Lairig Marketing

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.

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.

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.

Jim Beam Branding – Something To Toast

For a long time, Fortune Brands served as an excellent example of a “House of Brands” – a company with no rhyme or reason from a marketing perspective. Fortune was a company with well-known but disparate brands like Titleist, Moen, and Jim Beam.

Wall Street typically hates mashed-up conglomerates as much as good brand strategists do. They hated Fortune Brands. After severe hounding by activist investor/hedge fund manager Bill Ackman, Fortune sold the golf-related businesses and created a new company for the spirits side of the “house.”

And, for what it’s worth, Fortune Brands is STILL a classic house of brands. The newly and imaginatively named “Fortune Brands Home & Security” includes classics like Moen (obviously), Kitchen Craft and Master Lock. Nothing named “Fortune.”

But this story is about Jim Beam, and how, from both investor and marketer points of view, being on its own would let it achieve its full potential.

In theory at least.

You see, even though it renamed its business within Fortune Brands as, simply, Beam Worldwide way back in 2006, this wasn’t going to be a “Jim Beam-only” story.

Back then, Beam Worldwide was buying up companies left and right, across the entire spirits spectrum, among them Courvoisier, Maker’s Mark, Teachers, Cruzan (rum) and EFFEN (vodka).

As a stand-alone company, now Beam Inc., the acquisitions continue. Two weeks ago Beam announced it would add ANOTHER two brands – Pinnacle vodka and Calico Jack rum.

So, here we are again. Beam has become a house of brands. On steroids.

Should we hate it as much as we hated Fortune Brands? No.

Beam Inc. is laser focused on the categories it should be in (and knows where it shouldn’t be, selling off its wine business years ago). The many Beam brands might not have any direct synergies – for example, EFFEN marketing programs aren’t going to help Courvoisier’s sales one lick (!!!) – but the marketing best practices, passion, and operations can be leveraged across the entire portfolio.

This is a house of brands that will indeed be greater than the sum of its parts. So much so that today we add it to the Lairig Marketing Index.

Late as usual. BEAM has already run straight up 50% since its October “relaunch.” (And we are down already 0.5% for today, due to the stock market’s once-a-week “Greek spasm.”) But that shows how confident we are.

There is much more potential value in and across Beam to “unlock,” as investors say. You can drink to that.

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…

Big Data – No Big Deal

The concept of “Big Data,” known to IT folks for a few years now, has found its way to marketing “meme-ville.” It will likely finish 2012 as one of the “top five marketing issues.”

McKinsey made hay with some appropriately massive Big Data white papers in 2011, emphasizing the ways marketers could harness it. First, McKinsey’s definition:

“Big data refers to datasets whose size is beyond the ability of typical database software tools to capture, store, manage and analyze.”

The overly long trail runs cold, however, due to McKinsey’s inability to get into the technology weeds. Instead, lots of mumbo jumbo like this:

“McDonald’s…has equipped some stores with devices that gather operational data as they track customer interactions, traffic in stores, and ordering patterns. Researchers can model the impact of variations in menus, restaurant designs, and training, among other things, on productivity and sales.”

What “researchers” is McKinsey referring to? McDonald’s has two restaurant designs – what variations are feasible to test? Who has ever tied cause and effect between “training” and “sales”? What “other things”?

The IT guys are no better. Here is IBM, defining Big Data “velocity”:

“…big data must be used as it is streaming in to the enterprise in order to maximize its value to the business.”

LMAO. Most marketers can’t even tell you how many website visitors they had yesterday.

The requisite surveys are now underway, to see how prepared marketers are for this brave new world. According to a study done in February by Columbia Business School and the New York AMA (Marketing, not Medical), the biggest challenge to success with Big Data is “lack of data sharing across the organization.”

Perfecto, for the guys like IBM. “If we can just fix the technology…”

Database marketing, a practice unknown to most marketers, is nearly 25 years old. It started with a problem to solve – how to make marketing slightly more efficient and vastly more effective? A problem looking for a data solution. A workhouse still in existence.

Big Data, however, reverses the equation. We have embarked on a years-long journey, throwing good money after bad.

Where data, and all its related high-powered technology, can look for a problem to solve.

If You Were A Better Agency/Client – By Rudyard Kipling

In doing research for yesterday’s post about agency-client relationships, we came across this lost draft of a poem by the “If” man himself. Enjoy.

If you were a better agency partner…
- You would come to our offices, and stay for at least a whole day, no less than every other week.
- You would learn exactly how it is our business makes money, and whether we made any last year, and if we are making any this year.
- You would come clean, and tell us who on the account team is a real employee, and who is a freelancer. We’ll find out eventually.

If you were a better agency partner…
- You would go and buy our products or services on your own, and see what you think.
- You would be honest when we asked you to do something you don’t know how to do – rather than put some nube on the case who will embarrass us all.
- You would fire any employee who presents a PowerPoint or creative mock-up to us by reading every word on every page.

If you were a better agency partner…
- You would challenge everyone and anyone on our team who you felt wasn’t “getting it” – versus telling your colleagues during cocktails that “my clients just don’t get it.”
- You would challenge our assumptions and directions with your breadth of experience – which we don’t have – and a whole lot of facts.
- You would find things to add to this list, without us prompting you.

