Why consumers buy, scourge of the e-pirates, sentimental as anything and the importance of search rankings

Michael Carney on the reasons consumers pay retail prices, the results of the 2011 Film Census and their effect on the enforcement of the new Copyright (Infringing File Sharing) Amendment Act, how sentiment analysis can improve your interactions with customers and the difference a place in the organic search listings can make.

As online shopping rises, offline stands firm

The casual observer wandering through our shopping malls, or even just watching an evening’s television or leafing through retail catalogues, would be forgiven for concluding that price is the only thing that consumers care about.  “Up to 50% off”, “If you can find a lower price we’ll eat it”, “Save! Save! Save!” The price claims are deafening. And yet, somehow, sellers who aren’t the cheapest manage to survive and even prosper.

Once upon a time you could chalk that up to imperfect market knowledge. The consumer had no way of knowing what prices were being charged elsewhere.

That’s not an easy argument to defend nowadays, not when you can wander into a retail store, scan a barcode or type a model number into your smartphone (as an increasing number of us do) and check out competitive pricing on any given product. Toss in the daily deal sites, the group buying sites, PriceMe, PriceSpy, Trade Me, global operators such as Amazon and eBay, or, if that’s not enough so-called preshopping sites such as Lasoo.co.nz or Google Shopping (just launched in Australia so NZ probably isn’t too far away) and you can do all your research online before shopping offline.

So, why pay retail? In the last quarter of 2010, McKinsey & Company asked 6,000 U.S. consumers what factors they took into account when deciding what constituted value for money. Price was only 24% of respondents’ evaluation criteria.

So what were the elements that swayed respondents?

  • 24% Price: consumers choose a source (whether virtual or real-world) that consistently offers better prices (and occasionally exceptionally low prices)
  • 17% Past Experience: I can easily find the specific items I want; and this retailer is the most convenient for me to shop
  • 17% Trust: I know and trust the seller and have found that the items they sell are always good quality
  • 12% Assortment: this source has a good range of prices and quality levels
  • 12% Return Policy: policies and processes that are reasonable and easy to follow
  • 11% Product Information: the retailer makes it easy to find information about items and conduct research
  • 4% Delivery Costs: this source has reasonable delivery charges
  • 3% Loyalty: has a loyalty programme that gives me rewards I really value

Even if we allow a healthy margin of doubt for those customers who just didn’t want to admit they’re really cheapskates, these results are reassuring news for those of us who aren’t (usually or ever) the lowest price provider in a given category.

If you want to see how the high value proposition can work in practice, take a look at the Apple retail store. In his 2009 book What Americans Really Want … Really, Dr Frank Luntz cited the Apple store as representing the key elements of “life as we want to live it”:

  • more money in our pockets because the products are more cutting-edge and last longer and therefore don’t need to be replaced as often
  • fewer hassles because the products do exactly what they say they do
  • more time on our hands because the products are quick and efficient
  • more choices because of constant updates, innovative new features and new applications
  • fewer worries, because the products never break (well, at least updated models) and
  • less stress, because the Apple employees take the time to sell you the right product and provide in-store lessons to answer all your questions at your convenience

While we might quibble with some of the above observations, the reality is that all the practices Dr Luntz identifies contribute to the Apple experience. Toss in products that are “insanely different” and you end up with an offering that is defiantly and proudly anything but lowest-price.

Unintended Consequences

Workloads at IPAPs, which slips so nicely off the tongue and stands for “Internet Protocol Address Provider”, are about to blow out come September, if the results of a recent research study by Flicks and Ant Timpson are to be believed. What on earth are we talking about? Perhaps a little explanation is in order.

You’re probably at least peripherally aware of the Copyright (Infringing File Sharing) Amendment Act 2011. This recently-passed piece of legislation, due to become law on September 1, repeals and replaces the much-maligned Section 92A of the Copyright Act 1994 which authorised the use of deadly force to terminate with extreme prejudice the internet accounts of those file-downloaders who infringed the rights of copyright holders.

This blunt-instrument legislation has been replaced with a “three-strikes” process: copyright holders are first required to issue a detection notice, then a warning notice and finally an enforcement notice in regard to an alleged infringement, before more draconian measures such as court fines are enacted.

Copyright holders are required to serve such notices to IPAPs, who are then required to identify allegedly-infringing account holders and duly pass on the notices.

The acronym IPAP was invented to specify those Internet Service Providers (ISPs) who provide paid services to their customers, lest the usual definition of ISP catch accidental providers such as libraries and public WiFi providers who are typically unable to identify and communicate with their many transient users.

So the IPAPs (eg Xtra, Orcon, Slingshot et al) are required to warn off their customers in accordance with the provisions of the new Act.

What makes us think that their workload will become onerous? Turn with us to the 2011 New Zealand Cinema Census, organised by movie website Flicks.co.nz and V48HOURS founder Ant Timpson – which polled nearly 4,000 Kiwis on their movie-watching and cinema-going habits.

According to that study, 51% of New Zealanders regularly download movies online and of those 87% get them from free and illegal sources. That’s an awful lot of infringement notices.

