Wednesday, December 29, 2010

Purple Cow



I've mentioned Seth Godin's book Purple Cow in my top 5 business books list before. Recently I've been talking to quite a few people about the concept and I thought it was worth briefly touching on here because I love the concept and it definitely played a part in inspiring us to start Shoes of Prey.

The purple cow is a business analogy. Imagine you're driving past a field full of cows. All the cows are the normal black, brown and white colours. You'd barely notice them. Then imagine you see a purple cow in the field. You're immediately interested and you turn to the person next to you and say, 'Hey Jodie, see that purple cow over there? Wow'. You might even call you're mate Mike who's into cows, 'Mike, holy crap I just saw a purple cow. You come across one of those before?' While the book was written pre iPhone, Facebook and Twitter you'd probably take a photo on your iPhone, post it to Facebook and Tweet it. 'Crazy, just spotted a purple cow'.

All those black, brown and white cows are like normal businesses. They do their job well, occasionally someone will notice them, but they don't do anything extraordinary. The purple cow is a business that does things differently. It's remarkable. You tell your friends and acquaintances about it. The purple cow as a business is much easier to market. It's remarkability lends itself to word of mouth marketing, PR, social media / viral marketing and search engine optimisation, all great marketing channels in today's online world.

When Google launched they had a purple cow, their search engine worked so much better than any other search engine. It was remarkable. Zappo's started out selling normal shoes online, nothing purple cow about that. They developed a purple cow with their customer service. Free upgrades to 24 hour shipping, free return shipping, a 365 day returns policy and customer support staff who go above and beyond, all remarkable. I'm sure you can think of plenty of other businesses that are purple cows too, however most businesses aren't purple cows, they're not remarkable and it's that much harder for them to market themselves to new customers.

Prior to launching Shoes of Prey Mike, Jodie and I had decided we wanted to do something in the online retail space, but we wanted a product that was a purple cow. It was that thought process that lead us to offering custom women's shoes online.

What's purple cow like about your business?

Monday, December 27, 2010

Don't be fooled, Australian retailers already have a fair go



Today a group of large Australian retailers including Myer, Harvey Norman and Westfield have launched a media campaign designed to pressure the Australian government to lower the GST threshold for goods imported into Australia.

I've made my thoughts on this issue clear in two previous blog posts here and here but I thought it worth addressing the points in these retailer's latest claims.

Here's the group's media statement:

AUSTRALIAN RETAILERS FIGHT FOR A FAIR GO

We represent a range of retailers in Australia with x stores, together employing xxxxx Australians.

There is an urgent need to tackle the uneven playing field created by GST and duty loopholes.

Failing to support Australian retailers will see a reduction in hours for casual workers, shifts, and ultimately cost Australians jobs in retail, manufacturing, logistics and related services.

Our Government needs to give Australian retail business employing one in ten Australians a fair go.

Under the current regime, Australian businesses are forced by the Government to charge more than their overseas counterparts when customers spend under $1,000 in Australia.

At the rate at which internet retailing is growing with mobile internet technology, the fact that offshore retailers aren’t required to levy duty or GST creates an enormous competitive advantage for foreign businesses selling into Australia. These businesses don’t pay our taxes, employ our people, train our young people or contribute to our economy.

We agree with our customers that online retailing is a wonderful convenience that is here to stay.

We currently offer our customers online services and we want to offer more but we are baffled by an Australian tax regime prepared to offer overseas businesses a better deal.

We are not asking for special treatment. The answer is to create a level playing field where the same rules apply to everyone.

Addressing each of these points in turn:
There is an urgent need to tackle the uneven playing field created by GST and duty loopholes.
When selling to Australian consumers the playing field is not uneven. It's true that Australian retailers must charge customers 10% GST and pay duties if they source their products from overseas, and foreign retailers sending less than $1,000 worth of goods to a customer in Australia don't, however an Australian retailer has the advantage of shipping the goods locally. A customer purchasing from an online Australian retailer can receive their goods within 24 hours at a low shipping cost. This is not the case with a foreign online retailer and in our experience this advantage puts Australian retailers at least on par or even slightly tips the playing field in their favour.

Failing to support Australian retailers will see a reduction in hours for casual workers, shifts, and ultimately cost Australians jobs in retail, manufacturing, logistics and related services.
As explained above the playing field is not uneven so the above statement is untrue. What will see a reduction in hours for casual workers, shifts, and ultimately cost Australian jobs is the lack of innovation coming from large Australian retailers. For too long they've operated in an environment with little competition, and they've not been focused on innovating. Unfortunately now they, they're workers and the Australian tax payer are paying the price. As a nation we should be projecting the pressure they're trying to direct onto the government back on to them.

Take a look at an ad my mum received from Myer on Friday:



This is about the peak of innovation from our large Australian retailers, "Australia's Biggest Stocktake Sale"! Whoopee! They've dug themselves into a hole with extensive discounting and they can't get out of it. Now they and Australia are suffering for it. They need to embrace the online retail space, build a fantastic experience for their customer's online and out-innovate and out-compete their competition.

