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Communicating Customer Value through Advertising, Public Relations, Personal Selling. Sales Promotion and Digital

With the entry of new media options in the early 2000s, traditional media (newspapers, magazines, TV and radio) lost some of its gloss. However recent evidence suggests that traditional media are finding their niche in a new media landscape.

New media, especially social media, offered prospective advertisers many apparent benefits –lower costs, interactivity, real-time communications and the ability to target very narrow market segments. Yet, for a variety of reasons, advertisers often remained ambivalent about the value of new media. A major problem with social media concerns the problems surrounding how to measure its effectiveness as an advertising medium.

Early indications suggest that Australians are changing their media usage patterns and that advertisers are following them. But the evidence does not suggest a wholesale shift away from new media and back to traditional media. It’s no longer a case of “old versus new” media; nor of “broadcast versus print”. Instead, media habits are changing in much more subtle ways and the divide between broadcast versus print media is becoming meaningless. What’s more – these trends are being observed globally.

Australians are spreading their media consumption across a greater variety of formats. A recent study carried out by Deloitte suggests that Australians are watching more TV-type content, but that they are viewing in different ways, using Subscription Video on Demand (SVoD) services such as Netflix or Stan. People are listening to radio programs via podcasts accessed via a range of devices, mobile phone, computers, tablets etc. We are now reading newspapers and magazines via similar devices.

Use of social media is waning globally, and Australia mirrors that trend. The Deloitte study also noted that ”Australians are suffering from “social media fatigue.” Daily social media usage has dropped slightly from 61% to 59% over the last year and about one-third of Australians have deactivated one or more of their social media accounts in the past year.

This year, newspaper readership has increased, in spite of many predictions of doom. Roy Morgan Research reported an increase of 3.2 per cent, while an alternative survey reported a higher increase of 4.7 per cent. But, both these increases are estimates of cross-media platform readership. Closer scrutiny of the data behind the headlines, reveals that readership of print has declined slightly, while digital readership has increased substantially. More and more Australians are accessing newspapers via mobile phone or internet-enabled television. Australians, who have historically been avid magazine readers, are also reading more magazines according to the latest cross media estimates.

For advertisers, the implications are clear. Today, advertising in traditional media has become far more effective than it was a decade ago. Synergies between traditional media mean that it can leverage the opportunities of its digital counterpart, while maintaining the “trust” factor long enjoyed by old media.

 

Discussion

Read the following article and consider the discussion questions below:

Harold Mitchell, “Old Media Finding its Place in a Digital Future”, The Age, 4 August, 2016 (also published in the Sydney Morning Herald)

  1. Explain why advertisers and marketers need to keep up-to-date with trends in media consumption.
  2. Briefly outline the advantages and disadvantages of traditional media.
  3. Do you think that the division between “traditional media” and “new media” has passed its ‘use-by’ date? Suggest a suitable alternative way to categorise advertising media.

Useful links and further reading

Australian Communications and Media Authority (ACMA), Young Australians and Social Media [Report], 2011

Davis, M., “Why Traditional Media Should be a Part of Your Marketing Plan,” Forbes Magazine, 20 October, 2016 

Deloitte, Consumer Media Survey, [Report], 2017

Roy Morgan Research, Social Media Minutes by Gender and Age, Media Release No. 7584, 14 May, 2018  

Roy Morgan Research, Media Preferences Breakfast and Dinner by Generation, Media Release no. 7555, 31 March, 2018

Sensis Media, Social Media Report, 2018

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Franchising Woes: Is Australian Franchising at a Turning Point?

Franchising is a common form of contractual relationship. Australia has the highest per capita number of franchise outlets and it is the fastest growing form of retail in the land. Recent data indicates that Australia has 1160 franchising networks, accounting for 79,000 outlets which employ around 500,000 people. In spite of the popularity of US chains such as McDonalds, Hungry Jack’s and KFC, 86 percent of franchise networks in operation are home-grown.

If you’ve purchased any fast food from a chain store, the chances are that it was from a franchise.  Although we often associate franchising with retail and services, especially fast food, notable examples can be found across different sectors, including:

  • Food Retail: Baker’s Delight, Brumby’s Bakery
  • Cafés and Fast-food: Boost Juice, Domino’s Pizza, Donut King, Fergusson-Plarre Bakery & Cafe, Gloria Jeans, Grill’d, La Porchetta, Michel’s Patisserie, Mr Whippy, Muffin Break, Oporto, Pizza-Hut, Red Rooster, Subway, Tasty Trucks, Urban Burger
  • Convenience Stores: 7-Eleven, Ezi-Mart
  • Financial Services: Aussie Home Loans, Choice Home Loans, Mortgage Choice
  • Home and Do-It-Yourself (DIY): Clark’s Rubber
  • Personal Services and Home-based Services: Care-care, Chem Dry (carpet care), Home Fresh (produce delivery service), Jim’s Mowing, Kumon Schools & Tutoring, Poolwerx, Tint-a-Car, VIP Home Services
  • Retail: Beds for Backs, Bedshed, Bevmarks, Snooze,

In theory, franchising should benefit both parties. The franchisee benefits from a tried and tested business model while the franchisor gains access broad markets without significant capital outlay and obtains the required revenue to provide services to the network. Ideally, franchising should be a ‘win-win.’ However, recent revelations suggest that, at least in some sectors, franchising has become a win-lose, where the loser is the franchisee.

Critical success factors for a franchise network include:

(a)    Sufficient income for franchisees to achieve a reasonable return on their investment

(b)   Sufficient return for the franchisor to retain their interest in managing the franchise

(c)    Sufficient revenue for the franchisor to fund the support services offered to franchisees (e.g. R & D, new product development, marketing and promotion, administration, IT support, supply chain management, training)

In practice, a variety of franchising models operate.  Under one arrangement, franchisees pay a royalty fee (typically a % of sales) to the franchisor. A different model occurs when franchisees pay no fees, but the franchisor collects a rebate from suppliers who provide goods to outlets in the network. Under this approach, franchisors may need to carry out checks to ensure that franchisees are obtaining all their supplies through the approved channels. In yet another model, the franchisee pays a fee based on services provided. Yet another approach is to use a combination of all three methods. For example, McDonalds sub-leases properties to franchisees, takes a royalty on sales and charges outlets for the supply of approved foodstuffs.

