Profitable Marketing

Forget ROI When Selecting a DM Agency

When selecting a DM Agency be less concerned about ROI, response rate and other hard measures than about the quality of execution of the Agency. After all, the market is now so commodified that any company can claim jaw dropping results from their efforts, these top line results are un-differentiated across the segment. What differentiates DM companies these days is no longer top-line results but risk management: low error rates, fast turnaround times, the ability to begin generate reports even before the database is up and running, etc. The ability to execute flawlessly is the true differentiator in this market.

Facebook and My Space - The Power of PR... Again

Facebook is in the news every day, or at least that is what it seems. Hardly a day passes in which I don't read some bit of news about how it is opening its platform to developers, how it is creating some new model of advertising that leverages the data of its users... as well as how the greatest number of users found this a misuse of their personal information. All in all a search in Google news produced 16,102 references to Facebook.

On the other hand, it seems that My Space is placing news exactly where I can't find them: although a similar search in Google yields 18,366 results, I hardly remember reading a but of news about them.

But the most interesting aspect of this is how powerful and well orchestrated Facebook's PR is when compared to My Space: the former had 19.5 million unique visitors whereas the latter had 58.8 million (as reported in DM News from a Nielsen source)... it seems that the ratio of news references is out of sync with the market and of how users view the two. It will interesting to see if all this news activity translates into Facebook increasing its visit numbers.

No Banana, No Circus - Real Bad Service From Verizon and Wendy's Deflated Burgers

"No banana, no circus" means just that: unless a company gives me the banana, I will not do my circus trick. Most consumers are exactly like that and so are the executives that run the companies that expect some circus act without giving out bananas.

Wendy's provides an example of how sometimes the banana that we're shown is not the one that we receive. Where's my jetpack has a post on how the burgers that are photographed for ads look so different from the ones we get at stores (check out the pictures here if you don't feel like following the link; the top is the ad picture, the bottom one is how a real baconator looks like), and this is an endemic practice in advertising: ads are "aspirational", they depict and idealized product in an ideal world but we're supposed to pay real money for them. I have no complaints about the fact that ads depict products that are idealized versions of the ones I pay for, my gripe is that the products I buy are often so different from their depiction in ads. That is, I am ok with a gap between depiction and reality as long as it isn't a yawning one. If you show me a shiny, yellow, just-ripe banana, don't deliver a week's old, withered and pock marked one.

The second case reminds me of Kafka and his book The Castle, the Cliff's Notes version of the book is that there is a courier or public servant (please bear the imprecision, I read it decades ago and my memory of details is not all that great) that is supposed to deliver a document to a castle. As it turns out, there are all sorts of bureaucratic requirements and other events that keep preventing him from doing so. Try as he may, all he can do is look at the castle that is perched on a mount overlooking the village without ever actually delivering the document.

Trying to get through to my phone provider (Verizon) is as close as I ever came from feeling trapped in a real life, Kafkaesque scenario.

My first call got me through to a rep that told me that she would provide me with "outstanding service". Not just any service or even efficient service, mind you, but actual "outstanding service", but my enthusiasm died in a few seconds as she told me that she could not solve my problem, transferred me to the right number but made sure that I had that number to call in case the transfer didn't go through... I thought that reliable transfers would be part of outstanding service but that was clearly a misconception I had.

After 20 minutes of outstanding wait, and countless version of muzak interspersed with commercials, I decided to call the number she had given me... it was perennially busy.

I called a series of other numbers with similar results and found out that trying and tricking the IVR to get to a live operator just awakens its evil instincts and gets us transferred to agricultural support or some other less useful department.

No I could not deliver the document to the Castle, I gave up after an hour. Again, the banana was not shiny and I am now considering bringing my circus act to another phone company.

Call it "delivering on the brand promise" or whatever else makes sense to you, but, in summary: be honest! Deliver what you promise and drop the absurd language from your phone queues.

Starbucks' New Marketing Strategy - Advertising Like Everyone Else

Could it be that Starbucks is changing its hitherto successful marketing strategy and going the more normal route of advertising?

Traditionally, Starbucks has invested more heavily on PR and service than on promotions or conventional advertising (online or otherwise), but recent announcements indicate that this may change and that it will stat investing in good old ads. Whether this strategy will be funded with new allocations (extra money is allocated to advertising) or by reshuffling current allocations remains to be seen, but it is very interesting to see that a business that has had incredible growth by shunning conventional advertising has now reached a phase in which a TV30 spot is starting to be alluring.

