• Gucci Grabs Young Shoppers

    With all of the talk about how the vast majority of traditional brands are struggling mightily to resonate with a massive cohort of fickle young consumers, it's nice to see one of your grandmother's classic brands emerge as a winner in bridging the proverbial "generational gap". Indeed we are talking about Gucci.

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    Yes, Gucci. Apparently, Millennials love Gucci, and so marketers at Gucci are learning to love Millennials replete with the incredible purchasing power that the largest generation in the history of the world is just now beginning to wield. Sales at Gucci are up by almost 50% from last year and half of those sales were to consumers under the age of 35. Success has been driven largely by a complete change in the product mix with a new look consisting of a wide range of colors, patterns and periods. Variety. The spice in the diet of almost every Millennial.

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    The "New Gucci" is also improving customer retention, with a robust digital marketing platform that enables the brand to develop and maintain a one-to-one relationship with any consumer that wants one. But today's fashion consumer is more fickle than ever, and so the marketers at Gucci will have to stay connected to what their consumers really want in addition to offering riskier, fashion-forward products that might set it apart from competitive brands. So far so good for Gucci.

    Discussion: Name another "classic" brand that is resonating with young consumers. What is it about the brand that is appealing?

  • Friday Night Lights Dimming

    As a sport, American football has lots of problems. The NFL's foibles have been well-documented here at KnowNOW! Marketing, and we all know that the CTE brain injury issue is gaining steam as more evidence mounts that significant numbers of former players have the irreversible disease that is caused by head trauma. Of the two problems, the CTE issue is by far the one that poses the greatest long-term threat to the health of the sport and the billions upon billions of dollars it generates. The NFL might be losing viewers, but football is losing participants.

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    A recent study conducted by researchers at the University of Colorado found that high school football participation actually peaked back in 2009 and has dropped each year since then. This was well before CTE became a well-known issue, and so there are probably other factors at play in why there are fewer players. The bad news is that there will be less talent in the future as a result and thus a lower quality product at both the collegiate and professional levels. The good news is that flag football participation is actually on the increase, which means that as those leagues become more available to young people, perhaps the slide in football interest overall can be abated.

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    Since marketers know that people who participate in a particular sport are more likely than the general population to consume that sport as a spectator, it would follow that seeing participation rise at any level is good news--even flag football. And since CTE is now a reality, perhaps flag football is part of the sport's future even on a spectator level. That's hard for many football fans to swallow, and it would surely take a couple of decades for any meaningful changes to take place, if indeed they do take place. But it is hard to ignore shifts in the socio-cultural environment. Changes in attitudes often lead to changes in behaviors, and it's always best if marketers follow a trend from its inception rather than reacting to it much later on in the game.

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    Perhaps those with a vested financial interest in the game should band together, find out what the current perceptions are through some exhaustive marketing research, and develop a concerted plan to deal with the issue. The "Milk Mustache/Got Milk?" campaigns immediately come to mind. Maybe it's time for the great football minds of our time to take a cue from the dairy industry and work together to raise the entire category. Ignoring a problem means you fail to address it.

    Discussion:  Do you believe football is in crisis? Why or why not? What would you do to increase youth participation?

  • Sugar Losing Sweetness: Part Two

    Continued From Part One

    Sugar isn't just used as a sweetener. In some chocolate products, for example, it is used to give the finished product a smoother texture. If you remove sugar from ice cream, as another example, the result is a product that is very, very hard. Sugar also acts as a preservative, enhancing shelf stability. Indeed food chemists must come up with a number of substitute ingredients to compensate for the lack of sugar. But it does look like sugar, for the most part, is on the outs, and so it is up to product developers to figure out ways to cope with this new market reality. So what's the future hold?

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    Many researchers believe that low and zero-calorie solutions are more likely to be found in nature rather than in a laboratory, and of course the growth of natural products in general over the past several decades supports this assertion. Increasingly, consumers are shunning artificial flavors, colors and preservatives, and so that option is fraught with challenges of its own. But the natural sweeteners that are currently on the market have problems of their own, a bitter aftertaste being among them. The race is on. And you can bet that necessity is the mother of invention, so hopefully several new options will emerge in the near future as consumer attitudes drive the need for product developers to change what they have been doing. The industry is betting billions that it can find solutions, and "The Marketing Concept" lives on!

