Archive for the ‘Mktg – General’ Category

Marketing – Destroying Starbuck’s Brand Value

November 3, 2008

Excerpted from: “Starbucks: How Growth Destroyed Brand Value” by Prof. John Quelch, HBS Online / BusinessWeek Online

Founder and CEO Howard Schultz had a great concept, and it worked for a while. But too many new stores and diverse products changed the experience … Schultz recognized (that) … “Stores no longer have the soul of the past and reflect a chain of stores vs. the warm feeling of a neighborhood store.”

(Now) Starbucks is a mass brand attempting to command a premium price for an experience that is no longer special. Either you have to cut price (and that implies a commensurate cut in the cost structure) or you have to cut distribution to restore the exclusivity of the brand … Sometimes, in the world of marketing, less is more … Growth targets undermined the Starbucks brand in three ways.

First, the early adopters who valued the club-like atmosphere of relaxing over a quality cup of coffee found themselves in a minority. To grow, Starbucks increasingly appealed to grab and go customers for whom service meant speed of order delivery rather than recognition by and conversation with a barista … many Starbucks veterans have now switched to Peets, Caribou and other more exclusive brands.

Second, Starbucks introduced many new products to broaden its appeal. These new products undercut the integrity of the Starbucks brand for coffee purists. They also challenged the baristas who had to wrestle with an ever-more-complicated menu of drinks. With over half of customers customizing their drinks, baristas hired for their social skills and passion for coffee, no longer had time to dialogue with customers. The brand experience declined as waiting times increased. Moreover, the price premium for a Starbucks coffee seemed less justifiable for grab and go customers as McDonald’s and Dunkin Donuts improved their coffee offerings at much lower prices.

Third, opening new stores and launching a blizzard of new products create only superficial growth … Eventually, the point of saturation is reached and cannibalization of existing store sales undermines not just brand health but also manager morale.

None of this need have happened if Starbucks had stayed private and grown at a more controlled pace. To continue to be a premium-priced brand while trading as a public company is very challenging. Tiffany faces a similar problem. That’s why many luxury brands like Prada remain family businesses or are controlled by private investors. They can stay small, exclusive and premium-priced by limiting their distribution to selected stores in the major international cities. ”

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Ken’s Take:

1. Nice synopsis of Starbuck’s current position and challenges.

2. The issue is strategic discipline — not private vs. public ownership.

3. Eventually, you run out of folks who are willing (and able) to shell out $5 for a cup of coffee that keeps losing taste tests to both Mickey D and Dunkin’ Donuts. And, as budgets tighten, brand panache starts to look like wateful spending.

4. Things are likely to go from bad to worse as stores close and Barista “partners” confront job insecutity — so much for kumbaya.

5. Still, you have to hand it to these guys for their spectacular run.

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Note: Prof. Quelch wrote a series of cases on Black & Decker marketing, including the classic “B&D Brand Transition”

Source: BusinessWeek Online / Harvard Business Online,
July 9, 2008         For full article:
http://businessweek.com/managing/content/jul2008/ca2008079_888377.htm?chan=top+news_top+news+index_news+%2B+analysis

Thanks to MSB-MBA alum Suhrud Atre for the heads-up on the article

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Krispy Kreme doubles down … huh?

October 2, 2008

Excerpted from Chicago Tribune, “Krispy Kreme looking for hot sales in smaller stores, ice cream in latest turnaround plan”, by Lauren Shepard, September 21, 2008

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Krispy Kreme’s signature glazed doughnuts may be best hot, but its sales have been anything but in recent years. Now the chain is hoping that going cold — with its new soft-serve ice cream — will be the catalyst it needs.

The company has been trying to revive its sales for nearly three years, amid a health craze that made its glazed doughnuts an indulgence that many just couldn’t stomach.

Now industry watchers say Krispy Kreme Doughnuts Inc.’s latest turnaround plan — which includes launching the new ice cream as well as opening smaller stores and expanding overseas — still may not be enough to help the chain climb out of its hole.

“They’re trying to reposition themselves as more of a treat concept” that offers consumers desserts and indulgences, said Bob Goldin, executive vice president at food industry research firm Technomic. But “it’ll be hard to argue it’s a growth business” given trends toward eating healthier, he said.

