Think It Through

There are times when I really wish I had chosen to study Marketing in business school instead of Management. The first time, at MBA level, I still believed that there was a place in the world for a generalist who just wants to get on with the job at hand. The second time, I was looking for the answer to why the senior management teams of otherwise perfectly good companies keep running their firms directly into the ground, and it seemed reasonable to study the actions and strategies of the senior managers themselves. And, of course, both times through I knew I didn’t have the math for it. But quite apart from that, and leaving out the absurd bias my former department has against applied research (and the practitioners who apply it), I have noted a large number of the aforementioned management failures that relate directly to marketing decisions that even a reasonably bright six-year-old would have known better than to make…

A case in point would be Burger King’s attempt at a marketing tweet this week. I picked up the story from USA Today, but you can find details about it all over the Internet as of today. Actually a series of three tweets, the first one said “Women belong in the kitchen.” The second one pointed out that women comprise only about 20% of all professional chefs, and the third tweet introduced a new Burger King program to provide scholarships for women attending culinary schools – thus correcting the shortfall. It’s a marketing/public relations move that has some real potential, timed to coincide with International Women’s Day 2021, but whoever came up with it seems to have missed just how badly the first tweet would be received – and how likely people were to ignore tweets two and three, particularly if they were already angered by tweet number one…

It seems possible that the company was attempting to emulate the success that Wendy’s has already had with their company’s Twitter account, which has become known (if not exactly famous) for its humorously sarcastic tweets over the last few years. Unfortunately, whoever came up with this triple tweet appears to be unfamiliar with the convention of indicating a multipart tweet by putting the notation 1/3, 2/3, and 3/3, or however many tweets the message takes up. They’re also ignoring the tendency of people to stop reading something that angers them, as well as the fact that this particular message is neither sarcastic nor amusing…

Now, I don’t mean to imply that if I had a Marketing degree I would be able to tell any company when their attempt at being hip, edgy, or at least relevant was about to crater. But this isn’t the first attempt at Twitter advertising or other online marketing attempts to fly wide of the mark, and it isn’t even Burger King’s first absurdly offensive failed marketing attempt. Regular readers of this blog (assuming I have readers) will recall an earlier post about a Burger King ad featuring a new oblong burger product and a woman’s face apparently looking at it with an expression that could be interpreted as awe, fear, or revulsion, depending on your point of view…

It doesn’t take a lot of familiarity with failure analysis, let alone a graduate degree in Marketing, to recognize that the company has an unfortunate history with advertising that is not as clever or funny as they think it is, or that any future attempts at witty, edgy, or viral advertising are likely to attract greater scrutiny than they seem to have expected. You have to wonder if the person operating the Burger King  twitter feed ran this idea past anyone else – and if so, whether the “anyone else” included any actual women. Or, for that matter, anyone who had ever met an actual woman…

Other authors have written about the propensity of supposedly brilliant leaders in movies and television programs to formulate elaborate plans in which any ordinary six-year-old would be able to find obvious flaws, and suggested that if they ever have the chance to be the “evil overlord” or equivalent they will run all of their plans such an individual. It seems excessive to suggest that the senior management at Burger King should consider the same advice, but if they want the advice of a scruffy blogger who used to teach Business Strategy at a top business school, I do have some time available…

Is It Worth the Cost?

I haven’t been in the market for a new car for some time now, and as a result I was only vaguely aware of Ford repositioning its product line. I don’t recall seeing ads for the Fusion or Taurus sedans for some time now, and it has been a while since the company has allocated any marketing resources for the Fiesta or Focus lines, at least on any channel where I would have seen them. It’s not as if this is a particularly radical action anyway; every large company that makes consumer products has to reposition at least some of its products from time to time as customer preferences change and the economy fluctuates. But apparently these most recent moves are raising the prospect of reduced sales going forward…

You can pick up the article from the Automotive News site if you want to, but what they’re talking about is a survey that indicates that at least some percentage of Ford owners will purchase their next vehicle from another company if their preferred model of sedan isn’t available. The findings aren’t conclusive – the sample size isn’t big enough, for one thing – but it suggests that the company’s plan to replace sedan models with SUVs and crossovers offered at a similar sticker price may have failed to take into account the fact that some people don’t like SUV body types, or that some people are more loyal to the kind of car they want to drive than they are to the brand identity…

What is really odd about these findings is that they are almost directly contradicted by trends in purchasing decisions in recent years. Whether SUV types really have higher profit margins than sedans or not depends on whom you ask, but the market has definitely been trending toward them for some time now, and it’s hardly surprising that Ford would try to produce more products in the categories in which they sell the most units. From a strategic viewpoint, the real question is whether Ford can achieve enough additional sales – or, failing that, secure enough additional revenue – through this change in their product mix to make up for whatever they lose by discontinuing the sedan models…

Now, I don’t mean to imply that this kind of forecasting is easy, or that the consumer preference analysis that drives it is something that anyone can just throw together on the spot. One could argue that eliminating products with lower purchase prices and higher gas mileage (e.g. lower operational costs) might be viewed negatively by people in some market segments; one could also argue that if you alienate buyers at the entry levels of your product line you have dramatically reduced the possibility that they will ever graduate to the more lucrative levels. On the other hand, there may also be savings that can be realized by producing a smaller number of models, requiring a more limited variety of parts, which are not obvious from the published information. At least, that seems to be the way Ford is placing its bets…

I’m going to try to keep an eye on this one as the next few model years hit the market. It’s possible that the Forward Planning team at the Ford Motor Company knows more about the way their market is developing than the folks at Automotive News (or various scruffy bloggers) do. But it’s important to remember that they’ve been wrong before, too…

You Don't Say

It was the kind of story that statisticians and business analysts hate. The Metro (UK) website carried it with a banner headline that proclaimed “Couples who spend more on their weddings are more likely to get divorced” in bold letters above a picture of a wedding cake. The story went on to claim that the more cash spent on wedding rings, engagement rings, or the ceremony itself, the more likely the marriage would eventually crash and burn, as illustrated by pictures of celebrity couples who had managed to do just that. It’s the kind of thing that would make anyone who couldn’t afford an elaborate wedding, anyone who thinks ostentatious displays of wealth are crass, or anybody who particularly dislike weddings feel better about themselves…

Unfortunately, the original article does not give the title of the study they are citing, the name of the journal in which it appears, or where the researchers got their information. To be fair, most people who are casually reading online news stories wouldn’t care about the statistical methods employed or the degree of empirical rigor employed by the research team; most Internet readers don’t appear to consider the source at all. The Metro (UK) site isn’t exactly the BBC, but they aren’t the Daily Mail, either, so I decided to run down the original research article…

As it turns out, the paper the Metro (UK) people were talking about is called “A DIAMOND IS FOREVER” AND OTHER FAIRY TALES: THE RELATIONSHIP BETWEEN WEDDING EXPENSES AND MARRIAGE DURATION, and it appeared in the October 2015 issue of a journal called Economic Inquiry, which is published by the Western Economic Association International. It’s the work of two economics professors from Emory University, Andrew Francis-Tan and Hugo M Mialon, and as you’d probably expect, it’s not quite as sensationalist as the Metro (UK) headline, or even its own title, would have you believe…

Basically, what the professors did was ask people to fill out a Qualtrics survey that provided basic demographic information, an approximate range of what they spent on the wedding, the rings, and such, and how long they had been/were married. They then cleaned and adjusted the data to account for as many inaccuracies as possible, and ran a number of regressions and other analyses to see if any patterns appeared. If you’ve spent any time on statistical research, you already know that there are problems with self-reported data (people lie) and correlational data (correlation does not equal causation, no matter how good your math is), but the researchers in this case weren’t looking for a causal relationship in this case…

