Category: Marketing Strategy

Movin’ on Up? Hyundai’s Luxury Brand Aspriations

One of the most impressive brands during the recession was Hyundai. The auto brand would have had every reason to wallow in the misery of American consumers and blame poor sales on a bad economy. Instead, the company saw its market share rise in 2009 on the heels of a bold program called Hyundai Assurance, which gave buyers the option to return a new car to Hyundai during the first year if they could not make payments. Hyundai was recognized by Advertising Age as Marketer of the Year for 2009 because of its proactive response to the recession.

I have been admirer of Hyundai for some time. In addition to the innovative Hyundai Assurance program, the company’s “Think about It” campaign was a creative way to attempt to reshape consumers’ image of Hyundai as an entry level economy car. The message that Hyundai is a quality brand was an attempt to bring Hyundai on par with Toyota, Honda, and other imports that enjoy quality associations with consumers. Hyundai’s boldest move yet is to take the brand upscale- the question is will consumers accept it? Hyundai introduced the Genesis sedan at a price point in the area of $40,000 in 2008, and it is about to debut Equus that will sell for $55,000 range.

Will consumers buy into the idea that the Hyundai name should be equated with upscale automobiles? Will Genesis and Equus be high selling models for Hyundai? Does Hyundai even care how many of these cars it sells? What was that? Of course Hyundai would care how many units of Genesis and Equus it sells… unless there is another motive behind the move toward the upscale segment of the auto industry. The motive seems to be to persuade buyers of cars at moderate price points to rethink their perceptions about the quality of the Hyundai brand. If Hyundai is marketing high priced cars, then a high level of quality must be present, too. This reasoning could change consumers’ perceptions about Hyundai’s quality across all of its models.

Hyundai faces a huge challenge if it intends to convince buyers of upscale cars to include Hyundai among the brands they consider worthy of purchase. It is very difficult to extend a brand into upscale segments when it is known as a moderately priced brand. Other auto companies went upscale by creating brands separate from their core offering (Toyota > Lexus, Nissan > Infiniti, Honda > Acura). Hyundai’s decision to forgo this approach to branding suggests it seeks to impact quality perceptions of its core brand by offering high end products. It seems to be another form of “Think about It”; surprising consumers by showing how Hyundai is capable of creating a luxury car experience.

The Wall Street Journal – “Can Hyundai Sell Pragmatic Prestige?”

New Competitor? Chill Out

Competition can be the proverbial thorn in the side. After all, they stand between you and customers. Being concerned about competitors is an appropriate managerial stance, and so is being appreciative of your competitors. Yes, appreciate them because they can make you and your business better. An example of a company that gets it is Jamba Juice, the better-for-you beverage maker of smoothies with more than 700 locations across the U.S. Jamba Juice made headlines recently when it launched a new product, a Cheeseburger Chill. Well, it sort of launched a cheeseburger smoothie. A YouTube video was a tongue-in-cheek nod to McDonald’s expansion into the smoothie category. Jamba Juice’s point is that it is not capable of doing burgers… so should one expect McDonald’s to extend from burgers to smoothies with a good product?

Jamba Juice has every right to be concerned about McDonald’s foray into smoothies. It has a massive distribution network in place, and McDonald’s has experience moving onto new turf from its launch of premium coffee. Instead, Jamba Juice executives view this new competitor as a spark for interest in the smoothie category. McDonald’s’ promotion of smoothies could result in more consumers considering the product category as a beverage option. And, if Jamba Juice can capitalize on that interest by appealing to consumers who would enjoy a premium product, then the outcome could be new customers and increased sales. That scenario is a far cry from the concern and even panic that can occur when a strong competitor emerges.

Competition can be a catalyst for innovation and spur product category growth. You still have to fight for your share of the pie, but there may be a larger pie to enjoy. Competitors can make your organization stronger; you have to determine how to benefit from their efforts and embrace their presence.

Bad News as a Catalyst for Change

Bad news is usually not good for business. The saying “there’s no such thing as bad publicity” may apply to entertainers and other personalities who benefit from keeping their names in front of the public… even if it is because of an arrest or embarrassing actions. But, most brands do not benefit from their names being associated with negative events or news.

A recent example of bad publicity that impacted an entire group of businesses was an ESPN “Outside the Lines” story about the food safety concerns at major league sports venues. The bottom line was that the vast majority of foodservice locations at sports venues have been cited for violations when inspected. After watching the story, one wonders if people singing “Take Me Out to the Ballgame” should omit any lines about buying peanuts, Cracker Jacks, or any other items from a stadium foodservice operator. When it comes to food, there is most certainly such a thing as bad publicity!

Is there marketing opportunity in bad news? Yes, and marketers must seize the chance to turn lemons into lemonade. The news does not have to be publicized as it was in the case of the sports foodservice industry to be actionable. Internal information that shows an increase in customer complaints, a rise in the number of lost customers, or lower profits are examples of events that could be a catalyst for change.

