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Know Your Core Customer

Recently AB InBev, the owners of Budweiser ran a rather controversial but I would say spot on ad during the SuperBowl. (See it here) The ad has stirred up a lot of controversy with the craft brewers and beer aficionados crying foul and Budweiser’s competitors wrapping themselves in the flag of righteousness saying they would never run such an ad. As a result the ad appears to have been discontinued by Budweiser, no doubt the result of all the social media and press pressure.

This to me is a tactical error on the part of Budweiser and if I was running the brand I would be running this ad on an on-going basis. Why? Budweiser has been losing share and volume mostly to craft beers in a number of markets around the world. One of the apparent reasons is criticism from craft brewers and their supporters that Budweiser is not a “real” beer. This criticism has apparently started to resonate with the Budweiser consumer who are buying into this notion. Budweiser therefore needs to change the situation with their consumer group.

The situation Budweiser is facing reminds me a little of the problem we faced when I worked for Coca-Cola in Canada at the height of the Pepsi Challenge. Like Budweiser, Coke was looking at share declines in light of the onslaught of the Pepsi Challenge. In response we developed and ran ads that mocked the basic premise of the challenge and those who won by picking Pepsi.

However share continued to decline and so we began to dig deeper. We looked at consumer image scores and discovered the problem wasn’t that Pepsi’s image was improving with the Challenge but in fact the Coke image was declining with our consumers. Our core consumers had begun questioning if they were making the right choice. We found the answer to the problem lay not in attacking the Pepsi Challenge but rather reinforcing with our consumers all the reasons why they should chose Coke. In fact we found the best answer was in an ad campaign we had recently abandoned – “It’s the Real Thing!”

The lesson here is know who your  core consumers are and focus your appeal on them not on some group outside the target group. Budweiser are never going to convince craft beer advocates that they are “real” beer, nor should that be their objective. What they need to do, and have done well in this ad, is provide affirmation/reassurance to their core group that they are a real beer, for real beer occasions, for real people like themselves. Craft advocates may not like their depiction in the ad but I am sure it resonates with the Budweiser consumer and that is what counts.

 

In short Budweiser, man up and ignore the critics by continuing to run this ad. You are going in the right direction for your target group so ignore the critics who are never going to be part of your target group.

 

Customer Service – The Need for a Personal Touch in the Age of Machines


“Customer service is the sum of many little things done well” James Casey Founder of UPS


 


 


Many years ago as part of my brand management duties when I worked at Lipton I was made responsible for customer service (read complaints).  As such I had the pleasure of working with a very nice lady by the name of Joyce who was the primary contact with consumers.  Over the course of a week she dealt with up to 100 consumers either by letter or by phone and in each case gave a high level of personal service and interaction, the type of consumer engagement that companies should aspire to today.  She dispensed sympathy, apologized and showed empathy with each of the people with whom she interacted.  As a result well over 95% went away satisfied and in fact grateful to Joyce, a number seldom met in today’s computerized environment.  In reality it was nothing more than some coupons and recipes but more than that it was the personal human touch that resulted in the positive thoughts and in fact letters from consumers about Joyce and the job she did for us.


 


As marketers these days we spend a lot of time talking about “engagement” with our customers/consumers but we also seem to have lost that personal touch in our attempts to monitor and measure our engagement in the age of computer technology.  Some recent personal experiences highlight the impact of this loss.


 


The first thing I have noticed lately is the development of measuring response time to a complaint as the key measure of successful engagement without addressing the complaint itself.  In this regard I recently purchased a vacation trip from Sandals for my wife and myself but encountered a problem with it.  I e-mailed the Sandals people about the problem and almost immediately got an e-mail response saying “thank you for your e-mail and we have passed it along to the appropriate person for response.”  This is like hearing “your call is very important to us” as you wait for someone or something to pick up. 


 


This was followed by a minute later by a second computer generated e-mail saying in effect we have responded to your complaint and consider the matter closed.  If you want to see the status of your complaint go to this website and input this number.


