• E-Cigs' Moment of Truth?

    Whether or not the electronic cigarette becomes a staple of American life may well be decided by the Food and Drug Administration as early as January. Well, perhaps that is a bit of an exaggeration, but new regulations involving what are described loosely as "curbs" are certainly around the corner, and they will in large part determine whether or not this product category becomes a multi-billion dollar one.

    Electronic cigarettes turn nicotine into vapor. The product generates no second-hand smoke to speak of, although the effects of the vapor have yet to be adequately studied, but that hasn't stopped a handful of cities from banning its public use. Strange. Nicotine is indeed addictive, but does it have any far-reaching negative health effects? Use among those under 18 has risen, but is this because they are shunning the smokier products they would be using anyway? These are important questions.

    The latest threat to the industry, which touts itself as a much healthier alternative to conventional smokables, involves government response to launching major advertising campaigns. Major players Lorillard, Altria, and Reynolds (also market leaders in tobacco) have already launched campaigns aimed at reaching as many consumers as possible. The early mover gets the market share, tobacco companies desperately need to replace revenues from the declining cigarette/tobacco category, and they believe that many current smokers will switch to the electronic version to get the same narcotic effects. Regulators are concerned that marketers will re-glamorize tobacco use and entice a new generation of smokers into using the products. All of this is probably true.

    It is important to remember that up until the past few decades, advertising hard liquor on TV was illegal (cigarettes were banned from TV in 1971). It would be interesting to study the reasons why the practice was eventually allowed. Is advertising an electronic cigarette any different than hard alcohol? Wine or beer? How about junk food, which is also addictive and not very good for you? What do you think?

  • Symphonies Target Millennials

    After suffering years of waning interest and dwindling finances, orchestras across this great land of ours are finally moving into the future, and this is necessary to the collective survival of this highly localized industry. Every large city has its symphony, and we are all familiar with the stuffy, high society images that come to mind. It can indeed be a rather dull affair unless you really enjoy classical music, but symphonies across the nation have spruced up their offerings with new content that they hope will appeal to a younger demographic.

    In the past six months I have attended both an intimate Beer and Beethoven event as well as a well-attended tribute to Jerry Garcia at Red Rocks Amphitheatre featuring Warren Haynes and the Colorado Symphony Orchestra. Huh? Say again? It was indeed an epic performance in many ways, and Mr. Haynes delighted audiences performing with several orchestras in several cities over several weeks. And the aforementioned craft beer event was a great way to raise money and bring in a new audience to sample the fare and more importantly the music.

    This isn't your grandfather's orchestra. Symphonies, many of which have struggled in recent years, must increasingly market themselves to stay afloat, and changing the way the product is offered is certainly a part of this industry "make-over". Private mansion-side concerts, free public concerts, "foodie" quality food and drink, fusion with other forms of music and popular artists, and fostering a night-club atmosphere at smaller venues are just a few of the techniques currently in practice.

    It all seems to be working. Many symphonies are now operating at a profit, and this will allow them to offer an even better consumer experience going forward. Tax increases and donations can only go so far in keeping these organizations in business. They must now think like marketers and offer an optimal marketing mix with the requisite product, price, place, and promotional considerations.

  • Websites Begin to Clean Commentary

    The internet is often referred to as a sort of "Wild West", since the freedoms we enjoy there (as in the Old West) are enabled by a lack of oversight, regulation, and in most cases, simple decency. I have often found this metaphor to be chillingly accurate, and we in the free world have enjoyed essentially unfettered access to information, organizations and individuals through the internet. In general, this has been a good thing. But just as was the eventual case in the real West, increased regulation is inevitable.

