Brand new world
By Paul Herbig
What is a brand? We all, as experienced consumers, know instinctively about brands. We live them. We see them every day. But for most consumers, as it should be, the intricacy that makes up a brand is not known. A brand is what remains in the mind once the advertisement goes away. It is the mental image of a product. The most successful brands provide strong emotions towards that product. To be successful, a brand needs to have an identity, a set of characteristics the marketer then addresses through advertisements to the ultimate user. If the marketer cannot adequately describe what the brand is suppose to convey to the user, how can the user be expected to? Any branding effort must also be consistent with the product and the company else its credibility is in doubt. (For example, Yugo branding its cars as highest quality vehicles would not be successful in the eyes of the consumer).
Why should marketers attempt to create a brand for their products? Branding, despite media reports to the contrary, has been on the upswing in recent years. It is the ‘in’ thing to do. In this age of media clutter, of thousands of images, of rows of products to choose from, an established brand provides a significant advantage. Having an existing brand allows you to charge a premium price over unbranded items. The brand is a promise between the producer of the product or service and the user: If you continue to provide me the product or service as displayed in the brand, then I will continue to use it. Those users loyal to you will pay a premium for your product because you are a known entity. They have tried and liked your product. Essentially, brand loyalty exists due to risk avoidance: I know your brand but I do not know theirs, I trust your brand but do not know theirs, therefore the safest and most prudent course of action is to continue using your brand. In this age of time shortages, consumers are more apt to find a brand they like and continue using it because they don’t have to invest time and money in exploring the alternatives, time they are in short supply of and could better use in other endeavors.
By establishing a brand with a clearly differentiated set of characteristics from your competition, you set yourself apart from all others. As a competitor, you need to find a hilltop that you and only you occupy. For example, one brand could claim the “quality” hilltop, another the “fastest-acting,” hilltop, a third the “flavor, tasty” hilltop. If you wish to compete and these are already existing brands, the wisest choice would be to secure an unoccupied hilltop, such as “specially formulated with xxx ingredient, the only product that has xxx,” or become the product for “children” or “seniors.” By doing so you have differentiated yourself from the competition.
Called either a “tag line,’ a “theme,” or a “memory enhancer,” this is a critical part of any brand. Some examples are: “You Deserve a Break Today.” “”Think Different” “Like a Good Neighbor, State Farm is There.” “Quality is Job One.” To be effective, the tag line must answer 3 questions: 1) Who am I? 2) What do I do?, and 3) Why the heck should you care? Unless it satisfactorily answers those 3 questions it does not fulfill its main function of enhancing the brand. Most tag lines fail on the third point; it might be a fun rhyme or a catchy slogan but unless it provides the user a reason for pursuing the product further, it fails to add to the brand.
Even small businesspersons can brand themselves, their stores, their products. It is worth the investment to set yourself apart from all of the competition, to stand for something, to be known as something special to your customers. Your customers in return will offer brand loyalty to you. One caveat: you must fulfill the promise you made to your customers. If for any reason, you decide to shortchange it, you have changed the brand and nullified the agreement with your loyal users. They may very well decide to go elsewhere.
Successful Marketers create a brand, a promise, and fulfill that promise.
The benefits of creating a strong brand also extends to increased profits. Companies with strong brands can command 5-7% higher stock prices than others, have customers who are willing to pay up to 25% more than other similar products, and have up to 289% higher earning growth over low-relevance brands.
Thursday, July 26, 2007
LIFO FIFO
What hath cost wrought?
By Paul Herbig
Today the spot price per barrel of oil reached $40. Natural gas has surpassed $10 mcf and in some markets the spot price has exceeded $27. However, the gas that I buy today at an already extrabortant nearly $2 per gallon has been in process for a long time. First it had to be pumped from the ground. Let’s say that was in Saudi Arabia, Kuwait, Qatar, or in another part of the MidEastern oil protectorate. It then has to be transported by pipeline to storage vats until it can be offloaded onto the giant oil tankers that traverse the seas. By the time the oil is loaded, anywhere from 1 to 3 weeks or more has passed. Those huge tankers are not built for speed but for capacity. At 10 knots it must travel seven to ten thousand miles before it reaches the American shores. The trip is easily a month. By the time the oil is offloaded to an American storage tank, it is perhaps 6 weeks removed from the ground. It will stay in those tanks for an indefinite period of time. But oil is worthless to the average American. It has to be refined to the much more desirable gasoline. Another week or two perhaps before it has become a useful product. Then it is once again moved by pipeline to its regional destination, stored again, and then finally moved by tank truck to your near-by Texaco, Shell, Marathon (or more likely Murphy Walmart or Meijer or BP) to enable you to fillup your prized vehicle and allow you to get from home to work back to home again.
Three months has passed. That gas you bought today was brought up from the ground ninety days ago. Yet the price of gas escalates and varies from day to day. The cost was known ninety days ago so the price should be predictable today. Ninety days ago a barrel of oil cost $25 and gas was $1.50. Why should the price of a gallon of gas that was pumped out of the ground 3 months ago vary according to the current price of a barrel of oil that won’t become gas for another three months?
The answer comes from FIFO and LIFO. No, these are not the names of the dogs of the royal family of Saudi Arabia. These are accounting terms and their derivation has made the phenomenon described above so commonplace. Forty years ago, FIFO (First in, first out) was the traditional way of determining costs. In this system, cost was determined by when the product was produced (in our example above, cost for oil being consumed as gasoline today would be estimated based on its original cost when pumped—the $25 per barrel of three months ago). This system was widely used and accepted when inflation was minimal. Then came the inflation of the seventies and especially the stagflation of the 1979-80. Goods were being sold for less than their original cost and companies were taking accounting baths.
LIFO to the rescue. By making a simple accounting change, companies were turned around. Instead of costing items to the original, the cost of the last item produced (last in) was compared to the current unit being sold (first out . . . get it LIFO). Now that $40 per barrel oil being pumped today did not have to wait for three months to be expensed at $40 but could be paired with gas being sold today. Voila, $25 per barrel oil now cost $40 and prices could be adjusted daily in accordance with the current (spot . . . whatever the price was at this moment) price of oil. And that, my fine friends, explains why only the today’s costs matters and the past is irrelevant.
An owner was hiring a new accountant and invited three for an interview. He asked the first what “2+2 equals?” Sensing a trap, the first accountant pulled out his calculator and through logaritimic functions, integration, linear algebra, and differential equations calculated the answer at 3.999956 plus or minus .000005. The second accountant was asked the same question. He stared at the owner and said, “What a silly question, four of course.” When the third accountant was asked, he got up silently, closed the door, pulled the curtains on the windows, used his bug meter to check for any hidden bugs in the room, turned the radio up as high as it would go, asked the owner to sign a confidentiality agreement and said “What do you want it to be?” Guess who got the job.
Marketing may make the world go around but it is those accountants who do the final tally of profits.
By Paul Herbig
Today the spot price per barrel of oil reached $40. Natural gas has surpassed $10 mcf and in some markets the spot price has exceeded $27. However, the gas that I buy today at an already extrabortant nearly $2 per gallon has been in process for a long time. First it had to be pumped from the ground. Let’s say that was in Saudi Arabia, Kuwait, Qatar, or in another part of the MidEastern oil protectorate. It then has to be transported by pipeline to storage vats until it can be offloaded onto the giant oil tankers that traverse the seas. By the time the oil is loaded, anywhere from 1 to 3 weeks or more has passed. Those huge tankers are not built for speed but for capacity. At 10 knots it must travel seven to ten thousand miles before it reaches the American shores. The trip is easily a month. By the time the oil is offloaded to an American storage tank, it is perhaps 6 weeks removed from the ground. It will stay in those tanks for an indefinite period of time. But oil is worthless to the average American. It has to be refined to the much more desirable gasoline. Another week or two perhaps before it has become a useful product. Then it is once again moved by pipeline to its regional destination, stored again, and then finally moved by tank truck to your near-by Texaco, Shell, Marathon (or more likely Murphy Walmart or Meijer or BP) to enable you to fillup your prized vehicle and allow you to get from home to work back to home again.
Three months has passed. That gas you bought today was brought up from the ground ninety days ago. Yet the price of gas escalates and varies from day to day. The cost was known ninety days ago so the price should be predictable today. Ninety days ago a barrel of oil cost $25 and gas was $1.50. Why should the price of a gallon of gas that was pumped out of the ground 3 months ago vary according to the current price of a barrel of oil that won’t become gas for another three months?
The answer comes from FIFO and LIFO. No, these are not the names of the dogs of the royal family of Saudi Arabia. These are accounting terms and their derivation has made the phenomenon described above so commonplace. Forty years ago, FIFO (First in, first out) was the traditional way of determining costs. In this system, cost was determined by when the product was produced (in our example above, cost for oil being consumed as gasoline today would be estimated based on its original cost when pumped—the $25 per barrel of three months ago). This system was widely used and accepted when inflation was minimal. Then came the inflation of the seventies and especially the stagflation of the 1979-80. Goods were being sold for less than their original cost and companies were taking accounting baths.
LIFO to the rescue. By making a simple accounting change, companies were turned around. Instead of costing items to the original, the cost of the last item produced (last in) was compared to the current unit being sold (first out . . . get it LIFO). Now that $40 per barrel oil being pumped today did not have to wait for three months to be expensed at $40 but could be paired with gas being sold today. Voila, $25 per barrel oil now cost $40 and prices could be adjusted daily in accordance with the current (spot . . . whatever the price was at this moment) price of oil. And that, my fine friends, explains why only the today’s costs matters and the past is irrelevant.
An owner was hiring a new accountant and invited three for an interview. He asked the first what “2+2 equals?” Sensing a trap, the first accountant pulled out his calculator and through logaritimic functions, integration, linear algebra, and differential equations calculated the answer at 3.999956 plus or minus .000005. The second accountant was asked the same question. He stared at the owner and said, “What a silly question, four of course.” When the third accountant was asked, he got up silently, closed the door, pulled the curtains on the windows, used his bug meter to check for any hidden bugs in the room, turned the radio up as high as it would go, asked the owner to sign a confidentiality agreement and said “What do you want it to be?” Guess who got the job.
Marketing may make the world go around but it is those accountants who do the final tally of profits.
Movie Advertising
Movie Advertising
By Paul A. Herbig
In the beginning was The Film. Hollywood made The Film and what it brought in at the box office was all there was. Then came foreign film rights. Then came TV. And first run rights for new feature films during prime time on the networks. Then came residuals for late night TV and all other hours for not-so-new films. Cable evolved and Pay for TV naturally followed. The VCR worried Hollywood but it soon learned to make more money from renting and selling cassettes (and later DVDs) than in many cases the feature film made at the box off itself. Licensing rights and product rights from fast food companies and toy manufacturers followed. Hollywood learned and learned well how to milk the movie for all its worth.
During the nineties, Hollywood discovered product placement, a form of advertising in which marketers pay to have a product shown during the film. If the story line says the character has to eat at a restaurant, sell the rights to a restaurant chain so their restaurant is the one prominently shown. And so on with everything from any food item imaginable to vehicles to even resorts. You can tell if it is a product placement if the camera focuses lovingly on the brand for any length of time.
Not satisfied with the revenues from all the sources above and having milked product placement for about everything possible (watch some modern films and at times they appear to be one long infomercial with a thin plot holding the commercials together), a new source of revenues has been making its debut slowly across the nation. This commercial endeavor does not even pretend to be art.
Theaters are beginning to show more and more commercials at the beginning of the show. Now everyone is accustomed to seeing the typical promos for Soft drinks and Popcorn from the refreshment stand, static ads for Joe’s Coffeeshop (Visit us after the show, show your receipt and get 10% off), and those entertaining and excitement filled movie trailers for six to ten upcoming (or being shown on other screens of the same complex) films. No, we’re used to that. It bothers us but that’s part of the experience. No these commercials are mainstream thirty second or sixty second spots that you normally would see on TV.
If this were Europe, such exposures would be expected and the audience would shrug it off and wait for the main feature. But this is the good old USA. We are paying six, eight, sometimes ten dollars per ticket during prime time to watch a first run feature film. And now the theater owners wants us to play captive audience while they show upwards of ten minutes of traditional commercials. Moviegoers expect paid advertising for TV, magazines, and newspapers, as they subsidize the costs of the media. But there is a major difference between free TV and a ten dollar movie ticket. These commercials have been increasing in time and number shown over the past few years. For those theaters subjecting their viewers to them, ten minutes is not unusual for pure unadulterated advertisement prior to the start of the feature film. If that were not enough, one chain has decided to mandate a whopping twenty minutes of commercials preceding the start time of the feature.
If the theater owners want us to watch twenty minutes of commercials prior to their films, many theater goers (myself included) would simply walk out and demand back their money. Now if they wish to open the theater for free to anyone who wants to see the feature film but first must watch twenty minutes of commercials, that is a different proposition. However, the theater owners and the movie moguls must remember that theirs is not the only show in town and that they are competing against all other entertainment options for the dollars of their viewers. Their customers may well decide they could stay home and save ten dollars while they watch twenty minutes of commercials.
Treating one’s customer with such disdain is not a healthy means to create a relationship with one’s customers, unless, of course, the relationship is deliberately meant to be hostile and the company has suicidal tendencies
By Paul A. Herbig
In the beginning was The Film. Hollywood made The Film and what it brought in at the box office was all there was. Then came foreign film rights. Then came TV. And first run rights for new feature films during prime time on the networks. Then came residuals for late night TV and all other hours for not-so-new films. Cable evolved and Pay for TV naturally followed. The VCR worried Hollywood but it soon learned to make more money from renting and selling cassettes (and later DVDs) than in many cases the feature film made at the box off itself. Licensing rights and product rights from fast food companies and toy manufacturers followed. Hollywood learned and learned well how to milk the movie for all its worth.
During the nineties, Hollywood discovered product placement, a form of advertising in which marketers pay to have a product shown during the film. If the story line says the character has to eat at a restaurant, sell the rights to a restaurant chain so their restaurant is the one prominently shown. And so on with everything from any food item imaginable to vehicles to even resorts. You can tell if it is a product placement if the camera focuses lovingly on the brand for any length of time.
Not satisfied with the revenues from all the sources above and having milked product placement for about everything possible (watch some modern films and at times they appear to be one long infomercial with a thin plot holding the commercials together), a new source of revenues has been making its debut slowly across the nation. This commercial endeavor does not even pretend to be art.
Theaters are beginning to show more and more commercials at the beginning of the show. Now everyone is accustomed to seeing the typical promos for Soft drinks and Popcorn from the refreshment stand, static ads for Joe’s Coffeeshop (Visit us after the show, show your receipt and get 10% off), and those entertaining and excitement filled movie trailers for six to ten upcoming (or being shown on other screens of the same complex) films. No, we’re used to that. It bothers us but that’s part of the experience. No these commercials are mainstream thirty second or sixty second spots that you normally would see on TV.
If this were Europe, such exposures would be expected and the audience would shrug it off and wait for the main feature. But this is the good old USA. We are paying six, eight, sometimes ten dollars per ticket during prime time to watch a first run feature film. And now the theater owners wants us to play captive audience while they show upwards of ten minutes of traditional commercials. Moviegoers expect paid advertising for TV, magazines, and newspapers, as they subsidize the costs of the media. But there is a major difference between free TV and a ten dollar movie ticket. These commercials have been increasing in time and number shown over the past few years. For those theaters subjecting their viewers to them, ten minutes is not unusual for pure unadulterated advertisement prior to the start of the feature film. If that were not enough, one chain has decided to mandate a whopping twenty minutes of commercials preceding the start time of the feature.
If the theater owners want us to watch twenty minutes of commercials prior to their films, many theater goers (myself included) would simply walk out and demand back their money. Now if they wish to open the theater for free to anyone who wants to see the feature film but first must watch twenty minutes of commercials, that is a different proposition. However, the theater owners and the movie moguls must remember that theirs is not the only show in town and that they are competing against all other entertainment options for the dollars of their viewers. Their customers may well decide they could stay home and save ten dollars while they watch twenty minutes of commercials.
Treating one’s customer with such disdain is not a healthy means to create a relationship with one’s customers, unless, of course, the relationship is deliberately meant to be hostile and the company has suicidal tendencies
Setting Price
Price-setting: Art or Science?
By Paul A. Herbig
.
Price. Our old nemesis. How do you set a price? Is it art or science? Pricing must first be derived from the previously determined pricing objective before you can seriously discuss setting a price. If you are intent on rapid market share, you can use a penetration pricing, or price considerably underneath your competitors so as to preempt their efforts. If you are intent on quality or prestige, you price high to create the correct image. If you wish to maximize profitability, if the conditions were right, you could use price skimming. The final price strategy is totally dependent upon the marketing objective specified. I repeat, until you know what you wish to accomplish, do not attempt to set a price.
Pricing can also be demand based, cost based, or competitively based. Demand based is backwards pricing, examining what the customer is willing to pay, setting the price accordingly and working backwards to ensure the cost is such you will have sufficient profits. Examples of demand-based pricing is penetration pricing and price skimming. Penetration pricing is initially pricing a product extremely low to quickly gain market share. Price skimming is pricing high and cherry picking customers who desire your good and lowering your price periodically to ensure demand. This is only applicable when the market perceives significant advantages to your product and you have a sustainable competitive advantage (this could be patent protection or a special process or a lock on the distribution channel but you need to have a clear edge the competition cannot duplicate near-term.). Cost-based is determining cost first then adding a markup or margin. Competitive pricing is using your competition as a benchmark then meeting, being higher or lower than the competition.
Another consideration with pricing theory is the stage of the life cycle. During the introductory stage, management usually sets prices high in the hopes of quickly recovering its development costs. Usually the innate demand is high resulting in inelastic prices and the initial customers (who are usually the early adopters) are willing to pay for the product to be the first. Since few competitors exist for the device, such prices can be established and will be paid.