 


Now from their point of view they had a terrific response time to my complaint but did they in fact deal with it?  No!  I got another computer generated e-mail about a day later telling me to contact their customer service people by phone to resolve the problem.  I guess it didn’t conform to their standard computerized responses so I needed to deal with a person.  Unfortunately after the “your call is very important to us” initial response the person essentially told me tough luck regarding my complaint.  As a result I wrote another e-mail to complain about her response.  You guessed it, I got another “thank you and we’ve passed it on” followed by another “we have responded” e-mail with yet another incident number.


 


You can see by now where this was going.  The problem never was addressed, and in fact not even responded to by a person and instead fell into a black hole and this from a company that is known for their customer service.  Fortunately for them the people at the Sandals resort more than made up for my problem through their personal service while we were there.  So much so in fact that we booked another vacation with them while we were there. 


 


Unfortunately the “fun” did not stop there.  I got a customer satisfaction survey via e-mail on my return which I filled out and cited my earlier problem.  In response I got an e-mail of apology from the resort manager saying he was sorry for what happened but wished he knew about it either before we arrived or when we were there so he could try to rectify it.  It sort of begs the question as to where my prior e-mails went.


 


This leads to the second area of consumer service response, what I call “the black hole syndrome” where you get a response that says they’ve sent your complaint onto someone but you never get a response.  Recently this happened with me in regard to a complaint I made about my fitness club, which is part of GoodLife Fitness.  I sent their “Member Experience” Department (got to love the names some companies chose for their customer relations departments) a detailed e-mail about problems at the club and was sent a response thanking me and saying my e-mail had been forwarded to the General Manager of the club and the District Manager for their response.  Now the General Manager was leaving in a few weeks time so I suspect he really didn’t care a lot about my complaint and he certainly never addressed it with me, although he knew who I was.  However I was hopeful that the District Manager would respond.  When after 4 weeks I had heard nothing from either person I wrote the Member Experience person again telling him of the lack of response.  I was rather surprised to hear back that the District Manager was only getting my e-mail for his file and does not respond to members and that he was sorry the General Manager had not responded but then he, the Member Experience person had not followed up with him either.


 


While we talk a lot about consumer engagement we seem to be more focused on quantifiable metrics of that engagement rather than the human side.  We have lost a lot of that human touch even when we involve humans.  We offshore our call centers to save money but fail to ensure that the people manning the phones at the other end can clearly articulate a response or even have the discretion to resolve the situation.  We rely on the speed of a computer response to an e-mail rather than a personal response via e-mail.  In short we need to bring the personal touch of the Joyces of this world back into our consumer communication and demonstrate the triumph of person over machine.


 

Too Big To Innovate?


 


A number of years ago I was asking the President of Coca-Cola in Canada about their new product development program and I got a very interesting and somewhat surprising response.  He told me that they were too big to innovate but instead had a group that spotted trends and innovative brands in the marketplace and either copied them or bought them.  He said their competitive advantage was in their distribution system and they were confident they could either come with a “me too” item and thru the power of their system overpower the innovator or else they would buy them.


 


Recently while reading Amanda Lang’s excellent book, The Power of Why, I go to thinking about why it was so difficult for large companies to be innovators.  When you stop and think about it most companies when they grow to be very large firms cease to be innovators and become refiners of innovative products be it their own or a competitor.  It could be argued for example that the largest company is also the one biggest reputation for innovation, Apple.  However Apple in my opinion, has ceased to be an innovator in electronics but rather is now simply refining their innovations.  iPhone 5 is not an innovative new cellphone but rather a refinement of their existing item, likewise the latest iteration of the iPad is a refinement of their tablet not something radically new and different.  Hence the criticism of Apple for their lack of new products and analysts tying this failure to their declining share price.


