I read an article written by John C. Dvorak posted on MarketWatch about Foxconn;  I thought it was quite interesting and worth a read.

From what friends have told me and from most reports it is “essentially a steel mill on one end and computers come out of the other end.”

Read More: Foxconn’s troubles expose China’s woes

After visiting the Signature Lounge, part of the Signature Room, located in Chicago’s John Hancock building, I felt compelled to write this letter.  Both the service and product were poor and left my friends and I greatly underwhelmed.

To Whom It May Concern,

A little over a month ago on May 22nd, my best friend and I were entertaining two friends from out of town.  None of use had ever been to the signature lounge so we thought we could give it a try and see what all they hype was about.

Our first impressions while waiting in line were good; there were many staff members to direct customers through the lines and bring them upstairs, and they were all well dressed.

It wasn’t too long after we were seated that our server, Adri P., took our drink order.  Even though the wait wasn’t too terribly long, it was still much longer than one would expect given the expectations a $15 drink would bring.  Waiting for our drinks to arrive gave us the same feeling.

We were very underwhelmed when our drinks finally came. If you were unaware, the cocktails served at the Signature Lounge are quite low in alcohol content.  The presentation was decent, but that doesn’t make up for the fact we received what many would consider $15 virgin drinks.

Personally, I ordered a strawberry smoothie as I was not in the mood for a drink with alcohol.  Although it had excess drink running down the side of the glass, the smoothie was garnished nicely when it was served.  Unfortunately, the sweetness was so strong I could barely drink it.  The drink reminded my friend of catsup because it had so much corn syrup in it.

After quite some time, the server unenthusiastically came over to ask if everything was alright, and I told her I was unhappy with the smoothie. She explained they were made by a machine and that the bartender had little control over the dilution of the concentrate.  I was surprised to hear a machine was responsible for mixing the drink when the menu describes the drink as containing real strawberries.  How does a machine cut real strawberries? I asked the server to dilute the drink a a good amount.

The server returned with what looked like the exact drink she left with. I could see the spot caused by the excess smoothie running down the side on the glass when it was first delivered.  The drink tasted the same; I couldn’t finish it.  Was it the same one she left with? Did they just make an identical drink? I don’t know. But, three sips from an $8 smoothie?  I was not thrilled.

The server came over once again, but this time to tell us she was leaving for the night, and that we could pay whenever we were ready to go, but a different server was going to take our check, check 503.

All four of us were greatly disappointed with our experience at the Signature Lounge.  The service was unacceptable, and the product was not worth a fraction of what we paid, even with the “amazing” view.

Go to basement of your building and try the Cheesecake factory’s smoothes.  I would pay $10 for them at your venue.  Even if the concentration of mix and ice was perfect with your drinks, they still couldn’t compare to what is being sold at the Cheesecake Factory.

Unless there is something you can do to change the way we feel about the Signature Lounge, I doubt any of us will be back.  And we certainly wont be recommending your business to out of town guests.

Regards,

Ed Hayes

The other day I was at CostCo and realized they were scanning a barcode, that was affixed to the cash register, during each and every transaction.  I inquired into what the purpose was.  The cashier told me the barcode was scanned to verify they checked the bottom of the cart to make sure all products was scanned.

It turns out CostCo has a major problem; items in the bottom of the cart are frequently not scanned before  customers leave the store. The cashier told me that they repeatedly discuss this problem in team meetings.  I would agree that this problem could be very costly, and that it would be a significantly larger problem at CostCo compared to most other stores since there are so many large heavy items for sale at CostCo.

I was rather puzzled.  I didn’t whiteness any obvious attempt by the cashier to verify the bottom of the cart was empty.  I admit they could have just been checking while they scanned other products, but I was still confused.I thought to my self as I was being rung up, this solution was half baked.  I was impressed the company realized the gravity of this problem, and that they decided to put a solution in place to make sure the cashier was verifying the cart was completely empty before finalizing the transaction.  But, there was one glaring problem to me; the process didn’t actually solve the problem.

Scanning a barcode next the scanner didn’t really accomplish the goal.  Yes, the cashier was required to scan the barcode during every transaction.  But that process didn’t actually make the cashier look at the bottom of the cart.  If this scan was done on every transaction, I would assume it would be come second nature to scan the barcode.  Scanning would be the habit, not looking at the bottom of the cart.

CostCo made a good attempt, but one small change would make the solution perfect.  Barcode labels are incredibly cheap, why not affix the barcode to the bottom of every cart instead of just the cash registers? Affixing the barcode to every cart would require the cashier to actively look at the bottom of each cart, verifying it was empty, guaranteeing no products were left un-scanned.  The cost to implement this solution would be negligible, and the benefits would be astronomical.

When implementing your own business process, make sure it makes sense.  What was the goal of the process?  Is your new process accomplishing that goal?

Last Saturday I was trying to print a simple postage label for a package I wanted to ship.  All I wanted was a shipping label.  I thought it would take me five minutes at USPS.com, but it turns out a pot-roast cooks in less time that it takes to print a shipping label!  After using their sites, I have come to the conclusion that the United States Postal Service (USPS) and United Parcel Service (UPS) go through very little, if any, user acceptance testing.  FedEx isn’t much better; I did get a label in 10 minutes, but their rates are significantly higher than I was willing to pay.  Here are the pains I felt while navigating though the websites of the three major United States shippers.

