CONSUMER STRATEGIES REPORT April 1 2003

al berrios & co. CONSUMER STRATEGIES REPORT 04.01.03: "it is possible to literally give birth to fads"

THIS WEEK'S CONTENTS ARE:
[1] UPDATES: New Name, New Directory, Why You Need Management Consultants
[2] BRANDSTRATEGY: K-Mart Is Still In Trouble After Targeting a Niche, But Why?
[3] CONSUMERFOCUS: We Clap, Yawn & Follow Fads Because We Sync
[4] MEDIA: The VIACOM Monopoly & It's Dangers
[5] MANAGEMENT: Delta's Stupid Song & United's Dumb Starfish
[6] EVENT REPORT: Sync With Steven Strogatz
[7] EVENT REPORT: Knowledge+Networking Series event "Integrated Marketing: Opportunities and Challenges" hosted by the New York American Marketing Association
[8] EVENT REPORT: Data-Management Conference hosted by Wall Street & Technology

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[1] UPDATES: New Name, New Directory, Why You Need Management Consultants

>> "In a congregation of flashing fireflies, every one is continually sending and receiving signals, shifting the rhythms of others and being shifted by them in turn. Out of the hubbub, sync somehow emerges spontaneously." - Dr. Steven H. Strogatz, Professor, Department of Theoretical and Applied Mechanics, Cornell University from his book "Sync: The Emerging Science of Spontaneous Order"

Good morning execs,

As promised, welcome to the official launch of the CONSUMER STRATEGIES REPORT (formerly IMKTG REPORT). It has become obvious that many readers were getting more than they needed from this publication or didn't understand how this publication could help them. To eliminate confusion, we have renamed our publication and portal so that it's purpose is clearer, have refocused our business into clearly defined industry practices (media, retail, hospitality, and public services), and clarified how we can help your consumer business in these industries (brand strategy, consumer focus, media, and management). Finally, we have made our subscription better for you, as you can now register only for the sections that are most relevant to you, (i.e. only MEDIA section or only MANAGEMENT section). Once you register for these sections, you will only receive the content for this and our UPDATES sections via email. You will also continue to receive just the headlines for our other sections, including our exclusively online REPORTS, still all for free and without ads.

This week we are also officially launching our Directory of Associations where you can research over 181 different trade associations in 15 sectors in 3 industries. Although there are a number of directories like this, al berrios & co. currently has one of the broadest, multi-purpose, and complete listings available online.

This was a very interesting week as I attended 3 lectures, 1 conference, and 1 interview. One of the lectures, by Professor John Lynch (mentioned two weeks ago and is the graduate professor of Human Resource Management at Zicklin School of Business), put in perspective why businesses need to work with professional outside management consultants. Anyone in your organization can pick up a textbook on any subject and learn how to implement a process. Companies like al berrios & co. are continuously developing fresh ideas and the concepts & processes to implement them that you will not find in any textbook. As an objective party, we are best suited to identify the challenges and opportunities your consumer business faces and guide you and your shareholders to profitability.

Enjoy today's REPORT.

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[2] BRANDSTRATEGY: K-Mart Is Still In Trouble After Targeting a Niche, But Why?

Hard to believe that K-Mart was larger than Wal-Mart. Harder still is believing that they allowed Wal-Mart to overtake them. But with the ego and audacity that is common among once-great companies, they attempted to overtake Wal-Mart by competing directly with them on prices and exclusive items. But they still failed because they didn't think it was important to invest as heavily as Wal-Mart did on technology. Wal-Mart took it's lead in the mid-90s and hasn't stopped, becoming more than a retailer, but a logistics company, teaching suppliers to boost efficiencies to cut costs. K-Mart ultimately filed for chapter 11, got rid of all of it's execs, (even getting them to return some of their compensation), and refocused their exclusive items and redesigned stores on niche audiences. Their current challenges doesn't make things easier (i.e. Target, Martha Stewart scandal), and that has lead them to close more and more stores than originally anticipated in order to get out of bankruptcy.

