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					Pivot Point


Playing Checkers


Not since Richard Nixon imposed wage-price controls in 1971 have brand marketers faced a point as pivotal as the one they face
today.
     It was Nixon‟s failed attempt to control inflation by freezing wages and prices that led to the trade promotions that forever altered
the relationship between retailers and brand marketers.
     As soon as the controls were lifted, marketers wanted to make sure they would never be hogtied like that again. So, they artificially
inflated their prices and started dealing back the difference as discounts to retailers.
     Thus began the power shift from brands to retailers, a shift that could now assume a whole new dimension in light of what could
be the most severe economic crisis in our lifetimes.
     It‟s no secret that the substandard “private labels” of yesterday are today often just as good or better than the national brands they
copy. The recession is a killer incentive program for shoppers to give these store brands a try. Once they do, will they ever return to
the national brands?
     One can‟t help but wonder whether we might someday look back on the economic meltdown of 2008 as the moment when retailers
finally sealed the deal with shoppers for their brand loyalties.
     So far, some brand marketers are responding with downsized packages, cheaper ingredients and deeper discounts. However, as
Nestlé and others have shown, even economically-stretched shoppers will pay a premium for brand experiences that meet their needs in
fresh, innovative, and yes, relevant ways.
     So, what will it be? Checkers? Or Chess?


     Tim Manners, Editor-in-Chief




Cool News



Zara Buzz
The new, “two-level 22,700- square-foot” Zara store in Skokie, Illinois “is awash in dark wood, white walls, stainless steel accents
and glass … Garments hang on wooden hangers, as they would in a designer salon, and are displayed neatly along the walls and on
tables with plenty of room to walk in between …
“… The merchandise is grouped to help shoppers put together ensembles: sheer silk peasant blouses hang next to gray tweed skirts …
Shoes are dispersed throughout the store in repetitive patterns: Gray leather boots are lined up under a table of folded cardigans.”
In short, a remarkable shopping experience translates into remarkable buzz for Zara‟s, enabling the retailer to pull off its launch
“without a smidgen of advertising.” Zara‟s buzz is also being fueled by “local fashion blogs,” such as GalsGuide.com.
The interest is especially notable given that Zara‟s prices “are higher than rival fast-fashion chains H&M and Forever 21.” But Zara
does keep its prices relatively low by making most of its garments in-house. More important, Zara‟s trendsetters “feed fashion
intelligence to Zara‟s 300-person design team … Collections are shipped to Zara‟s 1,433 stores worldwide every two weeks, keeping
inventories fresh.”
[S O U R C E : Sandra M. Jones, Chicago Tribune, 9/26/08]
Plain Aldi
“What makes Aldi so special is that, quite simply, its prices are cheaper than just about anyone else‟s, including Wal-Mart‟s.” Now,
Aldi‟s U.S. sales are nowhere near Wal-Mart‟s — $3.3 billion in 2006 versus $92 billion for Wal-Mart, according to FMI. But Aldi‟s
focus on cutting costs makes Wal-Mart look almost like Whole Foods by comparison.
To save costs, Aldi doesn‟t take checks or credit cards, it provides neither bags nor baggers and you even have to pay a quarter to use
one of its shopping carts (it‟s refunded when you return it, saving Aldi the expense of an employee to round up the carts).
In addition (or maybe subtraction), “Aldi stores offer only 1,300 or so products, most of which are private-label brands. They are often
displayed in the store in the cardboard box in which they were delivered.”
The smaller formats simplify the shopping experience, and “ensures regular turnover, reduces spoilage and labor and gives Aldi
tremendous buying power with its suppliers.” Next year, Aldi plans to add another 100 U.S. stores to the approximately 950 it
currently operates. It has 1,800 stores worldwide.
[S O U R C E : Andrew Martin, The New York Times, 9/7/08]



Hermes Economy
“I used to buy Sirius stock to keep myself from buying more Hermes scarves,” says shopper Jan Goode. “Now my Hermes holdings
are much more valuable than my Sirius stock … Sirius is at 90 cents a share. I should have been buying scarves all along.” Such was
the rationalization of one wealthy woman for standing “on” line to get into a Hermes sample sale on West 18th Street in N.Y.C.
Another said: “Even if the economy‟s down, a sale is all the more reason to buy something nice.” She continued: “Buy something
nice, it makes you look good, you feel good. If you pay full price and things are unstable at your job, it takes away the enjoyment.”
Of course, “not paying full price” at a Hermes sample sale means a $900 pair of boots, and spending “nothing” apparently means
dropping at least a grand. As one shopper put it: “Even if I don‟t find anything, I still spend a thousand. It‟s like Costco.” Only without
the “light bulbs, toilet paper or toothpaste.”
But it‟s not as though some of these shoppers weren‟t feeling just a little guilty. “I‟ll only buy if it‟s something I really need,” said
one. Others wouldn‟t give their names because they were playing hooky from work to attend the sale.
“Let‟s just say my bank‟s still around,” hinted one anonymous shopper, “That narrows it down to about four.” To which another
retorted: “Stop bragging!”
[S O U R C E :Susan Dominus, The New York Times, 9/26/08]




Research Report
A Perfect Storm
By Dori Molitor, WomanWise



A new survey of U.S. women reveals fear, anger … and a rare opportunity to restore their trust.


These women came from every corner of the country, although mostly from America‟s heartland. They ranged in age from 25 to 65.
About half had less than $100,000 in household income and the other half had more. However, despite these differences in
demographics, they all had one thing in common: They were angry, they were frightened and they wanted to send a message to
corporate America.
    It was shortly after the news hit about the Lehman Brothers bankruptcy, the AIG bailout, and the stock market crash. The vague
sense that the economy was not doing well almost instantly transformed into the sickening reality that our country faced the harshest
economic climate since the Great Depression.
     It‟s not as though these women hadn‟t experienced economic hardship before. Every adult in America has been through the usual
cycles of economic boom and bust. But this time it felt different because, for the first time in a long time, it was possible to point to
specific reasons why this had happened.
     This economic crisis wasn‟t a normal part of living in America. It wasn‟t just another cycle. It exposed something very unsettling
and extremely unseemly about what the hackneyed phrase “business as usual” really means. Sensing the unrest and the historic nature
of the moment, WomanWise quickly crafted a brief survey and emailed it to our Articulate Women network nationwide.

FEAR AND LOATHING
     Within a matter of hours, more than 200 women had responded, and their message was clear: They were upset about what many
called the “greed” and “corruption” of corporate America, they were fearful that they might lose their jobs, their homes, their
retirement, and their ability to send or keep their children in college.
   “ Being a sole proprietor and single mom, I don‟t want to have to take out a line of credit to live like I did after 9/11.”
   “ My lifestyle is very simple, but I would not enjoy a life on the street selling pencils or apples for that matter.”
   “ As a divorced woman without any children, I wonder what will happen to me if my retirement isn‟t enough or if an illness wipes
    out what I have saved.”
     And yet, in the eye of this “perfect storm” of economic calamities, there was also a certain kind of calm. When asked, “How
much has the economy affected your lifestyle, an overwhelming 68 percent said only “somewhat.”
     Perhaps this was because the full impact of what was happening had not yet hit home. Maybe the reality of the situation was just
too hard to accept. Or possibly it was because, despite all the turmoil and the grief it was causing, these women were bracing
themselves in the eye of the storm, and remained hopeful that everything would be okay in the end.
     Maybe … or maybe not. In the meantime, many, if not most, of these women seemed eager to talk about the things that comforted
them. Certainly family and friends become even more important at times like these, but since our purpose was to gain insight from a
marketer‟s perspective, we asked specifically about how this recession might affect their brand loyalties.
     Many said that they would indeed give up on their favorite brands if there were a reasonable alternative that was less expensive.
Forty-four percent said these changes could become permanent if the cheaper alternative turned out to be better in quality than
expected.
     A few brands stood out as relatively impervious to such disloyalty — Heinz Ketchup, Tide detergent and Hellmann‟s Mayonnaise
were among the most frequently mentioned as brand names most likely to survive during hard times. Kraft, General Mills and Coca-
Cola also received a number of mentions in this regard.
   “Heinz Ketchup — I promised myself no matter what changes, that‟s the only brand I will use.”
   “Kraft Mac & Cheese because nothing compares to this brand.”
   “Tide laundry detergent. I‟ll buy clothes on sale but I don‟t want to give up the nice smell it gives them.”
     These brands clearly have earned their place as “comfort brands,” that we just can‟t bear to live without even if it means paying a
premium for them when we can least afford it. It‟s fair to say that such brands are few and far between, as most others find themselves
scrambling to offer coupons, discounts or other incentives to make up for their lack of a true connection to consumers.
     However, sprinkled in amongst the “comfort brands” was another category that former Procter & Gamble CMO Jim Stengel has
referred to as “purpose brands.” These are brands that connect at a deeper level and arguably resonate much stronger at a time when
corporate distrust is riding high.
     In the October 13th issue of Advertising Age, Mr. Stengel described purpose brands as having some mission larger than the brand
itself, and declared that given current economic conditions, this was “more important than ever.”
     While that is certainly an admirable outlook, the reality is that, for most brands, this simply means wrapping themselves in a
warm-and-fuzzy cloak of one charitable cause or another. This is not likely to make a difference to consumers who may have already
decided that these brands do not really have anyone‟s best interests at heart other than those of their own shareholders.
     Just as no one is fooled when packages are downsized or ingredients are compromised, everyone understands that most of what
passes for “corporate social responsibility” is little more than window dressing.
     There are some exceptions, however. A few brands were founded on core principles of social responsibility and a good number of
the women who took our survey indicated that this has earned their eternal loyalty, in good times and bad. The most frequently
mentioned “purpose” brands were Aveda and Method.

METHOD OF MADNESS
   Personally, I too, love Aveda, not only for its product quality, but just as importantly for what it brings to my life. When I use
Aveda‟s products, I know I‟m supporting something I believe in.
   All of their cosmetics and hair-care products are made from natural ingredients and manufactured in a way where they aren‟t
taking from the planet but working in harmony with it. It‟s worth noting that Aveda has sustained these principles even after Estee
Lauder acquired it in 1997. We don‟t know how Aveda is faring in the current economic environment because Lauder does not break
out its earnings, but I‟ll bet they are doing just fine, and probably better than most.
     Method has a similar appeal. As you may know, Method was founded by a couple of young guys, Adam Lowry and Eric Ryan,
who combined aesthetic packaging with a commitment to chemical-free household cleaning products. They call themselves the
“people against dirty.”
     According to their website, “dirty” isn‟t just a reference to your home or your body, “it‟s about cleaning up the way we clean …
At Method, we‟re in business to change business. In the same way we take the dirt out of cleaning, we strive to eliminate some of the
business‟s dirty practices.”
     That means that, in addition to creating toxin-free cleaning products, Method is committed to packaging from recycled materials
and, according to the company, offsetting “carbon emissions by planting forests and by buying electricity from renewable sources like
solar and wind energy — not perfect solutions, but important steps in the right direction.”
     Method was founded during the dot-com meltdown, but there is no question of its success. By 2006 it was generating $71 million
in sales and this year expects to hit $100 million.
     That ought to tell us something. Despite economic challenges at that time this brand captured consumer trial and loyalty.
Unfortunately, it seems that even amid the catastrophic events on Wall Street and the ensuing anger across America, most
corporations still haven‟t gotten the message that being socially responsible is not only a nicety, it‟s a moral obligation that can lead to
sustainable business advantage.

