JC Penney's experiments with pricing and holiday season discounting

Around a year ago, JC Penney's CEO Ron Johnson announced their 'Fair and Square ' pricing policy, to wean customers off discounts and move towards a three-tiered pricing strategy that focused on 'Everyday Low', 'Monthly' and 'Best' price levels. This was supposed to reduce the number of annual promotions from 590 to 12, thereby simplifying the shopping experience (and allowing customers to 'shop anytime on their terms'). In August, they moved completely to an Everyday Low pricing scheme.

The strategy seems to have failed...last week JCP announced that their sales have dropped 26% year on year for Q3 and have dropped 23% year on year for the first nine months. Even the online business seems to have shrunk significantly (37% year on year in Q3!). It is burning through its cash reserves and may need to raise capital soon.

In the backdrop of these bad numbers, JCP announced that they will not be using holiday season discounting this year, choosing instead to hand-out 8 Million buttons that allow customers to get freebies. Shoppers can redeem the buttons online for a chance to win one of 20 million gifts by entering a unique code located on the back of the button at jcp.com/Christmas. On Black Friday, 100 vacations to U.S. destinations will be awarded, including trips to Los Angeles to see a taping of JCPenney spokesperson Ellen DeGeneres' show. One additional trip will be awarded each day through Christmas Eve, along with gift cards, holiday certificates and merchandise.

However Ron Johnson also announced that they will offer the company's lowest prices on Black Friday and Cyber Monday.

All this begs the question: Is JCP doing the right thing on the pricing strategy front? What else can it do before it exhausts its cash reserves?

1)  While Everyday Low pricing may be a great idea in grocery and household purchases, it may not be such a great idea in apparel because customers have different price perceptions for different brands. If most customers prior to January 2011 were drawn to stores by the discount sales on the jcp brand, they are unlikely to change their behavior abruptly. JCP needs to conduct focus groups and surveys to understand the pricing preferences of their customers (since their current understanding of their customers' preferences seems to be flawed). While modeling apparel sales using price data, we always model the 'price effect' (the effect of the effective discounted price) and the 'sticker effect' (the effect of the X% off sticker). An item marked at everyday $15 price may have lower sales than if marked at 25% off from a $20 price.

2) JCP needs to aggressively continue the store-in-store concept which seems to be working well for them.

3) They need to sign up good designers to design exclusively for them (like Target does).

4) The JCP website needs a major overhaul:

• The landing page has fewer merchandize displayed than most other apparel websites. While the uncluttered look may suit Apple stores well (with its limited range of products), it does not suit an apparel website very well. 
• The quality of in-image zooming is much inferior to the out-of-image zooming in other apparel websites. 
• Finally, the checkout page does not have recommendations for 'People who bought X also bought Y" which is usually very useful while purchasing clothes

Let me know what you think

Will Windows 8 hybrids kill laptops and ultrabooks?

Most PC companies are lining up tablets, hybrids and Touch-screen ultrabooks using the Windows 8 and Windows RT operating systems to be launched in October 2012 (click here for a Technically Personal article on the topic).

I wonder whether the Windows 8 hybrids will kill the Ultrabooks category? and what will happen to good old non-SSD laptops?

While I think that there is ample room for tablets and hybrids, I still think that Ultrabooks, non-SSD laptops, and even desktops will survive for a while. Here's why:

• Price: While few companies have given any indication of pricing, Samsung has announced a $1,199 price for the Series 7 hybrid (11.6" screen, Intel Core i7, 4 GB Ram, 128 GB SSD) and a $649 price for the Series 5 tablet (11.6" screen, Intel Atom, 2 GB Ram, 64 GB SSD). These are significantly higher  price points compared to today's Ultrabooks ($700-1000), non-SSD laptops ($200-700) and desktops (even lower). The tablet is priced lower than the current generation of high-end tablets (64 GB iPad at $699), but with bigger screen, and more memory.

