Alit Crafts Winery Transparency

Quartz: Mark Tarlov’s “plan is to do for wine what Everlane has done for cashmere sweaters: eliminate distributors and retailers to bring what would traditionally be a $60-100 bottle of wine to online customers for a fraction of the cost. Also like Everlane, he wants to upend the status quo by publicly declaring his input costs—crafting the story of how he spends those dollars into an accessible course in wine appreciation.”

“Wine pricing is generally opaque—more an art than a science. But Tarlov clearly lists the input costs for his on Alit’s website, outlining just what customers are paying for when they fork over $27.45 for a bottle of his 2015 Pinot Noir from Oregon’s Willamette Valley.”

“Alit’s Pinot Noir is still more than double the average price for wine purchased in the US—even if it’s relatively inexpensive for a French oak-aged Pinot from Willamette Valley. But Tarlov is telling customers the investment is directly reflected in the product.”

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Constitutional Crisis: Freedom of Promotional Speech

The Wall Street Journal: “For decades (New York State) has barred companies from tacking on a fee when customers pay with plastic instead of cash. A hair salon now challenges that law, claiming businesses have a constitutional right to impose surcharges—and that behavioral economics provides the theoretical foundation.”

“The salon can already give customers, say, $1 off for paying in cash. So why does it want the ability to add a $1 surcharge for paying with credit? What’s the difference? Enter behavioral economics … the salon argues that surcharges are more effective at changing behavior because consumers suffer from a ‘loss aversion’ bias. More customers will decide to pay with cash, the theory goes, if faced with a ‘loss’ (the $1 surcharge) than a ‘gain’ (the $1 discount).”

“The salon argues that the only meaningful difference between the two pricing schemes is what they’re called—and that’s a matter of free speech. Barring the ‘surcharge’ label but not the ‘discount’ label, the argument goes, violates the First Amendment.”

Update: “The justices’ view of the case seemed to turn on where they stood in a rolling debate at the court about how the First Amendment applies to laws regulating economic matters, an issue that generally divides the justices along ideological lines,” The New York Times reports.

“Some of the more liberal justices said that the law was an unexceptional and permissible economic regulation.” Justice Stephen Bryer comments: “What this statute says is, you can’t impose a surcharge… What’s that got to do with speech?” Justice Anthony M. Kennedy counters: “It’s a matter of how the pricing structure is communicated in the speech.”

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Store Check: Why is TJ Maxx Doing So Well?

Editor’s Note: After reading news stories about the struggles of Macy’s, Kohl’s, Sears and JC Penney, I visited a TJ Maxx yesterday (Norwalk, Conn.) to see why it is doing so well. It’s just an ordinary and ostensibly boring strip-mall store. The location is nothing special. The store itself is not new, but it is neat and orderly, well lighted, and well maintained. The sight lines are clear from one end of the store to the other, and the aisles are wide. Racks are marked, by (low) price signage, and all items are also clearly marked, with prices in large digits. Tags include a comparative retail price.

Name brands are easy to spot. A big sign on the wall lets you know that they have the same brands you’ll find at the mall, for less. Lots of displays with attractive, unusual items (treasure hunt). In addition to extensive men’s, women’s and children’s apparel (most of the store), there’s luggage, handbags, household goods, bedding, beauty care, toys, etc. Everything looks like someone just put it back in its proper place.

Oh, and restrooms are marked with a big sign, and the men’s room was not only clean, but decorated. Checkout, bordered by shelves of impulse items, is a single, long, snaky line, but moves quickly. Sure, there’s a world of complexity under its hood that makes the TJ Maxx experience what it is, but to the shopper, its magic is as plain as a sugar doughnut. PS: I do think their logo could use an update.

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Amazon Holdouts: Not ‘Prime’ Customers

The Wall Street Journal: “Seventeen percent of U.S. primary household shoppers … say they never shop on Amazon … While the percentage has steadily declined over the past five years, roughly 22 million American households didn’t use the retailer this year. Those Amazon holdouts tend to be older than U.S. shoppers overall, with an average age of 57 versus 49, respectively … and they tend to earn less—$45,700 in annual income, compared with $62,800 among all shoppers. They are less likely to have or live with children.”

