CONSUMER STRATEGIES REPORT May 6 2003

al berrios & co. CONSUMER STRATEGIES REPORT 05.06.03: Creative is a Commodity: Nepotism and the Perfect Market

QUOTATION OF THE WEEK
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"The nature of peoples is variable; and it is easy to persuade them of something, but difficult to keep them in that persuasion." Niccolo Machiavelli, "The Prince"

We've streamlined our practice areas for our clients by combining our media practice with our brandstrategy practice, and our consumerfocus practice with our management practice. In addition, we've clarified our executive training service to reflect our specializations. As a result, this REPORT will gradually reflect these changes in the coming weeks.

I am now making myself available to serve on corporate boards. If you or anyone you know would like to discuss how I can add value to an organization, contact me at al@alberrios.com. This would be my first and only board seat, as it's all I have time for.

Subscription to this REPORT has now been removed from our website. It is now by invitation only. Although you can pass it on to your colleagues, their subscription must be approved by me in order for them to receive this REPORT via email every week.

May 18th, I will be participating in the GMHC AIDS WALK. If you or your company don't have any immediate affiliations that you'd be obligated to walk for, you're more than welcome to join me to walk with my firm in the name of AIDS research, prevention, and curing. In all the hullabaloo about SARS, we've forgotten our own very important battles here. I'm not asking for donations, just your presence.

[2] BRANDSTRATEGY
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The Meeting Planner and the Perfect Space

Although I've written about 37 of them, I've attended close to 50 conferences, tradeshows, lectures and seminars and dozens more "networking" meetings in the last twelve months and all of them in New York City. I'm registered for at least 25 more for the remainder of the year. In order to keep abreast of so many events, I'm signed up to over 7 niche industry newsletters and feel I've got a good idea what's worth my (and your) time. I read somewhere that there are tens of thousands of events held around the world annually, and naturally, I was curious as to how that's possible and what impact that has on economies.

You don't have to be a genius to know that the travel industry has been having problems. This newsletter has been tracking it since day one. But has travel affected those who plan where people travel to? No, not travel agents, but meeting planners.

Meeting Professionals International (MPI), the industry trade group, pegs the size of the meeting planner industry at $102.3 billion. There are over 700 professional meeting planners in the New England area alone, according to the Professional Convention Management Association. These are the guys and gals that arrange awards ceremonies, annual meetings, investor meetings, and general events for corporations, schools, and trade groups all over the world. Contrary to what you may have thought, an event planner isn't just for weddings and parties.

Vendors to the industry include airlines, hotels, technology companies (projectors, audio/visual providers) and entertainment companies that offer live djs, bands, etc. And naturally, just like travel agents get free flights and hotel accommodations called FAMs to sample services, meeting planners get spoiled, too. Most by venues.

In 2001, 27% of hotel customers were attending conferences/tradeshows. There are over 41,393 hotel properties with 15 rooms or more in the U.S. according to the American Hotel & Lodging Association. And according to the Travel Industry Association, "Domestic business travel declined 5.5 percent in 2002 over 2001, and was down nearly 9 percent 2002 over 2000. Business travel has fallen victim to a convergence of factors [i.e. War, SARS] that are likely to continue in the near term."

As a result, hotels aggressively court meeting professionals. Along with non-hotel restaurants, catering halls, universities, country clubs, and convention halls, this makes for quite a buyers market.

Based on a study by The Professional Convention Management Association, the venues with under 25,000 square feet are experiencing the most demand by meeting planners. But meeting planners typically want more for their impressive budgets: contract flexibility, to avoid fees for wars or other catastrophes outside of their control, enhanced security, for their attendees' peace of mind, access to cutting-edge technology, (i.e. wireless internet access), and white-glove service typically not offered at much larger venues.

How much do planners spend? A FutureWatch survey (pdf) put together by MPI and another consulting firm estimates $4.8 million annually by independent planners, $4 million by corporate planners, $3 million by consultants, and just over $265 thousand by government planners.

al berrios & co. analyzed the market and learned that opportunities still exist for regional, tech-friendly venues, as planners look for alternatives to overpriced, service-deficient, urban destinations that can accommodate decreased attendances. We recommend to venues of 250,000 square feet and under to re-train or re-hire staff to compete on the service aspect. We further recommend to fringe venues (i.e. not within major metropolitan centers) to engage in awareness campaigns, as venue marketing to meeting planners is virtually not done, leaving huge, untapped opportunities for venue owners.

God bless the $1 menu (and Wendy's for introducing the concept in 1989). Ever since fast food joints thought to offer me more "value", what I've actually done is replace the fries usually served with my combo with another burger or whatever else they offer - like desert!

"French-fry consumption plummeted 10% between December, 2001, and December, 2002, because people chose to buy burgers for $1 (or 99 cents) and opted out of the more expensive combo meal, which typically comes with fries and a drink" according to a research group.