Allow me to provide several examples from my own experience in business to business marketing. The cost of the good from a manufacturing viewpoint (generally the cost of parts and the labor required to directly assemble them) was the starting point for calculating a price (say $100). The company had a Overhead factor of 50%. This means the MLO (or fully burdened cost) would have been $150. Our multiplier was 5 times the cost to the suggested list price ($500) or three times the MLO ($450). However, we dealt only exclusively with industrial distributors whom we routinely gave steep discounts (averaging 40%). Therefore, our Average Selling Price (ASP), or the actual revenue received was only 60% of the suggested list price (or $300). This would create the margin ($150) from which all other marketing costs, administrative costs, and profit must be derived. Was the 20% product cost to final product price excessive? We had plenty of customers and price was rarely an issue. We reported healthy profits (but not at Microsoft levels). Was our story unique. No, not at all.
By Paul A. Herbig
.
Price. Our old nemesis. How do you set a price? Is it art or science? Pricing must first be derived from the previously determined pricing objective before you can seriously discuss setting a price. If you are intent on rapid market share, you can use a penetration pricing, or price considerably underneath your competitors so as to preempt their efforts. If you are intent on quality or prestige, you price high to create the correct image. If you wish to maximize profitability, if the conditions were right, you could use price skimming. The final price strategy is totally dependent upon the marketing objective specified. I repeat, until you know what you wish to accomplish, do not attempt to set a price.
Pricing can also be demand based, cost based, or competitively based. Demand based is backwards pricing, examining what the customer is willing to pay, setting the price accordingly and working backwards to ensure the cost is such you will have sufficient profits. Examples of demand-based pricing is penetration pricing and price skimming. Penetration pricing is initially pricing a product extremely low to quickly gain market share. Price skimming is pricing high and cherry picking customers who desire your good and lowering your price periodically to ensure demand. This is only applicable when the market perceives significant advantages to your product and you have a sustainable competitive advantage (this could be patent protection or a special process or a lock on the distribution channel but you need to have a clear edge the competition cannot duplicate near-term.). Cost-based is determining cost first then adding a markup or margin. Competitive pricing is using your competition as a benchmark then meeting, being higher or lower than the competition.
Another consideration with pricing theory is the stage of the life cycle. During the introductory stage, management usually sets prices high in the hopes of quickly recovering its development costs. Usually the innate demand is high resulting in inelastic prices and the initial customers (who are usually the early adopters) are willing to pay for the product to be the first. Since few competitors exist for the device, such prices can be established and will be paid.
Allow me to provide several examples from my own experience in business to business marketing. The cost of the good from a manufacturing viewpoint (generally the cost of parts and the labor required to directly assemble them) was the starting point for calculating a price (say $100). The company had a Overhead factor of 50%. This means the MLO (or fully burdened cost) would have been $150. Our multiplier was 5 times the cost to the suggested list price ($500) or three times the MLO ($450). However, we dealt only exclusively with industrial distributors whom we routinely gave steep discounts (averaging 40%). Therefore, our Average Selling Price (ASP), or the actual revenue received was only 60% of the suggested list price (or $300). This would create the margin ($150) from which all other marketing costs, administrative costs, and profit must be derived. Was the 20% product cost to final product price excessive? We had plenty of customers and price was rarely an issue. We reported healthy profits (but not at Microsoft levels). Was our story unique. No, not at all.
Cost and Price
A Treatise on Pricing
By Paul Herbig
Price and cost are complex concepts. They can be simplified as to say price is the final value that is exchanged between two parties. Cost can be simplified as what it takes to make something. But saying it and doing it are entirely different items.
Cost is basically an accounting term. Costs derive from two different sources: variable cost (those costs that deviate with changes in the level of output) and fixed costs (those costs which would be place even if no units were produced and that do not deviate with output--such as administration salaries and facility rent). Which costs fall into which category can be disputed. Although an entire discipline (accounting), government entity (IRS) and an entire set of regulations exist concerning costs, still determining the exact ‘cost’ of an item turns out to be an exercise in assumptions and guesses.
To complicate matters, price is often an extension of cost. To many laymen, the final price often appears to be outrageous when compared to the initial cost of producing the item. For example, pharmaceutical manufacturers have been heavily criticized by consumer advocates for pricing their drugs as high as they do. The variable costs involved in the manufacture of a pill could be as low as pennies (or less) per pill. So, says the consumer advocates, how can the companies justify charging a dollar or more per pill, a hundredfold market-up. The reality is different. The company may have well spent hundreds of millions of dollars on research, development, testing, regulatory approvals, and manufacturing equipment to enable it to produce the drug. In economic terms, the first pill cost $200 million, the second pill 5 cents, and so on. But since no one is going to pay to recoup the cost of the first pill, the entire fixed costs must be prorated among all the pills. Even at a billion pills, it amounts to a fixed cost per unit of 20 cents. When added to the variable cost, the ensuing cost of 25 cents compared to the selling price is not extraorbitant. Examples in other industries are readily found: semiconductors (where the costs of building plants now are estimated in the billions of dollars) and telecommunications (infrastructure costs) are just two.
Still, to compare price to the COG (cost of good) even acknowledging the cost includes both variable and fixed costs, is not a true indicator. Physical distribution costs (transportation, warehousing) average nearly 8 cents on the revenue dollar. Overhead activities not directly related to the production of the good must be included (administration, sales and marketing). Marketing costs can be huge. For example, General Mills spends 33 cents of every revenue dollar in marketing; its competitors spend nearly the same proportion. For consumer products, advertising and promotional expenses are often 15-20 percent of sales revenues. These costs must be factored into the equation. Then distribution costs must be included: traditionally retailers set their prices as double the manufacturer’s price. If a wholesaler or industrial distributor is included, their margins must be calculated. And if all of these costs are not enough, the company still has to make a profit and that profit margin must be included. With these factors in mind, it is not unreasonable for a product with a variable cost in pennies to be priced twenty fold at the retail transaction.
Examine the cost-price relationship of a product such as a Pepsi drink. Twelve ounces of Pepsi is basically some syrup with the rest carbonated water. Total price could not be more than pennies. Yet put it in a can and sell it retail (Scotts has advertised a 24 can pack for $5.00 or approximately 20 cents a can). Place the same can in a vending machine for 50 cents or more. A fast food outlet will sell the equivalent amount in a paper cup for 85 cents (adding ice to create more volume). The same can in an upscale hotel room refrigerator “honor” bar can sell for $1 or more. And movie theaters and sporting events can charge even more. Twenty times or more for the basic cost of selling the item. And consumers will buy it. How can they do so? Because there are other ingredients involved in price than just the basic product. Pepsi spends extraorbitant amounts in marketing, advertising, and promotion on the product (perhaps not at the same rate as General Mills but still 15-20% of revenues). Distribution costs must be added (the retailers mark-up and the vending machine operator’s costs). These costs are often several times that of the basic product costs. The difference in prices can be attributed to convenience (for vending machine and honor bars and events). Therefore, just comparing basic product costs to final selling price cannot be made without including a considerable list of other cost elements and customer buying influences.
Cost is an accounting term; Price is a marketing term based upon what the market will bear. Keep them separate.
By Paul Herbig
Price and cost are complex concepts. They can be simplified as to say price is the final value that is exchanged between two parties. Cost can be simplified as what it takes to make something. But saying it and doing it are entirely different items.
Cost is basically an accounting term. Costs derive from two different sources: variable cost (those costs that deviate with changes in the level of output) and fixed costs (those costs which would be place even if no units were produced and that do not deviate with output--such as administration salaries and facility rent). Which costs fall into which category can be disputed. Although an entire discipline (accounting), government entity (IRS) and an entire set of regulations exist concerning costs, still determining the exact ‘cost’ of an item turns out to be an exercise in assumptions and guesses.
To complicate matters, price is often an extension of cost. To many laymen, the final price often appears to be outrageous when compared to the initial cost of producing the item. For example, pharmaceutical manufacturers have been heavily criticized by consumer advocates for pricing their drugs as high as they do. The variable costs involved in the manufacture of a pill could be as low as pennies (or less) per pill. So, says the consumer advocates, how can the companies justify charging a dollar or more per pill, a hundredfold market-up. The reality is different. The company may have well spent hundreds of millions of dollars on research, development, testing, regulatory approvals, and manufacturing equipment to enable it to produce the drug. In economic terms, the first pill cost $200 million, the second pill 5 cents, and so on. But since no one is going to pay to recoup the cost of the first pill, the entire fixed costs must be prorated among all the pills. Even at a billion pills, it amounts to a fixed cost per unit of 20 cents. When added to the variable cost, the ensuing cost of 25 cents compared to the selling price is not extraorbitant. Examples in other industries are readily found: semiconductors (where the costs of building plants now are estimated in the billions of dollars) and telecommunications (infrastructure costs) are just two.
Still, to compare price to the COG (cost of good) even acknowledging the cost includes both variable and fixed costs, is not a true indicator. Physical distribution costs (transportation, warehousing) average nearly 8 cents on the revenue dollar. Overhead activities not directly related to the production of the good must be included (administration, sales and marketing). Marketing costs can be huge. For example, General Mills spends 33 cents of every revenue dollar in marketing; its competitors spend nearly the same proportion. For consumer products, advertising and promotional expenses are often 15-20 percent of sales revenues. These costs must be factored into the equation. Then distribution costs must be included: traditionally retailers set their prices as double the manufacturer’s price. If a wholesaler or industrial distributor is included, their margins must be calculated. And if all of these costs are not enough, the company still has to make a profit and that profit margin must be included. With these factors in mind, it is not unreasonable for a product with a variable cost in pennies to be priced twenty fold at the retail transaction.
Examine the cost-price relationship of a product such as a Pepsi drink. Twelve ounces of Pepsi is basically some syrup with the rest carbonated water. Total price could not be more than pennies. Yet put it in a can and sell it retail (Scotts has advertised a 24 can pack for $5.00 or approximately 20 cents a can). Place the same can in a vending machine for 50 cents or more. A fast food outlet will sell the equivalent amount in a paper cup for 85 cents (adding ice to create more volume). The same can in an upscale hotel room refrigerator “honor” bar can sell for $1 or more. And movie theaters and sporting events can charge even more. Twenty times or more for the basic cost of selling the item. And consumers will buy it. How can they do so? Because there are other ingredients involved in price than just the basic product. Pepsi spends extraorbitant amounts in marketing, advertising, and promotion on the product (perhaps not at the same rate as General Mills but still 15-20% of revenues). Distribution costs must be added (the retailers mark-up and the vending machine operator’s costs). These costs are often several times that of the basic product costs. The difference in prices can be attributed to convenience (for vending machine and honor bars and events). Therefore, just comparing basic product costs to final selling price cannot be made without including a considerable list of other cost elements and customer buying influences.
Cost is an accounting term; Price is a marketing term based upon what the market will bear. Keep them separate.
Customer Service
2-4-6-8 Who Do We Appreciate?
By Paul Herbig
Customer Service
The boss must have written the old yellow pages slogan, “let your fingers do the walking” as she is virtually never without a phone in her hand. As I watched her call several companies, I could see her get increasingly angry at the instrument. Having been through it many times myself, I could almost hear the other side of the conversation, “Dial 1 if you wish to place an order; Dial 2 if you wish to determine status of an existing order; Dial 3 if you wish to cancel an order; and on and on up to Dial 44 if you wish to speak to an operator. If you wish to hear these options again, please hit the star button.” And round and round one goes through what the mathematicians call an infinite loop of choices and options. All this, I am told, is designed to save costs by automating a process and giving the customer more power in the process. It is becoming so common I am shocked speechless when I actually get a human being on the line.
Cost-cutting measures can sometimes backfire. At a small southern university where I taught many years ago, the bean counters decided the budget needed cutting and they would save $250,000 by not offering summer classes. They actually saved over $260,000 but loss an estimated $400,000 in revenue not received due to students not attending summer classes. I often wondered how they explained all those savings to their boss. They were looking at the wrong end of the equation.
Now I am all for cutting costs when there is fat to be cut—bureaucracy is the first place one should cut (and cut and cut and cut). But I do not consider customer service a particularly fatty area. When it comes to customers, you should never be lean and mean. Companies must understand that they are here to serve the customers and not vice versa. It is only by virtue of the customers’ dollars that they exist and not, as some appear to believe, the customers exist to serve them. If anything, companies should be adding to their customer support (especially in tough times like these when their competitors will be cutting back thus providing them with competitive momentum when good times return). When customers have questions, they better be able to get answers and now, not on the timetable of some nameless telephone system, not by spending hours on the phone trying to circumnavigate a phone loop or hoping to get a human being on the other end to talk to, but now. The company that provides that service at the time and place the customer demands it will be the company that in the long run will prosper and thrive and very likely will buy out the remnants of the other, now customerless company.
One final thought. Are phone numbers obsolete? Don’t people call on the phone any more? Where are the phone numbers anyway? I search websites on a daily basis and many times fail to find a phone contact number. Perhaps the company does not want to be bothered by customers as it would only get in their way of having a good workplace. (this reminds me of a remark by a professor in a research university in Texas , “If it weren’t for the students, we could get lots of research done here.” Paraphrasing the “if only the customers would leave us alone, this would be great place to work.”) Not being bothered by customers is a sure fired way to create one’s own extinction. You have that choice: listen to customers, work with them, satisfy their thirst for your products, or find another occupation that does not require customer service: I hear there may soon be an opening for Dictators in Iraq and North Korea.
By Paul Herbig
Customer Service
The boss must have written the old yellow pages slogan, “let your fingers do the walking” as she is virtually never without a phone in her hand. As I watched her call several companies, I could see her get increasingly angry at the instrument. Having been through it many times myself, I could almost hear the other side of the conversation, “Dial 1 if you wish to place an order; Dial 2 if you wish to determine status of an existing order; Dial 3 if you wish to cancel an order; and on and on up to Dial 44 if you wish to speak to an operator. If you wish to hear these options again, please hit the star button.” And round and round one goes through what the mathematicians call an infinite loop of choices and options. All this, I am told, is designed to save costs by automating a process and giving the customer more power in the process. It is becoming so common I am shocked speechless when I actually get a human being on the line.
Cost-cutting measures can sometimes backfire. At a small southern university where I taught many years ago, the bean counters decided the budget needed cutting and they would save $250,000 by not offering summer classes. They actually saved over $260,000 but loss an estimated $400,000 in revenue not received due to students not attending summer classes. I often wondered how they explained all those savings to their boss. They were looking at the wrong end of the equation.
Now I am all for cutting costs when there is fat to be cut—bureaucracy is the first place one should cut (and cut and cut and cut). But I do not consider customer service a particularly fatty area. When it comes to customers, you should never be lean and mean. Companies must understand that they are here to serve the customers and not vice versa. It is only by virtue of the customers’ dollars that they exist and not, as some appear to believe, the customers exist to serve them. If anything, companies should be adding to their customer support (especially in tough times like these when their competitors will be cutting back thus providing them with competitive momentum when good times return). When customers have questions, they better be able to get answers and now, not on the timetable of some nameless telephone system, not by spending hours on the phone trying to circumnavigate a phone loop or hoping to get a human being on the other end to talk to, but now. The company that provides that service at the time and place the customer demands it will be the company that in the long run will prosper and thrive and very likely will buy out the remnants of the other, now customerless company.
One final thought. Are phone numbers obsolete? Don’t people call on the phone any more? Where are the phone numbers anyway? I search websites on a daily basis and many times fail to find a phone contact number. Perhaps the company does not want to be bothered by customers as it would only get in their way of having a good workplace. (this reminds me of a remark by a professor in a research university in Texas , “If it weren’t for the students, we could get lots of research done here.” Paraphrasing the “if only the customers would leave us alone, this would be great place to work.”) Not being bothered by customers is a sure fired way to create one’s own extinction. You have that choice: listen to customers, work with them, satisfy their thirst for your products, or find another occupation that does not require customer service: I hear there may soon be an opening for Dictators in Iraq and North Korea.
To Call or Not to Call
To Call or not to Call—that is the question.
By Paul Herbig
Several of my devoted readers have recently inquired of my services to assist with a problem they are having. It appears the new “No-Call” list created to curb adverse telemarketing practices is displaying what was no doubt due to occur, the law of unintended consequences. It appears every government action creates an unanticipated negative reaction the antithesis of the original intent. And is so the case here.
The original “No Call” list has been extremely popular with tens of millions of people clammerring for their right for privacy. In late September it appeared the law was on the ropes as Direct Marketers tried to use first amendment rights (My right to call you) as rationale for its demise. After court battles and a final quick congressional approval (in less than 24 hours, who says Congress can’t act quickly if they wanted to), the right for people not to have others call them was upheld.
The list has several loopholes, however. It exempts political calls ( did ya really think politicians were going to eliminate their ability to raise funds!!) and non-profits. And it also provides a free reign to any entity which has had a “prior relationship” with the pursued. Here’s where the loophole-so-wide-a-truck-can-drive-through comes in. What defines a relationship? The act does not say. A prior purchase within the previous eighteen months can constitute a relationship. As can submittal of a warranty card or perhaps even an inquiry. I am certain future court battles will be undertaken over this concept and whether or not an entity had a ‘relationship’ with a consumer prior to calling. For the fine to not do so is monetarily stiff (which means some lawyer somewhere is already salivating over prospects for lawsuits).
Therein lies the problem. My friends the insurance agents, brokers, bankers, real estate agents do make considerable calls in their profession. It appears their companies or principals have sent them mucho information and warnings about the potential adverse actions if they inadvertently cold call someone on the No Call list (see note about lawyers above). I am certain Congress and the supporters of the No Call legislation had telemarketers clearly in their sites and the thought of its impact on other professionals probably never once crossed their mind. Nonetheless, the unintended consequences has many of America’s finest professionals wondering what to do about that referral, that call to a prospective client, about contacting that property owner another client has expressed interest in. With today’s legal environment, who knows what legal beagles may be lurking in the shadows just awaiting the opportunity.
What then can such professionals do? One option is to take the chance and call anyway, knowing their actions are not prohibited by the spirit of the law. A second, better approach is to begin the process of establishing a “relationship” with the prospect. This could be done by mailing a letter indicating a friend had referred the prospective client and does he prospect have any objection to the professional calling upon the prospect. A SASE postcard that all the prospect must do is check “Yes. Please call me” would be sufficient to meet the relationship criteria. A third, probably less desirous, is to have the current client who has referred the prospect, to intervene and have the prospect call the professional direct or to hand deliver the SASE postcard and personally garner the necessary signature. Of these three, the first is the status quo and the current area of concern so to do so would expose oneself to additional risks. The third is cumbersome and dependent upon a third party so would not be as timely as one would probably wish. The second choice, the response card, would probably be the safest.
