• A Retail Role Reversal

    The retail environment is tough, and it's getting tougher each day. Revenues continue to migrate online, and many large retailers have plans to scale back their physical operations by as much as 20% over the next decade. Target and Walmart are probably the two most prolific brick-and-mortar general merchandise retailers in the U.S., and so one might expect that marketers at one company tend to observe very closely the strategies and tactics employed by marketers at the other company. And sometimes things can get a little strange.

    For example, this holiday season, the two giants are reversing roles. After decades of positioning on lower prices and greater value, Walmart marketers now want to be known for top notch customer service, a benefit generally expected from higher end retailers. And oddly enough, Target is focusing on sales promotions such as price off deals and the value that these tactics help create. The stores essentially carry the same products and so this dynamic might have some side effects.

    An obvious side effect of this is consumer confusion. Brand attitudes have been shaped over many decades, and this "brand convergence" will almost certainly result in much of the population seeing very little difference between the two retailers. Obviously this will take some time as attitudes take time to change, but it is certain that Walmart will have to improve its customer experience to attract a higher end shopper, and Target will have to lower its price points or engage in more sales promotion to remain competitive with Walmart. The real enemy here is Amazon, a company that can offer lower prices due to its lack of brick-and-mortar infrastructure, and it seems that both Walmart and Target are aware of this new reality and are taking strategic measures to address it. If all of this continues, it won't be long before consumers see very little difference between the two retailers.

  • The Candy Corn Craze

    Candy corn is one of the hottest confections around during this and every Halloween, and it's not just the classic orange, white, and yellow triangles (the colors represent the a corn kernal's tip cap, endosprem, and pericarp) coloring the candy aisles this year, but also a sizable number of candy corn-flavored confections. Indeed "candy corn", which was initially called "buttercream" or "chickenfeed", has now become a flavor ingredient in its own right.

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    If you don't like the waxy texture of the candy itself, it's a good thing for you that Candy Corn Oreos, Candy Corn M&M's, Hershey's Candy Corn Bars, and a host of other flavored products now join the original candy corn, a product invented in the 1880's, on the shelves this Halloween. No one owns the rights to candy corn, so food chemists are free to add whatever artificial flavor they prefer to the required corn syrup and sugar combination and call it "candy corn". But there is much general agreement among Americans in particular on what candy corn should taste like--and that is candy corn. Much like "bubble gum", "birthday cake", and "cotton candy", candy corn has its own signature taste that we all agree upon and so chemists must be sure to deliver on that expectation. Focus groups with a taste survey component can be very useful in such instances.

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    Contemporary tastes have changed dramatically since the days when bbq, nacho cheese, sour cream and onion, and cool ranch flavors were enough to satisfy the palettes of the average American snacker. Variety-seeking behavior has never been more prevalent, and we now live in an age of chicken and waffles-flavored potato chips, and so candy corn-flavored marshmallow peeps and candy corn-flavored popcorn, products that are selling rather briskly at present, don't sound quite so far fetched in comparison. Perhaps the cultural pendulum will eventually swing back towards simplicity, but for now Americans want lots of flavors, and candy corn is the latest craze. Enjoy it while it lasts!

  • The Inevitably of Las Vegas

    On the heels of the grand opening of the highly-touted Las Vegas T-Mobile Arena and with the announcement that the National Hockey League is sending an expansion team to play in that facility, the NFL's Oakland Raiders are once again threatening to move away, and the team has set its sights on Sin City. The concerns about gambling, which were largely unfounded anyway, expired when the NHL made its announcement, and so it looks like even an NBA team isn't out of the question. The league has been playing it's summer league there for several years now after all. What's driving this move to the desert?

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    Well it isn't the heat or the 40th largest market in the country that's attractive, but rather more important might be the fact that there are hundreds of thousands of visitors to Las Vegas each day, and many of them are from regions of great interest to marketers of professional spectator sports who want to grow their audiences beyond the friendly confines of the United States. And that includes just about everybody at this point, by the way. Indeed, with viewership and attendance of most events at levels that look a whole lot like the beginning of the "Decline" stage of the Product Life Cycle, global expansion might be just the cure for slower growth or outright contraction. An NFL expansion to London in the not-too-distant future seems inevitable (but a vote must pass a 3/4 majority of owners nonetheless), and a Raider move to Vegas (also needing a 3/4 majority owner vote) would allow the NFL to access a global audience right here at home. Just like Miami! And these folks have demonstrated a propensity to spend money on all sorts of activities other than gambling. What could be better for the league?

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    Nevertheless, the NFL is talking to Oakland's mayor among other parties interested in forcing the Raiders to stay in the East Bay, but this would require a new stadium funded by a combination of private equity, public money and perhaps league subsidies. This would be a hard sell in Oakland or anywhere in California for that matter. The soon-to-be built LA Rams stadium is 100% privately funded by Stan Kroekne. But, when the 49ers moved to San Jose, it left a huge swath of under-served market on the north side of the Bay Area, and it would be in the NFL's best interest to address that market.

