Additional Current Events
Related by Chapter
Last Updated: June 3, 1997
Switching Types of Nonstore Retailing
[Relates to Ch. 14]
Encyclopaedia Brittanica Inc. (EBI) always sold its product by means of direct selling. For many years, the company's sales force went door to door. Almost
40 years ago, the firm started going into homes only after a consumer had expressed an interest in the product.
Last year, EBI ceased direct selling in North America. The reason for the change, according to the company, was that too many consumers are no longer receptive to in-home selling. The firm will continue to rely on direct selling in other countries, however.
Now EBI is relying on another form of nonstore retailing, namely direct marketing. In particular, a strong effort will be made to market the firm's encyclopedias through online retailing. This may be challenging, though, considering that the product (a 32-volume set) costs between $1,200 and
$2,000.
Sources: "Encyclopaedia Era Ends," Marketing News, May 20, 1996, p. 1; and
"No More Door-to-Door Sales for Encyclopaedia Brittanica," St. Louis
Post-Dispatch, April 25, 1996, p. 1C.
Is a Distinctive Package Important for Well Known or Unknown Brands?
[Relates to Ch. 10]
The predominant form of packaging for soft drinks is an aluminum can. Years ago, however, Coca-Cola typically came in an easily recognized curvy bottle. Even though Coke is the top-selling brand of soft drink, the company's marketers are considering whether or not a competitive edge could be gained by putting the product in curvy (or contoured) cans. The possible new Coke container is not without potential problems, however. For one thing, it's difficult to mass produce a curvy aluminum can. The giant firm announced that it would test the new container in several cities in early 1997.
Other beverage makers also place great emphasis on their containers, often with favorable results. Consider the artwork on the bottles of AriZona iced tea. In fact, the Coca-Cola Co. has had recent success with a new package. In 1995, the company began putting Sprite in dimpled plastic bottles, which were similar to the product's glass bottles from the 1960s.
Distinctive, effective packaging is every bit as important--perhaps even more important--for obscure brands as it is for well known brands. For instance,
ClearVue Products, Inc. of Lawrence, Massachusetts, has worked very hard to come up with appealing containers for its various glass-care products. The company's president has devised several packaging guidelines, including "say it with graphics" and "mark your territory with color."
Sources: Nikhil Deogun, "Coke to Test Curvy Can in South, Midwest," The Wall
Street Journal, Feb. 6, 1997, p. B1; and Brooks O'Kane, "Good Things Come in
Good Packaging," Nation's Business, October 1996, p. 6.
Are Commissions on The Way Out?
[Relates to Ch. 17]
Some retailers that have long relied on a straight-commission form of compensation for sales people are looking at alternatives. Several units of
Federated Department Stores, Inc., for instance, have switched sales people in selected departments from commission to salary compensation. The
Bloomingdale's, Rich's/Lazarus, and Macy's West divisions have implemented this type of plan. The Macy's East division chose to test it in 16 of its 91 stores. Under the new plan, sales people would be eligible to earn a periodic bonus if they meet predetermined sales goals.
Areas within Federated stores that were affected range from women's fashions to housewares. Many areas, ranging from men's suits to furniture, have not been affected by the change.
Perhaps the switch will spread to the retailing of other products, where commission compensation has been the tradition. Rothman Furniture Stoes Inc. in the St. Louis area would welcome the change. One consultant, Britt Beemer of America's Research Group, says such a change is very risky. In his opinion, shoppers consider sales people who are on commission to be more knowledgeable than those on other compensation plans. He even predicted that the switch would lead to a 20 percent drop in sales for a furniture store.
Sources: Laura Bird, "Federated's Macy's East Unit Gets Rid of Some Sales
Commissions at 16 Stores," The Wall Street Journal, Aug. 5, 1996, p. B7; and
Fred Faust, "'Sales Pitch' Made to Staff," St. Louis Post-Dispatch, June 5,
1996, p. 1C.
Has One Battle of the Brands Finally Ended?
[Relates to Ch. 10]
"A Global Perspective" describes a long-term dispute between two breweries over the rights to the Budweiser trademark. It appears the dispute has ended, but without an agreement between the combatants, Anheuser-Busch Cos. of St.
Louis and Czech Budejovice Budvar of the Czech Republic. Basically, the breweries decided to go their separate ways in the marketplace but to meet frequently in the courts.
In late 1996, Anheuser-Busch ceased its efforts to reach an agreement with the
Czech brewery. The Budvar enterprise wasn't disappointed, stating that it didn't need to cooperate with the giant American firm. The breweries will retain their own brand names in some countries but not in others, as stipulated by a decades-old agreement. As a result, A-B will continue to use a variety of brands--including Bud, American Bud, and Anheuser-Busch B--in some European markets.
