Category: Price5d70aa2269

L.L. Bean's Still Happy Returns

2/23/2018

by David Hagenbuch, founder of Mindful Marketing & author of Honorable Influence

There were three certain things in life: death, taxes, and L.L. Bean’s return policy. We’re now back to two. The iconic outdoor retailer’s decision to rescind its legendary product guarantee has ignited a social media firestorm, but who’s really responsible for the return policy retraction?

Leon Leonwood Bean founded L.L. Bean in Freeport, ME in 1912 to provide a single product: a duck boot called the Maine Hunting Shoe. Over the next 100+ years, the company expanded considerably, both in scale and scope. Despite the great growth, the firm maintained an unwavering focus on quality, backed by a virtually unequaled product return policy.

For more than a century, L.L Bean made a practice of “accepting any return, at any time, in any condition, regardless of the origin of the item.” However, that very liberal largesse came to an end just a few weeks ago when the company announced it would rein in its return policy. L.L. Bean now guarantees its products as follows:

“We stand behind all our products and are confident that they will perform as designed. If you are not 100% satisfied with one of our products, you may return it within one year of purchase for a refund. After one year, we will consider any items for return that are defective due to materials or craftsmanship.”

The company adds that it requires proof of purchase for any refund or exchange, but if customers provide their information at checkout, L.L. Bean will usually have record of the purchase. If not, a physical receipt is needed. In the case of gifts or other returns without receipts, the firm will offer merchandise credit in the amount of the last known selling price, provided that the product is “unused and unworn with the original packaging.”

So, why the change of heart after so many years? According to Forbes, abuse of L.L. Bean’s very generous return policy has been happening for decades; however, the exploitation reached a tipping point in recent years thanks to some particularly obnoxious behavior.

Some people, for instance, found that they could pick-up well-used L.L. Bean items at yard sales and second-hand stores and return them to the retailer for a full-price refund. With the expansion of ecommerce, such unscrupulous behavior has only increased as returns now can be made from anywhere without having to “look a company representative in the eye” when making an appeal.

It’s likely that L.L. Bean’s decision also has something to do with the pressure that so many retailers are now under, especially from Amazon, which has led to many Chapter 11 bankruptcy filings and the promise of even more store closings. Regardless of the specific reasons, L.L. Bean finally decided enough was enough.

Not surprising, many consumers have had a hard time swallowing L.L. Bean’s policy change and no problem voicing their displeasure. For example, one disgruntled customer complained, “Your return policy was the only reason I shopped at #LLBean! I shared your amazing service with friends, colleagues, and more. Now, I'll be sure to suggest they avoid like the plague!”

Others are even more adamant in their claim of personal harm, so much so that they’ve decided to pursue legal action. Victor Bondi recently filed a complaint in Chicago federal court seeking class-action status for a lawsuit against L.L. Bean. The suit alleges that the company is now depriving customers of benefits they had been promised by virtue of the long-standing and heavily-promoted warranty, which had ‘no conditions’ and ‘no end date.’

L.L. Bean likely anticipated that revising its return policy would not be popular, but did it anticipate this kind of backlash? Perhaps it should have, and maybe it could have taken a different tact and/or timeline in communicating and implementing the change. However, was the change itself wrong? As with every Mindful Marketing analysis, there are two filters for answering that question: economics and ethics.

According to Bloomberg, L.L. Bean has seen its rate of “abusive” returns double in the past five so that they now account for a full 15% of all returns. Over that timeframe, those abusive returns cost the company about $250 million.

Against annual revenue of around $1.6 billion, $250 million may not seem like much, but successful companies don’t concede hundreds of millions of dollars unnecessarily, especially when their sales have been “flat for a second straight year” and the retail landscape is increasingly competitive. Furthermore, L.L. Bean had to do something to stem the rapid increase of illegitimate returns, lest even more dishonest consumers try to defraud the company.

But doesn’t the new policy penalize honest customers who bought products with a certain understanding, only to have those terms of purchase changed without their consent or compensation? That’s a fair concern; however, two key factors diminish the argument:

First, L.L. Bean’s original guarantee was not a promise of lifetime replenishment. In other words, there was no reasonable way to interpret that the policy meant customers could buy a product, use it for years and years, then ask for a new one.

Every product wears out eventually. No clothing retailer is responsible for keeping its customers outfitted in pants, hiking shoes, or whatever, just because they once bought a pair from them. If people are looking for an “All you can . . .” option, they should go to a buffet. Interestingly, even such restaurants have restrictions, e.g., you can’t stay in the building indefinitely, and you can’t take food with you when you leave.

Secondly, even with the change, L.L. Bean’s policy is still far better than industry standards. Most retailers allow a couple of weeks or maybe a month to make a return. A few graciously give three months. I can’t think of another retailer that allows a full refund for a full year for no more reason than “I’m not completely satisfied.”

Furthermore, even after a year, L.L. Bean will still allow returns of products that “are defective due to materials or craftsmanship.” So, the company continues to have its customers’ back. Of course, this caveat means that consumers also must show good faith and make a compelling case for the return, not just “I wore it out over 15 years, now I want a new one.”

To use an analogy, many consumers have acted like horrible house guests who have taken advantage of their host’s generosity. L.L. Bean gave some special privileges to those guests, but in return they ransacked the refrigerator, beat up the furniture, and long overstayed their welcome. That bad behavior has forced L.L. Bean to enact some more restrictive but still very reasonable boundaries.

Individuals often react negatively to change, especially when it doesn’t seem to be in their favor. Rationale people, however, can understand why L.L. Bean’s policy change was warranted and how it’s still far better than industry standards. As a result, there should be very little loss in long-term business for the retailer.

In this instance, those guilty of single-mindedness are consumers. L.L. Bean’s new approach to returns checks out as “Mindful Marketing.”

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Beer Belly Briefcase

12/1/2017

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by David Hagenbuch, founder of Mindful Marketing & author of Honorable Influence

Wondering what to get for that guy on your holiday shopping list who doesn’t need anything? How about buying him some belly fat? I’m not talking about a giant box of chocolates or gift cards for his favorite fast food—they would take too long. There’s a much quicker way to give him the perfect paunch.

