Clearly shutting down our Amazon store will help our detailing competitors. They will sell more products and probably will sell more at a higher margin since there’s one less competitor in the fold (many times it was just us and one other company bidding each other down on a product).

But we never mentioned that in the decision making process. Not once. And from that last post it’s obvious that there were a lot of factors, but all of those factors were internal. We were just trying to do what was best for us, not what’s better or worse for the competition. If our actions happen to help them, so be it. Who cares if their volume on Amazon goes up? We’ve decided that we don’t want that volume. We’ve decided that we have different plans for our time and money.

I think a rookie business mistake is focusing too much on your competition. Even though you’re in the same market, your goals are often very different. Copying the competition can be a dangerous game that can take your eye off of the customer. Business is not a zero-sum game. There is room for a lot of people and companies to succeed in a lot of different ways in an industry. You can find yourself in trouble if you try to succeed “their way” and not “your way”.

The Study

Like most online retailers, we didn’t have a good understanding of how accurate our shipping quoting system was.  We use the FedEx API, but there are scenarios where surcharges are applied that make quoting a little more complex than it should be.  Plus those quotes are working under the assumption that the weights in our database are accurate, and that the box size system selects the correct box for the order.

Unlike most online retailers, we decided to do something about it.  FedEx posts each shipment individually to our AMEX card with the associated tracking number for the charge.  We also store all tracking numbers in our database when the shipment goes out. By pairing the two we could compare what we charged the customer vs what FedEx charged us.

In about 3 hours I was able to gather and analyze about 3,000 recent transactions with matching tracking numbers using a combination of Excel (err Open Office Calc), MySQL, and PHP. The majority of our orders are shipped via FedEx Ground, so that was the most important segment to look at.  Because we were looking to determine our quoting accuracy (and not necessarily our raw profitability) I factored out any orders that had discounted/free shipping applied from a coupon or other shipping promo.

My hypothesis going in was that we were losing a little money each shipment.  I was wrong.  We’re actually doing a really good job.  When you factor in our 5% AMEX savings, we’re netting $1.13 per shipment. As far as accuracy goes, we’re pretty good too with an average standard deviation of just $0.64 per order. This is illustrated best by looking at the graph below of shipping costs (the y-axis), sorted by increasing shipping quote (the x-axis).  Notice how closely our real cost in blue closely hugs the shipping cost that we charged the customer:

FedEx Express shipments yielded much the same result.

The next step was to figure out how much our packing materials were costing us.  I added up all of the materials we’ve bought this year – packing peanuts, boxes, and tape – and then divided that over the number of orders we’ve had during the same period. This is only an estimate, since we had some unused materials at the beginning of the year and have some unused materials now.  Nonetheless it’s a good estimate.  Turns out each order costs us $1.09 in materials.

Sweet – we’re essentially breaking even!  That’s great news.  It allows us to move forward with confidence that we’re accurate and that we’re not losing money on a per-order basis. Shipping discounts are more a function of marketing than they are of our shipping processes.  To me, whether we give 15% off on a coupon or free shipping doesn’t really matter.  It all comes off the same bottom line.

The final part of this study was to compare our shipping costs to our 3 biggest competitors.  We do get a decent amount of complaints about our shipping prices being too high.  I just assumed our competitors undercut our shipping costs because they are large than us.  Again, I was wrong:

Given the results of the study, we were able to move ahead with some of the big improvements that we had planned.  Had this not turned out so well, our focus would have been on getting this core stuff right.

Website Improvements

As we have it though, we’re doing a pretty good job with the core stuff so we’re able to move on to some of the more advanced stuff.  This is where the fun starts.

First things first, we listened to our Alaska and Hawaii customers and switched the shipping option from FedEx to USPS.  They get their packages faster and save about 20% on every order.  It was a no brainer.

Second, we fixed a problem that causes a lot of online retailers trouble: aerosol containers. Due to safety precautions, aerosol containers can’t be shipped via air, regardless of the service. Previously, we dealt with this on a case by case basis since most of our orders are Ground shipments. However, the number of instances where people were ordering aerosols via Express were increasing. This not only is a pain for us (we have to contact the customer, place the order aside, wait for a response about substituting an item or taking a refund/credit), but customers are generally peeved because their expedited order gets delayed.