A Senate Inquiry into the Operation of the Franchising, currently hearing evidence and due to report later this year, is shining a spotlight on a ‘greedy corporate culture’ that all too often fails franchisees by subjecting them to a ‘brutal business model’ with high fees, unrealistic sales targets and severe penalties for franchisees wanting to exit the network. This combined with deficient and ineffective regulation has left many franchisees vulnerable. In extreme cases, some franchisees have lost their businesses or left bankrupted.

The sheer volume of scandals surrounding franchising has left number of commentators questioning whether franchising in Australia is at a ‘turning point’. Some of the allegations that have been levelled against franchise networks include:

Systemic underpayment of wages and exploitation of migrant workers

A team of journalists from the ABC TV’s Four Corners and Fairfax Media first broke the story of Australia’s largest convenience chain store, 7-Eleven, and its systemic underpayment of wages in 2015. Critics have pointed out that 7 -Eleven’s business model which requires franchisees to pay 57 percent of its profits to Head Office (well above industry averages) is not sustainable. Of the 43 percent profit retained, the franchisee is obliged to pay for wages, superannuation, Work Cover, overheads, cleaning, store supplies, merchandise including stock losses, business licenses, taxes, loan repayments and “miscellaneous expenses”. In effect, the business model is flawed and forces franchisees to cut corners and underpay wages simply to stay afloat.

Many 7-Eleven employees were foreign students, living and working on student visas. If they complained about wage underpayment, they were often threatened with deportation. The investigation also revealed that 7-Eleven was doctoring timesheets, rosters, company financial statements and compliance documents.

Separate investigations, also carried out by the Fairfax media team revealed similar issues in other franchise networks. These stories have triggered a Fair Work Ombudsman’s investigation into wage fraud and ultimately led to the Senate Inquiry into franchising.

Prohibitive terms of trade

Another problem highlighted by the Senate Inquiry is that franchisees are locked into purchase agreements, often at prices that are well above market rates. For example, tobacco franchisees have complained that they are paying prices $30 -40 per carton above those paid by major grocery stores such as Coles, which means that they are uncompetitive and lose customers. Such arrangements contribute to channel conflict. Other franchisees point out that even when the franchise network changes suppliers leading to inferior quality products, they remain locked into prior agreements. Certain Michel’s Patisserie franchisees complained when Head Office shifted to providing frozen goods, often of poor quality which was contributing to customer complaints and a loss of patronage.

Failure to deliver promised support services

Franchisees report a litany of issues – complaining about the franchise network’s failure to deliver promised services such as reduced support from head office, too little product innovation, too little advertising. Furthermore, operators who have been trading at a loss, or have been bankrupted, report that they face punitive exit clauses.

In light of the public scrutiny and the negative publicity surrounding franchising, some operators have decided to get out of this mode of operation. For example, Caltex has announced that it plans to fade out all its petrol station franchises within two years.

Discussion

Read the following article and consider the discussion topics below:

Dancker, S., Latimer, C and Hatch, P., “They live like kings, we work like slaves': Is franchising at a turning point?” The Age, 3 March, 2018  (also published in the Sydney Morning Herald)

  1. Have you patronized a franchised outlet recently? Did you know that the outlet was part of a franchise at the time of making a purchase? If yes, did this knowledge influence your purchase decision. Describe your experience as a patron of a franchised outlet.
  2. Discuss the advantages and disadvantages, to the franchisee, of being a member of a franchise network.
  3. If you were given the opportunity, would you be prepared to enter into a franchise agreement? Why/ Why not?
  4. What advice would you give to a friend who is considering entering into a franchise agreement?
  5. Comment on the claim that franchising is at a turning point.

 

Further reading and useful links

Adele Ferguson and Mario Christodoulou, “The Domino’s Effect,” Sydney Morning Herald, 2017 (For interested readers, this article provides a detailed description of the fees franchisees pay to the franchisor)

“7-Eleven Revealed” Sydney Morning Herald Interactive, [a series of short videos and background notes on the joint investigation by Four Corners and Fairfax Media into systemic underpayment of employees and exploitation of migrant workers; the 2015 story that first highlighted serious problems within the franchising industry and prompted the Senate Enquiry]

The Franchise Council of Australia (FCA) – peak professional association

“Franchising Trends”, The Franchise Show, [Short Video Segment, outlining the principal growth areas in franchising]

 

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‘Discounting Madness’ in Retail

Times are tough for retailers. Retail sales (in dollar figures) have been flat for some time. The Reserve Bank of Australia has predicted that retail sales will perform below trend throughout the remainder of 2018 and into 2019.

A common response to lacklustre retail sales is for retailers to drop prices in the hope of attracting new customers. It’s an obvious and easy lever to pull when things aren’t going well. However, price-discounting can be a double-edged sword. It can lead to price wars, result in overall net losses (selling the same number of units at lower individual prices) and has the potential to tarnish hard-earned brand reputations. It can also change consumer behaviour, by encouraging shoppers to defer purchase decisions until the wanted items come up on sale.

Before embarking on a price-discounting strategy, retailers need to understand the reasons for slowing sales. In certain circumstances, discounting is a poor solution. Retailers need to analyze the market and the environment to be sure that price any price adjustments will result in the desired outcomes. They also need to consider whether other factors, such as bonuses and improved customer experiences will achieve the same outcome, without the need to adjust prices. While, that may seem like conventional wisdom, it is surprising how often retailers drop their prices as a knee-jerk reaction to fundamental changes in the marketing environment, with little consideration given to long-term dangers.

So, what are the causes of the current slow-down in retail sales?  Any change in retail sales is likely to be complex, and almost certainly due to many factors, rather attributable to a single cause. Some possible explanations for Australian retailers heavy discounting include:

The outgoing Managing Director of the supermarket chain, Coles, Mr Durkan, called the current situation in the grocery sector, “discounting madness”. He claimed that about 40 per cent of sales across Australian supermarkets come from promoted products and that Coles was working towards lowering that. He also urged retailers to consider different to add customer value, without resorting to discounting.