    Much online regulation involves piracy, advertising, privacy, commerce and other areas of importance in a fair and balanced business environment. And this regulation is increasing in both scope and scale. Increasingly, the problem of character disparagement is becoming an issue. The internet makes it easy for people to sound off, and there are many official sites such as Ratemyprofessor.com and Yelp.com whose sole purpose is to act as forums for these opinions. The problem? Too many of the comments are not only ugly, but hard to verify. Anyone can say anything about anyone else, and many hope that eventually libel and slander laws intended for broadcast and print mediums will catch up to the digital age. But in the meantime many individuals and organizations suffer from ruthless disparagement enabled by the ease of the internet, an overall cultural lack of manners, and, most importantly, anonymity. But some would eschew government action.

    So, in a merciful act of self regulation, many websites have decided to take action. Huge sites like Huffington Post are employing moderators, and some are forcing people to use their real names when commenting, while others such as Popular Science are banning comments altogether. YouTube now requires people to log into Google Plus to write a comment. Half of newspapers now ban anonymous commentary. It is indeed refreshing that this column does not have a "comments" function enabled, especially one that enables anonymous behavior. Who needs the agg?

    Ignorant rants, basic rudeness, racism, sexism, and of course outright threats have become too much a part of the fabric of the internet experience, and companies such as Reputation.com make a pretty good profit providing "reputation management" services for individuals and organizations. And more power to them. But ultimately, the removal of anonymity will do much to infuse the much-needed dignity into this important medium, and we will be seeing much more of it.

  • Airline Product Getting Worse

    Now that we have seen how too many mergers in any industry can result in higher prices for consumers due to less competition, we can now sit back and enjoy the flight, as the airline industry in particular rapidly reduces the quality of the product it delivers to consumers. With the notable exception of Southwest Airlines, a bright spot in an otherwise lousy industry, the few airlines that are left seem to know that they are the only game in town for distance travel and are acting accordingly. And consumer attitudes towards service quality have been declining for years. So what's happening?

    *Airfare is up almost 4% from last year and holiday airfare is up almost 8%. Prices continue to rise.

    *Ontime arrivals are down and if you are connecting you have an ever-increasing chance of being standed in a city for several days.

    *Airlines have less capacity than they used to which means that flights are full and bumped passengers have fewer options.

    *Involuntarily bumped customers are on the rise.

    *Almost every airline now charges by the bag, and most airlines are beginning to charge for carry-ons as well.

    *Most airlines now charge for snacks and some airlines have even phased out the complimentary beverage.

    *Rewards programs have become a joke. You get less with your earned miles if you are even able to redeem the points at all. Most airlines keep changing the deal every few years.

    *Good seats (i.e., anything but the middle seat) will eventually come at a premium price.

    *Seats on non-Airbus planes are getting even narrower so that airlines can squeeze in an extra few seats.

    *Any increase in fuel costs will simply be passed onto consumers.

    This is really only a partial list, but I'm sure you get the point. Can you imagine what air travel would be like if people are allowed to make annoying phone calls? It will be ugly indeed, so let's hope that doesn't happen. In defense of the industry, Southwest was the only consistently profitable company before all of the merger activity, and now almost everyone is making money. This is great for employees and shareholders, but if consumers continue to take it in the pants, so to speak, government regulation will not be far behind. Some of this stuff might first be challenged in court, but an act of Congress will not be out of the question if service quality continues to erode. This intervention may be inevitable as there seems to be no end in sight to the declining service in this once great industry.

     

     

  • UPS Drops Box

    Well, it had to happen eventually. At some point there had to be an unexpected spike in e-commerce sales during the holiday season, and perhaps this was the year for just such an occurance. There was so much volume this holiday season that UPS was unable to deliver some packages on time and as promised. Failing to meet (and indeed exceed) customer expectations is never a good thing, and many affected consumers might switch to rival FedEx next year, whose larger fleet of airplanes was able to handle the volume with little difficulty. Or perhaps these last minute shoppers could just mail their packages earlier next year, but that can be a tall order for some of the more organizationally-challenged individuals among us. It's the marketer's first job to address consumer behavior, not to change it. Either way, getting gifts there by Christmas is a very big deal for many consumers, and UPS dropped the box.