    Discussion: Can you think of any other industries undergoing a shift such as this one? What are some of the similarities and differences between the two situations?

  • Sugar Losing Sweetness: Part One

    The obesity epidemic remains a major problem in America as well as in other wealthy nations, and concern among consumers and lawmakers alike is driving food chemists to find alternative sweeteners that still satisfy our need for things that are "sweet". Surely this isn't new as we are all familiar with the ingredients in diet drinks, but continued concern about those artificial sweeteners has branded products makers looking to find "substitutes" at a rate never seen before. Consider the following two points of data from a recent Nielsen study:

    *22% of Americans restrict sugar intake

    *52% of Americans avoid artificial sweeteners

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    The writing is on the wall, and yet there are 22,000 food/beverage products that contain high fructose corn syrup (an ingredient that actually has over 200 names) currently on the market. Sales of products with natural and/or low glycerin sweeteners are up 19%, and we know that the sales growth of products without artificial ingredients has outpaced those that contain artificial ingredients for many years. The meteoric rise of natural and organic products are a testament to this. Meanwhile, regulators are requiring more disclosure of added sugar, with pending regulation that is transforming the industry.

    Part Two To Follow

    Discussion: Are you watching your intake of sugar? Why or why not? Do you read labels? Are Millennial (17-37) attitudes towards sugar and artificial ingredients driving the market?

  • Target Remodels, Thinks Small

    As brick-and-mortar retailers reduce their respective footprints across the nation, it is important to remember that despite the rapid rise of e-commerce, these major retailers will always be building new stores even as they close old and under-performing locations. And after years of stores getting larger and larger, there is increasing evidence that a new "smaller is better" paradigm might be emerging.

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    Despite the failure of Wal-Mart's smaller-format "Neighborhood Market" model, Target is looking to add more small format stores across the United States in the coming decade. Faced with saturation in suburban and rural markets and as they busily remodel existing superstores, Target marketers have decided that growth opportunities likely exist in adding smaller stores in urban areas.

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    The company's CEO has said that the company is making "big commitments" to improving existing stores and is also expanding its digital capabilities (as most retailers are being forced to do). He has even boasted that the company remodels while competitors "across the street" close their doors. Indeed Target intends to remodel over 1,000 locations over the next three years, and will roll out lots more 50,000 square-foot stores, which are far smaller than the average Target 145,000 square foot locations. Surely these will be bale to fit in all kinds of handy urban locations. Target does seemed poised for a bright future as it also continues to upgrade its product mix, especially signature apparel lines. Attracting Millennials and upgrading the digital experience are two keys to success. As so many retailers struggle, it's nice to see one doing so well.

    Discussion: Does Target appeal to you? Why or why not? What can the brand to to have more Millennial appeal?

  • The Nielsen Haters

    The Nielsen Ratings have been a fact of life in advertising for many decades. This periodic sampling of TV viewers across the U.S. is the primary factor in how prices are set in the advertising industry since it reflects how many people are watching a particular program and thus the advertising that supports it. But what if the "ratings", almost as old as television itself, don't really accurately reflect the reality of content viewership in today's media environment? That's where the "hating" comes in.

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    Like most marketing research, the ratings are based on a sampling of the TV-viewing population, and many industry observers believe that ratings are dropping in general partly because the people at Nielsen have been slow to keep up with the times. Recent attempts by Nielsen to measure "non-traditional" viewing, namely co-viewing, out-of-home and digital users, has been met with much criticism. And as a result, NBC recently decided to stop exclusively relying on Nielsen because the ratings service did not measure out-of-home viewing.

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    As TV ratings continue to fall across the board it is clear that Nielsen and other far less important ratings services must do more to measure non-traditional viewing. There are billions of dollars at stake, and an antiquated ratings system with a monopoly cannot serve the industry adequately in this day and age. Video viewing now exists across many devices, especially among the coveted under-30 demographic, but it is still video viewing. The definition of TV has changed. Yes, ads are reaching these consumers, and the industry revenue model demands that viewers be counted. Clearly Nielsen has to get better at what it does, and it would be nice to see a significant competing ratings service emerge to lubricate the wheels of progress. Let's see what happens.

