Week 12 - Social Media

This appeared on my wife's Facebook newsfeed, its going to cost me $20.

 

To celebrate my week off between semesters my wife and I are going to Las Vegas.  We’re really excited to check out Sin City, but we’ve never been and have had to spend a lot of time researching.  To this end, social media has played a very integral role in the planning of our Vegas trip.

The first step in planning a Vegas trip is choosing the hotel.  We wanted a hotel with a really cool room, nice pool, and all for a good price.  We ended up reserving a room at the MGM Grand.  After booking our room we elected to be on an email distribution for Hotel deals & info, but we were also encouraged to join their Facebook page and twitter account.  So we joined these streams of social media and over the last few months have received lots of information about the MGM Grand and everything it has to offer.  Before you know it I’m sharing pictures of meals I think my wife would enjoy, we’re talking about shows, and various package deals at the restaurant.  MGM is winning more of our vacation dollars before we even step foot in the hotel.

MGM’s social media messages revolved around deals and attraction info.  And every communication has a really fun carefree vibe.  Their messages were most commonly communicated through pictures.  In fact, every Facebook post included a picture.  Using a picture is a very effective way to catch a consumer’s attention in a crowded newsfeed.  This type of advertising is also very effective because it’s reaching you in a setting where you’re choosing to consume information.  When you log on to these sites you’re choosing to hangout and digest information.  MGM has never once sent me any junk mail and their email spam is very minimal.  I don’t think these forms of advertising are becoming obsolete, but they’re definitely falling out of favor.  I think companies like MGM are realizing there are more effective ways of reaching the consumer.

Week 10 - Brand Valuation

I grew up a huge Michael Jordan fan and one of my fondest MJ moments was the 1992 Dream Team.  Like most young men at the time I was star struck watching NBA legends team up to destroy the competition.  But when it came time for the Dream Team to accept their Gold Medals, MJ arguably had his toughest moment of the Olympics.  The athletes were required to take the gold medal podium wearing Reebok warm-up gear.  To some of his teammates this wasn’t a big deal.  But MJ is Air Jordan; he’s the face of Nike.  This was not acceptable. In 1992 Michael was at the pinnacle of his greatness and to stand on the Gold Medal podium wearing Reebok would have been an insult to him and Nike.

Michael Jordan and Nike are synonymous with one another.  Their respective brands are intertwined.  The value of both brands would suffer without one another.  Nike cannot replace MJ with a more popular basketball player (there isn’t one) and MJ can’t sell shoes with anyone but Nike.  MJ helped build the Nike brand and make it a symbol of excellence in pro sports.  For example, Lebron James was courted by many shoe companies when he entered the league, but it was said his personal brand would suffer if he went with anyone but Nike.  Nike represents the best, and going with Nike was a badge of honor Lebron had to accept if he wanted to be the best. 

Nike is my favorite brand because of MJ.  I wear Nike because I grew up watching #23 play the game in Nike.  Most men view athletic competition as battle, and if you’re going into battle you need the best equipment.  So when I go out to play Ultimate Frisbee this week I’ll put on my Nike shorts, my Nike shirt, my Nike socks, and finally my Nike cleats.  The Swoosh is everything; it’s a sign of excellence and dedication to the game.  When your competitor is wearing Nike you know you have to take them serious.  My wife thinks I’m a fool for wearing expensive Nike stuff, but she doesn’t understand.  I’m going into battle, and I’ve seen the greatest go into battle a hundred times and he always wore Nike.  I think I’d be a fool to wear anything else.

Jordan went to the podium in 1992 and accepted his Gold medal, but nobody saw him wearing Reebok.  Jordan tactically draped an American flag over his right shoulder to hide the logos.  There was too much at stake to risk wearing Reebok for 15 minutes.  MJ and Nike had to protect their brand and the influence it eventually had on my generation.

Week 9 - Culinarian Cookware

Culinarian should run a price promotion to hit the objectives outlined by the CEO.  I believe this for a few reasons.

The 2004 promotion was not a flop like the consultants suggested.  The consultants made a lot of questionable assumptions and I agree with Victoria Brown’s critique.  First, to estimate the cannibalization of the DX1 line, the consultants estimated DX1 revenue growth should be exactly the same as the year before without the price promotion (+24%).  With the CX1 price promotion the DX1 line only grew sales by 21%, so they assumed the (3%) variance was cannibalization and deducted the lost profit.  I don’t think it’s reasonable to assume, all else constant, revenue growth will be the same as the year before, it’s too simplistic!  There was likely some cannibalization, but none of the product lines had negative year-over-year sales growth.  There doesn’t appear to be enough info for the consultants to accurately assess cannibalization.  The other two critiques were related to inventory savings and overhead cost allocations.  If overhead costs are not changing dramatically there’s no reason to add this to the analysis.  If there are incremental increases to the SGA budget specifically for this price promotion, then they should be factored into the analysis, but I didn’t see anything like this in the case.  The inventory savings related to production falling behind schedule is silly.  It’s not a hard savings and definitely not a repeatable incident that you would plan on happening during another price promotion.

So the consultants were wrong about the 2004 sales promotion and it was actually a success for Culinarian.  In fact, the sales promotion for the lower price CX1 line may have increased (not cannibalized) the sales of Culinarian’s more expensive product lines.  In 2004, total cookware sales in the United States, excluding aluminum cookware (cheaper cookware), increased 6% & 16% for copper and stainless steel cookware respectively.  Culinarian’s more premium brands (made of copper and stainless steel) had year-over-year sales increases of 9%, 30% & 20%.  I think this evidence suggests that some customers were drawn to Culinarian’s products by the CX1 price promotion and decided to buy a more expensive version of the cookware instead.

Based on the analysis of the 2004 price promotion and the objectives of the CEO, Culinarian should run another price promotion.  Culinarian’s distribution network clearly prefers some form of regular price promotions, so this could only help the company widen its distribution network.  But action will need to be taken to remedy the situation of retailers pocketing the promotional savings.  While price promotions may not be common with premium cookware brands and threaten Culinarian’s prestigious image, they’re ultimately necessary to accomplish the CEO’s objectives of a wider distribution network, increased market share, and consistently strong revenue growth.  Culinarian’s marketers will need to do a better job positioning the product in the mind of the consumer to maintain their prestigious image.  The other key part of another price promotion is the effective use of Advertising.  Culinarian spends 4% of sales on advertising and only 4% of people purchasing cookware has seen a Culinarian Ad.  A more efficient use of advertising dollars in concert with price promotions will be necessary to meet the CEO’s objectives.