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November 24, 2004

Roaches and Reptiles

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Posted by Britton

If you are interested in a vivid portrayal of what is wrong with Madison Avenue, then NYU professor Douglas Rushkoff has a treat for you. In a recent Frontline documentary called "The Persuaders," he takes us behind the scenes to see some of the absurdities that Corporate America continues to embrace. left

We are told that marketers are trying to cut through the "vicious circle of clutter" and, seemingly, will do anything to accomplish this objective. The saddest case is a doomed new airline called Song, which is backed by Delta. The airline is targeted at women. But, apparently, that's not enough. Men must be publicly neutered in a hideous display of street theater marketing (see photo) to generate "buzz" and "excitement" around the Song brand. In brainstorming sessions and corporate off-sites, Song marketing managers look on helplessly as mystical branding gurus prey on their insecurities and vampirically suck their remaining cash.

Of course, some of the advertising industry's enemies are as estranged from good sense as the industry's clients. Naomi Klein, author of No Logo, describes advertisers as "roaches" in the kitchen of modern life. And then she lectures us on how we all have been programmed to go shopping just to get our emotional needs met. Meanwhile, culture critic Mark Crispin Miller offers some pious and tired complaints about the convergence of marketing and entertainment: "You'll hear [this] from novelists, filmmakers, reporters -- this is not just me. There's a kind of cultural crisis going on now..." Blah, blah, blah, blah, blah.

Then, the camera cuts back to branding gurus as they inform us "cult brands" are replacing schools and churches with "ready-made identity." Great brands, they tell us, provide community, narrative, transcendence. They build "loyalty beyond reason." Tide detergent is a "liberator at the heart of the family." Blah, blah, blah, blah, blah.

John Hayes, chief marketing officer for American Express, starts off on a credible foundation: "Where else in the world can you be expected to pay more for a commodity (advertising) that is experiencing diminishing returns?" Then he goes on to ruin it by acting like those lame AmEx "webisodes" with Jerry Seinfeld were some important marketing breakthrough. As Hayes puts it (without a hint of Seinfeldian irony or humor), "We're talking about a new medium here." Please.

Some might be tempted to also dismiss Clotaire Rapaille, the French marketing guru who makes his research subjects sit in the dark on pillows while he seeks "unconcious codes" and "reptilian hot buttons." But somehow his stuff started to make sense to me as I listened close. It also makes sense, apparently, to his exclusive Fortune 100 clientele. right

I warmed up to Rapaille when I watched the narrator, Rushkoff, try to persuade him that his work on behalf of the Hummer brand was somehow politically and environmentally incorrect -- that the product should be scorned and resisted by all right thinking people. Rapaille would have none of it. He's a marketer, not a moralist, after all. The unconcious code for the Hummer is "power" and "dominance." That's what the irrational, emotional, reptilian brain is thinking, he explains patiently to his wilting critic. That's what it wants. And, as Rapaille tells us with a knowing smile, "the reptilian always wins."

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November 22, 2004

Bad Boys and Poison Pills

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Posted by Britton

The full horror of what I was seeing didn't hit me all at once. At first, I was even mildly amused as I watched the antics of Indiana Pacer Ron Artest on the Web. And then I realized what a terrible thing I was seeing as Artest entered the stands and started throwing punches at members of the crowd. right

In a single instant, Artest had destroyed years of work and millions (perhaps hundreds of millions) of dollars of value that NBA commissioner David Stern (and others) had struggled to build. Would I take my kid to see another Pacer or a Piston game? No way. Would I take him to an NBA game? Good question.

Meanwhile, up on Capitol Hill, the Vioxx controversy threatens to take down a great company and do untold damage to the pharmaceutical industry. The repercussions promise to be quite extreme. One wonders whether Merck execs have acted irresponsibly. (The CEO, who says his wife was taking the drug up until the day the company took it off the market, insists the company has been upright.) Or was it the media, ambitious politicians and an angry "whistleblower" at the Food and Drug Administration blowing things out of proportion?

And then, there's Larry Ellison -- who has spent his whole career pissing on his competitors. Is it any wonder that PeopleSoft execs -- who no doubt are mostly protecting themselves -- would plant poison pills to fend off Oracle's acquisition? Despite the fact that a majority of shareholders supported the takeover, the fight continues and no doubt will end up in court.

None of this is good news for the software industry. The sector has seen an array of execs face penalties or jail time for illegal financial behavior in recent years. Enterprise software customers, at best, tolerate their vendors and, at worst, hate them. In recent years, manipulative sales people, failed implementations and all sorts of other other bad boy behavior have deeply damaged the reputation of high tech.

Given such trends, perhaps we should step back and take stock of what is going on here. Is it worth it to be on the leading edge of business -- whether you are engaged in customer intellligence work or something else -- when your business is about to implode? What good would it have been to do world-class CI work at Enron or WorldCom? It's like building beautiful sand castles in the face of an onrushing tide.

