See You in Cluj

For those of you interested in discussing the ten steps needed for a successful start-up, on 12-Nov-08 I'll be in Cluj at ZileleBiz.
Looking forward to seeing you.  

Flash News for Brands

The news: 2009 will show you just how successful your brand is.

Strong brands have lower price elasticity levels. This means that the stronger the brand is, the less share it loses when the company increases prices.

This theory has been around for quite a while: The Business of Brands

However, now it's a good time to see just how true the theory is.
Strong brands should lose less market share in the coming year. However, cross price elasticity within category and within substitutable goods will be tested as well.

Update from the New York Times

"

The price cutting could begin before Black Friday, the day after
Thanksgiving when stores offer one-day bargains. According to
DisplaySearch, a market research firm, prices could go as low as $400
for a 32-inch LCD, and $600 for a 42-inch plasma set — about $200 off
current prices.

While Stan Glasgow, president of Sony
Electronics, said his company will not match those prices, he said,
“those numbers do not shock me.”

"
Click for entire article

A Good One. Finally!

Microsoft minds finally hit the nail with their new ad.

Yes, it's a late response, but it's a classic one: the attacked market leader claims - laut und deutlich* - that he rules and that the majority of clients use his products.

The only thing remaining on Msft checklist:
* Get (almost) everyone in the world use Windows
* Respond to Steve Jobs
* Write a decent OS



laut und deutlich - German for loud and clear :)

Update: Kit does not agree :)

Follow the Money

Scenario 1:
Your company produces cars. As in automobiles :)

Question:

Where are your big profits coming from?
(a) Selling the plane cars
(b) Selling the customized cars (read: full option :) )
(c) Selling parts and accessories

Scenario 2:
Your company produces digital cameras. (DSLR)

Question:



Where are your big profits coming from?

(a) Selling cameras

(b) Selling accessories
(c) Selling printers and papers

Facts from the Romanian market:
A big high tech company has a dedicated outlet chain but one can not buy accessories for their cameras (read batteries :) ). They have call the Service division and ask them for a special order.
Well... my camera is not broken, so why should I call the service helpline?
And... their batteries can be bought in other electronics shops across Romania.
My personal question: What's the company's business strategy? Market skimming? :)



PS: If at least one of your answers is (a), please drop me a line so that I can convince you otherwise

Thoughts on... Doing Business in Romania

As today's news regarding Mercedes plans to build a new car plant in Hungary and not in Romania shows,
Romania really needs to build its infrastructure if it still wants to be more than a consumption based economy.
By the way, retailers in Romania should soon see important pressures on their margins as road infrastructure will hinder their stock management strategy.

Tips for Price Increases via HBS Working Knowledge

The 7 steps seem intuitive, even too general at some point:
(1) Know thy customer
(2) Invest in Market Research
(3) Redefine Value
(4) Use Promotions
(5) Unbundle
(6) Monitor Trade Terms
(7) Increase Relevance

Now, 1 and 2 generate 3, 5 and 7 and are related to consumers because you know them you will be able to serve them and to convince them to keep their business with your company.

4 is the all-time favourite pain killer for inflation and price increases. I remember that a few years ago soft drinks in Romania used to hide price increases by organizing a promotion. So, by counting the number of promotions for cola, I was able to estimate whether the Leu is doing better or worse than it used to do a year before. I know, it's not a scientifically sound method but it worked. :)

While 1-5 are focused on defending top-lines, 6 and 7 are aimed at profits. Brands and bundles are profit generating vectors.

Letting aside all these musings regarding the steps described above, I think that the end of the article is really funny. Especially because it's very unorthodox. I would not apologize for price increases... and I have never heard of a company apologizing for charging more.

"The key here is to educate the consumer, apologize for the uncontrollable price increases, give price-sensitive consumers some promotional options, and reemphasize product benefits."
Seven Tips for Managing Price Increases

Uncluttering OS X Naming Architecture

The Apple Blog wonders:

So is dropping the “Mac” from OS X a sign of things to come? Or is it just to unify the marketing between the Mac OS and iPhone OS? Stay tuned.

