Profitable Marketing

Via - Instant Starbucks Strategy

I am sure that this post will generate some hits: every time I post about a major brand, the visit count to the blog takes off. But that aspect aside, I've blogged on and off about Starbucks, and some of those posts were not exactly flattering, but the upcoming national roll out of Via - Starbucks instant coffee provides us with a great opportunity to speculate about the future of the company: odds are, this is a great move. More than before, success now will depend on the quality of the new product and on its pricing, the instant coffee has to be head and shoulders above the competition but priced economically enough to be attractive to consumers.

Let us see why this is a great move for Starbucks:

• publicity - this is one aspect of Starbucks marketing that was not working lately: relying solely on the customer experience and on PR was becoming a wearisome, particularly due to less store visits, a tired look and a fragmented media market. The PR spigot is very likely to become active again with the launch of a new product, add to this a national TV campaign and I'd be surprised if the brand is not invigorated... at least in the short term.
• line extension - after commanding a significant share in artisanal and pre-packaged coffees, it makes sense to after this vast corner of the coffee market
• utility and market acquisition - instant coffee is popular in Europe and in the rest of the world even though its quality is noticeably inferior to the drip or espresso variety; assuming that Starbucks' is a much better product, it is very likely that it will capture significant market share from the competition. The only problem here will be Starbucks classical greed in pricing its products: even though it offers a better product, it will be interesting to see if the product prices itself out of the market.

The only hurdle I see is exactly this last aspect: Starbucks tends to come up with good products that customers love, but prices itself into near-irrelevance.

Will Google Kill Wikipedia?

Most likely not. Google has set out to deploy knol - it's Wikipedia-killing service, the question is how successful will this service be? Google has rolled out many a service whose success or adoption has been less than stellar (pick your own example) and knol may just be one more.

From a marketing standpoint this is a classic case in which a brand defines a category and Google = search whereas Wikipedia = online encyclopedia. Also, Google is not trying to grow by adjacency (i.e. by rolling out product extensions that are close to its core brand identity of "search") but by leaps into further categories (e.g. productivity software a la MS Office that is not close to "search"). Add to this the fact that Google has lacked Microsoft's persistence in succeeding in categories it choses to win, and we have another product that seems geared more to satisfy Wall Street analysts than to actually dominate a category.

Passion for Brands and The "Wart Remover Test"

John Moore has an interesting generalization about how consumers develop passion for some products, and Bill Gammell has picked up on it. In summary, the posts posit that great products and services will elicit passion in their consumers, and the goal of marketers and managers that want their products to be successful is to find ways to elicit passion in their customers.

This smacks me of hasty generalization and exemplifies the use of the "wart remover test": do you feel passionate about wart remover? do you want to have a relationship with your wart remover brand? do you want dinner time calls and post cards in your mail box driving to buy wart remover? I didn't think so (for your sake I sincerely hope you don't).

Passion is great for some products or categories, but it is not a feeling that sane consumers have about the vast majority of products. Good products (functionally and aesthetically), delivered with good service and at the right price go a long way towards successful sales.

No News - Price Matters the Most for Online Customers

Try as we may, Marketing Charts tells us that price is still the most important factor for shoppers, at least for online shoppers. And curiously enough, it is total price - that which includes shipping, handling charges and tax - that customers are looking at. Free shipping a la Amazon is very good, shipping compounded with tax and handling charges a la Eddie Bauer is very bad.

...Was this ever news?

Marketing Long Tail Products

Al Ries' latest piece in AdAge raises a few questions that I'll go over in this blog:

1. What are the general strategic approaches to market long tail products?
2. How do long tail concepts play out in face of Barry Schwartz's Paradox of Choice (i.e. how to manage offer proliferation)?
3. Aren't these just different flavors of applied utility principles?

Let's take a look at the first question, how much different is it to market long tail products from their more mainstream cousins? Chris Anderson, the author of The Long Tail postulates that "the future of business is selling less of more" and this is what, in my opinion, will serve as a guideline to marketing these infrequently sold or niche products: customers search for long tail products whereas mainstream products seach for customers.