    Although e-commerce sales currently represent just 6% of total retail sales (just digest that one for a minute), online sales as a share of the total during the holiday rush increases almost three-fold. It is quite possible that this number increased significantly this year, as retailers were forced to offer the same deals both in-store and online, driving sales to digital. And the proliferation of mobile devices and assorted apps has forever altered the holiday retail landscape. Ultimately, the all-important holiday season will begin to lose its allure for retailers as profit margins continue to be squeezed by competition. When margins are slim, higher volumes must be achieved in order for retailers to make money, and we will have to wait a few months for some good numbers. In the meantime, hopefully UPS has learned a valuable lesson about forecasting and will spring for more planes or at least more charter flights next year..

  • Warmer Stores Mean More Money

    Can a warm store environment actually cause people to spend more money while they are in the store? Israeli researchers think so and have uncovered what they call the "temperature-premium effect" in some recent research.

    According to the findings from several studies, people will pay more for the same product when they feel comfortably warm. Researchers asked subjects in one study to hold a cold or a hot pad and then asked them to name the maximum price they would pay for a pair of items. Interestingly, they were willing to pay significantly more for both chocolate cake and batteries under warmer conditions than under colder ones. Another study looked at 11 different products and found that subjects in a warm room (versus a colder one) were willing to pay more for 9 of the 11 items.

    What does this mean for marketers? It is yet another example of how important the servicescape can be to consumers. We know quite a bit about the effect that music, store layout, crowding and other variables have on people, and now we know a bit more about temperature. When customers are warmer, they will spend more. Who knew?

  • Health Insurance Marketers Emerge

    A lot of people have a lot of opinions about Obamacare, but at least one thing is for certain. With website access improving and the deadline for obtaining coverage looming, health insurance companies have greatly increased their collective marketing efforts. Major players like Paramount and Wellpoint are operating in unfamiliar territory, but are forced to try to take advantage of a one-time-only opportunity in a drastically changing health market.

    The current ad blitz represents a pretty big shift in marketing strategy for these companies, as they previously focused on a business-to-business approach, targeting human resources executives who buy plans for their employees. Engaging in mass communication is not what they are used to. Perhaps this explains why most of the ads are so poorly produced. And health insurers consistently score at the bottom of the American Customer Satisfaction Index along with cable companies and airlines, which is certainly nothing to brag about.

    And so health insurers should see this as an unprecendented opportunity to engage with customers directly and help them form more positive attitudes about individual companies and the industry as a whole. Will they seize the day? Probably not. My guess is that their collective inexperience in this area combined with their vast, bureaucratic decision-making structures will result in a lot of very poor marketing. Perhaps one company (a la Southwest Airlines) will emerge as different from the remainder of the pack, but don't hold your breath waiting for it to happen. In the meantime, enjoy the marketing surge!

     

  • Soundtracks for Video

    Video content has proliferated over the last few years. In fact, it is simply everywhere! And licensing music has always been a time-consuming, resource-intensive process. Wouldn't it be great if there were a service out there that could create and sell original songs and jingles at a fraction of the traditional cost? I'm sure you know where this is going...

    Removing royalties from the equation has been desired by the market for many years, and companies such as Source Audio and Epidemic Sound now provide just such a service. Under this new model, composers are paid up front for songs (between $100 and $1,000 per song), and so royalties aren't necessary. Ad agencies and other entities then pay the content provider for the material to be used in TV shows, video games, commercials, and online videos. The company sorts through its database and matches the clients needs with what it has available. In some cases, customized content can be provided.

    This is much easier for marketers and a major departure from the way things have been. The recording industry made $337 million worldwide from licensing material to marketers last year, and we can expect this new model to "creatively destroy" the industry as it is now. Instead of the choices being limited to a relatively small number of unionized artists, the door will be open to all sorts of composers. To be sure, they will earn significantly less per song, at least initially, but I expect that the prices will equalize eventually. That is, unknown composers will get more money per song in the future and known ones will eventually get much less. The result is likely to be very good for both marketers and consumers, but not for the recording industry and a handful of major artists. The latter entities will have to change the way they do business or risk being left behind. And that's just the way it goes.

