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 email@example.com.
Video games have been around since the late 1970's, and almost immediately after introducing Space Invaders and Asteroids (two of the pioneering games) in bars, marketers developed home entertainment systems. The first one I had was called Odyssey, and most of my friends had an Atari system. Arcades sprung up almost immediately, a sort of casino for kids, and when Apple's personal computer was introduced at about the same time, we had hundreds of games to choose from within a few years, including an early version of the classic game, Zelda. The point is, gaming is nothing new, and it used to be largely the domain of kids and young adults.
Fast forward 30 years and many early players are gaming more than ever as adults. It has even become a spectator sport, as there are now several e-gaming leagues around the world. And now the proliferation of mobile apps has sent gaming over the top. From "Candy Crush" to "Mobile Strike" to "Clash of Clans" to "Pokemon Go!", it is clear that video games are for absolutely everyone and can be played almost anywhere.
But it's not just the games themselves that drive revenue. As the Pokemon Go product (distributed free of charge) proved last summer, "add-ons" (such as special weapons or new stories) are playing an increasingly larger role in the gaming industry. In personal selling, this is known as an "upsell". In fact, worldwide spending for add-ons is now about double what is was in 2012, about $5 billion annually, and of course more add-ons tend to increase the desirability of games for longer periods of time. The downside is that all of this will make it a bit more difficult to produce new games that really stand out and become blockbusters; but given the choice, a marketer would rather reap mad profits from a product in the Maturity stage of the Product Life Cycle than take a risk on one in the Introduction phase. After all, the vast majority of new products fail and mature products are often used as "cash cows" to fund new introductions, making it very important for marketers to have several of these in the overall mix.
Indeed, add-ons are part of a long-standing shift in the technological business environment towards "software as a service" rather than as a tangible good bought in brick-and-mortar stores. Thus the new paradigm is "games as services", and all of this has been enabled by the emergence of "the cloud". In this cloud, games are downloaded quickly and easily, and multiple add-ons are available at attractively low price-points. The model is a very lucrative one, and the industry has enjoyed a tremendous run over the last 40 years with no end in sight. Will consumers eventually tire of gaming? I wouldn't bet on it.
It's tough being a high end retailer selling goods that are now being sold for far less in many other stores, but this is precisely where Whole Foods Markets finds itself. The grocer knows that it must reduce prices across the board, but it also doesn't want to tarnish its premium image. How can marketers accomplish this delicate balancing act?
Very, very carefully. For Whole Foods cutting costs requires a much more centralized distribution structure that it currently employs as well as an greater emphasis on selling more of fewer items. Any savings can be passed onto the consumer in the form of lower prices, but better category management will almost surely result in less selection for consumers. In addition, there are worries among many in the industry that Whole Foods would no longer be the launching pad and proving ground for natural/organic brands that it has always been.
That may be so, but offering fewer national brands might be OK with most consumers as long as there are enough local and regional products in the mix (goods commonly priced higher than average) as well as a healthy offering of the store's popular 365 private label brand (goods commonly priced lower than average). We know that younger consumers simply love locally-produced items that are difficult or impossible to get in other places. And carrying fewer big brands will allow Whole Foods greater purchasing power with regard to the brands they do decide to carry. Higher volumes mean improved margins resulting in lower prices as fixed costs are spread over more units. if Whole Foods can do this, it does look like a balancing act of sorts can be achieved here. Indeed, this could be a very smart strategy for the stagnant natural grocery pioneer.
The emergence of fast-casual rivals combined with an industry-wide over-reliance on sales promotions (like discounts and bundles) has put some serious pressure on fast food provider Subway. The brand has also lost some of its position as a healthier food option amidst recent moves to bolster that position, such as eliminating antibiotics from its chicken and switching to cage-free eggs.
But many fast food brands, led by #1 McDonald's, are making these sorts of moves, and it does appear that the entire supply chain is making major changes to reflect new consumer attitudes about food. So most of the message has fallen flat, lost in the din of promotion. Subway's sales have been falling since the beginning of 2016, and for the first time in its history, the company reported a net reduction in stores with 359 stores shutting last year in the United States.