 

Discussion

Read the following article and consider the discussion topics below:

Patrick Hatch, “Supermarket at the Point of ‘Discounting Madness’, The Age, 24 May, 2018  (also published in the Sydney Morning Herald)

1. Discuss the advantages and disadvantages of price discounting.

2. Under what circumstances might a firm consider using price discounts?

3. Discuss ways that a firm might increase customer value without resorting to price discounting.

 

Further reading and useful links

Amy Gallo, “The Value of Keeping the Right Customers”, Harvard Business Review, October, 2014

 

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“Me-too” innovation

It has become conventional wisdom that companies which fail to innovate will eventually become moribund and eventually die. On the other hand, it is equally well-understood that new product innovation carries high risks and that many new product launches will fail.

One strategy used by some companies to reduce their risk exposure is to introduce new products that are not entirely new to the market. This strategy builds on the insight that truly ‘disruptive innovations’ requires consumers to change their attitudes and learn new routines, before the product can be integrated into their lifestyles, and gain market acceptance. Disruptive innovations are subject to higher levels of market risk.

On the other hand, a new product that emulates existing market offerings, and simply improves on them, does not require any radical market change.  Such products can be readily slotted into consumer lifestyles, because consumers already understand the basic product concept and how it is used, and the only adaptation consumers need to make, is to consider how any product improvements deliver superior customer value.  These types of innovations are known as a “me-too” products or “me-too” innovations.

When thinking about new products, it is possible to identify ‘degrees of newness’:

Innovative products (“radical” or “disruptive” new products): New products that create markets that did not previously exist

New product lines (also known as “incremental” innovations: Developing new products to enter an existing market

Product line extensions: (See Chapter 7 of your text)

Product improvements (“me-too” or “imitative” innovations):  new formulations, new ‘flavours’, new packaging, new quality points, added features pitched at existing markets

“Me-too” innovations are most often associated with “on-trend” products including fads and fashions.  They are also prevalent in industries where legal protection is difficult

While truly disruptive innovations are rare, “me-too” innovations are much more common than you might think.  Here follows a short commentary on some of the “me-too” brands that you probably have encountered in the very recent past:

Private Labels

In the grocery sector, most private labels are imitations of a manufacturer-sponsored brand. Aldi has built its entire in-house brand strategy around imitative products. A key plank in Aldi’s strategy is to offer comparable products at prices cheaper than manufacturer brands, or retailer private labels. Aldi’s slogan encapsulates its brand strategy: “Like Brands. Only Cheaper.”

Visit any Aldi outlet and you will see hundreds of Aldi in-house brands with a strong resemblance to leading brands. For example, Aldi offers ‘Cheezy Twists’ that not only look and taste like Frito Lay’s ‘Twisties’, but also appear in look-alike packaging with the distinctive yellow and red outer wrapper. Other look-alike in-house brands include: Aldi’s Bran and Sultana up against Kellogg’s Sultana Bran and in the personal care category Aldi’s Head Strong (shampoo) pitched against Head and Shoulders.

Understandably, Aldi’s brand strategy alienates manufacturers who have invested heavily in building brand identity and market development. From time to time, manufacturers have sued Aldi for breach of trade-mark law, but to date, Aldi has been able to evade liability. Legal experts point out that Aldi is treading a “fine line”. However, Aldi defends its branding arguing it consciously uses similar packaging to provide consumers with “market cues” that assist in product recognition.

Consumer electronics: Imitative innovation is pervasive in the consumer electronics market. Apple, for example, was not the first to develop the smart phone, but was the first to get it right. Apple imitated other products on the market, but added significant improvements which ultimately contributed to greater market appeal.  Samsung has built its entire market strategy around building cheap imitative devices quickly and efficiently. In business circles, Samsung is known as a "fast follower" – allowing other companies invest in the new product development process, before it floods the market with well-made, imitative products.

However, Samsung’s imitative strategy has a downside. Between 2011 and 2018, Samsung and Apple have been locked in an epic battle over patent protection in jurisdictions across the globe. The two parties only recently agreed to an undisclosed settlement.  At this stage, the consumer implications are unclear, but Samsung’s products remain on the market.

Generic pharmaceuticals: In the 1980s and 90s, patents for many antibiotics and other commonly prescribed pharmaceuticals expired. This triggered the entry of generic drugs – that is, products with identical active ingredients, in the same dosages and that perform the same function as the original drug. The pharmaceutical industry now spawns two types of operator – the originator companies that invest in research and development to develop new drugs and generic pharmaceuticals that produce comparable drugs at cheaper prices.

The OECD has pointed out that the entry of generics can lead to greater consumer choice and lower prices, to the consumer’s advantage. However, the risk is that intense competition may stifle the industry’s willingness to invest in new product development.

Academics and practitioners regularly debate whether “me-too” products represent genuine new product innovations. One school of thought is that “me-too” is simply not an innovation at all.  This line of thinking is based on the argument that imitative new products offer no incremental value and the market is bored with copy cat products, and is only interested in new products that are packed with innovative features that deliver superior customer value. A different school of thought argues that “me-too” innovations are not evil in that healthy competition is good for consumers.

 

Discussion

Read the following article and consider the discussion topics below:

Michaela Whitbourn, “Attack of the Clones: How Aldi Gets Away with Mimicking Big Brands”, The Age, 21 July, 2018 (Article also appeared in the Sydney Morning Herald)

  1. Do you think that “me-too” innovations represent genuine new product development? Justify your position.
  2. Discuss the advantages and disadvantages, to a manufacturer, of “me-too” innovations.
  3. Comment on Aldi’s in-house brand strategy. Do you agree that Aldi is cutting a ‘fine line’ in terms of breaching trade mark law? Explain.

