Category: Marketing Strategy

Prescription for a Profit Fever? More Marketing Dollars

A retreat in marketing spending was a course of action taken by many companies in the wake of the recession that unfolded in the past year. The response is not uncommon; if revenues fall expenses must be kept in check, including marketing expenditures. But, there comes a point in which companies must commit more resources for marketing to spur sales and enhance profits. More evidence of firms taking the plunge has emerged recently. The latest example comes from Del Monte Foods, which has announced it is increasing its marketing spending by up to 50%. Results of a commitment to greater marketing investments is appearing already as Del Monte posted net income of nearly $59 million in the most recent quarter, compared to a loss of $8 million for the same period last year.

If only it were so easy to follow a formula of spend more money, reap higher sales and profits. That is an oversimplification of what must be done. If more money is going to be spent on marketing, where should the dollars go? More consumer promotions? Search advertising? Social media? Strategic objectives must be in place before making plans to spend marketing dollars. Increasing marketing spend is not a strategy! The strategy resides in what can be done to advance a company and its brands. Once plans are developed to pursue these aims, then and only then should attention turn to refining the marketing budget. Otherwise, decisions on expenditures have little or no strategic basis.

Kudos to Del Monte for increasing its investments in an effort to further fuel its growth. The key is understanding how to appeal to customers in today’s environment, then devising programs to reach them in an effort to win their trust and gain share of customer.

Marketing Daily – “Del Monte to Hike Marketing Spend by 40+%”

Marketers’ Priorities: The More Things Change, The More They Stay the Same

It would be natural to assume that the priorities of marketing managers have shifted with the turbulence created by the recession. A closer look at their list of priorities today finds that it looks remarkably similar to priorities we had long before the economy tanked. A survey of Chief Marketing Officers by JupiterResearch and Verse Group reveals that marketing needs have changed very little in recent years. The number one priority: achieving measurable ROI for marketing efforts (50% said that was their priority). The number two priority was developing programs to integrate online and traditional media (43%). Two other priorities that existed pre-recession are translating the brand experience across different touchpoints (32%) and cutting marketing budgets without cutting performance (31%).

What do the study’s results say about the state of marketing? Greater accountability for marketing expenditures has been a theme among executives both within and outside the marketing function for years now. Sophisticated analyatics have helped make strides in moving measuring marketing performance from an art to a science, but the priorities identified by CMOs studied suggest there is still much work to be done in this area. The same can be said for better integration of online and traditional media; it has been a challenge since online media came into existence and continues to be somewhat elusive for many marketers.

I suspect if a similar survey of CMOs is conducted five years from now, the results will not change much. I am unsure what that says about marketing and marketers. Are we too resistant to change for it to occur rapidly? Are the challenges too immense to overcome quickly? Or, is it a matter of the priorities being fundamental to the success of the marketing function, meaning that they are the priorities of the past, present, and future?

eMarketer: “Taking the Measure of Brand Measurement”

Penske-Saturn New Direction for Auto Industry

The announced sale of GM’s Saturn brand to businessman and racing team owner Roger Penske could mark the beginning of a new direction for the global automobile industry. A key component of Penske’s plan for Saturn is outsourcing the production function. Plans call for finding global sources that could make Saturn vehicles to specification. Penske’s logic is that in some cases significant cost savings could be realized if production occurs in locales like China or India. Moreover, the ability to shop around for producers will result in shortening the cycle time from a car’s design to its appearance on the showroom floor.

The Penske plan essentially transforms the marketing function for an automobile company and becoming more like the apparel industry. Saturn becomes a marketing organization, involved with the design, distribution, and promotion of its brands. Manufacturing will be handled by sources outside the company. The same model has spread to the personal computer business effectively.

What would be the limitation for Saturn’s implementation? Quality perceptions. A clothing marketer can contract with various manufacturers to produce products, and if a supplier has a problem maintaining the brand’s quality standards that supplier may not be hired in the future. Sources for manufacturing autos are not as plentiful, and the reputation of the manufacturer is an element of an auto brand’s identity. Saturn will have lean on its already established reputation initially. Once cars are produced by external sources the marketplace will decide if their quality is consistent with Saturn’s reputation. Ultimately, consumer evaluation of Saturn will determine if it succeeds, not cost savings on manufacturing.

USA Today – “Penske-Saturn Deal Could Change How Cars Are Sold”

Will Frugality Last Longer than the Recession?