According to the report, the researchers were attempting to determine if there was any relationship between elaborate weddings and/or rings and the length or success of the marriages, specifically because the companies that supply wedding services and supplies have claimed for most of the last seventy years or so that such expenditures are critical if you want to have a successful marriage. They specifically note in their literature review that these marketing claims are a recent development, and prior to World War II advertising of this type was highly unusual, and there does not appear to have been any corresponding popular belief…

Even more to the point, what the study found was that there was no such relationship. According to the data they collected, the researchers were unable to find any support for more expensive weddings or accessories leading to longer or more successful marriages. Although they did notice a number of other interesting results, as far as this study can determine, there is no reason to believe that spending a lot of money on your wedding will help you stay married, and no reason to believe that failing to do so will doom your relationship to divorce. If you dig down into the information, this turns out to be a moderately interesting study of changing consumer economics over the last two or three generations that debunks claims made by a specific industry about the vital importance of their products and services…

Although we should probably concede that just coming out and saying that would make it much less likely that anyone would read a news article about the findings…

Born to Fail

It must have been twenty years since I last heard about the short-lived Coke product called Tab Clear, and probably longer since I’ve seen any. Most people knew of the product, if they became aware of it at all, as one of the wave of clear beverage products that appeared, briefly, in the early 1990s, along with Zima, Crystal Pepsi, and a number of others. What was not widely recognized at the time, but has since been confirmed, was that the Coca-Cola Company had never intended for Tab Clear to become a viable brand, and had accordingly spent almost no funds to test, launch, advertise or promote the new line extension. On the contrary; Coke wanted Tab Clear to fail spectacularly enough to take a competitor’s product with it…

I found the story on the Mental Floss site last week, and it immediately took me back to my first time in graduate school, when one of my MBA classes discussed what was then known about the product and the category. Pepsi had been the first company to try to take over the clear cola market, or create it if there wasn’t one, with Crystal Pepsi. The development and launch of the product had been a major expense for the company, but Pepsi was expecting to appropriate enough market share from various Coke products to recover the cost and then gain on the competition in overall sales. Coke might decide to create their own clear cola, or even reverse-engineer Crystal Pepsi and knock off their own version, but either way Pepsi would gain the coveted “first mover” position in the “clear cola” segment – if there was going to be one…

Instead, what the Coca-Cola people actually did was create a clear version of their legacy Tab cola. With the rise of Diet Pepsi over the previous decade, the Tab brand had become increasingly redundant, and any risk the company might incur from changing its formulation (e.g. alienating any remaining Tab customers) was less significant than the threat of losing share to Crystal Pepsi. What made the move so interesting was that Crystal Pepsi wasn’t a diet beverage, but since Tab was, consumers became confused and started expecting both products to be low-calorie. I have no evidence to suggest that Coca-Cola intentionally made Tab Clear taste bad (and neither do the people at Mental Floss, apparently), but they knew it couldn’t stand up to a full-sugar cola on taste alone – and with the products becoming conflated in the public’s imagination, anyone who was appalled by Tab Clear would also assume that Crystal Pepsi tasted terrible…

None of this was apparent in 1992-1993, of course, but even then people tended to place orders for “any generic diet cola” by just saying “Diet Coke.” Over the years since it has become increasingly clear that except for unusually brand loyal consumers the two products are, if not exactly interchangeable, then at least acceptable substitutes for each other, but the Coca-Cola people seem to have picked up on this phenomenon before anyone else did. I would suggest that the company’s experience with the New Coke debacle in 1985 may have given them some insights about the difference between perception and actual flavor, given that some of the most vocal opponents of the “new” formula were unable to distinguish it from the original Coke in repeated blind taste tests…

In the event, the strategy worked perfectly. People who had never tried either beverage became convinced that all clear cola products were terrible, and attempts to debunk these (baseless) opinions were no more effective than the ones regarding New Coke had been. Pepsi was never able to develop a large enough market for Crystal Pepsi, and they ended up withdrawing the product two years later without recovering most of the development costs. I’m not aware of any exact parallel cases in history, but I call the Tab Clear story to your attention anyway because it demonstrates two of the principles I try to teach my own students. First, always assume that your competition, whoever and whatever they may be, are as smart and as capable as you are – and that they will be watching you just as closely as you are watching them. And second, remember that no matter how bad the strategic picture seems to be, things can always get worse…

Food Snark

I wasn’t planning to do a follow-up on yesterday’s post about IHOP – or, as they have temporarily re-branded themselves, IHOB for International House of Burgers. I figured that mocking them for the promotion – not so much because it was ill-advised as much as it was pointless and probably redundant – would be a fun post to write, and hopefully read, and that everyone else would lose interest in the story as quickly as I did. A generation ago, or even a decade ago, that would probably have been the case, but in the world of social media nothing ever goes away quietly…

Not surprisingly, Business Insider ran a short piece on Tuesday recounting some of the replies that competing hamburger chains had tweeted, which is a valuable service for those of us not currently on Twitter, by the way. Wendy’s already has a reputation for snarky tweets, so you would probably have been expecting them to comment. Their reply was “Can't wait to try a burger from the place that decided pancakes were too hard,” which I feel shows the proper spirit. Red Robin, another likely competitor I had mentioned in yesterday’s post tweeted that “We’re as serious about pancakes as @IHOb is about burgers,” which is probably also what you’d expect. Seeing A&W Restaurants get into it by tweeting a version of their logo turned upside-down and adding “We don’t know what it means either,” was a bit more unexpected, because I hadn’t realized that the restaurants division of A&W was still in business…

IHOP appears to have been expecting the tweet storm, as well, since their response “We don't want any beef with you, we just want to share our beef with the world," seems a little too rehearsed to be natural. Their CEO was later quoted as saying that “If we have other people in the world of burgers commenting on our burgers, it can only help,” which also suggests that they had anticipated the reaction from the industry. I personally thought that Waffle House had the best reply, though; asked by one of their fans (in a tweet) “Please stay waffle house don’t become burger house!” the company’s own Twitter account replied “No worries here...”

We’ve discussed the question of whether all publicity is good publicity, or whether being publically mocked – regardless of the platform on which that is happening – is worth the lost business from people who will decide that your original move was bone-headed enough to motivate them to avoid your company. In this case, I really doubt whether IHOP is actually going to lose business over the IHOB strategy; they’re an iconic part of American life, and anybody who wants cheap breakfast food at all hours of the day or night (and doesn’t have a Waffle House nearby) will probably continue going there…

Whether or not their new burger offerings gain traction, or whether people start visiting the restaurants during the off-peak lunch and dinner shifts in which they were trying to pick up ground remains to be seen, however…

It's a Stunt

Over the weekend, the International House of Pancakes, or IHOP, as they are often called, announced a temporary change in their name to IHOB, without any indication of what that was supposed to mean. Today we learned that the “B” stands for “Burgers,” and the temporary measure is part of the launch of their new line of burgers. There’s been the amount of chatter you would probably expect out there in cyberspace, or at least in the comments sections of the various articles about this promotion, with some customers claiming that the last thing they want to smell in the morning while at breakfast would be burgers cooking, while others applaud the “free” publicity the stunt is generating. Personally, I’m disappointed…

