Wise New Zealand marketing oracle Michael Carney peers into his crystal ball for this week's installment of Marketing Week.
- Analogue TV is either dead or on death's door overseas. How long has it got to live here?
- How to catch the elusive black swan.
- Are you overlooking the oldies?
- The paywall prognostications come thick and fast. So how is Rupert faring?
- What people really think of advertising?
- The social media horse is starting to bolt. And there's still time for marketers to try and mount this difficult beast.
- Tips and tricks for post-recession category management.
Digital dominance, analogue obsolescence
Forgive us if we shed a tear for times gone by. Last month, for the first time since John Logie Baird had a bit of a brainwave, there were NO sales of analogue TV sets in the UK, according to the latest figures from Digital UK (the organisation responsible for helping viewers switch).
We shouldn't feel too bad. In place of "any colour you like, as long it's black and white" models (and their multicoloured successors), now our British brethren can purchase digitally enhanced versions that are sleeker, smarter, brighter and breezier—and come in a dazzling array of options and acronyms. And, actually, most of those choices are available to us, too.
But there's a price: not just planned but programmed obsolescence. Where once we might have clung to our Philips K9 Colour sets for a decade or more, now we can expect to swap out our tellies every year or two just to keep up. That 46 inch might have been okay for the FIFA World Cup, but you'd better get serious for the Rugby World Cup. Anything less than 150 inches, 3D, and you're just not a true Kiwi.
So the UK's running out of analogue (they're in a phased closedown mode, switching off region by region) and the US has already gone completely digital. How are we doing in Aotearoa? A quick check with Freeview tells us that (at last quarterly count) 23 percent of us have Freeview-capable sets or set-top boxes in our home; and around 48 percent of households are now 100 percent digitally served by Sky.
We can't quite add the two figures together and conclude that 71 percent of the country is now digital-ready, because many of those Sky homes have gone Freeview as well. Our own estimates suggest that the real number is closer to 60 percent.
In other words, by our calculations 40 percent of Kiwi homes are still resolutely analogue. The Ministry of Culture and Heritage is apparently indulging in some more robust digital tracking analysis, quantifying the real numbers of luddites and bleeding-edgers out there, which we may find out in a month or so. Till then, we'll stand by our calculator.
By the time the Government announces the analogue switch-off date (the announcement, not the switchoff, is expected in 2012), we're picking that total digital penetration will be around the 75 percent mark. It'll probably take another three or four years to get above 90 percent and minimise collateral casualties of the analogue kind when the final vacuum tube is unplugged.
Television's on a bit of a roll at the moment, with TV spend figures in recovery mode (up 7.7 percent YOY for the second quarter, according to the Television Broadcasters' Council) and overall viewing figures (per TVNZ) "at the highest levels for week 28 ever for All People 25-54".
And we've recently spotted a couple of new channels hitting the airwaves — Asian channel TV33 on Freeview and Christian broadcaster DayStar on Sky. Clearly their backers still believe the old televisor has a future.
Guess we haven't all switched our affections to YouTube, then.
Catching the Black Swans
The UK's Office of National Statistics is reporting that 30 percent fewer British holidaymakers headed to New Zealand last year. That's part of an overall drop in foreign travel by UK residents that saw 10.4 million fewer trips abroad in 2009.
Our own Ministry of Tourism (observing that major economic reforms in the UK and Europe are now inevitable and economic growth rates are likely to remain low over the next 6-12 months at least) forecasts a further five percent drop in UK visitors in 2010, an eight percent increase next year (thanks in large part to the Rugby World Cup) and then a return to 2009 levels in 2012 and 2013.
Overall, however, in its just-released "Forecasts 2010-2016" document, the Ministry is predicting a 3.7 percent increase in NZ inbound tourism for 2010 and a 6.8 percent increase in 2011. According to that report, the long-term outlook has improved markedly in recent months due to the following factors.
- A shorter, shallower global economic downturn than previously anticipated and the expectation of a more stable economic climate in 2011 and beyond
- A range of new long-haul services operated by foreign carriers which will open up new markets and increase competition on key inbound routes.
- The emerging long-haul low cost carrier model (e.g. Jetstar, AirAsia X) which is likely to deliver major benefits for remote locations like New Zealand.
