Darrin C. Duber-Smith
Darrin C. Duber-Smith, MS, MBA, is president of Green Marketing, Inc., and senior lecturer at the Metropolitan State University of Denver’s College of Business. He has almost 30 years of specialized expertise in the marketing and management profession including extensive experience in working with natural, organic, and green/sustainable products and services. He was a co-founder of the Lifestyles of Health and Sustainability (LOHAS, c. 1999) market/industry model and was leader of the first U.S. industry task force that helped frame the Natural Products Association’s definition of natural (c. 2005). He has published over 80 articles in trade publications and has presented at over 50 executive-level events during the past 15 years. A frequent media contributor and recipient of The Wall Street Journal’s In-Education Distinguished Professor Award in 2009 and WSJ’s Top 125 Professors Award in 2014, Mr. Duber-Smith is author of Cengage Learning’s “KnowNow! Marketing” blog at http://community.cengage.com/GECResource2/info/b/marketing/. He can be reached at DuberSmith@GreenMarketing.net or firstname.lastname@example.org.
Chipotle is a company that doesn't do much traditional advertising, but that doesn't mean that they don't develop and implement marketing communications programs. They do. But the company doesn't seem to spend very much money on marketing, relying mostly on sales promotion tactics (coupons for free burritos), PR-driven media coverage (usually positive), and internet videos (essentially really long ads) seen in places like YouTube. In the early days, the videos were pretty folksy and funny (search for "Hey, Hey Burrito Lady" and enjoy), but over the past several years these have changed their collective tone. More recently, marketers have been producing a series of rather sanctimonious videos about the integrity of their ingredients, crankily lambasting "big food" for a lack of integrity compared to their own (search for "Chipotle industrial farming").
One would think that after the huge publicity hit the brand took in 2015 when so many were sickened in so many places, marketers would back off on that ingredient integrity strategy a bit, but instead they have doubled down on it. The company announced in a press release (a public relations tactic) that its U.S. stores now sell tortillas made with just five natural ingredients. Who needs advertising if you can get the media to cover this stuff for free, right? This move is certainly in line with the traditional strategic focus on ingredients, and so Chipotle marketers remain on strategy; and it is also in line with the overall transformation taking place within the entire food industry. It began with natural and organic products and has now infiltrated the mainstream, forcing companies to rethink product formulations at every level. Even McDonald's is getting into the act by looking at removing preservatives and artificial ingredients. Indeed food industry chemists are very busy these days.
And so Chipotle is a brand that rapidly skyrocketed to fame, propelled by the early Millennial and late Gen X'er crowd who became infatuated with the company's very specific focus on fresh ingredients in their burritos. This is what a successfully-planned and implemented positioning strategy looks like, and it is also how Subway cut through the fast food clutter. Simple and effective. But lots of time has passed since the early days, and there are many more choices out there for an increasingly fickle population. The early Millennials and late X'ers are now around early middle age, Chipotle has lost lots of customers, and growth has stalled. So marketers have decided to target families, specifically the children of these early Millennials and late Gen X'ers, with a message about food safety, health, and other stuff not really very related to selling burritos. And will they be running ads? Nope. Rather than an ad campaign or another preachy YouTube video, marketers have instead developed an animated children's cartoon. Maybe Founder and still-CEO Steve Ells should have gone into the entertainment business instead of selling burritos.
This latest PR tactic is actually an iTunes-distributed, animated children's series themed around how to make healthier, more informed food choices. The child-targeted messaging, called "Rad Lands" was developed by the Magic Store (creators of Yo Gabba Gabba!) and features actors playing animated characters. There is no brand mention whatsoever and so the communication looks "organic", but make no mistake that however benign it seems, these are still marketing communications that are commissioned by a for-profit company. The project was in production before the e-coli outbreak, when the brand was in better shape, and so it will certainly be interesting to see how these latest videos are received. Unlike previous attempts, these videos aren't freely available on YouTube, but rather the first season sells for $4.99. This is a creative take on PR to be sure, and as long as there isn't any brand integration, Chipotle might be able to avoid controversy about marketing to children. But is it a clever one? It's still kids seeing a sponsored message as entertainment content (they don't know the difference). Chipotle, by selling the videos as a "product", sort of looks like it is trying to make money on the whole thing at $4.99 a pop, rather than simply spreading positive messaging about food health. Obviously, the publicity and word-of-mouth is what marketers are looking for, so why sell the videos as a product at all? This is a very odd move, and, rather than clever, looks a tad exploitative and desperate. After all, Chipotle does want to sell more burritos.
Strategically, Chipotle seems to be lost at sea. It looks like the company doesn't want to make the necessary changes to grow the brand, instead opting to make more sanctimonious videos; giving away more free burritos; opening up "new-concept" Asian, pizza, and burger chains that have nothing to do with the brand; and generally demonstrating that it isn't willing to make the necessary, ongoing 4P adjustments to meet the future in an effective manner. Resting on past laurels can only last so long, and Chipotle has bet the brand on maintaining the consumer perception that its products are somehow better for people and the natural environment than most alternatives. The facts remain that its disparate rabble of suppliers made it impossible to track the sources of the outbreak. Also, studies have shown that big producers are much more efficient at logistics and can therefore be better for the environment than small producers. And does "small" really mean "fresh"? Think about this. To me, Chipotle's attacks on "big food" are increasingly vague and unconvincing, and now Chipotle looks like it is relying on the same customers (and their kids) that took them to the top. Marketers, for sure, would rather develop new markets (market development), but in the absence of that, must try to get more from current consumers (market penetration). This is not the greatest position to be in.
