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    Published on: October 6, 2015

    by Michael Sansolo

    The Yiddish word chutzpah is described in many dictionaries as audacity, with one favored example being someone who kills both his mother and father and pleads for mercy because he’s an orphan.

    A future definition should include something about credit card companies because when it comes to chutzpah, it’s hard to beat those guys.

    October 1st heralded a new era in credit card chutzpah as every US retailer well knows. Starting on that date, according to the credit card companies, the world got much more secure for customers. That’s when retailers were supposed to switch to reading the special EMV chip on your card and not the mag stripe.

    Now, with your most ironic voice, please say: Really!

    Consider the following from Fast Company about this change:

    “In an ideal world, a well-planned transition would allow merchants the time - and potentially even a price break on the cost of the new equipment - to move from a system that costs banks substantial money to one that's much less fraud-prone. Helping merchants make the move would ensure most of the estimated 8 to 10 million retail locations in America that accept swipeable cards would have EMV readers ready to go.”

    Then comes the kicker: “Of course, we don’t live in an ideal world.”

    Rather, these are our realities:

    • As of October 1 the big shift is that retailers now bear the cost of fraud if they use mag stripe rather than chip readers. But there’s a huge cost in this, which is why Forbes estimates that only 31% of small businesses now have the readers.

    • The best estimates are that 60% of the cards in use still don’t have the chip. That, in turn, is leading to consumer confusion, which is leading to a new explosion of scammer tricks.

    • Plus, there is the universally accepted knowledge in the payment systems world that pin-based cards are significantly more secure than signature-based, which is why chip and pin cards dominate in Europe and other areas. However, in the US, card company marketers have continually pushed the benefit of signature-based cards, which are also the more lucrative transactions.

    • And let’s not forget the history of how we got here, including the relentless competition among the card companies to offer and distribute ever more cards, which in turn led to more fraud; the endless legal battles between retail and the card companies over lack of true competitive practices; and the ever increasing fees to handle transactions.

    I should point out here that when I worked for the Food Marketing Institute (FMI), I was part of several credit card company-related lawsuits, so I have so experience in this area. My bias is both clear and pronounced.

    Normally, when I write these columns for MNB, I try to bring to them a perhaps misguided sense that I can both shed light on the situation and offer a suggestion for a course of action. By that standard, I must confess that this week's column comes up short, because I don't know what retailers can do about the situation.

    To my mind, there may be only one recourse ... and, needless to say, it comes from a movie ... Network, and the words of Howard Beale, written by the great Paddy Chayefsky:

    I want you to get up now. I want all of you to get up out of your chairs. I want you to get up right now and go to the window. Open it, and stick your head out, and yell, 'I'M AS MAD AS HELL, AND I'M NOT GOING TO TAKE THIS ANYMORE!' ... Things have got to change. But first, you've gotta get mad!... You've got to say, 'I'm as mad as hell, and I'm not going to take this anymore!'

    Of course, if we all do so, we all may find ourselves meddling with primal forces of nature ... and we all know how that turns out.

    Michael Sansolo can be reached via email at msansolo@morningnewsbeat.com . His book, “THE BIG PICTURE: Essential Business Lessons From The Movies,” co-authored with Kevin Coupe, is available on Amazon by clicking here. And, his book "Business Rules!" is available from Amazon by clicking here.
    KC's View:

    Published on: October 6, 2015

    The Toronto Star reports that Walmart and 7-Eleven are teaming up in Canada on a six-month e-commerce project designed to appeal to consumers' desire for convenience and find synergies between bricks-and-mortar and online retail.

    According to the story, "Online shoppers at Walmart.ca will be able to have their orders delivered for pickup at one of six convenience stores operated around the clock by 7-Eleven. It’s an extension of a Walmart locker service, currently available at the retailer’s Canadian head office, some of its stores in the Greater Toronto Area and in Kapuskasing, Ont.

    "With the lockers, Walmart customers are sent an email with a six-digit code that remains valid for seven days. It’s one of several attempts by Canadian retailers to use established store fronts as pickup points for goods bought online."
    KC's View:
    I think this points to the path that Walmart almost certainly is going to take in the US as it looks to grow its e-commerce business ... lots of lockers and pick-up sites that it hopes will put it closer to the customer than Amazon is. I still think that Walmart has a lot of ground to make up just in terms of positioning, but the goal has to be an enormous network of pick-up sites that will especially serve its grocery customers.

    Published on: October 6, 2015

    In Minnesota, the Star Tribune reports that Target is delaying its planned makeover of its grocery departments from 2016 to 2017, saying it needs more time to effect the kind of substantial changes it is looking to implement.

    “We want to get it right,” Target spokeswoman Katie Boylan said. “It’s less about how fast we go and more about making sure we implement the right kind of changes. We’re trying to be really judicious in our approach.”

    The paper writes that "the new timeline shows how tricky this project is for Target as it weighs the costs and benefits of trying to differentiate in the food sector.

    "Food is an area of expertise for Target CEO Brian Cornell, who previously held executive posts at Sam’s Club, Safeway and PepsiCo. In April, he hired Anne Dament, whom he worked with at Safeway, to head up the effort as Target’s senior vice president of merchandising in groceries.

    "To help guide the long-term plan, Target has been rolling out a series of small tests in select stores across the country, including the SuperTarget in Minnetonka, which is finishing a $10 million remodeling."
    KC's View:
    We've all seen evidence recently of what happens when companies try to implement a change that they are not prepared for ... you never get a second chance to make a first impression. I can certainly understand Target wanting to wait in order to get things right.

    That said ... it isn't like the rest of the food industry is waiting to see what Target does. The competition will continue to innovate, and that could place Target at a competitive disadvantage.

    Published on: October 6, 2015

    The Organic & Natural Health Association is out with a new consumer research study saying that "1 in 3 consumers do not make a quality distinction between the terms "natural" and "organic" and/or government regulation for products with such labels."

    The goal of the report is to promote the group's immediate goal - the creation of a "voluntary regulatory compliance and certification program for the term 'natural' to be released during the first half of 2016," which would serve to eliminate confusion and create some precision in the use of the word "natural."

    The study goes on to say that "there remains considerable "confusion in the marketplace with the term 'natural.' Common misconceptions include the belief that most vitamins come from natural sources and that 'natural' means no pesticides are used.

    "And while three-fourths of consumers perceive that organic foods must be at least 95 percent free from synthetic additives, almost two-thirds of consumers expect the same standard from 'natural' foods. Further, approximately half of the consumers surveyed believe that 'natural' means the product is free of synthetic pesticides and are non-GMO, attributes that are unique characteristics of organic products."
    KC's View:
    It long has been a truism that "natural" is a useless word in this context ... but I'm not sure that a voluntary program will solve the misuse of the term.

    Published on: October 6, 2015

    Interbrand is out with its annual listing of best global brands, and MarketWatch reports that Amazon has made the top ten for the first time.

    Apple is on top of the list, followed by Google, Coca-Cola, Microsoft, IBM, Toyota, Samsung, General Electric, McDonald's and Amazon.

    The story notes that "technology and auto brands dominate the list, holding 28 of the top 100 spots."

    Among the well-known brands that suffered declines in the past year are KFC, Caterpillar and eBay.
    KC's View:

    Published on: October 6, 2015

    The Detroit Free Press reports that Meijer has named Rob Keyes, a long time company executive, to be the company's seventh president.

    He succeeds J.K. Symancyk, who announced last week that he is stepping down to become president/CEO of Texas-based Academy Sports + Outdoors.

    Keyes has been with Meijer for 26 years, joining the company in 1989 as a pharmacist. He has been the company's executive vice president of supply chain and manufacturing since 2006.
    KC's View:

    Published on: October 6, 2015

    The Jacksonville Business Journal reports that Southeastern Grocers - parent company to Winn-Dixie, Bi-Lo, and Harveys - is laying off about 250 people, from both stores and the Jacksonville store support office.

    Analysts say that the layoffs are a reaction to diminished sales figures, which has forced Southeastern Grocers to trim expenses in order to compensate.

    Winn-Dixie and Bi-Lo both are dealing with tough competition, much of it from Publix.
    KC's View:
    Not to say that these cuts don't make sense ... but you can't cut your way to prosperity. Part of the problem at Winn-Dixie and Bi-Lo is a lack of effectiveness ... and I'm not sure that trying to be more efficient (or just spend less money, which is not the same thing) will solve that issue.

    Published on: October 6, 2015

    The Daily Beast has a long piece about what it calls "the shady politics of big soda," which follows up on the New York Times piece we took note of yesterday about how soda companies seem to be losing the public perceptions war.

    In 2015, the Daily Beast story says, "liquid sugar may have met its match. A new culture of health is booming, and has been for the past few years. It’s one where powerhouse health advocates, entire cities (Berkeley, San Francisco, New York City), and the media finally understand the effects liquid sugar plagues on the body and brain.

    "More importantly, we understand the arsenal - marketing, lobbying, and philanthropy that big soda companies have used to cast a spell on society, enchanting the masses to consume what once was a special occasion 8-ounce bottle of soda pop, into a daily addiction."

    Fascinating story, and you can read it here.
    KC's View:

    Published on: October 6, 2015

    • In Arkansas, City Wire reports that Walmart "once again testing a new iteration of its Scan & Go shopping service in a select number of stores ... The previous forms of Scan & Go required consumers to download the Walmart application and use their iPhones as the scanning device. That method was tested in roughly 300 stores between 2012 and early 2014 before the retailer pulled the service. Since that time Walmart put it more self checkout stations and began looking at ways it could improve the Scan & Go offering at a future date."

    The story goes on to say that "this new version of Scan & Go uses a scanning device provided by the store. The kiosk is located in front of the store inside the double doors and near the self check-out corral.  A shopper wishing to use the Scan & Go service just presses the screen on the kiosk and one of the handheld scanners below will light up with the works 'OK.' The shopper then picks up that scanner and begins their shopping trip."

    The system is similar to one used for several years by Ahold-owned Stop & Shop.
    KC's View:

    Published on: October 6, 2015

    USA Today reports that General Mills is recalling "an estimated 1.8 million boxes of its Cheerios and Honey Nut Cheerios cereals due to an incident that may have added wheat into products labeled as gluten free ... This recall includes four days production of original Cheerios and thirteen days of production of Honey Nut Cheerios at that California facility."

    "Our Lodi production facility lost rail service for a time and our gluten-free oat flour was being off-loaded from rail cars to trucks for delivery to our facility on the dates in question," writes Jim Murphy, president of General Mills’ cereal business, on a company blog. "In an isolated incident involving purely human error, wheat flour was inadvertently introduced into our gluten-free oat flour system at Lodi."
    KC's View:

    Published on: October 6, 2015

    • Donald G. Alvarado, the longtime general counsel at Smart & Final - he's been with the company for almost three decades, most of the time in that role - has announced his retirement. The exact date of his departure has not been determined; Alvarado expects to stay with the company long enough to assist in a transition once his successor is named.
    KC's View:
    I don't often report on retirements here, but it so happens that I know Don Alvarado a little bit ... we actually graduated from Loyola Marymount University the same year (1977), and he serves on LMU's Board of Regents. I don't remember meeting him when we were students, but I have since ... and he's a great guy.

    I just don't understand how someone so young can decide to retire ... I hope he does some teaching, because I think he'd be terrific at it.

    Published on: October 6, 2015

    We had a story the other day about a Bloomberg piece saying that "in time for the holiday season, UPS is rolling out to 100 cities a program that requires people in some neighborhoods to fetch packages at nearby locations -- such as a druggist or dry cleaner -- if they weren’t home to meet a driver. UPS says the service, introduced a year ago in New York and Chicago, will trim costs by ending second and third delivery attempts, and can save consumers a trip to a distant customer center."

    I commented, in part:

    This strikes me as being a total money play, as UPS tries to get out of the service business as much as they possibly can. It would be a lot more customer-friendly to, when UPS drivers leave a note saying that they've been there but could not deliver the item, people have the option of choosing a local retailer and having the package delivered there. It ought to be up to the consumer, not the delivery service ... but it seems to me that UPS wants to be in the efficiency business, not the effectiveness business.

    But one MNB user thought I was being short-sighted:

    No doubt there are real cost savings for UPS.

    There are other benefits. The trucks will be on the road for fewer miles.

    Have you thought about: (a) Less pollutants in the air? (b) Reduction in  traffic jams, especially in cities? (c) Faster delivery of packages because drivers are not wasting time making 2nd delivery attempts? (d) Happier customers, since people will be much less frustrated  (not having to wait another day or more to get their packages)?


    Customers only will be happier if they get what they paid for - and if I paid to have a package delivered to my home of officer, and I have to drive somewhere to pick it up, I'm not going to be so pleased.

    I'm just saying that this ought to be an opt-in program ... not one imposed on customers.




    MNB reported yesterday on the confirmed layoffs at Walmart headquarters, designed to increase the company's nimbleness quotient.

    I commented:

    Here's my question, just because I like to ask questions.

    Is this really about being leaner and more nimble? Or is it about increasing the workload for the folks who remain? Because it seems to me that being nimble is about more than head count ... it is about fundamentally changing the way you do business, about not thinking and acting in silos, and, especially these days, about being more local and less bureaucratic.

    I'm not entirely clear on which path Walmart is taking.


    MNB reader Rich Heiland responded:

    I think your intuitions about more work for fewer people is correct.

    Most of my clients are understaffed. Too many businesses view labor as an expense. True, it does appear on that side of the balance sheet. But what is required is to mentally move it to the asset side and then ask if you are using that asset wisely.

    History shows knee-jerk cost cutting is done in two areas - staff and marketing/advertising because they can be cut quickly. Yet, studies also show that companies that cut heavily in those two areas to offset hard times are poorly positioned to rebound when hard times are over. Those that stay the course or even increase those areas when times are hard benefit from the rebound because they are ready to perform.

    Our world of instant information and demand for instant results from leaders and managers almost precludes strategic thinking and assessment.

    KC's View:

    Published on: October 6, 2015

    In Monday Night Football, the Seattle Seahawks defeated the Detroit Lions 13-10.
    KC's View:

    Published on: October 6, 2015



    "The Innovation Conversation" is sponsored by ProLogic: Building Shopper Loyalty.

    Content Guy's Note: "The Innovation Conversation" is designed to be a new regular MNB feature, prompted by the positive reactions that Tom Furphy and I have gotten after having done live and customized versions at a number of industry and corporate events. Our goal in each edition is to explore some facet of the fast-changing, technology-driven retail landscape and how it affects businesses and consumers. It is, we think, fertile territory ... and I'm thrilled to have Tom Furphy engaged in the effort.

    As I've told you about Tom, he brings unique credentials to everything he does. Tom Furphy is CEO and Managing Director of Consumer Equity Partners (CEP), a venture capital and venture development firm in Seattle, WA, that works with many top retailers and manufacturers, who make CEP a regular stop during their Seattle visits. Prior to CEP, Tom was at Amazon.com as Vice President, Consumables and AmazonFresh, where he was responsible for building and running the company’s Grocery and Health & Beauty businesses on the Amazon.com platform, and was also responsible for launching and rolling out the AmazonFresh business. And before that, he held a variety of senior roles at Wegmans.

    And so, the conversation continues...


    KC: So, I was reading a new study from a company called Monetate, which describes itself as a provider of "multichannel personalization  to various brands.  Now, keeping in mind that any company that invests in and releases such a report has a vested interest in making sure the results support its business model, I did think it made a couple of interesting points about the e-commerce business.  Point one was that while e-commerce traffic and overall sales obviously are up, "conversion and add-to-cart rates have been dropping steadily year over year," and bounce rates are up as well, except during the holiday season, when things change.  Is this a matter of just more options for the consumer, or is there something else going on here?

