Paul Wallbank | Paul Wallbank - Communications Professional

The rebirth of the middleman

Groupon, Google and Apple prove there’s still money in the middle

For many years, we believed the Internet would see the middleman’s demise. Just as it has with the newspaper and recording industries, we expected manufacturers, service providers and content creators would stop using intermediaries such as agents, brokers or retailers and move to set up their own online distribution channels.

The new middlemen

The rise of services like Groupon, along with booking platforms like Wotif and employment services like Seek, show just how wrong we were. What we’ve actually seen is a rise of new middlemen to replace those who have fallen away like telephone directories and record stores.

If anything, we’ve seen even more powerful intermediaries develop like Google, Facebook, Apple and Amazon develop to replace the old gatekeepers.

Why we need intermediaries

Part of the reason for this is that none of us, even the biggest corporations, have all the skills to bring a product to market; retail itself is a tough business, marketing is hard work and distribution is easiest when you have economies of scale. Middlemen bring these and other skills required to get products into the marketplace.

The danger with middlemen is they can dilute your brand. We see that with Groupon as businesses give their brand over to them with steep discounts on their products. As Esther Dyson points out at Salon, Groupon will eventually destroy many of their merchants.

None of this is new as many brands who’ve found themselves hostage to single outlets have found. This isn’t a just a small business problem either as we see hotels and airlines try to break their dependency on travel websites whose readers mainly shop on price.

The Internet’s price paradox

Price is one of the big paradoxes we have on the net, we’ve largely trained customers to buy on price – or look for free – yet for the middlemen to make money, it’s essential there’s a decent profit in the chain. If a $50 product only has $10 margin to share across the supply chain, there’s not a lot in it for the various intermediaries.

Right now, we’re seeing another paradox as the middlemen are keeping their profits while retailers and producers – such as the hairdresser, restaurants and personal trainers selling through group selling sites – are taking the pain and absorbing both cost increases and reduced income from retail price discounting.

That’s not sustainable and it’s probably a transition effect as the technology changes distribution and marketing at the same time that the Western economies are moving from being driven by consumer debt.

Are most of us really middlemen?

We were wrong to predict the death of the middleman, they provide too many benefits and many of us are middlemen ourselves whether or not we’re prepared to admit. What does happen is the middleman’s role evolves as markets, technology and industries change.

Regardless of whether we use, or are, middlemen it’s necessary to keep an eye on that evolution and make sure we aren’t caught out when the market tips and moves against us.

Tipping points

What happens when industries are hit by massive change.

We often assume change is immediate – for instance, the moment the motor car was invented, all the horse cart makers went out of business – what usually happens though is the two technologies or industries sit side by side for some time and the old industry may even continue to prosper for sometime and the new methods struggle.

Eventually though the newer technology takes over and the older one falls away quickly, leaving slow to change incumbents with an irrelevant business model.

Illustrating this, two fascinating posts by Michael DeGusta on his blog The Understatement tracks two major trends in the US newspaper and record industries, noting how the sectors are now at 1960 and below 1973 levels respectively.

The record industry

Michael’s tracking of per capita recording sales is striking both for how technology, trends and musical tastes have shaped the record industry along with the predicament it now finds itself in.

The 1970s show how the recording industry adapted, we see sales start the decade in decline until a sharp uptick in vinyl sales happens in the late 1970s, probably driven by the heavily hyped “rock opera” and concept albums foisted on us by the likes of Pink Floyd and the Electric Light Orchestra.

It’s interesting that during this period cassette sales largely flat lined, as digital revenues have today. As a child of that late 1970s era, we used cassette recorders – mine won in competition at a jeans shop in outer suburban Melbourne – to tape stuff off the radio and jerryrig with record players so we could create mashups of Alice Cooper and Skyhooks.

Cassette revenues eventually grew, but the the Compact Disk quickly took the growth off the cassette tape and drove the record industry to new highs, probably as people replaced their vinyl collections with CDs that weren’t easily copied through the 1980s and much of the 90s.

The peak of CD sales was hit in the late 1990s, which is almost certainly due to the arrival of personal computers equipped with recordable CD units. All of a sudden, we could go back to copying the music we’d already bought.