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    Cynics point out that the league left Los Angeles open for almost two decades for no apparent reason whatsoever, and the cynics, as usual, are correct. But the Rams are back. Perhaps some other struggling franchise like Tampa Bay or Jacksonville (probably going to London soon) could move to the North Bay in the future, and maybe it would be best to allow the Raiders to pursue a life-long ambition of utterly living out its questionable reputation. Just like Hank Williams! They don't even need to change the uniforms. There are already plenty of pirates in Vegas, especially in the Fremont area, and the Raider players, staff, and their fans would blend right in, especially on Fremont. Las Vegas and the Raiders would be a match made in...well...Las Vegas. 

  • Whole Foods for Low Incomes?

    Indeed this is exactly what Whole Foods Markets is doing. But when the high-end retailer of natural and organic products committed to building locations in low income areas six years ago, the balance sheet was rather more robust than it is at present, as the grocer struggles to attract penny-pinching Millennials and compete with retailers who offer the same products at much lower price points. Things aren't going very well for the retailer at present, but it has made a foray into smaller format stores that feature a large mix of its higher margin, 365 store-brand products. This means that marketers can offer lower prices at these 365 By Whole Foods locations, and this is certainly a good thing for a brand often known as "whole paycheck". It is unclear how these stores are doing so far, but the concept does seem sound.

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    But operating profitable Whole Foods Markets locations in low income areas of cities like Detroit and New Orleans might be another story altogether. While it is a nice thing to offer low income areas increased access to higher quality products, does it make sense to place a high-end specialty store in a low income area? Surely there will be some local and regional products offered and margins could be lowered for this effort, but large retailers operate under standardized "planograms", so the majority of products will have to be the same ones offered at other traditional Whole Foods Markets locations, and the company can't afford to squeeze its margins too much. It will suffice to say that the stuff will still be pricey.

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    It probably would have been smarter to open 365 by Whole Foods formatted stores instead, but I'm not sure that the idea even existed six years ago when the initial deals were struck. And if it did exist, it was probably in its infancy. Another store is planned for Newark, NJ, in another low income area, so we will soon see if this concept has any legs. Certainly marketers hope to gain some positive publicity from this strategy as the company tries to reshape its snooty image; and it remains to be seen whether or not ultra-premium stores can actually flourish in low income areas. It sure doesn't sound like a great idea, but one never knows unless one tries, and Whole Foods knows that it ultimately needs to do something dramatic with its moribund traditional format store. What does it have to lose? Perhaps marketers will be testing some interesting new concepts at these locations. Stay tuned.

  • So Far, No Good

    When the National Basketball Association's front office announced that it would allow individual franchises to sell a 2.5 square inch patch worth of ad space on in-game jerseys, purists cried foul and insisted that a "slippery slope" would soon lead to more prominent sponsor placements. Of course this may eventually happen, but so far the NBA's jersey ads have been a rather tough sell.

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    The sponsorship marketplace is awash with opportunities for branded products to use spectator sport to reach potential and existing customers alike. And as these opportunities increase, there is bound to be a saturation level. Perhaps the sponsorship market is getting a bit overloaded.

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    The patches won't be seen until the 2017-2018 season, but there has been only one patch sold thus far and original estimates as to how much revenue will be generated are now being seen by many experts as inflated. It is unclear how much effort teams are making at this point in time, but some have likened the situation to having 30 naming-rights deals come onto the market at the same time. In other words, it will all shake out soon, and most teams will make plenty of money. My money is on the latter scenario since live sports remains one of the best ways to advertise, but it is likely that most teams won't make as much money as they thought they would. At lower price points, however, many more brands might jump at the chance to be associated with a major sports property. The next year will reveal much about this emerging industry trend.

  • Under Armour, Overextending

    Under Armour, Nike, and other competitors in the sport athletic apparel category have budgeted over $1 billion towards providing apparel for collegiate athletic programs across the U.S. over the past few years. These mega deals are necessary in order to secure the rights to make the goods and are now contracted for much longer periods of time than in previous years, some of them for as long as 15 years; but these deals are also beginning to squeeze profits. Under Armour in particular has been hit rather hard with these long-term, big money, sport industry marketing commitments, and the company has now backed off from the earlier aggressive growth projections it has made, at least in the short term.

    In addition to the longer-term commitments (now similar to venue-naming rights arrangements that consumer brands and facilities engage in), "escalation in the price" has also been cited by Under Armour in particular as a reason why company results might not be as anticipated. A $250 million, 15-year sponsorship deal with UCLA was recently inked and joins the likes of Wisconsin, Maryland, Auburn, Yale, Notre Dame, and other universities, all of which are now Under Armour partners. And all of these deals have been done within the past two years.

    Tying up dollars that might be spent otherwise in this manner is something that venue-naming rights sponsors struggle with all of the time. Committing that much money towards an always uncertain future is a risky proposition, and the companies that do this sort of this must be large enough and strong enough to be able to absorb any problems that may arise, such an economic recession. Sports Authority discovered this the hard way. These naming rights deals are now almost always 20-plus years in duration, and it looks like the apparel sponsorship business is following in these footsteps at least to some degree. But the obviously problem with this is that there are only a handful of apparel companies for apparel deals while there are thousands of potential naming-rights sponsors out there. Thus, the status quo is simply unsustainable. How many deals can Nike, Adidas, Under Armor, and a handful of other players handle? Count the number of eligible sport properties out there among all of the leagues (professional and amateur) as well as individual players, and you may have your answer.

