Lairig Marketing

The Business Revolution Will Not Be Digitized

Reading marketing blogs (other than Lairig Marketing, of course) would lead a person to think every communications process and means of distribution had been fully digitized. The recent “Minding Your Digital Business” report from McKinsey will bring such people back to reality.

One of the many questions for McKinsey’s study group of nearly 1500 global “C-level” execs was how big a priority “Big Data” is (a faux phenomenon we covered in depth here). Only 25% put it in the top three (which sounds to us to be twice what you’d expect).

That means we’ll see another million “Big Data” articles over the next two years until the C-suite gets the memo.

Oddly, only 39% said they were using Big Data for “Budgeting, Forecasting & Planning.” More oddly, budgeting was the only one of nine survey options that showed a lower number for ideal usage. Translation: execs believe they are currently using TOO MUCH data for setting budgets!!!

Metaphorically, we presume, a finger in the wind counts as “digital.”

Half of the execs said they would be investing less than 2% of their company‘s total COST base on digital initiatives. (Perhaps the percentage spent would be higher if they used Big Data for budgeting, but we digress). A mere 25% will spend more than 3%.

Yet, unbelievably, a full 35% expect they will realize better than 10% improvement in operating income as a direct result of their digital programs. That’s an ROI of more than 300%, folks.

When McKinsey asked what the biggest hurdles to digital success are, for the millionth time in a row 50% of the surveyed execs said “lack of quality data” and “poor IT infrastructure and systems.” Still and forever, stuck in the proverbial digital first gear.

Back to the future.

Fast Follow-up Friday #9 – The Way It Looks

[Special note to daily subscribers – we are way ahead of everyone again, so we’ll resume posting next Thursday AM]

Only one of our four lookbacks this week is a positive story. The headline is your hint. Post your answer to Pinterest (hah!).

Private Label Goes Stable
We were the only blog to dare to say that private label sales would peak, even during a sh&tty economy. Now the news is becoming less “private.”

“For the first time since 2008, consumers polled by NPD said they did not plan to increase their purchases of store-brand products in the coming year.”

NPD produced a full report titled, “Does Brand Name Really Matter?” Again, we say, it’s about price – not name – for private label’s future. The narrower the gap these greedy "private" pigs make it between their prices and those of brand names, the worse it will get.

Mens Wearhouse – A New Look To Like
We beat on these guys pretty good for a new (bad) advertising look back in the day.

Mens Wearhouse got back on track soon after, and coincidentally or not, its share price has doubled since we “got together.” And P.S. The new CMO at the time of the 2010 ad campaign has been sent back to ad agency land.

It keeps the momentum going with a new campaign geared toward a younger, “hipper” man. This one is a beauty, as it shows how you can go after a new target segment WITHOUT losing your brand voice, essence, or credibility.

To wit: the George-Zimmerman-delivered, age-old tagline is still there.

We like the way this looks.

About.com Takes About A Half-Step
The sad state of The New York Times’s About.com “information portal” that we pointed out earlier gets even sadder.

Recent quarterly results show a 23% drop in revenue and 50% collapse in profit year over year.

To get these amazing results, About.com went through the motions of reskinning its home page. Duh. The rest of the site continues to be the ad-littered scrap heap it always was.

HP Soon To Be Sold On eBay
New CEO Meg Whitman, still angry at spending $160 million of her own money to lose the race for California governor, this week announced the lopping off of 27,000 heads at Hewlett-Packard.

One of the places she found fat to cut was a business unit we tipped you off to in 2008, when then-CEO Mark Hurd (before he got caught with his pants and receipts down) purchased EDS.

We said at the time this would end up as a “cut some heads” scenario.

Megala was only too happy to bring the hammer down.

The CMO Contrarian Index

We’ll get back to our discussion on the economy, our five-part series from back in March. For now though, loyal Lairig Marketing readers will not be surprised to know that everything we predicted then has come true.

Over the years, we have also been tracking the (in)ability of CEOs and economists to (mis)forecast where the economy is going.

We have now found a third group’s forecasting "acumen" to examine.

