Tuesday, July 15, 2014

Is America Finished?


Nearly half of Media Realism readers tend to be from outside the United States. Over the last five years, I have heard from readers in over 125 countries. I love to read the mail and respond to a great deal of it. Last week, I received a note from someone who lives in an emerging Asian country and comments directly to me several times a year. With his permission, I quote him verbatim: “I really enjoy reading Media Realism. You bring up topics that I do not see anywhere else. But, you need to stop posting so much on US centric issues. You and I both know that the United States is finished.”

He may know it but I certainly do not.  I will be devoting this post to stating that we could be on the verge of an exciting United States turnaround.

If you confronted many Americans with the comment “the United States is finished” you would often get an indignant response. People would conjure up Ronald Reagan’s famous speech where he talked of the shining city on the hill and America’s rendezvous with destiny. When Reagan made those comments back in 1980, it was pitch-perfect. The malaise of the Carter years had Americans discouraged. The upbeat candidate talked of our potential and tapped in to a yearning for imagination, innovation, and greatness. He won by a landslide and did it again in 1984 with a wonderful ad campaign highlighted by the “It’s morning in America” execution. Thirty years later, things are different. Our problems are deeper and institutions such as Congress are far more suspect than they were then. So, we need more than an inspirational message and leader. I believe we may have it.

Several things appear to me to be coming together. They are:

1) The Energy Advantage--Observers have often said that the 20th century was the American century and that was helped by low energy costs. Also, as a result, Americans became addicted to cheap energy, particularly oil.  Things got a bit tougher as Americans were importing up to $250 billion dollars a year in oil largely from the Middle East, Venezuela, and Nigeria, which were areas of the world not particularly friendly to US interests. In recent years, thanks to new technologies, we are now producing more oil domestically than we have in 30 years. Steadily, the balance of payments regarding energy is turning around and much of the money that leaves the U.S. goes to our friendly neighbor, Canada. New technological gains have allowed us to tap in to our vast holdings of natural gas and production is so strong that costs are very low (one-fourth of Western Europe and one-fifth of Japan). This energy renaissance is creating thousands of good paying ($70-100k) blue collar jobs which have been sadly missing in our economy over the last decade.  
2) The other benefit to the domestic energy boom is that it is helping our moribund manufacturing base.  We have all heard of offshoring where American companies moved operations offshore to take advantage of lower wages and lower taxes than they faced at home. Now, a trend is beginning that is known as “reshoring” where manufacturing is coming back to our shores. Some 15 years ago, a Chinese factory worker might get 90 cents per hour. Now, the average rate is over nine dollars per hour. With energy costs less in the U.S. and transportation a fraction of what it would cost to transfer finished goods to the U.S. markets, companies are often deciding it is easier and more economical to manufacture at home. This can be a big help to the unemployed in America. The only fly in the ointment is will the jobs be very low paying?  To stay at parity with Asian outposts, will domestic manufacturers keep wages down really low? One of the big problems of our slow motion recovery is that many of the new jobs created each month tend to be hovering around minimum wage.  (Also, and I know that I am a distinct minority on this issue, but I worry a bit about natural gas as our one fits all solution to environmental and economic issues. In his 2012 State of the Union address, President Obama said the following: “We have a supply of natural gas that can last America nearly one hundred years.” Relax. I am not going to attack the president or even the Department of Energy. What I will say is that I have been following natural resources and their equities for 42 years. From my early days of reading Canadian trade journal THE NORTHERN MINER to annual reports and press releases today, I am always amused by the somewhat breathless projections of natural resource experts. The unsolicited e-mails are even funnier. A sample of recent entries sound like-- “Bigger than the Bakken. America’s newest and largest energy field” or “A Gold Strike So Large It will catapult this junior to one of North America’s top 10 producers.” You get the idea. If the trend continues of companies shifting to natural gas to heat their plants and run their fleets plus utilities shifting to gas from dirty coal for their electricity generation (a good thing!), will we have enough gas for 100 years? Companies are furiously lobbying to get permission to export liquified natural gas to Asia and Europe. I thought that I was the only person worried about this until Charlie Munger, Vice Chairman of Berkshire Hathaway, voiced the same concern. Others say that exports will never be more than 10% of US production.). So natural gas, is for the moment, a game changer. It can help lower CO2 emissions as it burns cleaner than oil or coal and is quite plentiful. Some say it will be the bridge that will lead us to renewables in a few decades. Clearly, low cost gas will help manufacturing here. The gas boom is creating thousands of good paying jobs and makes home grown manufacturing more globally competitive.
3) Americans are still the world’s best marketers and, I would add, salespeople. We seem to tap in to what people want. Also, American Pop Culture travels well (see Media Realism, “The Triumph of American Pop Culture”, May 31, 2011) and the newly minted middle class around the world love American products. Author Daniel Gross has dubbed some products “Inports.” These are products produced by American companies overseas using local or non-American ingredients or components. So, Starbucks is exploding overseas. From the coffee to the cups to the pastries everything is produced outside the U.S. Profits, however, are repatriated home hence his term Inport.
4) People are finally seeing the importance of improving our infrastructure. Landing at grungy Kennedy airport some weeks back, I was struck by what a foreign tourist’s first impression of America might be compared to the efficient and state of the art airports that they came from at home. I vividly remember as a child President Eisenhower lobbying for the national highway system. It was positioned as a “defense highway system” so in case of foreign attack, thousands could escape an attack area quickly via the new superhighways. Well, the Soviets never bombed us but the infrastructure improvement was very real. Salespeople could cover hundreds of miles more in their territory. Contractors and tradesmen were not limited to their home cities any more and people in remote rural areas could get things shipped by truck almost as quickly as those in major cities. Would Wal-Mart have grown so large without the interstate highway system? The highways gave us an international leg up and increased business volume all over America. The Panama Canal is now getting a multi-billion dollar facelift and larger ships will be passing through it soon. Can all American ports handle the larger vessels or will they simply go to China or other nations who can accommodate them? Our state roads and bridges vary wildly in quality from place to place. Some are funded with gasoline taxes so we should not hold our breath regarding a quick fix there. Infrastructure is one place where government and business need to work together. If they will, it can sharpen our competitive edge significantly.
5) Tax and entitlement reform--you may say good luck on this one. I was excited when the Simpson-Bowles reforms were presented. If we could get a resolution on Social Security and Medicare that would protect our safety net for generations to come, businesses and individuals could plan better for the future. This would help us. We need a simpler, fairer tax code that does not punish success but squashes crony capitalism.