You can pick up some of the articles about this promotion here or here, if you have a mind to. My personal disappointment stems from the fact that IHOP has already got a number of burgers on their menu, including two of the ones they are pushing for this new promotion. I haven’t been in to an IHOP location to see if they’ve really added anything new, but I’ve been eating one of the products mentioned by name in the Market Watch article for years now – pretty much any time we go to IHOP at a non-breakfast time of the day and I don’t feel like eating chicken and waffles…

Now, I would be the first to admit that it is difficult for an established brand like IHOP to change its public image after this many years. At least three generations of customers (possibly five by now) have associated the company’s restaurants with breakfast foods served more or less 24/7, with a smattering of other menu items for people who may not want to eat pancakes at three in the afternoon. This ignores the fact that the IHOP menu is made up of at least as many non-breakfast items as the more traditional faire with which it is associated, or that the company’s biggest advantage is probably the same reliable uniformity that supports most other national chain restaurants, rather than pancakes, waffles, and bizarrely-named breakfast specials. I’m skeptical about the current promotion, however…

It isn’t difficult to figure out that a restaurant chain most closely associated with breakfast foods would want to promote its non-breakfast options in an attempt to increase customer traffic at the other times of the day. In fact, IHOP has been running television spot (and in earlier times radio and print media ads as well) for as long as I can remember, without any noticeable change to its customer demographics or peak operations times. I couldn’t tell you for sure without auditing their books – and nearly all of the IHOP locations are franchised, so even that might not help – but it would appear that the company is going to need more than advertising stunts to change these stats…

What, exactly, the company could do to draw more customers for lunch and dinner shifts isn’t clear from the articles, or from my observations as a long-time customer, for that matter. Without bar facilities available they can’t really expect to take on Chili’s, TGI Fridays, Red Robin, or the other players in that segment, and with kitchen operations (mostly) limited to frying things or toasting things it’s difficult to see what other segments they could move into. They can’t attempt to implement greater differentiation without massive upgrades to their facilities and equipment, and if they attempt to go low cost they run the risk of bumping into McDonald’s and Burger King on the low end, or losing market share to Denny’s and Waffle House in their current segment, or possibly both…

It should be interesting to see whether this promotion will lead IHOP into a major change in menu, marketing, or operational strategy – or whether it’s just another marketing stunt that no one will remember by this fall…

That’s Nuts!

These are some days when I spend hours combing through news aggregation sites and actual news channels, looking for interesting and/or funny stories within a business context to write about in this space. Sometimes there will be something I want to share from my oddball life experiences, lessons I’ve learned or taught in business school, or ethical musings that are as close as an old cynic like me ever gets (or should ever get) to discussing philosophy. Sometimes there are days of quiet desperation, when neither the online news sources or my over-active imagination yield anything, and I wind up just writing insulting jokes about people I don’t like and calling it a day. And then there are days when the first headline I run across says “Fake dog testicles made this man a millionaire…”

I wrote a post about this product – known commercially as “Neuticles” – early on in the blog, but if you missed it, the idea is that some pet owners want to have their dog neutered, but don’t want the animal to look or feel any different afterwards. As is often the case with off-beat entrepreneurial projects, the company was started by a man who wanted to purchase such a product but was unable to do so because no such implants existed. Reasoning that if he wanted the product, others might also, he joined forces with a veterinarian and a group of investors and started a company which has now sold over 500,000 pairs of Neuticles at an average of $310 per pair – which works out to $155 million USD in gross sales…

You can pick up the CNN story here if you want to; alternately, you might want to look into purchasing Gregg Miller’s own book on the subject if you can find a copy – the volume, called “Going… Going… Nuts!” sadly appears to be out of print at the moment. Despite its rather unusual product and the problems inherent with making and marketing cosmetic implants for dogs (and other animals), the company itself is really the classic American entrepreneurship story of finding an empty niche and filling it. Founder Gregg Miller’s life story is a bit more eccentric, as one might expect from the inventor of cosmetic testicular implants for dogs, but in both cases I felt there was a story worth repeating here…

When I first read about Neuticles and wrote my original post on the subject I was treating it with a vaguely satirical air; the sort of (hopefully) gentle mockery that one might suggest befits anyone who would spend money on cosmetic surgery and implants for an animal that can and does eat its own droppings. That was wrong of me, and if Mr. Miller is reading this post I most sincerely apologize for any disrespect or implied criticism. The greater truth behind this story is that however bizarre I might have found his invention to be, Mr. Miller was clearly quite correct in his assessment of its commercial potential, and I should not have been critical of it without any marketing data whatsoever…

The belief that just because I find a product to be outlandish that everyone else will also have that reaction is the management error I have often presented in these posts as the “I am the World” fallacy, and I’m not sure I have ever seen a more extreme example of it. I am, after all, a management instructor and business consultant of some experience, and the product in question is bizarre enough that even CNN is treating this as a weird or amusing piece of news. Apparently it bears repeating that one should never reason ahead of one’s data, and also that while it’s true that 90% of all entrepreneurial start-ups will ultimately fail, that does mean that one out of every ten will succeed…

Even if its business concept STILL seems too outlandish for words…

What Comes Around…

Some years ago I brought you the story of the My Coke Rewards program, and the similar promotion called “Pepsi Stuff” that the Coca-Cola Company first mocked and then copied. Both of these were essentially the classic “box-tops” concept that has been in use since at least the 1920s. Send current marketing, contact, and demographic information along with proof-of-purchase (generally the tops of a specific number of packages) and occasionally a small sum of money, and the company will send you any one of a number of cheap “prizes.” Some of these are simply advertising pieces in their own right (hats or t-shirts with the company name and logo on them), while others are furnished by other companies as part of a shared advertising deal. How effective these schemes really are remains somewhat debatable…

British novelist Dorothy Sayers, who actually worked in advertising in real life, explained the basic issues in her 1933 novel Murder Must Advertise. Unless the company running the promotion requires its customers to pay a “shipping and handling” fee – which dramatically lowers the effectiveness of the promotion – the company will have to pay for verifying the participating applications, buying and warehousing the “prizes,” and shipping the goods to the customer out of its advertising budget. The problem becomes how many additional sales the company will realize as a result of the promotion, and how much of the resulting profits they are willing to spend. Too many prizes, or too much value per prize unit, and the costs will eat any resulting increase in profits; too few prizes or too little value per prize unit and no one will participate in the promotion. And that doesn’t even consider aspects like fraud, forgery, or potential damage to the company’s brand identity…

In the original “Pepsi Stuff” promotion the company had to contend with all of these problems and then some. Much of what they were offering did indeed consist of cheap promotional materials for which an absurd amount of “proof-of-purchase” was required, and the few attempts at prizes with an intrinsic value ended up causing trouble, as in the case where a “joke” offering of a Harrier jump-jet resulted in a lawsuit from someone who claimed to have been deceived by the offer of a $30 million military jet for the equivalent of about $750,000 cash. The Coca-Cola people appeared to be watching the whole situation with glee, and wasted no time running their own ads mocking the Pepsi promotion, before starting their own version 10 years later…

Over time, the Coke version of the promotion grew unfeasibly expensive and began causing the company other problems, until they gradually converted it into recruiting for customer-generated content on Twitter about a year ago. I was therefore not particularly surprised to see a relaunch of the Pepsi Stuff program at the beginning of 2018. If the previous iterations are anything to go by, we should expect to see the Pepsi version end in another six to eight months, with everything you’d actually want going out of stock by the end of this summer. Meanwhile, the Coke ads mocking the new Pepsi version should launch sometime in the next month or so. It will be interesting to see if Coke bothers to create new ads of mockery, or if it just dusts off the old ones and starts airing them again. It will also be interesting to see if they re-launch their own version of it again around 2028 or so…

