Lairig Marketing

Kraft’s Greek Bailout

Are “Kraft” and “Greek” synonyms? You’d be excused for thinking so, given recent events.

Kraft will separate into two publicly traded companies later this year - one for its grocery business, one for its snacks. Never mind that snacks, such as Kraft’s Oreo cookies for example, are mainly sold in grocery stores. We await each prospectus for the tasty details of which Kraft products go in which Kraft company.

What to name the “new” companies? Follow this logic. The grocery business will be North America focused, and be called Kraft Foods Group. Not the “Grocery” Group, mind you. And, by the way, are snacks not “foods” ?

In any event, snacks will be a global business (see Cadbury acquisition), and will be called Kraft Snacks Group. What? Wait. What? Um, sorry, the snacks company will be called Mondelez. So bad, it comes with a pronunciation guide.

All that craziness swamped a much better strategy story. This one will make a great Harvard Business Review case study for future MBAs.

With no fanfare, Kraft announced in mid-April that it was bailing out of the Greek yogurt market. By the end of March. So, change the tense to “bailed” out.

(By the way, is yogurt a “food” or a “snack”? Discuss.)

Astounding. A market that is barely five years old, with TRIPLE-digit growth rates the past three years, now making up 25% of all yogurt sales in the U.S. And Kraft’s Athenos brand, a follower to market pioneers Chobani and Fage, already drops out.

Why?

It’s a tale of the product lifecycle, its impact on marketing, and profit. In the early stages of a product, every competitor must spend a ton on marketing to develop the market and grab fair share. The product needs to be good, too – another expensive proposition. Not a big deal when prices are near-perfume level, as Greek yogurt is, around 50 cents per ounce.

But when the leader has dominant market share – Chobani in this case, at 60% - Kraft can only look at its single-digit share and know it will never amount to much more. Look out a couple more years, when prices fall to around 40 cents per ounce, and Kraft sees there is really no path to growing a profit in this venture.

Profit. The only true measure of marketing ROI. For yogurt, at least, profit sounded Greek to Kraft.

NRF Drafts Economic Resolution – Make Every Day A Holiday

If every industry had a trade association like the National Retail Federation, our country’s economic woes would be a distant memory. We would, however, require roughly 182 days of the year to be some sort of holiday.

Déjà vu all over again. We wrote about the NRF’s sweetheart of a prediction for an 8.5% retail sales jump this past Valentine’s Day. And its scary forecast for a 20% spike in Halloween 2011 sales.

How did sales for those two holidays actually turn out? We don’t know. The NRF doesn’t care to check. It only tallies register rings on a prospective basis. And with Easter coming up, guess what press release is getting regurgitated this week?

The one from the National Retail Federation, assuring us of another blockbuster holiday. It begins:

“It seems even high prices at the pump can’t keep the Easter Bunny away this year.”

Oh dear.

The NRF boldly states that 2012 Easter sales will be up 11% over last year. As with the Valentine and Halloween forecasts, this one is based on a survey. As before, random consumers are given a token incentive to scroll through a grab-bag list of product categories and check off one of several spending levels.

Example: “When buying candy this Easter, how much do you plan to spend? Under $5? Between $5 and $10? etc. etc.” Followed in rapid succession by clothes, a holiday meal, gifts, flowers, decorations and, once again, those old-fangled things called greeting cards.

Little do the survey takers know that after all this box checking, they have "spent" on average an overall sum of $145.28. Can you imagine if the NRF showed each participant that total at the end of the survey and asked, “How likely are you to toss $145 into the wind this weekend?”

While we’re at it, let’s add this survey question:

"The following NRF quote is from which year – 1945, 1974, or 2012? ... 'Though the price of gas is on everyone’s mind, Easter is one of the few holidays some consumers are willing to stretch their budgets, especially because many children look forward to treats and new outfits on Easter morning.' ”

Believe it or not, that was NRF President and CEO Matthew Shay, in 2012. Speaking, apparently, from under a rock.

We are beginning to understand why the recent upbeat “Consumer Confidence" polls don’t make any sense at all.