As the newest edition to the series ‘I can’t believe somebody would make that,’ British art designer Albert Pukies has created a fanny pack called the “Dadbag” that looks exactly like a middle-aged man’s beer belly. It even has hair.

What’s the point of these paunches? In terms of functionality, Pukies says they’re a great place to store “typical dad items, like beer, medicine, a sandwich, wallet, sunglasses, keys.” That’s right, a beer belly that can hold a couple cans of Budweiser, literally.

While the Dadbag is outwardly a practical product, Pukies purpose in creating it was apparently more about image. He claims he was “desperate to have a dad bod” but didn’t want to assume the associated health risks. What’s a “dad bod?” The designer says it’s a term a college student coined a few years ago in describing coeds going crazy over guys with “a nice balance between a beer gut and working out.”

Pukies admits that the Dadbag is “a pretty silly product,” which he originally had no intent to mass produce; however, given the interest the fanny pack has found, he’s decided to explore production partnerships with the idea of retailing the Dadbag for about $30.

If offered, there would be different versions of the bag, as Pukies has prototyped six separate styles featuring a range of skin tones and quantities of belly hair--qualities that caused one potential user to praise the product’s inclusivity. The designer has also demonstrated his marketing savvy by giving each style a distinct name: the Allen, the Derek, the Magnus, the Bobby, the Sherman, and even the sunburned Wolfgang.

So, what should we make of the Dadbag? Obviously, it’s an item to be taken with a grain of salt, not with complete seriousness—Some products are meant to be fun. However, at $30 a pop, it’s not like buying a whoopee cushion, dribble glass, or some other cheap gag gift. Besides the significant cash outlay, there are other factors that just make the Dadbag wrong :

1. Looks Disgusting: Yes, beauty is in the eye of the beholder, but I bet most initial reactions to the Dadbag are a similar “Gross!” Such repulsiveness wouldn’t matter as much were it not for the facts that fanny packs are typically used in public and the hairy belly looks extremely real. So, wearing a Dadbag is like actual inappropriate exposure (e.g., a visible but crack) that no one should have to see.

2. Impractical: I suppose there are still some individuals who buy fanny packs, but it seems that most people prefer other means of carrying their valuables, e.g., pockets, purses, backpacks, etc. Plus, putting a couple of beer cans inside the Dadbag would make for a pretty heavy paunch. All that to say that producing Dadbags is probably not the best use of materials and time, i.e., it’s bad stewardship.

3. Denigrating Dads: As described above, the pack is objectionable for other reasons, but the fact that it’s called the Dadbag makes the offense even worse. Dads have taken exceptional abuse over recent years, including in advertising. They don’t need any more unflattering stereotypes. Yes, I’m a dad, so maybe I’m overly critical, but can you imagine a firm offering a similar product called a “Mombag”? The backlash would be brutal, and rightly so. Dads’ bodies deserve the same respect.

4. In Poor Taste: The Dadbag not only unfairly ridicules fathers, it also makes fun of something else that should be taken very seriously: fat. Many nations, like the United States, battle obesity epidemics that add billions of dollars to healthcare and cost millions of individuals their lives. What makes matters worse is that some other countries can’t get enough food, as many of their citizens live and die undernourished. In sum, belly fat is no laughing matter.

If there’s one potential virtue of the Dadbag, it’s that probably no one will try to steal anything from it. Beyond that benefit, the novelty fanny pack is interesting to talk about but unlikely to achieve significant demand. With that prediction and the pack’s associated social issues, the Dadbag is an unfortunate example of “Mindless Marketing.”

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Silencing the Slurp

11/17/2017

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by David Hagenbuch, founder of Mindful Marketing & author of Honorable Influence

What do you like most about your favorite food: the enticing appearance, the alluring smell, the delicious taste? How about the intriguing noise? Of course, most foods don’t make significant sounds when eaten, and if they do, they’re generally not pleasing ones. Such a sound problem, however, is exactly what a Japanese company has purposed to fix for one of its nation’s staple foods.

Japan is a country of great cuisine that includes sushi, tempura seafood, miso soup, and ramen noodles. So, what Japanese fare is responsible for emitting unpleasant sounds? The noise is in the noodles.

The world is home to all kinds of pasta and noodle-eating techniques from twirling, to stabbing, to scooping. In Japan, the preferred method is slurping, which basically means using chopsticks to start the noodles into one’s mouth, then inhaling.

That approach works well, both in terms of eating efficiency and enjoyment—many Japanese believe slurping is the best way to appreciate the full flavor of the noodles. With slurping, however, comes sounds that some people, namely Westerners, find unsavory. That’s where Nissin’s “noise-cancelling” fork comes in.

That’s right, this Japanese company has developed a piece of flatware, called Otohiko, that aims to eliminate the noise of slurping noodles. How is it possible to silence such a sound? Well, the fork has a highly directional microphone inside its electric toothbrush-looking handle that senses the slurping, then signals an app-connected smartphone to play “a loud, electronic noise that sounds like waves washing ashore combined with futuristic space sounds.”

But, does this technique really eliminate the slurping noise, or does it just cover it up, the way some people try to mask their post-workout pungency with a few swipes of a deodorant stick? As Nissin’s video shows, it’s a little bit of both. Apparently, the company has conducted extensive research of slurps, which has led to the creation of the aforementioned sounds that strategically conceal the slurping beneath the louder swooshes and swishes of the app.

It’s not surprising that a firm found in a nation known for its technological leadership would identify an electronic answer to an ancient eating issue. One might wonder, though, whether the problem is significant enough to warrant such a sophisticated and expensive solution, not to mention whether it really works.

Nissin expects each utensil to retail for 14,800 yen, or $130, which certainly isn’t cheap compared to most flatware. The fork will not be found in any stores, however, unless the company hits a goal of 5,000 pre-orders. Only then will manufacturing begin.

On one hand, Nissin can be commended for its broad cultural sensitivity. Here’s a Japanese company that’s trying to respect the sound sensibilities of Westerners, while allowing its own citizens to enjoy one of their favorite foods to the fullest. The intentions seem noble.