Our Government needs to give Australian retail business employing one in ten Australians a fair go.

Under the current regime, Australian businesses are forced by the Government to charge more than their overseas counterparts when customers spend under $1,000 in Australia.
I agree that in an ideal world, yes the government should lower the GST threshold. The trouble is the world isn't ideal. The government has pointed out that the cost of collecting GST and duty on low value shipments would outweigh the revenue earned. To collect $30, $50 and $100 payments from every shipment coming into Australia would require a massive customs bureaucracy. Now other countries, particularly those in Europe levy VAT and customs duties even on very low value shipments, but a) their VAT rates are around 20% and duties another 10% so they're collecting more revenue than the Australian government would be and b) I've seen no evidence that they make these collections efficiently. Quite the contrary, from our experience shipping to customers in Europe it's highly inefficient and they would be incurring significant expenses to charge consumers in their countries these taxes.

To levy taxes on low value shipments to Australia, the Australian tax payer would have to pay for it. The Australian consumer would have to pay for it. No one would win except retailers. And as discussed in the previous points this isn't the solution to the problems they're facing anyway.

At the rate at which internet retailing is growing with mobile internet technology, the fact that offshore retailers aren’t required to levy duty or GST creates an enormous competitive advantage for foreign businesses selling into Australia. These businesses don’t pay our taxes, employ our people, train our young people or contribute to our economy.
As outlined above, a small difference in pricing balanced out by faster shipping times and reduced shipping costs cannot possibly constitute 'an enormous competitive advantage' by anyone's definition of that phrase. It's true that foreign retailers don't employ Australian workers, but Australian retailers don't employ foreign workers either. Why don't we try and build a fantastic, innovative online retail industry in Australia and sell our products overseas? We're an Australian retailer and half of our sales at Shoes of Prey are to customers overseas. Why aren't the likes of Myer and Harvey Norman doing the same?

We agree with our customers that online retailing is a wonderful convenience that is here to stay.

We currently offer our customers online services and we want to offer more but we are baffled by an Australian tax regime prepared to offer overseas businesses a better deal.
If you agree "that online retailing is a wonderful convenience and is here to stay" then why the hell are your online stores so bad?! Myer are headed in the right direction with their online store but until 3 weeks ago a search on the Myer website for "men's suits" returned a search result for a Dan Draper Barbie Doll! Westfield are making excellent inroads with their new online mall. Despite some initial scepticism we were very impressed with what Westfield have planned and last week launched a Shoes of Prey store in their mall (more on that in a future post). All that said it did take Westfield until November 2010 to launch a competitive online offering.

Leaving the worst until last, Harvey Norman. I can't buy a single thing from the Harvey Norman website! "We currently offer our customers online services" is a very misleading line in the above media statement. Sure I can create a wish list on the Harvey Norman website and sure I can compare products side by side. But I can't buy anything! Does Harvey Norman honestly think that's what Australian consumers want? As I understand it there are some challenges for Harvey Norman selling online because an online store may take sales away from their franchisees. That problem is solvable. One simple solution is to attribute the sale to the nearest franchised store based on the customer's delivery address. The problem is that while he appears to be coming around, Gerry Harvey still thinks "online retailing is a dead-end". I've got a lot of respect for Gerry Harvey, he's an amazing businessman who has built an amazing business but on this point he is wrong. And I don't think it's right that he and other retailers are pressuring the Australian government to do something that is bad for Australian taxpayers, bad for Australian consumers and will not have a significant impact for Australian retailers.

To summarise my points:
  • In an ideal world I agree that we should levy GST and duties on all imports into Australia.
  • The reality is it's highly inefficient to tax these imports. It would result in a net cost to the Australian tax payer and a net cost to the Australian consumer. The only group that stands to gain is Australian retailers.
  • Australian retailers wouldn't gain a great deal anyway. The problems they're facing are not going to be solved by consumers paying a little more for goods they purchase from overseas.
  • Rather than spending their money on the newspaper ads they've published today, Australian retailers need to be investing in their online offerings. Provide an amazing online retail experience and Australian customers will come back and shop with them. And they might even find new markets overseas to expand into.

If you come across these ads today and over the coming weeks, don't be fooled. Australian retailers already have a fair go should they choose to take advantage of it.

Photo by Nathan Keirn from Kadena-Cho, Japan

Friday, December 24, 2010

A Shoes of Prey Store?



A few months ago we discussed the possibility of opening a Shoes of Prey store but we've recently turned off the idea.

We were particularly interested in the Oxford St. Paddington area of Sydney so we spent quite a bit of time speaking with retailers in the area. It was quite depressing. Very few retailers seemed particularly enthused by how their businesses were going and many were very negative. It seemed that most single store retailers were barely breaking even, if that.