This adds an additional layer of communication between the professional and the prospect. But it also provides the protection and peace of mind for the professional. Intended or not, it is now the law and one has to adapt.
By Paul Herbig
Several of my devoted readers have recently inquired of my services to assist with a problem they are having. It appears the new “No-Call” list created to curb adverse telemarketing practices is displaying what was no doubt due to occur, the law of unintended consequences. It appears every government action creates an unanticipated negative reaction the antithesis of the original intent. And is so the case here.
The original “No Call” list has been extremely popular with tens of millions of people clammerring for their right for privacy. In late September it appeared the law was on the ropes as Direct Marketers tried to use first amendment rights (My right to call you) as rationale for its demise. After court battles and a final quick congressional approval (in less than 24 hours, who says Congress can’t act quickly if they wanted to), the right for people not to have others call them was upheld.
The list has several loopholes, however. It exempts political calls ( did ya really think politicians were going to eliminate their ability to raise funds!!) and non-profits. And it also provides a free reign to any entity which has had a “prior relationship” with the pursued. Here’s where the loophole-so-wide-a-truck-can-drive-through comes in. What defines a relationship? The act does not say. A prior purchase within the previous eighteen months can constitute a relationship. As can submittal of a warranty card or perhaps even an inquiry. I am certain future court battles will be undertaken over this concept and whether or not an entity had a ‘relationship’ with a consumer prior to calling. For the fine to not do so is monetarily stiff (which means some lawyer somewhere is already salivating over prospects for lawsuits).
Therein lies the problem. My friends the insurance agents, brokers, bankers, real estate agents do make considerable calls in their profession. It appears their companies or principals have sent them mucho information and warnings about the potential adverse actions if they inadvertently cold call someone on the No Call list (see note about lawyers above). I am certain Congress and the supporters of the No Call legislation had telemarketers clearly in their sites and the thought of its impact on other professionals probably never once crossed their mind. Nonetheless, the unintended consequences has many of America’s finest professionals wondering what to do about that referral, that call to a prospective client, about contacting that property owner another client has expressed interest in. With today’s legal environment, who knows what legal beagles may be lurking in the shadows just awaiting the opportunity.
What then can such professionals do? One option is to take the chance and call anyway, knowing their actions are not prohibited by the spirit of the law. A second, better approach is to begin the process of establishing a “relationship” with the prospect. This could be done by mailing a letter indicating a friend had referred the prospective client and does he prospect have any objection to the professional calling upon the prospect. A SASE postcard that all the prospect must do is check “Yes. Please call me” would be sufficient to meet the relationship criteria. A third, probably less desirous, is to have the current client who has referred the prospect, to intervene and have the prospect call the professional direct or to hand deliver the SASE postcard and personally garner the necessary signature. Of these three, the first is the status quo and the current area of concern so to do so would expose oneself to additional risks. The third is cumbersome and dependent upon a third party so would not be as timely as one would probably wish. The second choice, the response card, would probably be the safest.
This adds an additional layer of communication between the professional and the prospect. But it also provides the protection and peace of mind for the professional. Intended or not, it is now the law and one has to adapt.
Think Small
Think Small
Paul Herbig
Ever wonder why a particular customer chooses store A instead of store B? Why a customer would continue to be loyal to a certain bank in his town for thirty years? Or why a customer tends to make the decisions she makes? It is as important of topic as it is not as simple of issue.
The other day I took a convenience sample of customers at a local bank. Convenience, to me, meant they were at the bank at the same time I was. I know it is not scientific and a random sample but the outcome bears broadcasting to the world.
I asked one young matron why she banked at this particular bank and (as she indicated to me) she had been for years, if not decades. See if you can guess Her answer:
a) Best interest rates in town
b) Overdraft protection
c) Offered on-line banking
d) Overdraft protection
e) None of the above.
The correct answer was e. Her reason for banking at this particular bank and this one branch? “The teller knows me by name and always greets me with a smile. She knows me and my account and is always two steps ahead of me.”
I queried a second, older customer on her banking habits, using the same 5 point scheme above. Can you guess her answer? That’s right, E again. “It is hard for me to walk and they have automatic doors that make it easy for me to enter and a comfortable chair for me to fill out my slips easily without standing all the time.”
Finally in desperation, I cornered a younger male. When I found out he lived ten miles away and banked at this particular branch instead of his hometown, I figured one of these answers must be right. And the answer this time. E again. “I work two blocks away and I can walk over here during lunch hour and do any transactions I need to have done. It is just convenient that way for me.”
Perhaps I was on to something here. Perhaps all the bank marketing (and to be fair not just banks but all other sort of retail establishments) were hawking the wrong items. I asked customers one and two their opinions about the four options and did any of these impact their decisions to bank at this particular branch and company? “All the banks have about the same rates and services. If one raises or lowers rates, the rest will do so shortly thereafter. Rates are not all I want from a business.”
Finally it dawned on me. All the big things, points a through d, were easily copied and imitated. If these companies used price to lure customers in, they were attracting the wrong type of customers. If it were only a higher savings rate or a lower mortgage rate that attracted customer Z, then what happens when another bank, somewhere else, offers an even more attractive rate. How loyal is that new customer? He will be gone before the sun sets on the deal. No, the rate-seeker, the avid tire kicker is not your ultimate loyal customer.
What does make a difference are the small things in life. The little things. Having dog biscuits so when you go to the drive-up window with Fido, your precious dog won’t be neglected. Having the same teller who knows you by name. Clean restrooms. Comfortable chairs. Easy access. You can name a hundred other small, negligible items. But these make the difference. In the battle for customers, it is often those small items that will separate the winners from losers.
Don’t neglect them. Emphasize them.
Paul Herbig
Ever wonder why a particular customer chooses store A instead of store B? Why a customer would continue to be loyal to a certain bank in his town for thirty years? Or why a customer tends to make the decisions she makes? It is as important of topic as it is not as simple of issue.
The other day I took a convenience sample of customers at a local bank. Convenience, to me, meant they were at the bank at the same time I was. I know it is not scientific and a random sample but the outcome bears broadcasting to the world.
I asked one young matron why she banked at this particular bank and (as she indicated to me) she had been for years, if not decades. See if you can guess Her answer:
a) Best interest rates in town
b) Overdraft protection
c) Offered on-line banking
d) Overdraft protection
e) None of the above.
The correct answer was e. Her reason for banking at this particular bank and this one branch? “The teller knows me by name and always greets me with a smile. She knows me and my account and is always two steps ahead of me.”
I queried a second, older customer on her banking habits, using the same 5 point scheme above. Can you guess her answer? That’s right, E again. “It is hard for me to walk and they have automatic doors that make it easy for me to enter and a comfortable chair for me to fill out my slips easily without standing all the time.”
Finally in desperation, I cornered a younger male. When I found out he lived ten miles away and banked at this particular branch instead of his hometown, I figured one of these answers must be right. And the answer this time. E again. “I work two blocks away and I can walk over here during lunch hour and do any transactions I need to have done. It is just convenient that way for me.”
Perhaps I was on to something here. Perhaps all the bank marketing (and to be fair not just banks but all other sort of retail establishments) were hawking the wrong items. I asked customers one and two their opinions about the four options and did any of these impact their decisions to bank at this particular branch and company? “All the banks have about the same rates and services. If one raises or lowers rates, the rest will do so shortly thereafter. Rates are not all I want from a business.”
Finally it dawned on me. All the big things, points a through d, were easily copied and imitated. If these companies used price to lure customers in, they were attracting the wrong type of customers. If it were only a higher savings rate or a lower mortgage rate that attracted customer Z, then what happens when another bank, somewhere else, offers an even more attractive rate. How loyal is that new customer? He will be gone before the sun sets on the deal. No, the rate-seeker, the avid tire kicker is not your ultimate loyal customer.
What does make a difference are the small things in life. The little things. Having dog biscuits so when you go to the drive-up window with Fido, your precious dog won’t be neglected. Having the same teller who knows you by name. Clean restrooms. Comfortable chairs. Easy access. You can name a hundred other small, negligible items. But these make the difference. In the battle for customers, it is often those small items that will separate the winners from losers.
Don’t neglect them. Emphasize them.
The Invisible Customer
Hey I’m Not invisible, I’m the customer
By Paul Herbig
I often drive by the now defunct K-Mart building on North Wayne in Angola. While doing so this week I started thinking about the reasons for its demise. Certainly, Wal-Mart and Target had mass and both outsized their smaller competitor. But in the beginning it was K-Mart and then the others came (K-Mart had more stores and higher revenue than Wal-Mart even as recently as 1990). When and how did it lose its leadership? Its competitiveness?
I remember the “Thank you for shopping at K-Mart.” Repeating this mantra to all its customers was suppose to create a friendlier environment and propel repeat business. I guess like all superstitions, the thought is that if it is repeated enough times, people will believe it and it will become the truth (something like hanging “Our Job is Quality” posters on the walls at manufacturing plants and hoping, by osmosis, the workers will become more quality sensitive).
But the program backfired. Clerks wore badges and signs were posted around the store that indicated If the clerk failed to say those six holy words, you were to get a freebie. The clerks were told every morning to say those words, probably with threat of firing and dismemberment if forgotten (and secret shoppers were routinely sent in to evaluate the clerks on their utterance of the mantra). The result was a workforce whose rote mutterings were barely audible or understandable but did minimally meet the requirements of management. Words spoken entirely without emotion or meaning. Words spoken in machine-gun fashion whose only intent was to adhere to the fine print of the new company policy without engaging in the spirit intended.
And what about the customer? Did the customer smile brightly upon hearing those golden words, thank, in turn, the clerk, and make a promise before all those present he will never shop anywhere else but K-Mart. Right. You also believe in the Easter Bunny and Santa Claus don’t you! So artificial, so meaningless, so idiotic was this exchange, the customer felt invisible and belittled. Did his business mean so little to K-Mart that they had to force their clerks to be polite? Shouldn’t clerks by nature just be human and friendly anyway? Is this a generational thing?
Being an invisible customer is a malady found in many establishments. The other day the boss (my wife) complained she entered a retail establishment and for five minutes the clerk stood behind the counter either talking on the phone or to another clerk, not even bothering leaving her post to see what she could do to help the customer. Not willing to stand and attempt to set a new Guinness book of Records for inattentiveness, Rachel left at the end of five minutes.
I am certain you have seen it before. Whereupon you, the customer, is made to feel like he is invisible and does not exist. The clerk on the phone to her boyfriend makes you feel like you are intruding on her time by interrupting her. The governmental official who knows the answer to your question but because of policy refuses to answer you. The stockboy in the grocery who, if he takes the time to help you, will be reprimanded by his superior for not making his quota. You’ve all been there. Done that.
So what to do? The superior marketer knows the customer always comes first. Don’t look through a customer as if he did not exist or ignore him as if his presence was lacking. Recognize the customer. Greet him or her. Be friendly. Be courteous and helpful. Even though that customer may not buy anything that time, he is likely to return or to describe his wonderful treatment you gave him to others who well could become major customers. A little kindness goes a long way and is often repaid a hundred times over.
By Paul Herbig
I often drive by the now defunct K-Mart building on North Wayne in Angola. While doing so this week I started thinking about the reasons for its demise. Certainly, Wal-Mart and Target had mass and both outsized their smaller competitor. But in the beginning it was K-Mart and then the others came (K-Mart had more stores and higher revenue than Wal-Mart even as recently as 1990). When and how did it lose its leadership? Its competitiveness?
I remember the “Thank you for shopping at K-Mart.” Repeating this mantra to all its customers was suppose to create a friendlier environment and propel repeat business. I guess like all superstitions, the thought is that if it is repeated enough times, people will believe it and it will become the truth (something like hanging “Our Job is Quality” posters on the walls at manufacturing plants and hoping, by osmosis, the workers will become more quality sensitive).
But the program backfired. Clerks wore badges and signs were posted around the store that indicated If the clerk failed to say those six holy words, you were to get a freebie. The clerks were told every morning to say those words, probably with threat of firing and dismemberment if forgotten (and secret shoppers were routinely sent in to evaluate the clerks on their utterance of the mantra). The result was a workforce whose rote mutterings were barely audible or understandable but did minimally meet the requirements of management. Words spoken entirely without emotion or meaning. Words spoken in machine-gun fashion whose only intent was to adhere to the fine print of the new company policy without engaging in the spirit intended.
And what about the customer? Did the customer smile brightly upon hearing those golden words, thank, in turn, the clerk, and make a promise before all those present he will never shop anywhere else but K-Mart. Right. You also believe in the Easter Bunny and Santa Claus don’t you! So artificial, so meaningless, so idiotic was this exchange, the customer felt invisible and belittled. Did his business mean so little to K-Mart that they had to force their clerks to be polite? Shouldn’t clerks by nature just be human and friendly anyway? Is this a generational thing?
Being an invisible customer is a malady found in many establishments. The other day the boss (my wife) complained she entered a retail establishment and for five minutes the clerk stood behind the counter either talking on the phone or to another clerk, not even bothering leaving her post to see what she could do to help the customer. Not willing to stand and attempt to set a new Guinness book of Records for inattentiveness, Rachel left at the end of five minutes.
I am certain you have seen it before. Whereupon you, the customer, is made to feel like he is invisible and does not exist. The clerk on the phone to her boyfriend makes you feel like you are intruding on her time by interrupting her. The governmental official who knows the answer to your question but because of policy refuses to answer you. The stockboy in the grocery who, if he takes the time to help you, will be reprimanded by his superior for not making his quota. You’ve all been there. Done that.
So what to do? The superior marketer knows the customer always comes first. Don’t look through a customer as if he did not exist or ignore him as if his presence was lacking. Recognize the customer. Greet him or her. Be friendly. Be courteous and helpful. Even though that customer may not buy anything that time, he is likely to return or to describe his wonderful treatment you gave him to others who well could become major customers. A little kindness goes a long way and is often repaid a hundred times over.
Marketing Makes the World Go Round
The Best of All Ms
Paul Herbig
I often tell my classes that Marketing is the most important of all the business disciplines. Although I teach marketing and have lived and breathed (and if I am cut I bleed Marketing red) for twenty-five years, I am really not biased. So let me count the ways for you.
In business, if you look at an enterprise in its rawest form, there are only 3 things you can do: Manufacture a product, Market the product, or count the Money (3Ms). Before you invest in all the facilities necessary to make the product you had better determine if there is sufficient customers to make your operation profitable (marketing) and that the product you are indeed designing and plan to manufacture will meet those customers’ needs (marketing). Customers are needed to buy those products before you make them so they need be sold (marketed) before you can manufacture any products. Similarly, unless the products are sold (marketed) you will not have any money to count. Therefore of all the 3Ms, Marketing is primary and must take precedent over the other two if the company has any chance of surviving let alone thriving and making profits.
Still not convinced? What do you believe was the amount of world trade during 2002? In the U.S. alone, trade (imports and exports together)(products and/or services that crossed the border from or to the United States) is rapidly approaching $2 Trillion annually. That may sound (and is) large but many countries’ trade accounts for twice to three times the percentage of GDP that occurs in the U.S. It is safe to say the worldwide trade is trillions of Dollars. So what does this have to do with marketing. Before any product is traded across the border, a sale must have taken place between the two parties doing the trading. Once again, marketing. Without marketing taking place, trade would not occur and the world economic system would come to an abrupt halt (okay, perhaps I am exaggerating a slight bit here). By the same token, every dollar in the GDP (Gross Domestic Product) of the US (nearly $10 trillion) reflects an exchange that has taken place between a buyer and seller and a recognition that an act of marketing has occurred that hopefully betters both the buyer and seller.
Without marketing, new products would not be produced nor purchased by customers. Unless a customer knows about a new product and its features and benefits (Publicity), likelihood of purchase is small. A customer must then have his interest awoken for the product and understand how the product will satisfy needs and make life better (advertising). The product must be easily available to the customer wherever and whenever the customer wants the product (distribution). The product must be priced at a comparable point where it provides sufficient value for the dollar paid yet provides sufficient profit for the company to continue to manufacture the product. And finally, the customer must be assured the product will continue to work as promised (customer service), is aware of support activities to allow the customer to fully utilize the product, and has a migration path to upgrade or replace the product when it is obsolete or a newer product becomes available.
Experts estimate that marketing related jobs account for between one-quarter and one-third (25 to 33%) of all jobs in this country. Other estimates are that marketing costs as a percentage of every dollar in revenue received averages 50% (in some industry such as food processing this percentage can go as high as 70% while for most organizational pursuits it will be 30-35).
Truly, Marketing does make the world go round
Paul Herbig
I often tell my classes that Marketing is the most important of all the business disciplines. Although I teach marketing and have lived and breathed (and if I am cut I bleed Marketing red) for twenty-five years, I am really not biased. So let me count the ways for you.
In business, if you look at an enterprise in its rawest form, there are only 3 things you can do: Manufacture a product, Market the product, or count the Money (3Ms). Before you invest in all the facilities necessary to make the product you had better determine if there is sufficient customers to make your operation profitable (marketing) and that the product you are indeed designing and plan to manufacture will meet those customers’ needs (marketing). Customers are needed to buy those products before you make them so they need be sold (marketed) before you can manufacture any products. Similarly, unless the products are sold (marketed) you will not have any money to count. Therefore of all the 3Ms, Marketing is primary and must take precedent over the other two if the company has any chance of surviving let alone thriving and making profits.
Still not convinced? What do you believe was the amount of world trade during 2002? In the U.S. alone, trade (imports and exports together)(products and/or services that crossed the border from or to the United States) is rapidly approaching $2 Trillion annually. That may sound (and is) large but many countries’ trade accounts for twice to three times the percentage of GDP that occurs in the U.S. It is safe to say the worldwide trade is trillions of Dollars. So what does this have to do with marketing. Before any product is traded across the border, a sale must have taken place between the two parties doing the trading. Once again, marketing. Without marketing taking place, trade would not occur and the world economic system would come to an abrupt halt (okay, perhaps I am exaggerating a slight bit here). By the same token, every dollar in the GDP (Gross Domestic Product) of the US (nearly $10 trillion) reflects an exchange that has taken place between a buyer and seller and a recognition that an act of marketing has occurred that hopefully betters both the buyer and seller.