  • Thin Mints, Fat Revenues

    One of the great things about Girl Scout cookies is the fact that they only come around once a year. And so pent up consumer demand for the cookies combined with a huge annual marketing push and the sheer excitement that only legions of young girls can generate, creates a nice way for the troops to raise money for organizational operations. And supporting the effort has become a part of "Americana".

    This is why it is interesting that the Girl Scout Council has decided to take the venerable program a few steps further in an effort to generate more funds by extending the brand a bit. Enter General Mills, a large player in a breakfast cereal industry that has been struggling with declining sales over the past several years and therefore has revenue generation needs of its own. And really, who doesn't? And so together the two entities have created a small line of Girl Scout's branded breakfast cereal in what is most likely a licensing arrangement. Just add milk and let the revenues flow.

    The product line, which will consist of both Thin Mint and Caramel Crunch flavors, will be available for a limited time only during the month of January. And General Mills, for it's part, isn't exactly new to this sort of thing. Last year, marketers introduced limited-time Star Wars-themed boxes of four of it's popular cereals, and marketers also teamed up with a craft brewery to create a Wheaties-inspired wheat beer. You can't blame these folks for trying! This is the first ever Girl Scout cereal and if it's successful, there is no reason to think that we won't be seeing more of this thing from both General Mills and its competitors in the future. Licensing deals like these can be very lucrative for both parties as manufacturers capitalize on the brand equity built up by licensees over many years. For the Girl Scouts, the awareness/publicity generated by this launch as well as the revenue from licensing fees should be a very positive development indeed, barring any problems with the product itself. For General Mills, the stakes are high and the battle for breakfast continues.

  • Disney Licensing Juices Hasbro

    The toy industry is pretty competitive. And that's why licensing deals like the one that toy giant Hasbro has with Disney are so crucial to the survival of manufacturers and retailers alike in this sector. Licensing helps manufacturers sell more stuff, since consumers are often more likely to buy a toy with a movie, book or TV tie-in than toys without such branding. And the makers of movies and other content aren't usually very keen to get into the manufacturing business. It's a win-win for both the licensor and the licensee. This equally true for professional and college athletics and any other intellectual property that can be licensed effectively. The franchising of retail brands like Smashburger and Subway is also a form of licensing, since many of these locations are independently owned. Licensing is everywhere, and some arrangements can be very interesting indeed.

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    The Hasbro/Disney relationship has been especially profitable resulting in a 14% quarterly revenue jump largely attributed to high velocity from toys anchored to the studio's Frozen and Star Wars brands, and that is no small potatoes for a company that generated about $1.6 billion in revenue during that period. Almost 60% of the growth comes from the company's "girl's portfolio" (Frozen princess dolls and toys are an example), and although the boy's category is growing too, it is not growing as fast as that of the girls, and this could be a concern for marketers going forward. What will be truly interesting is when rival Mattel, the company that previously held the Disney rights, releases its earnings report today. A large disparity between the two bitter rivals would truly illustrate the tremendous marketing power of licensing agreements. Let's see what happens.

  • Taking The Paper Out Of The News

    Newspapers are losing advertisers, and perhaps to the vast majority of people, this is not much in the way of news. Yet it's not the "news" part of the equation that is rapidly dwindling away, but rather the "paper" part of it. Advertisers have been migrating to digital versions of newspapers and away from paper versions since the medium's revenue peak of around $90 billion annually just before the Great Recession, an event with repercussions that still resonate across the world. And all of this, as one might expect, has forced a complete restructuring of how news is gathered and delivered, a very good example of what has been termed "creative destruction". The old model is being destroyed (creatively) and replaced by a new paradigm.

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    Even digital newsrooms are cutting staff as too many news outlets chase too few eyeballs. Although there are very few "two newspaper cities" in this country these days, there is still one for every city, and most places still have a daily and one or more weeklies. But print ad revenue is expected to drop below $50 billion by the end of 2017, and so these days may soon be coming to an end. My local daily newspaper, The Denver Post, over the past few years has offered almost all of its longest-tenured journalists early retirement packages and has replaced this content with licensed material from the Associated Press, the Washington Post, Bloomberg, and other sources. The quality has dropped immensely. The local news is getting sparse and the sports coverage spotty. The journalists are very young and the writing lacks the quality that only experience can deliver. It's noticeable. Meanwhile prices of daily editions have gone from fifty cents a copy to two bucks in only 15 years, while it costs over $300 a year to get it delivered at home. How long can this go on before there are mass cancellations? Even The Wall Street Journal, one of the few publications that enjoys a robust readership base that is still growing, has announced it will soon make major changes to its print format due to plummeting advertising revenues. 

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    How much longer before the news we consume is almost completely digital? is anyone concerned about our news becoming too centralized and homogenized and therefore too easy to censor and control? People used to be concerned about such things. Are they now? In the future, will people still purchase news, or will it be an entirely advertising- and consumer tracking data-driven product? remember that nothing is free, even online news. Or will the print segment continue to plummet as it has for the past eight years or will it soon reach a point where it will settle into a slowly declining, more niche-type product? These are interesting questions for interesting times in the world of media.

