Don Roy, Ph.D.

Going Digital-Only Out of Necessity

PC Magazine made news last week when parent company Ziff Davis Media announced that print editions would end early next year after a 27-year run. The reality is that the vast majority of revenues and profits derived from PC Magazine come from the online arm. Is this a taste of what might happen to countless magazines and newspapers in the future as higher costs and smaller circulation bases make print products unprofitable?

As much as we like to hold on to traditions, unprofitable traditions are not of much value. In the case of print media, it is possible that the print product can only be sustained if it is reinvented in some way. In the case of newspapers, a greater focus on local news or other local content seems to be the point of difference on which they can stand. Niche magazines are likely to survive longer as they have always had smaller, but highly interested, audiences. As costs rise and customers hold purse strings tight, nothing should be off the table when evaluating profitability of various forms of product distribution. It could include the tough choice Ziff Davis made after nearly three decades of a print version of PC Magazine.

Link: The New York Times – “PC Magazine, A Flagship for Ziff Davis, Will Cease Printing a Paper Version”

"Hold the Advertising" Next Special Order for Fast Food Brands?

Childhood obesity continues to be a concern in America. The expansion of the waistline among kids is often linked to unhealthy offerings of fast food restaurants and their marketing efforts to attract children. Now, a new study funded by the National Institutes of Health lends support to calls for prohibiting fast food ads aimed at children under age 12. Findings from the study suggest that obesity rates in children ages 3-11 could be reduced by 18% if children were not exposed to fast food ads.

The study’s findings and the call for eliminating fast food advertising targeting children revives the argument about who is responsible for shaping kids’ choices: parents or the government. The restaurant industry’s assertion that parental oversight is key in this situation is logical, but it also assumes that parents are concerned enough to take a proactive role in educating their children about making healthy food choices. That assumption may be too much of a stretch as we look around and see many adults have their own issues with managing their weight, so perhaps they cannot be counted on to guide the choices of impressionable children.

Much is at stake for both sides of this issue. Fast food restaurants that appeal to children are usually bringing in the entire family to dine, not just the kids. Also, forming brand relationships at a young age can set the stage for creating customers with higher lifetime value (LTV) if brand loyalty develops. So, eliminating advertising to children hurts this long-term view of customer loyalty development.
The general public has much at stake, too. Unhealthy kids, like unhealthy adults, can increase demand for health care services that could be reduced simply making better choices.

A government ban on advertising fast food brands to kids seems like a last resort.If the industry does not step up its self-regulation efforts, it is likely that government will take care of it for them. Some public policy and advertising experts have predicted fast food will be the next tobacco in terms of sweeping government regulation. The more proactive the restaurant industry can be in promoting healthy choices, the less likely the prospect of a ban on marketing to kids.

Link: Ad Age – “NIH: Banning Fast Food Ads Will Make Kids Less Fat”

Being Average – The New Lifestyle Aspiration?

A recent article in The New York Times suggests that Americans are shifting their lifestyle aspirations downward as the economy shifts downward. More specifically, the pursuit of affluence has been replaced with a reality of frugality. Higher order need fulfillment that marketers seek to position their products to meet such as achieving a desired social status, appealing to one’s values, or self-image enhancement are being replaced by more practical needs such as saving money and controlling expenses.

If this shift is indeed occurring, does it mean that marketers positioned to serve upscale markets should abandon their focus or face impending doom? No. Affluent markets will continue to exist, meaning opportunities to serve that niche will continue to be there. Obviously, the value-conscious segment of the market is another opportunity today. As consumers tighten their belts, any way that a marketer makes it easier to buy products, whether it be low price, layaway (yes it’s coming back), or friendly credit terms, will make those offerings more relevant.

It is the offering that is neither upscale nor low price that is the most vulnerable. A brand’s value proposition must be compelling enough for people to decide to part with their money. If value, either in the form of benefits or minimizing consumer sacrifice, is not clear to consumers, the prospects for weathering the current economic storm are not very good.

Link: The New York Times – “Goodbye Seduction, Hello Coupons”

New Department for Full Service Ad Agencies: Brand Invention?

Advertising agencies are feeling the pain of a slow economy as businesses evaluate advertising and marketing spending. According to many studies, the outcome is a shift away from mass media (especially newspaper), the heart of an a traditional ad agency’s business. So, to combat this trend ad agencies may need to become nontraditional.

Such is the case with London-based Bartle Bogel Hegarty (BBH). Rather than have its business negatively impacted by reductions in clients’ marketing budgets, BBH is looking for growth opportunities as a developer and marketer of brands in its own right. BBH operates Zag, a brand-invention unit. Zag looks for unmet consumer needs and taps its marketing know how to bring products to market. Examples of products launched by Zag include a personal safety device that emits a woman’s screams and vegetarian meals. Neither product is likely to reshape BBH’s direction as an advertising agency, but they are certainly revenue opportunities.

BBH’s venture with Zag is a good example of exploring growth options. The agency focused on a strength, its marketing know how, and is looking to meet unmet market needs with niche products. Notice that BBH is not jumping into crowded spaces to compete with packaged goods brands that have brand awareness and more resources. Growth opportunities still exist in today’s soft economy, but they may require new thinking and greater risk taking to pursue them, just like BBH is doing.

Link: Ad Age – “While Everyone Else in Adland Zigs, BBH Zags”

Americans Buying Less, Clicking Less

The weary American consumer is creating major challenges for retailers. Two pieces of evidence: 1) declining retail sales and 2) declining open rates rates for e-mail. An article appearing online at The New York Times reports that retail sales in October experienced the largest monthly drop ever. It is feared that the 2.8% drop from September and 4.1% drop from last October are not the last dips to be felt in retail sales. Despite retailers’ best efforts to attract customers with promotions and incentives, consumer response may be soft for the near future.