    Discussion:  Do you think that Nielsen's monopolistic position affects it's desire to keep up with the times? What can networks do to improve a situation that only gets worse by the day?

  • Costco's Catastrophe Kits

    It often pays to address a niche market, which could be defined as a relatively small market that features few if any competitors. If you have a unique enough good or service and the market is large enough to reach and serve profitably, niche marketing pays. As a case in point, for those seeking to survive a major disaster, Costco is now offering a 1-year emergency kit made up of nearly 100 one-gallon cans comprising 6,200 servings of food. The whole package runs $999.99 and includes shipping, and the product will last up to 25 years. Who would buy such a thing?

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    Well,  the "survivalist" market segment of U.S. consumers might not be a very large one, but a niche it is. The product should do rather well, especially in more remote geographic areas of the country. But what about short term-disasters? A smart marketer might not see the opportunity in this product category in such a "niche" fashion and might have even better ideas for this category. Indeed much smaller kits with shorter shelf lives are already being sold at Wal-Mart as well as Costco, and such products (large and small) would obviously be very useful during natural disasters such as hurricanes, tsunamis, earthquakes, and other incidents where people could be cut off from supply routes for extended periods of time. Such products have almost universal application, and, with a population becoming increasingly worried about disasters, one would expect that this category could become very large indeed.

    Discussion: Would you buy such a kit? Why or why not? Can you think of any other new products that might meet a consumer's need for sustenance during an emergency?

  • Futbol on Fox

    The U.S. soccer team recently suffered a remarkable defeat at the hands of a tiny island nation off the coast of Venezuela and consequently will miss its first World Cup since 1986. Fans of U.S. men's soccer, and there are many of these, will have to go without seeing the U.S. in action for a while, but perhaps the biggest loser in this whole thing.might be Fox Sports. After all the network paid $200 million for the U.S. English-language rights to broadcast next year's World Cup, and made a bet that viewership for the tournament would continue to achieve great growth as it did in 2010 and to a lesser but still significant degree in 2014.

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    The growth of soccer in the U.S. has been slow and steady over the decades, and there is evidence (if English Premier League ratings are any indicator) that a growing number of Americans are willing to watch high quality action even if it happens during the early morning hours of the weekend. And so paying for World Cup rights appeared to be a no-brainer for Fox Sports. The trouble is that now that the U.S. is out, there are going to be far fewer people tuning in. This isn't good news for Fox Sports or its usual advertisers who were also expecting a larger audience.

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    The U.S. team's four matches in the 2014 World Cup were among the top five most-watched matches, averaging 14.3 million viewers in the U.S. versus 3.8 for other contests. Uh oh. Fox only owns the U.S. rights, and English language ones at that. It's fair to say that marketers won't be bale to sell ads as easily or for as much money if the audience is anticipated to be low. Advertisers will pay less to reach fewer viewers. ESPN brought in over $500 million in advertising during the last Cup and some advertisers ponied up as much as $30 million each on U.S. game ads. Fox Sports is unlikely to come close to that number and could lose its shirt on this deal, but perhaps it could break even or make a bit of cash on its $200 million broadcasting rights investment if marketers get creative with their ad inventory.

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    It's a 90 minute game with a long halftime and there are numerous opportunities to place ads during the broadcast, and many possibilities to be creative on what the network can offer advertisers. In addition, event sponsors will want to place ads to "activate" and "leverage" their sponsorships (as they know they must do) to optimize their sponsorship objectives. And there are lots of sponsors. One thing is for certain, marketers will have to try harder without the American team and many of their fans in the mix.

    Discussion: Can you think of any creative strategies that marketers at Fox Sports could employ to attract advertisers? 