* * * * *

Krispy Kreme will begin opening smaller locations that are less expensive to build than its older “factory store” model that allowed consumers to watch the doughnuts being made.

* * * * *

Another key part of the plan is the company’s new Kool Kreme soft serve, which will be featured with a toppings bar.

Whether the new offering will boost sales remains to be seen, but analysts have yet to be impressed — especially as Krispy Kreme’s competitors are trying to attract health-conscious customers with egg-white sandwiches and whole-grain pastries.

“There’s no question that Americans are changing their attitude about health as a way to add good things to your diet,” said Harry Balzer, vice president of consumer research firm NPD Group.

* * * * *

Regardless of whether it speaks to consumers’ desires, ice cream may not be different enough from other products already on the market. McDonald’s Corp., for example, sells a soft serve treat for less than a dollar in some areas.

“I’m not saying it won’t work, but how are you going to compete against that?” Bob Goldin, executive vice president at food industry research firm Technomic, said. “I just don’t think that’s a product that’s going to carry that well.”

Still, he said, “they’ve got to do something.”

Edit by DAF

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Full article:
http://www.chicagotribune.com/business/chi-krispy-creme-ice-cream-sep22,0,5045476.story

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Marketing: Perspective’s from PepsiCo’s CEO

September 16, 2008

Excerped from WSJ: “PepsiCo CEO Adapts to Tough Climate”,  September 11, 2008

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Indra Nooyi, PepsiCo chairman and chief executive, is steering the snack and beverage giant through its biggest challenges in nearly a decade.

Tough economic times are pummeling beverage sales in the U.S., Pepsi’s biggest market. Grain, vegetable-oil and other commodity prices have climbed. Rival Coca-Cola  is out to grab market share from Pepsi in juices and other noncarbonated drinks. .

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Indra Nooyi took the helm of PepsiCo in 2006.   She was a major force behind Pepsi’s decision to spin off its Pizza Hut, Taco Bell and KFC restaurants and buy Tropicana, Quaker Oats and other makers of healthy drinks and snacks. Broadening its portfolio has allowed Pepsi to take the lead in the U.S. in the beverages that are growing the fastest: juices, flavored and bottled waters, teas and other drinks.

* * * * *

In an interview, Ms. Nooyi talked about managing in a volatile economic climate while expanding around the globe.

WSJ: Why are beverages being hit harder than snacks by the economic slowdown?

Ms. Nooyi: Beverages are a much more penetrated category … a lot of wastage … people unscrewed their bottle and didn’t finish it all. Now they’re carrying the bottle longer and finishing the beverage.

We haven’t seen this kind of slowdown in convenience-store traffic in 25 years. What you get is the consumer who walks in and picks up a bag of Doritos but can do without the [drink].

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WSJ: What can be done to keep beverage sales from slipping further in this economy, and to revive consumer interest in soda?

Ms. Nooyi: You really have to segment your portfolio very, very carefully. You want targeted innovation that grabs the consumer and gives people a reason to buy.

People still love bubbles. We have to give people a reason to come back to cola. We’ve got to romance them.

* * * * *

WSJ: Is PepsiCo international enough?

Ms. Nooyi: Forty percent of our revenue comes from international. Most of our growth is coming from international.  We know that a lot of the growth potential is overseas, and we are going after it aggressively.

* * * * *

WSJ: Do you want to unseat Coke in international beverage sales?

Ms. Nooyi: In the Middle East and parts of Asia, where we are strong, we want to remain very, very strong. Where the market growth is spectacular like China, India, Russia, we are going to keep investing so that when the music stops we have a great shot at being up there as the leader. And then in all the other markets, we want to play the noncarbonated game aggressively.

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WSJ: You have talked about tackling obesity. Some people would say it’s insincere or hypocritical for the chairman of a company whose biggest products include Pepsi-Cola, Lay’s and Doritos to do that.

Ms. Nooyi: Why should they think I am being insincere or hypocritical? There is a place for Pepsi, because it tastes great. Potato chips are part of the American diet.

I am extremely proud of our track record. Name me one other company that took out trans fats from all its products without increasing the price of its products — four or five years before anyone else. We’re doing everything possible to shift our portfolio to “better for you” or “good for you” products.

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WSJ: Gatorade lost some share last year, and you changed the brand’s management team. How’s it doing now?

