Monthly Archives: January 2013

Product Life Cycle Management: What do a cyclist, a horsewoman and NutraSweet have in common?

No, this is not a joke.  So what do they have in common?   Answer: a strategy that focused on optimizing profits in the moment.  At least one had a thought-out exit strategy.  Can you guess which one?

There is a lesson here about understanding your product’s practical lifespan.

Let’s examine the players.

The Cyclist — Lance Armstrong

By now we’re all very familiar with Lance’s story – – cancer survivor, fundraiser extraordinaire (almost $500 million), of course winner of 7 Tour de France titles, since vacated due to his now-confessed use of PEDs.  Ironically, prior to his cycling fame, Armstrong was a world-class teenage triathloner, and if he had remained clean it’s likely he would still have been world class in triathlon or cycling.  Of course, now we’ll never know.

Young Lance

The relevance?  Post-cancer (and by some accounts before), Armstrong decided that he would pursue world cycling dominance at all costs.  Success required use of PEDs, intimidation of colleagues, and repeated lying.  But during that time, it paid off handsomely — Armstrong was estimated to have earned $20-30 million annually during the roughly 10 years that he dominated, so perhaps $300 million, not counting the fame and celebrity.  His worth is currently estimated at $125 million.

Lance A Foundation

The exit strategy?  Whether Armstrong expected this ride to end well is unknown; increasingly it seems that he didn’t actually give much thought to his exit strategy and in fact just put his head down and worked to get the next title that he was seeking.  What is clear is that the gravy train has now developed into a bad case of road rash.  Including his volunteered restitutions and lost future endorsements, it’s estimated that he has lost $200 million of future earnings, and it is not clear what the nature of his future will be.  But he is still young, 41, and while he may have difficulty along the way, it’s possible he can re-establish public support.

So – he went all-in for success, and achieved it at the cost of longer-term viability.  A medium-length life cycle with a sharp drop-off.  Worth it?

The Horsewoman – Rita Crundwell

If you live in Illinois you know the story – – the long-time comptroller of little Dixon, IL (pop 15,000) was found to have embezzled over $53 million from the town over 22 years (!).  Crundwell continued this deception for years and stopped only when she was caught.  The ill-gotten gains were used to support a lavish equestrian lifestyle, including among other things an 88-acre estate and ranch, 3 additional homes, over 300 champion horses and a $2 million RV.   After her arrest, Crundwell faced certain loss of all of her possessions as well as as up to life in prison.  An excellent account is here.

Crundwell 1

The exit strategy?  In November 2012, rather than drag the state through a long and expensive trial, Crundwell pled guilty to embezzlement and wire fraud and faces up to 20 years in prison.  Sentencing is in February.  In this case, realizing that she successfully made hay while the sun shone, Crundwell has taken as close to the high road as is possible, and has gained some measure of respect for it.  But she’s still going to jail for a long time.  Worth it?

Crundwell 3

NutraSweet

NutraSweet, the brand name for the sweetener aspartame, was a much better tasting product than its predecessor saccharin, and supplied the missing link that enabled diet sodas to finally go mainstream, a huge profit machine for the soda makers.  Its introduction strategy was as innovative as its taste, and set the bar for future branded ingredient launches (such as Intel Inside).

At launch, NutraSweet was priced at a high multiple of saccharin, and required that customers put the then-unknown NutraSweet swirl logo on the front panel of their famous products.  In exchange, NutraSweet spent as much as $50 million annually to promote the brand, driving awareness and consumer demand for its customers’ products.  Customers, which included Coca-Cola and PepsiCo, had no choice but to agree to NutraSweet’s terms, but did so grudgingly.  In fact, NutraSweet purposely pursued a strategy that ensured at best a cool relationship with each of its major customers.  An excellent NY Times account can be found here.

diet pepsi

Why the unconventional take-no-prisoners approach, counter to the typical goal of generating customer loyalty for the long term?  Well, NutraSweet knew exactly what its sell-by date was:  December 1992, at which point the patent on the aspartame molecule would expire and lower-cost producers would enter the market.  (and in fact, this has happened – – at its peak NutraSweet sold for $150/lb; it is currently around $5/lb.).  There was no long term.  NutraSweet management, with essentially a one-product portfolio, decided that the aggressive pricing strategy maximized overall profits.  This seems to have been the right move – – NutraSweet was remarkably profitable during its lifespan, and the market has demonstrated that trying to retain customers post-patent at premium pricing would have been difficult at best.

