When Protecting Your Brand Goes Too Far: The Nutella Story

Photo credit: Teymur Madjderey

I remember being introduced to Nutella when visiting my grandmother in Italy as a kid.  I loved Nutella then, and I still do today.  Apparently, Sara Rosso REALLY loves Nutella.  In fact, she founded World Nutella Day, which takes place on February 5th each year, in case you are interested.  Rosso also has an extensive website featuring recipes and lots of other information about the product. 

This year, though, Rosso announced that World Nutella Day would not take place.   Apparently, she received a "cease-and-desist" letter from lawyers at Ferrero, the Italian company that makes Nutella.  The company sought to protect its copyrights and trademarks.  It worried that Rosso was infringing on its intellectual property rights. 

When Rosso revealed the news about the cease-and-desist order, her many fans (also big fans of Nutella) became upset.  They began to write about their frustrations with Ferrero's action on Rosso's Facebook page.  Nutella had a brewing controversy on its hands.

Fortunately, the company reacted fairly quickly.  They caught wind of the negative feedback from many fans of the product, and they backed off.  Rosso was free to orchestrate World Nutella Day each year and to feature recipes and other information on her website.

What an amazing story.   Here's a woman who is the ultimate brand evangelist, and the lawyers almost stifled all enthusiasm.   Leave it up to the lawyers to mess up a good thing!   Actually, there is a great lesson here.  Companies do want to watch carefully for copyright and trademark infringement.  On the other hand, what's better for a brand then an authentic customer evangelist?!  When a company has diehard fans, and not just customers, it should very pleased.  A customer evangelist can provide the type of authentic promotion that a company would have a very hard time creating. 

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I Can't Get No Satisfaction: The Rolling Stones & Ticket Prices

Rafi Mohammed has a good blog post at HBR about the Rolling Stones and their concert tour pricing strategy.  The Stones chose to price their tickets for this tour very high, and numerous reports indicate that they are discovering soft demand for those expensive seats.  What should they do now?  Should they simply cut their prices?   As Mohammed notes, brands often worry about simply slashing prices in the face of weaker-than-anticipated demand. They don't want to tarnish their brand in any way, or anger customers who previously paid full price.  How can the Rolling Stones proceed?   Mohammed offers numerous ideas, some stronger than others.  I found one particular tactic interesting and thought that I would share it.   Mohammed explains that companies can choose to add value to their product or service, while maintaining price, as opposed to offering a steep discount.  Here's his explanation: 

"The most common remedy to this malady is to maintain price but add value, so customers feel they're getting more for their money. Guitarist Keith Richards could casually drop in an interview that this may very well likely be the band's last tour (the "hedge" in the wording is intentional). Or, as the band did at its opening gig in L.A., they could bring in special guests such as Gwen Stefani and Keith Urban. These additions make the experience more memorable, so customers value it more." 

I don't agree with the point about promoting it as the last tour... music fans have heard that one all too often, only to discover that bands keep coming back.  However, the concept of adding value makes good sense, and the example of Stefani and Urban is a good one.   The Red Sox have done something quite similar this year, as demand has dropped for tickets at Fenway.  Rather than simply slash prices, they have added breaks on concessions to some tickets.  The concept applies to products as well.  You could add a small complementary product as a free gift to entice people to buy a particular good (think accessories along with an electronics item or a piece of apparel). 

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Dove Real Beauty Sketches

This Dove "Real Beauty" online ad has created quite a stir.  You can read about the response to this campaign here.  Dove certainly seems to have struck a chord with its customers.  The fact that some people have criticized the ad doesn't seem to concerning, as most Dove customers seem to be responding positively.  The attention that it has received seems to endorse the view: there is no such thing as bad publicity.   Nevertheless, there's a big question remaining:  Will this attention turn into additional revenue for Dove?  Can the engagement with customers translate into sales in the supermarket?  

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New Thoughts about Brand Extensions

For years, scholars and consultants have argued that companies should stick to brand extensions that fit closely with the core brand image and identity.   The logic goes as follows:  It's ok for Coke to make Diet Coke, but it does not make sense for the firm to offer Coke-branded laundry detergent. 

Researchers Tom Meyvis, Kelly Goldsmith and Ravi Dhar noticed something interesting though.  A few firms did extend their brands successfully in a way that seemed to fit much less closely with the core brand's image and positioning.   If these firms had succeeded, then perhaps the notion of fit needed more clarification.  