Ms. Nooyi: Brands go through ups and downs. Gatorade is an extremely strong brand. I think every five or seven years, you’ve got to change out the approach to the brand, because you need a new boost of energy to think about the next iteration. Brands never die. You only stop reinventing them.

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WSJ: How do you keep up with what’s going on in the market and get new ideas for products?

Ms. Nooyi: I do market tours all the time. Every weekend I hop in the car and go somewhere. I listen to kids talk about what they’re consuming, what they’re doing, what they’re not doing.

I read a range of things to keep in touch with cultural and lifestyle trends — the usual business press but also People and Vanity Fair and anything close to the cutting edge of the culture. Even the AARP magazine.

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Full article:
http://online.wsj.com/article_print/SB122109233453421645.html

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Econ – Ownership & the Endowment Effect

September 11, 2008

Excerpted from Predictably Irrational,  Dan Ariely, HarperCollins Books, 2008

“Ownership changes perspective … . once we own something — we fall on with it — and we value it more than other people do.”.

[In technical terms, It’s called the “endowment effect” … owned items accrue “emotional equity”]

Examples:

Social price premium“: Fans holding hot tickets to a big game often require multiples of what buyers are willing to pay to part with the tickets. In effect, owners are pricing in the social value of ownership/ 

IKEA effect“: The more “sweat equity” someone puts into something, the more ownership they feel for it. 

Virtual ownership“: Online auctions make people begin to feel ownership before it’s consummated.  The bidding process itself creates some sense of virtual ownership … so that bidders tend to overbid to avoid “losing” the item. 

Trial periods: Companies comfortably offer 30 day money back guarantees knowing that most people will quickly develop a sense of ownership and attachment … and be reluctant to return items. 

Stubbornness: People who hold deep convictions – from  politics to sports teams — suffer from ownership blindness.  They began to overvalue their ideas, and tend to be rigid and unyielding.

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Bottom line: Always try to do transactions — especially big ones — is if you were a non-owner.  Stay dispassionate.

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Idea – Power of Free (from Predictably Irrational)

September 9, 2008

Excerpted from: Predictably Irrational by Dan Ariely, HarperCollins Books, 2008

“Free has a certain gravitational pull – everybody likes something for nothing. Free gives such an emotional charge that people perceive what is being offered as immensely more valuable than it really is.” 

Examples

Opting for a “stripped down”  free checking account  over one with a nominal charge account and a plethera of services; 

Buying 2 of something to get a third one free (even if you don’t need the 2nd or the 3rd ones) ; 

Taking a “no closing costs” mortgage with a higher interest rate; 

Hitting the buffet table for seconds, and thirds, and … 

Snatching up free pens, calendars, koozies … to throw them out when you get home

 
Why?

“Most transactions have an upside and a downside –  when something is free. people forget about the downside.  … humans are intrinsically afraid of loss.  The real lure of free is tied to this fear.  There is no visible possibility of loss when somebody chooses something that’s free.  Of course, that’s not true”  … [since “free” may require a commitment of time, headaches, or disposal fees]. 

 

Example: Amazon Free Shipping

In the US, Amazon has had great success offering free shipping on orders greater than $25.  Many customers started upsizing their orders (e.g ordering an additional book) just to take advantage of the free shipping offer.

In France, Amazon introduced a comparable program with a token charge for shipping (about 25 cents).  While there was a small uptick in sales, it paled in comparison to the sales increase associated with the totally free shipping program.

In other words, whereas shipping for a quarter – a savings of a couple of bucks – was largely ignored by customers, free shipping generated an enthusiastic response.

“The difference between two cents and one cent is small. 
 The difference between one cent and zero is huge.”  

                                

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Observations

1. The aura of “free” creates a market inefficiency – breaking  buyers’ stream of rationality 

2. Amazon’s free shipping is a compelling real life example. 

3. Lesson: If you’re going to give something away – give it away –  don’t nickel-and-dime into “no man’s land”

 
BTW: Based on my experience, Amzon’s free shipping is often just as fast as it’s regular shipping.  Sure, the items are :”flying standby”, but there is usually space on the truck.