Now, I’d be the first to admit that I’m not clear on what either of these companies think they’re going to accomplish by using and re-using a promotion style that was old before most of their present customers were born. It’s true that all of the proofs-of-purchase are electronic these days, based on codes entered online, and it’s also true that modern automated fulfillment systems take most of the labor expenses out of the equation. And if there has been any reduction in the appeal of getting something for nothing, or in the number of people who are naïve enough to believe that you can get something for nothing, news of the decline has yet to make it to Central Michigan. But I can’t help thinking that unless somebody comes up with a new idea for a product promotion this whole cycle will just keep coming around again…

You’re Not Helping

I think it’s probably fair to say that things have been a bit weirder than usual around here since the last Presidential election, and given how weird life in these United States has gotten to be in this 21^st Century, that’s really going some. Life in this country is always a bit confusing right after a change in administrations, and this one is stranger than usual. A lot of things that “everyone knew” could never happen just did, and with the arrival of a “post-factual” society it’s getting harder every day to tell what is real, what might be real even though it makes no bloody sense, and what is just people acting out something they saw in a Saturday Night Live sketch. And while it seems unlikely that tomorrow will see either flights of angels with trumpets soaring over Washington D.C. or the entire city dropping straight into the Pit, some of the things people and organizations around the world are doing to celebrate the event aren’t making things any more believable…

Consider, for example, the story about a Russian company minting commemorative coins, in silver or gold, that bear the likeness of our President-Elect on one side and the legend “In Trump We Trust” on the other side. You can pick up the story from the CBS News page if you’d like, but so far it looks as if this one is correct. A Russian company called the Art-Grani Metal Works is striking a small series of 45 commemoratives, each supposedly about five inches in diameter and weighing about two pounds, although that should vary depending on the base metal. In addition to the aforementioned Trump portrait, the other side of each coin looks very much like the one on the back of the U.S. Presidential dollar coins, although carrying a different motto, of course. How much these “coins” will sell for, or rather if they will sell for more than the price of the metal, remains to be seen…

Now, we should probably acknowledge that this is a publicity stunt, almost certainly aimed at a Russian audience, rather than us. Even assuming that the company was making a large number of these coins, it’s difficult to imagine that there are that many people anywhere who would want to spend over $38,560 for a commemorative coin bearing the likeness of a U.S. president, no matter how controversial he or she happened to be. Even the silver coins would be a bit of a stretch at $545.92. But more to the point, perhaps, there are private companies all over the world, many of which actually have the word “mint” in their name, who produce gold and silver commemoratives featuring all manner of images of people and places all the time. The only reason this one is drawing attention on the Internet, instead of being relegated to the inside cover of a dead-tree magazine, is the momentary notoriety of its subject matter…

If the past 240 years are any indication, it seems probable that the new administration will be rather less wonderful than its supporters would have you believe, and possibly even slightly less horrible than its opponents are forecasting. If we are all very lucky, sometime in the very near future this whole passage will be left to the historians to figure out, and the rest of us can get back to trying to figure out what is fact, what is fiction, and what is something that somebody just pulled out of their hat. But on behalf of a generally confused American electorate, I can honestly say to the Art-Grani people, and all of the other companies like them, you’re not helping matters…

That’s Not an Egg!

Some time ago in this space I speculated that Apple needed to come up with the next Big Thing in personal electronic devices, and noted that while the iPhone has been the mainstay of their business model for several years, there is a limit to how far they can develop the smart phone using the current technology. They needed to come up with a new product that would renew the company’s previous reputation for innovation and cutting edge technology, and I really doubted that the new Apple Watch was going to be that new product. Although, to be fair, I also noted that I didn’t have any better ideas, and pointed out that I could be wrong about the watch…

Now, I don’t suppose it will come as much of a shock to anyone that the product development people at Apple know their customers better than I do; that is their job, after all. I’ve been using Apple equipment ever since my family got its first home computer (an Apple II+) in 1981, but I’m still not one of the fanatic Apple fans who will buy whatever the company produces and then tell everyone in the world that this is the greatest thing ever (even if they don’t know exactly what it does). I own an iPhone, for example, but I’m writing this post on a Windows machine. Based on the news reports we’ve been seeing lately, however, I’m pretty sure that no one in the Apple-using community, or even anyone from the company itself, was expecting that nearly one million people would purchase the Apple Watch during the first six hours of the pre-order period…

You can pick up the original story from the Washington Post website if you don’t believe me, and I can certainly understand why you wouldn’t. The Post is estimating that 957,000 people placed orders, and that at least some of them placed multiple orders, with an average of 1.3 units per order and an average sale amount in excess of $500. Customers who ordered any of the more expensive Apple Watch types went even higher, with an average sale price of over $700. If these numbers are accurate, the gross sales amount on this new product exceeded $481 million in just the first six hours they were available for pre-order…

Now, I still have my doubts about the long-term prospects of the Apple Watch. For one thing, it seems that fewer and fewer people are even wearing watches these days – a lot of my students tell me that when you carry a device around with you that has a time and date function on it, a separate device that just tells you the time seems redundant. There’s also the fact that you need to sync up the Watch to some other Apple device (usually an iPhone) to use most of its functionality, and the fact that most of those functions are already present on the iPhone itself. But what this argument does not consider is what else the development teams may have learned during the process…

One of the most important factors in any R&D project is what you learn by doing it, and while this often gets overlooked when we talk about product development research, all of the same points apply. Sure, the circular hotdog never made it into production because it was the dumbest-looking thing anybody had ever seen, but the company that invented it has been making money on products that make use of the same meat-extrusion technology for at least the last 30 years. Apple’s first attempt at a small electronic device (the ill-fated “Newton” personal digital assistant) cratered hard, but the experience in building compact electronic circuit boards, power systems, displays and housings paid off when it came time to build the first iPod, and then again with the iPhone. And even if the company’s first attempt at wearable computer technology had failed, there’s no telling what they might have learned in the process…

That doesn’t look like it’s going to be a problem in this case (957,000 orders in the first 6 hours?), but I think it’s worth pointing out to anyone else who might be considering public statements questioning the development of the Apple Watch…

Best. Billboard. Ever.

Over the years there have been any number of stories, television skits, scenes from movies and so on about advertising media that would be truly interactive with the target market – print ads or electronic media that would carry the smell or texture of food products, ads through which you could touch or feel the product, and so on. There have been a number of attempts to produce such things in real life, although they have largely been on the primitive side – scented inserts in magazines selling fragrances, for example, or billboards promoting bakery companies that emit the smell of freshly-made cinnamon rolls. But the ultimate version of this concept would be an ad in which the target customer could actually sample the product – taste it, ingest it, or the equivalent. The infamous “television chocolate” from Charlie and the Chocolate Factory is one familiar example – a television commercial where it is possible for the viewer to reach into the screen and pull out an (edible) bar of chocolate…

Needless to say, in real life there would probably be several more immediate applications for a device that can send physical matter over television transmissions, and even the fantasy writers have been unable to explain how you could input one chocolate bar into your transmitter and allow thousands or millions of viewers to draw it out of their personal set. So despite the incredible impact this concept would have on potential customers, it has remained in the realm of fantasy, or at best science fiction – until now…