  • Feasting On Samsung's Share

    The saga of the incredible exploding batteries has finally ended, and not for any reasons that might please the marketers at Samsung. After the replacement products also demonstrated the uncanny propensity to burst into flames, Samsung was forced to pull the plug on the entire Galaxy Note 7 product. No replacements will be available until the next product iteration comes out, and who knows how long that will take. Aside from billions in lost revenue and profits, what does this mean for the Korean conglomerate?

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    Samsung long ago passed Apple as the world's top provider of smartphones with a 22% market share at the time of the publicity disaster, and it will almost surely lose much of that ground as most Samsung users simply switch brands rather than wait it out. And, of course, there is the matter of rebuilding trust in the marketplace, which will be a major challenge, and also a number of lawsuits. The brand will suffer immensely. But it might not just be Apple (currently at 13% share) grabbing the newly-available market share; companies such as Huawei (9%), Oppo (5.5%), Lenovo (4%), Xiaomi (4%) and Vivo (3.5%) also stand to gain from Samsung's misfortune. And the wild card in all of this is Google.

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    Google's Android operating system now powers more than 80% of the smartphones across the world including almost all of Samsung's (and of course none of Apple's), but Google itself, content with being on the supply side of the equation, has not entered the handset market. Until now, that is. Just at the time that the Samsung brand has been completely devastated by these recent events, Google is about to introduce a smartphone of its own. Timing is everything. What will this mean for the existing Android system that Google currently gives away for free? Will this supply chain dynamic change? Will the new Google phones feature some system differences? How much market share will Samsung ultimately lose? Will Apple gain it's leadership position, or will it be another player that takes the lead in this important consumer product category? This should be very interesting indeed.

  • From Pills To Pillows

    Can a pillow that plays soothing music solve the sleep problems of the masses? Well, it certainly appears that it could do just that. Initially developed as a therapy to calm children with autism and other disorders, the Dreampad pillow will soon be available on a much broader scale. Marketers decided to use the crowdfunding site Kickstarter to both raise funds and gain initial awareness among a much larger consumer base, in yet another example of how important crowdfunding is becoming in the world of entrepreneurship. The Dreampad reached its initial goal of $85,000 in only one day, but the product still has a ways to go before it can achieve large-scale distribution. Production has commenced, and it is still unclear as to how and where marketers will promote and distribute the product. Effective formulation and implementation of such strategies and tactics will be crucial to its adoption, and perhaps the integrated marketing communications strategy of the wildly successful MyPillow product can give Dreampad marketers some ideas as to how to proceed. MyPillow is a very good pillow indeed.

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    A few years back, developers at Colorado-based Integrative Listening Systems were faced with the challenge of taking a clinical product priced at $350 and scaling it down to a $100 price point that would resonate with a much larger group of consumers. Ten iterations later, the Dreampad pillow became a reality, replete with a thin, rectangular pad powered by a smartphone app. And with the majority of the adult population in the U.S. reporting that they have difficulty sleeping (and currently using a massive number of sleep products on the market with varying degrees of success), a product that can effectively address sleep issues without side effects and that has already been proven to work in a clinical setting could change the lives of many exhausted consumers. If it works for those with more severe problems, the Dreampad should work for those of us with less serious sleep issues. And future iterations could make things even better for a society tired of the pills and the endless stream of expert advice on how to get more Z's. Let's give the smart pillow a shot.

  • An NFL Hiccup

    The ongoing issues with player behaviors and attitudes, performance enhancement, performance dis-enhancement, deflated footballs and illegal videotaping, taxpayer support of billion dollar stadiums, concussions and other player health issues, concessions and other spectator health issues, controversial social protests and other First Amendment issues, sketchy daily fantasy contests, the usual snipes about player salaries and team profits, and what is seen as an somewhat unpredictable league legal and regulatory function, have all failed to quell consumer interest in the NFL. A fall ritual that has all but surpassed in-person religious observation as America's favorite compulsory Sunday activity, it just keeps getting bigger. Well, maybe the religious thing is an exaggeration, but the ongoing and growing popularity of this particular spectator sport is impossible to ignore. Up and up it has gone. Until now, that is.

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    Well, maybe that's an exaggeration too. But NFL football has in fact experienced an unprecedented decline in ratings this fall, an 11% drop among the critical 18-49 demographic. Critical because after 50, most people move to Florida where there is no pro football, and therefore brand marketers apparently don't care if they reach these people or not. OK, maybe that's yet another exaggeration since there is actually pro football in Florida, but sometimes it does seem that marketers feel that way. I say that these well-heeled geezers are underestimated by far too many marketers, but that is another story.

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    Over the past 15 years, NFL viewership has grown 27%, and live football continues to be THE preferred vehicle for many major brand advertisers. Surely there must be an explanation for the precipitous drop in viewership seen four weeks into the season. Here are several:

    1.  The absence of marquee players due to retirement (Peyton Manning), injury (J.J. Watt) and suspension (Tom Brady) has made many fans decide to play Frisbee golf instead of watching a bunch of second stringers.

