Saturday, November 22, 2008

3 Winners with the Coming Stimulus Package

I was in Illinois, Indiana and Michigan this week, and everywhere I went, the economy was a main topic of conversation. With a fiscal stimulus looking likely, I got to thinking about the implications for brand positioning and potential winners. Here are my top 3 picks for the industries that will gain renewed respect from the new administration’s policies, and the brand with the best opportunity to capitalize on each.

1. Manual work and the people who do it will be seen as our unsung heroes

I believe that the new administration’s plans to put people to work on a large scale will include public works projects – fixing our crumbling bridges, highways and power grid, and building new ones. Lots of the folks out of work are in construction and building trades, and in manufacturing (automotive and otherwise). They have the required skills, and are among the people David Brooks referred to in a Nov 17 article in the NYTimes about “the formerly middle class.” They work with their hands and are used to physical work indoors and out.

The brand best positioned to capitalize on putting these people back to work: Carhartt, the preferred provider of outerwear for people who need durable protection so they can work in dirty, dangerous conditions.

2. Federal civil service will become respectable again

In addition to rejecting the anti-intellectualism of the Republican campaign, on Nov. 4, voters said loud and clearly that they need more and better service from their Federal government. From energy policy to health care policy to international policy – the vote affirmed our need for capable and committed people to work in the Federal government. The Obama transition team has already demonstrated its intent to recruit the best and the brightest (back) to Washington, D.C. Now, it’s corporate America (and the financial services and insurance industries, in particular) that is seen as the source of waste, fraud and abuse of our tax dollars, and the Federal civil servants are there to rectify the situation.

The brand winner here: it’s hard to say – I think it could be the Office of Personnel Management which will be tasked with filling the dangerously depleted and demoralized ranks of the Federal civil service.

3. Community service will become more a part of our lives and career paths

A new generation is entering the workforce that views community service as a normal career (or life?) stage. According to the Cone 2006 Millennial Cause Study, "61% of millennials, (defined as those born between 1979 – 2001), feel personally responsible for making a difference in the world." Whether they start out as teachers, do community service after hours, or expect to take a sabbatical in order to do it, more private sector workers are seeking opportunities to “give back.”
Brand winners: Teach for America has gotten a lot of press for its novel approach to enabling Millennials to give back, and may be the big winner here.

This renewed interest in community service may also be an opportunity to renivent a tired brand like The United Way – which could allow a more varied experience to more potential do-gooders than Teach for America can. Not through the athletes who currently promote it, but through regular, inspired individuals – Millennials, boomers, and others – participating in innovative programs serving diverse populations and causes.


As I look at the list, it seems like an indictment of the Reagan Revolution. Finally! I began my career as a macroeconomist in the Carter Administration, and I served during the first year of the Reagan administration. When Ronald Reagan came to office, it was a depressing time to be a Federal government employee – our motives for choosing Federal employment were viewed suspiciously, and naively aspiring to “do good” was not enough. With a few exceptions, it's been that way ever since.

Happily, that was then and this is now.

Thursday, November 20, 2008

The Problem(s) with Sears

I’ve always liked Sears but have never bought anything there. I bought a lot from Lands’ End before it was acquired by Sears (when my kids were younger), but nothing since. It’s not that I actively avoid Sears. When we bought our house it had a Kenmore washer and dryer, and we looked there for appliances when we remodeled, but bought elsewhere.

What’s wrong with Sears?

According to Sandra Jones' story in Tuesday’s Chicago Tribune, “as Americans worry about their jobs, debt and homes, they are buying less of the goods Sears sells: appliances, tools, tires and clothing.” The economy is hurting all retail, and at least the first three categories are particularly affected. But I think there’s more than the economy that’s undermining Sears.

Sears has a super portfolio of brands in the hard and soft goods categories – Craftsman, Kenmore, Lands’ End. Not being familiar with the rest of their assortment, I went to the website.