United States Postal Service

The trouble at USPS.com started when I was signing up for an account.  The United States Postal Service’s website requires a “strong” password, which MUST include:

• A minimum of 8 characters
• At least 1 uppercase letter
• At least 1 lowercase letter
• At least 1 number

Special characters are not accepted.  The passwords “Sprite$%2” or “uisk28s5x” would not be accepted, but “Password1” would.  Which do you believe is more secure?  After signing up, I navigated to the shipping label creation page.

The “from” address, “to” address, and package information was all on the same page.  This made it impossible for a form filler to work correctly, which really pushes my buttons! For those of you who are unfamiliar with form fillers, they are tools that allow you to fill in web forms with the click of a button.  For example, I can say “fill the form with Ed Hayes data” and it will fill in my name, address, and most other personal information a form asks for.  I can also have it fill in my credit card data if I wanted.

I could not get past the screen of where I was supposed to enter the “to” and “from” shipping addresses!  The only error I received was “the address is not valid.”  I have no idea why; it gave no details on why the address was invalid. I ended up closing the window and opening it again. That seemed to solve the problem.  Go figure.

Continuing, I added my payment method with my form filler and got to the point where I was supposed to be able to print the shipping label.  I clicked the print button, and nothing happened.

I clicked the link that said “it didn’t print correctly” and was brought back to my shipping label cart.  I tried to go back do it again.  Although most of my data was saved, I was asked to type in my credit card CID code again.  It got quite annoying typing in this code repeatedly as I was troubleshooting. I tried three or four times to print the label, but was not able to do so, and I never got an error.  Furthermore, I didn’t see anything saying my browser or operating system was invalid or that I have to disable pop-up blockers.

I gave up and headed to UPS.com.

UPS

As luck would have it, my UPS account had expired.  For some unknown reason, UPS accounts expire after a few months of non-use. That is ridiculous. I had to start from scratch.

I got to the point where I typed my package information.  Like the USPS, they wanted me to fill out all the package information on one page. Once again, I couldn’t use my form filler.  I got pretty sick of typing in all the data over and over again.

Every time I did something with a drop down box, it would reload the page. I hate when sties have pages reload only to present the user with an updated set of options.  Every time the page reloads, the page position gets changed and it really aggravates me. A few lines of AJAX code would solve that problem and update data dynamically without page refreshes.

I went to choose the payment information, and couldn’t find a credit card choice.  For a second I was under the impression they didn’t accept credit cards as forms of payment.  I thought I would see what “Use  Payment Card” was, assuming it could be the credit card option, and I was right.  Why doesn’t UPS use the industry standard phrase “Credit Card?”  I pushed my “fill form with Chase Freedom” button.  And the data appeared to be entered correctly. I clicked next.

The page came back with errors.  It said my payment method expiration date was invalid. Looks like my form filler failed me! I corrected the dates and clicked submit again. This time my CID was missing!  UPS cleared the field each page load; very aggravating!  They should keep the data if the user is expected to fix an error. I corrected the errors, filled in the CID, and continued.

When I got to the package dimensions page, somehow I ended up with 10 packages to edit.  How did that happen? I never said I had 10 packages. I started to delete each package, which required a confirmations and page reloads.

I got so aggravated at the entire UPS process, I went to FedEx.com.

It turns out my form filler filled the package quantity with a 10 assuming that was the expiration date field.  Who do I blame for that problem?

Federal Express

The FedEx experience was significantly better, but still rather frustrating.  Just like USPS and UPS, they had the “to” and “from” address forms on one page.  Again, my form filler wouldn’t work, I had to type it all in by hand.

Another part of the form asked when I wanted my package picked up.  It was filled with the current date; a Saturday.  After filling in the credit card data by hand, and submitting the form, the page returned an error.  Saturday was not a valid date for ground shipments.  A bit annoying; why would they default to an invalid date?

When I went to change it, I found the text box didn’t allow manual typing!  I had to use their stupid calendar! What is the deal with all this crap?? I fixed the date error and pushed submit.

The page came back with another error!  My CID field was blanked out!  You can imagine how thrilled I was about that. Although the experience was painful, I got to the point where I saw my shipping label relatively quickly compared to what I went through at USPS.com and UPS.com!  Come to think of it, I never got to that point on the prior sites.

I was so happy! But, I realized I never saw how much it I was going to be paying.  Before I confirmed the transaction, I clicked on the “view receipt” and was in shock!  My little 6x3x3 package at 1 pound would cost $10 to ship.  Not acceptable. FedEx almost got my money, their site actually worked decent enough to get a label out!  But their price was too high.

I gave up on FedEx and said “maybe I have to install Adobe Acrobat Reader on my computer for USPS.com to work.”  I gave that a shot.

