The Harvard Business Review has a great website, combining not only the articles from their magazine, but daily summaries of key articles, interesting statistics and a number of cool blogs ranging from “soft” HR issues to “hard” business articles. Frances Frei and Anne Morriss wrote a blog entry called, “Target and the Threat of Free Riders” that is pretty good. I know what you’re thinking — umm, doesn’t the heading for this blog entry say it’s about “publishing”? Yes, yes, it does. Because while Frei and Morriss are primarily talking about Target, the hidden subtext behind it is Amazon.
You might remember the big kerfuffle at Christmas time…Amazon released a new App that could scan bar codes, and they encouraged you while shopping in bricks and mortar stores to do some price comparisons. And then, *gasp*, buy from Amazon if the price was cheaper. They even had the audacity to offer initial discount coupons to those using the apps. The blogs exploded with stories of how Amazon was evil, how dare they do this, it was destroying the local infrastructure. They were essentially complaining that Amazon was being a “free rider” — the store chains have physical locations with large overhead costs they have to pay, and here Amazon was saying “go visit them, touch and feel your items in person, exploit their overhead, and then buy from us.” See what Frei and Morriss have lots to say about it from the perspective of Target, and guess what? They argue that OTHERS should be free-riding on Amazon’s investments:
Target is getting nervous, for the first time in a while. Some Target shoppers are browsing comfortably in the company’s high-design stores, then closing the deal online with lower-priced vendors. It’s enough of a phenomenon that CEO Gregg Steinhafel recently penned a letter to his suppliers with a competitive battle cry: “we aren’t willing…to let online-only retailers use our brick-and-mortar stores as a showroom.”
When there’s high utility of information pre-purchase and ease of substitution among products — as there is with big box retail — you run the risk that your well-educated customers will give their money to a competitor, sometimes without even leaving your store (not every customer huddled over a smartphone is playing Angry Birds). Customers won’t stick around out of gratitude.
Steinhafel’s letter hints at some of the ways that Target’s planning to fight back, including membership and subscription-based pricing models. The company might also look to one of its biggest free-riding threats — Amazon — for inspiration. Amazon should be facing an onslaught of customer free riding. Its products are often not the lowest-priced option, and they’re easy to substitute.
But the Amazon pre-purchase experience — a robust catalogue of customer and expert reviews for each product — gives you a reason to start the process there. Most important, Amazon then makes the pivot to purchase as seamless and lovely as possible, even from a cell phone. The retailer’s patented one-click technology makes it irresistibly easy, once you’ve found what you’re looking for, to point and click and be done with it. Amazon combats free-riding with ease of use.
Target and the Threat of Free Riders | HBR
My only quibble with the article is that it didn’t really pick up on the emotional backlash against free-riding that was generated with the Amazon app. People blogged, campaigned, boycotted, etc. Lots of people got really snippy, having no real idea what free-riding means but they could understand Amazon trying to steal sales from live stores.
Yet nowhere in all of the feeds did I see anyone, not even the timidest or bravest of souls, stick up their hand and say, “Umm, excuse me. How is this different from a store that price-matches?”. Because that too is complete free-ridership. So you go to the box store, find out everything you want to know, get whatever form of customer service you can get, get a quote on a price, and then go to another store that you would prefer to deal with, and ask them to match. Your drycleaners will do it. Your box stores like Zellers, Walmart, Sears, The Bay, Target, etc all have price-matching and “low price guarantees”. Mattress stores do it CONSTANTLY — they’ll price match anyone. Car sales. Pharmacies. Bookstores (gasp!).
In other words, another store goes to the trouble of deciding to have a sale, researching costs, deciding on a sale price, organizing their store with discount tags, new pricing, letting all their staff know about the promotion, etc. Then they advertise, generating big costs to do so. And their neighbour simply puts out a sign that says “bring us their ad, and we’ll match it.”
That’s basically what Amazon did, except they did it with an app and made it possible to not only price match a sale, but also to simply scan a barcode to see what the price is at Amazon (usually not as good for many items, as the article makes out). But the anti-Amazoners went berzerk anyway.
Never let the facts of a situation get in the way of a good rant against a big evil company like Amazon. After all, you wouldn’t want to take away sales from a local “good corporate citizen” like Walmart, now would you?