The scholars conducted an experiment, and in that study, they found that visual cues make a difference with consumers.  Seeing the physical product, as opposed to just hearing about it, can cause customers to genuinely consider a brand extension that appears to be low fit.  According to Kelly Goldsmith, “When you give people pictures, preferences shift because [people] are focused on quality—they are more interested in quality than fit.  Whereas when you show the brand concept without pictures … the reaction is more focused on fit than quality. Allowing product comparisons leads to the same results.”

Goldsmith explains the practical implications of the study: “If you get your brand-extension concept out of the lab and into the store, all of those [benefits from visual cues and brand comparison] are taken care of.  If you are a brand like Nike or Häagen-Dazs, or one of these very large national brands associated with quality, and you want to make money by extending that very successful brand even further—to new [but] lower-fitting categories—what our research shows is that you really need to show people what that product looks like and show it to them in the context of other brands in that category."

I find the research very interesting.  I still believe firms need to be very attentive to fit when it comes to brand extensions.  However, the notion of offering visual cues, sampling, and physical displays does seem to make sense.  Those tactics certainly do help a consumer understand and appreciate a new product offering that may not seem to fit with a brand's prior identity. 

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Should You Examine All Your Options At Once?

Stanford Professor Baba Shiv and Columbia Professor Sheena Iyengar have conducted some interesting new research about consumer decision-making processes.  They created a series of experiments to examine whether consumers were more satisfied when they examined all their options at the same time, versus looking at the options sequentially.

Their experiments involved the purchase of products including wine, chocolate, and nail polish.   The research findings showed that, "Sequential choosers were less satisfied with their chocolates than were participants in the simultaneous group. And, when offered the opportunity to switch to a different chocolate — a randomly selected one, they were told — more of the sequential choosers opted to do so, even though they knew virtually nothing about it."

What explains the higher satisfaction on the part of those examining all their options at once? The researchers argue that hope and regret play a significant role.  People in the sequential situation worry about possible future options (subsequent and unknown) that they may forgo by making a choice now.   People don't seem to have that worry when they examine a wide array of alternatives simultaneously. 

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How Things Go Viral

Over the past few years, I've become a fan of Wharton Professor Jonah Berger's research.   He now has a book out titled, Contagious:  Why Things Catch On.   Fast Company has profiled his book, and they offer a summary of the basic steps he has outlined for making something go viral.  Berger refers to it as the STEPPS method: 

• Social Currency: We share things that make us look good (even if that means pictures of our cat).
• Triggers: Easily memorable information means it's top of mind and tip of the tongue.
• Emotion: When we care, we share.
• Public: Built to show, built to grow.
• Practical Value: News people can use.
• Stories: People are inherent storytellers, and all great brands also learn to tell stories. Information travels under the guise of idle chatter.

I'm really looking forward to reading the book.  I'll put together another blog post once I'm done with the book.

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Collegiate Athletic Success as Advertising: Is it Effective?

Harvard Business School Professor Doug Chung has written a new working paper titled, "The Dynamic Advertising Effect of Collegiate Athletics."  He explores the impact that athletic success impacts the quantity and quality of a university's applicant pool.  Here's an excerpt from the abstract to his paper:

I estimate the impact of athletic success on applicant quality and quantity. Overall, athletic success has a significant long-term goodwill effect on future applications and quality. However, students with lower than average SAT scores tend to have a stronger preference for athletic success, while students with higher SAT scores have a greater preference for academic quality. Furthermore, the decay rate of athletics goodwill is significant only for students with lower SAT scores, suggesting that the goodwill created by intercollegiate athletics resides more extensively with low-ability students than with their high-ability counterparts. But, surprisingly, athletic success impacts applications even among academically stronger students.

The findings surely will provoke some interesting debate.   Note that Chung finds that going from good to truly great in NCAA football, for instance, can cause applications to rise by nearly 20%.   It takes a significant move in other areas of a university to achieve a similar impact.  For instance, Chung estimates that a college would have to reduce tuition by nearly 4% to get the same rise in applications, or it would have to recruit higher-paid, higher-quality faculty.  What's interesting about this analysis is that some will say that the cost of athletic success outweighs the positive effect on applications.   That's potentially true.  However, Chung shows that there is a cost to other ways of driving applications higher as well... so it's not immediately clear what methods are most cost effective to increase application quantity and quality.  Of course, we have to remember that athletic success can be very difficult to achieve, and it can be fleeting at times.  Schools may spend a great deal of money and never get to the "great" level required to get this type of increase in applications. 