I'll stay tuned. But is Apple ready to become a mainly-software shop? No, I'll put it this way:

Are the software developers ready to port Windows software?
Are the enterprise customers ready to switch massively?
Are the Apple customers ready to give up some of Apple's can't-touch-this glamor?
Are you sure, Steve Jobs is ready for this? :D

On the same topic. I'm still waiting for that biiig 'Ipohone' ("Imagine this..." from last year)

Local Perspectives

Every time I travel by train to Sibiu I tell myself that I have to write something on this blog.

It's just a personal idea, something often mentioned by smarter people. However, every time I'm in Sibiu (or any other location outside Bucharest) I notice differences in people's behaviour.

For example, people in Sibiu have totally different shopping baskets. The combination of fmcg goods is considerably different from the one I'm seeing in Bucharest. Two of the possible reasons identified are:

• distribution. i.e. there are important meat producers simply not present on the supermarket shelves in Sibiu
• buying behaviour. i.e. people in Sibiu seem to behave differently with respect to certain fmcg categories: relying more on taste and promotional package than on brand

Now, simply looking at some shopping baskets is not representative in terms of market research but it sure ads colour to market share and consumer reports. So, as just mentioned, smarter people urged marketers before, and I also recommend that every marketing - and brand manager takes time to visit cities across Romania.

The only 'new' part of this piece of advice is that - now that regional development starts gaining momentum, Romania might be ready for a marketing strategy customized in terms of geographic differences. Simply put: local perspectives could make or brake brands and marketing initiatives.

Thoughts on... Reference Points

Apple leads Q1 sales in premium priced PCs (pardon the term :) ).
Now that's a shift of perspective.

"Apple's retail market share is 14 percent, and two-thirds for PCs costing $1,000 or more."

Thoughts on ... Scarcity

One of the first concepts introduced in economics 101 classes is "scarcity". Now, economists broadly define it as follows: "[...]scarcity is the problem of infinite human needs and wants, in a world of finite resources." (Wikipedia)

However, I'll let maverick economists debate about the various theoretic details about scarcity and write down some brief did-you-know thoughts:

Did you know that...

• Scarcity is a the foundation of Porter's five forces? Think about it: It's scarcity which generates power for each of the 5 elements of this model.
• Scarcity is the key to higher profit margins for buyers, sellers and suppliers
• Scarcity dictates market attractiveness
• Good branding is about perceived scarcity?
  
• Strong brands command premium prices as the perceived scarcity lowers the product's / service price elasticity

I have just finished reading The Undercover Economist (Tim Harford) and, beacuse I was impressed by the compelling arguments this economist makes in his book, I am trying to jot down some ideas about how economics offers some of the greatest insight into branding and strategy. This is the first post of an "Thoughts on..." series.

I'm walking a thin line here, so please bear with me :)

Abort the sheet... sorry ship

The newspaper business in Romania is heading for trouble as most of the papers started to offer special issues with DVDs, books and CDs. On a medium range outlook, these moves mean big red figures for the entire industry as such moves spoil the market, generating a competitive spiral on a different level as the industry’s core business. PS: The funniest initiative so far, is Cotidianul’s (Realitatea Catavencu) move to offer the 1st season of "Prision Break" on DVD. Most probably, ProTV (CME) is not amused :)

Take care of your brand

An internal memo written by Starbucks' CEO leaked and receives a whole lot of attention these days. Starbucks confirmed the authenticity of the text and stressed:

"We do not embrace the status quo and constantly push for reinvention."

The underlying issue is however a conundrum for each and every business in transition from start-up to corporation. How can you cope with growth? Is the organization behind you as a leader and contributing to the brand experience? Are you losing brand focus favoring revenue growth?
What do you do when operations run amok? Whaterver your answers are, the text bellow actually shows that branding and brand guardianship are top executives' responsability. In other words: business strategy.

Enjoy the text.

From: Howard Schultz
Sent: Wednesday, February 14, 2007 10:39 AM Pacific Standard Time
To: Jim Donald
Cc: Anne Saunders; Dave Pace; Dorothy Kim; Gerry Lopez; Jim Alling; Ken Lombard; Martin Coles; Michael Casey; Michelle Gass; Paula Boggs; Sandra Taylor

Subject: The Commoditization of the Starbucks Experience

As you prepare for the FY 08 strategic planning process, I want to share some of my thoughts with you.