The lesson?

Managing a product’s life cycle is about maximizing net present value of future profits.  This in part means understanding the expected premium that a product can command over its lifecycle, based on advantages vs competitive offerings, and managing pricing, promotion and product improvements to realize this premium. When a product can no longer produce an acceptable profit, it is time to sunset or adjust the strategy (reducing investment, etc).

Lance Armstrong certainly had an extremely powerful brand for a good number of years, and maximized profits over that time period.  However, he didn’t seem to envision any consequences of his maximization strategy and therefore has shortened his own marketability life cycle.  Said another way, he killed his own golden goose.

Rita Crundwell also maximized profits over a significant time period, and clearly did nothing to change things.  It is likely that she fully realized that when her marketability life cycle ended it would be irretrievably over, which led to her pleading guilty.

NutraSweet assessed its profitability life cycle very early, as part of its pricing/marketing strategy, and stuck to its strategy successfully.  And while the logo has essentially been retired, it stands as one of the more innovative, and profitable, chapters in marketing history.

Net, managers need to carefully assess how a product’s pricing power may shift during its lifecycle, and plan pricing and support appropriately to maximize profits.

Would you prefer pink slime or horsemeat with your burger?

Well, neither, actually, thank you.  If you’re talking about things that we’d rather not see in our food, you can add melamine to the mix.  All three caused quite a commotion when stories broke revealing their presence in the food supply.

In that respect they have similarities; in other ways they couldn’t be farther apart.  In all cases, the media played a key role.

First, a brief recap (if you’re up to speed, skip to the meat of this post below).

Melamine – – an organic compound, used to make familiar things like Formica, dinnerware, laminate flooring, and white boards.  Melamine also is toxic, and can falsely indicate high protein content in foods.  These characteristics came together with tragic consequences in 2007 and 2008, when Chinese-sourced infant formulas and pet foods that had had their protein counts ‘boosted’ with melamine led to six infant deaths and hundreds of thousands of injuries, as well as a lot of killed or harmed pets.

Melamine mom

Pink Slime – – known more commonly in the meat biz as Lean Finely Textured Beef (‘LFTB’), is ground-up low-grade meat byproducts that has had the fat removed, and was approved in 2001 for use as a filler at up to 25% of ground beef content.  In 2012 a scandal arose when it became known that as much as 70% of the ground beef sold in the US contained LFTB but was not required by the USDA to be identified on labels.  While not posing any health risk, public outcry focused on the fact that with no label disclosure consumers were not able to make informed decisions.

pink slime

Horsemeat — just this week, An Irish meat processor recalled 10 million burgers from supermarkets across Ireland and Britain amid fears that they could contain horsemeat, a discovery that poses no danger to public health but threatens to harm Ireland’s important beef business.  While the concept of horsemeat is not particularly appetizing to a US culture that idolized Seabiscuit and Mr. Ed, apparently that’s not a universal feeling.  In fact, according to Food Manufacturing, “much of Europe happily consumes horsemeat as a delicacy.  Still, ‘The Irish are known for their respect of the horse, and they’re not used to eating horses,’ the French newspaper Le Figaro explained Wednesday to its readers.”

tescoscared horse

How are these three things similar?   Easy:  with all of them we were served a nasty surprise regarding our food, which is never going to go down smoothly.

How are these different?  Well, in a few ways.

1) Benefits/Dangers – – Melamine is toxic, period.  It provides no benefit in food other than to increase profits for the producer.  LFTB is clearly not harmful, although it has less protein than the beef it replaces.  On the other hand, it helps reduce beef’s fat content, which is good, and can help reduce retail prices of ground beef, a benefit generally appreciated by consumers.  Horsemeat is similar to LFTB in that it is not harmful, but in this case it seems to have been secretly added to ground beef solely in an effort to increase profits.

