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.
It seems like the music never stops when it comes to the NFL these days. In a significant move involving strategic alliances, the National Football League announced a partnership with Facebook to deliver NFL video content to users. Official highlights, game recaps, and other compartmentalized snippets from all NFL games will be available starting this week, vastly expanding the NFL's reach among so-called "cord-cutters", who do not subscribe to Pay TV. This is good news for a league beleaguered by controversy.
And now back to your regularly scheduled controversy. After suffering an eight percent drop in viewership last season, the league blamed consumer distractions caused by the election, which at the time seemed somewhat believable to just about everyone. But consumers complained of low quality games, a lack of star power, and most of all player protests. After only three weeks of the 2017 season as well as a swell of high profile protests that sparked a fairly scathing presidential tweet, the league has lost an additional 11 percent of viewers, and ticket sales are also down. This should be very disturbing.
It's become so controversial that Direct TV is offering refunds for fans who want to cancel the once-exalted NFL Sunday Ticket package if they wish to do so due to the protests during the national anthem. Usually, the company doesn't let fans cancel after a season has begun, but in this case it has made an exception. Indeed, after years of player off-the-field legal issues, numerous highly-publicized domestic violence incidents involving players, uneven enforcement of league regulations, increasingly longer games, an apparently widespread degenerative brain condition known as CTE, and now an unsavory mixture of politics and sport is now turning consumers away from a game that has dominated the American landscape for decades.It appears that the NFL has a very, very serious brand problem, and an increasing number of fans are taking a knee as well. What can be done?
Your guess is as good as mine, but if the massive loss of viewers continues, the league must do something. And it could get ugly. And it won;t be good for business. Or the players. Or the sponsors. Or the owners. Or the fans. Everyone loses in a worst case scenario. Can the league find a solution? But it does look like the league's franchises, after publicly supporting their players, are beginning to ask the players participating in the protests to back off. It does look like this will all blow over, but some modicum of damage has clearly been done, and the NFL continues to struggle with its image on multiple fronts. Player protests are only the latest among them.
(Continued from Part One)
In short, the lazy days of pricing in the natural products industry are probably on the wane. Just as marketers had to step up their collective game in the 1990’s to make products more palatable to a market that was rapidly expanding beyond the traditional “hippie” base, marketers must now face a new reality with regard to pricing. And this shift promises to be far more painful than the last one. Many brands will not survive the coming consolidation when the market finally does begin to slow.
Here is some advice. Use your brand strategy as a starting point for pricing. “Price” follows “Product” and use the “Five C’s of Pricing” as a guide for determining your suggested retail price point, considering all “Five C’s” in your decision, but perhaps with a focus on one over the others for purposes of product and brand positioning. Isolating each “C” and looking at it as part of the whole pricing picture can help you better justify the final price point you decide upon.
Do aim for consistency across related sku’s in your product mix. Products within product lines, for example, should be priced consistently. It is also important to understand which elements of pricing you can control and which ones you cannot. For example, most marketers have more control over costs and the suggested retail price point than they do channel. Assessing supplier costs, projected product velocity, channel relationships/options, competitive pressures, and consumer attitudes/behaviors on an ongoing basis is a must. The “Cs’” should harbor no surprises
Finally, always have an eye on lowering prices and increasing volumes. These days, this industry has precious little room for high-end players that offer questionable added value while commanding high price points. Marketers of branded products will have to take pricing somewhat more seriously in this new paradigm. In the words of baseball hall of famer and philosopher, Yogi Berra, “The future ain’t what it used to be!
The fact that they all begin with the letter “C” makes them easier to remember as a framework for pricing strategy, but although easy to remember, "The Five C’s of Pricing" are nonetheless challenging to apply. The point of the model isn’t to choose one or more of the C’s, but rather to first consider all five simultaneously. Indeed, one of the “C’s might eventually be favored over the others as a strategic focus, but all should be considered nonetheless. Whether I am consulting or teaching business students, I like to use a white board with cost on the far left, channel and company in the middle, and competition and consumer at the far right of the board. This way, it is easy to see how each element contributes to the final manufacturer’s suggested retail price point (we all know that retailers can ultimately charge whatever they want). The Five C’s of Pricing are:
-Cost -Channel -Company -Competition -Consumer
(COGS, G/A, SM) (Dist./Retailers) (Profit margin) (current prices) (what will they pay?)
Cost: This category includes all of the elements involved in making a single unit (Cost of Goods Sold) as well as “per unit contributions” from General and Administrative expenses (non-unit producing activities like overhead) and Sales and Marketing. One must first estimate the quantity to be produced so that the proper per unit contributions for each of the three areas can be established. Together, these three elements comprise the per unit cost of whatever it is the marketer is trying to sell. “Cost” is a good place to start in pricing because this is one of a marketer’s major constraints; but the nature of ingredients and packaging, as well as the quantity produced are all variables a marketer might be able to manipulate in order to achieve a desired COGS number.
