The Ant Eater

Employee discount for everyone!

2005-06-26T19:08:00.000-05:00

General Motors, the ailing Detroit behemoth, has been touting its employee discount for everyone promotion on virtually all its brands (such as Saturn, Saab, Hummer, Buick and Chevrolet). This seems like a major gamble for a company burdened with the fixed costs of pension schemes and healthcare coverage. (p. 350).

GM clearly thinks that the demand for its vehicles is price elastic, although I'm not sure this will bear out in the medium-term, at least not for its top-drawer models. The company markets its Saabs and Buicks as quality, luxury cars - were its original buyers price sensitive? And, will reducing prices not dilute the power of the brand? Perhaps GM sould have limited the promotion to its mid-range vehicles.

The company is clearly trying to grapple a larger market share with the cash discount offered (p. 375). Granted, it faces strong competition from other carmakers but it may well be shooting itself in the foot. Firstly, consumers (especially those to whom GM's high-end brands are targeted) may react in unexpected ways to this same-for-less approach (p. 264): Is GM going out of business? Will the company ditch some brands? Have its prices been artificially high in the past, i.e. was I conned on my last GM car purchase?

Plus, the company has just declared a de facto price war. What will be its reaction if Ford, Nissan or Volkswagen follow suit? I doubt that GM would emerge unscathed in a scrap with an Asian manufacturer (p. 384).

As Joseph Jaffe mentions on his blog, it will be impossible for GM to ever beat this promotion. What future offer would beat "You pay what we pay"?

However, I disagree with Jaffe's negative view of the customer lifetime value approach (p. 16). This may well be GM's saving grace. If the products are decent, introducing GM vehicles to new market segments will provide the company with new and valuable customer connections that may attract consumers to the company's products for the long-haul.

Building Chinese Brands

2005-06-26T13:46:00.000-05:00

Linda's presentation on the Chery car got me thinking about brands in China. The country is notorious for its counterfeits of luxury goods, toys and electronics brands. As the quality of the fakes churned out increases, why don't local businesspeople develop home-grown brands? A recent article in Fortune magazine asks the same question.

It's only a matter of time for China's industries to realise that the brand owner collects most of the profit, not the manufacturer. Already some Chinese industries are purchasing western brands (such as Haier's bid for Maytag and Lenovo with IBM), but the international business community should really be prepared for China's new great leap forward: From being the world's factory to developing the intangible value associated with powerful brands.

A comparison of marketing strategies

2005-06-26T08:40:00.000-05:00

This post will examine the key similarities and differences in the marketing strategies of Dell, Coca-Cola and Wal-Mart, focuising on the four Ps of the marketing mix; Product, Price, Promotion and Place.

Product. All three organisations offer a wide range of products. Dell's include personal computers, MP3 players, servers and other IT peripherals. Coca-Cola owns over 400 brands, combining global and local brands in a hybrid brand structure. The local brands (such as Kuat a guarana-based drink marketed in Brazil) cater to local tastes, but also serve as testing grounds for products that may be released globally. Being the world's largest retailer, Wal-Mart carries a vast aray of products in its big-box stores, offering a one-stop-shop for most goods and services purchased by families.

Promotion. Wal-Mart spends over US$ 100 million annually on advertising and marketing. A significant amount of its advertising budget is spent on promoting its everyday low prices, new store openings and price "rollbacks". But this is not the only key message the company is trying to get across. Through www.walmartfacts.com, its sponsorship spots on NPR and the company's recent foray into the world of reality TV , Wal-Mart also promotes itself as a caring employer, neighbour and corporate citizen. In the past, Coca-Cola's main communications channel (Principles of Marketing, p. 478) was television (can you remember the "If I could teach the world to sing..." campaign?). However, media fragmentation, the rise of the internet and other technological advances have decreased TV's effectiveness. The company is now focusing more closely on associating its products with the spirit of competition, youth and passion through sporting events, such as its Olympic Games sponsorship deal. Dell promotes its products mainly through direct marketing channels, like www.dell.com, e-mail promotions and catalogue sales. The company has also recently opened kiosks in shopping malls to cater to shoppers who prefer to see the actual products before commiting to an online purchase (Dell Direct).