The report notes that amongst the challenges that have faced the New Zealand tourism industry in recent years, "New Zealand's share of voice has been diminished by competing destinations and an absence of promotional pedestals such as the Americas Cup and Lord of the Rings". In comparison, the projected improvement in tourism numbers is largely predicated on structural and economic changes rather than what we might call Black Swan factors (Nassim Nicholas Taleb's label for high-impact, hard-to-predict and rare events). Which makes for more accountable forecasting, even if the results aren't as headline-grabbing.
By definition, Black Swan events are rare and difficult to predict—and thus no basis for a solid business case, whether for a brand or a country. However, one of the measures by which Black Swan effects can at least be considered goes by the name of Scenario Planning. Call it the "What If?" strategy: asking a series of "What If?" questions to examine the different possibilities if various likely or unlikely events came to pass. The practical implications of a wide range of outcomes are explored, and appropriate responses considered, at least on a conceptual level. And that can be well worth the effort, as much for a marketer as for a government official.
Are You Overlooking The Oldies?
Much of today's marketing is aimed at the younger end of the population. Popular trading demographics include 20-39s, 20-44s 18-39s or 18-49s. If your target audience is really skewing older, you'll daringly opt for those aged 25-54. Talk about covering all the bases.
However, as Nielsen USA has just reminded us, older folk not only have feelings, they have disposable dollars as well. In particular, the Baby Boomers (currently aged 46-64) "are an affluent group who adopt technology with enthusiasm (think about the number of parents or grandparents who regularly send e-mails or upload photos to Facebook and other sites). They have also shown a willingness to try new brands and products". In the US they spend 38.5 percent of FMCG dollars—yet less than five percent of advertising is targeted their way.
Nielsen points out these facts about Boomers:
- Dominate 1,023 out of 1,083 consumer packaged goods categories
- Watch the most video: 9:34 hours per day
- Comprise 1/3 of all TV viewers, online users, social media users and Twitter users
- Time shift TV more than 18-24s (2:32 vs. 1:32)
- Are significantly more likely to own a DVD player
- More likely to have broadband Internet access at home
The Nielsen analysis concludes: "At a time when most analysts are predicting much slower growth in consumer spending, manufacturers and marketers need to look at every opportunity to grow market share. Boomers can represent tremendous potential to those who know how to reach them." As a Baby Boomer myself, I think it's great to be ignored by marketers; we get to make our own choices and not have endless sales fluff thrust upon us. Putting on my marketing hat, however, I grudgingly admit there's a lot of money left on the table if you're not attempting to extract it from the older generation.
Realistically, however, we don't imagine the industry at large will let the facts get in the way of a good youth-skewed marketing strategy.
Will Pay, Won't Pay?
Rupert Murdoch's grand experiment in the UK, switching The Times and The Sunday Times to paid content, is now underway, with user registration compulsory on both sites from June and paywalls erected from the 2 July. How are they doing? A whole Paywall Prediction industry has sprung up, as commentators, bloggers and the popular press try to calculate a) at what point the papers would lose readers, at registration or when the site switched to paid; b) just how many online readers the papers have lost; c) whether the new revenues offset the loss in exposure; and (d) if they should be happy or sad about the presumed outcome.
First, a little bit of perspective: the Sunday Times's editor, John Witherow, predicted in May that "perhaps more than 90 percent" of pre-registration readers were likely to be lost once the registration-only service was implemented. Any losses less than that would presumably be hailed as a victory. Secondly, we haven't yet seen any official figures from News Limited, which means, of course, that the pundits are free to speculate (and indeed they do).
Australia's B&T Magazine does its sums and notes:
In the five-week pre-paywall period of registering, traffic dropped 58% between 22 May and 26 June, with The Times' share of UK traffic falling from 4.37% to 1.83% [based on Experian Hitwise figures].
The UK's Guardian newspaper adds its own spin, doing a series of "If..Then" back of the envelope calculations which have the effect of turning a 58% traffic drop into this:
"The Times has lost almost 90 percent of its online readership compared to February since making registration mandatory."
Based on their number-crunching (we've mercifully spared you the details), the Guardian then concludes "if the estimated 15,000 daily online users who agreed to pay opt for the £2 a week deal, the paywall will generate £120,000 a month – £1.4m a year."
