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    Published on: June 19, 2014

    This commentary is available as both text and video; enjoy both or either … they cover the same topic, but are not identical. To see past FaceTime commentaries, go to the MNB Channel on YouTube.

    Hi, I'm Kevin Coupe and this is FaceTime with the Content Guy.

    I'm coming to you this morning from Denver International Airport, where I'm on my way someplace, as I often am. Being here has gotten me thinking about the announcement last week by United Airlines that it is changing the criteria of its frequent flier program, rewarding people based on the amount of their ticket rather than the number of miles that they fly, and offering better rewards to people in higher levels, such as silver, gold and 1K fliers. It is a decision similar to one made by Delta, and American is said to be moving in this direction as well.

    While the move has gotten mixed reviews in the press, I completely understand the impetus behind it. When you think about it, isn't this what every loyalty marketing program should endeavor to do - reward the people who are your best customers and who spend the most money with you? A supermarket loyalty program, for example, would not reward people who go into the store twice a day, if they only spent a few bucks there each time; no, they'd reward the person who goes once a week but spends $100 or more each visit. This makes perfect sense.

    I'm certainly not going to complain, even though I think it is likely that I'll be getting fewer miles in the future. I've been doing this a long time, and I get treated reasonably well by the airlines because of it. (I've been married for 31 years, and Mrs. Content Guy would suggest that I've been gone for between seven and 10 of them … which, she would also suggest, is the basis for a happy marriage. I think what she really means is that it is the easiest way to be married to me, and I'm hardly in a position to disagree.) There are plenty of other things to complain about when it comes to modern air travel…

    And that's really the point, and why United is getting blowback on its announcement.

    I don't think United has sold this particularly well. They keep saying that this is ultimately good for customers, but nobody really believes them, mostly because it comes in the context of a series of other decisions that seem anything by customer-focused. It isn't just that planes are more crowded than ever - who can blame them for actually wanting to fly at capacity - but rather that they are more sardine can-like than ever, and that they are finding ways to charge extra for pretty much everything. There always are rumors that at some point some airlines probably will begin charging to use the bathroom … and let's face it, when that happens, nobody is going to be surprised. Not really.

    At some level, it seems to me, pretty much all of the airlines seem to be guilty mostly of being so focused on their bottom lines that they're forgetting that to have a truly sustainable business model, they have to take care of the customers who are spending money for tickets. It is the same as a retailer who is so focused on Wall Street that they forget about Main Street … it seems smart in the short-term, but in the long run, the approach undermines the basic premise upon which the business is supposed to be built.

    A lot of executives spend time on airplanes and in airline terminals, and I wonder how often they look around and, instead of complaining, say to themselves, "Do I treat my customers the way that airlines treat their customers? How do I do it better? How do I - God help me - do it worse?"

    They need to ask and answer that question very seriously. It can be the difference between a business that can take flight in a sustainable way, and one that is likely to eventually be grounded.

    That's what is on my mind this Thursday morning. As always, I'd like to hear what is on your mind.

    KC's View:

    Published on: June 19, 2014

    Amazon yesterday, as expected and long anticipated, introduced its first smartphone, dubbed the Fire, which will begin shipping on July 25 and uses - exclusively, for the moment - AT&T mobile service. Also as anticipated, Fire is designed not just to be a phone - in fact, the act of making or taking a call was not even demonstrated at the launch event by Amazon CEO Jeff Bezos - but rather as an instrument designed to seamlessly connect users to the Amazon ecosystem, making it easier to buy pretty much anything that Amazon sells.

    Key to this is what Amazon is calling its Firefly technology, which combines the company's "catalog of physical and digital content with multiple image, text and audio recognition technologies to quickly identify web and email addresses, phone numbers, QR and bar codes, plus over 100 million items, including movies, TV episodes, songs, and products. Simply press and hold the dedicated Firefly button to discover helpful information and take action in seconds." In many ways, Firefly has been created to take the act of showrooming to a whole new level, making it possible and supremely easy to see almost any product in a store - or pretty much anyplace else - and instantly order it up from Amazon. (Presumably, at least for the time being, this will not include books published by Hachette or DVDs produced by Warner Bros., since both of those companies are engaged in pricing disputes with Amazon that have limited the access that customers have to their product lines on Amazon.)