Job layoffs, frozen or reduced wages, and uncertainty about the future direction of the economy have led consumers to undertake a belt tightening of a magnitude rarely seen in the United States. Consumers have cut out many discretionary purchases and traded down to lower priced options for other purchases. This coping behavior may be the appropriate response to the current situation, but what happens when better times return? Will penny pinching be replaced by free spending ways many people had pre-recession?

According to an article in Advertising Age, marketers fear that the pull back on spending could last long past the end of the recession. Once we realize we can exist with spending less on certain products and eliminating other products altogether from our lives, little incentive exists to revert back to previous buying behavior.

If this prediction comes to fruition, marketers will be forced to make significant changes to their approach to customer relationships. Leveraging customer relationships by pursuing up selling and cross selling opportunities will not hold the potential that it once had. Instead, marketers should examine how customers connect with their brands. What attracts customers to the company or brand in the first place? What is it that you do that customers like or appreciate? It is not limited to your products or services. Community involvement, cause support, and social responsibility initiatives are relational connection points people have with your business. The aim of differentiation to achieve premium pricing might be replaced with differentiating to strengthen relationships and relevance with customers.

Link: Ad Age – “Marketers Fear Frugality May Just Be Here to Stay”

Auto Dealer Cuts Painful but Necessary

News that Chrysler is terminating almost 800 dealers and General Motors doing the same to 1,100 of its dealers is a sad reflection on the current state of the U.S. automobile industry. Local car dealerships are employers of salespeople, mechanics, and customer service personnel. Those jobs will vanish. Also, these businesses have traditionally been counted on to provide support to local schools, sports leagues, and charities. The loss of community involvement by the affected dealerships will surely be noticed by those organizations that have benefited from their contributions over the years.

The reality of the market dictates fewer dealers are needed to service customers today, especially for U.S. auto brands. Lower demand for cars in general and market share losses to foreign brands have left GM and Chrysler with a bloated distribution network. In short, there are too many sellers for too few customers. Downsizing the dealer roster is the best solution to re-size these companies for today’s market. A risk exists that customer service among existing owners of Chrysler and GM cars could suffer. In turn, lower customer satisfaction could negatively impact owners’ decision to buy the same brand in the future.

Learning from the Pain of Others

Don Tapscott, author of Wikinomics, wonders whether the demise of print newspapers could be the foreshadowing of the demise of another American institution: higher education. In a recent post on his Wikinomics blog, Tapscott says some private colleges and regional public universities may be as vulnerable in coming years as the city newspaper is today. Integrating technology, innovative teaching methods, and a commitment to containing costs are keys to transformation in higher education, according to Tapscott.

As someone who teaches at a large public university, Tapscott’s prediction is both unsettling and energizing. The parallel between what has happened to newspapers and trends impacting higher education has a great deal of validity. Businesses in any industry should take note of what has happened to financial services (quest for profits hurt financial positions), auto manufacturers (inability to make quick changes to customers’ needs), and airlines (unwieldy cost structures) and learn from their mistakes. Economic challenges, changes in how people consume information, and new technologies that enable community formation online are forces higher education institutions cannot dismiss. Change occurs in all industries, although the magnitude of change varies across industries. Taking note of good and bad responses to change by others can be applied to managing change in one’s own organization.

Link: “Colleges Should Learn from Newspapers’ Plight”

Can Eddie Bauer Successfully Return to Its Roots?

Eddie Bauer made its name by offering high performance outdoor apparel and gear. The nearly 90-year-old company began a slow downward spiral in the late 1980s when catalog retailer Spiegel purchased Eddie Bauer and transformed the brand to market women’s apparel. After a less than stellar run as a retail brand, Eddie Bauer filed for bankruptcy and eventually was spun off from Spiegel.

Now, the Eddie Bauer brand is seeking to return to its roots. It is launching a line of mountaineering gear and apparel in April called First Ascent. The line’s name seems to hold significance as it is Eddie Bauer’s first ascent toward the standing the brand once held in the minds of consumers. The problem is that Eddie Bauer moved so far away from its position of offering high performance outdoor gear that a return to that standing will be difficult. Many younger consumers may not be familiar with Eddie Bauer’s heritage and thus skeptical about the brand’s move toward the outdoor lifestyle (even though that is its heritage).

