Direct Disruption: The Tide Wash Club

The Wall Street Journal: “Blindsided by the success of the upstart Dollar Shave Club, an online subscription service that chipped away at the dominance of Gillette razors, P&G executives say they are focusing not only on what consumers buy but on how they buy … P&G is experimenting with … the Tide Wash Club, an online subscription service for the dissolvable Tide Pods capsules that are the company’s highest-priced laundry detergent. The company offers free shipping at regular intervals.”

“Another new offering: Tide Spin, an undertaking P&G is calling the ‘uberization of laundry,’ in which customers in parts of Chicago can use a smartphone app to order laundry pickup and delivery from Tide-branded couriers. With the ventures, P&G is delving deeper into the business of connecting consumers directly with the products it makes, especially a new generation less loyal to the company’s big brands.”

“Privately, P&G executives acknowledge the company was caught off guard by the success of Dollar Shave Club, which started in 2011 and says it now has 3.2 million subscribers. ‘It was probably on the radar but we weren’t necessarily having the right conversation around what might disrupt us,’ said a person familiar with the company’s thinking.”

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Amazon Is Dropping List Prices

The New York Times: Amazon “built a reputation and hit $100 billion in annual revenue by offering deals. The first thing a potential customer saw was a bargain: how much an item was reduced from its list price. Now, in many cases, Amazon has dropped any mention of a list price. There is just one price. Take it or leave it.”

Larry Compeau, of Clarkson University comments: “They are trying to figure out what product categories have customers who are so tied into the Amazon ecosystem that list prices are no longer necessary.”

“In some categories, like groceries, Amazon seems to be using just one price, the buy-it-now price. If Amazon brings the milk and music into your house, not to mention videos and e-books and the devices to consume them on, as well as a hot dinner and just about any other object you could want, that presents a pricing challenge of a different sort. Untangling what those deals are worth — as opposed to what they cost — is probably impossible.”

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When Payless Means ‘Pay More’

The New York Times: “Rummage around on the Payless site and you will find little about refueling rules. But two weeks ago, another of the company’s livid customers — and there are many on sites like Consumer Affairs — said she was charged $79 for a fill-up, although she returned the car with the tank full. Why? She was told that she did not meet two criteria: ■ She failed to fill up within five miles of the airport. ■ She failed to fill the tank within half an hour of returning the car.”

It obviously doesn’t matter when you refill a gas tank. A full tank on Wednesday is a full tank the next Tuesday. But even the five-mile rule is a gotcha. A Nissan Versa, part of Payless’s compact fleet, gets 31 miles per gallon in the city, 40 on the highway. So let’s say that on average it gets 35 miles per gallon. That makes five miles one-seventh of a gallon. A gallon of gas now costs about $2.30, according to AAA. So five miles of gas costs about 33 cents. Payless, in other words, will charge drivers for a full tank — in this case nearly $40 — if the company spends more than 33 cents to top off the tank of a Nissan Versa.”

The five-mile rule “does not apply at Avis or Budget, which are part of the same company, the Avis Budget Group, that owns Payless. (Come out and wave to the people, Chairman Ronald Nelson.) Asked why Avis and Budget don’t use such a draconian standard, the spokeswoman explained it is because ‘Payless is a low-cost provider’.”

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The Swiffer Effect: Walmart & Procter Butt Heads

“Wal-Mart, the world’s largest retailer, and P&G, the world’s biggest consumer-goods company, are increasingly butting heads as both try to wring more revenue out of their slow-growing businesses, The Wall Street Journal reports … A battle last year over the popular Swiffer mop suggests the tensions aren’t likely to abate soon. P&G’s consumer research revealed that existing packages weren’t large enough to prompt repeat purchases, and so it upped the number of wipes in a pack, improved the handle and increased the price … Around the same time, Wal-Mart introduced a less expensive store brand, irking P&G.”

“To settle the matter, P&G had to offer a temporary discount on the company’s Swiffer products. Not only did P&G employees worry about lost sales, they believed the store-brand refills were of a lower quality and would stop first-time Swiffer users from sticking with the habit. ‘They sell crappy private label, so you buy Swiffer with a crappy refill,’ said one of the people familiar with the product changes. ‘And then you don’t buy again’.” A Walmart spokesman said: “Our Great Value products provide a quality alternative for customers looking to save money.”

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Price Trap: Beware the Amazon ‘Buy Box’

The Washington Post: “Researchers at Northeastern University tracked pricing of 1,640 of the best-selling products on Amazon’s site over four months. In particular, they were examining what prices were featured in what’s known as the ‘buy box,’ the area on the right side of an Amazon product page that invites you to add an item to your cart … It has been estimated that about 82 percent of sales on Amazon are made through that box.”

“Amazon relies on an algorithm to determine which seller ends up in the buy box for any given product … the process is significantly more likely to give that spot to sellers who use real-time pricing, in which software is used to automatically optimize prices on the fly based on what competitors are charging.”

“Here’s why that matters: Most sellers using that kind of pricing model don’t have the lowest prices on the site. In fact, the researchers found that 60 percent of those that use real-time pricing have higher prices than other sellers of the same item on Amazon. Most of the time, the price difference is about $1, but … researchers found ‘many’ cases where the price difference was in the $20 to $60 range.”

