• Otto Will Be Your Server

    Much like the transportation industry with the advent of Uber and the specter of driver-less cars, the hospitality industry is almost certainly in the throes of a major shift caused by changes in the technological environment. Simply put, service technology is rapidly becoming cheaper than actual service workers, and with the regulatory environment favoring minimum wage increases, mandatory family leave, and changes to how companies have to pay overtime, the age of Otto The Automatic Server might be upon us faster than we think.

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    Restaurants operate on very thin margins, and labor comprises about 30% of total costs on average. This means that any increase in labor cost forces the business owner to make some tough decisions. In previous posts, we have seen that some of these shortcuts involve liberties with the truth in terms of what is really "farm-to-table" or whether not that $25 piece of fish you are eating is really red snapper. But misrepresentations such as these do not make for good long-term marketing strategy, and so marketers must find ways to reduce costs without lying and without negatively affecting the customer's experience by making more obvious changes to the product like reducing portions or food quality. Eliminating staff without somehow compensating for the lack of service presence has always been just out of reach for restaurants, but it looks like this is all beginning to change.

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    Table-side tablets have been in the early adoption phase for several years now with a few brave casual chains, such as Chili's and Red Robin, leading the way. For the most part, customers enjoy the empowerment of ordering and paying when they want to rather than when the server is ready, and so it appears that customers aren't going to be much of a barrier when it comes to the industry adopting this technology on a broader scale. In fact, tables will be turned much faster under this new reality, which should help the bottom line. Much like ATM's and airport kiosks before it, this service technology will probably eliminate a great number of server positions over the next decade or so, and will almost certainly find its way into other areas of restaurant operations. And what's good for both consumers and the businesses that serve them will surely be put into motion by the industry as a whole.

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    The hospitality industry is ripe for a heavy dose of "creative destruction", and there will be need for quite a bit of re-training in that sector. The future, it seems to me, features a "Siri-like" virtual server employed in most restaurant formats, with all of the benefits of having a human around and none of the human financial (and emotional) baggage. And tipping will largely become a thing of the past as higher wages translate into higher food prices and gratuity as a means of employee compensation is eventually phased out. Thus the days of a mediocre server making upwards of $50k a year are probably on the wane. The technology is available and getting cheaper, and labor is rapidly getting more difficult to manage and more expensive.  The future is arriving. It's only a matter of how quickly this future transforms an entire industry.

  • Re-Branding Communism

    In what can only be described as an unlikely meeting of past and present, Russia's Communist Party has decided to re-brand in order to attract young, Russian Millennials in the face of an upcoming election. To be sure, Russia is not a democracy, as the parties are tightly controlled by Vladimir Putin's party and often feature "bogies" from weak opposition parties who are planted to fill out ballots. Please don't be fooled at some of the "elections" being held around the world, particularly in places like China and Venezuela, since the winners in these contests have already been predetermined in many cases. Phony republics and democracies, whose citizens do not enjoy many freedoms, are everywhere. So here is where it gets weird.

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    The Communist Party in Russia is not the favored party at present, although it still stands for the same ideals, state spending and controls as well as state ownership of private property. How does a marketer make that sound cool, especially in the face of communism's utterly failed history as an economic and social model? The good news for the party is that younger voters in Russia, just like in the U.S., have virtually no memory of the failures (or even the successes) of the past and are thus more likely to buy into a re-branding effort. This is why having the wisdom of age can be a huge advantage when faced with the need to think critically, and this is also where the Marketers of Marxism come in.

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    To be fair, that's what I like to call them; but for all of the weirdness in selling a system of government that has failed in every way, I have to admire the effort they are making. The communist brand is a shrinking vestige of days gone by and current party voters tend to be old enough to be nostalgic for the past as old people often are, and so a rejuvenation of its image is in motion. Party literature, for example, features Joseph Stalin (a mass murder of the first order) smoking an e-cigarette and telling readers to "Transform yourselves, comrades!" Lenin, another former ruler and brutal dictator, is shown with a laptop in an image declaring "There is such a party". And a leather-jacket wearing Karl Marx, the one who started this whole communism thing in the first place, pledges that he will indeed "Be Back!". Just like Arnold. Wow.

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    All of this would be remarkable if the memories of the Soviet Union weren't still so fresh among so many around the world. No religion. No private property. No private business. No freedom of movement. No freedom of speech or assembly. Symbols of American capitalism such as designer leather jackets and laptops would have been strictly prohibited. You get the picture. And Russia is in fact still very much a communist country in many ways, but it has embraced some free market reforms over the past few decades. It is not a member of the World Trade Organization, for example, which should be rather telling.