Warning: Hazardous Economy Ahead (Part 5 – The Conclusion. For Now.)

So what? After all this digging, filtering, and assessment of economic data, what’s a good strategic marketer to do?

First, realize your advantage: forewarned is forearmed.

While everyone else is standing around with their hands on their ass, waiting for the release of the next seemingly one-off economic data point – that will no doubt be at crosswinds to the one from the week prior, prompting them all to drool in unison – you’ll have a fuller context that allows you to forecast what each new number will be.

>>> Summary of Takeaway #1 – Start developing your own near-term forecasts for all the economic signals we’ve discussed across this series: weekly unemployment claims, housing sales, foreclosures, GDP, etc.

Then, instead of reading TechCrunch, look around for practical subject matter experts, who give lucid explanations of how economic factors impact businesses.

>>> Summary of Takeaway #2 – Create a list of trusted sources in the field of economics (feel free to start with the ones mentioned in part 4. Consult them frequently as you undertake the third step…

…Which is to develop 12-month-rolling business revenue forecasts for three scenarios:

1. GDP growth of 2% throughout 2012, 3% throughout 2013.
2. “Turning Japanese” scenario of 1% GDP growth throughout 2012 and 2013.
3. Recession scenario of negative GDP growth from middle of Q2 through middle of Q4 2012, followed by 2.5% GDP growth in 2013.

Modify each scenario’s parameters as new data come in. Adjust business forecasts accordingly. With luck, the third scenario falls away over time.

>>> Summary of Takeaway #3 – Forecast business revenues across “bad,” “flat,” and “tepid” economic scenarios. Project marketing strategies, resource requirements, and contingency plans for each.

Every moving part of your marketing should be addressed at this part of the process. For each scenario, what changes will occur for existing-customer focus? agency relationships? partner marketing programs? prioritization of acquisition target segments? media allocation? new-product launches? distribution channels? – just to name a few.

Think of the advantage all of this will give you. While your competitors plan for ever-elusive growth, they remain completely unprepared for stasis or collapse. Vice versa for you.

If the only thing your business is unprepared for is growth, that will be a great problem to have in 2012.

Playing Games With The Game Industry

Now we know it is not just smartphone “users” who play games 50% of the time (watch out as they bear down on you on the sidewalk, or maybe even on the highway). According to a study by Frank N. Magid Associates, 7 of every 10 Americans between 13 and 54 years of age are classified as “casual gamers.”

That one data point ruins what is a fairly informative report about games – e.g., most popular access devices, differences in age groups, etc. To get a number as high as 7 in 10, it appears Magid had to reverse-engineer the definition of “casual gamer.”

Its definition? Play just once a month. A frequency that seems way different than the one researchers use to classify “casual sex.” Ridiculous. One can only wonder what Magid would have reported if the definition was once per week.

This definition is important, to help us understand how big games are going to get. The only thing we know for sure is that there is a slow transition from console to digital. The rest is a conundrum.

The State of Retail
Monthly industry data are always a riddle. In February, video gaming sales were reported to have fallen 20% from prior year. Not to fear, they say. “Lack of major titles.” You hear this about six times a year.

This lumpiness in revenue seems to run counter to the 7 out of 10 supposition. If that many were truly playing, new titles would be coming out every week.

Zynga’s Zig Zag
Now we know why Zynga is cheating on Facebook. A nice bit of research by a chap at GAMESbrief notes engagement time with games on Facebook is down some 25%.

Zynga is burning money at a rapid rate trying to find those “7 out of 10.” Wall Street analysts get a bad case of déjà vu when listening to Zynga management report earnings on a “non-GAAP” basis. Talk about playing games.

Just Like The Year Of Mobile Advertising
Speaking of déjà vu, in between begging marketers to spend money on mobile advertising, digital gurus point to this being “the year in-game advertising breaks out.” For the second year in a row.

For reference, we are currently in year #6 of “the year of mobile advertising.”

It appears it might take exactly that long for in-game advertising to become a winner.