The first three points that I have outlined are happening and will make American stronger in the years to come. If we can resolve the issues around #4 and #5 then I am very confident that America’s best days are yet to come.

For a quick and easy read on the myth of America’s decline, may I suggest BETTER, FASTER, STRONGER by columnist Daniel Gross (Free Press, 2012)?

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

Monday, July 7, 2014

Storytelling vs. Statistics


Some months back, I gave a presentation to a fair sized audience of budding young professionals. The boss did not attend but sent an observer who sat in the back of the room and watched my dog and pony show very closely. I thought it went well and, as I was leaving, the management plant thanked me and said, “You are a wonderful storyteller. That is 90% of presenting.” As a guest, I merely said thank you but gently added that my stories all were linked to facts that I had presented in a few statistical charts in my show and tell.  She shook her head, smiled, and left. Later her boss told me what a success the session had been.

All of this is a preamble to something that I have observed over the last decade or so. An increasing number of people are making bad business decisions because storytelling seems to have overshadowed statistics or, dare I say, facts in decision-making.  Perhaps I am an exception. I have always considered myself something of a data junkie. Never have I resented tedious number crunching to get to the guts of a financial transaction, a media buy, or a forecast for a concept, a business, or even a country. And, if you know me at all, you realize that demographics often drive the bus.

Why do most new businesses fail? Why do most new products fail even from established marketers? To me, it is not lack of effort on the job or inept management. Much of it is a failure to look at the readily available facts or statistics that are in plain sight or can be researched for a bit of money.  A stunning number of people rely on storytelling as their compass. Their friends like it, they saw someone have success with it in another market or nation and they then make an enormous leap of faith based on hearsay or very limited amount of facts.

Your mind can play tricks on you if you become addicted to storytelling. More than once, I have passed out articles or books on a particular subject to colleagues or clients. And, several times people immediately handed them back saying, “Don, I will never read it. Just give me the headlines. I learn everything by talking to people.”

Well. I am a big advocate of business people talking to their customers and prospects and LISTENING. However, I have seen people bet millions on products or services where the timing is clearly wrong, or their chosen location cannot sustain a new player due to weakening demographics or a poor economy. Few of us want to tell a sincere person, especially a friend, that their idea really stinks.  So, if you merely talk to people, you are missing a lot and may be setting yourself up for failure.