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    So how can voters be expected to buy into a product that has failed so many for so long? With some recent approval ratings of over 90%, Mr. Putin doesn't have much to worry about, as he has convinced most citizens that the current moribund state of the economy is the fault of Americans and other capitalists even as he embraces some capitalist ideologies. But information (and most everything else) is still tightly controlled by the state in countries such as China, Venezuela, North Korea, Cuba, and even Russia; and so political marketing campaigns like this one might be especially effective in targeting naive, young voters who have no memory of, or interest in, the past. The ad images are intended to be humorous, and they are indeed, if you don't remember the Cold War or for some reason you long for the good old days of Soviet repression. For the rest of us, especially in the face of the hero worship of Bernie Sanders who somehow became hip and happens to proudly hold a number of Marxist notions, for many middle-aged and older adults, this is nothing short of alarming. It's a very good thing that, if you are allowed to read this, you have the freedom to look beyond the marketing and figure it all out for yourself.

  • Doubting The Digital Dogma

    The first major scandal to hit the world of digital advertising is now in full swing, as reports that Facebook exaggerated by up to 80% the average amount of time that people spend watching video ads on its platform sends ripples across this fast-growing advertising medium. And what began as a complaint by key account Toyota that its digital ads were not having the impact the company had been promised, caused a Japanese advertising giant to admit that it had overcharged 111 clients for internet ads. On top of that are allegations that the industry routinely accepts rebates from media placement companies without telling clients. I believe these are called "kickbacks" where I come from. 

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    All of this is compounded by what the Wall Street Journal called " a nagging sense for marketers that digital advertising--for all its promise as a way to reach consumers who are tethered to mobile devices and are spending less time on traditional media--has real pitfalls and risks". Well, you don't say. All marketing activities have myriad pitfalls and risks, and it appears that one of the many major issues facing digital advertising surrounds the lack of third-party verification for claims made by the major players such as Facebook. The lack of transparency and credible measurement, among many other issues, may cause an increasing number of marketers to take pause.

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    Fears that advertisers are wasting billions of dollars advertising on placements that cannot be seen by the human eye and/or sites frequented by bots, or computer generated phony traffic will have to be addressed by the industry as a whole, and you can expect this to be a major topic during Advertising Week, held in New York City in a few days. After all, a $194 billion digital ad market that is expected to rapidly grow in size over the next several years must deliver on its promises or face a possible exodus of its clients back to more traditional, more transparent advertising tactics.

  • Digital for the Debates

    With the first presidential debate only days away, advertisers who wish to "market through politics" and place ads during the contest are faced with limited options. The broadcast could top the 67 million viewers who watched the first Obama/Romney debate, but there is one problem. There are no commercial breaks.

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    Unlike the case with soccer, a sport with a similar challenge of no commercial interruptions, we won't likely see product placements, jersey advertising, or sponsored content beamed digitally across our screens during the question-and-answer event. Rather, advertising during the broadcast will instead be online. Digital ads are priced auction-style and marketers are able to target based on demographic and geographic characteristics rather easily, and so this form of advertising can be very attractive in any instance. Target marketing is a good thing. So premium spots in online news feeds or on search engines could fetch a pretty penny as advertisers make a rather safe bet that people will incessantly check their mobile devices during the event. Twitter's head of political advertising, for example, recommends that "advertisers spend upwards of six figures" on Twitter ads, but of course she is somewhat self-interested in this instance. The debate will run up against an NFL game, which is never a good idea, but the sheer morbid curiosity of the American public should nonetheless provide an acceptable level of viewership required by advertisers. Many folks will simply multi-task. Digital advertisers will be counting on it.

  • Sam-Strung

    After several years of increasing its market share and "sticking it to the man" (Apple), Samsung is experiencing some major challenges. And the company has no one to blame but itself. The saga of the exploding Galaxy Note 7 phone continues, and the devices have been officially recalled by the U.S. government after a series of high profile voluntary recalls by the company involving the phone's lithium ion batteries, which are now found in lots of different gadgets these days. The recall affects about 97% of the phones sold in the U.S., and the damage to the brand could approach Chipotle-esque proportions as consumers struggle to get them replaced. And far too many of these dissatisfied customers might instead opt for the refund and switch to another brand rather than deal with the logistics of replacing such a necessary device on a global level.