Perhaps this for-profit children's series, if it fails to catch on or garners too much negative publicity, will be a last straw and finally force Chipotle to alter its marketing strategy. New products and fresh advertising creative would be a great start. And the fact that its marketing head was recently busted for cocaine in a highly-publicized case should also have been a catalyst for change, but this person is still in charge of the brand and is still steering the ship. Is this ship lost at sea? You decide.
Buying advertising has become a complicated affair. With so many options these days, marketers have turned to technology to make better decisions on where to place ads. On the Internet, complex algorithms are able to match a brand's desired audience with a particular website's audience, and Voila! The right ads are seen by the right people. What could possibly go wrong?
Content isn't free, and ads have traditionally been a great way to pay for content--TV, radio, magazines, newspapers, and now websites all generate significant revenue from advertising. And now that computers make a large chunk of ad placement decisions these days, some ads are appearing in some very undesirable places--pornography, anti-Semitism, racism, and a bevvy of other examples of "hateful, offensive, and derogatory" or just plain inappropriate content. Google, Facebook, and the other major players have largely ignored the problem as a side effect of programmatic buying, but as the reliance on technology has grown, so have the number of misplaced ads.
Brand managers, for their part, are rather peeved at all of this, obviously not wanting to be associated with this sort of content, and many have temporarily stopped placing non-search ads with Google in particular until the company can get a handle on this growing problem. Are there any solutions?
I'm glad you asked. Adding more humans would probably be an excellent start. Just hire lots of people to filter through the content and remove any ads that don't belong. This will cost a great deal of money and take some time, but until the company can make adjustments to the software (and this could also take quite some time), there don't appear to be many other viable options. The Internet is a relatively "free" exchange of information, and so there is a lot of content out there that might reflect poorly on a brand seen as sponsoring said content. If the current software can't exercise proper discernment, it is likely that an army of educated humans can do so. Perhaps YouTube, which relies on this advertising and is a major part of this systemic problem, certainly has an incentive to help out. But will it? Google might be one of the only games in town when it comes to mass advertising, but that doesn't mean that this sort of thing can't adversely impact the brand's reputation. At this point, marketers have an opportunity to exercise proper damage control protocols, apologize and remedy the problem. Will they do so? Let's wait and see.
Wal-Mart has been on a buying spree of late. After successfully shoring up its online platform over the last few years and closing its under-performing brick-and mortar stores (efforts that are still ongoing), the tragically un-hip retailer is now busy snapping up small online retailers in hopes of expanding its appeal to a broader income base. In the past few months, Wal-Mart has purchased ShoeBuy, Moosejaw, and most recently the hipster clothing retailer ModCloth. That's a lot of activity. What gives?
Wal-Mart is a very forward-thinking company. It didn't become the market leader by sitting on its hands, and now the company is competing rather effectively against the likes of Amazon in the e-commerce space. Growth by brick-and-mortar expansion is hard to come by these days, as readers of this column well know, and so attracting new customers via e-commerce seems to be a very good strategy. The problem?
When a giant like Wal-Mart buys a brand that folks consider to be "hip", the brand ceases to be hip for many of the brand's customers. After all, this the nature of what it means to be hip. But once too many people jump on the bandwagon, the thing that used to be considered hip becomes too mainstream, and hipsters move on to the "next new thing". It's been that way for generations. Young consumers are notoriously fickle. Despite this, the company says that it plans on acquiring more brands in the hopes that few of them might actually stick, and that a much wider audience would help the brand's realize their potential. This is probably true. And losing a relatively small segment of fickle hipsters is nothing compared to the growth possibilities among Wal-Mart's massive consumer base.
And one or two of these brands might indeed become very successful, helping improve the company's image among a higher-income crowd, and giving Amazon a better run for its money. Amazon is getting a bit too big for my comfort level. Somebody has got to step up and give them a fight, or we might find ourselves with far fewer choices among retailers in the not-so-distant future. Perhaps a "Wal-Mart Chic" strategy is worth a try.
Once upon a time, there was no gratuity in food service. Someone brought us what we ordered, we paid the bill, and that was that. As a matter of fact, in the vast majority of places around the developed world, tipping is not at all encouraged, even seen as rude. Instead of relying on patrons to subsidize worker wages, marketers in most places around the globe build a service charge into the price of the fare, the server earns a competitive wage, and everyone goes about their business without any what-to-do about who deserves what. But that's not how it is here in the U.S., and the story of how gratuity became so much a part of the fabric of our day-to-day lives would be a very interesting one indeed. Despite the tips, the original idea was "To Insure Prompt Service" (TIPS), and for so many it now means "To Insure Decent or Any Service (TIDAS?). How have American consumers let themselves be exploited for so long?
We do love our food service, and it seems that most of us will go to great lengths to avoid having to prepare it ourselves. It's best to leave some things to experts and craftsmen, after all, and so some exploitation might be a necessary evil. But with the sub-minimum "tipped wage" disappearing in many states and the minimum wage rising in a growing number of places to as high as $15 an hour for all workers, the pressure is really on to provide competitively-priced fare and still turn a decent profit. Obviously, all of this wage pressure will result in more automation across the food service industry, and this transformation is already in the beginning stages. But in the meantime, short of raising prices, what is a marketer to do to boost the bottom line?
Introducing the latest food service craze--the service charge! Now, on top of the gratuity, which has managed to creep from 10% in the 70's to 15% in the 80's and now 20% as a matter of course (especially if you don't want an extra helping of guff and/or special sauce on your next visit), all diners are being asked to pay an additional "surcharge" on top of the prices and the tip. Ouch. This will not go over well at all excepting in the swankiest of establishments.