MADNESS OF MARKETERS
     According to a September 15th Advertising Age article by Jack Neff, a Duke University survey of chief marketing officers
found that distraction by the economic downturn is causing marketers to place less emphasis on “cause-related and environmental
issues.”
     Overall, the 72 CMOs surveyed ranked marketing that is “beneficial to society” dead last on their list of priorities for the year
ahead, behind “developing customer insights, sharing marketing knowledge and preparing for marketing crises.”
     Preparing for marketing crises? Hello? Anybody home?
     To be fair, our own survey confirmed this notion that most people give greater priority to affordable prices than to notions of
“corporate social responsibility.” Several survey respondents expressed remorse over shopping at Wal-Mart because they couldn‟t
afford not to. And others expressed a deep desire to have the means to stick to their personal values.
   “    I am sorry to say that I now shop at Wal-Mart for economic reasons though I have always been opposed to their business
    practices.”
   “   It makes me feel good to know that I‟m doing something good for the environment. And in this economy, I need to know that
    something good is happening.”
    But here‟s the thing: Women‟s demands for more meaning and happiness in their lives, and their expectation for business to be
more socially responsible, is not going away. In fact, their conviction is only enhanced, given the realities that led to this economic
meltdown that‟s causing them personal distress. Here‟s a glimpse of what they had to say to business leaders:
   “     I can‟t believe you sleep at night with your level of greed!”
   “     Stop the corrupt practices!”
   “     Karma‟s a bitch. Watch out. And think twice.”
    Consumers are stressed, scared and most importantly angry — and they‟re angry at you! More than ever they feel business has a
responsibility beyond managing the bottom line. While your competitors are focusing on coupons and cutting cost out of their
products, your opportunity is to take a stand for something that really matters at a time when consumers need to know you care.

BUILDING BELIEF BRANDS
    Trust is the key to every brand success. And now at a time when consumer trust of business is at an all time low, it‟s your
opportunity to build a belief brand:
Outside In  Inside Out
     Take your relationship with consumers to a higher, purpose-driven level. This requires doing some soul searching on what you
really care about and aligning it with your brand core values. It requires passion, uncompromised commitment, integrity, and a
willingness to sacrifice along the way. When you find that meaningful purpose, you have the potential to start a movement that truly
redefines the intensity of your relationship with employees, suppliers, consumers and shareholders.
Brand Insight  Cultural Insight
     Cultural insight leads to a more comprehensive understanding of your brand within the context of her life. It‟s not only
understanding your brand equities and her purchase-decision motivators; it‟s also digging deeper for gender, social, psychological and
cultural drivers to her behavior. From this insight you can discover your brand‟s single, subconscious emotional truth within the context
of her world. The more relevant that connection, the more intense her response.
Share of Market Share of Culture
     Belief brands own a share of culture. These brands are woven into the tapestry of our changing world and what really matters in our
lives. Belief brands have the potential to not only enrich a woman‟s life, but to impact the community, society and even the world at-
large. The brand validates and grows her identity as a caring person, and becomes a venue for her to make a difference while bringing
meaning to her life.
Beliefs  Action
      It‟s not only being clear about your brand‟s beliefs, but moving those beliefs into actionable behavior. Take a stand and create
opportunities for women to get engaged and involved. When she gets involved, she automatically becomes more committed and loyal
to the cause and your brand. It‟s less of a decision about which particular product to buy and more of a decision about whether this is a
cause worth fighting for and getting involved in.
Consumer v Advocate
     Are you chasing a sale, or creating brand advocates? Belief brands are surrounded by advocates with unwavering loyalty and
they‟ve earned that loyalty by selling a social ideal versus just a product. Not only does a belief brand benefit from commitment from
its advocates, it benefits from their contagious enthusiasm. Advocates passionately promote, recommend, endorse and become the fuel
that ignites brand enthusiasm.

A RARE OPPORTUNITY
     If the Method example is not enough to convince you, consider this: GE started during the recession of 1873, Disney started
during the recession of 1923-24, and Microsoft was founded during the recession of 1975. All these brands own a broader, deeper
space in consumers‟ lives that allow them to transcend time, recessions and hyper competition.
     As Eric Ryan of Method told Fast Company: “Starting a business in a recession is like vacationing in the off season … It‟s a little
less crowded, and everything starts to go on sale.”
     The same holds true today. Those brands that are competing on price are in a race to the market‟s bottom, whereas brands that are
socially responsible will enjoy sustainable advantage at the top.
     No excuses. Not this time. It is no longer acceptable and definitely not very smart to insist that you can‟t do these things because
they are too expensive, or that times are tough and consumers won‟t pay for them. We‟re in the eye of the perfect storm. The
opportunity is now… there is no middle ground! n

DORI MOLITOR is founder and CEO of WomanWise LLC (womanwise.com) a WatersMolitor Company, a hybrid consultancy-
agency specializing in marketing brands to women. Dori can be reached at dmolitor@womanwise.com or (952) 797-5000.




Agency CEO

Flying Fearless

Over the past 30 years, Ron Askew has seen it all, from both the brand and agency sides. He is a former chief marketing officer of
Coors, where he reinvigorated brand communications, and a vice-president at PepsiCo, where he launched three businesses.


    In between, Ron founded The Integer Group, building it into a $680 million agency, and today he is the chief executive officer of
TracyLocke, the agency where he started his career as an intern in the mid-1970s.
    We sat down with Ron to get his perspective on the changes he‟s seen in the marketing business from both sides of the desk over
the past three decades, and his thoughts on what will change in the years ahead.

What did you learn when you were on the brand side that you’re now applying to your agency world?
     I learned that getting the most out of the agency means creating an environment where there‟s a mutual journey to make the brand
better. That creates a dialogue about where the business is going and the obstacles to getting there that need to be addressed.

How about lessons you’ve learned on the agency side that every CMO ought to know?
    The biggest lesson is to be more fearless in the marketplace and make bolder moves. A lot of times, on the client side, people
want to go with smaller iterations rather than transformational ideas.
    We‟re really fortunate to have a number of clients who rally us to be fearless, because they‟re fearless. I like carrying that
message to other clients who aren‟t quite there.

If you had to pick one thing that an agency needs to succeed, what would that be?
     I think it‟s the relentless pursuit of big ideas. The agency that‟s thinking about ideas to go into different message portals, if you
will — whether in home, out-of-home, or at retail — that‟s the best quality for an agency to have.
     In the end, the relationship is fostered by providing results and solutions, particularly if you come up with solutions in a time of
transition or crisis. It really bonds the agency and the client together when you mutually solve something.

Can you give us an example of a big idea?
     Kimberly-Clark said they needed a way to sell their family of brands. We came up with a give-away program and then
determined how to take that out into marketplace, as opposed to starting with what the idea would look like at retail. It‟s really about
starting with the idea and then finding the best ways to take it across the different communications portals.

Where do you find the ideas?
    We‟ve really got everyone focused on thinking about the insights that drive creativity. So, for instance, if someone is coming home
and wants a snack, why do they want that snack? It‟s when you drill down and ask why they want that snack and find out that they are
looking for tension release, that‟s what helps drive the creative. Then, when the customer sees that creative, they say, “That is exactly
what I‟m looking for.”

Has the nature of that insight changed?
     Yes. Instead of having one planning department or strategy group, we now have two. One group focuses on the consumer
interacting with the brand as it relates to the overall brand image, and the other is a group of retail strategists who are focused on the
retail environment where those brands are marketed and sold.
     It‟s important to know the difference between a Walmart, a Target, a Kroger and a 7-Eleven — the need-states and user groups
that tend to gravitate to each of them vary greatly. You might have a more value-conscious consumer going to one outlet, and a more
convenience-oriented consumer going to another, for example.
     You have to figure out which messages in your brand architecture rise to the top so that you have the most impact in each market.
That‟s where the difference is in the insights. We‟re now able to customize programs that match what the brand equity is with each
retailer and align that to create a better business result.

How do you see the agency business changing in the years ahead?
     We‟ll no longer look at media as compartmentalized. If you talk to the people consuming “new media,” they don‟t look at it as “new
media.” It‟s their media. It‟s only those of us in the back, who are dragging our feet, who talk about different kinds of media. That will
change.
     With the clean-store policies, agencies are also going to have to deliver brand experiences, which used to be brand promotion.
Those experiences are going to be executed out-of-home at venues and on the web, digitally. That is how you‟re going to get value-
added promotions and interaction with the brand.
     At retail, the difference is that you‟re going to move away from mass promotions to very targeted promotions designed for a
retailer at a specific drive slot, or promotion period. It‟s going to be very targeted, with very few mass-market events.

Can you measure a brand experience?
     In many of our programs we are guiding people to a website where we can capture a whole host of information. First is, how
many people went there? In the past, when you ran an ad you weren‟t sure how many people even saw it to begin with. We had rough
measures to do that, but now, with the ability of a promotion or an in-store event or advertising to actually drive them to a website, we
have a lot more metrics than we used to.
     Also retailers have begun sharing results with manufacturers, more so than ever before. So, we‟re able to get more information on
how something performed. In some cases we can do that down to the performance by week, and in some cases by day. That wasn‟t
available before. We‟re now looking at behavior, and not just attitudes.
What advice would you give a young person starting a career in marketing?
    They should really be a student of the entire selling process, particularly if they are going into the agency business. They really
need an understanding of the different portals of information. Don‟t concentrate in any one area. Too many times we have young people
show up and say that they only want to do TV ads or promotions. You really need to have a broader band of experience going
forward.

What is your greatest challenge?
     The greatest challenge is to ensure that our people are feeling engaged and that we‟re coming up with ideas that drive the client‟s
business. The more engaged and excited our people are about being here the more they come up with big ideas. The more that happens
the more our clients are satisfied, which leads to longevity in the business.
     If I can keep an environment where our employees feel like there is freedom to fail, to be fearless, they have a support mechanism,
that they have resources to get insights to do their job — that‟s going to keep them really excited to come up with great ideas.

RON ASKEW is chief executive officer of TracyLocke, with clients including Kimberly-Clarke, Del Monte, Pepsi Co, Cloros, 7-
Eleven and Nokia, among others. He can be reached at ron.askew@tracylocke.com




Research Report

Thought Leaders

What does it mean to be a thought leader? Are you rising to the challenge? How about your company?

