• A Rocky Mountain Makeover

    It wasn't too long ago that Coors Light was known as the Silver Bullet. We remember images of scantily clad young people frolicking in the snowy (yet also impossibly warm) mountains of Colorado with an occasional "Love Train" bursting onto the TV screen. This creative concept prevailed in one form or another for many years, and lately it's hard to recall just what the brand's latest ad campaign was all about. Whatever it was about, it was not terribly memorable, and in an environment where drinkers of all ages continue to flock to small-batch, locally-grown beer brands, marketers have decided that a major face-lift is in order.

    Using the X Games as a platform to launch this ad campaign seems like a very good idea since most craft drinkers are between the ages of 36-51 what is known as Generation X; and for this campaign marketers have decided to highlight the beer's Rocky Mountain heritage as a central theme replete with the requisite packaging changes. "Our mountains make us who we are, your mountains make you who you are," says the ad's voiceover, "...whatever your mountain, climb on." Indeed it does sound far too much like Corona's recent "Find Your Beach"" campaign, and the "your mountains, our mountains" theme doesn't scream "BEER!" (or much else for that matter). But Coors Light is used to this sport of unremarkable, nebulous advertising.

    This time, Molson Coors marketers say the target markets for the latest campaign are X'er's, women, and consumers with diverse ethnic backgrounds, which is a fairly wide swath of beer drinkers, and is also a marked departure from previous attempts to address the white, male 21-28 crowd. All in all, Coors Light appears to be a brand that is struggling to find it's way, and simply spending millions of dollars on advertising is unlikely to be much of a "silver bullet". After years of relying on scantily-clad females and strange animals, marketers will find it rather challenging to change hearts and minds. New packaging, glassware, and tap handles are nice changes, but are these things likely to have any meaningful long-term impact on the brand? Let's see what Coors Light has in it's fridge.

  • Barbie's New Look

    Faced with flagging sales over the past several years, the makers of Barbie are truly facing the reality of changing attitudes among young girls. Every generation is a little more "progressive" than the previous one, as social and environmental attitudes become progressively friendlier towards social and environmental issues and as gains made by previous generations become a matter of course. Undeniably, today's youngsters are taught that diversity is a cultural priority (much more so than previous generations of young people) and are raised from a very early age watching shows like Dora the Explorer and Go Diego Go, which are a far cry from the far edgier Looney Tunes and Scooby Doo's of yesteryear (even though these franchises are still thriving today in one form or another). Indeed, content providers these days seem to go out of their way to promote this cultural priority as early as possible.

    As such, Mattel has decided to get with the new cultural zeitgeist and will soon introduce three new "body type" choices to reflect changing attitudes and behaviors. Curvy, petite, and tall Barbies will soon be available for kids that comprise this yet-to-be-named under-16 generation, an age cohort that is expected to carry on a tradition of human social progress and embrace diversity on an even greater level than did their predecessors. Last year the company introduced new facial structures, hairstyles and skin types, so why not give us some new body types for 2016?

    Historically, the company has been a sort of "lightning rod" for the diversity promotion movement, so these product introductions are a very significant development for a toy maker that has been reticent to change. The "marketing concept" tells us that needs come first in marketing, so toy makers must understand these needs and address them effectively using every tool they have in the marketing mix. Barbie has embodied what many feel is an unrealistic idea of what a young girl should aspire to be, and now must rather become more of a reflection of new attitudes about gender and diversity. Toys should reflect the attitudes of those playing with them, and brands that fail to embrace this new reality risk becoming obsolete. Mattel is desperate to turn around the fortunes of this once dominant children's brand, so Barbie could be in for even more changes in the years to come.

  • A Super Bowl Death Wish

    Death Wish Coffee Company, a small finished goods manufacturer in Round Lake, New York, and far from the hustle and bustle of the city, is going to Super Bowl 50 (L?). It won't be there physically, but it will air a much-coveted 30-second advertising spot (now priced at well over $4 million each), a result of a PR campaign conducted the last few years by Intuit, a company that provides services to small businesses. Death Wish, which currently sells only about 1,000 pounds a day, was chosen from a pool of 15,000 other small businesses (including two from Colorado among the final 10 contestants) and will now have an opportunity to play in the street with the big dogs. At least for one game, but maybe for keeps.

