Lairig Marketing

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.

Columbus Circle – The Tunnel of DOOH Love

Whatever you’re doing right now, if you are within ten miles of Manhattan – stop. Put down that pen. Oops. Um, put down that iThing.

Go directly to 8th Avenue and head down the subway entrance at 57th, 58th or 59th Streets. At the bottom of the steps, walk in the downtown direction, opposite the turnstiles.

Feast your eyes – and ears and hands – on a digital out-of-home masterpiece that takes up an entire block in the underground passage of the Columbus Circle subway station.

We’ve cheered the DOOH industry before, one of marketing’s best kept secrets. Purina has taken it to heart.

To a dog lover’s heart, that is. Along the passageway’s west wall is a floor-to-ceiling interactive experience for Purina’s Beneful brand of dog food. (An unfortunate name, sounding too much like the product that helps adults poop – dogs do not appear to need help pooping.)

The ins and outs of the display are described in rich detail here. It wouldn’t look out of place at Disney World. And you’ll see from the linked article it even includes the requisite social media integration, where you can take a picture of you and your “virtual dog” and SHARE IT WITH YOUR FRIENDS !!!

Hats off to everyone involved in this one, especially the people responsible for securing the location. It’s an area seemingly under never-to-be-finished reconstruction. (ING did an excellent campaign in the same spot during last year’s New York City Marathon.)

The location has “captive audience” written all over it – a confined area, with no escape, nothing else to look at, and never too much pedestrian traffic that would block your view.

Maybe this will be the “tipping point” for DOOH. When advertisers see how much better this is than a display ad on some pet site, how much more engaging it is than a pre-roll video on The Weather Channel website, how many more smiles it puts on people’s faces than a YouTube upload.

Not sure what the CPM is on this, but we’ll wager it’s worth about 100 times whatever the IPO insiders are charging for a crappy display square on Facebook.

The Beneful campaign should prove, once and for all, that digital out-of-home advertising is no dog.

DVR Versus Online Video – “Roll” Out The Barrel (Of Ads)

The DVR is underrated. It can do just about everything except make wine. It even allows the user to SKIP (THROUGH) TV COMMERCIALS!

Yet.

Yet, DVR penetration of U.S. homes is starting to level off, and we predict won’t cross the 50% threshold without some major disruption (technology, pricing, etc.). In addition…although oddly there is no reputable, recent data…we do know ad-skipping by DVR users is nowhere close to 100%.

Some media pundits are now throwing the future of DVRs into the “cord cutting” mix. After all, they posit, if you don’t need your cable company, you don’t need a box and – presto – no DVR.

Whether they are cord cutters are not, there is no question that the demand for online consumption of video programming (in addition to videos of dogs on skateboards) is currently insatiable. But a funny thing happened on the way to the online viewing forum.

Advertising.

Just like on TV, the advertising solution for online video is - * drumroll * - online video. Often the same commercials you see on TV, simply shipped over to an online ad trafficker.

Except.

Unlike the DVR experience, you cannot skip online video ads. Lairig Marketing has touched on the topic of faux “completion rates” before. Whether pre-roll, mid-roll, or post-roll, all eyes (!!!) are on the data that show whether or not the user bailed out during the advertisement.

We already know the insanity of clicking on a link on The Weather Channel – e.g., LIGHTNING STRIKE BLOWS OFF MAN’S HEAD ! – and having to “watch” a 30-second TV ad before the 17-second video plays. Anyone who willingly complies with this sort of scenario on a continuous basis is an imbecile.

But as more and more long-form programming comes online (more Hulu, TV Everywhere, etc.), including on iPads and smartphones, how will viewers weigh the trade-off? Will they “watch” full 30-second spots every five to seven minutes…THAT THEY CANNOT SKIP ?

Will advertisers then push too far, and load in 60-second spots? Or perhaps interrupt programs more frequently? Imagine watching a hockey game online some future day, where an ad rolls every time there is a stoppage of play. Imagine watching The Big Bang Theory with ads playing after every change of scene.

It might all be enough to make viewers skip back to the DVR.

It’s “National Pat Yourself On The Back” Day

We interrupt our short series on the near-term direction of the U.S. economy (see part 1 here and part 2 here) to highlight a big story from yesterday’s business press.

You might have heard that Best Buy plans to:
- close 50 of its big-box stores
- cut 400 corporate jobs
- open 100 more mobile-only stores

Most important was this decision:
“Best Buy will be deploying…its new Connected Store format…remodeled big-box stores that focus on connections, services and multi-channel experience through a total transformation of both the store and the operating environment.”

Translation of that last line of corporate-speak = “out with the toasters, in with the focus on Interwebs stuff.”

So, why a pat on the back? In our most-read post ever, December 1, well before anyone could have known how Holiday Season 2011 would finish, and therefore what Best Buy management should do in 2012, we said this:

“This is not a marketing communications story, nor a ‘branding’ story…This is one of those big ‘P’ stories – ‘Place' and ‘Product.’ Best Buy is spread way too thin in both for focused growth in sales and operating profit.”