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What happens if your favorite brand is attacked?

Think about one of your favorite brands, one to which you are quite loyal.  Perhaps you might even describe yourself as a fan.  How would you react if you heard some very negative news about that company?  Would you be less willing to purchase that product?  Or, would you become very defensive?

Monika Lisjak, Angela Y. Lee and Wendi L. Gardner set out to examine these questions through a series of experimental studies.  In one study, the researchers examined how people would respond to a critical editorial about a favorite brand - Starbucks or Facebook.  According to Kellogg School of Management Insights, "Sure enough, after crunching the numbers, Lee and her colleagues found that self-conscious, low-self-esteem subjects who said they liked Starbucks initially actually rated the coffee company more favorably after they had read the critical editorial."   Interestingly, in a subsequent experiment, they found that individuals get less defensive about a favorite brand if they are given some other opportunity to affirm themselves.  According to Lee, "If Starbucks is part of you, and you read something negative about Starbucks, you feel attacked.  But I now give you another way to feel good about yourself. Then, once that need is being satisfied, you may not feel that you need to defend Starbucks anymore.” 

I'm not surprised by the findings.   People do develop a strong attachment to certain brands.  Several questions do remain.  Specifically, I wonder whether the level of criticism attached to the brand matters.  Where do people draw the line?   What would it take for someone to "turn" on one of their favorite brands?   You would imagine that people might begin to "turn" on their favorite brands if a pattern of alleged misconduct emerges over time.  How much of a pattern does one need to see though?  Finally, I wonder if there may be other attributes of individuals that might signal whether they are likely to be defensive, or if they would lessen their loyalty, to favorite brands that have been criticized.   In other words, what are the characteristics of the "hyperloyal" customer who will be likely to stand firm even in the face of criticism for their favorite brand?

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How Do Sexy Ads Affect Consumers' Desire for Immediate Rewards?

Wharton marketing professor Gal Zauberman and USC Professor B. Kyu Kim, have written a working paper called "Can Victoria's Secret Change the Future? A Subjective Time Perception Account of Sexual-cue Effects on Impatience."   The scholars conducted a series of experiments in which they showed "sexually suggestive and non-suggestive photographs to self-identified heterosexual male students."  The suggestive photos came from the Victoria's Secret catalog.  Geesh... I imagine that students flocked to sign up for this study!  

After seeing the images, subjects had to assess the value of items, such as a $65 Amazon gift card, that were received immediately versus a year later.  The research found that viewing the suggestive photos tended to enhance the value of the immediate reward and diminish the value of rewards provided a year later.  In other words, the subjects' discount rate rose substantially. 

Zauberman argues that, "Part of the reason why people discount future events, more or less, is their perception of duration [of time]."  The suggestive photos may "lengthen the perceived temporal distance to delayed rewards. That is, sexual cues make the wait seem subjectively longer, resulting in greater impatience."  In other words, consumers may not only be compelled to buy an item, but they may be much more likely to buy NOW even if it is not the most prudent financial decision. 

The scholars conducted other experiments as well.   They also showed subjects photos "designed to elicit physical symptoms similar to arousal -- increased heartbeat and respiration, for example -- that weren't actually sexual in nature."  Interestingly, people showed the same impatience that occurred when they had viewed the suggestive photographs.   In sum, "Sex may not be the only driver of this temporal response."

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Marketing Promotions, Optimism, and Uncertainty

Kellogg Professor Kelly Goldsmith and UC-San Diego Professor On Amir have conducting a fascinating new study about marketing promotions such as the McDonald's Monopoly game or the MyCoke campaign.  They examine whether people act rationally when considering their odds of winning in these types of situations. 

The researchers distinguish between two forms of consumer optimism:  innate and conscious.  In the case of these types of marketing promotions, the scholars argue that innate optimism rules.   This form of optimism is both innate and intuitive.  It tends to drive our behavior in low-stakes situations such as these marketing promotions.  We enjoy the game, and we know the stakes are low.  Therefore, we don't worry about the low probability of winning.  We don't even both calculating the odds.  We overestimate the likelihood of winning something during the promotion, and we engage in it as a consumer. 

