What’s Ahead for Marketers in 2008

I felt inclined to close 2007 with a post about major trends that affected marketers in 2007, then follow with the first post of ’08 being about predictions for the upcoming year. It occurred to me that the content of the two postings would be essentially the same, so here it is all in one. There are three marketplace trends that unfolded in 2007 that marketers will have to deal with in 2008:

1. Rising Energy Costs – The price of oil continues to edge toward $100 a barrel. A combination of political instability in certain countries and soaring global demand means high prices are here to stay. Will it affect consumers’ shopping patterns? Are there opportunities to benefit from high gas prices? The answers are “yes” and “yes.” Consumers may have less to spend on discretionary purchases such as entertainment, dining, and travel, which poses a threat to those sectors and the economy overall. On the other hand, marketers that provide convenient product acquisition (e.g., online sellers that deliver products) could benefit.

2. Credit Crunch – The subprime mortagage lending mess put thousands of people in houses they could not afford. The result was a slowdown in new home demand, lower demand for complementary products like furniture and appliances, and less spending overall by affected consumers who are spending more on their mortgages and have less for other types of spending. The effects of this mess will continue to be felt in 2008.

3. Social Media – One positive trend heading into 2008 is the emergence of social media as platform for building customer relationships. You Tube, Facebook, and MySpace are the big names in social media, but a business has many options for connecting with people regardless of whether their audience is worldwide or local. The challenge for marketers in 2008 is to continue to explore ways to use social media that fosters customer engagement but does not cross the line to become in-your-face commercialism.

Wishing for you that 2008 is the best year ever!
Don

How to Lose Friends and Alienate Customers: The GM Way

As if General Motors does not have enough to keep itself busy as it has spent the last several years scrambling to remain relevant with consumers, it is facing another negative ding on its image with its handling of some of its On Star customers. The driver assistance service has approximately 500,000 customers that are being affected by the discontinuation of analog service. The change, brought about by government policy, will mean that On Star subscribers who have GM cars manufactured before 2002 (and some cars built between ’02 and ’05) will have service that does not work come December 31st.

GM’s solution? Sell them a digital upgrade kit for $15. It sounds like a small price for consumers to pay, but it would be an even smaller price for GM to pay. While comping subscribers’ digital kit fees would cost $7.5 million, it would buy a lot of goodwill… and keep subscription fees coming in. It would be shortsighted to not consider the potential effect on the On Star subscription revenue stream, but this is GM. Link

Direct Marketing in Your Plans for 2008?

Direct marketing may not be top-of-mind for businesses trying to develop promotion strategies. Traditional mass media advertising, maybe promotions are commonly used. The tendency to gravitate toward advertising and sales promotions is not surprising. After all, we are bombarded with these tactics as consumers.

The less experienced marketer may not be considering direct marketing tactics to reach customers, but chances are they probably should. A recent report released by the Direct Marketing Association indicates that direct marketing expenditures represents more than 50% of the total amount spent on media advertising. Given the potential for direct marketing methods to deliver measurable results of performance (e.g., mail, e-mail, and search engine marketing campaigns), we will continue to see direct marketing gain in importance. This shift will likely continue to occur at the expense of media advertising budgets.

Direct marketing may suffer from a bit of an image problem, but it works! That fact is not lost on decision makers who need accountability from their marketing investments. Link

MLB After the Mitchell Report

The long anticipated Mitchell report on steroid use in Major League Baseball was released today. Did the report unveil the names of big-time major leaguers associated with steroid use? Yes, most notably Roger Clemens and Andy Pettitte of the New York Yankees. In addition to the few high profile players, the report named dozens of other current and former players as having acquired or used steroids.

The impact of the findings of the Mitchell report on MLB is not the list of names revealed. The impact on MLB will depend on how its leadership, especially commissioner Bud Selig, acts on the findings and recommendations. MLB is riding high, having just enjoyed its fourth consecutive season for record attendance in 2007. More than 79 million people attended MLB games this past season. The league is a money making machine at the moment, but perceptions that little or nothing is being done to remove the steroid culture from MLB could hurt the brand. As important as maintaining trust with fans who buy tickets for games, MLB must proactively manage the steroid issue to retain the value of MLB for its sponsors and broadcast partners. Their stakes in MLB are much higher than the everyday fan who shells out money for tickets and concessions.