Value meals launched sometime in the early 1990s. They sped the decision making process (and transaction time), by making up our minds for us. But in 2000, the National Restaurant Association released figures that indicated "80 percent of restaurants with check sizes of $25 or higher per person and 70 percent of restaurants with check sizes under $25 per person report that customers are more interested in customized menu items compared to two years ago." So my question is, why not more flexibility with those value meals?

I don't have to contact any QSR to know that they claim to offer me any variation they want. That's not what I'm referring to. Why can't they give me exactly what I want without variation in the value meal price? Based on a review of my own personal QSR receipts within the last 6 months, fixed value meal prices are greater than altered value meal prices by about 10- to 35% depending on the QSR. For checks under $5, that may not be a big or even noticeable deal. But during the course of a lifetime, it adds up.

Although consumer eating habits have been altered by value meal selection, the French-fry consumption example cited above is indicative that consumer tastes can change, meaning, how long before 1) the margins extracted from value meal programs begin to evaporate or 2) consumers begin to demand price modifications in their value meal selections, so that it reflects true value to them?

As recent difficulties by Burger King and McDonalds suggests, QSR guests need innovation and choice in order to keep them happy. And in a country like the U.S., where most of their stagnation is occurring, a likely culprit of their struggles could very well be their lack of a modification in their meal pre-selection program.

[4] MEDIA
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A Letter To the Upfront-ers: Strategic Recommendations for Upfront Participants

If you were to reduce the number of available ad time per hour (by 40- to 50%), by how much would you have to increase rates in order to make as much money as you do now?

I was thinking about the ad clutter situation, and loss of viewers to other media in general and it hit me: Why isn't high quality programming (i.e. Law & Order) run at an earlier day part?

I know, getting a larger audience is more likely after most people return from work, however, if 1 million people are using their TiVo's to record prime-time shows to watch another time, isn't it obvious that after work doesn't mean that's when the most people will probably watch?

I know, 1% of TV households doesn't mean the entire system of scheduling should be scrapped. But there are over 800 channels now, all competing for the same number of television households. There are also countless studies showing how the internet has taken up more of your audiences' time with you. And let's not forget, you're also competing with other outdoor entertainment, and even movie rentals, VODs, and PPV.

Look at it this way: no matter what time you schedule something, people can now choose to record it to watch whenever they want. Prime-time is clearly whenever-they-feel-like-it time and as we move forward with more advanced technologies, your grasp over their evening plans will continue to erode. If they're going to do it anyway, why not experiment?

Yes, I realize I'm saying you'll need an entirely new way to gauge viewership. That's OK, though, since TiVo and other PPR and cable companies can do it by reading boxes and sending the data to new independent auditors. Forget about Nielsen. They've been messing around anyway, not being able to get their PPMs up and running, and still not being able to measure teens and ethnicities properly, even after all these decades.

How would you experiment? Easy - how much programming don't you have that you had to cancel from a prime-time schedule because their ratings weren't good enough? That doesn't mean the program sucked, that just meant you didn't give it enough time to grow legs. Using this, and the massive amounts of reality programming that you don't feel is worth re-running, it'd be totally risk free experiment and you'd stop running nonsense like Maury and Jerry over and over and over.

So, things being the way they are, how much audience are you willing to sacrifice before you take a chance and experiment with your scheduling and ad-time-per hour? Hasn't the internet already proven that prime-time can occur anytime during the day?

And while we're on the topic of experimentation, why not make more shows about rich people for rich people, because clearly, that's what they prefer to watch? Just because they don't watch a lot of TV, doesn't mean that they don't all gather around the set to watch "The Westwing" or TNT's "Bull" (a terrific program that needs to be brought back!). Consumers, including the rich, no longer need to worry about lack of time to watch their favorite programming because they can use their TiVo.

[5] OPINION REPORT
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Creative is a Commodity: Nepotism and the Perfect Market

What industry is a "market in which no participant can influence prices. Characterized by a free flow of information, no barriers to entry, and a large number of buyers and sellers"?

If you guessed advertising industry, you win a cookie. If you're wondering then, how big agencies became that way, simple, by lowering their prices. And if you're thinking that this shouldn't matter, you're right, because the competition can also lower their fees, leaving relationships as the only differentiator in a market where everything is perfect.

Ad agency people, realize this - because creative is so subjective, and anyone can be creative, whether they have a college degree or not, there are no barriers to competition. You're right in thinking that since creative can't be taught, and since there are no processes for standardizing great creative, it should be valued, like typically the case for scarce goods. But alas, this thinking is flawed for the same reason there are no barriers to entry - creative is subjective. And as long as consumer tastes continue to change, it will remain so.

You're probably telling yourself that there's no free flow of information, so HA! I am mistaken in my assessment of your industry. But once again, you are incorrect. Thanks to industry periodicals, the need to issue steady streams of press releases to interest investors, and the internet, the flow of information has never been so free.