To make things worse, the rise of the World Wide Web meant we suddenly didn’t have to go through the gatekeepers – the record stores, radio stations and magazines – to find the music we wanted.

For a while the record industry fought back, even seeing a minor resurgence in 1999 and 2000, but then the rot sets in. The tipping point was clearly in 2001 and can probably be traced to the online streaming services, including YouTube, and the rapidly maturing peer-to-peer services.

The only solace the record industry in its current form can hope for is to see a surge in digital sales like they saw with cassettes in the mid-1980s. It’s difficult to see how that can happen unless they can quickly strike some very favourable deals with Apple and other online distributors.

Newspaper advertising

Print media’s performance over the last fifty years has been one of success until 5 years ago. Despite most of us turning from newspapers to broadcast television for our news through the 1960s and 70s, revenues stood up.

From the 1980’s there was a slow decline and in a few years early in the new millennium it even looked like the Internet wasn’t affecting revenues and the new streams from online advertising were actually increasing overall income.

Then in 2005, the tipping point was reached as classified advertisers, particularly employment and real estate, fled to online competitors with the display buyers not far behind.

For newspaper publishers, that their online revenues have barely grown in the last five years most be the most worrying aspect of the collapse in their income. Their online strategies simply aren’t working.

What this means for other industries

This “tipping point” pattern is typical when we see technological shifts. For various reasons – customer inertia, government regulations, uneven distribution of the new tools – a game changing technology usually takes time to be adopted and usually goes through a process best described by the Gartner Hype Cycle.

New technologies and ideas rarely change industries or societies overnight, but once a technology reaches maturity and mass acceptance, the barrier eventually gives gives and people quickly move across to the new way of doing things.

We see this in the record industry – particularly in the switch to cassettes, CDs and then collapse as the net takes over – then again in the newspaper industry.

These two industries though are just examples, the same process is happening to many others. One good example is the phone directory business where the tipping point is happening right now as consumers and businesses move online and away from printed directories.

That many businesses still haven’t figured out this change in consumer behaviour indicates they too are being blind sided by tipping points that could leave their ventures stranded by history.

All of us have to understand how these changes will affect our livelihoods and trades. Are you looking at how your business is affected by the rise of the net and the end of the cheap credit?

The saddest sign you’ll ever see

When a landlord takes possession of a business, there’s a lot of pain behind the signs.

The sign on an abandoned business announcing “Landlord taken possession” usually hides a pile of pain and distress.

It’s not cheap or easy for a landlord to take possession of a business premises and for most to do so it’s usually the end of long period of unpaid bills and broken promises.

Behind that sign is usually months, if not years, of stress and despair as a business owner has held onto a failing enterprise, bluffing their landlord, their suppliers, their staff, their own families and often themselves.

Almost every one of those signs has a story of failed relationships, destroyed friendships and ruined marriages.

Often they didn’t understand the cost of doing business and in many cases because they hadn’t consulted a bookkeeper or accountant earlier they didn’t understand their venture was always loss making despite what appeared to be a healthy cashflow.

When the truth about the businesses becomes obvious, life for the honest owner of a failing enterprise tries to bluff themselves and those around them that things will be okay, that the dream is still alive.

This is what worries me about many of the businesses that participate in group buying deals, they are desperate to keep their business afloat and believe the cashflow or publicity will save their failing venture. Even worse, many don’t understand how that “50% off” deal will affect their ability to pay staff and the landlord.

Even where the failed proprietor has been one the “two percenters” – the 2% of our society that runs their affairs with no regard for the pain and suffering of those they hurt – many people, particularly the smaller suppliers and low paid workers, have taken a hit as bills went unpaid and promises were not kept.

Most business owners though believe in their idea or vision and work long and hard in an attempt to achieve it. The majority of those who end up with the landlord taking possession are often those who ignored the signs and believed things would come good next season, next month or next week.

I’m always saddened when I see a “landlord taken possession” sign like the one near me in the window of what was an Italian restaurant until recently. What’s the saddest business sign you see?

ABC Nightlife: The business web revolution

Business is changing as customers move online

The March Nightlife technology segment looks at how the web is changing business as consumers go online and cheap, easy to use tools make it easier than ever to set up an effective Internet presence.