Our concept for a store is a little different in that we have a well trafficked e-commerce store that would drive people to our physical store, so in one sense we should be able to do better than a lot of retailers, but none of us have a background in the very specialised and competitive area that is physical fashion retail so that negative may outweigh the positives. I'm sure if we threw ourselves into it we could learn and possibly do reasonably well, but we need to prioritise our time and given how other offline fashion retailers are faring at the moment I think our time is best invested elsewhere.

We're on the look out for new office space to move into in the new year, so we think a showroom as part of our office is the way to go. That means we won't need to pay retail rents for the space and we won't need to have a full time staff member in the show room as we can man it in between working in our office. It will still allow us to get a lot of the benefits in that Sydney based customers of our website can visit the showroom, but it will keep the costs in money and our time down. We'll also be able to experiment with offline retailing using the showroom and if we find that it looks like it would work as a concept, we can go down the offline retailing path at that point.

Wednesday, December 22, 2010

How to write an elevator pitch



Cross posted to Startupsmart.

I’m trying to work out my elevator pitch for potential investors. I’m finding it hard to sum up the proposition of my business in a short, snappy way. How can I get around this?

The elevator pitch is important to any startup. You'll need to use it with investors, potential partners, customers, prospective employees and even your friends when you're telling them about this crazy idea that you're working on. Keeping it short, snappy and to the point is critical for getting your message across and getting buy in from these key groups of people you'll be working with.

A great elevator pitch does 4 things:
1. It sets out the problem
2. It sets out the opportunity
3. It sets out how the business is going to solve that in a way that's valuable to customers
4. And most importantly, it inspires the listener.

Not all of those 4 points should be explicit in the pitch, but each of them must be implicit and easy for a listener to arrive at and understand. It doesn't have to and shouldn't give all the detail, you don't need to describe the features you're building, the goal of the pitch is to inspire the listener to want to spend time with you to find out more.

Here's some questions to ask yourself before putting your elevator pitch together:

What do you and others find inspiring about the business?
What are your key selling points?
If you had to describe it to your grandmother what would you say?

In my view the ideal elevator pitch is 10 seconds and at most 2 sentences long. Here's what I imagine the elevator pitch to be for 3 of my favourite companies:

Google
We're the fastest, most relevant search engine on the web. We'll monetise the results by showing useful, relevant ads to users.

Apple
We design and manufacture aesthetically amazing, highly desirable, easy to use consumer electronics products.

Facebook
We connect everyone in the world with their friends online, and make it easy to communicate with them.

Your elevator pitch will evolve over time. Larry and Sergey, the founders of Google didn't know how they were going to monetise their search engine when they were pitching to investors back in 1998. When he started Facebook, Mark Zuckerberg was only planning to connect everyone at Harvard.

Our elevator pitch at Shoes of Prey is:

Shoes of Prey allows women to design their own shoes online which we then hand make and ship to them.

Talking to the 4 key points of a good elevator pitch above, ours:
1. Implicitly describes the problem - the difficulty in finding the perfect pair of shoes.
2. Implicitly describes the opportunity - lots of women find this to be a problem.
3. It explicitly says how we solve this problem - you design your shoes online and we make and ship them to you.
4. As it's a new and unique idea, our hope is that it inspires the listener.

Depending on their perspective the listeners mind will ideally jump to one or more of the following thoughts:
Customer - wow, I want to try this, my friend X would love it to, I should tell her!
Investor - this is a global online retail opporunity. It has low capital requirements as they don't need to hold stock.
Partner - this product would excite our customers, perhaps we can partner with this business.
Prospective employee - this sounds like a unique and fun startup to work at.

The best way to put together your own elevator pitch is to practice. Practice on your friends and family, try out different ideas to see what works. Like your business it's going to evolve

The great thing about an elevator pitch is that it can be a great tool for helping you determine if your product or business idea is going to work, and defining what it should be. If you're having trouble distilling what you're doing perhaps you're trying to do too much and you should simplify your proposition, or perhaps your value proposition isn't something customers are looking for and you need to adjust it.

If you're working on a startup at the moment what's your elevator pitch? Feel free to share in the comments below.

Photo by Aric

Monday, December 20, 2010

Shoes of Prey Christmas Party at Tetsuya's

THE TEAM AND PARTNERS ENJOYING LUNCH
On Saturday we held our Sydney Shoes of Prey Christmas party at Tetsuya's! Mike's still in China so we had our other Sydney based employees and their partners along. We had private room to enjoy the 11 course degustation menu with matching wines and it was without a doubt the best lunch I've ever had! For those who don't know Tetsuya's it's arguably the best restaurant in Sydney and generally ranks in the top 10 or 20 restaurants in the world. It's owned and run by Tetsuya Wakuda who emigrated to Australia from Japan in the 1980's. His is a fantastic entrepreneurial story of it's own. Tetsuya barely spoke English and says he had no real skills when he first moved to Australia. He started work as a dish cleaner in a Sydney restaurant and worked his way up from there to now owning and running one of the best restaurants in the world!