Of course, we also know “the road to . . . is paved with . . .” That’s not to suggest that anything about Nissin’s product is immoral, but rather that consumers’ response to the fork may not be as favorable as the company would hope. Here are three questions that suggest concern about the product’s mass market potential:

1) Will users of the fork be satisfied with a sound cover-up? True, those within earshot, will no longer discern the slurping, but they’ll hear other noises that may also be irritating. Plus, if one connects the new noises to the slurping, ala Pavlov’s classical conditioning, suddenly the manufactured sounds carry the same negative associations.

2) Is the fork a practical solution? Most people don’t want to carry around their own utensils, especially one as big as an electronic toothbrush, to restaurants, etc. Transporting becomes an even greater inconvenience after the fork has been used. Where do you stash a dirty fork? There’s also the issue that if the user’s phone, which generates the camouflaging sounds, is going to be heard, it needs to be placed in the open, with volume turned up, which adds unexpected phone calls and text messages to the list of possible dining distractions.

3) Is the product worth the price? One hundred and thirty dollars is considerable cash to plunk down on an implement that may get very little use. Along those lines, one also might suspect that the same Japanese consumers who prefer to slurp their noodles may want to eat them with chopsticks, not a fork. Maybe, then, Nissin should make noise-cancelling chopsticks instead.

It’s great when people care enough about others to alter their own behavior in order to make someone from another culture feel more comfortable. Nissin certainly seems to have that intent, but unfortunately it’s unlikely that its innovative flatware with find significant success. For that reason, the firm’s noise-canceling fork should be considered “Simple-Minded Marketing.”

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Hurricane Heist?

9/15/2017

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by David Hagenbuch, founder of Mindful Marketing & author of Honorable Influence

As Hurricane Irma turned toward Florida, an angry consumer shared a screen shot of a 24-pack of 16.9 ounce bottled water that Best Source Office Supplies was selling on Amazon for $99.99. Inflating the prices of necessities ahead of an impending natural disaster is a tactic that most people find deplorable, but not everyone. Of course, companies taking that tack rationalize their actions, but certain others also make a compelling case for such price hikes.

Price gouging is "the practice of raising prices on certain types of goods and services to an unfair level, especially during a state of emergency." Although it’s not uncommon for companies to increase prices on goods and services to levels that consumers think are too high, price gouging is different.

Consumers are price gouged when the item in question is something they must have (e.g., food, water), but the product’s supply is severely restricted, often to a single seller, so consumers have no choice but to pay the exorbitant price. In contrast, although the new iPhone X starts at a staggering $999, Apple is not guilty of price gouging because it’s possible to survive without the newest iPhone.

In the case of Hurricane Irma, certain sellers reportedly gouged consumers for water, ice, food, and fuel. One Orlando Shell station supposedly sold regular grade gas for $5.99/gallon and premium for $6.99. Even Disney got into the act: A Twitter user posted pictures from Disney’s Art of Animation Resort, which offered small bottles of water for $2 and juice boxes for $2.69 each. A Disney spokesperson later said that the situation was an isolated incident that had been rectified.

To document such abuse, Florida’s attorney general Pam Bondi set up a hotline that received over 8,000 calls about price gouging, which violates Florida law and is subject to “civil penalties of $1,000 for each violation, and up to $25,000 for several violations within a 24-hour period.” Beyond the legal penalties, Bondi promised violators personal retribution: “I will be saying your name all over national television and telling people not to go to your business ever again if you’re stealing from Floridians and taking advantage of Floridians in a time of need.”

Despite the fact that certain states have made price gouging illegal and most people consider it immoral, some claim that capping prices actually makes situations, like those surrounding hurricanes, worse. Writing for Forbes, Adam Millsap argues that pricing gouging laws are what empty store shelves, not natural disasters. The best thing, Millsap contends, is to let supply and demand determine prices like they normally do.

Similarly, in a New York Times article, Andrew Ross Sorkin states that “several respected economists from the Milton Friedman school of free-market theory” support the argument against price gouging laws because artificially low prices “remove the incentive for consumers to conserve essential supplies,” and they discourage sellers from increasing stock.

So, maybe Adam Smith’s “invisible hand” is the best way to determine supply when natural disasters strike. That belief aligns well with an increasingly popular pricing strategy, dynamic pricing, in which firms like airlines use algorithms to quickly increase prices to whatever level the market will bear. Unfortunately, such approaches also tend to have some very undesirable side effects.

For one thing, higher prices naturally favor the wealthy. That advantage is understandable under normal circumstances: People with more money should be able to buy higher-priced items. In the case of natural disasters, however, it doesn’t seem right to price anyone out of the market for food, water, or other basic survival needs.

Also, there’s no reason retailers can’t impose limits on how much or how many of an item customers can buy. Stores successfully ration items all the time. For instance, a grocery store runs a sale on granola and dictates: “Limit, two boxes per customer.” Likewise, arguments against price gouging laws don’t give people much credit. When asked to conserve, most individuals will limit their consumption for the sake of others.

In addition, the notion that businesses should maximize profits at their customers’ expense is both antiquated and short-sighted. Sure, people may have no choice but to pay ridiculously high prices when they’re put between a rock and a hard place, but they won’t soon forget what it felt like to be treated as a means to an end. Firms that price gouge run a great risk of alienating consumers and ruining their reputations.

On the other hand, companies that show restraint and price “to create shared value,” generate considerable goodwill, especially in the face of a natural disaster. A few firms that bolstered their brands by taking this more enlightened and socially responsible approach when Irma struck were JetBlue, Airbnb, AT&T Wireless, and Martin’s Famous Pastry Shoppe.

It’s hard for most people to know how they will react in the face of life-threatening natural disasters like hurricanes Harvey and Irma. Businesses, however, should know not to take advantage of people in such vulnerable states. Companies that do are guilty of various offenses, and one of them is “Mindless Marketing.”