Clearly diners are expected to foot the bill for rising wages, seeing that restaurant margins are notoriously low; and some business owners do want to send the not-so-subtle message to their more progressively-inclined patrons that rising wages have economic consequences. And these consequences affect everyone. People familiar with the trappings of commerce understand this, but the average diner might need a brief tutorial. Most people like the idea of higher wages for folks, but they don't want to pay higher prices. As we've mentioned, margins are already low, and luckily commodity food prices are also low at present. This will eventually change. A quandary for certain. But service charges? This is probably taking it a step too far.
The brutal reality is that another economic downturn (which is actually rather overdue if one considers U.S. economic history to be any guide) would likely result in very permanent labor-related changes to the food service industry. Menu prices, in a competitive environment, can only go so high. And automation can already cost-effectively replace much of what everyone in the "front of the house" does. As we know, once a resource becomes prohibitively expensive to a business, it will seek a cheaper substitute if it is available. And if an entire industry wants something, it will get it. The robots are coming.
Another thing is for sure. Places that offer a higher food and service quality product at competitive prices will win out in the long run. We can also be fairly certain that rising labor costs will usher in lots of new technology that will "creatively destroy" the entire industry. In the very near future, the vast majority of current food service jobs simply won't exist, but it will be nice to know that the workers that are needed will be paid fairly well for their work. And with the aid of automation and the absence of disinterested humans providing uneven levels of service, consumers theoretically will be able to control more of the dining experience, which can only be a good thing. Right?
With wages moving higher, tipping might go the way of the video store. This socio-cultural and technological shift will take some time to unfold, but it does look like the most likely scenario is an utter transformation of one of America's largest and most high profile industries over the next two decades.This sort of "creative destruction" happens all the time. For food service, the time may be nigh.
Everyone loves Costco. For a modest membership fee, we can buy lots of stuff at volume discount prices, and the savings are even greater when we choose one of Costco's private label brands. But when the retailer started selling a 24-ct. box of its Kirkland Signature balls for $29.99 ($1.25 per ball) last year, the folks who make lots of money selling three and four dollar balls raised their eyebrows. And when the ball was reviewed very favorably when compared to the best selling Titleist ProVI (priced at four bucks a ball) legions of golfers raised legions of eyebrows, and the product quickly sold out.
Obviously Costco has cracked some sort of code, right? Well the company makes its money on volume, and so it can afford to offer lower price points on the brands it sells. And when the brand is one of its own private label lines, the prices are even lower since major brands have big marketing costs built into their prices. Hence, the $1.25 "Kirkland" (Costco) golf ball. What is remarkable, however, is the fact that the ball is not only one of the cheapest on the market, but that it is also of such high quality. And this has Titelist crying foul and claiming that its patents have been infringed upon.
And who can blame them? Indeed times are tough among operators in this difficult-to-learn sport that is struggling mightily to attract new players. Profits are increasingly tough to come by, and so what Costco has managed to do is to disrupt the entire market for these frequently-purchased little balls. This is quite a feat. And as far as patent infringement goes, Titleist itself settled a suit back in 2006 alleging that it borrowed some Callaway technology. Hey, engineers change jobs, right? And so it goes.
Infringement or no infringement, this genie isn't going back into his bottle, and Costco has deep enough pockets to settle a suit. But Titleist, seen by many in the industry as a bit of a "brand bully" might not be too keen to settle this time around, especially if its entire business model has been disrupted. It might be better to tie Costco up in court. The retailer did buy the line from a company called Nassau Golf and so probably can't speak for the origins of the technology, which is not the greatest position to be in. Sketchy, but the company is plenty large enough to fight a suit if need be.
In the meantime, Costco has proven that a high quality golf ball can be sold cheaply, and that's important in a shrinking market. So at least for now we get to enjoy those premium $1.25 golf balls, which for most golfers is probably in and of itself a wonderful reason to pay Costco's annual membership fee. And so, bravo! The "golf ball kabal", if there ever was one, is likely broken for good no matter what happens in court. And the most likely result of the whole affair will be cheaper golf balls all the way around. Golfers rejoice!
Major League Soccer, the top tier of the three professional soccer leagues in the United States, is sweeping the nation. At least that's what league marketers want everyone to think as MLS begins its 22nd season and as the league continues to expand at a rapid clip. But while soccer is indeed a steadily growing spectator sport and the league continues to add franchises from coast to coast, the financial outlook for the top flight league is still rather murky.
Most kids play organized soccer at some point, and sports marketers have long known that one of the most lucrative adult spectator sport segments to target consists of the people who used to (or continue to) play the sport. This is the case for all spectator sports, but somehow attracting a large enough base of viewers in the U.S. remains an elusive goal for marketers of professional soccer. The NFL, NHL, NBA, and MLB all grew steadily over many decades to reach a critical mass of 30 or so franchises per league, and market forces have largely driven this expansion. Not so for Major League Soccer.
The average franchise fee has doubled over the last several years and is now up to $150 million. In addition, taxpayers have been reticent to pay for new facilities, and so the owners themselves have had to pony up the funds. Stadiums do draw good-sized crowds, and the average payroll is only $12 million, but profits have been elusive for most teams nonetheless. And since annual revenues average only around $25-30 million, it will take many years for most investors to make money. Televised matches, a major source of revenue for the other major professional leagues, drew only about 300,000 viewers per contest last year, and yet the league plans to expand from 22 to 28 teams on the near future. Some critics point out that the former NASL (not related to the current minor league) ultimately perished in the mid-1980's from a combination of over-expansion combined with lack of consumer interest.