If the bleak sales picture is not enough bad news for retailers, another study shows that a promotion tactic often used by retailers, e-mail, is less effective with consumers these days. Research by MailerMailer found that the open rate for consumer e-mails dropped from 16.1% in the first half of 2007 to 13.2% in the same period in 2008. Consumers that are being cautious at best or have less money to spend appear less interested in opening e-mails from marketers because it means they may have to decide whether to spend money they may or may not have!

The decline in e-mail open rates should hardly discourage marketers. E-mail is a very cost effective medium to use, and permission-based e-mail campaigns still are based on customers’ desires to have a relationship with a company from which they have consented to receive e-mail communications. It does mean that the relevance of every message sent to customers must be evaluated in an effort to make it worth consumers’ time and effort to open marketing e-mail messages.

Consumer Budget Cuts: What Goes? What Stays?

Americans are tightening their belts more as the country’s economic situation shows no signs of improving. The latest Consumer Spending Indicator study by NPD Group finds that only 35% of persons surveyed saying they have not changed their spending habits since the economy weakened. For those of us who have changed our ways, the first category which most people have cut spending is dining out (57% said they were cutting back on this category). The next categories likely to be cut are clothing (54%) and entertainment (50%). Interestingly, the categories least impacted by changing spending patterns are toys (39%) and video games (35%).

What do these statistics say about us? We are inclined to cut expenditures for which there are alternatives (eating at home rather than eating out), and we can cut spending by making do with our current situation, as in the case of the clothing category. The categories for which less people are reducing spending (toys and video games as well as beauty products and music) are “comfort” products. Music, toys, and video games represent opportunities for entertainment in the home, making dining out and out-of-home entertainment less appealing.

Are there other product categories for which the increase in consumer “nesting” will benefit marketers? The extent to which products can add value by reducing consumers’ out-of-home expenses appear to have the potential to win favor with the cost conscious. With no end to this rough economic period in sight, there appears to be plenty of time for marketers to respond to this shift in consumer behavior.

Link: Marketing Daily – “How We Cut: Restaurants First, Video Games Last”

Does Obama’s "Change" Include Marketing?

President-Elect Barack Obama successfully ran his campaign on the position of “change.” Now that an Obama administration will take over in January, will that change include new regulations for marketing practice?

A recent Brandweek article identifies several potential targets for change under President Obama. Among the possibilities I believe are most likely to occur are:

1. Greater Internet privacy rights. This move would spell trouble for behavioral targeting and other tactics that monitor and capture Web surfers online activity.

2. Crackdown on marketing to children. Greater regulation and even an outright prohibition of targeting children with marketing efforts are possible.

3. Prohibition of direct-to-consumer advertising of prescription drugs. What will we do if we can no longer sing “Viva Viagra” or see another naked couple in his-and-her bath tubs in the middle of nowhere? Allowing pharma companies to advertise their products has been controversial from the beginning. Critics claim it adds to the overall costs for health care and helps create a nation of hypochondriacs.

I cite these changes as most likely because they are not too threatening politically. It can be argued that these policy changes would provide benefits to consumers and the general public that outweigh any negative consequences. Marketing practice has enjoyed a fair degree of self-regulation the last eight years, but the party may be about to come to an end.

Link: Brandweek.com – “Obama Promises Change: Is It Bad for Marketers?”

Presidency Only Obama’s Latest Win

Barack Obama’s win in the U.S. Presidential election was not a surprise given the fact he had won on another ballot recently. Obama was named Advertising Age magazine’s 2008 Marketer of the Year. Obama edged brand darlings Nike and Apple, resurgent brands Coors and John McCain, and upstart online retailer Zappos. What makes Obama Marketer of the Year material? How did a brand that virtually was nonexistent two years ago eclipse brand powerhouses like Apple and Nike?

Many marketing lessons can be learned from Obama’s campaign. One, he identified a market opportunity that had gone untapped by politicians in recent years: younger voters. Two, the Obama campaign utilized new media that resonated with younger Americans: the Internet, social networks, and mobile media complemented traditional mass media advertising very effectively. Third, positioning of brand Obama was powerful. Obama’s position was based on “change.” The timing of such a point of difference was fortunate. “Change” does not work if times are good, but the prospect of change apparently sounds good to millions of Americans at this time. In contrast, John McCain positioned on “experience.” McCain’s position was not bad, it just was not as relevant to Americans as Obama’s call for change.

Link: Advertising Age – “Obama Wins! … Ad Age’s Marketer of the Year”

What’s Wrong with Circuit City

Electronics retailer Circuit City has announced it is closing 155 stores, resulting in layoffs for almost 20% of its employees. The company blames a weak consumer economy and tight credit as constraints that have left it exploring all available options to keep the company afloat. Despite closing stores, Chapter 11 bankruptcy is still a possibility in the near future.

What went wrong? Circuit City has suffered the same problem that many also-rans encounter: lack of a distinctive brand position. Best Buy has excelled in the areas of product choice, customer service, and employee satisfaction. Wal-Mart has mastered the low price position. Amazon.com has product selection and customer interactivity as key strengths. Circuit City simply does not stand out in a competitive landscape.

Circuit City has not helped itself in the court of public opinion. In 2007, the company collected heaps of negative press for a decision to let go more experienced, higher paid store employees and offer to rehire them… at a lower salary rate, of course. Also, negative customer sentiment is abundant on the Internet. The search term “Circuit City sucks” returns many web sites and blogs at which Circuit City customers share bad experiences they have had. Lack of a solid brand position, coupled with lack of a good reputation for customer service, leaves Circuit City in a fight for survival.

Link: Reuters – “Circuit City to Shut 155 Stores, Mulling Options”