Simple solution – I added an aerosol field to the database and if you check out with an aerosol in your cart you see the following:

The next features are the really good stuff.

We added an AJAX “quick quote” feature that allows users to get a shipping quote for any order without logging in or giving us any of their personal information. This is something customers regularly complained about.  Previously they had to sign up for an account.  And while there are some benefits to us by having them do that (more newsletter subscribers), at the end of the day customers want a simple way to get a quote (I know I do when I shop), so it’s best to give them a feature to improve their shopping experience.

We also added FedEx Home as a shipping option.  It costs the same as FedEx Ground, but the main differences are that it delivers Tuesday – Saturday and requires a signature. Customers can now choose the option that works best for them.

And finally, the really cool one.  Based upon the time of day, the service selected, and the shipping destination, we estimate the day the order will leave our warehouse as well as the day that it will be delivered. The system factors in all shipping holidays through 2013 (I made a note to look up the holidays for 2014+ on 1/1/2013…). On other sites, just estimating the ship date has made a noticeable difference in conversion rate.

This one is huge.  Since detailing is primarily a weekend hobby, many customers order later in the week in anticipation that they’ll receive their order before the weekend.  Now they’ll know for sure. Greg won’t have to deal with customers who ordered Thursday night and are two days away but don’t receive their order until Monday. And for every one of those who complains, I bet there are a lot more who don’t complain but wish they had a better idea of when their products would be arriving.

Other Improvements

We’re also doing a few non-website related things to improve our shipping:

• We (finally) talked FedEx into sending us a backup label printer.  Sometimes ours can be spotty.
• We’re working on “emergency” scenarios for when FedEx Ship Manager software is down or won’t interface correctly (this almost happened Monday…thankfully they issued a patch and we were OK).
• We’re negotiating a later pick up. This will allow us to bump up our ship time on the new quoting system and advertise on the site “we ship all orders placed after 3:00 PM on the same day” (now it’s 9 AM).  This also means that we’ll be keeping the warehouse open longer.  Instead of just 9-3 I think we’ll be at a more normal 8-5 pretty soon.  For a little while it’ll suck, but we’re working on getting the employees in place so that we don’t need to be there all the time. There’s just a lot more warehouse work now than there was a year ago.  It can’t all be done in 30 hours any more.
• We’re negotiating rates with UPS.  I doubt we’ll switch, but we’re starting to hit the type of volume where it’s worth negotiating between FedEx and UPS on a regular basis.

As a whole, this was a very rewarding project.  There’s no doubt that this stuff matters to our customers.  The data analysis was important for us, but the new features will hopefully upgrade our customers shopping experience and continue to show that we’re constantly pushing the envelope with features that benefit them.

From the beginning we’ve been about finding different things that turn the tables and give us the advantages.  We don’t want to play their game – we’ll lose at that.  We want to play our game.   We have lower expenses.  We don’t have any full time employees.  We aim to provide stellar customer service.  Our warehouse operations are more efficient.  Our technology ties it all together – every little thing that can save time and increase efficiency, or increase revenue has either been done or will be done soon.

By building everything in-house instead of using an off-the-shelf cart like Yahoo! offers, we’re able to do things that they can’t.  One great example is our Daily Special.  Each night at midnight an item is put on sale for 24 hours.  The system picks items that meet our criteria (in stock, haven’t been on sale recently, etc). The RSS feed is updated.  An email is kicked out to our list of subscribers.  The price is adjusted and made ineligible for use with other discounts.  George and Greg get an email with the bbcode so they can copy and paste the special on their forums.  This all happens automatically.  We do nothing.  All without any of us spending one second of our time.

So when our competition decides to try to match our prices or do their own version of the daily specials, it doesn’t really bother us.  In a way, it’s actually a very good thing.  We’ve got them now playing our game.  A game that they probably can’t even compete in (yet alone win) without throwing a ton of money and manpower towards managing the system.  Their other option would be to build an entirely new platform to compete with ours, which again would cost a lot and of course take exceptional time and effort.