For instance, if I have a preference for Coca-cola products and am looking for some obscure flavor of soda, I'll first check if Coca-cola manufactures it. If I buy a certain brand of milk and hear that milk now comes with some cholesterol lowering potion, I'll be inclined to see if my customary brand caries that variety. Although common knowledge speaks against product or brand extensions, the reality is that if we seek for a new product within a category, we are more likely to see if our preferred brands manufacture that product. Think that the cost of switching is a loss and that we know that there is greater pain from a small incremental loss than there is pleasure from a comparatively large incremental gain (think of it this way: you're bound to feel greater pain from losing $5 than from gaining $50)

So if we look for long tail products that have some affinity with the brands that we know, I'll posit that these will be preferred over very similar ones that are marketed under brands that we're unfamiliar with. And this brings us to the not-so-sexy axiom that investments in brand advertisement benefit not only the mainstream products that sell 90% of the time (or produce 90% of the revenue), but also the other miriad ones that contribute with the extant 10%

Another way to market products whose brand recognition may be a bit murky is to foster discussion or references within the category. Say for instance that I am into pensive, introspective European music, I watch Black Hawk Down and enjoy the music in the movie and decide to research the composers, I arrive at the some references to Lisa Gerrard and Denez Prigent, I then realize that the former was a singer with the group Dead Can Dance and the latter is an accomplished singer in Breton from Finisterre. I am now decidedly in long tail territory and have no brand affinity. In this case I simply arrived at this rarefied level of choice through the very large doors of a mainstream movie.

We'll go over more aspects of utility and choice refinement, but the key take away here is that it would be very difficult to market long tail products without marketing at a much less granular level, brand and category marketing still carry the day even for long tail products.

Trends and Truisms - Good Design Sells, but I am not Buying the Theory of Influence

Advertising Age reports that an Anderson Analytics' brand survey of 18 to 24 year olds indicates that their preferences are skewed towards brands that pay particular attention to design: Apple, Target and so on. I see nothing new here and not much that can be made actionable: design sells, good design sells more and good design that is affordable should sell even more. As I've indicated time and again: marketing should devote more attention to product design than it normally does.

An aspect that does not make much sense to me is that the article indicates that this demographic influences the purchases of their parents. I come across this "theory of influence" more than expected and generalized more than what is reasonable. Certainly there is a certain level of influence that goes with forming brand preferences - that is after all the role of marketing and advertising - but  this is one of the least well explained and most impenetrable areas of our trade. In the case refeered in the article, it is clear that the demographic has a different utility profile from their elders but utility is not just due to preference, it has to do with trade off: a 18% comission paid to a real estate agent seems outlandish, and yet is perfectably acceptable at a restaurant, notwithstanding the fact that there is greater value in buying and selling real estate than in being served a meal that one can perfectly well cook. Generaly, younger people have less disciplined financial habits and are more prone to paying premiums that do not carry the same utility for older generations so that relying, changing the utility profile of a domographic groups takes more than the influence of their children: marketers have to affect all the marketing "P"

What's actionable for you based on this discussion:

1. when fashioning a marketing plan, rely more on the utility of the demographic that you're targeting than on theories of influence
2. go back to basics and cover all your marketing "P"
3. if there are strong reasons to account for influence, explore the use of the "one third rule": is one third of the demographic exhibiting the behavior you're targeting or can you reasonably expect to touch one third of the demographic

Miller and Anheuser-Busch Decrease Trackable Media Spend, Sales Increase... For How Long?

AdAge indicates that the main brewers have re-allocated spending from trackable media to "non-traditional" media. Now about one in every four dollars is spent in the new category, and the interesting result is that... sales have increased.
The simplest guess would be that sponsorships and events produce better results than trackable media, but the questions we should ask are:

• is the new allocation more effective or was the old one ineffective? These two are not the same, the fact that the new media is effective does not render the old one ineffective
• if the old allocation was ineffective was it because the media itself or because the commercials were unimaginative, bordering on the inane? From frogs to dogs, brewers have employed a variety of fauna in their commercials that would honor a National Geographic special, the alternative has been to depict and appeal to the dimmer amongst us... it may be just me but beer commercials tend to be the least inspired I come across
• is the new sales increase due to a change in allocation or to other factors? If the new allocation was towards non-trackable media, it will be difficult to establish some cause and effect relationship between the new allocation and the increase in sales.

All in all, this shift to sponsorships and events is most likely too new to have proven itself conclusively. My bet would be that other factors are at play, and that in the absence of a greater investment in better commercials through traditional channels, sales will taper back down.