    The company had announced in August that it intended to delay shipments of the new products amidst a smattering of reports of explosions by the Korean media, but decided to introduce the product in the U.S. market anyway. So the company knew that there was a problem, failed to inform the U.S. Consumer Product Safety Commission, and decided to take matters into their own hands, among other sins. Meanwhile, Apple's unremarkable iPhone 7 has been selling rather well, and the momentum Samsung has garnered over the past few years might be reversed as a result of this situation. Samsung hasn't developed the loyal following that Apple has nurtured over the decades, and so its consumers might not be as forgiving as Apple customers might be in the face of such a recall. Indeed the company could experience a mass defection of its consumer base depending on how long it takes to get new phones into the supply chain. And have Samsung marketers made any assurances that the replacement phones won't catch fire? Not yet. These lithium batteries are becoming a huge public safety issue and probably won't be around at all once the industry finally develops a new technology, and so consumers know that these sorts of things can happen with a number of devices. But a total recall is highly disruptive, and thus far Samsung's response has been anemic at best. Despite its market leadership, it could take a while for the Korean tech giant to recover from this one.

  • For Mature Audiences, Mostly

    In the face of a record number of box office failures and amidst an unusual number of wildly successful films of highly questionable quality, the movie industry seems to be facing some challenges here in the U.S. Many films are now lifted by revenues from foreign markets as overall theater patronage has been flat for a decade or more, and the vast majority of successful films in the U.S. are now sequels and spin-offs. Most of the rest are based on books or are re-adaptations of previous efforts. Original screenplays beyond the fragmented, low budget Indie circuit are now very few and far between. Lots of bad movies open to very large audiences, but are overwhelmed by negative word-of-mouth spread via social and traditional media. Fictional superheroes have become ubiquitous. Maybe what the industry needs now is a real hero. Is Captain Sully still available?

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    Indeed he is, but don't expect huge box office returns. Tom Hanks, a favorite among the well-heeled, over-40 crowd, plays the heroic airline pilot who saved all of those lives by landing his airline in the Hudson River a few years back; and the film is directed by Clint Eastwood, another favorite of many in the older demographic. "Sully" opened to a relatively meager $35 million compared with what some other movies have generated in their first weekend, but did surpass estimates by about $10 million. It's easy to overachieve when expectations are low in the first place. One of the interesting things in this case is that 80% of the people who saw the film were over the age of 35, that is middle-aged adults. And since there aren't too many crazy action scenes or any superheroes involved, don't expect the film to do too terribly well in international markets.

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    Older consumers like movies too, but apparently not as much as younger consumers. "Sully" cost $60 million to produce and was the first ever to be shot entirely with IMAX cameras, so there may be some pretty cool shots after all, and of course Mr. Hanks makes everyone around him better. But all of this reminds me that the real money in movies does not lie in the kind of sophisticated drama embodied in Sully, but in the ever-escalating need for movies to "one up" one another (and themselves) with ever-increasing levels of weirdness. And after the wild success of Suicide Squad, I think many agree it is getting weird indeed. But if this is the current Zeitgeist, then so be it. Marketers of mainstream movies, who seek to maximize profits, must make what mainstream consumers want to see. Makers of movies for the sake of art might make a little bit of money appealing to a niche audience, but most of these films lack the budget necessary to product the level of excitement desired by contemporary, increasingly international audiences. One might see a sophisticated drama in a local Indie theater, but it probably won't be exciting enough for mass appeal.

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    This is why it is not terribly surprising that a film that seems to offer sophistication and action didn't do better in its first weekend. And it underscores what marketers have known all along, which is that the demographic coveted by producers of most entertainment content is the under 35 young adult market segment. They might not make a lot of money, but they have always been very good at spending what they do have. Mainstream movies are therefore primarily made for the young adult as well as the small children of older adults. The rest of us must be content with Indie films (yuck) and the occasional smattering of "Sully's" to supplement a steady diet of mainstream sequels, re-boots, and increasingly outlandish new ideas. It's like junk food. The good news is that, despite the flat attendance over the years, there are still lots and lots of choices out there so high quality movies can still be found; and there is still no substitute for seeing something on the Big Screen. 

  • How Much Sales Promotion Is Too Much Sales Promotion?

    How much is too much? This is a question that marketers are beginning to ask in a restaurant industry that seems increasingly dependent on offering short-term, value-adding incentives for consumers, what marketers know as "sales promotion". Over-reliance on such tactics makes many consumers less willing to pay full price down the road, and so engaging in too much of the practice dilutes the purpose of a sales promotion in the first place. Suspicious consumers might even believe that marketers are building these promotions into the price in the first place, which certainly isn't a good thing. Sales promotions can be a very effective tactic for attracting new customers; but some sales promotions, like rewards programs, are geared towards rewarding existing, loyal customers, since they like deals too.

