DEEPER DIVES: One Bad Review Destroyed Their Business

Good Morning,

First, as always, thank you for joining.

I was quiet this week as I spent the week road tripping a few US states.

Hopefully you caught our LinkedIn Live on Friday that touched on returns, it had a serendipitous connection to the first article in today’s newsletter!

Matt and I are back tomorrow morning with Wake Up and Deliver at a modified time (9AM Eastern) to accomodate travel schedules.

Here’s what this issue brings:

• After years of trying, a bad review was finally removed. Imagine having your business nearly destroyed because an Amazon warehouse associate didn’t process a return properly!?!
  

• 90% of restaurants don’t fail in the first year. That’s a myth. But 1 in 5 do and 50% fail at 5 years. Is using gig platforms the best solution for your survival?
  

• Everyone forecasts on sales, but this usually means that you under plan based on your historicals. Get a short intro to Demand Forecasting and see if you are tracking what you need in order to improve results.
  

A Dirty Diaper Turned A Dream Into A Nightmare

Beau & Belle Littles was an Amazon success story for the its founders. Paul and Rachelle Baron built the business after designing a reusable swim diaper for their son.

They loved it so much, they figured other people might too.

They were right. They sold tens of thousands of diapers and were doing over $1M in sales per year.

In fact, the business was going so well, they were expected revenue to triple!

But then, one simple mistake upended their world.

A used diaper that came back through an Amazon processing facility made it back to inventory.

That diaper was then sold to another customer.

When Erin Elizabeth Herbert received her “new” swim diaper, she opened it up and was appalled to find a feces encrusted mess in the box.

She sent the diaper back, left a scathing review (with pictures) and walked away.

That review was liked by over 100 potential new buyers, pushing it to the top of the negative reviews section on the Amazon listing.

Massive impact.

While the review seems to have finally been taken down, the damage is done. The founders are currently $600,000 in debt and struggling to revive the business.

Unfortunately, this story isn’t unique.

Sellers all over the world are struggling with returns.

Matt, Jess and I got into this very discussion with Ben Cronsberry on Friday during our LinkedIn Live session on returns.

Funny enough, this exact situation was something that I brought up - the risk of a new customer getting a returned item as a factory fresh item. I shared how this destroys the trust a brand has with the customer and is extremely hard to overcome.

Especially if it’s a first time purchase.

Providing open and easy returns policies help close sales. It gives consumers a sense of safety to know that they have little to no risk in making a purchase.

Sellers are pressured into offering generous policies since “everyone is doing it”.

While true that you do have to be aware of the current market and consumer expectations, you still need to be intentional about your policies.

For a new brand, or someone starting up a new partnership, err on the side of caution.

When making the decision to allow returned items to be resold as new, the grading process has to be best in class. A customer spending their money with you on a new item … wants a new item.

If I just launched a new product or partnership, here’s what I would put in place:

• For the first 30 days, I would have someone from my team review everything that was graded as resalable (factory fresh condition)

• For 6 months, I would segregate inventory and ensure that I was not seeing more returns, complaints or a decrease in sales from customers receiving product from that inventory lot

• If the sku allowed for it based on its seasonality, I would set up a mechanism to ship resalable items as a percentage of manufacturer direct factory fresh product

• I would track the quality of the grading process from the provider

• I would set up random inspections to ensure quality stays high

In a world where one bad review can kill you, don’t take anything for granted.

Should You Put Your Reputation In Uber Or DoorDash’s Hands?

Restaurant delivery is a funny space.

There’s no question that it helps drive additional revenue for a lot of brands.

Some even report substantial increases in performance after introducing delivery.

But does that mean that every restaurant should support delivery?

No.

How come?

Because our world is overloaded with choice. Consumers aren’t lacking options. They already have too many.

If you are going to stand out from the crowd, it means that you have to be remarkable.

Being remarkable as a restaurant doesn’t happen without great food.

The challenge for so many restaurants is keeping the quality of the food high when doing delivery.

First it’s prepared and packaged at the restaurant.

Then it waits for the delivery person to pick it up.

It then moves in a car (On the floor? In the truck? A seat?) where it may or may not be in an optimal place for temperature or stability.

The meal is then either handed to a customer at the door, or it’s left on the porch with a notification sent to the customer that it has arrived.

This process loses a lot of control.

About 1 in 5 restaurants don’t survive their first year in business. And about 50% survive over a 5 year period.

With initial start up costs ranging from $200k to $2M, there’s a lot on the line.

You need to do everything you can to ensure your success.

Location and good food are table stakes. You have to have these to be successful.

So what else do you need to be focusing on?

Margins, creating fans (returning customers) and an overall enjoyable experience.

When you use services like Uber and Doordash, you give up a lot of your ability to do all of those things.

First, customers have to use their platform, which means that you lose the ability to create your own look and feel when it comes to your restaurant.

77% of diners will check out a restaurant’s website before visit or place an order. If you are pushing traffic to an aggregator like Uber, you (potentially) lose the ability to own that experience.

Second, margins. There has been no shortage of reporting increasing fees when it comes to the major meal delivery businesses. The revenue they generate is largely from fees and commissions collected from restaurant owners.

As sales increase through the platform, you are stuck paying more and more while also making it harder to move off the platform without a major shift in revenue.

Sometimes it’s easier to abstain than to try to kick a bad habit once it takes hold.

Your regulars are the lifeblood of your business. If you aren’t in control of that relationship, you are leaving money on the table. Some reports show that “regulars” can make up to 65-80% of a restaurant’s profits.

These are the people that choose you over others most of the time. Not only are they more frequent but their average spend is much high as well.

Don’t allow anyone else to manage these relationships.

Your operations give you control. How you execute is something that becomes uniquely yours.

That’s why Amazon and Walmart and expanding more and more and doing more in house. Or taking over activities that were once outsourced.

The more of the operations you do, the more you can control, the better you can connect with consumers.

Operations isn’t just about getting things done, it’s about getting things done in a way that aligns with your brand and promise.

Everybody Forecasts, But Almost No One Forecasts Demand

If you sell something, you need to forecast.

To get some sense of what you think you can sell over a certain period of time.

A lot of traditional models do forecasting based on sales.

You take the results from your POS system or website, see what it looked like for the previous X amount of days, and use that to plan the next Y amount of days in front of you.

Some things are easier to plan for than others. It all comes down to the stability of your product, the market and how people use it.

What is demand forecasting then?

Demand is about what customers want to buy, irrespective of whether it's in stock or not.

The goal here is to forecast what customers would have bought (or would buy) if inventory constraints aren’t an issue.

The gap in most businesses, and what you would want to fix with yours, is to have systems and processes in place that actually capture this data (instead of only capturing what was sold until stock out).

I used to have this problem all the time in the food industry around promotions.

The original process was to forecast one sale for a customer based on their previous results.

The problem with this was that there was almost ALWAYS a shortage. Whether it was in a certain region, or at a certain point in time, or maybe there even ordering issues from the different stores.

We would always end up cutting orders.

Here are some strategies to help deal with this and get better forecasts (and sales results) going forward:

1. Open Orders - Keep a backlog of orders that haven't been fulfilled due to lack of inventory. Track these as part of demand
   

2. Duplicated Orders - Prevent double counting by managing and merging multiple orders for the same product from the same customer
   

3. Canceled Orders - Track canceled orders, especially noting the reason for cancellation (e.g., long delivery times, lack of stock)
   

4. Substitution Orders - Track when customers switch to an alternative product because their first choice is out of stock

That’s it for this week. Thanks for being here.