Channel: In the majority of cases, the manufacturer doesn’t sell directly to the consumer, and so the distributor and retailer each take a major cut of the total retail price for their services. Sometimes this commission can run upwards of 60% of the total retail price, which is why so many branded product marketers are looking for ways to bypass the intermediaries and sell directly to the consumer with lower prices and vastly higher profit margins. Of course this also has the potential to create “channel conflict” and can result in the intermediaries dumping your product in favor of more cooperative brands. This is becoming a very thin line to walk as the channels of distribution for supplements and other natural products continue to expand and the lines between natural and mainstream become increasingly blurred. The bottom line with this particular “C” is that the marketer has just about zero control over what it has to pay its downstream supply chain partners for their services. For those who prefer an “indirect” channel to the consumer, this is just a cost of doing business, and luckily the increased volume that these intermediaries offer can help make up for the shortfall that smaller profit margins create. In other words, if you sell more stuff, your margins don’t have to be terribly high. Wal-Mart provides an instructive example.
Company: Profits are what makes the world of commerce go round, and company objectives always revolve around turning a profit so that earnings can be reinvested in the company or returned to shareholders. As such, any contribution model must consider a per unit profit margin, which is really just the difference between cost and channel considerations and the final retail price point. Unless a marketer is employing “ROI Pricing”, which favors “company” over all of the other C’s, profit might be simply what’s left over.
Competition: Unless you are creating an entirely new product category, which is exceedingly rare in marketing, there are probably already a number of competitors that offer the same category of product and meet the same set of consumer needs. This means that a competitive analysis must be conducted to determine how to price the product in relation to competing products in similar stores. Pricing a product at, slightly above, or slightly below the competition is a strategy often used in a hyper-competitive environment when “competition” must be favored over all of the other C’s.
Consumer: Obviously focus groups, surveys, and simple observation can tell us much about which segments of consumers are likely to pay what prices for what goods, and so no pricing strategy should be initiated until it is somehow validated by marketing research. Marketers don’t necessarily need to conduct their own studies in most cases because, unless you are creating an entirely new category, there is probably already a ton of secondary data out there. You just need to find it. But, if you do have the time to do some primary research, you might learn some interesting things about your brand in addition to pricing considerations. The often-employed “premium” pricing strategy mentioned earlier in this article has largely resulted from research (both formal and anecdotal) that shows that most people will pay somewhat more for a natural product. Indeed, marketers do have a great deal of control over the “suggested” retail price.
(To Be Concluded in Part Three)
Over the past 50 years, marketers of natural and organic products up and down the supply chain have enjoyed a distinct luxury that most marketers only dream of -- a constantly expanding market consisting of consumers who are willing to pay a premium for specialty products that they consider to be superior to mainstream alternatives. And it is certainly true that natural and organic ingredients do tend to be more expensive than their more standardized, synthetic counterparts. It is also true that a relative lack of volume has historically kept prices higher than they would otherwise be if these products were consumed at a higher rate. Indeed there have been pressures that have forced marketers to maintain high price points.
But to be fair, it is also true that ingredient suppliers, finished goods manufacturers, distributors, and retailers alike have long enjoyed some rather comfortable profit margins relative to their mainstream counterparts. This sort of pricing power tends to disappear as an industry matures, but the natural products sector has been in high growth for as long as most of us can remember, and still seems to have more gas in the industry tank. Of course, the overall lack of agreement as to what “natural” really means and possible future regulation in the future as the FDA currently reviews its options (not to mention any new scrutiny of DSHEA) loom as threats in this historically lucrative marketplace. Yet overall, things still look pretty rosy for natural products marketers—unless of course, like me, you too are concerned about what new entrants like Amazon might do to the industry’s long-established pricing model and consequently to some of the industry’s more established players.
For years, most marketers in the industry have successfully employed a “premium” pricing strategy and have positioned their brands (and all of the products within the brands) as premium offerings, replete with higher quality ingredients, more sustainable packaging, and more socially responsible business practices. These things cost money after all, and as long as the products deliver on the promises marketers make about them, things tend to work out rather well. And as long as the market continues to grow rapidly, an industry can theoretically maintain a large number of fairly homogeneous competitors who all charge elevated prices. But at this time, it might not be a slowing market or high ingredient costs or too much competition that pose the greatest threat to the natural products industry’s status quo.
Rather, an even more pressing threat looms from expanding channels of distribution characterized by larger players who enjoy vast economies of both scale and scope and who are often the “captains” of their respective channels. Amazon and Wal-Mart come to mind as two retailers able to offer obscenely low prices due in large part to this leadership. The big natural and organic brands that these huge retailers carry also enjoy large economies of scale and scope even if they don’t have the most influence within their channels, and some are beginning to explore distribution options that fall well outside of the traditional manufacturer-to-grocery channel retail model. Great care must be made to avoid “channel conflict”, which is often created when manufacturers undercut retail partners on price by offering products at lower prices in other channels, and it is clear that the distribution options for all branded products continue to increase.
