Out of Luck Part 2

So what does one do when the obscure gift item one had intended to purchase is not available through the web site, and will not be available before spring of next year? In years past one might have been forced to simply wait for the thing to become available; perhaps giving the recipient a nice card and a picture of the gift that they will almost certainly get before Easter, assuming that your mail delivery person doesn’t freak out and just throw an entire of truckload of mail under the foundation of their (the mail carrier’s) house (which apparently happens from time to time). Alternately, you might find some other mail-order product that would do, or perhaps even break down and venture into the violent chaos that any large shopping complex will have degenerated into during this joyous season. In the age of the Internet, however, you’ll probably just feed the name of the product into whatever you use as a browser program and go find another vendor for the same thing…

Needless to say, perhaps, a single search turned up literally dozens of other sources for the gift I was looking for. The first five sites were also out of stock, but the sixth one, Kult of Athena.com not only had the item I was looking for, they were offering it a better price than the original vendor was. Which was remarkably odd, in fact, because the original vendor is the parent company of the manufacturer that actually makes the item in question. That’s right, folks, the new vendor I found online not only had a better selection than the company that makes my merchandise, they also sell it for a better price. I suppose I can see how one of your customers might have more ready inventory of your product available than you do, particularly if you business is primarily wholesale, rather than retail, based. I just can’t fathom how they would also be able to undercut your price…

In the long run, however, this little foul-up is going to end up costing my original vendor a lot more than whatever the difference between the wholesale price was and what their retail price could have been, because the new vendor carries merchandise from at least a dozen other manufacturers, including a much greater range of product categories. Since I can get all of the original vendor’s products off the Kult of Athena site, as well as the offerings from a dozen other companies, all at better prices, the original vendor is not likely to ever get my business back, but the real selling point is the “in-stock” indicator on the KofA web pages. Not only do they indicate what’s in or out of stock, they’ve actually got three categories: in stock, on backorder (available within a week or so) and out of stock (30 or more days wait). They’ve also got product ratings that cover how heavy-duty specific items are, what the proper uses for them might be, and so on, but frankly, just not having to wonder if I can get what I want now (as opposed to having to wait for a month) would be enough to keep me coming back…

It struck me this week that there’s a lesson here, not just for people in the mail-order industry, but for all of us in management. We’ve all known that the Internet has changed the way we do business for ever; sales, marketing, customer service, point-of-purchase, even operational management will never be the same. Now it turns out that even your inventory control system (or lack of one) has become another place where the rubber meets the road, where you can move with the times or become as obsolete as the paper ledger you’re using to keep track of your stock. It doesn’t matter how you feel about these newfangled contraptions; you can either keep up with the industry standard – or get left behind…

Three Hour Rule

By now you’ve probably already seen the news about the new rules for airline tarmac delays on some less obscure channel than this, but in case you missed it, Congress has ruled that airlines can no longer delay passengers by having their aircraft sit on the tarmac for more than three hours, and must provide food, water and restroom facilities in the event of such a delay. If this sounds completely absurd to you, or more to the point, if the idea of companies that depend on repeat business in order to stay in business violating not only the Rules of Business and Common Sense but in fact the Geneva Conventions and several Federal laws by effectively falsely imprisoning their passengers under such conditions for longer than six hours seems completely ridiculous to you, don’t worry. This merely indicates that you are still sane…

A much better question, at least from where I’m sitting, is why one airline or another hasn’t already jumped on this issue in order to gain a competitive advantage, the way Southwest did with the baggage fees issue. When the other major carriers started charging extra for checked baggage ($15 to $25 for the first bag, and often $25 to $125 for the second), Southwest immediately started advertising the fact that they were not going to institute any such fee, and have since developed television commercials (complete with jingles and choreography) that capitalize on the fact that their competition has rather stupidly decided to annoy the public. It seems obvious that someone could launch the same sort of campaign regarding tarmac delays and the three hour rule; either pledging not to do this sort of thing (unless necessary for safety or security reasons, of course) or bragging that anyone subjected to this delay will be given food, drink, free toys, frequent-flyer miles, or indeed anything else you can obtain for cheap…

The really beautiful part of such a campaign, you see, is that the airline doesn’t actually have to take any action; they just have to convince the public they are going to. If you use fast turn-around times as a key part of your business model the way Southwest does (it’s how they manage to provide so many flights each day with relatively few airplanes; their aircraft spend the smallest possible amount of time on the ground) you can already advertise having the shortest flight delays and the fewest of these day-long tarmac delays of anyone in the business. All you have to do now is convince the customer that the potential cost of the “free” services you’re promising in the event of a tarmac delay are so high that you couldn’t possibly afford to pay them out with any frequency, and the rest is just writing ad copy…

Now, I don’t want to suggest that misleading the public into thinking that you’re going to take care of them when you have no intention of doing so is an acceptable way of doing business. If you advertise added services in the event of a tarmac delay you must be ready to provide them; and if you promise to do everything possible to eliminate such events, you should be prepared to do exactly that. And if it really isn’t possible for you to do anything about such events under your present business model, well, then I’d have to recommend you start making changes as soon as possible. Because the few dollars that extra services will cost, or even the few thousand dollars that de-boarding the passengers and starting over when you can get the flight on its way successfully would cost, are going to be small potatoes compared to the millions of dollars in fines that the FAA is going to charge you for leaving even a single large plane filled with passengers waiting on the side of the runway...

