opening up direct ebook access to the ultimate reader, remembering that fulfillment, unlike with CDs and DVDs, can all be handled in-house, providing they make purchasing as simple as Amazon’s 1-click process, and a no-quibbles returns policy....

This means suppliers can use ebooks-direct to add value and personalise the offering (author insights etc) in ways that are probably not yet on Amazon's agenda....
The resulting say 30/70 split in direct/Amazon sales would surely provide some leverage in negotiation, rather than divert energies to concerns about Amazon’s tax issues..

Meanwhile, food NAMs might usefully contemplate the online implications of food-VAT being introduced….

Kellogg's new tweet shop - pay with social currency...

                                                                                                pic Retail-focus
According to a report in Retail-focus, Kellogg's have opened a new pop-up 'tweet' shop on Soho's Meard Street in London. The standalone store – thought to be the first to allow customers to pay by Tweet instead of money – marks the company's move into the savoury crisps market and is open until Friday 28 September.

The shop is lined with hundreds of packs of crisps, a 'try before you buy' snacking area, a 'community noticeboard' that captures social media reaction to the unique retail space, and a  packet of new Special K Cracker Crisps can be bought by Tweeting a message about the snack range.

A real fusion of brand, medium and consumer, without retailer intervention..

Another potential use for empty shops in the high street?

Tesco to build national network of online-only 'dark stores'

They are not open to the public but used to assist nearby shops unable to keep up with internet orders. Tesco already has four dark stores in London but internet boss Ken Towle said on Monday that another two would open in Crawley and Erith, near Dartford, and it was scouting other cities, including Birmingham and Manchester, for locations.

Future dark stores
Towle said Tesco's would need "tens" rather than "hundreds" of dark stores. Speaking last week, Tesco chief executive, Philip Clarke, said Tesco.com "provides all the growth we have in our core food businesses these days".

Where this is heading
Besides representing a threat to Ocado, Tesco with 50% of an online grocery market that will be worth 6% of total grocery spend by 2016 (IGD), the market leader is still at an early stage in its rebalancing of online-and physical store presence that will reflect online demand, with an increasing dark store weighting that will provide a means of reducing online overheads and help to subsidise the cost of home delivery.

In other words, it will always be difficult for online grocers to break out of the '£5-per-drop' mode, so lower-cost dark stores will help by releasing more of the retail margin to help cover delivery cost losses   (See posting below)

Home Delivery charges - a one-way subsidy?

Given that picking, bagging and making a home delivery costs supermarkets up to £20, the £5 charge actually represents a subsidy for the service.

This leaves the retailer with four options:

• Absorb the loss: impossible on current retail margins, especially as the online/physical shop ratio increases?
• Charge more for instore purchases: An increasing an unacceptable burden on those that want/need to shop instore.
• Charge £20 per delivery: a significant turn-off for many online shoppers?
• Or radically increase the minimum order size: a likely mismatch with real shopper need?

Going for scale
Some retailers may see significant scaling up of home deliveries as a possible solution, with the milkman’s street-agreements as a way forward (in the final days of home delivery of milk, dairies agreed solus access to individual streets in order to make individual milkmens’ routes profitable), a practice that might cause issues with the competition authorities, nowadays…

A radical business model?
However, for radical thinkers, the way forward may be via a significant scaling down of store sizes and numbers to better match a shrinking need for physical presence as online increases. With less physical overheads, the average retail margins of 25% could be used to fund home delivery, thereby evolving a new retail model that fully acknowledges a future balance of online and physical retailing.

Otherwise, Amazonian third party online retailers will emerge to take up the space, profitably… 

Pop-down shops – where train-dodging vendors and shoppers move fast, or else…

                                                                                 vid: Daily Mail
This open air Thai market needs quick wits - because eight times a day a train comes crashing through.
Just seconds before it is a bustling open-air marketplace with stallholders and shoppers haggling over the price of produce.
Then vendors pull back awnings and produce off the railway track, and afterwards restore their ‘pop-up’ shops, as if nothing has happened...

Getting away?
For NAMs who like an active holiday, Maeklong Market is in Samut Songkhram, Thailand, around 37 miles west of Bangkok. (Best book one-way, just in case...)

UK application?
Apart from some regulatory issues, Health & Safety would figure highly, not because of lack of stall-holder flexibility, but mainly due to unreliability of train timings…
Have a hyper-reactive weekend, from the Namnews Team!

Just a virtual Hut?