 

Further reading and useful links

Clayton M. Christensen, Michael E Raynor and Rory McDonald, “What Is Disruptive Innovation?” Harvard Business Review, December, 2015  [Journal article with low-moderate level of reading difficulty]

 

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Repositioning a Retail Precinct: The Case of DFO

Direct Factory Outlets (DFO) is a Australian discount retail chain that began and 1997. DFO’s retail centres are often located in a warehouse with partitions separating the different retailers. Alternatively, they are purpose-built retail precincts in which each retailer is offered a separate building.

DFO Australia currently operates eight centres; three in Victoria (Moorabin, Essendon and South Wharf); and one store in New South Wales (Homebush); one in Western Australia (scheduled to open this month) and three in QLD (Brisbane, Jindalee and Cairns). [1]

Historically DFO centres targeted value-conscious consumers by stocking seconds, end of run stocks and previous season’s stocks.  Initially, retailers treated DFO outlets as a “dumping ground” for surplus stock – factory over-runs, factory seconds, previous season’s goods or outdated styles or colours. Over time, however, manufacturers and retailers began developing goods especially for DFO centres. DFO’s strategy appears to be working.  At a difficult time for retailers generally, DFO’s sales growth is reported to be twice that of the national average.

DFO’s basic business model is to locate inexpensive land and erect a shopping complex complete with car-parking and other amenities (e.g. café, bathrooms etc). DFO then seeks to lease retail space to well-known retail stores in the fashion and soft-goods sectors (e.g. clothing, footwear, accessories, homewares, furniture, lighting, cosmetics and perfumes etc). Almost three-quarters of retail turnover in outlet centres comes from the clothing and soft-goods sectors.

Critical success factors for a discount centre include:

  • Access to inexpensive land (e.g. near airports)
  • Access to a broad market, with potential to generate high volume of traffic
  • Strong appeal for well-known retail stores carrying named brands (e.g. Adidas, Levis, Lindt, etc)
  • The ‘right’ retail mix (mix of fashion, furnishings, homewares etc.)

Times are tough for the retail sector. In the face of stalled sales, many full-price retailers, including Myer and other departments stores, have resorted to discounting to encourage store traffic.  For discounters like DFO, the low-price end of the market has become a highly competitive battleground.

Now, after 20 years of operations, DFO has made the decision to reposition itself. It intends to try and attract high end retailers to its centres. To some extent, DFO has already trialled a subtle shift in its market positioning. DFO centres at Sydney’s Homebush and Melbourne’s South Wharf are already transitioning towards the luxury end of the market. The Homebush Centre is now pitched as a luxury retail precinct with ‘high-end’ brands such as Armani, Burberry, Calvin Klein, Coach and Ermenegildo Zegna have become part of the stable. At South Wharf high end brands such as Armani, Collette (Collette Dinigan) and Calvin Klein rub shoulders with middle of the market retailers such as Jacqi E, Witchery and Valley Girl.

As DFO seeks to consolidate its luxury positioning, it will be courting more than 100 new retail tenants such as Diesel, Stafford Ellinson, M.J. Bale, True Alliance, Ben Sherman and Kate Spade. DFO anticipates that its luxury positioning strategy will be more attractive to international visitors, especially the Chinese visitor market which is growing rapidly. 

Clearly any repositioning strategy requires a long-term view and careful image management. It requires more that simply rebranding (giving the place a new name), but needs the ability to help shoppers imagine a different kind of retail centre and giving shoppers a different type of retail experience.

Discussion

Read the following article and consider the discussion topics below:

Patrick Hatch, “DFO's luxury strategy leaves 'dumping ground' past behind”, The Age, 20 July, 2018  (article also published in the : Sydney Morning Herald )

  1. Outline the risks associated with any repositioning strategy.
  2. Which of these risks do you think are most likely to affect DFO?
  3. Do you envisage any tensions arising from having high end retailers operating alongside lower-priced retailers?  
  4. What recommendations, if any, would you make to DFO management in relation to their repositioning approach.
  5. Comment on DFO’s plans to reposition.


[1] At the time of writing, two DFO centres had been sold to third parties, but it was unclear whether they could continue to trade under the DFO banner, or would be rebranded.

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Aldi Targets More Affluent Customers

Aldi, the German-owned discount supermarket chain has achieved remarkable success in penetrating the Australian market since it first launched in 2001. Aldi now has 508 stores, most of which are along the eastern seaboard. However, the chain has plans to for some 800 stores by 2024, and many of these will drive the chain’s push into WA and SA which have been under-serviced geographic markets.

Aldi entered the market with a low-price proposition, no-frills service and targeted price-, conscious shoppers.  A key feature of Aldi’s pricing is that, unlike other supermarkets, it used a national pricing policy – prices are the same regardless of which store customers visit. Aldi aims to be 20 to 25 per cent cheaper on a basket of groceries than rivals, Woolworths and Coles. There can be little doubt that Aldi’s value proposition has resonated with customers. Aldi’s share of market has grown steadily – mostly at the expense of the two major supermarket chains, Coles and Woolworths.

 

Share of Grocery Expenditure (%)

Grocery Chain

2006

2015

2016

2017

Woolworths

40.3

38.5

36.3

35.7

Coles

37.0

31.8

33.2

28.8

Aldi

13.8

11.6

12.5

13.2

IGA

5.8

9.5

9.3

9.3

Other

(includes Foodland & Foodworks)

3.1

8.5

8.1

8.6

Source: Roy Morgan Research, 2007 -2018 [i]

 

Market analysts have suggested that in order to grow market share, Aldi will need to tweak its market offering so that it appeals to middle income customers.  And, current indications suggest that the chain is taking steps to do just that.  Although more than 90 percent of Aldi customers say that they are satisfied with the Aldi, the store is rolling out a program to refurbish its existing stores in an effort to improve the customer’s in-store experience.

To that end, Aldi has increased the amount of floor space dedicated to fresh produce – from 15% to 25%. This step, which has been described as a “game changer” for the grocery sector, is designed to appeal to middle-income shoppers. Early indications are that this step has increased both overall store traffic, and the average customer’s basket size (that is the dollar value of each shopper’s total purchases, per visit).