THE SIGNATURE DISH - CONFIT PETUNA OCEAN TROUT WITH KONBU, CELERY & APPLE
So why is a bootstrapped startup spending it's hard earned cash to have it's Christmas party at an expensive restaurant like Tetsuya's? That's a good question, and one Mike, Jodie and I discussed at length before deciding to go ahead with the lunch. It comes down to the fact that we've had a fantastic first year and we think it's hugely important and motivating for teams to celebrate wins I've felt my own motivation deflate when I've worked for a company that's had a fantastic year, but we didn't really do anything exciting to celebrate. And I've felt my motivation pick up working for Google when they did amazing things like take us all on ski trips when the company was doing really well!



PANCETTA WRAPPED QUAIL BREAST WITH FRESH SPROUTS & ONION
Having a fun experience together like eating at a fantastic restaurant is also a great thing to do together as a team. We enjoyed the amazing food and wine and chatted away for 5 hours before our fantastic lunch was done! We have a great group of people working on Shoes of Prey with us and we enjoy each other's company and spending time together. That's great because it means we enjoy coming to work and we want to encourage that even further and sharing fun, new experiences together is a great way to do that.



CHOCOLATE PAVÉ WITH CREAM CHEESE ICE CREAM & CINNAMON TWIGS
Christmas lunch at Tetsuya's may not necessarily become a tradition (though if our second year is as good as the first I'd love to do it again!), but we want celebrating wins to become part of our company culture. It would be so easy to gloss over something like this as a startup as there are so many different areas we need to continue to invest our money and time, but we think this was a very worthwhile investment in team motivation and to top it off it was a very fun afternoon!

How do you celebrate wins?

Wednesday, December 15, 2010

Partnering with RedBalloon

A couple of months ago we started working with RedBalloon. For those that haven't seen it, it's a fantastic business and website built around the idea of offering gift experiences. Everything from hot air balloon rides, to winery tours and now, custom shoes! Our 4 different price point offerings are available on the site: ballet flats, mid sized heels, high heels and ankle boots. There are some great Christmas gift ideas on there if you're still looking for gifts!

Based on Pyrmont, Sydney, Naomi Simson started RedBalloon 10 years ago and the business has been completely self funded. Naomi champions making work environments fun places to be and RedBalloon is regularly in the top 10 places to work in Australia. I thought it would be fun to make Naomi some RedBalloon themed shoes using their signature red with blue ribbon and this is how they turned out!



I had the pleasure of meeting Naomi a couple of weeks ago to present her with her shoes. She's a very nice, genuine person and it's inspiring to see the success she's had with RedBalloon and to be able to work with her and the Redballoon business. Naomi blogs at http://naomisimson.com/. Thanks to Dan Joyce from RedRoomDVD for putting us in touch with Naomi and RedBalloon.

Monday, December 13, 2010

The big chains are just posturing over GST threshold



As published in the Opinion section of the Sydney Morning Herald last Thursday:

The recent posturing by Myer chief executive Bernie Brookes and Harvey Norman chairman Gerry Harvey about opening online stores based in China to get around the $1000 GST import threshold is a blatant attempt to continue to limit competition in Australian retail.

It's abundantly clear that they won't act on their statements, because if they do, they'll be giving away their two big advantages over foreign retailers — cheap and fast shipping. The costs they'll face in shipping products individually from China will, in most cases, more than outweigh the saving in GST, and the longer delivery time will lower their sales.

What's more, given the terrible state of their existing online offerings, it's hard to imagine how either company could have an internationally competitive online retail offer available by early next year, as Brookes and Harvey have suggested.

They won't open online stores based in China. Their statements are designed to pressure the federal government into lowering the GST import threshold.

But doing so would be terrible for Australian consumers and taxpayers. The reason for the $1000 threshold is that the cost of administering GST on imports worth less than that outweighs the revenue the government would earn. Lowering the threshold would be a net cost to Australian taxpayers.

It would also mean Australian consumers would have to pay more for goods purchased overseas. The additional bureaucracy could also mean delays in Australian consumers receiving their goods. Nobody wins, except Australian retailers, and even their wins would be small.

Australian consumers aren't shopping overseas because they're saving 10 per cent by not paying GST. Recent research conducted by The Leading Edge for PayPal shows that the main reason consumers are shopping from overseas websites is to gain access to goods and services that are not available in Australia (32 per cent), with a much smaller group saying price is the main issue (19 per cent). A 10 per cent rise in prices for goods purchased from foreign online retailers isn't going to have a significant impact on the number of people purchasing goods from Australian retailers.

The real problem is that this is the first time the big Australian retailers have faced any significant competition. Their historical lack of innovation is being exposed now that consumers can conveniently shop for almost any item overseas.