2) Outcome of the scandal – – Melamine – – boycotts of Chinese products worldwide, 21 convictions, including 19 long sentences and two death sentences in China.  On the plus side for consumers, it has led to longer-term enhancements in food supply chain testing and security.  LFTB – – as a result of the media frenzy, several beef processors went bankrupt, eliminating thousands of jobs and driving higher prices at the shelf.  Horsemeat — still unfolding.

melamine china

3) Role of the media — with melamine, the media was essential in uncovering the scandal and demanding quick action and accountability.  With LFTB, the media seemed less interested in pushing for the public good than in fanning hysteria (and circulation) using the irresistible ‘pink slime’ nickname.  Certainly without that name there would have been far less outrage.  With horsemeat, the media is somewhere in between – – apparently staying mostly objective and reporting the facts, so far.

slime headline

What is the meat of the matter here?  What are lessons for producers and retailers?

–> With the broad footprint of upstream suppliers and the highly dispersed market for downstream finished products, there can be no such thing as too much supply chain traceability and security, and with access to the right information, consumers will increasingly be willing to pay for safety.  Manufacturers and retailers have a potential danger in the event of an ingredient scare, but also an opportunity to use traceability and source of supply as differentiating advantages, by simplifying sourcing, and investing in supplier audits and shipment tracking automation.

food supply chain

–> Consumers will continue to demand transparency regarding what’s in their products.  Manufacturers and retailers will need to increasingly provide it to stay competitive.  To some extent this is not easy; research shows that consumers often have a knee-jerk reaction to the sound of an ingredient (e.g. ‘pink slime’) without bothering to know the facts.  But pink slime is a very obvious example; there are more subtle perception dangers even with very useful ingredients (propionic acid is naturally occurring and helps prevent bread mold; alpha tocopherol is just another name for Vitamin E; and ascorbyl palmitate is an antioxidant and nutrient; etc.).  Claims like GMO-free can provide a marketing benefit but can also generate significant added costs.  Country of Origin Labeling (COOL) is a great concept but can get murky depending on where a product is grown, processed or packed.  Net, providing transparency is a worthy goal but it is still very tricky and will require ongoing management.

ingredient line

–> Social media has helped create a situation where consumers act immediately on rumors and don’t want to wait for facts, which puts all producers at greater risk of a Pink Slime-type incident.  In some ways, this is a risk that is hard to mitigate.  The best advice would be twofold:  1) err on the side of greater disclosure of ingredients so the message can be proactively managed; and 2) in the event an ingredient issue surfaces, use the same social media to immediately acknowledge the problem, present the facts, and communicate what the company is doing about it.

twitter panic

–> The media must remember that with its power comes a responsibility to maintain objectivity, balance and context in reporting the news.  A pink slime-type episode, where sensationalism trumps perspective, can make for interesting copy, but can also have real consequences for real people.

wendys finger

What my dog taught me about Twinkies

What, you ask, can my dog Nigel teach us about Twinkies?  A lot – what’s a brand worth, that sort of thing.  This question is brought to mind by yesterday’s purchase of now-bankrupt Hostess Brands’ bread portfolio (including Wonder Bread, Nature’s Pride and others) by Flowers Foods.   Sale of the Hostess dessert cakes brands (including Twinkies, Ho-Ho’s, Yodels, Suzie Qs and more) is expected to close within a few weeks.

IMG_0435

Well, Nigel is pretty bright, and he does provide perspective on the recent public agonizing over the potential disappearance of Twinkies.

You see, Nigel goes crazy for the ball when the humans play ping-pong at home.  After he beats us to a missed ball, he happily gives it up so the game can continue.  It seems Nigel loves the idea of having the ball in his mouth but doesn’t have much interest in chewing or eating it.  He likes the idea of the ball, not the ball itself.

In the same way, while many of us are emotionally attached to our experiences with Twinkies, and share in the grief of possibly losing them, it is unlikely that many of us are actually current Twinkie eaters or likely to suddenly become future eaters.

Twinkies is a powerful brand that is high in nostalgia (positive associations driven by past exposure) but unfortunately also one that has become quite low in relevance.  In an age where treats are increasingly either relatively good for you (e.g. 100 calorie packs) or utterly indulgent (e.g. gourmet cupcakes), and where consumers increasingly check ingredients, that retro golden sponge cake with vanilla creme filling is being squeezed from all sides.  Past efforts like reduced-fat Twinkies (of which I was a fan) or chocolate creme or banana Twinkies have generally not been successful – – they violate some aspect of the indulgent formula of the original.  So while the brand carries significant weight, the ability to convert that equity into cash is not a slam dunk — Twinkies loyalists are a particularly finicky (and shrinking) lot, and it’s not clear that there is a consumer franchise for the future.