The quality of play in MLS continues to improve despite the fact that the best players in the world play for more money overseas, but will raising quality be enough? Some demographers believe that soccer will be the third most popular sport in the next 20 years, but we have been hearing that since the 1970's and those assumptions seem to rely on mostly stereotypical assumptions about Millennials and Hispanics (which by the way is no longer the fastest growing ethnic group in the United States). Asian Americans, now the fastest growing group, may have quite a bit to say about which sports are most popular in 20 years, and Millennials thus far haven't become the avid fans many marketers thought they would be. For some reason, playing the game as a youth does not necessarily translate into consumer behavior later in life as it does for some other high profile spectator sports. But MLS is betting that this will all change in due time, and if places like Seattle and Portland are any indication, it might be a pretty safe bet.
Indeed these prognostications may come to pass (soccer will likely eclipse hockey in popularity), but It is important to note that the majority of soccer fans prefer to watch the English Premier League, a product representing the highest quality soccer in the world, despite the fact that many games air in the wee hours of weekend mornings. It is hard to deny that the quality of play is no doubt the primary driver for the differences in viewership and this is due almost entirely to the relative salaries of the players. One tends to get what one pays for. But MLS salaries won't rise unless marketers can squeeze more money out of current fans through higher ticket prices and expand the fan base through television viewership, which is all unlikely to happen unless the league improves the quality of the product. Brand new stadiums that seat 25,000 have done much to improve the "peripheral" side of the spectator sport product, but the quality of play (the "core" product) still has a long way to go to reach national and eventually international prominence, as have the Big Four major U.S. leagues. Indeed, MLS investors are taking a very long and optimistic view.
General Motors is leaving Europe. Why exit such a key global market? The simplest answer to such a complex question usually lies in revenues and profits (or a sufficient lack thereof), and clearly if GM thought that it was worth continuing operations in Europe, it would most certainly do so. That's the beauty of a for-profit business. Ideology rarely trumps shareholder returns as a basis for strategy, and this is precisely as it should be.
GM cites a prohibitive regulatory environment as the primary reason that marketers have decided to leave the market to explore greener pastures. Increasingly stringent mileage requirements, among many other issues, is driving demand for much smaller (and lighter) vehicles in Europe. But smaller vehicles have lower profit margins than larger ones, and so GM must sell more vehicles to achieve its objectives. For GM marketers, this doesn't exactly scream "opportunity".
Meanwhile, a U.S. administration that is less focused on subsidizing resource-hungry, low return renewable energy programs will provide a much more favorable business environment for a car company that not only loves to sell larger vehicles, but would probably also prefer to sell them here in the U.S. rather than overseas. There is every indication that U.S. fuel requirements (including nixing The Obama Administration's rather fantastical and arbitrary 54.5 mpg goal for 2025) will be adjusted in the near future. After all in marketing we know that non-achievable objectives serve little to no useful purpose, so what is the purpose of setting such an unrealistic objective? The reasons must surely be political in nature. And the bottom line for marketers is that these changing conditions in the political, legal, and regulatory environments necessitate changes in strategy.
And after all, international marketing, for all the attention it gets, can be a rather messy affair and can divert limited company resources from more attractive opportunities at home. The growing regulation of carbon (in efforts to move the needle on climate change back just a little) as well as the desire in developed economies to dramatically increase wages and benefits for an ever-increasing number of workers does have its consequences, and developed nations these days have a tendency to make it far too difficult for companies to operate profitably in an increasingly regulated and high tax business environment.
But excessive regulations in Europe are nothing new, and GM did plan to unload its money-losing European operations almost a decade ago, yet backed away from the move for reasons that remain unclear. Now it looks like an automotive "Brexit" of sorts is in the works. We often forget, in our cultural obsession with achieving what we feel is an an adequate level of social and environmental justice, that for-profit businesses exist to make a profit, and not to serve the public good. This profit orientation is what stokes innovation and creates jobs whose taxes fund government. Although nations have tried alternative models in the past, it really doesn't work very well to have it any other way, and perhaps we all need a refresher on exactly what didn't work in places like the Soviet Union, Venezuela, North Korea, Cuba, and even in China. We must remember that when the cost of doing business becomes too high, private companies will look elsewhere for opportunity. GM is no different from any other company in this respect.
Niagara Falls. On the Canadian side of the river families enjoy restaurants, Ripley's Believe It Or Not! and other cheesy attractions, and a bunch of pretty cool waterfall related tourist attractions. In short, it's pretty crowded and is what most Americans and Canadians would describe as "very touristy". Still, it's a cool place to visit.
But on the U.S. side, it is a whole different experience altogether. Rather than being in the hustle and bustle of too many travelers rubbing too many elbows, one can enjoy more of an outdoor adventure. At least that is the "what" of a new marketing effort by U.S. tourism marketers in an effort to brand the almost forgotten American side as a natural playground to be enjoyed on foot, on bikes, by boat, or even helicopter. The "what" is the single most important thing that a marketer wants the audience to remember about a marketing message, and the hope is that folks who want a "less commercial feel" will stay for longer periods and in greater numbers.
If market research is any indicator, then the effort should enjoy some modicum of success since interviews, focus groups, and visitor surveys all pointed to the area's scenic, historical and natural attributes as important to those visiting and living in the area. The research also revealed a propensity for outdoor adventure, and thus a marketing campaign was born. Results shouldn't be in for a few years, so marketers must be patient and give the message time to resonate among the target audience. It is a gorgeous area and is easily accessed via the underappreciated city of Buffalo, and so there are reasons to think that actively marketing the natural side of this world wonder in a competent manner might work out exactly as marketers have planned.