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Treasure Hunt: The Joy is in the Journey

The Wall Street Journal: “The internet isn’t just a way to speed up the shopping experience; it is a tool to draw it out. Consumers enjoy the anticipation of a big-ticket item, in contrast to the quick fix that comes from an impulse purchase at an inexpensive, of-the-moment fashion chain … The result of all this due diligence: Shoppers are feeling much more satisfied with their purchases.”

“Stylitics, a fashion technology and analytics company, partnered with market research firm NPD Group to look at this behavior. Handbags are a natural fit for this thoughtful approach, as women seek to combine fashion with function. The study found roughly four in 10 women ages 18 to 34 said they started thinking about their most recent handbag purchase more than a month in advance. Six in 10 said browsing online stores was a major influencer in their handbag shopping.”

“Once shoppers go through the drawn-out process and make up their minds, they are happier. Handbag return rates at luxury online retailer Net-a-Porter are among the lowest across the site.”

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Upgrade Downgrade: Bad News for Apple’s iPhone

The Wall Street Journal: “The death of the two-year cellphone contract has broken many Americans from a habit of routinely upgrading their smartphones … Citigroup estimates the phone-replacement cycle will stretch to 29 months for the first half of 2016, up from 28 months in the fourth quarter of 2015 and the typical range of 24 to 26 months seen during the two prior years.”

“Since the early days of Apple Inc.’s iPhone, most customers have avoided paying for the full price for the latest model. But the success of AT&T Inc. and Verizon Communications Inc. since 2013 in shifting customers into plans that force them to pay the full price for devices—and separate that cost from monthly service fees—has consumers holding on to their devices longer.”

“Analysts see the longer device life as positive for the carriers because it could lead to fewer service cancellations or defections in the competitive industry … The longer upgrade cycle lowers equipment revenue for the telecom companies, but Verizon’s Chief Financial Officer Fran Shammo argued last month that the top-line shift is painless … The shift isn’t as benign for Apple. BTIG analyst Walter Piecyk recently cut 10 million units out of his fiscal 2016 and 2017 iPhone estimates because of shifting upgrade rates in the U.S.”

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Smoke & Mirrors: Online ‘Bargains’ Can Be Illusory

The New York Times: “Boomerang Commerce, a retail analytics firm, compared the list prices of dozens of pet items on Amazon and the specialist pet site Chewy.com. In only a handful of cases did the retailers even agree on what the list price was. So a 22-pound bag of Blue Buffalo Basics Limited Ingredient Grain-Free Duck and Potato dog food had a list price of $131 on Amazon and $84 on Chewy. Yet the retail price at both sites was the same: $49.49.”

“Some e-commerce experts said nothing needed to be done about illusory discounts, because the merchants needed them so much. The process ‘can seem dishonest to consumers, but let’s consider the retailer’s side,’ said Daniel Green of CamelCamelCamel.com … ‘If they weren’t using the list price as the benchmark, what would they use?’ … A few retailers defended themselves in off-the-record conversations by saying there are no victims here. That view got support from a Massachusetts judge in February, who dismissed a case alleging the use of fictitious prices by Kohl’s.”

The judge said: “’The fact that plaintiff may have been manipulated into purchasing the items because she believed she was getting a bargain does not necessarily mean she suffered economic harm.’ For others, however, e-commerce is not living up to its promise of being transparent and pro-consumer.”

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Nickels & Dimes Keep Airfares Low

“Air travelers love to gripe about fees: $25 to check a bag; $34 for early boarding; $129 for a few more inches of legroom,” writes Rafi Mohammed in The Wall Street Journal. “The challenge for this kind of model is managing perceptions … Customers may feel nickeled and dimed, but the a la carte model gives them the option to save money. Theoretically airlines could bake the cost of amenities into the base fare and then offer ‘discounts’ for giving them up. But that isn’t intuitive: Take $9.95 off if you don’t use in-flight Wi-Fi?”

“American Airlines recently charged $22 for ‘preferred’ seating in the front of the cabin—but with no added legroom. Internet access on some flights costs $40. Is this gouging? No, travelers who pay for these extras are subsidizing low fares for the rest.”

“In 2014 airlines generated $38 billion in ancillary revenue, according to a study by IdeaWorks. That money keeps base fares low. And airline profits are far from outrageous. The average net margin for all scheduled U.S. carriers was 4.4% in 2014. Even in the first three quarters of 2015, after oil prices had plummeted, the average net margin was only 14%.”

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Airlines & Flyers View Prices Differently

The Wall Street Journal: “American, Delta and United have new pricing rules that could easily raise the cost of many trips. Think of it as making a six-pack of soda twice as expensive as buying six cans individually.” For example: “For a May 4 trip from Chicago to Des Moines, Iowa, with a May 5 return flight from Kansas City, Mo., back to Chicago, American offers a fare of $522. But if you buy those flights individually, you’d spend $107 to get to Des Moines, then $65 to fly from Kansas City to Chicago, or a total of $172.”

“Airlines look at pricing through a different lens from their customers. Instead of adding up the fare from each flight on a trip, airlines look at each starting point-to-destination trip as its own market. Airlines want the ability to set pricing for a Kansas City-Honolulu trip as a unique product, not simply the sum of flights from Kansas City to Los Angeles and Los Angeles to Honolulu.”

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