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Saturday, June 29, 2013

Is the Media as Good as the Site Selection?

Last Thanksgiving, I spent in New York City. On Thursday morning, while waiting for all of my family members to arrive, I took a stroll through a few very toney residential neighborhoods in Brooklyn. I turned a corner and saw a line waiting outside of, you guessed it, a Starbucks. Not having had my java jolt that morning, I joined the line. After about 60 seconds, the marketer in me began to come alive even though I was still waiting for my initial caffeine pick me up of the day. As I looked around, I felt as if I were on a movie set. Everyone in the crowded Starbucks and the line outside looked great. Okay, more than that. They all looked like millionaires. Every one. People were dressed carefully and fashionably and the crowd look quite healthy.

Amazingly, the line moved faster than most Starbucks queues that I have experienced over the years. What stunned me about that was that I appeared to be the only person there who simply wanted a tall coffee of the day, black. Everyone else, and I mean everyone, had complicated instructions about their orders but the baristas all handled it with smiles and amazing efficiency.

It was warm day and so I stood outside and people watched for a bit. Every few minutes a Land Rover or other deluxe SUV pulled up and a very well turned out teenager or young adult hopped out of the back seat and joined the line. After Mom or Dad drove the big gas guzzler around the block a few times, the youngster emerged with several drinks, hopped in the car, and the family headed off to grandma’s in Connecticut or Westchester County. The talk around me near the sidewalk was about markets and multi-million dollar apartments.

The next day I returned. The place was a bit less crowded but the clientele looked the same although slightly more casual in that it was not a work day or special holiday. I was impressed but not surprised. Successful companies such as Starbucks have all become very good at site selection and tend to staff their locations with people who can handle the nuances or demands of a high maintenance customer base.

If you ever look at retail locations closely, you will find that cultural considerations are very instrumental in the selection process and that the big marketers capitalize on their understanding of them. For years, Whole Foods would never tell me their secret sauce but their annual report would literally tell people that they “wanted 200,000 people within 20 minutes of the location and a large number of college-educated residents.” You can be sure can be sure that they look at wealth levels and gentrification as well. Consumer Behavior theorists often say that, “you are what you buy” but in many cases that should read you are what you CAN buy. If you live in a rural county on the Great Plains, there will be no Starbucks, Whole Foods, or Trader Joe’s within striking distance.

There are 3,141 counties in the U.S. and nearly 4,000 Wal-Marts. Yet, every county does not have a Wal-Mart and some do not have a McDonald’s unless there is a heavily traveled interstate highway that runs through it. Density is key and culture drives what kind of retail can operate successfully and profitably there.

All this leads me to a media issue that is often ignored. Some players such as Starbucks, Whole Foods, and Trader Joe’s do far better in moneyed suburbs and towns with universities than anywhere else. Dozens of other retailers have similar patterns. Does their media fit their audience or trading areas? A few media planners tell me that the efficiency of network broadcast covers the issue. I remind them tactfully that a large portion of the country lives far from their locations and are the network TV and cable impressions that you are piling up often reaching people who cannot get to your locations even if they would love to shop at them?

This issue is very real. Local cable and radio, and to a lesser degree, broadcast TV, has a role to play here that too many people overlook. McDonald’s does a great job of covering their consumer base. Some would say that Whole Foods and Starbucks have cult status and do not have to advertise or can get by on much less than most players. Agreed.
However, what of the hundreds of other players who should be doing more locally and skewing impressions from all media types against the real trading areas of their clients locations? The agencies need to take the lead on this. Radio stations and local cable interconnects have the solution but they cannot know about the sales data for many national retailers and brands. And, on line and mobile allow for messaging of all sorts in fairly tight trading areas. How well are they being employed locally? It takes a bit more work than a standard media plan. The rewards are more than worth it.

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

Friday, June 21, 2013

Closet Media Plans?

In the financial world, there has long been a debate about whether actively managed funds are better for an investor than index funds. An index fund is not managed. Rather it is a fund that tracks a designated market index like the S&P 500. There is no thought that goes in to it. In essence, you buy the whole market. Over time, index funds often outperform most actively managed funds. How is that possible if a professional money manager is choosing stocks and a computer allocates the index fund?  Jack Bogle, founder of the Vanguard Group, attributes it to the large fees that actively managed funds charge versus the rock bottom costs that an index fund charges. Over a period of 20-30 years, the fees that an actively managed fund have eat away at your gains while the index fund with its modest costs invariably churns ahead. (for a detailed explanation of the case for index funds, you might want to consider my two favorite books by Jack Bogle--”The Little Book of Common Sense Investing” and the heavier “The Battle for the Soul of Capitalism.”)