Target, in an effort to find a position the market that wasn't already held by another brand, pioneered the idea of retailer-designer partnerships in an attempt to bring a bit of "chic" to the masses. This was the 1990's, and the very clever brand marketing strategists in Minnesota enjoyed a unique point of differentiation for several years. But occupying the middle ground between bargain stores and high end department stores was far too vast a space and far too lucrative for competitors to pass up. Soon Gap, H&M and many others got into the act and cluttered up the marketplace.
And so rather than abandon its brand identity, Target has endeavored to make each limited-time artist collaboration attractive and exclusive. Some, like Italian designer Missoni were wildly successful, while others, such a last year's Marimekko Collection, were not as well received, but on the whole the company has done a pretty good job maintaining its position in the market. Yet innovate it must, and so the latest marketer attempt at leveraging the "Tar-jay chic" image involves a touch of spice.
Victoria Beckham, a former pop star who has become a very respectable apparel designer, will be the next designer-in-residence so to speak, offering a line consisting of 200 items priced anywhere from $6 to $70, including tops, pants, children's items and other categories. Beckham has stressed that she is focused on offering a line of clothes for women "who either couldn't afford designer prices or didn't want to pay designer prices". Although this approach is certainly nothing new, Beckham has quite a bit of cache and her brand equity, combined with Target's customer base, should deliver simply fabulous results. It looks like a very good match indeed.
Despite the decades of accumulated equity inherent in the brand, the resounding success the of the original Lego Movie several years ago and a much more recently-released follow-up Batman Lego movie, as well as the usual level of integrated marketing communications efforts, the actual toys themselves are nonetheless failing to generate adequate revenue. Even so, Lego's revenue in 2017 did almost surpass that of longtime rival Mattel, but after almost 10 years of double-digit growth, sales in the U.S. were flat for 2017. And if growth is flat, marketers must do something about it.
It's difficult to figure out just why this is happening all of a sudden. Technology substitutes such as smartphone apps and video games can only be part of the problem, so let's not be too quick to blame these usual suspects. After all these sorts of gadgets have been around for quite a while now, and so the sudden drop in 2016 revenue cannot be blamed on them. In September of 2016, the company did attribute the slowdown on supply chain bottlenecks as well as a pullback in marketing expenditures, two very controllable variables; but after marketing budgets were increased, sales haven't bounced back.
Not resting on any laurels, both Lego and Mattel have been adding tech to their respective product mixes in an attempt to bridge the gap between what the industry terms "digital" and "physical" play. For Lego, it's now bricks and clicks, but marketers say that they will stick to focusing on the brand's signature "brick" format. The brand was near death around the turn of this past century amidst the beginnings of the Digital Revolution, and even back then critics warned that children's shorter attention spans would necessitate major strategic changes to the brand's product mix involving technology. Maybe the Tetris video game that became such a huge fad could have featured Lego blocks. Perhaps there have been some missed opportunities after all.
Lego, however, ended up surprising many industry observers with its success, and the brand's involvement in both Lego movies are examples of sheer marketing genius. What a great way to leverage the brand! In fact, Lego has been and continues to be involved in an immense number of licensing deals. But as far as those aforementioned suggestions to change the product mix go, the company recently remarked, "It's the same story today. But we believe physical play will continue to be relevant. It's about how we make it the most appealing." Indeed. And parents everywhere will be waiting to see what Lego does next..
The NFL's Denver Broncos have not only been to the Super Bowl eight times since the franchise's inception in 1960, a feat accomplished by only a few other teams, its "United in Orange" fan base has filled the stadium to capacity each year since 1964. Most attendees are families that have held seats for a couple of generations, and the waiting list has become prohibitively long (75,000), especially considering that fast-growing metro Denver added about 75,000 new people last year from all over the world. And some of them want Broncos tickets!
But it's not like there aren't any tickets available. It's just that almost all of them (the Broncos allocate a certain small number sold only on game day) are re-sold for a hefty sum by re-sellers. The traditional "scalper" or "ticket broker" is now Uncle Willy, trying to make a quick buck on his family's unused tickets so that Raiders and what's left of Chargers fans are able dilute the home team's advantage with their inordinate and highly abrasive presence. But at least tickets are often available to consumers, albeit at inflated prices (two to three times face value on average), and this practice won't stop completely. But some customers, who have been outed by Broncos interns tasked with tracking secondary market sales on the internet last season, decided to sell the entire season's tickets (including lucrative playoff tickets) and make big bucks, a practice that Broncos marketers believe that they can and should control.
And so team management has taken some pretty bold action and is planning a shake-up of "mile high" proportions. Season ticket holders who failed to attend any games last season are getting the boot without regard to longevity, pedigree, or level of affinity. That will be a rude awakening indeed for some long-time fans, and could even be grounds for a lawsuit, but that's for a future post. If the plan does go through, not only will new customers have access to season ticket packages and be able to consistently consume the sport in a live setting, but loyal fans can be rewarded with seat upgrades left open by the departing free marketeers. If giving long-time season ticket holders the boot is in fact a legal action it should be a great way to infuse new life into the in-game fan base, and you can be sure that some other franchises that routinely have capacity crowds might follow suit. After all, being able to attend the game is an important stop on the "sport elevator" for fans and for the sport marketers who want to build their affinity.