    The campaign is simply genius, as Intuit, at a bare minimum, has the opportunity to engage one-to-one with 15,000 current and potential customers. That alone is probably worth the investment of paying for a Super Bowl ad spot. But the company also serves to generate publicity from media coverage and possibly through Death Wish itself. making this marketing strategy even more effective. For it's part, the makers of what they describe as a strong, highly caffeinated brew expect sales to increase after the Super Bowl spot. No kidding! This is almost certain to happen, but history shows that often the jump is only temporary. When a company doesn't have the resources to leverage such a high profile advertisement with additional (and expensive) marketing, the effects tend to fade. However, history may not be so instructive in this case. In a new marketing environment increasingly influenced by social media, a cool company with a cool brand story could start selling a lot of the strong stuff on a sustainable basis. Let's hope that marketers at the tiny New York upstart are honing their social media skills and have a plan for supporting this incredible opportunity since the company certainly doesn't have the resources to engage in a major media campaign. Obviously, the first step is to give the public a funny, memorable commercial. This is not easy to do. And for a small brand sold in only a handful of stores (as well as online) and operating in a cluttered, hyper-competitive environment filled with equally edgy brands, this is a publicity wish-come-true, but one that must be leveraged with smart marketing. 

  • All-Day Pancakes

    As a result of McDonald's highly successful strategic foray into all-day breakfast, marketers have decided to push the envelope a bit and add the popular McGriddle product to the menus of 72 stores in Tulsa, Oklahoma. Biscuit sandwiches, a product particularly popular in the South, will also be available, which although a treat for consumers, will further test the operational stress that McDonald's locations have been experiencing over the years caused in large part by product complexity.

    It is almost always true that too many products that require different preparation methods will result in service delays, and McDonald's has struggled mightily with wait times that exceed industry standards. Customers have not been pleased either. And adding additional products will probably only make things more difficult for restaurant operations, but this realization is probably not lost on the savvy executives at McCorporate. This is why test marketing is necessary, and in fact the all-day breakfast concept is the result of a successful test market campaign conducted a few years ago. McMarketers have said in the recent past that the company is trying to simplify operations to improve customer service, so if this concept proves to be too much of a deterrent to that end, it won't likely be introduced on a national level. But, if offering McGriddles alongside Big Macs and Egg McMuffins proves to be of little negative operational consequence, the revenue increase from such a menu extension might be well worth the added load placed on an already strained business model.

  • Hilton Makes Play For Millennial Wallets

    Millennials are roughly between 17-36 years old, so this means that the eldest among this huge age cohort is are entering middle age this year. Middle age! And the next generation (as yet unnamed) will be high school seniors next year. As Millennials get older, their behaviors and attitudes will change and it is unclear how a balding, muffin top-sporting hipster guy is going to transform as he nears forty. Most women in this group, who have waited longer than any other age group in history to have children, are becoming soccer moms in very large numbers, and it is unclear how they too will change as they settle into middle age. But change they will. And one thing is for certain, marketers are still scrambling to understand this largest generation in history.

    And so Hilton Worldwide Holdings (the hotel brand) has decided to cater to younger guests (Millennials) by introducing a new chain of hotels, a brand called "Tru". OK, so it sounds like a good brand name for an electronic cigarette and not really so much for a hotel chain, but the marketers at Hilton think you will like this concept very much. In fact, they believe that no existing chain is adequately "meeting guest needs for cost and taste" at the present time. Hmmm...This probably means that young consumers want low prices and high quality, which is not exactly a groundbreaking discovery. Who doesn't want these things? And young people of every generation have always been short of cash. Marketers call this concept "value" and it is their job to create, communicate and deliver it. Anyhow, the company has 102 existing hotels signed up (and another 30 in the works), so it's possible that the concept will be similar to Marriott's Collection concept wherein each hotel is very different from the next. You see, Millennials apparently like variety. But then again, most people over 35 and under 17 do too, and of course it is also very possible that the new Hilton hotels could be formatted in a more standardized "planogram" format. We shall see.