The podcast of the program is available for download or listening to from the Nightlife website. Some of the programs and online services we refer to on the program are listed below.

Last year’s Sensis e-business report found over two thirds of Australians had made a purchase online. Increasingly, customers are using the web to find shops and services rather than the phone directory or local classified adverts that local businesses have relied upon in the past.

At present only half of all businesses have a website despite customers using the net as their main way of researching purchases and finding local merchants. This is partly because of the cost, time and complexity involved in setting up a web presence.

Today it’s possible to set up a free website in half an hour and be listed on the main local search engines within an hour. On the March ABC Nightlife Tony and Paul looked at how to get online and use these tools.

Aspects we discussed include;

Can you really build a web page for free
What’s replacing Yellow Pages
How do businesses list on these services
Are they a substitute for a web page
Do consumers actually use local search
How to remove Norton 360
Protecting yourself online
Dust build up in systems
The next version of Windows

Our next spot is on April 28. Visit the events page or subscribe to our newsletter to keep up to date with other ABC segments we might be doing.

Useful Links

Some of the software and webpages we discussed on the program included.

Getting Australian Business Online
Adding your website to Google Listings
Listing your business with local search
Norton 360º Removal Tool
Windows Scripting Host (for Windows XP)
Malwarebytes virus and spyware removal tool

If you have any suggestions for our April 24 show, please contact us. We love to hear your ideas and comments.

If you are in Sydney, our Web for Beginners seminar still has spaces available. In three hours, you’ll have your business online with an effective Internet presence.

Running your own coupon campaign

Do-it-yourself coupons may be the better tool for your business

The group buying goldrush continues as now even Facebook are considering starting up their own service, but do businesses need to be using these platforms at all?

Behind the group buying mania is the idea retailers can use these services’ large mailing lists to promote their business while clearing excess stock to bargain conscious shoppers.

Those reasons are valid, but for the privilege of accessing their databases the group selling services charge substantial merchant commissions, representing a 20 to 50% cut from the seller’s income. If the discount is really deep, say 80%, then the site often takes the remainder of the sale leaving the retailer giving the product away.

For access to a mailing list, that’s a pretty big outlay to the merchant who may be operating on thin margins to start with. The cost can even be greater given most of the group buying subscribers are shopping on price and converting them into loyal customers can be a struggle.

It is possible to run your own coupon campaign. Both Google Places and News Limited’s True Local have features in their free local services where you can set up coupon campaigns and publicise offers.

The advantage with these is you capture shoppers in your neighbourhood, the coupon lasts longer than one mail shot and doesn’t require a fat discount to grab the attention of shoppers already jaded by 60% off waxing services and half price exercise classes.

Running your own coupon campaign puts you in control, saves the often fat commissions and when done cleverly can break you out of the damaging deep discounting mentality the group buying sites promote.

You can also put links to these offers on your website, Facebook page and other social media channels, further building those channels and giving you more opportunities to convert one off buyers into loyal customers.

There’s also the advantage that the search engines, particularly Google, love these offers – it’s part of their US roots where clipping coupons is a fundamental part of retail marketing.

You don’t even need to come up with a new offer. If you currently run ‘cheap Tuesdays’, happy hour or other promotions, you can build a coupon campaign around them.

All of this is another reason why you should be taking the local search tools seriously even if you do already have a website.

Group buying sites do have benefits for a retailer such as exposure to a wider, new audience and it’s worth considering them in the right circumstances. Trying a do it yourself local coupon campaign may turn out to be the better option for most businesses.

Paul will be holding a masterclass that looks at local search, adding coupons and how to get a small business fully online in two hours on March 24 at Mosman, NSW. Spaces are still available.

Group buying sites explained

Are big Internet discounts right for you or your business?

Fancy half price seafood dinners, deeply discounted electrical goods or 80% off personal fitness training? Thousands of people who’ve signed up for group buying websites certainly do and hundreds of businesses are prepared to make big discounts to attract those customers.

What are these services? Are they worthwhile and how do the businesses make money from them? Should customers be wary of advertised big savings and are merchants cutting their throats when they enter the world of deep discounting?