 


Apple is not alone in this respect.  If you start to drill down into the “innovation” of other large perceived leading edge firms like Google and Facebook or Consumer Package Good firms like P&G, Diageo or Coca-Cola you find that the vast majority of their “new” items are not things they developed themselves but rather things they acquired by buying other firms.  Whether it is Google acquiring companies like You Tube or Facebook acquiring Instagram instead of developing their own app you find the vast majority of large companies even in markets noted for the need for innovation are not in fact developing or even allowing innovation within their own firms.  The question then is why?


 


Here are, in my view, some of the reasons for this phenomenon:


 


Organization Structure:  As an organization grows its structure becomes more and more what the military would term a “command and control” structure.  There is less cross fertilization of ideas across the organization and more development of organization silos that do not allow for outliers, people who buck the system.  The net result is the famous outside the box thinking is not only discouraged but in fact beaten down and out of the system.  Ms. Lang in her book for example cites the inability of Microsoft to capitalize on innovative new ideas that were initially developed internally but could not be taken to fruition because they crossed silos in the organization and ended up being strangled by arguments as to who would assume responsibility for the project.  The net result was a smaller firm was first to market and was seen as the innovator and in a lot of cases acquired for a huge sum by a large firm.


 


Politics:  Years ago I worked for a predecessor of Diageo, the world’s largest beverage alcohol company, IDV who were praised for their innovative new product development program.  When they started the program they solicited new concepts from anyone in the organization and trumpeted the fact that anyone from a production worker to the Chairman could submit new concepts to the New Brand Development team and they would be evaluated and concept tested.  They were flooded with new brand/product ideas from all areas of the organization and very quickly had to put a filter on what ideas they would prioritize for testing.  Unspoken was the fact that the first filter they applied was who submitted the idea.  Not surprising perhaps was the fact that all Senior Management ideas received top priority and those from lower down in the organization failed to pass the initial screen.  Even more telling was what happened once the Senior Management concepts were initially consumer tested and failed.  Rather than simply abandoning the concept they would go back and rework it.  I know in one case they reworked one concept that had bombed in 4 different tests, including at least 3 market tests before abandoning it.  It was an idea from the Managing Director of the company and in the end it was only killed off when he retired.


 


Corporate Culture:  There is a lot of talk about the need for “out of the box” thinking in large companies but there are not a lot of senior managers or organizations that actually embrace the concept.  Instead one most often encounters the famous “ya buts” as in “ya that is a great idea but we tried something like that in 1987 and it didn’t work out”.  In addition managers are taught to focus on a few things and do them well.  This inevitably leads them to narrow the scope of their work rather than expand it and to narrow the corporate mission rather than expanding the range of their business.


 


Short term financial focus:  One of the truisms is that public companies are less likely to take risks than private firms and most big companies are public firms with public reporting requirements.  They are continually looking at what they have to report to “The Street” or “The City”.  When I worked at what is now Diageo we used to say our short term plan was the next quarter and our long term plan was the fiscal year. 


 


More often than not new ideas and certainly new brands are an expense in the initial years rather than a profit contributor.  In the past I have seen new brand/product development programs budgets cut as the year went on because of a need to make a Marketing Department number.  I have also seen unrealistic goalposts established to measure success of new brands such as the need for a positive contribution to the bottom line in their test market and/or first year of rollout.


 


History shows that innovation is the key to success over time for firms so are large firms destined to fail? 


 


Not necessarily, they can as I suggested at the start, buy their innovation.  If you look at what a lot of the leading firms in a number of fields are doing you see them purchasing their innovation.  From firms such as Google, Facebook and even Microsoft and Apple to consumer packaged goods firms such as Coca-Cola you can see obvious trend here.


 


Likewise you see them doing what the President of Coke suggested to me; they line extend their existing brands into emerging new categories and use the strength of their existing business and brands to coopt the smaller brand.  We talk a lot in marketing about the benefit of being the “first mover” but this is not important for large companies.  What is important is that they identify and capitalize on an emerging trend before it becomes too big for them to copy or buy.