According to a story posted online by the Daily Record (UK) Carlsberg Beer has set up a billboard near their brewery in London that features an actual beer tap. Anyone who want to sample the company’s product can simply walk up and pull themselves a glass of beer from the tap. It’s hard to say for sure, but it looks like they also have security personnel (or possible police officers) keeping an eye on the tap to make sure everyone stays orderly and no one tries just drinking directly from the tap until they pass out. Given that all of this is happening in England it isn’t at all surprising to see that a long and enthusiastic but extremely orderly line has formed to wait for the free drinks…

Now, I don’t imagine I have to explain why this stunt would never work in the US – or any other place with a definite restriction on drinking age. I can also see it being an issue in places where under-age drinking isn’t a major factor but drunken bad behavior (and riots) is. And in much of the world I would actually be less worried about people overdoing it when they drink from the tap than I would be about people showing up with gallon bottles, five-gallon drums or armloads of quart/liter bottles and trying to appropriate as much of the free beer for themselves as possible. But as advertising stunts go it’s amazing, and it makes me wonder if you could apply the same idea to other types of product…

What about a billboard that didn’t just make people walking by see and smell the product, but also made samples available to try? You could have garment ads that allowed people to feel the fabric, or ads for consumer goods that had working features you could actually try out – although I suppose that given the tendency in this country to use sex to sell literally everything, it would only be a matter of time before somebody tried to combine all of these elements and ended up with a billboard ad you couldn’t show on television without being hit by massive fines from the FCC…

Maybe it’s just as well that the concept has been limited to beer so far…

Blunder or Not?

Personally, I’ve never really seen the appeal of Twitter; I have enough trouble getting my thoughts down in 600+ word blog posts; there’s no way I’d be able to get anything I’d want to say into a single tweet. Consequently, I did not see the tweet issued by the Hostess company (presumably the new owners of Hostess) yesterday in honor of Opening Day for Major League Baseball. It’s a picture of a Hostess cupcake – a yellow cake with vanilla frosting version, instead of the better-known chocolate cake product, with red icing in curlicues on top – with the caption “TOUCHDOWN.” Seen from the top down, the red-on-white cupcake really does look remarkably like a baseball, or at least a cake made to look like a baseball. The problem, if problem it was, is that the term “touchdown” applies to a scoring play in American-Rules football, not baseball…

If you also do not twitter, you can see the image and read some of the tweets on the Business Insider page about the stunt. Apparently, when the supposedly “botched” advertising tweet launched, the sort of people who both follow commercial bakeries/snack food producers and comment on their advertising went berserk, sending thousands (or possibly millions) of derisive tweets into cyberspace to mock the company for not knowing football from baseball. The company responded with a second tweet, remarking on how excited they were at the return of “Sportsball,” which rather settled the matter as far as I was concerned: the term “Sportsball” is an Internet term which mocks real-world sports and people who spend more time watching professional athletics than running around in virtual communities online. I think we can conclusively say that the company knew what it was doing; the more subtle issue was whether or not this was a good idea…

It seems clear enough that Hostess is using this artificial “blunder” to draw attention to itself – in this case, from thousands of twitter users and anyone to whom they point out the original tweet. In a larger sense, though, what they are doing is trying to get the audience to look at the cupcakes, remember how good a Hostess cupcake tastes, and perhaps even associate the company and the product with the start of spring, the start of baseball season, or even with an amusing tweet, blunder or online event. Whether you remember the specific tweet and the “TOUCHDOWN” caption or not, the company will be closer to the front of your thoughts the next time you make a purchase decision that involves snack foods – or, at least, that’s the idea…

The problem with advertising of this type is that nobody, including the Industrial and Organizational psychologists who study it, knows exactly how it works. Sometimes called the “Sleeper Effect,” the concept is that some ideas grow in the amount of influence they have over someone’s perceptions instead of fading away as they forget about the source material. In this case, the idea would be that you remember Hostess snack cakes, and how much you like to eat them, while forgetting about a possibly artificial mistake they may have made on Twitter. When it works, it can have an impact all out of proportion to the size, importance or cost of the media that produced it. Most of the time, however, all you get are ads that offend people and don’t make any sense, while fading off of the public consciousness and having no long-term effect at all…

What makes this particular stunt so interesting is that it didn’t cost Hostess anything to do it, which means that if it fails they can always just try something else. Most ads of this type have involved more expensive media, which entails the risk of not making back more sales differential than you spent making the ad in the first place. But if everyone who makes or markets consumer goods figures out that they can use this method to cut through the clutter in current electronic media and get their ad into your mind despite the interfering “noise,” then it seems likely that ads of this type will become the norm, the world will fill up with new and more annoying “noise,” and whoever is making these tweets will have to find some other approach and start over…

Limited Shelf Life

In business, one of the hardest things is knowing in advance which new products or services are going to maintain strong sales over time. A lot of people lost a lot of money in the late 1990s and early 2000s on the assumption that Beanie Babies would continue to appreciate in value forever, and a lot of people have lost a lot of money over the past three decades by assuming that home computers, the Internet itself, or social media were all passing fads that would soon go away again. It gets even harder when we move into the arts and pop culture, where even a certified platinum hit does not guarantee that a given band will ever have another song on the charts (the world teems with “one-hit wonders”), and a recording act that has been producing under-appreciated albums for twenty years might suddenly leap to prominence. I have to question if it is that hard to imagine that products with no reason for existing except to tap into (and cash in on) a prefabricated teen idol’s popularity might lack staying power, though…

A New York Post article from last week reveals the not particularly surprising news that cosmetics giant Elizabeth Arden is losing money on fragrances linked to both Justin Bieber and Taylor Swift. The reporters suggest that the effect is attributable to both lower-income customers cutting back on luxury items because of the economic situation and also to people getting tired of unpopular behavior on the part of the two celebrities in question (e.g. Bieber’s “bratty antics” and Swift’s “diva routine”). I have to agree that these factors probably do figure into the drop-off in sales of these products, but at the same time I have to note that the majority of pop acts over the past four decades have followed a similar career trajectory, and the percentage is even higher for those individuals specifically developed and groomed by a record company for the purpose (as opposed to naturally-occurring groups of musicians). And the increasing saturation of both the entertainment and cosmetic industries is making this type of failure increasingly common…

Go into any large retail establishment that carries the so-called “celebrity fragrance” products, especially around the holidays, and you will find yourself confronting dozens or hundreds of possible choices, none of which have any particular virtues apart from being endorsed by the particular celebrity whose picture appears on the package. In fact, other than “smell like this celebrity,” most of these products do not even attempt to provide any other selling points. By the same token, in the YouTube era it is possible for dozens (or hundreds) of new performers to appear at any given time, and even if a specific recording artist is able to sell a large number of albums and attract a large following, there is no way of telling how long that success will last – even assuming that the celebrity in question doesn’t do anything objectionable enough to drive his or her fans away…

Now, I don’t mean to suggest that there aren’t recording artists with staying power – the Rolling Stones are well into their sixth decade and showing no signs of stopping, to take the obvious example – or cosmetic products with even longer life spans, like some of the famous Chanel fragrances. But performers and products with that kind of longevity will generally have more to offer than just instant fame from a television show or a sleazy record producer, such as talent or actually smelling nice. In other words, they offer value for the customer’s money. And while there have been occasional exceptions over the years, I don’t think I would want to base my company’s strategy (and ultimately survival) on someone’s ability to catch lightning in a jar repeatedly over time…

