• Cup of Joe Costs Yet More Dough

    Pricing is such an interesting component of the Four P's, especially when it comes to elastic products such as coffee. We know that elasticity is the relationship between price and demand, and that an "elastic" product is one wherein demand is significantly influenced by price. Coffee has certainly seen its share of volatility on the supply side over the past 10 years, and it appears that this era is here to stay for a while. What's going on?

    As we reported here several months ago, raw material prices have been rising due in large part to a drought, which has curtailed supplies. As a result, a bag of Starbucks coffee will go from $9.99 to $10.99, and a cup of brewed drip coffee will rise 10-15 cents to $2.35. This won't break the bank for most consumers, and most competitors have followed suit since they too are affected by the natural environment. What is interesting here is that Starbucks did not raise the prices on their premium offerings including the Venti Latte. Why?

    Marketers fear that price points will finally be too high on such an elastic good, and that consumers will trade down, effectively shrinking sales of the unit. There isn't much point of raising a price if it will result in significantly less volume and ultimately lower profits. Starbucks probably calculated that such a price increase would result in too large a loss in sales, making these premium drinks highly elastic. Consumers who buy the drip coffee have fewer options regarding trading down since the drip coffee is about the lowest of the low on the Starbucks product totem pole. The fear with these consumers would be that they simply make their coffee at home instead, or just go to McDonald's, which performs much better than Starbucks in blind taste tests by the way.

    The bottom line is that Starbucks doesn't have the cache it used to have, and there are numerous competitors and substitutes in the marketplace these days. The company now sells much more than coffee, but how long can it maintain growth? It helps that the stores are still everywhere, but further threats in the market may create a consumer shift forcing drastic changes in the industry, and at pricey Starbucks in particular. Let's see whether or not Starbucks is ready.

  • Does Anyone Need An Electric Harley?

    Over the past three years in this column, we have often discussed the "marketing concept", and its necessity in strategic planning. Steve Jobs, as a statistical outlier, was not a big believer in this idea, and preferred to offer things people didn't know they needed. Although he did this to great success, it would be unwise to emulate him as the "norm". It is still best to offer a product that at least fulfills a basic need. Even the personal computer initially replaced many functions served by a typewriter and a paper filing system (sorry Steve!), the cell phone replaced the land line, and the smartphone was a convergence between the cell phone and the personal computer (sorry again, Steve!). All of these inventions were need-based products.

    So does anyone need an electric motorcycle, particularly one made by iconic, noise-inducing Harley Davidson? Of course, electric scooters have long been prevalent, especially in congested, urban areas, but motorcycles are quite a different story. Charging stations are still few and far between, although Tesla may eventually change all of that, and batteries still lack the adequate capacity and staying power for the vast majority of consumers. Harley is knows for size, noise, and performance, so is this really the right new product for this type of brand? Does it fit? 

    There is currently almost no market for a full-sized electric motorcycle although a few brand do currently exist) and there is no evidence that the biker crowd, especially long distance riders, have any desire for this product. Motorcycle riders can demonstrate their greenness in other ways, and owning a motorcycle is indeed a more environmentally-sound option that most cars. The company says that they have no immediate plans to release it on a wide scale, and is currently in the "prototype" phase of the new product development process. But the company probably wouldn't be expending R&D resources on something it has no intention on commercializing. So it still begs the question, "Does anyone need an electric Harley?"

  • Hoppers and Floppers Part Two

    It turns out that more non profits use soccer to address social issues (and of course drive revenue) than any other sport. Why? Soccer fans tend to be more socially and environmentally conscious than fans of any other major sport, so marketers therefore exploit this trend. And the NFL's San Francisco 49'ers have teamed up with the MLS San Jose Earthquakes to co-promote international competitions in their respective new stadiums. This is all good news for soccer, right?

    The bitter truth is that after a long string of consecutive gains, participation in the sport here in the U.S. is actually down almost 2% since 2008. It's not much, but participation is often a good predictor of sport consumption and if it is falling , it is not a very good sign. Yes, the U.S. has assimilated millions of immigrants from Eastern Europe, the Middle East, and Eastern Africa, as well as millions more from Latin America. Soccer fans all. But participation rates here in the U.S. are still falling, Does this bode well for the sport?

    And as far as spectating goes, the flopping doesn't help much. It's not so much the falling down to get a penalty nod, but its more the rolling around, writhing in pain, wasting the clock, etc., that riles the American viewer. It has now permeated the overtly-dramatic NBA to the extent that there are now fines for perpetrating the act, which is a testament to the popularity of soccer, however unintended the metaphor might be.

