IMKTG REPORT February 11 2003

al berrios & co. IMKTG REPORT 02.11.03: Media as Commodity, Batteries; more…

THIS WEEK'S CONTENTS ARE:
[1] JUST SAY IT: al berrios & co. Updates
[2] BRANDSTRATEGY: The Business of Batteries
[3] CONSUMERFOCUS: Want to Reach The Youthful Opinion Leader?
[4] MEDIA: An Analysis of How Content Became a Commodity
[5] MANAGEMENT: Finally, Consumer Enjoyment of Wireless Service Starts Now

>>>>> >>>>> >>>>>

[1] JUST SAY IT: al berrios & co. Updates

>> As defined by the Commodities Exchange Act, a commodity is "all ... goods and articles ... and all services, rights, and interests in which contracts for future delivery are presently or in the future dealt in."

Good morning execs,

Last week, we launched Opinion REPORTS, a monthly editorial covering topics that you should be concerned about but don't fit within the mission of the IMKTG REPORTS. Our launch Opinion was on Agency Review Consultants. (www.alberrios.com).

Enjoys today's REPORT.

top
>>>>> >>>>> >>>>>

[2] BRANDSTRATEGY: The Business of Batteries

Energizer Holdings recently purchased Pfizer's Schick-Wilkinson Sword razor unit in an effort to "diversify" and presumably compete on-par with its much larger rival Gillette, which owns Duracell Batteries. The other competitor is Rayovac. But the real reason? Who uses batteries anymore? PDAs, Laptops, Cell Phones, Cameras, and other sophisticated toys (video games) come with rechargeable power supplies. What's left? Flashlights, kids toys, and walkmans continue to use batteries, but as technology continues to miniaturize and everything becomes digital, Energizer's business will become obsolete. Currently, the business of non-rechargeable, consumer electronic controls (a.k.a. batteries) is in a state of perpetually intense competition, with Duracell leading, although reducing prices and maintaining ad spending at current levels. (Rayovac offers consumers greater diversity in batteries, however, they take their lead from Duracell, and is therefore maintaining or reducing ad spending). "Chief executive Patrick Mulcahy said the promotional environment in the United States during the quarter remained intense. Energizer, the No. 2 battery maker in the U.S. behind Gillette Co. and its Duracell brand, continues to carefully manage its promotional spending, Mulcahy said." And even though Energizer released a "longer-lasting" super-premium battery e2 last year, it hasn't really done much for their sales. If consumers love innovation, why hasn't it worked for Energizer?

BOTTOM LINE: Like milk, batteries should be positioned as a complimentary product. Consumers need to be reminded of what batteries are used for, not to just go out and buy batteries. The infrequent innovation in such a commonplace product and eroding necessity due to increases in technology means that Energizer must either invest more in technology (i.e. reducing battery sizes) or enter the market for custom-sized, rechargeable battery cells for consumer electronics. al berrios & co. doesn't believe that consumers care whether or not a fuel cell is rechargeable, (unless battery prices continue to soar as they have in the last decade), however, consumer behavior has been altered to a re-chargeable culture, where everything from cars to computers can be plugged in and works on proprietary technologies. Energizer has not been meeting this trend, and has resorted to acquisition of non-core businesses to stay competitive. Big mistake.

top
>>>>> >>>>> >>>>>

[3] CONSUMERFOCUS: Want to Reach The Youthful Opinion Leader?

A certain research firm calls them Influentials, apprx. 10% of the population that motivate the other 90% to buy your brands. Everyone is seeking their endorsement, but have difficulty locating them since they have no obvious common characteristics. We all know opinion leaders are typically educated, well-off, "in-the-know". But because everyone is trying to influence their habits, they're also more skeptical and more risk averse. So why on earth would you waste your time with them? What about "the masses"? It's exactly because they are less informed that they're less skeptical and less risk averse. You're more likely to influence their habits than an opinion leader's. The belief that they are slow to adopt because they're more skeptical is therefore a misnomer. What about envy or peer pressure? There's an interesting characteristic in many cultures, that when one family member does something, all the rest emulate. On the surface, it appears that there's an informal hierarchy that directs and influences extended family behavior, but upon close inspection, emulation stems from envy or even peer pressure to avoid scornful gossip. Would you confess in a survey that jealousy of your cousin or uncle prompted you to buy a bedroom set identical to his?