The irony of the current situation is that many fans and sponsors driven away from MLB by the 1994 lockout were drawn back to the game by the single season home run chase by Mark McGwire and Sammy Sosa in 1998. McGwire and Sosa were two players already implicated in the steroid scandal, and their feats as well as many other players in recent years appear to be influenced in part by the use of performance enhancing substances. So, the steroid-enhanced thrills that brought some fans back to MLB may create distrust that pushes them away once again.

Low Price as a Positioning Strategy: Not for the Long Haul

A recent article on the Advertising Age magazine web site discussed the difficulties discount marketers face maintaining a low price point of difference. Dell, Wal-Mart, and Southwest were held up as examples of how brands that are built on being the low price leader can find themselves struggling as market conditions and customer preferences change.

The point made in the article is on target; low price is a fragile long-term positioning strategy. Why? Your low prices may be accepted and liked by consumers initially, but after a while they become accustomed to paying low prices for your products and take for granted your low price position. Also, price is the easiest element of the marketing mix for a competitor to imitate. Price wars can commoditize a category or industry; no players win when that happens.

So, if low price is not a long-term marketing strategy, what role can it play for a business? I believe the progression goes something like this:

> Low price can attract customers to your brand
> Customers’ perceptions of value offered influences repeat buying behavior
> Innovation drives loyalty and deep customer relationships

Don’t be afraid of the word “innovation.” It does not mean you must constantly be inventing new products. Innovation is any development that enhances the product or service in some wayand adds value for customers. Innovation can take the form of making the product easier to use, easier to store, easier to purchase, or any other way that makes users’ lives better. Most importantly, innovation can drive the ability to charge price premiums for your products and services that add to your bottom line. Now that is a long-term strategy worth pursuing! Link

Will Amazon Kindle Interest for E-Books?


Technology enhancements have impacted our lives in many ways. One part of our lives that has largely gone untouched by technology up to now is the experience of reading a book. The sensations associated with physically handling a book, the smell of the pages, and the touch of turning pages are difficult to replicate with e-books. E-book hardware has been introduced with little success, but retailing giant Amazon aims to change that trend.

Amazon has introduced an e-book reader called Kindle. It retails for $399 at Amazon.com and is supported with more than 90,000 available titles . Positioning for Kindle is the convenience of having so many books at your disposal. It is a wise positioning strategy because positioning Kindle as somehow being on par with the experience of reading a paper book would be futile and not very credible.

Early feedback on Kindle has been positive considering Amazon is currently out of stock. Only time will tell if Kindle catches on or becomes another unsuccessful e-book format. But, even if it fails, interest shown by consumers in e-books will likely advance development of the format so that we get closer to the point where a product does achieve widespread adoption by consumers. Who knows, Kindle may be the product that is at that point now.

Does Report Card Marketing Get a Passing Grade?

Clutter, clutter, everywhere. How do we reach audiences that have become fragmented and are inundated with marketing messages daily? We seek new, different platforms to make contact with elusive consumers. So, one can hardly fault McDonald’s for its efforts with one Florida school system to reach young people by paying for printing of report card envelopes. The envelopes include a coupon for a free Happy Meal and are distributed to students with good grades, outstanding attendance records, or exemplary behavior. This tactic certainly passes the challenge of getting around the clutter problem as McDonald’s has entered what is usually a commercial-free zone.

Not surprisingly, children’s advocacy groups and some parents are upset that McDonald’s is seemingly going against its pledge to curtail marketing toward children. Indeed, Big Mac is walking a fine line between clever marketing and intrusive commercialism. It is unfortunate that school systems are even put in the position of having to consider corporate support as a funding source, but in many communities this kind of involvement by the private sector may be preferred over tax increases as a way to provide money to schools.

Another concern is that McDonald’s and the school system are promoting consumption of products that possess little nutritional value. McDonald’s could have anticipated a possible backlash to this program, with a possible alternative to offering a Happy Meal being to offer a healthier menu item (I know, maybe a stretch at McDonald’s) as a reward. Some observers believe the fast food industry may become the next tobacco industry as a target by government regulators. Fast food marketers such as McDonald’s must be very careful to not engage in marketing tactics that raise the call for greater government oversight of the industry. Link

The Value of Positive Word-of-Mouth

Word-of-mouth communication has long been acknowledged as an influence on consumer behavior. The power of word-of-mouth is evident as marketers are increasingly seeking ways to engage in viral marketing and social networking. We know that negative word-of-mouth has potentially undesirable effects, but can the benefits of positive word-of-mouth be assessed? Absolutely, according to comScore, a marketing intelligence firm.