• Screen size: There is a significant segment of corporate workers that do need a screen bigger than 14" for their work. I am sure 14" hybrids will eventually be announced. However I expect the price points to be much higher.

• Emergence of the touch-screen Ultrabook: HP has announced yesterday (click here) that it will be launching the Spectre XT TouchSmart (15.6" touch screen, with NFC for $1,399) and an Envy Ultrabook 4 (14" touch screen Ultrabook). This sub-category seems like a compromise between touch-screen, media-creation using keypad and large screen size. I personally don't see why many folks wanting a fixed keypad would want a high-priced touch screen. Imagine stretching out and touching the screen to consume media while the keypad is still fixed to the computer...too un-ergonomic :-(

For these reasons, I feel non-touch Ultrabooks, non-touch non-SSD laptops and the good old desktops still have ample market potential. Of course, I do expect the price war going on in non-SSD laptops and desktops to soon affect non-touch Ultrabooks... which means even better deals for consumers!

Let me know what you think!

What should Best Buy do to survive?...part deux

I blogged recently about Best Buy's problems and what I think it should do (click here).

Best Buy has come up with a new branding, service and store layout strategy in June (explained here in an Ad Age article).  Their new tagline is "Making technology work for you". They will change store layouts to aid customer decision making using Central Knowledge Desks, and will move the Geek Squad to the front of the store.

I recently read a Fast Company article by David Brier, a brand identity expert, about Best Buy's branding (click here). Here are some excerpts of the article:

Best Buy, your culture is about unloading inventory, not helping the customer. Taking a page from Apple’s retail strategy by adding “Central Knowledge Desks” will not replace doing something real and authentic. My personal experiences unfortunately have not changed what is inbred into your culture.

But let’s get more fundamental: That slogan is not only tired, it is a death sentence that is bland, old, worn, uninspired and not reflective of a single strand of your customer’s aspirations. It reeks of “marketing speak” and “committee-itis.”

The strongest brands stand for something as well being opposed something else...

• Apple is opposed to technology that sets the rules and asks people to adapt; it champions technology that adapts to the needs of the people.
• Nike stands for athletic achievement and is opposed to sitting on your ass.
• Dyson stands for no loss of suction and is opposed to stagnant complacency, first making obsolete the old guards of vacuum cleaners and then doing the same with their own technological solutions.

.. Best Buy, what do you stand for? Also, what are you opposed to? Until you answer those questions, the likelihood of rising from the ashes is grim at best.

Only after answering those questions can you honestly determine what to sound like, what to look like, what your design aesthetic is, and why anyone should care.

And if the best you’ve got is “Making technology work for you,” then the likelihood anyone will care is very slim.

 I tend to agree with David that a brand needs to clearly communicate what it stands for and what it does not. It is one of the essentials of clear differentiation in the customers' minds.

So how should Best Buy differentiate itself (and communicate what it does and does not stand for)?

As I discussed in the previous post, I think services should be a key part of Best Buy's revival (and survival) strategy. I feel, they should be saying "We sell, install, maintain and replace (if broken) technology devices. We do not  just stock the devices and leave it up to you to figure out which product you need, and handle the shipping, unwrapping, installation, maintenance and replacement of the device (unlike our competitors)."

I think "Making technology work for you" does capture parts of this message (and in this sense I disagree with David's assessment). Maybe Best Buy can do better by reinforcing the full extent of the differentiation message in their commercials.

Let me know what you think.

What should Best Buy do to survive?

Best Buy just announced a bad Q2 (click here). Same store sales are down in the US and significantly down internationally. Their operating income has shrunk 87% on falling margins and rising SG&A. Their services, mobile and tablets sales are the only bright spots in a fairly sad story on declining TV, gaming and computer sales. Even the shutting down of stores does not seem to have enabled them to stem the tide.