Something called “The CMO Survey.org” periodically surveys, um, CMOs, on various topics. Since February 2009, it has been tracking their outlook on the economy every six months, a la “As a CMO, are you more or less optimistic about the U.S. economy?”

The most recent results came with this headline: “Top Marketers See U.S. Economy On The Rebound.” Say whaaaaat? We just had to take a look.

We examined the results back to February 2009, side-by-side with GDP numbers, to see the relation between the CMO outlook and the economy’s actual performance.

Turns out that CMOs are no better at this than a momentum trader on Wall Street. When things have been bad GDP-wise for the past couple of quarters, the CMO outlook tends to be negative. So they miss what then becomes a slight improvement.

Worse is when the GDP improves for a couple of quarters in a row. CMOs tend to go wildly positive on their economic outlook at that time, and get crushed over the next several months.

For example, CMOs went deeply negative in February 2009, missing the tremendous swing from negative to positive GDP over the next two quarters.

And, for example, CMOs went crazy positive in February 2011. The economy slowed to a crawl right after that.

As of February 2012, The CMO Survey found the CMOs’ outlook at its highest positive sentiment to date. Based on the short history of data correlation, this means a continuously stinky economy going forward is virtually a lock.

To defeat the “CMO Contrarian Index,” we need some contrarian CMOs.

Unlikely, since as of now they line up – pretty much one right after the other.

Skechers – No Agency, No Ethics

Another story we sat on for a few days doing some extra digging.

First the facts: Middle of last week, Skechers settled with the FTC, agreeing to pay $40 million so it wouldn’t have to go through the public embarrassment of trying to prove its bogus claims over the past couple of years that its “Shape-up” sneakers help you lose weight, grow muscles, reverse baldness and eliminate world hunger.

Lairig Marketing wanted to know: What professional advertising/marketing agency would sink low enough to be a part of such behavior? To sit there during customer research reviews and creative briefings, and not say “This is bullsh&t.”

No way any agency would do this.

We were right. It took us a while to determine that Skechers did this work on its own.

It puts this interview excerpt from Ad Age last year with then-CMO Leonard Armato into a new perspective:

Ad Age: Skechers has yet to hire a formal agency of record. Why…?
Mr. Armato: “…because we are intimately familiar with the Skechers brand and all the unique value propositions associated with products that we develop.”

We now know that “intimately familiar” and “unique value propositions” are synonyms for “hoodwinking.”

But give Armato credit. Consumers bought Skecher’s Shape-ups and Tone-ups by the closet-load, nearly a billion dollars, proving once again our theory that most consumers will believe anything.

Two interesting post-scripts. First, Armato left just two weeks before the Skechers sh*t hit the FTC’s fan, to become the chairman of a sports marketing agency. Pretty sneakery.

Second, for whatever reason, Skechers decided to work with a real, external ad agency for its 2012 Super Bowl spot featuring its six-month-old GOrun shoe. Coincidentally or not, this year’s ad was voted third best, beating last year’s in-house Kim Kardisaster spot by 45 places.

Skecher’s GoRUN agency, Los Angeles-based Siltanen & Partners, is “blue chip” all the way.

We have a feeling the Siltanen team will ensure what the public will see and hear about GOrun will be “shaped up,” not “made up.”

Mark Zuckerberg - Facebook C.E.No.

Facebook transitioned from the proverbial dorm-room start-up to a “business” some years ago. But as of last Friday, it must now be one, and not act like one.

The NASDAQ cock-up on the morning of the FB IPO ended up diverting attention away from serious lapses in Facebook’s management aptitude. Morgan Stanley was another scapegoat, eviscerated for the 11th-hour bump in share allotment and offer price.

But a seasoned team of executives wouldn’t have let it happen.

Friday’s claim that the IPO was “priced to perfection” was shattered on Monday, as FB fell quickly to $34. And stayed there for the next seven hours.

No, this is no longer about NASDAQ or Morgan Stanley. This is about the credibility of Facebook as a “real” business. And very soon, we believe, investors will sniff out the stinky fish smell. At the head.