    Hey look, there's Paris! The new format will feature a front desk with a "social media wall" with real-time content to "foster engagement among guests" in an open space lobby. Feeling stereotyped yet? A social media wall? The last time I checked, grandma is also spending lots of time on social media (albeit through an AOL dial up account), so once again one might  question how this concept will appeal to the young adult demographic versus consumers who are older than 36. Will it be too annoying for the older crowd? Indeed it's hard for me to picture what a social media wall might look like or what useful function it might actually serve. But who knows? This product introduction could be a big success, or perhaps marketers are taking the risk of "over-targeting", thereby potentially creating a feeling among many of those in the target market of being pandered to. This would not be a good thing for a brand targeting an age cohort that demands authenticity, but removing things like social media walls, small batch brewing workshops, facial hair maintenance seminars, or other nontraditional features marketers might have in store for you would not be a terribly difficult task. And it won't take long for Hilton marketers to flesh out what is working and what is not, making adjustments as needed. The first hotel should open by the end of the year, so we shall soon see what this huge hospitality brand has in store for young travelers.

  • Wal-Mart's Shape Of Things To Come

    Unfortunately the recent news about Wal-Mart's planned contraction in the U.S. might be a bell weather for other retail chains as they try to navigate what is expected to be a very difficult year for growth. Most economists agree that GDP growth will drop to below two percent for most of the year, which might feel like a recession in many slower-growing parts of the country; and as much of the rest of the world (most notably China) experiences a major slowdown, the news for 2017 is not likely to be much better.

    Some of the major casualties of this upcoming slowdown will be retailers, as I have noted in previous posts, and certainly many stronger players will have to close under-performing stores and a few very weak ones might exit the competitive landscape altogether. And when a successful retailer like Wal-Mart announces that it will close 150 stores domestically, including all 102 of the not-so-successful Wal-Mart Express small-format stores, one should start taking notes. In total, the company will close 269 stores around the world, but in all fairness it also plans to open another 300 stores globally in the near future. Presumably the majority will be opened in under-served international markets. But marketers have admitted that it plans to slow new store growth in the U.S., where there are currently 4,600 stores, and since other retailers (already challenged by the consumer's shift towards online buying) tend to closely watch what this market leader does, consumers might see some pretty interesting changes in the retail landscape over the next few years.

  • Coke Drinkers To "Taste Feeling"

    Executing a successful global advertising campaign has always been very difficult, if not downright impossible, since a one-size-fits-all message is tough pull off in a world comprised of many different cultures. Nevertheless, Coca-Cola, one of the most prolific of global brands of all time, is seeking to reverse the tide as sales of its flagship soda have fizzled over the past several years. And marketing observers know that Coke has been highly successful over the decades in delivering global messages, whether they be related to polar bears, Santa Claus, world peace, or a handful of other advertising concepts marketers have employed over the years.

    The previous campaign, dubbed "Open Happiness", was launched in 2009 and wasn't one of the best efforts that we have seen from marketers at Coke. The new ad campaign, "Taste the Feeling", will focus on the refreshing taste of the beverage while delivering "slice of life" stories about everyday living. The product, of course, will be at the center of it all.  The concept seems workable, and it is probably sufficiently generic to deliver globally, but marketers run the risk of being too generic.  Efforts to appeal to everyone in advertising can often result in appealing to no one. And everyday life is rather culture-specific, so addressing these differences on a global level will be challenging as well. But Coke is probably up to the task, and the company must also make efforts to combat the rising tide of critics who blame the soda-maker for taking part in the obesity epidemic. This issue is not going away any time soon. The campaign will be launched shortly, so let's see what bubbles up.

  • Airline Customer Satisfaction Gains Altitude

    After several years of lackluster results, customer satisfaction in the U.S. airline industry is finally on the rise. The industry as a whole is mangling fewer bags, canceling fewer flights, arriving late less often, and investing in infrastructure. This is excellent news for a passenger who has been stuck in what has become an increasingly uncomfortable middle seat for far too long. What accounts for the turnaround? Regulation? A mass consumer exodus to Amtrak and Greyhound? Or could it be the record profits the industry has experienced these past few years?

