Rethinking the Tip Jar

I picked up some coffee the other day at Birch Coffee near our offices and encountered this tip jar (yes, I tipped for LOTR):

Tip Jars @ Birch

Aside from this being a creative way to ask for tips, I am willing to bet that this tactic is more effective than a standard tip jar.  Instead of asking explicitly for money, the staff here cleverly made tipping a game.  It was actually fun to tip the Brich folks, I got to simultaneously vote for my preference.  In it’s own way, this tip is about the tipper as well.

There are so many things in the world of business that are set up and executed without any creativity applied. This inspired me to try to rethink assumptions on monetization with some of our companies.

Retail is Dead, Long Live Retail

There’s a pretty good read in the Economist this week on ‘making it click‘ that convincingly makes the point that the Internet presents little opportunity for retailers.  This is an over-simplification of the point of the article.  The author also discusses opportunities to for traditional retailers to use the Internet and mobile in innovative ways to support their business, but overall it seems like the web is not a home for traditional retailers to make huge profits.

Terry Lundgren, the CEO of Macy’s, claims this isn’t true and that ‘omnichannel’ retailing will remain the future. He contends that catalogs, then tv selling, were both supposed to kill off retailers but never did.

Mr. Lundgren makes some good points, but dis-intermediating traditional retailers from the manufacturing chain is exactly what the Internet is made to do. People go to retailers because they can scoop up a bunch of brands and products from a single location.  This value proposition falls apart when moving from one store to the next is a click away.  I believe Amazon and Google Shopping are slowly proving this out.

I also think there are two contrary ideas when thinking about the web and retailing:

  • There’s no point in having retailers if manufacturers can reach customers directly through the web because there are no opportunity costs associated with moving from one environment to the next, however
  • There is still significant value in curating selections for customers and presenting products in an environment that helps them make good decisions. This was previously the roll of the publisher, but the current online advertising ecosystem doesn’t sustain great content.

There are billion dollar ideas buried somewhere in this sea change.  I think Pinterest is the closest to making a real play in curated commerce an I’m excited to see where it goes.

Segmentation and CRM

I recently had an experience with customer service at Apple that reminded me of lessons I’ve learned on segmenting customers.

My iPhone broke after a few months of use; the home button stopped responding. The last three months in my life have been hectic, so I just worked around the problem for a while.  By the time I got around to going to the Apple store, my warrantee had expired about a month earlier and the sales manager told me it would be $150 to replace it.

At the risk of sounding like a jerk, I spend a ton of money on Apple products. Between work and my personal computing, we have three Macbook Pros, two iPads, two iPods, two iPhones, a Mac monitor and a bunch of peripherals like keyboards, music, in-app purchases, etc. I’ve also been buying Mac products since the late 90s.  As I attempted to negotiate with the genius bar manager, I gave him the inventory list of Apple products that we have, to which he replied “well, we treat everyone the same”.

Really?!?

This is money left on the table in my opinion.  Every non-commodity supplier, not just service companies, should leverage some type of customer relationship management technology and/or processes to ensure that they don’t treat all of their customers the same.

Think about it from the Apple example:

A number of iPhone users purchase a single Apple product which is subsidized by a carrier.   A  lot of those customers will move to Android for their next phone.  Not all of them, but a bunch.  A one time iPhone consumer will gross $600 in revenue for Apple: $200 from the customer and $400 from AT&T. Apple runs a 26% profit margin, so for a one time apple purchaser, Apple will pull $126 in total profits from that customer, then say goodbye.

Assuming that I continue on my current Apple purchasing trajectory, I would probably get a new laptop every three years, a new phone every two, and a new tablet device every few years (let’s say four).  I’ll hopefully be around for a few more product cycles, but just taking the next 20 years that’s about six laptops that we can  round to $2,000 each, ten phones at $600 each and five tablets at about $600.

Assuming that prices don’t rise for 20 years (woohoo!), and using a discount rate of 8% (good luck finding 8% returns anywhere), then my present value in profits to Apple is about $3,000.  

Device
Laptop  $14,000
Phone  $6,000
Tablet  $3,000
Total Revenue  $23,000
Total Profit (26%)  $5,980
Discount Rate 8%
Present Value of me, in profits, to Apple  $2,942

 

 

I’m consistently perplexed as to why companies work so hard to treat everyone the same, especially when they have so much data to work with from existing customers’ purchase behaviors. I made this discount model in two minutes using excel.  Apple has all of this data and is the biggest tech company in the world, but doesn’t bother to do anything with it.

I unwrapped my first Android phone today. It wasn’t an effort to spite Apple, and the reality is that I’ll continue to purchase a bunch of Apple products. With that said, it’s surprising to me that Apple and lots of other companies don’t make better decisions with the ocean of data that they have on their customers.  I believe there are big opportunities for companies that leverage customer data in smart ways and learn to extract full lifetime value.