IMKTG REPORT March 11 2003

al berrios & co. IMKTG REPORT 03.11.03: Value, Mass Transit, Footwear, HR III

THIS WEEK'S CONTENTS ARE:
[1] UPDATES: The al berrios & co. Consumer Value Model
[2] BRANDSTRATEGY: Analysis of Public Mass Transit in Urban Areas
[3] CONSUMERFOCUS: Analysis of the Non-Athletic Footwear Segment Consumer
[4] MEDIA: Auditors and Agencies: One Shouldn't Depend On The Other For Their Fee
[5] MANAGEMENT: Re-Evaluating Your Entry Level HR Strategies: Unions & EEOC

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[1] UPDATES: Executive Summary of REPORT

>> "I want to tell you, the cheaper one sets the price, the more passengers there will be, and the greater will be the profit one stands to make. I am certain that in twenty years' time there won't be a single Postmaster left in the world, and people will only travel by train… I am in love with the railway" - James de Rothschild, June 1836

Good morning execs,

So, consumer confidence is down, hourly wages are stuck, yet consumer prices continue to increase reducing purchasing power, unemployment rate is near 6%, auto manufacturers recently announced decreases in production, and if all that weren't enough a potential war as early as next week has everyone on standby. I find it amazing that we're living in the year 2003 where we've put men on the moon, TiVo in our homes, and cash is almost obsolete, and yet, no one knows how to manipulate the economy or consumers so things run smoothly. For the last two weeks, I've been discussing our Consumer Value Model. This model seeks to analyze our explanation for what consumers value (not in terms of actual functional products or brands, but the rationale behind their decision making process). Rather than reprint a lot of the stuff that I've already published, I've put together a compilation of IMKTG REPORTS where the Consumer Value Model has been discussed, including the first time in Nov. 26th, 2002 IMKTG REPORT. Accessible through the home page, please check out the al berrios & co. Consumer Value Model.

Today's REPORT discusses three of our analyses, including our continuing entry-/retail-level hr practices, and a discussion on media auditors.

Enjoy the rest.

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[2] BRANDSTRATEGY: Analysis of Public Mass Transit in Urban Areas

Consumer demand to spread out has largely been met by all existing transit systems. However, examining the choices (highways, roads, bridges, tunnels, railways, skies, waterways) travelers make has implications for understanding how and why they demand goods and services, and at what price, as well as help anticipate special interests, and consequently plan policy. An urban area's planning of public transit modes (trains, buses, ferries, taxis) is supposed to be based on the rational need to disperse highly populated areas at the lowest cost. However, they require large economies of scale in order to be cost effective, and due to the many choices consumers do have, these economies of scale aren't always achievable. In essence, public mass transit competes with other transit modes like airlines, private autos, cycling, and even walking because when consumers choose these other options, they reduce the economies of scale of the public mass transit options, increasing costs for the public transit system and other passengers, and potentially resulting in the elimination of public mass transit as an option. Is mass transit necessary? Imagine traffic? (Between 1982 and 1999, the population grew 19%, vehicle miles traveled [VMT] grew 72%, and congestion delays grew 213%. Congestion costs the economy $78 billion in 1999, up from $22 billion in 1982. [Source: US DOT and TTI]). According to the American Public Transit Association, their members "serve the public interest by providing safe, efficient and economical transit services". Rationally, the planning involved in creating a public mass transit system depends on costs, however, cost doesn't matter when a politician wants to be popular (The Irrational Consumer). And flashy is typically the way to go to achieve popularity. This then presents transit operators with a need to understand what travelers want, not simply implement a plan on cost-benefit. In the 1860s, Cornelius Vanderbilt demonstrated that lowering prices was an effective way to acquire and retain passengers while still staying profitable during his building of the New York Central System. However, as urban populations increase, transit demands increase and even though passenger revenue actually has been the highest it's ever been in decades, fares continue to increase for relatively the same service passengers have always received. I recently joined the PATH (Port Authority Trans-Hudson, the only bi-state rail system) Patron Committee, to see for myself what issues are important to any public mass transit system, whether rational or irrational. PATH has done a superb job of maintaining an historic transit system safe, clean, and efficient, despite the events of 9/11. But, unfortunately, their unique function between states, and connecting passengers to the much larger New York MTA system, means that they have many powerful constituents that don't always agree on the most logical course of action, from payment options to station design. But what's ironic is, upon closer observation of this, or any, public mass transit system, is that passengers aren't generally aware of amenities until they're taken away, because they're mostly concerned with arriving at their destination. To passengers, myself included, we couldn't care less whether the trains had seats as long as we got to where we wanted to get to. This is why operations is the major issue for mass transit, and passenger convenience is not fully addressed in all cases.