Once on the site, I went to check out their Juniors department with my 16-year-old daughter in mind. The Juniors department makes it easy to shop by brand. Why didn’t I know they carried Levi’s? Because of the strength of Craftsman and Kenmore, I think of Sears as essentially or at least primarily carrying its own brands in all departments. Years go, Mervyn’s tagline was “We’ve got the brands.” I guess that made me think that other moderately priced stores (like Sears) didn’t.

Problem #1: People don't know Sears carries major brands.

The top of the Juniors landing page features 3 ads promoting different sales. Below that is the “Shop These Popular Items” section featuring…socks. Not just socks, but a package of white tube socks, an Adidas 3-pack of white below-the-ankle sports socks, and 2 different SKUS of Support Therapy socks. Support Hose for Juniors! What are they thinking? Even if these items are good sellers to Juniors (which seems hard to believe) they deposition the rest of the assortment as seriously not on trend, and reinforces my image of Sears as frumpy.

Problem #2: Sears' (web) merchandising needs help.

Realizing that I might have found a replacement for the soon-to-be dearly departed Mervyn's where I buy my teenage son’s Levi’s (he wears 539’s), I clicked on Young Men’s next. No easy search by brand here. In my experience, guys are as brand conscious as girls, if not more so. They shop by brand, and so do the women who shop for them, but the Sears site seems not to acknowledge this.Once I found the Levi’s, I saw a very limited assortment and no 539’s. When I entered “Levi’s” in the search bar, I came to a Levi’s branded landing page that allowed me to select by customer type, and then by type of clothing – this worked great. But why not have a search by brand option or a Levi’s tab or link instead of relying on customers to use the search bar?

Problem #3: Sears doesn't understand how its customers shop (or at least doesn't show it does).

Beyond the web experience, I wonder if the assortment is just too broad to be represented by a single brand. I do find the juxtaposition of flat screen TVs and bicycles with wine, laundry soap, just-released hardback books and specially promoted few apparel items all under one roof at Costco to be like a treasure hunt. Power tools, washing machines and tires just don’t do it for me.

I’ve always suspected that Kenmore and Craftsman would do better with more distance from the Sears brand, and vice versa. It’s great they have their own websites, which don’t even mention Sears. Do they really belong on the Sears homepage? In the Sears circulars? Maybe the quickest way to make Sears relevant is to cut the chord and make the softer side of Sears more credible.

The Uber Problem? Sears' hardgoods brands overshadow the rest of the Sears offering and customer experience.

Meanwhile, I worry that the story Danielle Novy, reporter for BNET wrote recently may be right – Sears may be on thin ice…that's about to crack, and it won't be due to global warming!

Wednesday, November 19, 2008

Home Town Feeling

I was married in my mother’s wedding dress. She got it at Bullock’s Wilshire, and I had it hemmed there 33 years later. The fantastic art deco, totally L.A. facade housed a high-touch store that was an institution in its day. Bullock’s Wilshire is gone now. So are Bullock’s, Robinson’s, I. Magnin and a whole host of local department stores I grew up with in Southern California.

I was sad when they disappeared. Starting in the early ‘90s, retailers began centralizing corporate functions to wring costs out of their far-flung store operations. Store managers lost control over inventory, and their stature within their organizations began to diminish. Like the computer game Pac-Man, department stores gobbled one another up in search of economies of scale.

In hindsight, it looks like they should have taken a closer look at the intangible assets of the acquired businesses. The goodwill on the company’s balance sheet was largely overlooked in favor of short term cash flow improvements. Too bad. Now it looks like the pendulum may be swinging back.

The Chicago Tribune reported Sunday on Macy’s move to resurrect some of its “retired” brands, including Marshall Fields in Chicago. According to the story, "the steps are part of a pilot program in Chicago and a few other markets where the department store chain is attempting to customize its stores to local tastes after a two-year effort to 'Macy-ize' the hundreds of regional department stores it bought in 2005."