The online retail offerings from the likes of Myer and Harvey Norman are abysmal compared with their US and European counterparts. The problem stems from the fact that until now, there has been limited competition in the Australian retail market. We have two major grocery chains, two major department store chains and, while there is a bit more competition in electrical goods, there are a limited number of high quality store locations available and Harvey Norman has most of those tied up.

Compare this with the US and Britain, where there are five or more significant retailers in each of these categories. Competition fosters innovation; for too long the lack of competition in the Australian retail market has left consumers with a sub-par retail experience.

If the large Australian retailers want to encourage consumers to spend domestically, they need to step up to the plate and focus on improving their offerings, rather than posturing in the media about lowing tax thresholds at the expense of taxpayers and consumers.

Rather than keeping their blinkers on and focusing on the Australian market, Myer and Harvey Norman should be looking at the opportunities online retail is opening up for them to sell to consumers overseas. If the federal government caves in to their pressure, Australia will continue to be left with a lacklustre, internationally uncompetitive retail industry.

Michael Fox is a co-founder of online custom women's shoe site www.shoesofprey.com. He blogs about online retail at www.22michaels.com

It wasn't in the published article but I should add that despite shipping our shoes directly from China we haven't attempted to structure our business to avoid charging Australian customers GST. We charge GST and remit that to the Australian government.

Friday, December 10, 2010

Providing lunch for employees



One of the many things I loved about working for Google was the free lunch and snacks they provided employees. The Mountain View office in the US was particularly good with around 15 different cafes offering a whole range of great food, all free for employees. Despite not having the 1000's of employees to justify so much choice, the food in the cafe in the Sydney office is also very good.

The photo above is of one of the many great meals I had at Google:
  • Sweet potato sausage soup with heirloom potato chips (shown at the top)
  • Vegetable medley - steamed spring vegetables, seasonings tossed in Californian extra virgin olive oil
  • Pan roasted duck breast with duck-red wine reduction (on the right)
  • Grilled salmon with citrus tarragon vinaigrette
  • Tossed salad with blue vein cheese.

Providing free snacks and lunch for employees provides a business with a whole range of benefits including:

  • Creating a more social and friendly culture within the organisation. Meals are a social time, why not encourage employees to eat and socialise together rather than force everyone to leave the office to find their own food, or prepare their own individual meals?

  • More productive connections within the organisation. Conversations over lunch will no doubt include discussions around work. These discussions are more informal than meetings and generally more creative and can lead to positive outcomes for the organisation. It can also encourage people within an organisation who might not normally have a formal reason to meet, to have a discussion. I worked in sales at Google and I often had conversations with software engineers over lunch which gave me new insights into the organisation that I wouldn't have gained otherwise, some of which I could apply to my work.

  • Higher productivity. What a waste of time to have all your employees each spending 15 minutes in the morning preparing their own lunch or each standing in lines at take away food places to buy their own lunch. Why not save them this time by providing lunch, they'll no doubt be working for you for at least some of this additional time they save.

  • Employee retention. Even if the 15 minutes they would have spent preparing their own lunch in the morning is spent sleeping in instead of additional work for your organisation, what a great reward that is for working for your company. They're going to be less likely to leave your organisation and you'll have more people applying for jobs at your organisation.

And as I recently found out, providing snacks and lunch is also tax effective. Apparently providing employees with snacks and lunch in the office, as long as it's not extravagant (eg. doesn't include alcohol) isn't subject to fringe benefits tax, the GST input tax credits can be claimed, and the costs deducted against the company's tax like most other expenses.

All of that said, it's not a cheap exercise. Let's say a business spends $20 per day per employee on food. There are about 230 work days in a year so that's $4600 per employee. Depending on the average salaries in a business that's likely to be around a 3-10% increase in wage costs. In my experience at Google I think the business received more than that in benefits.

We're outgrowing our space at The Campaign Palace and plan to find a new office in the new year. While it's going to depend on the business's cash flow, once we move we think providing lunch and snacks will be well worth the cost.

Has anyone else had experience working in an organisation that provided free snacks and lunch for employees and if so, what are your thoughts on it? Given not many businesses do this there must be plenty of people who think the costs outweigh the benefits so I'd love to hear people's thoughts on this too.

Wednesday, December 8, 2010

What level of customer service is appropriate for your business?

This is a post that was cross posted to the NETT magazine blog.


There are essentially two ways to think about customer service in your business:
1. as a marketing tool or
2. as a cost of doing business.
The best approach for your business essentially comes down to what you want your key point of difference to be in the market, and whether customer service is important for that or not.

Approach 1: Customer service as a marketing tool
An approach being taken by a lot of businesses, particularly recently, is to treat customer service as a marketing tool. Rather than measuring customer service as a cost of doing business that needs to be minimised, businesses will look at customer service as a marketing tool where the return on investment should be maximised.