Aldi is also broadening its product assortment. Whereas, a typical supermarket carries some 30,000+ different product lines, Aldi stores carries around 1,500 lines per store. Currently, around 90 per cent of Aldi product lines are the discounter's exclusive private label brands, however it also stocks a small range of branded grocery items in popular categories such as snack foods and biscuits for the customer’s convenience. Aldi plans to increase its product offering in growth categories such as health foods, organic produce, bread and fresh meat.

Grocery-buyers are not especially store-loyal. The typical shopper visits multiple stores in any given month.  More than three-quarters of Australian shoppers visit two or more supermarkets in any given four-week period, and more than one-third visit three stores in any month. Any improvements to the overall shopping experience should help Aldi to encourage more customers to return.

However, Aldi has no plans to imitate Coles and Woolworths in terms of certain customer service elements. Aldi customers will continue to pack their own groceries. The chain has no plans to introduce online shopping. Nor does it have any plans to introduce self-serve checkouts claiming that Aldi shoppers prefer the face-to-face experience.

Aldi is doing a lot right. According to recent research findings released by Roy Morgan Research, Aldi has now replaced Qantas as Australia’s most trusted brand. Other research shows that Aldi’s catalogue is the most widely read of all the supermarket catalogues– however, the two major supermarkets, Coles and Woolworths have superior conversion rates – that is, more of their catalogue readers go on to make purchases from their stores. Aldi’s increased geographic coverage combined with its improved in-store experience should help to turn that around.

 

Discussion

Read the following article and consider the discussion topics below:

Hatch, P., “Aiming for Richer Shoppers, Aldi to Stay a Pain for Coles and Woolies,” Sydney Morning Herald, 20 April, 2018  (This article also appeared in The Age)

 

  1. Discuss the ways that Aldi’s target market differs from the major supermarkets, Coles and Woolworths.
  2. The market potential for grocery-buyers is substantial. How might the total market be segmented?
  3. The typical customer evaluates a grocery store on the basis of product range, product quality, value for money, store layout and service level. What recommendations would you make to improve Aldi’s in-store customer experience? (Try to make recommendations that are realistic and achievable, given Aldi’s market position as a low-cost provider)

 

Further reading and useful links

Roy Morgan Research, “The Australian Alcohol Retail Market in Review,” [Media Release], Finding no. 7182, 20 March, 2017

Think TV, Total Grocery Shoppers, 2018 [contains brief demographic profile of the Australian shopper]



[i] This table was compiled from data posted on the Roy Morgan Research on its website and reflects data collected over multiple time periods. For details, see Finding No. 7234 (for 2016 and 2017) and Finding 6297 http://www.roymorgan.com/findings/6297-aldi-effect-australias-changing-supermarket-scene-201506220132 (for 2006and 2015). It may be worth noting that a number of research companies provide estimates of market share including IbisWorld and Nielsen, but each uses different data methodologies, so that data from different agencies is not comparable. Roy Morgan data is generally considered to be the “industry standard.”

 

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Customer Experiences are King: The Shift to an Experience Economy

Economists have been predicting that developed economies would shift to an experience economy for several decades. To experts, it seemed that this shift would represent a natural progression in a long-term structural shift which has taken us from an agrarian economy through to an industrial economy and ultimately to an experience economy.  And, now recent research from reliable sources in the US and Australia, suggests that the experience economy has arrived.

The experience economy refers to a pattern of consumption where consumers spend more on obtaining relevant personal experiences than on material goods.  In other words, if a business charges for tangible things, it is in the goods business; if it charges for activities that it executes on behalf of customers, then it is in the service business. However, it a business charges for the time customers spend with it, then it is in the experience business. Examples of customer experiences include attending spectator events, attending a live entertainment event, attending a gymnasium or using a personal trainer, visiting theme parks and amusement parks, eating at restaurants, and traveling.

In the US, consumer expenditure on experiences has grown more four times faster than expenditures on goods. A recent report released by the National Australia Bank suggests that Australians are spending less on buying more stuff, and more on doing things. Moreover, we are more likely to share our experiences online via social media platforms.  A similar story is playing out in Japan, where the notoriously time-poor millennial generation are seeking out personal experiences in recreation and relaxation.

Although millennials appear to be leading the way in terms of purchasing experiences, evidence suggests that the trend is apparent across all demographic segments.

Business consultants have pointed out the businesses are not doing enough to capitalize on the experience economy.   They recommend that companies already offering experiences, such as hospitality, tourism and retail services, should leverage this shift in the economy by thinking about ways to enhance the customer-experience. For example, hair and beauty salons in both Australia, the United States and Europe have begun applying for liquor licenses so that they can offer their patrons refreshments while they wait and discuss their personal care needs.

 

Discussion

Read the following article and consider the discussion topics below:

Matt Wade, “How Social Media is Driving the Experience Economy,” The Sydney Morning Herald, 20 May, 2018  (article also appeared in the Melbourne Age)

 

1. Structural changes such as the shift to an experience economy are often driven by a complex set of factors.

a) Do you agree with the position taken in the article that social media is a major driver?

b) What other factors might account for this change in consumption patterns?

2. Briefly outline the customer’s purchase decision process (see Figure 5.5. in the text) for experience-based purchases.

3. For a retailer or service provider of your choice, discuss strategies that might be used to enhance the customer experience

 

Further reading and useful links

National Australia Bank, The Experience Economy: Which Businesses are Delivering in the Eyes of the Consumer, [NAB Special Insight Report], May, 2018

https://business.nab.com.au/wp-content/uploads/2018/05/The-Experience-Economy-May-2018.pdf

Dan Goldman, Sophie Marchessou, and Warren Teichner, “Cashing in on the US Experience Economy,” McKinsey Consultants, December, 2017  

Pine, B. Joseph II and Gilmore, James, “Welcome to the Experience Economy,” Harvard Business Review, July-August, 1998

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Understanding Gender Differences in Purchase Motivations

From time to time, manufacturers latch onto the notion that female consumers have different product needs or different purchase motivations than their male counterparts.  This insight into the different behaviour of male and female consumers often drives initiatives to launch a new product targeted specifically at women. Yet, all too often “products for her” meet with public cynicism or alternatively, simply fail in the marketplace.