OK, I'll grant you that there are certain creatives that are in more demand than others. But what you fail to realize is that great creative encourages imitation. How many times haven't you presented original work for a client, only to have the client request something similar to their competitors? Or how many times haven't you yourself been influenced by great work? This is the same situation with prices, which rise and fall based on what everyone else is doing, not on your own powerful grip on the market. As a reactionary industry, you fit the definition of a perfect market perfectly.

And this is why executives also feel they can risk-manage you to death. This is why accountability has become increasingly important, along the same curve as commoditization. If you don't deliver, they can easily find someone else to replace you. And if you explode into oblivion, someone else will quickly enter the market to take your place. Darwinian? No. Adam Smith.

[6] EVENT REPORT
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American Marketing Association Marketing in a Post War Global Environment

I'll be honest, with the billing this program had, I expected to be awestruck with the brightness of their collective wisdom, but that was not the case. The AMA got together David Apicella, Senior Partner, Co-Creative Head at Ogilvy & Mather, NY (ad agency), Michael Kelley, Partner, (in charge of) Global Advertising & Branding, PwC, Bob Kuperman, President and CEO, DDB NY (ad agency), McAdory Lipscomb, Jr., Associate Partner, Director of Marketing Communications, Media & Entertainment, Communications, High Tech, Accenture, Joe Plummer, EVP, Consumer Research & Insight Development, McCann-Erickson WorldGroup, and Liz Vanzura, Hummer Advertising Director, GM, with Scott Donaton, Editor of Advertising Age to moderate at the Grand Hyatt in New York City's Grand Central Station. The room reserved was a very airy, fresh-feeling room, on the far east side of the massive hotel. The very high ceilings and centralized stage gave the event an elite feel. The only real problem was the foul garbage odor emanating from the area I was sitting in, that at first wasn't noticeable, but the more I thought about it, the more offensive it got. I checked under my shoes and own body odor to confirm it wasn't me, and eventually decided to ignore it. I lived. The continental breakfast was same-old, same-old.

With all these flashy titles, and flashier audience members (several agency and client CEOs were in attendance), I couldn't believe the caliber of the discussion wasn't as impressive as it could have been. My thoughts half way through were where did the standards go? The speakers all gave what appeared to be their own professional opinions, however, since I've attended so many of these and keep up with the industry, I think I was the only one in the room that realized these guys were regurgitating stuff others had already said. For example, the PwC consultant opened up with how he felt there was an anti-American sentiment overseas that may linger for some time. The Ogilvy guy was a copywriter and made everyone laugh with his prepared copy of his broad assessment of consumer sentiment, which, if you've picked up a paper in the last year, you'd know, too.

The entire discussion seemed very laid back, with little to no attempt to offer the audience new insights, or even serious debate for that matter. Everyone was in agreement, and controversial TV shows peppered almost everyone's overview of what's going on.

The GM girl was interesting because she discussed Hummer advertising strategy, however, much of what she said was stuff that you'd expect her to say, such as pulling certain iffy ads, and commenting on how the war didn't exactly help Hummer sales, but didn't hurt them either, since every time you turned on CNN there were Hummers being driven around all over the place.

The McCann researcher was probably the most enlightening as he culled through his research and offered us some pretty interesting tid-bits on how consumers feel (i.e. conflicting emotions like stressed, yet optimistic, materialistic, yet with values, distrustful, yet willing to trust, and aware of anti-Americanism, yet appreciative of diversity.)

Don't get me wrong, it was obvious these executives were well versed in a myriad of cultures, but that was it. Their insight wasn't necessarily based on hard statistical evidence conducted at their firms, just observations from their daily lives, which by what they said, mostly consisted of talking to other insular executives, constant traveling, watching TV, and reading everyone else's analysis of TV.

Although there were no clear take-aways, the resolution was that the consumer's trust needed to be restored by corporate America. The major problem I had with this is that with all their talk about a loss of trust, not once did they mention who's not trusting who. Remember when you were young - you were probably in high school or college during the Vietnam War or the first Gulf War. Did you care? Was your trust violated? If you choose one airline over another or one phone company over another, chances are, you haven't even thought of how companies have harmed their relationship with you. The only people thinking about this stuff are marketers, and frankly, a broad generalization of how consumers feel by these guys was unfair to the paying audience. But did the audience bother to question anything. Unfortunately, no, with silly, unchallenging questions being embarrassingly stuttered out by folks looking for jobs and responded in long-winded, round-about ways, to make them sound like they were good questions.

My question, although I didn't have enough time to ask them was, irregardless of CEOs wanting to be less risky overall, why has it become so difficult to prove to advertisers that creative isn't a commodity and shouldn't be risk-managed like pork bellies? Read OPINION REPORT for my explanation.

So, was it worth $85 bucks? For no other reason than the amazing networking opportunity, yes. To learn something new, just read Ad Age. It's cheaper and offers pre-thought opinions so you can impress your co-workers by regurgitating it around the water cooler.

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.

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