While much of this is certainly excellent news for consumers, it is not good news for marketers who are unable to compete effectively on price in this new era for nutritional supplements and other natural products. And in the 25 years that I have been working with companies in this sector, I have noticed that pricing strategy is an often under-developed piece of the marketing mix. This is fine as long as the party keeps going; but the rise of natural discounters such as Sprouts, the ongoing mainstream retailers (Wal-Mart, Kroeger, et al.), as well as the growing importance of e-commerce players such as the online behemoth Amazon in selling natural products, should make every marketer in the industry pause and assess pricing strategy.
One of the best ways to do this is to look at pricing first with respect to your brand strategy. Brand identity and image have quite a bit to do with how much money consumers will exchange for any good or service, and it is no different for marketers of nutritional supplements, functional foods, or other natural-based products. But there are other important factors in play and luckily, we have a very succinct model to help us become more adept at pricing our products. And in an industry that has seen Whole Foods Markets rapidly and unceremoniously acquired by Amazon, it should be clear that the path to success is becoming increasingly perilous. The key is to justify your price point by considering number of different but related factors.
(To be continued in Part Two)
(Continued from the previous post Part Two)
The last four steps of the New Product Development Process are as follows:
Prototype Design: In this stage, research and development, in conjunction with production and marketing, develops one or more working models of the new product, or a prototype. Costs, which were estimated during the last stage, are often refined affecting many aspects of the marketing strategy. Prototypes often involve several time-consuming, yet necessary, iterations as well as focus group-like research to provide valuable feedback. Small groups of consumers, employees, supply chain members, and essentially all of the folks listed in the first step of the process are invaluable resources at this crucial stage. Your author worked on a 100% natural lipstick some years back that required several iterations before the color, texture, longevity, and other characteristics of the product were exactly where they needed to be.
Market Testing: This step is an optional one in that many organizations have neither the resources nor the time to test products in certain markets before engaging in large-scale production. Such testing might tip off competitors, but a failed market test might give marketers opportunities to further improve the product, alter the marketing program, gauge demand and competitive fortitude, or simply abandon the whole concept altogether. For services market testing can be quick and efficient, but for goods such as cosmetics it can be lengthy and expensive.
Commercialization: This is where the product is introduced on a large scale, or what we might call the “implementation” part of the strategic marketing process, following the careful planning embodied in the previous steps. This is also where the big money is spent as resources are poured into production and marketing communications, and it is here that marketers have officially arrived at the point of no return and the Introduction stage of the Product Life Cycle.
Evaluation: The final step in many marketing models involves close monitoring of the implementation process and the subsequent evaluation of measurable results. Feedback from consumers or members further upstream in the supply chain might provide insight as marketers face decisions about altering the marketing mix.
One has to admit that the process certainly makes logical sense, but it is nevertheless a resource-consuming activity. The best companies have several products in every stage of the life cycle, with promising, market-driven concepts constantly in the development phase. But it is important to remember that, while innovation can be a crucial component to an organization’s success in the long run, a product need not be terribly innovative to be new. Indeed many “new” products are simply iterations of previous products (see the iPhone) and are what marketers call “continuous innovations”. Many skeptics don’t consider such products innovative at all, but they are new products nonetheless. Some of the more disruptive products are known as “dynamically continuous” and require some changes in consumer behavior. “Discontinuous” innovations, on the other hand, are the big ones requiring major changes in behavior as well as sometimes instigating the disruptive shifts described by Mr. Schumpeter.
Modern marketing requires careful planning, effective implementation, and honest evaluation of results. New products must be feasible in both a financial and technological sense, but equally important is that the products are driven by market needs. The vast majority of new products (80-90%) fail within five years, so applying (and adhering) to any new product development model will certainly increase the chances of long term success in the marketplace.
(continued from the previous post "Part One")
The first four steps of the New Product Development Process are as follows:
Idea Generation: Ideas come from many places, including existing customers, employees, supply chain partners, competitors and, of course, the research and development department. Inviting outsiders to submit advice, concepts, designs, etc., a form of “crowd sourcing”, has become popular of late, and it is obviously a great way for marketers to create and maintain a dialogue with stakeholders, especially key customers where sometimes products are actually “co-created”. On the other hand many great ideas are the result of brainstorming, a formal, objectives-driven, professionally-moderated session where key thinkers can offer even the wildest of suggestions.