    2.  Fans are angered at the police brutality protests of Colin K., Brandon M. and other players and instead of watching the NFL have decided to tune into either the all-day Alaska State Troopers or Cops Reloaded marathons (there were such marathons last week--truth is often stranger than fiction).

    3.  The NFL has hit a saturation level with games on Thursday night, Monday night, and all day Sunday and so viewers, bombarded by too many games on too many nights, are instead watching professional soccer, replays of the Rio Olympics (track, swimming and gymnastics only), preseason hockey, baseball, and the political debates instead.

    4.  What the league describes as "unprecedented interest in the Presidential election" is cutting into the games, as debates have been scheduled up against NFL games. The first debate drew a record number of viewers in spite of the schedule conflict, and Sunday afternoon TV news ratings are up.

    5.  The move to placing the live NFL product on more digital platforms is cannibalizing the viewership of broadcast partners, and official ratings have been slow to count such viewership in their total numbers. This is a huge problem that is only getting bigger. It is likely that much of the downturn is due to this factor.

    6.  The match ups/games have been absolutely lousy. Thursday night contests have been difficult to watch, and some viewers are instead watching NCAA college football (NCAA viewership is actually up this year)

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    Although it doesn't look too good at present, it is far too early to say that viewership will be down overall and, notwithstanding some rather feeble attempts at humor, the reasons given above are considered legitimate by most observers. Many factors have converged to create a situation that the NFL is facing for the first time in a very long time. There have been calls to eliminate the Thursday night contests for reasons involving the teams and players more than anything else. Perhaps moving those games to Saturday night and leaving Thursday for the colleges (it's a big college party night, traditionally speaking) and therefore clustering the games more closely together would be better for everyone. And placing some pressure on Nielsen and other ratings companies to include the rapidly growing digital audience in their metrics is becoming an imperative, and the NFL can apply the necessary pressure to make this happen more rapidly. And maybe there are better ways, more algorithmic ways, to schedule Monday and Thursday (Saturday?) night games in particular. Perhaps software simulations based on the previous year's statistics can be run to find match ups that have high probabilities to be closely contested. Maybe this isn't really possible or perhaps they already have it covered, but it does seem that more thought could be put into what we watch on those two days when we have no other NFL choices. Time will reveal whether or not the NFL has peaked, but for my money, I wouldn't bet against this global marketing machine. Even this isn't merely a hiccup and the U.S. market becomes saturated, London and other international markets await. 

  • McMarketing In Slow Motion: Part Two

    Our last post (McMarketing In Slow Motion) explored the latest new product introduction offered by marketers at McDonald's in the context of some of the problems that the brand has been facing of late. Only one in five Millennials hasn't even tried a Big Mac and the burger has placed last out of 21 in a high profile taste survey, and so alarms are rightly sounding at headquarters and among the legions of franchisees. All-day breakfast has stopped the bleeding, but gains will only be temporary as the troubles at the company are becoming increasingly difficult to ignore.

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    We know that McDonald's is introducing two new Big Mac sizes, and other changes are in the works or have already been made. The burger giant has made some attempts to gussy up its menu by embracing some social trends, including shifting to cage-free eggs and eliminating artificial ingredients in its Chicken McNuggets. And the latest announcement concerns it's coffee (which is very highly rated in blind taste tests, by the way) and the company's plan to buy all of it from "sustainable sources" by 2020. If Starbucks can do it, then McDonald's should be able to pull it off. These are very socially responsible moves for a company like McDonald's, but they are rather late in coming and as a marketing communications afterthought, they are unlikely to amount to much for the brand. In addition, pandering to fads by having products with hip-sounding names like the "Artisan Chicken Sandwich" aren't fooling too many people. Artisan? Really? Authenticity is important too.

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    McDonald's should offer a multi-point, long-term plan to address product improvement over the next decade. If the company can eliminate preservatives from its nuggets, then it can do so for the entire line of products, and so scrapping artificial flavors, colors and preservatives in addition to adopting sustainable coffee suppliers would be a centerpiece of that plan. Moving to all-white meat was a major move for McMarketers several years ago, so it shouldn't be impossible to switch from frozen beef patties to a fresh meat format, which was studied but shelved in 2011. This would vastly improve taste and freshness issues, but might increase wait time. Big Macs should be reformulated at the same time as these new sizes are introduced to address current taste perceptions. A customizable-burger option, already in the test market phase of development, also appears to be a good idea. And finally, efforts to improve service time should be an ongoing priority, embracing automation where feasible. This might also be an excellent time to make some long-overdue tweaks to the logo. Why not? Let's go whole hog!

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    The entire integrated marketing communications campaign would roll out over a three-to-five year period and would feature different aspects of the brand's makeover as they are introduced one at a time. The message at McDonald's has become over-globalized and has been diluted by too many generic branding strategies over the past two decades. It makes me sleepy. Perhaps the market too is tired of "Lovin' It" and wants more a more concrete McMessage. Perhaps McMarketers are better off focusing on improving the product and the service experience, communicating those improvements, and maintaining low price points. Substantive changes make for great marketing communication, and it's high time that McDonald's produced some of both.