Faced with a new product failure, savvy manufacturers typically carry out a post-mortem analysis in order to determine the reasons for failure. Through this type of review, a great deal can be learned about what consumers really want in a product. In spite of this learning, many manufacturers continue to make the same mistakes over and over again.

Dell Computers

In 2009, Dell Computers introduced a new product targeted at “on-the-go” women. The strategy was to launch a product as a “fashion statement” for women. The product, called Della, was a lightweight lap-top with a highly stylised design and a pink outer case. It was supported with a website that featured tips on calorie counting, shopping and yoga classes.

Consumers hated it. They felt that the campaign was offensive and condescending. Within days of the launch, Dell were tweaking the website design and removing a lot of the “girlie” content – which was replaced with tips on getting organised and how to use a notebook. However, it was too little, too late, and the product ultimately failed.

‘Pink Beers’ for women

In July, 2017, Czech craft brewer launched what it claimed was the “first” beer for women in the UK. The product, which sold in elegant pink-grey bottles was positioned as a premium light lager-style beer while the hype around the product claimed that the beer was a "representation of a woman's strength and a girl’s tenderness" and that "Aurosa was born to prove that women can succeed anywhere without having to adapt and sacrifice their natural femininity". For the consumer, the price tag to make this beer-related statement of femininity was £8.86 or (AU$15.75) for a 330ml bottle!

The consumer backlash against Aurosa was swift, intense and brutal. Social media users poured scorn on the product and media commentators ridiculed it. One social media commentator sarcastically asked “How can my weak womanly hands possibly cope with holding the weight of a pint glass?” Journalists branded the product as “sexist” and “stupid” – the product that nobody asked for.

Less than a year later, another UK brewer, BrewDog, launched another beer targeted at women. The product, branded as Pink IPA, comes in a bottle with – you guessed it - pink labelling. Its unique selling proposition is that it retails at 20% lower price than other beers in the category. The rationale for the lower price is the company’s recognition that women earn less than men and are all too often expected to pay higher prices for comparable products in clothing, personal care and other goods. The company also pledges to donate 25% of sales to causes that fight gender inequality. It is too early to evaluate the product’s market success, but early indications are that the launch has fallen flat.

‘Female-friendly’ Doritos

 In early 2018, PepsiCo, the company that owns the brand Doritos announced plans to introduce a ‘lady-friendly’ version of the popular corn chip. This initiative is based on research that women “don’t like to crunch too loudly in public …don’t lick their fingers generously and they don’t like to pour the little broken pieces and the flavour into their mouth.” Moreover, the current packing is not purse-friendly, and “women love to carry a snack in their purse.”

The company plans to address these consumer concerns by developing a “low crunch” triangular snack and developing a smaller pack specifically designed to fit into women’s handbags. At this stage, the company has not made any announcement about pack colour. Although the product is only in the planning stages, early indications suggest that women are less than impressed with the concept.

Dell, Aurosa and BrewDog all fell into the classic trap of implementing a simplistic strategy described the “pink it and shrink it” philosophy of product design. In other words, to market a product for women, all that is required is for it to be made pink (or at least a pastel colour) and smaller or more compact. Women consumers argue that this type of thinking plays into tired and stereotypical

Discussion Topics

Read the following newspaper article and consider the discussion questions below:

Charlie Brinkhurst-Cuff, “Discounted Pink Beer for Women? BrewDog Hasn’t Gone Nearly Far Enough,” The Guardian, 7 March, 2018

  1. How can you explain why so many products (e.g. razor blades, shampoo etc) carry higher prices when they are marketed to women?
  2. Aurosa’s marketing claim that it was the first to develop a beer for women does not stand up to close scrutiny. From as early as the 1990s, a number of brewers had designed low-calorie, low-alcohol, light beers designed to be consumed by women, but few had achieved market success.  Use your research skills to find other examples of beers marketed to women that have failed. What insights about female consumers can you gain from these mini-cases?
  3. Thinking about BrewDog’s Pink IPA, which is still on the market in spite of a lacklustre launch, what recommendations would you make to give the product greater appeal to female consumers?
  4. How do you rate Doritos chances of success with a ‘lady-friendly’ product? Justify your position.

 

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The Social Environment: Changing Attitudes to Added Sugar in Food and Beverages

In April this year, a “groundbreaking tax” on sugary drinks came into force in the United Kingdom. In order to avoid paying the tax, a number of manufacturers including Ribena, Lucozade and Fanta, have changed their product formulations to reduce the amount of added sugar. However, the two giants, Coca-Cola and Pepsi, have not changed their product formulation at all, claiming that customers have told them that they like the product as it is.

By imposing this tax, the UK follows a handful of nations, that have gone down a similar path – Norway was one of the first to impose a sugar tax in 1992; France in 2012; Mexico in 2014 and Belgium in 2016. Australia has yet to introduce similar measures. It may be worth noting that in most nations, the tax applies to “added sugar” and as such, products like pure fruit juice, which may contain high concentrations of sugars, are exempt because they contain “natural sugars” rather than “added sugars”.

The so-called “sugar tax” has been described as a “powerful policy lever” designed to address growing public concerns about the increasing incidence of obesity and related health problems such as diabetes, dental caries, etc. Clearly, the increased tax is designed to encourage manufacturers to reduce the amount of added sugar in food and beverages, and to do more to improve the nutritional value on foodstuffs.

Sugar taxes are also designed to positively influence consumer behaviour through price incentives. Manufacturers that continue to sell “unhealthy” (i.e., sugary) beverages will need to pass on the increased taxes in the form of higher prices and will therefore become more expensive relative to their “healthier” counterparts. Consumers will be motivated to purchase more of the lower-priced “healthy” products and avoid the higher-priced “unhealthy” options.

At the same time, the implementation of a sugar tax would raise additional revenue for the government coffers and this can be used to promote obesity prevention campaigns and to encourage healthy eating programs – such as eating more fresh fruit and vegetables.

Studies of consumer attitudes reveal that amongst Australian consumers, there is widespread popular support for a sugar tax, provided that the revenue raised was used to address obesity, particularly in children.  Yet the Australian government has failed to make any commitment on the subject.