    Indeed, it appears that service quality and profitability are highly related variables. Companies that lose money cannot invest as much in their products and in many cases must actually reduce the value they deliver to consumers in order to save money. So, while abnormally low fuel costs, often a huge factor in airline profitability, have not been passed on to the consumer in the form of lower prices, there are signs that some of this savings is beginning to be reflected in a higher quality overall product. And just in time. So how did individual airlines stack up?

    Out of nine airlines in the Wall Street Journal annual report, Alaska takes it's usual place on top scoring highest in on time arrivals, lack of extreme delays, lack of 2-hour tarmac delays, and overall  lack of complaints. Virgin America took second overall by scoring high in just about every category (except complaints interestingly enough) including the mishandled baggage, involuntary bumping, and cancelled flights categories. Delta, Southwest, and JetBlue round out the top five, followed by Frontier, United, Spirit, and lastly American. Both United and American never cracked the top four in any category despite the fact that their prices are usually higher than low-cost, no frills airlines like Spirit and Frontier. In other words, these two under performing major carriers have some work to do. Ironically, despite the fact that Southwest loves your bags and lets them fly free, these bags are also the second most likely among the nine airlines to experience some form of mishandling. This has been happening for several years now, so there is a bit of a disconnect when it comes to what the airline says it does in it's advertisements and what it actually does. Southwest has some work to do as well, although this frequent Southwest user has yet to experience any major difficulties. Overall, however, things are on the up and up, and since a profitable airline is a healthier airline, one could expect that consumer satisfaction will rise even further in the future. And for travelers, many of whom may not notice these incremental improvements consciously, the middle seat is indeed getting a bit more comfortable.

  • The Electric Auto Test

    The electric car, often marketed as a far greener, more progressive alternative to vehicles with traditional internal combustion engines (and subsidized by Uncle Sam to make it more competitive in the marketplace) has still failed to gain traction in the marketplace. Much like the situation with large-scale adoption of wind and solar power, the slow adoption of the electric car is partly due to inadequate battery/storage technology. Indeed the battery technology employed today is many decades old, and the inability to store large amounts of power is a huge problem in harnessing energy generated from the sun (when it shines) and wind (when it blows, but not too hard). Simply put, without fossil fuels as a backup, a home or business wouldn't have energy under conditions of insufficient sunlight and insufficient (or too much) wind velocity. It's inherent unreliability is partly why renewable energy is so expensive. Fossil fuels, although dirtier to burn, are reliable. At present, however, wind and solar power is highly inefficient and thus requires higher government subsidies per kilowatt hour than does oil, natural gas, and coal. All of this may change when that storage technology is finally developed, but this crucial technology doesn't yet exist, so right now renewables are prohibitively expensive. And as for the electric car, the weak batteries that are currently on the market have been a major barrier to product adoption.

     

    So, on to the numbers. Despite the fact that Americans purchased a record 17.5 million passenger vehicles this past year, only .16% of them were electric. That's not a typo. Not even close to one percent. And with all of the publicity this insignificant segment has generated, my bet is that most people would have thought that number would be much higher. Only 407,136 electrics were purchased despite much hype from Tesla and others in the industry. Of course, all of this will change once the inconvenient truth regarding battery technology has been addressed via a major technological innovation, but that might be a long time in coming. In the meantime, some form of new technology having nothing to do with electricity (which is not really "green" since the majority of it is still generated from fossil fuels) might emerge to meet consumer and regulatory demands for cleaner burning automobiles. A fuel cell that runs on hydrogen, for example, has been in development for around two decades and is finally reaching a point where it's costs are low enough to bring products that use the technology to market. But for now, caveat emptor! Most of the hype surrounding the electric car is just that...hype. Here we are in 2016, and the whole idea of driving a "clean-burning" electric vehicle has yet to catch on in any meaningful way despite a $7,500 federal tax credit awarded when a consumer buys an electric vehicle. And it begs the question, "Is there really a need in the marketplace for this product?" The answer may not be the one that environmental activists want to hear.