Price. Wal-Mart sometimes employs promotional pricing strategies to temporarily reduce their products' prices to below list- or cost-price. However, the company's "Always Low Prices, Always" positioning is Wal-Mart's simple pricing model: everyday low prices that do not rely on special events or other promotional pricing techniques to keep shoppers in its stores (p. 378). Having a strong competitor such as Pepsi, has forced Coca-Cola to have coherent pricing strategies. These differ for each product and depend on the time and place. For instance, the company used a low price model in the US in the early 1990s to reduce private (or store) brands' market share (p.293). Once this succeeded, Coca-Cola raised its prices to position itself as a superior product vis-à-vis the store brand colas. Dell employs a number of pricing strategies in order to maintain its leadership in the market and maximize its revenue. These include customer segmented pricing (selling the same product at two or more prices, where the price difference is not based on cost differences); optional-product pricing (consumers are invited to customize their computer by adding on accessories); and product bundle pricing (offering consumers combined products and services for less than the sum of their individual prices). (pp. 372, 375-6).

Place. All three organisations have a transnational presence. Dell has manufacturing plants and offices spread across the globe and customises its site to major markets (e.g. www.dell.fr, www.dell.com.br). Wal-Mart has also spread outside the United States and currently has operations in 10 countries. But, exporting its approach and corporate culture has not been without hiccups in markets such as Germany and South Korea . Of the three companies, Coca-Cola has the strongest and widest global presence. It has almost 100% brand recognition with western consumers and a presence even in "failed states" such as Somalia .

The Dell Team Post...

2005-06-22T20:38:00.000-05:00

...can be found here

Niche Marketing at the Paris Airshow

2005-06-19T21:36:00.000-05:00

This small enterprise has staked a piece of turf at Le Bourget, rubbing shoulders with Boeing, Airbus, Embraer, et al.: Dispatches From the Paris Air Show .

Sir Bob to the rescue

2005-06-19T21:04:00.000-05:00

eBay merchants trying to cash in on the free Live 8 concert in London did not count on Bob Geldof (eBay withdraws tickets for Live 8 concert from sale). The online auctioneer posted tickets for the (free) concert for sale on its site, some of which had attracted bids of over US$ 1800.00. In a move that would have made other citizen action publics proud (Principles of Marketing, p. 110), eBay pulled the tickets off its web site after less than 24 hours online.

Can eBay live without Google?

2005-06-19T20:49:00.000-05:00

There have been reports that Google is planning to start an internet payment system to rival PayPal (SiliconValley.com). This is all well and good, except that PayPal is owned by eBay, which happens to be one on Google's main advertisers. Will eBay merchants scale down their advertising on Google in retaliation? Or is Google just too dominant for an online advertiser to ignore?

The Ant Eater on...

2005-06-19T19:11:00.000-05:00

...Technorati, Feedster and Yahoo!

Price Post: Dell's Pricing Strategies

2005-06-15T22:32:00.000-05:00

Dell is well-known for having pioneered the direct sales model in the personal computer industry, marketing directly to businesses and consumers, instead of via intermediaries such as retailers. The company also stands out by building its PCs to customer specifications and delivering the computers directly to the customer. These characteristics - coupled with decent customer service - allow Dell to maintain its position as the top direct sales computer manufacturer in the world, with sales this year of $49,205 million and a growth in sales of 18.7% p.a .(Hoovers).

Nevertheless, although Dell is successful at creating customer value with other marketing mix activities, it also has to capture this value through the prices earned (Principles of Marketing; P. Kotler & G. Armstrong, P. 343). The company thus employs a number of pricing strategies in order to maintain its leadership in the market and maximise its revenue.