“For some it was their income or living situation, for others it was simply their preference or convictions … Lack of access to web-enabled devices, or living in places where it is difficult to receive packages, are key reasons people avoid e-commerce … Seanna Tucker, a 26-year-old content strategist in St. Louis, said she had never been a big Amazon shopper, but decided to avoid it on principle a couple of years ago after a dispute between Amazon and publishers over book pricing.”

“In recent years, both Amazon and its competitors, like Wal-Mart Stores Inc., have worked to bring more shoppers online and boost sales with membership programs, like Amazon Prime, which provides perks like video streaming and free, fast shipping for an annual fee of $99 … Meg Hoehn, a mother of two and teacher in Minneapolis, said she and her husband used to have a student membership to Amazon Prime but decided against renewing it, in part to become more financially responsible.” She explains: “We bought a ton of stuff on there … It was too convenient and too easy. We spend less money because we don’t have Prime anymore.”

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GNC Addresses Its Prices Crisis

The Wall Street Journal: “In October, the acting chief executive of GNC Holdings Inc. made a confession: The big vitamin retailer had ‘a badly broken business model.’ Its prices were too confusing and constantly undercut by online competitors. Sales were plunging. Behind the scenes, executives had decided the only way to fix things was to start over. So on Wednesday, GNC will close its 4,400 U.S. stores to overhaul its pricing system, which featured as many as four different prices on some labels.”

“When the stores reopen the next day, labels for GNC’s protein powders, herbal remedies and nutritional supplements will feature just one price. There will still be discounts, but about half of the company’s products will start at lower prices than before, while a quarter of the prices will be higher … While heavy promotions, especially during the holiday period, have become a sophisticated calculus, the nature of setting retail prices has become more complex. Online stores can set algorithms to change prices by the hour and nearly every shopper is armed with a smartphone, making the market transparent.”

“At GNC, executives gathered input from outside consultants, ran tests in 10 markets and had to get the support of outside vendors as well as its franchise owners. The company eliminated gaps between web and store prices, moved to end a discount-card program and determined new prices by comparing products it carried against similar ones at competitors.”

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Primark & The Art of Bargain Shopping

The Wall Street Journal: “Shopping at Primark stores, stylish Brits know, requires strategy and skill. As many retailers struggle, the destination for trendy $5 sweaters and colorful $3 T-shirts is planning to expand in the U.S. beyond the handful of stores it currently has in the Northeast. The store doesn’t sell online, but operates in nine countries outside its home in the U.K. and Ireland. Its six U.S. stores include one at the original site of Filene’s Basement in Boston.”

“To visit Primark is to navigate throngs of people. They hunt through crammed racks for jeans that look almost like a pair spotted on the runway but at a fraction of the price, with the fear that they may disappear into another shopper’s arms in minutes … Primark stores are large, and product moves quickly. The largest store, in Manchester (UK), occupies 155,000-square feet over three floors.”

“On a recent tour around London’s flagship Primark store on Oxford Street, David Latham, commercial director of Primark, said products are generally organized into three categories. First, there are ‘basics,’ such as plain T-shirts and undergarments that might go for around £2. Then, there are ‘essential’ items like denim roughly in the £8 range. Finally, there are fashion items, which likely have higher price points and more in-demand looks. He recommended mixing and matching across these three categories. Savvy locals, said Mr. Lathan, come into the store ‘three to four times a week’.”

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Tipsy: The Balance of Gratuity & Value

The New York Times: “The owners of Huertas, a cheerful Spanish small-plates restaurant in the East Village, knew they would have to raise prices when they abolished tipping last December. But when the octopus plate rose to $21 from $16, they looked at the plate and realized another adjustment was needed. ‘We decided to add a tentacle,’ an owner, Nate Adler, said. The extra limb costs about a dollar, but the more substantial dish eased the sting of the $5 price increase.”

“To manage costs without inflicting sticker shock on customers, restaurants have to hunt down every possible savings. At Huertas, where the octopus grew another leg, the kitchen staff has shrunk from six cooks to four or five per shift. At Roman’s in Fort Greene, Brooklyn, the bar is no longer always stocked with organic lemons … The Union Square group, with its deep pockets, has begun buying more items in bulk, like paper towels, laundry services and software.”