     

  • Big Screen Battle

    When it comes to offering a movie-going experience through really, really large screens, IMAX is the undisputed market leader. It's hard to beat the IMAX experience when it comes to special effects, nature shots, outer space, and the like, but major movie theater chains have been eyeing the growing market for years. Over the past four years, companies like Cinemark, Regal, AMC, Cineplex and others have been busy retrofitting, or in some cases building entirely new, facilitites to address the demand for an ever larger movie-going experience. And it seems that with the proliferation of substitute home entertainment options as well as ever increasing ticket prices, theaters need to do something to maintain the levels of growth that their shareholders expect. And bigger screens appear to be just the answer.

    To be sure, this is still a small part of the market. The new Hunger Games movie, for example, grossed $161 million last month during the opening weekend, and IMAX sales represented only $12 million of that total. But, non-IMAX big screens generated almost $10 million. Together, we are talking about 14% of the market for movie-goers. The major threat to IMAX is whether or not these theaters will renew their IMAX contracts starting in 2017. It is indeed logical to assume that those theater groups that have invested the most resources in their own versions of big screen technology probably will not renew. What then will become of IMAX?

    Being the only game in town is great, but it only lasts for so long, even when you have patent protection. First mover advantages erode eventually, and IMAX must find new ways to differentiate and offer competitive advantages in the marketplace if it is to remain on top.

  • New Tactics To Battle Amazon

    You have to admit that Amazon is tough to beat. The company's primary competitive advantage is that it doesn't have a brick-and-mortar presence and therefore can offer much lower prices by drop shipping iterms directly from giant, strategically-placed warehouses. It's really not more complicated than that, and Amazon spent almost a decade offering low priced goods to gain market share at the expense of profit. They were first and now they dominate the online e-commerce space. But every other retailer has also gotten into the act over the years, and customers now expect a seamless experience between online and brick-and-mortar operations. Retailers must also find ways to match Amazon's pricing (usually at the expense of profit margins and customer service). None of this is that new, but what is new is the sales clerk's new role as a shipper.

    In-store inventory can be a terrible thing when there is too much (or too little) of it. This is known as the "bullwhip effect" and marketers endeavor to avoid it. What better way to satisfy customers and also provide opportunities for stores to better manage inventory levels than to drop ship items to on-line customers directly from stores? In a sense, retail stores become de facto distribution centers. An arrangement such as this has the potential to make everyone happy. Everyone except Amazon that is, a company that has recently begun flirting with opening brick-and-mortar storesof its own. So much for the Internet destroying brick-and-mortar businesses. It is far more likely that the two will work together in the future to deliver value to consumers. As physical retailers have been forced online, many online retailers will see the need to establish a physical presence. Marketers must be where the customer is, and the customer is increasingly everywhere!

  • In The Pink

    Fashion. It seems that most fads and trends emerge from a handful of designers enabled by an even smaller handful of retailers. Just who decides that it's time for the majority of females under 40 to wear pants tucked into knee-high boots? And why has this fad turned into a years-long trend? Ten years ago, young women were wearing low riding jeans that left very little to the imagination. This look did not flatter the vast majority of women who adopted it, but they wore them for several years just the same. Just who is making the decisions here?

    I have no idea about fashion origination in general, but I do know that the next hot color is going to be pink. In 2013 it was all about emerald, but 2014 will usher in a rather Pepto Bismol-toned shade of pink. Frankly, the whole breast cancer awareness focus over the years has worn me out on the color, but this pink has a bit of periwinkle in it and is called "Radiant Orchid" (18-3224 TCX to be exact). And it appears that this whole color thing is a marketing ploy by Pantone, the leading authority on color and provider of color systems. The company's heavily marketed "Color of the Year" campaign serves as a catalyst for textile makers and designers everywhere. Good for them. It's a brilliant PR strategy and not many fashionistas will question the credibility of Pantone. But it does all feel rather synthetic, and once opinion leaders and early adopters are seen sporting the Pepto, the masses will surely follow. But only for a little while, until the next thing comes around.