Luckily for shareholders, international growth remains robust at 3.7%, and the fact of the matter is that revenues have been falling industry-wide lately. So Subway might just be a reflection of an overall industry trend rather than an isolated brand problem. Nonetheless the company is overhauling its management team, including high level marketing positions, so there is clearly a call to action. With almost 27,000 stores, Subway has the largest footprint of any eatery including McDonald's, which is first by revenue, and so a reduction of a few hundred under-performing stores means almost nothing in the greater scheme of things. Indeed a new, more modern logo has helped freshen things a bit, but escaping this current malaise will require the right kind of advertising. The "Eat Fresh" message isn't having the desired impact at this point, and so Subway's internal marketing team and ad agency must be up to the task of developing a more effective creative strategy. Let's see what happens.
When a government entity deems something illegal, an unsanctioned "black market" always develops to meet demand for the illegal good or service if such a demand exists. We have seen this effect with alcohol during Prohibition as well as with prostitution and illegal drugs, but what many people don't know is that prohibitively high taxes can also help foster a robust black market.
Let's take cigarettes as an example. At present, high excise taxes make New York state the most expensive place to buy cigarettes in the country at $10.50 for a pack. Raise the tax, and fewer people will smoke, right? Perhaps, but remember how addictive tobacco is, and smoking rates have dropped below 15%. And very high taxes have created a rather lucrative market for cigarette smugglers, with much of this ill-gotten money being used by criminals to fund organized crime and increasingly, terrorism.Yet despite the real and proven side effects of high taxation, Mayor Bill de Blasio of New York City has nonetheless proposed another increase to $13 a pack, which will make New York (which already has the highest smuggling rate in the nation) an even larger player in the massive black market for cigarettes. Things have gotten so bad that the State Department issued a report two years ago confirming the role of cigarettes in particular with regard to funding illicit activities.
Another increase in the cigarette price will certainly adversely impact the low income people who now represent the majority of smokers as they struggle to pay for the habit or quit altogether, and will surely only make the smuggling problem in NYC worse. As a result, limited police resources will be diverted towards chasing down these untaxed, black market smokes called "loosies". At the same time, more money becomes available to fund illegal activities all in the name of forcing a few more people to give up the habit. Cigarettes are nasty, but increasing the already massive price differential between the legal and illegal smokes will surely drive up black market profits, and more criminals will get into the game as a result.
The good mayor might have benevolent intentions, but there will be many negative, unintended side effects. The only move that would make things worse would be to outlaw them entirely as we have with prostitution and drugs, largely considered to be "victim-less" crimes". Lessons from Prohibition were learned, as alcohol became legal again after what can only be described as a horrible social experiment, but apparently these lessons have not been applied across other categories of unsavory products. Meanwhile, cigarette marketers must continue to raise prices to compensate for demand that has been falling for decades. Indeed, this is a product category that will eventually be legislated out of existence, but apparently not without significant side effects. The Law of Unintended Consequences always applies. Mayor DeBlasio might have good intentions, but he like so many of our elected officials could benefit from taking one or more economics courses. Good intentions often have negative consequences, and these should always be considered when making major decisions.
What might be interpreted as good news for consumers might also be seen as bad news for the advertisers that wish to reach them. Ad blockers have been around for a while, and students of marketing know that there is no such thing as free content. The ads are there to pay for the content, and if no one clicks on the ads then advertisers will stop placing them. And so doesn't blocking ads threaten the existence of the content itself?
Tell that to Google, the leader in Internet advertising. The popular search engine plans to introduce a new ad blocking feature on its popular web browser Chrome which would filter out certain ad types that the company says provide bad experiences for users as they surf the web. This might seem disingenuous for Google, but any moves the massive company makes will have far reaching effects. Pop-ups, auto-playing video ads, and even ads with countdown timers could be blocked with this new software. It is unclear just which kinds of ads will be targeted. Nevertheless, this means that advertisers will have to devise new, less-intrusive ways of reaching consumers online, especially if the entire industry follows Google's lead.
As it stands now, almost anything goes in the world of Internet advertising. And with the recent highly-publicized problems with regard to programmatic ads appearing along side questionable content, the new Chrome feature could be seen as an initial attempt by the search engine to exercise more control over what passes through its portal. Indeed, the legislative environment might soon require this sort of oversight by Internet portals, so it's probably best that the marketers at Google make legitimate attempts at self-regulation proactively as a defensive measure. If the company makes significant self-regulatory moves, Facebook and the rest of the industry will surely follow.