 


What it also says however is that if you want to be an innovative marketer and brand builder you are going to have a difficult time doing it within the confines of a large company.  This is why I suggest that as one climbs the management ladder in large firms you see less and less innovative thinking because for the most part it gets driven out of the company and those who are truly creative and innovative have left to start their own firms.

Privatizing LCBO Wine Sales – Be Careful What You Ask For!


To paraphrase Winston Churchill the LCBO is the worst form for selling beverage alcohol in Ontario, except for all the others that have been tried.  Having worked with over 100 different beverage alcohol jurisdictions I have seen the good, the bad and the truly horrifying from a consumers point of view.  There is no question that there are a lot of things that could and should be improved at the LCBO but privatizing the system is not one of them, particularly in a time where the government is trying to rein in a $14 billion deficit.


 


I learned a long time ago to be careful what you ask for because you just might get it.  With that in mind I would offer a counterpoint to the advocates of privatizing the LCBO entirely or even adding the private sale of wine to sale at the LCBO.


 


More Store Locations:  The short answer is yes there will be more stores but don’t expect them to carry the selection one finds in most LCBO stores.  That is what happened in every case where privatized beverage alcohol occurred.  Entrepreneurs and large chains moved in aggressively to open outlets but not all succeeded.  If one looks at either Alberta or BC, the most cited alternatives you would see that yes the number of outlets grew but the average size of most stores is about the size of a large convenience store and they carry far fewer items than a typical LCBO store. 


 


For the most part the outlets focus on low cost items that are in high demand.  In the case of BC where they compete with the government BCLDB stores you will find they have a lot of what in the industry calls “pocket sizes” or mickies, 200ml and 375ml along with low priced wines and spirits that are not found in the BCLDB stores.   What duplicate items there are, are market leaders in every category.  A broad cross section of premium wines and spirits is not their claim to fame.


 


The reason for the low priced non BCLDB listed wines and spirits is that they can be marked up a lot more than is the case for items that are sold in BCLDB stores where there is a reference price.  There is only a small discount offered to them on items sold in BCLDB stores so once an item is listed in the government stores the private outlets have little interest in selling  or promoting them. 


 


The other oft cited example is the grocery or Depanneur segment in Quebec.  Here again there are a lot of stores with very little selection.  There are apparently over 11,000 outlets outside the SAQ and while most supermarkets carry beer and wine the majority of stores are small convenience stores the size of a 7 -11 but again the selection in the case of beer is market leaders only.  It should be noted that all wine sold in these stores must be produced in Quebec and not available in other markets and therefore they are bulk imported wines which are bottled in Quebec.  Even in the case of the grocery chains such as Metro you are looking at a single aisle of wines, not a complete store.


 


Greater Product availability:  This is something that is touted by the Ontario Wine Council in their current “My Wine Shop” campaign.  This however is a fallacy if one looks at both the current private wine stores owned by the big wineries and at what is happening in other provinces.  As stated earlier most stores in Alberta and BC are the size of a large convenience store and carry perhaps 750 items, about what you might find on both sides of an aisle in a large supermarket chain store.  The large Alberta stores such as The Great Canadian Liquor Store, owned by Loblaw’s, have perhaps double that number of items but this is still far fewer than most urban LCBO stores. 


 


And what in fact do they carry?  They carry the big brands that sell and there is no reason to believe that if private wine and beer sales were allowed in Ontario, it would be any different.  No private enterprise that wants to stay in business is going to carry the vast array of domestic wines offered by the members of the Ontario Wine Council.  The demand simply isn’t there to justify it.  Instead they will carry the big sellers to maximize their profits. 


 


If one goes into a standalone Wine Rack or Vineyard Estates store which are owned by the two biggest Ontario wineries, Constellation/Vincor and Peller Estates respectively you would find no more than about 150 different wines and in the case of the kiosk stores found in supermarkets which are owned by the various wineries, you are looking at no more than about 100 different items, probably closer to 50.