  • McMarketing in Slow Motion

    While its all-day breakfast gambit has certainly paid off, all is not well under the Golden Arches. The chain can't seem to get any traction with the under-30 crowd, but before you go blaming those pesky Millennials for yet another brand's struggle to remain relevant, McMarketers have some questions to answer. The first is why McDonald's burgers came in dead last in a fairly recent Consumer Reports "taste test" (it's really a survey) involving 21 hamburgers. The Big Mac scored a 5.8 out of 10, which in my book is an F+. Burger King got a D+ by comparison. So, at least it's cheap, right? Well, while once a low price leader, McDonald's now shares price points with chains that scored much higher on the deliciousness scale, and so the brand no longer enjoys much of a price advantage. Indeed, the company has been moving away from its unprofitable dollar menu since 2013, further crimping the ability of marketers to make a major comparative value proposition. So if not value, then what?

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    Most Millennials tend to prefer Smashburger, Five Guys, Shake Shack, and other "better burgers" to the Big Mac, and who can blame them? Me too. So, the burger isn't cheap and also doesn't taste great. And, numerous studies show that the level of service also leaves plenty to be desired, as the chain has consistently ranked high in wait times. So what's to love? Right now, it's the all-day breakfast and not much else. Previous attempts over the years at selling a fast-casual better burger have all fallen flat (Big N' Tasty, Angus Burger, etc.), and so McDonald's has decided to double down on the Big Mac by introducing a larger "Grand Mac" as well as a smaller "Mac Jr." Is this a good idea? Only one in five Millennials has even tried a Big Mac which should pretty much give even the most stoic of McMarketers heart palpitations. But if taste is part of the problem, will offering different size options address the primary problem of Millennial product adoption? 

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    Probably not, especially if once a consumer tries the product, it doesn't measure up against, say, 20 or so competitors. Come on, man! There isn't much point in getting someone to try a product that they are unlikely to enjoy. It's like they are McMarketing in slow motion. A better route would be to reintroduce the entire line of Big Mac's with a new and improved flavor, one that an existing customer might still recognize, but one that will perform much better in taste tests. The launch could be supported by a massive integrated marketing communications campaign that also features some of the other positive changes the company has been making. Last place is last place, and so it's probably time to admit that reformulation is in order, and Mickey D's has enough in the war chest to figure it out. Bob's Burgers they are not.

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    A Big Mac line extension is a perfect time to introduce an improved formulation, and if there is public outcry, the old formula could resurface in some form or another. Just like Coca-Cola. Hey, it's just an idea. Most chefs will tell you that there is only so much that can be done with a frozen patty, so switching to fresh beef would be a huge improvement as well and might eventually be an imperative in this new zeitgeist. It is becoming increasingly clear that the McDonald's brand, like so many others, needs some sort of infusion if it is to avoid becoming the J.C. Penney's of fast food; but such a large-scale change doesn't seem to be on the menu, at least in the short term. In addition to the new Big Mac sizes, however, other changes are afoot. The next post will explore some of these.

     

  • All About The Beef

    Beef, and more specifically, "conventional" beef. It's what's for dinner, lunch and sometimes breakfast. And it's what has grown, categorically speaking, by 14% over the past five years, nudged along by what experts believe might be a desire among the American dining public for substantive food that tastes good. It's a nice, mostly profitable, mature sector for sure, and "conventional" beef comprises the vast majority of a category that has reached $200 billion in the U.S. That's 18 billion pounds of American beef per year. Hold the pickles, please. But it is this "conventionally-raised" category within the beef industry that is experiencing the slowest growth, and of course this is partly due to the relative large size of the category; but it is also due to the relative lack of appeal that "conventional" product positioning has to an increasing number of consumers.

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    The real action appears to be in beef positioned for an increasing number of Americans who demand to know what's in their food, how it was raised/grown/made, where it came from, how far it traveled, whether or not it suffered any indignities while being transformed into said food, etc., etc. As such, beef positioned as "natural" (antibiotic and hormone free) increased by 51% over that same five year period, while beef marketed as "antibiotic free" increased by 113%. Go figure. Perhaps the latter segment is much smaller in size, which could account for some of the difference. Either way, that's some good growth right there.

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    But the Granddaddy of them all, not surprisingly, was "certified organic" labeled beef, which rose a whopping 200%. Product positioning matters, and marketers of all sorts of products should look at which communications tactics consumers prefer most. It is clear that "organic" beats out "natural" by a factor of four, so which positioning would you prefer to use for your product if you had a choice? It is also interesting to note that although "natural" beef is by definition "antibiotic free", many more consumers respond to the more literal "antibiotic free" positioning rather than the broader "natural" labeling. "Natural" is also "hormone-free" by definition and so has an inherent advantage over "antibiotic free", but it doesn't appear that many consumers perceive this important distinction. This is an interesting lesson, and "hormone-free" wasn't part of the report in the Wall Street Journal. "Organic", on the other hand, truly resonates among more consumers, and indeed an organic product should be much more appealing to the environmental crowd in reality as well as in marketing due to the strict nature of regulations in that product category. So what's next?