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Books – Predictably Irrational

September 8, 2008


Predictably Irrational: The Hidden Forces That Shape Our Decisions
by 
Dan Ariely, HarperCollins Books, 2008

 

Basic Premise:

“Standard economics assumes that people are rational — that they have all the pertinent information about their decisions, that they can calculate the value of the different options they face, and that they are cognitively unhindered in weighing the ramifications of each potential choice”.  That is, that people are capable of making the right decisions for themselves. But, Ariey — and other behavioral economists — observe that “people are really far less rational than standard economic theory assumes.  Moreover, their irrational behaviors are neither random nor senseless. They are systematic, and often repeated, so they are predictable”. For example:

  1. People tend to overvalue stuff that they own … it’s called the “endowment effect”.
  2. Ownership can be real & full, or virtual & partial (e.g. bidding for items on eBay)
  3. The sense of ownership is enhaced by “sweat equity” … the IKEA effect.
  4. Most people will opt for a mid-priced version of a product (over the high or low priced version) … it’s called “aversion to extremes”.
  5. A higher priced pill is perceived to relieve pain more than a lower priced pill … even when they’re the same pills — real or placebos.
  6. People can’t resist the power of free offers … even when they’re not really free.
  7. Many people will travel 15 minutes to save $10 on a $25 item (say, a DVD), but won’t travel 15 minutes to save the same $10 on a higher priced item (say, a car) … even though the time and savings are the same … it’s called the “relativity effect”.
  8. Many people will do jobs (“favors”) for their friends for free — as long as the task is unrelated to their “day job”.
  9. Many people who do favors for others are insulted if they are offered monetarycompensation, but willingly take small gifts for their efforts.
  10. Most people wouldn’t consider taking a few bucks from the petty cash drawer, but many people think it’s ok to jack a pen from their office.
  11. In experiments, most “tempted students cheated on tests … but there was an upper limit — they only cheated “a little bit”.
  12. Students who sign honor pledges on exams are far less likely to cheat … even if their school doesn’t have an honor code 

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The book is a quick, easy read, and the author has a cool web site:
www.predictablyirrational.com

 

I’ll cite a few of the book’s more interesting examples in subsequent posts.

 

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When customers talk smack online …

September 5, 2008

Excerpted from WSJ, “How to Handle ‘IHateYourCompany.com’,” Sep 5, 2008

In recent years, disgruntled consumers have launched hundreds of Web sites to air their grievances — from starbucked.com and ihatestarbucks.com to boycottwalmart.org and againstthewal.com.

…The Internet has become a mecca for disgruntled consumers, creating new challenges for companies accustomed to controlling their message tightly. While companies can’t pull down a negative YouTube video or erase a critical Twitter post, they have more power when it comes to domain names.

That doesn’t mean, however, that they should snap up every domain with a vaguely negative-sounding name and then let them gather dust, according to Internet-strategy consultants. Rather, companies should register or buy just the sites that get the most traffic…

Once they are in control of these domains, companies … (can) use them as a vehicle to solicit feedback from customers. Otherwise, angry customers will …  simply find another site on which to complain about the company…

While some of the gripe sites that remain in the hands of critics have fizzled, others have grown bigger. Take BankofAmericaSucks.com, which was started by (a) former Bank of America customer … after a dispute with the bank over a car loan. It now is home to thousands of postings, and it calls itself the “Official Bank of America consumer opinion site.”

Consumers continue to post complaints on the site…The site is mentioned in numerous blogs and newspaper articles, and appears among the top 15 results on a Google search for “Bank of America.”

Edit by SAC

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Note: In 2005, Forbes created a list of  the 9 angriest corporate hate sites. These sites targeted: KB Homes, PayPal, Allstate Insurance, Microsoft, American Express, Wal-Mart, Verizon, United Airlines and UPS.  While an updated list has not been published it is clear that consumers continue to organize complaints and fuel their hate online. 

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Full article:
http://online.wsj.com/article/SB122057760688302147.html?mod=2_1567_topbox

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Succeeding at the Bottom of the Pyramid …

September 4, 2008

Excerpted from Knowledge at INSEAD, “Strong partnership key to success in bottom of the pyramid innovation”, by Grace Segran, August 26, 2008

For those at the ‘bottom of the pyramid’ (BoP), the four billion people or so living on less than two dollars a day, life is hard. Although collectively they have considerable combined purchasing power, they have up to now been traditionally overlooked by businesses.