Without marketing, new products would not be produced nor purchased by customers. Unless a customer knows about a new product and its features and benefits (Publicity), likelihood of purchase is small. A customer must then have his interest awoken for the product and understand how the product will satisfy needs and make life better (advertising). The product must be easily available to the customer wherever and whenever the customer wants the product (distribution). The product must be priced at a comparable point where it provides sufficient value for the dollar paid yet provides sufficient profit for the company to continue to manufacture the product. And finally, the customer must be assured the product will continue to work as promised (customer service), is aware of support activities to allow the customer to fully utilize the product, and has a migration path to upgrade or replace the product when it is obsolete or a newer product becomes available.
Experts estimate that marketing related jobs account for between one-quarter and one-third (25 to 33%) of all jobs in this country. Other estimates are that marketing costs as a percentage of every dollar in revenue received averages 50% (in some industry such as food processing this percentage can go as high as 70% while for most organizational pursuits it will be 30-35).
Truly, Marketing does make the world go round
Technology and Marketing
Technology: Savor of Mankind or will it be the death of us all
By Paul Herbig
Technology and Marketing
I enjoy modern technology and the ease it often brings into one’s life. But often it becomes not user friendly but user deadly. Trying to fill out forms online can be more time consuming, frustrating, and less rewarding them just to do the paperwork itself. Sometimes, and you can probably sympathize with me, I feel like picking up the PC and throwing it out the window and cheering it as it smashes onto the hard ground below. Who is serving whom? Is the technology being used to better humankind or is humankind being asked to change its behavior to accommodate technology?
As a marketer, I often wonder about whether we are properly using all the bells and whistles the technology provides us. Are we better serving the customer? Or are we making life more difficult for them? Spam allows you get message out to millions at a time but at what cost to the customer. (Spam now exceeds 40 percent of all e-mail traffic; those of you who check your email every day probably think this is an underestimate!) One article I read recently indicated a woman who worked out of her home and spammed millions of people received, on average, a response rate of several hundred per multimillion messages sent. That works out to less than a hundredth of a percent of a response rate. To which she replied she could make money at that level. So she is successfully making a living sending spam to millions to get a few hundred to buy her product. But at what cost? For the other 3plus million who must delete her message, if they each spend 1 second (or more if they care to read the message before they delete it) then with 3600 seconds to the hour, at least 1000 person-hours are being wasted taking care of spam. At a conservative $20 per hour, the costs in productivity well exceed $20-40,000 so that she can make a few thousand. She gains but society as a whole loses. Of course, if she had to pay for each contact it would be well out of her reach to continue business as she is currently doing.
Tetrabytes of information and gigahertz of processor speed enable companies to gather
Every bit of information about a customer. Fantastic new statistical packages enable data-mining, a powerful technique to find relationships where you thought none existed before.
All this is enabling companies to know more and more about its customers, to the point, as does Amazon, they can predict customer patterns and the next time you log on to Amazon it will indicate new books or media you might be interested in based upon your past history. Or Domino’s could well call you up the night before the Superbowl and say, “Do you want your regular 2 large peps at 6pm for the Super Bowl tomorrow Mr. Herbig?” or “Had a great weekend off Mr. Herbig with the family, we noticed you did not order your regular last Friday. Expect to be home this week, same as always for Friday?” Where is the border between knowing your customers and knowing them so well as to anticipate their next move and being there to serve them better and invasion of privacy? We have the tools and are using them to their fullest but at what cost to the private lives of your customers?
As Frankenstein and Dr. Jekyl-Mr. Hyde show us, technology can be a two edged sword; one can just as easily die from unanticipated side effects of the new technology as improve humankind with the very same technology. As Marketers, we need to be responsive to our customers, understanding that just because the technology is available does not mean it has to be used. As in any other endeavor, true customer focused companies should always view technology from the customer’s point of view, how is it being perceived, how is it being used (or abused) by or to the customer, even to the point of whether or not it is even needed by the customer. Technology is great to have but it must serve a purpose, not just to use it because you have it.
By Paul Herbig
Technology and Marketing
I enjoy modern technology and the ease it often brings into one’s life. But often it becomes not user friendly but user deadly. Trying to fill out forms online can be more time consuming, frustrating, and less rewarding them just to do the paperwork itself. Sometimes, and you can probably sympathize with me, I feel like picking up the PC and throwing it out the window and cheering it as it smashes onto the hard ground below. Who is serving whom? Is the technology being used to better humankind or is humankind being asked to change its behavior to accommodate technology?
As a marketer, I often wonder about whether we are properly using all the bells and whistles the technology provides us. Are we better serving the customer? Or are we making life more difficult for them? Spam allows you get message out to millions at a time but at what cost to the customer. (Spam now exceeds 40 percent of all e-mail traffic; those of you who check your email every day probably think this is an underestimate!) One article I read recently indicated a woman who worked out of her home and spammed millions of people received, on average, a response rate of several hundred per multimillion messages sent. That works out to less than a hundredth of a percent of a response rate. To which she replied she could make money at that level. So she is successfully making a living sending spam to millions to get a few hundred to buy her product. But at what cost? For the other 3plus million who must delete her message, if they each spend 1 second (or more if they care to read the message before they delete it) then with 3600 seconds to the hour, at least 1000 person-hours are being wasted taking care of spam. At a conservative $20 per hour, the costs in productivity well exceed $20-40,000 so that she can make a few thousand. She gains but society as a whole loses. Of course, if she had to pay for each contact it would be well out of her reach to continue business as she is currently doing.
Tetrabytes of information and gigahertz of processor speed enable companies to gather
Every bit of information about a customer. Fantastic new statistical packages enable data-mining, a powerful technique to find relationships where you thought none existed before.
All this is enabling companies to know more and more about its customers, to the point, as does Amazon, they can predict customer patterns and the next time you log on to Amazon it will indicate new books or media you might be interested in based upon your past history. Or Domino’s could well call you up the night before the Superbowl and say, “Do you want your regular 2 large peps at 6pm for the Super Bowl tomorrow Mr. Herbig?” or “Had a great weekend off Mr. Herbig with the family, we noticed you did not order your regular last Friday. Expect to be home this week, same as always for Friday?” Where is the border between knowing your customers and knowing them so well as to anticipate their next move and being there to serve them better and invasion of privacy? We have the tools and are using them to their fullest but at what cost to the private lives of your customers?
As Frankenstein and Dr. Jekyl-Mr. Hyde show us, technology can be a two edged sword; one can just as easily die from unanticipated side effects of the new technology as improve humankind with the very same technology. As Marketers, we need to be responsive to our customers, understanding that just because the technology is available does not mean it has to be used. As in any other endeavor, true customer focused companies should always view technology from the customer’s point of view, how is it being perceived, how is it being used (or abused) by or to the customer, even to the point of whether or not it is even needed by the customer. Technology is great to have but it must serve a purpose, not just to use it because you have it.
Solve a Problem, Make a Million
Solve a Problem, Make a million
By Paul Herbig
Who wants to be a millionaire? From the huge success of the game show of the same name to the increasing purchase of lottery tickets, it seems nearly everyone has that goal in mind. Perusing the global billionaires, one finds many that were rags to riches stories: Bill Gates, Sam Walton, Michael Dell, just to name a few. Those and others like those are the ones we wish to emulate (at least in earning power if not in lifestyle). The only question left is: how to do it? What is the secret to making money and becoming a success?
The secret is not as complex as one would initially imagine. Reviewing some of the classic business success stories of all times should provide ample clues. The founder of Holiday Inn and the modern motel industry started the chain because he did not like the dirty, non-family friendly motels that existed at the time. Polaroid’s instant photography was developed because the founder’s daughter asked him why she couldn’t see her picture right away? The original Macintosh with its cursor and icons was an instant success, later copied and standardized in the PC world because of the difficulty working with the original PCs. Fred Smith started Federal Express because there was no way to ship letters or packages quickly.
In all these cases, a problem existed. No doubt Holiday Inn’s founder was not the first to complain about the unkempt conditions of roadside inns during the first half of the 20th century. Countless others from the cavemen on down would have liked to have seen their pictures or images immediately. And on and on and on. No, many others before them had seen the problem, either complained about it or just shrugged it off and continued on their own business, putting it down as just part of life that must be tolerated.
The difference between all others and these innovators was not only did they identify the problem, they saw the solution and worked for years sometimes to find a way to solve the problem. They viewed the problem not as a permanent bother (much like a pothole in the street everyone knows is there and day after day travels smoothly around it), but as an opportunity, a need in the market for the solution. To them, solving the problem was just a way to fulfill a need, perhaps one not loudly spoken, but a need nonetheless. Once the need was fulfilled, the rest, as they say, is history.
Examine most billionaires or millionaires and you will find that same pattern. A problem was observed, found wanting, and an entrepreneur sought a solution to that problem that would be marketable. Domino’s founder understood that when many people wanted pizza, they wanted it now and did not want to wait an hour or go out to get it. He thought pizzas that could be delivered quickly (remember the slogan: thirty minutes or less or it’s on us!) would solve that problem and that many people would pay for the solution. He was right, billions of pizzas later and hundreds of millions of dollars in his pocket.
So, do you want to be a millionaire? No, you don’t have to wrangle a way onto Regis’ show and answer 10 straight questions right. No, you don’t have to wait until the powerball gets to $260 million and hope your 80 million to one chance works out. And no, you don’t have to wait for Ed McMan to hand over your Publisher’s Sweepstakes check. No, it is possible. All you have to do is to identify a problem and solve it and then market to all those others who have the same problem but did not have the wherewithal to find a solution and will pay you princely to solve it for them. And then your name will be up there with the Walton, Dell, and Gates.
By Paul Herbig
Who wants to be a millionaire? From the huge success of the game show of the same name to the increasing purchase of lottery tickets, it seems nearly everyone has that goal in mind. Perusing the global billionaires, one finds many that were rags to riches stories: Bill Gates, Sam Walton, Michael Dell, just to name a few. Those and others like those are the ones we wish to emulate (at least in earning power if not in lifestyle). The only question left is: how to do it? What is the secret to making money and becoming a success?
The secret is not as complex as one would initially imagine. Reviewing some of the classic business success stories of all times should provide ample clues. The founder of Holiday Inn and the modern motel industry started the chain because he did not like the dirty, non-family friendly motels that existed at the time. Polaroid’s instant photography was developed because the founder’s daughter asked him why she couldn’t see her picture right away? The original Macintosh with its cursor and icons was an instant success, later copied and standardized in the PC world because of the difficulty working with the original PCs. Fred Smith started Federal Express because there was no way to ship letters or packages quickly.
In all these cases, a problem existed. No doubt Holiday Inn’s founder was not the first to complain about the unkempt conditions of roadside inns during the first half of the 20th century. Countless others from the cavemen on down would have liked to have seen their pictures or images immediately. And on and on and on. No, many others before them had seen the problem, either complained about it or just shrugged it off and continued on their own business, putting it down as just part of life that must be tolerated.
The difference between all others and these innovators was not only did they identify the problem, they saw the solution and worked for years sometimes to find a way to solve the problem. They viewed the problem not as a permanent bother (much like a pothole in the street everyone knows is there and day after day travels smoothly around it), but as an opportunity, a need in the market for the solution. To them, solving the problem was just a way to fulfill a need, perhaps one not loudly spoken, but a need nonetheless. Once the need was fulfilled, the rest, as they say, is history.
Examine most billionaires or millionaires and you will find that same pattern. A problem was observed, found wanting, and an entrepreneur sought a solution to that problem that would be marketable. Domino’s founder understood that when many people wanted pizza, they wanted it now and did not want to wait an hour or go out to get it. He thought pizzas that could be delivered quickly (remember the slogan: thirty minutes or less or it’s on us!) would solve that problem and that many people would pay for the solution. He was right, billions of pizzas later and hundreds of millions of dollars in his pocket.
So, do you want to be a millionaire? No, you don’t have to wrangle a way onto Regis’ show and answer 10 straight questions right. No, you don’t have to wait until the powerball gets to $260 million and hope your 80 million to one chance works out. And no, you don’t have to wait for Ed McMan to hand over your Publisher’s Sweepstakes check. No, it is possible. All you have to do is to identify a problem and solve it and then market to all those others who have the same problem but did not have the wherewithal to find a solution and will pay you princely to solve it for them. And then your name will be up there with the Walton, Dell, and Gates.
shortrsightedness
Shortsightedness Or Why Wait for Tomorrow what I can put off today?
By Paul A. Herbig
Human Beings are complex and notoriously unpredictable creatures. This is why, despite all the efforts of hundreds of years and rational academics, marketing and especially consumer behavior is still considered more an art than a science. One of the most interesting and yet perplexing characteristics of people is their shortsightedness, their ability to sacrifice long term benefits for short term gains. It is not just our tweens and teens, those to whom long range planning means the weekend ahead, who are caught up in this, but all of us are at fault.
Several examples should suffice. During the early nineties, environmentalism was anew and green was being preached by students at many universities. One of their most fevered causes was recycling and the destruction of forests and depletion of natural resources. Bookstores took note and contracted to offer recyclable paper to students. What should have been an astounding success was a dismal failure: because it cost more few students bought it. The depth of their faith was shallow indeed.
Costco has been ranked one of the best companies to work for. It pays its people relatively well, provides benefits and services, and generally is admired by its employees. However, recently, stock analysts gave the stock the thumbs down. Why? Because of precisely those reasons. Walmart. Its main rival, is rewarded with a much higher stock price because it treats its employees with disdain , as costs, not people, with the philosophy of minimizing costs at every turn: poorly paying them, providing them with nonexistent benefits, and as such is rewarded with 100% annual turnover, poor morale, and token loyalty. The analysts say Costco must conform to Walmart’s policy to stay competitive and increase stock price. Costco’s comparative advantage is its loyal employees (by compensating employees generously, Costco gets lower turnover—1/4 Sam’s-- and higher productivity-25%), good employees treat customers well resulting in increased customer repeat business and higher per employee sales (Costco does equivalent Sales as Sam’s but with one-third fewer employees). Do away with that relationship and you might get several quarters of great results but at what future price (both to the company and workers)?
Speaking of Walmart, blue collar and white collar Americans everywhere are running scared of losing their jobs, to off-shoring to lower cost countries. Yet they swear by Walmart, buying nearly $300 billion dollars of goods there, a store notorious for its lack of American made goods, a store whose direct purchases from China approaches $20 Billion annually and whose cost pressures on their suppliers have for all practical purposes required their suppliers to locate their plants offshore. For the savings of a few pennies today, they are sacrificing many an American job (and possibly their own) later. How is that for not looking beyond next week.
And one last example should drive the point home. President Bush is being besieged by his opponent for a lackluster economy, a jobless recovery. Big Business should be supporting the Republican President for it knows he is the lesser of two evils. What can it do to help the President? If it is jobs that are needed to change the public perception of this economy, they can do it. If all of the Fortune 1000 and its service counterparts (Banks, Brokerages, Transportation, Insurance) were to not to layoff anyone else for the remainder of 2004 and to hire only 1,000 persons apiece during Spring/Summer (at an annual costs of only $50 million per year—a pittance for them in the short term for guaranteeing Bush getting another 4 years), 2 million new jobs would suddenly become available, the job and economic variable would disappear and Bush’s reelection would probably be assured. What is the probability of this happening? Zero. Their emphasis on short-term gains (quarter to quarter earnings) is so strong, they would sacrifice immense long term profits (in this respect, 4 more years of Bush), to keep their next few quarters strong and stock high.
Moral of the story: perhaps it is better to ignore that desire for short term gratification and pay just a little more (in dollars, in time, etc.) for that long-term gain. Yes, it is true that in the long-term we are all dead, but hopefully not for many more years and it is precisely those many more years that we should plan for.
By Paul A. Herbig
Human Beings are complex and notoriously unpredictable creatures. This is why, despite all the efforts of hundreds of years and rational academics, marketing and especially consumer behavior is still considered more an art than a science. One of the most interesting and yet perplexing characteristics of people is their shortsightedness, their ability to sacrifice long term benefits for short term gains. It is not just our tweens and teens, those to whom long range planning means the weekend ahead, who are caught up in this, but all of us are at fault.
Several examples should suffice. During the early nineties, environmentalism was anew and green was being preached by students at many universities. One of their most fevered causes was recycling and the destruction of forests and depletion of natural resources. Bookstores took note and contracted to offer recyclable paper to students. What should have been an astounding success was a dismal failure: because it cost more few students bought it. The depth of their faith was shallow indeed.
Costco has been ranked one of the best companies to work for. It pays its people relatively well, provides benefits and services, and generally is admired by its employees. However, recently, stock analysts gave the stock the thumbs down. Why? Because of precisely those reasons. Walmart. Its main rival, is rewarded with a much higher stock price because it treats its employees with disdain , as costs, not people, with the philosophy of minimizing costs at every turn: poorly paying them, providing them with nonexistent benefits, and as such is rewarded with 100% annual turnover, poor morale, and token loyalty. The analysts say Costco must conform to Walmart’s policy to stay competitive and increase stock price. Costco’s comparative advantage is its loyal employees (by compensating employees generously, Costco gets lower turnover—1/4 Sam’s-- and higher productivity-25%), good employees treat customers well resulting in increased customer repeat business and higher per employee sales (Costco does equivalent Sales as Sam’s but with one-third fewer employees). Do away with that relationship and you might get several quarters of great results but at what future price (both to the company and workers)?
Speaking of Walmart, blue collar and white collar Americans everywhere are running scared of losing their jobs, to off-shoring to lower cost countries. Yet they swear by Walmart, buying nearly $300 billion dollars of goods there, a store notorious for its lack of American made goods, a store whose direct purchases from China approaches $20 Billion annually and whose cost pressures on their suppliers have for all practical purposes required their suppliers to locate their plants offshore. For the savings of a few pennies today, they are sacrificing many an American job (and possibly their own) later. How is that for not looking beyond next week.