Although the major opportunity in exploiting the Asian-fusion fad has just about exhausted itself, some newer concepts continue to be introduced around the nation to very little fanfare. Hospitality industry professionals know that Americans eventually tire of most food concepts after a while, and this one will be no different, although perhaps this particular idea has been around a bit too long to be considered a short-lived "fad". Let's be fair. But trend or fad notwithstanding, "Big Burrito" did decide to get into the game a few years ago when Chipotle opened a total of 15 ShopHouse Asian-fusion restaurants in an attempt to exploit the popular food category. The concept failed to catch on, however, and after failed attempts to find a buyer, the 15 locations in California, D.C., Maryland, and Illinois will close next week.
This is sad news for the struggling burrito chain, which has also entered the "better burger" category (apparently recklessly) with a concept called TastyMade. TastyMade?!? This concept is likely to go the way of ShopHouse, and not just because both suffer from simply atrocious brand names. TastyMade sounds like a line of cheaply produced snack cakes from the 1930's and ShopHouse sounds like a good name for a dollar store that sprung from the Great Recession. Is this what they were going for? Not likely. The marketers at Chipotle are perhaps still distracted by the major blow to its brand image dealt by a trifecta of e-coli contamination, poorly executed damage control, followed by ongoing problems with store cleanliness and service quality. Ouch. Nevertheless, they could have given these two brands a fighting chance by 1) entering the fusion and burger markets sooner and 2) giving the concepts better brand names.
And there are some pretty bad brand names out there. Or perhaps it would be better if Chipotle marketers stick with vastly improving and altering the core brand. A major brand overhaul might not be a bad idea at this point, but from what we have seen from the company lately, Chipotle appears to be largely confused about the causes and best prescriptions to its problems. And the problems at Chipotle are rather numerous, as has been discussed in several posts over the past six years. Maybe they can (gasp!) spend some real money on traditional marketing tactics like everyone else. But perhaps another trifecta--the stagnation of the Chipotle brand, the failure of ShopHouse, and the probable failure of TastyMade--will finally usher in a much-needed era of change at Big Burrito's Denver headquarters.
McDonald's has struggled with much lately, although the all day breakfast strategy is providing some much needed short-term growth for this stagnant global brand. And an announcement that it is upgrading its ice cream machines, replacing older models that were reported to be offline too often, certainly brightens the outlook for the company a bit. But the bottom line is that the brand has utterly failed to resonate with young adults, a crucial demographic for fast food, and the company has lost about 500 million orders over the past five years despite many attempts to broaden its menu and its customer base. This has many observers wishing founder Ray Kroc was still around.
Well it's not for lack of trying. According the the company, marketers are going back to basics saying to investors, "We don't need to be a different McDonald's, but a better McDonald's". Indeed such platitudes may be comforting, but being "better" is a vague and unconvincing goal to have. The fact that only 1 in 4 Millennials has even tried a Big Mac, according to a recent study, is a very scary thing; and far too many of the young adults who have tried one, don't come back for more. One thing that marketing research conducted on behalf of the company did reveal was that most defectors aren't "trading up" to the more glorified "fast casual" category, but are in fact turning to other fast food options. That sort of thing is really good for a marketer to know, that substitutes aren't the major threat but rather competitors, and it is a great example of why it is always better to conduct research than it is to make assumptions about consumers.
While all-day breakfast has been a hit, it is now clear to marketing strategists that offering healthier options such as snack wraps, salads, and oatmeal in efforts to jump on the health and wellness bandwagon hasn't worked out at all. Higher priced burgers have all failed as well. Indeed, McDonald's is really just inexpensive fast food and it probably shouldn't try to be anything else, but that certainly doesn't mean that it can't continue to replace artificial ingredients and make its products healthier to consume.
And so the new mantra at headquarters is to focus on "core customers" and regain lapsed ones by focusing on improving the quality of its food. New methods of cooking burgers are in the R&D stage of development as well as adjustments to its McCafe concept, and so some significant product changes might be around the bend. The dollar menu was abandoned in favor of the McPick concept, which according to research, now suffers from too many options at too many price points. Oy! And what marketers expect to do about the under-35 crowd (the largest consumers of fast food) failing to identify with the brand in any meaningful way is far beyond me. McDonald's "core customers" are aging and will reduce their fast food consumption as a matter of course over time. This can't be an exciting proposition for investors interested in future returns on investment. Therefore solely focusing on existing customers cannot be a good long-term solution to what ails this struggling brand. It might be time for some entirely new thinking.
With so many legislative proposals at state and local levels to tax controversial ingredients such as salt and sugar, it is instructive to investigate an example of what can happen as a result of such a law in action. We know that when an elastic good (such as a regular Pepsi) becomes more expensive, consumers will use less of it. But does this really work in reality? One need look no further than the excise tax on sweetened beverages recently enacted in Philadelphia because according to the folks at Pepsi, the tax is killing its business. A few days ago the company announced that due to the "economic realities created by the recently enacted beverage tax" it has been forced to eliminate 80 to 100 workers at three distribution plants in the greater Philly area. The city, for its part, has accused the company of "holding hostage the jobs of hardworking people in their battle to overturn the tax". It appears that things are getting somewhat chippy.
Pepsi doesn't like the 1.5 cent-per-ounce sugar tax because it reduces demand for a product that is already in the decline stage of the product life cycle, and the law hasn't really been around long enough to have much effect. Pepsi is sending a message to the rest of the country that passing such a law can result in negative economic consequences even though the massive global company as a whole made $6 billion in profit last year. But it is becoming common practice to use excise taxes to fund pet projects such as Philly's desire to pay for 2,000 pre-kindergarten slots, and Pepsi, like all private companies, isn't in the business of subsidizing such socially responsible activities. At least, not unless it wants to do so in the form of a cause-related marketing campaign. And in this case, it's really sugary-beverage drinkers who are funding this noble cause. The tax raised $5.7 million in January alone, which is twice the amount that city officials have predicted. As benign as funding education may sound, an excise tax can be a slippery slope as almost any product anywhere theoretically can be taxed in such a manner. Sugar, in these types of situations, is essentially being treated like tobacco and alcohol in terms of how it is taxed. Does this really make sense? In terms of slippery slopes, where does it all end?