Bet on the Man

I’m not usually considered an early adopter of new technology; it’s the skeptic in me that keeps making me question whether the “next big thing” really is the next big thing (like the iPod or Face Book) or just looks like it could be (remember the Newton? how about the Lisa computer?). In recent years I’ve been skeptical about hybrid and fully electric vehicles, not so much because I don’t believe in the technology as because the inertia built into the automotive industry and its allies in the petroleum industry. Put simply, there are too many rich and powerful people who are too invested (often literally) in keeping things the way they are now for us to imagine any large-scale change happening in this sector. To even challenge the status quo you’d need not only cutting edge technology, but also visionary leadership, superior product design, exceptional marketing, impeccable public relations, and a truly brilliant strategy to tie everything together…

I was therefore very interested to read about the new gambit from Tesla Motors last week. According to the statement issued by Elon Musk on his personal blog, the company is now offering an 8-year, unlimited-mileage warranty on the battery pack and power train on all of its vehicles. That would be amazing enough, but according to the note they will also be extending the new warranty retroactively to cover all of the units in each of these designs that have already been sold. Warranty agreements that offer as much as ten years are common, as are offers of 100,000 miles or more, but as far as I can tell this is the first such offer to include unlimited miles as part of the deal. But when you consider the implications of the offer, it rapidly becomes apparent that this is more than just a selling point for the product…

One of the biggest problems for any new technology is that people are going to see it as unproven – even if, as in this case, the technology in question is actually very old. It turns out that electric cars have existed for over a century and actually predate most of the current internal combustion technology that everyone thinks of as being proven and reliable. It seems obvious that by offering unlimited mileage on its warranty, the company is effectively saying that they have no concerns about the durability of their products; they are effective both challenging people to try driving one of their cars a spectacular number of miles over eight years of ownership, and calling their entrenched competitors on the fact that none of their supposedly “proven” and “mature” gasoline-powered cars has anything approaching this level of coverage…

Then there’s the specific perception of electric-only and even hybrid cars as needing new battery packs every few years, and that the manufacturers are unable to handle disposing of the old batteries. If Tesla is offering a complete warranty on their drive systems and battery packs for eight years they clearly aren’t expecting to have to replace any in three or five years – and they can’t be that worried about having to dispose of bad units when that becomes necessary. You would also expect excessive use to shorten the service life of both the power pack and the associated drive systems, but Tesla is clearly not concerned with that, either. Some consumers may still view the purchase of these cars as something of a gamble, but it is apparent that if that’s the case, the company and its ownership (including at least one entrepreneurial legend) are going to take that risk right along with you…

And if that wasn’t enough, there’s also the matter of getting more vehicles onto the road. The only way for Tesla to become a mainstream brand – not some new, exotic, possibly ephemeral technology toy – is for the sight of its products to become commonplace; for the sight of a Tesla roadster in the next parking space to become no more remarkable than the sight of a Ford on the other side. If this can boost acceptance and purchase of the vehicles – and the company is already operating at full manufacturing capacity and building a new factory to increase that output – then they just might make it out of the Introduction phase of the life cycle and into the Growth phase. Once they can convince more than just the Early Adopters to purchase their product they’re off to the races…

Stay tuned, folks. This is starting to get interesting…

Getting Paid

For some time now I’ve been speculating about the long-term viability of a business model based entirely on user-generated content. We’ve seen small-scale experiments with the concept, such as the Frito Lay Super Bowl ads that were made entirely by fans of the products and offered to the company for free, or the “Comments” sections now prevalent on almost all news and entertainment websites. It’s certainly an appealing idea: if the company can convince its customers to create advertising copy or just offer content that other users will want, free of charge, there will be no need to spend company funds on these activities. But there are a number of corresponding issues with this business model, not least of which is that you are asking members of the general public – and your actual customers – to work for no compensation except (possible) gratification…

I’ve said all along that it was only a matter of time before these unpaid content providers either stopped providing content or started demanding payment for it. Not the commenters so much – leaving smart-ass remarks or even outright trolling is still considered to be its own reward – and not the people for whom posting their writing is the entire point of the exercise, like the people writing fan fiction. But sooner or later the people who go out of their way to review things, writing lengthy analyses or even testing specific products or services for the express purpose of reviewing them, are going to figure out that they are effectively providing the content that would otherwise have to be done by employees for free. I learned this week of a test case on this exact topic being brought against everyone’s favorite review cite, Yelp...

This isn’t the first time that Yelp has come to the negative attention of the reading public, of course; there have been repeated complaints about the company extorting money from its customers in return for positive reviews, and just recently three executives of the company have been accused of $20 million in insider training by their own stockholders. As you can see in the linked story from Courthouse News Service, however, Yelp is now being sued by a group of former contributors who are claiming that since they do the exact same work that Yelp’s paid personnel do, they should be entitled to the same wages – retroactive to when they began posting reviews…

Now, I’m not going to pretend that I ever liked the Yelp model, or the company itself; my opinion of them started to plummet when I learned about the extortion cases and has been dropping every since. And I’m not claiming to know anything about employment law (or any other kind, really), so I can’t comment on whether the case has any merit or if the protesting contributors are wasting their money and some attorney’s time. But one does have to wonder if either the company or the reviewers who are suing them have really considered all of the implications of this situation…

On the company side, it seems obvious that since they are making all of their money by displaying content effectively given to them for free, sooner or later someone was going to ask to be paid for doing all of the work. It should also be obvious that Yelp can’t just ignore cases like this one. Unlike a regular e-commerce site like Amazon, Yelp can’t support itself by moving merchandise; their income is dependent on a steady supply of new reviews to drive their products and services. Without that stream of information the company has nothing to sell; thus, they can’t risk losing that entire population of reviewers. But if they start paying the reviewers, then anyone who goes onto their site and scribbles down a few notes can demand payment for his or her work – and probably will – regardless of whether the company ever makes a cent on those reviews.  

As for the users, if they do start getting paid by Yelp, they will completely lose their anonymity (the company has to have their information in order to pay them – and that information can be subpoenaed), and will thus be subject to legal action for any outright lies or even inaccuracies in their reviews. There will probably be other complications involved, as well, such as conflicts of interest, rules their primary employer might have about working additional (paying) jobs, loss of disabled or protected status, or even paying taxes on the income…

Personally, I think the lawsuit is a colossally bad idea for all parties involved, and I don’t believe that Yelp is going to be able to get this genie back in the bottle; even if this particular lawsuit is defeated I think they can probably expect a number of others just like it. They’re going to have to find some way to deal with the issue, before things get any further out of hand…

Don’t Even Try

Quick, think of the most preposterous choice for a new movie project that could ever come out of Hollywood or anywhere else. This may be harder than you think, considering some of the recent choices. It’s not just that we’ve had movies based on board games (Battleship) and Disneyland rides (Haunted Mansion), it’s that some of those have actually been good (Clue) or at least commercially successful (Pirates of the Caribbean I, II and III). We can assume that anything that ever made money will be remade, but that’s hardly surprising after remakes like the Total Recall remake and the upcoming remake of Top Gun, not to mention the inevitable Godzilla and Dawn of the Dead remakes. Given the appearance of the “Brony” community (look it up) I can’t even say that a rumored My Little Pony live-action blockbuster is all that amazing. But until it is given to me to see an actual press release for a Candyland live-action adventure, I have to go with the upcoming It’s a Small World movie as taking the prize…

You can check out the original story on the Los Angeles Times site if you’d like, but unless someone is pranking the Times (and us, one assumes) there is a project in development to make a live-action movie about a Disney ride in which you travel through an air-conditioned building while dolls in “traditional” costume from around the world sing an endlessly recursive tune. It isn’t clear if there’s a script yet, but a director has been hired to helm the project – it’s Jon Turteltaub, the man responsible for the National Treasure movies. How exactly you go from action/adventure movies featuring Nicholas Cage and lots of explosions to hanging a story around something Walt Disney specifically designed for little girls is not explained – and may be inexplicable – but that’s what appears to be happening…

