Marketing

Rules For Energy Drinks

05-22-2013 12:09 PM with no comments

Well, it looks like Congress has actually accomplished something, and for this we should all rejoice. About six weeks ago, a group of three Democratic lawmakers released a report exposing what industry observers already knew was a huge problem. That is, there isn't enough regulation in the area of energy drinks.

The lawmakers exposed inconsistencies in the labeling and classification of energy drinks, the practice of extensive marketing to adolescents through social media and events, as well as caffeine levels in products that exceed the safety levels set by the FDA for sodas. What does this mean? It's high time for regulation.

Look for upcoming decisions on the following:

1. Ceilings for amounts of caffeine allowed per serving and clear labeling rules for disclosure of caffeine levels

2. A decision on whether or not these beverages can be classified as foods (nutrition facts panels on the label) or dietary supplements (supplement facts panels on the label)

3. A ban on marketing to children for products with elevated levels of caffeine

4. A system of reporting to the FDA adverse effects from caffeinated beverages

Regulation in this area is long overdue. The recent proliferation of alcoholic, caffeinated beverages with names like "Cocaine" necessitated a ban on these drinks, and caffeine is starting to appear in products such as snackfoods and gum. It is clear that without some specific regulations, energy companies will do whatever they need to do to make money regardless of the adverse health effects. This temporary situation is the price we pay in a free society, and it is the role of government to intervene when public safety is at issue.

DDS

Posted by Darrin Duber-Smith

Products For Nerds

05-17-2013 11:18 AM with no comments

Back when I was a kid 30 or so years ago, we were promised by the adult community that we soon would have such things as hover crafts, jet packs, and workable forms of renewable energy. Now I know that was all a pipe dream and I have embraced the fact that it was wishful thinking, When I think about those days, I also think about some of the products that were supposed to be smash hits, but so far have failed to gain much traction in the marketplace beyone innovators and very early adopters.

3D TV. Anyone have one of those? Anyone buying one of those anytime soon? Anyone want TimGunn from Project Runway telling everyone to "Make it work!" in your living room?  I didn't think so. The Segway and the SmartCar also come to mind. Efficient transportation or products for nerds? You decide. And by now those Bluetooth headsets should be worn by just about everyone, since they are the most convenient and safe way to use a mobile phone, but in fact according to the Internet, these things are seen as too dorky by too many people. And I must admit that I concur. In most cases, these products are technologically incredible but the problem is that no one is asking for them, and so they are a hard sell.

The next failure might just be Google Glasses. This device was probably inspired by the "Terminator" movies and possibly that "Aliens" movie where the alien kills all the Marines except for one guy, Sigourney Weaver and a little girl named "Newt". The little girl and the Marine unceremoniously die at the beginning of the next movie, but I digress. It turns out that not many people want to walk around with a camera mounted on their head. Go figure. It'll probably catch on huge with the MAMIL (Middle Aged Men In Lycra) cycling crowd, but then those guys look real dorky anyway. Don't they?

DDS

Posted by Darrin Duber-Smith

Sketchy Claims Bring Costly Settlement

05-17-2013 10:59 AM with no comments

Skechers went too far. That's the ruling made by a federal judge who approved a $40 million settlement in a class-action suit brought on by consumers who were unhappy with marketing claims made by the organization. The claims, if you will recall the ads featuring Kim Kardashian, involved statements that the shoes would somehow imporve muscle tone and help with weight loss. Such a patently ridiculous marketing message would not have gone unnoticed by other watchdogs such as the FTC for very long, but the government is often slow to act, and in this case it was the somewhat speedier judicial branch that took care of business. Consumers will be able to get up to $84 per pair of shoes depending on which of the four brands a particular consumer purchased. Such a deal, and a special shout out to all of the lawyers who made this refund possible. And now the FTC can supervise the allocation.

All kidding aside, we all know that this remedy isn't exactly going to break the bank at Skechers USA (any company that can afford national advertising with Kim probably has $40 million), but it does send a powerful message to marketers everywhere that unfounded, false, and/or misleading claims are not cool, and that there are a multitude of ways to punish an organization that crosses the line.

