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.
Have you ever wondered what drives the some of the suggestions that music and movie sites make for their users? Of course, some of it is based on past preferences, but the Wall Street Journal published a fascinating article several weeks ago about streaming services such as Spotify and Netflix who are eschewing higher margin content produced by bigger name artists in favor of lower margin content produced by lesser names or by artists with whom the company has a cozy agreement. This is very interesting indeed.
Both services are absolutely unbelievable in both scale and scope, but after you have waxed nostalgia for a few years watching old TV shows and listening to old tunes, it eventually gets a bit harder to decide what you want to listen to or watch when you log onto the service. And so the services suggest titles based on what they think users will like, but there have been allegations that Spotify, for example, pushes what some call “fake artists”, who are not really fake but rather they are low profile entities who are paid to make sell-able content directed by marketers. Sometimes they use pseudonyms. So why is this an issue?
Since these potential selections appear when you open the app above the recommendations based on what you listened to, it looks like there might be some deception happening here. Some of these recommendations involve “special deals” that have been cut with artists, paying them significantly less than what other artists are paid, and so this could be a bit dicey. In other words, Spotify wants you to listen to the content it makes the most money on. That's OK, but a little disclosure would be nice here. Just as brand endorsers and “ambassadors” must disclose relationships with the brands they sometimes covertly endorse, and advertisers must disclose that the content you are viewing is actually advertising, these sorts of relationships should have to be disclosed by the content provider. Period. Just as the FTC has required that non-organic Google searches that appear at the top of the page (that is, paid advertising) be more identifiable as such, there clearly needs to be similar transparency in this case. Let’s see if this actually happens.
The NFL and other major professional spectator sport leagues have all made significant efforts to expand their respective global footprints, but expanding the physical product has been limited to playing a handful of games on foreign soil in the hopes of selling licensed merchandise in the markets they decide to visit. This has all been very nice, and has resulted in a great deal of growth in some international markets; and as more players enter the leagues from those international markets, marketers can sell more stuff. The Internet has allowed marketers to reach consumers in unprecedented proportions, and now the revenue model is changing.
The NFL and Chinese internet company Tencent Holdings have announced that the latter will stream over 100 games provided by the former for at least the next three years. The 900 million Chinese users of Tencent who wish to access games will be able to do so free of charge and will be able to listen to Chinese-language commentators and access NFL news on the Tencent site. Revenue for Tencent will be generated through advertising and the NFL not only gets revenue from Tencent , but will no doubt sell more licensed merchandise as a result.
Indeed it may be quite a while before the NFL enjoys the success that the NBA has enjoyed in China for the past 15 years, and frankly it is unlikely to match it, especially considering that football is proving to be a bit too dangerous of a sport and that overall viewership might now be in decline. We will see if last year’s eight percent drop was an aberration. As far as China goes, the NFL produced a 16-episode reality TV series back in 2009 about a pop band exploring football culture in the U.S. and has since sold rights to 19 different provincial satellite-TV channels. But with eyeballs in China also moving to mobile devices, the Tencent arrangement might have much greater potential to grow the brand. This will certainly be another interesting year for football.
Many of us rely on reviews to help us cut through the clutter of entertainment content, and this has become especially important now that there is so much content on the Internet. But there is far too much of what a former student of mine would call "Internet poop" out there, thus making reviews more important than ever in the decision-making process for consumers. And so we seek information from personal sources such as friends and social media contacts, as well as impersonal sources such as online reviews from amateur users and professional critics alike. Yet the opinions of friends and random online people are one thing, but what happens when we can't trust the reviews from the professionals?
Perhaps you have heard of Metacritic, a website that aggregates the reviews of multiple critics for things like music, movies, TV shows, and even video games. It is rapidly becoming a very important part of the consumer decision-making process for many people, and there is good reason to think that reviews in general are...well..too positive. Out of 7,287 albums on the market, only eight were given the dreaded "red" score, meaning that almost no reviews were "generally unfavorable" or downright horrible. Wow. That's a lot of great music. So far this year, not one album has earned a "red" score, so this must be the best year for music ever. Hmm...Judging from what I've been hearing, that's pretty funny. The good news is that movies, by contrast, get more negative reviews, but if you believe that only 39 out of the 380 movies produced this year so far deserve a "red" score", I think you'd probably also want to buy my used golf clubs. That's a lot of good movies, eh?