What are group buying websites?

The idea behind group buying sites is that merchants will offer cheap deals to take advantage of bulk sales, clear inventory or as loss leaders to attract new business. The products offered can be anything from a cheap haircut through to discounted whitegoods or a cheap meal.

Customers subscribe to the group buying websites and receive a daily email detailing the deals in their areas. If they like an offer, they can choose to be part of it and if it goes ahead, their credit will be debited and they’ll receive a voucher for the deal.

The group buying websites usually approach businesses to take part. For the privilege of having their businesses featured, the website takes between 20 and 100% of the offer price as commission.

What are the consumer benefits?

Naturally the main attraction for consumers are the cheap deals on offer. Some businesses are offering 80% off their list prices for products, so there can be substantial savings to be made.

There’s also the opportunity to try out products or outlets you wouldn’t normally try for instance you might not usually be interested in Zumba classes, canoe hire or replacing your TV at normal prices but an 50% discount could tweak your attention.

Are there risks for the consumer?

There’s no such thing as a free lunch so there are a number of risks when using a group buying site.

Impulse buying is probably the biggest risk, if you’re a sucker for a deal then these sites will love you. It’s an opportunity to sign up for a lot of things you don’t really need, probably will never have used and maybe can’t even afford, but fact you saved 80% makes you feel good.

There’s also the risk you’re not really getting the full discount. A lot of canny merchants inflate the list price to make the amount off look greater. Many also reduce the size or quality of the discounted product to recover their margins.

A big risk is that you may never get to use your voucher. Either you’ll forget about the voucher you received or the merchant is so overwhelmed by the offer’s response that they can never get around to catering for all their people who took them up.

Finally there’s the spam factor. Many merchants see a group buying offer as an opportunity to build their mailing lists, so you may find yourself being spammed for fitness classes and restaurant offers for a long time after you take up a deal.

Business Benefits

These sites wouldn’t have taken off if there weren’t businesses to advertise on them and hundreds of merchants have taken up the opportunity. So there are clear benefits for the outlets that use these services.

The most obvious one is they get to promote their businesses. All of these sites claim to have subscribers numbering in the hundreds of thousands, so it’s an opportunity to get your products in front of a large audience.

Clearing excess capacity has been one of the main drivers for these sites in the United States where many businesses have found themselves with too much inventory or staff sitting around. These sites are a great way of clearing inventory or smoothing demand cycles.

Business downsides

The first problem is that excess stock. A business can’t afford to be carrying stock that requires big discounts to clear, if these offers become a regular feature then your business is in trouble.

Even if your business isn’t in trouble, these offers risk devaluing your brand. As the major retailers have found, offering frequent discounts trains your customers to expect lower prices.

Offering these bargains may alienate existing clients. Those customers who are prepared to pay full price aren’t only going to be irritated to find they could have got your products cheaper, but may also be unhappy with your business being overwhelmed by cheaper, price conscious clients.

Those price sensitive shoppers aren’t really your customers either; they are loyal to the buying platform and cheap deals, so if your competitors have an offer later on another platform, those customers will go there. There’s a lot of work to be done converting these bargain hunters into repeat clients.

One of the most misunderstood parts of group buying sites is the commission structure, most of the services charge a commission of between 20 and 50% – with some going up to 100% – on the advertised price, so that 50% discount to the customer is actually 60 to 75% off the merchant’s selling price. This can be a massive hit to a business’ profit.

Is group buying for you?

For businesses group buying sites can be a good idea if they are used as a part of a well thought out marketing strategy or to clear occasional excess stock. But they shouldn’t be seen as a quick way to attract new customers.

Customers are the big winners from group buying sites, as it’s the opportunity to pick up some great deals. But users have to use a bit of judgement instead of just jumping for the best looking deals.

It’s an old saying, but if anything looks to be too good to be true then it probably is. In the Internet age, that saying is probably truer than ever. Group buying sites can be good for both businesses and customers, but watch the wallet.

Backing up your online calendars and contacts

It’s important to have a backup of your web data

Online mail services like Hotmail, Gmail and Yahoo! Mail are great for the small business owner and anyone who is often on the road. Having a central website containing all your emails, contacts and appointments makes life a lot easier when you don’t spend your time sitting in an office.