As more people moved to index funds, the industry, some say shamefully, came up with what have become known as “Closet Index Funds.” Here a fund manager purchased most of the stocks in the market index that he is supposed to beat. So, fund managers sometimes charge twice what an index fund does to a small retail customer yet there is little difference in the composition of the actively managed fund and the index fund. Over a lifetime, the differences in fees cause the index funds to outperform most of the managed funds by a wide margin. Many billlion dollar funds are actually “closet indexers.”

This may seem like a bit of a stretch but in my career, I have seen some closet indexers in the media planning world. Years ago, an earnest young man burst in to my office a few days after I had presented a rather exhaustive (read boring) competitive spending analysis to his major client. He wanted me and my team to clone the media plan of the largest and most successful competitor in the category. I smiled. “Are we incompetent?” The young man reddened and said, “Of course not! But these guys are doing great!” I had to agree. However, I countered that they outspent our client 11 to 1 and even had a spot in the recent Super Bowl (in those days about $2 million for 30 seconds vs. $3.8 million today). He said, “We should be in the Super Bowl, too.” I told him what that two million did for us across an array of key markets. And, I added that their product had better distribution while ours was national in that it could be found in all 50 states but if we advertised too much on network tv we would commit the cardinal sin of advertising to empty shelves.

The young guy was sincere and I liked him but he went to the client without clearing it with me or his management rep. It took months and too many meetings to turn both away from his foolish idea.

Was this an isolated example? Over my career, I saw many second and third tier players often aping the media plans of the market leader. And, I don’t mean that they both used TV. When we took over new accounts and did careful competitive analyses, it  showed up all the time. Also, I sent this blog post in draft form to some other long time media planning pros who said they observed the same thing. One guy had the chutzpah to tell me that he often did a closet plan as it shut up difficult clients when they saw that the big guy was doing roughly the same thing.

Well, something is wrong. Every product has unique attributes, distribution, pricing, branding development, market share, and let’s face it, quality of creative. A customized plan is always the right tact even though you need to see what the opposition is doing and if it is working. This is no time to be a lazy media strategist. You need to keep thinking and keep testing. A few people have written to me and stated that  “closet media plans” may total up to a billion dollars a year in the U.S. How much of that is being misspent?

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

Monday, June 10, 2013

Are Things Improving?

A long time ago, I was a graduate student at Boston College. One day before class, I visited the main library to get some reading done before a two hour seminar.  Two aging professors were talking and one said in a stage whisper, “History. It is nothing but a chronicle of human misery.” His companion nodded and said something to the effect that human history was a veritable cesspool of war, violence, ignorance, malnutrition and disease. I had just finished a wonderful article about the prospects for the home computer industry and was quite upbeat (wow, was the forecaster correct! ).  I packed up my things and scrambled over to the business school library where I found more positive company.

Every now and then I think of those two old academics. They were so sour and, if they were historians, they were poor ones who did not look at the facts. As the human story progresses onward things tend to get better for more people almost every year. I still monitor lifestyle progress around the globe and I have observed that many analysts oversimplify it. They focus solely on median income and/or GDP as the only real indicator of progress in a nation. So East Asia performed a miracle in the last quarter of the 20th century with GDP growing at 6-7% compounded. I vividly remember the day when the Wall Street Journal reported that Singapore passed Italy in wealth.

To me, the money issue is important but it does not capture everything. Even countries in Africa that have shown almost no significant income gains in my lifetime have made big strides in education and healthcare. Infant mortality has been halved across the world, 80% of children globally now get diphtheria shots and diseases like polio and smallpox are very limited and being snuffed out thanks to generous western donors.

Education is more widespread. I was surprised to learn that the first places in the world with free universal education were Connecticut and Massachusetts in early colonial America (circa 1640). Now, in Africa, some 48% are in school which is a huge improvement over the 9% of earlier decades. Even where income has been stagnant for 40 years, health and education continue to improve.

At the end of the day, people always report that the bottom 10% of the world’s people earn only .6% of the global income. This does sound out of whack but may well improve in the years to come. Corruption in many countries also holds a billion or two back as the few on top take a great deal for themselves. Despite this, countries with the lowest quality of life are making the fastest progress. Although not consistent many are getting civil and political rights for the first time in history and also more access to infrastructure as many leave rural areas for the cities.

Also, to trot out the old cliche, money isn’t everything. Take Southern Europe, for example. Right now, Portugal, Spain, and a certain degree, Italy are struggling economically. Yet a Southern European laborer or farmhand still has love, endless sunshine, music, wine, laughter, and recreation that is far more within his reach than a middle income U.S. functionary in Detroit. Who is really living better?