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    So it was no surprise that Olive Garden, home of the endless bread sticks and But One, Take One Back promotions, announced that they were making an even larger commitment to what has arguably been its most extreme sales promotion of all, The Unlimited Pasta Pass. Yes, an all-you-can-eat pasta promotion seems somewhat ill-advised especially in an age of increasing obesity rates and a backlash against gluten-containing foods, but for Olive Garden, this is the nature of its product mix at present, and so marketers will try to make the best of it. And Olive Garden certainly loves its sales promotions.

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    The deal, offered in some form over the past seven years, lets customers pay $100 to eat as much Olive Garden pasta as they want for seven weeks; but the offer is for one day and one day only. And that day was yesterday. This promotion obviously won't break the bank at Olive Garden since limiting both the time frame and inventory is simply smart marketing. And there certainly is an element of free publicity being generated here since many mainstream news outlets have covered the story. Olive Garden upped the number of passes it sold tenfold, from 2,000 to 22,000 and so the promotion must have been somewhat successful in the past. But marketers must take great care to avoid an over-reliance on sales promotions to attract new customers and keep loyal customers happy. Marketers do seem to be stretching the boundaries. Let's see what happens.

  • Courting Los Angeles

    The Rams are back in Los Angeles. And unlike the NHL's New Jersey Devils, which opted to develop its creative strategy for its advertising in-house, the Los Angeles Rams have decided to go with one of the NFL's preferred professional agency vendors, Art Machine. The Devils already have good attendance and a loyal fan base, yet the Rams have returned to the huge and under-served LA football market and must develop a base of new fans as well as lure back the fans of old, some of whom are probably still rather peeved at the Rams' exit in the early 1990's and will be more difficult to persuade. Others? Not so much.

    The road to regaining affinity for the team in the LA market will be a long one, especially considering how awful the team is at present. Three weeks ago the Rams debuted its first marketing campaign in the new market, an effort appropriately named, "We're Home". Like the Devils campaign analyzed in a previous post, the advertising will feature multiple players appearing around the region. But unlike New Jersey's NHL team, which opted to focus on internet advertising, social media and radio, Rams marketers have instead chosen outdoor signage with ads appearing on more than 100 billboards, buses, trains, aircraft, and transit hubs around the region. An "old school" approach for certain.

    The first season is a sellout, which is quite a feat for the immense LA Coliseum but still not much of a surprise, yet the novelty of the team will soon wear off, especially if it continues its poor on-field performance. The Rams, like every other sports property, must focus on building relationships with its new fan base, and in many cases renewing relationships that lapsed after the team moved to St. Louis over 20 years ago. The ads feature three players, with second-year sensation running back Todd Gurley appearing to hurdle a beach boardwalk and wide out Austin diving between skyscrapers to catch a pass. The campaign is simple and straightforward and will almost surely be followed up by a multi-media, integrated marketing communications effort designed to develop one-to-one relationships with customers. But first, marketers will assess the results of this initial effort. For NFL fans in LA, and there are a lot of them, this is a very exciting time indeed.

  • Uniting New Jersey

    Building relationships with consumers is a cornerstone of marketing strategy. Even in New Jersey. All kidding aside, Sport marketers know that they often enjoy what is known as an "affinity advantage" over marketers of the more mundane goods that we purchase every day. Unlike other categories of goods and services, spectator sports can keep customers even if the product fails to meet expectations. This is how we can explain the continued existence of the Chicago Cubs and Cleveland Browns, whose records of futility are both well-known and well-documented.

    But this doesn't mean that marketers of spectator sports can be lazy, and teams sometimes opt move to other cities, leaving behind a fan base that has surely dwindled from its historic peak. Indeed this is the manner by which the NHL's New Jersey Devils came into existence, having unceremoniously abandoned Denver in the early 1980's, and even 30 years later, the franchise is still working on building long-term relationships with the region it serves. Marketing never stops.

    Introducing "One Jersey", a marketing campaign launched in previous weeks designed to "bring to life the pride, passion and power of Jersey as one", according to the Devils' Chief Marketing Officer. The integrated marketing communications campaign spans across multiple media including digital, social, and radio as well as experiential "activations" across the state like a Devils' beach party on the Jersey shore. The team clearly wants to exploit the fact that it is the only one of the four professional sport properties that play in the state who identifies itself as from the whole state, but has said that it doesn't want to prove that it is "more Jersey" than any other team. Nevertheless, being "more Jersey" might not be such a bad idea in a state that prides itself as being distinctly separate from New York and the rest of the Northeast, and the campaign features key players appearing and engaging with season ticket holders as well as beloved, non-controversial members of the community such as firefighters. This move is likely to reinforce the team's "Jersey-ness" without calling out other teams as failing to be "Jersey enough".