However, major multinational corporations (MNCs) are now seeing opportunities in developing products for the BoP markets, while making a difference to the lives of the poor people.

“For this concept to work, there needs to be strong collaboration between firms, governments, NGOs (non-governmental organisations) and social entrepreneurs.”

* * * * *

There is often a disconnect between multinationals and those at the bottom of the pyramid

The operations of firms – especially the MNCs – have become rather disconnected or disembedded from local economies.

NGOs tend to know more about the characteristics of local poverty and what is best for the poor people in a specific area, whereas large companies generally have a limited understanding of the situation on the ground.

If BoP products – that is, products specifically developed to address the needs of the low-income segments – do not take into account the local specificities of poverty, they may be useless for the people in a certain district or the project may even have a negative impact on their lives.

* * * * *

Mainstreaming low-income projects and bringing them to a larger scale is one of the main challenges facing companies today.

Unilever’s ‘shakti’ project considered a leading BoP example .  Unilever, developed a range of products for low-income households in remote areas of India. It packaged common household products like shampoo and soap in sachets and sold them door-to-door, helped by so-called ‘shakti ladies’ who make a living from this activity. The ‘shakti’ range now constitutes a significant part of Unilever’s Indian revenues – reportedly nearly 15 per cent.

* * * * *

Bringing such projects to scale is a challenge for several reasons.

First, firms lack the internal capabilities to develop these projects as they require both strong entrepreneurial skills, as well as the ability to understand and address social issues such as access to water, energy, and housing.

Often the firm’s expectations for immediate profit goes against the development of successful BoP projects, the core of which aim to create mutual value for both the firm and the poor. [Economies of sca;e are slow to be realized — if they ever are.]

It requires a substantial amount of effort to transform a small pilot project into a large, mainstream activity. Among their portfolio of business development projects, companies often opt for more profitable projects that can deliver in the short term.

Since BoP projects have strong local links, firms may face difficulties in trying to replicate a successful business model in another geographical area of the same country or to export it to a different country.

“These projects should be local answers to local problems.”

Another challenge is for low-income projects is to demonstrate a significant impact on the lives of the poor. Does it really improve their living conditions? Are the poor getting a fair deal, while their bargaining power in their dealings with firms is rather limited?

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Full article:
http://knowledge.insead.edu/PartnershipBottomPyramidInnovation080803.cfm

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Honda – Finally, fuel efficiency is paying strategic dividends …

September 3, 2008

Excerpted from NY Times, “Honda Stays True to Efficient Driving”, by Bill Vlasic, August 26, 2008

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During the glory days of big pickups and sport utility vehicles, one automaker steadfastly refused to join the party.

Despite the huge profits that its competitors were minting by making larger vehicles, Honda Motor never veered from its mission of building fuel-efficient, environmentally friendly cars like its Accord sedan, even when the sentiment was “there’s no return on that.”

But in today’s fuel-conscious automotive market, Honda is reaping the rewards for its commitment.

No major automaker in America is doing better than Honda … While competitors are scrambling to shift their product lineups to build more small vehicles and slash their bloated inventories of trucks, Honda can barely keep up with demand, particularly in the subcompact category.

Sales of its tiny Fit have soared … and Honda accelerated the introduction of the 2009 model, which will go on sale Tuesday.

The Fit’s four-cylinder engine gets 34 miles per gallon in highway driving .

Honda’s focus on fuel efficiency is paying off on the bottom line as well … By comparison, G.M. and Ford have lost billions this year as the market has moved away from the big vehicles that once generated the bulk of their profits. Detroit is moving radically to downsize its vehicle lineups.  Even Honda’s larger Japanese rival, Toyota, is hustling to adjust to the rapidly changing United States market.

Honda’s newest factory, in southern Indiana, is set to begin production of Civic compact cars this fall.

* * * * *

Honda’s focus on fuel efficiency and the environmental impact of its vehicles dates back to the Clean Air legislation of the 1960s and 1970s.  Honda adopted an internal motto — “Blue skies for our children” — as a guideline for future vehicle development.

Honda has posted the highest corporate average fuel economy of any automaker for its overall fleet of vehicles over the last 15 years.

Honda has never aspired to build a full line of trucks and S.U.V.’s.  “Even when the large S.U.V.’s and trucks were big sellers, they did not fit with our philosophy.”