Firstly, it employed market-penetration pricing when launching its PCs (Principles of Marketing, p.371). The company charged a low initial price to swiftly penetrate the market and gain a large market share from its main competitors. This approach was successful because the PC market is price sensitive. Also, Dell's low production costs (e.g. achieved through low inventory levels and close relationships with suppliers) and its innovative direct sales model helped keep competitors at bay and sustain the low prices.

Secondly, Dell practices customer segmented pricing, selling the same product at two or more prices, where the price difference is not based on cost differences (Principles of Marketing, p.376). "The Dell Latitude [...] laptop was listed at $2,307 on the company's Web page catering to small businesses. On the Web page for [...] health-care companies, the same machine was listed at $2,228, or 3% less. For [...] governments, it was priced at $2,072.04, or 10% less than the price for small businesses." ("Dell Fine-Tunes It's Pricing to Gain an Edge in Slow Market"; Gary McWilliams. The Wall Street Journal, June 8, 2001). Indeed, www.dell.com has four separate sections catering to different customer segments: individual consumers; small businesses; medium and large businesses; and government, educational and healthcare organisations. All sections presumably offer slightly different prices for the same products. In addition, Dell offers discounts to the employees of corporate customers, further expanding its client base (through my work I can get a 12% discount off most Dell PCs).

Thirdly, Dell excels at optional-product pricing. Consumers are presented with basic PCs on the company's website and are invited to customise their computer by adding on accessories and extra services such as security software, extra memory, or larger monitors before making a purchase.

Fourthly, the company engages in product bundle pricing. It has forged partnerships with different companies to offer consumers combined products and services for less than the sum of their individual prices (Principles of Marketing, p. 375). Examples include Napster (one month free trial with the purchase of a Dell DJ MP3 player), AOL (six months free with the purchase of a PC) and QuickBooks financial software (offered at a reduced price if purchased together with a PC).

Fifth, Dell uses different promotional pricing tactics, such as discounts or rebates to expand its market share and engage competitors in price wars that it is almost certain to win (Principles of Marketing, p. 378). An article in BusinessWeek describes how Dell announced price cuts of around 20% in the past two years, timed with the release of disappointing earnings statements by its rival Hewlett-Packard.

Sixth, Dell "has begun demanding flexible pricing in its contracts with suppliers, many of which also continually update Dell on their own costs" ("Dell Fine-Tunes It's Pricing to Gain an Edge in Slow Market", The Wall Street Journal). This, combined with the phone and web-based direct sales model, allows the company to react quickly to reductions in component prices and pass on the savings to consumers. Competitors that do not have close relationships with their supply chain partners and rely on sales via a bricks and mortar marketing channel will find it impossible to react quickly to suppliers' price changes.

To conclude, Dell's business model and market leadership give it a clear advantage over its competitors for the foreseeable future. Indeed, the current trend of lowering component prices provides a rosy outlook for the company. Dell's built-to-order products are ideal for competing in this environment; "Because it carries less inventory than HP, it can take advantage of the lower prices as they occur"(BusinessWeek).

Listening to consumer groups - it's free market research!

2005-06-14T22:41:00.000-05:00

I came across a great example of a corporation listening to the cyber chatter about their organisation and acting on it (Reveries).
Top brass at Continental Airlines paid attention to the comments of airmiles enthusiasts on www.flyertalk.com and appear to have addressed them directly. This approach is similar to Dunkin' Donuts' in dealing with the now defunct dunkindonuts.org attack site described in Kotler and Armstrong's Principles of Marketing (p. 134).