    The fact of the matter is that soccer ranks between golf and wrestling in terms of high school program participation. Track and Field, Cross Country, and the Big Three sports round out the popularity index above soccer. Certainly it's becoming increasingly popular, but even among self-proclaimed soccer fans, the "beautiful game" is only the favorite sport among 1/3 of respondents in a recent Sports Business Journal study. Most prefer football, and basketball. Quality of play, the appeal of superior leagues, and an inconsistent/non-existent TV schedule are among the obstacles cited by soccer fans toward watching MLS games in particular according to the study. As far as international games go, the foreign leagues can only go so far in gaining customers here in the U.S. The MLS can go a long way to gain local affinity by banning "flopping" and increasing TV coverage so that teams have the opportunity to acquire better players with their increased revenue. The alarming lack of participation among the nation's youth, however, is another problem altogether. In the meanwhile, enjoy the World Cup, which is simply the best soccer product on the planet. 

  • Of Bar Hoppers And World Cup Floppers

    Yep. It's soccer time in America. Every four years, even the most disenfranchised American has at least a passing interest in what's happening with regard to the world's biggest event. But it's not the Olympics, It is of course the World Cup. And once again pundits around the nation are predicting a massive surge in soccer affinity which has been building for decades. Soccer will finally have a rightful place at the table of America's most popular sports. History, however, shows that interest in the sport wanes after about six months following the World Cup regardless of how well or poorly the U.S. national teams play.

    Could this year somehow be different? Have we reached a "tipping point"? In two words, probably not. Although there are now soccer bars that attract decent crowds for key international contests, there aren't many folks rooting for Major League Soccer teams during the professional season here in the U.S. At least, I've never seen much evidence of much affinity, and the TV ratings are simply abysmal. But 73% soccer fans in the U.S. do in fact go to bars at least twice per month, so it is a social thing  but this"fandom" centers around higher quality international leagues like the English Premier League and other star-studded global products. MLS doesn't yet rate. So when the Cup is over, consumers are ultimately left with Real Salt Lake, FC Toronto, and the Portland Timbers. It is better than nothing but a minor league product can scarcely expect to sustain a major league audience. Yet, there is evidence that  the sport in general is gaining some serious momentum among some Americans for a variety of reasons, but not so much among others. What can be done to increase the interest among enough Americans to give it the legitimacy many think the sport deserves?

  • Tesla Lonely At Top

    It is indeed lonely at the top, as they say. Tesla, makers of rather expensive electric cars, is the market leader in a category that is barely large enough to be called a niche and has .03% of the global light car market. As the big kid on what may be the world's smallest block, the highly innovative company is finding it hard to get past consumer perceptions of electric vehicles. One such objection is the prohibitive cost of the battery, which runs upwards of $25,000 in at least one Tesla model. This makes the overall price point far too high for even most high end buyers, and it doesn't help that the battery is not expected by many experts to last the life of the car. The distance one can travel is another such issue, since the batteries don't hold much of a charge. Another primary objection concerns the lack of charging stations across the country. All of this is conspiring against Tesla and other makers of cars in this category. So what is billionaire Tesla genius Elon Musk to do?

    The answer probably lies in his latest decision to make many of the company's patents, particularly with regard to battery technology, open source. Such sharing, goes the logic, will allow other companies to innovate and compete. A rising tide will raise all boats, so to speak, and so the category will grow more rapidly through innovative product development, competition, and of course, climate regulations. Tesla is a premium product after all, so the brand doesn't really want to target the average buyer more than it wants an upscale customer. There are plenty of those out there, it's just that precious few are interested in an electric performance car at present. It does appear that more competition and more big brains working on the technology will get this category out of the red and also out of the world of costly (and some think unfair) government subsidies. A profitable electric car industry will benefit all stakeholders.

  • FTC Sues POM, POM Sues Coke

    The drama unfolding around POM Wonderful, a popular brand currently fighting FTC findings that it has made false and misleading claims about the "disease-fighting" benefits of its products, is apparently getting more interesting. In previous posts, I have invoked my 25 years in the natural products business, much of it in the nutritional supplements segment, and have already indicted POM in my own court on making illegal health claims about its juice. By rule, certain foods can make only claims approved by the FDA, and nutritional supplements must be very careful with the claims that they make (no health claims). Whichever way POM has chosen to market its products, let's just say that POM crossed the line on several occasions. So what's happening with POM and Coke?