An excellent example of this is the US based online retailer of shoes, Zappos. Some of the amazing things Zappos do to treat their customer’s well:
  • 24/7 phone and email support
  • 365 day free returns policy (you can return your unworn shoes up to a year later for a full refund)
  • Free shipping to the customer, and free return shipping for returns.

If you’re unsure about your shoe size, Zappos will actually suggest you order two pairs of shoes in the sizes you’re unsure about, then return the pair that doesn’t fit, all completely at their cost.

There are also numerous stories and review online of where Zappo’s employees went completely out of their way to help customers. A common story is Zappo’s employees pointing customers to competitor sites when Zappos are out of stock of a particular item.

One of my all time favourite customer service stories comes from Zappos. The customer’s mother had recently purchased some shoes and then sadly passed away. The customer had organised to return the shoes but, with everything else going on she hadn’t had time to take them to the post office to send them back. Zappos arranged to have UPS come pick up the shoes—and then sent her flowers!

Zappos obviously lost money on this transaction. Not only did they receive the shoes back they had to pay for the cost of the return shipping and flowers. However aside from doing the nice thing and acting like a normal human being rather than a faceless business, countless people, including me have retold this story and they’ve probably sold 1000’s more pairs of shoes by doing it, earning their money back and a lot more.

Approach 2: Customer service as a cost
This is the approach taken by most businesses, and while I wouldn’t recommend it for most businesses, for some it’s probably the most profitable approach to take. Take Virgin Mobile in Australia. Nearly every experience I’ve had with their customer service has been atrocious. They clearly aim to reduce their customer service costs and don’t emphasise customer service within their organisation’s culture. Despite this I stick with them because their point of difference is that unlike the other telcos they include international calls in their capped plans and I make a lot of international calls. I probably wouldn’t recommend theirs as an approach for the vast majority of businesses, but because there aren’t a large number of competitors in the mobile telco space, Virgin are able to get away with cutting costs on their customer service, and customer’s like me reluctantly stick with them.

A less extreme approach is how Google treat customer service with their free products. The point of difference for products like Google Search and Gmail is that they’re free and help you easily find the information you’re looking for or in Gmail’s case, access and manage your email. In my view these products are better than any of their competitor’s offerings so I use them even though the only customer service offered is Google’s help centre, they don’t offer phone or even email support for these products.

Online media and customer service
The growth of online marketing and customer reviews is increasing the importance of offering great customer service for businesses. It’s now quite easy for anyone to write and publish a review online about any product they’ve used. Many customer’s will search for and read reviews online before making a purchase from a company, whether that businesses operates online or offline. Studies have shown that a primary reason for customers writing bad reviews is receiving bad customer service, so offering great customer service will help prevent those bad reviews.

The growth of search engine marketing means many businesses receive a lot of their traffic from people searching on their brand name on Google. At Shoes of Prey we receive about 15% of our traffic from people searching for ‘Shoes of Prey’. One of the top results from this search is this fantastic review from one of our customer’s who also happens to write a reasonably well trafficked blog. In her review she specifically mentions our great customer service and no doubt that helped prompt her to write the review in the first place.

Our Approach at Shoes of Prey
At Shoes of Prey we’ve taken the Zappo’s approach to customer service, with a few tweaks to suit our business model. With our unique product, allowing women to design their own shoes, our marketing approach is built around PR, word of mouth and social media marketing. To encourage all 3 of these forms of marketing we need to wow our customers so they want to write about us and tell their friends about us, and a key way we do that is through our customer service.

Returns policy
We want our customers to love their shoes, and we don’t want any customers keeping their shoes if they’re unhappy with them. So if a customer’s shoes don’t fit we’ll remake them at our cost, or if they’re just not happy with them for any reasons, we offer a full refund. This is expensive for us to do because we can’t easily resell the shoes as they’ve been made specifically for the customer, but customers really appreciate this policy and we think it’s worth offering.

Packaging
When we send your shoes we include:
  • A handwritten note introducing you to your shoes
  • 2 types of inserts to help with comfort in case the fit isn’t perfect
  • A photograph of your shoes (we also email you this photo when we ship the shoes to let you know they’re on their way)
  • A beautiful felt bag for your shoes
  • Some Shoes of Prey business cards you can pass on to your friends if you wish

All this is more than you’d receive from a normal shoe retailer and hopefully adds to the wow factor.

Personalised emails
Our first Sydney based employee, Carmen Roche takes care of most of our customer service. On our contact us page we have a short video from Carmen introducing herself as the person who will respond when you contact us. We aim to respond to all emails within 24 hours and during business hours we cut that to 4 hours. We don’t use copy/paste email responses and tailor and personalise all our responses. Carmen has built up a great rapport with many of our customers which increases trust and rapport. Once our email volume gets too much for Carmen and we hire a second person, we plan to have only one of our team respond to each customer so we can continue to keep our emails highly personalised.