* * * * *

When the new plant goes into production in Indiana, Honda’s North American production capacity will increase to 1.4 million vehicles a year to meet the growing demand for its small cars.

* * * * *

Even with the success of its smallest cars, Honda executives concede that the company has some catching up to do with Toyota in hybrid vehicles.

While Honda offers a hybrid version of the Civic, Toyota’s Prius model is the runaway leader in the category.

But Honda recently announced plans to introduce a five-door, hybrid-only model in North America next year to compete with the Prius. Honda is expected to price the vehicle lower than the Prius to attract younger buyers.

Honda is also planning a two-door, sporty hybrid and a hybrid version of the Fit.

* * * * *

At its headquarters here in Torrance, the vehicle that draws the most attention these days is the company’s hydrogen-powered, fuel-cell vehicle dubbed the FCX Clarity …  it represents the next step for a company committed to clean technology.

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Full article:
http://www.nytimes.com/2008/08/26/business/26honda.html?_r=2&oref=slogin&ref=business&pagewanted=print

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Marketing: Vote for McCain to be your next…potato?

September 3, 2008

Excerpted from Promo Magazine, “McCain Foods Ties Campaign to Presidential Election,” Aug 27, 2008

McCain Foods USA is out with a new marketing ploy that plays off the upcoming presidential election to ramp up product sales.

The campaign…positions McCain Foods’ potatoes as a candidate consumers should consider. The company has high hopes shoppers will connect its name with that of Republican presidential hopeful Sen. John McCain of Arizona as part of its political parody…

On the campaign website (www.mccainpotatoes.com), visitors can ask the “spokespotato” candidate questions and receive immediate responses,…take online polls, find product information and sign up for e-mail updates.

The site…also lets people read humorous responses from McCain Foods on key issues, such as the economy and the environment. For the economy, it says, “When you buy more McCain Potatoes, it creates more jobs. For us. What did you expect? Another stimulus check?”

McCain Foods isn’t the first company to make a marketing ploy off politics. Denny’s Restaurants launch a campaign this year that gets people to “Vote 4 Real” for its breakfast food over fast food competitors.

 

Picture 1

 

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Full Article: http://promomagazine.com/interactivemarketing/news/mccain_foods_marketing_campaign_0827/

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Brands – Reviving those oldies but goodies …

August 22, 2008

Excerpted from NYT, “Those Shelved Brands Start to Look Tempting”, Aug. 21, 2008

During economic downturns, consumer products marketers takiw stock of brands they already own to see if any can be revived or renewed. It can cost significantly less to bring back a brand — or restore the luster to a faded one — than to develop a new product, because spending huge sums to generate awareness is not necessary.

For instance, in considering a comeback for Eagle snacks, research found that “6 out of 10 adults remember the brand” … Reserve Brands is reintroducing Eagle in stores and vending machines … plans to reintroduce Eagle include new snacks under names like Bursts and Poppers, to “modernize the brand and contemporize it.”

“It would take $300 million to $500 million to recreate that brand awareness today.”

Eagle is among scores of products that marketers abandoned because of declining sales, stronger competitors or a desire to focus on newer brands deemed more contemporary.

Marketers are also taking another look at products that are still in production but have been forgotten or neglected, known as ghost brands or orphan brands.

Makers of such products usually cut advertising budgets in the face of declining sales. That slows sales further, which leads to more budget cuts — creating a downward spiral, difficult to avoid, that can land a ghost or orphan in the netherworld of once-popular, now-deceased trademarks.  

To keep some of its venerable brands fresh — brands like Aleve, Alka-Seltzer, Bayer, Flintstones and One A Day vitamins, and Phillips’ Milk of Magnesia — Bayer HealthCare is pursuing a strategy … focused on “marketing innovation, product innovation and technology innovation.”

For instance, new advertising campaigns for Alka-Seltzer draw on its heritage while at the same time updating brand catch phrases like “I can’t believe I ate the whole thing” and “Try it; you’ll like it.”

There are also new products being brought out under the umbrella of the well-known brands, among them Alka-Seltzer Wake-Up Call, a hangover treatment, and Phillips’ Colon Health, a probiotic supplement in caplet form.

Other older brands may be ripe for revival because “as the population ages, there are certain brands that really resonate with consumers.”