Measuring Marketing ROI Does Not Seem to Be a Priority for CMOs

Judging from Pat LaPointe's post, it seems that ANA's (Association of National Advertisers) 2007 Marketing Accountability Conference was a bit underwhelming. From Pat's description:

• the number of companies actively measuring Marketing ROI has not changed from past years
• CMOs seem to be losing interest in ROI measurement, it seems that the topic is losing relevance for them
• It may be that CMOs delegate the task and responsibility of measuring ROI

He concludes that this state of affairs leads to Marketing losing credibility and influence.

I don't dispute the facts, and not having been in Florida for the conference I accept that the attendance was not at the level of years past, but this does not necessarily imply that the topic is losing relevance, it may be that, instead, the conference is losing relevance. This conference may have been different but the trend for conferences and webcasts is that they've become more a chest-thumping and publicity opportunity than a forum for useful discussion of even to learn something new.

More realistically, however, is that we should never expect that Accountable Marketing be a common process in all companies. The need to implement this practice is felt in companies that are stagnant at best, or that are in crisis at worst; aside from these two extremes I can't see a CMO allocating funds to an initiative that does not map clearly to a benefit. What I am point at is the irony that the ROI measurement effort itself must pass some ROI threshold: the resources dedicated to it must generate some incremental benefit to justify being implemented. Measurement for the sake of measurement generates a cost with no benefit.

Which brings us to the cases in which accountability becomes necessary: when the orders no longer roll in like before,  or when sales stop growing. In these cases it makes sense to allocate the extra funds to find out what marketing vehicles truly drive sales, and how they can be maximized; other than that, it is nice to know where marketing dollars are going but there may not be a sense of urgency in tying the expenses to a benefit. In most organizations, accountability off the general ledger works just fine.

Net Promoter Score (NPS) and Wild Elephants

A recent article bout the shortcoming of the Net Promoter Score (NPS) has a paragraph towards the end that is particularly telling of the kind of argument that is used to justify the implementation of the MPS:

"For the research community [the NPS is] a brilliant thing because it’s enabled us to have real impact at top level," says viral marketing researcher Paul Mardsen on his Viral Culture blog. "After having been emasculated for years as these people who speak in hieroglyphics and commission studies that end up getting filed away, it’s increased our exposure to board-level business. What NPS does is it speaks their language. It’s the simplicity of the model that has been attractive, and has made research intelligible at board level."

The research and approach that lead to the justification remind me of an old story:

A man comes to a bus stop and finds someone there clapping his hands and making all manner of strange noises with his mouth. The man asks the one making the noises: "Quite a racket there! What are you trying to accomplish with all that noise?"

The other replies: "I am scaring off the wild elephants"; "wild elephants? What wild elephants? There are no wild elephants here?!" To which the other replied: "You see?? It's working!"

NPS apologists seem to be following the same logic used by the noisy man in this story.

Advertizing Commodified Products - The Kraft Example

Ad Age is running a survey regarding ways in which Kraft can prop its flagging brands. Apparently analysts expect that these brands will somehow become relevant and sell more if Kraft spends additional ad funds.

Certainly brands that are not top-of-mind and command little preference are bound not to perform very well, but "brands" must be affixed to real products and if consumers find little utility in the products, no amount of brand advertisement will increase sales to an acceptable level. Here's an alternative to advertising: focus on product development and positioning through:

• extension of use - My first bet would be for Kraft to find out how these products are used, and devise alternative, low risk applications that may make them more desirable (for instance like using canned onion soup as a culinary ingredient in addition to its intended consumption - as soup) or that carve up a new niche
• elimination of non-competitive items - no use getting into Pareto discussions here: if an item faces significant competition, is not a category leader and performs more as a result of financial incentives and discounts than anything else, it is probably time to eliminate it
• re-packaging - some packaging goes staler than the product it contains, some of it is undying, it is often cheaper to re-launch in a new package than to re-formulate a "new and improved" product
• new products development - this is a broad and not too cheap suggestion but may be the last resort, if products have become irrelevant or commodified, then it is perhaps time to introduce new ones or carve out new categories.

Kraft may become a great example of how Marketing can miss the mark by focusing on advertisement rather than on product management and on customers.