January 10th, 2012 by Sumit
Recently I’ve been pondering what the fate of our beloved local retail shops will be in the age of Amazon (or online comparison/bargain shopping in general). This is particularly true of stores selling commodity goods, such as bookstores, electronics outlets, and so forth. If the Targets and the Bed, Bath, and Beyonds of the world were to disappear, I would be disappointed, and if my favorite local retailers like Elliot Bay Book Company or Retrofit Home were to disappear, I’d be crushed. Like many others, I enjoy going to shops to check out the physical goods before making a purchasing decision.
In an attempt to address this issue, I’ve heard many calls from friends to “buy local,” appealing to shoppers’ morality, but I fear such a strategy can only have limited effectiveness. Especially now, when consumers are so squeezed for money due to record unemployment rates and low wages relative to inflation, folks who are cash-strapped are going to look for the best deals they can find for themselves and their families. It may not be nice, but it’s the reality.
I think the mode of attack local retailers like Elliot Bay Bookstore fear/loathe the most is “showrooming” – a consumer comes in, checks out a physical book, reads a few pages, likes it, then scans the barcode on her smartphone, sees the cheaper price on amazon and buys it from there right then or later at home; in either case the bookstore loses out on the sale, and the customer is benefiting without the store profiting from it in any sense. A related scenario is when the customer is only interested in the e-book version, which the bookstore couldn’t sell even if it wanted to; after checking out the physical book they go home and buy. I started thinking about how one might change this scenario so that both the bookstore and the customer could profit more than they are right now.
The Core Idea
Here’s the core idea: Amazon has long had a program called Amazon Associates which allows anyone to make money off Amazon sales if they can get consumers to buy items through their Associate-tagged links – they have a handy dandy tool to make a custom link out of any product they have for sale. Amazon wants its associates to direct business its way, so the rewards are good – once you get beyond a hundred or so items sold per month, you get 7% of the retail price, and if you get beyond three thousand items, you get up to 8.5%. For the purposes of discussion, consider getting 650 or so items per month sold this way through Amazon, which would get you 8% of the retail price for each item.
Let’s think about what this means. Let’s say Elliot Bay has a book for sale for $15. I don’t know what the retail margin on the book is, but it’s likely less a couple of dollars at best, once you take in the cost of renting the space, paying employees, shrinkage (theft and other random forces), etc. Let’s say Amazon has that same book for $12. If Elliot Bay could somehow get a customer to buy the book through their link, they would get $.96 (let’s call it $1 to keep things simple). Also, that purchase would take zero time of any cashiers/etc., no labor to replace the book on the shelf, etc., so knock a few cents off the couple dollars they would have made from the physical book sale, and it’s not such a bad deal for the bookstore. Furthermore, if a customer were interested in the kindle e-book, which the bookstore doesn’t carry, Elliot Bay would still make the $1.
Putting it into Practice
Now the question: how do we get the customer to click on the Elliot Bay Associate’s link instead of just scanning the barcode and getting it from Amazon? There are two problems to solve here: first, how is the customer going to find the right Associate’s link to click on, and second, how will the bookstore convince the customer to deal with the bother and not just buy it directly from Amazon.
The first part has many possible solutions. One that would be minimal coding/dev effort up front but more marginal manual labor is to just create a 2D barcode or tag for every book with the Associate’s links for the physical book and e-book, then put those on a (per-book) sticker and stick them to every physical book. This would be labor intensive, but pretty easy to implement. A more labor-efficient approach in the long term would be to create an Elliot Bay app for the popular smartphone platforms in which you could scan the book’s barcode and it would take you to the Associate’s link (physical or e-book). This would cost more upfront in that someone would have to develop the app, but after that it would just be a matter of updating the server side’s database with the appropriate links. In the long term, an app shop could even specialize in making a turnkey app for this purpose which they could rebrand and resell to many retailers, thus reducing the cost of the app development to any particular retailer.
But why would a consumer deal with the separate app or scan the special barcode instead of just going for the book’s original barcode? That’s the second question, and I think to crack that one it’s necessary to share the gains with the customer. Consider that instead of Elliot Bay taking the full $1 and keeping it, they return $.50 to the customer as 50 “Elliot Bay Points.” The bookstore can decide how they want to make those points redeemable – they could be just like cash and be used towards any physical purchases (the best option for the customer); they could be redeemed for an occasional free book from the bestsellers list or something of that ilk; they could be restricted to a particular set of items like t-shirts (much worse for the customer). The first option, I think, is the simplest and the best.
The Potential Result
If the bookstore were to implement that first option, and essentially give the customer 4% of their Amazon purchase price in “points” with every purchase, not only would customers gladly take the extra trouble to use the special barcode and/or app to make their purchase (allowing the store to monetize the scenario they are most worried about now), they’d also use it to buy e-books (something the store can’t make any revenue from right now); I would argue some consumers would even walk to the bookstore to make their e-book purchase, since they know they’d be getting points for every purchase as well as having an excuse to saunter through an awesome store (I know I would!).
Of course the bookstore might argue they’d still rather have the consumer buy the physical book (and thus keep $1-2) and not buy the e-book or pull out their smartphone and comparison shop, but this approach would let them aggressively start monetizing opportunities that they’re currently losing entirely – by this scheme they’d at least make $.50 (and give $.50 to the customer in points) rather than making $0.