Hi-tech bribes in the Heart of Darkness

2005-06-14T21:40:00.000-05:00

Our discussions in class yesterday, following Clare's presentation on Hindustan Lever and Holly's presentation on global marketing logistics, turned to bribery in foreign trade. This reminded me of a recent article in the Economist that tipifies the endemic corruption in some (most?) developing countries. It also shows that less developed countries sometimes leapfrog developed states precisely because their basic infrastructure is so underdeveloped. In D.R. Congo, explains the article, useless or non-existent road and telephone networks have spurred the development of airplane routes and nationwide mobile phone networks. And civil servants are even willing to accept bribes telephonically in the form of cell phone credits from across the country...

On the subject of corruption, Transparency International publishes a global ranking of the most corrupt countries in the world. The poll is conducted with international businesspeople and gauges their perception of corruption levels in each country - Finland is currently perceived as the least corrupt country in the world and Haiti as the most corrupt....

Anti-CRM

2005-06-09T18:50:00.000-05:00

Consumer backlash has come to this:
BoingBoing

Discrimination against goths

2005-06-08T21:02:00.000-05:00

Further to the episode in Blink that Alex brought up in class last week (discrimination by car dealers in Chicago), these two girls tried it out with preppy and goth retailers: BoingBoing.

Credit card prank

2005-06-05T20:59:00.000-05:00

Now, I've always been slightly annoyed at how few shop assistants check my signature against the one on my credit card. Looks like I'm not the only one - check out this joker's site: The Credit Card Prank

Price Presentation Post: Pricing strategies the easyWay

2005-06-04T17:52:00.000-05:00

easyJet is a UK-based low-cost airline established by Stelios Haji-Ioannou in 1995. A self-described "serial entrepreneur", Stelios (as he prefers to be called) has built a stable of low-cost products and services. These range from easyCar, a car hire company; easyMoney, an insurance company and credit card operator; easyCruise, a Mediterranean cruise line; to the self-explanatory easyPizza and easyInternetCafe.

An article in the Economist about easyGroup's foray into the cinema business sparked my interest in its pricing strategies.

Stelios's most successful venture has been easyJet. Like his other enterprises, the airline recognizes that pricing is an extremely important component of the marketing mix, being the only element that produces revenue, not costs.

easyJet initially established itself by using a market-penetration pricing strategy (Introduction to Marketing, P. Kotler & G. Armstrong, 10th edition, p. 371). This involved charging most passengers low prices to rapidly penetrate the European short-haul market and gain a significant market share.

But low entry prices alone are not enough to sustain an airline. A combination of factors has helped easyJet keep to the skies and maintain prices low for most of its customers.

The use of segmented pricing or yield management strategies (ibid,p. 376) has paid off for easyJet. Yield management uses software to understand and predict passenger behaviour. As flights are a highly perishable product (after all, tickets cannot be sold once a plane has departed), yield management has allowed the company to maximise the revenue of each airline seat with flexible and dynamic pricing (ibid, p. 346). Price-sensitive customers can purchase a flight very cheaply months in advance to travel off-peak. Conversely, demand-sensitive travellers will pay full fares for the convenience of travelling at peak times and purchasing their tickets at the last minute. easyJet's yield management approach works because the air travel market is segmentable and its segments show different degrees of demand.

High sales volumes also contributed to falling costs, allowing the company to sustain low prices. This worked because the air travel market is price sensitive: easyJet's lower air fares produce market growth by encouraging people who would normally not fly to catch a plane. Cheap air travel has even encouraged Britons to purchase weekend cottages in France and transformed bachelor parties at the local pub into stag weekends in places like Tallinn and Prague.

But, easyJet could not operate profitably without a tight grip on its costs. "Costs set the floor for the price that the company can charge" (ibid, p. 350), and easyJet has kept them near ground level. It has achieved this by controllingg costs such as;

Pilot training and aircraft maintenance, by originally only flying one type of aircraft;
Airport slot fees, by flying to underutilised airports where slots are cheap;
Salaries; easyJet's pilots work longer hours than most competitors' and no aircraft cleaners are hired - the cabin crew clean up after every flight;
Catering; passengers must purchase all food and drink on board;
Costly hub operations and "feeder" flights; by operating only point-to-point, short-haul flights;
Travel agents' commissions and shop rental overheads; all tickets are sold online or over the telephone.