Arguments surrounding the benefits of a sugar tax are as varied, complex and often contradictory. In Australia, the key stakeholder groups that have released position papers are as follows:

The Australian Beverage Council is a powerful lobby group and claims that it has devoted significant resources to “keeping the sugar tax off the policy table.” It has named politicians that it has successfully lobbied to join it in opposing the introduction of a sugar tax. Many media commentators have concluded that, in the present climate, Australia is unlikely to implement a sugar tax anytime soon.

Discussion Topics

Read the following newspaper article and consider the discussion questions below:

Michael Brissenden, “Big Sugar and the 'Big Flaw' in Australia's Federal Health Programs,” ABC News, 20 April, 2018

  1. What are your thoughts on a sugar tax for Australian beverages? Will it change consumer behaviour in positive ways, or is it just another example of the “nanny state” at work?
  2. For the time being, most of the emphasis has been on added sugar in beverages rather than foodstuffs. Should food manufacturers be concerned about the potential introduction of a sugar tax on foodstuffs in the foreseeable future?
  3. Select a beverage of your choice (e.g. Coke, Fanta, etc) in a country of your choice, and use your research skills to learn about whether it is affected by sugar taxes and what the manufacturer is doing about it. Write a brief report on the issue.
  4. Comment on the Australian Beverage Council’s strategies to keep the sugar tax off the policy table.

 

Additional Resources

The Checkout, “Seeing Stars,” [Episode 12], ABC TV segment, (4.5 minutes), first aired 1 September, 2016

Australian Medical Association (AMA), Nutrition 2018, [Position Paper]

Australian Beverages Industry Association, Position on Soft Drinks Tax

Roy Morgan Research, “Sweet Drinks Much More Popular with Kids than Older Aussies,” [Media Release], Research Finding 7101, 4 January, 2017

Roy Morgan Research, “More young Australians drinking soft drinks,” [Media Release], Research Finding No. 6098, 27 February 27, 2015

 

 

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The ‘War on Waste’: Implications for Retailers

In 2017, the ABC television network produced a four-part documentary series entitled, the War on Waste, presented by the popular local comedian, Craig Reucassel (who is perhaps best known for his work on the satirical program, the Chaser’s War on Everything and the consumer rights TV program, the Checkout). 

War on Waste focused on different types of waste generated in various purchasing and consumption environments.  In the process, the documentary forced punters to take a long, hard and often unpalatable look at what happens to unwanted products and packaging from the cradle to the grave. It asked serious questions about a range of retail practices and sought to change consumer behaviour by giving punters strategies for reducing their own individual environmental footprints.

Among the documentary’s more confronting revelations were the following:

  • Australia is one of the most wasteful countries in the developed world
  • The average Australian family throws out $3,500 worth of food annually (equivalent to one in five shopping bags of food that is discarded as unused following purchase)
  • Food growers discard up to 40% of harvest that fails to meet the supermarket’s “unrealistically” strict specifications
  • Australia uses about five billion single-used plastic bags annually
  • Supermarket sponsored plastic bag recycling schemes are poorly promoted and consumers lack awareness of the schemes
  • Australians send six tons of clothing to landfill every ten minutes (enough to fill the MCG two and a half times over)
  • Australians send about a billion single-use coffee cups to landfill every year
  • Consumers generally don’t understand how to dispose of single-use coffee cups
  •  Some 30 percent of Australia’s recyclable waste was sent to China

The series’ timing could not have been better. At the time the program first went to air, it was becoming clear that Australians were generating waste at twice the rate of population growth. Not long after the program first went to air, the Chinese government announced that it would no longer accept waste from foreign countries including Australia. This has left local-government operated kerb-side recycling schemes in a state of crisis.

The War on Waste documentary captured the imagination of ordinary Australian consumers  and galvanized public support for what was a growing consumer sentiment that managing waste was a universal responsibility. Before long, media outlets began publishing articles on how to reduce the personal environmental footprint, while websites began to offer punters opportunities to share tips on waste-reduction strategies. (See, for instance, the Guardian’s “Top Tips for Reducing Waste” or Waste Free Street; a social media page established by families who participated in the documentary’s experimental waste reduction program)

One of the documentary’s aims was to challenge food producers, manufacturers and retailers to implement more rigorous waste reduction practices. The series has been credited with influencing retail policies and practices in several key areas, namely:

  • The organisation, Responsible Cafes, which encourages cafés to give customers discounts when they use keep cups or reusable coffee cups, had signed up just 420 cafes before the program went to air, but had 1050 café signatories in the week following the broadcast. It now has 4000 on cafés on board.
  • The Keep Cup Company, which manufactures and sells reusable cups, found that its website crashed and sales rose 400 per cent directly following the episode which highlighted issues around disposable coffee cups.
  • The two dominant grocery retailers, Woolworths and Coles, announced lightweight plastic bag bans.
  • Foodbank, a food relief organisation, which accepts so-called “ugly” food (misshapen, oversized or undersized produce) and “not quite right” foods (e.g., failed product launches, changes to packaging or changed ingredients), saw sharp increases in the level of volunteering.

More, however, needs to be done. A second series of the War on Waste is planned for later this year. In series two, the documentary team will take a look at Australian’s use of single-use plastic (e.g., plastic straws and plastic bottles); furniture waste; the problem of e-waste (e.g., discarded laptops, mobile phones and electronic goods); one of the fastest growing forms of waste that causes high toxicity levels in landfill, with the potential to leach out into the soil and water.

 

Discussion

Read the following article and consider the discussion questions below:

Chris Chang, “War on Waste: Craig Reucassel Reveals the Shocking Truth about our Bananas,” News.com, 16 May, 2017

  1. Use your research skills to locate 2-3 companies that are taking active steps to reduce their environmental footprint and briefly describe the best practices.
  2. Do you think that retailers should consider their environmental footprint when developing their marketing strategy? Justify your position.
  3. For a retailer of your choice (e.g. fashion, supermarket, electronics, homewares, café or restaurant), explain how an environmentally sensitive strategy might impact on the product offering, prices and customer service.
  4. Explain how the company you selected in (3) might measure its environmental impact. Try to develop specific indicators that can be measured objectively.