Facebook will not be a successful publicly owned business with Mark Zuckerberg as CEO. His many talents do not appear to have any promise for turning around five straight quarters of decelerating sales growth.

Add to that a forward-earnings P/E of somewhere between 80 and 100, and a just-turned 28-year-old has more than met his match.

Take a look at the Facebook “Management” page, and see how confident those three little bios make you feel.

One of those bios belongs to Sheryl Sandberg, who as COO is supposed to play the role of “the real business CEO.” She was an opportunistic hire by Zuckerberg (a pattern that has repeated itself time and again – see Instagram). Her commercial background derives solely from eight years at Google.

She is no Terry Semel. Ring a bell? He was the “seasoned exec” Yahoo brought in to be CEO in early 2001 (albeit, a full five years after going public).

Sandberg is also no Eric Schmidt. Ring a bell? He was the “seasoned exec” Google brought in to be CEO in early 2001 (three years before the company went public).

Bringing in an “adult” to be CEO is an absolute and immediate requirement to solve for Facebook’s spiral downward in business credibility.

A CEO who wears the same clothes every day, especially at a $100-billion IPO, has a touch of mental illness. That in itself ought to be enough to get the CEO-recruiting pipeline stocked up.

He has taken a thrashing for it, but Geraldo was right – it’s not safe for young guys to wear hoodies. Especially rich ones.

Foursquare: Four Whom & Four What?

We've sat on this one for a few weeks. Admittedly we are stumped by this whole foursquare thing.

It only makes sense if you use the lens of (A) loyalty and (B) narcissism.

On the one hand, letting customers tell a retailer, "Hey, I'm here for the tenth time this month!", is an interesting way to alert businesses that can't otherwise track individual patrons they should be recognizing such loyalty.

On the other hand, that each notification should be sent to the world seems dopey, and the fact that (a reported) 20 million people would sign up to do it is frightening. This takes the famous "I'm having a ham sandwich!" tweet to the next annoying level – “…at Joe’s Ham Shop!” BFD squared.

As for the narcissism baked into foursquare, we know from our previous post the future supply of self-lovers is near infinite.

But what exactly are marketers being counseled to do with/on foursquare? Here, finally, is the story that made our heads spin.

“During late March 2011, Walgreens awarded foursquare check-ins with 15% off eligible items and 20% off Walgreens-branded products.”

In addition:

“Walgreens…is running the first nationwide coupon on the foursquare mobile app. Walgreens patrons who record check-ins at the brand's 8,000-plus stores via their smartphones get a scannable digital code redeemable in store for 50% off Arizona Ice Tea.”

Then the requisite marketing speak:

"We're using mobile technology and social media to better engage Walgreens customers, to give them convenient channels to interact with us and to deliver products, services and savings they truly value, " said a Walgreens Marketing Hack.

Hilarious, isn’t it? Walgreens customers already chose their “convenient channel” – by entering the store. You don’t need coupons for people who ALREADY shop with you, driving down your margins in the process. You need coupons to drive the people who AREN’T shopping with you.

And to prove targeting and segmentation have no home in social media, who says ALL Walgreens customers like and want (a) canned ice tea from (b) Arizona?

Nothing new here that you couldn’t do offline. Executed against the wrong target. With zero personalization. And no way to measure ROI.

Foursquares for four round holes.

Gen Y Gets A Bad Report Card

We don’t put much stake in the free flow of generational studies – Boomer this, Gen X that. Too broad-based to serve any useful purpose to a company’s marketing strategies.

But they can get readers’ blood boiling fast, leading to inter-generational bashing that’s fun to watch.

Much has been made already of a study released in mid-March by three poindexters, one nugget of which found that Millenials/Gen Y couldn’t care less about “Green” (which means that our “green is gone” call is, once again, right on).

But there is much more in the longitudinal study of millions of 18-year-olds than the lazy bloggers and journalists are letting on, probably because they didn’t go read the full analysis.

We tracked the study down (“Generational Differences in Young Adults; 1966-2009”) in the Journal of Personality and Social Psychology, slogging through stuff ike this: “In regression equations, the linear term was larger than the quadratic term for all items except…”

Here’s what we could extract, using normal English.