What's happening here? Some speculate that the power dynamic between stars and critics has changed, largely due to the decentralization of the critic network. In short, critics have to be nicer to stars. And reviewers, like all humans, tend to herd together. More importantly, many academics have found through research and anecdotal observation that most Americans, especially young ones, no longer have much of an appetite for criticism, and we also know that many people now feel that criticism itself has become so ubiquitous that it doesn't matter as much as it used to. We have been told for so long that if we just show up and participate, the effort is good enough in and of itself. This is an unrealistic way to go through life. The Lego Movie song, "Everything is Awesome" comes to mind. Bob Ross, the famous PBS TV painter, called mistakes "happy accidents" and many of us bought it, so perhaps we can blame him for some of this. And of course anonymous criticism is simply everywhere on the Internet, and so perhaps people are becoming desensitized to it.
Indeed the aversion to criticism appears to be yet another social disruption that can be attributed to the Millennial generation and their largely Baby Boomer parents, but don't expect this particular trend to last very long in its present form. And even though the next generation (just reaching college-age) is already showing the same aversion to negative feedback, these sorts of social trends don't tend to last forever. Eventually, prevailing attitudes give way to changing attitudes and the proverbial pendulum swings the other way. At least we certainly hope that happens. A society without blunt criticism from people unafraid to expose who they are as well as professional critics isn't a place that can prosper for very long. It does appear that collectively, we all have to toughen up. The world is often not a very positive place, and negative feedback, when it is constructive in nature, can help people and organizations improve. Marketers, for their part, absolutely rely on negative feedback for every aspect of the Marketing Mix. Let's all hope that societal attitudes begin to change soon, but for the present, we can be further distracted by the entertainment world which is just chock full of awesome content.
Unbelievably, RadioShack still exists. Long ago, most of us forgot what it is those folks actually sell, and back in 2015, the forgotten brand that dies hard filed for bankruptcy protection. It was rescued by Sprint which entered 1,400 RadioShack locations in an attempt to give a brand that has lost it's identity, a final stab at survival. So how's it going?
Not well. The "Sprint RadioShack" co-branding idea really didn't make much sense in terms of marketing strategy, but in buying RadioShack, the company was able to expand it's brick-and-mortar footprint while also experimenting with selling other types of merchandise. But after a lawsuit by RadioShack creditors against Sprint for breach of contract helped to cripple the effort and RadioShack again filed for bankruptcy protection in March, it was clear that the strategy wasn't working. At that time, Sprint announced that it would convert several of the more lucrative locations into pure Sprint stores, effectively giving up on the RadioShack brand.
But the brand still walks. It is unclear how long it will take for Sprint to close or convert the remaining RadioShack stores, but that does appear to be inevitable. RadioShack is a sort of "zombie brand", still walking around, unaware that it is already dead, seeking nourishment from whatever customers it can capture for however long it can continue to exist. It is a bleak, overly-dramatic scenario for sure since the demise of a brand is not nearly as interesting as TV zombies are, but we know that lots of established brands will go the way of "Montgomery Ward" over the next few decades. Frankly, it's taking a pretty long time for some of them to finally go away. Far too many marketers have failed to maintain pace with America's changing tastes, and many will pay the price for their failure to optimize their brands.
Readers of "KnowNow! Marketing" should know that craft beer sales have been slowing since their peak in 2013 of 20% annual expansion for a category whose boom began in the early 90's and now boasts 5,562 breweries in the United States. This very significant slowing is partly due to the fact that many of the top "craft" brewers, that is breweries producing less that six million barrels of beer per year, have been acquired by huge global companies and are no longer considered to be crafty.
But there are far more influential reasons for this decline, and these reasons will almost surely result in a sharp reduction in the number of breweries. Indeed, it is probably too late to open that brewery you've always wanted to operate. But now many of the big players, like Boston Beer (maker of Sam Adams) are starting to see volumes actually decline rathe rthan just slowing growth. Sierra Nevada, the number two player, saw retail store revenue decline by almost 8% during the first half of this year. Indeed, sales in the entire craft-style category have actually fallen for the first time by $143 million to $2.3 billion. The industry has slipped into decline. Why?