    The new Fire phone also includes something that Amazon calls Dynamic Perspective, which it says "uses four ultra-low power specialized cameras and four infrared LEDs built into the front face of Fire, a dedicated custom processor, sophisticated real-time computer vision algorithms, and a new high-performing and power-efficient graphics rendering engine." What that all means, Bezos said at the launch event, is that Fire "recognizes where a user's head is relative to the device--we use it to offer customers a more immersive experience, one-handed navigation, and gestures that actually work."

    Fire will be sold in a 32GB model for $199, including a two-year contract, or in a 64GB model for $299 with a two-year contract. Monthly buying programs also are available. Amazon also is including a year's free Prime membership with the phone … presumably as a way of making its ecosystem even more seductive to users.

    In an interview with the Seattle Times Bezos said that while Firefly and Dynamic Perspective are important, they are just ingredients in a larger recipe for success. "Those two are very unique and very important, and they will drive people to like the phone. But I think it’s too simplistic to say, 'Is this the feature that’s going to get people to switch?' I would resist that. I think you have to look at the totality of it. We put a huge amount of effort into making this a great phone. What doesn’t work is going up against an established competitor with a me-too product. Our job is to build great products, and then customers get to choose."

    In its analysis, the New York Times wrote that 'for Amazon, a company whose previous devices have had innovative pricing plans that often involved selling devices at cost, the Fire phone’s uninspired price tag is a surprising disappointment. The world needed a great, cheap smartphone. With its huge reach, obsessive dedication to customer service, and a willingness to forgo immediate profits, Amazon seems uniquely capable of delivering such a device.

    "But instead of a cheap phone, Amazon delivered a device packed with many high-end, whiz-bang features. Some of those features may be attractive to people who already love Amazon, but for people who aren’t looking to be hooked so intimately into Amazon’s brain, it’s hard to see what this phone offers over the iPhone, the Samsung Galaxy or any other top-of-the-line smartphone on the market today."

    The Times went on to say that "Amazon’s phone suffers severe shortcomings compared with similarly priced rivals. Its app store doesn’t have anywhere near the number of third-party programs currently available on the iPhone or Android devices. There are more than 200,000 apps in Amazon’s store, but almost all are designed for the firm’s tablets. IOS and Android have app stores approaching a million titles."

    The Los Angeles Times noted that "Amazon faces a major battle to get the attention of consumers, who have overwhelmingly settled on Apple or Samsung phones and have spent years downloading apps and personalizing their devices. The odds of a third player breaking through, as Microsoft has learned with its Windows Mobile phones, is a long shot for even companies with deep pockets. The once-ubiquitous BlackBerry, meanwhile, all but disappeared during the last few years."

    Advertising Age wrote that "it's not yet clear how Amazon plans to market Fire Phone. But, historically, the retailer has given its hardware devices plenty of support. From 2008 to 2012, its ad spending more than quadrupled as the online retailer moved to market its hardware devices -- the Kindle e-reader and Kindle Fire tablet -- and its Amazon Prime paid membership service. Last year, the company reported $3.05 billion in marketing and promotional spending."

    MarketWatch described Bezos as "the new Steve Jobs," adding that "Bezos has artfully broken the media’s code and figured out how to use journalists to keep the public hooked on his company’s pronouncements. Is this a form of media manipulation? You betcha. Successful politicians do it all the time, by feeding fresh news to grateful, scoop-happy reporters on a regular basis."
    KC's View:
    A friend of mine likes to say that Amazon's central goal is to shorten the time between desire and fulfillment; I like to say that Amazon wants to create a path of least resistance between wanting and having. We're saying precisely the same thing, and the new Fire is yet another example of Amazon looking to "make it easier for people to buy stuff," as opposed to aggressively selling things.