In the case of sports foodservice, the ESPN exposé should serve as a call for companies to review all aspects of their operations including hiring, training, food preparation processes, and the quality of products offered by their suppliers. Instead of a defensive, withdrawn response to questions about product safety like the responses given by foodservice companies Aramark and Centerplate in the “Outside the Lines” story, the more appropriate response is “what can we do to deliver a better experience to our customers?” Sports venues have expanded their foodservice options to more upscale (and higher profit margin) fare, but their efforts may be more fruitful with a focus on a quality, consistent, and healthy experience for their patrons.

When bad news visits, embrace it as an invitation for change. It will not leave until the conditions that brought into your life in the first place are addressed.

The Meaning of the Music Industry’s Sales Song

Many young people become enamored with music during their teenage years. They listen to songs intently and seek to decipher meanings or messages they believe are contained in the lyrics. That description fits many of my friends and me in the early 1980s. We were eager to take away something substantive from the songs we heard. Sometimes we could, and sometimes, well it was harder!

Fast forward to 2010, the adolescent experience of learning from music can be extended to businesses learning from the music industry. A recent article appearing on FastCompany.com painted an interesting contrast about the state of music in the United States. On one hand, data shown in the article reflects a woeful state for music sales. Annual sales volume is less than half of dollar sales 10 years ago when adjusted for inflation. Such a dramatic slide in sales would usually trigger red flags that product interest is waning, but we know better. The article leads with a quote from Tom Silverman, a music industry executive, who says “More people are engaged with music than ever before.” His view is based on the our options for consuming music today without paying for it (Pandora, iTunes, and Internet radio, to name a few legal options).

What was broken in the music industry for some time is not the consumer’s interest in music, but the long-time product kingpin: the album. Artists and music companies packaged a collection of songs in a single product, but in many cases music lovers may have had an interest in only one or two songs. Now, rather than paying $14.99 for a CD to get a few coveted songs, consumers can buy single tracks for $1.29 and get only the songs they want to pay for. So, instead of music sales being driven by what the labels want to sell (but consumers do not want to buy), the product that appeals to most buyers is the individual song.

As I read the article and thought about the transformation of product sales in the music industry, I could not help but wonder “are there other industries that suffer from an out-of-touch sales model”? Did a similar situation lead to a decline in the American automobile industry? Are lack of offering new approaches to products and distribution responsible for stagnation in the soft drink industry? It seems that opportunities exist for businesses that are willing to depart from the status quo if selling products differently will positively influence consumer acceptance. It requires listening to the music (as performed by customers) to interpret the meaning.

Should You Thank Your Competitors?

The connection between the dateline and headline is merely coincidental.

What reason could a business possibly have to thank its competitors? It is because competition can motivate a business to innovate and generally assume a more aggressive stance in the marketplace. A current example can be found in the quick service restaurant industry. Subway, the nation’s #2 restaurant chain, is about to make a nationwide entry into the breakfast business. Restaurant breakfast sales have been hurt by the recession, but that will not deter Subway from competing against McDonald’s and Burger King. The entrenched competitors have already taken steps to counter the weak economy by introducing lower priced menu items. Subway will compete primarily with breakfast sub sandwiches.

Will Subway’s venture succeed? Time will tell if consumers like Subway’s breakfast menu. Whether Subway succeeds is beside the point. When a competitor with 23,000 locations moves into a category that represents 25% of a firm’s U.S. sales, as is the case for McDonald’s, a business should take notice. Competition can provide a spark to develop new ideas, strategies, or products, benefiting customers in the process. And, it is possible for a business to learn not only from its efforts to innovate, but it can gain insight from the successes (and failures) of competition. That is no April Fools joke!

Marketing Daily – “Subway Joins Breakfast Battle of Titans”

The Effects of Consumer Frugality on Marketing Strategy

The recession that began in 2008 continues to inflict pain on many consumers and businesses even though some economic indicators suggest that it has ended. The effects of the recession will last well beyond the time when economists say the economy is better. A great article in strategy + business by Matthew Egol, Andrew Clyde, and Kasturi Rangan makes the case that buying behavior has been significantly modified among many consumers. The core position of the article is that many consumers will continue their frugal shopping behaviors adopted during the recession, even after the economy returns to greater prosperity.

If the trend predicted in the article holds over time, it will trigger major shifts in marketing strategy. The pre-recession mantra of many marketers was more product benefits = higher prices = greater profits. Those were the good ol’ days! Going forward, marketers must look for opportunities to provide value in ways other than peripheral product benefits or rely on the power of their brand to justify charging price premiums. One point made that I believe is on target is that marketers need to create clear distinctions among products at different price points. In other words, sellers must have a good understanding of customers in order to develop products that serve the needs of a value conscious segment (i.e., low price), a premium customer segment willing to pay a higher price to receive greater benefits, and perhaps a segment of customers that fall in between.