Back to USPS

I installed Adobe Acrobat Reader.  Still, USPS could not show me a label. I tried printing the label on my PC.  To my amazement, it worked! I found out, after chatting with a USPS representative, I had to correct some settings in FireFox:

• Open Firefox
• Click on Firefox next to the Apple logo in the upper left hand corner of your computer screen
• Click on preferences in the drop down menu
• Click on the Applications tab on the right hand side of the screen
• Click on Portable Document Format or “PDF” for short on the drop down menu
• Click on the drop down menu on the right hand side of Portable Document Format or “PDF”
• Click on “Other” in the drop down menu
• Click on and select “Adobe Reader”
• The drop down menu should now read open with Adobe Reader
• Completely close Firefox
• Reopen Firefox and print out the label

None of this was displayed on their website.  Why not just allow the user to download a simple PDF instead of going through that process?  I would be willing to bet that most users couldn’t even follow that process to completion.

The web was built on standards, why not use them?  Why complicate the process?  It may make things easier for some users, but on the flipside, it makes the process impossible to complete for other users.  USPS doesn’t work with Apple Safari; there goes that entire client base. Why does it not work on Safari?  Because USPS most likely wanted to eliminate one step, and since most users use Internet Explorer, they designed their solution around that.

How it should have gone

All of these sites have many things going on that should have been weeded out with some simple user acceptance testing. If I was operating a shipping company, I would make sure the label printing potion of my company’s site had the following requirements:

Passwords should not be restricted

If a user is restricted to a complicated password, they will write the password down on a piece of paper or in an unprotected document on their computer.  This would completely negate any security the site was attempting to create.  Usually users have a few passwords they tend to use, which are easy for them to remember, and fit the majority of password complication requirements.  Let them use those.

The excuse that the server does not accept special characters is not an acceptable excuse either.  For one, the database should allow any number and type of characters in that tables field.  Furthermore, the site should be hashing passwords, not storing them in plain text where the database variable type may not accommodate special characters.

Data entering

Each section of the process should have its own page. This idea accomplishes many goals; it simplifies page development, it simplifies database insert statements, it conforms to browser navigation standards, it makes the process simpler for the user, and it allows the user to use form fillers.

All of these sections should have their own pages including a unique page for:

• Account creation (username, password, email) or Login
• From Address
• To Address
• Package Information and Service Type
• Shopping Cart, with option to loop prior 4 pages for additional packages
• Payment information
• Order Verification
• Printing the label

After the order is complete, and ready to be printed, the user should be given options to select print with PDF or via HTML.  If printed through PDF, the user should be able to click a link that directly links to the server-generated PDF file.  If utilizing the HTML version, the user would be able to print via the browsers printing function.  Each label should be presented as a separate image.  Modern browsers will make sure images stay intact, and not be split between pages. Any browser/operating system configuration could handle either label printing process.

The moral of the story

Make it simple, and use standards.  All other things being equal, if your process is the simplest, fastest, and easiest for each and every customer to complete, your company will be the preferred choice for all consumers.

Example 1: The Grocery Game

The Grocery Game is a service that informs their customers on how to combine coupons and promotions, at a variety of grocery stores, in order to get the best deal possible.  They distribute updates on a weekly basis to paying customers.  Here is a screen shot from an E-mail they recently sent me encouraging me to sign up.

Since when does $2 divided by 3 equal $0.55?  I would think their E-mail marketing would go through a more vigorous editorial review then their product.  If their marketing is inaccurate, how accurate is their service I would pay for? Or if this is a screen shot of the actual service, I now know that I would be paying for something that was not correct.  After seeing this, I could never trust the company.

Example 2: JBoss

I recently received an E-mail newsletter from a local consulting firm that my friend works for. They mentioned “JBoss” in the newsletter many times, so I thought I would do some research into what JBoss was.  I was browsing RedHat’s website and found this example comparing the cost savings JBoss provides compared to IBM WebSphere and Oracle SOA Suite.  I thought I would play around with the tool a bit. Check out these calculations:

I don’t see how 20% of  $212,800 is $212,800.  Am I missing something?

It appears as though they were going to add up the column and have a Total License Cost like they had in the first column.  But, in year two and three, they all add up to $0.

Both of these errors impact the savings calculation shown on the bottom of the tool.  If RedHat’s savings tool doesn’t work, why would I trust the service they are selling with my company’s data?

Many of my friends and colleagues know I am a huge proponent of Wal-Mart’s and their Every Day Low Prices.  I frequently have lively discussions about my love for Wal-Mart and their low prices.  In mid December, I came across an article that discussed Chicagoland’s grocery chains and their battle for shoppers.  The article got me thinking about how powerful Wal-Mart’s “Every Day Low Price” strategy is.  Two lessons can be learned from the Every Day Low Price strategy: consumers don’t shop where they are unhappy, and innovative companies are profitable.

Pricing Strategies

Grocery stores primarily use one of two different pricing strategies: High-Low, or Every Day Low Prices (EDLPs).

Stores with “high-low” pricing strategies price some products at low prices, while having other products at higher prices.   These stores use promotional sales to lure shoppers into the store in order to persuade them to buy other high priced high margin items by utilizing other marketing techniques.

The competing grocery pricing strategy is “Every Day Low Prices”, or what I like to call, EDLPs.  Wal-Mart popularized this strategy and uses it to this day.  Prices are set low, and stay low.  The only time a price changes is when supply or demand changes, or when the retailer forces the supplier to innovate.  Furthermore, if prices do change, they usually go down.  Remember Wal-Mart’s “falling prices” marketing campaign? EDLPs have helped Wal-Mart become the world’s largest retailer.