     In the September/October issue of The Hub, Hedy Lukas of Kimberly-Clark said: “We‟re challenging our agencies to challenge
us and stay fresh and not be just execution partners, but also to be thought leaders with us.”
     However based on our reader survey, it is safe to say that “thought leadership” is ill-defined at best and non-existent at worst in
the marketing business. We‟ve seldom seen so many meandering, cliché-ridden attempts at a definition.
     Here‟s a sample: “Having enough vision to look out to the horizon, imagine how things might change on the journey getting
there, and possessing the mental nimbleness to envision all the dynamics and potentialties there; to understand that vision and be able
to then envision what might be just over the horizon.” Hm. Russia, perhaps?
     Some were kind of philosophical: “The constant challenge to fail forward with fearless thinking.” “Having faith in something
when common sense tells you not to.” “Taking marketing from art to science and back to art.”
     Others were a bit more succinct: “Game-changing ideas,” said one respondent. “Be the change!” declared another. “Being ahead
of the curve,” said a third.
     What most seemed to be trying to say was perhaps best articulated by the respondent who defined thought leadership as “the
application of specific knowledge to the business challenges faced by the client.” Or, plain old “solving problems.”
     What kinds of problems? A huge majority— 78 percent — said that the marketing challenge most in need of thought leadership is
“innovation.” “Shopper insights” registered at just 40 percent, compared to 58 percent for “consumer insights.” This is a surprising
result, given all the chatter about “shopper insights” lately.
     The other responses, in order, were “generating growth” (59 percent); “building customer loyalty” (53 percent); “brand identity”
(49 percent); and “media R.O.I.” (40 percent).
     Despite the somewhat murky vision of what constitutes thought leadership, our survey respondents were clear about one thing:
Thought leadership — whatever that is — is a sure path to new business, client retention, profits and growth.
     When we asked how thought leadership has paid off for their companies, our respondents almost invariably cited some form of
business development. “It has become a competitive advantage for agencies who want to do more than advertising and who want to
have a bigger seat at the table,” said one respondent.
     Indeed, on the question of the relationship between thought leadership and client loyalty, 64 percent said it was “very” critical,
while 33 percent said it was only “somewhat” critical and three percent said it was “not at all” critical.
     Meanwhile, only 45 percent of respondents said they thought of themselves as thought leaders, with 44 percent saying they were
thought leaders only “sometimes.” Just 42 percent think their employers are thought leaders and a scant 34 percent believe the
marketing industry views their companies as thought leaders.
     Where thought leadership does exist, 53 percent said it was encouraged mostly by company “culture,” followed by “personal
recognition,” at 43 percent. Twenty-seven percent said that their companies did not encourage thought leadership at all. Meanwhile, an
overwhelming majority of 82 percent said that pressures for thought leadership had increased over the past 5-10 years.
     However, as one respondent cautioned: “Not all clients are really interested. They want to be interested, but also they want things
to be smooth — thought leadership is about exploration, it can be bumpy at first.” Added another: “The value of thought leadership
and client budgets are at odds. Budget usually wins.”

RESPONDENT PROFILE
    A total of 160 survey respondents included brand marketers (21%), consulting firms (24%) and agencies (29%). Twenty-eight
percent worked in packaged goods firms, 6% in media/entertainment and 4% in retail. A majority were senior-level executives with
76% reporting more than ten years of experience in marketing.




Roundtable

Back in Bed

What must agencies do to feel the love again?

How have your agency expectations changed over the past 5-10 years?
Mark Mears: As a CMO, the expectation is that you are under greater scrutiny for accountability. Back in the old days, marketing
was a bit of a “wizard behind the curtain.” Today, the CEO, CFO and the Board of Directors want to know what they are getting for
every dollar they spend.
Likewise, CMOs want agency resources to share that mentality and create ideas where the return on the investment can be measured.
CMOs want bigger ideas to break through the clutter of a fragmented media marketplace, but also more emphasis placed on
accountability for results.
Jim Zambito: Johnson & Johnson made a conscious effort this last year when we did the whole Pfizer integration to really level-set
the way we deal with our agencies on a much more global basis. Because we have global brands, we have realigned around a global
agency platform.
We‟ve raised the bar and agencies are responding. It‟s not as easy for them because they now have to be able to do every little thing.
We need much more of a holistic solution today, and that‟s something that they have to deal with.
Blll Pearce: It used to be you‟d jointly work on a copy strategy and then create a 30-second piece of film. You‟d test it, make your
airing decision, run your media plan and get ready for the next round of creative. Almost everything was focused on that 30-second
piece of film.
Today, the agency relationship is much more dynamic and complex, and the focus is on the various consumer touch points. It‟s about
creating the big idea and then deciding which agency is best positioned to make that work in the store, on TV, radio, online, or word-
of-mouth, for example.
So, it‟s a much broader set of agency people whom you touch and contact now. Five years ago, the traditional agencies absolutely
bristled to have to be in the same room with the design agency or the in-store marketing agency. Now they are a lot more open to it.
Some are acquiring new capabilities to try to become a one-stop shop.
Chris Maher: There‟s much more of a purchasing mentality today. Sometimes agencies are chosen largely because they are the
lowest cost producer. This adds a degree of predictability, but it doesn‟t necessarily mean that you‟re working with people who are
taking your business where you need to take it. Cost is always going to be important, but it‟s even more important to shift the focus
toward where the agency can take you versus how cheaply they can take you there.


What are the drivers of those changing expectations?
Mears: Marketing has become much more weighted towards science versus art. In the past, marketers and their agency partners have
not been as disciplined as they should have been.
The power has now changed hands from the marketer to the consumer, who is much more discerning as to whom they want to hear
from, what they want to hear and how they want to receive that information.
Zambito: The consumer is just so dramatically different and that‟s what‟s driving expectations. It‟s not business-as-usual, and things
have to have somewhat of a “360” look and feel.
It‟s not just about media; it‟s how consumers get information. When people think of media they automatically think of TV, radio,
magazine, and digital. But I look at it more as how consumers get information. It‟s not just the internet; it‟s the whole digital age.
Pearce: Just think about how often people are bombarded with marketing messages every day and how compelling the data is about
how many purchase decisions are made in the store, or how compelling it is that great designs can change a consumer‟s experience
with a brand.
There are so many different touch points that the consumer is influenced by and you can‟t prioritize one over the other. It has got to be
harmonious. It‟s like weaving fabric together; if we don‟t all work together, the fabric falls apart.
Maher: There has been tremendous consolidation within the industry both on the corporate and agency sides. As acquisitions occur,
clients see that they have a myriad of agencies and they tend to want to rationalize their agency roster so that they have a smaller,
more select group.
The easiest ways to make those determinations is on the cost side. Clients set certain cost expectations in terms of what the agency is
going to produce and what it‟s going to cost to produce that. The creative side is important, but it‟s subjective. It‟s much easier to
make apples-to-apples comparisons based on cost.


What creates loyalty between clients and agencies?
Mears: What drives loyalty to an agency is a sense of partnership that we‟re in this together. I know that sounds a bit cliché, but
sometimes the bigger agencies have a sense of arrogance, and don‟t work as hard as the smaller or boutique agencies. They oftentimes
bring less seasoned client management folks to the table.
What erodes loyalty is if you feel like you‟re paying for overhead and junior-level resources instead of the senior-level resources that
pitched you in the first place.
You feel like the agency really isn‟t a partner in your business. It feels like they are really more interested in meeting their own bottom
lines and delivering their own results to their holding companies and their own shareholders.
Unfortunately, agencies today have become commodities. They‟ve allowed themselves to lose the uniqueness that differentiated one
agency philosophy from another. They‟ve lost their soul and they‟ve lost their point of distinction, which is why clients today treat
them like commodities.
Zambito: Johnson & Johnson is a results-driven culture, and we‟ve had great success with performance-based agency compensation.
So, if business results are good, then agency compensation goes up. And then conversely, if it‟s not so good, then potentially agency
compensation could go down. If the agency is up for that, it improves agency loyalty.
However, agency loyalty can start to corrode when you start to think in more of a short-term, project-based mentality. Then it becomes
more like buying a commodity, which we don‟t want to do. For brand building, that‟s not where we want to be.
Pearce: The agency relationship is really hard to develop and nurture, but you have to do it. It‟s the right thing to do for the business
and the right thing to do for all the people involved. But that‟s harder to do when you have so many different agencies because it
fractures the time that you spend with your primary agency.
Not having as much time to develop those relationships create a strain, so you have to be extra cognizant of building that relationship
in spite of all the other distractions. You also have to be brutally honest with each other. Otherwise, you can‟t get to the relationship
that you need and you won‟t get the work you need.
Maher: There was a time, some years ago, when agencies that did good work were considered to be part of the team, and usually
survived changes in management. Today, when new management comes in and wants to zero-base everything, oftentimes that process
includes changes in the agency relationship as well.
Loyalty, to a large extent, is a function of the imbalance between cost and expectations. The more the client focuses on cost, the less
there is a reason for loyalty because basically what you‟re looking for is how to get whatever it is you need to have done at a lower cost.


What is the most dramatic change in the agency business?
Mears: The most dramatic change is that the agency — the traditional advertising agency — used to be the trusted advisor to their
client partners. They were the voice in their ear at the strategic table. Today, that seat at the strategic table has been taken by consultants
or again, smaller, boutique agency resources with senior-level managers.
The bigger agency partners have been relegated to the end of the table — if not the kids‟ table. They are being used more for creative
work than really strategic marketing work.
Media have been de-coupled from the large agencies for the most part and has been farmed out to media buying services. As a result,
the commissions that agencies make have been reduced to almost nil from where they used to be. So, the compensation model has also
changed dramatically.
Zambito: I‟m worried when I hear agency people saying that they can‟t recruit, that they‟re not attracting the best creative minds.
That‟s something that‟s got to change.
It would be a great question to ask a creative or an account manager at one of the agencies. The question is, what do we need to
change to attract the best and brightest talent?
But for me, as an advertiser, the most dramatic change is how quickly they‟ve had to transform. And that‟s not easy.
Pearce: The most dramatic change has got to be the consolidation. The roll up happened at the same time that clients began requiring
different levels of expertise. So, you had distractions at the agency level caused by the change of reporting relationships, layoffs,
questions about ownership, and so forth.
At the same time, there was almost a revolution happening in the marketplace. I‟ve talked to folks who have been around the
marketing world for 40 years who say they can‟t understand how we deal with it.
It‟s so much harder to get all the other elements of the toolkit working together and at the same quality.
Maher: It used to be that working on the agency side was a sought-after career among people coming out of the best schools. Going
back as far as the ‟80s, and certainly in the ‟90s, there was a lot of movement away from marketing and toward banking and, of
course, the dot-coms.
The pendulum has now swung to a point where agencies really can‟t deliver more for less and are struggling to deliver even the same
for less. Agencies are having a very hard time developing their businesses over the long-term because they are so squeezed in terms of
top-line revenues, as well as their margins, in the short-term.