  • Invading London

    Now that the latest NFL media circus (this one involving the Rams moving back to LA from St. Louis and the possibility of the Chargers joining them from San Diego) is no longer at a full boil, attention has begun to shift to the next under-served market to possibly be addressed by this marketing juggernaut. Indeed the Rams will return to the LA basin after a 20+-year absence to what will soon be a new, privately-funded facility that will likely be the finest in the world, with the option of San Diego joining them in a split-stadium situation such as that employed by the Jets and Giants in New Jersey. This was the scenario successfully predicted in a previous post. Both teams would be in a "mega market" stretching from Santa Barbara to the Mexican border, and it is likely that even if the Chargers stay in San Diego (the team has two years to decide what to do), both teams will have plenty of fans up and down the southern California coast. If the Chargers decline, the Raiders of Oakland have the rights to move, but this is highly unlikely. The Bay area is another very large market and the 49ers, after moving south to Santa Clara, have left the North Bay and all of its fans who don't wan't to root for a team not in San Francisco to the dreaded Raiders. The NFL, for it's part, has offered both teams $100 million towards building new facilities in their current cities, but it's likely that both teams would need much, much more money. And over the past several years, taxpayers have been reticent to open up their wallets to fund new facilities, which means that private capital must be sourced and employed. Luckily for the citizens of Inglewood, Rams owner Stan Kroenke has deep pockets, but the ownership groups in San Diego and Oakland do not yet have the resources. This makes a likely scenario wherein the Chargers move to LA and lease from the Rams, and the Raiders are left to play in a stadium that they must share with an MLB team from whom they must lease. Bad news for the Raiders.

    This brings us to the topic at hand, and that is the next major market to be mined by NFL marketers seeking a more global footprint. London is an obvious choice since the league has been playing games there for 25 years to sell out crowds, and Jacksonville's Jaguars have signed a new four-year deal to play there, among several other franchises. So is a move to London likely for an NFL team? or will it be somewhere like San Antonio, another large, under-served market? Considering that there hasn't been a move since the mid-1990's until now, the idea of uprooting a franchise and its fan base is not one that the league takes lightly. But London likes the NFL a lot, the market essentially includes the entirety of the U.K., and the NFL's once a week schedule lends itself nicely for expansion across the pond. So what is stopping the league from making a move? Much depends on what happens with the Raiders and Jaguars in particular (two teams that are truly struggling in their respective markets), assuming that San Diego moves or builds a new stadium. But who knows? Other franchises such as the one in Tampa Bay could begin to struggle as their facilities become increasingly outdated, a deadly combination for any professional team. Or the league could decide to expand instead of allowing a team to relocate. One thing is almost certain, however; an NFL franchise in London would provide the league with the additional growth that it has been looking for on the heels of the highly lucrative LA expansion. Time will tell.

  • The Marketing In The Tweets

    When celebrities tweet, their followers tend to listen. This is presumably why followers sign on the first place. Some call it "native advertising" or "sponsored content", but when celebrities tweet messages that are really advertisements, ethical questions arise. This is not a new issue. Product placement (sometimes called brand integration) has been around since the early James Bond days and probably even before that. Companies pay a sum to place a product within the content of a film, TV show, video game, or other vehicle, and because there is no immediate disclosure that it is in fact an ad, some critics insist that it is a deceptive practice. In fact, up until recently it was illegal in the European Union. No more. Now most everyone knows that when a brand is shown it is paid for, and the practice has become a very effective and commonly employed way for content producers to generate revenue under conditions of increasing DVR usage among viewers. A cousin to this, the practice of sponsoring content within news articles, is called "native advertising", and is a new battleground that is likely to be regulated further in the future.