What is the lesson?  Just because a brand is widely known and loved, doesn’t mean it can power future sales.  The winning bidder for the well-known Hostess snack brands will need to have assessed not only the net present value of the current franchises, but also the ability to extend these brands beyond current offerings to become more relevant to an audience that will generate long-term demand.

The successful repositionings of Old Spice and Cadillac from Dad targets to Son targets demonstrate that it’s very possible to recharge relevance, capture a new audience, and thus harvest latent equity.  The unsuccessful (and clumsily transparent) attempt to resuscitate Oldsmobile (remember?  “It’s not your father’s Oldsmobile“) shows that there are no guarantees.  Kentucky Fried Chicken’s attempt to recast itself as less unhealthy (KFC) would probably be judged to have had moderate success – – the word ‘fried’ is decoupled from the brand, but we all know what goes on in there so there’s a limit to how far you can (and want to) go.

NostalgiaRelevanceTwinkies carries immediate and powerful associations and there are certainly potential avenues for the brand — perhaps traditional line extensions, perhaps co-branding, perhaps licensing the Twinkies brand aggressively to non-food products (clothing?  toys?  theme park ride?). The new owner will very carefully need to determine whether, and how, the brand that elicits such strong emotions might generate sufficient profits to justify the purchase.

To a great extent, it may depend on whether this old dog can learn new tricks.

GEICO Advertising: It’ll take a lot less than 15 minutes to read this post…

I’ve been thinking about GEICO lately.  Not because I’m shopping for insurance, but because GEICO doesn’t give me any choice – – its advertising is in my face (and ears) constantly.

Which got me thinking:  Marketing 101 says that there should be creative consistency in advertising, lest the message (and brand) become diluted or confused.  But I can name at least a handful of concurrent campaigns (not counting infinite executions) for GEICO being used today.  I bet you can, too.

–       GEICO gecko – inescapable, multiple cross-media executions Geico gecko

–       Happier Than (guys playing guitar/mandolin) – (“How happy are GEICO customers? – – happier than Eddie Money running a travel agency”, etc)

Geico Eddie Money

–       Caveman (“so easy a caveman could do it”)Geico caveman

–       Rhetorical (“Was Abe Lincoln honest?”  Mary T. L.: “does this dress make my backside look big…”) (personal favorite)

Geico Abe Lincoln

–       Maxwell the Pig

Geico pig

–       And more.  There’s even a Wikipedia entry dedicated to GEICO advertising

Geico eyesGeico Peter GravesGeico Serling

So what gives?  Lots of quite different executions trying to sell basically the same product. Wouldn’t putting all weight behind one creative campaign (with freedom for infinite versions) make more sense?  Well, 2 main reasons:

1)    While the creative changes, the USP/ message is highly consistent.   All roads lead to Rome, and all GEICO ads lead to “15 minutes could save you 15% or more on insurance.”  They may be talking about a car, home, motorcycle, RV or whatever, but in the end the message is the same.  And that’s what counts.  While there might be a mixed read on what consumers recall creatively, I bet message recall (‘cheaper insurance’ or similar) would be very consistent.

2)    At some point any advertising can reach a saturation/burnout stage, and familiarity, even with the most inventive creative, will breed contempt.  So changing up the rotation, with the sort of weight GEICO deploys, works to its advantage.  In addition, consistent use of humor (generally done well) lends a lightness to the proceedings that make the spots more tolerable.

– McDonald’s has a similar variety of campaigns, but they support different strategies (meal dayparts, seasonal favorites, dollar menu, new products, etc.).

– Big Auto uses similar weight/variety, but unfortunately much of the focus is on price and only a few have message consistency that endures over time (‘Ultimate Driving Machine’).

The only questionable tactic is recently identifying GEICO by its original name, Government Employees Insurance Co.  Considering Congress’s abysmal approval rating (12%), one wonders what the expected gain would be.

Moral of the story:  in advertising as in humans, up to a certain point weight is necessary; beyond that point one must be cautious.

On the other hand, I still haven’t invested in that 15-minute phone call…