As the Business Week article indicates, it is clear that Starbucks has entered a stage in which it is no longer growing faster that other companies in the same market. Let's take a look at what this new strategy may imply:

Business issues that it addresses:

• increased competition - Starbucks' universe has changed and the market has become more competitive: not only does Dunkin Donuts sell coffee whose taste and quality is better tha Starbucks' but McDonalds is now bringing their European model Stateside and will be offering premium coffee as well. The latter may be a more serious threat as McD will price it's coffee lower than Starbucks thus forcing a new utility profile into the market (i.e. a $4 coffee beverage will start to seem way too expensive)
• market penetration and customer demographics - Starbucks' products appeal to a wide demographic but certainly not as wide as McDonalds', the latter has the drive and the financial muscle (as well as the experience from the Australian and European markets) to launch a successful coffee business. In this area it should seem that conventional advertising would address either the need to brand awareness and preference (to make it top-of-mind) for groups of consumers that have little brand loyalty. That is, Starbucks knows that it can count on its loyal customers to prop up the busines, but that it also needs those with low brand preference to keep margins and growth. The latter group can be easily poached by the competition and is normally the target of traditional advertising.

Business issues that the new strategy does not address:

• pricing/utility - Starbucks products have always been overpriced when we consider the difference between the cost of a cup of coffee and what Starbucks sells it for. Granted the customers have displayed amazing elasticity and have kept on buying as prices kept on increasing. Granted also that a loyal customer core will always be willing to pay a premium for not so premium coffee but with increasing competition it is inevitable that the market will wizen up and realize that something is wrong with a cup of coffee priced above a burger. What Starbucks has been able to accomplish with its pricing policy has been to dramatically increase and maintain it margins (a great thing) as well as pave the way for its competition to reap comparable margins (a not-so-great thing), that is, if before Starbucks a cup of coffee seemed reasonably priced at 25 cents, and it is now priced at a dollar fifty, then it is very likely that customers will find that a dollar is a perfectly good price for that cup (pricing it too low would erode the perception of quality). In this scenario, Starbucks forced a higher margin into the market, even if that means that its revenues and margins now start to drop.
• demographics - loyal customers aside, the reality is that far too many folks don't care too much about where they buy their coffee as long as the brew is good, the place is clean and the service efficient and pleasant... this combination does not smack me as a particularly high barrier to entry, particularly for well funded competitors looking for new growth areas.

What the future holds
I'll bet that at some point Starbucks will have to run promotions or some form of discounting, Their products have been priced as insanely high as possible and that trick is bound to quit working when customers have more options from other merchants.

Of Radiohead, Fair Market Value and the Long Tail

The results of Radiohead's much ballyhooed decision to cut the middleman and sell its music directly to consumers is now trickling in. As it turns out, when allowed to decide whether to pay for Radiohead's music or not, only approximately a third of its fans consider that the music is worth anything at all. Moreover, there is no significant difference in behavior between the US and overseas markets so that cultural or macroeconomic factors do not seem to influence consumer's propensity to pay, it does however influence their sense of value and US consumers pay nearly double of their non-US counterparts.
Some thoughts about this experiment:

• most people will obtain for free... what they can obtain for free! Unbridled Capitalism is a great idea as long as someone sets a price for goods. This price may fluctuate but there must be a non-zero starter point, in its absence it's literally a free for all
• musicians' economic status may be regressing to what it was prior to recording technology came about, there is certainly more supply than demand, the distribution channels are free and vastly un-regulated (think P2P technology) and demand is bound to decrease in the absence of advertisement and promotions, this all points to a dramatic slippage in the social standing of musicians, think minstrel of the Middle Ages instead of globe trotting Madonna
• "long tail" or niche offerings may slip further to the right hand side of the tail or disappear altogether, if a mainstream band like Radiohead sells for about $4 an album that would cost normally $14 and 2/3 of its fans are not inclined to pay for the albums, think of the sales appeal of the unknown bands that sell a song a year; certainly the storage and distribution costs are minimal in the online world, but they still constitute a cost in a market where customers are simply not willing to pay for music.
• marketing and advertisement drive sales; this is a truism but one that cannot be ignored, without heavy promotion Radiohead would not have become a household name and would have been unable to even command any interest in the market; new bands will need to invest rather heavily in promoting themselves if they are to have any commercial viability. If the distribution piece has been solved and bands can sell directly to their fans, they still have to figure out how to become marquee names without the help of record companies... maybe a new business segment will emerge soon!?