What is your best advice for agencies?
Mears: It really depends on what size of agency and what type of agency. If it‟s a larger agency, they need to be more nimble,
entrepreneurial and go back to their roots of what made them successful in the first place instead of showing up as a large holding
company conglomerate with quarterly earnings targets to hit.
The smaller agencies need to continue to do what has made them successful, which is to imbue themselves into their clients‟ business
and really play that role as “subject-matter expert” to deliver the results that clients today are looking for.
Zambito: Agencies need to be as creative and innovative as they can be. You have to be constantly innovating, constantly pushing the
envelope. It‟s just so hard to keep up with the complexity of what‟s out there and the need to do more. The need to do more is constant.
There is a metamorphosis going on right now and it‟s very encouraging. The best advice is to just keep pushing, just do the
unexpected. Let us see things that we‟ve never seen before.
We‟ve recently completed an expansive parent-company pitch process for our U.S. pharmaceutical businesses. The holding companies
wowed us with the future of healthcare marketing. That type of integrated and innovative approach is a future we want to play and
lead in.
It‟s an exciting time and we want our agencies to be there at our side, building our great brands.
Pearce: Agencies should hold themselves and their clients to the same standard. Be direct, and be critical of the work and the strategy
because you can‟t get great work without a great strategy. You can‟t get a great strategy without great insight. All of those things have
to work in concert. So, if you take care of that, the great work is going to follow.
It‟s a different time, but the folks that do great insight work and can develop great strategies are going to thrive in this market, and
markets in the future. The industry has got a terrific upside. It‟s just going to be different. We have to be adaptable, and not hold to old
favorite tools, and just be flexible and take our cue from the consumer. If we do that, we‟ve all got a great future.
Maher: The smart agencies will take the lead in redefining the way they do business and investing in the things that make them
different.
They need to look at certain non-differentiating, process-oriented functions that might be better handled externally and shift some
costs from fixed to variable costs. That will give them a whole lot more flexibility in terms of how they attack client challenges.
We‟re looking at a more flexible, nimble organization where the investment is in the people who can really make a difference.
Maybe the solution is in-house or maybe it‟s out-of-house, but agencies need to find ways to take as much cost as they can out of the
production side of the equation.
That way they can refocus attention on the things that make the agency different and valuable to its clients.


MARK MEARS is chief marketing officer for The Cheesecake Factory, responsible for strategic brand positioning including the
development and implementation of all integrated marketing and sales generating activities across three restaurant brands.

JIM ZAMBITO, executive director of the Global Marketing Group at Johnson & Johnson, is responsible for financially optimizing
the on-going performance of advertising and marketing-related partners with the Johnson & Johnson operating companies they support.

BILL PEARCE is chief marketing officer for Del Monte, overseeing the company‟s entire marketing organization, including pet and
consumer marketing, as well as research, package design and promotions. Previously, he was CMO of Taco Bell.

CHRIS MAHER is managing director of GreenLight (go-greenlight.net), specialists in using world sourcing to improve marketing
efficiencies. A former CEO of MarketingDrive Worldwide, Chris can be reached at chrism@zslinc.com or (203) 940-6069.




White Paper


Cut the Mustard


Yes, it is critically important to understand how the mindset of the shopper is different from that of the consumer. But we must not
forget that the shopper and the consumer is the same person. The greatest challenge of shopper marketing is, in fact, connecting the
shopper experience to the consumer experience.

     The most important insight of all is how shoppers plan to use what they buy once they‟re back home, once again living their lives
as consumers.
     To that end, the most important thing we can do to help is re-design the center of the store because that‟s where the disconnect
between shopping and consuming is most pronounced. Most center-store aisles are jammed with almost comical, and certainly
nonsensical, overabundance that is completely divorced from reality.
     I mean, have you ever looked at the imported mustards at your local grocery store? Go to what used to be called the glass aisle
(talk about a lack of shopper orientation!). Once you get past the French‟s and the Grey Poupons, you‟ll find 30-50 SKUs of fancy,
expensive — and dusty — jars of mustard that nobody ever buys.
     It‟s not just the mustard. If the average supermarket has 30,000 SKUs, the truth is that probably a third of those have very little sales
impact.
     Tesco‟s Fresh & Easy, among others, has edited down its product assortment to make it easier to shop their stores. That‟s the right
direction, but the larger opportunity is to re-arrange the shelves with shoppers in mind.

REALITIES AT RETAIL
     The point is, now that we‟re having a conversation about the shopper, it‟s time to face reality about what‟s really going on in the
store. Part of that reality is that many retailers have done a great job with their meat, seafood, produce, deli and bakery departments.
The shopping experience around the store‟s perimeter can, in fact, be quite good in some stores.
     Unfortunately, the center of the store usually is anything but an engaging or exciting experience. It‟s where shopping for groceries
starts to feel like work. It‟s not just that there are 32 kinds of mustard that nobody buys. It‟s that there‟s little rhyme or reason to the
way stores are organized from a shopper‟s perspective.
     Let‟s talk about snacks for a moment.
     When we shop, we‟re not really thinking about buying cookies versus candy versus salty snacks. We‟re thinking about snacks.
But where are they? Well... they‟re scattered across the stores, in aisle two, aisle four, aisle seven and aisle nine. Why is that?
     It‟s because we don‟t see the store the way shoppers do. We think about categories and take a very orderly, linear view of how the
store ought to be organized. We‟ve become so category-centric in our thinking that we‟ve lost sight of what those categories mean
outside the four walls of the store, out in the real world.
     The fact is, those categories mean almost nothing after the shopper leaves the store. This is what has prevented us from getting at
the kinds of insights that will lead to a better shopping experience and really pay off this whole notion of “shopper marketing.”
     It‟s not as scary as it sounds.
     In some ways, it is easier to make changes in the center of the store than on the perimeter, because there‟s not as much waste and
inefficiency on the perimeter. Once the assortment is streamlined, all sorts of possibilities open up.

WHERE TO START
     Granted, it‟s not easy to decide where to start. The good news is that there are an almost infinite number of things that can be
tested or put in front of shoppers to see how it might affect their behavior. The bad news is that there are almost an infinite number of
things to put in front of shoppers to see how it might affect their behavior!
     First of all, we need to come up with viable and testable concepts, but which are viable to test? We need a filtering process to
determine what‟s real and doable.
     Second, once we identify a concept that‟s viable and testable, how do we execute against it? Retailers aren‟t about to let
manufacturers blow up their categories on the off chance that things might look better after the dust settles.
     A handful of leading-edge brands are trying to overcome that hurdle with new technologies that digitize every SKU in a given store
and present the result in a 3-D, virtual-reality format. One of the most sophisticated programs, offered by U.K.-based Red Dot Square,
creates a level of interactivity and virtual reality that it‟s fair to say rivals that of the Nintendo Wii.
     I recently “test drove” this program, which Red Dot Square calls VISSRAE, at one of its 50 U.S. research centers, most of which
are located at shopping malls. I stood in front of a 50-inch HD plasma TV, with my hands grasping what felt like a shopping cart
handle. It‟s actually just a handlebar attached to a giant joystick, but the effect is surprisingly realistic.
     I walked in from the parking lot, entered the store (Red Dot Square can replicate any kind of retail format). I walked up and down
the aisles, taking items off the shelves via touch-screen technology, reading all sides of the 3-D packages and placing items in my cart.
Everything was adjusted so that my perspective matched my height, and biometric technology tracked what I noticed inside the store
and what I didn‟t.
     The software allows the retailer or manufacturer simply to swap out a brand or completely relocate an entire section to another
part of the store. You can walk up any aisle and either buy things the way the store is configured today, or re-configured to test new
possibilities.
     Afterwards, I spoke with Wayne Link, a vice president with Red Dot Square, who said that the idea was to all but eliminate what
separates virtual reality from reality. He told me about a test Red Dot Square did with Kimberly-Clark and Safeway to see what would
happen if the seven categories of baby-care items Kimberly-Clark currently sold across four or five aisles were grouped together under
various, shopper-centric themes.
     They didn‟t change the SKUs, the price, or anything else in the marketing mix. The only thing that changed was that products were
grouped the way consumers use them. Wayne says that sales grew by more than 20 percent in those seven categories.
     Through testing and insights, we might prove that this kind of approach creates a better shopping experience, and increases sales
as a result. Shoppers become loyal customers because they‟re finding solutions, as opposed to an impressive but irrelevant assortment
of mustards. Shoppers and consumers are satisfied in a holistic fashion.
     Yes, we can deliver on the promise of shopper marketing, but clearly we need to be able to test what works and what doesn‟t
without the risk and expense of turning stores into laboratories.
     We need to identify and quantify the potential key business drivers, and narrow down to those most likely to have a positive
effect. For the first time, we have the kind of technology we need to allow us to do just that.

MICHAEL SHINALL is CEO of Meridian Consulting Group, specialists in helping brand marketers gain competitive advantage
through strategic working relationships with retailers. He can be reached at shinallm@meridianconsulting.com




Cover Story

FAO is A-OK!

David Niggli of FAO Schwarz retails the greatest toy story ever told.

When last we left FAO Schwarz, we left it for dead. Every single one of its stores was closed, and it was in Chapter 11 bankruptcy.
That was five years ago. Today, as David Niggli, FAO‟s president and chief merchandising officer will tell you, it‟s a whole new
story.
The place is teeming with shoppers, but somehow it doesn‟t feel crowded. Multicolored lights twinkle above, like stars over Fifth
Avenue. The sweet smell of candy mixes with the soothing rhythm of a reggae beat.

A few feet away, you are treated to the now-famous Myachi guys, doing amazing tricks with beanbags (see sidebar). Step inside the
Harry Potter boutique and it‟s like you‟ve wandered into Diagon Alley. The young wizard behind the counter casts a stony look at you
and you‟re convinced that you actually have.

Little kids are dancing with abandon on the famous giant keyboard.
And, yes, the fellow with the boomerang airplanes is still there, throwing his little toy plane at the crowd and watching bystanders
duck as it pulls a u-ey and returns safely to him.

This is retail as retail should be done. In a word, “astonishing.”

The coolest part of this toy story is that FAO is about to expand exponentially, but it‟s going to do it right. This time,
it will open its stores as small boutiques, inside some 600-700 Macy‟s department stores nationwide.

David Niggli has been through all of FAO‟s ups and downs over the past 21 years. His explanation for its remarkable comeback story
is remarkably simple. He says that all FAO Schwarz has done is what every great brand does when it loses its way: It re-ignited what
made the brand great to begin with.

You once described FAO Schwarz as being like a toy museum.
   Well, if I said that, I meant that‟s what a lot of people thought — but we don‟t want people to think that we‟re like a museum.
We‟re a toy store, and a place to have fun. We‟re a place where people are having a good time playing with the toys, which is not a
museum.