Idea Screening: In the Idea Generation phase, no idea is a bad idea. It is important to be open to all sorts of concepts for new products (even the crazy ones), and efforts must be made to insure that creativity isn’t squelched in any way. A blend of group brainstorming sessions, individual interviews, and anonymous surveys is probably the most effective way to properly address the first step of this process. The screening of ideas, however, involves the elimination of impractical, inadvisable, inappropriate and downright impossible ideas before any further time and energy is wasted on them. The larger list should be whittled down to several plausible concepts that match internal strengths with external opportunities. The most effective way to accomplish this is to have several alternative ideas, develop a list of criteria for what constitutes a good product idea (i.e., financial feasibility, compatibility with organizational competencies, market attractiveness, etc.), weight each criterion based on how important it is to the decision, and then rate each alternative, criterion by criterion, as to how well each alternative idea addresses each criterion. The weighted number is then multiplied by the rating, and so the alternatives with the highest total values are the ones that should be pursued. It is somewhat difficult to explain without a large diagram, but suffice to say that this rather common method is useful for any sort of high involvement decision-making, and the aforementioned developing/weighting/rating process should involve more than one individual to weed out any potential bias, which will surely confound the results.
Initial Concept Testing: Up until now, the company hasn’t really expended much in the way of resources, especially financial. Here, in-house marketers might choose to engage one or more marketing research firms and endeavor to discover consumer attitudes towards one or more product ideas. Based on feedback, which could involve the general population or specific market segments, concepts are either refined or dropped entirely. But at the very least, marketers can get one or more ideas so they can advance to developing the strategic marketing plan.
Business Analysis/Marketing Planning: There are a few ways to interpret this step, and the author prefers that this be the phase wherein an entire marketing plan is developed. The marketer conducts a situational analysis including internal factors such as current marketing efforts and financial analysis (which lead to strengths and weaknesses) and external factors such as competition, market segment data, and social trends (which lead to opportunities and threats). The resulting SWOT summary tells the marketer much about the feasibility of the project. If it the thoroughly-analyzed situation still looks favorable, measurable objectives for the product can be set along with a budget, and a detailed marketing program developed for implementation. The plan will be refined during the next two stages of product development, but this is where the bulk of the product, pricing, distribution (place), and promotion planning should occur.
(the final steps will be revealed in the next post)
New product development is important. This is an obvious statement to be sure, but until renowned economist Joseph Schumpeter observed that innovation is instrumental to an organization’s success, and that in extreme form new ideas can “creatively” destroy entire industries, most people didn’t really think that much about it. Yet all goods and services have life cycles. Some are long and some are short. Some are planned and others come as a disruptive surprise to some marketers. Products are introduced; then they grow, mature, decline, and are eventually deleted from the product mix. But in an age of hyper-competition and market globalization, product life cycles for many classes of goods and services have become so short that new product development must now be a continuous process, with many new products funded by the profits of existing products. This is what a “cash cow”, a mature but highly profitable product, is really all about.
Most new products aren’t at all accidental, but are part of a carefully planned and executed product development process. As we know from embracing “the marketing concept”, marketers must be able to prove that there are existing consumer needs in the marketplace before investing significantly in the mass production and marketing of products. Marketing is a science, albeit a soft one, and as such the new product development process can be broken down into a series of steps, only one of which is truly “optional”. Skipping the rest of the steps can only mean that the marketer is engaging in speculation, which is not usually an effective way to make decisions, especially in the world of marketing.
Planning for a new product is all about matching strengths, which are internal to the organization, with opportunities, which are external to the company. Building on strengths and matching them with consumer needs, all of which are identified by marketers during the “situational analysis” phase of the marketing planning process, allows the marketer to develop properly-positioned, competitively superior products. Any new product development process should cover at least eight basic steps, and each of these will be addressed in the next post.
In our ongoing quest to transform what we learn through social media about attitudes towards our products into some form of actionable marketing strategy, we marketers have a tendency to overreact when we hear something negative. And when it comes to Chipotle, there is a lot to hear.
The chain recently added queso, a Tex-Mex cheese dip featured by rival Qdoba, in an effort to add some excitement to a brand that has lost quite a bit of luster. And of course, several unhappy customers took to social media to bash the decision; but don't expect Chipotle to change its mind any time soon. In fact, marketers are doubling down. The company considers these naysayers to be outliers and therefore not representative of the chain's customer base, and they are probably correct.
Despite the online vitriol, the company points out that internal research reveals overall satisfaction with the new the cheese, which is prepared with what the company says are higher quality ingredients than the Velveeta commonly found in queso. This quality focus is consistent with Chipotle's traditional strategic positioning on quality ingredients, and so marketers clearly aim to grab market share from Qdoba by offering a high quality queso in the marketplace.
And apparently queso will play a central role in the company's largest-ever advertising campaign, which begins this week. Chipotle marketers, who have always eschewed traditional media in favor of the social variety, have been forced to embrace more traditional tactics. Perhaps this is an opportunity for a brand often accused of "hubris" to show a modicum of humility in its messaging. Maybe the brand will make fun of itself instead of making the usual sanctimonious jabs at competitors and "Big Food". But it probably won't. Either way, this is an unprecedented push for a brand that has enjoyed success largely by nurturing a loyal following that generates positive word-of-mouth. Now the marketers at Chipotle will have to try a bit harder.