Following the success of Amazon, it is unlikely that many will underestimate the potential of The Hut, especially given the direct involvement of Terry Leahy and now Stuart Rose…
For those who may have been a little distracted by the 7 years preparation for the Olympics, The Hut sells fast moving consumer goods that are non-perishable with high levels of repeat purchase, and premium luxury products with higher average unit sales and strong consumer loyalty.

Investment and backing
The business has expanded greatly since their launch in 2004, and with the help of c£75m (raised over three years from both individual investors such as Terry Leahy and financial institutions).

Key websites
This investment capital has funded the organic launch of websites across a number of sectors including clothing, footwear, bags and accessories plus a number of acquisitions including gifts, health & beauty HB1, HB2, HB3  and sports nutrition, a total of 16 web-sites.
The Hut Group’s huge customer base is split between Consumer, Prestige and Lifestyle with fashion falling under both Consumer and Prestige

Making The Hut real for suppliers 
The issue for suppliers is how to justify treating the Hut as a major customer, with a share of attention and NAM-talent far in excess of its actual size, when many suppliers  allocate resource and talent based on historical size of business.
These same suppliers normally have no problem allocating their best brand managers to embryo products, leaving their lesser talent to maintenance marketing of established brands.

Treating retailers and brands ‘equally’
This all goes back to the need to treat customers as equivalent business units to brands of the same size, never forgetting that in the end brand equity is sacrosanct.
However, if a customer generates 10% of sales and profit, and a brand represents 10% of sales and profit, then surely they require equivalent resourcing, at least… The same holds for potential shares of the business
Finally, if anyone at board level lacking a sales background needs convincing, it might be worth pointing out that a major customer represents a gateway to the consumer, and is in a position thereby to concentrate or dilute the brand message, depending on how well it appears to fits with the store offering…

The Hut is already too real to either ignore or short-change in terms of resourcing…  

Underestimating a 26% CAGR customer in a flatline zero-sum world…

With a vision ‘to be the earth’s most customer-centric company; to build a place where people can come to find and discover anything they want to buy online’, the problem in many categories is that Amazon’s vision is becoming reality, fast.

Walmart-like origins

Essentially, having started trading in 1994, Amazon has grown fast, and in relatively low profile to its current global scale of US$48bn, growing over the four years of the global financial crisis at a CAGR of 26%, producing a net margin of 2.2% and an ROCE of 9.06% in fiscal 2011. In other words, serious customer-centric retailing, from a standing start, rather like Walmart - only faster - with an EDLP platform that seems to retain its excitement for consumers, everywhere.

Customer-level assortment
Amazon is raising not only the online commerce bar, with all of its potential efficiencies, but is also going to the heart of state-of-the-art retailing, providing much more than store level assortment. It is, in effect, tailoring the offering to individual consumer level, better than any other provider.

Convincing colleagues, fast
Our free analysis of Amazon’s business model aims at helping you build an in-house case to raise its profile within the business. We have also added a key-point treatment of the wealth of insight available within Amazon’s 2011 Annual report to help you explore the implications for your categories.

Finally, if still in any doubt about Amazon’s impact on your business, think 50% of most categories in the next 5 years, and see if that provides an appropriate wakeup call…

Walmart, P&G QR-Code Initiative, the back-story...

Yesterday’s NamNews’ most downloaded news-item raises some interesting implications:

• This month-long initiative features virtual "pop-up" QR stores at Chicago bus stops and a "food truck"-style mobile hub in Manhattan, featuring P&G products was led by P&G, but in reality attempts to drive sales to Walmart’s online facility
• This innovative combination of mobile, social and real-time commerce appears to be an attempt by Walmart to neutralise Amazon’s increasing dominance in urban areas, a place where quick delivery is more convenient than access to big-box retailers
• (Amazon: think €36bn sales, growing at 46% p.a., 1-click purchase and ‘instant’ delivery…compulsive!)
• For P&G, a way of getting large packs into the hands of consumers, ultra-conveniently…
• ….apart from the peripheral impact of some extra on-street advertising in high-traffic urban areas..

Do you think the WM/P&G initiative is the shape of things to come?
In fact, which supplier-retailer combination will be first in the UK?  

Unilever And GSK use of NFC: key potential pay-offs for enabled-stakeholders

Starting with 325 six-sheet digital poster sites in Reading, the key potential lies in the simplicity and scalability of NFC.