And one last example should drive the point home. President Bush is being besieged by his opponent for a lackluster economy, a jobless recovery. Big Business should be supporting the Republican President for it knows he is the lesser of two evils. What can it do to help the President? If it is jobs that are needed to change the public perception of this economy, they can do it. If all of the Fortune 1000 and its service counterparts (Banks, Brokerages, Transportation, Insurance) were to not to layoff anyone else for the remainder of 2004 and to hire only 1,000 persons apiece during Spring/Summer (at an annual costs of only $50 million per year—a pittance for them in the short term for guaranteeing Bush getting another 4 years), 2 million new jobs would suddenly become available, the job and economic variable would disappear and Bush’s reelection would probably be assured. What is the probability of this happening? Zero. Their emphasis on short-term gains (quarter to quarter earnings) is so strong, they would sacrifice immense long term profits (in this respect, 4 more years of Bush), to keep their next few quarters strong and stock high.
Moral of the story: perhaps it is better to ignore that desire for short term gratification and pay just a little more (in dollars, in time, etc.) for that long-term gain. Yes, it is true that in the long-term we are all dead, but hopefully not for many more years and it is precisely those many more years that we should plan for.
Product Placement
The 7-up, Doritos, Minute Maid, Tide Terminator 3
By Paul A. Herbig
TV advertising is a $10 Billion a year business. Advertising is what allows us all to watch TV for free (in Great Britain among other countries, you pay a per TV tax of hundreds of dollars annually which goes towards funding commercial free TV). Are we grateful for it? No. For many of us, commercial breaks mean snack breaks, bathroom breaks, or a chance to do a homework problem while waiting for ones favorite show to return. Advertisers’ money is wasted if there is no one around to see their efforts. Their frustration is magnified when a consumer videotapes a show and fast-forward through the commercials. So what are advertisers to do with an increasing sophisticated audience? Don’t give consumers a chance to ignore your advertising, weave it into the show itself so users must see it.
This is called product placement, where an advertiser pays a fee for a product to be shown on a set of a TV show. For commercial TV, this is a rather recent phenomena but it has been used for years and increasing so in movies. The single element that was product placement’s coming of age was the movie, “ET” in 1982 with the prominent placement of Reese’s pieces. Reese’s Pieces sales shot up 65% and it overnight became an household name (note: M&Ms passed up on the opportunity, a chance they are still regretting twenty years later).
Classic examples of product placement in Movies include Ray-Ban sunglasses worn by Tom Cruise in Risky Business and Men in Black. Apple’s Macintosh got wide viewing in the Mission Impossible films (the Mac has been in over 1500 movies and TV shows!). BMW scored a coup when it got James Bond to switch from his beloved Aston Martin to its news Z-3 series. James Dean constant hair combing send Ace comb sales skyrocketing. In “My Big Fat Greek Wedding,” the bride’s Greek father uses Windex as a treatment for everything. It can (and has been) overdone when in Tomorrow Never Dies, a 1997 James Bond thriller, had so many product placements the critics deemed it one long-running continuous commercial.
So now the TV networks are working overtime looking for product placement opportunities. If a character must drink a soft drink, how much will 7-up pay or will Coca-Cola ante up for the opportunity to showcase Coke for the entire show? Or must Apple when a yuppie character is slinging around his/her powerbook in solving a mystery? No more shows with “old Tyme Airlines” in an effort of neutrality. Who should we use Delta or American? (In the classic line of “I work for whomever pays me the most, so will the brand who bids the highest be shown the most). Revlon paid millions to be written into critical parts of the soap opera, “All My Children.”
And as you can well imagine, nothing is too extreme for product placement. On the last week’s episode of Survivor in April 2001, the host offered the winner of a reward challenge an online shopping spree using a VISA card which the host named by brand name and held up for cameras to see. Later on an episode of “Will and Grace”, viewers were invited to buy the shirt off of Debra Messing’s back (she wore a Polo shirt which was offered for the low price of $52 on Polo.com—shirt sales then doubled overnight.)(in the future expect to be able to click on a blouse or shirt or pantsuit one of your favorite stars is wearing and you will see a window pop up telling you where you can order it and for how much).
Baseball has taken the art a step further with virtual product placement, the placement of a product or ad where none actually exists. Many baseball games are shot from behind the pitcher’s mound so one can see both the pitcher and batter. One network produced an electronic advertising billboard behind home plate which was soon filled with brands. Players on the field and sports fans in the stadium did not see the ads.
The final step merging advertising and media content was taken by WB Network with a talent show airing in the summer without any commercial breaks; all advertising will be incorporated into the program.
This is point, counter-point. Consumers find a method to minimize advertising through recording of shows and advertisers then proceed to counter it by incorporating the ads into the shows themselves. No doubt there will be an encore to this friendly battle of the airwaves with the consumers creating a way to get around product placement ads and the advertisers working to counter their counter.
By Paul A. Herbig
TV advertising is a $10 Billion a year business. Advertising is what allows us all to watch TV for free (in Great Britain among other countries, you pay a per TV tax of hundreds of dollars annually which goes towards funding commercial free TV). Are we grateful for it? No. For many of us, commercial breaks mean snack breaks, bathroom breaks, or a chance to do a homework problem while waiting for ones favorite show to return. Advertisers’ money is wasted if there is no one around to see their efforts. Their frustration is magnified when a consumer videotapes a show and fast-forward through the commercials. So what are advertisers to do with an increasing sophisticated audience? Don’t give consumers a chance to ignore your advertising, weave it into the show itself so users must see it.
This is called product placement, where an advertiser pays a fee for a product to be shown on a set of a TV show. For commercial TV, this is a rather recent phenomena but it has been used for years and increasing so in movies. The single element that was product placement’s coming of age was the movie, “ET” in 1982 with the prominent placement of Reese’s pieces. Reese’s Pieces sales shot up 65% and it overnight became an household name (note: M&Ms passed up on the opportunity, a chance they are still regretting twenty years later).
Classic examples of product placement in Movies include Ray-Ban sunglasses worn by Tom Cruise in Risky Business and Men in Black. Apple’s Macintosh got wide viewing in the Mission Impossible films (the Mac has been in over 1500 movies and TV shows!). BMW scored a coup when it got James Bond to switch from his beloved Aston Martin to its news Z-3 series. James Dean constant hair combing send Ace comb sales skyrocketing. In “My Big Fat Greek Wedding,” the bride’s Greek father uses Windex as a treatment for everything. It can (and has been) overdone when in Tomorrow Never Dies, a 1997 James Bond thriller, had so many product placements the critics deemed it one long-running continuous commercial.
So now the TV networks are working overtime looking for product placement opportunities. If a character must drink a soft drink, how much will 7-up pay or will Coca-Cola ante up for the opportunity to showcase Coke for the entire show? Or must Apple when a yuppie character is slinging around his/her powerbook in solving a mystery? No more shows with “old Tyme Airlines” in an effort of neutrality. Who should we use Delta or American? (In the classic line of “I work for whomever pays me the most, so will the brand who bids the highest be shown the most). Revlon paid millions to be written into critical parts of the soap opera, “All My Children.”
And as you can well imagine, nothing is too extreme for product placement. On the last week’s episode of Survivor in April 2001, the host offered the winner of a reward challenge an online shopping spree using a VISA card which the host named by brand name and held up for cameras to see. Later on an episode of “Will and Grace”, viewers were invited to buy the shirt off of Debra Messing’s back (she wore a Polo shirt which was offered for the low price of $52 on Polo.com—shirt sales then doubled overnight.)(in the future expect to be able to click on a blouse or shirt or pantsuit one of your favorite stars is wearing and you will see a window pop up telling you where you can order it and for how much).
Baseball has taken the art a step further with virtual product placement, the placement of a product or ad where none actually exists. Many baseball games are shot from behind the pitcher’s mound so one can see both the pitcher and batter. One network produced an electronic advertising billboard behind home plate which was soon filled with brands. Players on the field and sports fans in the stadium did not see the ads.
The final step merging advertising and media content was taken by WB Network with a talent show airing in the summer without any commercial breaks; all advertising will be incorporated into the program.
This is point, counter-point. Consumers find a method to minimize advertising through recording of shows and advertisers then proceed to counter it by incorporating the ads into the shows themselves. No doubt there will be an encore to this friendly battle of the airwaves with the consumers creating a way to get around product placement ads and the advertisers working to counter their counter.
The Customer is Never Wrong
The Customer is never wrong--WRONG
The other day I was in a small store when I noticed the now classical, “The Customer is Always right” sign. You know how it goes. It says, “1) The Customer is always Right; 2) If the Customer is wrong, see 1.” I immediately put on my marketing hat and starting thinking about that phrase. Sure, as marketers you want to dazzle customers, to cater to their needs and wants. But does that necessarily mean they are never wrong. I mean really wrong!
Of course not. Customers are human. Just like you and me, they can be wrong. No one is perfect (except, perhaps, for my friend Dave who thinks he is perfect: He says he thought he made a mistake once but he was wrong). What happens when customers are wrong? How do you handle it? What do you say?
No matter how wrong they are, unless you intentionally wish to drive them away (and for some customers this may actually be the case—they are more pain to have as customers than their revenues and profits provide if indeed they provide any profits at all), you must be diplomatic about the whole affair. No one likes to be wrong and especially be called on it in public or at an awkward time or place. Most people know they are not infallible (unlike Dave) and know they make mistakes. If politely and discretely told of the mistake and it is quite clearly a customer mistake, most people will apologize and correct the mistake and continue on with life. They will actually thank you for catching it and for the manner in which you acted upon it. What they will not like, not accept, nor remember fondly is if you act as if the customer were a criminal attempting to purposely take the business for a ride. Even if the customer were wrong on that occasion, you might still want to keep that customer. If you act as if he were guilty until proven innocent, that may well be the last time you see that customer again.
A second scenario is say nothing. Do nothing. Accept the mistake and go on. Why? Let us presume the business is a grocery store. The average family spends hundreds of dollars a month at that store if they are loyal customers The annual value to that store for that customer could easily tally three to four thousand dollars. The total value of that customer over the lifetime of that customer could easily be one hundred to two hundred thousand dollars (and more if the customer’s kids become loyal and do their shopping at your store).
One day the customer is doing her regular weekly shopping run ($75 to 100) and while checking her out, she complains you ran up an item for $3.55 when she remembers it distinctly being $2.95. This is a sixty cent difference. One response of the checker is to challenge the customer, perhaps belittle her, send a clerk to do a price check and when the clerk comes back with the price the checker knew was right to publicly denounce her for her whimsical imagination. The checker would be in the right but at what cost? Being publicly humiliated is not fun for anyone except the masochistic at heart. She is very likely to be hesitant to continue her shopping ways at your store for fear of running into the same clerk or perhaps some of the people in line behind her who heard the checker’s tirade. And if she does not go to your store, where is she likely to shop? At your competitors. No rules exists that says she must continue to be your loyal customer. A better way to handle this situation is merely to saying nothing. Sixty cents is pennies (sic) over the life of what that customer is worth to you. You will gladly take that loss because you have kept that customer. You know she was wrong but it didn’t matter.
Remember, when the customer is wrong, really wrong, no one wins, especially you.
The other day I was in a small store when I noticed the now classical, “The Customer is Always right” sign. You know how it goes. It says, “1) The Customer is always Right; 2) If the Customer is wrong, see 1.” I immediately put on my marketing hat and starting thinking about that phrase. Sure, as marketers you want to dazzle customers, to cater to their needs and wants. But does that necessarily mean they are never wrong. I mean really wrong!
Of course not. Customers are human. Just like you and me, they can be wrong. No one is perfect (except, perhaps, for my friend Dave who thinks he is perfect: He says he thought he made a mistake once but he was wrong). What happens when customers are wrong? How do you handle it? What do you say?
No matter how wrong they are, unless you intentionally wish to drive them away (and for some customers this may actually be the case—they are more pain to have as customers than their revenues and profits provide if indeed they provide any profits at all), you must be diplomatic about the whole affair. No one likes to be wrong and especially be called on it in public or at an awkward time or place. Most people know they are not infallible (unlike Dave) and know they make mistakes. If politely and discretely told of the mistake and it is quite clearly a customer mistake, most people will apologize and correct the mistake and continue on with life. They will actually thank you for catching it and for the manner in which you acted upon it. What they will not like, not accept, nor remember fondly is if you act as if the customer were a criminal attempting to purposely take the business for a ride. Even if the customer were wrong on that occasion, you might still want to keep that customer. If you act as if he were guilty until proven innocent, that may well be the last time you see that customer again.
A second scenario is say nothing. Do nothing. Accept the mistake and go on. Why? Let us presume the business is a grocery store. The average family spends hundreds of dollars a month at that store if they are loyal customers The annual value to that store for that customer could easily tally three to four thousand dollars. The total value of that customer over the lifetime of that customer could easily be one hundred to two hundred thousand dollars (and more if the customer’s kids become loyal and do their shopping at your store).
One day the customer is doing her regular weekly shopping run ($75 to 100) and while checking her out, she complains you ran up an item for $3.55 when she remembers it distinctly being $2.95. This is a sixty cent difference. One response of the checker is to challenge the customer, perhaps belittle her, send a clerk to do a price check and when the clerk comes back with the price the checker knew was right to publicly denounce her for her whimsical imagination. The checker would be in the right but at what cost? Being publicly humiliated is not fun for anyone except the masochistic at heart. She is very likely to be hesitant to continue her shopping ways at your store for fear of running into the same clerk or perhaps some of the people in line behind her who heard the checker’s tirade. And if she does not go to your store, where is she likely to shop? At your competitors. No rules exists that says she must continue to be your loyal customer. A better way to handle this situation is merely to saying nothing. Sixty cents is pennies (sic) over the life of what that customer is worth to you. You will gladly take that loss because you have kept that customer. You know she was wrong but it didn’t matter.
Remember, when the customer is wrong, really wrong, no one wins, especially you.
Mr. Macy was right
Mr. Macy was Right!
By Paul Herbig
One of my favorite movies of all times is “Miracle on Thirty-Fourth Street.” The original made in 1948, not any of the retreads made since. In it, Mr. Macy calls up Mrs. Walker and her boss, Mr. Schellhamer of Toys, to a meeting he is having with his executives. He relates that Kris Kringle, Macy’s Santa Clause, has been sending customers to other stores, even Gimbels, his hated arch-rival, when Macy’s does not have exactly what the customer wants. In the last part of the scene, he monologues, “I want this gimmick all throughout the store. If we don’t have exactly what the customer wants, send him to whoever has it. We’ll be known as the caring store, the thoughtful store, the store with the Christmas Spirit. And consequently will make more money than ever before.”
Mr. Macy was right. That simple speech should be memorized by every corporate executive and should appear on every final test by any business student prior to completing their studies. It reflects the essence of customer-first that separates the superior companies from those merely in business. The separation financially becomes even more apparent when profitability is compared to customer friendliness—the line is almost a perfect match: the more of one, the more of the other.
TQM is a well known acronym meaning Total Quality Management, the pursuit of quality performance throughout all steps of the manufacturing process, input, process, and output. Perhaps companies should start a TCM program (Total Customer Management). As with TQM, the concept is the same but as it applies to customers—working towards fulfilling the customer’s needs at every stage of the process, from design, through manufacturing, through the selling process, delivery, and finally the important after-market of service and support.
Having read numerous letters to the editors from influential business magazines, it appears that even some of the world’s best known and brightest stars could improve upon their TCM. For example, Toyota is rightly considered to be the most advanced, highest quality, and best performing of any automotive company in the world. However, they too seem to have dropped the ball. One reader’s letter states,” If anyone is going to stop them it will be themselves when they purposely lose return customers” (Sounds like Pogo’s “We have met the enemy and he is us” quote) This customer contacted the dealer four times for a promised follow-up appointment, got the “We will call you tomorrow” line and for him tomorrow never came. Another reader noted, “My Toyota is a beautifully running and performing car but I’m afraid it will be my last unless the people who service Toyotas become more knowledgeable about their product.” I know what you are thinking: but these are complaints about Dealers, not Toyota manufacturing. To the customer, the Dealer is an appointed agent of Toyota and represents the company to the customer. For Toyota may provide high quality, reasonably priced, stylish products but if the service and support after the sales is not adequate, all is forgotten. Modern customers are demanding that their needs be fulfilled at all points at all times during the product’s life.
Another interesting example comes from a Dell user. The product was what he ordered, was delivered on time, and at a price he was well satisfied with. However, during the critical installation and first usage cycle, his attempts to get live (or even online) customer support was non-existent. As he indicated in his letter, “What good is a product if there is no one there who can (will?) answers questions when you need it?” Dell has been rightly praised for its innovative JIT assemble-as-ordered process and its price leadership. Once again, however, what good is it to go to all that effort and then alienate the customer after the sale. He will never buy another Dell. No relationship there.
Mr. Macy was right. Think TCM. Customer management is a total dedication, a process, not an event. Every step of the process from design to manufacturing to marketing to delivery to support is a minefield where one misstep (even at the end, the last step) can be deadly. In order to succeed in today’s highly sophisticated, highly demanding market, all points of the chain must be handled with equal importance and all of them must be directly aimed at solving the customer’s problem.
By Paul Herbig
One of my favorite movies of all times is “Miracle on Thirty-Fourth Street.” The original made in 1948, not any of the retreads made since. In it, Mr. Macy calls up Mrs. Walker and her boss, Mr. Schellhamer of Toys, to a meeting he is having with his executives. He relates that Kris Kringle, Macy’s Santa Clause, has been sending customers to other stores, even Gimbels, his hated arch-rival, when Macy’s does not have exactly what the customer wants. In the last part of the scene, he monologues, “I want this gimmick all throughout the store. If we don’t have exactly what the customer wants, send him to whoever has it. We’ll be known as the caring store, the thoughtful store, the store with the Christmas Spirit. And consequently will make more money than ever before.”
Mr. Macy was right. That simple speech should be memorized by every corporate executive and should appear on every final test by any business student prior to completing their studies. It reflects the essence of customer-first that separates the superior companies from those merely in business. The separation financially becomes even more apparent when profitability is compared to customer friendliness—the line is almost a perfect match: the more of one, the more of the other.