The Grocery Store Game

Lesson one: Consumers don’t like to shop where they feel unhappy.

I don’t know about other shoppers, but I don’t like to play games when I shop. I like to know I am getting a fair price for everything I buy.  If I wanted to play games with my money, I would gamble.

Every time I shop at stores like Jewel and Dominick’s, stores that use the “high-low” pricing model, I feel like I am loosing a game of pricing. With the “high-low” pricing model, prices don’t change because of supply or demand; they change to trick the customer.  I always leave the store feeling like I lost the game, which makes me very unhappy.

The “high-low” pricing model is about as close as it can get to a “bait and switch” technique without actually being it.  Actually, when an item is out of stock, it does become a “bait and switch” technique.  Does anyone actually go through the hassle of getting a rain check on a bag of peas?

Let’s look at the shopping game in the eyes of an offensive or defensive player.

Defensive shoppers, like my self, usually go to the store when they need something.  And when they buy a product, they are at the store’s pricing mercy.

As stated in the fore mentioned article, stores who use the “high-low” pricing strategy have higher total transaction values; on average, 13% higher.

My defensive shopping habits cause me much frustration when I see the price I am paying.  As a price conscious consumer, I tend to remember what prices are good, and what prices are bad.  To this day, I know when I shop at Wal-Mart I can buy a cake mix for roughly $0.87 , no matter which store I am at or what day of the year it is.  At Jewel or Dominick’s, that price can range from a rare $1.00, to the usual $3.00.  Prices of many items at Jewel or Dominick’s fluctuate to this extreme, and it really makes me unhappy.

On the other hand, shoppers that buy offensively at these “high-low” stores, only buying products when they are on sale, usually do pay a decent price.  But that comes at a cost, shopping offensively is not only inconvenient; it requires a tremendous amount of planning and researching.  As explained in the story She’s crazy for coupons by the Star Tribune:

If you want to learn to save as much as the pros, check out their websites or attend one of the classes. Before long you’ll be buying 10 or more Sunday papers a week just for the coupons, going online for additional coupons and tips, devoting an entire room to food storage, and slashing grocery costs by 75 percent.

The Star Tribune is not alone, local and national news segments frequently feature customers that play the game so well, they can save nearly 85%.

I have tried this offensive technique, but living in downtown Chicago without a car, it is very difficult.  I am lacking both storage and transportation capacity.  It would cost me tens of thousands of dollars to devote a whole room to this strategy; eliminating any possibility to save money.

Efficiency

Lesson two: Companies that innovate are profitable.

As Jim Hertel points out in Food fight: Grocery chains, discounters in battle for shoppers, operating “high-low” pricing strategies actually creates inefficiencies, which translates into higher inventory costs.   I could not agree more with Jim.  Stocking and tracking inventory for temporary specials is extremely expensive. I recently discussed this along with many other inefficient practices associated with “high-low” pricing strategies in my recent post The Costs of Promotional Sales.

Jim also discussed the high amount of variety at stores like Jewel and Dominick’s.  Jewel and Dominick’s defend their vast variety, almost twice that of discounters such as SuperTarget, as adding to their level of service.  Stating,

Price comparison between conventional retailers like Dominick’s and low-cost discounters like Wal-Mart, SuperTarget and Food 4 Less is fundamentally unfair.

They continued,

We have different business models, and our format, offerings and overall selection and pricing strategy are not the same.

The last time I went to Jewel, there was half an isle of Jelly, Jam, and Peanut Butter.  How many varieties does the consumer need? I see the benefit of different brands and flavors, but there are countless sizes and varieties of each! Imagine the cost associated with stocking and tracking five different sizes/containers of each brand and type of jelly! This practice is not service, it is gross inefficiency that brings higher prices across the board.

One store has this “few varieties” concept down so well, I believe it has lead to their prices being lower than Wal-Mart’s prices.  Yes you heard me right; there is a retailer with lower prices than Wal-Mart. Aldi, well known in Europe for decades, has been expanding the number of their United States locations rapidly in recent years.  Aldi sells one size and one brand of grape Jelly. They only stock two peanut butter types: creamy and chunky, with one size fits all containers. Prices at Aldi are unbelievably low.

I can go on and on about Aldi, but I will save that for another day.  I will say, however, their business model is not only admirable, it’s brilliant and innovative.

Innovation is not unique to Aldi.  In order for Wal-Mart to have Every Day Low Prices, prices that are consistently lower than the competition, they need to lower costs.  Lowering costs is a religion at Wal-Mart.  The company is constantly innovating their supply chain and retail operations.

The most profitable companies are the ones that innovate: Wal-Mart, Apple, Google.  These companies are companies that I, along with most of the business community, admire to a great extent.

Innovation is, if anything, my religion.  Innovation should be never-ending.

In order for Wal-Mart to continue their goal of having EDLPs, they require their suppliers innovate and increase productivity. Many people see Wal-Mart as the goliath who forces suppliers to reduce wholesale prices, which, on occasion, puts the supplier out of business.