Storytelling is important. It beats a ponderous power-point time after time in terms of audience attentiveness. Yet, the stories, to me, need to be tied to some statistical realities.

Finally, remember that con men are all great storytellers. Think about it.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com        

Tuesday, July 1, 2014

Social Security And The Future of Marketing


As it has for several years, the United States Social Security System remains something of a political hot potato. Columnists often refer to it as “the third rail of American politics” meaning that if you touch it, you will die politically. Few in Washington have the guts to face the problems that the system faces (possible cutting of current benefits by 2034) even though the majority of young Americans in poll after poll do not believe that it will be there for them.

Reform may consist of raising the age of when you could collect and increasing the cap on income that could be taxed by social security. Combine that with some kind of means testing (multi-millionaires would see their benefits slashed) and the system could be saved in to perpetuity.

As a marketer, I have different issues with the program. According to the Social Security System itself, the monthly program payments account for 38% of the income for U.S. adults over 65. For couples, the figure is 22% and for single persons collecting a check, Social Security is 47% of their total income.

Dig a bit deeper and the numbers get scarier--a lot scarier. The American Association of Retired Persons (AARP) via their public policy institute recently released Social Security data by state. One chart floored me--it showed the percentage of people Age 65+ who relied on Social Security for at least 90% of their income.

Tennessee was on top at 32.7% followed by Mississippi at 30.8, Arkansas at 30.7, Georgia at 30.6 and Louisiana at 29.9%. Alaska appeared to be in the best shape at 14.5%. Again, statistics sometimes lie. Every Alaskan gets an oil payment each October from their Permanent Fund. Payouts can be as high as $3,269 in 2008 and were $900 in 2013. Yet the cost of living in Alaska is somewhat higher than most of the lower 48 states. So, they appear to be wealthy but, in terms of purchasing power, clearly they are not.

Also, each day some 10,000 Americans turn 65 years old so it is a safe bet that the number of people having Social Security as 90%+ of their income will only increase.

A reader wrote to me an hour ago saying that the Dow Jones Industrial Average hit an all time high. It did and almost closed at 17,000. That is great for all of you with seven figure 401k balances and significant passive income. Yet, for the average American, whose income has been stuck adjusted for inflation for more than 30 years, the Dow’s flirting with 17,000 is a meaningless statistic.

Marketers need to take note. America is getting older. Not as old as Europe, for sure, but far older than Asia ex Japan and Latin America. Increasingly, these people 65+ are going to be struggling. Financial decisions will revolve around food, prescription medicine or rent payments. For too many people, something will have to give.  The base for many products will have to erode. Are you or your clients prepared for this?

If you would like to contact Don Cole, you may reach him at doncolemedia@gmail.com


Thursday, June 19, 2014

Is Retail Dying in the U.S?


In recent weeks, I seem to be reading a surprising number of Cassandra style forecasts of the impending death of retail in the United States. Also, a few Media Realism readers have written to me echoing the same sentiment. All seemed to be using the same basic factoids to come to their gloomy conclusion. The list usually includes some combination of the following:

1) There are 100,000 shopping centers and strip malls in America.
2) They contain approximately 1 million stores.
3) The one million stores comprise 15 billion square feet of retail space.
4) The retail space works out to 47 square feet for every person living in the U.S.
5) Our per capita square footage devoted to retail is up to eight times that of other industrialized countries.
6) Over the last 20+ years the median household income has dropped from $56k to 51k but retail space per capita has jumped from 19 to 47 square feet.

I have checked and doubled checked the above numbers and most seem quite close to sources that I respect.

Most analysts that I read plus all of my readers who contacted me are forecasting a big shakeout in retail and a rough patch for the next few years for commercial real estate as more shopping centers have empty space and tenants negotiate harder on their leases.

Interestingly, no one seems to be mentioning on line shopping which would strike me as the biggest threat to brick and mortar retail. When I talk with local broadcasters (not local cable players who often deal in portions of markets), they are having a hard time getting long time retail spenders to maintain budgets consistently.  Some blame it on the struggles of suburban, middle class families while others say that online shopping is largely to blame.

There is no question that retail has always been a tough game and it will get even more difficult. The square footage figures cited above indicate that in certain parts of the country there is definitely some over-saturation of retail outlets.

When people dismiss problems and talk of Whole Foods, Michael Kors, Tiffany and Nordstrom they forget that upscale retailers take up only about 1% of total retail square footage in the country. And, their yield per square foot has to be much higher than the vast majority of players.