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Full article:
http://www.nytimes.com/2008/08/21/business/media/21adco.html?_r=2&adxnnl=1&oref=slogin&ref=business&adxnnlx=1219320567-FO5ND1sKBcpwsKMnC8H6nQ

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Pricing Tactics – To increase sales, just drop the dollar sign … huh?

August 21, 2008

Excerpted from WSJ online, “To Get Customers to Spend More, Drop the Dollar Signs”. August 18, 2008

Researchers at Cornell University found that restaurant owners who drop the dollar sign from their menus got clients to spend more — $5.55 more per meal on average, to be exact.

The researchers noted that just seeing the dollar symbol agitated diners so much that they spent less.

Something as simple as how you display prices can have an impact on customer perception and actual sales  …  like that penny-off trick to enhance perceived value  … $9.99  just seems less than 10 bucks.

Source:
http://blogs.wsj.com/independentstreet/2008/08/18/to-get-customers-to-spend-more-drop-the-dollar-signs/

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Marketing – When Teens Tighten their Wallets

August 8, 2008

Excerpted from WSJ: “Retailers Catch Teenage Blues”, August 8, 2008

Teens may dread going back to school, but the retail chains catering to them eagerly await this season for a reliable boost from kids who need new clothes. In this slow economy, however, teen retailers are showing signs of stress and beginning to worry that the late-summer boom might not arrive this year.

The teen stores have long been considered recession-resistant because young customers’ spending — often linked to allowances and summer jobs — typically holds constant in a slow economy. Back-to-school purchases were viewed as a must for taste-fickle teens who often cajole their parents in August and September into giving them extra cash.

The July results show that this year’s economic slowdown is dealing wider blows. The principal culprit: energy prices, which analysts say are fast stripping teens of their ability to buy the gas they need to get to the malls where many of these stores are located.

Strong performance in junior apparel from Wal-Mart, the world’s largest retailer, suggests it might be taking sales away from teen retailers.

For many retailers, this time of year is typically the second most profitable of the year. If performance is down this fall, it could be an unpleasant preview of what is usually the chains’ most promising time of year, the holiday season.

The industry appears divided on how to respond.

Middle-end stores like Hot Topic and American Eagle already are looking to promotions in the middle of the back-to-school selling season.

But higher-end operations like Abercrombie appear to be clinging to their price points, a bet that its brand name can weather the storm and competition with department stores. Abercrombie “prides itself being an aspirational brand, and part of that is not to mark down and have sale events. They feel like that dilutes brand equity.”

Other stores are learning to sit pretty at lower price points. Teen retailer Aeropostale Inc. is running a fleet of more than 800 stores throughout the U.S. with clothing styles not too dissimilar from those found at Abercrombie — but at prices about 30% lower.

Other chains are taking a fast turn toward markdowns

It is unclear whether these moves will be enough to lure young buyers back into the mall. Megan Tysoe, a 19-year-old Georgetown University student, says she spent $300 a month on clothes last summer using paychecks from a summer job. But this year she is working an unpaid internship as a paying job couldn’t be found. And Ms. Tysoe has words that should cause worry for retailers: “Instead of buying new things, my friends trade clothes with each other.”

Full article:
http://online.wsj.com/article/SB121810860555720233.html?mod=hps_us_whats_news

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Starbucks – Grasping for (iced coffee) straws ?

August 6, 2008

Excerpted from CNN.com Aug. 5, 2008

Looking to bring more value-seeking consumers through its doors for a late afternoon caffeine fix, Starbucks … now offers its morning customers any iced grande beverage for $2 after 2 p.m.

The price is a big cut from the normal price of most grande-sized iced drinks. A grande iced latte, for example, costs about $4. To get the discount, customers must present a receipt from their morning Starbucks visit.

The company said it is …  answering consumers’ calls for more value at the chain, which has seen traffic drop as gas prices rise and consumer spending falters.

“It’s easy for baristas to implement and it’s easy for customers to understand.”

In some cities, it has offered discounted drinks on Fridays, Saturdays and Sundays. In July, the chain also gave away 12-ounce iced coffees on Wednesdays to customers in New York City, Philadelphia, Washington, Boston and Detroit who turned over an “iced brewed coffee card,” a reusable voucher distributed in stores and newspaper inserts.