With over 130,000 poster sites in the UK, each offering an incremental route-to-consumer as each poster site becomes a new retail outlet, with advertisers gaining access to additional consumers data (name of NFC-enabled users, location, and shopping history) at ‘point-of-purchase’.
Advertising gains  

For advertisers, the combination of the low ‘chipping-cost’ of each poster with the ability to offer instant gratification gives a whole new meaning to impulse purchasing.

Moreover, the user-feedback data can be used to build ‘super-local’ highly accountable promotional campaigns using media-rich, high quality content that can only serve to drive store-level assortment for those retailers (and their suppliers) that want to stay in the game.

(For those unwilling to wait, yet needing some relative response details, some recent US data on the combined use of Bluetooth, WiFi, QR Codes and NFC to promote hotel room booking may help).

All told, it would appear that this new potential will only be limited by the availability of NFC-enabled phones and a possible privacy backlash if not handled carefully..
Raising the competition bar

For traditional retailers and brand owners providing only a token response to the savvy consumer’s need for individual attention via localised offerings, there is a real danger that their NFC early-adopter competitors may take NFC as the new ‘normal’, while traditional players insist on using up those bulk-buy mountains of  old posters and leaflets that seemed such a bargain only yesterday…

A home delivery service using local independent shops?

If you don't have time to visit the butcher, the baker and the fishmonger, someone else can do it for you

Growing fast, Hubbub was launched 12 months ago and now uses more than a dozen shops and six delivery vans (bright yellow ones – watch as they crop up everywhere soon). Currently it just serves an area of London which stretches from Kentish Town, via Islington and Hackney to the City, but the plan is to roll it out across the whole of the capital early this year and following that, the rest of the UK.

The clever bit about Hubbub is that if you log on in, say, north or west London, you will be only be served by the shops in your immediate vicinity, so you will be directly supporting your local businesses.

Scale issues remain but once they achieve critical mass, this has got to  be a winner, surely worthy of some support from suppliers and retailers..?

Bringing impulse to the masses, online (literally)

Sugar rush hour from Bianca Consunji on Vimeo.

Alex "Tracks" McFarland, 25, makes $150 a day selling candy on the D train, illustrating the fact that cuts in public services may give rise to the formation of alternative, irregular service networks...

A new study indicates that tax evasion is more about a combination of the shadow economy, taxation and the institutional setting than tax rates alone. In other words, the integrity and efficiency of the public sector is connected with the shadow economy because a more honest and proficient bureaucracy increases the probability of catching tax dodgers. In addition the cuts in public services may give rise to the formation of alternative, irregular service networks.

Others may simply see the shadow economy as an alternative and very efficient route to consumer..

Alternatively, a nice little weekend earner for KAMs?   

Have an income-boosting break, from the NamNews Team!
Source http://andrewsullivan.thedailybeast.com/

Opportunity or Threat?: Charity re-brands donated counterfeit clothes

Every year customs and trading standards spend a fortune on storing fake clothes while waiting for a court decision, and then once the items have been proved to be fake the authorities have to fork out further for incineration or landfill costs.

His Church charity has removed all such costs and pass on the high quality goods to some 250 homeless centres and women's shelters across the country, a really virtuous circle….

In fact, the industrial sewing machines they now use to patch over pirated labels were recently given to them by UK customs officials, who had seized the machines from criminal gangs who were using them to create counterfeit clothing (see vid)

In just six years, His Church has managed to convince 90% of British Trading Standards authorities to hand over all the fake designer clothes they seize to them.

A Threat for brand owners? Technically a removal of demand in the market, but the target audience is not in the market, and the goods are rebranded…

For the big thinkers, an Opportunity to avoid waste and do some good, below the radar, almost… 

N.B. ...and not just clothing (see van logo in pic above)

Thrifty US shoppers trade grocery aisles for grocery auctions

The growing popularity of grocery auctions — which sell leftover or damaged goods from supermarkets, distribution centers and food service suppliers — comes at a time when people are stretching their grocery budgets by using more coupons, buying inferior cuts of meat, and choosing store brands over national brands.
The increased interest has fueled growth in the auctions, which can be found in at least nine states from Oklahoma to New York.
Apart from the moral issues re making food more available to those in need, 'past-sellby date' grocery auctions indicate a need for branded suppliers to somehow 're-enter' the distribution process, possibly via a shortening brand code-life.
If not, suppliers run the risk of damage to brand equity caused by the growing disparities between advertising-induced expectation of the brand and the consumer's experience upon opening the box…