  • The Book Is Back

    The failure of e-books to win enough American hearts and minds means that the creative destruction of the book industry may be coming to a close. Larger bookstores have already consolidated and big chains have closed down as Amazon rapidly grabbed its market share. In fact the e-books, a product category that only emerged recently with the advent of such clever devices as the Kindle and the Nook, has seen revenues fall by more than 15% annually since 2015. That's might be hard to believe, but I have been surprised by the lack of e-textbook adoption among my students over the past few years. I guess it just hasn't caught on. It is interesting to note that the tablet category, which largely replaced those devices when Apple introduced the iPad, is also already in decline. The market moves fast these days, which is exciting for a young marketer.

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    So does that mean traditional books are on the rise again? We know from previous KnowNOW! Marketing posts that independent bookstores are now doing rather well. As long as the location is right and the marketer understands the demographics and psychographics of the local market, the proper mix of new and used books, coffee, sometimes wine, and good old-fashioned customer service can result in some outstanding outcomes.

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    the answer is a surprising "yes". Print books themselves are seeing some healthy revenue growth at around 5% annually for both 2015 and 2016, which is great news for independent booksellers, publishers, authors, editors, bookmakers, Barnes and Noble, Amazon, and for anyone who wants to break into the business. Five percent growth in a large industry means that there is opportunity. And demand for goods and services all the way up the supply chain is derived from the consumer, so when consumers want more of something, the whole chain grows and flourishes. Indeed many companies are reinvesting in print books at a rapid clip and some in the industry are working on building more effective pipelines to bring more authors to more consumers. And so it looks like the book may be back, at least for now.

    Discussion: Do you own a tablet or e-reader? What percentage of books that you read are e-books? Do you think that e-books might eventually become more popular? Why or why not?

  • Holiday Freeze for Brick and Mortar

    The consumer shift from brick-and-mortar buying towards e-commerce buying has been in full force for almost two decades now, and the 2017 holiday shopping season won't be any different. Indeed, Retailer brands that focus on physical locations have had what can only be described as a brutal year and their stock prices (company values) have been hammered by investors due to their overall poor performance. Indeed, we should all rejoice in the successes of Wal-Mart and Best Buy with regard to the online space now that Amazon controls about 60% of all online purchases and is now making a major foray into brick-and-mortar. Competition is always a good thing, and there are many concerns that Amazon might control a bit too much of the retail sector at this point in time. Such perceptions often result in regulatory scrutiny. Stay tuned for that.

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    And so it is Amazon that will largely benefit from the revenue growth that analysts expect this holiday season. Macy's, Target, Kohl's, and Nordstrom are all sucking wind, and it seems that the entire brick-and-mortar sector is being buoyed by Wal-Mart, Dollar General, Dollar Tree, and a handful of successful specialty retailers. Holiday sales are expected to rise about 4% from last year, modest growth to be sure, and almost all of this growth is expected to be online. And it is starting to look like some retailers will no longer be around come Spring.

    Discussion:  Young consumers are coveted by most marketers. What percentage of goods and services do you buy online versus in a traditional store? Compare your attitudes with those of your peers. What conclusions can you draw about the future of retailing from your anecdotal evidence?

  • Dove Pulls Offensive Ad

    My, how times have changed. An advertisement that was meant to show how Dove's body wash is for everyone and a celebration of diversity was slammed on social media, resulting in marketers discontinuing the ad entirely. The ad portrayed a woman morphing into different ethnicities as she pulls her shirt over her head, which 15 years ago would have been received as a clever nod to diversity, but in 2017 has inflamed portions of the Internet.

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    Indeed these opinions are statistical outliers, but this sort of controversy is something that every brand wants to steer clear of, and Dove has unwittingly found itself right in the middle of the fray. Memes have even appeared lampooning the ad, and a senator has even used the concept to show President Trump morphing into Adolph Hitler. Yep. An elected senator. That's how bad the national vitriol has become, and how dangerous it is for a brand to address it. What some people found offensive about the ad is totally beyond some folks, but maybe making such a statement might also be offensive to these same people. Well, count me out. Marketing really shouldn't be offensive. So what is a marketer to do?