  • A Soundtrack For Shopping

    Advertisers have utilized music for decades to elicit emotion from an audience, and retailers have been using music as an important part of the "servicescape" for many years. This has been particularly true in the restaurant world. Fast music makes you eat faster so the tables can be turned more rapidly, and slow music encourages you to linger and have expensive drinks and perhaps dessert. In the bar world, the music is (or should be) carefully selected to be target-market appropriate, and generally songs that were popular during the target's teens and early 20's has proven most effective. But this is merely a starting point, and now big retailers are getting into the act.

    Finding the proper combination has become a rather scientific process. And retailers are now paying big bucks to program just the right mix of music to communicate brand messages and set the proper mood for shoppers. The major players use specialists to design playlists that fit the personality of both the brand and the customer. Abercrombie & Fitch, on the other hand, develops its own mix and even makes it available on an app. Smart.

    It appears that shopping to music releases a neurotransmitter called dopamine, which is the usual suspect in all pleasure-inducing activities. Dopamine not only makes us feel good, but it also helps us focus our attention, and can essentially put people in the mood to spend. Spending also fires off that dopamine stuff, so the whole shopping experience can be rather euphoric, which explains the "shopping addiction" we see with some people. Gone are the days of the canned Muzak background music.

    One thing is for certain. Companies must engage in copious amounts of market research to determine what works and what doesn't. Surveys, focus groups, observational studies, experimentts, data mining and other methods must be employed to get the right information to make decisions. How else can one figure out how to design a playlist that appeals to both teens and people in their 50's? And how much Christmas music is too much Christmas music? And what popular songs will drive people crazy and which ones will have broad appeal? This is the purpose of market research.

     

  • Burgers Invade Africa

    First it was fried chicken. Then pizza. And now hamburgers are poised to win the hearts, minds, and stomachs of Africans throughout the continent. KFC and Pizza Hut have both experienced success in the African markets they have entered (primarily South Africa), and these folks have supported the notion that tastes for fast food truly are a universal human condition. Johnny Rockets, Hardee's, and Burger King are among the first to penetrate the market outside of South Africa, and there will be many more to follow. But all is not well on the continent. Aside from the usual concerns about unstable governments, poverty, and graft, there is an even more pressing issue facing these companies. Supply.

    The cattle are scrawny, which make the yield from each animal much lower than it needs to be. This dramatically increases cost. In addition, toppings such as lettuce, tomatoes, and cheese must be shipped from other parts of the world, since local supply is insufficient. There is also a shortage of refrigerated trucks, cold storage warehouses, and other supply chain necessities. The result? A $14 burger in Lagos, Nigeria versus a $5.50 burger in New Jersey. Too expensive.

    Ultimately, these problems will have to be overcome if these companies are to make any money in this important emerging market. The American firms will have to develop and maintain their own local supply networks, which will require quite a bit of up-front investment. But that's the way it goes in the world of international marketing. Failure to adequately invest in new markets almost guarantees failure in the long run. Hopefully the big fast food brands will get the message.

     

  • Diet Sodas On The Wane

    It is no secret that carbonated soda sales have been steadily declining for almost a decade. The primary reason for this is the increasing availability of substitute products such as flavored waters, ready-to-drink teas, energy drinks, etc. But what has been driving consumers, especially younger ones, to these options? Obviously just the simple fact that there are so many choices available is a driver in and of itself. And certainly the obesity epidemic, proliferating regulations, and the requisite consumer concern for weight gain is also a driver. But new numbers released by the top three players (Coke, Pepsi and Dr. Pepper) reveal something very interesting.