As a team from Bain & Company pointed out in their 2006 article in the WSJ, success at local customization “hinges on getting the balance right: Too much localization can cause costs to spike; too much standardization leads to stagnation.”

So, what are the dimensions that lend themselves to localization? Merchandise assortment, sizing, pricing, store design, and naming all make sense to tailor to the people and the place. Restaurants and grocery stores have known this for ages: McDonald’s serves bratwurst in the Midwest and pineapple in Hawaii.

Banana Republic loads up on small sizes in West Coast stores that cater to Japanese visitors. Origins is another example of a brand that has tailored some products for specific geographies, like its High Elevation Hydration Cream sold in the Denver-area stores. Estee Lauder, Inc., owns Origins, and a huge number of other cosmetics brands (Clinique, Estee Lauder, MAC, Aveda, Prescriptives, Bobbi Brown, and more). Most are offered in the cosmetics department of most department stores – it’s hard to tell one store from another.

What’s unique about the Macy’s situation is its robust portfolio of department store brands that have deep roots in distinct local markets. Selectively bringing back some of those brands can lend real local credibility to the chain and go far to break up the tedium of homogeneous shopping that characterizes today’s malls. As the ‘shop local’ movement accelerates, look for Macy’s to resuscitate more of these retired brands.

Friday, November 14, 2008

A Lump of Coal?

I’m a December baby, and growing up, I always felt gypped at the holidays. Looks like I’ll have company this year. Consumer confidence suffered its steepest monthly drop on record in October according to the Index of Consumer Confidence, as the worst financial crisis in generations continued to take its toll. That can’t be good news for anyone looking forward to presents in December.

This time of year, lots of studies are being released about what holiday sales will be like. Here are the answers to five questions on the minds of gift givers, recipients, and retailers.

Who’s still on the list? The Marketing to Moms Coalition reported this week that 62% of women are asking friends and family to forgo buying them a gift this year due to the economy. And while they plan to cut back on gifts to colleagues and neighbors:
  • 96% said they won't let a bad economy stand in the way of giving gifts to their kids

  • 86% will give gifts to their parents

  • 85% will give gifts to their spouse or partner (Stay out of the dog house, guys!)
I haven’t seen any reports on men’s holiday shopping plans.

How much will we spend? Late last month, Deloitte Consulting released the 2008 findings from its 23rd Annual Holiday Survey. It showed that almost six in 10 consumers (59%) expect to reduce their spending this holiday season. Higher food and energy prices were the top two reasons for spending less, outpacing the economy and job uncertainty. Consumers expect to spend an average of $24/gift, slightly less than last year, and a total of $532 on gifts this year, down from $569 last year.

What gifts will we buy? For the fifth straight year, gift cards are expected to be the top gift purchase. Nearly 2/3 of consumers plan to give them. Over half of all consumers plan to give clothing and almost 40% plan to give CDs or DVDs.

Where will we buy them? According to the Deloitte Survey, with economic concerns high, the survey showed that value-oriented stores are at the top of the consumers’ list of shopping destinations. More consumers say they will shop at discount/value department stores, warehouse clubs, dollar stores, outlet stores, and off-prices stores. That means stores like Walmart, Costco, Kohl’s, Ross, Dollar Stores, Big Lots are likely winners. No surprise there.

What will the experience be like? With company budgets tighter than ever, expect to find fewer salespeople and helpers in the store or on the phone. Online customer support may be better than usual as multichannel retailers make choices about which channels to support, and online is arguably more cost effective for them. In an effort to manage costs, most retailers have been fairly conservative about inventory so out-of-stocks are more likely. That means it will be more risky than usual to wait for price reductions. Retailers are anxious to get shoppers to show up and will be relying on coupons and store circulars more than ever. Redemptions will be high as consumers are eager to save wherever they can. And in-store lines to check out may be longer than usual as people are shunning credit cards and paying with cash, which can take more time to handle than a credit or debit transaction these days.