“Certainly a discounting approach could lead to a better perception of value in the short run but the longer-term question remains — at the regular everyday price point, would the consumer still see Starbucks as offering the right value for them?”  “That remains uncertain.”

Full post:
http://www.cnn.com/2008/US/08/05/starbucks.deal.ap/index.html

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Observations

1.  “Easy for customers to understand” … they’ve got to be kidding … the more hoops that folks have to jump through, the less likely a promotion will succeed.

2.  How will they handle loyal customers who don’t do coupons (or morning coffee) and see the guys in front of them get a half-priced iced-coffee.

3. Does Starbucks know that 2-bucks (no “bounce back” coupon) gets you an large iced coffee at Mickey D’s?  Mrs. H. seems to like them …

4.  Ken’s fundamental law of marketing: if you you want to do something, do it … don’t do it half-way with hooks, lines, and sinkers … otherwise, just don’t do it.

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Thanks to Dave Fedlam MSB MBA ’09 for the heads-up … Dave says ” as a typical non-Starbucks customer, 2 cups of coffee for $6/day doesn’t really seem like much of a deal at all.”* * * * *

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Mktg: Mickey D – How to Raise Prices (w/o Raising Prices)

August 4, 2008

Excerpted from WSJ: McDonald’s Tests Changes In $1 Burger As Costs Rise, 08-04-08

McDonald’s is testing modifications to its popular $1 double cheeseburger, and higher prices for the sandwich … selling it with one slice of cheese instead of two, and billing it as a “double hamburger with cheese ” …. or offering a double hamburger without (any) cheese …  or  selling the traditional double cheeseburger at prices ranging from $1.09 to $1.19.

Launched in 2003, the Dollar Menu has been a key driver of sales at McDonald’s 14,000 U.S. restaurants and has helped it ride out dips in consumer spending. But recently, franchisees have complained that the menu has brought too much unprofitable traffic into their restaurants.

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As of late June, sales of the chain’s lattes, cappuccinos and other espresso drinks were off their peak … lower-priced beverages, including $1.89 iced coffee and a $1 … sweet-tea promotion, have pulled some sales away from the espresso drinks … 

McDonald’s overall beverage expansion, adding espresso drinks, smoothies, cold tea, bottled drinks and ice-blended coffee beverages at U.S. locations, is on track to exceed the company’s goal of adding $125,000 a year in sales per restaurant … and adding $1 billion a year to the company’s sales.

http://online.wsj.com/article/SB121780568775808337.html?mod=2_1567_topbox

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Observations

1.  One way to increase price is to skinny back the product — put fewer cornflakes in the box.

2.  The $1 double cheeseburger is the heart of the menu — dropping it will be a big deal — no way I step up to $1.19 or buy a chesseburger with no cheese.

3.  Has the multi-dollar cup of coffee market peaked ?

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Marketing – Reviving Old Brands

July 14, 2008

New Life from Tired Brands
Excerpted from Booz & Co., Startegy+Business

Punch line: Sometimes, it’s easier and less costly to leverage the residual awareness of an archived brand than to launch a new brand from scratch.  Key is assessing the legacy brand’s actionable equity.

The story:

The Ford Taurus was the #1 US car model in the early 1990s.  Ford diluted the brand by chasing fleet volume (companies & rental cars).  Eventually, Ford decided to shelve the brand name and introduce the Ford 500 brand — a costly failure.  Ford subsequently phased out the 500,  and revived the Taurus name.  Why? Very hgh brand awareness with manageable negatives.

Booz says that you can determine if a brand has the foundation for a new life via a 4-part “tool” called BVA — Brand Vitality Assessment:

1. Purchase Funnel Assessment (PFA) — how do prospects convert from awareness to trial to repurchase?

2. Brand Equity Review — what are customer perceptions of strengths & weaknesses?

3. Competitive Dynamics Assessment — why did the brand fell off the radar?

4. Value Proposition Check — differentiating benefits worth the price?

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Observations

1. Nothing new re: analyses (we cover them all at MSB), but they’re nicely bundled and put in a useful context. 

2. May inspire some situations which have brands on the shelf that may be revivable.

3. For MSBers, should bring back memories of Markstrat.

4. Worth reading to brush up on the 4 analyses.

For full article:
http://www.strategy-business.com/resiliencereport/resilience/rr00060

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