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E*Trade Encourages Envy

7/14/2017

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by David Hagenbuch, founder of Mindful Marketing & author of Honorable Influence

People often point to advertising as the main influence on individuals’ buying decisions. Certainly ads can be effective, otherwise there wouldn’t be so many of them; however, another major influence on what we buy is other people, e.g., "keeping up with the Jones." E*Trade’s new ad campaign leverages the persuasive power of peers, but is the firm’s two-pronged promotion effective and ethical?

E*Trade bills itself as “the original place to invest online” and “the first to give Main Street the chance to trade like Wall Street.” The company has become well-known for empowering ordinary people to trade like professional stockbrokers. Instead of paying costly commissions, individuals who open E*Trade accounts put down just $6.95 per trade of stocks, bonds, and exchange-traded funds (ETFs), and that fee drops to just $4.95 after 30 trades in a given quarter.

Do E*Trade and similar on-line trading platforms (e.g., Ameritrade and Scott Trade) work? They can, if you know what you’re doing. Online trading is much like do-it-yourself (DIY) home projects. Getting the tools to renovate your own kitchen is easy; using them properly is the hard part. Some, however, have been very successful using online trading tools, like the New Jersey high school student who turned $10,000 into $300,000 in about a year, by buying and selling on E*Trade.

This information provides an important backdrop for E*Trade’s new advertising campaign, as each spot features an unambiguous attempt to pit poor against wealthy. The commercials entice the “have nots” to long for the lifestyle of the “haves.”

For instance, in one commercial a young cubicle-dweller gets blown-off by his much more affluent boss, which launches the young office worker into imagining the extraordinary lives of the exceptionally well-to-do: lounging around lavish pools, hitting golf balls off yachts, doing donuts in super cars, feeding exotic pets, waterskiing behind helicopters, having food fights with expensive edibles. A music bed of “If I were a rich man” from Fiddler on the Roof plays beneath these and several similar clips, all culminating with an arousing call to action: “Don’t get mad, get E*Trade.”

The campaign’s other spots feature different video footage and music but suggest the same problem/solution: Your life is lacking because you don’t have what the rich have, but you can get it all with E*Trade.

What’s been the reaction to E*Trade’s campaign? Adweek gave it the designation of “Ad of the Day” for June 19, 2017, describing the ads as “remarkable,” while adding that the company “stokes rage at the 1%.”

Fast Company’s take was more critical: “By using opulence to sell its investment services, the online broker patches together a plutocratic vision of the American dream, ignoring how entrenched inequality is–and how much more difficult it is to overcome.”

In addition, CNET succinctly summarized the campaign’s ironic prescription: “The rich are awful, so use ETrade to become one of them. That seems to be the logic behind the company's new ad campaign.”

I tend to agree with these analyses and draw my own conclusion about the campaign’s mindfulness through a combination of these points and several new ones. Here are the five unfortunate outcomes I believe E*Trade’s ads inspire:

1. Unrealistic expectations. Certainly people can go from rags to riches by trading stocks, but how likely is it to happen? Making a fortune in the stock market requires considerable skill and some luck—much more than just opening an online account.

2. Envy: Benchmarking helps businesses get better by showing them how they might improve their products and processes. Personal comparisons, however, are often problematic, especially when they involve wishing for what others have.

3. Terminal Materialism: Money isn’t inherently bad; it depends on what one does with it. Many of its uses in the E*Trade ads, however, suggest owning for the sake of owning, vs. buying practical things (instrumental materialism), or using money to help others, e.g., paying for education, creating jobs.

4. Poor Stewardship: Beyond being impractical, much of the behavior the campaign glamorizes is overindulgent and outright wasteful.

5. Inaccurate Perceptions: While some extremely rich people live lives of ridiculous luxury, most are not so crass and careless with their spending. The way they became wealthy was not by being frivolous but frugal. Also, many use their money in ways that benefit others.

Against these points, some may argue that the ads are puffery, i.e., extreme exaggerations meant to be funny and not taken seriously. While some of the scenes are over-the-top, e.g., the all-out food fight among elites, most of the cuts are realistic and certainly could happen, if they haven’t already. For instance, a Google search of “helicopter water skiing” produces over a million hits, including a variety of real pictures and the story of a father who towed his son on water skis with a copter, to the chagrin of others.

Will the E*Trade ads be effective? Probably. As mentioned at the onset, the desire to emulate others, especially in terms of their possessions, is a very powerful one. Consequently, E*Trade’s appeal to become one of the very rich will strike a nerve with many, and the oversimplification of achieving the dream will help induce people to try online trading. As suggested above, however, the campaign rests on a foundation of deception, disrespect, and excess, among other indiscretions, which results in E*Trade earning this return: “Single-Minded Marketing.”

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Is Amazon Bribing Buyers?

6/16/2017

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by David Hagenbuch, founder of Mindful Marketing & author of Honorable Influence

There are many different ways to get people to do things, e.g., ask them nicely, argue it’s in their best interest, or just pay them! There’s not necessarily anything wrong with the last option, unless it’s a bribe, which is what a popular news portal has accused Amazon of offering.

Jason Kastrenakes, news editor for the Verge, chose an intriguing title for his June 13, 2017 article about the enormous etailer: “Amazon is now bribing Prime members to avoid credit card fees.” Bribery is a pretty serious indictment to make of anyone, let alone America’s most prolific ecommerce company. In some situations bribery is illegal (e.g., when it involves foreign officials), and in virtually any context it’s considered unethical. So, what exactly is Amazon up to that has invited such a charge?

Amazon has introduced a new payment option called “Prime Reload” that enables Amazon Prime members to earn 2% Amazon rewards credit each time they transfer money from their checking account to their Amazon Gift Card Balance. To process these payments, Amazon requires a U.S. bank account and routing number, which is to be expected. The program also demands a debit card in order to allow Amazon to “fulfill your reload faster.” Users’, then, receive their 2% bonus whenever they reload their Gift Card balance.