The main reason is that beer in general has been flat for many, many years, and craft beer comprises a relatively small share of the total beer market. In the 1990's, members of Generation X (ages 36-51) drove the industry into the stratosphere and are now the largest consumers of craft beer--we drink more than Millennials (ages 18-35) and more than the older Baby Boomers (ages 52-72), two generations that are of much larger size. We drink a lot of beer. But that is changing. Even the Great American Beer Festival, the largest of its kind in the U.S., failed to sell out immediately this year as it has done for many years. Even the Denver "Brews and Blues Festival" drew far fewer visitors this year than last despite good weather and an expanding regional population that increased by about 80,000 people last year. What gives?
The trouble is that gen X'ers and Millennials are aging and alcohol consumption tends to drop considerably with age. Boomers are really getting old and are cutting consumption even faster. Millennials, for their part, prefer cocktails, and have driven a revolution of sorts in hard liquor, much as younger Boomers and Millennials did with beer and your parents and even grandparents did with wine in the 1980's. In addition, increasingly pretentious, over-priced, over-hopped, inconsistently-made, and frequently-rotated craft beer is starting to get a bit old for many of us. In some ways the category and it's products have been over-engineered and shelves are certainly cluttered with far too many competitors. Larger brands always benefit from their enhanced distribution networks and many of these will survive the coming contraction; but small brewers sort of hit a wall these days at about 100,000 barrels and struggle to find enough shelf space or tap handles for their brews. Those making the best beer will remain, but many will not.
Apparently Amazon's proposed acquisition of Whole Foods Markets will face no opposition from the Federal Trade Commission, and so the deal will close on Monday. In earlier posts we have explored many reasons for this interesting acquisition, the biggest one being the utter inevitability of someone purchasing the struggling Whole Foods. Indeed it is surprising to see how quickly regulators gave the deal their blessing, especially considering how powerful Amazon is becoming, and marketers have already announced that some immediate changes are.going to be made.
But Whole Foods has become a brand that is perceived by far too many as unnecessarily over-priced and, as a result, it has failed to gain traction among young adults and has been steadily losing customers to retailers offering the same or similar goods at lower price points. It is clear that retailers in the natural and organic products category are now dealing with a competitor that isn't afraid to lower price points and squeeze profit margins in the name of creating long-term customer relationships.
And so starting Monday customers will see sharply reduced prices on eggs, beef, fish, bananas, avocados, apples, kale, and even rotisserie chicken. All of these items will be Certified Organic, and certain Whole Foods products will become immediately available through the primary Amazon website as well as AmazonFresh, Prime Pantry and Prime Now services. Fasten your seat belts. Now that Amazon has made a major foray into brick-and-mortar specialty food retailing, it looks like this company, named after the most awesome river in the world, might run right through the competition. Consumers, as well as the Whole Foods brand, should benefit from this whole deal at least in the short run. The question is what would happen if Amazon, an entity that already controls well over half of all internet purchases, grabs too much channel power in the long run.
Twenty years ago Iceland, although a place with a great deal of natural beauty, was nothing more than an under-populated island backwater, prone to volcanic activity, and without much in the way of tourism. Ten years later the largely inhabitable island, in the face of a catastrophic financial crisis and a very disruptive volcanic eruption, made a huge tourism push with a huge assist from fellow members of the European Union, and positioned itself as a sort of exotic "Gateway to Europe".
And now, attracted by its breathtaking volcanic landscape and what the Wall Street Journal describes as "easy air routes", well over two million tourists will descend on the country of only 330,000 during 2017, and there are some signs that this influx is beginning to tax the nation's infrastructure as well as try the patience of it's residents, who must now digest the presence of over five times the number of visitors the island had in 2010. And too much of a good thing is...well...too much.
The majority of tourists are American and British, but there have been a number of recently affluent Chinese tourists visiting as well. In response to the problem, the government has put an action plan in motion, but it will be difficult for public officials to keep up with the onslaught. Of course officials do have the ability to limit the number of visitors if they so choose by limiting the number of inbound flights, which would increase airfares; or they could temporarily juice the tax coffers by increasing hotel/occupancy and/or sales tax rates, which would discourage consumption over time.
Neither of these interventions is very desirable, but remember that too many visitors will eventually make a place known for it's natural beauty, tranquility, and the friendliness of it's residents less desirable. And the number of visitors would certainly fall as a result of this--but for all the wrong reasons. Making moves to control numbers by making the product a bit more exclusive and thus expensive seems necessary at this point if Iceland wants to be a desirable destination for "eco-travelers" and other adventurers in the long run. Perhaps Iceland needs to become a premium product. One thing is for sure, if something isn't done, Iceland could become a victim of it's own success.