All in all, it looks like consumers are still planning to spend - and spend smarter - on gifts this holiday. The trick for retailers, online and off, will be to make it easy and affordable for them to buy.

Wednesday, November 12, 2008

Brand Value in a Down Economy

The economy is on everyone’s mind – where it is now, where it’s going, and how it’s affecting individuals, businesses and countries.

The folks at YouGovPoliMetrix recently fielded a survey – the BrandIndex survey – to research the effect the economy is having on consumer perceptions of brand value. The data were collected between Sept 1 and Oct 27, and Ad Week reported on the results in its Nov 4 issue.

The survey found that the five brands with the highest perceived value right now are: Craftsman, History Channel, Discovery Channel, Google and Rubbermaid. Brands with the worst perceived value today are: MTV, Hummer, Red Bull, AIG and Abercrombie & Fitch. Additionally, the survey found that over the past two months, brand value perception scores have increased for Microsoft, Starbucks, Verizon Wireless, Folgers, and Bath and Body Works, while they decreased for AIG, Wachovia, Washington Mutual, Foot Locker and Merrill Lynch.

Here are my takeaways from a review of the brands consumers perceive as the best and worst in terms of brand value right now:
  1. Conspicuous consumption is out; self improvement and DIY are in

  2. Value doesn’t mean cheap, but the price better be justified

  3. Management's track record matters

  4. Familiar, tried and true brands are reassuring in these uncertain times

  5. Consumers are paying attention to advertising
The survey also measured brand value perceptions by category. Home improvement stores is one of the categories hardest hit by the housing meltdown, so it’s particularly interesting to see how consumer perceptions of brand value have been affected there. The YouGoPollMetrix survey found that Brookstone and 99 Cents Only currently have the worst perceived brand value in the category and Home Depot and Lowe’s have the best.

Our own category research at Brand Amplitude over the past year has shown consistently that consumers perceived Lowe’s as better than Home Depot on every dimension we asked about. From selection to knowledgeable advice and friendliness of service to speed at check out to the number of sales people on the selling floor to store layout to price to value, Lowe’s beats Home Depot, hand’s down.

I’ve written before about Home Depot’s challenges. Though the company scores well for consistency across customer touchpoints, our research shows that its messaging misses the mark. They don’t deliver on their “You can do it, we can help” tagline. And as outlined above, they fall short on multiple aspects of the customer experience compared to Lowe's.

The housing slump has hurt home improvement centers hard, and both Home Depot and Lowe’s have scaled back expansion plans in light of the soft economy. Given Lowe’s huge perceptual advantage, it makes sense that the company is not confining itself to a value message right now. Instead, Lowe’s just announced that it plans to tout its in-store shopping experience to drive consumers to its stores this holiday season. Smart move!

Friday, November 7, 2008

When Good Enough Will Do

We’ve always told our kids to do their best, no matter what. When they were younger, they actually listened and tried. Now that they’re teenagers, they laugh at the suggestion. They know that they can do well by doing far less than their best much of the time.

Like parents everywhere, marketers are into superlatives. We typically use lots of them in positioning products and companies – “brand (name) is the best at (benefit) because it is the only brand with (3-5 proof points) to deliver on that promise.” Whether it’s the fastest, the best, the biggest, the safest, the easiest, or the most comprehensive – marketers are always trying to convince customers that the superlatives apply to their product uniquely.

But these times are not typical. And most of those superlatives do not fit customers' current reality. In a Nov. 6 article in Business Week, Ben Steverman reports that “as the U.S. faces a serious economic downturn, many Americans are seeking out the cheapest possible option when buying necessities.” The article features four stores that are thriving in this economy: ultra-discounters like Dollar Tree (DLTR), 99 Cents Only (NDN), and Family Dollar Stores (FDO), and Wal-Mart.

I wrote earlier this year about value becoming tablestakes as the economy softens. That got me to rethinking the conventional wisdom that customers actually would always prefer the best if they could afford it. I’m pretty sure that’s not uniformly true across all categories – now, or ever.