One of the most predominant examples of a supplier that Wal-Mart ruined was Rubbermaid.  Rubbermaid insisted on raising prices due to higher material costs.  Wal-Mart stopped selling Rubbermaid’s products.  A different supplier, Sterilite, quickly took advantage of the situation by innovating and became a significant supplier to Wal-Mart.  If Sterilite was able to supply Wal-Mart profitably, Rubbermaid should have been able to do so as well.  It was Rubbermaid’s failure to innovate which led to their failure, not Wal-Mart’s strength.

In fact, as mentioned in Wal-Mart’s Influence Grows, published in USA Today, Wal-Mart accounted for 25% of the late 1990s’ productivity gains. In the article, McKinsey & Co also explained that profit gains in the late 90s were primarily due to Wal-Mart.

The costliest thing a company can do is “do it like is has always been done” and languish in gross inefficiencies.

The Power of Every Day Low Prices

Looking at national, public grocer chains, and their financial data**, it is easy to see how powerful EDLPs can be. Stores that use the EDLP pricing model tend to be more profitable than those that do not.  Both Target and Wal-Mart have a healthy 4% average Net Margin for the last four fiscal years.  Kmart also utilized the EDLP strategy, but they stand out from the crowd.  Kmart’s refusal to innovate was, in large part, the reason for their demise.  As mentioned before, innovation is essential to the EDLP strategy.  Without innovation, the strategy will fail.

Now, let’s look at the stores that use the High-Low pricing model. SUPERVALU lost $2.9 Billion last fiscal year, a -6% Net Margin.  Over the three prior years, SUPERVALU had a 1% average Net Margin. Safeway and Kroger did slightly better, both having an average of 2% Net Margin the last four fiscal years. None of these stores had a fiscal year better than that of an EDLP store.

Every Day Low Prices make customers happy.  People like to shop where they feel happy. Shoppers know prices are consistently low at stores with Every Day Low Prices. And because shoppers know prices will be consistently low, they will continue to shop at those stores.  It is literally a free marketing campaign. Furthermore, both efficiency and innovation are functions of Every Day Low Prices.  In order to keep prices low, retailers must constantly monitor and reduce costs.  Cost reduction is a never-ending process requiring companies to be lean and innovate every day.

**National Grocer Chains Fiscal Data.  In Millions of USD.

* Fiscal years are estimates; company fiscal years deviate slightly from normal Gregorian calendar years.
* Fiscal data gathered from Google Finance on February 23^rd 2010.

I proceed to sign up for a Minyanville account so that I could comment on the video.  Knowing their ads were out of control, I thought it would be best to read their privacy policy before I decided which E-mail address to divulge. I am glad I made that decision! Minyanville’s privacy policy is absolutely absurd! Check out these three segments:

Personal Information

We will not sell or rent your personal information.

We may share your personal information with third parties solely for the purpose of providing services to you.

As we develop our business, we may buy or sell assets or business offerings. Customer, email, and visitor information is generally one of the transferred business assets in these types of transactions.

Their privacy policy starts out stating they wont share your personal information what-so-ever.  Then it states they may share it.  Finally it says, they may actually end up selling it. Unbelievable.

In case they decide to change it at a later date, here is a PDF of their privacy policy.

Grocery retailers frequently use promotional sales to lure customers into stores.  Retailers hope customers will purchase higher margin products while they shop for the promoted items.  Chicago grocers Jewel-Osco, subsidiary of SUPERVALU, and Dominick’s, subsidiary of Safeway, both follow use this marketing strategy, changing promotions twice a week.  The promotional sales may increase customer traffic, but they may also lead to the demise of the store.  I suspect, retailers that use promotional sales, on every day products sold year round, increase the cost of doing business and decrease supply chain efficiency.

Used by many grocers, promotional sales are the activities, materials, devices, and techniques used in the advertising and marketing of products.  I separated their cost into two different categories; direct costs and indirect costs.  I see the money spent on the processes and material to implement the promotional sale as direct costs, and the money lost due of the effects of the promotional sales are considered indirect costs.  From my point of view, both of these costs are significantly high, high enough to possibly outweigh any benefit of the promotional sales.  If I were managing a retail grocery operation, these are the items I would consider when deciding whether or not to continue utilizing promotional sales.

Direct Costs

Promotional sales have many components, each having a cost associated with it. Planning, marketing, inventory builds, and store preparations all take time to complete and consume valuable company resources.

Planning

Planning a promotional sale must be time consuming and costly.  Stores need to decide what products to put on sale, when to put them on sale, and at which price to sell them during the sale.  They must also decide how they will market the promotion, design the promotion, and distribute the promotion. It takes time for the retailer to manage, and it takes time for suppliers to manage.  That being said, it is possible that retailers who promote frequently can manage this process relatively efficiently.  However, managing a promotional sales still requires resources; resources that do nothing other than manage and execute promotions. The planning process is only the beginning.

Marketing

Promotions need to be communicated to the public, using any number of methods, all of which cost money.  From my experience, grocers seem to prefer some form of print media, like news papers or local ad circulars. Designing, printing, and delivering these advertisements must add significantly to a retailers cost. Some grocers even compliment the print media with radio and TV commercials, all of which take additional resources to produce and distribute.