Television continues to migrate onto the Internet, but we must not forget that it's all still just video content, and that this content must be paid for, one way or another. It is likely that the future involves multiple connected devices, large and small, delivering content that we will largely pay for. Indeed, we won't be paying nearly what we are paying now, and we won't be paying for a bunch of channels that we don't want. Hallelujah! The future will include both live and on-demand options, as it does now. In short, the Internet will not destroy television, but rather the two mediums are converging into one integrated video offering. It's just a bit messy right now as the various entities figure out how all the revenue is to be shared. There are currently 500 shows in production across the board. Some more predictions:
Figure it all out they will; and a new study involving 500 companies shows that in just five years, the majority of scripted content will be viewed online rather than on traditional televisions. Past predictions of this imminent eclipse were not nearly as liberal as this one is. This is not to say that everyone will be watching full length shows on their smartphones or on laptops and tablets. For most viewers, the devices are likely to be connected to the larger screens we are already using, which are better for day-to-day viewing. So it's not really the TV's that are going away, but rather the whole idea of "episodic viewing" controlled by the content distributors rather than the consumer.
And none of this is really very new. The "captive audience" model has been threatened since the invention of the VCR in the 70's, a magical device that allowed consumers to tape (record) shows and watch them when they want to; and this happened only 20 or so years after widespread adoption of the television medium. The more recent iteration, the DVR, is even more consumer-friendly. And so disruption has the norm. New entrants like Amazon and Netflix are grabbing their share of the market, but powerful and established traditional TV content distributors are rapidly figuring out the new Internet paradigm, and so they will still be the dominant distributors of video content in the future. The model of either paying for content directly or by watching commercials isn't going away either. Consumers will continue to "cut the cord" on their TV's only to consume the TV content online where it is already migrating. The content we consume will be largely on demand, and the model of the 24-hour TV station showing what it wants to show will no longer be the dominant model, but it is unlikely to disappear altogether. Not everyone wants to customize everything all of the time. Even Millennials, the oldest of whom are mercifully reaching middle-age, will eventually tire of too much choice and variety as they age. While general content channels like the traditional networks might be utterly transformed or eliminated entirely, some themed channels are likely to remain.
These are merely predictions, but much of this stuff is already happening, and the pace of change in media has accelerated greatly. This means that some very smart people are having to make some very important decisions over a very short period of time. Enjoy the shows!
With every new major stadium being built these days, it seems that there is a new venue-naming-rights record being broken. Currently, the top naming-rights deal in North America is at New Jersey's MetLife Stadium, a deal worth between $16 million and $25 million a year. Only insiders know for sure how much MetLife is paying. But with new NFL stadiums to be built in both Los Angeles and Las Vegas in the very near future, a new naming rights record will probably be reached.
A major downturn in the economy could certainly change things, but barring that, many sports researchers think that a shared stadium in Los Angeles could fetch as much as $30 million per year for 20 years. It sounds incredible. Why so much? The sheer size of the market says a lot about how much any particular naming rights agreement might be worth. In comparison, the recently opened T-Mobile arena in Las Vegas only fetched $6 million a year to house numerous live acts and an NHL expansion franchise called The Golden Knights.
On the other hand, a stadium for the itinerant Raiders in Las Vegas could fetch as much as $18 million a year, according to some industry experts, suggesting that the NFL has quite a bit more brand equity than does the NHL, which is another factor in pricing. Indeed, a sponsor must pay much more to attach its brand to a sport property with lots of brand equity that is also located in a large market. And although Las Vegas isn't a large market, the Raiders and their facility will attract a very global base of customers including millions of visitors. It also will be multi-functional, which adds to any potential naming rights value.
Of course all of this begs the question, "How many unattached brands that wish to 'market through sport' have pockets deep enough to do so at the NFL level?" Denver's Broncos are also looking for a brand partner, albeit only for an estimated $10 million per year to assume the rights to an aging stadium, and so far it hasn't exactly been easy. Many of the larger brands are already tied up in existing agreements and can't commit to multiple long-term, high-dollar marketing partnerships. Nevertheless, naming-rights agreements will likely be signed on all three fronts within the next year or so, with the Broncos deal to replace recently-deceased Sports Authority being the most pressing one. After all, the stadiums in Las Vegas and Los Angeles are still a few years from reality. It sure is getting expensive, but in an increasingly cluttered marketing environment, marketing through sport is becoming an increasingly desirable proposition, and the price for such access will rise with the demand.