FAO is also thought of as a luxury brand.
     For many years, that was indeed the image of FAO Schwarz. It was seen as an expensive toy store for rich people. But that‟s not
really what we‟re about and it‟s not what the founders of this company were about.
     Our mantra is: “Good stuff made right sparks play.” That doesn‟t have to be a $90,000 miniature racecar. There are a lot of
wonderful toys out there that are affordable. There are plenty of things that are $10 and under. There are some things that are a little
bit more money, but there really is something for everybody in the store.

What kinds of things?
     It might be as simple as a set of blocks that a child plays with for hours upon hours. Or it might be an action figure, where a little
boy or girl creates a magical world that they‟ve dreamed up. These are the kinds of toys that, when we go back and look at our own
childhoods — or even among children of today — really get played with.
     It‟s really about toys that lead to hours of play, that are well made, and memorable. These are the toys that lead to the best things
that we‟re looking to develop in our children. These are the toys that get loved to death.
     I‟m continually struck by how many times people come up to me and have an FAO Schwarz memory: “I was here when I was a
kid and I still have that Teddy Bear.” Or, “Every time my Dad went to New York on business he‟d bring me something from FAO.”
     Part of the reason this brand has lasted so long is because of that legacy factor. We want to make sure that the items and the toys
that we‟re selling today are the toys that 20 years from now, those kids will be coming in and telling their kids about, and having those
same kinds of memories.

That doesn’t seem to include electronic toys.
     That‟s right. The store has gone back to its roots as a specialty toy store. Our mix of products is not the mix that you‟re going to
find in a big box retailer. You‟re not going to find our toys in Toys R Us, Kmart, Wal-Mart or Target. We‟re an alternative to that.
     We‟re not saying that all electronic toys are bad. But what we‟ve experienced through the years is that they don‟t lead to a long-
lasting play value. As a parent myself, I‟ve seen how a lot of electronic toys have a very short lifespan. Your child gets it and
understands what it does, but then after that you don‟t really see that toy around very much.
Do you still consider Toys R Us and Wal-Mart to be competitors?
     They are competitors in the sense that they are in the toy business. I always say to people — and I don‟t mean it as a slight to
either one of them — go to each of those stores and then come to us. We‟re a very different proposition. We‟re a different type of toy
business and there is very little overlap between us in terms of our product mix. I think it‟s less than 10 percent that we carry that they
carry too.

How has that affected your merchandising strategy?
     We‟ve tried over the last several years to edit down and focus on key brands and key items. Folks don‟t come to us to be the toy
grocery store. Our shoppers are really looking for an edited mix that guides them, as opposed to just a bunch of toys in a store.
     We cut out about 10,000 SKUs about three or four years ago, or about a quarter of the total. We realize that there are a lot of toy
brands out there that say that they are specialty toys but not all of them are really that special.
     That‟s where things really started turning around and we began hitting our stride. Our mission became clear. And really, the funny
thing about it, it‟s very close to the original mission of the founders. It was really just getting back to our roots.

What’s the story behind your toy auditions?
     Our thinking is that there are a lot of people who have wonderful, creative ideas who don‟t always have a forum to get to the right
people. People literally come to our toy auditions from all over the world. People come on planes. They come on buses. We‟ve had
children come in with inventions.
     We had a gentleman come visit us who has these wonderful creatures he makes out of socks. They are different than sock
puppets. They are these kooky monsters, and really fun.
     We found two moms from Brooklyn who had a concept called “Brownstone Buddies,” which is really all about diversity and kids
coming from all different worlds. We‟re going to be introducing a whole line of these great character dolls early next year.
     And then there was a woman who came in and showed us these handbags for girls that she zipped together. You unzip one of the
bags, give it to your best friend and they become friendship bags. It‟s amazing how many great ideas just go unnoticed.

What’s hot for the holidays?
      I‟m really excited about the private-label toys that we‟re bringing out this year. We‟ve taken a lot of toys that we have seen good
success with in plastic and brought them back in wood.
      We‟ve got a great line of infant toys that are all made from 100 percent organics. We‟re taking the “Patrick the Pup” character,
which is our best-selling character for ten years now, and doing a baby Patrick in an organic line that I‟m really excited about.
      We‟ve opened up a lot of new shops in the store. We just opened a shop with a company called Barefoot Books, which is a
wonderful self-publishing company. They have wonderful books with stories about cultural diversity and the environment, for infants
on up to chapter books.
      We‟ve got a great medical center, which is a whole imaginative piece. It‟s almost like a doctor‟s office where you go in and there‟s
a little examining table with X-ray charts and all sorts of fun things like that. So, there are a lot of good things going on in the store.

Tell us about those Myachi guys.
      Myachi is exactly the type of product that we love because it‟s so simple. That‟s the brilliance of it. It‟s a basic sack toy, but
Myachi has created this whole cult of kids who are collecting them and doing new tricks with them. It‟s getting kids off the couch, and
getting them to be more active.
      It‟s fun and interactive and yet, once again, it‟s an affordable toy. It‟s accessible for everybody. Anybody can do it. It‟s not one of
those things that gets bought and tossed. They want to get to the next level. They want to do the new tricks. They want see and learn
all the different moves that the Myachi guys are doing.

So, you get a little theater along with product.
     Well, with a product like that, the first thing you want to do is demonstrate it, because otherwise it‟s just sitting on the shelf and
gets lost.
     Whether it‟s the Myachi guys — or the guy with the paper airplane you see who has been playing with that plane in our store for
years — it‟s the theatre of it. You walk up and you find yourself getting caught up in it.

How will you create theater in smaller settings as you roll out into Macy’s?
     We bring a lot of the theatre just by the nature of the product. We always sit in the Macy‟s children‟s department and bring a “fun
factor” in.
     We do encourage playing with the products, and our associates are always working with our customers to show them the toys and
explain them. So, a lot of it comes through the service and the products.

Why Macy’s?
     Macy‟s fits into what we want to say — that FAO is not an elitist or an overpriced toy store. Macy‟s is the pre-eminent department
store in the United States today. They have various price ranges. They go from Louis Vuitton to value-priced items throughout the store.
     It really felt right for us to go into an environment that was accessible and that mom would be going into on a frequent basis. It
isn‟t just that once-a-year kind of visit. This is a place where mom shops and the demographics are very similar to ours.
     As we open up the smaller venues at Macy‟s, the opportunities for our online business becomes stronger, because as more people
become aware of the brand they will want to go online to get access to the full range of products that we carry.

How do you create the FAO experience online?
     There are a lot of things that we can bring to online, like the Madame Alexander doll factory where you can actually create your
own doll online. We have a new concept with the Muppets called the Muppets‟ Whatnot, where you‟ll be able to go into the store and
online and actually create your own Muppet.
     So, we‟re adding a lot more customized activities online to create the same kind of excitement that we have in the store.
     Those are our strongest areas — as well as our most profitable areas — because the customer has made something in the store that
becomes a true memento of their visit.

Is there a typical FAO shopper?
     The typical shopper from a demographic standpoint is a mom, 30- to 40-years old, with a four-year college degree. But we‟re also
a tourist destination in our two locations in New York and Las Vegas, so we really get a cross-section of people.
     From a teenage perspective, it‟s interesting that it‟s never uncool to go to FAO Schwarz. FAO Schwarz has always been an icon
unto itself. Last year, we opened a Harry Potter shop and what we found was really surprising — the core customer for Harry Potter at
FAO is a teenager.
     We have wands, the sorting hats and scarves. Harry Potter is now much more of a collectible brand than a mass-market licensed
brand. We worked with Warner Brothers on that to really create an authentic sense of Hogwarts and Diagon Alley. When people step
into it they get into the mood. We have a guy who works there who seems to think he really does go to Hogwarts.

I know. He stared at me and I was a little freaked out.
    That‟s part of the theatre. That‟s part of that experience. He‟s wearing this robe and he looks like he just stepped out of the movie.

Do you keep a database of your shoppers?
    Yes. We use it to analyze in terms of where our shoppers are coming from, what they buy, a variety of things. We do surveys
throughout the year to update us in terms of who the customer is and where they‟re coming from. We also use that in terms of how we
look at what we‟re buying. What are the areas of business that we should be maximizing? What should we be downsizing?

Do you do much advertising?
     Actually, we do very little advertising. That‟s sort of the amazing thing when you look at the awareness of this brand, which is
146 years old. We may occasionally do a print ad, but nothing on a campaign level. In terms of the traffic in the store, to be honest
with you, it‟s never really been an issue getting people to come into the store.
     We‟ve found over the years that we get so much editorial coverage that we don‟t need much else. Or movies like Big, where we
almost became like a co-star, so much that 21 years later people are still coming in looking for where Tom Hanks danced on the piano.
Those kinds of things frankly are better than advertising.
     We‟re not a promotional company, so we‟re not a slave to what we‟re going to advertise this week and what we can give away to
get people in the door. It‟s not about coming in to see what we have on a sale day. It‟s to come in and see what we have that‟s new.
We‟ve been fortunate to have had that reputation for 146 years now.

Why did you get into the toy business?
     It was actually a fluke. It wasn‟t like I was a toy collector or anything like that. I had been in the department store business. But
FAO wanted people who hadn‟t been in the toy business. They wanted people to come in with a fresh approach. That just hooked me,
because that‟s what I got into retailing to do.
     I don‟t even think that we‟ve scratched the surface of the potential of the brand. In today‟s world, it‟s rare to find a company that
really truly means it when they say they want you to think “out of the box.”
What is the greatest lesson you’ve learned?
    Don‟t forget what your brand is. As time changes and new fads and things come in, you can get swept away and you can think,
“Well, we should do this and we should do that.” But you always have to hold true to the core values of the brand. Every time it comes
back to that; whenever we get back to that, we find success.
    We are dealing with children and children today are inundated with information. They are very knowledgeable. They are very
savvy. We have to make sure that we are current and relevant to a child of today, but that doesn‟t mean that we sell out on our core
values. Having watched children through my 21 years at FAO Schwarz, I can tell you that the basic elements of play haven‟t changed.

What’s ahead for FAO Schwarz?
     I believe that FAO Schwarz has the potential to be so much more than it is now, and than what it has been. I think it‟s still one of
the most exciting places in retail. Nothing offers the same sort of excitement or opportunity to be innovative or really take it to the
direction that this brand can go. And it‟s still a challenge, which to me is the greatest thing.

Myachi Masters

They are four young guys — Maverick, Chunk the Monk, Crazy Ivan and Animal — who are out to teach the world to play Myachi.
The world, in this case, would be “boys ages 7-13,” and its domain would be “the magic section of FAO Schwarz.”
Myachi consists of tricks performed with “a rectangular palm-sized beanbag,” and is described as “a cross between tai chi, three-card
monte, Hacky Sack and juggling.”