Conscious optimism takes hold when the stakes are higher.  Suppose we are considering opening a restaurant. We will have heard all the statistics about the low probability of success.  Nevertheless, we convince ourselves that we can succeed where others have failed.  We become overconfident and plunge in head first to this rather risky endeavor.

The scholars focused on innate optimism situations in their experiments.  They evaluated whether an individual would purchase a six-pack of soda under three "prize" scenarios:  Godiva truffles (more expensive, valued prize), two Hershey's kisses (less expensive, lower value prize), and an uncertain outcome (not sure which prize would be awarded).   Naturally, individuals respond to the high-value prize more than the low-value prize.  However, they responded to the uncertain outcome almost as much as the high-value prize!  The uncertain nature of the outcome seemed to trigger innate optimism and make consumers happy to participate. 

If, however, the researchers primed the respondents to think carefully about the odds in the game, then people are much less likely to purchase the soda!  In other words, when we move them out  of an innate optimism state, then their likelihood of responding to these types of promotions falls!

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What's Wrong with Lifetime Value of a Customer Models?

Bill Gurley, a partner at Benchmark Capital, has written an outstanding column for Forbes which is titled, "The Dangerous Seduction of the Lifetime Value (LTV) Formula."    Lifetime value, of course, is the net present value of the profits that will be generated by a particular customer over time.   As Gurley points out, many companies, particularly of the consumer internet variety, use the LTV model to argue for "get big fast" strategies in which a firm spends aggressively to acquire customers today in expectation of healthy future profits.   Unfortunately, many companies use the tool to justify wildly excessive marketing spending in the near term.  Moreover, as Gurley points out, the people who "own" the tool within a company often are the very same individuals who are petitioning for bigger marketing budgets.  The advocates are the analysts, and their calculations are clearly biased.   Gurley also explains some of the common mistakes people make in their calculations.  Here's an excerpt:

As an example, marketers often divide spend by total customers to calculate SAC rather than just those customers that were “purchased.” If you have organic customers, they shouldn’t be included in the spend calculus. They would have arrived regardless of spend. Also, many people discount “revenues” rather than marginal cash contribution. It is critical to bundle all future variable costs of supporting the customer in order to fairly estimate the future contribution.

I cannot stress this last point enough.  I see students make this mistake a great deal.  For instance, they conduct a break-even analysis, and they divide a fixed cost investment by the revenue per unit that will be generated in the future.  No! That's not right.  You have to divide by contribution margin, not revenue.  For every dollar in revenue that will come in the door down the road, there will be some variable costs.   You have to deduct those variable costs when thinking about value. 

Gurley makes one other key point that cannot be stressed enough.  He explains that, "Organic users typically have a higher NPV, a higher conversion rate, a lower churn, and more satisfied than customers acquired through marketing spend."   Many companies fail to acknowledge that key point. I've hit on a few key points here in this post, but I strongly encourage you to read the entire article.  It's filled with great points about this widely used, and widely misused, analytical tool. 

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Net Promoter Score: The Power of Simple Metrics

The goal of a corporate "dashboard" should be to provide a quick snapshot of how the business is doing.   However, far too many firms create complex dashboards full of a wide variety of metrics.   They overload managers with information, and they don't get the results that they intended to achieve.

I was reminded of the power of simple metrics, as I read this article at Knowledge @ Wharton.  It discusses the concept of "net promoter score."   The concept is straightforward: How likely would you be to recommend my company, my product or my service to your friends, your colleagues or your family members?  Fred Reichheld and Rob Markey developed this concept, and their research suggests that a firm's net promoter score is highly correlated with a number of other key measures of financial performance. 

In this exchange between Markey and Wharton Professor Peter Fader, we see a fascinating discussion about Net Promoter Score.  The bottom line: We could enhance the accuracy of the Net Promoter Score, but it may not be worth doing so.  Every firm should keep this conversation in mind as it identifies and formulates key business metrics:

Markey: The truth is that the Net Promoter Score is designed to be radically simple, not because it is statistically better, but because it is statistically fine and that simplicity appeals to frontline employees. Even CEOs can understand it.  The designations of promoter, passive and detractor are based on one question. It's a simplifying construct that helps motivate and inspire people to want to create more promoters and fewer detractors. If you really wanted a statistically robust thing that was about the statistically accurate correlations, you would always go for more questions. But what we found is that there's about a 10% or 15% improvement by adding more questions in terms of statistical accuracy, but it tremendously degrades your ability to motivate the organization to take action because then you get into these debates: Which questions are part of the index? How are they weighted? I don't know, maybe that question isn't relevant for my business. Then you end up debating the score and not actually focusing on what matters, which is getting your customers to stay longer, buy more and tell their friends. 

