Doing Good...(too) Quietly

This Christmas, I scored surprise shopping success at Kenneth Cole, where everything in the store was at least 36% off. After buying gifts for others as well as myself, I learned of a new Do-Good opportunity that the retail community was promoting. This one is brought to consumers by Network for Good. Kenneth Cole suggested that consumers should “make your presents felt” (pun intended). Already a supporter of Gap’s (Product) RED and of eBay’s WorldofGood.com, I was surprised that I had not heard of this promotion.

Founded by AOL, Cisco and Yahoo in 2001, Network for Good today is a complete how-to site teaching non-profits how to thrive in a Web 2.0 world. The site offers articles and tools for developing marketing campaigns, training volunteers and employees, creating and managing donor databases, and more. The articles are well written and relevant. The founder and CEO, Bill Strathmann, was featured by Fast Company this year as one of 45 Social Entrepreneurs Who Are Changing The World.

My purchase entitled me to a $10 contribution by Kenneth Cole to the charity of my choice from the over 1 million charities supported by Network for Good. All I had to do was go online and use the individual access code on the hand out. What’s more, I was also eligible to win up to $10,000 for the charity of my choice if I filled out the 3-line entry form (name, address, email address) while in the store and gave it back to the sales associate. No purchase was necessary for entry into this contest. Turns out, I was also able to enter online.

I saw no in-store collateral promoting this great promotion. In fact, the store associates didn’t mention it until they placed the collateral in my shopping bag. It’s possible this understated approach is right on-brand for KC – I don’t really shop there regularly and don’t pretend to know what the brand stands for. Nonetheless, this was an opportunity to associate the Kenneth Cole brand with the worthy causes supported by Network for Good, and with the nobility of giving to charity.

So, while a great idea with lots of potential, seems to me that Kenneth Cole did not commit fully to the initiative, and did not benefit as much as they could have.

The Ways Consumers Are Shopping Smarter

Coupons have always seemed like a hassle to me. I’ve never been organized enough to keep track of them. In this digital age, it seems like coupons should be stored electronically on my card or my record at the stores I shop, so the savings happen automatically instead of my having to keep track of another piece of paper.

With the economy the way it is, I may be learning a new skill. Stuart Elliott’s story in the Dec. 5 issue of the NY Times proclaims the humble coupon as this season’s must-have. The story quotes Lance Saunders EVP and head of account planning at Campbell Mithun in Minneapolis, an agency owned by the Interpublic Group of Companies “Thrift is the new normal…There’s no stigma to getting anything on discount. Instead, there’s a sense of pride.”

In research with homeowners this week, we asked what they are doing to save money these days. Nearly everyone said they are paying attention to the coupons they get in the mail, find online or in newspaper inserts. In fact, more than ads, it’s the coupons they are remembering and using.

Our findings are consistent with data from the Coupon Council of the Promotion Marketing Association. Up until two years ago, coupon penetration had declined steadily since 1992. In 2006 it increased to 86% of the population saying they used coupons and it went up again in 2007 to 89%. Preliminary results for this year indicate a jump to 94% penetration!

Our findings are bad news for those who make their living from traditional advertising. Seems TV, radio and print ads are not getting through the noise of the season and the economic gloom and doom.

According to our research, here's what consumers say they are doing more than ever to save money:

1. Doing it themselves
2. Deferring it
3. Comparison shopping for the best deal
4. Relying on coupons
5. Scouring the internet

Most of the people we talked to get coupons even if they’re not in a store’s loyalty program. They get them in the mail, the newspaper, email, or go online and print them out. They seem to manage the paper flow just fine. I'm still hoping a digital form will catch on. What about you? Are you clipping coupons yet?

Malls Giving Way to New Formats

The tough economy has been well-documented. Still, it’s stunning to see the number of mall retailers that have disappeared this year alone. Gone are: Sharper Image, Fortunoff, Linens ‘N Things, Boscov’s, Steve & Barry’s, Mervyn’s, Circuit City, Shoe Pavilion, CompUSA and Goody’s.

According to an Oct. 6 report in the Wall Street Journal the vacancy rate at malls in the top 76 U.S. markets rose to 6.6% in the third quarter, up from 6.3% in the previous quarter, and its highest level since late 2001. Strip malls and family and lifestyle centers are also vulnerable to changing consumer preferences. Their vacancy rate climbed to 8.4% in the third quarter from 8.1% in the second quarter. That marks the highest rate since 1994, and these numbers are surely going to increase as the worst holiday season in a generation plays out.

The whole idea of the shopping mall may be losing relevance as consumers seek out greater shopping accessibility, more merchandise uniqueness, local sourcing and other priorities. The NYTimes reported on Nov. 11 that the nation’s second-largest mall owner disclosed that it might default on some of its debt obligations. General Growth’s most prominent mall holdings include Water Tower Place in Chicago and the Fashion Show mall in Las Vegas.

