The 'Captive Upsell' Business Model

by Rocco Tarasi

I was reading Free: The Future of a Radical Price by Chris Anderson the other day, and it got me thinking about other innovative business models. One of the best that I have encountered recently was at the Bridgestone tire store when I got new tires for my car.

What was so impressive was how they convince you to purchase an alignment while they are mounting your new tires. While your car is being worked on, they come out with a computer generated report that shows the misalignment of each of your tires, and offer to do the alignment for an additional fee. It is a very compelling sales pitch:

1. The computer generated report provides reliable evidence that your tires are misaligned, instead of just looking at the wear on your tires (a computer can't lie, right?).


2. To some extent, you have already experienced the problem that they are selling you a solution for - the reason you are there in the first place is for new tires, and misalignment wears tires out faster. The alignment is offering you a chance to extend the life of your tires, and you are most receptive to that sale when you are about to pay for your new tires.


3. Since your car is already up on the jacks, you believe - rightly or wrongly - that doing the alignment will be cheaper now than if you want to do it later. You've already paid, via your new tires, for the labor to get the car on and off the jacks.


4. You expect (and they verify) that it will only take a few additional minutes to do the alignment, since again it is already on the jacks. Deciding to get an alignment later will most certainly take more time.


5. You are already spending many hundreds of dollars on new tires, so the alignment seems inexpensive in comparison.

This honestly is an impressive sales technique. The manager that I worked with was personable and not at all pushy - he didn't have to be, he had all of the above factors in his favor. I bought the alignment - I wouldn't say I "happily" bought it, but I didn't leave there with a negative experience even though I spent more on the trip than I intended to.

It is interesting to compare this to a somewhat similar sales technique - an electronics store trying to sell you the extended warranty on your new technology purchase. How does that situation compare to the five factors above?

1. Reliable evidence? Not really. TVs, stereos, cameras, DVD players – they aren't known for their poor quality.
   
2. Already experienced the problem? Probably not. Odds are you are buying a new toy not to replace a broken one, but because you are upgrading (DVD to Blu-ray) or because you have a new need (like a bigger house).
   
3. Cheaper now? Yes. You can only buy the extended warranty at or soon after your purchase.
   
4. Only take a few minutes? Yes.
   
5. Inexpensive in comparison? Yes (usually).

So three "Yes" and two "No" answers. But those two "No's" are important - without reliable evidence you don't believe your new purchase is going to break, especially if you haven't had one break before.

The lack of evidence is also supported by countless stories you've read of how extended warranties are a rip-off. Perhaps if they lowered the warranty price then it wouldn't be considered a rip-off anymore - but then again, they have likely maximized the price that consumers would consider "acceptable" to maximize their revenues. If they lowered the price it probably wouldn't gain any new consumers, so they would be just giving away revenues.

There is one other problem with the extended warranty purchase - there is no "immediate gratification". The warranty payment is for something that might happen in the future. It doesn't make me enjoy my new TV or DVD player any more now. This reminds me of one more experience - buying my first big screen TV at Best Buy, and the salesperson talking me into an overpriced Monster surge protector. I bought it - partly for its insurance policy, and partly for the supposed immediate improvement in having a "cleaner electrical signal to the TV". I know, I know... but how did that experience stack up against our five factors above (plus our new sixth "immediate gratification" factor)?

1. Reliable evidence? Not for the "cleaner signal"
   
2. Already experienced the problem? Not for the cleaner signal either, but I did have a relative lose their electronics from a lightning strike.
   
3. Cheaper now? Not really, I could buy it at any time.
   
4. Only take a few minutes? Yes.
   
5. Inexpensive in comparison? Yes.
   
6. Immediate gratification? Yes.

When I think back to why I chose the surge protector and not the extended warranty, I think it was a combination of (1) from every news story I heard I knew the warranty was overpriced; and (2) since the surge protector served a dual role - part product improvement, part insurance policy, I was able to more easily justify the high price since it was still much less expensive relative to the TV itself.

I know that I didn't need a Monster surge protector, but I wonder how many other people have gone through the same thought process, and what other similar sales cases we could apply these factors?


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Rocco Tarasi was an accountant, investment banker, and CFO before becoming a technology entrepreneur. He writes about innovation at www.InnovationMinute.com with a focus on "everyday" innovations in business models, sales strategies, products and services.

Innovating Your Wallet

by Drew Boyd

Innovation puts cash in your wallet. But what about the wallet itself? For this month's LAB, we will apply the corporate innovation method, S.I.T., to create new and useful concepts for the wallet.

Wallets are the most personal items we own. They carry our money, credit cards, identification, licenses, photographs, and other memorabilia. Your wallet says a lot about you. As with food, we try to stuff more inside while staying thin. Wallets have been around a long time. Today, the wallet industry is a multi-billion dollar market fueled by new designs and innovation.

