Hays, carrot, horse, and business.

"Work takes a large portion of your life therefore your should find something you love to do."

At least that is what everyone would like to think. However, not every work is considered fun or worthy of loving.

Every business starts out with a vision, a vision that creates work and sets things in motion to transform resources as efficiently as it can to maximise value. In any age, any work requires people to set things in motion but to get people to work or even maximise their ability to achieve requires the understanding of their motivations to work. Money is perhaps the most lucrative and basic motivational factor for the majority.

“The people are operating with one simple goal, albeit unstated: to minimise their risk and maximise their bonus.”

This is one of many famous quotes by former GE CEO, Jack Welch. People work for vastly different reasons. Until one is entirely financially independent, monetary incentive always plays a certain role in the incentive. This theory has been proven and disproven by various model depending on the spectrum of the needs model and samples. Put it very rudimentary and layman’s term, it is not much different than the carrot and horse game. To play the carrot and horse game well, we need to address these factors well:

Hays

For the horse to chase after the carrot, it must have the basic perpetual energy to keep running. The horse lives on hays, and in real world, that means the monthly salary to pay bills and expenses. The horse will eventually have diminishing returns on the hays. It is inevitable as we all age and become less productive as we used to be, but the burden on our backs will only increase over time. Every horse has different condition, and to expect every horse to run equally efficient with the same amount of hays is ridiculous. Winning horses should be awarded while the losing horses should be attended. More hays is not necessary better but hays should be spent on keeping and cultivating stronger horses. Personally, I believe that the horseman (i.e. the company) has the responsibility to understand and fine-tune the horses under its management. Without doing so, it may be difficult to expect the horse running healthy and efficient.

Carrot

Under the game, it is important to understand that when the carrot should be caught by the horse or when to change the carrot. The carrot is both the vision and the reward. It serves as the direction for the horse to run towards. The carrot is not the goal line that the horse crosses in races. In this game, there is no goal line. It is a finite chase after carrots. Every business exits for a purpose, and every leader has a vision for the organisation that deals the business. A faster horse is not the winning formula, a horse that chase after the carrot is. While the carrot serves as the vision for the horse to chase after, if the carrot is indefinitely reachable, the horse will eventually get tired and run reluctantly, leading to low efficiencies on hays spent.

Horse

It is critical to realise that not every horse would chase after the same carrot, and to find the horse that would chase the carrot that you put out. If your carrot is losing attractiveness for the horse, you should consider changing the carrot for the horse. Reiterating how tasty the carrot over and over again will not cut it for the long running horse. Without proper adjustment, the horse will focus less on the carrot and more on the hays.

Only horses that have tasted carrots or success will understand which carrot serves them the best. Horses that have never tasted carrots only understand the taste of hays. It is by no means saying latter kind is any less competitive than the former though it is always ideal to find the horses that would like to chase your carrot than the hays.

So what does it mean for business?

In this carrot and horse game, the horseman puts one carrot in front for a set of horses under the horseman's management. The whole game may be played against other horsemen. If at any time, the carrot becomes meaningless for the horses, the business ceases to exist. Therefore, all business should exist meaningfully. After all, it is the horse that move the horseman forward.

Feed the horse well and give them a meaningful carrot to chase. 

Same day delivery & satsifcation

Many businesses are under the assumptions that customers would like to have their purchases as soon as possible, thus many developments have been focused on reducing the lead time for the last mile delivery via various methods.The latest drone delivery attempts by Amazon and other companies is representing the new height of how business and technology are working together to fulfil the impulsion of purchase. 

Depending on which spectrum of the marketing model and KPI you are examining, if the goal is to increase the conversion and increase the turnover, shortening the delivery time is one method to achieve this goal. The outcome will generally increase the sales overall. However, there is the psychological element to be examined. Statistically, the longer a purchase is to be waited, the higher the customer satisfaction. Think of the phenomenon of every new iPhone launch. Assuming everything else is kept equal, we reduce the wait time to receiving your most wanted purchase, the assumed satisfaction should be reduced. Normally, the effort of reaching the financial requirement would also heighten the satisfaction level of your most wanted purchase, but that is not the discussion point here. The discussion point here is the wait time element only.

Efficiency = work / time

Time is always considered the shorter the better in business. The shorter the time, the higher the efficiency. In consideration of wait time, it is always assumed that the customers would not like to wait for their purchase. However, I argue that it is the delivery wait time is irrelevant to the satisfaction. I hypothesise that 

Satisfaction = quality x passion x time-of-use

I trust that this equation is trivial enough, yet how does the delivery wait time affect satisfaction? Let’s add these factors into the equation:

Satisfaction = (quality x passion x time-of-use) + delivery-wait-time

Using the assumption that the longer the delivery wait time, the lower the satisfaction, keeping everything else equal, let’s put in some numbers.

e.g. 

Same day delivery = 100 pts (pts is just an arbitrary unit)

Next day delivery = 80 pts

Keeping everything equal, using next day delivery service would result in 20 pts less satisfaction relative to using same day delivery.

If the former elements stay consistent(i.e. quality) or increase over time(i.e. time-of-use), they will outweigh the satisfaction contributed by reducing the delivery time. Put in simple English, it is unlikely the delivery option you chose to acquire the item would have any long meaningful impact on the long term satisfaction. In extension to this argument, for impulse purchase or purchase of new products, the reduction of delivery wait time will have higher contribution to satisfaction since the time of use is nearly none nor is the quality tested.