DDS

Posted by Darrin Duber-Smith

Taxing The Beer Man

05-12-2013 8:08 PM with no comments

A bright spot in an otherwise slow growth industry has been the rapidly proliferating craft beer segment. When Prohibition-era laws outlawing the manufacture of small batches of beer changed over 40 years ago, it was a slow race to the top for start-up breweries. Besides, these young start-ups had to compete with the likes of Miller, Coors, Budweiser, and a host of imports such as Becks and Corona. Entry into such a mature category seemed impossible,

Small brewers indeed proliferated and did so primarily for two reasons, both of which involve product differentiation. The alcohol content of these craft brews was usually higher than the mainstream domestic or import categories which is obviously a desirable trait, and the flavors were dramatically different from mainstream offerings. Instead of various brands of pilsners and lagers, the industry offered dozens of different styles. Borrowing from the wine culture, tastings became common and eventually spawned a beer festival which is hosted in Colorado and now sells out within minutes.

Craft beer, which by definition must be produced in amounts of less than 6 million barrels per year, now comprises almost seven percent of the total beer market and will be ten percent within a few years' time. And the trend shows no signs of letting up. But there is a hurdle.

These beers are made in smaller batches and with more expensive ingredients and thus command price points of over double that of most domestics. What most people don't know is that at two million barrels, a hefty excise tax kicks in, and large beer companies have had to absorb these costs for many years. Currently the only craft brewer that has reached the two million mark is industry pioneer and market share leader Samual Adams, the only craft brewer to be subjected to this tax thus far. As more brewers increase distribution and inevitably reach the two million barrel mark, prices will surely rise beyond where they are now. If beer is an elastic product, which it usually is, such a price increase should result in lower demand.

To deal with the impending issue, the industry has banded together to lobby the government to raise the excise tax bar from 2 million to 6 million barrels, thus continuing the tax break for craft brewers up to the 6 million barrel limit, the point at which a brewery is no longer "craft". The craft industry has very little influence compared with most special interests and will probably see resistance from other beer companies as well as producers of alternative alcoholic libations (what we would call "substitutes"). A failure on the part of the industry, which is likely, will result in some creative ways to stay under the 2 million mark such as forming multiple breweries. Otherwise prices will surely rise, stemming this otherwise outstanding growth. But is it fair to the big companies to give these smaller players a tax break the larger companies don't receive? You decide.

DDS

Posted by Darrin Duber-Smith

USDA Organic Gaining Fans

05-12-2013 7:21 PM with no comments

Consumers are increasingly embracing products which sport that white and green USDA Certified Organic seal, and trust in the category has never been higher. In a new study conducted by industry group, the Organic Trade Association, it was revealed that an all-time high of 81% of families reporting they purchase organic "at least sometimes", and 41% of families are new entrants into the organic category. This suggests that the growth (now at double-digit rates) will continue to accelerate at a breakneck pace in the years to come.

Concern for the overall health of their children is the primary force driving this trend, and fresh produce continues to be the leading category, a sort of "gateway" product into organic, wherein 97% of organic buyers say that they had purchased organic produce within the past six months. Breads and grains, packaged foods, and dairy all scored above 85% organic penetration in the study, which was released in January of this year.

The good news for the companies that qualify for and obtain the USDA Certified Organic Seal is that awareness of the Department of Agriculture-backed certification continues to grow, as has the trust parents have in organic products (now at 42% of all parents). With the rise in skepticism regarding Genetically Modified Organisms (GMO's) which are contained in most foods we eat, interest in the category is sure to increase. High prices, a notoriuos characteristic of the category, are largely the result of low supply since demand for certified organic tends to outstrip supply by more than 25% in many cases. Look for lower prices and therefore wider consumer access as availability and demand continue their epic climb.

DDS

Posted by Darrin Duber-Smith

Coke's Anti-Obesity Push

05-12-2013 4:35 PM with no comments

It is not at all uncommon for industries, as well as particular companies within industries, to self-regulate in the absence of government rules and enforcement. Agencies at all levels are always strapped for resources, so they issue guidelines in the hopes that industries will follow them so they are not burdened with the costs said enforcement. if self-regulation doesn't work, the governemnt will often move to regulate, so it is usually in the industry's (and company's) best interest to pre-empt having to follow inconvenient and costly government regulation.

Self-regulation actually works rather well most of the time since competitors, NGO's, the media, supply chain partners, investors and other stakeholders tend to keep companies in check. In the case of the government regulating so-called junk foods, two recently-proposed anti-junk food  laws failed to pass muster in their respective courts and have been junked, so to speak. So, it may be up to the junk food companies themselves rather than regulators to make a big difference in the fight against obesity if we are to reduce our waistlines any time soon.

Coca Cola has made several strategic moves recently and in so doing has taken a leadership role among the purveryors of tasty snacks. The very recent announcement that the company would no longer market to children under 12 is not a shocker since the company does not currently engage in very much of that, but it does send a message to other category players that their actions are subject to increasing scrutiny and that market leaders are making changes.