Another great example is our recently upgraded coupon system.  There’s a reason that Detailed Image wasn’t on Twitter and Facebook until August 1st.  We wanted to put forward a product that couldn’t be matched by our competition.  And to do that, we needed to be able to offer more than just 10% off or free shipping.  We built a system that allows for limitless possibilities:

• We control the number of uses allowed
• We control the min spend
• We control which products it applies to
• We control the discount – either a percent off, a flat dollar amount off, or a flat price for all eligible items
• We’re able to give away free products
• We control the time period in which the coupon is eligible
• We can offer free shipping or flat rate shipping

Any of those things can be used in conjunction with the other.  So I could say, for example, that for the next 12 hours the first 5 people to buy a product from brand x will receive another free product, 10% off their entire order, and free shipping.  Or pretty much any other wacky combo of those things that our brains can conceive. A Yahoo! store can’t do that.

And again, the system interacts perfectly with the rest of our back-end.  For example, a free item will still show up on the invoice, but it will have the word “Free” in front of it and show a price of $0.00.  The item will also be deducted from inventory.

These types of coupons allow us to run all sorts of micro sales on Twitter, Facebook, and our forums without making our lives more complex the next day when we go to process and pack orders.  In conjunction with our customer service, our presence on these platforms is a competitive advantage that the other companies in our industry cannot easily replicate…even though Twitter and Facebook are free.  It’s working already – the revenue from Twitter in the first 11 days has exceeded my expectations.  Considering we only have 100 followers, I think we’ve got a potential killer marketing tool on our hands.  What will happen when there are 1,000 followers?

In sum, our competitors have a lot of advantages that we don’t have.  Then again, we have a lot of advantages that they don’t have, which makes for great competition.  Maybe it’s just because I’m on our side, but at the end of the day I’ll always want to be on the younger, hungrier, and leaner company that created it’s own advantages where others saw none.

Listen, I get that as we grow and become bigger threats to our competition they will use tactics like this as a way to take a shot at us.  In a way, it’s a compliment:  they’re admitting that because of their bloated inefficiencies that they have no way of competing with us on price.  They have crappier websites, larger warehouses, and a lot more employees, which leads to a whole lot more overhead.

I also get that manufacturers want to preserve the integrity and quality of their brand, and therefore do not want to see certain products for sale below certain prices.

Here’s what I don’t get.

First off, it was Black Friday.  Get over it.  It’s not like these are our year-round prices (although if the volume was this high we certainly could potentially get away with running those type discounts year-round…)

Side note:  definition time, from a manufacturers perspective.  Customers = who buys the product from you.  Consumers = the end user.  Sometimes they are one in the same, but usually there is a middle-man like us who is a customer of the manufacturer and sells products to the consumers.  Make sense?

Secondly, there is a fool-proof way for all manufacturers to never ever have this become an issue:  provide guidelines for all of your customers.  As your customers, give us strict price guidelines so that we know what we can and cannot charge consumers.  And I’m not talking about MSRP.  You give us a “suggested” retail price and we may or may not follow it.

What I’m proposing takes 15 minutes to come up with but avoids years of misunderstandings.  Give us real guidelines.  What is the absolute minimum we can sell your product for?  Can we run sales?  If so, for how long?

Let’s say I just created an awesome new blue widget that I sell to my customers for $75.  It’s much better than all of the other blue widgets out there that normally sell to consumers for $100, so I’ve decided that I want my MSRP on this particular widget to be $149.99, and I tell my customers as much.  However, I also tell them that I’ll allow them to list the product as low as $139.99 at their own discretion.  Once per year, for no longer than a month, they can sell it for $124.99.  Over Black Friday weekend, it can be discounted as low as $114.99.  All other sales require my approval first.

How hard was that?  Give us something like that as soon as we place our first order with you and we’ll never ever have an issue.  We will strictly abide by your terms.  Problem solved.

Or give us no guidance at all.  In that case, we’ll do whatever we want.