TQM is a well known acronym meaning Total Quality Management, the pursuit of quality performance throughout all steps of the manufacturing process, input, process, and output. Perhaps companies should start a TCM program (Total Customer Management). As with TQM, the concept is the same but as it applies to customers—working towards fulfilling the customer’s needs at every stage of the process, from design, through manufacturing, through the selling process, delivery, and finally the important after-market of service and support.
Having read numerous letters to the editors from influential business magazines, it appears that even some of the world’s best known and brightest stars could improve upon their TCM. For example, Toyota is rightly considered to be the most advanced, highest quality, and best performing of any automotive company in the world. However, they too seem to have dropped the ball. One reader’s letter states,” If anyone is going to stop them it will be themselves when they purposely lose return customers” (Sounds like Pogo’s “We have met the enemy and he is us” quote) This customer contacted the dealer four times for a promised follow-up appointment, got the “We will call you tomorrow” line and for him tomorrow never came. Another reader noted, “My Toyota is a beautifully running and performing car but I’m afraid it will be my last unless the people who service Toyotas become more knowledgeable about their product.” I know what you are thinking: but these are complaints about Dealers, not Toyota manufacturing. To the customer, the Dealer is an appointed agent of Toyota and represents the company to the customer. For Toyota may provide high quality, reasonably priced, stylish products but if the service and support after the sales is not adequate, all is forgotten. Modern customers are demanding that their needs be fulfilled at all points at all times during the product’s life.
Another interesting example comes from a Dell user. The product was what he ordered, was delivered on time, and at a price he was well satisfied with. However, during the critical installation and first usage cycle, his attempts to get live (or even online) customer support was non-existent. As he indicated in his letter, “What good is a product if there is no one there who can (will?) answers questions when you need it?” Dell has been rightly praised for its innovative JIT assemble-as-ordered process and its price leadership. Once again, however, what good is it to go to all that effort and then alienate the customer after the sale. He will never buy another Dell. No relationship there.
Mr. Macy was right. Think TCM. Customer management is a total dedication, a process, not an event. Every step of the process from design to manufacturing to marketing to delivery to support is a minefield where one misstep (even at the end, the last step) can be deadly. In order to succeed in today’s highly sophisticated, highly demanding market, all points of the chain must be handled with equal importance and all of them must be directly aimed at solving the customer’s problem.
Me too products
But Ma—Everyone’s doing it (Me too Products):
Why Good People Make Bad products II
By Paul Herbig
Last time we discussed three reasons why good companies, rich in heritage, successful innovators, leading marketers, can often create bad products. This week we will discuss other reasons products fail., in particular ‘Me Too’ products.
In Jagdish Sheth’s book, Rule of Three, he describes the industrial competitive structure as two or three behemoths in each industry sector. Number 3 is always on the fence, in a weak position. For example, in the General Discount market, Wal-Mart has the leadership, having staked out the price sensitive sector. Target has the strong number two has wisely chosen not to compete head-on against Wal-Mart on price but rather has solidly entrenched itself in the upscale, fashion-conscious, trendy sector. The number three in the market is (was) K-Mart. Unfortunately, K-Mart could not identify and stick-with a position and drifted along. One of Sheth’s theses was that when the big two started fighting each other, it was number three that suffered the most. And sure enough, Wal-Mart and Target battling each other put K-Mart in bankruptcy court. Sheth indicates that you need a critical mass of market to compete directly. Less that that and you become a niche player. K-Mart’s strategy is yet to be decided: lower itself to a niche player or attempt once again to take on the big guys. If it decides to do the latter, it will have to secure a position, a presence in the mindset of the American consumer that neither Wal-mart nor Target currently has.
Like industries, products must differentiate themselves. Unless they do so they are inevitably forced to enter that category of “Me too” products. A “Me-Too” product is one which is a Johnny-come-lately product that mimics the market leader. Most of the time these products are virtually identical to the leader and tend to have been introduced several years after the initial introduction of the first innovative product. Another choice word for “Me-too” products are clones. Knock-offs. Cheap imitations.
Companies are warned to enter the Me-Too world at their own risk. If you are an IBM (of the late seventies with the PC) or a Microsoft (of the nineties with Office Suite) perhaps you can get away with offering Me-Too products. But IBM and Microsoft had (have) an incredible amount of market power that few other firms have today. They were able to let a smaller company ‘prove’ the market existed, was feasible, and had profit potential. They then introduced their own product, typically an improved version of the original. In Microsoft’s case, inevitably the first or second version of the knock-off software is weak. However using their market power and an ability to quickly learn (the “Ready, Fire, Aim, Fire” technique of product development), usually the third and definitely the fourth versions commanded the marketplace.
But many companies do not have the luxury of market power enjoyed by those two monsters. What are the advantages of the incumbent? Typically, the product was the first to market and the market is often synonymous with the product. It has the attention of the market and the name recognition of the marketplace. Usually by the time a
“Me-Too” enters the picture, the product is well distributed and is well on its way to establishing economies of scale that provide cost and price advantages. As the military jargon does, the incumbent occupies the high ground and has secured the prime property to defend itself.
Against all these strengths, what can you, company X, offer with its later “Me-Too” product that the incumbent cannot? The answer is typically very little. To be successful, you need to differentiate yourself from the incumbent in some manner, to secure your own niche. One scenario does exist where a Me-Too product has some logic. A company which offers a wide range of products may develop and market a Me-Too product, knowing it is a clone and knowing the likelihood of a success if minimal, just to have a full set of products available for its clients (so they can purchase their entire needs from the same company). However, for most purposes, a company is forewarned that Me-Too products can be a hazard to their health.
Why Good People Make Bad products II
By Paul Herbig
Last time we discussed three reasons why good companies, rich in heritage, successful innovators, leading marketers, can often create bad products. This week we will discuss other reasons products fail., in particular ‘Me Too’ products.
In Jagdish Sheth’s book, Rule of Three, he describes the industrial competitive structure as two or three behemoths in each industry sector. Number 3 is always on the fence, in a weak position. For example, in the General Discount market, Wal-Mart has the leadership, having staked out the price sensitive sector. Target has the strong number two has wisely chosen not to compete head-on against Wal-Mart on price but rather has solidly entrenched itself in the upscale, fashion-conscious, trendy sector. The number three in the market is (was) K-Mart. Unfortunately, K-Mart could not identify and stick-with a position and drifted along. One of Sheth’s theses was that when the big two started fighting each other, it was number three that suffered the most. And sure enough, Wal-Mart and Target battling each other put K-Mart in bankruptcy court. Sheth indicates that you need a critical mass of market to compete directly. Less that that and you become a niche player. K-Mart’s strategy is yet to be decided: lower itself to a niche player or attempt once again to take on the big guys. If it decides to do the latter, it will have to secure a position, a presence in the mindset of the American consumer that neither Wal-mart nor Target currently has.
Like industries, products must differentiate themselves. Unless they do so they are inevitably forced to enter that category of “Me too” products. A “Me-Too” product is one which is a Johnny-come-lately product that mimics the market leader. Most of the time these products are virtually identical to the leader and tend to have been introduced several years after the initial introduction of the first innovative product. Another choice word for “Me-too” products are clones. Knock-offs. Cheap imitations.
Companies are warned to enter the Me-Too world at their own risk. If you are an IBM (of the late seventies with the PC) or a Microsoft (of the nineties with Office Suite) perhaps you can get away with offering Me-Too products. But IBM and Microsoft had (have) an incredible amount of market power that few other firms have today. They were able to let a smaller company ‘prove’ the market existed, was feasible, and had profit potential. They then introduced their own product, typically an improved version of the original. In Microsoft’s case, inevitably the first or second version of the knock-off software is weak. However using their market power and an ability to quickly learn (the “Ready, Fire, Aim, Fire” technique of product development), usually the third and definitely the fourth versions commanded the marketplace.
But many companies do not have the luxury of market power enjoyed by those two monsters. What are the advantages of the incumbent? Typically, the product was the first to market and the market is often synonymous with the product. It has the attention of the market and the name recognition of the marketplace. Usually by the time a
“Me-Too” enters the picture, the product is well distributed and is well on its way to establishing economies of scale that provide cost and price advantages. As the military jargon does, the incumbent occupies the high ground and has secured the prime property to defend itself.
Against all these strengths, what can you, company X, offer with its later “Me-Too” product that the incumbent cannot? The answer is typically very little. To be successful, you need to differentiate yourself from the incumbent in some manner, to secure your own niche. One scenario does exist where a Me-Too product has some logic. A company which offers a wide range of products may develop and market a Me-Too product, knowing it is a clone and knowing the likelihood of a success if minimal, just to have a full set of products available for its clients (so they can purchase their entire needs from the same company). However, for most purposes, a company is forewarned that Me-Too products can be a hazard to their health.
More than Life than Cost
When is low, too low? Or: Is there more to life than cost?
By Paul Herbig
"There is hardly anything in the world that some men cannot make a little worse and sell a little cheaper."
- John Ruskin
The last few years has seen an America obsessed with cost: ever driven to achieve lower and lower costs with nothing low enough. Walmart’s obsession with cost and being the lowest imaginable has caused not a few of their suppliers to go bankrupt: what they lost per unit they tried to make up in volume. It has forced most of its suppliers to locate overseas contributing to the offshoring debacle and the immense trade deficit. It is not the only corporation so inclined: The Automotive industry has challenged it suppliers to cut costs to meet Chinese levels or beware the consequences. Of course, America’s consumers are not short of blame: in their effort to find the cheapest items, to cut pennies off items, they have made Walmart the largest corporation in the world and in the process destroyed the business infrastructure of a thousand small towns. But what the heck, we saved a few pennies didn’t we?
Which makes me wonder (Yes I do question life and its perplexities a lot). Is there more to life than cost? Is life supposed to be all about finding the cheapest item always, no matter what the eventual cost? Let us presume it is. If true, we would all be driving Yugos, living in mobile homes, wearing hand-me-down clothes until they turned to rags, eating spam and mac ‘n cheese every day, using old crates for furniture, drinking Boone’s Farm at McDonald’s for that big dinner date, and rolling your own. Let’s take a roll call of readers: how many fall into this category? I’m still searching. Just what I suspected: none.
If there is more to life than the cost of an item then what are they? Why buy a Chevy, A Ford, a Chrysler rather than a Yugo? Perhaps it deals with reputation, quality, reliability, service, support (not to mention safety!). We are willing to pay additional for these items. Why then do we buy SUVs or MiniVans? Perhaps it is because we need to ferry more than 2 people at a time (in the case of some soccer moms or dads an entire team). Then it is worth paying more for to have the features and capabilities we seek. The boss is in the market for another vehicle and she will only consider minivans. Why? Because in one she sits up high and feels more in control than in a street hugging vehicle. Is she willing to pay more for that function: of course.
Let’s take the analogy one step further. Why would anyone want to purchase a BMW, Porsche, or Mercedes Benz when they can get the same transportational capabilties for a lot less? Because they want more, the prestige, the status, the eye-turning vehicle, than just a mere engine and four wheels. And then, if given the choice, would you buy from your reliable dealer Jim, a trusted family friend for over 20 years, with whom you have purchased three vehicles and have had them serviced without problems for that entire length of time, or from Friendly Al, the shady new dealer just down the street who offers you the same car for $100 less. I do not know about you but I would choose Jim every time. Why? There is a lot less risk with a known tried entity than with an unknown. Does that mean I am willing to pay more for dealing with Jim. Yes. I know he will be there tomorrow if I need him; I have no such confidence with Friendly Al.
Is there more to life than mere cost? Yes. Than why are we as consumers, as industrial customers, so penny-wise and pound foolish? Why stop doing business with an American firm whom you have dealt with for fifty flawless years to buy from a new Chinese firm just to save a few pennies? Is it worth ignoring Old Joe, the bicycle shop owner, whom you have purchased three bikes from and have had serviced and repaired without failure, who has given you flawless advice, taught your kids the essentials of bike safety at no extra cost, just to save $5 or $10 at an unnamed big box Discount store and as a consequence see Old Joe go out of business? Who then will fix your bikes? Who will help your grandkids? Not the big box store for sure.
Isn’t it about time we view the future and examine the consequences before running to save a few pennies? There is a lot more than just cost in life and we ought to consider those factors before our next purchase.
By Paul Herbig
"There is hardly anything in the world that some men cannot make a little worse and sell a little cheaper."
- John Ruskin
The last few years has seen an America obsessed with cost: ever driven to achieve lower and lower costs with nothing low enough. Walmart’s obsession with cost and being the lowest imaginable has caused not a few of their suppliers to go bankrupt: what they lost per unit they tried to make up in volume. It has forced most of its suppliers to locate overseas contributing to the offshoring debacle and the immense trade deficit. It is not the only corporation so inclined: The Automotive industry has challenged it suppliers to cut costs to meet Chinese levels or beware the consequences. Of course, America’s consumers are not short of blame: in their effort to find the cheapest items, to cut pennies off items, they have made Walmart the largest corporation in the world and in the process destroyed the business infrastructure of a thousand small towns. But what the heck, we saved a few pennies didn’t we?
Which makes me wonder (Yes I do question life and its perplexities a lot). Is there more to life than cost? Is life supposed to be all about finding the cheapest item always, no matter what the eventual cost? Let us presume it is. If true, we would all be driving Yugos, living in mobile homes, wearing hand-me-down clothes until they turned to rags, eating spam and mac ‘n cheese every day, using old crates for furniture, drinking Boone’s Farm at McDonald’s for that big dinner date, and rolling your own. Let’s take a roll call of readers: how many fall into this category? I’m still searching. Just what I suspected: none.
If there is more to life than the cost of an item then what are they? Why buy a Chevy, A Ford, a Chrysler rather than a Yugo? Perhaps it deals with reputation, quality, reliability, service, support (not to mention safety!). We are willing to pay additional for these items. Why then do we buy SUVs or MiniVans? Perhaps it is because we need to ferry more than 2 people at a time (in the case of some soccer moms or dads an entire team). Then it is worth paying more for to have the features and capabilities we seek. The boss is in the market for another vehicle and she will only consider minivans. Why? Because in one she sits up high and feels more in control than in a street hugging vehicle. Is she willing to pay more for that function: of course.
Let’s take the analogy one step further. Why would anyone want to purchase a BMW, Porsche, or Mercedes Benz when they can get the same transportational capabilties for a lot less? Because they want more, the prestige, the status, the eye-turning vehicle, than just a mere engine and four wheels. And then, if given the choice, would you buy from your reliable dealer Jim, a trusted family friend for over 20 years, with whom you have purchased three vehicles and have had them serviced without problems for that entire length of time, or from Friendly Al, the shady new dealer just down the street who offers you the same car for $100 less. I do not know about you but I would choose Jim every time. Why? There is a lot less risk with a known tried entity than with an unknown. Does that mean I am willing to pay more for dealing with Jim. Yes. I know he will be there tomorrow if I need him; I have no such confidence with Friendly Al.
Is there more to life than mere cost? Yes. Than why are we as consumers, as industrial customers, so penny-wise and pound foolish? Why stop doing business with an American firm whom you have dealt with for fifty flawless years to buy from a new Chinese firm just to save a few pennies? Is it worth ignoring Old Joe, the bicycle shop owner, whom you have purchased three bikes from and have had serviced and repaired without failure, who has given you flawless advice, taught your kids the essentials of bike safety at no extra cost, just to save $5 or $10 at an unnamed big box Discount store and as a consequence see Old Joe go out of business? Who then will fix your bikes? Who will help your grandkids? Not the big box store for sure.
Isn’t it about time we view the future and examine the consequences before running to save a few pennies? There is a lot more than just cost in life and we ought to consider those factors before our next purchase.
Interruption Marketing
Interruption Marketing
By Paul Herbig
Consulting firm Accenture claims the average American will be subjected to 3000 advertising impressions daily, up from 640 just 15 years ago. Another research firm indicates the Average American will view 20,000 TV commercials annually and over one million ad impressions a year. My gut feel is that they have badly underestimated the real count of ad messages the typical American gets daily.
On my way home from work, I see Marquees, retail signs, billboards, light shows while I listen to radio and its multiple ads framework. Outdoor displays glare in their brillance. Gas prices. Vending machines. Convenience shores hawking cigarettes by the pack. Daily specials for restaurants. To paraphrase, a brand here and a brand there and soon we are talking about real advertising.
I get home and open my mailbox. I practically need a sack to toss in all my mail. I get inside and take my usual position near the round file. Two or three more credit card companies. Insurance. Brokers. A half dozen catalogs, most of them unsolicited Insurance. The usual telecommunications request to switch long distance. After ten minutes and a filled basket, I can read the two bills and one letter that is left. (I do a similar routine at the office when the mail is delivered with the same ratio of worthy messages to chaff).
Then I log on to the computer. I have two email accounts: one at the office and one at home. Between both of them I easily get over 100 emails a day, eighty percent or greater of which are spam . I have checked with some of my counterparts in the business community and they say I am lucky, they sometimes get that many by lunchtime. A 2001 study for the European Commission found that spam costs computer issuers 10 million euros world-wide in wasted connection time, let alone the human costs in deleting and sorting the few gold nuggets from the tons of worthless ore. I have had an AOL account since 1994, nearly ten years, and it has been only in the last several years that spam has become a major issue. Spammers are becoming increasingly sophisticated, using informality (our first name) in the subject line as a ruse to get the user to read the message. The effort consumers will go through to eliminate spam knows few bounds (filters, programs) but the efforts spammers go through to defeat these defenses are far greater. This phenomena appears to be increasing and amazing as it seems, seems it can only worsen. Will the spam drown out the few worthy messages? Will you be able to use the media when it the time involved in sorting outweighs the benefits to be gained form using it?
Of course, just before dinner comes the telemarketer’s call (that reminds me I need to add my number to the do not call list). If I am lucky I sit down to enjoy a few minutes of television after dinner to relax. And see some of those 20,000 commercials I am expected to view this year. TV ad viewing has dropped and is expected to continue to drop 19 percent in the next five years. New devices such as TiVo make it easy for viewers to skip ads with the click of a button, making TV advertising much less effective. Advertisers indicate at some critical point, if enough users opt out of viewing the advertising, they will reconsider using the medium. Not that I am worried about this as I watch the few minutes of show for each hour of commercials.