    That's what the Dash is all about, and the Fire TV, and the Kindle … and so the Fire phone is just the latest in a series of appliances in this tradition.

    I certainly think that retailers that compete with Amazon - and let's face it, every retailer competes with Amazon - should see this as a potential game-changer. I think that this puts Amazon potentially in an even stronger negotiating position in dealing with suppliers. And I think that even though Bezos suggests that if Amazon does a lot of data tracking it will be transparent to the user, that is to understate significantly the extent to which Amazon will be able to get into our lives.

    The question I'm asking myself right now is, would I get the Fire phone?

    I honestly don't know. I'm using an old iPhone 4S and my contract is up, so I'm in play. I've always been an Apple guy, but I've also always been an Amazon guy. So I'm a little torn…but I do know one thing. In late July, I'm going to find my way to an AT&T store….because this is one item that I want to feel in my hands and play with before I buy it.

    I love technology, but I'm not sure that I want to be a rat in Amazon's maze … at least, not to this extent.

    Published on: June 19, 2014

    An organization called The Reason Foundation, which describes itself as advancing "a free society by developing, applying, and promoting libertarian principles, including individual liberty, free markets, and the rule of law," is out with a new study challenging virtually every rationale behind the laws adopted by some 190 US municipalities either taxing or banning single-use plastic shopping bags.

    Using what it calls "the best data available," the foundation says that "the bans, fees and taxes on shopping bags have a minuscule impact on litter," that "there is no evidence of a reduction in municipal litter or waste collection costs as a result of the introduction of bans, fees and taxes on shopping bags," and that "other environmental impacts are not significantly reduced and some, including greenhouse gas emissions, may increase as a result especially of restrictions on the use of plastic (HDPE) shopping bags.

    Furthermore, the study concludes that "there is likely an adverse health effect from people failing to wash bacteria-ridden reusable bags, the use of which may increase as a result of restrictions on the distribution of other bag types," that "reusable bags are less convenient and, when taking into account the time and resources required to remove bacteria from bags, are very costly for consumers," and that "the costs of plastic bag bans fall disproportionately on the poor."

    The report has come out as California considers a state-wide ban on single-use plastic shopping bags.
    KC's View:
    It is simply hard for me to imagine that if the usage of plastic bags goes down, and fewer plastic bags are then made, that it won't have a positive environmental impact. It just doesn't make any sort of common sense to say so.

    Maybe we're not there yet. Maybe you need 400 municipalities to make this decision to have an impact. Or 600.

    While my sense is that this group hasn't met a regulation that it doesn't reflexively hate, I do think they make a good point about some of the health issues … and maybe a better job has to be done in educating people about these potential problems.

    BTW…I've always said that I'd prefer to have a shift away from one-use disposable bags take place as a social movement, rather than as a result of legislation. But I'm also not sure we can always wait.

    Published on: June 19, 2014

    In the UK, the Guardian is quoting a new Planet Retail report as saying "the company behind the Lidl supermarket chain is set to become western Europe's biggest grocery retailer by 2018 as discounters become mainstream across the continent.":

    According to the story, the report predicts "that the privately owned Schwarz Group, which is controlled by a German multibillionaire and owns Lidl together with the Kaufland hypermarket chain, will overtake French group Carrefour and Tesco to generate sales of €80bn (£65bn) by 2018. Its current sales are around €65bn. The growth will be powered by Lidl and its fellow discounters heading into more high streets, listing more branded products and stocking more fresh food."

    It is anticipated that " Lidl's parent company grow at a rate of nearly 5% a year for the next five years. Rival group Aldi's sales, says the report, will rise by 3.5% a year. In contrast mainstream supermarkets owned by groups like Carrefour, Tesco and Asda will increase sales by less than 2% a year. As a result, Aldi will also overtake Germany's Metro Group to become western Europe's fourth biggest grocer, just behind Tesco."
    KC's View:

    Published on: June 19, 2014

    On Monday, it was reported here on MNB and elsewhere - in fact, pretty much everywhere - that Starbucks had developed a new initiative to help its employees go to college.