Place and Product. Exactly what Best Buy management is going to fix. And not a single mention in its new plan of any branding, marketing, or social media communications.

By December, of course, just about anyone could have pointed out Best Buy’s problems. And many business journalists did, as well as pi**ed off customers who flamed the comments section of any article about Best Buy.

But we humbly believe Lairig Marketing was the only one to (A) look at Best Buy from a business/financial perspective (as well as a marketing one, of course) and (B) prescribe a strategic solution, and (C) have it match what Best Buy announced yesterday.

Show us Seth Godin’s Best Buy post.

Show us Guy Kawasaki’s Best Buy post. Or tweet. Or “speaking engagement.”

Exactly.

Time to go pick up a Mega Million ticket…

The Death Of The Website Has Been Greatly Exaggerated

Alert readers will note that we added Digiday to our small list of “Great Resources.” Its daily email newsletter is short and sweet, highlighting four or five abstracts you can link to for a full read of no longer than ten minutes.

The topics covered are not the typical recycled press releases. They are often provocative. The kind that can get our dander up, here at Lairig Marketing.

Case in point: a recent article, authored by a senior exec at a top-five digital agency (that shall remain nameless, lest folks think we are picking on them).

The essence of the piece is intimated in today’s headline – that traditional websites are going the way of the buggy whip. We’ve heard this many times before, circa 2010 a la “Why Facebook Can Replace Your Website.” Google that phrase today and read dozens of articles completely debunking this supposition.

The Digiday article took the soup-du-jour angle of attack on traditional websites – mobile, especially our dear friends, mobile apps.

Here are some provocative statements from the recent Digiday article, with our counter:

“Digital marketing used to all be about getting people to your destination and convincing them to stick around. In the mobile app era, that’s a losing proposition.”
- Hmmmm, a mobile app uses the same exact concept.

“…the traffic flow has reversed; it’s about getting your relevant content to users at their destination.”
- Um, content has always flowed this way. A PC user never actually “went” to a website – the bits and bytes are sent from a server to their old-fangled machine. No reversal at all.

“Along with dot-coms, traditional written language is also becoming a thing of the past.”
- Um, a f&cking ridiculous claim. Credibility sinks like a stone.

“If you’re going to create an app…[c]ontent can be quickly made available via mobile sites, which are much more easily maintained.”
- Ah hah! So content DOES come from a “site” – in this case a MOBILE version of a traditional website.

“The amount and type of content that needs to exist on corporate websites will become far more limited as content is spread to relevant places across mobile and social platforms via the cloud.”
- Spread from where? What entity will hold all this “spreadable” content? A website, maybe?

“Some might even say that Facebook brand pages are the new dot-com…’
- See debunking reference above.

If you believe mobile content can replace your current website, then run the following simple test: Turn off your site. Right now. Shut it down, for a minimum of two weeks.

Find out now what you’ll be missing then.

The More Things Change, The More It Must Be Starbucks

Did Howard Schultz have any idea in 1982 that things would get this messy? According to the “Our Heritage” section on the Starbucks website:

“…Howard traveled to Italy and became captivated with Italian coffee bars and the romance of the coffee experience. He had a vision to bring the Italian coffeehouse tradition back to the United States. A place for conversation and a sense of community. A third place between work and home.”

Today, Starbucks is on a permanent caffeine jag. Working at its headquarters in 2012 must be like participating in one-hundred simultaneous episodes of “Survivor.” K-Cups, VIA, Blonde Roast, beer & wine, Evolution Fresh, and more. Chaos.

Chaos that suits Starbucks to a tea. Same-store traffic and comps are on a tear. Retail is blowing out expectations. A license to print money.

That “third place” thing? Fuhgeddaboudit.

Last Fall, Starbucks announced a plan to remodel up to 1700 coffee shops. Little else was said, except the very “green” statement that the stores would emphasize sustainability/LEED certification.

Starbucks was already pursuing “sustainability,” in New York City at least, in the summer of 2011, allowing stores to cover up as many electrical outlets as management desired. This was a lazy response to complaints that students and freelancers were using the third place as their only place, all day long.

The current remodel blitz will kill off this segment completely (unless they have good battery power). One wonders who else might not come back as Starbucks retrofits its stores.

Test it yourself by strolling past the new Times Square Starbucks “flagship” at the corner of 47th and Broadway. The work has been heralded for its design in every way imaginable (the lights, the furniture, etc.). Take in the view by walking east along 47th and you will note a place jammed with tourists, trunk to tail. From outside, the new “experience” seems somewhat like that of a bus station during the evening rush

Without a laptop or power cord in site.

The windows are lined with wooden counters, where you can stand and enjoy the “coffee house romance.” If you are with a guest, you can speak side to side. If you are with more than one guest, well, there’s that “chaos” word again. This is, apparently, how the tourists do it.

