What E-commerce Pricing Strategists Can Learn From Aircraft Piloting

funny-picture-sign-saying-caution-low-flying-aircraft-

“Airspeed, altitude, or brains; you always need at least two.”

This classic pilot’s saying can also apply to logistics with the following equivalencies:

Airspeed = Sales Volume

Altitude = Margin

Brains = Good Decisions (Hopefully)

Case-in-point, Amazon appears to have chosen to fly primarily on high sales volume and brains. Margin got “cut.”

In a recent Harvard Business Review interview, Amazon Chief Executive Officer Jeff Bezos stated, “Percentage margins are not one of the things we are seeking to optimize…. It’s the absolute dollar free cash flow per share that you want to maximize. If you can do that by lowering margins, we would do that. Free cash flow, that’s something investors can spend.”

But flying so close to the bottom line doesn’t leave much room for error, especially when mountains of shipping costs are piling up ahead.

 planechart

A Businessweek article characterized the battle for e-commerce business as a land grab, and one of Amazon’s strategies is to build the largest customer army possible by offering the lowest prices and best incentives and loyalty programs. Even if it means reporting $636 million in shipping losses in the third quarter alone and earning only an estimated 1 percent profit margin per item, Amazon is determined to increase its volume and customer base. If you want to ship a 1,509-pound safe for free (usually $700 to ship), you know where to go.

Among many other endeavors, Amazon is extending its Prime membership program to Canada. It looks like Amazon isn’t slowing its revenue rampage, and it’s rattling many retailers. But, will Amazon continue to be able to navigate the rising shipping costs? With all its big decisions lately, I hope Amazon has the “business intelligence” to make good ones.

One key to e-commerce profitability is having the right tools and expertise to find actionable solutions and navigate the peaks. After all, “No one has ever collided with the sky.”

Thanks for flying LPP.

Amazon’s Financial Indicators… “Falling With Style”?

Recently, an article came out questioning if Amazon is “a giant ponzi scheme dressed in drag,” and it reminded us of a blog post we wrote in January, “What E-commerce Pricing Strategists Can Learn from Aircraft Piloting.” In our post, we discussed Amazon’s current precarious strategy of flying fast and low on increasing revenue and decreasing margins; this “ponzi scheme” article digs deeper into Amazon’s finances to reach a very similar conclusion to ours: “If AMZN’s revenues slow down or its expenses unexpectedly increase, for whatever reason, AMZN could face liquidity problems.”

With Amazon’s “airspeed” (revenue) increasing and “altitude” (operating margin) decreasing, those stakeholders with “brains” may want to know where the parachutes are “stored.”

Picture1(Original chart by Dave Kranzler; Edits by LPP)

Perhaps Amazon’s current position is comparable to how Buzz Lightyear describes his ability to “fly”:

“This isn’t flying, this is falling… with style.”

 

Business Intelligence: Partnering To Create A Profitability S.H.I.E.L.D.

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It’s no secret that Apple has been facing questions as to the ability to continue to innovate as Samsung, Google, Amazon and Microsoft nip at its heels. However, as Tim Cook, CEO of Apple, reminded us, Apple’s competitors are still playing catch-up; they’re in structural-build mode while Apple already has the software, hardware, and services in place and decades of expertise in all three.

“‘Apple is in a fairly unique and, in my view, unrivaled position because Apple has skills in software, in hardware, and in services,’ says Cook…. Google is great at software and services, but not at hardware. Microsoft is in the same boat. Samsung is great at hardware, but not software or services. Amazon is good at services, but not software or hardware” (article).

But, is there truth behind the old saying, “Jack of all trades, master of none”?

If, for example, Google and Samsung were to successfully partner, their individual strengths combined could rival Apple.

Even superheroes, with their amazing strengths, eventually team up for a reason – highly specialized skills make for awesomely unbeatable teams. Think, “The Avengers.”

The arena of business intelligence is no different; it can be your S.H.I.E.L.D.

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“None of us is as smart as all of us.”

– Ken Blanchard

In implementing a comprehensive BI strategy, companies have two basic models: Buy & Build or Partner

Specifically, they can…

  1. Spend time and money to build their own hardware and software or buy preexisting software, then train employees and manage it themselves.
  2. Rent software and services from specialists who already have demonstrable capabilities and expertise.

BuyBuildRentTable

One option offers clear advantages: Partner.

Or, in industry terms, utilize SaaS (Software as a Service) which is “software that is owned, delivered and managed remotely by one or more providers” (Gartner).

Teaming up with a SaaS provider allows companies to integrate business intelligence without having to build or maintain it and they take advantage of others’ experience, expertise and continuous improvement initiatives.

At LPP, we are the “Jack of retail/e-commerce logistics and master of assortment-level profitability improvement.”

In our clients’ battles for top- and bottom-line improvement, we have the tools, talent and techniques to be your S.H.I.E.L.D.

Omni-Channel Analytics & the Cost-Service Conundrum

Omni Channel Challenge Video 

When it comes to Omni-channel, advanced analytics can drive many opportunities and benefits, but not without some common roadblocks. A recent RetailWire m*paper outlines a few opportunities worth diving into, but there are two in particular I’d like to expand on: assessing cost of sale and tracking order status across channels. Both are critical to long-term viability and success, but few companies have sufficient performance visibility to either one.

Three roadblocks to these opportunities are listed in the article: 1. disparate systems, 2. lack of resources and 3. cultural barriers. These obstacles certainly contribute to the challenge of elemental cost and service, but each is perhaps only the tip of its own iceberg.

791669-roadblock   1. The challenge of disparate internal systems is compounded by external data sources (vendors, carriers, providers). Missing or inaccurate data erodes confidence, and any attempt to assemble end-to-end cost or service seems to become impossible or worthless.

791669-roadblock   2. Lack of IT or business resources is secondary to having the RIGHT resources. Knowing HOW to assemble and allocate cost and time across items and orders requires understanding of both the business drivers and the data and tools by which to illuminate them.

791669-roadblock   3. Organizational silos can make cross-functional initiatives difficult, but ‘survival instincts’ in today’s highly-competitive retail landscape are fostering improved collaboration. The bigger issues are:

  • Accountability – Who “owns” end-to-end profitability or customer service performance?
  • Sustainability – How do we ensure consistent effort to achieve profitable sales growth and customer service expectations?

While there are some great BI and analytical tools out there, none of them can address the challenges listed above; they are a function of people and knowledge, not interactive dashboards and wizards. That is why many BI investments fail to deliver on their value proposition.

So in the end, can total order cost and service performance visibility be achieved and made actionable? Absolutely! Just ask LPP’s clients. It’s our passion…it’s what we do!