Fader: Indeed, what you've just described is very consistent with the academic research, which shows that a richer, multidimensional scale can be 10% to 15 % better. But this one question -- this ultimate question -- really is good enough. In the academic community, it's kind of a half-full, half-empty [situation]. I'm a half-full kind of guy, saying, "Give me a measure that is good enough, one that managers can actually appreciate, understand, implement and spread throughout the organization." It raises the whole idea of measurement and understanding customer differences to a level that we've never seen before in any organization.

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Do Olympic Sponsorships Make Sense?

Knowledge @ Wharton has a special report on Olympic sponsorships this week.   Do these sponsorships make economic sense?   Some experts argue that sponsorships don't offer an immediate benefit, but they have a positive long term effect on brand equity.   That may be the case, but hopefully, firms would experience beneficial short term effects as well.  Unfortunately, that may not be the case. University of Nebraska-Lincoln Professor Kathleen Farrell and her co-author W. Scott Frame conducted a study of the impact of sponsorships on the market value of firms.  They found that stocks tended to fall slightly during the period in which firms announced that they were sponsoring the 1996 Olympics. 

Perhaps even more interesting are two reports by marketing firms.   Gallup and Robinson found that most people cannot identify the official Olympic sponsors.   Another report by marketing agency Jam found that Nike was the brand most mentioned by consumers as an Olympic sponsor, but the firm actually is not sponsoring the London Olympics! 

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Is YouTube An Oppportunity For Terrific Advertising Experiments?

Alex Konrad has written an article for Fortune titled, "Pepsi, Brewing up viral magic."   The article describes how Pepsi debuted a new "Uncle Drew" ad for Pepsi Max on YouTube.   According to the article, "In the five-minute clip, 'Uncle Drew' amuses, then mesmerizes, a pick-up basketball game and its fans with crossovers and dunks unbecoming of a white-bearded, paunch-carrying old man, and only possible because the true identity of 'Uncle Drew' was a carefully disguised young basketball star, the clip's writer-director Kyrie Irving."  (Irving is the former Duke player and current NBA Rookie of the Year who plays for the Cleveland Cavaliers).   What's interesting is where the ad went next... it is now appearing on television as a 30-second spot during the first few games of the NBA Finals between the Miami Heat and the Oklahoma City Thunder (go Thunder!). 

That progression is somewhat unique, going from YouTube to television.   I find it very interesting though, and I think more firms should emulate this strategy.  This story proves that firms can and should use YouTube not just as part of a social media marketing strategy... They should think of YouTube as a land of experimentation.   YouTube offers an inexpensive way to experiment with new ad strategies.  The cost of failure is minimal, and even the ads that don't become viral sensations can be "useful failures" in that they may provide powerful learning opportunities.  

If firms are to use YouTube as a powerful mechanism for low cost, low risk, fast experimentation, then they need to have clear methods of evaluating these experiments.  Konrad's article explains that Pepsi had just such a method of evaluation:

"Pepsi Max brand team member Sam Duboff, who led creation and development of the piece, says 'Uncle Drew' had to satisfy three major metrics in order to justify its adaptation into a television segment. 'Uncle Drew' had to keep viewers engaged, hit the brand's target demographic, and generate its own legs through word of mouth. With 80% of viewers watching through the 4-minute mark, a 82.1% male viewer group that skewed towards the brand's core 25-44 age group, and over 5 million views from embedded YouTube players suggesting the viewer watched over a media site or Facebook, Duboff and his team hit all three." 

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More Honest Customer Responses on Surveys?

We always should worry that customer surveys will yield inaccurate results for a variety of reasons.  In many cases, people simply say one thing and do another; they don't behave in a manner consistent with their survey responses. 