Worth doing? The Guardian holds its nose, point out that the two papers are losing around £240,000 a day (so by implication these online revenues are a drop in the bucket). All of which may be true. But we'd be pretty happy with turning zero subscription revenues into a million pound or so a year. Accordingly, our paywall goes up tomorrow.
You Like Us, You Really Like Us
As part of the report "How We Shop in 2010", 954 UK residents (18 and older) recently told Econsultancy what they thought of advertising. The results gladden our hearts in some ways, leave us heartbroken in others.
The respondents told the researchers that they appreciate advertising when ...
- 57% "It gives me a discount"
- 46% "I learn something new"
- 37% "It's a valuable exchange of my time for free stuff"
- 35% "It's fun and entertaining"
- 24% "I get it myself on demand"
- 5% "Someone sends it to me"
We're sad that consumers are so easily bought (will they stay that way?"). But we're happy that new, fun and entertaining still count.
The 'How We Shop in 2010' Report also found that:
- Over a third of consumers (36%) say that receiving an email prompts them to make an online purchase.
- Nearly two-thirds of consumers (61%) use search engines to help them in their product research decisions leading up to purchase.
- Three-quarters (75%) of those aged 18-26 use recommendations on social sites to help them research products prior to purchase
- Two thirds (61%) of consumers expect to receive delivery notification via email.
- The lowest priority for consumers when considering purchasing a product is the price.
- Electronics and computing (23%) is the category most likely to be researched online by consumers
If you'd like to purchase a copy of the UK report (or its US counterpart), both are available from here.
Are You There Yet?
The numbers are in (via the just-released Nielsen 2010 NZ Social Media Report). This Social Media thingy is catching on. 82 percent of New Zealand internet users may not have been to paradise but they've been to Facebook. So what? More than 99% of Kiwis watch television on a regular basis. What's all the fuss about? It's the conversation, stupid. Marketers in every business sector are waking up to the fact that consumers are turning for guidance to a whole new range of experts: each other.
Study after study has shown that consumers trust their friends (and their friends' friends) more than anyone else when it comes to making a purchase decision. According to Nielsen's new Social Media Report, 1.92 million Kiwis now look to their fellow Internet users for opinions and information about products, services or brands. Alas, you may have a comprehensive training programme in place for your staff, agents, branches and resellers, but now there's a whole new constituency to inform, entertain, educate or with whom you now need to interact.
There's a whole lot of talking going on, much of it happening in the social networks, and some of it may well be about you, your brands or your products. In a perfect world, those who are doing the talking would know all about your products and would give wise, totally informed advice to their correspondents.
Unfortunately, that's seldom the case: many of us feel free to venture an opinion on a subject even if we don't really know the facts. Which is why marketers need to venture forth into the social media space, preceded if necessary by someone carrying a red lantern and a white flag, warning onlookers of impending newbie behaviour.
Consumers will interact socially with brands and their owners if the opportunity arises. 44 percent of Kiwi Twitter users say they have 'followed' companies or brands via the site, according to the Nielsen report. New Zealand companies are also jumping on the Twitter bandwagon, with 30 percent of marketers saying that their company has established a presence on Twitter.
The more nimble members of the business community have already hammered up their shingles on Facebook and Twitter. Now it's the turn of the Early Majority. A moment of candour here: for many, it won't be easy. Traditionally-trained marketers are now finding themselves actively having to consider communications tools that (or at least so it seems) have the lifespan of a mayfly yet have instantly become insanely popular with consumers all over the world.
Most marketers have a comfortable familiarity with brochures, print, TV and radio ads and direct mail. They’ve learned to use (or at least live with) websites, email, search engines and the occasional online banner advertisement. But social networks scare them silly. The vast majority of today's business executives are not "digital natives". They grew up (and, by and large, went through the bulk of their professional training) before the internet changed everything.
For many, social networks are the place where anarchy reigns (in the form of uncontrolled consumer activity and comment). Some worry that the Facebooks and Twitters of this frightening new world will be marketing graveyards – the place where brands are most at threat. And there is a risk of that happening – at least for those brands and organisations that don't play fair with the consumer.
For most organisations, however, social networks are really just another communications tool – if marketers can overcome their most basic and heartfelt concerns. And the best way to deal with those fears? Knowledge. Read a book, Google your heart out, take a course, attend a seminar.