    Starbucks CEO Howard Schultz showed up on "The Daily Show" this week to explain the decision and put it in context … and he makes a persuasive case for why the company has stepped in to make college affordable at a time when educational costs are rising and those in charge of public policy seem unwilling and/or unable to do anything about it.

    It is worth watching.

    KC's View:

    Published on: June 19, 2014

    • In a follow up story about Walmart's acquisition of Stylr, described as "a mobile app that allows shoppers to locate clothes in nearby stores," CNBC quotes Gibu Thomas, Walmart's senior vice president of mobile and digital, as writing in a blog post that the deal makes sense because more than half of Walmart's shoppers with smartphones "have powered up their devices while shopping in-store."

    Thomas goes on to say that Walmart is "excited about the opportunity to serve these customers with indispensable digital tools that bring the convenience of online shopping into our physical stores and integrate our online and offline experiences to enable our customers to shop anytime, anywhere."

    As previously noted, this is part of a broader Walmart strategy; Style is the 13th acquisition in three years by the retailer's @Walmart Labs division.
    KC's View:
    Think about the moves that Walmart has to make in order to compete in a world where Amazon's Fire phone exists. This is just the beginning.

    Published on: June 19, 2014

    CNBC reports that "after a series of gaffes entering the Canadian market last year, including high prices and a rushed expansion, Target took to the Internet to issue an apology to its shoppers in The Great White North.

    In a YouTube video posted last week, members of Target's Canada team talk about their excitement to bring the bullseye retailer to the country, only to undergo a series of missteps—and criticism—when it opened more than 100 locations in a year."

    In the video, Damien Liddle, Target Canada's senior corporate counsel, is seen saying, "Maybe we didn't put our best foot forward when we entered into Canada. We had some disappointments when we opened. Certainly we think we disappointed our guests. But here at headquarters and at our store teams we're working really hard to give everybody that unique Target experience."


    • The Associated Press reports that UPS, following a similar move by FedEx, early next year "will consider box size when setting prices for ground shipment of parcels within the U.S. and Canada," a move that could increase prices for its customers. The company is said to believe that "the change will push customers to put lightweight items in smaller boxes that take up less space on its familiar brown trucks, reducing the company's costs."


    • The Charlotte Business Journal reports that Kroger-owned Harris Teeter "is rolling out lower prices at additional stores across its footprint. The grocery chain has expanded its 'New Lower Price' campaign to include stores in Maryland, Northern Virginia, Delaware, Washington, D.C., and three stores in Charlottesville, Va.

    "Harris Teeter says the initiative will reduce prices on thousands of products. The list includes grocery, organic and perishable items — both national and Harris Teeter brands."
    KC's View:

    Published on: June 19, 2014

    • Family Dollar announced the promotion of Jeffrey Thomas to the role of Senior Vice President–Merchandise Operations, succeeding Scott Zucker, who left the company late last month. Thomas has been with Family Dollar for more than a decade, most recently as Vice President – Merchant Services.
    KC's View:

    Published on: June 19, 2014

    I've expressed a certain skepticism about the Instacart personal shopping service business model which prompted MNB reader Joe Elledge to write:

    I only partially agree with your view on instacart.  Why would a traditional retailer or anyone else want to buy Instacart? You do not understand the traditional retailer’s view of home delivery – they resist it because it presents a dilemma (or so they think).  In their minds home delivery either:

    Promises to increase sales – but at a higher operating cost and lower margin in the case of pick in store and deliver to homes,  OR

    It cannibalizes  store sales altogether by fulfilling out of a traditional DC or  “dark store” and delivery to home – thereby sub-optimizing the large capital and operating cost investment in traditional stores.
     