Most people would probably agree that viewing private companies as cash cows to fund extraneous social programs is no way to run a government. Everyone in the supply chain already pays taxes, and so these are extra funds taken by the public sector. On the other hand, Philadelphia says it has added 250 public sector jobs as a result of the increase in students, but unfortunately these jobs are all taxpayer supported. Pepsi, as a for-profit entity, does not need public money to pay its employees. To the layperson, all of this looks like much ado about nothing, but to a business student, this distinction should be quite important. Public efforts are funded by wealth generated from the private sector (as well as a small amount coming from taxes paid by public employees). This is the way it works. And when the private sector is unable to generate enough income in places like Philly due to falling demand for its sugary beverages, costs in those areas must be reduced. In addition, as consumption decreases the total tax revenue generated will fall and these programs will once again need more public money. Round and round we go.
The city, for its part, robs Peter to pay Paul, but at $5.6 million a month, the law does look like pure genius. Most of these legislative efforts have failed to pass voter approval thus far around the nation, but that hasn't stopped our perennially-broke governments from wanting more of this private money. We already know about tobacco (excise taxes have reduced its use dramatically), but Philadelphia will continue to be a good example of what happens when governments tax much more commonly purchased consumer goods such as juices and sodas. These product categories are already in overall decline, and if more places adopt the sort of legislation that we see in Philly, the effect on companies like Pepsi might end up being rather significant.
Outsourcing business functions to foreign countries is rapidly becoming a much more difficult task. Huge trade imbalances with China, Mexico, Germany, and others over the years has policy-makers in the current administration up in arms about America's role in a number of strategic partnerships. It is true that large imbalances are generally an indicator that the arrangement isn't great for both parties despite the Wall Street mantra that trade barriers between nations are bad, that multi-lateral agreements are better than one-on-one relationships, and that free trade is somehow always a good thing. This is the stuff I learned in business school, but the facts on the ground here in 2017 seem to point towards the fact that the U.S. has been on the losing end of some of this free trade. True, we now have foreign-made goods that are far cheaper than they were before globalization but the loss of many millions of jobs has been a rather hard-to-overlook side-effect. Outsourcing jobs to Mexico in order to make cars which are then sold back to Americans without a border tax or other disincentive, for example, is a practice that is not likely to continue without penalty, especially with both labor unions and administration officials largely in agreement. And with small doses of strategic public shaming offered by the Trump Administration, exposing a few high profile companies looking to outsource, it looks like the new administration's message regarding a new orientation towards "free trade" is beginning to resonate.
Indeed there have been some announcements over the past few weeks regarding companies that have opted to keep jobs here in the U.S., and the latest such statement came from toy giant Hasbro. In short, the company has announced that it will once again make Play-Doh right here in the good old U.S., a practice that was halted in 2004 no doubt due to cost considerations. While this sounds nice and the company does produce about 500 million cans of the stuff per year, the fact of the matter is that 98.5% of the toys sold in the U.S. were not made in the U.S.. Every Christmas I am blown away by the sheer volume of toys children receive these days, no doubt mostly a function of how incredibly cheap these items are to manufacture in the countries that have weak currencies and also lack substantive environmental and labor regulations. In so many households across America, one pile of toys gets dropped off by Santa and another seemingly larger pile goes to "giveaway", all of this being a far cry from those pre-globalization prices that at one time encouraged consumers to be much more discerning. Isn't this sort of consumption also bad for the environment? More and more people are beginning to ask just whom all of this is really helping.
With what are expected to be major changes in the legal and regulatory environment, toy makers (as well as manufacturers in other consumer packaged goods categories) may have to change the way they do business in the very near future. Any barriers to trade will surely involve much higher price points and a consequential drop in overall toy consumption, but the resulting rise in GDP (by having the goods and services produced here) could mitigate some of the negative effects. And maybe consumers can find some better ways to spend their money than on large quantities of toys that children seem to lose interest in almost immediately. Disposable income spent on toys could be used by parents for far more economically-productive purposes. And the money stays here, just as is the case when someone buys from a local business. Haven't we all been told again and again that locally-spent money tends to help the local economy by being circulated locally? If this is true, then why shouldn't this be the case on a more macro level?
Poor economic performance here in the U.S. over the past 30 years has forced us to revisit some long-held, mostly accepted economic positions. And bringing large numbers of jobs back not only won't be easy, but might be nearly impossible due to major advancements in labor-replacing technology. A more expensive worker can be more easily replaced by a less expensive robot these days. It's a fabulously complicated situation, and it shouldn't be only about companies cutting costs and Americans being able to buy cheaper Play Doh. There are several other factors to consider in contemporary economics. And with wages, environmental regulations, and conflict rising worldwide, there is an increasing need for global marketers to make their products geographically closer to the markets in which they are sold as well as in countries with stable governments and economies. As a result, Made in America may soon become a pretty big deal.
The global market for smartphones has matured, since just about everyone with both the ability and the desire for such a device (what marketers call "market potential) already has one. In 2016, six of the top 10 smartphone brands actually reported declines in sales. Believe it or not, Apple declined more than Samsung despite the latter's problems with exploding devices. Simply fascinating! And so now for most brands in this slowing market, marketing efforts should be geared more towards retaining customers who will continue to use the brand's next generation device as well as encouraging existing smartphone users to switch brands once their devices have run through their respective life cycles (about two years).