Why couldn't the two breweries reach an agreement regarding the shared use of the Budweiser brand? For one thing, Budvar is enjoying a great deal of success on its own. For another, the Czechs believe the two beers are distinctly different both in terms of brewing traditions and taste. Finally,
A-B believes it can win most battles in the marketplace or in the courts.
Sources: Robert L. Koenig, "Two Buds Too Diverse to Graft," St. Louis
Post-Dispatch, Oct. 20, 1996, pp. 1E, 8E; and Al Stamborski, "A-B Ends
Trademark Battle," St. Louis Post-Dispatch, Sept. 24, 1996, p. 6C.
Can Fleming Companies Rationalize Its Pricing?
[Relates to Ch. 15]
The marketing formula that produced long-term success for the Fleming
Companies has ceased working well. The full-service wholesaler of groceries and related products experience particularly serious problems with its pricing. Basically, the firm used a "cost-plus" system under which its customers, primarily independent grocers, could purchase goods at the stated cost of a product plus a small percentage markup. In turn, Fleming kept for itself discounts, rebates, and other savings provided by manufacturers.
Fleming's pricing approach even prompted a lawsuit by a former customer,
David's Supermarkets Inc. of Grandview, Texas. The supermarket chain claimed that Fleming charged it higher wholesale prices than allowed by the contract between the two parties.
Perhaps due to the lawsuit or perhaps due to a loss of customers, Fleming's is striving to revamp its pricing and other elements of its marketing mix. Starting in early 1995, the wholesaler began basing its prices on cost plus the actual expense of handling, shipping, and warehousing various products. Some customers applauded the new approach, other criticized it.
Sources: Louise Lee, "Texas Grocer's Award in Suit Reveals a Maze of
Wholesale Pricing," The Wall Street Journal, May 1, 1996, pp. A1, A6; and
Wendy Zellner, "A Warehouse Full of Woes at Fleming," Business Week, Sept. 23,
1996, pp. 94+.
Can Beef Become the "Premium" Meat?
[Relates to Ch. 3]
The marketing challenge facing beef producers is described in the "You Make the Decision" box. Beef consumption has been declining steadily, due in part to health-related concerns about red meat and perhaps also due to inadequate marketing.
Retaining market share, much less regaining lost share, will require beef and pork producers to do more than simply spend more on advertising. A research director at Virginia Tech University believes chicken producers and processors have been particularly effective in developing new products, most recently marinated and flavored chicken. To avoid a differential disadvantage, beef and pork producers need to be creative in adapting their products to meet consumers' desires.
A group of ranchers in seven Northern Plains states and two Canadian provinces intends to seek an advantage by creating its own brand of beef. The ranchers are trying to form a cooperative to construct a meat-packing plant and, in turn, to market a premium brand of beef that might induce consumers to pay slightly higher prices. If the effort fails, many of the ranchers may be forced out of business. However, they are cautiously optimistic because research has shown that "cowboy beef" would be appealing to many grocery retailers and consumers and also because premium beef brands have met with some success in other parts of the U.S.
Sources: Scott Kilman, "Hard-Pressed Ranchers Dream of Marketing Own Brand of
Beef," The Wall Street Journal, March 26, 1997, pp. A1, A9; and Anne
Fitzgerald, "Call to Beef up Meat Marketing," USA Today, March 25, 1997, p. 5B.
Who Benefits from Scanner Errors?
[Relates to Ch. 12]
In "An Ethical Dilemma," price errors associated with electronic price-scanning systems are documented. The statistics reported indicate that overcharges, which benefit retail stores, are more common than undercharges.
A recent study suggests that consumers may not be hurt as much by scanner errors as previously thought. Based on a study consisting of 17,000 purchases at almost 300 stores in seven states, the Federal Trade Commission concluded that the frequency of overcharges was 2.24 percent; in contrast, the frequency of undercharges was slightly higher, 2.58 percent for undercharges.
The study also discovered that the highest rate of errors occurred in department stores, 9.15 percent, compared to an error rate of 3.47 percent in grocery stores. According to the study, errors are more likely due to carelessness or inattentiveness rather than being intentional.
Sources: "When Price Scanners Err, Consumers Usually Benefit," The Wall
Street Journal, Oct. 23, 1996, p. A8; and "Sum Comfort," St. Louis
Post-Dispatch, Oct. 23, 1996, p. C1.