Here are excerpts from their earnings release:

FISCAL SECOND QUARTER PERFORMANCE SUMMARY
(U.S. dollars and square footage in millions, except per share and per square foot amounts)
	Three Months Ended
	Aug. 4, 2012		July 30, 2011		Change
Revenue	$10,547		$10,856		(3%)
Comparable store sales % change1	(3.2%)		(3.8%)		60bps
Gross profit as % of revenue	24.3%		25.4%		(110bps)
SG&A as % of revenue	23.1%		23.0%		10bps
Restructuring charges	$91		$0		N/A
Operating income	$33		$260		(87%)
Operating income as a % of revenue	0.3%		2.4%		(210bps)
Diluted EPS from continuing operations	$0.04		$0.39		(90%)
Adjusted (non-GAAP) Results2
Operating income	$124		$260		(52%)
Operating income as a % of revenue	1.2%		2.4%		(120bps)
Diluted EPS from continuing operations	$0.20		$0.39		(49%)
Key Metrics3
Total U.S. big box retail square feet	41.0		42.6		(4%)
Revenue per square foot (Domestic segment)	$857		$846		1%
Adjusted operating income per square foot (Domestic segment)	$41		$45		(9%)
Adjusted return on invested capital4	11.1%		10.7%		40bps

Fiscal Second Quarter 2013 Highlights

• Domestic comp store sales decline of 1.6 percent improved compared to fiscal first quarter decline of 3.7 percent 
• Domestic estimated market share maintained year-over-year 
• U.S. big box square footage reduced by 4 percent year-over-year; Domestic revenue per square foot up 1 percent year-over-year 
• Similar to the first quarter of fiscal 2013, International segment year-over-year operating income decline driven primarily by lower revenue in China, Canada and increased competitive conditions in Europe 
• Domestic segment total Services category revenue increased approximately 6 percent 
• Momentum grows in Domestic services with key partnerships announced recently: AARP, Verizon and Target  
• Domestic segment online revenue growth of 14 percent 
• Domestic segment connections growth of 11 percent 
• Domestic segment mobile phones comparable store sales growth of 35 percent 
• Domestic segment comparable store sales growth in tablets, mobile phones, appliances and eReaders more than offset by declines in gaming, digital imaging, televisions and notebooks 
• Adjusted (non-GAAP) Domestic segment year-over-year operating income decline driven primarily by lower gross margins in computing, mobile phones and televisions 

Best Buy today announced GAAP net earnings from continuing operations were $12 million, or $0.04 per diluted share, for the three months ended August 4, 2012 compared to net earnings from continuing operations of $150 million, or $0.39 per diluted share for the prior-year period. 

Revenue

	Three Months ended Aug. 4, 2012						Prior-Year Period
($millions)	Revenue		Change YOY		Comp. Store Sales		Comp. Store Sales
Domestic	$7,803		(2.2%)		(1.6%)		(4.1%)
International	2,744		(4.7%)		(8.2%)		(2.8%)
Total	$10,547		(2.8%)		(3.2%)		(3.8%)

The Domestic segment comparable store sales decline of 1.6 percent was driven by declines in gaming within the Entertainment revenue category, digital imaging and televisions within the Consumer Electronics revenue category and notebooks within the Computing and Mobile Phones revenue category. These declines were partially offset by comparable store sales growth in tablets and mobile phones within the Computing & Mobile Phones revenue category, the Appliances revenue category, and eReaders within the Consumer Electronics revenue category. The Domestic segment online channel revenue grew 14 percent compared to the prior-year period.

The International segment comparable store sales decline of 8.2 percent was driven by the lower growth in consumer spending in China and the continued impact from the expiration of government sponsored programs, which negatively impacted sales in Five Star. Market softness in notebooks, digital imaging and home theater in Canada also contributed to the International comparable store sales decline.