Interruption marketing it is called. Most of the twentieth century marketing preoccupied itself with advertising by interruption. But this system is beginning to break down. Time is too important; most people are overworked with little extra time on their hands. Stress is omnipresent. Information overload confuses us. Consumers are becoming increasingly sophisticated and irritated with this constant source of disturbances. Interruption marketing will become increasingly ineffective due to legal and technological obstacles and consumer resistance. Continue to do business as it always has been done will not suffice in the future.
Entertaining. Informative. Provide a service. Provide Value-added as saving time or money or effort for your customers or would-be customers. This is the wave of the future. This is how you will get your customers’ attention and everlasting thank yous for saving them from a lifetime of interruptions.
By Paul Herbig
Consulting firm Accenture claims the average American will be subjected to 3000 advertising impressions daily, up from 640 just 15 years ago. Another research firm indicates the Average American will view 20,000 TV commercials annually and over one million ad impressions a year. My gut feel is that they have badly underestimated the real count of ad messages the typical American gets daily.
On my way home from work, I see Marquees, retail signs, billboards, light shows while I listen to radio and its multiple ads framework. Outdoor displays glare in their brillance. Gas prices. Vending machines. Convenience shores hawking cigarettes by the pack. Daily specials for restaurants. To paraphrase, a brand here and a brand there and soon we are talking about real advertising.
I get home and open my mailbox. I practically need a sack to toss in all my mail. I get inside and take my usual position near the round file. Two or three more credit card companies. Insurance. Brokers. A half dozen catalogs, most of them unsolicited Insurance. The usual telecommunications request to switch long distance. After ten minutes and a filled basket, I can read the two bills and one letter that is left. (I do a similar routine at the office when the mail is delivered with the same ratio of worthy messages to chaff).
Then I log on to the computer. I have two email accounts: one at the office and one at home. Between both of them I easily get over 100 emails a day, eighty percent or greater of which are spam . I have checked with some of my counterparts in the business community and they say I am lucky, they sometimes get that many by lunchtime. A 2001 study for the European Commission found that spam costs computer issuers 10 million euros world-wide in wasted connection time, let alone the human costs in deleting and sorting the few gold nuggets from the tons of worthless ore. I have had an AOL account since 1994, nearly ten years, and it has been only in the last several years that spam has become a major issue. Spammers are becoming increasingly sophisticated, using informality (our first name) in the subject line as a ruse to get the user to read the message. The effort consumers will go through to eliminate spam knows few bounds (filters, programs) but the efforts spammers go through to defeat these defenses are far greater. This phenomena appears to be increasing and amazing as it seems, seems it can only worsen. Will the spam drown out the few worthy messages? Will you be able to use the media when it the time involved in sorting outweighs the benefits to be gained form using it?
Of course, just before dinner comes the telemarketer’s call (that reminds me I need to add my number to the do not call list). If I am lucky I sit down to enjoy a few minutes of television after dinner to relax. And see some of those 20,000 commercials I am expected to view this year. TV ad viewing has dropped and is expected to continue to drop 19 percent in the next five years. New devices such as TiVo make it easy for viewers to skip ads with the click of a button, making TV advertising much less effective. Advertisers indicate at some critical point, if enough users opt out of viewing the advertising, they will reconsider using the medium. Not that I am worried about this as I watch the few minutes of show for each hour of commercials.
Interruption marketing it is called. Most of the twentieth century marketing preoccupied itself with advertising by interruption. But this system is beginning to break down. Time is too important; most people are overworked with little extra time on their hands. Stress is omnipresent. Information overload confuses us. Consumers are becoming increasingly sophisticated and irritated with this constant source of disturbances. Interruption marketing will become increasingly ineffective due to legal and technological obstacles and consumer resistance. Continue to do business as it always has been done will not suffice in the future.
Entertaining. Informative. Provide a service. Provide Value-added as saving time or money or effort for your customers or would-be customers. This is the wave of the future. This is how you will get your customers’ attention and everlasting thank yous for saving them from a lifetime of interruptions.
The Uncertainty Principle of Marketing
The Heisenberg Uncertainty principle of marketing
Paul Herbig
One of the foundations of the theory of Quantum Mechanics in Physics is the Heisenberg Uncertainty principle. You can measure the location of a particle or its velocity (or its energy and time) but not both variables simultaneously. The more precise your measure one, the more imprecise is the measure of the other. In particular, the very act of observing (measuring) the particle disturbs it and provides inaccurate readings to any observation of the other parameter.
Marketing, too, unbelievably but true, has its own form of the Heisenberg Uncertainty principle. It also deals in observation and measurement-but of people not atoms. One widely used and referenced market research technique is observation. Marketers wish to observe consumer behavior and also to understand the mental processes behind their decision making. For example, in grocery stores, marketers wish to observe how people behave, where their eyes go, what catches and keeps their attention, how they react to certain changes—whether it be packaging, size, location, or price of grocery articles. And it is not just grocery stores, human behavior in general, especially consumer behavior, has always fascinated marketers. The belief is that the more a marketer understands about why a consumer behaves the way he/she does, the decision making process, and especially the purchase decision or indecision, the likelier the marketer will be able to sell the intended product or service to the consumer.
Many large consumer products companies have even gone to the extent of setting up within the company itself, small grocery stores in which they observe consumers shopping. They vary conditions and see what consumers do. It all sounds so scientific. The only problem with it is that it fails the marketing uncertainly principle. This version of the Heisenberg Uncertainty principles says you can watch the physical behavior or you can have the consumer define the mental process involved but you can’t do both simultaneously.
Unlike particles or natural phenomenon, humans do not follow rigid scientific law (P=nvt for example or V=IR) and all of human behavior is an art, not a science. Humans are probabilistic animals with only tendencies not laws. One of these tendencies is to act differently when one is being observed then when not. If you believe you are being observed, you will act as if you know you are being observed, which is to say, more than likely differently than you would normally. That is to say, normally you would get a high sugar cereal because the kid in you still loves the morning ritual. However, knowing you are being observed, and knowing that it is not quite the politically correct thing to do (healthy foods please) could lead to your buying a totally different brand from what you regularly would if for no other reason than a worry about who might be observing you and where these observations might end up. If the consumer is asked to detail the mental thought processes in a particular decision, the issue of political correctness is bound to surface. The other error condition one could achieve is to have a subject attempt to present to you what he/she thinks you want to here (either out of politeness or respect) instead of providing an accurate rendition of the consumer’s true beliefs (for example, if it were in a P&G test lab, the subject may choose P&G products due to loyalty to the company the lab belongs to or the suspicion that it is the right thing to do).
Marketers somewhat recognize this aspect of unnatural behavior upon being directly observed. The only other option is to directly observe the consumer without his/her knowledge. The only problem with this option is that it smacks of unethical behavior and could present serious legal issues as well. So most ethical marketers attempt to have subjects sign releases to record behavior and decision making processes. And we are back to square one: observing a consumer acting as if he/she were being observed instead of normally.
Remember, next time you are openly observing people: What you see is not what you get but what the party you are seeing wants you to see, which is not the same thing
Paul Herbig
One of the foundations of the theory of Quantum Mechanics in Physics is the Heisenberg Uncertainty principle. You can measure the location of a particle or its velocity (or its energy and time) but not both variables simultaneously. The more precise your measure one, the more imprecise is the measure of the other. In particular, the very act of observing (measuring) the particle disturbs it and provides inaccurate readings to any observation of the other parameter.
Marketing, too, unbelievably but true, has its own form of the Heisenberg Uncertainty principle. It also deals in observation and measurement-but of people not atoms. One widely used and referenced market research technique is observation. Marketers wish to observe consumer behavior and also to understand the mental processes behind their decision making. For example, in grocery stores, marketers wish to observe how people behave, where their eyes go, what catches and keeps their attention, how they react to certain changes—whether it be packaging, size, location, or price of grocery articles. And it is not just grocery stores, human behavior in general, especially consumer behavior, has always fascinated marketers. The belief is that the more a marketer understands about why a consumer behaves the way he/she does, the decision making process, and especially the purchase decision or indecision, the likelier the marketer will be able to sell the intended product or service to the consumer.
Many large consumer products companies have even gone to the extent of setting up within the company itself, small grocery stores in which they observe consumers shopping. They vary conditions and see what consumers do. It all sounds so scientific. The only problem with it is that it fails the marketing uncertainly principle. This version of the Heisenberg Uncertainty principles says you can watch the physical behavior or you can have the consumer define the mental process involved but you can’t do both simultaneously.
Unlike particles or natural phenomenon, humans do not follow rigid scientific law (P=nvt for example or V=IR) and all of human behavior is an art, not a science. Humans are probabilistic animals with only tendencies not laws. One of these tendencies is to act differently when one is being observed then when not. If you believe you are being observed, you will act as if you know you are being observed, which is to say, more than likely differently than you would normally. That is to say, normally you would get a high sugar cereal because the kid in you still loves the morning ritual. However, knowing you are being observed, and knowing that it is not quite the politically correct thing to do (healthy foods please) could lead to your buying a totally different brand from what you regularly would if for no other reason than a worry about who might be observing you and where these observations might end up. If the consumer is asked to detail the mental thought processes in a particular decision, the issue of political correctness is bound to surface. The other error condition one could achieve is to have a subject attempt to present to you what he/she thinks you want to here (either out of politeness or respect) instead of providing an accurate rendition of the consumer’s true beliefs (for example, if it were in a P&G test lab, the subject may choose P&G products due to loyalty to the company the lab belongs to or the suspicion that it is the right thing to do).
Marketers somewhat recognize this aspect of unnatural behavior upon being directly observed. The only other option is to directly observe the consumer without his/her knowledge. The only problem with this option is that it smacks of unethical behavior and could present serious legal issues as well. So most ethical marketers attempt to have subjects sign releases to record behavior and decision making processes. And we are back to square one: observing a consumer acting as if he/she were being observed instead of normally.
Remember, next time you are openly observing people: What you see is not what you get but what the party you are seeing wants you to see, which is not the same thing
Puffery
Great, Greater, Greatest
By Paul A. Herbig
How many advertisements have you seen that indicate the company showcased is “the best”, “fastest”, “saves you the most” “number one with our customers,” “more for your money,” and so on and so on? How much do you believe? If you are like most consumers you do not take the claims seriously. You have just been besieged with an overdose of puffery.
Puffery is “advertising or other sales representations which praise the item to be sold with subjective opinions, superlatives, or exaggerations, vaguely and generally, stating no specific facts”. According to the court decisions, consumers expect exaggerations and inflated claims in advertising so reasonable people would not believe the statements broadcasted. Most people understand that advertisements take liberties with the truth. Most women understand they will not look like the model in commercials showcasing clothes, make-up, hair products, etc. Most men do not really think drinking XYZ will make them look like Arnold nor brushing their teeth with ABC toothpaste will cause the girls to flock to them.
.A company accused of false advertising when it claims to be “the best” can say it was just boasting. Only puffery claims that can be measured are truly liable. Puffery issues come up quite often at the FTC and the courts, dozens of times per year. Some claims that were declared eligible for public consumption included, “The world’s best aspirin,” by Bayer, “The earth’s most comfortable shoes,” by Hush Puppies, and “quality you can trust,” by Firestone (pre-fiasco to be sure).
The Uniform Commercial Code (UCC), a set of laws that govern sales and commercial matters, indicates a general statement praising the value of a product (“best” “great” etc) is considered puffery and does not create an expressed warranty of the product by the manufacturer. The UCC recognizes that advertisers cannot be expected to prove every general statement made concerning the product. More concrete and specific representations expressing size, ingredients, numbers, could provide an obligation on the manufacturer’s part. In essence, The more general and vague, the better (sic) and more legal it is. BMW has “The Ultimate Driving Machine.” Coke thinks it has “The Real Thing.” Visa is “Everywhere You Want to Be.”
For example, when Pizza Hut with its ads claiming, “Best Pizza Under One Roof,” sued Papa John over its slogan of “Better Ingredients, Better Pizza,” a federal court ruled in 2000 that although clearly puffery, Papa John could continue to pat itself on the back as long as it did not claim (or dropped saying) it had better dough and better tomato sauce. The burden of proof rests on the plaintiffs to assert a particular advertising claim is factually misleading rather than mere puffery. General and vague wins out every time over specific and quantifiable. In another court case, the statement, “ You meet the nicest people on a Honda,” was found to be puffery, rejecting a claim by a consumer that he was misled because he did not meet the nicest people on his Honda minibike with the determining issue the fact that any “reasonable” person would not mistake puffery as it wee for the truth.
Representative statements such as “increase profits by x%,” “ cut labor time by n minutes and saves z$,” “In business since 1947,” “ABC survey indicates . . .” are specific and measurable. Objective advertising claims must be supported by adequate substantiation. And as noted by the statements above, they are usually phrased in terms of fact rather than opinion and can be proven to be true or not.
So does that mean you as a marketer can puff to your heart’s content. Well, yes, as long as you don’t get into specifics. But what are you attempting to do? If no reasonable consumer actually believes puffery, what is the message you are sending? If customers, upon seeing puffery, think, “in one ear, out the other,’ and do not consider it further what have you accomplished? You may be able to proclaim “I am the Best,” and no one can legally challenge you but does anyone actually believe you? If you are a smart marketer, you will provide specifics, measurable, provable specifics, not puff. And that will set you apart from all the others puffing away happily ever after to oblivion.
By Paul A. Herbig
How many advertisements have you seen that indicate the company showcased is “the best”, “fastest”, “saves you the most” “number one with our customers,” “more for your money,” and so on and so on? How much do you believe? If you are like most consumers you do not take the claims seriously. You have just been besieged with an overdose of puffery.
Puffery is “advertising or other sales representations which praise the item to be sold with subjective opinions, superlatives, or exaggerations, vaguely and generally, stating no specific facts”. According to the court decisions, consumers expect exaggerations and inflated claims in advertising so reasonable people would not believe the statements broadcasted. Most people understand that advertisements take liberties with the truth. Most women understand they will not look like the model in commercials showcasing clothes, make-up, hair products, etc. Most men do not really think drinking XYZ will make them look like Arnold nor brushing their teeth with ABC toothpaste will cause the girls to flock to them.
.A company accused of false advertising when it claims to be “the best” can say it was just boasting. Only puffery claims that can be measured are truly liable. Puffery issues come up quite often at the FTC and the courts, dozens of times per year. Some claims that were declared eligible for public consumption included, “The world’s best aspirin,” by Bayer, “The earth’s most comfortable shoes,” by Hush Puppies, and “quality you can trust,” by Firestone (pre-fiasco to be sure).
The Uniform Commercial Code (UCC), a set of laws that govern sales and commercial matters, indicates a general statement praising the value of a product (“best” “great” etc) is considered puffery and does not create an expressed warranty of the product by the manufacturer. The UCC recognizes that advertisers cannot be expected to prove every general statement made concerning the product. More concrete and specific representations expressing size, ingredients, numbers, could provide an obligation on the manufacturer’s part. In essence, The more general and vague, the better (sic) and more legal it is. BMW has “The Ultimate Driving Machine.” Coke thinks it has “The Real Thing.” Visa is “Everywhere You Want to Be.”
For example, when Pizza Hut with its ads claiming, “Best Pizza Under One Roof,” sued Papa John over its slogan of “Better Ingredients, Better Pizza,” a federal court ruled in 2000 that although clearly puffery, Papa John could continue to pat itself on the back as long as it did not claim (or dropped saying) it had better dough and better tomato sauce. The burden of proof rests on the plaintiffs to assert a particular advertising claim is factually misleading rather than mere puffery. General and vague wins out every time over specific and quantifiable. In another court case, the statement, “ You meet the nicest people on a Honda,” was found to be puffery, rejecting a claim by a consumer that he was misled because he did not meet the nicest people on his Honda minibike with the determining issue the fact that any “reasonable” person would not mistake puffery as it wee for the truth.
Representative statements such as “increase profits by x%,” “ cut labor time by n minutes and saves z$,” “In business since 1947,” “ABC survey indicates . . .” are specific and measurable. Objective advertising claims must be supported by adequate substantiation. And as noted by the statements above, they are usually phrased in terms of fact rather than opinion and can be proven to be true or not.
So does that mean you as a marketer can puff to your heart’s content. Well, yes, as long as you don’t get into specifics. But what are you attempting to do? If no reasonable consumer actually believes puffery, what is the message you are sending? If customers, upon seeing puffery, think, “in one ear, out the other,’ and do not consider it further what have you accomplished? You may be able to proclaim “I am the Best,” and no one can legally challenge you but does anyone actually believe you? If you are a smart marketer, you will provide specifics, measurable, provable specifics, not puff. And that will set you apart from all the others puffing away happily ever after to oblivion.
Good People---Bad Products
Why Good People make bad products
By Paul Herbig
Like many of you, I too saw Bruce Almighty, the Jim Carney movie about a man having the chance to be God for a short time. I too could empathize with him after suffering blow after blow about “Why do such things happen to me?” that is, “Why do bad things happen to good people?” Which led me to think about Marketing (no I don’t think about it my every waking moment but yes, it does appear I even dream marketing) and the question of “Why do Good People (re Companies) make bad products?” I will be discussing this great dilemma in a series of articles.
Many studies have been made on what factors cause a product to be successful and what factors can explain many of the failures seen in the marketplace. This is an excellent starting point for us to answer our question.
Some of the reasons can be found in the nature of companies. One of the most common reasons behind failure is the ‘sunk cost’ fallacy (this is not just a business weakness, you as consumers see if you can identify yourselves here). Millions of dollars are spent on a project over a period of years. Bugs are found and more money spent. At some point some prophets appear to preach that the product is no longer needed by the market, it has been made obsolescent, too expensive, not powerful enough or any one of a dozen reasons to stop the product development cycle. Yet, the money keeps pouring in until either it hits the market in a silent thump or (as is usually the case) a new regime with no loyalty to the project enters the picture and kills it. Why did it continue even after most of those working on the project felt uneasy on its shrinking success? Because after spending all that money, they felt like they had an investment and could not afford to pull the plug now and see all those dollars float away. (Kind of like why some people marry, isn’t it?) A more proper judgment would be to see the money spent as gone (a sunk cost), and to examine whether it is worthy to spend more good money after bad. But it is human nature not to want to cut and run after spending considerable (time, money, etc) on an investment.