There is a downside though, if your account get hijacked or inadvertently closed down then all of those contacts, appointments and emails may be lost. So it’s a good idea to have some backup in case disaster happens.

Hotmail

The best solution for Hotmail users is to use the synchronisation tools included in Windows Live Mail. Download Windows Live Mail from the Microsoft website, install the program then Sign In to your Hotmail Account using the button in the top right hand corner of the screen then click the Sync menu and select everything. This will save a copy of all your Hotmail details onto your computer.

Yahoo! Mail

If you’re a Yahoo! user, you can backup your contacts by clicking on the Tools button that appears in the top centre of the contact screen above your contact list and select either export or synch. Synch will synchronise your data with devices like iPhones and computers although this varies on what equipment you use, while export will save a file to your computer which you can then import into whichever program you use. If in doubt choose the Comma Separated Value (.CSV) option as most programs can read that.

For your Yahoo! calendar, click Options on the right hand side of the screen and select Synch, the following page will take you through the steps of synchronising your calendar with various programs. That page will also explain how you can subscribe to a calendar from a different account which will then let you save.

Gmail

In Gmail you can export your contacts by opening the Contacts page, clicking on the More Actions button on the centre top of the screen then selecting Export. You’ll then get options for Google, Microsoft and Apple contact lists. If stuck, choose the Google option.

For Gmail calendars, at the bottom of My Calendars on the left hand side of the page click Settings. Under the Calendars setting tab, click the Export button which should appear under your list of calendars. This will then download a backup of your calendars.

A nifty tool for Gmail users is Backupify, a free service if your data weighs in at less than 2Gb, this can automate backing up your Google and Facebook settings.

Mobile phone applications

If you have a mobile phone, you’ll find the software that came with it may have a function to synchronise your emails, contacts and calendar. It’s a good idea to set this up if you have the opportunity.

Data is the most important thing on your computer and things do go wrong with technology so it’s essential you back it up on a regular basis.

Is Getting Australian Business Online right for your business?

the free options for a business website

The Getting Australian Business Online initiative is a great move from Google and MYOB to make it easier for the 50% of businesses who don’t currently have a website to get an Internet presence.

MYOB’s Chief Executive Tim Reed identifies the three barriers to small business getting online as being fear, time and cost.

All three barriers are addressed by this service; it’s free, simple and takes around half an hour to configure.

The results are fairly basic, a business ends up with a template that shows their location, contact details, some links and a basic description of the enterprise. It won’t win awards, but it is a basic web presence.

While GABO is a good idea, and strongly recommended for smaller businesses, it isn’t the right solution for all as it doesn’t include an email address, has few customisation features and most of the local search features have to be configured separately.

There are other cheap options available, registering a domain name for around $20 year and then using Google’s free Blogger platform is a straightforward alternative and there are other options using hosted WordPress, Weebly and Squarespace.

Given you get a free domain out Getting Australian Business Online, it’s worthwhile signing up if your business doesn’t have a website, however keep in mind there are cost effective alternatives that offer more flexibility and that all important email address.

Our workshop, Web for Beginners, takes business owners and managers through the process of setting up a Getting Australian Business Online account as well as signing up with the key local search services. Places are still available for our March 24 workshop.

The web’s cheeky scammers

If you want to see some of the web’s more cuddly sharks, register an Internet domain

Yesterday I received a note claiming to be a renewal letter for an Internet domain, the part of a web address that appears after the ‘www’ or behind the “@” in emails. The kind offer was a mere four times the price that I’ll be charged by my current domain registrar when the time to renew the address arrives.

This little scam, which almost every Internet domain owner has encounterd, is one of the quaint but profitable rorts that make the online world so interesting. Just as the web has opened up massive opportunities to new businesses, it’s also given birth to a new generation of cyber-swindlers and con men.

Part of the problem is the cult of free we’ve allowed to develop on the Internet, by giving away goods we’ve trained our customers not to pay for stuff they find on the web. Where we can get customers to hand over their credit cards, many businesses find thin margins as shoppers are buying on price.