So, we have a glut of retail space. And, players in retail need to do even more careful risk assessment than ever. Will these issues disappear if the economy starts to consistently deliver 4%+ growth quarter after quarter?

Probably not as the shopping experience is shifting. Some people think that retail will dry up and blow away as on line shopping gets stronger (on line consistently has grown at double digits in recent years regardless of the strength of the economy). Many, however, still love to “touch and feel” items before they buy them. While on line players facilitate returns, it still remains a time consuming nuisance.

And, customization is morphing in to new shopping experiences. Do not be surprised if within a decade, you can visit a retail outlet and pick out or design attributes of a running shoe, for example. Exact measurements will be taken and, in a few days, you will have shoes exactly as you wanted them and they will fit PERFECTLY. Due to tech gains, the price differential may not be significantly higher than off the shelf entries.

As I am fond of saying, markets always go to extremes. So, it appears that retail was overbuilt. Retail like media will evolve a lot in the next 20 years. And, it is a sure bet that retail will use less conventional media than ever to support their locations.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

Tuesday, June 10, 2014

Starting Salaries in Advertising


Around this time of year, you invariably see articles in the media about starting salaries for recent college graduates across a wide variety of disciplines. Also, without fail, I hear from people saying that actual entry level salaries in advertising appear to be much lower than the reported figures. This year has been no exception.

Historically, advertising agencies paid starvation wages to newcomers. How come? An old acquaintance who serves as Chief Administrative Officer (not her real title) at her shop put it bluntly: “You know as well as I that most people are not suited to the advertising business. It always seems that roughly one-third hate it and quit in the first year, another third cannot do it so we ask them to leave, and finally, the remainder tend to be keepers. So why invest much money in a recruit when the odds are one in three or less that he or she will have staying power? It may seem harsh but with rising costs of benefits, particularly healthcare, we do not pay well at first.”

Another straight talker put it this way: “When the recession hit us in 2008-2009, we got clobbered. We laid off a ton of staffers and I vowed never to be exposed that badly again. So, when we began to staff up in 2009, I made sure that we paid each new employee $5,000 less than we did in 2007. There are no shortages of people applying here and we have not raised the starting salary yet. Honestly, the only problem is that we occasionally get spoiled brats who are heavily subsidized by upper middle class parents. One young lady drives a luxury car in each day and our creative director thinks that she earns far more than she really does. So, we do not have much diversity in terms of backgrounds, but we never pay too much and do not feel bad if someone does not work out. Are we exploiting them? I don’t worry about it as we give these kids a chance when others do not."

A small market CEO writes, “I have not had a raise since 2007. A young kid was here four months and told me he needed a raise to buy a new car. I tried to explain that his means of transportation was not my responsibility. He did not get it and left a few weeks later for a job outside of advertising paying $1500 more. Good riddance!”

In some markets, the cost of living requires better starting pay although New York and other major city rents force newcomers to live with two or three others to make ends meet. Also, many say that real stars go to Silicon Valley or Wall Street and the quality of advertising newcomers is not nearly as strong as it was several decades ago.

Virtually, everyone whom I spoke to or e-mailed admitted that stars do get paid well once they have proven themselves. A few confessed that they wait several years before they loosen their purse strings especially if they are in a small to mid-sized market where changing jobs and staying in advertising inevitably requires a move to another city.

I see both sides of this issue. With many shops facing financial challenges, it does not seem as if we will get a big change soon.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com





Saturday, June 7, 2014

Earthquake or Blip on the Screen?


This past week, two of the world’s largest advertisers, made announcements regarding their digital efforts:

1) Procter & Gamble, arguably the world’s largest advertiser, disclosed that going forward 70-75% of their U.S. digital activity will be done programatically and in-house.

 2) Separately, fast food giant, McDonald’s announced that it is opening a digital office on Market Street in San Francisco so that they will be better able to recruit digital talent. Their digital chief described the move as “a way for us to be more plugged in to the flow of ideas.”

To me, this is heady stuff. Of the agency people whom I canvassed, many seemed to be  yawning. Yet, what is happening? It seems clear that both huge players in the ad world are bypassing their agencies and going direct to the source to optimize activity in the burgeoning digital space.