On that social media note, here's a plug for our latest creation100 Sizzling Social Media Case Studies, a carefully-selected collection of social media campaigns from NZ and around the world, explored and analysed (and full of ideas worth stealing). From just some of these social media case studies you'll learn:
- How this Kiwi organisation has attracted nearly half a million Facebook fans in less than twelve months
- How one major manufacturer actually invites its fans to come to the factory and help build what they've just purchased (and charges them an additional fee of more than US$5000 for the privilege)
- How a retail organisation has cleverly used Facebook photo tagging to create a very viral campaign
- How one business has combined offline and online channels to generate even better results than either medium alone
- How speaking your customers' language and engaging in conversations -- with zero hard selling -- has delivered results four times more effective than traditional advertising
- How leveraging coupons in social media delivered outstanding profits for one global operator
- How using social media communities to capture and catalogue "lightbulb moments" has given this multinational organisation great ideas generated and endorsed by raving fans
- How social media can help retail establishments engage with regular customers and can, perhaps more importantly, help them target people who visit sometimes but not yet regularly
- How using location-based applications can be a very effective method of raising money for charity
- How even those business categories that might expect to struggle in the social media space can engage with their constituents and provide an enhanced brand experience over and above existing relationships
- How a private online community of 200 teachers and 100 mums helped redevelop a 60-year-old resource to better serve the needs of today's kids
- How one operator whose target is business users used social media effectively to engage with stories relevant to its audience's careers
- How a social media campaign achieved 38% awareness of the product amongst Gen Y without spending a dollar on traditional advertising
- How a single tweet sold out a 32-city national tour in 2 hours
- How a brand new beer was created through crowdsourcing (and achieved 250% more in sales than original projections)
- How a social media strategy helped a fledgling startup achieve four live-or-die goals: build awareness, drive acquisition, loyalty, and advance product innovation. Oh, and win a few awards along the way.
- How an authentic and relevant online voice for a beloved 130 year old company helped build relationships with online communities of passionate consumers
- How companies are turning Social Media into sales by leveraging Brand Advocates (and how one company is getting a 59% conversion rate to action by energising its Advocates)
And those tantalising tasters represent just a small portion of the 100 Sizzling Social Media Case Studies within this book. And yes, it is a book, for you to add to your bookshelf. We're only publishing 100 copies of this special edition, and there are only 84 copies remaining.
Why are we publishing so few? Because we want the purchasers to be able to examine the Case Studies and take advantage of some of the ideas they contain, without worrying that everyone else in town is going to use the same ideas. That's also why we're having the book printed, rather than offering it in PDF format—we want to restrict its circulation, for the benefit of those who've supported us by buying the book.
The book will be published on August 15 and if you pre-order the book (do it here) before 31 July, the price is just $97 +GST (that increases to $127 after 1 August). If you order and pay before 5pm 26 July, shipping's free.
We're resting our Social Media Marketing eCourse for the moment (Series Three is currently in progress, but if you do want to join in, latecomers are welcome—you proceed at your own pace anyway. See the website for the details). However, we have also had a number of requests for live presentations that demystify social media and make it accessible for traditional marketers, so we've developed a couple of offerings that are available for those who prefer to learn from in-person training. If you assemble a group of colleagues or clients, I can come and make a personal presentation. Think of it as non-virtual social media, if you like.
If you're interested, please contact Michael Carney on email@example.com for course details, availability and pricing.
Post-Recession Category Management
We thought we'd share a small part of the 2010 Grocery Manufacturers Association (GMA)/PricewaterhouseCoopers (PwC) Food, Beverage and Consumer Products financial performance report [email firstname.lastname@example.org for a copy], this particular section dealing with category management:
Cautious consumers currently spend an average of 30 minutes per visit in grocery stores, hunting for value and focused on products that provide both convenience and quality. They scan each aisle of SKUs for a few seconds, largely ignoring the thousands of advertising signs blanketing the store. How can retailers capture the most value from those fleeting seconds?
Reducing the clutter is a popular tool for optimizing value from shelf space. For example, a struggling regional grocery chain optimized the assortment for its pourables (salad dressings) category, which had lagged behind market growth for years. In a mere three months, sales for that category rose from a double-digit decline to positive growth.