Most people under 40 have probably heard of the funny, improvisational TV show "Reno 911!" , which aired for seven years during the mid 2000's, and did not exactly paint Reno in a very good light. In fact, the show did much to shape American attitudes towards the "Biggest Little City in the World" as a largely trashy place, a distant rural relative of Las Vegas, just as seedy, and yet without any of the Vegas glamour. But perhaps that could all be changing.
Burning Man, the fantastically strange festival held in the middle of the Nevada desert draws 70,000 people every year from every direction. But they almost all have one thing in common. They collectively spent about $50 million last August in the city of Reno alone buying necessities like food, fuel, and lodging. And that number could rise considerable if Reno actually does some marketing to attract these travelers.
Apparently, exactly this is beginning to happen. For the first time, the giant burning man statue that participants, known as "Burners", set ablaze to conclude the weekend's proceedings each year, was made in Reno; and the Nevada Museum of Art opened an exhibit on the history of the event, which started on a San Francisco beach in the mid-eighties and was eventually moved to a spot 100 miles southwest of Reno. And for many Reno businesses, it's Christmas in August.
Last a year a 12-foot statue commemorating the event was placed in the Reno City Plaza, and so it looks like the city is indeed embracing it's new role as "the Gateway to Burning Man", a very smart way to think when your city has the brand reputation that Reno has managed to develop over the years. The city is actually in a very beautiful setting at the foot of the Sierra Nevada's, and is adjacent to the capitol, Carson City. There is legal sports betting, Triple A baseball, an excellent research university, and Lake Tahoe is only an hour or so away. Reno is ripe for a renaissance. Perhaps the Burners can help the city rejuvenate the Reno brand.
Over the past six-plus years, this column has warned repeatedly against the practice of over-taxing a good or service, because as something becomes more expensive, people tend to use less of it, ultimately turning to substitutes or forgoing the product altogether. This point cannot be over-emphasized because entire markets can be moved by this sort of government intervention, which in the case of the Philadelphia soda tax experiment, is precisely the point.
So how is the tax that took effect in January working out so far? Do economic rules apply in this case? A new report by the non-profit Tax Foundation found that the 1.5 cent per ounce levy (it sounds so benign doesn't it?) is having an unintended negative effect on certain workers in the city, is producing less tax revenue than anticipated, and is somehow resulting in more consumption of cheap beer. The good news is that at least soda consumption is down. But is this really good news?
As a matter of fact, soda sales (the tax includes diet drinks for some reason and so is not a "sugar tax") are down by a profound 45% so far, and since the truck drivers that deliver the product earn money based on how much they deliver, the tax has affected the incomes of quite a few workers. And retailers have had to try to make up for lost revenue as well, resulting in layoffs and higher prices, while the local Pepsi workforce is expected to contract by 20%. And as soda consumption drops, so does the total tax revenues received by the city. All of this is simple economics, and all of this happened in only six months. Think of the long-term effects.
Here is the part that concerns the beer. The tax on beer in Philly adds up to eight cents a gallon while the same tax on soda amounts to $1.92 per gallon, which gives cheap beer a slight price advantage over soda. So are people drinking more beer? Yes. And an older study by researchers at Cornell in 2013 also found that ale sales increased after a small town enacted a tax on soda, so now we know that the same construct can apply in bigger cities. Indeed governments in several cities have also enacted similar taxes, and it will be instructive to see if they see similar results. So, if government's intent is to make citizens healthier, then is beer really better for you than diet or sugary sodas? And if maximizing tax revenue is the goal, it is obvious that over-taxing can often lead to less total revenue in the long run. It's simple economics, but not so simple for the well-meaning public officials in places like Philadelphia who didn't have to take business courses.
Supply chain relationships are necessary, and maintaining healthy strategic alliances with partners that add value to the exchange process is of paramount importance in marketing strategy. But in an environment wherein retailers and the brands they sell are scrambling to find their respective places as they struggle to embrace changing market conditions and fierce competition, it's also important to avoid channel conflict among partners. As such, apparel-maker Under Armour apparently has some making up to do.
The issue at hand involves Under Armour and two retailers--Kohl's and Dick's Sporting Goods. In July of last year, growth-seeking marketers at the apparel maker decided to expand distribution outside of the sporting goods channel, opting to market a new line of sportswear at Kohl's, a mid-tier retailer. But although the line is exclusive to Kohl's, too many customers have been happy to access the Under Armour label for less at Kohl's over Dick's even though the products offered at the two stores aren't the same. Thus, marketers attempted to avoid cannibalization of the sporting-goods market, but ultimately failed.