Don't despair. The point is that maybe we should exercise our deep analytical skills -- our due diligence capabilities -- to ensure we are investing our time in organizations that have honor, integrity and real vision. If we are working for liars or fools, we are probably wasting our time.

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November 17, 2004

Retail Wars

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Posted by Britton

Wal-Mart may be a powerhouse of epic proportions, but it may soon have competition on the level of size and scale. Kmart Holding Corp. just announced that will acquire Sears, Roebuck & Co. in an $11 billion deal to become the nation's third largest retailer. The deal would put the new company behind only Wal-Mart and Target Stores in terms of annual revenue.right

The merger is expected to make both companies' properties more profitable through an enlarged presence and operational efficiencies in areas such as procurement, marketing, information technology and supply chain management, according to the Wall Street Journal.

"The combination will greatly strengthen both the Sears and Kmart franchises by accelerating the Sears off-mall growth strategy and enhancing the brand portfolio of both companies," said Sears Chief Executive Alan Lacy who will become will be vice chairman and chief executive officer of the new company "This will clearly be a win for both companies' customers while significantly enhancing value for all shareholders."

The question for us to unravel is how -- if at all -- the new entity might capitalize on customer intelligence to survive today's retail wars and endure in the ones to come.

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What Wal-Mart Knows

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Posted by Britton

While Wal-Mart's traditional strength is in the smart and severe management of its supply chain in order to maintain "everyday low prices," one should not underestimate its growing knowledge of the demand side -- who its customers are and how they behave.

"With 3,600 stores in the United States and roughly 100 million customers walking through the doors each week, Wal-Mart has access to information about a broad slice of America - from individual Social Security and driver's license numbers to geographic proclivities for Mallomars, or lipsticks, or jugs of antifreeze," according to a New York Times article last week. "The data are gathered item by item at the checkout aisle, then recorded, mapped and updated by store, by state, by region. By its own count, Wal-Mart has 460 terabytes of data stored on Teradata mainframes, made by NCR, at its Bentonville headquarters. To put that in perspective, the Internet has less than half as much data, according to experts."

With exception of its Sam's Club brand (which builds individual customer profiles), WalMart does not tend to watch each customer as an individual. It is more important for the company to understand the "basket" of goods that were purchased together. "Me knowing what you specifically buy is not necessarily going to help me get the right merchandise into the store," says Linda M. Dillman, Wal-Mart's chief information officer. "Knowing collectively what goes into one shopping cart together tells us a lot more."

Of course, the company's supply chain expertise has not finished evolving either. The company is moving toward a near future where its suppliers will own the products on WalMart shelves and will not be able to collect until they are sold. "Wal-Mart will never take those products onto its books," said Bruce Hudson, a retail analyst at the Meta Group, an information technology consulting firm in Stamford, Conn. "If you think of the impact of shedding $50 billion of inventory, that is huge."

Although customers won't complain, Hudson contends that this will squeeze suppliers even further. "You can see the pattern of Wal-Mart's mandates, and as Wal-Mart grows in power, it is getting more dictatorial," he said. "The suppliers shake their heads and say, 'I don't want to go this way, but they are so big.' Wal-Mart lives in a world of supply and command, instead of a world of supply and demand."


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November 09, 2004

Campaigning for the Customer

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Posted by Britton

Those of us who are focused on the value of customer intelligence have much to learn from how the political parties -- both Democrat and Republican -- made use of voter intelligence in the American presidential election.

One week on, perhaps we can look at the campaign and election in an analytical (as opposed to emotional and partisan) fashion. We all have much to learn that may help us in our own respective fields. right

Here are a few factors that came into play in this election cycle that I found particularly notable.

Reality vs. Realities. Not talking about political philosophy here, but rather, metaphysical assumptions. Late in the campaign, an article by Ron Suskind caused a stir. It suggested (unfairly in my view) that facts and data are essentially irrelevant to President Bush's leadership and that he leads by "gut" or "instinct."

Suskind quotes a Bush aide stating that "the reality based community" is full of people who ''believe that solutions emerge from your judicious study of discernible reality.'' The aide then continues: "That's not the way the world really works anymore. We're an empire now, and when we act, we create our own reality. And while you're studying that reality -- judiciously, as you will -- we'll act again, creating other new realities, which you can study too, and that's how things will sort out. We're history's actors . . . and you, all of you, will be left to just study what we do."

Different people can see this different ways. Is this a frank and laudable acknowledgement of what it means to be decisive in a dynamic, fast-changing and threatening world? Or is it an irrational rejection of all facts and analysis? In a real-time economy, corporate leaders also must choose a place on this continuum of action and analysis. Many have struggled with their own choices.

Rove vs. Whouley. Behind all leaders and campaigns, one finds a core of strategists and advisors who are essential to the overall effort. Let us focus on two in particular. Bush had Karl Rove and Kerry had Michael Whouley. Both appear to be brilliant men with disciplined and analytical marketing backgrounds. Both relied heavily on vast databases to develop their strategies and plans. Both ran sophisticated get-out-the-vote operations.