 In addition, Coke has made a commitment to developing, marketing and distributing lower calorie beverages. Coke Zero and other drinks are being marketed worldwide as low and no calorie options to mainstream sugary beverages. We know from previous posts that soda and juice sales have been decreasing for the past several years as consumers shift tastes to lower sugar options including waters, teas, and energy drinks. It is clear that much of what Coke is doing is not nearly as socially responsible as it is strategic in nature, but the positive effects that will reverberate through the marketplace will be influential nonetheless.

Posted by Darrin Duber-Smith

A Monster Accusation

05-09-2013 3:08 PM with no comments

Marketing to children is another one of those practices that used to be common but is no longer very socially acceptable (like smoking). It is generally accepted in contemporary thought that young children not only do not understand the selling intent of commercials, but they do not fully understand the words and images used in marketing communications. Marketing to them these days is fraught with ethical peril. Despite this, there are few government regulations and a lot of voluntary, self-regulatory guidelines regarding marketing to kids, so marketers have been able to do whatever they want for quite some time. But the increasingly disturbing obesity epidemic is changing the game completely. Marketing toys to kids who then nag their parents is one thing, but selling food with little nutritional value to kids who are getting horribly fat has crossed the line of acceptable marketing behavior and this has changed attitudes forever.

So it comes as no surprise to me that the San Francisco city attorney filed suit in California State Court accusing Monster Beverage Corp. of marketing its highly caffeinated beverages to children despite the known health risks. Since there is no law at any level of government governing children and caffeine at present, it's up to the courts to decide what's right and what's wrong. The decision may very well lead to regulation. Monster, of course, says that it is not marketing to children (the label says "not recommended for children") and that its drinks are safe. The latter may be true (at least for adults), but the former will be hotly debated, since there is much evidence that the company at least targets young teens . And Monster has countersued, so the real winners here in the short run will be the people paid by the judicial system. Taxpayers will pay the bill, and consumers will have to wait many years for a verdict. One thing is for certain in the long run, however; this case will begin the much-needed debate about who should be ingesting the drug at all as well as perhaps establishing safe, acceptable levels per serving. If you are waiting for the FDA to make labeling guidelines without such a court decision, you will be waiting quite a long time.

DDS

Posted by Darrin Duber-Smith

Coke Juices Industry

05-09-2013 2:20 PM with no comments

The usually-boring orange juice industry is starting to get interesting. Question. Who is the leading fruit juice seller in the world? Answer. Coca Cola, owner of Minute Maid, Simply Orange, and Del Valle brands, is the biggest and as such has decided to take a bit more control over its supply chain. Coke sources the vast majority of its' oranges from Florida and Brazil, and has decided to fund the planting of $2 billion worth of orange groves over the next few years to insure that supply will be there when the growing company needs it. Sales for juices at Coke are up 9% globally and 3% in the U.S. despite the fact that the industry overall has actually contracted over the past few years. Rising prices (caused mostly by an incurable bacterial disease that is currently ravaging Florida's citrus crop) as well as flagging demand (caused by the perception that orange juice is high in sugar) has decreased consumer demand over the past few years.

So the company has invested in both Florida and Brazil-based growing operations in order to make certain that the supply chain remains diversified. If the disease situation in Florida doesn't improve there is always Brazil. And if Brazil is suddenly taken over by a socialist dictator who is unfriendly to American interests or perhaps suffers a natural catastrophe, there is always Florida. It is certainly clear that Coke is making the right moves in the juice category, and the state is thrilled that the company is willing to invest in Florida despite the fungus. The state has spent $9.5 million combating the disease, and confidence is high that it can be licked in time. If that doesn't happen, look for orange juice prices to rise further, and since it is an elastic product with many readily available substitutes, consumer demand will surely continue to fall.

Posted by Darrin Duber-Smith

App Maker, App Maker, Rent Me An App

05-08-2013 12:27 PM with no comments

Rewards programs have been an important part of relationship marketing for several decades now, and rapidly expanding technology as well as the large-scale adoption of mobile devices are making such affinity programs paperless. It is no secret that large retailers have been rapidly embracing the technology that is taking sales promotions such as customer loyalty cards onto mobile devices for the past few years. And it seems that the technology is becoming so prolific that smaller retailers are getting into the game and replacing the consumer unfriendly paper card format.