Given there’s no such thing as ‘free money,’ especially in the increasingly-competitive retail sector, it’s reasonable to question Amazon’ motives: Why would a super-savvy, profit-minded company like Amazon, suddenly want to giveaway 2% of every purchase? In 2016, Amazon had sales of $135.9 billion, which means if Prime Reload had been used for every purchase, the firm would have forfeited $2.7 billion for the fiscal year. Relinquishing that kind of revenue doesn’t seem financially sound.

Amazon knows, however, what it’s doing. A key part of the company’s strategy is to avoid costly credit card fees, which average between 2.3% and 2.5% for online businesses where the consumer’s credit card is not present. However, given its size and buyer power, Amazon’s effective processing rate is likely lower, so there probably are advantages beyond avoiding credit card fees.

Another benefit Amazon enjoys via Prime Reload is the temporary use of customers’ deposits in their Amazon gift card accounts. Yahoo Finance suggests that Prime Reload “may encourage people to load large lump sums into their Amazon Balance, in order to ensure they never accidentally pay for an item through their debit or credit card directly,” which would cause them to miss-out on the cash-back bonus. Amazon, then, can act like a bank, earning interest income on this “float,” from the time consumers deposit the money until they spend the excess funds.

There’s at least one other advantage likely to accrue to Amazon through Prime Reload. Yahoo Finance predicts that users of the program will be more likely to make impromptu purchases since “they won't have to do the math as to whether the item is something they can afford. Effectively, it feels the same as having a Gift Card balance ready to be used.” Therefore, Prime Reload might ultimately encourage more purchases from Amazon.

So, Prime Reload seems like a wise financial move for Amazon, but what about the original issue: Does the 2% bonus constitute bribery? This question is particularly relevant to the third/last point—the possibility that customers who participate in Prime Reload will end up purchasing more from Amazon.

The short answer is “no,” that’s not bribery. The main reason is that bribery requires three parties and an agent/principal relationship. Perpetrators offer bribes to agents (e.g., employees) with the hope that they will take actions that are probably not in the best interest of their principals (e.g., employers). For instance, someone says to a purchasing agent, “Here’s $1,000, just for you. I hope your company will sign a contract with our firm to buy its new __________.”

The bribe-brandishing supplier may be offering products that are not the best quality or price; however, the purchasing agent might choose them anyway because of the self-enriching incentive. As such, a bribe pits the interest of an agent against that of his/her principal, thereby compromising the agent’s fiduciary responsibility.

In the case of Prime Reload, there are only two parties (the consumer and Amazon), with no agent/principal relationship—the consumer is both agent and principal. As such, the customer is free to negotiate whatever product-price combination best meets their needs. If the consumer wants to accept a special discount or some other deal from the seller, he/she has the authority to do so, owing no accountability to an employer or any other principal.

Does Kastrenakes really believe that Amazon is trying to bribe Amazon Prime members? Probably not. Beyond the heading, he makes no other mention of bribery, and at the end of the article he says, “[Amazon] is both making a savings and passing some of it along to customers.” So, using “bribing” in the title was likely a somewhat misleading attempt to call more attention to the piece.

The bottom-line is that Prime Reload represents a win-win scenario in which both buyer and seller come out ahead. Furthermore, encouraging more people to use debit cards instead of credit cards may also be good, given that 65% of Americans carry a balance on their credit cards that averages $4,717. In sum, Amazon is helping itself by helping others, which is a key foundation for “Mindful Marketing.”

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Alexa, is this Marketing Mindful?

5/26/2017

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by David Hagenbuch, founder of Mindful Marketing & author of Honorable Influence

“Do these pants look good on me?” If you’ve ever asked a question like that, which most of us have, you probably posed it to a sibling, roommate, spouse, etc. In other words, you asked a real person, not a digital device. Well, technology is tired of being kept out of those conversations; it now has something to say about our fashion sense, or lack thereof.

Amazon, the giant etailer and purveyor of just about everything, recently added to its line of artificial intelligence products a new piece of hardware called the Echo Look, which is able to tell people what to wear, or not wear. The company’s succinct description of the device is it’s a “hands-free camera and style assistant.” Amazon also offers a fuller account of features and benefits on its website:

“With Echo Look, you can take full-length photos of your daily look using just your voice. The built-in LED lighting and depth-sensing camera let you blur the background to make your outfits pop, giving you clean, shareable photos. Get a live view in the Echo Look app or ask Alexa to take a short video so you can see yourself from every angle. View recommendations based on your daily look and use Style Check for a second opinion on what looks best. And, because Alexa is built in the cloud, she’s always getting smarter—and so will Echo Look.”

Amazon already boasts a burgeoning family of Alexa-enabled Echo products ranging from Echo Dots, to the standard Echo, to a new Echo Show. For over two years, hands-free functionality and voice recognition technology connected to the cloud have allowed users to get answers to questions like “Is it going to rain?” and “What’s on my calendar?” So, what’s so special about asking about style?

The big difference is that most, if not all, of the questions Alexa accepts on other devices can be answered with objective information. Reporting the current outside temperature or one’s afternoon appointments doesn’t take judgment; it just requires rapid retrieval of information and accurate regurgitation of facts. However, giving fashion guidance, or any advice for that matter, is a "whole nother ballgame."

Advice is subjective; it’s primarily based on opinion. Granted, that opinion can take factual information into account—the best advice usually does—but the bottom-line is always a judgment call. In terms of clothing, it’s relatively easy to answer objective questions, e.g., “Is this shirt blue or green?” It’s much more challenging to answer subjective ones like “Which shirt looks better on me, the blue one or the green one?” So, how do Amazon and Alexa do it?

The Echo Look website gives some clues, as it says that the device’s Style Check feature “combines the best in machine learning with advice from fashion specialists.” A somewhat more technical explanation is that Style Check uses algorithms. Dataconomy.com (3) provides some helpful explanation of how machines use algorithms to learn, or develop artificial intelligence:

“Machine learning is a type of artificial intelligence (AI) where computers can essentially learn concepts on their own without being programmed. These are computer programmes that alter their “thinking” (or output) once exposed to new data. In order for machine learning to take place, algorithms are needed. Algorithms are put into the computer and give it rules to follow when dissecting data.”