    There are two core issues here:

    Traditional retailers do not see sales from home delivery as incremental but simply shifting or, worse yet, eliminating opportunities for impulse purchase in-store, and

    Traditional retailers are trapped in the mindset that they sell physical products as opposed to being a  service provider – they either do not see the value of the home delivery service or they do not know how to effectively price it.  Essentially – they are “item-price merchants” as opposed to service providers.
     
    If instacart succeeds, it will address both these issues.  Instacart is not burdened with the paradigms of a traditional retailer.   It is a service provider – plain and simple.  But even if it succeeds, I do not see a traditional retailer buying it for the reasons I state above – traditional retailers are not in the service business.  But I, like you, do not think Instacart will succeed.  Instacart is an Amazon without the supply chain.   It is a “bolt on” to traditional retailers versus an entirely new model like Amazon.
     
    If I were a traditional grocery retailer, I would be very insecure about my competitive position.   Any “shopping” that occurs in a grocery store is a matter of happenstance.   People do not shop for groceries.  They pick and replenish like an order picker in a distribution center.    It is tedious, repetitive, and time consuming work.   Instacart is an alternative.  But Amazon will prove that Instacart does not have a right to be over the long term.    
     
    We will see…


    Well, I guess we can add this to the long list of things I don't understand.

    To be clear, though, I think I've been arguing that Instacart's founders may hope they'll be bought by a retailer … I'm not sure it'll happen.



    On another subject, one MNB user wrote:

    Some reflections on Uber: I don’t feel sorry for Taxi drivers and their whole whining about those expensive licenses thing. If you look at the history of Taxi licenses those, like most professional licenses, were created by the Taxi industry (and not the state) as a means of limiting competition. They will claim that licenses did – and continue to -- insure a certain level of comfort and safety. Please. The whole reason Uber is the most valued startup in the history of the world is that the cab experience evolved into one of disgust and danger. Taxicabs are quite literally the foulest smelling commercial experience I encounter – even worse than the bathrooms at Yankee Stadium.



    And, responding to Michael Sansolo's column from earlier this week, one MNB user wrote:

    When you suggest that an iPad with some information can somehow jumpstart our interest in Philharmonic music I shake my head in disbelief. People don’t go because that kind of music sucks--at least according to contemporary tastes. How is telling them when to applaud going to solve that problem? And what kind of potentially successful brand experience must be explained with information on an iPad? But if you’re right about all of this I guess I’ll know where to now find you on a regular basis. Let me know how next season goes!

    And the thing with telling people to put iPads and retail stores, why won’t this go away? Never mind all of the cost and theft prevention issues with ANY device that you put in consumers’ hands, it is still unclear what they bring to the table. Yesterday I shopped for dinner at Whole Foods. My list included: chicken, ginger, garlic, Basmati rice, canned beans, canned tomatoes and ice cream. What could an iPad do that would possible help me? I always get Muir Glen tomatoes because they taste good, and I chose my rice based on size of package. Is the magic iPad going to teach me about garlic? Yes, it could allow me to compare the healthfulness of ice creams. It could. But I would be forced to resist the temptation to scream at it just as I would my Dr. I like Ben & Jerry’s. It is a treat. That is all. As I’ve said before, if your retail experience is so bad that, like Philharmonic music, your customer only goes because your son is in the audience, you have far, far bigger problems to solve than merely sticking an iPad in someone’s hand.


    On the other hand, you could be open-minded about the possibilities … though I suspect that this isn't likely in view of the whole "philharmonic music sucks" approach…




    And, on the subject of GMOs, MNB reader Mike Franklin wrote:

    Why are those, trying to alert others to a perverse focus on a food system driven by a chemically intensive monoculture driven by profits, called fanatics…while those creating the chemically intensive monocultures are called scientists?

    To be clear, when I referred to certain folks as being fanatics, I was talking about the people who wanted to boycott Ben & Jerry's - which is moving to no-GMO-sourcing - because its parent company, Unilever, supports GMA, which is pro-GMO. Boycotting other Unilever products seems fine to me, but not the company that actually is on your side.
    KC's View: