Posted by: Paul.Christ
on Nov 10, 2009
The Accidental Hero (BusinessWeek)
The Subway $5 Footlong is a wildly successful promotion. With the help of a sizable advertising campaign the promotion is one of the most successful sales promotions currently being offered by any retailer and has generated sales of nearly $4 billion in one year.
But the back-story on how Subway came up with this idea may be even more interesting than the success of the program. As this story discusses, a single franchisee operating two small stores in Florida had the original idea. To Subway’s credit they listen to their franchisees, which not all franchises seem to do, and it has paid off nicely.
Frankel's $5 footlong idea illustrates how a huge company can wake up and eventually seize on a good idea that's not generated at headquarters. Frankel, along with two other local managers in economically ravaged South Florida, ceaselessly championed the idea to Subway's corporate leadership amid widespread skepticism.
How much of the success of this sales promotion is tied to a down economy and what is the likelihood Subway will continue the promotion once the economy begins to recover?
Posted by: Paul.Christ
on Nov 02, 2009
Making Micro-Payment Models Work Online (E-Commerce Times)
Some may think that nearly any product can be sold over the Internet. But in reality low-priced products, and in particular low-priced physical goods, have generally not been a viable selling option particularly when purchased in small quantities. The problems tend to center on two key cost issues: 1) the fees retailers must pay to financial institutions for accepting credit cards (the main payment option for Internet purchases), and 2) the costs incurred when shipping physical goods. Both costs eat away at retailers' small profits on low-priced products, thus offering retailers little incentive to sell these. Low-priced services have fared better as shipping costs are often taken out of the equation (e.g., digital music) but the credit card fees still exists.
The problems surrounding purchases of small quantities of low-priced products is an important reason why many websites selling these products require accounts to be filled with a minimum amount of funding (e.g., Apple iTunes) before a purchase can be made or they have a setup that accumulates product purchases that are then included in a monthly billing system.
Micro-payments, variously defined as methods allowing for low-priced product purchases (anywhere from a few cents to a few dollars) have for many years been touted as a way to handle this. But so far it hasn't quite worked out though as discussed in this story it is not stopping companies from trying to figure it out.
Efforts in the past to address the costs of card processing of micro-payments by aggregating transactions into a single batch have not been successful. Other efforts to jury-rig credit cards for micro-payments include forcing the customer to purchase "credits" in round increments like $20. Pre-selling credits creates a stored value and closed-loop payment system, akin to the gift cards sold at grocery line checkout or in mass transit ticketing, where the funds may be used only with a single merchant.
Besides the cost of credit card fees and shipping, what other costs do retailers face who may consider selling low-priced products over the Internet?
Posted by: Paul.Christ
on Oct 21, 2009
Wal-Mart Announces Price Cuts for Holidays (MSNBC)
As we discussed in our recent post on Wal-Mart’s pricing of books, it was likely their price cutting was not finished and that turns out to be the case. They have expanded price cuts across many product groups and this is almost certainly going to impact many other retailers and should make for a hotly contested holiday season.
Wal-Mart has frequently used its buying power to undercut rivals. It sells enough products in enough categories to make up for any losses on individual items that it uses to pull people into stores or onto its Web site.
Same question as the last time, what retailers are most likely to feel the pain of Wal-Mart’s pricing strategy?