Inventory Builds

Before the promotional sale starts, retailers must increase inventory of the items being promoted. Vendors, transporters, distribution centers, and storefronts all need to take special measures to guarantee extra inventory is delivered, on time.  Not only on time, but just in time; fresh produce spoils quickly and it’s vital the delivery process be planned and executed without error.  Early or late delivery can lead to costly spoiled inventory. In addition to any spoiled inventory losses; inventory builds take significant amounts of working capital.

Store Preparations

At the start of the promotional sale, costly store preparations must occur.  I have witnessed employees rearranging store shelving to accommodate shifts in inventory in anticipation of an increase in demand for some products, and decrease in demand for others.  Price tags throughout the store need to be updated, reprinted, and reapplied.  Finally, if displays are being used, they must be built and placed.

Each activity and consumable is temporary.  As promotions end and new ones begin, I expect these four processes repeat endlessly, adding cost during each cycle.

Indirect Costs

Along with any direct costs mentioned above, I predict promotional sales also have indirect costs aswell. Indirect costs caused by poor forecast accuracy, inadequate supply chain communication, and large inventory swings.

Forecast Accuracy

As part the planning and execution phases, I suspect most vendors and retailers use Enterprise Resource Planning systems, or ERP systems, to manage the supply chain.  ERP systems use a multitude of variables, including, but not limited to forecasts, past orders, current orders, and current inventory levels, to track, plan, and manage inventory.  Recommendations to create purchase orders or manufacturing requirements are created on a regular basis. Recommendations may be edited manually and released by planners, or  they may be released automatically as purchase orders to suppliers.

Because forecasts are the foundation of ERP system demand calculations, I know the data must be clean and accurate for the systems to operate efficiently.  But, from my point of view, promotional sales cause forecast data to be dirty or inaccurate for two reasons: lack of predictability, and manual data entry.

I assume it is nearly impossible to precisely predict how inventory will move during and after a promotional sale.  The incredibly high quantity of variables makes it close to impossible to accurately forecast purchasing. Even the most nimble and elaborate forecasting software will likely have difficulty analyzing uneven sales data, not knowing what impact each dip or spike had, or if the dip or spike will happen again. During a promotion, inventory could be wiped out completely or may not be sold at all.  After the promotion, purchasing may likely decrease but it may, instead, increase.  The dip or spike in demand will last an unknown period of time.  I suspect competitors may possibly have a promotion on the same or competing products.  The promotion price may or may not impact purchasing.  Finally, it is also likely a naturally occurring or unpredicted event may also affect demand.

Even if all the variables are correct and accounted for, and the company has perfect knowledge of consumers’ thoughts and competitors’ marketing, forecasts may still be entered or edited incorrectly.  The manual data entry processes is far from six-sigma levels of accuracy and, from my experience in analyzing forecast data, will most likely have errors.  Incorrectly entered or edited data points could flow automatically from the retailer’s ERP system to the vendor’s ERP system without notice.  It is likely systems would be in place to detect erroneous data, but because the data nature of highly volatile forecasts, I would expect the detection systems would miss many errors.

Supply Chain Communications

The ramifications of incorrectly generated and/or entered forecasts could be huge and expensive.  Data often trickles down from retailers to distributors and from distributors to suppliers; Most likely traveling automatically by way of automatic releases of ERP generated purchase order recommendations.  An invalid forecast could be transfered from the retailer to distributor to vendor without anyone knowing its inaccuracy.

Correct, but changed forecasts, could also cause problems.  I expect promotion plans change all the time.  They may get canceled, dates may move, or anticipated purchasing may change.   Regardless of the change, corrections or non-standard changes could get lost, miss communicated, or miss translated when being sent from retailers to vendors.  In some cases, they may not be communicated at all.

The farther away in the supply chain a company is from the retailer, the more difficult planning and communication becomes.  At the front of the chain, retailers have direct knowledge of a promotion, and have the ability to add or edit the details in their ERP system.  As promotions are developed, retailers communicate information to suppliers.  But, as mentioned before, if a promotion changes, it may not be fully communicated to all suppliers.  To add to the confusion, suppliers have suppliers, and those suppliers also have suppliers.  The farther down the chain, the less promotion visibility is seen.

The entire chain is only as good as the weakest link.  If not handled quickly and efficiently, at all levels of the supply chain, one invalid or missed forecast entry, or forecast change, has the ability to trigger massive product spoilage.

Inventory Swings

From my experience at a manufacturing company, huge swings in inventory are nightmares for suppliers.  Inventory builds require increased production, which may require overtime pay and/or auxiliary temporary warehouse space; both impacting the supplier’s profitability.  On the other hand, purchasing reductions that occur after a promotion ends may lead to vast amounts of unused warehouse space, non-moving inventory, or unutilized resources or personnel.  These swings are not only problems for suppliers, they are disruptive to transporters as well.

Trucking is the predominant type of food transportation in the United States.  Trucking is a tough business; just like empty planes, empty or unused trucks are not profitable. To be profitable, trucking companies need to haul loads to and from sources and destinations.  And inventory swings spurred by promotion sales create irregular shipments and increase the possibility of empty trailers for flatbed trucks.  Fortunately, third party logistics companies have become a popular way to mitigate the cost of empty trucks, but I still don’t believe they are still not a perfect solution, nor do they provide free services.