    It turns out that POM filed a suit against Coke back in 2008 under federal trademark law, which allows companies to sue when they think that competitors are misrepresenting their products. The company's right to sue went all the way to the Supreme Court for some reason, and in a rare consensus it unanimously gave permission to for POM to proceed with the lawsuit. Apparently, Coke has been marketing a product as having pomegranate and blueberry juices when it in fact contains 99.4% apple and grape juices. Coke probably shouldn't be deliberately misleading its customers and it's hard to imagine a court ruling in its favor. In fact, a similar case against Welch's by POM found that the marketing was in fact misleading, but POM failed to prove that its business was damaged. Huh? Two other cases against Tropicana and Ocean Spray were both lost. I am at a loss as to why this was so.

    It is indeed ironic that POM finds itself in a similar position of being accused of misleading marketing. Since the FDA and FTC have been wishy-washy on the issue, marketers have had free reign to take advantage of the recently confirmed health benefits of both pomegranate and blueberry (anti-oxidants) without having meaningful amounts of these substances in their sugary products. Pomegranate "flavor" is not the same as pomegranate juice. This is a fairly black and white issue for me, and it would be nice if the FDA provided some additional rules on juice content so that the courts don't continue to get tied up with the same old cases. In the meantime, it is POM Wonderful that must soon face the music.

  • World Cup Star Power

    There are quite a few fans upset with the American World Cup soccer coach's decision to cut perennial star Landon Donovan from the team, but perhaps none should be more upset than the manufacturers and retailers of jerseys. For sure, the number of Donovan jerseys (or soccer jerseys in general) sold are nowhere near the sales of many jerseys in other sports, but his removal from contention coupled with the overall lack of "star power" in soccer means a whole lots less revenue for the marketers that sell apparel.

    Interest in soccer here in the U.S. generally spikes around World Cup time, and then quickly abates six months after the event. Although these attitudes are changing, they are changing very slowly. So what about Landon Donovan jerseys? As you might expect, they aren't selling, and it's difficult to even find them at most retailers. Is this a problem? No. Since he is not on the team, there is very little demand for jerseys sporting his name.

    This doesn't mean that jerseys in general won't sell. It just means that the ones that do won't have player names on the back. This is has been good strategy over the years, since the risks of players not being named to the team combined with the fact that the U.S. often announces the squad only a few weeks before the matches begin, makes it difficult for marketers to project which players might be popular. Until the level "star power" improves in American soccer, fans won't connect with individual players, and marketers will therefore sell less merchandise. More recognizable stars will mean more money. As for Mr. Donovan, he is in his early 30's and may have some play left in him. The same goes for his jersey if he makes a comeback. Stay tuned.

  • Yoga Wars

    A year after problems with product quality and an ensuing management shake-up, Lululemon Athletics, makers of expensive yoga wear, is struggling to re-affirm itself as the market leader. The hit the brand's reputation took as a result of making and selling see-through yoga pants is unmistakeable, and the loss of market share is largely due to well-heeled competitors such as Nike, Under Armour, and Gap entering the market. Apparently, it doesn't take long for a brand to lose what it has gained in the world of marketing. Will the brand recover?

    Lululemon has always been a premium player, but 84% of women in the target market for such products believe that athletic apparel in general is too expensive. Lower price points will have to be reached by all competitors in the very near future if this is true, and there is no reason to believe that there is anything wrong with the data. Simply slapping a $100 price tag on a pair of stretch pants and expecting the enlightened masses to line up at the trough worked for quite a while, but it is clear that this party is indeed over. Marketers at Lululemon will have to alter strategy to deal with a trifecta of environmental threats--shifting consumer tastes, major competitors entering the market, and consumer opinions of the brand itself. This will be a tall order indeed, but it is not impossible, and perhaps a national advertising campaign making fun of the missteps would be a good start. Let's see what they do.

  • More Millennials Milling In Malls

    Research findings may not be intuitive all of the time, but lots of things in life are counter-intuitive, and this is one of the reasons why we are glad to have science. How else would we discover that young adults between the ages of 18-29 (actually this is only a subset of the generation born between 1980-2000) actually prefer shopping in malls versus online? Say again? And it wasn't by a narrow margin--37% versus 27%. Of course it is only one study, and I would surely love to see the results duplicated by another source, what we call reliability, but it does appear to have validity, that is it is measuring what it is supposed to measure. The sample size is adequate, and we can only assume that the sample was randomized and that there was no researcher bias. After all, who would have theorized such a thing? So much for the recently-announced death of the shopping mall.