    Tom Furphy:
    Great questions. Despite the potential bias in the report, I am not too surprised by the points made. In the conversion formula, the numerator (sales) is rising, but the denominator (visitors) is rising faster as customers connect more often to ecommerce sites throughout their shopping journey. As retail verticals shift toward ecommerce and as online shopping options proliferate, customers are increasingly using the tools available on these sites for research, price checking and curation. They visit to learn about products, viewing hi-res images from multiple angles, read the product technical and/or nutrition information, read reviews and so forth. They check prices across retailers, many of which make the comparison for them. They put items on lists or save them in carts as a way to curate the products they are interested in. Sometimes these activities result in purchases in-session at an ecommerce site. Other times they results in a brick & mortar store purchase. But as these activities move online, as more customer traffic visits sites, it stands to reason that the resulting conversion rate would drop a bit.

    I would think that, as digital shopping tools get better, conversion rates should stabilize and even improve. We really are still at Day 1 in the evolution of ecommerce. The basic tools that were created to enable the shopping experience – detail pages, pricing algorithms, lists and even shopping carts – are still quite rudimentary overall and ripe for innovation. Especially innovation that appeals to the individuality of the shopper as they move across “channels” from site, to mobile to store. The next wave of technology will work seamlessly across all of these, with the website, mobile apps and store staff all recognizing the shopper as a unique individual with the capability to serve them as they uniquely require.

    KC: Now, because Monetate is in the business it is in, not surprisingly it also says that one of the ways to address these issues is for e-commerce sites to do a better job of personalization.  I imagine you'd agree with that, especially considering your Amazon experience.

    TF:
    I cannot overstate the importance of personalization and what it means for Amazon and others. In its most raw form, Amazon is a platform that is designed to translate customer traffic into sales in as few clicks as possible. Amazon brings customers to the site via ads, search and email with precision. Once there, the site recognizes visitors and quickly presents them with products they likely want based upon search terms and clickstream, and it gets customers through the cart as quickly as possible, often in just a few clicks overall. With millions of items available, Amazon would be unwieldy without personalization. The company employees literally hundreds of mathematicians and developers dedicated to improving personalization. Personalization increases conversion by at least 2x, so it’s worth Amazon’s while to invest heavily in it. It is absolutely worth it for every retailer and manufacturer to invest in it.

    KC: That said, what prevents other retailers getting into the e-commerce space from achieving this level of personalization?  Is it cost?  Accessibility of technology?  Or is it something bigger ... by which I mean that most retailers are used to building a store designed to appeal to the largest possible swath of customers, and the kind of personalization that is possible just works against their DNA?

    TF:
    While emerging technologies are fairly complex below the surface, they can be delivered quite inexpensively and without a steep a learning curve. Every retailer and manufacturer should be aggressively experimenting with new capabilities. What’s most important, however, is feeding these technologies with relevant data – past purchases, clickstream, and customer actions – that enables the technology to generate relevant recommendations. If the technology is good, it will iteratively teach itself to make better recommendations. This all happens below the surface. It just works.

    The bias to continue business as usual is a huge risk to the industry. It’s safe to keep running the same store formats that appeal widely, to keep investing in the weekly ad despite its declining circulation, to keep buying the same ad placements because the retailer or publisher are pushing it and the audience metrics look safe. It’s easy to keep doing what you’re doing. But I think retailers that are truly focused on serving their customers won’t rest and will be the first to adopt personalization on a large scale. Few retailers have better data than grocers. They know what shoppers have purchased, they know what shoppers did not purchase but should have, they know where they live and when and how they shop. The data is there to enable deep, powerful personalization. And it can be done without compromising customer privacy. We’re seeing some early movement here and I think it will really start to ramp in the next few years. We see forward-thinking retailers trying to figure it out. But even for them it is a big, uncomfortable leap.

    KC: It would seem to me that the broad argument here is one that a lot of people have been making for a long time - mass marketing is, for all intents and purposes, dead.  And for me, it always comes down to the example that I like to cite - that I don't much like cats, but do love dogs ... and that the marketer that sends me a cat food coupon immediately demonstrates that it knowns nothing about me, cares nothing about my preferences, and may in fact be irrelevant to my life.  That's a broad brush with which to paint, but I believe it.   Do you?