Out of Luck

A few nights ago I went online to purchase a Christmas gift for a member of my family. It was still more than a week before the big day, and I’ve never had a problem with paying for 2-day shipping when I need something in a hurry, so I wasn’t expecting any trouble. Unfortunately, the e-commerce site I was dealing with did not have the “in-stock” indicator on its web pages – and items like the one I was buying can take 30 to 40 days to get in from the factory. With deep misgivings, I filled in my card information and clicked on the purchase button. Sure enough, when I got up the next morning there was an email waiting to me that my purchase was out of stock and would arrive by February or so…

I’m not going to provide a link to the site for obvious reasons, and I’m also not going to name it, since I’m not really into litigation. If anyone really wants to know you can drop me a line in the comments and I’ll reply by private email. This is not to downplay my irritation, however. It’s hard to say which part of this is worse; the fact that they’re violating the First Law of Business by not selling me the thing I want, or the way they’re violating the Second Law by annoying me. Regardless of which, I’m now faced with finding a replacement gift before December 25, and with the fact that I’m apparently not nearly as clever as I thought I was…

Now, to be sure, it’s not entirely the seller’s fault. I should probably have placed my order weeks ago, and if I really wanted to be sure of getting mail-order merchandise (which is all e-commerce is, really; except the ordering part is faster) in time for Christmas, August would have been better. And no one is disputing the fact that keeping unusual (and expensive) merchandise in inventory at all times is bad for business. But in this case, the company could easily have avoided the bad feeling (and the Second Law violation) by just having an “in stock/out of stock” indicator on the page…

You might object to this conclusion by noting that no one will “buy” something that is listed as “out of stock,” whereas they might be willing to wait for it rather than going to the trouble of more shopping during the Christmas rush. Which is certainly possible, given that at least half of the population would actually rather chew off their own foot than go to a shopping mall during this time of the year. But even if we accept this logic, it still does not account for the massive amounts of bad public relations (and bad customer relations) created by this sort of management practice. I’m not going to wait until February for a Christmas present; I’m not even going to wait until next week. I’m going to the competition right now, and I will probably tell more than the industry-standard assumption of 26 other potential customers about how this vendor was going to make me wait until Valentine’s Day (or possibly St. Patrick’s Day) to get my merchandise. In fact, I’m probably going to find 26 people in the real world in addition to whoever is reading this post (assuming I have readers)…

All of which leads me to conclude that I’m not the one who is out of luck, here…

In What World?

Sometimes when you encounter news stories concerning monumental stupidity, it’s possible to generate some sympathy for the poor fool (or fools) responsible. The Hughes-Kaiser HK-1, better known as the “Spruce Goose”, made perfect sense in the context of World War II, submarine warfare, and the need to move thousands of men rapidly across the Pacific Ocean during the final phases of the planned invasion of Japan. Charging interest rates that no one could possibly afford, seizing the defaulted property and selling it at a profit made perfect sense during the real estate bubble of the early 2000s, and running off to South America to sleep with a woman other than your wife probably didn’t seem any stupider than having sexual contact with an intern in the Oval Office or breaking into the Watergate complex, at least at the time. But even if we can accept that these decisions made sense, at least in context, it’s still hard to imagine what Universal American Insurance thought it was doing when it mailed out 80,000 postcards to its customers with their account information and Social Security numbers on the back…

As noted by the local CBS affiliate, WGAL the company was working through a third-party vendor, and never intended to send out either the Medicare ID numbers or Social Security numbers. However, I think we are correct in asking why the company didn’t know such a mailing was being sent, why the vendor would be sending such a mailing without the client’s approval, and why the vendor itself though this was ever a good idea in the first place. What possible purpose could there be in sending a mailing to people reminding them of information they would have had to provide to the insurance company when they signed up, and in what world could anyone possibly have thought that having sensitive personal information printed where anyone could see it would be a good idea?