    But the data must mean something. Perhaps younger consumers are excited by the experience of shopping and socializing in a non-digital manner, which would be a refeshing finding indeed. Perhaps "shopping" doesn't mean "buying", which would mean that brick and mortar stores will continue to lose ground to ecommerce, as has been predicted by most, and younger people merely use teh stores as "showrooms" for cheaper goods found online. Or perhaps it is something else altogether. Perhaps we are becoming used to our new digital toys, and things will return to a more physical, and less digital reality. Perhaps younger consumers will respond to the right kinds of brick-and-mortar stores once they join the productive economy and begin designing them. Never underestimate the need for humans to touch and physically experience things, which is a major weakness of the digital universe. Indeed the pendulum swings back and forth with most things, I have found, so why should consumer behavior with regard to technology be any different? Marketers must figure out what's going on, and fast.

  • Menswear Merging

    It looks like the "cheap suit industry" is about to get a lot smaller. The Federal Trade Commission has finally approved the merger of Men's Wearhouse and Jos. A Bank, two dominant players in what has become a contracting industry. To say that Americans have dressed down over the decades is putting it rather mildly, and nowhere is this social trend more glaring than in the menswear category. Regulators are OK with the move, saying that there are numerous other options for consumers, and that they are unlikely to be hurt by the reduction in competition.

    What other options, you ask? Department stores such as Macy's, Nordstrom, and JC Penney have long filled the waning need in the marketplace for lower-end (non-custom) business wear. And it appears unlikely that the two specialty retailers will survive without combining operations, so in that instance there would be even less competition. Thus it is probably better that this merger be allowed go ahead. In the meantime, I will not be buying new suits any time real soon and will likely opt to dust off my Men's Wearhouse suits from 1999 whenever there is a wedding or a funeral. Unfortunately for the industry, I'm not alone.

  • The Price Is Absolutely Right

    For those of us who do not watch much PayTV or who have regular, 9-5 jobs, it's easy to miss the weekday morning lineup. After the litanny of national and local news shows have mercifully ended for another day, things get even more bleak. That is, except for a staple of the airwaves, The Price Is Right, by far the longest running game show in history. Bob Barker has long since retired, and the affable and highly competent Drew Carey has assumed command of the show. Almost everything is the same, so longtime viewers need not worry about artistic integrity, tradition, and the like. But if the show is to have a bright future, it must attempt to draw in younger viewers. Drew knows this.

    I've always loved the show, even as a kid in the early 80's. And what marketer worth his/her salt wouldn't like a show based on consumer perceptions of pricing, with a heavy dose of luck and a bit of gamesmanship? Sign me up! And Mr. Carey has already made a few positive adjustments to attract this younger age demographic. The models and the announcer, formerly mute functionaries, are now an active part of the production, interacting with the contestants in highly effective ways never before seen. Yet somehow the change is subtle. This week, Mr. Carey has engaged the Twitterverse, and viewers have the opportunity to interact with the program as well as possibly see their tweets on TV. And of course the more positive the Tweet, the more likely it will be displayed. And there are lots of special guests. This might be a good way to engage younger viewers.

    And that's not all! Yesterday, in the midst of the action, Drew (as well as the entire cast and audience) broke into a well choreographed minute-long song and dance, a delightful signature practice fans became accustomed to during his Drew Carey Show years in the late 90's. It was almost like a 7th inning stretch in baseball. Younger viewers will love this show. And with all of the underemployed and unemployed Millennials living at home and working hospitality jobs, it seems that Drew has a ready audience at 10am MDT. If they are still too busy, it's on YouTube. Will they respond?

  • Of Michael and Elvis

    Just because a musician has passed on, it doesn't mean he/she can't keep earning money. Take Michael Jackson for example. He was a top flight entertainer with a multitude of different talents. He could compose, sing, dance, and also creep everyone out. But that's another story. He was the first African-American megastar, had his own ride at Disney theme parks, and his album Thriller remains the most successful record in history. In addition to this sort of talent, he also seemed to understand the business and marketing side of things from a very young age.

    He started his marketing career around the tender young age of 10, understanding that composers could earn residual income from their songs in the form of royalties. And so he began buying up music catalogs, paying $500,000 for Sly and the Family Stone's collection in his first foray, making money almost immediately when an artist recorded a hit with one of their songs. At his peak in the late 80's there was nothing that Michael couldn't do. But, as with many of our heroes, they fail in the human side of things. Jackson, like Elvis before him, was a complete mess. You all know what happened next.

    So is that it for Jackson, Inc.? Heck no. The 2009 tour that never happened became a documentary that earned $200 million, and by the end of that year Jackson's estate sold 8.3 million records, twice as many as Taylor Swift, the runner up. Folks, that is the very embodiment of brand equity, and it is not unique to Michael Jackson. The Beatles, the Grateful Dead, Elvis, and many others continue to earn money well after they lost the ability to spend it. Some brands take a long time to finally expire. Jackson's global appeal isn't likely to wane any time very soon.