    Diet sodas, in particular, have been tanking. While overall soda sales at Coke have dropped by about 1% from last year, revenues from diet beverages have dropped by 6%. The same story can be found at Pepsi whose overall soda sales have dropped by 2% and diet sales by almost 9%! And Dr. Pepper tells much the same tale. Obviously this is an industry-wide trend, and it appears that the entire category has reached the decline stage of the product life cycle. But what is driving the surprising drop in the consumption of diet beverages?

    A major reason has got to be concern about the health effects of these beverages. A recent Mintel report revealed that a full 46% of respondants agreed that artificially flavored soda is "unhealthy". the presence of new natural sweeteners such as Stevia, recently approved by the FDA as an approved ingredient, could help reverse this trend, but it is likely that this ship has already sailed. The new diet products marketed toward men (i.e., Coke Zero, Pepsi Max) have obviously failed to impress, and once consumers have changed their collective minds, it's tough to get them to change back.

    But the big three soda companies are already fairly well diversified in owning multiple brands, so the organizations themselves are in good shape. It's the carbonated sodas that are tanking. These companies will ultimately have to divert scarce financial resources away from marketing these declining products and instead focus on current and emerging growth areas for new product development.

  • Soccer's Hubris

    Ah MLS. It's not a degenerative disease, but our version of professional soccer...or futbol. Major League Soccer is not a bad product when global competition is factored in, as the league expands every few years and the quality of play improves incrementally each and every year. Stadiums around the nation routinely sell out, and the market has proven that it can support teams in both large and mid-size cities. So what's the problem? Hubris.

    It shouldn't be necessary to mention that futbol, despite all of its beauty and splendor and global appeal, isn't FOOTBALL in all of its courseness, domestic popularity and revenue generating power. The NFL and NCAA products are wildly popular, and despite the fact that these days MLS can be found on some of the more obscure cable TV stations, soccer games don't come close to drawing the same number of viewers. I realize that this assertion could easily come from the Center for Studying Really Obvious Concepts, but it bears mentioning since this fact was obviously lost on MLS and ESPN executives this year. What happened?

    Despite dire predictions by most analysts and eleven-year olds, the league went ahead and decided to run the MLS Cup (featuring Real Salt Lake versus Sporting KC) at the same time as the NCAA SEC Championship game feauturing Auburn and Missouri. Yep. Can't make this stuff up. Previous lessons involving showing the Cup up against NFL Sunday Night Football, which resulted in horrible ratings over a few years, were apparently lost upon league management and media partner, ESPN. Lessons not learned, apparently. So what gives?

    Hubris. Pride. A failure to recognize the reality of being an "also ran" sport amongst the giants of American football. Soccer fans can whine all they want and come up with myriad excuses as to why this is so, but it doesn't change the facts. And marketing decisions should be based on facts, not emotion. The MLS Cup is no time to "stick it to the man" and attempt to prove something. The league needs viewers and so the game should have been aired when the only choices were a Bowling Green football game, a Phoenix Coyote-Winnepeg Jets hockey game, and a handful of random NBA and NCAA hoops contests. Instead, they basically ensured failure, and ESPN should have known better and opted to temper the aspirations of the soccer crowd.

    Anecdotal evidence suggests that one couldn't even find a bar in KC that would air the game, but that is probably an exaggeration. But not by much. There was probably a decent viewing audience in Salt Lake, but who cares about Utah? Advertisers demand more! If the MLS wants to be successful in the immediate and long-term television future, it must recognize where it stands in the pecking order of professional and college sports. And experienced networks like ESPN should know better than to enable the behavior of a league that might be getting to big for its britches.