BOTTOM LINE: It is obvious that for the success of any public mass transit system, it has to win commuters over from other choices. Just like a business, they are competing to achieve an economy of scale that makes their service useful and self-sufficient. Based on noted examples from Washington D.C.'s Metro and downtown Chicago's failed light-rail proposal of the early 90s, the decision to provide convenience for the public typically outweighs logical decisions. But once a decision has been executed, a system can achieve cost-revenue targets by understanding its passengers and what they value most from their mode of transportation. Figures provided in the "Statistical Abstract of the United States: 2002" by the U.S. Census Bureau show that since 1980, mass transit and carpooling have declined, while driving alone, increased. Although this is attributable to increased employment and wages, it is also indicative of cultural shifts in the way consumers make decisions and interact with their public mass transit systems. And in that same vein of cultural shifts, using marketing communications to differentiate your service is critical to achieving an economy of scale. Does this mean reallocating from your operating budget, possibly affecting quality? No. Does this mean increasing fares, and losing passengers anyway? No. It means re-assessing what's most valuable to your passengers before reallocating budgets, then communicating that value using your own assets (cars, stations, employees, and yes, that means sacrificing some of that addictive, short-term, ad revenue from your transit media), and traditional media.

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[3] CONSUMERFOCUS: Analysis of the Non-Athletic Footwear Segment Consumer

Between February 7th and February 15th, 2003, al berrios & co. was engaged by The Timberland Company to generate nationwide awareness for the launch of its new Roll Top Boot using the internet. At completion of engagement, al berrios & co. associates used our innovative methodology to analyze the responses of 6.6% of the 149,440 consumers reached. Every interaction was conducted online. The Timberland Company did not sponsor this Analysis. CONTENTS: 1) METHODOLOGY; 2) POPULATION; 3) PRICE; 4) COMPETITION; 5) RETAILERS; 6) PREFERENCE; 7) EFFECTIVENESS

View the al berrios & co. Analysis of the Non-Athletic Footwear Segment Consumer

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[4] MEDIA: Auditors and Agencies: One Shouldn't Depend On The Other For Their Fee

With the television upfront already among us, and expectations being that it'll be better than last year regardless of war, and the stand-alone media agency vs. the full service ad agency debate still unresolved, the most astounding problem is actually that we still can't measure traditional media audiences effectively! Both Nielsen and Arbitron are the leaders for television and radio, and yet both have admitted their methods for capturing data (diaries, phone calls) are obsolete in today's invasive and alternative media environment. In addition, both capture teen audience data very poorly or not at all and both can't tell you if Latinos are tuned in. Both are currently testing technology that is decades ahead of what they have now, (portable people meters or set top cameras), however, continuously announce delays and when fully operational, may still not be fully representative of all broadcast audiences in the U.S. due to the size of their panels. And to top it all off, the concept of sweeps week terribly skews the actual performance of networks during the rest of the year, meaning advertisers are overpaying, period. Broadcasters aren't the only ones facing this problem. There aren't even any consistent numbers for out-of-home, since media sellers all claim their own numbers and OOH evolves into something new almost daily. And with regards to print, newspapers continuously measures decreases in younger readership, while magazines are still playing around with Audit Bureau regulations and counts by fudging reports, using overly-aggressive subscription tactics, and still grappling with offering niche or ultra-niche content.