He did it for Annie's Homegrown, so why can't he do it for a two year-old start up that wants to market USDA Certified Organic baby food to the health-conscious masses? John Foraker took a small natural products brand and turned it into an acquisition target for General Mills, a rather large food concern. And now he holds the reins at Once Upon A Farm, a very small purveyor of refrigerated organic baby food.
The organic baby food sector now comprises $415 million of the total $1.75 billion market for baby food in the U.S., and dollar sales have risen 25% over the last two years, reflecting a very healthy demand for even healthier baby food. At least that's what an increasing number of Americans believe, and so the organic category continues to outpace all others in the packaged foods business.
But battling the likes of Gerber, Beech-Nut, and Cambell Soup's Plum Organics will be difficult. The company will have to attract enough private equity to obtain shelf space in major retailers and provide marketing support in the form of consumer advertising, sales promotion, public relations, etc. All of this will require a substantial investment, and so more money may be needed in addition to Mr. Foraker's investment.
But help is already on the way in the form of a very major celebrity who has also decided to invest in the company, Jennifer Garner. Her star power and endorsement should help matters a great deal, as the company expands its product mix and attempts to innovate in a sector that has lacked meaningful innovation for a long time. She has even indicated that her family farm will grow some ingredients for the line, which, along with some downhome "As mom's we all..." messaging, could make for a great creative strategy. And consumers love a good creative strategy. Let's see what marketers come up with.
Long-ago, Toys "R" Us joined the ever-growing list of retailers struggling against the forces of Wal-Mart and Amazon, unable to beat prices and losing relevance to an increasingly fickle culture. Once a mainstay of the national retail scene, the toy chain is now crippled by $5 billion in debt and has filed for bankruptcy protection just in time for the holiday season. That can't be good. Could this be the end for Geoffrey?
All is not yet lost. Bankruptcy protection allows the company to re-organize and largely "stiff" their creditors in an effort to survive, and most importantly, change marketing strategies and tactics. Simply marketing lots of toys using a cute "spokescharacter" simply isn't enough in 2017.
The company should probably take Best Buy's lead and overhaul its e-commerce platform so that products and prices are consistent, and the on-line experience is seamless and fun. Marketers might also want to make efforts to make the in-store experience more fun by offering special experiences like birthday parties and brand-sponsored game demonstrations if they wish to see the 1,600 Toys "R" Us and Babies "R" Us stores remain open. Perhaps there is a toy equivalent of a "Geek Squad", providing services for busy parents. The retailer admits that it cannot compete on price, so it will have to give customers some other reasons to shop there. How will marketers respond to these increasingly hostile market conditions? We shall soon see.
Vacationers who like to travel to Mexico for its myriad benefits are well aware of its reputation as a place with lots of drug-related gang violence, and unfortunately this reputation has been well earned. Mexico, which relies heavily on tourism for its economic well being, is having one of the deadliest years in its tumultuous history with 12,000 murders during the first six months of 2017. That's a a lot of murders even by our standards here in the United States, and this can't be good for tourism.
Acapulco is a good example of what can happen when a tourist destination's reputation becomes tarnished. In that city of less than a million people, local drug cartels have dissolved into neighborhood gangs with an estimated 20 organizations operating in the city alone. Hotel vacancies are up and many establishments are in poor shape. In its heyday, the city attracted the "tippy-top of the A list" in terms of celebrities and was known as a party town for jet setters. The famous "Love Boat" cruise ship always docked there, and the scenery is simply astounding. Until the early 2000's most tourists hailed from Canada and the U.S., but today tourists are fewer in number and mostly consist of Mexican nationals.
Despite the fact that the city is the fourth most violent in the world (per capita), investors are pouring hundreds of millions of dollars (billions and billions of pesos) into maintaining a safe "tourist zone" and have been actively courting Canadians in particular to come back. Last year only 56,000 travelers came through the newly renovated airport versus over 350,000 in 2006, and so Acapulco has a long way to go. Plus, the violence isn't exactly abating, and so zip lines and other enticements might not be enough to attract a new generation of consumers who can feel safe in the tourist zone.
Despite NAFTA, a trade agreement now decades-old that was supposed to lift the fortunes of the Mexican people, the violence in Mexico is nonetheless getting worse and now affects beach towns such as Cancun, La Paz, and Playa del Carmen. In an age where it seems like everything that happens is reported on and easily accessible on the Internet, it's becoming very difficult for marketers to control the message. Well-intentioned ad campaigns are easily transformed into memes that mock any inauthentic efforts of marketers. In short, it's hard to hide from the truth, and there is only so much a marketer can do to alter perceptions, especially when the facts on the ground are so damning. In this case, the data speaks for itself, and it's up to the Mexican government and the Mexican people, not marketers, to return a once beautiful city to its former glory.