In fact, the Economist reported earlier this year that so many malls have died or are dying that a new hobby has appeared: amateur shopping-mall history. Like many esoteric pursuits, this has been facilitated by the internet. Websites such as Deadmalls.com and Labelscar.com collect pictures of weedy car parks and empty food courts and try to explain how once-thriving shopping centers began to spiral downward.

While malls are struggling, retailers like Tiffany’s, Home Depot, and Best Buy among others, have been experimenting with smaller format stores. FAO Schwarz launched stores-within-a-Macy’s store by this Holiday, instead of free-standing stores.

They’re experimenting with other formats, as well. Pop-up retail continues to grow. Victoria’s Secret went on campus to reach students at 23 colleges across the country with its Pink brand. J. Crew signed a 4-month lease on The Liquor Store building in Tribeca in August.

And a new form of pop-up retail has emerged. From Zoom Systems, some call it automated retail, others call it the next generation vending machine. There are nearly 800 Zoom Shops located in airports, malls and retail stores in the US and Japan. Zoom Systems offers retailers added branded distribution in high traffic, attractive locations they couldn’t profitably put a store on. Consumers are exposed to the brand in an attractive setting, and generally buy to fill an immediate need for a specific usage occasion (e.g., a gift, for personal use on an trip).

Currently, iPod, Proactiv Solutions, and Sony are among the brands sold through Zoom Systems. Sharper Image couldn’t make it in its own stores, but this would seem like a way that brand could live on. Brookstone also seems like a candidate.

In addition to established bricks and mortar retailers, the concept seems perfect for manufacturers and direct sellers who don’t have a physical presence. A Zoom Store could be an opportunity for both brand building and a revenue generation for e-tailers like Amazon or Drugstore.com and maybe even for Mary Kay, Avon, or Tupperware, though care would have to be taken to avoid alienating the troops.

Seems like a natural to put a Zoom Shop in markets where established brands are considering opening their own distribution. Expect to see more Zoom Shops popping up as brands look for low cost ways to test the waters and build awareness.

How Low Can They Go?

This Thanksgiving, we did things a little differently at our house. Usually, we play late night charades after dinner Thursday and have a round robin tennis tournament on Friday. This year, we were with the other side of the family, and didn’t play any games at all. We spent a lot of time visiting on Thursday, slept late on Friday and went to see Transporter 3 at the mall in LA.

After the show, we stopped in a few stores to take the pulse of Black Friday in LA. Most crowded by far was the Nordstrom Rack. We went in looking for deals on jeans for my teenage daughter – preferably True Religion, though Joe’s Jeans or Lucky Brand would do. No big bargains to be had. On any of them. Even the deals being heavily promoted as bargains were not much different from their every-day-low-price prices. And the styles that were available were definitely not the hip ones.

Despite all the hype about markdowns, we didn’t see it at the Rack on Friday. Much to my daughter’s disappointment, we left with only a few long-sleeve T-shirts in hand and saved our money for another day. As the Sacramento Bee reported last week, "Even with the desperation discounting already, the shoppers who will save the most will do it by waiting until Sunday, December 21, when it reaches its peak," according to Strategic Resource Group, a retail consulting firm in New York.

My takeaway? Retailers are going to have a hard time selling off-trend merchandise this season. Even at a discount, we expect good stuff. So, merchants that took chances on a look or an item may get burned. Gap used to do this a lot, and mark down its way out of the inventory overhang.

Not this year. If it’s off-trend in any category, it’s going to sit on the shelf. People want the wii fit, not a wii wanna be. They want the brands they know and trust to make them feel taken care of, not knock offs which just remind them they're poorer.

This holiday, customers will line up and put up with a lot of hassle for the right goods at the right price. If you don’t have them, they may not buy what you do have…at any price.

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.

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!

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.

Now That Cash Is King (Again)

It's official: Bloomberg reported earlier this month that the record expansion that began in 1992 is over and consumer spending fell at an annual rate of 2 percent in the third quarter. Consumers are shell-shocked – and spending dramatically less these days – as we bear witness to the continuing crisis in the credit and housing markets.

The drop in consumer spending is definitely affecting retailers. “Americans tend to resort to cash in troubling times” according to credit expert Howard Dvorkin and reported earlier this week in Money Magazine, “and they spend 30% less when paying cash than when paying with a credit card." So, retailers are seeing lower transaction volume and lower average tickets. E-tailers are being hit worse, since cash is not an option for purchasing online.