To sum up, easyJet's reduced costs set the lower limit of its prices and the demands of the market set the upper limits. Its yield management practices allow it to tailor its prices to the different market segments while keeping its planes full.

New 'business school'

2005-06-03T20:46:00.000-05:00

Trump University: Why spend your money at Wharton when you can learn from The Donald?!

No more 20%?

2005-06-02T20:06:00.000-05:00

Beware: the founder of Atari and that gastronomic nightmare - the Chuck E. Cheese restaurant chain - is branching out into restaurants for adults.

Nolan Bushnell is getting decent coverage for his new venture in publications like the New York Times, Newsweek (sadly not the online edition) and Reveries.

The uWink Media Bistro (for that is its name) promises screens at every table that will allow diners to surf the web, engage in gaming tournaments with other diners (America's Army perhaps?) and order their food through an on-screen menu. His target market are young adults in the Northern states, where cold winters encourage indoor entertainment (that's demographic segmentation for you!)

He's counting on keeping costs down by hiring fewer waiters, so maybe tipping won't be required either....

Lifts and Taxi Cabs: A Cautionary Tale

2005-05-25T22:28:00.000-05:00

The talk about competitive intelligence in class today reminded me of an old adage: Never discuss business in lifts or in the back of taxis.

I would extend that to airport shuttle buses.

A few years ago I was in Puerto Rico preparing the ground for bidding on a government contract. The trip went well and on my way home I dropped off the rental car at San Juan Airport. On the short drive to the terminal I shared the shuttle bus with a very talkative gentleman who proceeded to tell me his life story. In addition to discovering where he had holidayed the previous winter, I found out that he worked for our key competitor on the bid. Without any prompting he also revealed how his fact-finding trip had gone, his company's local resources and how many times he planned to return to the island to work on this project...

Unfortunately this encounter did not help us win the bid. Still, I was struck by how this competitor was incapable of handling sensitive information.

Grey market goods on Amazon

2005-05-25T15:02:00.000-05:00

A new copy of “Principles of Marketing” for $36.00 on Amazon? Great! The book arrives promptly and, to my surprise, really is brand new. But, the little “EEE” logo on the cover attracts my attention:

“Eastern Economy Edition”.

Then I notice the hologram sticker reads “Prentice Hall India” and the price on the back cover is listed in Indian Rupees. The inside pages also stand out from my classmate’s glossy edition: they are in black and white and the print quality isn’t that great.

Looks like there is a flourishing grey market in academic books on Amazon. The scourge of luxury goods companies now affects publishers of marketing tomes. Someone in Wisconsin (I think that’s where the book was shipped from) is importing textbooks from India and, assuming they are purchased at the published price, is earning around $10.00 - $15.00 per sale. That’s entrepreneurship for you!

I wonder how much longer companies – be they LVMH, Ford, Microsoft or Prentice Hall – can maintain such variations in pricing for similar products in our globalised marketplace?

Is the Internet a deflationary force? Lets hope so. Plus, who needs colour anyway?

Who's the Ant Eater?

2005-05-22T22:23:00.000-05:00

By day I work for International SOS - a global medical and security assistance company (www.internationalsos.com). I've been with the company for 7 years, based in London, Paris and now Philadelphia. I currently manage our network of service providers in the Americas and the Caribbean.

In my real life I'm a Scottish / Brazilian mongrel (I play football like Scot and hold down my whisky like a Brazilian...). I grew up in Rio de Janeiro and studied at the University of St. Andrews in Scotland. In my spare time I play capoeira (a Brazilian martial art), horseride, travel a lot and am constantly reading, which drives my wife crazy.

This blog is for an Introduction to Marketing course (part of the Business Essentials Certificate Program), that I'm taking at Wharton, University of Pennsylvania.