The National Football League, an already-popular spectator sport product that has been boosted by the explosive popularity of fantasy football over the past two decades, is finally facing some harsh realities. Fan interest is waning, characterized by falling ratings and empty seats, and this is plaguing a product that has seemed unstoppable. But perhaps this situation can be turned around; and while marketers have implemented a new ad campaign, they have also made some adjustments to the product itself.
The league has designed what it feels is a more appealing schedule, with ESPN featuring more divisional and intra-conference games in it's Monday Night mix (something it apparently has been wanting to do for a while now). Ratings for Monday night games dropped 12% last year versus 8% overall and since ESPN pays almost $2 billion per year for the rights to broadcast these contests, the struggling network should probably have more of a say in the matter of what it ends up broadcasting. A little more humility and cooperation with supply chain partners can go a long way for the NFL and its commissioner Roger Goodell.
But the ESPN deal pales in comparison to the $27.9 billion arrangement with CBS, Fox, and NBC that runs through 2022. And a separate deal with NBC and CBS for Thursday night games expires at the end of the season. Will the networks renew? Results from a one-year arrangement with Amazon will also be rather revealing. Overall, it does look like the league has put a bit more thought into the schedule this season, and it has also made a few additional changes to the product.
Halftime will be a bit shorter, and the duration will be standardized by the league for the first time at 13 minutes and 30 seconds. A 40 second limit will be placed after touchdowns and prior to the extra point. These moves should shave a few minutes off what has become a product that lasts well over three hours. And networks now have the option of using what the industry calls a "double-box" so that fans can watch the field while commercials play. However, the benefits of this are dubious, as consumers will have another big excuse not to devote full attention to the ad and its message (thus devaluing its potential effectiveness and its value); yet it is possible that fewer viewers will leave their TV's during commercial breaks with a split screen format showing guys standing around.
Health care professionals are fond of saying that one must first recognize that one has a problem before one can begin to solve it. Such denial is not limited to humans, but can also manifest itself within large organizations like the NFL. The league has blamed the falling ratings last year on an aberration caused by the election. This is unlikely. It is more likely that changing market conditions will call for more urgency by the league now and in the immediate future, and while marketers are currently taking some steps to improve the brand and its image, it appears that this should be an ongoing effort.
In advertising, the "what" and "how" of the message marketers wish to convey is known as "creative strategy". The NFL has launched many ad campaigns over the years, but this season the league is making efforts to repair an image that has been somewhat tarnished by domestic violence incidents, player protests, new studies about head injuries, perceived lower quality, longer games, and Thursday Night Football (ugh!), among other issues. TV ratings fell 8% last year and are already down in the first few weeks this season. Marketers are beginning to pine for the old days of skyrocketing popularity.
Previous ads (far newer than the one pictured above, of course) have focused on "star power" with popular players showcasing their personalities, but the NFL's latest ads promote the "entertainment value" of the games with the tagline "Let the Show Begin", presenting the league as the longest running entertainment show on television. There will be four different ads and each ad will have a different theme, although the message will be consistent (as is the nature of a "campaign"). NFL ads are always well-made and entertaining, but let's see if they help the ratings. That's kind of the point, isn't it? If the campaign fails to do this, marketers will have to make some changes, perhaps first conducting extensive research to see just why attendance and viewership is dropping. This latest effort might not be enough.
The Apple Marketing Machine is in full swing with the announcement that a new iteration of the iPhone is pending. Just when it will be released is still a bit of a mystery, but it will indeed be released eventually, and to much media attention, both social and traditional. Apple is great at generating publicity. And it is also great at keeping its loyal users happy by taking existing technologies, integrating them, and making them a whole lot more fun.
What makes this new product introduction so interesting is that Apple may be crossing a threshold in terms of pricing and positioning strategies, from "premium" to "prestige". Premium pricing tells a consumer that a product is in fact better than most other offerings, and that consumer is surely paying a premium for the brand's equity. But all in all, the product does perform better than most, if not all, offerings available, and the consumer is pleased to pay for that benefit. Tide is a good example of a premium product.
But in addition to offering mildly improved iPhone 8 products (so that consumers can replace old phones), Apple intends to sell a new product, the "iPhone X", for a whopping $1,000. Is any phone really worth $1,000? Of course, but products that command this sort of outlying price points are really "prestige" in nature, priced well beyond the features and benefits of the product. Sure, it might perform better than most, if not all, of what's out there, but much of what the consumer pays is really just brand equity. A prestige product therefore appeals to what marketers call "hedonic" needs rather than "utilitarian". Is Apple becoming a "prestige" brand? You decide.
After a very disappointing summer and a year that has seen the movie industry continue along the lackluster path it has taken over the past decade or so, the adaptation of Stephen King's 1980's horror novel, "It", broke a number of box office records with $117 million in sales over the movie's opening weekend. "It" was by far the highest September movie opening in history and also shattered the previous record for a horror movie set by Paranormal Activity 3.