It was created in 1997 by Stephen Ochs, “a former stockbroker from Larchmont, N.Y., who had in mind a college drinking game
where players tried to one-up each other flipping a cigarette lighter in fanciful ways. The main rule then? You drop it, you drink.”

But he‟s re-invented that idea as a game for kids and has since sold a million Myachis (the name is a combo of Mr. Miyagi from
“Karate Kid” and tai chi).

The Myachi Masters, who range in age from 22-31 and are paid $500 a week, see their job as a decidedly wholesome one. Or at least
Cody Hatch (a.k.a. Maverick) does: “Mainly, I‟m just trying to get kids up, coordinated, moving, motivated, stimulated and educated,”
he says.

[S O U R C E : Rachel Dodes and Stephanie Kang, The Wall Street Journal, 4/7/08].



DAVID NIGGLI is president and chief merchandising officer of FAO Schwarz, directing all merchandising and marketing. A 21-
year veteran of the company, David previously was with Macy‟s, Gimbels and the May Company.

White Paper

Connect the Dots

By Al Wittemen

You might think that you don‟t have a “second” life, but if you‟re on the internet, you do. We all do. Not only that, but our first and
second lives are colliding.
     When you think about it, the thing that makes that second life so appealing is that it gives us a level of control that mostly eludes
us in our first lives. We know exactly where everything is, and usually can find what we want when and where we want it. We have
these great conversations that begin and end as we please.
     If only our first lives could be as simple, efficient and orderly as our second lives! Well, the good news is, more and more of us are
doing what we can to try to make that dream a reality. The pertinent news, from a business perspective, is that a few packaged goods
companies are starting to explore this nexus of our two lives and accruing impressive dividends to their shopper marketing strategies.
     For example, have you visited Procter & Gamble‟s Tide.com site? It‟s absolutely brilliant from a shopper marketing perspective.
When you click on any of the various products, the entire shelf set comes up in a flash movie. If you remember, a few years ago every
P&G shelf set was standardized so that it is nearly identical from store to store. This allows consumers to have an experience with
Tide in any store, in the comfort of their own homes.
     So, the next time you go to the store and you‟re looking for that P&G product, you have a good idea where that product sits and
what it looks like. Most people probably don‟t even think about what has changed, but it creates a marker in their minds about where
that particular product is in the store. It helps them navigate the store more easily.
     If the idea of people interacting online with jugs of detergent sounds like an unlikely scenario, think again. A three-month long,
collaborative study by comScore, Procter & Gamble, Yahoo and SEMPO found that “a majority of U.S. consumers visited websites
for CPG product categories.”
     The best part is that P&G is collecting information about its customers along the way that its retail partners didn‟t already know —
the kind of information that grows sales, builds loyalty and feeds innovation. The implications of this are huge because it means that
the “first moment of truth” — the very premise of shopper marketing — can actually happen before the consumer is even in the store.
It puts tremendous clout back in the hands of CPG companies.

BETTER, FASTER, STRONGER
     The digital world is making shopper marketing better, faster and stronger. Retailers are now sharing traffic and sales data and
analytics faster. Manufacturers are sharing better and more granular insights, too. Digital has created a very different context for the
retailer-manufacturer relationship that‟s nothing like it was even five years ago.
     Digital also addresses the issue of speed, which is essential today because the marketplace is moving at such a fast clip. In the
CPG world, programs are on the floor for only 2-4 weeks. By today‟s standards, they only get feedback 45 days later and there‟s no
way for shopper marketers to really change or augment what they‟re trying to do.
     Somehow, we‟ve got to be able to build speed into our strategies, and digital gives us a way to do that. In that respect, digital is in
a league of its own. ACNeisen offers a 45-day feedback period, while for HomeScan and Yahoo, it‟s 30 days minimum. Wal-Mart has
got it down to 14 days with its Smart Network. But in a digital environment, your feedback is available within hours. Wherever that
digital tactic is, when you push people there, you begin to read it immediately.
     Most important, digital is the way to amplify shopper-marketing programs and make them relevant to shoppers at home, outside
the home as well as in the store. This is as it must be because engagement demands relevance. The world of creativity has gone so far
beyond where it needs to go. So much of marketing is big, bold, splashy and interruptive, but it is not always relevant.
     Relevance are things that may be a little softer, but more meaningful in our lives. You have to have some relevance with people‟s
lives to connect with them on an emotional level.
     That usually means looking for solutions that align with the tasks that we‟re trying to accomplish. We are not looking for freedom
of choice as much as freedom from choice — an edited set of possibilities that make our lives simpler.
     We have so much choice today in our daily lives that we really start to drill down our consideration set. Where we once had one
soda, we now have 80 different sodas. Where we previously had ten feet of one particular product, we now have 80 feet. People in
general are just saying that the world has become too much of a Chinese menu. They‟re saying, be an expert for me, lead me down
that path and then let me make my choices.
     Freedom from choice is one of the reasons Martha Stewart has been so successful in the paint category. People want somebody
with authority to help them make a decision and give them the correct consideration set because there is so much to be decided upon,
especially when it comes to paint.
     People just want someone to tell them how to match up colors because they‟re not good at it. So, Martha Stewart took that
spectrum of colors down to the top 200 and matched everything for everybody and became the queen of paint sales. She gave people
freedom from choice and Sears a rock-star category.

A DIGITAL STRATEGY
     The question is, how to connect “first” and “second” lives — online and offline behavior — to amplify shopper-marketing
strategies? At TracyLocke, we start by creating what we call “personas.” We do this because it gives the shopper and consumer a seat
at the table in the process. We actually draw this persona down to an individual with a name, although she represents a group.
     This helps us understand her personal profile, her key behaviors and attitudes, her motivation, where she indexes under and over
in terms of retailers. So, for instance, maybe Sam‟s Club needs to look at what Safeway is doing that‟s attracting a particular type of
shopper. It‟s not that Sam‟s Club should emulate Safeway, but rather identify what it is about Safeway that this shopper finds so
satisfying, and how to win her over.
     We look at the brands that she uses and her media consumption, and it really starts to draw a picture of whom we‟re trying to talk
to as we roll out our campaigns. Based on this information, we identify what we believe is a likely path to purchase for her both online
and offline (see chart). It‟s all based on what she responds to, what guides and informs her, and gives her “freedom from choice” in
her life.
     So, the digital strategy helps us become more “micro” in our ability to develop unique programs that fit shoppers‟ profiles in a
way that‟s relevant in their lives, the ways they want to shop and see information. We‟ve got real learning from real shoppers in real
environments. Instead of trying to guess at what consumers do, we can get a good understanding of what they actually are doing by
creating a dialogue with them.
     Our conversation with consumers and shoppers today is one way; we send them our advertisements and promotions. But we now
live in a conversational culture because of the internet and what it‟s allowed people to do. If you want to get to know anybody, you
have to have a conversation with them. Shoppers and consumers want to have conversations with brands that are relevant to them.
     Much of this conversation is happening online. That‟s where engagement starts. We‟ve got to be able to bring that conversation
back into the brand experience and back into the brand idea to refine it in a continuous feedback loop.
     It‟s very much like what direct marketing does. Every time you engage with a consumer at a digital touch-point, you have a
“breadcrumb.” It‟s measurable, and we can look at how it changes over time. It literally creates a learning platform about shoppers.
Shopper marketers who connect the dots will have at their disposal a continuum of learning over a long period of time, over multiple
kinds of shoppers and consumers.
     Of course, these personas are just a starting point. The real goal is to measure what we learn as we go, and then plug that
intelligence into a long-term learning plan that drives innovation, enables wiser decisions and makes the shopping experience better for
us all.

AL WITTEMEN is managing director of retail strategy for TracyLocke. He has 35 years of experience in marketing, sales and
shopper marketing of consumer packaged goods. Al can be reached at awittemen@tracylocke.com or (214) 259-3531.




White Paper

Retail as Habitat

By John Wilkins, Miller Zell, Inc.

With the economy in recession, market shifts seasoned by fear and uncertainty are redefining the competitive landscape. Reduced
disposable income, inflation, and decreased consumer confidence have the potential to alter purchasing habits and disrupt the
normalized order in an industry that has had relative stability.
     We now stand at the crossroads of perhaps one of the greatest economic declines in recent American history. It is fitting to
reassess one of the more volatile questions faced today in the retail landscape: do store brands pose a significant threat to traditional
brands in new ways, and if so, are brands destined to accelerate their decline, disappear in their current form, or evolve with new
strategies?
     Yes — this is a controversial discussion, but it is even more important now because of changes in the underlying market
foundation and because of strategic implications for manufacturers in their approach to being seen by shoppers at retail.

STORE BRAND INCURSION
     For years, store brands trailed their national counterparts in quality and consumer loyalty. Now, store brands are material and
growing players. Forty-one percent of American shoppers now call themselves “frequent” buyers of store brands versus 36 percent
just five years ago, and a mere 12 percent fifteen years ago.
     Three key issues have contributed to this meteoric increase. First, retailers have been able to keep their own products on the shelf
longer, utilizing their distribution networks, merchandising, operations, and sales staffs who have a vested interest in eliminating out-of-
stocks far more zealously for their own products than for others.
     Second, retailers are constantly interfacing with shoppers on a one-to-one basis and therefore are able to react more quickly and
effectively to changes in tastes and preferences (i.e., retailers have first-hand versions of the customer story). Third, talent transfer has
— and is — playing a huge role in promoting innovation within store brand portfolios. Brand marketing talent has been able to
transfer product knowledge, strategic initiative, marketing skill, and ability to execute across battle lines.
     This is not the first time this has happened in a consumer industry. Witness the shift that took place in apparel retailing in the ‟80s
and ‟90s as companies such as The Gap transformed themselves from merchants of manufacturer brands such as Levi Strauss into true
consumer brands with their own, internally controlled brand, product, and sourcing departments.
     “Specialty” apparel retailers evolved as they added true (and talented!) design, technical, and sourcing departments to their
internal rosters and went into competition with their brand suppliers. It is common today to think of many fashion retailers as true
national or international brands (because they are), but that was not always the case.

A NEW CHALLENGE
     The changes taking place along the consumer packaged goods value chain (from manufacturer to retailer to shopper to consumer
— i.e., grocery, mass, and pharma) are allowing retailers to treat store brands much like traditional brands instead of like the former
traditionally cheap knockoffs; they now give consumers a legitimate choice with a differentiated new value proposition.
     Superior shelf positioning, highly focused direct in-store promotion and even advertising both at the point-of-sale and integrated
strategically throughout the store — professionally designed and integrated packaging — all focus on highlighting the benefits of the
store brand to the shopper while she walks the aisles.
     Retailers are now able to differentiate themselves and utilize their stores as a brand-building medium while leveraging traditional
mass communications by advertising their own products in retail inserts alongside (or instead of) traditional brands to drive store
traffic.
     The strategic advantage of store brands is now being realized and used to gain competitive advantage, drive profits and enhance
customer loyalty. According to Willard Bishop‟s Competitive Edge, store brand movement and adjusted gross profit performance are
significantly higher than the numbers for national brands, per SKU and per square-foot facing.
     National brands now face a challenge they can no longer disavow, and find themselves surrounded by store brands that can
outflank them given the channel advantages they enjoy and that can encroach on their traditional leadership positions.