But the market will surely continue grow as free market economics brings more and more people out of poverty and turns them into global consumers. China, a communist country that has been slow to embrace free market principles, has been a huge success story over the years, but 75% of the world's people still live in less developed nations, so there is much room for future growth, and the category should remain in the maturity stage of the Product Life Cycle for a very, very long time. Remember that a slow-growth, maturing market is still attractive to new entrants as long as it is large enough. Two percent growth in a $100 billion industry, for example, isn't bad. And so it's not surprising that new players are still entering the market. Huawei, Oppo, and Vivo all reported excellent revenue results, and just about everyone else in the category is struggling. But what is surprising is the fact that some of the so-called "new entrants" are brands that most of us are already familiar with. What's going on?
There was a time not too terribly long ago when Blackberry dominated the world of smartphones and Nokia was the big brand among cheaper mobile devices.Both brands began to lose their much needed mojo around 2010 when Apple's iPhone became the darling of the industry and smartphones replaced flip phones en masse. Fast forward six or seven years and Blackberry is now entirely focused on mobile software while Nokia has become a business-to-business leader in telecommunications equipment. Both brands are still alive and well, but now operate in a much smaller B2B universe. And both companies are content to remain where they are, yet there are some marketers out there who believe that these brands still have enough awareness and equity in the consumer market and that this equity can be successfully leveraged by reintroducing the brands to consumers.
And so Blackberry and Nokia phones will once again be available to the buying public, but the phones won't be made by those two companies. Rather, third-party entities are engage in licensing arrangements with the two brands, and will introduce initial models this week. All of this in a slowing market where competitors are struggling to differentiate themselves? An already hyper-competitive industry is about to get even more competitive. Is this good strategy? Do these two "has-been" brands still have enough equity in the market? Are consumer perceptions of these brands too negative for these initiatives to work out as planned? Or is re-introduction preferable to spending millions on establishing brand awareness for a new brand, awareness that Nokia and Blackberry already have? One thing is for sure. I can't wait to see the advertising. Stay tuned!
Promotions at spectator sporting events in the U.S. are very, very common. Sponsor engagement is a big deal, as marketers pay lots of money to be attached to a "sport property" and reap the benefits of fan "affinity" among many other positive results from such a sponsorship association. But sometimes in-game promotions don't involve sponsors at all, but rather are an effort to entertain and engage with fans at the event by the team itself (rather than a sponsor). In San Francisco and other cities, Grateful Dead Night is one such promotion.
The iconic San Francisco-based band whose still-active career now spans 52 years became the largest grossing band in history during the late 80's (a distinction I'm not sure they still have), and although spiritual leader and lead guitarist Jerry Garcia passed away in 1995, the juggernaut just keeps on producing high quality live music. Every show is completely different. The band (now called "Dead and Company") currently plays with John Mayer, who calls the experience the "pinnacle" of his music career, and the band is filling stadiums once again. The Dead are still so popular that Major League Baseball's Giants have held an annual Jerry Garcia/Grateful Dead tribute since 2010. Co-branded tie-dyed t-shirts, live music from dead cover bands, and even appearances by members of the band are some of the features of the promotion.
The promotion is so popular in San Francisco that marketers in other cities are getting into the act. Boston, St. Louis, Cincy, and Philly have previously done the promotion and this year Milwaukee has decided to participate. The band loves it because it still tours in many of these cities, often playing in historic ballparks like Fenway Park and Wrigley Field among other outstanding venues. And sport marketers like it because the band appeals to a huge multi-generational demographic. Marketers allocate a relatively small number of tickets towards the promotion, usually only a few thousand, and so costs are kept in check. And publicity? The t-shirts and the music do the rest of the work.
Perhaps team marketers can find ways to involve their current sponsors in the promotion, and then the whole thing would be just about perfect. And so far, the Dead vibe has been mostly confined to Major League Baseball for reasons that are unclear to me. So perhaps it's not just the baseball players who are the "Boys of Summer". The Grateful Dead, an industry-transforming band that has been touring in one incarnation or another for over 50 summers, have earned that designation as well.
The consumer attitudinal shift towards preferring "cleaner" food products has been in full swing for at least four decades now. Changing attitudes have spawned the now massive Natural and Organic Products Industry, and even mainstream marketers like McDonald's are removing sketchy ingredients and processes, replacing many with substitutes widely considered to be more socially and environmentally-responsible. But Panera has taken the whole idea to an entirely new level.
You may have noticed the intensive national TV advertising campaign, a laregly "informational" approach that communicates the company's now "clean" products as a result of a decade-long quest to remove artificial additives from menu items. A total of 122 ingredients were affected by this effort--a simply staggering number!
The problem is communicating exactly what "clean" means in a regulatory environment that hasn't even yet defined the term "natural". And markers have chosen a generalized comparative approach to the advertising, lambasting the idea of anyone wanting to eat what they call "not food". It's surely clever, but will consumers care? The 2,000 store chain certainly hopes so, and this strategy is clearly not only an exercise in social responsibility, but also a clear effort to re-position the brand in the mind of consumers based on "cleaner" ingredients. Obviously marketers must be very careful when using the words "natural" or "healthy", and indeed marketers may steer clear of this increasingly risky terminology. So far so good, but the company is spending quite a bit of coin on advertising. As such, marketers should be seeing positive results as I write. Will it be enough? We shall see.