Seems Every Day Is Like Halloween

No, those aren’t lyrics from a famous mid-80s Ministry song (but one we will certainly feature as the “80’s Video of the Week” this coming Halloween). It is a reference to an earlier post, in which we slammed the National Retail Federation’s forecast for 2011 Halloween sales.

If you recall, the NRF predicted a 20% increase. TWENTY PERCENT. Hello? Sh&tty economy, much? Here’s a major point we made back then:

“Outside of Christmas, the numbers are insignificant, representing around one-tenth of one percent of annual retail sales. Plus, no one ever goes back to see how close the forecast compared to actual spending.”

As proof of the second sentence above, Google “Halloween sales 2011.” Pages and pages of results noting the forecast. Not a single group – NOT EVEN THE NRF – bothered to see what actually happened.

We estimate, via GDP and monthly retailer reports and same-store comps, Halloween sales in 2011 were probably “up” in the range of 0% to 5%. Not 20%. But we will never know. Never. Ever.

It just doesn’t stop.

Here we are – another major holiday. Get out there and spend with both hands, because here’s what the NRF predicts:

"Consumers are set to pull out all the stops this Valentine’s Day, with the average person shelling out $126.03, up 8.5% over last year…”

In fact, when you go to the NRF home page, the headline is written as if it has already happened:

“Valentine’s spending hits $17 billion.” Hits. Not “will hit.” Hits.

What a crock of hit.

The details are even funnier. (And remember, the data is from a survey of intent, from consumers given an incentive such as a bag of little Snickers bars).

For example, the NRF says 36% of the total Valentine’s Day spending will be on flowers. Yet only 18% of survey respondents said they plan to shop at a florist.

Another one: the percentage saying they will buy jewelry hit its “highest ever in the survey’s history” – 19%. If this is true, then we should see a spike in next month’s consumer credit data.

Here’s the best one: Men’s planned spending is twice that of women.

Guilt? Or just survey bravado?

The Other 99% Protest

It sounds counterintuitive, but hard economic times boost the rate of small-business formation. As the 1%, the big corporations, lay people off in droves and/or stop hiring, people are forced to make money somehow.

Things that are juicing that trend this time around include:

• Digital technology, which allows anybody – ANYBODY – to form an online business


• Venture capital, still at absurd levels, looking for a home


• Newfound disgust with the 1%, the big businesses (see #OWS)

There are, of course, significant challenges also:

• Banks completely unwilling to lend to small business


• Large % of the workforce “shovel ready” only – except that the U.S. is done with manual labor

The new normal is very very very small business.

The best evidence I’ve found is online travel. With the 1%ers like Expedia, Priceline, et al., seemingly dominant, one would think the opportunity for a small business to succeed would be zero. Remember the human travel agents from pre-2000?

Then you read something like this:

“PhoCusWright analyzed 193 travel-related startups, finding the companies raised $243 million in venture funding…”

I’m not sure which data point is more stunning.

Led by the likes of Wanderfly, Gogobot, and Hipmunk, a part of the 99% has found ways to leverage digital technology, social media, user content, and aggregation faster and better than the 1% can. (Selecting a name for their company, obviously, was not a strong suit.)

To be sure, we are talking about niche markets. That comes from focus and delivering unique, consistent value. Any of these small travel companies that change those two parameters will signal that their real intent is to cash out and be a part of the 1%.

Some of the 1%ers, by the way, are stealing from this playbook. See Kraft splitting itself into two. Even Netflix, the recent backpedaling over single point of access notwithstanding.

We may have lost the battle in the financial sector. But the new normal for business – get small, get focused, add value that consumers want many times a year – will give the 99% something to aspire to.

For a pretty long time.

Women’s Glib – Recession-Proof

Looking at the “top movers” on the stock market Wednesday, I was surprised to see our friends at Demand Media up 10% on the day. Turns out management had announced a plan to buy back $25 million of shares, in an attempt to arrest DMD’s stock-price plunge.

(Even with that 10% jump, at the end of Wednesday DMD was down 72% from its IPO high, four more percentage points than when we wrote about them a couple of months ago.)