Personal responses through social media
Jodie, one of our co-founders, takes care of our social media marketing. She’s recently started adding her name to her posts and comments on our Shoes of Prey Facebook page and since doing that we’ve noticed an immediate increase in responses to her posts. It seems obvious to us now - people much prefer feeling like their speaking with a real live person rather than having an anonymous person write back to them.

Conclusions
Deciding what level of customer service is ideal for your business comes down to the type of product, what you’re offering to the market and the reason you are giving customers to buy your product rather than your competitors. If, like Virgin Mobile or Google that ads up to keeping the cost of customer service down, then that may well be the most profitable approach for you. For a business like Zappos or Shoes of Prey, where we aim to differentiate and wow our customers based on our customer service, treating customer service as a marketing cost where the return on investment should be maximised rather than costs minimised is a better approach.

Monday, December 6, 2010

Computer science vs commerce/economics/law



A couple of weeks ago Saf left the following comment on one of our blog posts:

One day can you please comment on your experience/views about working in a fundamentally technology driven sector without any formal schooling in computer science etc? I'm interested to hear your views on this topic as traditional business graduates (those with commerce/economics and/or law degrees) will be increasingly working in an e-commerce environment as the sector grows?

To give some background, I studied Commerce/Law at The University of Queensland, spent 1 year at the law firm Clayton Utz then 2 years at the retailer Supercheap Auto group before moving into the technology sector to work in an advertising sales role at Google for 2.5 years. I've been working on Shoes of Prey full time for nearly 18 months.

For my roles at Google and Shoes of Prey not having a background in computer science hasn't been a great hinderance, and in many ways my commerce/law background has been very helpful. There weren't many computer science students hired into our sales team at Google. The role required strong customer service, sales and analytical skills all of which people with commerce/business/law type backgrounds are often suited to. There were definitely technical aspects to the role, but these could be learnt on the job and weren't that in depth that they couldn't be picked up relatively easily. When we were interviewing people for our team at Google computer science or a similar background was definitely a plus, but people with that background tend to be more suited to and prefer the software engineering roles at Google.

Co-founding Shoes of Prey has definitely put more technical challenges in front of me, but having Mike, who is a brilliant software engineer as a co-founder means that the technical aspects of the business isn't something I need to focus on, he takes care of it and does that very well. I'm sure there are times when Mike wishes I could help out with the coding, and perhaps having 2 software engineers as co-founders may have meant we launched and developed the business faster, but I'm not sure that's necessarily the case because there are so many other non-technical aspects to our business all of which fully occupy Jodie, Carmen, Vanessa, Qun, Susie and I. And now it's clear we do need two software engineers we've hired Melissa.

My background in commerce/law and my experience at Clayton Utz and particularly Supercheap Auto has given me a range of very useful skills that I wouldn't have if I had studied computer science instead. And starting Shoes of Prey with Mike and Jodie, our skills complement each other almost perfectly. If we were all software engineers I'm sure the business wouldn't have gone as well as it has to date. I think a great example of this is Jodie's work developing our brand and brand name. I think the brand insight, our name and the way we've developed the brand are spot on and this wouldn't have been possible were if Jodie had a computer science rather than advertising background.

I love watching Andrew Warner's interviews with various startup founders on www.mixergy.com and two interviews come to mind that relate to this topic. Victoria Ransom co-founded Wildfire App, a social network marketing platform that is heavily tech based. Victoria and her co-founder both have business rather than computer science backgrounds so they've completely outsourced the development of their product. I can imagine that's a very difficult thing to do, and I'd much prefer to have a developer like Mike as a co-founder but they've clearly had success taking the outsourcing path. Mike Moon and Quoc Bui are both software engineers, however they have completely outsourced the development of all their quite successful iPhone apps. Both of these examples show that it's possible to have success in the space without even having anyone on the team with a computer science background.

To summarise, I don't think it's a hinderance to work in the e-commerce space without a computer science background. If you're able to work with people who have those skills, a commerce/business/economics/law background is just as useful.

What are other people's thoughts on this?

Photo credit

Friday, December 3, 2010

How can my website take payments from overseas?



The following post was cross posted on Startup Smart.

I want to encourage online orders from overseas and am considering taking payments in other currencies. Is it possible to do this and, if so, how much time and money does it take? Is it a worthwhile thing to be doing in the first place?

This is a great question and an issue we faced early on in the development of Shoes of Prey.

Is accepting multiple currencies worthwhile doing?
There’s definitely an advantage in being able to accept payments in multiple currencies if you’re looking to sell your product overseas.. Put yourself in a potential customer’s shoes. If you were shopping from Australia on a website that only offered payment in a non-major currency like Canadian dollars or South African rand would you be as likely to purchase as if the retailer offered payments to be made in Australian dollars? Probably not.

Offering payment in a customer’s local currency makes it immediately obvious that your website can sell and ship to people in the customer’s country, so it’s going to help improve the conversion rate on your website.