Look Out For The Narcs !
“…life goals related to narcissism are higher among Millenials than they were among Boomers.” The authors did note that this was a trend Gen X started, but as lazy as they are, couldn’t take it to the hol’ nubba lebel that Gen Y has.

There’s No “U” In Community
“…the overall trend in life goals between the Boomers and the Millenials is toward less community feeling…”

Political Catatonia
“All of the items measuring civic engagement…were lower among Millenials than among Boomers at the same age…”

As reinforcement, the authors debunk the theory that voter turnout among youth was accelerated by the 2008 Presidential election by noting Pew data that show turnout in 2009 and 2010 was pitiful.

Go Green = No Green
“Three times as many Millenials than Boomers said they made no effort at all to help the environment…”

It would be fun to blame all this on Facebook. But the latter is a symptom, not a cause. Still, we believe it provides an indicator on where our society – and our future consumers – goes from here.

Up next? Gen Z, born after 2000. How will they do?

To answer that, we have come up with the Lairig Marketing “Future Social Graph.” The FSG uses an inverse relationship between Facebook’s stock price and Gen Z’s ethos. To wit: if FB goes up, Gen Z will look more and more like Gen Y.

A new kind of see saw.

JC Penney Earnings Call – He Said. She (Didn’t) Said.

Back in mid-February, Lairig Marketing examined the “extreme J.C. Penney makeover” plans announced by new CEO Ron Johnson, ex-Apple Store genius (get it?!?!). We raised three issues:

- The new everyday-low approach wouldn’t make it past this Fall
- The idea of 100-stores-within-a-store seemed more Dhaka than Dallas
- Was there no end to Ellen Degeneres’ spokesperson dilution?

The J.C. Penney Q1-2012 earnings call transcript is hot off the press. It is a great read. And, sorry to use this line again…but the transcript ensures that we have another Harvard Business case study underway.

JCP’s Q1 results stunk on ice. The big story was traffic, off 10%. This was the main driver for an astounding drop of 18.9% year-over-year in same-store comps.

But here is something no one mentioned, and not a single Wall Street analyst asked during the Q&A. Online sales were down – what’s a bigger word than astounding? – nearly 28%.

Just like that. J.C. Penney dropped out of shoppers’ consideration set.

Johnson and team spoke at length about how his team was on the right track, but investors took JCP to the woodshed yesterday, giving it a 20% beating.

One question future MBAs will deal with: was Johnson right in starting the makeover with his new pricing scheme? No more sales. No more coupons.

The bigger issue we feel is how it was executed. The three tiers – everyday, month long, and best – aren’t exactly self-evident. On the call, Johnson fell not just a little on his sword regarding the confusion:

- “One of the thing we concluded…is that our marketing…is not doing the work it needs to communicate our pricing strategy…”
- “You will also note we started to put the compare [of month long prices] to our everyday.”
- “We now have TV supporting [our best price promotions].”
- “…in June, it will be the third time we have changed our point-of-sale signs [in stores].”

There’s a lot of fixing on the fly to undo the erroneous notion that retail customers will embrace a “simpler” pricing structure. Still, J.C. Penney execs don’t seem to feel they need anything akin to the old “$X off for all purchases over $Y” coupon to replace lost weekend traffic. Expect to see them revisit that misconception soon.

As for Ellen Degeneres? J.C. Penney wasted millions. She was used to explain new “fair and square” concepts like easy returns, full-dollar pricing (none of the $x.99 thing), and coupon-free shopping. None of these attempt to address the biggest problem – the confusing pricing tiers.

Ellen would be the worst person to do it, anyway. Imagine her trying to explain the difference between “everyday” and “best” pricing in her sing-songy A.D.H.D-ish stream-of-consciousness manner. Whose head would explode first – hers or the viewer’s?

As for the 100-stores-within-a-store strategy, Ron Johnson needs shoppers, and investors, to wait four years to see that come to fruition. Which, in the retail world, is equal to two eternities.

In the meantime, J.C. Penney will need to keep reaching into its rabbit hat.