American's Dim View of Advertisers

A survey reported in DM News recently found that 14% of those queried respected advertisers, all others seemed to take a dim view of the profession. Unlike what I've done in the past, I'll quite the article here:

Other key findings include:

· 84 percent agree (strongly/somewhat), “Too many things are over-hyped now."

· 74 percent agree, “The Internet helps me make better product choices."

· 72 percent agree, “I get tired of people trying to grab my attention and sell me stuff.”

· 52 percent agree, “There’s too much advertising — I would support stricter limits.”

· 47 percent regard “Advertising as background noise.”

· 42 percent agree, “American advertising has improved in recent years.”

· 38 percent believe “The advertising industry understands Americans in general and connects with them.”

· 22 percent believe “The advertising industry understands and connects with me.”

· 24 percent “resent advertising.”

· 82 percent indicate a positive engagement with media overall.

· 59 percent consume “traditional” media.

· 41 percent consume “interactive” media.

The results are so dismal that I am not even sure if accountability will help the image that the profession has created.

Southwest Airlines - How Poor Judgement can Lead to Bad PR

MSNBC reports that a passenger in a Southwest flight was taken off a plane for wearing a "skimpy" outfit. This passenger was then allowed on after somehow making the outfit look less skimpy, and was afterwards allowed on board a plane for the return trip wearing the same outfit. Ironically on the return trip the outfit elicited compliments from the flight attendants.

I am not surprised that a misguided, overzealous or otherwise dyspeptic employee could cause a minor PR issue for Southwest by trying to enforce some vague sartorial standards, that is the exception that is to be expected from any business; what surprises me is that Southwest did not even consider an apology and that it is hiding under the nebulous concept of being a "family-oriented" airline.

We can only guess that Southwest figures that it gets more business from "families" than from scantily clad young women and has chosen to favor the former at the expense of the latter.

This type of business maths reminds me of the infamous "Pinto memo": in 1968 the Ford Motor company decided to launch the fantastically igneous Ford Pinto knowing that it would burst into flames in rear end collisions due to the configuration of its back end as well as the location of its fuel tank. Once the car proved a monumental health threat, an internal memo from Ford surfaced in which it became clear that Ford was aware of the car's shortcomings, and had looked into mitigating designs. As it turned out, the memo included some innovative business maths: it indicated that the cost of producing a safe car would be around $121 million whereas the cost of settling lawsuits from exploding cars would be around $50 million.

Sometimes the logic of maths does not translate well to customer satisfaction or brand image...

The Benefits of Loyalty - Starbucks Raises the Price of Coffee by 9 cents

Regardless of the quality of their coffee or of our assessment of their business, the reality is that Starbucks has cultivated an incredibly loyal customer base. Starbucks' customers' sense of value and utility curves are such that they seem to buy their coffee at any price: the price of coffee will now increase another 9 cents, soon enough a cup of "specialty" coffee will cost the same as a meal at McDonalds.

Note that Starbucks justifies the increase in price with the increase in the costs of fuel, energy and dairy. This price increase is an interesting move since it passes the costs along to the willing masses instead of shrinking its 7% annual net margin. Had its customer base been less loyal and had their utility been different, Starbucks would most likely have had to absorb some of the costs with its margin. This way, the investors win and the customers get their caffeine fix.

You're not Getting Fired, You're Getting a Japanese Office

My last post about how Southwest is planning to shed some of its higher paid employees reminds me of layoffs and their less savory cousin: termination. I've wondered how these situations can be handled gracefully, and remembered that while I was in graduate school a Japanese colleague described an approach that I've dubbed "the Japanese Office".

According to his description, Japanese firms are averse to firing lesser performers or laying off employees, this is seemingly viewed as a gauche business practice that casts the company in an exceedingly bad light. The alternative, as he described it, is to give the employee a desk by the window, remove her managerial duties if she has them, never call her for meetings, never ask her for work, essentially isolate the worker from the rest of the company and from the regular business... leave her be in a comfortable desk by the window. As time goes by, the employee is bound to pick up on the cue and move on.

This seems like an interesting approach for businesses that can afford it, and in cultures that allow it: it certainly defuses a lot of possible problems and bad will. I've always wondered how such an approach would play out in the US since we're after all a business culture that produced "Neutron Jack" and "Chainsaw Al" and made them heroes of cost cutting.

The End of Information Assimetry in the Real Estate Market?

Redfin goes one step further than Zillow or Trulia and manages to take the real estate agent out of the sales equation. It will be interesting to see how long the Association of Realtors will take to try and cripple it.