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    An emerging category with tremendous potential would seem to involve the geographic origin of the beef, since "locally-grown" seems to be an effective positioning attribute these days. Throw in something about also coming from a "small farm" and you may have a real winner. But I think that "locally-grown" is ultimately more compelling to more people than the size of the facility in today's marketing environment.

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    I haven't yet seen any data on beef labeled as "locally-grown", but maybe such a strategy is worth thinking about. Perhaps some national third-party certification is in order. It's all about the beef. And the label on the beef. Follow the trends marketers. Follow the trends.

  • Happy Holidays From The NRF

    The National Retail Federation and the International Council of Shopping Centers, while certainly biased towards optimism for their retailer constituencies yet at the same time not desiring to mislead the public, both agree that this holiday season will be be better than the last in terms of sales volume growth. This is good news for a slow-moving national economy (running almost entirely on the fumes of consumer spending rather than business investment), one that faces uncertain outcomes from an unusual election.

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    Total holiday sales (excluding autos, restaurants, and gasoline) are expected to rise by 3.6% to $655.6 billion, which is slightly better than the post-recession average of 3.4% and therefore nothing to get very excited about. Yet this sort of research and the data it generates is important in revealing that consumers are still in the mood to spend which should reduce the need for retailers to invest too much on profit-eating sales promotions as well as provide some justification to properly adjust inventory.

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    But these forecasts are often inaccurate. For example, last year's result of 3.2% came in well under the NRF forecast of 3.7% and the predictions from 2012 and 2013 were both too high. But 2014 was right on target, while 2011 was far too low. Optimists say that consumers have benefited this year from lower inflation levels (dollars are worth more), lower gas prices (more money to spend), higher incomes (ditto), and higher levels of employment (more consumers with more money to spend); and so there is cause for retailers to build inventories in anticipation of said demand despite the slow economic growth predicted by most economists for the upcoming year. The wild card may be the results of this year's election. Let's see what happens.

  • The Urge To Merge

    Mergers, or more accurately "acquisitions", are a byproduct of industry maturity; and companies almost always find it harder to achieve decent growth rates as they get larger. So when outdoor sports retailer Bass Pro Shops announced a $4.5 billion deal to buy moderately profitable 85-store rival Cabela's, it was clearly a case of industry consolidation at its finest. So, aside from the obvious fact that both retailers sell the same sort of stuff to the same sort of consumers, why would these two retailers make a good fit?

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    For one, it is unlikely that Bass Pro Shops, a slightly larger company than Cabela's, would want to convert Cabela's stores into Bass branded stores, as is sometimes done in these situations. Both brands have cultivated rabid followings over many decades and such brand equity should not be and probably will not be destroyed. But, in many cases there is overlap and so decisions must be made on which stores to close, avoiding cannibalization. Some of this will surely happen in this case, but perhaps not much of it.

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    The genius of this particular marriage of two probably too-similar retail giants is in the fact that Bass Pro Shops has largely expanded in the eastern half of the country, while Cabela's has concentrated on the western region. It is only recently that they have begun meeting in the middle. Thus there should be relatively little overlap in this instance. The two brands can remain relatively undifferentiated as far as product mix goes, and each can successfully operate in their respective regions; they will be free to divert resources away from fighting the encroachment of one into the other's territory and towards fending off other competitors and investment in e-commerce and other product enhancements. Unfortunately, the vast majority of acquisitions that occur fail to provide the long-term expected return on investment for shareholders once the short-term economies of merging certain business functions have been achieved, but this one could be just what both brands need in an age of Sports Authority liquidation and Amazon domination.

  • Target's New Target

    The retailer that pioneered what I like to call  "Discount Chic", not unlike many other established store chains, is struggling to grow in a hyper-competitive environment characterized by an increasing migration to e-commerce outlets. In response, marketers at Target are making some changes.

    The new format, currently launching in urban areas and college towns, is 15% smaller than the average Target store, will stock a more limited assortment of goods (less breadth), and will also begin to merchandise more products aimed at Millennial college-age students such as cheap home furnishings. Absent are strollers and other children's products aimed at Millennials approaching middle age (the oldest are now 35) and Gen X'ers (36-51), as marketers attempt to reach the late teen, twenty, and early thirty-something Millennial where they dwell.

    Granted, competitors like Wal-Mart have struggled with smaller store concepts, but with Amazon's recent push to target college-age adults with its Prime membership program, Target must do something to stimulate the brand. Earlier " Target Express" stores have been re-branded as simply "Target", which was probably a very good idea. Perhaps younger consumers have an aversion to the word "express". Nevertheless, this latest concept also looks like a good idea, one that has built upon past failures; and yet students of marketing know that ultimately success will depend on Target finding the proper assortment of products to meet the needs of the folks in the market. Hopefully marketers are endeavoring to combine this brick-and-mortar effort with Target's e-commerce platform since nothing will stop the slow but sure shift consumer migration away from brick-and-mortar stores and towards the Internet. Customers, especially young ones, expect to be able to access their goods and services wherever and wherever they like these days, and so a seamless in-store and e-commerce experience has become a must. Smaller stores appear to be the future, and Target is at least giving it the old college try!