Just as interesting, though, was a second press release, completely overshadowed by the stock buyback news:

“eHow, a Demand Media property…today announced the launch of Shift, a new channel created to inspire women who want to make changes in their lives and positively impact others around them.”

Now, back to what we said at the end of July:

“[Demand Media] doesn’t generate “heavy readers” or “fans.” Just fly-by Web searchers…DMD’s advertising-based business model requires millions of “fly-bys.” And a million-plus-one the next day, and so on.”

We said DMD needed to pull a rabbit of its hat to survive. Instead it went to the deepest well on the Internet – content for women. And it picked the most overdone topic, outside of coupons and meatloaf recipes = life inspiration. Could there be anything more general and generic?

And crowded. Oprah. Suzie Orman. A gazillion mommy bloggers. On and on. Any last tidbit of inspirational thought has been wrung dry.

Yet women don’t care. They will, for a time, add Shift to their daily routine. And leave vapid comments. For example, here is one of the first reader comments on Shift: “Inspiring! Looking forward to lots of elevating information!” Note the exclamation points!

This will go on for a while until women realize that 95% of the content on Shift is simply reorganized content already existing, as is, on eHow’s main site. Which, we’ve been told by SEO “experts,” is a Google no-no. By rights, none of the content on Shift should therefore show up in a Google search (side note: no SEO experts have responded to our challenge, and Lairig Marketing is now unindexed by Google since September 27 – methinks another Panda is afoot and none of the experts has a clue).

So, give Demand Media an “F” for Shift. Better yet, take the “F” away, and what’s left describes the site pretty well.

Netflix Revised Subscriber Guidance: Netflinch

News so important it interrupts our normally scheduled Friday Fast Four. So important that we’ve upped our word count by 100.

First, we shall break our arm patting our back. Our prediction for this year’s July back in December 2010:

“The financial press is awash in headlines like ‘Netflix: The Best Short Ever?’…”

On July 13th (!!!) Netflix hit its all-time high, just short of $300. Since then it has slid, tripped and finally tumbled to $170. For those that shorted Netflix on the right day, you just made a return of 43%. You can thank us later.

Now to a bit of analysis about Netflix that you will not read anywhere else.

The blogo-rhea is flooded with knee-jerk “examination” of yesterday’s terse but honest guidance from Netflix management. Even Wall Street followed suit (!!!), cutting the share price by nearly 20%. All of this driven by a 2.7% reduction in forecasted subscriber count (and not an “actual” loss as some dopes are reporting).

Because almost all of Netflix’s reduced guidance is from DVD-only subs, here is the typical reaction by bloggers, many who should know better: “Netflix raised its prices too much.”

Oh dear.

Here is what you should really think about. Someone in the corporate strategy department at Netflix fuxed up the forecast. Here are two inputs he or she messed up, and you can also take these as learnings based on the revised guidance.

1) The 800,000 subscriber overestimate in DVD-only means this (and sorry for the caps, but we don’t want skimmers to miss it):

NOT AS MANY HOUSEHOLDS ARE PREPARED TO GO OVER-THE-TOP AS EVERY PUNDIT WITH SIX “CONNECTED” DEVICES BELIEVES.

There are simply too many households without the wherewithal – money, equipment, or knowledge – to watch “TV” on a laptop and/or hook a laptop to the crappy old TV set they own.

Now, as a set-up to the Netflix forecasting mistake/learning #2. Where did those 800,000 go? Notice the Netflix streaming number was also reduced, by 200,000. WHERE DID THE 800,000 GO?

2) The drop in Netflix’s streaming-subscriber guidance means this:

NETFLIX IS MAINLY A SUPPLEMENT TO PAY TV. NOT A REPLACEMENT.

The 800,000 will simply rely on their CURRENT cable or satellite provider for video entertainment. The new, much higher price from Netflix adds 20% or more to the monthly household “TV” outlay.

These households just don’t have the funds for it. Now, and for a long time (see long-term unemployed; and U.S. poverty rate).

Only loyal Lairig Marketing readers will see this Netflix analysis of course. The same ones who could have told their neighbors to get out of NFLX stock in late June or early July.