One agency chief dismissed that echoing his long held sentiment that his small team at a mid-sized shop “was cutting edge and on top of all changes in the digital world. My folks also have a great relationship with Google.” I gently responded that they may have a great relationship with the Google SALES TEAM. The McDonald’s initiative sounds as if they will raid, Google, Yahoo, Facebook, Oracle and fellow travelers and get people who know where the bodies are buried in key companies and have a handle on what they may be coming up in the near future. Also, they can push the envelope better than any agency team can of what might be done that has never been tried before. These companies will also  have an edge over competitors in our new era of Big Data.

Am I overreacting? What do you think?

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

Monday, June 2, 2014

Pricing Digital Creative Services


Joseph Alois Schumpeter was an economist who studied in Vienna and London. I would put him in the top five of all economists in history along with Adam Smith, Karl Marx, John Maynard Keynes and Friedrich Hayek. He popularized the term “creative destruction” in economic and political circles. After a failed early marriage and living beyond his means in London, a friend wangled a job for him managing the estate of an Egyptian princess living in Cairo. He jumped at the lucrative position and was quite successful. It turns out that the prior trustees had been stealing the princess blind. By simply taking his precise contractual fee, Schumpeter was able to lower rents for the tenants of the princess to their great delight yet still managed to double her annual income. Once things were set up his time was largely his own and he drafted his first book, THE THEORY OF ECONOMIC DEVELOPMENT. His reputation spread and soon he was called back to Vienna as a professor.

Why tell this story? Well, it reminds me a bit of what has been happening over the last 15 years in the digital advertising arena. Some years back, when the internet was just getting rolling as an advertising medium, a new player showed up at a large client that I handled. He was not too smooth and people said that he was not the sharpest tool in the shed regarding marketing or media. I tried to be a bit kinder than that as he seemed to simply use different terms for certain items than we did and when any one used a standard term he would often blurt out “what’s that” which had some people stifling laughs. After a while I noticed how he seemed to have an inordinate interest on the cost of all creative jobs, copying and anything that could be remotely defined as “digital.” When he asked what a job cost he would write it down and sometimes smile and other times frown but he would not comment.

I bumped in to him once by accident at a social gathering two weeks before we were to begin negotiations for a multi-year contract renewal. He told me that we had better lower fees for certain jobs or we would be on very thin ice. I got him a drink and he opened up to me. He essentially said, “You have always treated me with respect but your associates do not. Yes, I have had five jobs in the last eight years. In that time, I have dealt with seven agencies and I monitor fees closely. You guys charge way too much on certain items. I am not the marketing director but you are not going to rip us off any longer.”

The next day I reported back to the CEO and we did some digging. Yes, we were overcharging for some items but, after checking with other shops around the country, we were virtually giving other tasks away. We slashed prices on the sensitive items and obtained the contract renewal. The client moved on a year or so later and I doubt his boss had a clue about how much his lieutenant had saved the company.

Were we really price gouging? I talked to some people recently and a common thread ran through their comments. One CEO who retired in the last few years weighed in as follows: “Don, when digital began we were clueless. We did not know what to charge. So, we took some guesses and found we were high in some places and low in others. When new young designers came on board, we got a handle on what others were charging. Still, we got stung by boutiques who could do a job overnight for a third of what we charged. As young talent moved client side, we had to adjust quickly as they had contacts all over. My successor is a great guy and ethical. He asked me how to bill attempts at viral videos.  Charging by the number of hours would not work so he puts two young creatives on the job who work nights and weekends as they love the assignment. Their batting average stinks. They are way below the Mendoza line (this is a baseball term attributed to George Brett describing a hitter in a slump with a batting average below .200 which was the normal average of infielder Mario Mendoza). Now, there appears to be some niche shops who know how to make them work with some consistency. How do we price something we know will likely not work?”

Another mid-sized CEO takes a different approach. “While no two compensation agreements are alike, we try to do a flat fee for all agency services allowing us to make what we think is a fair profit. We may lose our shirt on some tasks but, overall, the clients know we are playing things straight with them. By doing this, we are learning a lot about new platforms. If we charged a la carte, I am sure that we would be bushwhacked by some boutiques. We are not that big, but we cannot respond as a three person shop can that is truly cutting edge”.

So, the young lions at the boutiques who work quickly and know shortcuts and tricks are beating the small and medium sized shops badly and charging way less. They are the Schumpeters of our new century in terms of providing better service for less money. With scores more changes coming on board on scads of new platforms, traditional agencies who claim to be digitally savvy are in a tight spot.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com