    Whatever the logic behind the strategy, it certainly makes sense to include the entire state as part of the creative content. Interestingly, rather than using a professional agency to develop the campaign, the team came up with the creative in-house and only worked with agencies on specific elements such as video production. Hopefully for the Devils, this money-saving move won't adversely affect the quality of the advertising effort too greatly, as agencies do tend to produce a higher quality end-product than can be produced by teams using existing in-house talent. But since the team isn't struggling with attendance at present, the objectives that marketers are trying to achieve are likely within areas that are a little more difficult to measure such as brand attitudes, and team marketers have room to experiment a bit. The objectives have been set, the plan is being implemented, and soon marketers must evaluate the process in order to see whether or not measurable objectives have been achieved. This part of the marketing process, even for affinity-driven sport properties, is always the same

  • Rovio's Angry Marketers

    Finnish game-maker Rovio hit the ball right out of the stadium with it's smash global sensation, Angry Birds, and the entire franchise (including a movie) is still doing fairly well. But Rovio doesn't want to be a "one hit wonder", and quite frankly the rather expansive Finnish social system, which is heavily reliant on taxes from a relative few "wealth creators" in the private sector, also needs another hot global product to provide revenue to support the system. And if Rovio wants to avoid the fate of Nokia, a formerly popular global brand and source of Finnish pride that ultimately failed due to lack of innovation, at least one successful new product introduction will be necessary.

    Unfortunately, the company's biggest accomplishment since the introduction of Angry Birds has been the Angry Birds 2 game, which isn't a very good indicator that the company will be able to sufficiently innovate going forward. But it's hard to develop a successful new product. Many estimates place the chances of a product being removed from the market within five years at between 80-90%, and indeed Rovio worked on more than 50 games before Angry Birds became a hit, rising to industry prominence in 2009. And since then Rovio has released more than a dozen games featuring characters from the original game in an attempt to milk the "franchise" for all it is worth. But one can only go to the proverbial well so many times during a drought before it runs dry, and so innovate it must, which is probably what Yoda would say if he were a marketer instead of a Jedi-politician.

    Rovio has fairly large expectations for itself, aspiring to become a full-service entertainment brand along the lines of Disney; but remember that Disney has had many successful products over the last 100 years and has not built its global brand solely on the backs of Mickey, Donald, Pluto, and other original characters. It continues to innovate. Rovio? Not so far.

    Expect there to be a second Angry Birds movie, as interest in the birds is still sufficient so as to provide opportunity to make some money, but the brand's equity has faded, the company is in the midst of layoffs, and it is in desperate need of help. Perhaps convincing some of the talent at Disney to jump ship and move to the land of pickled herring and free healthcare located on Russia's northwestern border might work, but perhaps it might be better for the marketers at Rovio to lower their expectations a tad instead. Or maybe a lot. It's enough to make any marketer a bit angry, but one must walk before learning to run, and one successful product does not a legacy make (Yoda again). Let's see if the Finns can pull it off.

  • The Maturation of Craft Beer

    Well, it is finally official. After more than 30 years of unchecked growth, the craft beer segment of the beverage industry is finally in the mature stage of the Product Life Cycle. It might be hard to believe judging from the sheer volume of craft breweries in existence these days, but the segment actually peaked at 20% annual growth back in 2013, has been slowing ever since. The industry now sits at less than 5% growth projected for 2016, which is still a healthy rate providing that there aren't too many players in the industry. This slowing growth, along with the consolidation caused by major global companies such as InBev and Molson Coors buying some of the the largest craft players, is what makes a mature market "mature".

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    Granted, the craft (less than 6 million barrels annual production) segment now represents almost 15% of the total beer industry, which is up from 6% in 2009, but market share and market growth are two different things. And with thousands of existing craft breweries already on the market and hundreds more in the concept phase, the industry is becoming prohibitively hyper-competitive. In other words, entering a slowing industry with lots of competition is not the most attractive of options, but that inconvenient truth is unlikely to stop the legions of passionate brewers who have yet to open the microbrewery of their dreams.

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    The problem? Many of these new ventures will likely fail to gain traction as the market is already showing signs of saturation with too many beer brands for too few drinkers. A growth rate of less than 5% per year isn't sufficient to provide opportunities for everyone, and it is certain that in such an environment, some of the breweries that are currently struggling will soon close up shop. Shelf space in liquor stores as well as tap handles at non-brewery restaurants and bars are limited in quantity, and some of the more progressive brewers have abandoned efforts to gain distribution and instead are focusing on neighborhood  tap rooms. This is what I like to call "micro marketing", and for most craft brewers this represents an entirely new business model. As is the case with regard to most maturing industries, only the strong shall survive.