Now, I will be the first to admit that I’ve never written or directed a successful screenplay of any kind. The people I know who have done so will tell you that it’s even harder than it looks, and the quality of the production, the acting and the story actually have nothing to do with either the critical or the commercial success of the film. Sadly, it’s not only possible for an artist to spend the best years of his or her life crafting a cinematic masterpiece only to see it ignored by the public and criticized by various hack reviewers, this happens more than it doesn’t. After a while, the urge to go directly after projects that already have a popular following – either because they are sequels to an already successful movie or because their about something else that already has fans has to become overpowering. And given that the original version of Small World in Anaheim has had roughly 290,000,000 visitors (that’s 111,000 a week for over 50 years) it seems probable that there are people who already love the concept…

If you’ve been to the movies in recent years, or watched anything reported about motion pictures, or even spent time around people who care about the state of modern cinema, you’ve probably heard the rant about how Hollywood needs to start making better movies if they want people to start going to movie theaters again. And to some extent this is absolutely true – but it is also true that the studios keep making the same repackaged crap over and over again because that is what people will pay to see. If you personally want to do something about the state of motion picture entertainment, then go see an art film, a smart biopic, a period piece or a clever original thriller, while you still can! You can always catch the Candyland movie later, if you need something to complain about…

You Should Get Out More

One of the common errors I keep ranting about is companies – and particularly senior management teams of companies – who have no idea who their customers, employees, suppliers or other stakeholders actually are. This is what gets you silly statements about employees wanting the “prestige” of a promotion that offers more work and longer hours for effectively less money (exempt jobs that pay less than hourly jobs when you include overtime), and tone-deaf comments about people who should just buy what you’re offering and quit asking for what they want. Most recently, it would appear, it has resulted in the CEO of Frontier Communications stating that her customers in Portland are too dumb to understand why they don’t need a broadband speed 80 to 160 times faster than anything they have now…

I don’t know if you’ve been following the development of Google Fiber, but you can read more about it here if you want to. In many parts of the country, including Central Michigan, the prevailing Internet speeds can run as low as 1bps or lower, and even advanced systems rarely exceed 30 mbps. With a limited number of companies competing in each market there isn’t usually any need to upgrade either the systems or the service provided; after all, if your competition is offering a top speed of 10mbps and you can offer 12, you’re 20% faster. There are satellite-based systems that can do better, but most of them are relatively expensive, and you are still limited in where you can get them…

Google is building its own fiber-optic delivery systems and offering to provide speeds in excess of 1,000 mbps in an increasing number of medium-sized cities around the US, which does sound like it would be an advantage over a system operating at 1% or less of that speed. Moreover, Frontier Communications currently has a monopoly on broadband service in Portland, and has therefore never had to worry about the competition in terms of download speed or anything else. But as much as it sounds like Frontier is trying to confuse the issue while running scared, they do have a point: Currently, there is no service or system in general use that requires a speed of 1,000 mbps. In fact, there’s some question as to whether anyone has hardware that could make use of such access even if it existed. And it is also true that Frontier is offering basic service at less than half of what Google Fiber will cost. Unfortunately, both of those contentions are rather missing the point…

First of all, consider that anyone whose broadband use is limited to small and occasional downloads isn’t going to care about a higher access speed in the first place, and they’re certainly not going to go to the trouble of changing providers. But the key demographic for Google Fiber is people who do make use of larger downloads or streaming audio/visual services, and not only do they want the fastest access speeds possible, but they’re not going to take kindly to being told that they are too stupid or too technologically inept to understand how fast Internet connections work. In fact, a lot of power users will probably change providers just because they’re been insulted in such a tone-deaf fashion – but that isn’t even the worst of it…

While it might be true that no one could possibly make full use of a 1,000 mbps Internet connection as of today, I won’t take any bets about that being true for long – especially if such download speeds become widely available. Somebody will find something to do with them, and technology-oriented users are likely to want that capability even before they find out what such new services can do. If technology has taught us anything in the last three decades, it’s that the curve is rising faster than we can keep up with it, and the technology that seemed like science fiction only a few years ago will be available in every big-box retailer by Black Friday if not before…

All of these things would be obvious to anyone who was paying attention to the customer demographics involved, the development of the Technology sector over the past few years, the rise of services like Dish Network, Netflix and Hulu, the appearance of the “Cord-Cutter” movement, or the increasing use of home WIFI systems. In fact, all of this should be obvious to anyone who is actually in touch with the world around them, and not just sitting in their Executive Suite and listening to an echo chamber of yes-people telling them what they wanted to hear. If that is the case, I can only suggest that Ms. Wilderotter of Frontier Communications needs to get out more…

Still Not Sure

I have written in this space before about those occasions when it seems impossible to tell whether a given company is actually taking the actions you’ve just read about, or if they are only doing something outrageous in the hopes of attracting media attention. A lot of new product promotions work that way, partly because it is difficult to create a truly ingenious advertisement for even the most superlative product, but also because it is becoming increasingly difficult to cut though the massive amounts of clutter clogging up any potential medium. In addition, there are a far greater number of both media and channels within them appearing every year – reaching all American television viewers was relatively easy when there were only three or four channels being broadcast, for example, but doing so is much harder when many areas have 900 or more possible viewing choices. And that does not even consider the increasing number of people who get all of their news and entertainment online, and don’t ever watch television…

It’s probably also worth pointing out that not all demographics will consider the same things outrageous or shocking, for that matter. Business failures resulting from efforts to market a new product or service to the wrong audience are legion, and it’s impossible to say how many additional ventures have failed because whoever was making the strategic policy decided to pass on a world-beating product simply because he or she didn’t like the idea – there’s no wreckage lying around from ventures somebody didn’t try, you see. Failures of this type are referred to collectively as the “I am the world” fallacy by Scott Adams in one of his non-fiction books about management, and can occur any time a senior manager applies his or her own preferences to a business decision instead of consulting actual marketing data. It is imperative that all managers and business analysts question their assumptions, not just regularly but constantly, before taking action. This is why I held back my first impression of the new Doritos product and took another look…

If you haven’t heard about them yet, the story goes that PepsiCo Canada has just released a new product that they are calling Doritos “Roulette”flavor. Hype aside, these are bags of ordinary nacho cheese corn chips, only every seventh or eighth chip is as spicy as the company has been able to make it, turning each bite into something of an adventure. The idea appears to be that if two (or more) customers take turns pulling a single chip out at random and eating it, sooner or later one of them is going to draw (and eat) one that will be painfully spicy. None of the materials I have seen about this product to date address what the players are supposed to do with the rest of the bag at that point – or why anyone would purchase these chips if they were not intending to play the implied game…

Now, we should acknowledge that this is hardly the first product to play on the apocryphal game of “Russian Roulette” in a food product, let alone the only food product with potential inedible portions hidden in each package. A familiar example in recent years might be the “Every-flavor Beans” created as a tie-in to the Harry Potter books and movies (their fictional counterparts appear in the story), which included such unappetizing flavors as grass, dirt, earthworm and vomit and oddball flavors like toast, popcorn, black pepper and sausage with more conventional candy flavors. Fans of the series would challenge each other to select a bean at random and eat it despite the possibly revolting taste, much as Doritos is suggesting their customers do with the corn chips. Whether or not you could just spit the losing beans out again was a matter of individual preference…