The domain registration business is good example, it’s a tough game being a domain registrar, the margins are tight and, being a transactional business, they offer a fairly generic service. Many tend to offer add ons, such as web hosting and design, to pad out the margins and for many registrars their domain registration service is a loss leader for more profitable products.

As a consequence for domain holders it’s worthwhile shopping around as the prices vary dramatically, particularly if you choose not to take up the registrar’s offer to host your site or desigy your pages.

Sadly you don’t always get what you pay for and before changing registrars I always make quality check on the Whirlpool website where I look in their Web Hosting forum to see what people have to say about the registrar’s service.

One thing that often pops up is why the heck are local registrars so expensive? With the bigger Australian registrars a .com domain costs between $20 and $75 a year while the US providers are delivering the same for almost half the price. The .com.au domains are nearly double the price for the .com equivalent.

I can understand it the .com.au being a bit more expensive given the charges imposed by AuDA, the Australian Domain Authority, but the discrepancy seems a bit on the high side.

Every business should have their own Internet domain registered, partly to improve website search engine ranking but more importantly to protect their trading name, so all of this is relevant to almost every proprietor or entrepreneur.

When you do register a domain, note who you’ve registered with and when the domain expires as even the legit registrars have a habit of invoicing very early for renewals.

The domain registration business can be likened to a shark tank, fortunately for the business owners who are forced to swim in it, the sharks are the relatively harmless gummy types compared to some of the others like hackers and fraudsters prowling the net.

With a bit of knowledge and attitude you can keep these predators from nibbling your toes.

12 rules for using the web

Twelve tips to stay out of trouble on the Internet

I’m currently writing a book, provisionally titled Seven Steps to Online Success. One of the chapters looks at using social media for business and I included twelve rules to keep businesses out of online purgatory.

On reviewing that chapter, the rules really apply to the web in general. So, with a little bit of editing, here are the 12 rules for using the web;

1. Show respect to everyone. Even people you find disturbing, you’ll quickly learn the Internet is mankind’s gift to the disturbed, deluded and downright deranged.
2. Listen. Once you’ve filtered out the crazies, you’ll find the collective intelligence of the web can be quite powerful.
3. Converse. The big currency in social media is conversation, by joining in with constructive comments you enhance your reputation.
4. Be constructive. Add value to the conversation
5. Positivity. The web rewards the positive more than the negative, by all means post critical comments, but it’s best to for your posts to be more positive than negative.
6. Be honest. Social media has a horrible way of catching people out, so don’t tell porkies.
7. Associate with the smart kids. You’re judged by the company you keep, just like in the school ground.
8. Don’t constantly plug your services. You’ll be branded a spammer and shunned.
9. Social media is not a numbers game. Don’t obsess about the number of Twitter followers or Facebook friends. Quality beats quantity every time.
10. Never post when drunk or emotional. You will regret it.
11. Step away. If you find a social media channel is taking up too much of your time or passion, take a break.
12. Learn. Use what you’ve learned.

Seven Steps to Online Success is due out in Australian bookstores in June. In the meantime, my new business Netsmarts is running workshops helping businesses use Google and News Limited’s free local search services to grow their business.

The Web for Free workshop

How to get your business working harder on the web using free tools

Your customers are going online. Can they find you?

Our two hour hands on workshop makes sure you can be found on the web

Our customers are going online. Today’s consumers – young and old – are turning to the web when looking for local businesses and services that were once listed in the phone directory or local newspaper classifieds.

Your business needs to be there for them to find you when they go looking on their computers or mobile phones. The great thing is most of these listing services are free.

Why Local Search?
The websites, search engines, iPhone applications and even GPS systems that consumers are using to find tradesmen, services, restaurants and cafes in their neighbourhoods all rely on a small number of directories run by companies like Google and News Limited to provide details of local businesses.

I already have a website
Even if you have website, an effective entry on these directories is essential – the local plumber, baker, lawn mowing service or hairdresser is finding their local search listings is vital to capturing customers in their neighbourhoods. Local listings improve the performance of your site and help it go to the top of searches in your suburb or town.

What will I learn?
During the workshop participants will develop a cost effective online local search presence along with gaining insights on some strategies to be the most popular search result for their neighbourhood.