There are several companies offering these services with names like Belly and SpotOn, and smaller businesses are keen to outsource this fuction to a third party. The app makes it all happen. A simple slide of the phone in front of a computer tablet armed with the app is all it takes and of course, after the customer signs up, the store has permission to engage in ongoing direct marketing, offering coupons and other sales promotions until the customer gets annoyed, opts out, and unsubscribes. And so it goes in the world of relationships, and so it also goes in the world of relationship marketing.

DDS

Posted by Darrin Duber-Smith

Franchises Are On The Move

05-08-2013 12:02 PM with no comments

How do you grow from one store to hundreds in a matter of just several years? Well, unless you are sitting of several billions in cash, you would most likely engage in franchising the business model. In such a structure, the company essentially licenses the rights to use a particular store format to independent owners, and as such collects a one-time license fee as well as an ongoing royalty fee, the amount and structure of which varies by company and industry. These owners, who follow strict rules regarding their operations, are theoretically more engaged in the success of the business since they are owners and not merely employees. This mostly works in practice as well as theory, I think, but I haven't run across any studies proving anything one way or the other. So with franchising, a company like Smashburger or Dickey's Barbeque Pit, which happen to be the two fastest growing chains in the U.S. (out of 200 tracked), can expand more rapidly (at a clip of over 40% last year for both).

Some companies, like In-N-Out Burger, prefer a controlled slow growth method, and so they build a slower growing chain of locations over time, usually by region. Starbucks seems to be an exception since these stores are indeed corporate-owned, but remember that this amazing growth happened over a 30 year period, and that they were the ones who essentially created their product category. Take a look around, note all of the rapidly proliferating chains, and find out if any of these are franchises.

DDS

Posted by Darrin Duber-Smith

No Waiting At Kroger

05-05-2013 2:22 PM with no comments

In a previous post, we explored the use of security cameras to conduct in-store market research, identifying these long-used surveillance systems as being useful for marketing purposes as well as for security. Now a new tool is being used in stores, and this time the technology doesn't hail from the security industry but rather from the military. Kroger, the 2,400 store retailer, is taking the lead and has installed infrared cameras at most of its locations, and uses them in much the same way that the military does...to track people.

So far, the retail giant has used these cameras for a very customer-friendly purpose. The cameras sit at store entrances as well asat  cash registers and each location is therefore better able to determine exactly how many lanes need to be open and when, in real time. Such tactics have reduced the average wait time to 26 seconds from a previous average of four minutes, which is a rather remarkable feat indeed. This reduction in wait time will almost certainly result in less time for bored consumers to pick up point-of-sale impulse items, but the overall improvement in customer experience should more than make up for those lost revenues. And, of course, we know from studying marketing that long lines and crowds are huge factors in customer dissatisfaction with the in-store experience.

We have also learned in previous posts that McDonald's has already embarked on a complete remake of its ordering system in order to reduce wait times and that Wal-Mart is currently testing a bar code technology that enables customers to scan items while they shop instead of at the register. All of these efforts serve to make the in-store experience that much better in an era where the brick-and-mortar format faces constant threats from low-overhead online formats. There will be much more to come and consumers will benefit immensely from the current zeitgeist of reducing customer wait times.

DDS

Posted by Darrin Duber-Smith

Wal-Mart's Side Of The Story

05-04-2013 5:42 PM with no comments

Over the past few years, there has been a bevvy of ads that aren't product focused, but rather they feature the company itself. Such an advertisement is known as an "institutional" ad. Sometimes these ads come in the form of advocating for a certain cause (an advocacy ad), and other times the ad focuses on apologizing for something the company did or didn't do (damage control). We've seen much apologizing from BP (after the spill), a bit of "we're sorry" from Toyota (after the massive recalls), and most recently, a few humble words from JC Penney (making amends for confusing its' customer base with massive changes). So why not bring on the granddaddy of them all?

In need of some good publicity, Wal-Mart has planned an advertisement (integrated with a dedicated website) that will air around this weekend's Kentucky Derby titled, "The Real Wal-Mart". And this effort (blending advertising with PR) is obviously damage control in the wake of some negative publicity surrounding workers, bribery, sweatshops, and what not. There is sure to be warm fuzzies all around and lots shots of people. You might also see a little bit about their storied logistics system since that's much of what gave us all these low prices and the company's market leadership in the first place. the truth is that this company has done incredible things for the environment and personal health over the past 10 years, but that is fodder for another post.

An American Success Story, the creative theme of the ad, can be a compelling tale if told properly. The company risks at worst being accused of smoke and mirrors, but stands to gain from a telling its side of the story if it is a truthful one. The Kentucky Derby is not a bad time to start this campaign, as the horse racing traidtion in America is as old as America itself. Let's see what happens.