This is good news for an industry that has seen ticket sales drop over the past several years and has relied on higher ticket prices to keep it running at a profit. But "It" did benefit from the brand equity built not only from 30 years of selling the popular book written by the most prolific horror writer in history, but also from a rather well-made TV mini-series from 1990 as well as a very recent Netflix hit show called "Stranger Things", which was inspired by the book.
In other words, this movie has had a lot of help and so in no way does the success of "It" reflect any positive trends in a movie industry still struggling with fewer customers watching lower quality products. A big marketing budget (featuring an excellent trailer that got almost 200 million views last March), coupled with the fact that September's status as a moribund month for movies (as kids and parents recover from a busy summer) also helped matters a great deal. And so it seems that a perfect storm of factors have made "It" a major success, but lost in all of the hubbub is whether or not the movie is any good. The clown does look very scary, and we know that the story itself is a winner. Entertainment Weekly gave it a "B" and Rotten Tomatoes gave it an "85". A solid "B", so it's nothing to write home about. But will there be any long-lasting cultural effects from a movie of this cultural magnitude? Perhaps so. I wouldn't be surprised if this particular clown ends up finally, once and for all, ending the appeal of clowns for everyone everywhere.
While a significant part of the U.S. grapples with the widespread consumer panic, crop destruction, and supply chain disruption caused by multiple events in the natural environment, it is an appropriate time to remind marketers of the role that changes in the natural environment can play in the production of goods and services. The mayhem that natural and man-made disasters always create is fairly obvious in its magnitude, as the economic costs incurred by major events now number in the many billions of dollars. But less visible are the threats (and sometimes opportunities) posed by cyclical events such as droughts or unusually wet seasons. These sorts of events can affect the availability of all sorts of ingredients, and the requisite costs are most often passed down the supply chain in the form of higher consumer prices.
Tequila drinkers and other consumers of mixed drinks in particular remember that a few years ago there was a lime shortage due to some sort of fungus affecting the crop and this affected use of the fruit as a garnish as prices rose to four times what they were before. if you did get a lime, it tasted pretty bad. And now it is avocados that have become somewhat scarce resulting in much higher wholesale prices for a fruit that, once merely a staple of California cuisine, has now become as ubiquitous as Mexican food and sushi have throughout the U.S.
Avocados, which in the U.S. mostly come from California, grow in annual cycles wherein one year there is a higher yield and the next year the yield is much lower as the tree recoups its energy, or something like that. Marketers usually offset these cycles by diversifying and buying fruit from places like Mexico and even as far away as New Zealand to satisfy all-season demand. But this year, California had its smaller-crop year, and at the same time Mexico experienced a lack of rain, which delayed the harvest in that country. As a result, wholesale prices have increased by as much as 75% per case since July. What does this mean for consumers?
The most likely scenario is that prices will rise for consumers, portions often will be smaller than usual, quality will be much more inconsistent than usual, and in some cases, consumers may have to go without avocados altogether. But rest assured that any pricing effects from this particular situation should be very temporary in nature. This doesn't mean that producers could take this opportunity to keep prices high. Indeed, U.S. avocado consumption has grown by 400% since 2000, due mainly to its high nutrient and "good fat" content, and demand is also increasing in both Asia and Europe. So it appears that in the long run, California, Mexico, and New Zealand may have to up their acreage to meet rising demand, or perhaps farmers in other climate-appropriate regions might want to try their hands at growing the crop. Otherwise, prices might remain high. Rising demand means rising opportunity for farmers and intermediaries alike, and if this demand can be met with adequate supply, prices should remain at reasonable levels. The supply chain should flourish. But for now, lower yields coupled with rising demand can only mean higher prices. So the next time your server asks you if you'd like guacamole with your "Enchiladas Suizas" or crave a turkey and avocado club, you might want to consider the avocado.
After a great deal of negative publicity caused by selling several batches of unintentionally "see-through" yoga pants as well as the CEO's assertion that the company's yoga pants "aren't for every (body type)", Lululemon has snapped back rather nicely, bucking an industry trend that has seen many recently successful brands struggle mightily with an ongoing sales slowdown that has pounded the retail sector.
With a big lift from it's "outerwear" line as well as a focus on products targeted towards men, the yoga-wear-turning-athletic-wear company has targeted $4 billion in revenues by 2020 and expects to sell $2.55 billion worth of stuff in 2017. Indeed, "thinking beyond the mat" is something that first-year marketing students should be learning to do, avoiding what is called "marketing myopia" at every turn. The railroad companies, as a commonly-cited example, failed to see themselves as transportation companies and were sidelined during the eventual revolution in trucking and air freight. Eggo, maker of fine waffles, waited quite a long time before finally deciding to make a syrup to go with the waffles.