According to Christopher Shea in the Wall Street Journal, researchers may have discovered a simply way to enhance the accuracy of responses.  He cites a study by researchers at the University of Michigan and the New School for Social Research.  They compared phone surveys with text-message-based polls.  They found that texting-based responses tended to be more candid.    In fact, they asked about somewhat sensitive topics such as drugs, religion, and sex.   People admitted to certain behaviors more openly via texting than by phone. 

Perhaps the results suggest that market researchers should try text-message-based questionnaires in lieu of the usual phone surveys.  They may discover how consumers actually behave, rather than just hearing a "sanitized" version via phone call. 

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Understanding Your Customer: The Unasked Question Problem

As consumers, we receive tons of requests from companies to complete surveys these days.   During most restaurant visits, the waiters or waitresses ask us to complete a questionnaire.   Retailers print a phone number or web address on their receipts, and they request that we complete a survey.  After we purchase a car, the automobile company calls our home trying to solicit responses about our car-buying experience.    Do companies learn a great deal from these surveys, or might they be drawing erroneous conclusions at times?

Researchers David Gal and Derek Rucker at Kellogg Business School have examined a key form of response bias that may trip up companies. Specifically, they have demonstrated that consumers get quite frustrated when the survey instruments fail to ask them about key issues about which they would like to comment or respond.   In those cases, the unasked question becomes a serious problem.  Why?  It turns out that consumers often engage in a behavior that the scholars call "response substitution."   As researcher Derek Rucker says, "People don’t answer the question they’re asked. Instead, they supply an opinion they want to share." 

For example, a consumer may report that they did not like the food at a particular restaurant, when in fact, they really had an issue with the ambiance.   Perhaps the restaurant was a bit too loud.   However, if the survey doesn't ask about the ambiance, then the consumer may substitute their displeasure on a different question, such as one related to the quality of the meal.   In those cases, the restaurant may come to two misguided conclusions.  First, they may determine that the food quality must be improved, when the consumer actually likes the meals provided.  Second, the restaurant may not even realize that they have an ambiance problem.   The scholars recommend providing the consumer with a chance to offer an open-ended response in an "additional comments" section, so as to dig a bit deeper regarding consumer displeasure. 

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How To Anger Your Best Customers

Have you ever become angry when you paid full price for an item, and then learned that the company had put that item on sale shortly after your purchased it?   We have all been there.   Now scholars have examined the long term effects of such deep discounting. 

Kellogg School of Management Professor Eric T. Anderson and MIT Professor Duncan I. Simester conducted a study to examine whether such deep discounting angered customers, particularly the company's best customers.  Beyond creating anger, they wanted to know if that negative emotional reaction affected long term sales.  Here's what the researchers did, according to Kellogg Insights:

"Anderson and Simester worked with a retailer that specialized in selling durable goods, like software, electronics, apparel, or books. In the past, the retailer had typically kept prices high but frequently offered small discounts and the occasional deep discount. Anderson and Simester worked with them to create test catalogs to determine whether and which customers would be antagonized by price changes. (Most of the retailer’s customers purchased via catalog at the time of the study.) The two types of test catalog were mailed according to the regular schedule and included 86 products, 36 of which were discounted by varying amounts depending on which test catalog people received. The deep-discount version offered the 36 items at an average of 62 percent off, while the shallow-discount version offered an average discount of 34 percent."

The scholars studied customers who paid full price for items and then received a catalog offering steep discounts.  “When you look at this segment of customers, what you see is that a substantial portion just stop buying,” Anderson said. “We call this the boycott effect.”   Customers offered the steep discounts placed substantially fewer new orders than those people who were offered smaller discounts!  Customers who received the steep discount catalog placed 14.8%  fewer subsequent orders than those who received the shallow-discount version. Moreover, many people who were offered subsequent deep discounts simply ordered nothing at all in the months that followed.   It turns out the "boycott effect" lasted for awhile.   The scholars found that customers who reacted poorly to the steep discounts tended to buy less items from that retailer for the next twenty months! 

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Old Milwaukee: A Low-Budget Super Bowl Ad?