Unless the teleportation technology is readily available today, we have to fight against the physical conditions of transportation infrastructures and geographical distances. Until then, we have to rely on the pure numerical prediction of sales forecasts and risks of inventory stocks at the location nearest to the potential customers. I applaud the effort of Amazon mitigating the logistic hurdles into its own hands. Without putting too much thought, it is not hard to see the limitations of the drone delivery model. Perhaps the more efficient model relies on working with the cities to create more efficient delivery models than depending on existing transportation infrastructures.

Make no mistake that economy works in the supply and demand model, no matter how skewed. What we are experimenting today in reducing the delivery time is just the tip of an untapped ice berg, yet whether this is an ice berg or ice cube is to be mutually concluded by all parties in the near future.

The state of Japan e-commerce market 2013 - issues & logistics

This is the last instalment of this series. I hope you have found the information useful thus far.

This post will provide general issues faced in the Japan e-commerce market and logistic aspects. Lastly, I will also discuss a bit about the recent e-commerce related movements and trends, which has not been fully captured by the stats yet.

Issues

The wording here may be confusing to most audience. By trouble, I mean any issues occurred throughout the entire online shopping experience, from going to the site, ordering, receiving, calling the service centre and return. Overall, Japan has the least reported trouble rate among the top three major e-commerce markets. Some may speculate that the Japanese culture is extremely humble, thus many troubles may not have been reported leading to the lower number. On the contrary, Japan has a ridiculously high standard towards the quality of goods and services, any small mistakes would be reported by the customers and the merchant would need to compensate the customers.

The top issues identified are in the above shown order. Delayed delivery is one of the most often complained issue. Please keep in mind that Japan offers one of the best logistic infrastructure and service. Even with the degree of delayed delivery, we may be talking about at most 2-3 days as oppose to 1-2 weeks in other markets. Secondly, while broken delivery is quite common in all markets, fake goods also exist in Japan. This issue is in line with customers risking themselves by shopping at individual operated sites for lower prices. The rest of the top issues are commonly known even in different markets.

B2C Logistics

The B2C logistic volume has grown steadily in the past three years. The higher growth rate in truck transportation categories suggests more medium to large parcels and bulky goods such as furniture are transported, leading to higher volume growth in monetary term.

The B2C logistic market is extremely mature and saturated. It is almost a good case for duopoly. In the previous figure, though the mail postage volume is the highest, they are not entirely covered by Japan Post. Yamato and Sagawa offer a wider range of fulfilment service than Japan Post does. The only advantage that Japan Post has over other service is the complete deliverable coverage throughout the nation. Due to the near duopoly situation, the service and price offering don’t actually differ much between Yamato and Sagawa. Merchants often choose vendors based on price points since the service level are more or less equal. Japan Post is only used by merchants for lower cost reason or remote area delivery. 

It is worth noting that in some case, merchants can work with the logistics vendors to integrate additional service offer such as furniture assembly or bulky item recycle. 

Recent development

SNS fad

Japan market is a "successful” late adapter of the SNS boom. The introduction of Twitter and Facebook even wiped out the local grown service called mixi. Companies and brands have been fed by all the legendary SNS successful stories from the west, and tried to replicate them in this market. None has been able to increase customer satisfaction or generate sales from the SNS sources. In 2013, there has been a less focus on utilising SNS as a marketing tool, even despite the sudden increase in popularity of cute sticker centric Line app. 

Mobile sites/apps

The trend of “mobile first” has been led by Facebook and Google from 2013. More and more brand sites are making their sites to be smartphone capable. This is a necessary step for brands as Japanese use smartphone for just about anything and everything. They also spend more time surfing the web using smartphone than using PC. Unfortunately mobile site designs are still in the infancy stage. Consumers struggle to find complete product info via the mobile sites. What differentiate mobile use case from the PC is that if the user is intrigued even by the incomplete info from the mobile site, they are assumed mobile already and may likely to the take action to find the stores nearby to check out the products or services right away. 

Some brands feel that mobile sites is not attractive or invasive enough, they create apps instead to “claim" their real estate in users’ smartphone space. This approach comparing to mobile site, is very successful, but conversion is nearly impossible from the apps due to high transaction costs burdened by the merchants. All in all, the development of the mobile apps and marketing are very lagged behind relative to western markets despite the longer history and higher penetration of mobile device usage in Japan.

O2O

This is one of the hottest term rising from the second half of 2013. Whether you read it as “online to offline” or “offline to online”, you have to treat it as a mutual traffic directions. Sentimentally, the brands that own physical stores want to redirect customers from online to offline. This is because in recent years, online stores have rapidly grown and the physical stores have observed a steady decrease in revenues and average basket values. It is not hard to put the two dots together. Overall, retail brands are growing bigger in the pie size. It is mostly because the internal HR evaluation do not update to reflect the market change, which often lead to internal conflict between the online and offline businesses. From customers’ point of view, they both represent equally, as long as the customers can get what they want via either channel.

On the contrary, Japanese retailers can easily drive their offline customers to online and allow further interactions with the customer regardless the eventual conversion location. As the head of MUJI web business division once said, “the time spent with customer” is an important KPI in branding success.

O2O is still in the infancy stage for most Asian retailers. US department has begun to combine all of their channels to provide a consistent experience for the customers. Customer data is linked across each channel to better understand customers’ interactions with each property of the brand. For Japanese retailers, they create online channels because everyone else is doing so, yet only a handful has a broad view of the entire marketing strategy for all channels.