We shouldn’t really be surprised. InternetNZ chief executive Vikram Kumar recently told BusinessDay that it would be entirely realistic to expect tens of thousands of notices to be issued each month, based on experience overseas.

“France introduced a similar law and they were completely flooded, with 50,000 notices being issued almost instantly. In the United States it is quite routine for rights holders to send out hundreds of thousands of notices.”

One aspect of this new environment that hasn’t received much attention is the commercial implications for IPAPs. New Zealand’s internet model is based around volume: consumers pay by the megabyte or gigabyte for data downloaded. Video content typically accounts for many hundreds of megabytes per movie or television episode, so illegal file-sharers are likely to be amongst each IPAP’s biggest customers. Every success for the copyright holders could potentially eat into an IPAP’s ongoing revenue stream.

In other words, serving cease and desist orders to your biggest customers, whilst it may be morally laudable, is not a particularly attractive loyalty or retention strategy.

Sentimental as anything

We’ve come a long way from the days when articles carefully clipped from the newspaper representing the state of the art in media monitoring. Even back then, the missing ingredient was interpretation: What do these stories mean? What are the implications for our business?

Nowadays, we’re drowning in data but clarification remains fuzzy. Thankfully, there are a growing collection of tools (typically based around collection and collation of online information). Insight becomes easier (but that outcome is not a given). Perhaps the hottest such tools offer Sentiment Analysis; insight into consumer or influencer opinion.

One such example comes courtesy Meltwater Group, and it’s particularly topical: the death of Osama Bin Laden. Yes, the story has been well canvassed just about everywhere but follow-up tales have taken a curious turn, as journalists and commentators have turned their attention to what happened next.

According to Meltwater (who reportedly monitor over 130,000 online publications, enough to give anyone eyestrain):

  • 3,000 followup stories were over concerns about retaliation
  • 4,000 discussed the effectiveness of Guantanamo interrogations
  • 7,000 pondered the impact on Obama’s re-election prospects
  • 10,000 debated whether photos of Bin Laden should be released
  • 13,000 weighed in on whether Bin Laden should have been buried in the manner he was
  • 23,000 wondered aloud what did Pakistan know
  • 25,000 talked about the controversy around U.S. celebrations

We’ll leave it to the political analysts to slice and dice that data in accordance with their own prejudices. One thing is clear, though: Sentiment Analysis tools provide us wih perspectives we never had before.

Of course, it’s not just news stories that can be evaluated with this new breed of analytics. Products are up for x-ray inspection as well. According to a recent Bloomberg BusinessWeek story, a number of companies are using new tools to mine comments on the web to see what consumers really think of their brands and to gather insights into how they can improve their interactions with the customer.

Here’s a cool example quoted by BusinessWeek:

Gaylord Hotels, a network of upscale, meeting-focused resorts, is changing how it communicates with customers based on sentiment analysis. Using information gathered by Clarabridge, the hotel chain concluded that it can make the most positive impact in about five ways in the first 20 minutes of a guest’s stay; previously Gaylord believed there were 80 things it had to do well during a visit to increase the likelihood guests would recommend the hotel.

For instance, the hotel discovered that guest satisfaction improved if the hotel staff walked with guests to their destination in the resort, rather than simply pointing the way when asked for directions. “Through our Clarabridge survey research, we learned that the first 20 minutes of the hotel experience was of vital importance to our guests,” says Gaylord Hotels COO David C. Kloeppel. “Our hypothesis became: If we could perfect the first 20 minutes of the experience at our hotels, we could drive positive overall guest satisfaction.

What information would you most like to know about or from your customers? The truth could well be out there.

The First Click is the Deepest

If you’ve ever worried about the position of your website on organic search engine results (i.e. not paid listings, just those natural results chosen by Google et al), you may be aware that where your site appears amongst the search results has a direct and significant bearing on the numbers of clicks you can expect to attract.

What you may not know is that some of the calculations used to predict Click Through Rates (CTR) from search engine position are based on data that’s now five years old. Time for an update.

  • Last December, software and services provider Optify crunched the numbers to determine current search engine performances. In a report that you can access here, Optify reveals the latest results:
  • If your website appears in the number one position, you can expect an average 36.4% click through rate — more than three out of every ten browsers who see your site listed will click on it.
  • Second place is a long way back — typical clickthrough rate there is 12.5%
  • Third gets you an average CTR of 9.5%
  • By the bottom of the first page of search results, you’re down to just 2.2% clickthrough.

Even if you’ve never concerned yourself much about Search Engine Optimisation before, consider this: if your competitor’s website appears at the top of the first page for a popular search term in your product category, that competitor will attract nearly three times your traffic (if you’re in the number two slot) or as much as sixteen times the traffic of the website that’s at the bottom of the first page.

Worth putting in the effort to read the Optify report, don’t you think?

  • Michael Carney is now offering a new Facebook Kickstart programme, a four-week online offering that takes you through the twelve steps which will help you to build a presence on Facebook. Check out what’s on offer and book your spot here.



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