MULTILINGUAL MERCHANDISING
      Cognizance has even been raised in store brand segments regarding consumer acquisition. For example, savvy retailers have
become proactive in eliminating the language barrier and implementing initiatives to attract and retain more Spanish-speaking
consumers.
     Though historically enjoying wide acceptance among the Hispanic community (store brands have a positive perception among
nearly 80 percent of all Hispanics), nearly half of those who speak Spanish more prominently than English do not share this opinion.
     These shoppers, who comprise 27 percent of the overall Spanish population, do not feel that they know enough about store brands
to warrant a purchase, and have historically remained loyal to brands for this reason.
     To build inroads, retailers are aggressively stepping up their involvement in the community to create positive influential impact
and are intensifying marketing activities geared toward this segment. The cumulative effects of these initiatives over time may erode
traditional brand loyalty and resistance to trial.

DAMN THE TORPEDOES
     With the markets a mess and store brands becoming more sophisticated each day, one conclusion is that national brands, may be
poised to wilt. This is not the case!
     Despite less disposable income, consumers are not inclined to sacrifice proven quality and confidence but continue to seek brands
that they trust, although their tighter wallets are leading them to try store brands in increasing numbers. And traditional consumer
packaged goods companies have experience building brands through traditional media channels that many retailers do not have.
     However, the evolution of the store as a media platform is clearly outside the realm of traditional. It is a multidimensional place in
space and time that promotes interaction between shoppers and products. It is also a place where individual brand messages are awash
in a sea of competitive presentations and noise.
     In this space, one advantage that retailers have in developing their own brands is the ability to tell a story across the store with
packaging, displays, and related 3-D environmental elements that clearly communicate that all products are from the same family and
have real relevance for shoppers and consumers.
     The outcome is that this changing dynamic will lead to an evolving (and improving) look and feel in store — often with much
better experiences, look, and feel than many retailers have traditionally delivered. There‟s not really an option. Even economically-
challenged shoppers tire of center-store presentations that have all the environmental personality and cohesion of Brezhnev-era
merchandising.
     The good news is that brands can do much more in the physical store to defend against these incursions into their sovereign
territory. The often-underutilized tool at their disposal lies in the design and creation of in-store environments, communications, and
three-dimensional elements that visually tell category stories and even unify products from brand families across the store. Traditional
brands (especially if they work together) have the ability to create similar total-store stories just as well as retailers can.
     A number of leading companies and national brands are moving significant resources aggressively into shopper-marketing
programs, and several are doing this quite well in terms of understanding need states, shopper habits by mission, optimizing packaging
and assortments, etc. — some even on a retailer-by-retailer basis. But the piece that is often missing is the physical, creative
expression of all that hard work in terms of the creation of environments that draw shoppers to trial and repeat.
     We are not speaking merely of single product displays, cardboard, and signs. We are talking about three-dimensional design
(sometimes with a store-in-store look) that provide personality and create environments around entire categories and that link to each
other across the store.

ENTER “ENVIRONMENT CAPTAINS”
     Consumer packaged goods companies can also learn from the fashion industry in terms of the degree to which brand,
lifestyle, and category stories can be communicated through the retail environment. Consider the physical vignettes that companies like
Ralph Lauren, DKNY, and others create in department stores and use those for inspiration in terms of understanding just how far
category re-invention can go.
     It‟s important to acknowledge that these fashion brands are creating their own brand-specific environments and that this is a
significant difference from the need of CPGs to create multi-brand and cross-category environments. But the point is that the field is
wide open for in-store design innovation — led by traditional brands.
     At least one CPG, Procter & Gamble, has already begun capitalizing on fashion‟s potential to drive brand growth at retail in its
collaboration with Ann Taylor Loft (see sidebar). Additionally, Crayola is doing a very good job with several retailers in creating
powerful environments that create trial, and promote entire categories.
     As category leaders, traditional brands must recognize store brands as participants at the supplier/category table (although store
brands might have “teacher‟s pet” status). It was probably not much fun for many brand managers when category management came
into its own and forced them to consider competing brands from the retailer‟s standpoint, but it was a reality.
     The same is becoming true with store brands. One new matrix for dealing with this evolution is in management of the retail
environment. Perhaps we will see the development of “environment captains” or “experience captains” — roles tied to category
leadership but going far beyond to link and promote cross-category planning and selling.
     It is also important for brands to understand that the 3-D design aspect of successful in-store shopper-marketing programs
requires dramatically enhanced in-store execution. Achieving this must become the responsibility of both the retailer and the national
brand. We expect retailers to rely heavily on suppliers for this execution.
     Finally, understanding the only effective means to reach these shoppers is in the store and earmarking specific marketing dollars
for very specific types of in-store programs (we‟re not speaking of promotional dollars!) including professional guaranteed installation
is the only viable method to effectively communicate to shoppers. Both retailers and brands must begin the process of marketing to
shoppers together through store and category design and ultimately both will enjoy market share gains. n

Tide & Taylor

A new partnership between the retailer Ann Taylor Loft and Procter & Gamble is turning stores into launching pads for two new
products, Tide Total Care and Downy Total Care.”

Ann Taylor chief marketing officer Robert Luzzi explains, “… We decided that the partnership at this time was incredibly relevant for
our clients in this pretty tough economy … we want to deliver value for our clients.”

P&G‟s Kash Shaikh agrees, noting, “Women spend $1,500 a year on dry cleaning and 65 percent of those clothes are actually machine
washable.” The P&G promise is that its new Tide Total Care and Downy Total Care products will “cut down on dry cleaning bills by
helping clothes look new for a longer time.”

Ann Taylor Loft will offer “free samples and coupons to customers who buy machine washable clothes.” Stores will also have posters
and “an eight-page magazine” offering “tips on how to keep clothes looking fresh.”

[Source: Douglas Quenqua, New York Times, 10/10/08]



JOHN WILKINS is VP of retail strategy at Miller Zell, Inc., a strategy, design, and marketing firm, where he leads the development
of in-store go-to-market strategies for retailers and manufacturers. He can be reached at 404-526-1327 or john.wilkins@millerzell.com




White Paper

The 0.3% Solution

By Spencer L. Hapoienu, Insight Out of Chaos

We seem to be entering our once-in-every-10-years recession, or economic downturn. That is, unless you count all the interim
downturns, in which case this is a once-in-every-once-in-a-while downturn.

     As we listen to the cable and radio yakkers jabber about whether this recession is the same or different from all the others, the one
thing that seems likely is that consumers will be spending less because they just lost their retirement savings or think they might. As
we‟ve all learned, it doesn‟t matter if the economy is really bad; it only matters if we think it is.
     Research indicates that during the last two recessions (1990-91 and 2000-01), growth in every retail sector slowed. According to
the McKinsey Quarterly, 93 percent of retailers surveyed experienced slowing revenue growth in one of the recessions and 59 percent
found it true in both.
     Unfortunately, it also takes retailers longer to benefit from the turnaround when it does happen. The average retail growth rate in
the year of recovery in both 1991 and 2001 was just 0.3 percent.
     Most of us start to hunker down and take a defensive approach to a recession. Obviously cutting costs where possible is common
sense. But when it comes to marketing at retail, cutting back is a self-fulfilling prophecy to 0.3 growth.
     During previous recessions, advertising, promotion — and most of marketing — were always the first to be cut. But this time,
retailers with customer-specific databases are pushing ahead because they know who their customers are and what they buy.
     Consumers still have to eat, buy clothes, maintain their homes and cars, and stay healthy. They will still buy gifts for the holidays,
buy music for their iPods, and jewelry for their celebrations. Some people will buy less, some people will buy cheaper, and some will
spend more in one category and eliminate another entirely.
     Retailers who can identify best customers and what they respond to can help their best customers navigate through these troubled
times with appropriate messages and offers to maintain their share of business from their best customers.
     For example, let‟s take the home-improvement category. The big-box retailers like Home Depot, Lowe‟s, and Wal-Mart practice
EDLP and mass advertising. It‟s likely that they will cut back on advertising in general, increase their price promotions, and their
television advertising, to gain more awareness.
     They‟ll probably cut back on anything that doesn‟t reach as broadly as possible, (magazines will likely take a hit). Or, they will
cut back on everything and discount even more. Their margins will go down and their awareness and status in the customer‟s
considered set will decrease.
     On the other hand, hardware retailers like True Value and ACE, both of which have loyalty programs
with customer databases built on transactions, have a huge opportunity to not only protect their businesses, but also to increase share. While
the big boxes are watching the tumbleweed roll down their aisles, the independent hardware retailers are targeting their best customers
with relevant offers and increasing their foot traffic. Their share-of-voice among selected customers is increasing, as the big boxes are
cutting back.
     True Value and ACE retailers know what each customer segment spends, on average. The top 10 percent of customers might
spend $26.04 while the next two deciles spend less than $22.00. Sending an offer for $5 off $30 will increase the average ticket among
the top 10 percent and sending $5 off $25 offer will stimulate response from the next 20 percent. The average ticket will go up during
this recession even if the customer is cutting back, because the customer will cut back on that trip to the big box (see Chart 1).
     The independent hardware retailers also know how often their customers shop. Typically, their best customers shop every 30
days, while the average hardware customer shops every 90 days. The big boxes know that, too — they just don‟t know who those
customers are. The True Value and ACE retailers can increase their frequency of messaging to their high-transaction customers to
potentially gain an extra visit, while the big boxes are reducing their advertising to everyone.
     The big boxes will decrease their prices and reduce their margins, while the independent retailers can increase their marketing to
their best customers, eliminate marketing to their low-margin customers, and increase their overall margins.
     Perhaps there‟s an opportunity to remix merchandise or bundle items into pricing pods that fit the customer‟s inclination to reduce
spending. In home improvement, customers who stop shopping can be recaptured with special offers on necessity items, like fertilizer
for lawns, shovels and salt for snow, batteries and light bulbs. Retailers can also step up customer recognition in the store by having
store associates identify and pamper best customers with more service than usual.
     It can be an even bigger win for the independent retailers if they prospect for new customers who will feel less inclined to visit a
big box. That‟s because a database of customers not only tells you who your customers are, but also who they aren‟t.
     Within geography where customers have shown a high degree of responsiveness, it is possible to prospect specifically to
households that have not become customers and have not joined the loyalty program. It‟s best to reach out to those prospects most
likely to become customers with a hotter-than-normal offer (see Chart 2).
     The margin for those who respond might be lower than usual, but picking up new customers for the long haul will provide a boost
towards beating that 0.3 percent growth during the turnaround — regardless of whether the market is up 400 points, or down 400
points. n

True Value

While Home Depot and Lowe‟s are pulling back on their expansion plans, True Value “is on track to add 1.5 million square feet
between 2006 and 2009. That is the equivalent of opening about two new, remodeled or expanded stores a week both this year and
next.”