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    Our advice here at KnowNOW! Marketing has always been the same, and now it applies double. Stay away from targeting or themes based on ethnicity. Just don't do it. And this goes for all social issues that have become politicized. Stay away from all of it. There is zero advantage in taking stands on controversial issues in marketing communications, especially considering that it is a marketers job to sell products, and not to play politics. Unless the communication is in fact highly targeted and placed in a medium where only folks who feel a certain way will see it, don't implement such a creative strategy. It is so easy to be accused of stereotyping. These issues are becoming difficult to talk about even in a classroom setting where academic freedom insures that ideas can and should be heard and exchanged. Raising any issues that could be misconstrued is becoming too dangerous in almost every setting, let alone in paid marketing communications. And in our opinion, most ads that are ethnically-themed (and gender-themed for that matter) tend to be rather cheesy and gratuitous in the first place, so why bother doing it in the first place? 

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    The point here is that no matter how they feel about politics, these days marketers need to stay as far away from controversial issues as possible. But what is interesting here is that so many major branded product marketers continue to make attempts to address divisive issues in their marketing efforts despite the risks that have become glaringly obvious now that we are two decades into the 21st century. There are obviously some deep-seated social issues that America must face, and we are living in a time when it seems that just about anything can be twisted and misconstrued. Smart marketers know that to protect their brands, they just need to stay neutral.

    Discussion: Did you find the Dove ad offensive? Why or why not? Do you agree with the writer's advice in this post? Why or why not?

  • Tesla Not Good at Production, Promises

    They make pretty cool cars, and that Elon Musk is one heck of a marketer, but the fact of the matter is that Tesla has been an unprofitable maker of very expensive electric cars for well over a decade, and has failed to meet almost every production deadline in its history. Various government incentives make the vehicles far cheaper than they would otherwise be, which means that for all practical purposes, the company would be insolvent if left to market forces.

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    But governments simply love electric cars even if the vast majority of consumers do not, but Tesla has nevertheless managed to gain a fairly good-sized following of late, especially after marketers announced the introduction of a lower-priced model, which garnered lots of pre-orders. The problem is that the company has a problem with delivering on its promises, and this time is no exception. 

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    Indeed the company has made only a fraction of the promised Model 3's that are expected to satisfy hundreds of thousands of customers, which certainly surprises no one here at KnowNOW! Marketing Headquarters, longtime critics of Mr. Musk and his largely outsized ideas, but this sort of thing should start to concern the folks who are expecting actual results, namely shareholders and customers.

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    Reports that Tesla is producing cars by hand rather than on production lines have shed light on the issue. Mr. Musk warned his acolytes several months ago that they were entering "production hell", but at the rate of three cars per day, it is highly unlikely that Tesla will satisfy even a fraction of the promise it has made to its fans. But these fans have historically been a forgiving bunch, and remind us at Headquarters of the overwhelming zeal Apple "fanboys" of yesteryear once had for Apple products they considered to be "innovative". Well, that's kind of over, although pockets of resistance remain. But at least Apple delivers on its promises, and every student of marketing learns that it's best to under-promise and over-deliver, preferring  to delight the consumer rather than disappoint. Tesla? Not so much. But it does appear that rising demand for electric vehicles in the future will largely be driven by the legal and regulatory environment as governments large and small continue to subsidize this industry that still comprises less than 1% of the car market. 

    Discussion: Why is it important is it for marketers to under-promise and over-deliver? If Tesla often fails to deliver on its promises, then why is the brand so well-regarded by so many consumers and almost everyone in the media? In light of the tax subsidies available for electric vehicles, what is government's role in driving demand for a product category?

  • The Need for Nuggets

    Is there really a need in the marketplace for more chicken nuggets? That's the important product question marketers at both Wendy's and Burger King think they have already answered, but interestingly, the conclusions the two have drawn aren't the same.

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    Back in March, Ohio-based Wendy's wrote an open letter that said it's spicy nuggets product wasn't doing very well overall and, as a result, the company would only sell them in the seven cities where they were popular. Despite this, Canada-based Burger King has decided to introduce essentially the same product to essentially the same market. Why? The marketers at Restaurant Brands International headquarters have said that a review of social media chatter suggests that there is still a healthy demand for spicy nuggets and consequently went into the Research and Development stage about four months ago.. Burger King President Alex Macedo said, "It's all over Twitter and Facebook. People miss spicy nuggets."