Further reading and useful links

ABC, War on Waste - original four-part series via ABC Tv’s iView (on-demand service)

ABC, War on Waste Home Page, videos and resources

ABC, War on Waste Podcast Episodes – part of the social media campaign that accompanied the documentary series

Woolworths Australia, Produce Specifications

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What Does Facebook Really Know about your Personality?

It’s not very often that marketing research techniques gain extensive coverage in the popular press. However, one story concerning a study, which appeared to show that Facebook ‘Likes’ could effectively reveal users’ personalities, has received extended and substantial exposure in the popular, business and scientific press. The story first broke in 2015 when a research team led by, Wu Youyou, of Cambridge University published their findings in the journal, Proceedings of the National Academy of Sciences (PNAS). The story was soon covered by major media outlets, including: The Independent (UK); The Telegraph (UK); Time Magazine (US); Fortune (US); New Scientist (UK); NBC News (US-TV) and Australia’s SBS News as well as Business Insider. The issue, was far from a one-hit wonder. It resurfaced late last year when a research team, led by Sandra Matz of the Columbia Business School and which included some of the original team members, published a follow-up study in a 2017 volume of PNAS. Media coverage of the second study appears as strong, if not stronger, than that given to the initial study.[1] So, what is it all about? And why, of all the thousands of studies published in academic journals annually, did this particular study grab the attention of the mainstream media? More...
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‘Functional beverages’: a new sub-segment in an already crowded category

The non-alcoholic beverage category is undergoing major change as consumers’ preferences are shifting. Sales of carbonated beverages are in long-term decline. This trend is not only evident in Australia; it appears to be global. Research from Ibis World shows that global per capita consumption of sugary, fizzy drinks has been in decline for more almost a decade, and predicts that over the next 10 years, the carbonated drink industry will experience a difficult operating environment. In the Australian market, carbonated soft drinks have been losing "share of throat" to bottled water for the past eight years- falling from 57.5 per cent of the market in 2008 to 50.5 per cent in 2015, while bottled water has risen from 10.4 per cent to 20.4 per cent. More...
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Big changes ahead in the grocery category

For decades, the two big supermarkets, Coles and Woolworths dominated the grocery category. Between them, the two supermarkets control about 70 percent of total grocery spending, while a few smaller players, including Foodland, Foodworks, IGA, Aldi and the independent operators, control the remaining 30 percent. Both supermarket brands exhibit similar market positioning with very few signals of differentiation. Both offered a similar product mix, similar service level, similar prices and targeted the same segment of the market. In recent years, however, the grocery sector has undergone substantial change, with implications for strategy development and market positioning. More...
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Ancestry DNA and the integrated promotional campaign

It has become an article of faith in marketing that the elements in the promotional mix must planned, blended and carefully integrated into the overall marketing communications program. But, what exactly does integration mean in the context of a promotional campaign? More...
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Amazon’s Australian adventure

Global giant, Amazon plans to enter Australia’s retail sector have been widely discussed in the media, and have the major retail incumbents more than a little nervous. Although no firm announcement has been made about Amazon’s plans in relation to its product offerings, mode of operation or start date, Amazon has been treating local media to a ‘drip-feed’ of interviews and press releases, allowing the local media to construct a coherent narrative about what consumers can realistically expect. Amazon has said that it will offer a vast array of services; including take-away food, groceries, clothing and electronics. As part of its commitment to consumers, Amazon promises “low prices, vast selection, and fast delivery.” Amazon will come into direct competition with Australian grocery retailers and department stores, most of which already operate both bricks and mortar outlets and online delivery models. More...
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Electric Cars: Speeding or Crawling into the Future?

Adoption rates for new products are influenced by a complex mix of environmental and customer-related factors. Five factors that are often cited as being very influential in an innovation’s rate of adoption. Consumers’ willingness to change their existing behaviours and adopt new technologies is an area of uncertainty for car manufacturers. If socially and environmentally desirable technologies are to achieve widespread market penetration, a concerted effort involving all stakeholders – manufacturers, dealers, governments and media agencies can be most useful. Electric vehicles (EVs) represent an innovative product. EVs use a rechargeable battery as its only power source. They must be charged at home, at work or at dedicated public charging stations. More...
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Product, Services & Brands: Offering Customer Value

Tangible products typically have an outer package with a brand, logo and a label containing instructions on how to use the product. Packaging and labelling is not just concerned with providing basic information about function, quality and usage, but may also help to promote the product or brand. But, what about intangible services? How do they ‘’package’’ themselves? How do they make themselves appear more tangible and more concrete in the eyes of consumers? More...
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Behavioural Battle Ground: Demographic vs Behavioural Data?

Two years ago, Mark Ritson, a columnist for the trade magazine, Marketing Week, posed the question, “Is behavioural data killing off demographics?” The author argued that with access to behavioural data sourced from online search activity, website browsing or social media interactions, marketers are now in a position to buy consumer’s “eyeballs based on what [people] have previously looked at, rather than the age or gender of the skull that they happen to reside within.” In spite of the prediction implied in Ritson’s question, the jury is still out and the relevance of behavioural/ demographic data continues to be debated. More...
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Understanding Customers: Is it Child‘s Play?

LEGO has developed a reputation for its deep understanding of customers. A family-owned company founded in Denmark in 1932, LEGO is the world’s largest toymaker manufacturing products pitched at the premium end of the market. The company was almost forced into bankruptcy in the early 2000s. Since then has done more than simply survive, it has prospered with the help of a strong survival plan, and some interesting brand extensions that show a rich and deep understanding of the LEGO consumer. More...
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‘Data Analytics’ is Watching You!

Have you ever completed a Facebook Quiz? You know the ones – they range from the inane (If you were an animal, what would you be?) to knowledge of popular culture (How much do you know about rock music?) and may even include more personal topics (How Irish are you?). Every time you complete one of these quizzes, you are effectively providing Facebook with information about yourself, your personality, your values, beliefs and more. More...
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