Dollars & Sense

Zero Sum Networks ⚔️

Andrew Chen shares in 'The Cold Start Problem' that many times, networks are competing in a zero-sum game. One network gets a customer to join their network and thereby not participate in another. For example, when a driver used Lyft instead of Uber, Uber, which Chen helped, lost. And it lost in two regards: Uber lost the revenue from the lost ride, and Lyft gained the revenue. Chen’s team was tasked with getting drivers to use all their time driving for Uber and thereby unraveling Lyft’s network. 

In a network-based industry, there are peripheral and magnifying effects of hurting a competitor. Issues snowball: If there are too few drivers on Lyft (because Uber lured them away), then surge pricing may hit—thereby causing the price to go up and making Uber even more attractive for riders. Simply losing one customer in the network may set off a series of unintended consequences and lead to losing even more customers. 

Researching Network Competitors
Chen reports that Uber would use myriad ways to lure drivers away, including riding in Ubers and seeing if drivers were using Lyft, running ads around the Lyft HQ where Lyft drivers were likely to drive to events, monitoring apps that drivers used, analyzing aggregate credit card data, and analyzing email receipts. Uber used this data to estimate the number of rides that Lyft was giving and thereby compare itself.

Luring Users Away from Network Competitors
Knowing who was driving for Lyft and its usage was just part of the battle. Uber needed a strategy to react to this data. It would launch lots of offers to get the drivers to switch and drive as much as possible, thereby boxing out Lyft. Uber would spend $50m a week on offers. They would offer “do X, get Y” offers. For example, do 50 trips in a week and get a $100 bonus. They had a ladder of promotions where each trip amount garnered different bonuses. For example, for 10, 25, 50, and 100 trips, they offered, respectively, $25, $40, $100, and $200 bonuses. 

Shop Local's Network Competitors
How does this relate to our industry? Shopify spends millions of dollars on marketing. Its target: our clients. Its goal is to shower our clients with offers and get them to switch. It may also be buying aggregate credit card and email data to target our customers.

This leads to the question: What are we doing to fend this off? And what are we doing to poach Shopify users?

Last month, we had a retailer consider moving to Shopify. (We’re big boys--we can admit when a much, much larger competitor tries to poach our clients.) We could lose monthly revenue plus sales “through the pipeline,” aka GMV (gross merchandise value). We’d lose and Shopify would win more revenue and GMV. We have to imagine that Shopify and others are trying to peel off our customers. Every. Single. Day.

Play Defense
Our defensive approach is twofold: we want to make our service (aka product) so sticky that clients stay. We attempt this via the Syncing service and the business network (i.e. showing merchants their rep and brand contact info). These two services are unique and not commodities. While our registry service is unique, it is more likely to be seen as a commodity and replaceable. We’ve also tried to increase stickiness by laying on wholesale ordering. 

Deliver Value
We also play defense by delivering value (aka: the price a merchant pays for service). We’ve tried to keep our price increases to a minimum. While it’s hard to compare our service exactly to Shopify (again, that’s good, we don't want to be a commodity), we do want clients to pay less to us vs. Shopify for comparable services. 

The good news: Our 99.3% retention rate suggests our services and value are good. But the defections show we’re still vulnerable. 

The Offense
The flip side of our being on defense is going after Shopify’s customers. On a practical level, this means going after companies that make gift registry Shopify apps. It also means going after non-Shopify players. 

In targeting them, we want to ask: which audience is using which competitor?  Do we want to go after providers to brands or retailers? We want to compare how much profit each acquired client may generate. If we had a Shopify app, I fear we may get stuck offering a service that generates little profit for us. And we’re trying to avoid being a speck in the Shopify ecosystem. We’re prefer acquiring clients that allow us to still have them use our Online Store.

Homework: 
Let’s imagine you want to target and lure clients from a competing organization or service to use your service or product.

• How would you identify your competitor or target?
• How would you measure the performance of your competitor or target?
• How would you explain to clients why they should switch to your organization?
• What would you offer clients to switch to your organization?

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Learn about  Shop Local’s Online Store: 
https://www.shoplocal.org/e-commerce-software.cfm

Read more about the competition between Uber and Lyft:
https://buildfire.com/uber-statistics/

Tags:
Uber Lyft shopify myregistry.com cold start problem

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