Granted, this description still doesn’t quite explain how technology translates factual information into opinion, but one can imagine that the application of enough decision rules and processing power can eventually allow for the formation of limited expert advice, aimed at a narrow range of easily observable behavior, such as the clothes on our backs.

So, that’s a little about what the Echo Look does and how Amazon does it, but another very compelling question remains—Why? The company offers the Echo Look, with all the features of the standard Echo, for just $20 more ($200 vs. $180). That’s not much more revenue for some significant functionality. Likewise, it seems that the Look could easily cannibalize the standard Echo, i.e., people choose to buy the former instead of the latter. So what’s the rationale for Amazon’s strategy?

As the Wall Street Journal suggests, it’s all about the potential to sell more clothes. Sure, the earnings from the sale of thousands of new hardware devices will be nice, but Amazon is interested in continuing to crack a much bigger nut—the $2.4 trillion global clothing market.

Having purchased online footwear icon Zappos and introduced its own private label clothing, Amazon is already the leading fashion retailer. Last October, Cowen & Co. reported the Amazon was about to surpass the former leader, Macy’s, which has had declining sales. What’s more, there’s potential for Amazon to growth is market share of clothing much, much bigger. According to the Wall Street Journal, the Echo Look also recommends new clothes to its users, which they can buy from Amazon using just a voice command.

Currently, Amazon accounts for a whopping 43% of all online retail sales in the U.S; however, it’s market share of clothing is ‘just’ 6.6%. Analysts at Cowen & Co. expect that share to increase to 8.2% in 2018 and to 16.2% in five years. The Echo Look will likely help drive that growth and perhaps more.

This sales data, past and projected, is informative, but it still doesn’t answer the moral question: Should Amazon or any other clothing retailer market a technology that tells people what to wear? Is the Echo Look and its cloud-based Style Guide software ethical?

Understandably, privacy is a primary concern, especially given the nature of the device: taking rather personal pictures of people, in their homes, and storing them in the cloud. All of this information can be very enticing to hackers, some of whom would even have the potential to commandeer the device’s video camera. An article by Business Insider, however, allays some of these concerns, noting that Echo Look has an easily accessible off-switch, and even when powered on, the device does not listen until it hears a specific “wake” word.

Besides such concerns of creepiness, another problem some may have with the Echo Look is the idea that it’s replacing people: We are not interacting with family and friends if we’re asking a digital device what to wear. That’s a legitimate concern, though, it’s nothing new—for a long time, technology has and will continue to shape our interpersonal interaction. Tech can hurt or help such communication, depending how it’s used. Actually, the Echo Look might alleviate some angst in relationships by handling uncomfortable questions like “How do I look in this?”

Amazon is already very big, and it’s poised to become even bigger with an increased focus on fashion. The firm’s growth has been due to many factors, including that it consistently offers consumers good value. Given an aggressive price point and a feature/benefit bundle that will only get better, the Echo look is likely to continue that tradition, without posing any significant societal concerns. In short, Alexa can call her own style sense a model of “Mindful Marketing.”

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Coliving after College

5/5/2017

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by David Hagenbuch, founder of Mindful Marketing & author of Honorable Influence

With the beginning of May comes the culmination of many college careers and an occasion to ask, “What did you like best about college?” Some may say the social life or athletic events. I’d suggest the academics and instructors, but I’m biased. Did you think of dorm rooms?

The thought of college dormitories may draw a sneer from those who remember cramped quarters that looked and smelled questionable. Of course, people’s perspective of college dorm life is largely a function of their own experience, which can vary greatly based on the time and place. Over recent years, college dorms have gotten much nicer. In fact, some “luxury” dormitories now include outdoor gourmet grilling kitchens, infinity pools, and 55” smart TVs—a pretty cushy experience.

No matter how nice the residences, after spending several years in dorms and finally finishing college, do new graduates really want to continue living in a single room and sharing common spaces with strangers? That’s the time in life when you’re finally able to truly be on your own and enjoy expanded freedom and space. Surprisingly, however, there is significant demand for “adult dorms,” and several companies are capitalizing on the “coliving” craze.

I should preface the rest of this piece by saying that “adult dorms” is the term that many different media have used to describe dorm-like living after college. As someone who works regularly with college students, I certainly believe the term shouldn't imply that college students aren't already adults, because they are.

Although the coliving concept could potentially appeal anywhere, the configuration makes the most economic sense in big cities, where apartment rent is astronomical. For example, the median monthly rent for a 1 bedroom apartment in New York City is $3,400, while San Francisco is a staggering $3,560. It’s not shocking, therefore, to realize that rent as a percentage of income averages 65% in the Big Apple and 78% in the City Bay the Bay.

Companies tapping into the demand for coliving in major U.S. markets include Stage 3 (NYC), Open Door (San Francisco), and WeLive (NYC and Washington, DC). WeLive is a $1.4 billion new venture of WeWork; the company known for shared office space has decided to diversify into shared living space.

What exactly does coliving look like? The description of one market participant’s property provides a window into the world of adult dorms: Common offers “Shared housing for those who live life in common” in three different neighborhoods in Brooklyn, NY, with another planned for Crown Heights, and more on the way for San Francisco and Washington, DC. The company paints the following picture of its Havemeyer housing in the Williamsburg neighborhood of Brooklyn:

“Everything you need to instantly feel at home is included in your membership including fully furnished rooms, linens, free onsite laundry, every kitchen appliance imaginable, weekly cleaning services, high-speed wi-fi, shared kitchen and bathroom staples, all utilities and great friends.”

“We have everything you need to live in community. Head downstairs to our wellness studio to unwind from the day, then to one of our communal living rooms for book club and potluck dinners or sit back and enjoy movie night in the entertainment room. For those quiet moments and stunning sunsets, lounge in one of our outdoor patios or on one of the four rooftop decks.”

Rooms at Havemeyer are not cheap. They start at $1,800/month, which includes all furnishings and utilities, and residents supposedly do not incur any extra fees. When the company talks about sharing, that refers to everything else, including bathrooms; although, for many the ability to easily connect with others is undoubtedly a big part of the appeal.