Private label goods are the classic example where good enough will do. Private labels succeed by sitting on the shelf beside the more expensive brand name products they copy. In countless categories including office supplies, breakfast cereal, over-the-counter cold and pain medicines, diapers and other paper products, private label has captured significant market share. Those share gains were made in better economic times than we’re currently experiencing. No wonder Ad Age recently proclaimed in an October 29 story that “it’s going to be a private label Christmas.”

In microeconomics, we learn that the marginal cost of going from 80% accuracy to 100% accuracy is often greater than the cost of getting to the 80% solution in the first place. Is the additional 20% accuracy worth the required expense? Often, customers are not willing to pay the price. Even when the economy is not in the dumps. Why?

Software and systems design have a concept called the Principle Of Good Enough (POGE). We lay people call it “quick and dirty” design. The basic idea is to put a partially complete solution or product in the market rapidly, gauge the response, and tweak it based on actual feedback from users. I guess it’s the “dirty” part that implies something less than perfect. POGE is the logical foundation on which most software and web development is based. The principle seems to apply to a temporary stage in product development whose end goal is the continuous improvement of the product.

Similarly, there are circumstances where good enough is all that’s required and no further quality improvement is expected or necessary. Non life-threatening conditions – the types that retail walk-in clinics are designed to treat – are a perfect example. These clinics typically provide a limited range of "get well" medical services, such as allergy or flu relief, and also treat uncomplicated minor conditions, such as bronchitis and ear, urinary tract, or sinus infections. The success of urgicenters and retail walk-in health clinics are proof positive that in some situations, some customers do not feel they need the Mayo Clinic – they simply require prompt treatment by a competent practitioner.

These examples show that in some contexts, customers appreciate good enough as an intermediate stage to progress through. In others, they value it as an end-state. The lesson here: efficient design is smart design – smart retailers start by getting to good enough, taking their customers’ temperature, and deciding whether and where to go from there.

Wednesday, November 5, 2008

Customer Targeting in a Down Economy

In this election, as in 1992, voters told anyone who would listen that “it’s the economy, stupid.” The stock market is down, decimating millions of 401Ks and IRAs. And Reuters reported on October 17 that the University of Michigan Index of Consumer Sentiment showed "consumer confidence in early October registered its largest monthly decline in the history of the survey." With consumer spending off, retailers are bracing for the worst holiday shopping season since the NRF began surveying consumers about their planned holiday spending in 2002.

To understand the impact of the current state of the economy on consumer shopping behavior, Acxiom and BIGResearch teamed up in September to take a fresh approach to customer segmentation. Based on integrating survey data information, they reported this month finding four elements that stood out as key shopping behavior drivers:
  • Past purchase behavior and future intent
  • Importance of price
  • Shopping trip preference
  • Type of store shopped most often
Using this approach, they found that one-third of consumers are resisting being affected or are unaffected by the state of the economy. They appear more disposed than other segments to respond positively to improvements in their financial situation. These Potential Rebounders are most likely to loosen up on spending as the economy improves, and consist of three distinct segments: Savvy Spenders, It’s My Life and Protecting the Dream.

In addition to Potential Rebounders, BIGResearch found the market is comprised of two other groups of consumers: Status Quo and Digging In. As their name suggests, Status Quo segments have not changed their behavior in response to the economy. Among those who have not changed their spending behavior, there is one high-value segment that is continuing to spend unabated despite the down economy. Called Full Spend Ahead, these consumers resemble the three Potential Rebounder segments, and positioning for those three should appeal to this segment, as well.

Together, Savvy Spenders, It’s My Life, Protecting the Dream, and Full Spend Ahead consumers represent nearly 50% of the market. This is good news for retailers who are paying attention, and for their customers. It suggests that retailers can position themselves to attract and retain these high-potential customers regardless of store format. They make purchase decisions based on multiple factors including need, price, assortment, service and convenience, and the right mix varies on a case-by-case basis.