Eddie Bauer’s dilemma has some similarity with the story of Izod. The prestige of the Izod brand was tarnished by a mass marketing approach to distribution by Izod’s owner in the 1970s and 1980s, General Mills. The brand was divested, but by that time the damage had been done. While Izod has since made strides to be perceived as an exclusive brand once again, it has never fully recovered from the market saturation approach of General Mills. Now, Eddie Bauer must set out to convince consumers it is again a serious player in the outdoor lifestyle market, not just a women’s clothing brand. The Eddie Bauer brand has a rich heritage; can it successfully summon associations from its past to compete with today’s performance outdoor gear?

Link: The Wall Street Journal – “Eddie Bauer Returns to Roots”

Netflix Strives to be a Step Ahead of Obsolescence

Netflix has been able to enjoy a performance that is counter to the trend of markets overall. The company’s stock is trading near a 12-month high, and business is good at Netflix with more than 10,000,000 subscribers. Its mail order DVD rental business changed behavior for consuming home entertainment. Now, Netflix is looking to innovate further as video streaming capabilities via the Internet improve.

Netflix plans to offer a monthly rate for customers who download movies exclusively and do not use the mail order service. The plan, to be launched in 2010, builds on a behavior shift of many Netflix users who are downloading movies already. The streaming-only plan is also an acknowledgment that mail order DVD is a business model that will become obsolete at some point. By being at the forefront of video download services, Netflix is striving to insure it is a player in that market.

Netflix CEO Reed Hastings compares the situation with what AOL has encountered in recent years. AOL dominated the dial-up Internet Service Provider market, but when broadband connections became available to a majority of the population it was irrelevant as an ISP. AOL has fought to survive by reinventing itself as a content provider, not a connection point. Netflix has learned from AOL’s downfall, and it is a lesson that all businesses should heed. Change will come, maybe it is driven by technology, maybe it is driven by the economy, or perhaps it is driven by customers. But, change will come. Innovating to anticipate future market demands is a must, just ask AOL.

Link: Bloomberg.com – “Netflix Chief Sees Streaming-Only Pricing by 2010”

New Kid on C-Suite Block: Chief Customer Officer

Is the newest member of the C-suite for corporations destined to be CCO, Chief Customer Officer? Adding a CCO to the executive suite follows the advent of CMOs (Chief Marketing Officers) about 10 years ago. CMOs give marketers a louder voice in organizations, but they are often under immense pressure to deliver results. The average tenure of a CMO is just under two years. Much like the high paid coach whose team struggles to win, CMOs are an easy target for replacement if market performance is not up to expectations.

So, will a similar fate befall CCOs? Or, will their role as chief advocate and voice for customers make them too valuable to replace? Skeptics might wonder why CCOs are needed at all; businesses have survived to this point without the position. The answer to why CCOs are needed could be that customers have a more powerful voice than ever before. They communicate on blogs, social networks, and post videos for all to see. This power can be destructive if consumers are using their empowered voices to criticize a company or promote one of its competitors. Engaging customers and proactively monitoring their needs, opinions, and attitudes is a must in today’s environment.

C-level positions tend to focus on functional areas in an organization. Why not have a C-level person who focuses on one of a company’s most important assets: its relationships with customers.

Link: 1 to 1 Weekly – “The Chief Customer Officer: A Potential Powerhouse?”

Oatmeal: The Next Battleground in Food Marketing

Successful product launches are wonderful. Since 80-90% of new products fail, a successful product is not only a welcome change from the norm, it is essential for a business’ survival and growth. The only problem is that successful products tend to draw attention… and imitators. Such is the case for Starbucks. It rolled out instant oatmeal in its stores, quickly becoming the company’s most successful food product launch ever.

Now, Jamba Juice is looking to get in on the oatmeal action. The company has been testing oatmeal in its Chicago stores and plans a full rollout in January. The product is not an imitation in that it is slow cooked and touted as “steel cut” oatmeal (steel cut as opposed to “plastic cut” or “paper cut”?). Jamba Juice is counting on consumers perceiving a quality difference between its preparation method and that of Starbucks.

The need to differentiate is key in any product launch, especially when you are a follower rather than a leader. Without a distinct point of difference, Jamba Juice will come off as a “me too” player with its oatmeal offering. A potential payoff for Jamba Juice is that oatmeal might attract customers to its stores during a daypart that has less traffic. It is a shrewd move to grow business by attracting customers at a time of day when there is excess capacity.

Link: Ad Age – “Jamba Juice Launches Volley in New Oatmeal War”