Stage 3’s Ollie property located on 27th St. in NYC promises “hotel-style conveniences” and has most of the same amenities mentioned above plus butler services from a home manager named “Alfred” who does things like drop off dry-cleaning and pick up prescriptions. Rooms at Ollie rent for about $1,600/month, which reportedly is lower than the areas average studio apartment, which go for $2,000/month.

So, what’s driving demand for adult dorms? There are likely several factors at play. Price appears to be one; although, as the descriptions above suggested, these one-room rentals aren’t exactly inexpensive. However, compared to other housing alternatives for young people trying to make their way in major metropoles, the cost is competitive, especially when factoring in the supplementary services received.

Of course, there’s also the community appeal. For millennials who are used to dormitories and open work spaces at their places of employment, coliving is nothing new. More importantly, many relish the ability to easily meet and socialize with others, which the common living spaces facilitate. A typical apartment renter, in contrast, can feel very isolated. The bottom line is that for most, coliving with peers is a much preferred alternative to moving back into mom and dad’s basement.

So, adult dorms seem to offer a worthwhile value proposition for the right renters. Coliving also appears to be a viable business model, based on the success of the aforementioned companies, as well as their forecasts: The Wall Street Journal reports that WeLive plans to open 70 locations for more than 30,000 residents by 2018. (1) With its community ethos, the coliving concept also seems to support societal values like respect for individuals and stewardship of resources. In sum, this professor gives adult dorms an ‘A’ for “Mindful Marketing.”

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Eating Out at IKEA

4/21/2017

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by David Hagenbuch, founder of Mindful Marketing & author of Honorable Influence

“It’s a big country. Someone’s got to furnish it.” If you remember that slogan, you’re either an advertising geek, a big fan of IKEA, or both. Recently the Sweden-born company known for its simple-design furniture, sold in airport-hanger-sized stores, made a surprising announcement—It’s considering opening standalone restaurants. Add a new slogan: “It’s a big country. Someone’s got to feed it.”

Seventeen-year-old Ingvar Kamprad founded IKEA in Sweden in 1943, as a mail-order business. He began selling furniture in 1948, opening his first physical store ten years later. The company, now headquartered in the Netherlands, owns and operates nearly 400 stores in 48 countries and has annual sales of about $39 billion, making it the world’s largest furniture retailer.

With so much experience in furniture over the company’s 74-year history, why would it now want to start focusing on food? Yes, people use some kinds of furniture to store food, and we often sit on furniture while we’re eating, but beyond those things, what’s the connection?

In his classic business book, In Search of Excellence, Tom Peters (1982) concluded that companies should “stick to the knitting,” or focus on doing what they know best and not become too far flung in their operations. Perhaps IKEA execs never read Peters.

However, IKEA already has restaurants in its stores, which are pretty popular. In fact, some people go to IKEA just to eat, which almost sounds like going to a baseball game to get a couple of hotdogs. Actually, it’s quite different.

IKEA’s restaurants are popular for some good reasons. While the menu is understandably small, it offers a nice selection of Swedish-inspired, yet American-friendly, dishes that are apparently very tasty. I’ve never eaten at IKEA, but I’ve often been tempted by the enticing pictures and smells.

Equally important, IKEA prices its restaurant fare very reasonably, just as it does its furniture. For instance, one can buy a plate of Swedish meatballs with lingonberries, seasonal vegetables, mashed potatoes and cream sauce for just $4.99, hot smoked salmon for $6.99, and Swedish waffles for only $1.99. There’s also a kid’s menu with a variety of options for $2.49 each.

“So, the furniture retailer sells some meatballs”—not exactly. According to Fortune, 650 million people in 48 countries ate at IKEA in 2016, generating revenue of $1.8 billion. For comparison sake, that’s about the same as T.G.I. Friday’s total sales U.S. in 2011. In addition, IKEA already has some standalone restaurant experience via pop-up stores it has temporarily run in London, Paris, and Oslo.

The reason IKEA would want to sell food within its furniture stores is fairly obvious. The longer people stay in a store, the more they buy, and a café located inside the store keeps them from leaving when they get hungry. Or, as Gerd Deiwald, head of food operations for IKEA’s U.S.A., says, "We’ve always called the meatballs ‘the best sofa-seller.”

But, why would an expert sofa-seller want to take the risk of peddling food in standalone restaurants? The short answer is “because it can.” More specifically, the company has the wherewithal to do food service well, so it can capitalize on the market opportunity, which will provide another source of revenue and profit.

The move also would help diversify the firm’s product portfolio somewhat, giving it a valuable buffer in the competitive retail furniture market. Globally, much growth in that market is likely to come in China and India—two countries that are often difficult for foreign retailers to penetrate.

Another advantage that IKEA might realize in running standalone restaurants is cross-promotion. It would be shocking if the furniture retailer didn’t use its own tables, chairs, and other dining accessories in its restaurants. So, as you’re eating Swedish meatballs you’re imaging your home with a new IKEA kitchen table set.

But isn’t that a sneaky way of selling furniture—get people to try it out, so they’ll want to buy it? No. That kind of trial is exactly what helps consumers make informed buying decisions. What better way to decide if you’ll like a particular chair than to sit in it for a couple of hours. People aren’t going to buy any furniture they don’t really want, and the restaurants are a good way for customers to get a better idea of what will work well for them.

Should IKEA, then, open a hotel chain so people can try out its bedroom sets? Probably not—at least not until it gets some experience accommodating customers overnight. In the meantime, the company’s significant food service experience and strong brand equity should give it confidence to jump with both feet into the restaurant industry.

It won’t be easy for IKEA. There’s much more culinary competition outside the walls of a big box furniture store. The company also likely will need to make its menu broader and continually update it. Still, if IKEA does open standalone restaurants, they’ll stand a good chance of success, and offer a fine example of “Mindful Marketing.”