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    But do they really? This might be a good time to remind students and practitioners of the marketing arts that what is seen on social media does not really constitute what scientists consider to be "marketing research", and so any analysis should be conducted very carefully and any interpretation of this largely qualitative "data" should be strictly "directional" in nature. In fact much of what we see on social media consists of very happy or very unhappy people, or simply people with lots of free time on their hands. In other words, commentary on social media is probably not representative of the norm. And statisticians don't like outliers. Monitoring social media is important, but we here at KnowNOW! Marketing headquarters would like to know if the Burger King conducted any "real" marketing research throughout the kingdom. You know, the kind with validity and reliability, and randomized sampling. We hope that they did. Perhaps truly assessing the presence of a need scientifically is something we should expect from one of the top fast food brands in the world prior to introducing a new product on a large scale. It sure would be a shame if such an experienced company made such a rookie mistake.

    Discussion:  Is assessing a need in the market more than just scanning social media? Do you think that social media has a place in the new product development process? If so, provide some examples.

  • Making Lidl Progress

    There was much fanfare when the German grocery giant entered the U.S. market, opening a headquarters in Virginia and challenging long-held turf in that state, Georgia, Delaware, and the Carolinas. The plan is to gain a nice following and expand outward from there. Indeed, Lidl enjoyed an initial burst of customers as it introduced its successful small-format, discount pricing model that features a limited selection of inexpensive, store-brand goods. Lidl siphoned off 11% of customers in the markets it entered during its first few months, but the fun didn't last very long at all.

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    Lidl failed to keep those customers, and the company should be very, very worried. Wal-Mart and Kroeger have already regained their respective market shares suggesting that the consumers that did visit the stores were not happy enough to return. In other words, the success achieved in international markets (namely Europe) might not translate into success in the U.S.

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    Marketers will need to begin conducting marketing research to see what's going on. Perhaps consumers don't like the selection, or the brands themselves, or maybe something is wrong with the store layout or aesthetics. There are many possibilities, and the key is to do some homework. And do it soon. This is why it can be a good idea to enter an unfamiliar market slowly, rather than en mass, so that marketers can adjust the business model before too much has been invested in a flawed effort. Lidl has been smart in this respect, but it looks like marketers have indeed failed in some major way. Luckily the company ha slots of cash. Now they just have to find out what they missed.

    Discussion:  What marketing research techniques would you recommend Lidl marketers employ, and what information would you want to get from the market if you were conducting the research?

  • Aurora Organic: Authenticated

    When a brand is marketed as Certified Organic it must adhere to the tenants of the National Organic Program, a set of stringent requirements that affirm a product's "organic-ness". This program is regulated by the USDA and each organic producer is affirmed by ongoing third-party certification. But sometimes that certification is a bit lax, and some producers have been known to take certain liberties with regard to a business model that, quite frankly, involves very high costs. Luckily, these producers can charge a premium that trickles all the way down the supply chain to the consumer, who is willing to pay a premium for an organic product.

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    Aurora Organic Dairy has been criticized since its inception for the crime of being "too big" to be truly organic, and a Washington Post story published last year asserted that it had uncovered some potential violations. As a result, the USDA dutifully performed an investigation and found the "mega-dairy" to be in compliance after all. Smaller producers cried foul, some even alleging that large producers like Aurora Organic are somehow colluding with the Organic Trade Association, a non-profit trade group that represents the industry. Smaller producers don't like the fact that a dairy that is large enough to supply the likes of Wal-Mart, Costco and Target can adhere to standards that many believe were really intended for smaller operations. And so many of them have become a bit unhinged. I watched it happen.

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    But the National Organic Program has been a huge success over its 25 year history, with revenues through the roof, increasing supply, widening distribution channels, and prices falling to what many consider to be reasonable levels. In other words, most Americans now have access to organic products, and it is the larger players throughout the supply chain that have made this happen. Small companies, however well-intentioned, are notoriously unable to keep up with the myriad demands of being a major member of a supply chain. That's the problem with being small.