Gross Profit

	Three Months ended Aug. 4, 2012
($millions)	Gross Profit		Change YOY		% of Revenue
Domestic	$1,896		(6%)		24.3%
International	668		(9%)		24.3%
Total	$2,564		(7%)		24.3%

Domestic segment gross profit decreased 6 percent, reflecting a rate decline of 110 basis points compared to the prior-year period. The Domestic segment rate decline was primarily due to three factors. In mobile phones, connection growth and a mix into higher price point smart phones resulted in strong comp sales and gross profit dollar growth, although at a lower overall rate. Second, industry softness in computing resulted in increased promotional activity in the quarter to stimulate consumer demand ahead of the second half of fiscal 2013, which will include the Windows 8 launch. Finally, there was less favorable product mix within the television category.

International segment gross profit declined 9 percent, reflecting a rate decline of 130 basis points compared to the prior-year period. This rate decline was driven by Best Buy Europe and due primarily to increased mix of lower margin wholesale sales and promotional activity within a price competitive environment for mobile phones.

Operating Income

	Three Months ended Aug. 4, 2012
($millions)	Operating Income		Change YOY		% of Revenue
Domestic	$83		(65%)		1.1%
International	(50)		n/a		(1.8%)
Total	$33		(87%)		0.3%

What should they do to survive the onslaught of online retail (and the show-rooming effect) and of discount retailers?

I think the following measures would make sense:

• Continue to aggressively expand the services business by extending tie-ups to a wider range of partners (much like their VZ, TGT and AARP alliances). Become the preferred service partner for as many telecom and cable companies, and computer/ TV manufacturers as possible so that customers look to Geek Squad irrespective of the brand of device or service being consumed.
• Improve online buying experience. Bestbuy.com does not have a good recommendation engine ("People who bought this product also bought Y", "People who viewed this product bought X"), unlike Amazon.  Also BestBuy.com should clearly state its free shipping policy and clearly highlight the value of the store pick-up option.
• Continue to close down unprofitable stores
• Focus more on small kiosks at airports (mp3 players, DVDs, headsets) and on smaller store formats -- these locations have lower SG&A

Let me know what you think!

Pricing issues for Abercrombie & Fitch

I had blogged 3 years ago (click here) about why Abercrombie & Fitch should consider using selective (and end of season discounts) to increase volume so that it does not have an inventory pile-up. Most of the world might have considered me silly for saying that... A&F was hot, had raging sales growth and industry-high margins.

After 3 years, I hear this from a Reuters article in May 2012 of its Q1 report:

Abercrombie & Fitch Co (ANF.N) posted a sharp drop in profit and its first quarterly decline in sales at established stores in more than two years, leading to concern that a growing inventory could mean future discounting.

Its shares fell 13 percent to touch their lowest in more than two years on the New York Stock Exchange.Same-store sales, or sales at stores open at least a year -- an important measure of retail growth -- fell 5 percent in the quarter, and the teen clothing retailer forecast a tepid year ahead.

"While management didn't quantify international comparable sales ... we estimate total international comparables were down double digits," Paul Lejuez, an analyst with Nomura wrote in a note to clients. He noted this was the first negative quarterly comparable sales for the company's Hollister brand in Europe.

Net sales rose 10 percent to $921.2 million, but even that missed estimates.
Abercrombie said it ended the quarter with inventory up 44 percent, against the 10 percent rise in sales. Lejuez said that could signal more markdowns were on the way.
Abercrombie said margins were expected to improve throughout the year, but if it had to resort to discounting while rivals were selling clothing at full price, it could affect margins.

Earlier this month, American Eagle Outfitters Inc (AEO.N) raised its profit expectations for the first quarter sharply as it sold more clothes at full price.
Most clothing retailers, especially those that cater to teens and young adults, were expected to post strong sales for the first quarter as wardrobes were updated for spring breaks and warm weather.

For the first quarter that ended April 28, Abercrombie earned $3.0 million, or 3 cents per share, compared with $25.1 million, or 28 cents per share, a year earlier.


In Q1, ANF was holding 56 days of sales in inventory (the actual number is higher considering that I use cost of inventory and price of sales). Its gross margin has reduced to 62.5% (down from 66% 3 years ago)...but still significantly high compared to industry average.