How successful will this remodel be off the beaten tourist path? Stroll a few blocks more to 49th and 8th. Walk past the Starbucks location on the corner and head 100 feet toward 9th avenue, where a remodel has just been completed (P.S. are these the two closest-to-each-other Starbucks in the world?).

Inside are a handful of traditional tables. And a big-ass picnic-like-table in the middle. (This is also, apparently, how the tourists do it.) Two longggggg windows of those dopey counters. Which have yet to be seen with a customer leaning on them.

Without, again, a laptop or power cord in site.

Starbucks has made its claim. Ich bin ein Berliner, if you will. In New York City at least, we are all tourists.

In Batteries We Trust

We can send men to the moon. We can, apparently, send a spaceship to Mercury and guide its orbit instantly FROM HERE.

We can send someone’s voice to you NO MATTER WHERE YOU ARE. And your voice can be sent back to them, in an instant, no matter where THEY are.

But we can’t do sh&t with batteries. They don’t last any appreciable, additional length of time than 50 years ago.

As consumers, we don’t seem to care. We throw 3 billion of them away every year. And replace them with 3 billion more.

We tolerate “battery paralysis.” How many Christmases have been ruined because of the lack of batteries? Who was the horrible prick that invented the phrase “batteries not included”?

The 3 billion doesn’t even include the modern-day stuff that is built into the products we use. That hand vacuum you recharge? Ever notice that after getting a good 20 minutes out of a full charge in the first year, it then quickly drops off to about 10 minutes, and steadily loses a minute per month from there?

Do you do anything other than tailor your clean-ups around the shortened time, sprinting around the living room before your ten minutes is up?

Anyone have a laptop battery that really lasted as long as claimed, even on day one? Within six months, the battery holds a charge for about 33 minutes. By end of year one, you spend your day running around town looking for a Starbucks that has not yet CEMENTED UP ITS ELECTRICAL OUTLETS (a story for another day).

So where does this put us with the emerging electric automobile? Which, oddly, doesn’t leverage any new "electric" technology – but is simply a chassis full of HUNDREDS OF OLD-STYLE BATTERIES.

They call it “range anxiety” – an EV driver’s fear that the car isn’t going to make it as far as the next nonstandard charging outlet.

What if these batteries end up performing like the ones in the hand vac? Or the laptop?

What if drivers find out they can never achieve the promised 100-mile range on a single charge, from day one? What if, during year two, they start to notice the car acting like a laptop, unable to last more than 50% of claimed duration?

How far will EV drivers compromise? “Yep, we own one of those. Of course, we only use it to go to the end of the driveway to get the mail, but we feel really good about helping to save the planet.”

And you thought those semi-annual laptop recycling events in your hometown were a hoot.

You ain’t seen nothin’ yet.

The Zero Moment Of Truth Gets A Zero

How did this one slip by? A new marketing concept, gone so far out of bounds, like your worst slice ever off the tee, that simply walking off the course seems a better option than hoping to find the ball and put it back in play.

Rip Van Winkle, phone home.

Perplexed by a recent article about something called “The Zero Moment of Truth,” detective work led us to an even perplexier finding. According to the Wall Street Journal, back in 2005 Procter & Gamble (a company which lately seems to be losing control of its marketing rudder) dubbed the in-store, at-shelf purchase decision as “The First Moment of Truth.”

Apparently feeling it was on to something, P&G (incorrectly referred to as “Procter” by our “dear” “marketing expert” Stuart Elliott) titled the ensuing product-usage phase as – * drum roll * – “The Second Moment of Truth.”

A chap from Google by the name of Jim Lecinski saw that the time period in the marketing cycle prior to purchase was unclaimed. So he took out his calculator and, voila – “The Zero Moment of Truth” was born.

There is a 75-page ebook if you are interested. We could not make it beyond page three of Chapter One, which declared: “Now there’s a new critical moment of decision that happens before…”

None of this is new. And none of it is clear. The “zero” concept is all over the lot – sometimes a single moment, sometimes multiple; sometimes a decision point, sometimes only education; sometimes measured in seconds, sometimes in days.

When it is all said and done, though, “Zero Moment” is one blatant big-ass advertisement for Google. Which makes sense, given Licenski’s title – Head of Sales for Google.

Hard to say who has done a better job of butchering the moment of truth concept – Lecinski or P&G. In vogue well before 2005, and always plural we might add, MOTs occur throughout the marketing cycle, any time that a potential customer is about to make a conscious, committed, and significant decision to move forward, or not (in the latter case, this is termed a negative moment of truth).

With all due respect to the folks at Google, an MOT is just as, if not more, likely to occur offline as online. In addition, MOTs are driven by how well a marketer meets a customer’s expectations, rather than Google’s portrayal of a bunch of consumer-driven activities.

Done right – i.e., exceeding the customer’s expectations at the key moments of truth – a marketer can eliminate P&G’s dopey “First MOT.”

Not for nothing, but you would have thought a Google Advertising guy would have picked a better reference to “zero.”