It could be said that the recommendations made by Egol, Clyde, and Rangan are hardly new. The need to understand customers has always been critical to a firm’s success. However, a major, permanent shift in buying behavior has occurred among many consumers. This shift makes it necessary to evaluate how we build relationships with customers. The impact of the new consumer frugality goes beyond the design and pricing of products. It will affect how we communicate with customers, too. Brand messages emphasizing “you deserve it” will be replaced with efforts to build community and encourage socially responsible consumption. In the final analysis, the most important takeaway from this article is a reminder that a marketer’s work is never done!

strategy + business – “The New Consumer Frugality” (requires free site registration)

Marketing to Focus on Basics in 2010

Two annual rituals in our culture are identifying the top events or trends of the past year and predicting events or trends for the upcoming year. The marketing industry gets in on these rituals, too. One effort to predict future marketing trends was undertaken by Duke University’s Fuqua School of Business. In a survey of Chief Marketing Officers in August of this year, CMOs identified areas in which they planned to increase marketing spending in 2010.

Findings from the Duke survey reveal CMOs will focus spending in areas that will strengthen customer relationships and deliver measurable results. The area with the highest growth will be spending for online marketing programs, with an average increase of 9.5% expected. The second and third areas are new product and new service introductions, with spending growth expected to be around 9.3% and 6.7%, respectively. Spending on customer relationship management (up 6.4%) and brand building (up 4.5%) round out the top five areas for marketing expenditure growth.

Two implications arise from the survey of CMOs. First, the projected increases for new products and new services suggest companies are willing to take risks in rolling out new offerings. This trend could be a signal of a stronger economy. Second, spending on traditional media advertising continues to have a diminished role in many marketing programs. The desire for customer engagement and performance tracking has led marketing spending into areas such as social media, search engine advertising, and customer relationship management. Mass media advertising will not go away, but for many brands it has been unseated as the primary marketing channel.

eMarketer – “Seven Predictions for 2010 from eMarketer’s CEO”

Putting Profit First… Even Over Market Share

Market share is the holy grail for many firms. The more customers one has or the more units it sells, the better off it will be than its competitors. Sometimes, that reasoning plays out, other times it does not. Market share is relatively easy to build. I liken building market share to the insecure guy who buys rounds of drinks for everyone at a bar. He has lots of friends (i.e., market share) as long as the drinks are flowing. When his fortunes change and the money to buy drinks is gone, so are many of his friends. At that point, the money the poor guy has little to show for his investment.

The relationship between market share and profit works the same way. A company can build market share but do it in a reckless manner that hurts profitability. Ultimately, a business is striving to maximize profits, not the number of friends it has! Be cautious in foregoing revenue to gain market share via a low selling price.

In a recent interview, Dell founder and CEO Michael Dell indicated that a strategic shift in his company is emphasizing profits over market share. He is willing to give up Dell’s second place standing in PC market share if it means greater profits per unit sold. Dell summed up the strategy when he said “Do we want to sell the most numbers of units? No, we want to have the most profit.” That mindset will serve any organization very well.

Bloomberg.com – “Dell’s ‘Reshaping’ of PC Maker Means Chasing Services”

Value Does Not Always Have to Equal Low Price

Value- it’s the mantra marketers chant to persuade buyers to select their offerings. We like to assume we have a good understanding of what customers expect when it comes to value. A tendency exists to equate value with low price. The judgment that a product provides “good value for the money” even suggests that our brand does not have to be the lowest priced option to be perceived as a good value. But, price too often is the measuring stick used to make determinations of value. Even in difficult economic times, price need not be the lone source of customer value.

Value judgments are based on a comparison of benefits offered by a product or service with the sacrifices required to acquire it. Managing customer value from this perspective suggests we have but two options to enhance value: increase benefits or decrease sacrifices. Again, the tendency is to decrease sacrifices (i.e., lower price) because who wouldn’t want to pay a low price? That assumption overlooks that value can come from reducing other sacrifices (e.g., fast delivery or favorable credit terms) or strengthening benefits offered.

An example of delivering value via benefits comes from Kraft. It is charging 99 cents for its iFood Assistant iPhone application. Giving the app away could be a way to encourage more users, but Kraft believes the value the app delivers as a resource for consumers via a mobile platform justifies charging a nominal price. Value is correlated with relevance. A brand that is relevant to consumers delivers value. Before succumbing to the temptation of creating value through low price, consider all other sources for enhancing value so that it is not created at the expense of profits.

Protecting Brands in a Down Economy

A weak economy has forced marketers to evaluate the pricing structure of their products. Consumers are being more cautious with their spending, and value priced offerings have become more commonplace as businesses strive to meet consumers’ needs and remain competitive. It is important to note that there is a difference between offering value priced products and lowering prices on products. In an article in 1-to-1 Weekly, John Gaffney points to examples of how companies have responded to the economic downturn by offering new products. For example, Quizno’s created a value line with its Torpedo sandwiches. This line provided an alternative to the core sub sandwich line, which remained essentially unchanged.

What are the implications for brand management? Customer value does not have to be price-based. Offering price-based value, like Quizno’s Torpedo subs, is one way to win customers and market share. The ideal is to avoid damaging brand equity of core brands by discounting price. It opens flood gates that are very difficult to close. Protect brands in bad economic times so that they are poised to succeed when good times return!

1-to-1 Weekly – “Innovation Beats Pricing in New Economy”