The least tangible costs of inventory swings are their affect on data mining and forecast generation.  As previously discussed, forecast accuracy is crucial.  From my experience as a Supply Planner, large swings in inventory make it very difficult to produce an accurate forecast. Standard deviations for products that regularly go on sale are extremely high, and systematically generated forecasts can be incredibly inaccurate.

Any losses or costs incurred at any point in the supply chain will be passed on to the retailer by way of higher wholesale prices, regardless who is at fault.  The retailer will then pass that cost increase to the consumer via higher retail prices throughout the store, not necessarily on the product being promoted.   Keep in mind, all of these additional costs are being incurred to sell an item at a reduced price, likely a price below wholesale cost.

I believe retailers that use promotional sales as part of their marketing strategy are pregnant with cost saving opportunities.  It only requires retailers to realize how many costs are likely associated with their promotional sales in order for them to analyze their promotional sales strategy.  In a retail world ruled by everyday low prices, the analysis will hopefully come soon.  If not, retailers selling everyday products will likely fail because their promotional sales have a high probability of increasing their cost of doing business and decreasing their supply chain efficiency.

I recently rearranged furniture in my condo.  Doing so required me to use the wireless 802.11 G network on my iMac.  I was not too thrilled with the solution; media transfers to my Tivo were extremely slow, and the connection was not as reliable as the hardwired one I had become accustomed to.

I remembered that my condo had many phone jacks throughout, so I thought I would research how my builder wired my unit, and maybe change the phone jacks to Ethernet jacks. Worse case scenario, I could at least get one 100 Mb connection from my iMac on one wall, to my Tivo under the TV on the other wall.

Solution

Turns out, the builder did a remarkably robust job with the wiring!  He used Cat5 cabling and all connections went to the closet! What a blessing!

I replaced all the wall plates with new versions and terminate the cat5 cables with Ethernet keystones.  I then created a small little networking area in my laundry closet.  Luckily, the builder also wired the cable lines to the same location he put the phone wiring. I was able to tap into the cable line right where I terminated the Ethernet in the closet.

After some cable crimping and wall mounting I was set!  My cable modem and router were hidden in my laundry closet, with hard wired Gigabit capable Ethernet jacks throughout my condo.  Pretty slick! And all under $15.

Next Step: Gigabit 802.11 N router!

One of my client’s computers recently got infected by several viruses.  She attempted to solve the problem by installing Norton Antivirus 2010.  After the instillation, her computer would not allow her to logon, so she gave me a call.  After doing some research, being unable to solve the problem, which was likely caused by the instillation of Norton Antivirus, I called Norton to receive the “Free Support” that came with the software.   The phone support reminded me of my recent post on foreign call centers; Norton’s support was unbelievable and unacceptable.  Explaining my interactions with Norton’s support team will illustrate how Norton’s “low cost” foreign call centers destroy consumer trust, damage Norton’s brand, and ultimately reduced the company’s profitability.

Before I elaborate on Norton’s phone support, I want to point you to how I solved the problem.  You can see the solution on how to fix a logon logoff loop on a previous post of mine.

I would also like to give a brief history of Norton Antivirus. Historically, Norton Antivirus has received extremely poor reviews because of its intense PC resource consumption, and inability to be completely removed from a user’s computer system.  Recently, Norton has been making great strides in reducing the products resource requirements and marketing it as such.  It has been quite some time since I have personally used Symantec’s Norton software; before the following fiasco, I perceived the Norton and Symantec brands as mostly neutral.  Let’s see how Norton’s call center impacted my perception of Norton’s brand.

When I arrived at my client’s location, she was completely beside herself.  My client was about to go on vacation, and her POS (Point of Sale) system was out of commission.  I tried for about an hour to solve the problem on my own to no avail. The box the antivirus software came in mentioned that it came with “Free 24/7 chat, E-Mail, and phone support”, so I figured I would give that a shot.

When I called, I was first connected to a Norton call center in the Philippines.  Before getting to the actual support, I had to give the Norton agent some personal information so she could create a customer profile for me.  I usually find it quite easy to tell someone my name and phone number.  This was not the case with Norton; I was barely able to communicate with the Norton representative I was on the phone with.  I spent five minutes spelling my name and giving her my phone number.  I am not an exaggerating.  If it was difficult to give my phone number, I could only imagine the quality of support I was about to receive.

After describing the problem, and going through some basic trouble shooting steps, the representative said she was unable to solve the problem.  I asked for their second level of support, the support based in the United States. As she began her response, I came to realize they were attempting to up-sell me.

I was embarrassed for the Norton representative as she began her sales pitch; I could tell she was reading from a script.  She told me that the second tier of support was based in the United States and normally cost $170.  But since I was a “valued customer,” they would give me a $30 discount.  So much for the “Free” support claims on their packaging.  I agreed to pay the $140, as I knew this was the only way I could reach someone that understood English.  I also knew that could get a refund, or if not, dispute the charge with the credit card issuer.

Prior to connecting with the second level of support I was asked to go to “Norton.com/link” in my browser.  Early in the support call, I told the agent I was using a second computer that had access to the internet, and it was not the computer I needed the support on.  With that understood, I figured this page would be used for some purpose other than remotely controlling my computer.

I spent another five minutes communicating my E-Mail address.  I was laughing in my head the whole time.  I assumed Norton’s support would be poor, not painful.  Norton’s support was painful.