Quick wins are not unusual. A non-grocery retailer reduced its SKU count in writing instruments by 15% and saw category sales rise 7% and profit 3%.11 A drug store chain streamlined its assortment after four years of declining sales in its general merchandise category and saw category sales rise by almost 15%.
The cuts are often deep. Walmart, for example, has embarked on a rationalization program that will see 15% of SKUs removed from the shelves in the U.S. For retailers, making room for private-label products is one impetus toward SKU optimization, yet both manufacturers and retailers recognize the benefits of reducing complexity.
'For years,' says Coca-Cola North America’s Duane Still, 'we have been laboring under the assumption that consumers demand more choices. Across the industry, there has been a proliferation of SKUs that retailers have to carry and we have to manufacture and inventory and source ingredients for.'
Partnering with manufacturers to drive category growth presents advantages to retailers of any size. For manufacturers, relationships with retailers are top of mind as they work to protect their margins, gather point-of-sale data, and push digital offers (e.g., e-coupons) to consumers in the store. The hypothesis is that as retailers and manufacturers work to optimize their SKUs, they are eliminating the non-profitable items which would lead to an increase in earnings.
Retailers expect their manufacturer partners to provide a category perspective rather than a brand perspective—and that includes a deep knowledge of the consumer and engagement in driving category growth. 'Even during the recession, we didn't cut back on advertising and promotion,' explains McCormick's Gordon Stetz. 'Retailers expect you to invest in tools, innovation, technology, merchandising—all those elements that drive growth. If you aren't, you will be pressured to up your game.'
Driving growth and protecting margins may lead manufacturers to trim SKUs long before retailers do. 'Over the last couple of years,' says General Mills' Don Mulligan, 'we've reduced close to 25% of our SKUs in the U.S. And our net result is actually better because the 80/20 rule absolutely applies to SKUs. Focus on the top 20% of your SKUs that are really turning and creating profit.'
Furthermore, remember that, due to the law of diminishing return of margin, the bottom 20% of SKUs drive less than 1% of sales.
Cutting SKUs provides room to innovate, but the criteria for selecting new products have changed. 'We've been forced to think differently about price and attractiveness to consumers,' says Mulligan.
'Incremental products, like a new flavour of cake mix, may not achieve the margins we want. Consumers value the convenience and quality of a product like Betty Crocker Warm Delights [singleserving, microwaveable desserts]. These SKUs will help us achieve greater sales with higher margins.'
A collaboration to drive category growth requires manufacturers to offer objective advice when it's the retailer's turn to drop SKUs. After all, says Mulligan, 'Every manufacturer has slower-turning SKUs and you need to be ready to identify your own slow turners for elimination if you want your advice on which products to add to have credibility with the customer.'
Any advice from the manufacturer also needs to include realistic positioning against private labels. Steve Neil of Diamond Foods explains: 'With nuts, we are not going to price at parity with private labels, which are targeted to consumers who are all about value."
'We are interested in another segment: professionals who cook in a meaningful way only occasionally,' continues Neil. 'That consumer says, "I am going with a brand I know and trust. My mom bought Diamond. I know it's been around a long time and that's what I'm going for." We manage the category so there are probably not as many private-label SKUs on the aisle, but they are certainly there.'
Trust between trading partners results in an optimal assortment. Manufacturers can provide consumer and shopper data while retailers provide data from loyalty cards, point-of-sale registers, and other sources. Together, they can analyze the combined data streams in light of the retailers' strategy and consumer trends. The manufacturer's data might help prove that an SKU has sufficient value to be kept, or it might highlight an SKU whose day has passed.
Factors to Consider When Sorting Through SKUs
Consider keeping an unprofitable or slow-moving SKU if:
- Selecting the SKU generates a larger basket (customers tend to buy accompaniments for the SKU).
- The SKU is important to the store's core customers.
- The SKU is important to enough customers during certain stages of their lives. Baby laundry detergent, for example, may be a slow-moving item because the majority of customers do not have small babies. However, keeping this segment of the detergent category represented on the shelves is important for grocery stores that serve families.
- The SKU differentiates the store from its competitors or is offered exclusively at that store.
Even consider adding an SKU if:
- You need it to differentiate yourself in the marketplace or simply to compete with similar stores.
- Your target consumer segments want it.
- It will improve your sales, profits, turns, or competitive edge
- Nobody likes to lose shelf space, but sometimes triage is the only practical solution.