Dick's is rightfully angry at the drop in sales and feels jilted by it's supply chain partner, while Kohl's has been touting the Under Armour deal as a positive in an otherwise bleak situation. Surprisingly, Under Armour revenues have fallen along with those of Dick's Sporting Goods, a fairly healthy retailer that expected a nice spike in sales following the recent liquidation of major rival Sports Authority. This has largely failed to materialize, and Dick's has doubled down on it's own higher-margin private label line in an attempt to somewhat bypass less profitable major brands like Under Armour. As a result of all this, Under Armor, by offering cheaper products at Kohl's, has sacrificed some of the premium brand equity it has built over the years. It is a mess indeed. What could have been done differently?
Marketers didn't offer the same products at the two retailers, and so that was sound strategy. But offering a lower end product line under the Under Armour brand name created confusion in the marketplace, angered Dick's, and diluted the premium brand reputation the company has built over the years. A better move would have been to offer a line under a separate, but related brand name. The words "by Under Armour" could have been used after a new brand name if marketers wanted to leverage the brand but risk some level of dilution, or they could have marketed a separate brand altogether. Marketing efforts by both Kohl's and Under Armour would establish brand awareness fairly rapidly and there would be no dilution under the second circumstance. Obviously Kohl's would have preferred the first option, and either move would have been better than the one Under Armour made. It would seem that some one owes some else an apology. Indeed it will be interesting to see what happens next.
Public transportation advocates often aren't the ones who actually take public transportation. Suffice it to say that if you have any connections to make or have to pay full price, you are probably better off finding another way to get where you want to go. And to say that they are often physically uncomfortable, unreliable, and full of completely crazy people would not be an exaggeration. In short, the bus often sucks, and I have been taking the bus for the better part of almost 25 years!
But I do so for a few reasons that I think are good ones. Most people take the bus because they must do so for financial reasons or because for one reason or another, they do not or cannot drive. More than 3.8 million people took the bus to their job in 2015, but ridership has been declining since the beginning of the recession. It is down 13% since 2007 despite an increase in population and an economic recovery. What's happening here?
There are many, many reasons. the primary one is that during the recession, financially strapped city bus agencies reduced service, which drove many riders away, and now marketers lack the resources to spend the dollars to get them back. Somehow, folks have found substitutes, and far too many unfortunately, have opted to join the welfare or disability roles (these numbers have increased dramatically over the past decade and the workforce participation rate has been at historic lows); and no longer need to get to work. In addition, the rise of ride sharing companies (Zipcar, Uber, etc.), as well as vastly increased home delivery and service options have made travel less necessary for many. In addition, young people are living in urban cores at greater rates than in the past, and so extended bus trips are unnecessary for them. Less commonly cited reasons for the decline might include the fact that states like California are offering driver's licenses to illegal aliens, a group of roughly 11 million people that has traditionally relied on the bus to get around. And what about trains? My bus will soon be replaced by a train, which is a much sexier option for a lot of people and whole lot more convenient. I will likely never have to take the bus again, and when commuter lines are offered, they usually replace buses. This could be yet another reason for the drop off in service and ridership.
But perhaps the most likely thing that has happened is a drop off of folks, like myself, who have the resources for alternate transportation, but for one reason or another choose to take the bus. With reduced service comes increased inconveniences, and those with viable choices may opt out of the whole idea altogether. Those who ride because the traffic is simply unbearable, because it's better for the environment, for personal health reasons, because they really like to save money, or because as students or professors they receive free/heavily subsidized bus passes might be increasingly passing on public transportation. Meanwhile, the prices for service just keep on rising.
The lesson here is that myriad reasons for the decline exist, not just one or two, and they have all combined to reduce the bus footprint here in the U.S. Generally speaking, marketers must try to see the problem from every angle when trying to figure out what's happening in the marketing environment. Sound marketing decisions are predicated on this, and the current situation with regard to buses offers a particularly illustrative example.
Just as the automotive sector's recent announcement that consumer demand for vehicles of all kinds has peaked is beginning to sink in, there comes some unnerving news from rental car giants Hertz and Avis suggesting that the car rental market might be nearing it's twilight. Are car rental companies the new "Blockbuster"?