Gillette absolutely dominates the global razor business and is also one of the industry's most premium brands. This is a fact. Success has been fairly easy for this 115-year-old first mover brand, and the winning strategy has been to simply introduce new iterations of a few products, adding new features (not necessarily benefits) while also raising prices. It sounds a bit like Apple's iPhone strategy, but the situation probably has more in common with Whole Foods Markets, a pioneering natural foods retailer, than it does Apple.
Like Whole Foods, Gillette is a high end brand, and for many years it has perched atop a field of lesser competitors. But as competition intensified, other brands emerged that offered the same or similar benefits at lower prices. For Gillette, online competition from Harry's and Dollar Shave Club completely transformed a sector that once had only two true competitors--Gillette and Schick. And now both brands are getting a trim.
To be sure, Gillette still controls 75% of the market, but this number falls every year, and as a result, marketers have announced that some razor prices will be cut as much as 20%. While some observers see this as an act of desperation, savvy marketers know that reducing the price will likely stall the steady loss of market share the brand has been experiencing over the last few years. Although Gillette's premium positioning might be slightly affected, the move is a good idea since "prestige" positioning is really not an option for this ubiquitous brand. And since most of its products are mature, maintaining market share should be the prime directive for marketers, until they are able introduce one or more exciting, new products.
Meanwhile, the aforementioned direct-to-consumer brands are slowly chipping away at what Gillette (and to a lesser extent Schick) has built over so many years. Gillette certainly has the option of broadening its channels of distribution beyond traditional brick-and-mortar retailers and embracing a more e-commerce-oriented approach. Whole Foods, the retailer mentioned earlier, also faces challenges related to its e-commerce platform and is now lowering prices across the board in its stores. Currently both of these pioneering giants are losing market share and are in the midst of making some important strategic decisions. Let's see what happens.
Even by the most conservative estimates, the two-year-old Apple Pay system has been slow to acquire regular users. Security concerns, a lack of broad retailer acceptance, and relatively little marketing have combined to deter 87% of iPhone users from using the system.
It looked like a no-brainer. Instead of paying by credit card or using cash, a customer would simply wave his/her phone over a scanner and voila! The checkout process goes faster and Americans can leave their wallets at home. But, Apple's signature hubris notwithstanding, it hasn't worked out that way thus far. The technology has been somewhat slow to diffuse across the population. Indeed forty percent of U.S. consumers have security concerns about digital payment systems, only 1/3 of retailers have adopted the technology, and Apple hasn't really done much to promote the product or change attitudes.
But perhaps this is all part of the strategy. The product is in fact growing faster than any other mobile-payment service, and it is clear that the technology might be a bit ahead of its time. Give the public five years or so and things might be very different. Or, Apple could use some of the pile of cash it is sitting on to promote the service thereby raising the entire category sooner. That would be a neat move, but perhaps Apple is content to just sit and wait for consumers to finally come around. Mobile payment does seem to be the wave of the future, so Apple and its competitors have time to spare.
So much has already been written on the negative publicity issues facing United Airlines, that the latest problems bear mentioning here in this column. It all began several weeks ago when employees refused to allow two teenage girls traveling on company-comped "buddy passes" to board due to the impropriety of their attire. The culprit? Leggings. I guess rules are rules even if they were written in the 1970's.
Fast forward a few weeks and we have the viral video of a bloodied man being dragged off an airplane after refusing police orders to vacate his seat so that a United crew could make a flight the next morning. Three passengers took the strong-arm offer of $800 and one did not. He was unceremoniously removed.
The airline lost about a billion in market value following the incident, and although most travelers really do not have much of a choice when it comes to flying one of only four major carriers, the brand is expected to take a huge hit, at least temporarily. A lawsuit has been filed, and the hope among the traveling public is that the entire industry (not just United) will be forced to change its ways when it comes to overbooking flights and involuntarily bumping passengers. In 2015 alone, over 400,000 passengers were bumped voluntarily, happily volunteering and accepting whatever the airline offered, but over 40,000 people were held off planes against their will. That's far too many. Obviously this is a systemic problem facing the entire industry and not just unique to United.