Over the past ten years, in order to achieve the growth, development, and scale necessary to go from less than 1,000 stores to 13,000 stores and beyond, we have had to make a series of decisions that, in retrospect, have lead to the watering down of the Starbucks experience, and, what some might call the commoditization of our brand.

Many of these decisions were probably right at the time, and on their own merit would not have created the dilution of the experience; but in this case, the sum is much greater and, unfortunately, much more damaging than the individual pieces. For example, when we went to automatic espresso machines, we solved a major problem in terms of speed of service and efficiency. At the same time, we overlooked the fact that we would remove much of the romance and theatre that was in play with the use of the La Marzocca machines. This specific decision became even more damaging when the height of the machines, which are now in thousands of stores, blocked the visual sight line the customer previously had to watch the drink being made, and for the intimate experience with the barista. This, coupled with the need for fresh roasted coffee in every North America city and every international market, moved us toward the decision and the need for flavor locked packaging. Again, the right decision at the right time, and once again I believe we overlooked the cause and the affect of flavor lock in our stores. We achieved fresh roasted bagged coffee, but at what cost? The loss of aroma -- perhaps the most powerful non-verbal signal we had in our stores; the loss of our people scooping fresh coffee from the bins and grinding it fresh in front of the customer, and once again stripping the store of tradition and our heritage? Then we moved to store design. Clearly we have had to streamline store design to gain efficiencies of scale and to make sure we had the ROI on sales to investment ratios that would satisfy the financial side of our business. However, one of the results has been stores that no longer have the soul of the past and reflect a chain of stores vs. the warm feeling of a neighborhood store. Some people even call our stores sterile, cookie cutter, no longer reflecting the passion our partners feel about our coffee. In fact, I am not sure people today even know we are roasting coffee. You certainly can't get the message from being in our stores. The merchandise, more art than science, is far removed from being the merchant that I believe we can be and certainly at a minimum should support the foundation of our coffee heritage. Some stores don't have coffee grinders, French presses from Bodum, or even coffee filters.

Now that I have provided you with a list of some of the underlying issues that I believe we need to solve, let me say at the outset that we have all been part of these decisions. I take full responsibility myself, but we desperately need to look into the mirror and realize it's time to get back to the core and make the changes necessary to evoke the heritage, the tradition, and the passion that we all have for the true Starbucks experience. While the current state of affairs for the most part is self induced, that has lead to competitors of all kinds, small and large coffee companies, fast food operators, and mom and pops, to position themselves in a way that creates awareness, trial and loyalty of people who previously have been Starbucks customers. This must be eradicated.

I have said for 20 years that our success is not an entitlement and now it's proving to be a reality. Let's be smarter about how we are spending our time, money and resources. Let's get back to the core. Push for innovation and do the things necessary to once again differentiate Starbucks from all others. We source and buy the highest quality coffee. We have built the most trusted brand in coffee in the world, and we have an enormous responsibility to both the people who have come before us and the 150,000 partners and their families who are relying on our stewardship.

Finally, I would like to acknowledge all that you do for Starbucks. Without your passion and commitment, we would not be where we are today.

Onward…

Derived Demand

Connecting Dots

Connect the following trends:
1.) Touch screen technology is getting cheaper
2.) “Software as a service” gets acceptance (well, actually developers are pushing it :) )
3.) Operating systems seem to become less important (see #2, and also think of web 2.0 apps)

Include 2 Facts about Apple
1.) Leopard has “top secret” features
2.) No “One more thing” for the last 2 presentations
3.) Switch to Intel completed (also, it took them a few years to prepare Mac OS to run on Intel)

Can you make something out of this? :D

 

Brand them if you can

Main Attributes of Services
Originally uploaded by msandrasch.

:)

I remember studying for a final exam on The Economics of Services... We had to memorize these 7 attributes and their definitions word by word. As I always do when I'm told to memorize things, I asked myself "why are these attributes so important?".

Connecting the dots, I can only argue that the attributes' impact on one's business generates a certain complexity in the (re)branding process. Perhaps this is one of the main reasons why branding consultants put such an emphasis on "brand engagement" programs.