According to this AP report:
Abercrombie & Fitch announced in June that it was closing 180 U.S. stores over the next few years. The chain had already closed 135 under-performing U.S. stores in two years. The closure will primarily be among its namesake and kids brands but it also plans to close a few Hollister stores as well. 

I will be watching their Q2 results on Wednesday to see how this story develops.

Customized database marketing for Indian e-commerce

Most of the players in the Indian e-commerce market are losing money.

My friend, Sanjay Dattatri has blogged about the challenges facing Indian e-commerce (click here). As he points out, Indian consumers are price-sensitive, dis-loyal and ill-behaved. I tend to agree with him.

As Sanjay points in another blog post, pricing sanity needs to prevail (click here). I agree with him on this one as well.

I do think that e-commerce vendors in India need to adopt a more customized approach to marketing and pricing. After all, aren't online marketers supposed to know all about their customers' buying behavior, browsing, email response (and customer care calls).

Why give the discount to all your customers when the reality is that some customers value your brand and superior delivery performance (and couldn't care less about the few rupees extra for that). The vendor can give a golden treatment to these price-insensitive customers by giving differential free shipping terms, and loyalty points. Some players like indiaplaza and healthkart do have a loyalty program.

On the other hand, one cannot lose out on selling to the price-sensitive customers, who will switch on a better deal available somewhere else.

The only way out is customized database marketing.

In my opinion, e-commerce vendors need to stick to the following rules of customized database marketing:

1) Target your discounts at customers who are likely to shift their purchases from your competition to your website, when given a discount. Examples of these customers include:

• Customers who bought a regular purchase like clothes, or diapers, or books, or groceries or nutritional products many months back and have not purchased since. I was delighted to see that healthkart sent me a  customized coupon code for whey protein 6 months after my first purchase. They avoided giving the discount to everyone as they know they have targeted a potential buyer. The key is to send out a customized coupon code which works only with the specific customer's login.

• Customers who have browsed a particular product or a category for a long time and not bought that product/ category. This can be done only when the customer is browsing with his cookie activated, and the e-commerce vendor is smart about tracking browsing behavior. A classic example would be a books-buyer browsing a mobile phone product page, getting a customized offer. My recommended approach would be to price the product at slightly higher than competition for the masses, and to give a discount coupon to customers who browsed and did not buy. (Quick programming note to vendors: Please don't send discount coupons for lingerie to men who are just browsing. But for that you've got to read the next point.)

2) Get to know more about the customer (even though you may know nothing to begin with). I get shocked when online retailers say that they deliberately have no information about their customer other than their user ID, name and shipping address. As a trusted seller you should try to get more information about the customer. Incentivize customers to update their profile online (such as gender, date of birth, marital status, interests, etc). The Payback program (called imint earlier) did that when they transitioned. When you know that you are dealing with a single guy who has never bought women wear before, you can stop sending him lingerie ads and coupons. Also some interesting things you can do with demographic data:

• Promote Gudi Padva to Maharastrians, and Onam to the Keralites and Eid to Muslims (irrespective of where they live)! -- if you can classify names by mother tongue and religion
• Promote kids items to families with kids

3) Send personalized recommendations/ suggestions, by putting yourself in the customer's shoes. Most e-commerce vendors are using formulaic recommendation engines which give recommendations based on the customer's last purchase. Ideally the recommendation engine should be based on the basket of goods purchased by the customer in the last 6 months.

Also, the recommendation logic needs to be altered for capital goods purchases (mobiles, electronics) vs. regular purchases (books). A mobile phone buyer does not need recommendations on what other similar mobile phones to buy! However a book buyer may appreciate recommendations on which other similar books to buy. For the mobile phone buyer, a list of accessories which go with his/her phone may be useful, but a formulaic recommendation engine may not capture that.

More later...let me know what you think!

Is Windows 8 doomed?

Mr Hampton of Bronte Capital published a blog article called "Changing my mind on Microsoft" .