When you look at lifestyle data some strange things emerge. The weirdest that I have ever found was looking at comparative health care. About seven years ago, the United States was spending $5711 per capita on health care while Costa Rica was spending approximately $305. Median income in Costa Rica was one-fifth that of the United States. Yet, Costa Ricans live two years longer than Americans even though we earn five times as much and spend at least 20 times as much on healthcare. Is it that people there have less stress than Americans or that their air is purer? Or, is our diet that is heavily laced with soda-pop, doughnuts and fast food partially responsible? Go figure.

Ask an economist about all this and he may give the cynical answer that if you want to be rich someday, be born to rich parents in a rich country. It is hard to argue about the leg up that can give one.

All of this means good things for advertising and marketing going forward. As we have said several times in this space as the middle class grows globally, established US brands, especially iconic ones will have the wind at their backs. Global ad agencies will prosper as will well positioned media companies. American-only agencies will be fighting for a smaller share of the global marketing pie and need to be prepared for it.

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

Wednesday, June 5, 2013

American Marketing Chauvinism

Webster’s Dictionary's original definition for chauvinism was “exaggerated, bellicose patriotism". Over the years, it took on meaning of one group thinking that they were superior over another.

In recent months, I had three slightly jarring experiences with American marketers who were guilty of chauvinism.  A few people who read a draft of this post said they were simply living in a time warp. I am not so sure. Here are the examples:

1) I received an e-mail from someone whom I do not know well but does read the blog. He wrote to tell me that “Coca-Cola, as a company, was toast.” I smiled and we fired back e-mails over a 36 hour period. His thesis is that the mayor of Cambridge, Massachusetts was following the lead of other mayors and considering a limit of the size of sugary soft drinks that could be served in her fair city. He said this would snowball across the country and eventually the world and Coke would be in real trouble. I wrote back the following: “Coca-Cola, as best as I can count, has nearly 500 non-alcoholic beverage brands around the world. In fact, of the five top soft drinks (Coke, Pepsi, Diet Coke, Fanta, and Sprite), they own four. They sell in 200 countries and are always introducing new products customized to local appeal. Their growth potential overseas is stunning. Take Indonesia, the fourth most populous place on earth. The middle class is arguably growing faster there than anywhere on earth and 95% of the population cannot drink alcohol for religious reasons. This would seem to be a fabulous growth market for many Coca-Cola beverages.” He countered that the obesity epidemic must be stopped. I said “Well, if more people drink water and fruit juices, I agree that would be a good thing. But, who do you think controls bottled water and many juices? The answer is Coca-Cola, Pepsi, and Nestle.  So if sugary water cola sales decline in the US and perhaps elsewhere, a great deal of money will flow to these companies as they own a huge number of soda substitute brands.” He wasn’t buying any of it but the reality is that the US is not the most important market looking ahead for non-alcoholic beverages. It has to be overseas.  My friend’s America chauvinism was getting in the way of clear thinking.
2) Interestingly, the next episode involved a beverage as well--Budweiser. A reader who sold radio in the Midwest was concerned that Budweiser had cut radio advertising in his mid-sized mid-American market in the last few years. The company had to be hurting since AmBev had bought out Anheuser-Busch. I laughed and told him that they were focusing on growing more overseas and gave him two great examples. Last year, I was in a beautiful little town outside the US and a mere eight degrees below the Artic circle. After a round of golf, I really enjoyed having a glass of a local brew each day. When the trip was ending, I traveled three hours south to an international airport.  In the city, at a restaurant the night before I left, the barman told us that Bud had incentivized them so much that they tore out the tap for the local brew and replaced it with Bud. He added that sales were great. A few months later, I was six thousand miles away in another country and found that Bud taps had replaced local brews in more than one location. My friend looks at the world as his own little market. Bud was not hurting and is not. They appear to be reallocating marketing emphasis and growing the brand.
3) The last encounter is more of a macro-economic issue. At a party, I was speaking with someone whom I really admire. I brought up the issue of how the US industrial base was in decline and we needed to have policy and tax changes to help grow jobs here at home. He said, “How can you say that? XYZ Corporation just added 12 workers this past week (XYZ is a cover for an industrial concern in a rural county).” I started to laugh but realized that he was serious. Here was a bright and successful business executive summing up a big issue with a ridiculous leap of faith about job growth.

So, what is going on? I realize that I follow global trends far more than most. Yet, American business people need to understand that it is not 1958 any more. We are not always where the growth is, or the opportunity, or the highest margins. Most people seem to react to what is right in front of them. And, they interpret the world by how events affect them and them alone. Smart marketers need to get acquainted with the whole picture. You do not have to become sophisticated international marketers but you do need to know that only 4% of the world’s population was born in the US and we are only 5% of the world’s population. As other nations and even continents grow, our share of volume for thousands of products has to decline. So, in many categories, we will only be trying to maintain share in the states but go for growth abroad.

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