An alternative is to list pricing in a customer’s local currency, but then charge their credit card in Australian dollars. The problem with doing this is that the customer will likely be charged international exchange fees by their local credit card provider which they may not like. The local Australian unique jewellery retailer Oye Modern take this approach and charge overseas customer’s 2% less than the Australian dollar price so once the credit card fees are added customer’s aren’t out of pocket. This approach is a good one but if you can accept payments in the customer’s currency that’s going to be better.

Is it possible to accept multiple currencies on your website?
It is. The simplest place to start is with PayPal. From very early on in the life of Shoes of Prey we’ve offered the ability to pay in 7 currencies on our website using PayPal. We match a customer’s IP address to their country and only show them pricing in their local currency. So US customer’s see pricing in US$ by default, European customers see Euros and Japanese customers see Yen, and when any of them make a purchase from our website we charge their credit card in their local currency.

The main disadvantage of using PayPal is that their Website Payments Pro product is not yet available in Australia. This means you’ll need to direct customer’s to the PayPal website to enter their credit card details, so you can’t create a single page checkout on your website, which would probably convert a little better. PayPal plan to launch Website Payments Pro in Australia in Q2 2011. The other disadvantage of PayPal is that you’re forced to convert your foreign currency sales to Australian dollars through PayPal and they charge a 2.5% spread for this, on top of their 3.4% plus $0.30 per transaction fee for new businesses. While the final price of 5.9% isn’t cheap, we use them because in our view it’s the best option on the market.

The only bank in Australia that offers a multi-currency merchant facility is the NAB, but unfortunately their product is not at all easy to apply for nor use. We initially applied for a NAB multi-currency facility but after a 2 month application process which included submitting business plans and having to put together a spreadsheet to attempt to understand their fee structure (there are more than 10 different fees involved) we gave up and decided to go with PayPal. The NAB product is also difficult to use. They don’t have a web based platform to access your money so you need to install their 10 year old software on your computer, which of course they charge you for the privilege of using. You also need to sign up separately with a payment gateway provider and manage fraud and other risk issues yourself. PayPal incorporate the payment gateway into their platform and take care of the risk management for you.

Conclusions
We’re of the view that it’s an important service to offer customer’s the ability to pay in their local currency, and we think PayPal have the best product on the market in Australia for doing this. Foreign currency sales make up 50% of our total sales at Shoes of Prey so selling overseas has and will continue to be an important part of our growth.

Wednesday, December 1, 2010

Australian retailers - forget about GST on online retail Imports



I've been reading with interest the debate around lowering the threshold for GST being applied to imports. At the moment GST isn't applied to imports under $1000. So if a consumers purchases, for example a pair of shoes from an overseas online retailer, no GST is charged or paid. If they purchase from an Australian retailer, like Shoes of Prey, they're charged GST.

A number of prominent Australian retailers including Gerry Harvey, and retail industry bodies like the Australian Retailers' Association and the Council of small Businesses have been calling for a reduction in the threshold for when GST is applied to imports from $1000 to $400.

The calls have come about because Australian retailers are concerned that the higher Australian dollar is resulting in increased competition from overseas online retailers. While that might be true and a reduction in this threshold would help Shoes of Prey, I don't think it's the answer or the appropriate thing to do. Cost estimates have shown that the cost of charging this GST to consumers would outweigh the revenue gained, so introducing the tax would essentially be adding an inefficient bureaucracy for the purpose of protecting Australian retailers.

There are already 2 huge natural advantages Australian retailers have in selling to Australian consumers:
1. There are no international shipping costs, or no shipping costs at all if goods are picked up in store.
2. There is a much faster shipping time, or no shipping time if goods are picked up in store.

These advantages far outweigh the 10% saved by GST not being paid on sub $1000 purchases.

The problem is not that foreign retailers have an advantage in consumers not having to pay GST on purchases under $1000, this is more than countered by the advantages outlined above. The problem is that the offer from many Australian retailers is often sub par and isn't competitive with what consumers are offered in overseas markets. Online retail is simply opening up the retail market to worldwide competition.

If Australian retailers can't compete in that space given the advantages they have with cheaper and faster shipping, they need to look at improving their offer so they can compete. We have some great innovators in the Australian retail landscape, but the lack of competition to date has meant that in some categories like our large department stores and grocery chains and to a lesser extent electrical retailers we have had only limited competition so retailers are used to living large on fat margins and aren't used to innovating. And that's why Australian consumers are shopping overseas, the offer is so much better. A broader range of products is offered, the prices are cheaper because the retailer's margins are lower, and the goods can actually be purchased online - many prominent Australian retailers still have very poor or non-existant online retail offerings.

If Australian retailers want to encourage consumers to spend at home they need to improve their offer and they should be looking at the opportunities online retail is opening up for them to sell overseas. If they don't they're missing a great opportunity and Australia is going to be left with a lacklustre, internationally uncompetitive retail industry.

Thoughts anyone?

Image credit.