In a survey of the impact of onlione consumer-generated reviews on consumer behavior for certain services, comScore found that word-of-mouth in the form of user reviews are often accessed, have an influence on buying decisions, and can even lead to a willingness to pay a price premium. Restaurants, hotels, and travel were the three services for which highest percentages of consumers reported reading online reviews and acknowledging that reviews influenced their buying decisions. These findings are not surprising as the intangible nature of services leads us to seek information pre-purchase to help us make an informed buying decision.

The effect of user reviews on price willing to pay for services is particularly noteworthy. When a service provider is rated “Excellent” in user reviews, consumers sampled said they were willing to pay price premiums ranging from 22% for travel services to 99% for legal services compared to service providers rated as “Good.” It is a given that it makes sense for a business to monitor word-of-mouth about its performance on online user review websites to understand customers’ likes and dislikes. Now, we know it makes dollars, too!

Keeping In-Text Ads in Context

Newspapers are struggling to generate revenues in the face of declining readerships and ad pages. At least people have not abandoned getting news altogether, many go to the web sites of their local daily newspaper to access news free that they would pay to access in the print version. One way newspapers are using the web to generate revenues in absence of subscriptions is advertising.

A form of online advertising gaining increased usage on news sites is in-text advertising. Rather than placing a banner or text ad on the margin of the page that can be easily ignored, in-text advertising hyperlinks keywords in the copy of a story to an advertiser’s paid message. The key to making in-text advertising work is keeping the placements within the context of the story. For example, I recently read an article on the website of Nashville’s major daily paper, The Tennessean, about a Nashville concert by Stevie Wonder. The name “Stevie Wonder” was hyperlinked to an ad that contained information about ordering Stevie Wonder CDs and box sets. This connection was very logical and well-placed. A person reading about Stevie Wonder might be inclined to search for information about buying his music as a result of exposure to the combination of the news story and the in-text ad.

Unfortunately, this practice has the potential to become advertising run amuok very easily. The same day I read the Stevie Wonder article, I read another article about Christmas sales for retailers. The word “consumer’s” appeared in a sentence describing consumer shopping behavior. “Consumer’s” was hyperlinked to an in-text ad for credit cards. Some people despise in-text ads already because it blurs the distinction between editorial content and commercialism. In-text ads must have context; the advertiser should have a logical and appropriate connection to the news story. Otherwise, this form of advertising will be rendered as ineffective as banner ads have become.

Are All Customers Equal?

Businesses crave customers, and the thought of losing customers can send shivers down the spines of marketers who work tirelessly to acquire them. While customers are important to a business, are all of them the same in terms of their importance? The answer is a resounding “no.” Some customers are more important than others because they value your product or service more than other customers and are often willing to pay a price premium because of the value you deliver.

Segmenting your customer base can allow you to tailor promotions that can solidify customers’ relationships with your company. A great example is a loyalty program that rewards regular customers with discounts, free products, or gifts. Identifying valuable customers can also be a way to inrease revenues. For example, Southwest Airlines recently implemented two new ticket tiers, Business and Business Select. In particular, the Business Select fare includes double frequent flyer credits, priority boarding, and a drink voucher. The move is an effort by Southwest to appeal to the large business traveler market.

The effects of a move such as the one made by Southwest has potential benefits and dangers. The main benefit is revenue creation. If Southwest sells 10 Business Select tickets on each of its 3,300 daily flights at a premium of $20 over regular fares (a conservative figure), it could potentially realize $240,000,000 in new revenues. This estimate assumes demand for tickets does not change, although Southwest hopes the addition of a Business Select fare will attract new passengers.

The danger is that creating classes of customers can alienate some members of the “lower class.” This danger is particularly relevant to Southwest, a company that built its brand in part on equality among customers (e.g., no reserved seats and open boarding process). A move to segment customers could create a backlash of negative response, which has happened to Southwest. This possibility must be considered, and management has to project whether the backlash will be short lived or create negative goodwill that hurts the company.