It’s even more egregious, in a way, because a similar blunder occurred in New York about fifteen years ago. The local telephone company (NYNEX) noticed that its customers were not using their “calling card” codes to make calls from pay phones (this was before cell phones were common), and decided that these customers had forgotten their personal ID numbers. So they printed the codes, along with the connected telephone numbers, onto post cards and sent them to all 500,000 or so of their customers. The resulting costs (changing the codes to something that hadn’t been leaked to the public, people refusing to pay for telephone service they claimed not to have used and calls they hadn’t made, associated lawsuits, etc.) would have destroyed any smaller company, and was almost certainly a contributory cause of NYNEX being acquired by Bell Atlantic under very favorable terms a few years later. But apparently nobody at Universal American Insurance, or at least its mailing vendor, ever heard about this case…

For the moment, things seem to be resolving in the present case. Universal American Insurance is offering all of its customers a year of free credit monitoring, and there don’t seem to be any reports of massive Medicare fraud in Pennsylvania or any of the surrounding states. In the meanwhile, I’d have to say that this case serves as a warning to every company out there that has sensitive customer information to be careful with it. Don’t assume that just because something seemed like a good idea at the time that it won’t turn out to be compared unfavorably to the Dot-com crash, the Mortgage crisis, or the decision to give a performance artist $55,000 to place a giant inflatable banana into low Earth orbit. Because in our world, it might be…

They’re Not Listening…

There’s a grand tradition in this country which is known as “voting with your feet” – or sometimes “voting with your wallet.” The basic idea is that if a company is doing something that offends you, they probably have a competitor who won’t – and if they don’t have a competitor you could always start one. Thus, if (for example) a firm is doing something that offends your moral, ethical, dietary, nutritional, political, comedic or religious requirements, you can always choose to take your business to some other firm in the same industry that does not so offend you. And, if you like, you can tell all of the like-minded people in the country about your choice, and encourage them to do the same. In theory, this should persuade the company that is offending you to change their ways, since they will not want to give your business (and that of all of the like-minded people) to their competition. Failing that, you will at least have the satisfaction of giving your business to a firm that is more in line with your belief system, whatever that might be…

Where this becomes a problem is when extremist groups start using the tradition to impose their views on everyone else. Take, for example, the American Family Association’s ongoing feud with the Gap (and any other retailer that doesn’t wish to offend all of their non-Christian customers) over the company’s “refusal” to feature the word “Christmas” in its holiday advertising materials. Leaving aside for the moment the inherent issues with advertising specifically intended to promote gross commercialization of a religious holiday and the fact that our system of government was designed to provide religious freedom (separation of Church and State) specifically BECAUSE of religious persecution in Europe, the calls for boycotts of the Gap over a supposed refusal to include the word “Christmas” in their advertising are completely asinine for a much more basic reason. You see, the current year’s ads DO include the word “Christmas” – rather prominently…

As noted by The Los Angeles Times this week, the current Gap ads advocate purchasing the company’s products for Christmas gifts – and also Chanukah, Kwanzaa, and Solstice/Yule presents, for that matter. One has to wonder if the American Family Association was unaware of the ads when they issued their annual boycott, or if they’re just not bothering to actually listen to any of the advertising before they start spewing this sort of nonsense. A much more disturbing issue here is what we, as businesspeople, as supposed to do about this sort of lunacy. Leaving aside for the moment the obvious impossibility of trying to conform to the requirements of the literally thousands of competing religions groups in the world, should we even concern ourselves about what a small group of fruitcakes from one specific group want us to do and say?

In the long run, I suppose, it comes down to a matter of servicing the customer. If the majority of your customers belong to a religious sect that will only do business in a room with a blue floor, investing in blue carpeting for your retail stores would probably not do any harm. And if a major demographic group in your customer base wants you to wish them a Merry Christmas every year, you certainly could. But if someone if going to release official pronouncements condemning your company for advertising practices that you’re not even actually doing, your best bet is probably just not to listen to them. After all, they’re clearly not listening to you…

No Substitute

This past weekend I took our daughter over to a nearby shoe store that I’m not going to identify (or provide a link to) because they’re annoying me and I’ll probably end up calling them something actionable before the end of this post, but you’ve probably seen this chain or something quite like them before. Basically, it’s a single huge room the size of an aircraft hangar with long aisles of shoes piled up, surrounded by banners, signs and other promotional artifacts that extol the high quality and low prices of these products to the high heavens. There are “Clearance” racks on the back wall (which contain the products that the store no longer has enough of to make up a complete pile) and four cash registers at the front, and that’s about it. The company calls it a “shoe warehouse” and apart from having carpet and zombie-like sales associates instead of concrete floors and forklifts it’s not a bad description. You might expect that this would be an easy place to find a good quality pair of dress shoes at a decent price. If so, you’re either an idiot or else you have feet in one of the three or four most common sizes…