Not only did marketers at Blockbuster fail to see the threat that the kiosk model, pioneered by Redbox, posed to it's existence, but they also failed to mimic the Netflix direct mail model as well as ignoring the disruption caused by the Internet. In short, marketers at Blockbuster sat on their keisters and did absolutely nothing. And now the brand is dead. Is this the future for the likes of Hertz, Avis, and Enterprise?
A business writer at Bloomberg news certainly thinks so. David Welch says that there will always be a market for rental cars, but that the way that cars are used is changing in a big way. "Why wait in lines, pick up keys, fill up and drop off, when you can tap an app instead?" This might be a bit of an exaggeration, since the likes of Uber and Lyft have only grabbed a little over three percent of the revenue from car rental companies thus far. And ride sharing's effect on the taxi business is a whole different story. But there is no doubt that these billion dollar companies must change--and quickly.
Rental car companies, which currently have an over-supply of vehicles, are in the process of paring down their fleets, and marketers will have to be sure to keep prices low to avoid exacerbating the "substitution effect". Of course, apps and other technologies will be crucial elements in transforming the rental experience. Indeed, ride sharing will take an even larger piece of this business (perhaps up to 20%), but with fewer Americans buying vehicles these days, we could actually see a resurgence in the car rental market as rental brands make continued efforts to look more like ride sharing companies. People still need to get places and the vast majority of people won't take public transportation unless absolutely necessary. Take it from someone who has done so for 30 years. And the bicycle is a great way to get almost nowhere while carrying nothing, so it too has limited applications in the reality of every day life. In other words, cars aren't going anywhere soon. It's the drivers that face extinction, and not the cars themselves. Indeed rental car companies are well capitalized to be able to adapt and overcome, and they, like taxi companies, are going to have to figure out their place in this new transportation paradigm.
There aren't too many iron-clad rules in economics, but indeed there are a few, and one of them concerns pricing. In regards to products that are considered "elastic", an increase in the price of a product results in lowered demand for the product. And since almost everything we buy is elastic, understanding this principle is very important for a savvy marketer.
It's important to remember that even brands which enjoy huge competitive advantages or ones that basically control the market and thus have lots of pricing power are subject to this rule of elasticity. The U.S. Postal Service, for example, has seen mail volume drop almost in half over the past 15 years and yet the price of stamps has increased from 34 cents to 49 cents during that time to make up the shortfall. Meanwhile demand continues to fall. Movie tickets, might be an even better example as ticket sales have fallen by almost 300 million since the industry peaked back in 2002 while prices have risen from an average of $5.81 to $8.65 to make up the difference.
Does this sound like a sustainable marketing strategy? Taken to it's logical conclusion, prices would rise until demand becomes zero. As prices become prohibitively high, many customers will seek substitutes or perhaps even change their behavior entirely, going without fulfilling the need altogether. Let's look at ESPN. Lots of people have been "cutting the cord" and forgoing traditional TV in favor of Internet packages, resulting in lower viewership for many popular networks. ESPN, for example has lost 11% of its subscriber base since 201, and marketers have responded by...you guessed it...raising prices from $4.69 per month to $7.21 today. As a result, Pay TV bills have continued to rise and prospects for growth have all but disappeared. Wow. What's going on here?
Simply put, market conditions are changing in dramatic and lasting ways, and these products are in decline. These marketers know that most brand loyal customers are willing to tolerate some price increases over time, and they are thus managing the decline phase of the product life cycle by raising prices. Newspapers are doing exactly the same thing--raising prices amidst falling demand. The problem with this approach is that it is very difficult to reverse. But while lowering prices might result in more consumers, if consumers are changing their habits, it certainly makes sense to squeeze as much as you can out of existing, loyal customers rather than spend the resources necessary to attract new customers. It is a difficult position to be in for certain, but product decline is an eventuality that marketers often face.
By now, those of us who don't fly Southwest Airlines have become accustomed to the "a la cart" model of pricing, one that a formerly unprofitable airline industry has been successfully implementing for the past decade. Indeed Southwest stands alone in its defiance of the new industry standard,. For other airlines, flyers must now pay extra fees for just about everything besides the seat itself, and must also do a lot more math to figure out what a round-trip fare will really cost at the end of the day. Southwest, on the other hand, now touts what it calls "Transfarency" in it's marketing communications and includes many services in it's price point that one would have to pay extra for at another airline. But even Southwest has begun to charge for what it calls "early boarding", an "extra" that is increasingly becoming an absolute necessity if you have any hope of sitting next to your traveling companion.