Here are six unique wallet concepts invented using the five templates in the S.I.T. method. They were created by graduate students at the University of Cincinnati as part of their course requirements in "Applied Marketing Innovation."

1. FINANCIAL WALLET: "A complete personal financial guide to assure financial success." This concept features an online portfolio manager, a stock ticker, account summary, Forex calculator, and Quicken integration.

• Benefits: stay alert to changes in your financial situation so you can make better, real-time decisions to manage your personal finances.

2. ARMOR WALLET: "The most secure wallet on the planet! Helps protect and manage your critical information." This concept features titanium casing, fingerprint scanner, auto-lockdown, missing card alert, and a data manager.

• Benefits: keep your financial instruments secure, get easy access to your important information, and be alerted when something is not right.

3. TRENDSETTER WALLET: "Always keeps you high on fashion. The ultimate style statement." This concept features color changes according to your mood, attire, and occasion. It stores and displays pictures on an LCD screen to capture memories, plays the most hip music, gets real time fashion updates, gives you full body views with an advanced zoom in and zoom out mirror.

• Benefits: helps you match your fashion to your state of mind.

4. SHOPPERS PARADISE WALLET: "The most convenient shopping companion that always gets you the best deal." This concept features credit card select (the appropriate credit/debit card pops out while shopping), then alerts you until the credit/debit card is back in the wallet. It manages your to-do list and shopping lists, and it gets graphical information on your expenditure with tips on money management. The wallet searches for the best discounts, and it controls cash flow with an online budget tracker. It has an aisle navigator to help you shop more efficiently.

• Benefits: gives you an enjoyable shopping experience while saving you money.

5. GLOBETROTTER WALLET: "The ultimate travel guide that makes you feel right at home anywhere in the world." This concept features built in GPS, trip management, food/tip management, weather watch, language translator, and current Forex rates.

• Benefits: helps you get the most out of your travel experience by staying informed about what is going on around you.

6. FITNESS WALLET: "The perfect personal trainer to suit all your work out needs." This concept features a heart rate monitor to check workout intensity, digitized locker key, first aid kit, stopwatch, distance and time, calorie watcher, MP3 player, sports updates, and a fitness scheduler.

• Benefits: helps you maximize the time spent staying in shape.

Check out this and the other Dream Catalogs at the Innovation Wiki.

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Drew Boyd is Director of Marketing Mastery for Johnson & Johnson (Ethicon Endo-Surgery division). He is also Visiting Assistant Professor of Marketing and Innovation at the University of Cincinnati and Executive Director of the MS-Marketing program. Follow him at www.innovationinpractice.com and at http://twitter.com/drewboyd

Future of Shopper Marketing

by Kevin Roberts

The Sam Walton Business School at the University of Arkansas is on our calendar every October because of the superb annual conference run by the Center for Retailing Excellence. Andy Murray, Global CEO of Saatchi & Saatchi X, was a founder of the conference, and this year a keynote speaker. His subject was "the future of shopper marketing" - which should apply to anyone and everyone who wants to sell something to a customer.

The presentation featured five key points (and a whole bunch of arresting stories, insights, and examples):

• Put yourself at the heart of the customer (most companies try it the other way around)


• Navigate the experience of your customer from the "shelf back"


• Create ways for customers to participate and be involved in your brands and store experiences


• Explore the fringe/edge/margin for new ideas (Wal-Mart was a fringe idea, it came from Bentonville, not Chicago)


• Find new ways for manufacturers and retailers to collaborate authentically based on trust, transparency and shared goals

This is a special presentation and will be viewed in five years time as a definitive statement about the world's biggest activity: shopping.

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Kevin Roberts is the CEO worldwide of The Lovemarks Company, Saatchi & Saatchi. For more information on Kevin, please go to www.saatchikevin.com. To see this blog at its original source, please go to www.krconnect.blogspot.com.

Creating Priceless Value

by Kevin Roberts

This week was a biggie - speaking at HSM World Business Forum at Radio City Music Hall in New York. I was onstage immediately before George Lucas, and as much as I would have loved to stay, I had the week from hell with speeches and meetings over the following three days in Miami, Washington DC, and Chicago.

In the lead up to the event I recently gave a webinar where I gave a preview of what I covered in my presentation, and I answered about 20 questions which poured in from all parts of the world.

In my webinar opening remarks I focused (again!) on Winning Ugly, which has been my mantra at Saatchi & Saatchi since the recession. There are a bunch of ways to win ugly, but one constant in the list is reframing your beliefs about value. With more choice, more connectivity, and less spend, consumer power is reframing the notion of value.

In this time of "new frugality" everyone is wanting more for less. People are evaluating more (71% of Americans shop online before buying a car), trying more, comparing more, and contemplating switching more. Online themselves, and online through others.