He opines that Windows 8 will be a failure because it does not adapt to the usage behavior of different usage situations (tablet, desktop, phone):

Windows 8 was to serve a dual purpose. It was to be above all a pad operating system - one that doubled as a desktop operating system. You were going to be presented with bunch of tiles - the functional equivalent of Apple's app icons. If you used it as a pad it would have the limited functionality of a pad.

However you could take the pad, put it on a docking stand and use it with a keyboard and mouse as a desktop computer. This solves a lot of problems.

(a) it offers a distinct improvement over existing pads which are not very good for content creation. I cannot see myself editing a video on a pad or writing a blog post this long. But hey - I could with a plug-in-keyboard and mouse,

(b) it offers enterprises a chance to take their existing enterprise software and make it mobile. For example if a customer relationship system runs on Windows you could - without much further development - make it run on a Windows pad. This means there would be no incentive to redevelop it using (say) Python to run on iOS.

(c) it gets a large number of people used to the Windows system. There is a lot of human capital developed in using computer systems - trying to change - even Windows to Mac or vice-versa costs a lot of time as you work out how to say copy a file to an external hard drive or from a camera.

(d) it leads you to a world where the pad has some computing power - but if you need more grunt you connect it to a docking station in turn connected to a fast internet connection and you put the power in a cloud and rent the power out by usage. A world of semi-smart terminals - a pad if not docked, a super-computer if docked.

But the combined desktop interface has a big problem. Because desktops and pads and phones do different things they have different interfaces. A windows, icons, mouse and pull down menu interface has a venerable history because it works.

He also feels that Microsoft is losing its hold over developers:

The Microsoft virtuous circle is now dead. Two related things killed it: the rise of platform agnostic developer tools and the rise of alternative operating systems (Linux for servers, iOS and the "Big Cat" series for Apple, Android).

To my way of thinking the platform-agnostic developer tools came first - though this is a chicken-and-egg problem. The first really important platform-agnostic tool was Java. Programs written in Java run on Linux computers precisely the same way as they run on Apple computers or Microsoft computers. If you developed something on Java you could run it anywhere and you thus undermined the Microsoft virtuous circle.

Developing things for Java became widespread when people downloaded programs (applets really) from the internet. The person writing the applet had no idea what the customer computer set-up was and so had to write in a platform-agnostic fashion. Interactive Brokers for instance writes its software to run on Java - and they do this because it is a complex piece of software that has to run on many different flavours of client computer.

Over time Python developed as an even more important platform agnostic developer tool.

Nowadays nobody under thirty writes anything on Microsoft developer tools unless they are demented or brain-dead. Firstly the kids out of the colleges know the platform agnostic stuff well. Secondly when half the computers leaving factories either run iOS or Android (that is are smart-phones) nobody sensible will write in a way that does not allow easy porting to these platforms.

Microsoft's developer tools business and the customer lock it created has had a bullet through the brain. The body is lying on the floor - and most the users who have never developed anything and did not know that there even was a developers tool business have not noticed the blood-soaked victim.

I agree that Windows 8 may find a limited number of takers in the 'always-at-home' consumer market. However I feel that office goers will find good use for a product that docks to their office desktop (and can run enterprise applications), can be used as a portable for corporate presentations and can be carried on the subway ride back home to consume media. 

On the developer front, I feel that there is still a fair number of .Net programmers out there, and it is too early to call the doomsday on Microsoft.

What do you think?

RIM faces GRIM future?

I had blogged about what RIM should do about its flagging smartphone business (click here).

Looks like it was a timely blog post. The senior management of RIM have appointed bankers to search for 'strategic alternatives' (click here for NY Times article on the topic).

In addition to the PC makers without a smartphone/tablet presence, I think facebook might take a hard look at RIM too. They have some ambitions in the smartphone business and their market valuation (despite the recent drop) is many times that of RIM.

Whither Blackberry?

Samsung and Apple are winning the war of smartphones (through different strategies...Apple through a single elegant phone built on its proprietary OS and Samsung through a rapid launch of a  slew of multiple sized devices built on Android). The chart above is taken from a recent Time article.