The Norton representative then spent more time then necessary explaining how I would be entering my credit card information into an automated phone system.  When she finally transferred me to the automated system, I looked at my phone, and realized I had spent 30 minutes talking to her; 10 minutes of which was communicating my name, phone number, and E-Mail address.   I entered the requested information into the automated system with relative ease and was transferred to tier two support.

I got to the second level of support after a brief time on hold.  As the conversation started, I noticed the second representative had a stronger accent than the initial agent I spoke with. I inquired about her location, and she said she was in India.  I distinctly remember being told I would be talking to the second level of support, in the United States.

As I was talking to the second female agent, I was asked to confirm the information in my customer profile.  It turns out my E-mail address was incorrect.  I guess the five minutes I spent giving it to the first agent was not enough.  I had to go through the process once more; add five more minutes to the phone call for simple data entry.

After verifying my information, I was asked to go to the “Norton.com/link” page I had open in my browser.  The Norton representative said she was going to remotely control my computer.  I expressed, again, this was not the computer with the problem.

We discussed the problem once again. She reviewed a few pages of her resources with me; all of which I had already tried with no success.  Once her resources were exhausted, she said she was unable to assist any further and that she would refund what I had paid for the support.

After the interactions with Norton, I did some more research on the internet.  And, as I mentioned in the beginning, I did finally fix the Windows XP Logon Logoff loop.  Not only is it likely Norton Antivirus caused the problem in the first place, their support provided zero assistance solving the problem.  What Norton did do, however, was impact their brand quite negatively.  Norton’s “low cost” foreign call centers damaged the trust I had in Norton, damaged Norton’s brand, and ultimately cost the company money.  Let me elaborate a bit on each of these claims

Trust

My trust in Norton’s brand has now been damaged.  Norton’s packaging says “Free Phone Support” and I did not get that.  Instead, Norton required I purchase their advanced support to get any relevant help.   If one portion of the packaging was untrue, were other parts untrue?  Is Norton Antivirus actually effective at preventing infections? It is hard to trust one claim on a package if a second claim is proven false.

Second, I was told I would reach American based technical support if I paid their advanced support fee.  When I was transferred to that second level of support, I reached someone in India.

Impact on Brand

Besides losing consumer’s trust, Norton also proved they can’t effectively communicate. Either Norton’s foreign call centers are staffed with employees that can’t understand English well, or the call centers are built using poor quality telephony equipment. Why would anyone do business with a company that can’t spell “Ed” or understand a 10 digit number?  Statistically, from my interactions with two of Norton’s employees, in two different countries, 100% of Norton’s employees can’t communicate.  I realize that that is quite a poor population size, but it is all I have to go by; it is the only point of contact I have with Norton.

The Numbers

A few months ago my interactions with RCN inspired me to write an essay on how low cost call centers are inherently expensive.  My experiences with Norton prove my theory once again.  I spent roughly an hour and a half on the phone with Norton Support.  The call accomplished no positive outcome.  However, many resources were used during the conversation.

• Norton authorized a $140 credit card purchase, which likely cost Norton $3.
• I talked to two different support agents, at $10 an hour, that cost Norton $15.
• Norton consumed 90 toll-free minutes.

The call, which cost Norton nearly $20 financially speaking, was not the only cost to Norton.  The damage to Norton’s brand, caused by the poor quality foreign support and false advertising, carries an even larger cost, although it’s tough to say exactly what that cost is.

Even with the sale of the software, it would be tough to conclude Norton made any profit.  Norton only received a fraction of the revenue generated from the purchase of the software, which retailed for $40.  And it is likely that the software will be returned.

Here is the kicker: The foreign call centers may actually impact Best Buy more than Norton.  Best Buy does not allow opened software to be returned; it is against their return policy. It is unfortunate for Best Buy that Norton’s packaging included false advertising.  The customer, my client, did not receive what she had paid for; free phone support.  Therefore, it is safe to assume any credit card disputes would end in favor of my client.

I believe a credit card charge-back, or “dispute”, would cost an estimated $25, regardless if the dispute ends in the retailers favor or not.  Furthermore, credit card charge-backs are an administrative nightmare for any company.

At minimum, if Best Buy accepted the return, Best Buy would incur the cost of processing the initial sale, the refund, and the cost of employing someone to process both transactions. Total minimum cost would be roughly $3.30.  However, if they won’t allow the product to be returned, Best Buy would incur a charge-back fee from the credit card processor, regardless if they were found accountable or not, which would add $25 plus any administrative labor cost.  The total cost would be well over $30 after all is said and done.  That is well above the margin from the initial sale.  Furthermore, if the dispute ended in the customer’s favor, Best Buy would be out the $40 as well; totaling $70.

Norton’s “low cost” call centers have impacted both Norton and Best Buy quite negatively.  Norton has lost consumer trust.  Norton has badly damaged its brand.  And both Norton and Best Buy have incurred, or will incur, significant financial losses.  When will multinational corporations begin to see the damage caused by poor quality and low cost call centers?  It astonishes me that this trend continues.  Even as I was writing this essay, a friend of mine was complaining about HP’s foreign support as he tried to get his printer installed.  Ironically, he recently consulted on a project to outsource a portion of a company’s workforce to the Philippines.