Consumer Strategies Report October 19 2004/Trade Event

I arrived without any expectations, and left with a sincere reverence for Forrest Research. This publication doesn't make it a habit to praise other firms, but everything from the subject matter discussed, to the presenting speakers, and even the format was worth attending. Even the networking was fantastic. I can't say much for the food and venue, both of which I find to be too overdone in a city with a thousand hotels, but it was such a meaty conference, who cares.

It was standing room only for the welcoming remarks of a Forrester analyst, who presented the future customer - which he named for his son Zeek (1). A well-connected consumer, Zeek will always have total choice and total control and the marketers present would be helpless to target him (unless of course they paid Forrester $100,000 in fees to help them figure it out, according to J.P. Morgan Chase executives who I overheard as clients of Forrester).

After this presentation, Robert F. Cotter, President and Chief Operating Officer, Starwood Hotels & Resorts Worldwide, Inc. presented how he and his boss, Barry S. Sternlicht, Chairman, turned the lodging industry on its head by introducing service into what was perceived to be a cost-based business. Incredibly, the very same day, Starwood announced Steven J. Heyer, former Coke COO, would assume CEO title (he started Oct. 1). I can only imagine what Robert must have been feeling giving this presentation while thinking about how one of the most disruptive marketing experts in business today is now his new boss.

As part of this (note-so-) new shift towards service (2), Starwood investments online would continue to increase to drive their traffic away travel sites Expedia, Travelocity, and Orbtiz. In lieu of the continued loss of traffic (since all other hotel chains and airlines are doing the same thing), the online travel booking business has proven ripe for consolidation, as Cendant's later purchase of Orbitz, started it off. However, don't write it off just yet; have you ever tried to plan a trip? You've got as many choices as cable channels, and frankly, as much as I love choice, I love simplicity and packages better. That's what these travel sites provide.

Additionally, travel agents, those remnants of the late 90s, are still alive, kicking and screaming for traveler attention. Since they have the retail locations, the hotels and airlines just can't cut them out with their websites. I anticipate rapprochement by the industry in coming years as they realize the same thing banks have - huge growth can come from retail locations, too, even if you have a spiffy website, because there's nothing bad about expanded distribution by every available channel.

The most relevant thing to take away from this presentation (as a reader of this publication) is that after decades of operating a transaction based business of providing space at a low cost, it was when traveler behavior was analyzed that the industry ignited. Today, everyone's copied Starwood's success; and loyalty programs have been enhanced to the point where travelers offer their loyalty based on how customized their rooms are when they check-in.

Furthermore, in our first significant recommendation to the airline almost 2 years ago (3), we suggested that legacy airlines cater to the long-distance traveler, including offering more amenities that they'd charge for. In a stunning announcement, this is exactly what Delta Airlines has had to do in order to stay in business (4). And in a recent presentation I attended by British Airways (5), their research indicated that U.S. travelers consider functionality and performance more important than the brand (vs. Brits who travel based on how they feel towards on an airline).

Next up, Stephen B. Burke, Executive Vice President and Chief Operating Officer, Comcast Corporation; President, Comcast Cable Communications, LLC. Unusually evasive, the Forrester analyst interviewing Burke made every attempt short of insulting Burke to get him to spill the beans on all sorts of Comcast issues: "The Disney Deal: What were you thinking?" Burke basically said the deal made sense for customers. CEO Roberts has been quoted as saying that it wasn't a big deal and Comcast is comfortable moving on (6). (They've recently secured access to Sony's and MGM's library of movies.)

There was no denying that Burke knew everything he needed to know about running a cable operator: he presented the evolved business as 7 distinct business lines, including cable, phone, internet, etc. (7) and how Comcast is managing them accordingly. But he was also acutely aware of Comcast's dominant position in the industry: when asked if Comcast is the Wal-Mart of television, he deferred to the "proliferation of content and network reach" instead of addressing their access to 21 million cable subscribers.

But since this conference was focused on the consumer, he addressed cable's basic operational challenges, such as ordering cable and getting it that same day, not 1 month later during a 8-hour window; dealing with unreliable and often criminal contractors instead of Comcast installers; and of course, the complex interface once you have cable. Although these challenges stem from the early days of cable when "no one answered the phones", they still persist, much to the chagrin of the industry as it deals with satellites' encroachment on their subscriber base.

My favorite, by far, was the presentation given by Michael Linton, Executive Vice President and Chief Marketing Officer, Best Buy. Throughout his presentation, the only word that came to mind was "clown". For all of Best Buy's success and "customer-centricity", I'm amazed that this guy has been at the helm of its marketing. After listening to him, I'm convinced that Best Buy's operations and execution (i.e. locations, product selection, and in-store training programs) are what's made it superior to its competitors.

The first thing that stood out was how disingenuous much of their marketing was. Nothing new, same-old, same-old. (I can't believe this man spends as much as $400 million annually.) Linton is clearly not a strategic, big-picture guy, preferring basic tactical executions and a large pool of agency types to awe at his catchy phrases: "The CIO of the house is the teenager". He failed to demonstrate any actual plan that Best Buy implements to maintain customer loyal to Best Buy brand or experience. Although Best Buy does have programs in place - one to improve efficiency and another to improve customer experience - to improve profitability, the audience was left clueless as to marketing's role in Best Buy's success.

Secondly, I became of the opinion that this executive strongly believes that the size of his budget excuses him from actually knowing how he spends it. Per his own words, (which everyone else in the packed room heard): Best Buy does not know how to cater to, and measure the results of, segmented, local consumers. Much of their decisions are based on "judgment". Jaw-dropping, I know.

If I were Richard Schulze (Founder and Chairman of the Board), I'd fire this guy on the spot.

There were many other speakers which I unfortunately wasn't able to take in, however, after these first 4, I was done and considered the event well worth the trip. Overall, I give this event 5 pluses.

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) 2004. 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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