Meantime, let’s make another prediction: Deep in the basement at Netflix headquarters, a corporate strategist is about to get “streamed.”

In Auto Sales, Timing Is Everything

Ah, the days when the U.S. auto industry used to pound out 16 million units in sales per year. That, of course, changed in 2008. The Great Recession lowered the boom, dropping the sales pace under 10 million.

Since then, with federal intervention, management changes, a few corporate overhauls (see Chrysler), and even some interesting Super Bowl advertising, the industry has come crawling back. The traditional “Big 3” have even reclaimed some share from Toyota and Honda (see earthquake and sticky mats).

Because the economy is as sticky as those Toyota floor mats, however, the annual sales rate is a bit stuck around 12 million. Bad news for the industry, right? Yes, if you only look at new-car sales.

There is another segment of the auto industry that gets little press. Used cars. Which sell at a rate of 40-million-plus per year. And the used-car sector is looking at even better news, according to Kelly Blue Book research.

Used-car prices are at historic highs, and Kelly expects them to stay high for two or three more years (which means, of course, they won’t, but I digress). Since the bottom of 2008, average resale values have come back up by nearly 50%. I don’t believe new cars have been as fortunate in that statistic.

So, this is partly a story of being in the right subsector of an industry at the right time. If timing were the only part, then we would act like the Wall Street analysts who are currently downgrading the stock of CarMax, the biggest U.S. used-car dealer and who did exactly as we predicted in our Super Bowl advertising preview earlier this year, by the way.

CarMax reports quarterly earnings next week. It will be interesting to see how Wall Street reacts to another excellent quarter. As marketers, though, it will be more interesting to divine what management says about the future, and if marketing will play a role.

Can CarMax and its brethren such as AutoZone, body shops, tire replacers and oil changers use marketing to break the “timing” cycle? Can they be in the right place, all the time?

Private Label – A Little Too Private

I’ve said it before, and I’ll say it again – if price was the prime factor in the purchase decision, grocery stores would be balls to the wall with generics. Most of you are too young to remember, but those plain white boxes labeled with no other words than “spaghetti” didn’t exactly fly off the shelves in the 1980s.

In between generics and the well-known brands we shop today (Kellogg’s, Nestle, et al.) are the private labels. They took some cues from the mistakes generics made, and have been on a steady rise. What has been most significant in private label, though, is the religion retailers got:

“If we can control private label end to end, we can make a killing.”

Instead of enabling other entrepreneurs, one by one the retailers developed their own “house” or “store” brands, and stuck them on their own shelves. Lo and behold, their share of total sales crept up a couple of percentage points each year. Then the Great Recession drove private label market share even higher.

So how come the data just in, from the Private Label Manufacturing Association (PLMA), shows private label in grocery stores went up only two more percentage points in 2010? Millions of home owners are in foreclosure. The number of long-term unemployed, over 52 weeks, over 99 weeks, are at Depression levels. With only 15% or so of Americans with annual income over $100,000 (which Ad Age yesterday categorize as “the rich” – huh?).

Believe it or not, private label’s increase was due to PRICE. On a unit sales basis, private labels DECLINED in 2010.

What. Is up. With that?!?

Three things: Branding, Differentiation, & Value-Add. Fundamentals of marketing private labels can no longer work around. There is formidable competition among real brands. In fact, a report just released by the Grocery Manufacturers Association and PwC claims that branded companies had significant sales increases in 2010.

Branding
You can’t start at the preference phase of the marketing cycle. That only gets you the low-hanging fruit – i.e., customers who already shop your store. To keep growing, you need net new buyers, and that requires full branding efforts. See “awareness” and “consideration.”

Differentiation
You can’t be the same, only cheaper. Store brands have spent inordinate amounts on “legit” packaging. That is skin deep. How does that make your spaghetti any better than Barilla?

Value-Add
This is where the game is being won, more and more. What else does your house-branded product bring – Healthy eating? Green production? Recipes? Children’s flavors?

If the private label sector ruminates a bit on the PLMA 2010 sales data, it might find that being so private about marketing fundamentals will make 2011 results look even worse.