Here are the ways consumers are thinking about value; they're saying:

"I'm sorting true value from false economies."
People want smart abundance, not rubbish

"I'm not cutting back on luxuries, I've just redefined what luxuries are."
People still treat themselves, just not in the same way.

"I'm into the challenge of finding creative solutions."
Ingenuity is the new innovation.

Companies must jump-shift their value comparisons.

P&G invites consumers to compare Tide Total Care with the costs of dry cleaning.

Prius invites drivers to enjoy exhilarating motoring while at the same time refreshing the environment.

Tylenol shifted the goal posts in an admirably non-self-serving way: their advice for a headache? Drink a glass of water, wait 20 minutes - and if you still have one then take Tylenol.

Even a private jet company - Flexjet - reframed its private jets from a luxury item to a valuable business tool, from status-oriented cost center to commonsense transport investment.

Each of these examples represents an 'emotional bonus'. They check the rational value boxes but also deliver emotional value by improving your world.

I call this Priceless Value... uplifting life solutions tuned to how people are feeling, living, spending - and sharing.

I'll be talking again about reframing value, and creating priceless value, at Radio City. Now this, for me, is Priceless.


For more with Kevin Roberts, check out our video interview from the World Business Forum.

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Kevin Roberts is the CEO worldwide of The Lovemarks Company, Saatchi & Saatchi. For more information on Kevin, please go to www.saatchikevin.com. To see this blog at its original source, please go to www.krconnect.blogspot.com.

Smart 'R' Us?

by Steve McKee

Toys 'R' Us has faced its share of difficulties over the past several years. The company has had to contend with the likes not only of traditional competitors including Sears, KB Toys and FAO Schwarz, but bricks-and-mortar bruisers like Target and Walmart and Web behemoth Amazon. Not so long ago the company faced what appeared to be an existential threat from a very-well funded (and heavily advertised) "new economy" competitor, an online startup called eToys. There was a period when I thought Toys 'R' Us not only had seen its better days, but would have very few days left.

My how times have changed. Toys 'R' Us now owns--that's right, owns--the FAO Schwarz, eToys and KB Toys brands. And in a gutsy move that runs counter to the loss of nerve by which most retailers are still being tripped up, the company, which has fewer than 850 stores, will launch an additional 350 temporary locations during the upcoming holiday season. That means more rent, more people, more inventory, and more risk. It also means significant potential to gain market share.

In a Wall Street Journal interview, Toys 'R' Us CEO Gerald Storch said about the decision, "The current economic disruption provides an opportunity. The people who made their fortunes during the Great Depression where those that moved when everyone else was pulling back."

He's right, of course. The same Wall Street Journal article cites a CIT Group study which suggests that two thirds of retailers plan on hunkering down during the upcoming holiday season. While they make their toys easier to buy (with bigger discounts) but harder to find ( by stocking less inventory), Toys 'R' Us is positioning itself to be in the right place at the right time as harried shoppers look to cross items off their list (given the category, often impulsively). That will help the company not only pick up share, but protect its margins.

Rather than sitting around, wringing its hands about another potentially difficult holiday season, the Toys 'R' Us team has decided that disruptive times often call for disruptive measures. I predict their stockings will be full this year.

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Steve McKee is a BusinessWeek.com columnist, marketing consultant, and author of "When Growth Stalls: How it Happens, Why You're Stuck, and What To Do About It." Learn more about him at www.WhenGrowthStalls.com and at http://twitter.com/whengrowthstall.

Cashing in Online

Why do dead presidents have no value in the online world? In other words, why can I not pay cash online anywhere I want in the same way I can in the physical world?

For years now, when I am not busy serving paying clients, from time to time I bang the drum for my vision of making all online stores like brick and mortar stores where people can 'walk' in and pay cash. Now why is this so important for online retailers?

Online shopping is growing in popularity under current conditions, but it could grow even faster if the final barriers were eliminated. Enabling customers to pay cash online would eliminate barriers to online shopping posed by fears of:

1. Stolen credit card information

2. Identity theft

3. Invasion of privacy

Online merchants are missing out on shoppers who may never join the cashless society (UK statistics provided for illustration purposes) by not allowing shoppers to pay with cash:

1. 40% of the population doesn't have a credit card, yet 80% of online purchases are made with one

2. Not everyone can get a credit card - In 2000, 4 million 12-16 yr olds spent $6 billion

I saw an article in the Seattle Times about Amazon inking a deal with a partner to allow people to shop online and pay without a credit or debit card, and so I started to think "hurray!" - after four years somebody has finally realized the opportunity. I was so disappointed to find out that the 'solution' of serving people who do not want to pay with debit or credit card, was to allow people to pay directly from their bank account (ala PayPal) via a partner called BillMeLater.

As an entrepreneur and professional adviser, you would think I would be excited to hear that my vision still has not been widely implemented. I am excited, but at the same time I know that the true 'solution' is not workable for a new entrant.

What do you think?

@innovate