Grocery Stores – Here Today. Here Tomorrow.

An inquisitive Lairig Marketing reader asked how our post about car dealers might apply to grocery stores. Are they coming, or going, or what?

After all, the same Web-based threats that we outlined for the auto guys applies to food retailers as well – you can shop for food with ease online, with complete transparency of prices, configure your personal shopping cart, pay electronically, and have the goods delivered to the front door.

Remember Webvan? In 2008, CNET rated it the biggest dot-bomb in history.

Let’s look at the same three criteria we did for auto dealerships, and see how they stack up (stock up?) in the case of grocery stores.

Substitutes
There are plenty. But consider just one – the biggest threat. Somewhere near 45% of all meals are eaten out of home. Yet, for whatever reason, this isn’t zero sum. When we get home from the restaurant, we still want a grocery-store-sourced snack.

Convenience
Just like with car buying, the Internet wins again, with the exception of delivery. Yet a dozen years of history says we will sacrifice online convenience for the privilege of kicking melons in person, just like we do for the privilege of kicking tires.

The fact that the delivery experience is an out-of-shopper’s-control cluster f&ck only makes the store experience that more gratifying.

Prices
Seen the price of eggs, milk, cereal - COOKIES - lately?

The well-known razor-thin margins of the grocery industry are as predictable as Haley’s Comet. If their costs go up, then so do ours.

As with the auto industry, there is no burning need, recessionary periods aside, to take costs out of the distribution part of the equation. (We’ll prove this next week with a follow-up to our bold and once again accurate prediction that private label sales will stall/have stalled.)

So? According to Progressive Grocer, the number of grocery stores in the U.S. grew in 2011 by just over 1%. Considering there are over 36,000 candidates to be shut each year during a shitasmic economic time period, that’s pretty impressive.

This should sound familiar then – five years from now, there will be just as many grocery stores in the U.S. as there are today, plus or minus 10%.

Ironically, in five years you’ll also be able to, on occasion, spot one of the thousands of indestructible, and now marooned, Webvan delivery bins.

Car Dealers – Here Today. Here Tomorrow.

[note to daily readers - see you next Wednesday]

Remember when there seemed to be as many Blockbuster stores as Gap locations? Over the past ten years, the number of Blockbuster bricks-and-mortar sites in the U.S. have fallen by 80%. By the end of 2012, there will be fewer than 1000.

Why satellite-TV company DISH Network bought 1700 Blockbuster locations out of bankruptcy last year, and how soon they can reach a count of zero, are two gigantic questions.

The video stores don’t make much sense nowadays due to three major, and related, reasons:

• Availability of substitutes – kiosks, DVDs by mail
• More convenient options – streaming, Cable video on demand
• Falling prices

The last element was a killer for a business so heavily invested in service staff and real estate.

So why are car dealerships still around? Wasn’t the Internet supposed to “disintermediate” them, by allowing buyers to shop online with complete transparency of vehicle costs, letting them configure every last option, name their price, do all the paperwork electronically, and perhaps have the purchased car delivered to their driveway?

Didn’t turn out that way.

Instead of falling by 80% like the number of Blockbuster locations, the dealer count is pretty much the same as it was ten years ago. To be sure, we’ve lost 10% due to the Great Recession, but the numbers seem to have stabilized.

To figure out why there was no “Blockbuster effect” for auto dealers, let’s go back to our list above.

Substitutes
Trains, planes, buses, etc. Just not good enough. Americans vote with their wallets more than 13 million times a year to invest in their own set of new wheels.

Convenience
The Internet does win here, with the exception of the test drive (“virtual test drive”? ROTF LMAO) and final delivery. When they figure out how to stream a car then we’ll talk.

Prices
Unlike DVDs, cars costs just as much, or more, every year than the one before. There is no burning need, recessionary periods aside, to take costs out of the distribution part of the auto equation.

Five years from now, there will be just as many auto dealers in the U.S. as there are today, plus or minus 10%.

Blockbuster locations, on the other hand, will be gone, many perhaps converted into some sort of car-related business.