Zappos is one retailer that is not waiting for a turnaround to address the themes that resonate with these most attractive customer segments. The company’s “Powered by Service” positioning speaks directly to customers who want an efficient shopping experience, and the retailer offers lots of brands to choose from. The company uses a similar service message – “making customer service fashionable” – in its recent extension into apparel. Zappos conveys a value message by emphasizing free shipping both ways, and free 365 day returns.

Look for other, alert retailers to follow Zappos lead and stake their claim to the Potential Rebounders and Full Spend Ahead segments that will lead the way out of the current downturn.

Sunday, November 2, 2008

What Healthcare Can Learn from Multichannel Retail

In the ‘80s I was part of a team of consultants that explored retail healthcare concepts for a client. The idea was to evaluate the market for healthcare services and identify situations where consumers would be willing to visit a self-contained clinic to have their medical needs addressed. We showed back then that health care delivery was broken, and that market innovators could provide breakthroughs in the health care delivery experience profitably.

Launched in the early ‘80s, Urgent Care Centers came of age in the ‘90s. These centers are a response to the long times patients typically have to wait to get an appointment at traditional medical practices, and their emphasis on convenient,"good-enough" care makes them an alternative to hospital emergency departments. They fill a need and spawned other health care service delivery innovations.

In-store retail clinics appeared in 2000. Typically staffed by nurse practitioners, these clinics provide diagnoses and prescriptions on a walk-in basis. They repackage medical services available in traditional physicians' office. The core of the concept is a limited range of "get well" medical services, such as allergy or flu relief, which account for the bulk of these clinics' revenue, demand and profitability though they also treat patients who have uncomplicated minor conditions, such as bronchitis and ear, urinary tract, or sinus infections. According to a July '06 report prepared for the California HealthCare Foundation, retail clinics proliferated rapidly, and were forecast to total more than 1,500 by the end of 2008. The market has been largely driven by small start-up chains, such as MinuteClinic, RediClinic and Take Care Health Systems, which run the outlets under agreements with retailers and have had few formal ties to the medical establishment.

As reported in June ’08 on, “Even if we are not in-network with a particular insurance company, the choice is there for a $59 out-of-pocket expense compared to a co-pay of $75 to $100 for an Emergency Doctor visit, where you may have to wait for hours to be seen for an ear infection,” says Anne Pohnert, RN, MSN, FNP, manager of operations for MinuteClinic in Northern Virginia and Washington, D.C. The affordability and convenience of these clinics encourage patients to receive care early, which promotes early treatment and better outcomes.

According to the Convenience Care Association’s 2007 research, in-store and other types of convenience clinics have a 98% patient satisfaction rate. In contrast, patients do not rate hospital care as highly. Business Week reported late last month on research by the Harvard School of Public Health that found only 67% of patients said they would recommend the hospital where they were treated. According to the researchers, “part of the onus is on patients to improve care: Patients need to be proactive -- ask questions. The more engaged patients are, the better the care they will receive and the better the care all of us will receive, because they will drive the change for better systems of health care."

Patients are indeed becoming more assertive about their own care as health costs shift to consumers. It’s clear that different needs are best addressed in different settings – in our family alone, we’ve been to the ER when our daughter broke her leg skiing and when she hyperextended her elbow playing softball. We’ve gone to an urgicenter when my son got a spider bite on his eyelid while we were on vacation. We’ve gotten flu shots at our local Long’s pharmacy.

As healthcare consumers, we all want options that work in respectful, convenient and qualified settings. Specialty retailers like Williams-Sonoma, Patagonia and Lands' End learned long ago that their best customers were multichannel buyers – that is, they shop the brand in their own stores, online, through catalogs, and through their channel partners.

Multichannel healthcare is part of the answer to today's high-cost, broken health care delivery system. Look for savvy providers and insurers to follow retailers’ lead and find ways to offer their patients a variety of experience alternatives and care in a variety of settings.