Companies spend enormous sums of money advertising during the Super Bowl.   If you are Budweiser, you can afford to invest in this type of marketing.  However, if you are Old Milwaukee beer, it becomes more difficult to justify that type of marketing expense.   The firm simply doesn't have the scale to support that type of advertising.  Moreover, it's not a premium beer; the firm has a simple, low cost strategy.  Old Milwaukee came up with an ingenious solution though.  They developed a simple TV commercial with Will Ferrell, who happens to love their beer.   It didn't run nationally though.  The firm ran the commercial in only one market - North Platte, Nebraska.  The town has approximately 15,000 homes.   It's the second smallest TV market in the country by Nielsen standards.  Why run the ad in this market?  Old Milwaukee actually leveraged that low-cost TV ad to create excitement via social media.   Boston-based advertising agency Mullen has reported that the Old Milwaukee ad generated more mentions on Twitter Sunday night than many nationally aired Super Bowl ads.  Moreover, a user uploaded a low-quality copy of the ad onto YouTube.  Old Milwaukee set up a link to YouTube on its official Facebook page.  Soon, the ad had been viewed more often than Budweiser's primary Super Bowl commercial!

What's the lesson here?  If your firm has a low cost strategy, it must think creatively about how to market its products.  Social media offers an opportunity to promote a brand at very little expense.  However, many firms are blitzing social media platforms these days.  It's become a cacophony at times.  Therefore, you have to think about how to emerge from the clutter.  Old Milwaukee did just that with an ad that not only generated buzz initially on Twitter and Facebook, but that also had a second life as a story picked up in the mainstream media about an innovative marketing strategy.  That story, of course, will live on far longer than the immediate surge of interest generated on Twitter and Facebook Sunday night.  After all, look at this blog and many others which are writing about it!

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Transformation at J.C. Penney

Laura Heller has written an article about the transformation taking place at J.C. Penney.  Heller's article, which can be found at Forbes.com, describes the firm as "the most interesting retailer of 2012."  As you probably know, the company recently hired Ron Johnson, the former leader of Apple's retail stores.  As CEO, Johnson has set out to remake J.C. Penney, and he's hired some talented folks to help him (including a senior executive from Target, where Johnson worked prior to Apple).   

So far, Johnson's team has redesigned the logo, hired a new spokesperson, invested in Martha Stewart's company and launched a design partnership with Nanette Lepore.  Perhaps most significantly, the company is overhauling its pricing strategy in a dramatic way, and it's redesigning the in-store experience.  The company will be reducing prices significantly on many basics, relying less on weekly sales, and keeping prices at the same level for a month at a time on many items.  It's not quite everyday low pricing (EDLP), but it's a shift away from the usual high-low pricing strategy that many retailers employ.   In terms of the in-store experience, the firm will be introducing many "stores within a store" - with each mini-store associated with a key brand.  Heller rightfully points out that it will be fun to watch these changes unfold, and to see if they succeed.

What's clear to me is that the department store format is crying out for re-invention.  Whether or not these changes all succeed, Johnson is right to try rethinking the department store concept.   In a world of massive discounting, outlet store malls in every state, and rapid e-commerce growth, department stores have to change their approach.  It will take more than a new store experience though.  The firm will have to offer exclusive products as well, so as to avoid pure head-to-head competition with rivals.  Moreover, it will have to define itself clearly vis a vis its rivals.  For years, the company's positioning and target market has been a bit  murky.   That will have to change too. 

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Sponsored Search: Do You Want to Be Listed First?

You might think it's obvious that a firm should seek to have its advertisement ranked first in a list of sponsored search engine results.   Being at the top of the list of sponsored search listings ought to be desirable, right? Well, not so fast!  Wharton Professor Kartik Hosanagar and his co-authors Ashish Agarwal and Michael D. Smith examined online ad auctions in some recent research.  They found that the ads in the top position do generate the most clicks, but that doesn't necessarily turn into the most revenue or profit.  The scholars found that ads in the 2nd, 3rd, and 4th positions seemed to have higher conversion rates (% of clicks turning into purchases).  That's interesting, of course, since it is more expensive to be placed in the first position. 

Why might that be the case?  The researchers offered two potential explanations.  First, many consumers clicking on the top ad might not be serious buyers.  They may just be looking for information on a particular product or service, and so they click on the first ad as part of a broad information gathering strategy.  Second, consumers may be exhibiting what psychologists call the recency bias.  In other words, they click on the top ad, and then click on the next few sponsored search ads to compare pricing or product features.  However, they don't return to the top ad in many cases before making a choice.  According to the researchers, consumers tend to "purchase from the most recently evaluated advertiser if all evaluated options appear reasonable." 

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