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    It's the large brands that meet most of America's demand for organic products. But don't expect this simple truth to stop various industry activists, most of whom own for-profit companies, from protesting against those that are larger and more powerful than they. They have been doing it for years. Larger companies, especially those who come from mainstream sectors, in the natural and organic products industry have always been bullied by organized smaller industry insiders, a phenomenon I have personally witnessed over a 25 year career in the industry.  In fact, the vindication of Aurora Organic might anger the "little guy", but it nevertheless is a good thing for the industry and Americans as a whole. It would be refreshing if more organic industry leaders, instead of being threatened by the success of competitors, recall the mantra that the whole point of the organic movement is to eventually overtake conventional agriculture because it's supposed to be better for people and the environment. And this just isn't possible without big organic companies making big organic things happen.

  • New Owner, Old Prices?

    Much has been written of late about the lack of progress Whole Foods has made thus far in its efforts to lower prices, but this writing has been penned primarily by journalists rather than professional marketers, the latter of whom must understand that these things take time.

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    Five weeks is not enough time for a large company to alter a marketing strategy, especially one that involves business-to-business buying on a national level. Amazon was able to lower prices immediately on mostly high profile, high volume goods because it wanted to generate publicity and a larger company can operate with thinner profit margins; but without a major change in how Whole Foods buys what it stocks on its shelves, a one percent reduction is about all it can afford. In fact, the company opted to raise prices on some lower volume goods. What can we expect in the future?

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    Right now Whole Foods' business model is inefficient, and it takes a while for one company (Amazon) to digest another (Whole Foods) after acquisition. Amazon will use its massive retail presence and command of supply chains to reduce prices in much the same way that Wal-Mart has been able to do over the years. Channel captains enjoy close relationships with their vendors, are able to negotiate more favorable prices, are great at merchandising and category management, and often buy in large volumes over a long period of time, all of which results in a more efficient supply chain overall and lower costs.

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    Add Amazon's obvious e-commerce advantages into the equation and overall, we could see about a 10% reduction in retail prices over the next few years at Whole Foods Markets. And since prices at Whole Foods have historically been about 15% higher than traditional grocery prices, the brand can still enjoy a bit of a premium position in the market, albeit not one as extreme as the "Whole Paycheck" image it has managed to cultivate. But these things do take time and Whole Foods doesn't want to dilute its brand equity by duplicating the low-price model of Sprouts. I would favor a slow, steady reduction in prices. Let's see what happens.

  • Only Human

    Celebrities are only human, and humans make mistakes. Sometimes we forget that, and when marketers use celebrities such as athletes as brand endorsers, the errors that humans have a propensity to make can exact fairly large consequences. This is true for both the human as well as the brand. Using celebrities in marketing can be risky, especially in the Age of Twitter. Everything a famous person might say or do these days is subject to an unprecedented level of scrutiny, and this new reality is becoming increasingly troublesome for marketers who prefer to use endorsers to cut through the marketing clutter.

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    Cam Newton, the Carolina Panthers quarterback who has been no stranger to controversy over his career, recently insulted a female reporter by suggesting in a condescending manner that it was "funny" that a female should be asking about pass routes. The female sports reporter did not find it funny at all, and neither did yogurt giant Dannon which did not wait for the obligatory apology and cut endorsement ties with Newton immediately.

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    In fact, the company seemed to take more offense than the reporter did, and at first blush it seemed to me that Dannon overreacted. But when thinking about all of the recent controversy stirred up by the anthem protests, it's hard to blame a major brand for being a bit "gun shy". This sort of thing is beginning to happen with much greater frequency. These are touchy times, and a contemporary marketer might even reconsider any plans to use celebrity endorsers in this new environment that almost invites problems. In the old days, the negative publicity created by what a person did and said didn't travel quite as far and wide as it does now. And a brand doesn't want to be associated with any controversy created by the actions of a celebrity endorser. So why not create a "spokescharacter" instead?