BOTTOM LINE: al berrios & co. believes there is no more room for K-Mart in the discount/dept store sector. K-Mart's unique selling proposition has to change dramatically. What good is targeting black Americans and Hispanics if they're still claiming they've got exclusive merchandise with better prices? These consumers can go to Wal-Mart for the same thing. K-Mart seems to have forgotten that although niche audiences may have different spending patterns than general market, they're still attracted to Sears, Kohl's, and Value City. After some in-store analyses comparing different formats and strategies, al berrios & co. recommends to K-Mart to compete in the specialty retail sector with companies like Pier 1 Imports, Ethan Allen, Williams-Sonoma, Bed, Bath & Beyond, and IKEA. In fact, in a recent weekend trip to IKEA in Elizabeth, NJ, it is evident that targeting IKEA's middle-to-lower-middle-class customer is the sweet spot for a company like K-Mart. With the home being the focus of attention in a post-9/11 world, IKEA not having as large a presence in the U.S. as K-Mart, and K-Mart already having the per-store size and inventory to slowly convert their stores to this format, K-Mart stands to make an enormous killing peddling home furnishings to this market. IKEA produces much of the stuff they make, leaving an opportunity for discount-retailer-style price discounting, provides a level of customer-service not acceptable to American standards, and provides unreliable post-purchase services (i.e. home-deliver, repair & maintenance), again leaving huge opportunities for a brand like K-Mart. If any of you know anyone at K-Mart, send this recommendation along to them. And if this reaches K-Mart, please see below for contact information.

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[3] CONSUMERFOCUS: We Clap, Yawn & Follow Fads Because We Sync

Have you ever entered a store completely not wanting to make any purchases, yet are somehow convinced to buy a $2000 dollar entertainment center, skipping all of the steps involved in the decision-making process involved for such a high-involvement product? I am personally afflicted by this phenomenon when it comes to clothing, spending thousands without really wanting to, at least once every few years. Although I convince myself that I had been thinking about getting it, it makes no rational sense to do something like that, yet many of us do it. An actuary at AIG recently fell victim to the scenario above, and has absolutely no explanation other than her parents convinced her she needed it. Penny pinchers by nature, we don't fall victim to fads and plan with budgets. Marketing teaches us about low and high involvement product decision-making processes. When it comes to relatively cheap stuff, we spend without much thought, and the pricier, the more we research and longer we wait. But when we spend outside of our normal decision-making processes, how is this explained? Last week, I attended an extremely fascinating lecture from Cornell theoretical mathematician and author Steven H. Strogatz who studies nonlinear science and complex systems. His research attempts to explain how cognitive thinking, proven to be individually different by sociologists in Harvard and U of Michigan, can coincide when in close contact to others that think alike. (i.e. Even though research has shown that Asians see "the big picture" and Westerners focus on details, it is possible to change the way you think with prolonged exposure to the other's way of thinking, meaning that, in essence, sync, which is what Dr. Strogatz calls his research, has occurred.) This means that concepts like the "influential opinion leader" and the various decision making processes sometimes have nothing to do with certain purchase decisions, instead, being entirely based on frenzied, fad-crazed, irrational wants, which in actuality is consumers biologically syncing their brain cells and cognitive thinking. Dr. Strogatz was the first to admit that whether or not sync has anything to do with fads hasn't yet been mathematically proven, however, there are lots of examples in human behavior that can suggest it plays some role, (by the way, sync is synchronization, like synchronized swimmers: "Sync occurs through mutual cuing, in the same way that an orchestra can keep perfect time without a conductor") like singing in unison, yawning when you see someone else yawn, when you walk in foot-step with another person beside you, when an audience is clapping in the same rhythm as the first clapper to a performance. According to Dr. Strogatz, these are all examples of sync. And whether it occurs consciously or unconsciously, or whether it's detrimental or beneficial, doesn't matter. (Seizures and heart attacks are also examples of disturbances in your body's normal internal syncing).