A second major falling comes under the title of hubris. CEOs often have been promoted many times due to their successful efforts on projects. Often this will cause many to believe they can do no wrong and make no wrong decisions. Sometimes a never-destined-to-succeed project is continued or a product kept on the market way past the point it should have been upgraded or pulled, because the CEO believes so strongly that it is the right product, it becomes almost a matter of will. Sometimes CEOs bet the company. Henry Ford for all his successes in the twenties believed, “You can have any color you want as long as it is black” and that affordability was all that mattered. Years past the point it was obvious that differentiation led the market, Ford kept on producing his single color, single version cars. He did finally change but in so doing lost for good his market domination and industry leadership.
A third major failing can be seen in the nature of corporate bureaucracies. The product development process can be an iffy affair and many companies attempt to institutionalize it through procedures and a Product Management Life Cycle process to control it. An excellent idea. However what starts out as a five page guide tends to increase exponentially as the years roll on. Since as in any bureaucracy, avoiding failure is the way to success, the process is designed and modified as necessary to weed out failures (as the years go by, each failure—either in process or product—leads the company to add new sections to the manual to avoid making those failures again). But in so doing the baby (success) is often thrown out with the bathwater. Honeywell’s PMLC process through twenty plus years of tinkering had grown to two volumes each two to three inches thick. It became obvious that the process dominated over the product. No matter how good the product the question became “Have you had your Step 1 (or two, etc) process review yet?” If the answer was no, proceed at your own risk. Products would linger in the process for so long, when they finally saw the light of day, they were obsolete or the market had passed them by. But, the corporation administration was happy as long as the product had successfully passed all phases (call this phenomena the doting of the I’s and crossing of the t’s obsession ).
(To be contin
By Paul Herbig
Like many of you, I too saw Bruce Almighty, the Jim Carney movie about a man having the chance to be God for a short time. I too could empathize with him after suffering blow after blow about “Why do such things happen to me?” that is, “Why do bad things happen to good people?” Which led me to think about Marketing (no I don’t think about it my every waking moment but yes, it does appear I even dream marketing) and the question of “Why do Good People (re Companies) make bad products?” I will be discussing this great dilemma in a series of articles.
Many studies have been made on what factors cause a product to be successful and what factors can explain many of the failures seen in the marketplace. This is an excellent starting point for us to answer our question.
Some of the reasons can be found in the nature of companies. One of the most common reasons behind failure is the ‘sunk cost’ fallacy (this is not just a business weakness, you as consumers see if you can identify yourselves here). Millions of dollars are spent on a project over a period of years. Bugs are found and more money spent. At some point some prophets appear to preach that the product is no longer needed by the market, it has been made obsolescent, too expensive, not powerful enough or any one of a dozen reasons to stop the product development cycle. Yet, the money keeps pouring in until either it hits the market in a silent thump or (as is usually the case) a new regime with no loyalty to the project enters the picture and kills it. Why did it continue even after most of those working on the project felt uneasy on its shrinking success? Because after spending all that money, they felt like they had an investment and could not afford to pull the plug now and see all those dollars float away. (Kind of like why some people marry, isn’t it?) A more proper judgment would be to see the money spent as gone (a sunk cost), and to examine whether it is worthy to spend more good money after bad. But it is human nature not to want to cut and run after spending considerable (time, money, etc) on an investment.
A second major falling comes under the title of hubris. CEOs often have been promoted many times due to their successful efforts on projects. Often this will cause many to believe they can do no wrong and make no wrong decisions. Sometimes a never-destined-to-succeed project is continued or a product kept on the market way past the point it should have been upgraded or pulled, because the CEO believes so strongly that it is the right product, it becomes almost a matter of will. Sometimes CEOs bet the company. Henry Ford for all his successes in the twenties believed, “You can have any color you want as long as it is black” and that affordability was all that mattered. Years past the point it was obvious that differentiation led the market, Ford kept on producing his single color, single version cars. He did finally change but in so doing lost for good his market domination and industry leadership.
A third major failing can be seen in the nature of corporate bureaucracies. The product development process can be an iffy affair and many companies attempt to institutionalize it through procedures and a Product Management Life Cycle process to control it. An excellent idea. However what starts out as a five page guide tends to increase exponentially as the years roll on. Since as in any bureaucracy, avoiding failure is the way to success, the process is designed and modified as necessary to weed out failures (as the years go by, each failure—either in process or product—leads the company to add new sections to the manual to avoid making those failures again). But in so doing the baby (success) is often thrown out with the bathwater. Honeywell’s PMLC process through twenty plus years of tinkering had grown to two volumes each two to three inches thick. It became obvious that the process dominated over the product. No matter how good the product the question became “Have you had your Step 1 (or two, etc) process review yet?” If the answer was no, proceed at your own risk. Products would linger in the process for so long, when they finally saw the light of day, they were obsolete or the market had passed them by. But, the corporation administration was happy as long as the product had successfully passed all phases (call this phenomena the doting of the I’s and crossing of the t’s obsession ).
(To be contin
When Free is Not Free
The $34.95 “Free” pizza and other adventures
By Paul A. Herbig
Like most consumers, I am always entranced by that one glorious word “FREE.”
I am also a quicker learner, it has only taken me twenty or thirty “learning experiences” to really understand how free FREE is.
Let me explain. When our youngest son was growing up, he would come home with Pizza Hut Book-it awards for meeting his reading goals. This was commendable because it encouraged him to read, a worthy endeavor in itself. However, every time we went to redeem that FREE award, my wife and other son would accompany us. Being in a Pizza Hut with those delicious aromas blaring out of the kitchen and it being, naturally, near dinner time (why else would the youngest be hungry), we would allow our stomach to override our brain and partake of a pizza or two and breadsticks and perhaps a salad or two and let’s not forget drinks for everyone (and refills). Only after we were filled with Italy’s greatest export, did I notice the bill for that FREE pizza was over thirty dollars. Like I said, I am a quick learner so after a few dozen of these trips, we decided to carry out our order and cut the bill down by half (we didn’t need drinks nor dessert).
The other day while watching a program on cable, I saw an ad for a revolutionary cooking dish that had holes in the top so you could boil spaghetti and strain spaghetti from the same bowl without having to have a separate strainer and take the chance of burning yourself when straining the spaghetti. I could see the benefits in having one of those contraptions since spaghetti is a staple in our household. The price was right and then they threw the kicker, an additional smaller bowl for free when you bought the larger bowl. So being my thoughtful self I held off ordering by phone and investigated the website of this modern miracle. My initial thoughts on purchasing were quickly doused when I found out the FREE smaller bowl only would cost me $9.95 in shipping and handling. (This small bowl would not have weighted much and could have fit smugly into the larger bowl so I wondered what freight service they were using, Dan’s Mafia Couriers?)
In glancing through the paper on Sunday, I saw “Second meal free” with ,in very small print, “purchase of a meal of equal or greater value.” Then I attempt to calculate how much that FREE toy cost that is found in every McDonald’s kid’s meal (not including any purchase by mom or Dad, see above example). That second recliner free with the purchase of the first one or the free ottoman that comes with a purchased living room suite.
Since this column is oriented towards marketers, the moral of the story must be how consumers see your FREE offers. Are your free offers like the ones above, barely legal and buyer beware? Do they have enough catches in them to provide sufficient protection that no item will truly be free? Are they adequately worded so buyers are not awestruck when the final tab is calculated? Do you aim at the kids and make the adults pay? All the examples above are quite legal but questionable ethically. Even then, as a marketer you should be careful on your actions.
You are attempting to create a relationship with a customer, a lifelong arrangement where he trusts you to provide a quality product when he demands it and you know he will return to trade with you again. To treat customers like proverbial used car salesman, that is to take them for all you can the first time, is not conductive to relationship building. Do you want your customers reading all the fine print to see what you are hiding and where the hidden charges are? Or do you want them to trust you to deliver what you said you would at the price indicated? The first type of producer has no loyal customer base and it will desert him at first sign of a viable option. It is the second type that will be in business from generation to generation with customers from birth to death in unrelenting loyalty.
Who would you rather be? Free can sometimes actually mean Free!
By Paul A. Herbig
Like most consumers, I am always entranced by that one glorious word “FREE.”
I am also a quicker learner, it has only taken me twenty or thirty “learning experiences” to really understand how free FREE is.
Let me explain. When our youngest son was growing up, he would come home with Pizza Hut Book-it awards for meeting his reading goals. This was commendable because it encouraged him to read, a worthy endeavor in itself. However, every time we went to redeem that FREE award, my wife and other son would accompany us. Being in a Pizza Hut with those delicious aromas blaring out of the kitchen and it being, naturally, near dinner time (why else would the youngest be hungry), we would allow our stomach to override our brain and partake of a pizza or two and breadsticks and perhaps a salad or two and let’s not forget drinks for everyone (and refills). Only after we were filled with Italy’s greatest export, did I notice the bill for that FREE pizza was over thirty dollars. Like I said, I am a quick learner so after a few dozen of these trips, we decided to carry out our order and cut the bill down by half (we didn’t need drinks nor dessert).
The other day while watching a program on cable, I saw an ad for a revolutionary cooking dish that had holes in the top so you could boil spaghetti and strain spaghetti from the same bowl without having to have a separate strainer and take the chance of burning yourself when straining the spaghetti. I could see the benefits in having one of those contraptions since spaghetti is a staple in our household. The price was right and then they threw the kicker, an additional smaller bowl for free when you bought the larger bowl. So being my thoughtful self I held off ordering by phone and investigated the website of this modern miracle. My initial thoughts on purchasing were quickly doused when I found out the FREE smaller bowl only would cost me $9.95 in shipping and handling. (This small bowl would not have weighted much and could have fit smugly into the larger bowl so I wondered what freight service they were using, Dan’s Mafia Couriers?)
In glancing through the paper on Sunday, I saw “Second meal free” with ,in very small print, “purchase of a meal of equal or greater value.” Then I attempt to calculate how much that FREE toy cost that is found in every McDonald’s kid’s meal (not including any purchase by mom or Dad, see above example). That second recliner free with the purchase of the first one or the free ottoman that comes with a purchased living room suite.
Since this column is oriented towards marketers, the moral of the story must be how consumers see your FREE offers. Are your free offers like the ones above, barely legal and buyer beware? Do they have enough catches in them to provide sufficient protection that no item will truly be free? Are they adequately worded so buyers are not awestruck when the final tab is calculated? Do you aim at the kids and make the adults pay? All the examples above are quite legal but questionable ethically. Even then, as a marketer you should be careful on your actions.
You are attempting to create a relationship with a customer, a lifelong arrangement where he trusts you to provide a quality product when he demands it and you know he will return to trade with you again. To treat customers like proverbial used car salesman, that is to take them for all you can the first time, is not conductive to relationship building. Do you want your customers reading all the fine print to see what you are hiding and where the hidden charges are? Or do you want them to trust you to deliver what you said you would at the price indicated? The first type of producer has no loyal customer base and it will desert him at first sign of a viable option. It is the second type that will be in business from generation to generation with customers from birth to death in unrelenting loyalty.
Who would you rather be? Free can sometimes actually mean Free!
Advertising in Free Fall
Where has Advertising Gone? America’s drift into tastelessness
By Paul A. Herbig
Advertising has been steadily drifting towards the lowest common denominator. Today much of advertising is filled with toilet humor, sexual innuendoes, obscenities, and, in general, tastelessness, that thirty, let alone twenty, years ago would not have been seen nor tolerated by either consumers or companies.
Some examples should suffice. During the AFC championship game, a Nike commercial caught the attention of the nation. The commercial was of a naked man running around a soccer game during the game and the police unsuccessfully running after him. The punch line to the commercial was Nike Shox not shoes. Miller Lite played the Catfight commercial with two women wrestlers tearing off each other’s clothes to the cheers of the male audience. During the superbowl, one of the car companies showed two men in a car, one eating beef jerky who begins to choke on the jerky. After accelerating the car quickly, the driver stops suddenly and heimlich-like the food is expelled. At the end of the commercial we see the food particles slowly drift down the windshield in a disgusting display. Of course the youth thought it was cool. And then we have those great symbols of American culture, rappers rhyming obscenities while hawking products.
Why? Is this a thought out attack on American mores and norms as we know them? Not really. The advertisers are nor perverts or out to change American culture but are just responding to well-accepted advertising principles. One very logical reason being given is that with so many advertisements being issued daily (one consulting firm estimates each American is subjected to 3000 advertising impressions daily, up fourfold from just 15 years ago) and the consumer’s increasing ability to phase out messages, you have to stand out above the crowd to be heard. And tastelessness does this. The loudest, coarsest, most shocking voice does tend to be the one that at least grabs your attention for a moment. It may not leave a good impression for the product but you notice the ad and remember it. And for some advertisers, that is the objective. You live for the moment and if you can dominate the moment and have viewers remember you for that moment, you have succeeded.
The second reason is the ‘demo’ (or demographic) as it is called that Madison Avenue seeks. Youth has always been targeted by advertisers. The prime demographic category is the16-34 crowd. An advertiser will pay extra for programs that attract those sought consumers (look at the range of sit-coms during prime time, on Fox, on W-B, or MTV and it becomes apparent who the networks are aiming for). Where are the variety programs? Where are the programs for older viewers? They don’t exist because the young won’t watch these shows and the advertisers will pay top dollar for the youth market and not much for the seniors. It may not be fair but it is the way Madison Avenue thinks. If it is the youth market that is your objective, you give them what they want (or what you think they want). Which is toilet humor, sex, bad language, violence, and in general, tastelessness (Part of the fun of those items is that makes mature adults—read parents—shrink and leave as they are disgusted; and as they do the kids laugh knowingly to each other on the lack of culture their parents have, their inability to appreciate in-culture humor).
Now Madison Avenue can create what they want and yes, it will attract the attention of the youth, that valued age category. But at what cost? The increasing coarseness of commercials will only further alienate the older viewers (it is strange describing men and women in their late thirties and forties as ‘older’ but that is how the advertising world views them). Already many ‘older’ viewers have given up on the four or five major networks watching specific cable channels instead of those award winning sitcoms. Some of my associates tell me they have never seen an episode of Friends and are no worse off for not having done so. Sure, the young are the consumers of the future and whose buying habits are being programmed, but who has the current dollars and the greatest disposable income? It is us, those “older” consumers, that Madison Avenue has so conveniently forgotten.
A final word to Madison Avenue. Being forgotten can be a two-way street. You’ve already forgotten about us “old” folks. We can return the favor.
By Paul A. Herbig
Advertising has been steadily drifting towards the lowest common denominator. Today much of advertising is filled with toilet humor, sexual innuendoes, obscenities, and, in general, tastelessness, that thirty, let alone twenty, years ago would not have been seen nor tolerated by either consumers or companies.
Some examples should suffice. During the AFC championship game, a Nike commercial caught the attention of the nation. The commercial was of a naked man running around a soccer game during the game and the police unsuccessfully running after him. The punch line to the commercial was Nike Shox not shoes. Miller Lite played the Catfight commercial with two women wrestlers tearing off each other’s clothes to the cheers of the male audience. During the superbowl, one of the car companies showed two men in a car, one eating beef jerky who begins to choke on the jerky. After accelerating the car quickly, the driver stops suddenly and heimlich-like the food is expelled. At the end of the commercial we see the food particles slowly drift down the windshield in a disgusting display. Of course the youth thought it was cool. And then we have those great symbols of American culture, rappers rhyming obscenities while hawking products.
Why? Is this a thought out attack on American mores and norms as we know them? Not really. The advertisers are nor perverts or out to change American culture but are just responding to well-accepted advertising principles. One very logical reason being given is that with so many advertisements being issued daily (one consulting firm estimates each American is subjected to 3000 advertising impressions daily, up fourfold from just 15 years ago) and the consumer’s increasing ability to phase out messages, you have to stand out above the crowd to be heard. And tastelessness does this. The loudest, coarsest, most shocking voice does tend to be the one that at least grabs your attention for a moment. It may not leave a good impression for the product but you notice the ad and remember it. And for some advertisers, that is the objective. You live for the moment and if you can dominate the moment and have viewers remember you for that moment, you have succeeded.
The second reason is the ‘demo’ (or demographic) as it is called that Madison Avenue seeks. Youth has always been targeted by advertisers. The prime demographic category is the16-34 crowd. An advertiser will pay extra for programs that attract those sought consumers (look at the range of sit-coms during prime time, on Fox, on W-B, or MTV and it becomes apparent who the networks are aiming for). Where are the variety programs? Where are the programs for older viewers? They don’t exist because the young won’t watch these shows and the advertisers will pay top dollar for the youth market and not much for the seniors. It may not be fair but it is the way Madison Avenue thinks. If it is the youth market that is your objective, you give them what they want (or what you think they want). Which is toilet humor, sex, bad language, violence, and in general, tastelessness (Part of the fun of those items is that makes mature adults—read parents—shrink and leave as they are disgusted; and as they do the kids laugh knowingly to each other on the lack of culture their parents have, their inability to appreciate in-culture humor).
Now Madison Avenue can create what they want and yes, it will attract the attention of the youth, that valued age category. But at what cost? The increasing coarseness of commercials will only further alienate the older viewers (it is strange describing men and women in their late thirties and forties as ‘older’ but that is how the advertising world views them). Already many ‘older’ viewers have given up on the four or five major networks watching specific cable channels instead of those award winning sitcoms. Some of my associates tell me they have never seen an episode of Friends and are no worse off for not having done so. Sure, the young are the consumers of the future and whose buying habits are being programmed, but who has the current dollars and the greatest disposable income? It is us, those “older” consumers, that Madison Avenue has so conveniently forgotten.
A final word to Madison Avenue. Being forgotten can be a two-way street. You’ve already forgotten about us “old” folks. We can return the favor.
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