Restauranteur Dino Lavorini: “There are certain fixed items — a glass of wine, a bar snack, a cup of coffee — that affect how guests experience the welcome of the restaurant.” At his restaurant, The Modern, “prices of those items stayed where they were, even as others, including those for many bottles of wine, rose by as much as 20 percent.” Nate Adler observes: “Ultimately it’s not about the numbers on the check, but about whether the balance and the value feels right to people as they leave the restaurant. It’s not an entirely rational system.”

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Marlboro Black: A Hit With Millennial Smokers

The Wall Street Journal: “In the five years since Marlboro Black was introduced, it has done a lot to help Philip Morris USA with its millennial problem. About 85% of young adults don’t smoke. Many who do smoke don’t like Marlboro … But Black has breathed life into Marlboro. Since grabbing more than 1% of U.S. cigarette market share in its first year, the brand has helped Marlboro reach an all-time high of 44.1% market share … And it has helped boost Marlboro’s market share among 18- to 25-year-old smokers by 3 percentage points to 46% in 2014 from 2011.”

“Marketing representatives have pushed the brand by handing out coupons for $1 packs of cigarettes at places like Atlanta’s popular underground dance club MJQ Concourse and the Graveyard Tavern, a neighborhood bar. The company also sought to bolster the brand’s urban credibility with digital shorts about graffiti artists, lowrider cars and Chicago city photographers … Jerry Weger, who manages the tobacco business across Sheetz Inc.’s 500 convenience stores, said Marlboro’s “manly man thing wasn’t that appealing” to the younger generation, but the black packaging gave the brand an upscale image that has allowed it to accumulate an estimated 6% to 8% market share at Sheetz stores.”

“Price was key to the brand’s success. Nicole Cichon, a veterinary student at Michigan State University, said she first started buying the brand because a pack cost $5.25, about $1.50 less than the Marlboro Reds she used to smoke. The 24-year old grew to prefer the brand’s less-harsh flavor and its modern marketing.”

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Neiman Marcus Rents a Runway

The Wall Street Journal: “In a strategy that sounds counterintuitive but is a push to bring in younger shoppers, Neiman Marcus has invited the rent-a-dress company Rent the Runway to open locations within its stores … Neiman Marcus hopes that Rent the Runway, which is popular among 20-something shoppers, will serve as bait for a generation that hasn’t taken to department-store shopping the way their moms did … Neiman Marcus executives are also looking forward to collecting shopping data to study how these young dress renters spend in other areas of the stores.”

“The partnership will enable Rent the Runway members to try on clothes in Neiman Marcus stores. Customers will also be able to rent online from Rent the Runway and pick up or return the clothes to a Neiman Marcus … Neiman Marcus executives hope that over time, those 20- and 30-something shoppers will return to buy again and again, becoming the next generation of Neiman Marcus customers.”

“Rent the Runway’s 3,000-foot boutique within the store will have a mix of rentable clothes and Neiman Marcus shoes, bags, jewelry and other items, including underpinnings like bras and Spanx. Stylists employed by Rent the Runway will work with shoppers to assemble outfits, working with sales associates from the department store when needed. There is a cosmetics counter where shoppers can get their makeup done.”

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Toblerone’s ‘Treasonous’ Triangle

The New York Times: “The maker of Toblerone, the Swiss chocolate bar, has reconfigured the unique appearance of two of its milk-chocolate versions, with narrower triangles and a larger gap between peaks … the changes to the smaller one … were so pronounced that Toblerone’s Facebook page was filled with outrage from aggrieved consumers, even though only a relatively small number were likely to be affected.”

“The change, which was announced on the Toblerone Facebook page last month, is in keeping with a common strategy for companies trying to avoid price increases by reducing the contents of a product without changing the packaging. Most consumers are unaware of the changes because the product usually looks and is priced the same — there is simply less of it — but the newer, gappier Toblerone bar felt treasonous to the brand’s loyal consumers.”

“The triangular milk chocolate bar, sold in a yellow package with red letters, has been around since 1908. The founder, Theodor Tobler, combined his family name with ‘torrone,’ the Italian word for nougat, and patented his recipe of chocolate mixed with milk and honey … Mondelez International noted that while the overall look of the bar is different, the recipe remains the same and the chocolate is still made in Switzerland.”

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