BOTTOM LINE: Based on Dr. Strogatz presentation of his research, al berrios & co. believes that it is possible to literally give birth to fads by syncing entire populations to your brand. (And at the very least, predict fads based on this same concept). What's important to remember is that the likelihood of creating a fad increases the lower the involvement (i.e. razor scooters, beenie babies), but it does occur regularly with high-involvement products, too (i.e. blackberries, daytrading). Ultimately, both the act of purchase (excluding any formal decision making process) and the dissemination of this urge throughout a population (whether congregated or apart, but connected with media) are potentially the results of sync, and can therefore be measured and controlled. This analysis supports al berrios & co.'s recommendation to avoid targeting opinion leaders and focus on the masses, since it doesn't take an educated, out-spoken person to spark a fad. "What's counterintuitive here is that [biological organisms] don't need to be intelligent [to sync]." And for the record, GLBT and Hip Hop are examples of lifestyles. The current, vocal anti-war and pro-war sentiments are beliefs. Beliefs are incorporated into lifestyles, while lifestyles endure without elicitation from headlines.

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[4] MEDIA: The VIACOM Monopoly & It's Dangers

I find it astonishing that few dare comment on the strangle-hold VIACOM has on the music video broadcasting environment, owning MTV, MTV2, VH-1, and BET. Although there are competitors (MuchMusic owned by Cablevision's Rainbow Media and Mun2, the Span-glish entrant from NBC's Telemundo), neither have the distribution nor positioning as the source for music as VIACOM's properties. And what has happened is that an entire generation of Americans (66% of which are currently fighting in Iraq) considers VIACOM's MTV brand to be an important source of content, news and entertainment, for them. And this is the danger - MTV strongly regulates what they will air and if they don't think it fits into their vision, it won't air. Ordinarily, I'd be an advocate for consolidation because it encourages diversity in programming (i.e. MTV can broadcast more original programming since they can air more videos on MTV2, whereas if they were both owned by two different companies competing for the same audience, they'd both air only videos.) However, our argument for consolidation was in radio, where there are enough competitors to make consolidation an effective solution to a medium with a decreased audience base, where local advertisers can benefit since prices are lowered, and the medium doesn't have as primary a function as television for content other than local weather and traffic.

BOTTOM LINE: From a shareholders' point of view, VIACOM is in great shape, never having seriously invested on the internet and avoiding a market downturn in internet-related ventures, benefiting from its core focus on television programmers, exploiting a low-risk film-production strategy that hedges during negative revenue years, taking advantage of its profitable and market leading rental/retail Blockbuster unit, and actually having accomplished what may be a workable cross-platform strategy internally and externally. However, from a consumer's point of view, do I feel as though my ability to decide is being impaired? That I will never enjoy music or opinions in their entirety? This is the conundrum. Although you and I are aware of these facts, the general public isn't. And as long as VIACOM doesn't screw things up and continues to provide quality content, they're keeping their monopoly. The argument that they're providing what their audience wants is irrelevant since their audience doesn't really have a choice of getting what VIACOM provides anywhere else. As we've explored in various REPORTS, consumers don't necessarily care to be informed more than they're entertained. And as the coverage of the War in Iraq has shown, an overabundance of content can also impair decision-making processes.

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[5] MANAGEMENT: Delta's Stupid Song & United's Dumb Starfish

It appears, fellow travelers, that our once-highly regarded airlines are managed by a bunch of retards. In no other industry does it make absolutely no sense to copy a competitors' strategy due to the large costs involved, and yet, all airlines wants to be discount airlines. Their problem, as we've discussed before in this REPORT is that they're emulating the wrong business model. Airlines should be segmenting their industry with international carriers and domestic carriers. Perhaps you, Mr. Airline, are blinded by the low volume of travelers due to war, an unexpected outbreak of killer flu in Asia, and poor economy in general, so you hesitate putting all your chips into an international game plan. But here's another innovative thought for airlines you (since you seem to suffer from a dearth of thinking): get me to my destination early, safely, and quicker than the alternative, and remind me that you can, instead of trying to convince me of how much cheaper you are than the other airline. Railroads once forgot that they were in the transportation business, and lost market share to you. Now you are forgetting that you are in the business of making my life more convenient, since transportation has become a commoditized product. Think about it, the only innovation left in your industry is speed, with efficiency, at a fair price. When we travel, we're not concerned about how you're going to entertain us on your long flight, we're interested in getting to our destination as fast as possible, with absolutely no delays in being processed in and out. Don't distract us with meals, sleeping beds, or any other recreational amenities. Your plane isn't the destination (contrary to what you may still think from the good ol' days).