Even the most gung-ho Web enthusiasts are spending less online according to a 10/24 report on Yahoo! Tech News. Desperate to goose their sales, e-tailers are sending email more frequently. Internet Retailer's recent survey of 174 Web retailers, including those that operate stores, found nearly half have increased the number of monthly e-mails they send compared to a year ago.

At the same time, or as a result, consumers are becoming annoyed with e-mail in general. As unsolicited commercial e-mail volume increases, Forrester reports that consumers are turning increasingly to social networking sites, texting and other communication channels. Ironically, while e-tailers are more dependent on email than ever, they are also reducing its effectiveness and speeding the adoption of Web 2.0 social networking tools.

The payments industry is also hurting as a result of the shift to cash. All credit card company stocks are down sharply.

What changes should consumers expect to see in the purchase experience as a result of declining retail sales and credit card volume? Here are my predictions:

• More sellers and merchants accepting PayPal online and off, creation of new PayPal payment tools and solutions like the PayPal Pay Later option introduced in May, and introduction of new solutions like eBillMe
  

• Return of the layaway plan, the ultimate loyalty program. While Wal-Mart phased it out in 2006, Kmart, TJ Maxx, Marshalls and Burlington Coat Factory, have reintroduced layaway plans this year, and I suspect others to follow

• Emergence of sites like recently launched eLayaway.com, luring consumers with iPod Touches for “as low as $42.23 a month”

• Banks and credit card companies offering double points for gas, groceries, and other sweeteners to get us to use our cards!

• E-tailers conducting more frequent, richer promotions to entice online shoppers to continue spending/shift more of their spending online

Do these changes have staying power? Mastercard, Visa and American Express are not standing still. Look for them to fight back with new payment products of their own. Same goes for Facebook, Twitter, and Meebo, et.al.

Between new payment products and Web 2.0 social networking solutions, we have some good tools to take our minds off the economy and the election, at least for a few mintues.

Being Big and Local – An Exercise in Creativity

My in-laws once owned a drugstore in Seaside, California, where my father-in-law was the pharmacist and chief merchant. He used to special-order merchandise for his customers, and knew them by name and their orders by heart. Back then, big chain stores and department stores did the same thing, and each store was run by a powerful store manager.

Over the last two decades, most retailers have been wresting that control away from store managers and shifting it to centralized departments in the name of cost controls and consistency of experience, but something may have been lost in the process.

In previous posts, I’ve speculated about the challenges facing big brands at a time when consumers want their shopping experiences to feel “special” and not mass-produced. That was before the economy took a nose-dive. Now, I think people are outright scared, and they want to know that the people they deal with understand and care about them. At the same time, leading retailers are pursuing initiatives to “get local."

So, is the pendulum swinging back in favor of store managers? It surprises me to say so, but I have to answer "maybe."

Macy’s recently announced its My Macy’s initiative to "design and merchandise stores to reflect local tastes. The program will shift more decision-making to the local level, tapping ideas from customers and sales associates." According to a Chicago Sun-Times story last week, in Chicago the initiative aims to woo back loyal Marshall-Fields customers, lost when Federated acquired their favorite retailer and retired the brand. In Pittsburgh, it’s aimed at reengaging fans of Kauffman’s, which was also obliterated by acquisition, according to a September story in the Pittsburgh Tribune-Review.

Keeping those names may have been the best way to retain loyal customers in those markets. It’s an expensive proposition to bring in local merchandising managers and buy and warehouse region-specific inventory to recreate the home-town feeling those brands gave customers.

In a variation on this theme, some retailers will introduce a few high-profile items into their assortment to speak to local tastes and needs. That’s one direction Origins is exploring. As I mentioned in a story last month, Origins has created unique products that address the effects of Denver’s mile-high atmosphere on a woman’s skin and is testing them in a few of its company-owned Denver stores. If they test well, Origins could offer them to area retail accounts to help them get local, or keep them for itself to give customers in Denver a reason to come to their stores.

What can retailers do to go local without incurring the inventory and personnel costs of store or market level merchandising and logistics?

Best Buy recently opened a store-within-a-store focused on musical instruments and music lessons. The concept could do a lot to promote the company’s "local-ness," depending on how it’s implemented.

The company has a great opportunity to get local across a whole host of categories by becoming a channel for local instructors. Some instructors might even choose to sell instruments or teach in the store. The key to appealing to them is to acknowledge they are small business owners with a passion for their area of expertise and arguably less interest or ability in marketing.

This approach could apply to several categories of current Best Buy merchandise – from cooking to computer programming to web design classes. And it could make the music lessons idea work, too. In the way it supports and showcases local class providers and promotes their connection to Best Buy, the company could ensure that the providers’ “local-ness” rubs off on its own brand.

The beauty of this approach is that it does not involve payroll or inventory expenses. It hinges on a creative approach to execution. And that should be music to any CFO's ears!