Predicting Popular and Suitable Colors
[Relates to Ch. 10]
The color of a product can have a major impact on a consumer's purchase decision. This is particularly true for some products, such as clothing, furniture, and automobiles. Car makers change almost one-third of their colors from one year to the next. They face a special challenge in that the long lead times for planning and producing automobiles requires predicting popular colors at least three years in advance.
DuPont, a major producer of automotive paints, see more natural colors on cars in the future. According to DuPont, colors that are found in the Grand Canyon and the Arizona Desert as well as southern Italy will be popular hues on automobiles when the new century begins. Automotive paints with metallic effects will be more common, as will hues that appear to vary based on viewing position and light conditions.
One company has developed a method to take the guesswork out of predicting popular colors and, in turn, selecting suitable colors for various products. Cooper Marketing Group of Oak Park, Illinois, has development a technique called Color Association Research. Annually, the company presents a large panel of consumers with 100 different colors and asks them to associate different attributes (such as healthy, comfortable, and durable) with each color. Firms can then use the results in deciding which color would be suitable for a particular product.
Sources: Tim Triplett, "How Consumers Pick Colors," Marketing News, Sept. 23,
1996, p. 20; and Tim Triplett, "Automotive Color Trends for New Millennium,"
Marketing News, Sept. 23, 1996, p. 20.
Fads--What's Next and Why?
[Relates to Ch. 9]
What creates the stampede of consumer buying associated with a fad and what stops the stampede in its tracks? Several economists have a theory, which they call informational cascades. The basic premise is that when consumers have to make decisions with limited information, they notice and emulate the behavior of others. This produces "cascades" of imitation. Later, if some consumers obtain information (e.g., lukewarm reviews of the product's performance) that does not coincide with the behavior of early buyers, then they decide to not make a purchase. Quicker than you can say "pet rock," the fad ends.
Technically, the label of fad should be applied to an entire product category.
However, the label is often attached to distinctive popular toys. A new toy,
"virtual pets," may technically qualify as a fad because it represents a new type of toy. Basically, an egg-size virtual pet allows a child (or adult) to
"raise" a pet that is displayed on a liquid crystal screen. A microchip built into the gadget allows the owner to nurture or neglect the pet.
Virtual pets have been hugely successful in Japan, with sales of four million in just four months. Now two companies, Bandai Ltd. and Tiger Electronics, have high hopes for the U.S. market. Bandai's Tamagotchi will carry a price tag of about $15, while Tiger's Giga Pets will be priced at just under $10. Even before the product was placed on sale, retailers had ordered about six million virtual pets, which translates to the possibility of $80 million in retail sales.
Sources: Joseph Pereira, "Toy Stores Bet 'Virtual Pets' Are Next Craze," The
Wall Street Journal, May 2, 1997, pp. B1, B5; "Retailers Await Virtual Pet
Fad," St. Louis Post-Dispatch, Apr. 29, 1997, p. 6C; and David Stipp, "The
Theory of Fads," Fortune, Oct. 14, 1996, pp. 49, 52.
Selling Books in Cyberspace
[Relates to Ch. 14]
Many retailers, perhaps as many as 100,000, have tried selling their products on the World Wide Web. Thus far, most have attracted few customers and, as a result, rung up little sales volume. One exception is Amazon.Com Inc., which was formed in 1995 by a former programmer at a Wall Street firm.
At Amazon's Web site, consumers can scan a database of 1.1 million titles. Most books are sold at a discount, although the company assesses fees of $3 per order and $.95 per book ordered. Upon receiving an order, Amazon obtains the books from a wholesaler and then ships the order to the customer. Amazon has several advantages over traditional bookstores, including being able to serve customers virtually worldwide, being open all day every day, no need for real estate or store fixtures, and having to carry only a small inventory of best sellers.
Amazon has gotten the attention of other book retailers. In fact, in mid-May
1997, Barnes & Noble, which operates a chain of traditional bookstores, opened a branch in cyberspace. At the same time, it went to court to challenge
Amazon's claim of being "Earth's largest bookstore." If you want to check out the competing cyberspace bookstores, their addresses on the Web are: http://www.amazon.com and http://www.barnesandnoble.com.
Sources: "A New Page in Competition," The Wall Street Journal, May 22, 1997, p. B6; Michael H. Martin, "The Next Big Thing: A Bookstore?" Fortune, Dec. 9,
1996, pp. 169-170; and G. Bruce Knecht, "How Wall Street Whiz Found a Niche
Selling Books on the Internet," The Wall Street Journal, May 16, 1996, pp. A1 and A12.
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