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All-You-Should-Eat

3/10/2017

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by David Hagenbuch, founder of Mindful Marketing & author of Honorable Influence

People don’t like limits. We've seen signs of such distaste recently as Sprint, Verizon, and other cell phone carriers have competed to give consumers the best unlimited data plans. If people can use all the data they want for a flat fee, shouldn’t food afford the same option? Of course, many restaurants do offer ‘all-you-can-eat’ alternatives; the question is ‘should eating be endless?’

Olive Garden and IHOP are two national restaurant chains that recently offered specific all-you-can-eat specials. Olive Garden had its “Never Ending Classics,” which allowed consumers to eat all of the spaghetti with meat sauce they could for $11.99, while other entrées, like fettuccine alfredo, lasagna, and chicken parmigiana cost a bit more. For the extra fee consumers could keep refilling with different selections, as well as eat limitless breadsticks and soup or salad.

IHOP’s special was even simpler. For $9.99, customers could consume their fill and more of plain pancakes. The restaurant also offered some other options with finite sides of sausage and hash browns for about the same price. Such tempting treats led some consumers to hold their own hotcake-eating competitions to find which friend or coworker could do the most damage to IHOP’s pancake promotion.

Like Olive Garden and IHOP, TGI Friday’s has employed a limited-time, all-you-can-eat special: Endless Apps. The chain has now decided to make the option permanent, proclaiming “Endless Apps are Back for Good.” So, for the foreseeable future, patrons can purchase an infinite flow of appetizers like BBQ chicken flatbread, mozzarella sticks, and fried pickles for $10 each. Even some sports teams, like the Philadelphia 76ers and the Pittsburgh Pirates, have instituted endless food plans for fans.

The point is, all-you can-eat options are pretty common. In addition to these national players, there are all sorts of local and regional restaurants that provide limitless food for a flat fee. Chinese buffets and pizza buffets are among the most common purveyors. Of course, the purpose of Mindful Marketing is not just to summarize such practices but to answer the ‘should’ question. So again, should restaurants offer all-you-can-eat options?

The main ethical issue this question seems to elicit is that of gluttony: the “excessive ongoing consumption of food or drink.” While we might want to minimize such behavior (“Everyone overeats at times”) it’s worth noting that gluttony has long been recognized as one of the “Seven Deadly Sins,” alongside the likes of greed, wrath, and sloth.

In terms of personal impact, it’s pretty easy to understand how gluttony can be harmful to one physically, e.g., extra weight puts more strain on organs and joints. There also are likely negative social and psychological consequences; for instance, others might not find the gluttony very appealing, and individuals who routinely overeat may not feel good about themselves.

On a society level, the United States continues to face an obesity epidemic, which carries billions of dollars of financial costs. Here are some specific stats from the 2009-2010 National Health and Nutrition Examination Survey, which studied American obesity:

More than 2 in 3 adults are considered to be overweight or obese.
More than 1 in 3 adults are considered to be obese.
More than 1 in 20 adults are considered to have extreme obesity.
About one-third of children and adolescents ages 6 to 19 are considered to be overweight or obese.

Of course, overeating is not the only cause of obesity; other factors like genetics can play a role. Still, “the most common causes of obesity are overeating and physical inactivity.” The question that remains, then, is whether all-you-can-eat options bear some responsibility for this overindulgence.

In my book Honorable Influence, I identify “encouraging overindulgence” as one of the “Seven Sins of Influence” that marketers must avoid. More specifically, I suggest eight questions that can help determine, in a specific situation, whether the marketer is abetting excessive consumption:

Are non-marketing factors unlikely to be encouraging overindulgence?
Is the overindulgence widespread among members of the market?
Are the market’s consumers particularly prone to overindulge?
Are the market’s consumers especially susceptible to marketing influence?
Do members of the target market have difficulty affording the product?
Does one-time consumption of the product represent overindulgence?
Does the product have addictive properties or non-satiating tendencies?
Do specific marketing tactics explicitly promote overindulgence?

The idea is that “yes” answers indicate the marketer may be to blame, whereas “no” answers suggest that consumers are responsible for their own excesses. As I consider these questions for all-you-can eat restaurants, I find myself answering “no” nearly every time, for example:

No, non-marketing factors are likely to be encouraging overindulgence. For instance, people often eat meals out with others, and if one person goes back for ‘thirds’ or loads up on luscious desserts, others are more likely to follow suit.
No, the overindulgence isn’t necessarily widespread in the target market. Many people who go to buffets or other all-you-can eat restaurants show restraint and eat reasonable amounts.

The one question that does give me some pause is #8, not for every all-you-can-eat restaurant but for a few that do things like Captain George’s in Williamsburg, VA does. Captain George’s puts out a truly spectacular spread that it touts as one of the “Top 12 All-You-Can-Eat Seafood Buffets in America!” The restaurant also charges adults $34.99 for the opportunity to partake in the overwhelming selection.

So, what’s the problem? When a person pays more than three times the price of the average Chinese buffet, one feels especially obligated to keep eating—I know from firsthand experience. Early in our marriage, while vacationing in Williamsburg, my wife and I dined at Captain George’s on the recommendation of others. At one point we were about to leave, but we talked ourselves into staying and eating more because we had paid so much for the extraordinary eating experience. We finally stumbled out of the restaurant in pain from having consumed too much.

Did Captain George’s force us to forgo restraint? No, we fed ourselves more than we should have. At the same time, though, the restaurants’ product and pricing tactics really encouraged this kind of overindulgence. I’d bet that many people who dine at Captain George’s make the same “gut-wrenching” mistake we did.

Still, I maintain that Captain George’s is more the exception than the rule. In most all-you-can-eat restaurants, it’s significantly easier for people to leave before they’ve overeaten because they’ve paid much less. Our family sometimes goes to a Chinese buffet that charges about $9 for lunch. The food is great, and when I start to feel full, I have no problem calling it quits because I believe I’ve already gotten good value in the exchange.

Yes, there are some unprincipled marketers who do things that hurt consumers, but most marketers understand the idea of mutually beneficial exchange and take their customers’ best interests to heart. As consumers, we are also accountable for our own consumption. Sometimes that means not eating everything we could. Ultimately, this means that all-you-can-eat options can be “Mindful Marketing.”