If you were a better client partner…
- You would come to our offices, and bring some of your junior team, at least once a month.
- You would introduce us to your boss within the first month, and your boss’s boss no later than the second.
- You would let us present our work WITH you, to your stakeholders. Better than doing it alone and doing a crap job giving us second-hand feedback later.

If you were a better client partner…
- You would set aside incremental budget to allow us to do more travel – to you and to where your customers are. So we get first-hand insight into what they want from you.
- You would spend at least the equivalent of two weeks per year face to face with your customers, to ensure what you thought last year about them is still true.
- You would stop hiding your financial data and campaign performance data from us.

If you were a better client partner…
- You wouldn’t throw us under the bus, and instead defend our work, when your colleagues start to question our capabilities
- You wouldn’t have your VP editing our work, in detail, in the 4th and 6th round of creative or copy review. Get the VP to trust your judgment and stop her from doing any editing at all.
- You wouldn’t ask why an invoice for travel on December 15th couldn’t have been put through that same year. In fact, you’d stop doing battle over any invoice under $2000.

If we both were better partners…
We would realize that despite all our best efforts, errors will occur, objectives will be missed, and perfection will never be achieved.

We would learn from our successes and failures every day, together;
And – which is more – we will be true partners, my friend!

Social Networking For Business – Jive Talkin’

The blogorrhea is so full of effluent about Facebook, one could be forgiven for missing the social networking wave among business users.

That's right. Corporate desk jockeys updating, blogging, microblogging, etc., all day long about work-related stuff. But all this SHARING isn’t done on Facebook or Twitter or Pinterest.

Turns out there are lots of entrepreneurial companies selling what is termed “ESN” (Enterprise Social Networking) by the SNC (social media cognoscenti). Even the big-ass guys like IBM, Cisco, and Salesforce.com are packaging their traditional software with social networking programs.

ESN vendors don’t rely on advertising or “virtual currency” (is it redundant to put that one in quotes?) as Facebook does. No FartVille here. Instead, these companies have an old-fashioned business model.

THEY CHARGE USERS A FEE TO ACCESS THEIR SOCIAL NETWORKING PLATFORM.

So things must be going swimmingly, yes? No.

First, let’s look at the financials for Jive Software, one of the few pure-play ESNs that is a public company (ESN’s contribution to sales for IBM et al. is so tiny it is not broken out separately for them). A license to print revenue. And a license to burn profits.

Lazy writers will point out that it is normal for subscription-based companies like Jive to lose money early on. They should take a look at the SG&A line, which has nothing to do with subscriptions, and watch how it has grown at the same rate as revenues.

Second, let’s see what users are getting from this. To do this, you need to absolutely tune out the white noise that comes from the press releases for users of Jive and other ESNs. There, all is good in the ivory tower.

But not on the ground, according to a study by the Altimeter Group.

On a four-point scale of satisfaction for a dozen key metrics *sarcasm* like “improve collaboration” and “share best practices,” not one scored over a 3. Over two-thirds of companies surveyed by Altimeter said their measurement of ESN's value was poor.

Right now, somewhere some corporate employee is Tweeting:

“Damn boss keeps telling us to use this bullsh&t social software during work hours. F&ck. Can’t people just call if they have something to tell you? Stop wasting my time.”

140 characters of just your jive talking.

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.

The Apple Of JC Penney’s Eye ?

The set-up to this story is pretty well known, so let’s summarize quickly:

The genius (get it ?!?!?) behind the Apple Store concept and execution, Ron Johnson, took the CEO role at J.C. Penney in November. Two months later he announced a complete business overhaul. The requisite change-of-logo and new brand theme.

Plus the requisite appointment of Ellen Degeneres as J.C. Penney spokesperson, making this her 428th company among the S&P 500 for which she holds such a role (that assumes she doesn’t sign on with Deere & Co. before this post gets, um, posted).

The real deal came in CEO Ron Johnson’s focus on merchandising, including pricing. Turning into “Fair and Square” and “Your Favorite Store” will be driven mainly via:

• A simplified pricing structure
• A massive store-within-a-store transformation

A critical component of the three-pronged pricing strategy is the elimination of deep-discount sales. Instead – *drum roll* – everyday low pricing. We’ve seen this “EDL” movie before. About a hundred times. It doesn’t end well. See Walmart. Several times.

Two-to-one odds JCP “modifies” its everyday-low approach by late September/early October 2012.

Much more problematic will be the retail renovations. From several of the media mentions of the new JCP comes this: “The company also plans to install 100 mini-shops in each location…” A hundred?

First, from a branding standpoint. Apple didn’t have to do any “brand” marketing these past several years. Instead, the sum of a TON of product marketing for iMacs and iPods and iPhones and iPads yielded a 1 + 1 + 1 + 1 = a zillion effect.

The sum of 100 stores-within-a-J.C.Penney-store will equal brand chaos.

Second, from an experience standpoint. Walking into an Apple store is akin to chancing upon a goat rodeo. But with infinite newly built space, walls of glass, brushed stainless, and handsome wood, it turns out to be a cool and innovative goat rodeo.

J.C. Penney doesn’t have the luxury of new space, or much time. How does J.C. Penney turn ONE HUNDRED stores-within-a-store into a branded experience, versus a “place to shop”?

And how can J.C. Penney make this perform like an Apple Store?

Instead of something like a Dhaka market.