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Powerful (and powerless) merchants

May 7, 2012
by seth godin

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The following things are so commonplace that they are almost beyond noticing:

A visit to Costco turns up quite a few items produced by a brand called “Kirkland,” which is owned, naturally, by Costco.

Checking out of Barnes and Noble in many large cities and you’re likely to see the Zagat’s restaurant guide near the cash register. Zagat pays a fee for this. Not to mention the huge stacks of books in the window and near the door–that costs the publishers.

The endcap at your local supermarket features a deal from Pepsi or Coke, but never both at the same time. And the deal is paid for by the soda company. Slotting allowances generate millions of dollars a year in revenue.

These merchants have the power to increase sales of a given item (sometimes by 100% or more) and they’re not afraid to use it and to sell it.

When we shop in the real world, we take it for granted that end caps and promotions and speed tables and other interactions will not be there because they are in the direct interest of us the shopper, but because they were placed there by the retailer to help generate income. It’s a store, for goodness sake, of course they’re trying to maximize their income.

So that speed table near the checkout that’s covered with Maybelline eye-liner–it’s not there because it maximizes our shopping enjoyment, it’s there because someone got paid to put it there. We’ve been trained to respond to promotions with our attention and our dollars.

Online, where stores are more like tools than like stores, this behavior rarely transfers successfully. You bristle when Twitter starts inserting irrelevant tweets in the stream you see, because you didn’t ask for them.

Online merchants have done an extraordinary job of honestly presenting relevant information and drawing a bright line between editorial and merchandising. Which means that they’ve given up a huge amount of power. Since online merchants can’t make a particular item sell, they have far less leverage. They make up for it by selling everything, indifferent to which item you choose. In short, they’ve traded their power to you, the customer, in exchange for volume.

There’s no comparison between the way Macy’s makes a profit merchandising shoes at the store and the way Zappo’s promotes shoes online. Online merchants have learned the hard way that they must take an obsessive user-first approach. This is the secret of the longtail online merchants, including eBay, Amazon, bn.com and others: they don’t care what you buy, as long as you buy something.

This isn’t a bad thing, and for most shoppers, it’s actually welcome.

Which leads to the conundrum facing Amazon as they become a publisher. It’s hard to make a particular book a hit online using traditional merchandising tools, which means that authors (whether they’re published by Harper, S&S or Amazon) have to come to the conclusion that it’s up to them (and their readers) to make books sell, because the online merchants have voluntarily ceded that power. The merchant doesn’t pick the winners any longer. (See #3 on this list).

Publishers have been nervous about moving from a powerful merchant that they know and understand and can motivate with cash to a set of online merchants where it appears that a bunch of power is up for grabs–they want their share. In fact, the move is to the long tail universe where the power isn’t with the merchant, it’s with individuals and their tribes.

PS Since it’s up to me and Sarah to tell you about it, please don’t forget to buy a copy of Sarah’s bestselling book for Mother’s day. Thanks.

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