     

     

  • Superbowl Ads Sell Out

    What's all the fuss about advertising during the Superbowl? Well, not only is it a sort of "Academy Awards" for advertising agencies with all the commensurate fanfare, the big game is also viewed by one-third of all Americans and is seen as the best way to reach a mass market audience in an age of media fragmentation. Indeed marketers will pay dearly for this exposure, a 30-second spot having reached a record $4 million this year, up from $3.8 million last year. That's a lot of money for an ad, but the message reaches quite a few eyeballs, and this year the spots have already sold out. So is it good strategy?

    Certainly, if you have a large enough budget. Despite the fact that most people (90%) watch the game in a social setting and therefore really aren't paying much attention to the ads when they actually air, the publicity surrounding the advertising is almost worth the price of the spot itself. Think of all the buzz that a very funny or controversial ad might generate in the media. And many of the ads are pre-viewed online in the weeks nefore the event wherein measurable objectives can be realized before the ad actually runs. And a really good quality ad will get millions of views after the game, in addition to possibly being used throughout the year.

    The main problem is the noise in the communications channel between source and receiver...namely the people around the viewer during the game. Despite the best of intentions by ad aficionados, it is simply too noisy in most viewing environments to truly view the ads in the way that the marketers intended. But when you consider the online and publicity components, a $4 million investment seems like a pretty good deal. But marketers must be aware that, just like in sports sponsorship, simply placing an ad during the game without leveraging it through additional marketing will likely result in poor performance. One-offs don't traditionally perform well, so if a company desires to mix it up with the major marketers, it better be ready to spend the necessary dough.

  • Kid Marketing Becoming Taboo

    Marketing to children is highly controversial. They don't understand selling intent, where the money comes from, or much else for that matter, so the general ethical concern is that marketing to them is manipulative by nature. I agree that it most certainly is a highly questionable practice, and there are really very few rules in the U.S. governing this area. The closest thing we have to regulation are assorted "guidelines" and the self regulatory efforts of individual firms and loose competitive alliances. There is actually quite a bit of this happening, and Michelle Obama's efforts (including enlisting the Cookie Monster of all spokescharacters) are beginning to gain traction. But what is not happening thus far is very much outright regulation.

    This is the current situation here in the U.S. But what about in other countries? We know that Mexico has cracked down very recently, going so far as to enact a fairly large tax on junk food. Britian already bans advertising high fat/salt/sugar foods to children under 16 on TV and radio. Sweden and Norway outlaw all television advertising to children. And the Canadian provice of Quebec prohibits advertising of any sort directed at children. Are these countries/provinces statistical outliers or are they a harbringer of things to come? Methinks it is the latter. More regulation is on the way across the board, and smart marketers know what to expect from the legal and political marketing environments. There should be no surprises for the savvy marketer.

    -DDS

  • Franchising Abroad

    One of the fastest ways for a retailer to expand is by franchising. Under such an arrangement, independent owners pay a one-time fee as well as ongoing royalties through what is essentially a licensing agreement. Subway, for example, has very few corporate owned stores, preferring a franchise model; and this is the primary reason that the company expanded so rapidly. Smashburger is a more recent example. Look how fast that chain has grown. In-N-Out Burger, on the other hand, is a very slow growth model comprised entirely by company-owned and operated stores. The fact of the matter is that a company only has so much cash for expansion-related activities, so it's much faster to enlist an army of independent owners in order to grow rapidly. Corporate-owned stores, run by generalk managers, are easier for the company to control, and franchises, run by the owners in most cases, are much more difficult to control. Thus, Smashburger favors a low control, rapid growth model, while In-N-Out (whose delicious burgers are shown below) has chosen a slow growth, high control approach.

    Starbucks has always favored the corporate-owned model over the franchise approach domestically, but expanding internationally is another story. When expanding overseas, brand control isn't nearly as important as growth, since the marketplace is so competitive and unfamiliar. A retailer, especially one with global brand equity, can make faster inroads by enlisting local talent than it can negotiating locations from a corporate perspective. Locals have existing relationships and can cut through red tape much more rapidly. It will be interesting to see if this approach is effective, and you can bet other retailers will be watching closely.

    -DDS