In the meanwhile, RIMM (and its Blackberry) are losing traction rapidly. Its share of worldwide smartphone shipments dipped from 13.6% to 6.7% in a year's time! Looks like their attempt to get the general populace into the Blackberry Boys' club has not worked.

Given that most folks replace their phone every 2-3 years, RIMM could quickly lose its installed base around the world.

What should it do now?

I suggest the following options:

1) Open up Blackberry Messenger (BBM) by tying up with Yahoo and Google so that Blackberry users can message any Yahoo Messenger and Google user (and vice-versa). BBM is still the big draw for many die-hard Blackberry fans.

2) Woo VoIP developers (such as Skype) to develop a VoIP application for Blackberry OS.

3) Figure out a way to marry BBM and Blackberry email with the Android platform. RIMM will gain access to the myriad of apps for the Android platform and Blackberry users will love RIMM for it.

4) Sell the company to any leading PC manufacturer (HP, Dell, etc) who are lusting for a position in the smartphones/ tablets space. RIMM has relationships with leading mobile carriers around the world. This is a big asset for any newcomer (or marginal player) in the smartphones business. Though this is a drastic move, RIMM is trading at just 6 times earnings and can get a good premium by selling.

Digital Attribution: Moving beyond last-click attribution

Happy Easter/ Good Friday!

I read a Google Analytics paper  (click here) recently about digital attribution and how most advertisers are unhappy about last-click attribution but yet 54% continue to use last-click attribution.

For the uninitiated, attribution is the process of assigning credit for a favorable outcome (e.g., a sale, click on a request for more information, registration to a mailing list, etc) on a website to the various sources that led the visitor to the website. The complication arises because a visitor may click on a search ad on her first visit, a banner on her second visit, and eventually buy during a visit initiated by an organic search. How would you attribute the sale to these different sources? Last-click attribution is a technique where the last source leading to the favorable outcome gets all the credit. Most people agree that's a dumb way of looking at the digital/multi-channel/ multi-device world (but are doing precious little about it).

Attribution is important because it allows the advertiser to correctly price the value of a keyword (on a particular search engine) or the value of TRPs on a network TV ad or the value of a banner on a particular social media website or the value of an affiliate lead. The accuracy of the value computation will become a source of significant competitive advantage in the emerging digital and multi-channel era.

Some smart folks have moved beyond last-click attribution to give weightage to sources contributing to visits leading up to the favorable outcome. My question is : How do you know that your attribution technique is working?

My suggestion is that the advertiser should test various attribution techniques to understand the pricing of various keyword-engine, banner-publisher, TV TRP-creative combinations using data over recent time periods using these alternative techniques. the technique that yields a statistically stable estimate of pricing should be chosen.

The other thing that an advertiser should do is analyze the contribution (to a favorable outcome) of a first visit, the last visit, a visit in the last n days, etc by type of source (Search Engine, Publisher, Social media website, affiliate, etc) using a decision tree. This will help understand typical patterns of visits leading up to the 'successful' visit.

Amazon launches as Junglee.com in India! Is it a big deal?

Amazon launched as Junglee in India earlier this week. It is a price comparison site for various merchants to list their products and provide prices. Already quite a few significant Indian vendors (homeshop18, indiaplaza, healthkart, uRead, bookadda, etc) have listed their products on the website.

So, with the brand name of Amazon, one would think this will be a major development in the Indian online market. Right?

Well I don't think so.

Amazon has launched this price comparison site (and not an ecommerce website) only because Indian law prohibits 100% foreign direct investment (FDI) in multi-brand retail. Foreign investors who want to own Indian retail operations (e.g., international private equity firms, foreign internet retailers) have typically invested in the 'supply chain back-end' operations of retailers or in 'wholesale cash-and-carry' operations. Amazon apparently is not interested in playing such games.However let's be clear that Amazon will launch its own store-front in India the very day that Indian government allows FDI in multi-brand retail.