    Tweeting is a bit different, however, because the message comes directly to the consumer from the source, and in the U.S., individuals must disclose any fiduciary relationship between themselves and organizations they might represent. Commercials and product placements are one thing, but tweets from beloved celebrities being bought and paid for? Say it ain't so! And when two ESPN personalities tweeted some fairly gratuitous promotions to their respective followings without disclosure a few days ago, many eyebrows were raised. In fact, pizza giant Domino's is heavily involved in spending boatloads of money across a multitude of ESPN (Disney) platforms, and this was just one more marketing tactic. And the right tweet from the right celebrity to the right audience at the right time can move an entire market. The issue of whether or not the celebrity should disclose the relationship is without question. He should. But should celebrities use social media platforms such as Twitter to plug products, when in fact their fans might expect more compelling content, unsullied by consumerism? It is a question worth pondering as the newness of social media begins to erode. Is authenticity important to Twitter followers? Does this sponsored content dilute some of that authenticity?

  • Few Movies Filling Coffers

    The movie industry generated more revenue than ever before in 2015 due almost entirely to the overwhelming success of a small handful of blockbuster films, and done in spite of an overwhelming number of stinkers. In fact, if one looks at the number of outright flops, it might be the worst year on record. Theaters have been losing customers for years and although much needed remodeling and an improved economy has reversed the trend (at least temporarily), the last decade has been a very difficult one for this industry. But substitutes such as in-home entertainment systems are the only culprit on which to blame declining revenues. The reality is that most movies aren't attracting much of an audience at all. In 2015, the five most successful movies accounted for a record 22% of the year's total box office, while the other 129 represented the lowest share of revenue since 2008, the depths of The Great Recession and a time when tickets were 14% lower than they are today. Uh oh.

    This is the primary reason why we see so many sequels, or what are known in the industry as "tent poles". Marketers develop successive products based on the success and subsequent brand equity generated from said success. This is how "Penguins" and who knows how many iterations of "Evil Dead" came to be. These movie franchises are also mined for licensing opportunities, including toys, games, and products of all kinds. But original screenplays have probably never been more unpopular. And in the humble opinion of this grumpy author, movies have never been of poorer quality.

    Clearly the status quo is not acceptable to anyone involved and so changes within this notoriously stubborn industry are in order. In fact, 134 movies per year seems like an awful lot for one year considering that the customer growth has been flat or declining for several years. The answer seems to lie in producing fewer movies of much higher quality. More market research must be conducted during the new product development process to provide better data and create better products. The occasional "Avatar" might sweep the nation or a combination of "Jurassic World" and "Star Wars" reboots might break records and even cross generations to make billions, but these outliers won't likely be enough to get people back into the theaters in any sustainable manner. Product quality must improve for this to occur.

  • Fast Food Fighting

    The burger wars continue. As more consumers opt for the more higher quality "Better Burger" places like Five Guys and In-N-Out or eschew burgers altogether, the industry gets more challenging for marketers as they compete for stagnant market share. This time the battle is being waged over bundled meal combos. What to offer and at what price point as been challenging for the likes of McDonald's, Wendy's, and Burger King over the years and the competition, if the ads on TV are any indication, is getting fierce.

    These bundles, such as the new Wendy's "4 for $4 deal"  aren't just about customer satisfaction and sticking it to the competition, but are also a way to move consumers away from the highly unprofitable dollar menus. In the new environment, employees are routinely asked not to suggest the deals in hopes that consumers will choose more profitable options, and marketers hope that people will buy additional items tacked onto the deal (sort of a loss-leader strategy). In addition it is estimated that consumers who make choices based on sales promotions, so-called "deal seekers", in fact make up about 15% of the fast food market. So catering to them is a big deal.

    The major players will likely beat one another up for a while, as they are wont to do, until one of them begins to focus on something else, causing the other two to follow in step. Message focus could shift towards more institutional advertising or messaging focused on product features and benefits. For the time being, most of the advertising will be focused on these limited-time deals, and of course, for the price-conscious consumer, this sort of competition is a very good thing.

  • Unhappy Holidays For Some Retailers

    The results are finally in. Revenue generated by retailers during the all-important November-December holiday shopping season (which can represent up to 40% of total annual revenues for some) were up this year, but not by as much as the industry had predicted. Sales rose 3.3%, which was about the same as last year, but foot traffic fell 6.4% as last-minute shoppers decided not to brave hostile mall conditions and instead shopped online. Online sales continued to grow rapidly this year.