  • Auditing The Agencies

    Very recently, the advertising industry was rocked by bad news in its rapidly expanding digital sector, as more questions about the efficacy of online advertising made headlines. And a presentation by a corporate intelligence (spy?) firm given to 25 marketing executives in New York back in May was illuminated, exposing that the advertising agencies they have been engaging in what their clients feel are some very disturbing practices.

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    Apparently, agencies have been getting rebates (kickbacks?) from media companies, and these agencies are not only failing to inform their clients, but they are in fact keeping all of the money. And in a $540 billion global ad market, this is no small potatoes. The agency industry is dominated by very few players and so it makes it more difficult for advertisers to figure out exactly where money is being spent. Some ad firms now use their own money to buy space and then resell that space to clients. Others have developed and/or acquired automated ad buying functions, making it even more difficult for marketers to track how much they are paying as well as returns they are getting from ads across multiple media platforms.

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    More than anything else, this whole thing has exposed an utter lack of Agency oversight on the part of the Client. Some of the activities revealed in the investigation were perfectly contractual, and so many perceived holes in these agency contracts are being plugged and new agreements are being struck. Going forward, advertisers should be encouraged to conduct routine audits along the ad supply chain, and agencies downstream should be more transparent with regard to their practices. The agency/client relationship, is one that thrives on trust, and it may be some time before the ad industry regains the credibility it has lost with its customers.

  • Lands' End: Makeover Or Do Over?

    Lands' End, the well-known maker of outdoorsy, casual apparel, has been in the midst of a makeover as a new CEO has attempted to exact major changes to the product mix. The former Ferrari and Dolce & Gabbana executive who reportedly has spent only a few weeks at the Wisconsin headquarters (preferring an office in New York's garment district), in true makeover spirit tried to infuse the company with a more stylish look. The company hired celebrity photographers, a Vogue stylist, and recently conducted a photo shoot in the Marshall Islands for a new line of active wear. Expensive! All of this amidst adding products featuring stiletto heels and slimmer fits among many other changes. Does this sound like Lands' End to you?

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    Well, far too many customers and employees don't think so either, and the result of this strategy shift has been a loss of profitability amidst an almost 8% drop in revenue and several buildings-full of unhappy employees. So, if the new marketing isn't resonating with consumers or employees, it clearly isn't working. The CEO had to go and go she did. Too many changes too quickly only confused existing customers, and without a major effort to acquire some new customers who might appreciate the new mix a little more, the strategy was almost certainly doomed to fail. But most turnarounds take several years to execute, and some observers feel that the new approach wasn't given adequate time to work. But with an unhappy crew in Wisconsin, sharply dropping sales, and negative profits, it was simply too risky to wait any longer. It might have been better to wait until after the holiday season, since a ship without a captain could lose its way amidst the holiday tumult, but a clean break was probably for the best.

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    At any rate, 2016 looks to be a complete loss for Lands' End, and next year one might expect a return to basics and a strategy going forward that embraces more incremental change to the product mix as well as cost cutting moves to shore up the bottom line. There is little doubt that change is needed at Lands' End, but maybe not the sort of changes that New York executives might want to bring to the table. A brand that doesn't wish to completely reinvent itself must know its existing customers and then work to build on that knowledge. Lands' End has learned this the hard way, and now it's time for a "do-over".

  • An Incentive to Cheat

    The world of professional selling is rife with incentives. Without such inducements to sell it would be quite difficult to encourage employees to expend the effort necessary to succeed in this difficult, but potentially lucrative, profession. But the recent issues at Wells Fargo aren't about providing incentives for salespeople to succeed, but rather they are about giving them incentives to commit fraudulent acts in the name of achieving impossible objectives.

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    When we are setting objectives in marketing, some of us like to think of them as SMART--specific, measurable, achievable, relevant and time-bound. The key letter in the case of Wells Fargo is "A". In recent years Wells Fargo has chosen to focus on the "cross selling" of current customers, which is probably a much more cost effective strategy than doing what it takes to attract and attain new customers, but sales objectives have been so out-of-reach for so many sales personnel that some chose to commit fraud rather than simply quit and find a new job. When urging customers to open up credit card accounts to go with their checking accounts proved unsuccessful, for example, some sales people resorted to opening accounts for consumers who did not ask for  them in order to reach sales targets. In fact, there were two million such incidents and thousands of personnel have been terminated as a result. The person in charge of these efforts, Carrie Tolstedt, retired from the company in July, and there are demands by members of the U.S. Senate for her and others to return tens of millions bonus money they have collected. In other words, it's another PR debacle for the banking world and for free market capitalism as a whole.

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    The bank has terminated the sales program and must find other, preferably ethical ways to generate profits amidst this continuing climate of low interest rates that makes it harder for them to do so. But we all know that the company still makes plenty of money, and we would prefer that they do so ethically. Barring that, what they do should at least be legal. A course in Sales Management might be instructive for higher ups at the bank with thorough coursework in how to set up a proper sales incentive structure and the proper care and maintenance of sales personnel. In the meantime, marketers at Wells Fargo should be thinking about how to address the negative publicity that this has generated and begin to more closely monitor changes in overall consumer attitudes about the company as well as any customer defections that might occur. It's time for some changes at the San Francisco headquarters amidst all of the investigations and lawsuits. Let's see what happens.