So far so good. United has announced that it will no longer pull customers from planes after they have boarded and is forcing crew members to give 60 minutes notice when they have a "must-ride" situation. reviewing and repealing policies that are outdated or just plain unfriendly to customers is nice, but self-regulation (which is voluntary) may not be enough. And the myriad calls for increased government regulation are becoming rather difficult to ignore since the lack of meaningful competition among the remaining major carriers over the past decade has resulted in reduced customer satisfaction and higher prices. Indeed much has been written on the fact that flying has become a miserable experience for the average traveler. Isn't it high time for regulators to step in? It wasn't long ago that passengers were being stranded on airplanes for several hours at a time, forcing regulators to act. Shouldn't this United debacle be the proverbial straw that breaks the camel's back? How much more can we take? Let's see what the courts say about all this.
What a movie franchise Fast and Furious has become! It all began as an American movie about street racing culture and now the eighth and latest installment has set a new box office record for global ticket revenue. The movie, called the Fate of the Furious or the Fast and Furious 8, depending on where it was released, opened to an estimated $529 million in the first weekend. Holy cow!
In case you are not sufficiently impressed, a bit of context might be necessary here. The previous opening weekend record was Jurassic World in 2015 with $316 million in revenue generated globally. Star Wars: The Force Awakens generated $529 million in the month of December. The WHOLE month of December. And the Star Wars franchise has developed a lot of brand equity over a longer period of time (40 years). This might be the first truly global movie. What gives?
Who knows? A distinctively multi-cultural cast certainly helps, but that can't explain very much of it. It appears that the movie did well in every single market in which it was released, as seemingly everyone embraced the 8th installment of a series that many, many Americans find unwatchable. In fact, the movie only generated $100 million in the U.S., a fact that is having rather large implications for movie marketers. How?
As the global market for American movies continues to expand beyond China, there are increasingly more opportunities to generate revenue abroad as opposed to domestically. These days, lots of movies perform better overseas than they do here in the U.S., and therefore it shouldn't be terribly surprising to see an increasing number of movies that are now made for more international tastes rather than the existing paradigm of making movies for Americans that may or may not resonate in international markets. Therefore will see more movies that flop in the U.S., but succeed elsewhere, since different folks like different strokes. And the Fast and Furious franchise isn't done yet. Stay tuned for a theme park and a touring arena show set to launch next year. And probably some more movies. The whole thing is simply remarkable. A veritable Feast for the Furious.
Colorado's cash-strapped Thompson School District is willing to entertain some rather creative solutions to funding issues. Many marketers would love to have more access to students in their captive school environments, but generally speaking educators have been reticent to allow much marketing in the schools. This is why a recent proposal by district officials to use school buses as rolling billboards to generate much-needed revenue is interesting.
We already see ads on just about every form of transportation. The "wraps" around the trains and buses that have become so ubiquitous in high density metropolitan areas are looking pretty cool these days. marketers are getting very good at delivering messaging in very short bursts, a necessity of 21st century marketing communications. But is a school bus an appropriate "vehicle" for delivering advertising messages?
This is an interesting question, but consider how far we have come as a society in terms of our acceptance of advertisements. Not long ago product placements in movies, TV shows and video games were controversial. And the bus ads would be targeted not to students, but to those who see the bus as it goes by, which is no different from how most forms of transportation advertising works. And the practice is not at all new.
The proposed Thompson ads would meet Colorado Department of Education standards to make sure they are appropriate for school buses. The initial interest in placing ads is apparently there, and so a pilot project might be imminent. Let's see what happens.
Minor League Baseball doesn't offer much in the way of excitement on the field. Rather, consumers enjoy what is sometimes called the "peripheral product"--that is, everything else. Players are there for sometimes only weeks, the quality of play is very inconsistent, and teams change affiliations all the time. As a result, the 160 MLB-affiliated clubs don't enjoy nearly the level of fan affinity that exists in the Majors. But that won't stop good marketers from trying anyway.
MiLB's first effort to brand all of the levels in minor league ball in one cohesive campaign rather than relying solely on individual teams developing their own creative strategies is unprecedented, and its slogan, "It's Fun to be a Fan" is loosely targeted towards the 75% of Americans who live in minor league markets. The goal is to grow annual attendance from 42 million last season to 50 million by 2026, a modest growth rate of 2% annually.