Perhaps it was only a matter of time before hotels began to embrace a less transparent approach to pricing since, like the airline industry, only a handful of hotels control most of the market. And so when one airline makes a move that proves to be beneficial to the company, it is likely that the others will follow suit. So it goes with this relatively new practice, but it is one that might eventually be eliminated through regulation. I speak of the dreaded "resort fee".
Resort fees can cover everything from access to the gym and swimming pool to parking, internet, local phone calls (who still makes those?), and even towels. The problem with these fees is that they are mandatory, so is it really the same as the airline industry? Not really. Airlines don't as common practice require that customers pay extra for things they don't use. Such an approach would be more like an "a la cart" model to ordering food. The final price a consumer eventually pays isn't exactly what one would consider "transparent" per se, but with some simple math and a bit of restraint, a reasonable consumer can still figure out what a trip will cost.
Not so with the hotel model, which hides benefits people haven't asked for in one or more "fees" that are not disclosed in any meaningful way at the onset of the exchange process.Thus, the consumer gets hit in the end with some unpleasant surprises. The Federal Trade Commission warned against "providing a deceptively low estimate of what consumer can expect to pay" back in 2012, and so one wonders how the agency now feels about the rapid proliferation of what it calls "drip pricing". After all it has been five years.
The most likely scenario is that hotels and airlines will eventually both be required by the FTC to ensure that all mandatory fees are included in the advertised rates. Eventually. It would even be nice if the disclosure of taxes, which in places like Hawaii can be prohibitively high, were also included in any regulatory diktat. In any case, this sort of regulation costs business nothing, and the consumer would clearly benefit from such action. A marketer cannot be expected to do it by him/herself since any action by an individual company may place it at a competitive disadvantage with respect to all of the others. Southwest has taken this risk, but none have followed suit. And so all of this begs the question, "What exactly is the FTC waiting for?"
The price of attaching a brand name to a major spectator sport facility just keeps on rising. This isn't exactly big news to the average sports fan, but even the most casual observer is probably aware that stadiums and arenas are fetching sums that many might consider astronomical. Indeed venue naming rights is very big business. These relationships are often complex and last for many years, and brands must allocate considerable resources to not only pay for the naming rights themselves, but also to activate the sponsorship and leverage the rights through additional marketing activities to optimize results. At the end of the day, these arrangements are about brand awareness, brand attitudes, and increasing revenue.
Even facilities that have decided to leave money on the table and forgo these lucrative partnerships are changing strategy, with United Airlines and the LA Coliseum, home of the USC Trojans, representing one of the most recent venue naming rights agreements at $4 million a year. But new naming rights deals are being inked left and right, and now the LA Dodgers are asking for $12 million a year for rights to a facility that has been free of title sponsorship since the late 1950's. Why is this happening now?
Keeping a facility adequately maintained isn't cheap,and with technological advancements happening more frequently these days, consumers expect more from the game day experience. And since marketers can't continue to raise prices to cover the costs, numerous brand sponsorships must cover some costs for teams. And venue naming rights are really big time sponsorships. Even Colorado State University, a mid-level NCAA program that has a brand new football facility, and the University of Colorado, a top-level program that has a rather old facility, are now looking for naming rights partners for the first time ever. And although almost all professional sports facilities already have these agreements in place, far fewer collegiate facilities have yet done so.
One concern is that an over-supply of naming rights inventory caused by dozens of major universities suddenly getting into the act will reduce what these facilities owners can ask for, but of course this is good news for the branded product marketers who must foot the bill. Perhaps more supply will bring down prices so that more brands across more industries are better able to afford to engage in this very resource-intensive, but often effective marketing activity. One thing is for sure. We are in the midst of a new naming rights revolution, and the good news for marketing graduates is that the agencies that broker these long-term agreements between branded products and venue owners, are probably hiring.
As robust online competition combined with increasing labor costs continues to squeeze profits, retailers are increasingly turning to automation for conducting routine tasks in what could be a chilling look at the shape of things to come. In fact, recent studies have found that up to 70% of existing retail and wholesale jobs will be displaced by disruptive technologies over the next decade or so. And while this might be bad news for unskilled workers being paid to perform routine tasks, it will certainly be good news for consumers.