BOTTOM LINE: The irony is, media companies can survive without being measured because media buyers know that not being measured doesn't mean it doesn't work. The difficulty has always been convincing the marketer that accountability is still subjective. In a recent study by another consulting firm, published in Advertising Age last week, research showed that marketers aren't on the same page as their chief executives. CEOs want their marketers to do more with less money and be more involved in the profit generating process. However, marketers always expect more money for their budgets and aren't really as aware of their involvement in the company's grand scheme of things. This has reduced marketing's role to someone who blames, where whoever is at fault for not meeting a goal, gets replaced. Although accountability and pay-per-performance are reasonable business roles for any professional service provider, before basing the performance of a service provider on the (often unverifiable) data of another company, it is important to align short- and long-term goals and metrics to those of the company, not of a specific product or personal goals.

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[5] MANAGEMENT: Re-Evaluating Your Entry Level HR Strategies: Unions & EEOC

No matter how hard you try, employees get disgruntled. They perceive unfairness where none rationally exist. And to fight you, they join unions or complain to Big Brother (The Equal Employment Opportunity Commission). So how can you prevent unionization? Tattling? Or worse, harmful employees that create the need for internal security measures (leading top managers to cut their employees off from the sort of information that makes employees loyal)? Unions have always been one of the most incendiary issues in American labor history. Collective bargaining has been studied to death, with auto and airline industries demonstrating varying degrees of success with them, and retailers absolutely deterring unionization, since minimum wage is an integral part of their profitability and retail level employees don't have to be knowledge workers with specific skills. After having encountered examples of both in retail and teaching environments, my position has always been that management lacks the skills necessary to negotiate with collective bargainers, partly because of profitability concerns (Editorial Comment: yet companies like Qwest pay their external attorneys over $75 million in fees to defend them from fraud charges even though they face potential bankruptcy), but also because unions are overly aggressive in their single-minded pursuit of higher wages, better benefits and working conditions without any consideration for whether an organization can pay for it or not. When employees are disabled, disfigured, older, slower, or of an ethnic or gender not desired for a particular position, the EEOC is the place they go to file complaints and sue. "The EEOC was established by Title VII of the Civil Rights Act of 1964 and began operating on July 2, 1965" and prohibits all of the above reasons for not hiring someone under the bases of discrimination. In a recent civil lawsuit against McDonalds, (EEOC vs. R.P.H. Management, Inc., d/b/a McDonald's, Civil Action No. 03-RRA-502-J) "Cynthia G. Pierre, District Director of the EEOC's Birmingham District Office, said, 'Ms. Robichaud (the plaintiff) is a very brave individual who came to the EEOC for assistance when she believed she was being judged not by her performance but because of a medical condition that affects how she looks. This is the first lawsuit EEOC has filed in Alabama involving facial disfigurement, but we believe it is important to educate employers that the ADA requires a focus on what people can do, not how they are perceived.' But what if something like consumer perception is critical to the success of your business? Matters like these highlights senior management lack of skill sets in managing their entry-level employees, (not to mention a fundamental disconnect between their perceptions and those of consumers, particularly concerning front-counter employee appearance). (Editorial Comment: This argument excludes fast-track style managers who work throughout all levels of a business, including entry-level, to further their understanding of the business, but also leave with an understanding of entry-level workforce and how they interact with consumers.)

BOTTOM LINE: Management, entry-/retail-level employees don't always understand your financial situation. Remember, by keeping employees uninvolved and ex-communicated from your office, they loose interest in your strategic direction. Your uninvolved employees are potentially future union members, but always your customers and by failing to understand them, you fail to reach optimal profitability. And by instituting direct-dialogue channels with your store managers, including franchisees, business strategies and policies become more refined, including entry-level hr practices, information piracy, and expectation management, lawsuits (and consequent loss of brand equity) currently being faced by McDonalds can be prevented.

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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.

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