"It's Fun to be a Fan" has nine national brands on board as sponsors who will help spread the word .The digital portion of what promises to be a rather modest integrated marketing communications campaign is already underway. There is social media. There is an app. There is in-stadium promotion. There will soon be a fan rewards program, which will first be beta tested in select markets. There will be no major ad spend, but the effort will likely encourage the 100 or so teams that are doing very little marketing at present to up their game a bit. Even without a major ad spend, a collective effort of this sort should produce the modest growth expected. The minor leagues are finally doing some major league marketing.
China has developed a well-earned reputation as the "world's workshop for counterfeit goods", and this should be no surprise to any astute student of business. But this particular piece isn't about the fake stuff, but rather the changing attitudes among some higher-income Chinese consumers towards counterfeit goods.
It is worth noting that officially-licensed (and paid for) goods sold in China reached $4.5 billion in 2015, up 30% from a year earlier. This is nothing compared to the $43 billion sold in the U.S. (a comparatively tiny nation), but the Asian country is expected to soon surpass Japan in sales of licensed merchandise. So that's pretty cool. Increased access to filmed entertainment, which is still quite heavily restricted and censored by the Communist government there, has been offered as a primary driver here. Simpsons and Minions-branded goods, for example, are particularly popular in the Chinese officially-licensed "movies-to merchandise" category at present.
But let's not get too terribly excited about this. An estimated $280 billion in counterfeit goods were sold in China in 2013 (versus a total of $113 billion in licensed goods sold worldwide) , and so the culture has a long way to go before it embraces dominant global attitudes about protecting intellectual property. Further censorship by the government would almost certainly halt the growth of legitimate goods, and there is no reason to believe that this could not happen at any time. But the increasing level of consumer sophistication, at least among the better-heeled Chinese, means that an increasing number of consumers in this massive market will demand higher quality, more authentic global merchandise in the future. And this is a very good thing.
Packaged foods brands have been experiencing slowing sales amidst changing consumer attitudes and behaviors and, as a result, many of these brands are up for sale. Many shoppers favor fresher food these days, and food prices have been falling for several years, which means that falling sales volume is more difficult for marketers to absorb. And rather than trying to be represented in every category, marketers are instead focusing on specific product groups or are moving away from food and towards the faster growing personal care and household products categories. Indeed Nestle, Unilever, ConAgra, Pepsi and many other concerns are currently trying to shed under-performing brands.
The biggest questions are whether or not buyers for antiquated, struggling brands like I Can't Believe It's Not Butter and Chef Boyardee will emerge at all and, if they do, whether or not new marketers with fresh ideas can actually turn things around. In an age when most established brands are struggling to attract young adults, reversing fortunes seems like a rather Herculean task. Consumer preferences toward purchasing products that are fresher, more natural, and produced locally aren't going away any time soon. And so it is likely that these brands, some of them over 100 years old, will have to do more than just undergo a transfer of ownership. It is also likely that in 20 years, the vast majority of these brands will either have transformed in some meaningful way or will no longer be in existence. The same thing is already happening with major retailers, a dramatic contraction spurred by consumer changes in buying behavior, and so food companies aren't alone in their struggle to maintain relevance. The Culling of the Brands has begun.
On the heels of yet more sexual harassment allegations at Fox News, some advertisers have decided to pull advertisements from the very popular "The O"Reilly Factor" program. A report from ideological rival, The New York Times, reported that $13 million in payments were made by 21st Century Fox and Mr. O'Reilly to silence female employees. This sort of thing has happened before, and clearly there is a culture problem at the network, but if there are still lots of viewers, why pull the advertising?
The rapid response by BMW, Allstate, GlaxoSmithKline and others is a great example of marketers not wanting to be associated with content considered too controversial or with personalities accused of inappropriate behavior. Ultimately, marketers want to be associated with content that is aligned with the brand's values, and sexual harassment isn't a very common brand value these days.
The truth notwithstanding, it is perception that matters; but if the show doesn't lose its audience, one would expect that there will be little trouble finding advertisers even if they aren't quite the same ones as before. But if the show does begin to drop in the ratings, advertisers might be tougher to come by and Mr. O'Reilly might lose his job. The most likely scenario is that it will all just blow over, but the entire network, not just Mr. O'Reilly, is facing a handful of legal issues at present related to treatment of employees by older, long-standing employees. It appears that a company culture overhaul is needed so that the brand doesn't suffer any further damage. Let's see if Fox, which like the Wall Street Journal provides a valuable service as one of America's only major, "non-progressive" news sources, is up to the task.