And so Lululemon is successfully becoming an apparel maker, even as big brands in other categories like Starbucks struggle to move beyond their core product offerings (the previous post). Will marketers cede the brand's hard-fought leadership in the yoga category as they intentionally dilute its brand? Perhaps so. But if the plan is to grow the company by dramatically expanding the market into general athletic apparel while still nurturing the much smaller yoga segment, then perhaps brand dilution in the name of massive market expansion is a smart strategy. Nike did this when it moved away from the core athlete market and made sweatsuits for everyone. It worked out for them, and Under Armour was happy to swoop in to address the core athlete market that Nike had moved away from. We do know that for Lululemon it is working so far, but the fashion world is a very fickle place, and any alleged turn-around is still in its infancy.
Potentially threatening is the possibility of large numbers of yoga afficionados, especially younger women, switching to newer brands as Lululemon moves further away from the core yoga market it worked so hard to develop. Lululemon could establish a spin-off brand to address this, one that specializes in the high end yoga consumer, while the flagship brand addresses the broader market. This might be a strategy marketers would want to consider. And, of course, the company must get lots of new customers in this expanded market to make it all worth while. Marketers have been working diligently to expand the brand's international presence, especially in China, and so the brand is moving on many fronts. Hopefully, Lululemon, in its quest to grow beyond yoga, doesn't get stretched too thin.
In a new product development twist we would expect from the always-creative marketers at Taco Bell, coffee drink-retailer Starbucks has decided introduce a food-fusion product that is part burrito and part sushi. If you are confused as to why they would do such a thing, the marketers at Starbucks don't seem to care very much, as it seems like they have tried almost everything to move the brand away from coffee.
In fact, Starbucks hasn't seen much success with regard to its fancier food offerings, but stores in Chicago and Seattle are already featuring "a classic California burrito with a twist" that includes chicken, pickled cabbage and avocado, sushi rice and is wrapped in sushi-style seaweed casing. Obviously, there will be no fresh fish. The company's latest offering is part of it's "Mercato" menu, which also features grilled cheese with burrata (whatever that is) as well as quinoa chicken soup. Fancy! Critics say that, as with the previously offered mac and cheese and avocado toast products, marketers at Starbucks are merely chasing a passing fad that really only has regional, rather than national, appeal. But the company has enjoyed some success with breakfast foods such as croissants and other baked goods that go well with coffee drinks. So what about a sushi burrito? Why double down on the fancy stuff at all?
It doesn't sound like a winner to me. Starbucks finally retreated from selling alcohol at high-end locations in an attempt to drum up a later-arriving crowd, and the brand has thoroughly failed to resonate in the market with any items that do not complement coffee. So why continue to try at all? And since developing the sort of brand equity Starbucks has managed to build over the years is exactly what a brand strives to achieve over time, it's hard to feel sorry for Starbucks marketers, who for some reason continue to want to dilute this equity by introducing foods that don't make much sense. Taco Bell, for its part, sticks to Mexican-style food.
To complicate matters, the company struggles with an overall perception that it's food isn't of high enough quality to warrant the high price points Starbucks relies on in its business model. Will the "Mercato" menu change consumer perceptions about Starbucks? Is changing the perception about it's fancy food what marketers should be focusing on in the first place? Or should Starbucks stick with being good at serving coffee and pastries and maybe figure out what other products might actually fit in the mix? Indeed it appears that marketers are struggling with these and many other questions.
Regional fast food chain In-N-Out Burger has cried "foul" and as a result has filed a trademark infringement suit against the national fast food giant, Smashburger, claiming that the rapidly-growing, upstart chain's "Triple Double" offering is a bit too close to the pioneering "Double Double", a delightful product that has been a mainstay in the western United States for many decades. In-N-Out was one of the original West Coast burger pioneers and, instead of opting for the rapid-growth "franchise" model like Smashburger, the company decided to opt for centralized family ownership and has therefore remained very small.
The issue facing the court is whether or not an average consumer is likely to be confused and mislead by the co-existing brand names which would thereby injure In-N-Out. But would a reasonable consumer really believe that Smashburger's product is somehow connected to In-N-Out's product? This seems like a reach for In-N-Out, a company that has strategically decided to remain quite small all these years. Smashburger, on the other hand now has thousands of locations and for years was the fastest-growing franchise in the U.S. A reasonable consumer is unlikely to confuse the two, and In-N-Out is not in the vast majority of markets in the U.S. further complicating the smaller company's claim. Plus, a "triple double" and a "double double" aren't the same thing and refer to the number of beef patties and cheese slices in the product, a fairly generic reference indeed.
In-N-Out faces an uphill climb here, but Smashburger might not want the negative publicity this whole fiasco might create, and therefore might settle the suit; but the company may also relish a chance to make lemonade out of lemons and garner some free positive publicity, especially if social and traditional media see the lawsuit as frivolous. On the other hand, if the ingredients and flavor in the two competing products are basically the same, that might be a sticking point for Smashburger. Another question concerns any preceding cases that might guide a judicial decision. The Burger Wars are always interesting to watch from an academic standpoint because the brands are so large and ubiquitous, and the products so similar. Let's see what happens.