BOTTOM LINE: These are not alien or new insights to you. You know this already. And yes, perhaps convenience isn't fully under your control. However, if military aircraft are capable of achieving incredible speeds, why can't you? Since when was my time less important than the military's? It's already been proven that the current consumer requirements for products are innovation and simplicity. Making me pay for my meal isn't innovative. Keeping track of your points and your partners isn't simple. Rather than file for bankruptcy, reneg salary agreements with your short-on-service service staff, and start a whole new business based on discounted fares, further damaging the value of your service, why don't you work with your suppliers to figure out how to cut my travel time by at least 50% or more at costs that you can still make money off of.

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[6] EVENT REPORT: Sync With Steven Strogatz

Hosted at the 92nd St Y, and interviewed by Alan Alda, Dr. Steven Strogatz presented his research and his new book on spontaneity, "Sync: The Emerging Science of Spontaneous Order", in the most laymen's terms possible. It was truly refreshing and entertaining. Although I was made to wait to purchase a cancelled ticket (I had no idea over 100 people were interested in such an obscure topic prior to actually hearing it), it was worth the $22 fee. Upon entering, I felt way out of place, being amidst an audience that could have been the cast of "Cocoon", the movie. But the audience was overly educated, clearly affluent, and the opportunities to network were abundant, if you knew how to work that sort of crowd. I strongly recommend checking out the various programming available at the 92nd St. Y. It's clear why Grubman was so determined to get his twins in there…

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[7] EVENT REPORT: Knowledge+Networking Series event "Integrated Marketing: Opportunities and Challenges" hosted by the New York American Marketing Association

Last month, I attended "Influential Marketing: Targeting the Source of Consumer Trends" and I found it to be a very educational experience. Although the networking opportunities were less than great, it more than made up with a fantastic speaker. The same cannot be said for this most recent event, unfortunately, where the speaker and the networking opportunity were absolutely bad. Although AMA's customer service was extremely good (actually taking time to get my feedback and respond), I couldn't help feeling jipped. It wasn't a pricey event, but with regards to my time, I could have thought of better ways to spend it. The speaker, Maria Mandel, is VP, Director of Interactive Marketing for Draftworldwide. Although she's an adjunct professor at NYU's Stern, with a degree from Wharton, she treated the audience as though she was of lower educational pedigree. Her appearance and personality (both very cute-sey) didn't seem to lend credibility to her discussion (for me personally, anyway.) I didn't stay for the entire discussion, and left early, not willing to commit any more time to Maria. Sorry, Maria, nothing personal. Overall, I would recommend AMA events if you're interested in learning more about your marketing-related industry. That's truly what these networking opportunities are for, to get together with others in your field, not new business or jobs.

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[8] EVENT REPORT: Data-Management Conference hosted by Wall Street & Technology

I was surprised I arrived as early as I did (8am) with an hour and a half commute from my home. (That basically means I had to wake up at 5:30am. Not a big deal for you, but not being an investment banker, it is for me). I wasn't a stranger to the venue, the Roosevelt Hotel, and would still recommend it, being a good location (next to Grand Central Station in NYC), with comfortable décor, ambiance, and very good service. The Wall Street & Technology staff was extremely eager to help and a pleasure to talk to, as it turns out my name wasn't in their database, yet they still processed me without a problem. The event wasn't free, but worth the $1300 (apprx) price. It was their first, and definitely high-level. If you blinked, you missed something. The speakers were all buyers (and very smart), the exhibitors all vendors (with unusually close relationships with buyers). All points of views were expressed and there were plenty of great networking opportunities. If you believe data management is all about storing data, then hire a professional. Data management is a billion dollar industry, where speed and accuracy are the name of the game. Although financial organizations are the pioneers of this industry (needing real-time stock quotes and financial statements from various providers on the same screen), the technology can be extremely useful for business executives in other industries (i.e. real-time sales, costs, and customer satisfaction information all on your desktop while you're typing your email). Although Wall Street & Technology is a very specific niche, if you're in it, I would recommend attending future events. Wall Street & Technology is a magazine owned by CMP.

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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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