My personal reaction to the Doritos Roulette flavor was to question why the company is bothering to produce them – the Doritos “Flaming Hot” flavor has never been that successful, and the “losing” chips in this product are much hotter and even less appealing. But it important to note that I have now passed out of the key demographic for corn chips (males, 18-36 years old), and I’ve been out of the food wholesale business for over a decade; the fact that this product does not appeal to me is based on behavior patterns and consumer preferences that may well be irrelevant to the target market, rather than any hard data. I’m not sure whether this product has any real potential, or if it will have a brief flare of notoriety and then vanish onto the compost heap of history. I’m just calling it to your attention because that personal gut reaction should not be used to make decisions for a multinational corporation, but reactions just like it often are – and sometimes they destroy entire companies, not just unusual product ideas…

Dispatches from the Burger Wars

In my travels around the US and occasionally outside of it I have encountered a number of quick-serve restaurants, mainly burger stands, that are attempting to knock off McDonald’s as the top company in that industry, and I have noticed one element they all appear to have in common: they are all failing miserably. This is not to suggest that the competition isn’t successful in its own right, or that all of the other companies in this industry are poorly run or unprofitable, because clearly this is not the case. But a recent article on the Bloomberg/Business Week site points out that in 2012 (the last year for which there is complete data) the average McDonald’s location made $2.6 million in revenue, while the second-best company, Burger King, averaged only $1.2 million per location. And despite the website’s attempt to make the reasons behind this seem dark, complex or arcane, they are for the most part depressingly predictable…

First off, there’s the difference in advertising budgets. If this story is accurate, McDonald’s is spending about $16.30 in advertising for each dollar Burger King spends, and that doesn’t even consider any of the other expenses involved in the Marketing function. Based on the relative success of the advertising and promotional programs alone, we can say with some confidence that McDonald’s has a superior understanding of their primary customer demographics and better forward planning for future products and programs. But even assuming that all of the other functions have parity in terms of budget, it does not seem far-fetched that a company outspending its largest competitor by a factor of 16.3 to 1 in advertising budget would be more successful in selling consumer products. Unfortunately, things just go downhill from there…

According to Bloomberg, McDonald’s is outselling the competition in off-peak times, such as breakfast and mid-afternoon snacks, because of its superior product mix. Industry efforts to duplicate the famous McDonald’s breakfast menu have not been completely successful, and the introduction of viable snack foods (like the successful wrap products) and a competitive line of coffee products (good enough to cause trouble even for Starbucks in some markets) has made the company far more profitable. Even worse, the attempts by industry competitors to duplicate the success of the infamous Happy Meal ™ have met with indifferent results, which not only increases the number of families doing business with McDonald’s but helps the company develop life-long customers beginning at preschool age. At this point the popularity of the product has made it the premiere choice for movie tie-in promotions, which is just reinforcing the success of what was already the leading program in the industry…

Now, it should be obvious that none of these products would work nearly so well if the company offering them was not able to execute the programs correctly, and the same article goes on to point out that in addition to the well-known food quality and consistency measures, McDonald’s also surpasses the competition in terms of operational efficiency. This may not seem like a big issue, but consider the difference that a faster drive-through operation can make to the over-all profitability of a quick-serve restaurant, given that some locations will obtain upwards of 65% of their sales through the drive-through window. Now consider that McDonald’s averages almost 5% faster on drive-through orders over the competition. I don’t have current numbers on walk-up speeds, but the last time I looked the company’s edge was even higher there, given the efficiency of their kitchen designs and the high degree of automation in use in many of the restaurants…

I call this to your attention because most of the competitors I have studied tend to attribute their lower performance, or inability to compete with the industry leader on equal terms, to one or more of the advantages an entrenched opponent who already occupies the top spot will enjoy. And, in fairness, there are any number of ways in which McDonald’s does command specific advantages that derive from their market position, from improved name recognition to better negotiating terms when obtaining movie-tie in promotions. But if these statistics are correct, then the key factors that explain the firm’s dominance are simple enough to explain on a single web page – or a 732-word blog post…

Overcoming those advantages would be another matter entirely. But that’s a post for another day…

I’d Buy That For – Actually, No, I Wouldn’t…

There’s a new product coming out this winter from GM that has great potential, both in bringing the company into new product categories and selling a lot of units, but about which I find that I’m dubious. All hype aside, it’s basically a Cadillac version of the highly controversial Chevy Volt hybrid – with all of the elaborate body-styling, leather interior and other optional extras that implies. But the guts of the vehicle are virtually identical to those of the Volt, including the troublesome (and occasionally incendiary) battery pack, performance should be similar in all categories, and without the Volt’s hatchback the design may look better, but is significantly less practical – all of which is a problem given that the Cadillac version is priced at over twice the MSRP of its Chevy progenitor…

You can read the Wired online story about it if you want to, but they’re not that positive about the car either. For one thing, the $75,000 GM is asking for the Cadillac ELR is high enough that you could purchase a number of highly-regarded competitors for the same money, including the Tesla Model S, the Mercedes-Benz E-Class Hybrid, the BMW 5-Series Hybrid, the Acura NSX and the Porsche Cayenne Hybrid instead. For another, the ELR has a number of optional features that remain unreliable, even apart from the power plant, like the CUE entertainment system. But mainly what they are questioning is whether adding the Cadillac nameplate and logo will be enough to double the price people are willing to pay for the vehicle – and there is historical justification for questioning that…

Some of our older readers (assuming I have readers) may remember a product called the Cadillac Cimarron from the 1980s’ – it was the compact car in the Cadillac line at that time, and the company had difficulty selling them because the Cimarron looked almost exactly like the Chevy Cavalier of the same period, only with some chrome bolted on and double the purchase price. This was, of course, because that’s exactly what the Cimarron was; the majority of the car’s parts were interchangeable with the Chevy and Pontiac versions (the Sunbird, in the later case), only at twice the price or higher. The ELR has all of the same problems, including the legacy of cars like the Cimarron to muddy the waters, but from where I’m sitting it has at least one problem that is even worse…

Consider the traditional customer demographic for the Cadillac line. Developed by GM specifically to create an up-market product for people who had grown too successful to drive Pontiacs or Buicks, the Cadillac has always appealed primarily to older customers from higher income categories, both as a demonstration of wealth and because they can afford the extra comfort of the car’s optional amenities. In recent years the brand has met with increasing popularity in several other segments, notably including the rap music community, because in addition to the established prestige associated with Cadillac, the vehicles can be easily customized to conform to the owner’s vision of status, showmanship and visibility. What I question is whether either of these groups will be interested in a small, cramped, under-powered and very expensive vehicle whose primary selling points are high gas mileage and low environmental impact…

There are environmentalists in both of these communities, of course. And we can easily imagine that at least some Cadillac buyers might find the idea of lowering their gas bill by as much as 75% to be intriguing. But such individuals have had access to other hybrid models for nearly a decade now, including the highly successful and relatively prestigious Toyota Prius; it’s difficult to imagine that anyone who is motivated by either lower emissions or higher gas mileage wouldn’t already have migrated into the hybrid market. If the ELR proves to be the equal of the Tesla, Mercedes or BMW offerings from a mechanical and efficiency standpoint it might be able to complete on value, but the company as a whole has been having difficulty competing for the luxury sedan market for some years now, and the questions about whether the bugs have been worked out of its systems will not help. Unless Cadillac can reach a new customer demographic with this product, or somehow convince their existing customers to start accepting the ELR’s strong points as being worth switching to, it’s difficult to imagine this ending well for GM…