Many of the world's largest brands are considering by-passing brick-and-mortar retailers and offering consumers the option to purchase products through Amazon. Why? Retailers often absorb up to 50% of the retail price, while the wholesalers that aggregate these goods for retailers might take 10 or 15% of the total. Ouch. And add this to the fact that many retailers are offering more and more private label, store-brand goods that cannibalize and almost always undercut the branded products that are sold next to them. For these and many other reasons, it certainly explains how liberating the direct-to-consumer TV model and the Internet have been for these product marketers, who have felt bullied by their more powerful and always-demanding wholesale and retail partners.
Now, it appears that a new era of liberation is upon us. Amazon is of course also a retailer, but since it doesn't have the added expense of operating brick-and-mortar locations, it has a far more efficient business model. It also acts as its own distributor in most cases, and so when goods are transported and aggregated from multiple manufacturers, they can be stored and drop-shipped to individual customers very cost-effectively. Most large retailers have this advantage of vertical integration, but still have to incur the massive costs of maintaining a massive network of retailers in multiple regions. And well-known Amazon doesn't have to do a whole lot of marketing. The Amazon store fronts that are beginning to spring up are there for the convenience of customers who might not want to wait for (or pay for) delivery. This means that manufacturers can enjoy the high volumes that traditional wholesalers and retailers offer without having to pay the huge costs of working with such supply chain partners. Amazon takes a cut, but not the chunk that Wal-Mart, Target, Costco, et al., demand.
Packaged food is an $800 billion category that is still dominated by a handful of brick-and-mortar players who, among other things, control the prices consumers end up paying. More competition is a good thing, and brick-and-mortar retailers will have to continue to improve their e-commerce platforms to compete with this emerging paradigm. Some offending brands might even be thrown off the shelves in favor of store brands or competitor brands who choose to eschew the channel conflict that working with Amazon would create and are this seen by these major retailers as more cooperative. And other e-commerce players should also take heed, since Amazon, with its industry-busting cost-effective business model and massive brand equity, continues to creep into almost every aspect of what we buy. Pricing structures, supply chain relationships, and even the way goods are packaged might be transformed in very significant ways. This company is getting very powerful indeed.
It looks like there is yet more trouble ahead for the grocery and big box channels, as marketers who have never before sold their brands direct-to-consumer are considering using Amazon as a platform to do just that. The company has invited some of the world's largest branded product marketers to its headquarters in Seattle in an effort to persuade them to bypass the traditional retail channel and sell their products more profitably through the famous retail portal. While big brands are highly unlikely to do so exclusively, a more direct route to the consumer for brands like Cheerios has always been a very tempting proposition.
If successful this would represent the long-anticipated shift that major brands have been expected to make, except instead of attracting consumers to and selling products on their own websites, the companies are now able to use Amazon to aggregate buyers and facilitate the exchange process for them. Amazon will not only deliver the goods, but consumers also have the option to pick orders up at a variety of Amazon drop sites for more immediate gratification. What's not to like?
Traditionally, it has been the retailers such as Wal-Mart, Target, Costco, Safeway, etc. who have wielded the vast majority of power in the supply chains for consumer packaged goods. After all, they are closest to the consumer and ultimately it is they who decide what to put on the shelves. Most major grocery stores now offer deliver services partly in response to threats from the likes of Amazon, but branded products marketers do have many incentives to bypass this intermediary if they can do so. Amazon might be just what these marketers need to do just that.
Over the past few years, we have heard a lot about the "gig economy" wherein workers patch together different jobs to make a living, but musicians and other live performers have been "gigging" for hundreds of years. The pay has never been very good, and tips have always been appreciated (but never expected). Now that the recorded music segment of the industry has fallen victim to creative destruction, it's tough to make much money by selling one "iTune" at a time. And so, for the most part musicians are taking their shows on the road.