Walking up and down the aisles (any of which are long enough to land a small plane on), I was struck almost at once by the lack of size choices available. Specifically, there was nothing available below a 9 or above an 11 in most of the products offered for sale. Granted that these are the most common men’s shoe sizes, and that these constitute something on the order of 70% of all products for sale, that still makes it impossible for a significant number of people (in the greater Lansing area, 30% of all male customers would mean something like 45,000 to 50,000 people) whom you’re just blowing off. Telling, in fact, to go away and not give you any of their money. When the first style of shoe I wanted to buy turned out to have nothing in my size, I went to the next decent style, and the next and the next, without any success. Disheartened by this, I went to find a sales zombie and ask if they had any additional stock anywhere…

At this point, the shoe warehouse had already broken the First Law of Business by not taking my money, but now they went the extra mile and broke the Second Law as well. The salesperson I found told me that they don’t have any back stock; what they have is what you see out on the floor. However, they do have a special online service you can sign up for which has a much wider range of sizes, and will sell them to you electronically and send them to you free of shipping charges! All you have to do is fill out their paperwork and agree to receive an almost unlimited amount of SPAM emails in order to have the privilege of spending money on shoes you can’t try on and will have the devil’s own time trying to return! Was that something I might be interested in? I think the sales zombie almost cracked an expression when I said, flatly, “no,” but it was hard to be sure…

I could point out, of course, that if I wanted to do my shopping online there are already several websites that specialize just on virtual shoe sales, not to mention sites like Amazon that carry all manner of foot ware, and none of which require extensive (and invasive) sign-up procedures. But the fact is, I don’t buy shoes online, simply because there is a fair amount of variability in shoe sizes depending on the manufacturer and style selected. There are some shoes where I’m a 12 1/5, and others where I need a 14 just to have a chance of getting my feet into them, and there’s no way to tell which is which in a virtual shoe store. There’s also a little matter of needing to wear them the following day, not some time in a week or two when the shipping department and the freight carrier get around to sending them to me. Until such time as you can virtual try on a pair of shoes and reliably get them delivered the next day, there’s really no substitute for an old-school shoe store – and the shoe warehouse people should probably put more effort into their original business model…

Franchises Revisited

Las summer I brought you the story of Burger King’s ongoing war with its own franchise holders, in a post I called The Trouble With Franchises. The issue, in case you’ve forgotten, is that Burger King wanted its franchise holders to participate in a national $1 promotional price for the double cheeseburger product, which would be the subject of television, print and Internet advertising. The franchisees were resisting the program because, on average, it costs them roughly $1.10 to make a double cheeseburger, which turns the entire product into a loss-leader for them – without actually costing the company itself anything. The company had put the subject to a vote, only to have the franchise holders vote it down. They attempted a second vote, with voting conditions rigged to make it harder for the franchise holders to vote “no” the second time, but the vote still failed. So the company did the logical thing and just went ahead with the promotion anyway, figuring that the franchise holders would have to go along with it once the television ads started to run…

It’s an impossible situation for the franchise holders. If they go along with the promotion they’ll be losing money on every double cheeseburger they sell, and there’s no limit on these things – nothing to keep an entire college football team from coming in and ordering ten of them for each player, or 550 of the things, every one at a loss, for example. But if the franchise holders refuse to honor the promotion, they will be in the position of having to telling paying customers that they can’t have special promotional price from the television ad, thus violating both the First and Second Laws of Business in one simple statement. Nor can they just explain the situation and try to get the customers’ sympathies; most fast-food consumers will not know the difference between corporate advertising and local franchise holder economics, or care if they did. So the franchise holders have done the only logical thing: they’re suing the parent company…

As reported by the Associated Press through the St. Petersburg Times, The National Franchise Association (which represents about 80% of the Burger King franchise holders) has filed suit in Federal court, claiming that the promotion will cost them a fortune and contending that the parent company’s franchise contract does not allow it to set maximum menu prices in the first place. The parent company, in turn, is claiming that the case is without merit because an earlier court decision ruled that the company can require franchise owners to participate in “value-menu” promotions. It remains to be seen how the court will interpret this new case, and the contract it is based on; if the contract specifies that the franchise owners must produce the promotional items but does not specify participation in a pricing scheme (or control of menu prices) then the franchise holders may have a case. Otherwise, they will probably be treated to another iteration of the advice that just because you don’t like what your contract is telling you, that doesn’t mean you can just ignore it…

In the long run, the franchise holders may have to accept the situation, eat the loss on each burger, and try to make up the difference on soft drinks and other menu items with huge markups. But even if the company does triumph in court, I think we case safely assume that Burger King franchises just got a lot harder to sell – and probably won’t sell for as much, assuming that the prospective franchise owner has been following this case. Which may turn out to be an example of the company winning the battle – but ultimately losing the war…