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    Well, Jared from Subway taught us that even non-celebrity spokespeople (he wasn't a celebrity before Subway made him one) can create problems for a brand.Using a voice behind an animated character like Chester the Cheetah (Cheetos) and the Geico gecko does appear to be the least risky proposition, but celebrity endorsements have been found to be rather effective in advertising. This is why they are used so often. But perhaps marketers could take a bit more care in selecting the endorsers they use, who are primarily chosen and compensated based on one or more awareness and "like-ability" scores. Maybe the folks who develop these scores can start to factor in the "risk" of using a particular endorser based on age, occupation, income, level of consumer awareness, past behavior, marital status, gender, and other relevant risk factors a marketer might want to consider before attaching his/her brand to a famous human being. These days like-ability doesn't seem to be enough. It's just an idea, but it is one whose time has probably come. After all, celebrity endorsers are only human.

  • FDA Says, "Hold The Love"

    One of the tasks of the Food and Drug Administration is to regulate what goes into the products we buy, well, at least the products that we put in and on our bodies. When it comes to foods, the FDA manages a list of acceptable ingredients that it considers to be GRAS or Generally Recognized As Safe and updates that list from time to time. It's all pretty simple unless you are selling dietary/nutritional supplements, which is a whole different set of regulations altogether. But when a tiny granola company based in Massachusetts began insisting that its products contain "love", the regulatory agency took exception. Is this ridiculous?

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    Obviously the inclusion of love as an ingredient is a marketing tactic used by marketers at Nashoba Brook Bakery, an allusion as to how much the bakers care about what they do. But don't expect the FDA to care a lick about that. It's the agency's job to make sure that what a company says is in the product is actually in the product. And apparently love is not only difficult to quantify, but its inclusion on a product label is also fodder for an FDA warning letter.

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    The FDA also cited numerous other code violations at the facility that included mislabeled products, sanitary violations, as well as a 1-inch long "crawling insect" seen in the pastry area. Indeed, the FDA shows no love when it comes to consumer safety and doesn't want marketers to take liberties when it comes to telling consumers what is and what isn't in their products. Until love becomes a GRAS ingredient, marketers would do well to just leave it out entirely.

  • A Gorilla of a Case

    Trademarks are important to marketers since they can be tremendous branding tools, and sometimes this intellectual property must be defended against marketers that aren't even competitors. Imagine how long it would take Nike to call it's legal team if someone discovered that another company was using its coveted "swoosh" or the name "Nike", even if it was a vegetarian restaurant. This stuff is worth defending! And so it is the same with Ohio-based The Gorilla Glue Company who sued a Nevada-based cannabis company, GG Strains LLC, for using its "Gorilla Glue" nomenclature with regard to three of its products.

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    Of course, this is particularly interesting because it concerns a cannabis company that sells in a product category still deemed illegal in the United States (but one that is nonetheless sold in almost 30 states for both medical and recreational uses) infringing on the intellectual property rights of a glue maker. A glue maker? But trademarks are trademarks in the eyes of a federal court whose job in this case was to make sure there would be no confusion in the marketplace, and a quick internet search reveals several pot-oriented images on the first page alone.

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    The result? The two entities reached a settlement wherein GC Strains will have to transition away from the name, any gorilla-oriented imagery, or any other similarities to Gorilla Glue trademarks by this time next year. The company will have to re-brand its three products, which shouldn't be a terribly difficult task considering it's a silly name for strain of cannabis anyway; and Gorilla Glue will retain its identity as a Ohio-made glue and not be confused with a strain of weed in Las Vegas. Indeed all of this reminds us of the role that the legal and regulatory environment must play in maintaining the integrity of intellectual property rights in commerce. Without these protections, ethical marketing would be a rather difficult endeavor.

  • Some Fans Taking Knee

    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.

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    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.

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    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?

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    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.

  • Natural Pricing's New Paradigm: Part Three

    (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.

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    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.

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    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

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    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!

  • Natural Pricing's New Paradigm: Part Two

    (Continued from Part One)

    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?)

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    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.

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    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.

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    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.

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    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.

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    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)

  • Natural Pricing's New Paradigm: Part One

    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.

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    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.

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    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.

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    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.

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    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.

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    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)

  • A Disciplined Approach To New Product Development: Part Three

    (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.

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    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.

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    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.

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    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.   

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    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.

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    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.

  • A Disciplined Approach To New Product Development: Part Two

    (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.

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    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.

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    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.

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    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)