And that's great news since young consumers vastly prefer experiences over tangible goods, and what can be better than live music? But even with a bevvy of venues available these days, it's still tough for working pro's to carve out a living. And this is where "crowd sourcing" comes in. More live performers are turning to apps in addition to social media so that they are better able to connect with fans one-to-one. This way fans can get updates, watch rehearsals, access live streaming concerts, as well a host of other benefits. In short, apps are enabling live music marketers and other performers to build a global fan base in ways undreamed of by the performers of the past.
At present, fans don't pay for the access but rather use "virtual tip jars" as a means of payment. And it works! New services have even sprung up from this demand, including one live streaming app called YouNow. The app has 34 million registered users at present. Apple and Google take a cut (1/3) since they help promote and distribute the apps, and the remainder goes to the act creating the content. At present, this emerging sector features all kinds of entertainment content (much of it is silly, but one comedian in particular says he earns $20,000 a month), and as word-of-mouth spreads there will surely be much more to come.
While Americans have always been a generous, philanthropic bunch, the idea of "virtual gifting" (or tipping) takes giving (or tipping) to a whole new level. But, it's important that we don't forget that this is basically the way that e-commerce started. The internet opened up the whole world of retail to just about anyone with a computer and online access. The "little guy" loved it! But eventually too much clutter will became an issue as everyone got into the act; but for now, the more ambitious, entrepreneurial performers out there have a wonderful new way to get paid for their artistic output. The early recipients of "crowdfunding" have certainly done well, but increasing clutter does appear to threaten future opportunities to raise money in this fashion. There is no reason to believe that the rapid evolution of this new paradigm would be any different.
McDonald's is a lot like Wal-Mart in that as market leader, it takes a lot of flak for the industry, and even the positive changes it makes are scrutinized to a degree not experienced by smaller competitors. Recently the company has made socially responsible moves such as freeing its hens from cages and embarking on a lengthy reformulation process wherein many artificial colors, flavors and preservatives are being removed. The critics, however, are unmoved.
The latest big announcement involves replacing the flash frozen patties in its Quarter Pounder with fresh patties, a move that must make the folks at Wendy's just a tad nervous. Critics scoff that such a move will make little difference in the slow decline of the brand, and they would indeed be correct if that was all that the company was doing to improve. But McMarketers are taking a gradual approach to improving the product mix, with the president of the company saying, "We're just getting started. We will continue to make moves on the burger line."
Some experts would warn that such a gradual approach to improvement might be lost on most consumers as they become gradually accustomed to it. It might be better to make these improvements quietly in a laboratory and then introduce them all at once in the form of a major communications endeavor. But McDonald's has a long way to go in terms of improving its brand reputation, especially among the crucial 18-35 crowd, only 25% of whom have even tried a Big Mac according to a recent study. Perhaps a gradual approach is best, culminating in a sort of "brand reintroduction" in a dozen years or so, once enough of a transformation has taken place. Besides, every announcement gets coverage from both traditional and social media.
The company is testing a delivery concept, mobile ordering, and table service at certain locations. Premium offerings have fallen flat over the past decades and so working on making existing products better is a sound strategy. Much also needs to be done with regard to the in-store aesthetic, and McMarketers are no doubt working on this as well. Will it be enough? The brand is still very powerful and revenue is still growing, so there is no reason to be overly pessimistic. Slow change is better than no change at all.
While many retailers are busy downsizing, Swedish "fast-fashion" retailer Hennes and Mauritz, better known as H&M, is still moving on up. Fast fashion is a fairly new apparel category positioned on providing contemporary designs at an affordable price, with retailers able to quickly alter the product mix to meet shifting fashion trends.
The company has done all of this very successfully and, with the proceeds from such success, continues to expand its global footprint which is approaching 5,000 stores. Some experts warn against this over-expansion, citing slowing sales over the past few years, but revenues and profits are still healthy. And why not expand at a time when so many other retailers are contracting? H&M has lots of room to grow in the U.S., and most mall owners will be delighted to offer space at a discount to such a popular retailer, not only to fill the empty space, but also in hopes it will attract customers for the mall itself.
Colorado is one of the places that has seen a significant increase in H&M's presence, with 13 stores opening since 2011. Its newest location will be about 20,000 square feet and will not only only carry the company's signature clothing line for men and women, but also a store-within-a-store featuring accessories. Indeed it is nice to see a brand do so well amidst all of the carnage, but offering the right mix of products at the right price to the right group of people is a strategy that never seems to go out of style.