Given that scenario, it is likely that Junglee is only an attempt by Amazon to learn about the Indian ecommerce market and understand the price sensitivities of the Indian consumer. They are also getting pricing information freely from their competitors !! I assume many of the sellers listed would only be too happy to be acquired by Amazon when the time is right.

However some of the bigger players in the Indian market (flipkart, snapdeal, dealsandyou, fashionandyou, yebhi, myntra, etc) seem to be staying away from Junglee. They seem to understand the threat of giving structured pricing data to their future competitor.That is why, Junglee is unlikely to be a great force in the Indian e-commerce landscape.

Current Alexa rankings for India:
snapdeal 26
flipkart 30
homeshop18 124
Myntra 153
koovs 186

infibeam 208
indiaplaza 284
Junglee 533

While these rankings are based on 3 month averages and Junglee is likely to rise in rankings over the next 3 months, there is also a honeymoon effect which is likely to wane (also as buyers see lot of items with only 1-2 sellers).

My bet is that Junglee will make it to top 200 within the next 3 months, but will not generate as much traffic as the leading Indian e-commerce sites.

The big fuss about 'big data'

There has been growing interest in the idea of big data in the past few years. Indeed as McKinsey wrote about 'big data' (Read here) in May 2011, there has been an exponential rise in data available to businesses for taking better decisions. Indeed there will be a shortage of big data analysts in the US (and much of the Western world).

However in the growing swell of interest in big data, I find all sorts of companies and people talk about their data as 'big data'. This brings me to think: "How big should a dataset be to qualify as 'big data'?"

According to Wikipedia: "In information technology, big data^[1] consists of datasets that grow so large that they become awkward to work with using on-hand database management tools. Difficulties include capture, storage,search, sharing, analytics,and visualizing. This trend continues because of the benefits of working with larger and larger datasets allowing analysts to "spot business trends, prevent diseases, combat crime."Though a moving target, current limits are on the order of terabytes, exabytes and zettabytes of data.

To me,it is not just important how big the data is, it is critically important how fast the data is generated and how fast it needs to be analyzed.

As this blog article from ikasoft correctly puts it:"The answer is not "Now the data is big" -- the answer is "Now the data is fast!"  Google didn't become Google because their data was big -- Google went to MapReduce so they could keep growing the number of sites-crawled while still returning results in < 100 milliseconds, and now they're going to Google Instant because even 200 milliseconds isn't fast enough anymore.   Consider all the action we're seeing today in NoSQL data stores -- the point is NOT that they are big -- the point is that apps need to quickly serve data that is globally partitioned and remarkably de-normalized.   Even the best web-era app isn't successful if it isn't fast."

To me, only companies who generate terabytes of data every second (Google, Linkedin, facebook, twitter, Akamai, Yahoo, etc) are truly in the age of 'big data'. Companies who have terabyte+ databases over a year's time period can still stick to their RDBMS databases (and should quit calling themselves 'big data' companies).

Would love your thoughts!

Cold winter for Indian apparel retailers

Many Indian apparel retailers are offering discounts ranging from 40% to 60% three weeks ahead of schedule this season (newspaper article). Sales have been impacted by 20-30% due to higher excise duty taxes and higher cotton prices which have led to a 10-15% rise in product prices.

Could this situation have been foreseen by the retailers? Are they too late on the buzzer? One can only say that apparel retailers will do well to use BI and analytics better to track sales shortfalls in real time and adjust pricing before everyone else realizes that a slowdown is on.

From an analytical perspective here's what they could do:
1) Price elasticity studies and market surveys to understand the impact of 10-15% price rise on demand
2) Markdown models that advise the retailer on how much the price should be discounted if a particular sales target is not met in the early weeks/months of the season.

These are especially relevant in the Indian market since the festivals/ holiday periods occur in the middle of the season (e.g., Divali) and dates vary year by year. Retailers need to be very nimble to adjust prices quickly if festival/holiday targets are not met.