Posted by: Will – Priority Juggler on December 18th, 2008

Unless you’re  living in a cave somewhere, you’ll know it’s Christmas very soon indeed – Google has even added holly and sweets to the ads shown for Christmas related searches.  It’s very busy at Flowers HQ right now too, as well wishers send flowers home to loved ones.  We’ve even sold out of Father Christmases (though Steve got all sentimental and decided to keep the last one as a memento).

Given the economic environment and the weakness of the pound, we’ve spent an awful lot of our time recently trimming unnecessary costs to make sure that our customers continue to get great value for money out of every pound they spend with Arena.  We try very hard to deliver a great product at a great price and we hate wasting money.

One example of where we’ve trimmed cost is in our marketing.  Like other online businesses, we always look at our marketing channels in peak periods to see how we can bring in new visitors and orders cost effectively.  This Christmas we have been amazed how much some of our competitors are willing to pay to buy traffic and orders, especially given it’s “credit crunch Christmas”.  One might expect marketing budgets to go down in this environment, but in fact some companies are being extremely aggressive and, frankly, throwing their customers’ money away.  Who pays? The customer of course, with a substandard product being delivered as there’s no money left for flowers because of the inflated marketing spend.

Here’s a concrete example from one of our competitors, to illustrate the crazy commission deals currently on offer and some of the tricks they’re using to try to claw some of that cost back.

Here’s what they are paying for their affiliate marketing:

• 20% commission to affiliates who send them orders
• 6% to the affiliate network
• 10% off for the customer, through a promo code given out by the affiliates

That’s 26% marketing cost plus a 10% reduction in sale value.  But that’s not all.  The commissions are all payable on the gross sale price, including VAT.  But sales are only recognised ex VAT.  So for a bouquet listed at £40 on their website:

• The gross value of the sale is actually recognised at £36 because of the 10% discount
• The net value of the order once VAT is deducted is £31.31 (£36/1.15)
• Marketing cost is £9.36 (26% of £36), fully 30% of the ex VAT value of the order!

Believe it or not, it gets worse.  Given this competitor runs a relay service, there will also be a hefty relay charge in there, at least 20% but probably more, taken by the competitor as a fee for passing the order to a local florist.  I don’t know the exact relay cost % because we don’t use the relay model, as we believe it’s a waste of money to pay middle men plus relay means you can’t control the quality of the end product.

But I digress.  The point is that with this huge marketing spend and the relay fees, over 50% of a customer’s money is spent on, erm, not a lot! With 10% knocked off the overall sale value of the bouquet anyway, one has to wonder how much is actually spent on  flowers and floristry once the order makes its way to the local florist.  It must be virtually nothing, otherwise this would be a heavily loss making offer.

Or so it would seem. But the competitor has pulled some pretty Machiavellian tricks to mitigate the impact of its marketing largesse.  For example, there’s a £4 standard delivery charge on top of the bouquet price.  The 10% discount doesn’t apply to the £4 delivery charge, only the £40 bouquet price.  There’s also a minimum £40 spend (excluding delivery charge) for the promo code to work.  Yet the lowest priced bouquet over £40 is actually priced at £44 so if your original budget was £40, after the promo code you’re back to where you started (plus have the £4 delivery charge on top). Try to find a bouquet at £40, £41, £42 or even £43 and you’ll come up empty handed.

We saw this offer and didn’t even consider matching it.  Our marketing spend percentage is way way lower than those figures as we like to put our customers’ money into flowers rather than to blow it on middle men.  We don’t sneak a delivery charge in (we offer free standard delivery) and we don’t use clever tricks to get ourselves out of tight spots created by our marketing, as we think that that will just annoy visitors and customers.  If people want to get really good discounts and special offers from Arena, the only real way to do so is to sign up to our free newsletters or to become an Arena Flowers follower on Facebook.

I guess the fact that we refuse to offer such sky high commissions means that less affiliates will want to promote Arena and we’ll grow a little more slowly.  But on the other hand, we’ll deliver a high quality product with transparent pricing and we’ll wow and retain our customers (hopefully) so that the next time they want to send flowers they’ll (hopefully) come straight back to us. And for that second order, we’ll spend exactly nothing on marketing and our customer will continue to get great service from us because we haven’t blown all their money on relay fees and marketing – everyone’s a winner.  With 40% of our orders coming from repeat customers we feel that this strategy is working out pretty well so far and that’s exactly what we’re going to keep on doing.

On that note, “Bah, Humbug!” to wasting customer’s hard earned money, thanks to all our readers and customers, and Merry Christmas to everyone!

PS If you want to send Christmas flowers with no hidden costs or jiggery pokery, click here. :)

If you enjoyed this post, you may also enjoy our other marketing posts.

Filed under: Christmas Flowers, Ethics & Environment, Marketing, Matters Webby, Mega Days on December 18th, 2008

---

Did you like this post? Why not subscribe?

via email

via your newsreader Flowers…uncut RSS Feed