Indeed, the role of human service personnel will always be present to some degree, but the nature of this presence is changing as developments in technology improve the customer experience. Lower costs mean lower prices, so that's a given. And the deletion of jobs such as cash-counting, a function that Wal-Mart recently automated, can help retailers move human resources towards areas that require a human touch. A major worry is that soon there won't be may of those areas left.
We know from extensive research that consumers don't appreciate unhelpful sales personnel, and although the self check-out concept has been around for a while, it is still in the introductory stage of being adopted on a large scale. If consumers eventually find that a DIY approach allows for a better experience, retailers will be able to eliminate about half of cashier positions. But, perhaps many of these folks can be re-purposed to provide non-routine tasks such as in-store consultation or to perform some other value-enhancing function. Many positions will disappear, but some new ones also will be created. But if humans don't add value to the customer experience and can be replaced by technology, you can be sure that these functions will be eliminated eventually. And robots are getting pretty smart. At the end of the day, these brick-and-mortar stores are under huge pressure to find more compelling reasons to bring folks into their stores. And automating certain routine functions will free up scarce resources to do just that. So perhaps, at least for a while, the robots won't be such a bad thing after all.
I am about to embark on a 10 day trip, and I'm always reminded of how tempting it is to purchase tickets from one of the low-cost carriers like Frontier or Spirit. But I remind myself of the old adage that involves getting what you pay for. In other words, cheap airfare comes with its own problems.
Going with a low-cost carrier means that there is a much better chance of getting bumped, being delayed, losing your luggage, or having your flight canceled. Why? Because low cost service providers struggle to run reliable operations, from low paid employees (Spirit pilots earn only 60% of the industry average) to bare-bones maintenance policies, corners must be cut so that marketers can offer the low, low prices consumers in this market expect. But don't take my word for it. Frontier Airlines VP Daniel Shurz said it best, "We don't necessarily believe that it's cost effective to end up in the top quartile for on-time performance". Indeed!
Apparently, avoiding delays and cancellations requires enormous resources as Delta discovered when it made efforts to improve its rankings. Most airlines, like Southwest and United, endeavor to find a happy medium and others, like Alaska and Hawaiian, offer a premium product and are always at the top of the heap. The lesson here is in brand expectations. It is important that marketers not over-promise and under-deliver, but it's equally important that customers don't have unrealistic service expectations. Generally speaking, you get what you pay for, and often less than that.
By now many of us have cottoned to the idea of having a co-branded credit card and are probably earning airline "miles" or hotel points with each purchase. After all, these cards have become a very effective way to help establish and maintain customer loyalty for both card companies and the service providers they partner with. And so it shouldn't be terribly shocking to hear that quasi-taxi company Uber will soon launch its own co-branded credit card in partnership with British bank Barclays.
Small-time Uber rival, Lyft, already has a partnership with Delta Airlines, and it offers miles but it's not through a credit card. No details on the Uber/Barclays deal have been released yet, but it seems very likely that rewards from spending using the Barclays credit card will come in the form of Uber ride credits, and iit is interesting to note that Uber has also inked a deal with American Express to give high level members a $200-a-year credit toward free rides. Both entities in a partnership like this one clearly benefit, and of course consumers have to come out on top as well or the whole thing wouldn't work. The strategy makes sense, and one would expect Lyft to soon follow suit with a strategic alliance of it's own. The card will be available later this year.
The consolidation in the fashion industry continues, as retailers close under-performing stores, some brands exit the industry entirely, and stronger players acquire weaker ones. This time it is Michael Kors, maker of luxury handbags, which has made it's first ever acquisition in purchasing luxury shoe brand Jimmy Choo. And this marriage certainly seems to make sense for several reasons.
Firstly, handbags and shoes are complementary items. They go together, and it certainly makes sense to sell them within the same retail environment if marketers decide to do so. Second, the brands both target high end consumers, and so one could assume that many of the same potential customers will find both brands to be appealing, and marketers can reach the same consumers with both brand messages Third, growth in the handbag industry is slowing, and Coach has already purchased Kate Spade while Michael Kors has been losing money and has had trouble finding ways to grow.
These sorts of acquisitions happen quite often, especially in maturing industries. And when it comes to fashion, as Project Runway's Heidi Klum often says, "One day you are in and the next you are out." Shifting tastes sometimes require dramatic shifts in marketing strategy. Will there be synergy here, or will marketers fail to optimize? We shall see.