-DDS

Posted by Darrin Duber-Smith

Facebook On The Move

05-04-2013 5:15 PM with no comments

Although it is rather difficult to fathom, the fact remains that just one year ago, Facebook offered almost nothing in the way of mobile advertising. Everything the company did was predicated on the premise that everyone was using a laptop or desktop computer when using the site, and the firm somehow failed to notice the rapid market shift to mobile formats.

Luckily, the company had plenty of capital to mobilize, and now almost one-third of the revenue generated by Facebook comes from advertising on smartphones and tablets, the two primary devices that comprise the "mobile" category. New targeting tools for advertisers have been a huge driver of this boon for Facebook, but the reality is that this site has over a billion users who can all be targeted individually, and this is a  compelling proposition for most marketers. There is simply no way a site currently dominating the internet can fail to make money at this game, and Facebook will get its due share.

However, as they say on Project Runway, "In fashion, one day you are in, and the next you are out." The same holds true for most products in general, and we have Yahoo, MySpace, Dell, HP, and thousands of other struggling and defunct brands to remind us of how quickly things can change.

DDS

Posted by Darrin Duber-Smith

Organix Not Certified Organic

05-02-2013 2:38 PM with no comments

This controversy came as a shock to prospective buyers, but to those of us who have studied sustainability, the term "green washing" comes to mind. Organix, maker of synthetically-derived and synthetically-processed hair care products, has been straddling the line of what constitutes misleading marketing for many years. Believe me, the fact that the name Organix makes the product sound more natural/organic was not only intentional, but perfectly legal. The not-so-subtle play on the word "organic" is an example of something that marketers, the media, consumers, and regulators have struggled with for years. That is, it is difficult to tell what products are truly natural or certified organic due to the lack of clarity in the regulations surrounding this area. Not only is the brand name deliberately misleading, but the company also takes the trouble to highlight well-known natural ingredients on the label, when the product probably contains only a "dusting" of the ingredients, and nowhere near an amount that would be considered efficacious. The nerve!

Certified Organic is in fact regulated by the United States Department of Agriculture (USDA), but the labeling rules are very poorly understood by the general public; and the term Natural is very loosely regulated and also poorly understood by most folks. This leaves plenty of room for shenanigans. But it turns out that a new group  of consumer advocates is interested in this problem, and this is good news for consumers. The Center for Environmental Health, an anti-chemicals NGO, is actively suing companies that market their products as organic while failing to meet California's (and the USDA's) standards for the label. It is true that when the executive and legislative branches fail to protect consumers, it is up to the judiciary to set the tone for future legislation. You gotta love our system of checks and balances, unless of course you are Organix or any of the other natural/organic poseurs.

Now prospective buyers are eschewing the company at present due to the "organic" problem, and so it proves that investors tend to have a bit more savvy than other stakeholders. While this non-profit is at it, they should give the folks over at Clairol a call to dicsuss its Herbal Essences line, which at press time, still has no real levels of herbs or credible essenses. For shame!

-DDS

Posted by Darrin Duber-Smith

FDA Cracks Down on Caffeine

05-02-2013 2:22 PM with no comments

First there was tea. Then we had coffee, carbonated soft drinks, and energy drinks to help us get through our day without too much fatigue. Now, it looks like the caffeinated beverage industry has some new competition, but the products aren't in beverage form. Enter, caffeinated snacks, which will be either the latest food fad or a casualty of federal regulation. Things are getting interesting.

It is true that the beverage industry has long been waiting for the Food and Drug Aministration (FDA) to impose limits to how much caffeine can be in a particular serving. This will eventually happen due to a growing body of scientific evidence regarding negative health consequences, and as a result there also will eventually be limits on how much caffeine children can consume. But this is beside the point, as drinks are just one format for this ingredient. We now have caffeine-infused candy, potato chips, waffles, Wrigley chewing gum, and something called "Cracker Jack'D". Though a move from caffeine infused-beverages to foods is not surprising (the need for energy can be addressed by many product categories) and although the agency has already outlawed alcohol-caffeine combinations, it is nonetheless a bit surprising that the FDA chose this particular moment to mobilize its limited resources on food products rather than beverages. What is driving this focus?

The FDA works in strange and mysterious ways, and only one thing is for certain. Once the FDA has you on the radar, you are on the radar, and there will be industry-wide changes. Just wait and see.

DDS

Posted by Darrin Duber-Smith