At the end of the Web for Free workshop you’ll have full, effective listings in the Google Places, True Local and Facebook Pages services. This ensures your business is being found when customers go looking for you on the web.

Participants cover;

• how the local services work
• the relevant local directories for Australian markets
• how to list in the local services
• maximising local coverage
• using basic search optimisation strategies
• optimising product descriptions
• designing and creating a free web site
• leveraging special offers and sales
• adapting social media to local search

Who should attend?
The Web for Free is designed for entrepreneurs, business owners managers and staff of new or established businesses wanting to understand local search tools and how to use free web services.

Duration and location
Our first two hour workshop will be held at the Mosman Professional Centre on March 17 from 10.30am. Seats are limited to 15 so space is restricted. You will need to bring your own laptop computer along.

Book now
Seats at the workshop are $300 each. With restricted space you’ll have to book now to avoid disappointment.

The rise of the connected consumer

Forget the technology, it’s all about customer service.

Last week in Sydney the Federal government’s Online Retail Forum, set up after the first round of big-retailer complaints about Internet shopping, was held to discuss the threats and opportunities that lie in the connected economy.

The event’s location and timing, being held at the old Sydney Post Office the day after the Angus & Robertson book chain went into administration, was somewhat symbolic of the changes facing the retail industry.

Australia Post itself is a good example of a business dealing with change, their traditional mail business is shrinking while the move to online commerce is driving and growing their parcels business. As traditional post offices selling stamps become less important, new opportunities open in the logistics of getting physical goods to Internet shoppers.

The old post office itself is an example of that, as technology changed how mail is sorted and delivered the need for a big downtown building disappeared and today the mail service occupies a tiny corner of the massive building which is now a hotel and office complex.

How post offices changed is a big lesson for commercial landlords, and our super funds that invest in them. COSBOA’s Peter Strong pointed out on the opening panel how the business model of ever increasing rents forcing out smaller retailers and replacing them with cookie cutter national chains and franchises is one that is already struggling to cater for the online consumer.

Customer service is the opportunity missed by the big ‘bricks and mortar’ retailers, a physical store has the advantage of being able to deliver a personalised, friendly experience yet what we find when we visit a big department store or electronics ‘category killer’ superstore is service that often leaves much to be desired.

The participants of the online retail forum’s panels covered how the online retail industry is filling the customer service void; Mike Knapp, the co-founder of Sdyney’s Shoes of Prey, explained how their consumer friendly return policies encourage sales while logistics companies like DHL, Temando and Australia Post described how tracking the delivery of Internet purchases was essential for customer confidence.

Most importantly, much of the morning emphasised that e-commerce was only a small part of what the Internet has to offer the retail industry. The web has become a monitoring tool for both buyers and sellers as well as improving the supply chain and radically changing the marketing industry.

Google’s Jason Pellegrino explained how many of the US electronics chain Best Buy stores now keeps floor stock for consumers to feel and touch but then places orders through the net for delivery to the buyer’s premises. Not keeping anything more than display stock dramatically improved the efficiency of Best Buy’s stores.

Interestingly Dick Smith Electronics employs the opposite model, with their “click and collect” service customers can order online and nominate the store they want to pick up the product which gives the retailer an opportunity to cross or up sell.

Both models illustrate how retail can adapt and take advantage of shoppers using the Internet and with some creative thinking can open up new opportunities which enhance their traditional sales models.

The message from all the industry panellists at the retail forum was consistent; the net is giving power back to the consumer who is using it. For retailers to compete, they have to be dirt cheap or offer excellent customer service.

What the event showed is the customer is more important than the technology – the point of going online is about improving the offer to customers be it by cheaper prices, faster delivery or better service. If the technology happens to improve our margins then that’s a pleasant benefit as well.

Customer service is something our bigger corporations like the retail giants, banks and telcos have forgotten, it’s now turning around to bite them and that’s probably the biggest opportunity for the rest of us – to adapt technology to our business in ways that deliver a better product.

It’s more than just having a website and online shopping cart, these changes are affecting almost every business. It’s important we all think about how our ventures are going to adapt to markets where our customers have more power than ever.