 


With 124 active commercial wineries having at least 10 to 20 different wines each you would fill a store if you listed all Ontario wines, something that the Wine Council originally advocated but can’t be done because of the NAFTA agreement.  Hence their including imported wines as well in their current campaign.  When you add imported wines to the mix the chances of expanded distribution for lesser known Ontario wines becomes even more of a pipe dream, particularly if you are going to maintain and/or grow the LCBO contribution to the government.


 


Government transfers will either be maintained or grow with the addition or transfer to a private store system.  Tim Hudak and others have suggested that somehow we can maintain the $1.6 billion transfer payment the LCBO sends to the government this year, up some $300 million from last year but it is difficult to see how this can happen based on experience in other markets, without a significant increase in retail prices.  Beppi Crosariol in his December 15th article in the Globe & Mail on the situation states that “Ontario would retain full control over markups … as Alberta does under its fully private liquor retail system”.  In point of fact Alberta does not control retail mark-ups only the price which goods are sold to the retail store.  The store is then allowed to mark the goods up as they see fit.  What he also fails to mention is that the system in Alberta uses a flat tax based on alcohol content that has not changed materially since the retail system was privatized over 20 years ago.  This has meant virtually no change in the dollar contribution to the Alberta government’s coffers in this time while Ontario’s ad valorum tax has meant huge growth in the contribution by the LCBO to government revenues.  In fact a recent study by The Canadian Center for Policy Alternatives and The Parkland Institute comparing the Alberta to Saskatchewan system suggested that Alberta has lost some $1.5 billion due to forgone revenue and lower tax rates.


 


A better model would be what has happened in BC and recently in Washington State.   In BC there is a discount on the price to the retailer on all items sold at the BCLDB of about 10% but the retailer is free to mark the goods up as much as they like.  In addition goods not sold in BCLDB stores have a fixed mark-up at which they are sold to the retailer but the retailer then is allowed to mark these goods up as they see fit, normally from 30% to 50% of the purchase price from the BCLDB.  That margin comes straight out of the BCLDB transfers to the province.


 


In the case of Washington State a referendum last Fall resulted in the entire system, both wholesale and retail being privatized.  Under the terms of the referendum private enterprise, namely beverage alcohol retailers and distributors had to guarantee the state’s profit for a minimum of 3 years.  To do this the state added a 17% tax on top of their sales tax for retailers and a 10% tax, dropping to 5% after 3 years at the wholesale level, provided a minimum of $150 million was raised by the wholesale taxes.  The net result has been a reported increase in retail prices of around 17% and a drop in consumer sales since the system was privatized in June.  In addition Washington State wineries which had similar favourable treatment by the Washington State liquor board in their stores are now complaining about their loss of distribution and increased costs of doing business in the state.


 


There is no question that the LCBO can do a lot of things better than it does now but from an Ontario winery perspective I would be very careful about asking for the system to be privatized.  At the moment they receive a lot of things no other category or country receive from the LCBO including a disproportionate share of shelf space, the first and best location in all LCBO stores, rebates on their sales to the LCBO, a dedicated key promotion period as well as an incubator program for small wineries that protect them from the “normal” LCBO listing policies plus a special unpaid monthly marketing program (Superstars) in the LCBO’s stores and Food and Drink magazine to name just some of the benefits.  That is unlikely to happen in a private store system.  The Wine Council has suggested they would like to level the playing field for Ontario wines in the LCBO but in point of fact it is already tilted heavily in their favour.


 


In summary I believe that the expansion of wine sales to private stores will not result in an increase in the number of wines available in Ontario, will increase the price of domestic wines sold through the private channel and decrease the revenue the LCBO transfers to the province each year with no corresponding increase from the private sector.  My advice to the Wine Council and others – Be careful what you ask for because you just might get it!