    This is bad news for those retailers whose products can be found more cheaply online than in their stores. Kohl's, for example, is in very deep trouble, while older brands such as Sears and JC Penney's continue to struggle. Even Macy's dropped almost 5% from the previous year. The news was good for other retailers, however, as consumers continue to spend, but have become more fickle in terms of what types of goods they buy. Millennials, for their part, prefer services such as travel and going out to eat, and since this massive group includes every consumer between the ages of 17 and 36, marketers must adapt to changing consumer behaviors and attitudes.

    What does it all mean? For starters, there are probably too many brick-and-mortar retailers in the marketplace at present. Many are selling the same or similar goods as their competitors, and most of these can now be bought at lower price points from the likes of Amazon and delivered quickly right to the consumer's door. The sector has been ripe for a vetting for quite some time, and the next recession, which is probably just around the corner, might be the proverbial straw that breaks the proverbial backs of some of these camels. The older camels are particularly vulnerable. Some retailers will win and some will lose, but it generally takes quite a while for a retailer to disappear from sight altogether. And Macy's, Kohl's and many others aren't about to get into the travel or restaurant business anytime soon, so adapting to this new zeitgeist will continue to be a challenge for retailers that pre-date the Internet.

  • WTO Forces Repeal of U.S. Law

    The title of this post might be a bit misleading, since the World Trade Organization has no power to change U.S. legislation. That's the job of the United States Congress. But the WTO does act as an "international court" of sorts with the benign mission of insuring that trade around the world is done in a fair and equitable manner. That's a tall order with so many differing government viewpoints on how economies should operate, but overall it's probably a good thing that there is some form of international oversight in an era of increasing globalization of trade. The organization has repeatedly ruled in favor of both Canada and Mexico and against U.S. producers with regard to the latter complying with a U.S. labeling law requiring producers to list the country or origin on packaging of beef and poultry (known as COOL). Apparently the WTO finds this practice a barrier to fair trade since U.S. consumers appear to prefer meat from the U.S.; and, as such, has "authorized" these countries to begin more than $1 billion worth of "economic retaliation". Retaliation? It sounds like the organization is encouraging a border trade war, which would hardly be healthy for anyone involved. 

    In addition, the position held by this important international body hardly makes any sense to most American consumers, especially in light of the cultural movement towards more information on labels. American consumers increasingly want to know what is in their foods and reading labels is the best way to make informed purchase decisions. In a very revealing way, the WTO has rejected this very fundamental American economic premise. And so now consumers cannot know the country from which their meat originates. So much for "Buy American" product differentiation.  It seems that in the organization's quest for fairness, it has rejected a fundamental part of the free market policies that have helped made this planet a relatively wealthy and prosperous place over these many years--the consumer's right to know. This sort of censorship (if it can be called such) is a curious position for an impartial international body to take, and it makes some Americans question international values versus their own. 

    Nevertheless, in the spirit of global trade, the U.S. Congress has agreed to repeal COOL. An astute observer might note that this represents a "slippery slope" of sorts, as this principle could eventually apply to any category of goods, and not just beef and poultry, if the WTO decides to extend protection to other countries and other products. And what would stop it from doing so? It does appear that a potentially dangerous legal precedent has been set here that might influence the ability of Americans, as well as persons of other free market-oriented nations, to make more informed choices regarding product country of origin. Marketers of all goods and services will look at this development in the political environment as either an opportunity or a threat depending upon which side of the issue they fall. This decision does seem rather unfair to U.S. consumers in particular, which might be OK for the rest of the world, but violates a fundamental tenant of the economic principles that have made the U.S. an economic powerhouse over the years--preserving the rights of the consumer. The U.S. has an inordinate amount of influence on global trade because it is largely responsible for facilitating it after World War Two, but it has nevertheless decided not to exercise it's influence on this new global battlefield. If too many U.S. meat producers are hurt by the repeal of COOL, it is possible that Congress may eventually have to revisit this decision and face the wrath of the WTO.