BOTTOM LINE: "AOL pretty much owns the mass consumer who doesn't like change, and is too dumb and lazy to change his e-mail address," Michael E. Gallant, an analyst with CIBC World Markets. It is possible and theoretically more cost effective to build a business by targeting "the masses", since getting past the clutter is ultimately easier. Reaching a trend-setter also increases the your Consumer Risk, or the possibility that an anticipated consumer behavior will change due to an unpredictable event, such as negative reaction to name, packaging, or current event (as defined by al berrios & co.) By approaching your marketing decisions in a manner consistent with normal human behavior (as opposed to statistical inferences based on post-purchase data), you will achieve similar success as eBay or AOL (pre-2000).

top
>>>>> >>>>> >>>>>

[4] MEDIA: An Analysis of How Content Became a Commodity

Advertisers have always used media to reach consumers. When capitalists realized that they could manipulate which media audiences consumed (with content), media became valuable. And with limited selection, advertisers would regularly pay a premium. Then came ad agencies and media buyers, who pooled their client's media buying budgets together to exert an influence on the price of media, and consequently, purchase more of it. This increase in demand would have made sense, had media remained few and widely dispersed. But media choices expanded and consolidated, and in doing so, offered media buyers transparency, flexible pricing, and convenience. Guess what happened? Media became a commodity, as defined more simply by Dictionary.com. And when a media buyer purchases media in bulk to take advantage of a discount (presumably because media prices fluctuate higher than lower), and when a media company sells media in bulk (to lock in a steady revenue stream at a fixed price since the cost of producing more media may fluctuate higher as well), a commodity has exchanged. So, it is therefore possible to say that supply and demand dictate which side influences the other in the media industry, not the intangible value of a name brand, as has been the case for decades.

BOTTOM LINE: To illustrate this analysis, let's look at AT&T Comcast's recent imposition of a 10% reduction in payments they make to cable programmers. They did it because they are currently the largest aggregator of cable households (23 million) and realize that they are on the hook to pay enormous fees per household to programmers. Programmers cannot refuse, since it would mean they lose access to almost one third or more of their viewers (a huge portion worth billions in advertising revenue). And should consumers refuse to use Comcast (who, by the way, recently increased their rates on internet and cable television access)? Since Comcast has no cable television competition in their coverage areas, consumers have only one way of satisfying their demand as well. (Note: this assumes that consumers can choose to watch less TV or consumer alternative media.) In the last 2 years, the debate over whether media is becoming a commodity has intensified. In actuality, the fundamental problem is whether or not content is becoming a commodity. Since it's the content that influences audiences to consume one media over another, if similar content were available throughout all media, content would then become a commodity, like media. And what has instigated the debate has been the advent of cross-platform campaigning to reach audiences, presumably with similar perspectives and content throughout various forms of media. What draws audiences to media has always been innovation and exclusivity (a limited supply). Diversity has also contributed to the premium value. But when innovation and diversity ceases (how many reality shows can the market handle?) and exclusivity gets replaced with repurposing and syndicating, content then becomes closer to a commodity than ever. al berrios & co. recommends to content producers to limit supply, segment your audience, and take advantage of the unique properties inherent in each form of media, so you're not reducing your once-valuable content to a commodity.

top
>>>>> >>>>> >>>>>

[5] MANAGEMENT: Finally, Consumer Enjoyment of Wireless Service Starts Now

On December 3rd, 2002, we covered "Consumer Challenges in Wireless" and reported that the artificial scarcity created by the U.S. Government is a major obstacle for improved services and innovation from service providers. The need for additional spectrum was even more apparent two weeks ago when Next Wave Communications won coveted spectrum licenses back from the FCC in a heated legal battle. The spectrum isn't wasted - it's actually still there in abundance, but being hogged inefficiently by the military. Two weeks, ago, the Pentagon agreed to free up more spectrum, paving the way for a multitude of uninterrupted, high-speed wireless data transferring to smaller and smaller consumer devices. So?

BOTTOM LINE: Why can't all mobile phones work interchangeably between wireless services? Why do consumers need a rocket science degree to compare the differences between competing services? Why have we been promised video, audio, and shoe-lace-tying from wireless providers, but still haven't been able to enjoy any of it? Because of artificial scarcity, innovators haven't been able to innovate, marketers haven't been able to fully alter consumer habits with regards to their service, and consumers are confused and at times, ripped off, by services. Although serious changes won't begin to occur for at least another 5 to 6 years, in the next year, expect wireless providers to hopefully begin educating consumers on what their business model truly is: access, not content, to grant communication, not entertainment.

Disclaimer: The recommendations, commentary and opinions published herein are based on public information sometimes referenced via hyperlinks. Any similarities or likeness to any ideas or commentary from any other sources not referenced is purely coincidental. al berrios & co. cannot control any results occurring from advice obtained from this publication nor any opinion(s) conveyed by any reader of this publication.

(c) 2001-2005. All Rights Reserved. al berrios & company, inc. Published by al berrios & co. This Report may not be reproduced or redistributed in any form without written permission from al berrios & co., subject to penalty.

Privacy

Back to Menu