Compare that to Home Depot, which “plans to close 15 underperforming stores and halt development plans for 50 others in the U.S.,
some of which have been in its pipeline for more than 10 years. Lowe‟s is delaying opening of 20 stores this year and hasn‟t unveiled
2009 expansion plans yet.”

True Value‟s expansion meanwhile defies a report from Harvard University‟s Joint Center for Housing Studies, which “suggested
spending on home improvement could drop as much as 9.2 percent in 2008, compared with a four percent decline in 2007.”

This is partly because True Value‟s numbers were not included in the Harvard study. But it‟s also because, in a bad economy, more
people are buying what True Value is selling. What True Value is selling is “core hardware for routine maintenance and repair.” Hey,
that toilet is not going to fix itself.

Despite its surprising resiliency, “it will be tough for True Value to reach its goal of boosting revenue 7 percent between 2006 and
2009,” because of “macroeconomic pressures.”

But True Value CEO Lyle G. Heidemann says its member stores are not struggling, and sees no reason why they won‟t move forward
with their expansion plans.

[S O U R C E : Mary Ellen Lloyd, Wall Street Journal, 7/23/08]



SPENCER L. HAPOIENU is president and co-founder of Insight Out of Chaos, a database and direct marketing company. He can
be reached at spencer@iooc.com or (212) 935-0044.




Book Excerpt

Brand Digital

In his new book, BrandDigital: Simple Ways Top Brands Succeed in the Digital World, Allen P. Adamson explains that, in the
quickly accelerating digital marketplace the basic principles of branding are more important than ever. In this excerpt, Allen details
how Liberty Mutual used digital tools and media to reinforce customer relationships and build brand equity. The excerpt is based on
Allen‟s conversation with Liberty Mutual CMO Steve Sullivan, one of more than 100 interviews with top marketers in the book.
     Defining your brand in a way that transcends its functional benefit is hard when it comes to consumer packaged goods.
Commodities abound. But it‟s equally hard when it comes to commodity services, including financial management and insurance.
     There are hundreds of branded pages on the internet dedicated to money management, banking, and insurance, as well as
independent web sites that allow you to compare and contrast rates, plans, and programs in an instant.
     It‟s becoming increasingly more difficult to distinguish one brand from another based on anything more than price and online
functionality.
     It‟s difficult enough to ladder up from a functional benefit expressed as bigger or stronger. It becomes exponentially more
difficult when the claim is “cheaper” or “faster.”
     Steve Sullivan is the chief marketing officer of Liberty Mutual, a leader within the insurance industry category. He has been
asked to speak at a great many advertising and marketing conferences because of his innovative approach to his business.
     I asked him about how a company in the business of selling insurance goes about defining itself in a meaningfully different way,
especially in a digital world where everything is magnified. He said:
     Selling based on price and the ability to shop many insurers online has tended to commoditize the consumer insurance market.
We struggled with how to differentiate ourselves and swim against the commodity tide. On the one side we had our heritage as a
workers‟ compensation company with ninety-five years of experience and a global reputation for safety expertise.
     On the other side we had consumers who weren‟t necessarily looking for safety expertise when they bought insurance for their
homes and cars.
     So if we wanted to grow our consumer business without dismissing the safety heritage, which is still important to our business-to-
business customers, we had to find a bridge. The bridge turned out to be right under our nose in the mission statement that has defined our
company for decades.
      When consumers were exposed to the statement they said, “A company like that would be responsible. They‟d do the right thing.
And that appeals to me because I‟m a responsible person, myself.” It was from this insight that we developed our brand positioning,
“To celebrate our customers‟ responsibility and relentlessly prove our own.”
     This forms a very solid roof under which we can communicate all our brand offerings. The idea of responsibility works for our
products, our service, our salespeople, and, yes, on the commercial side, fits with our historical roots in the creation of safe work
environments.
     Liberty Mutual did not ladder up so high in its effort to identify a meaningful difference for its brand that it was disconnected
from a functional benefit. While behaving in a responsible manner is not directly about safety or even about the cost of insurance, it
relates wonderfully to the idea of making the world a better place, a topic as engaging as it is inspiring.
     The centerpiece for the branding campaign is a series of television ads that show people “doing the right thing” as they go about
their daily lives: a man who picks up a toy that has dropped from a baby carriage onto the sidewalk unbeknownst to the mother and
runs after her to return it; the same young mother doing a good deed for the next person she encounters; an older woman helping a
younger man across the street (yes—that‟s correct).
     The voice over: “When it‟s people who do the right thing, they call it being responsible. When it‟s an insurance company, they call
it Liberty Mutual. Responsibility. What‟s your policy?”
     “We have three primary audiences,” Steve said. “The first is our employees. Our salespeople and our customer service
representatives are our front-line brand advocates. They understand what it means to be responsible, and they incorporate it into
everything they do.
     “The second audience is our existing clients. Our objective in our branding is to make them feel good about their decision to buy
insurance from Liberty.
     Our third audience is prospective clients. Our online and offline branding initiatives are created with the hope that they‟ll think of
us when they think about insurance.”
     Go to Libertymutual.com, and you‟ll be able to see for yourself how Steve and his team have integrated the idea of responsibility
into all aspects of the site. There are applications that provide basic, factual information and applications that allow dialogue, real-time
dialogue, with customer representatives twenty-four hours a day.
     If you want insurance for your new home or a new car, you can either discuss it with a representative via e-mail or click a button
and talk to someone on the phone.
     Steve and I talked a bit about the common misperceptions concerning the process of differentiating a brand in the digital age. He
agreed completely that it‟s not about the ability to shout louder, but the ability to use the tools offered by the internet to connect in a
more relevant way about a relevant topic.
     As almost everyone I spoke with stated, technology is not the answer, it‟s the enabler. We talked about Liberty Mutual‟s search
optimization initiatives, and he told me that one of the most important factors was not impeding users‟ access to the information they
wanted in any way, but using the right vocabulary and the right programming that would get them exactly what they wanted when
they wanted it.
     I could sum up this chapter on how the importance of relevantly differentiating a brand in the digital arena has been magnified. But I
think I‟ll do the responsible thing and let Steve sum it up for me:
      I‟ve been doing this for thirty years, and this is the most exciting era of my marketing career. For the first time, marketers have a
real opportunity to create a relationship with someone before they become a customer, and they can enhance the relationship in a
meaningful way as the prospects become customers.
       The idea of responsibility as a relationship builder and a brand builder seemed natural given our history. As a result of the web,
we can engage both customers and prospects in a conversation and give them all sorts of different ways for them to engage with us.
      We can invite people to our web site and learn about their needs before we try to sell them anything. This is what good marketing
is all about. Digital tools let us do this better than we‟ve ever been able to do it before.


ALLEN P. ADAMSON is managing director of the New York office of Landor Associates, one of the world‟s leading strategic
brand consulting and design firms. He is author of BrandSimple and BrandDigital. For further information, visit
www.branddigital.com




Cool Books

Einstein’s Mistakes
“Almost all of Einstein‟s seminal works contain mistakes,” writes Hans C. Ohanian, in his new book, reviewed by Darrin M.
McMahon in the Wall Street Journal. “Sometimes small mistakes — mere lapses of attention — sometimes fundamental failures to
understand the subtleties of his own creations and sometimes fatal mistakes that undermined the logic of his arguments,” he continues.
In the book, aptly titled, Einstein‟s Mistakes, Hans notes that Einstein neither discovered nor ever totally proved his famous equation,
E=mc2. The equation actually had been around “for several years” before Einstein wrote about in 1905, and it wasn‟t until 1911 that
another, physicist, Max von Laue, proved it.
However, his point is not to discredit Einstein, but rather to provide insight into his “„mystical, intuitive‟ approach to problem-solving.
That approach, coupled with a stubborn disposition and irreverent attitude toward established truths, meant Einstein could be right
even when he was wrong.”
“He may never have come up with a perfect proof of E=mc 2, but his certainty that the equation was true led him farther than any
physicist of the 20th century.” It was “Einstein‟s ability to make use of his mistakes as „stepping stones and shortcuts‟ that was central
to his success.”



The Success Effect
“How many people get to ask questions of others for a living, and then get paid to ponder, analyze, and report on the thoughts and
insights within their answers?” asks John Eckberg in the introduction to The Success Effect.
That‟s exactly how John, a business columnist for the Cincinnati Enquirer, makes his living. But he says he doesn‟t see it as work.
“It‟s a job, of course,” he writes, “but it‟s more like being paid to be a lifelong, curious five-year-old.”

Over the years, John has probed for insights from dozens of notables. The problem was that many of these insights never made it into
his newspaper stories. So, in The Success Effect, he revisits a total of 46 such conversations, and excavates “road maps” to success
directly from his original and “unfiltered” interview tapes.
Take Jeff “Skunk” Baxter, the Steely Dan guitarist turned consultant to the U.S. Department of Defense. Jeff says his musician‟s
ability to improvise made his unlikely career turn possible. Or Donald Trump, who moved to Cincinnati for a year to manage a
“miserable” apartment complex. Why? Simply because he “had a job to do.”
As John puts it, “True stories are always more compelling than fiction, and so, too, I found, with these conversations about the corners
of American commerce.”



Bumping into Geniuses
In his new book, Danny Goldberg uses one word to describe Neil Young, Patti Smith and, perhaps most of all, Kurt Cobain of Nirvana
… and that word is “genius,” reports Jody Rosen in the New York Times. So, no surprise that his book is titled, Bumping into
Geniuses, and chronicles Danny‟s various close encounters with rock stars and legends.
Danny got his start “compiling chart data” at Billboard magazine, and got his big break covering Woodstock. From there, Danny “did
time as a rock critic, P.R. flack and personal manger, before his stints as president of Atlantic, chairman of Warner Brothers Records
and president of Mercury Records.”
On the one hand, Danny recalls Lee Abrams, whose “album-oriented-rock format … made multi-platinum successes of critically
maligned groups like Boston, Kansas and Foreigner.” On the other hand, he observes that Bob Dylan‟s decision to go electric was at
least as much about marketing as it was about art — “he wanted in on the Beatles‟ chart success.”
And then there‟s the late Kurt Cobain. According to Danny, Cobain‟s bandmate, Krist Novoselic said Kurt actually “wanted to make it
big” more than anyone else in the band, and even edited a press kit “to emphasize the band‟s sense of humor and broaden its
mainstream appeal … Beneath Cobain‟s punk-rock glower … lurked a savvy brand-management specialist.”

				
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