  • A Season of Many Returns

    We all know that the holiday season is important for retailers. Sales made during November and December can equal more than four months or more of annual revenue for many stores, so the flurry of promotional activity we must endure each year is rather justified from a marketing perspective. One challenge for retailers, however, is the proliferation of product returns over the past few years as online shopping begins to trump the desire for the madness of being in brick-and-mortar stores. But consumers can't touch or experience online merchandise in a very meaningful human way, so not everyone is thrilled when the actual article shows up at the front door. The result of this trend is likely to be systemic and one that consumers will probably fail to appreciate.

    The problem? Not only are most retailers forced to offer free shipping in the first place, but the store will incur much of the cost of any returns as well. This is what consumers have come to expect after many years of conditioning by marketers. But nearly 25% of e-commerce goods are returned over the holidays, a fact that hurts Best Buy and Wal-Mart more than it does online pure-play Amazon because the former two have the high cost of operating brick-and-mortar locations. But the returns practice ultimately hurts everyone, and retailers will often try to pass costs up the supply chain to manufacturers, who would have to sell to distributors and retailers for less than before. As a result, supplier margins become squeezed. And so it goes along the value chain. Indeed many returned products are not resold at the retail level at all, but are rather sold to third-party liquidators at very low prices. In short, low-margin retailers are losing their shirts.

    What is the most likely result of such an industry-wide malady? One possibility is higher retail prices for consumers. If everyone in the industry is affected then it's not unheard of for prices to increase across the board despite the presence of ample amounts of competition. Just look at Pay TV! Higher price points would also give retailers more room to offer sales promotions. So someone who returns a sweater that doesn't quite fit right might unknowingly be contributing to higher retail prices in the future. Another possibility is that retailers will soon be forced to charge for returns as a new industry-wide standard. Obviously, it would be best for consumers if retailers tried the latter option before resorting to the first, but both or neither of these things may happen. Frustrating isn't it? Yes, marketers must be able to at least somewhat anticipate market changes and then quickly adapt to them, but predicting the future outright is a tougher row to hoe.

  • Craft Giant To Cash Out?

    One of the main reasons that private companies are sold is so that investors (almost always including the founder and some early investors) can collect their return on investment, that is "cash out". As such, New Belgium Brewing Co., located in the heart of Colorado Beer Country and the nation's fourth largest craft brewer, is looking for potential suitors to make a sale of $1 billion or more. Not only will such a deal create many millionaires overnight, it will also give the company access to capital and wider networks of distribution, making it potentially available just about anywhere it wants to be.

    Beer sales have been flat overall for many years, and craft brewers (defined as those making less than six million barrels of beer annually) are being plucked by larger competitors at a rate of about every month or so. Anheuser-Busch has already purchased six such brands. The trouble is that if more than 25% of a craft brewer is bought by a mega-brewer it will lose its important "craft" status, which is the only beer category experiencing growth. Consumers increasingly prefer smaller-batch beer these days, and in fact are showing a preference for "local" beers mirroring the widespread "locavore" trend we have seen spread across many product categories over the past decade or so. Is it a good idea to strive for national or international distribution?

    The opportunity to become much larger is hard to pass up, and eventually the company may have to give up the craft status no matter what. Yet, six million barrels is a lot of beer. And will "craft" positioning remain as important to consumers in 15 years or so as it is now? The primary challenge for the maker of Fat Tire is one of brand identity. The company is employee-owned and many of these hard-working, long-standing employees would become very rich after such a deal, so if the founder is tired, a deal will most likely get done. However, the hop-soaked idea of being part of a large corporate entity might be too bitter for New Belgium drinkers to swallow. After all, a good beer balances hops with the sweetness of malt, and most discerning drinkers aren't fond of beer that is too bitter. So instead of a major beer player stepping in, look instead for a private equity firm to make a huge investment so that the company can pay off investors, remain independent, and reinforce its brand integrity. Wouldn't that be better than being part of Bud's growing Empire of small-batch suds and possibly destroying hard-fought-for brand equity? In an industry where everyone is pretty much making the same stuff, it is the brand that matters the most.