One article described the reclusive Whouley as engaged in "the unglamorous work of analyzing voting patterns and identifying a candidate's pockets of strength and weakness. While the media and the voters keep their eyes on the candidate, strategists like Whouley are shuttered away in 'war rooms,' constantly monitoring the ebb and flow of possible votes, precinct by precinct. Their job is to move resources -- direct-mail pieces, phone-bank calls, door-to-door canvassers, sometimes the candidate himself -- to their highest target of opportunity."

Whouley accomplished this objective with great skill in the primaries, enabling Kerry to identify his areas of greatest opportinuity and pull off an unexpected victory. For instance, it was Whouley who encouraged Kerry to shuttle around Iowa during the primaries in a helicopter to maximize the number of his personal appearances.

However, Whouley does not appear to command anything like the mystique accorded to Rove. It was Rove who saw early on -- when Bush was still considering a run for Texas governor -- that a campaign could be mounted by courting evangelicals and other Christians that felt largely ignored by contemporary politicians.

While the Republican party is a wide coalition, it's hard not to notice the energy and passion that comes from Bush's religiously devout base. Rove was the one who built a game plan to turn that energy into votes.

The lesson? Great leaders (corporate or otherwise) need the analytical insights of left-brain strategists to guide their efforts behind the scenes. Public appearances, by contrast, tend to be emotive, right-brain activities that favor leaders that can "connect" with their constituents.

Energizing the Base vs. Attracting New Voters. It's the difference between prospects and existing customers. Republicans and Democrats seem to have emphasized strikingly different things in this regard. Whereas Democratic resources tended to be directed to getting out the youth vote and signing up new voters, Republicans were much more likely to focus on getting their existing base excited about the election.

The outcome of the election makes it clear that it's better to "upsell" an existing customer than place a "cold call" to a prospective one. Republicans relied much more heavily than Democrats on past voters to get their friends and family to the polls. Even the Republican campaign workers were volunteers, emotionally committed to the outcome. "The way to build a grass-roots movement is to get one volunteer to recruit several other volunteers, and so on, so that the organization is constantly growing, feeding off itself," said campaign strategist Ken Mehlman in the New York Times Magazine. "The big thing that brings them all together is viral activity.''

Democrats, by contrast, placed much more hope on the idea that new voter drives as well as rock-concerts and star-studded events would carry them through to victory. They also tended to pay their campaign workers pretty well, which raises questions about how committed many were to the cause (as opposed to the paycheck).

What can't be disputed was the impressive turnout made possible by both parties -- a sign of vibrance and life in a modern republic. Companies that hope to capitalize on customer intelligence have much to study and learn from this election cycle. Just don't study these lessons too long. New realities are constantly being created -- and we need to be prepared to act.

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November 08, 2004

Angels in America

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Posted by Britton

Having vanquished an array of conventional competitors, consumer electronics retailer Best Buy is now being chased by Dell and Wal-Mart. What the company fears most is that it will end up in the "unprofitable middle" -- unable to attract either affluent or price-sensitive shoppers. left

To avoid that fate, the company has launched an initiative to distinguish its "angel" (most profitable) customers from its "devil" (unprofitable) customers. Working with Larry Selden, a professor at Columbia University's Graduate School of Business, Best Buy has begun to organize itself as a "portfolio of customers" as opposed to product lines. The company CEO, Brad Anderson, has embraced Selden's theory that future shareholder growth will increasingly depend on reorganizations of this sort.

According to a piece today in the Wall Street Journal, "Best Buy has rolled out its new angel-devil strategy in about 100 of its 670 stores. It is examining sales records and demographic data and sleuthing through computer databases to identify good and bad customers. To lure the high-spenders, it is stocking more merchandise and providing more appealing service. To deter the undesirables, it is cutting back on promotions and sales tactics that tend to draw them, and culling them from marketing lists."

It turns out that Best Buy's devils are quite devilish. "They buy products, apply for rebates, return the purchases, then buy them back at returned-merchandise discounts," states the Journal. "They load up on 'loss leaders,' severely discounted merchandise designed to boost store traffic, then flip the goods at a profit on eBay. They slap down rock-bottom price quotes from Web sites and demand that Best Buy make good on its lowest-price pledge."

Best Buy has since taken steps to deter these unprofitable customers -- and now it is focused on its highest growth clients. Having analyzed customer purchasing behavior and histories, the company has identified five distinct groups that represent strong potential: upper-income men, suburban mothers, small-business owners, young family men, and technology enthusiasts. These customers are now identified by sales specialists at the pilot stores and directed to newly designed areas that match their interests and criteria.

Best Buy's pilot stores, it turns out, are heavily outperforming conventional stores. "Through the quarter ended Aug. 28, sales gains posted by pilot stores were double those of traditional stores," noted the Journal. "In October, the company began converting another 70 stores." It plans to customize the rest of its stores over the next three years.

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