    TF:
    I absolutely believe it. While there will be some room for mass marketing to create general awareness, I think that technology has enabled marketing to irreversibly become personalized.

    Our industry has undergone a systemic “depersonalization” over the last 75 years to enable it to scale. Mass marketing is enabled via broadcast media, untargeted print advertising and manufacturer coupons. Efficiency is gained through massive stores, super efficient distribution and rationalized assortment. Sameness is inexpensive. It is great for developing massive brands and offering low prices, but it has come at the cost of the connection with the individual shopper.

    But the best marketing has always been personal. A hundred years ago the local shopkeeper knew the store’s customers by name, knew all the customers’ family members and their likes and dislikes. He could solve customer needs with products in the store. That was the ultimate personalization.

    Technology is enabling that again. [KC, YOU CAN CUT FROM HERE TO THE END IF IT’S TOO COMMERCIAL]In Seattle we’ve done a lot of work around personalization and its potential impact on shopping. BevyUp, a team out of Microsoft and Amazon, is coalescing the shopping experience across online and instore by providing curation and customer service tools that shoppers, online experts and instore staff can access collaboratively. This introduces control and human interaction to a traditional structured and solitary online experience. Also, when shoppers enter a physical store they are recognized by the store staff, who are equipped with tablet and mobile tools to serve the customer on a very personalized basis. They can see what the customer has purchased in the past as well as products they have curated and can make recommendations based upon that. At IdeoClick, DemandDriver is a platform that uses customer clickstream data from brand sites and shares it with retailers to enable better personalization and significantly higher sales on their side. These are just two examples of step changes in experience and results that occur due to personalization. It’s pretty remarkable.

    KC: Can we talk for a minute about an unrelated subject?  Amazon made some news last week when it announced that it would no longer sell Apple TV or Google Chromecast hardware ... it said that the availability of these items on its website was confusing to customers.  A lot of people, me included, thought that it had less to do with customer confusion and more to do with the fact that Amazon Prime Video competes with those services ... and that by not selling them, the so-called "Everything Store" was showing a little bit of competitive insecurity and going against a core value.  Now, I've had a chance to think more about this, and I'd probably walk that back a bit - not that these points are not true, but that if you are going to create a so-called "ecosystem," it works against that strategy if you allow other ecosystems to intrude.  In other words, I think I see both sides of the argument.  You are a veteran of the Amazon wars ... when you see this story, what do you make of it?

    TF:
    Boy, this is an interesting one. I can honestly say from being inside Amazon that the company truly does “Focus on the customer and work backward.” The customer obsession persisted throughout everything we did. One of the key areas that we focused on was customer feedback around item or service “defects”. If an item drove a high rate of customer service contacts or returns, the root cause of these defects was analyzed in detail to either fix the problem, improve communication to eliminate confusion or to discontinue carrying the product. These were reviewed each week in our leadership meetings, with the business leader on the hook to rectify the problem.

    So, there is a chance that Amazon is truly responding to customer confusion about the interoperability of these two platforms with Prime Video (which works well with Roku, Xbox and PlayStation). In that case, Amazon would likely try to work with Apple and Google to enable compatibility. If that failed, Amazon would view the stance and lack of cooperation as an anti-competitive practice that is bad for the customer, and would kick these products off the platform. But the reduction of choice, in my opinion, can make for an even worse customer experience. They might be better served to make the lack of compatibility clear on the product detail page, show products that are compatible with Prime Video, and let the customer make the choice.

    To me it seems that this move is about locking up their ecosystem, which could be a dangerous move and not congruent with their customer-first mantra. In their shoes, I would make sure to put the customer first, allowing them to make the choice based on transparency. But I would also focus incessantly and building a better ecosystem that attracts customers naturally. Don’t give them a reason to consider a competitor’s platform.




    "The Innovation Conversation" will return in a couple of weeks. If there are subjects you'd like us to chat about in the future, let us know.
    KC's View: