Culinarian

One of my many adventures of living in the U.S. was learning how to finally cook and to appreciate good cooking equipment.  Back home i never really had to do any of the cooking but living away from home alone forces you to learn quick.  In any case the Cullinarian case introduces us to pricing strategy in the case of a premium brand.  If the brand is known for being a premium offering, would a price discount help push sales?  The obvious answer would be yes it would as price, even for products in premium categories, is a major determinant in the consumption decision.  But we have to ask ourselves, how else can a price discount affect our brand?

From the case, the VP Janus seems allergic to anything that does with lowering prices as he feels it sort of belittles the brand and tarnishes the "American icon".  He even goes so far as to dislike ".99" pricing which i feel goes a bit too far.  I mean, if its going to cost me 999.99 for a 5-piece set of cookware, i don't care if there's a 99 cents there, thats a lot of money and i wouldn't associate the .99 pricing to being a budget item.

Anyways, on the other side of the spectrum you have the sales team lead in Brown who wants to expand market share and offer 30% discounts.

I'm a discount shopper but im also a branded shopper.  Let me explain this a little bit.  I usually go off and would like to buy the high end stuff, but i always always have to wait for a sale.  It may not have to be a good sale like a clearance type 50% off, but there's something at the back of my mind that screams, just wait until you "save a bit".  If im buying a premium product, i don't think that getting a 20% discount diminishes its prestige.  Or maybe im just happy to get the product for a little less.

As for the case, i think a brand like Cullinarian, that wants to protect an image, a small price discount on group sets would best be in-line with the goals set by Mr. Roux.  A discount of 10-15% on select lines that perhaps need a little push will not damage the reputation of these prestige brands.  I didn't particularly agree that the 2005 price promotion on the popular items was a good move.  I'm guessing the promo did well more so because they focused on the fast moving items.  If they're popular, maybe they need not be afforded a discount.  The group sets, possibly with only one or two of the "essential" items could be sold, which could increase market share, preserve the image and force buyers to want to buy the popular pieces like the 10-in frying pan to complete their set.  If sales are good, this will widen distribution as more trade partners will line up although they will have to fit the current line-up of high end outlets.

Pricing for premium stuff may be tricky, but customers and potential customers always welcome a little savings.

Magnum in the Manila

The Philippines is a tropical climate.  Man its hot over here.  We have two seasons: Hot and Hot and Sticky.  Oh you can probably add Hot and Flooded to that list but the government might have me arrested for spreading that information as they've gotten pretty sensitive about that issue.  Anyways, where was I, oh yes Manila is hot hot and hotter.  So being a tropical country , ice cream sells better than hot cakes.  You can get ice cream for as little as a dime, i kid you not.  That's how popular we have it.  Of course if you want some Hagen Daz thats a different story.

Anyways, ice cream bars and their counterparts are abound in Manila, selling for roughly 50 cents.  That was the going rate and nobody dared to stray from that norm.  People priced accordingly and companies would work around that assumption of price and made ice cream bars of quality that could fit this prize range.  Until Magnum arrived.

Magnum was the first "premium" ice cream bar outside Hagen Daz and they priced it at $3 a stick.  Now sure its still cheaper than Hagen Daz but initially consumers were appalled at the price point.  Three bucks for ice cream, is it made of gold people would ask.  But there was something about Magnum that got people curious.

Ads portrayed people eating Magnum as high society.  Or better yet, someone who had attained high society status.  Usually they showed a working class man enjoying the good life, mixing it up with celebrities and the rich folk.  Magnum was not available in your 7-11, you had to find a particular "high-end" supermarket that carried it.  And even if they did, it always seemed to be in short supply.  The whole thing about it from the wrapper down to the stick seemed a little more "high-end".  And people ate it up, all three dollars of it.

The ads, the channel distribution choice, the price point, the product and the packaging all contributed to the perception of value, glamor and prestige.  Now im unsure of how Magnum is perceived in other markets, but here in Manila, its known as all these.

It got so bad that nowadays in the Philippines, we refer to things as the "Magnum" of the beer world just as people have used the "rolls royce" of chocolate.  Magnum, for richer or for poorer, has been ingrained in Filipinos minds as value and prestige.  And they have a great integrated marketing communications strategy to thank.

Hond Prestige Cars

I remember writing a paper about Honda Cars Philippines when I was in high school because i felt that they had ever so cleverly played their cards right in the very competitive sedan market in the Philippines.  Back in the 90s, Honda was pretty much a motorcycle company.  Sure they were famous, but only if you were in the market for a set of two wheels and not four.  Toyota, Nissan and Mitsubishi had all been enjoying market share by virtue of first mover advantages.  Then out of nowhere, almost unnoticed Honda unveiled a car fleet.  The result was uninspiring that not too many people knew that Honda actually had cars.  A forgettable year went by and Honda Philippines unveiled a dandy.  Enter prestige cars. 

It was so clever because it was so subtle.  Honda Philippines dubbed themselves a prestige brand.  No government accreditation no nothing, they just called themselves as such.  They rolled out seemingly newer models and they were priced higher then the competition and yet they sold like hot cakes.  Everyone wanted a civic or an accord.  Everyone wanted a CR-V over the Rav4.  Amazing.  And all Honda had to do was to draw up a contract that all Honda car buyers had to sign that said that they would never sell their car to a taxi company or use the car for hire.  Boom.  For just the semblance of some legal protection the Filipino consumer latched on.  If i buy a Honda ill be part of the elite group of prestige car owners.  I wouldnt have to suffer the fate of Toyota or Mitsubishi owners who ran the risk of running around the metropolis in a car that looked like all the taxis out there.  I want a Honda!

This was exactly what everyone said in 1990 and Honda has not relinquished its top spot since.  Amazing what a non-binding contract can do to create value for the customer and catapult a car into a prestigious status symbol.

When in Quebec do what the French do?

The Cleo case brings to light the mistake of taking to market a product that you may assume to do well, without actually studying the target market itself.  I just concluded a class that took me to an in-country experience in China and I was able to witness firsthand how diverse markets across borders can be.

The Cleo case showcased several mistakes by management ranging from the type of strategy to the failure to partner with retailers.  But what I did wanna focus on was the mistake of Colgate Canada to assume that works for France would work in Quebec as well.  Going back to my class that took me to China, which was entitled transnational management.  Basically we studied cases wherein successful U.S. juggernauts had attempted to leverage their expertise and transplant their success overseas to countries like China.  Big companies like Walmart ran into all sorts of trouble, attempting to bring the business model lock stock and barrel to the mainland or far east.  The big lesson of the day is that we truly need to learn who we are selling to, understand what makes them tick before we attempt to sell them anything. 

The end results can be disastrous as we fail to sell the consumers what they really want or in the manner that they are looking for our product.  I feel that Colgate had assumed wrongly that since Quebec has ties to France, that the business model that had been a winner in France would fly in Canadian markets as well.  Now the French connection may of course have been tapped, but Colgate would have benefited from adapting the French model to the nuances of the Canadian market.

Polaroid Redux

I remember my dad telling me about his old camera: a polaroid.  He even showed it to me and I thought it was pretty cool.  The machine pretty much was a gadget to capture moments with the instantaneous gratification of seeing the moment that had just passed.  Be it a birthday party, a graduation, a nice scene whatever, Polaroid captured it and voila you got your picture in a minute.

I never actually did see the Polaroid in action, or the instant memory maker gadget, in action as back in Manila, nobody sold the cartridges.  Furthermore, Polaroids didnt take very "good" images if you compared them to standard film shots which, if shot like a pro, produced much better quality so by the time i was conscious, Filipinos were winding those disposable cameras.  While im on the topic, i did wanna mention that "Kodak" is synonymous to picture in the Philippines, even if most people use DSLRs nowadays.  Just another example of how brand equity can be so pervasive. 

So if Polaroids became extinct and gave way to the regular film cameras and then eventually film cameras died out as digital cameras became cheaper and cheaper, why has my good friend quit his job to open up a Polaroid shop?  I really can't explain but Polaroids are back!  Ok fine, they're called Instamax but heck its the same thing.

Resurrecting from the grave, Polaroids made a comeback maybe two years ago in Manila and have more or less started a cult following.  Im not sure if they are equally big in other markets but i guess Polaroids have filled in nicely for that segment of society that wants to be different.  It makes little sense to me as the cartridges are still relatively expensive (compared to digital flash cards) and although the quality of the prints have improved dramatically, you still dont have the luxury of digital photoshop or the otherwise never ending supply of mulligans when taking photos.  I guess Polaroid has come back to fill in a new need: the eccentric Manileno's desire to be different in how he or she takes photos.   

Levels of consumption Philippine Style

We consume every single day, its what we do as human beings. In the world of consumerism, i think buying things has been taken to a whole new level.

The Philippines is an archipelago in South East Asia and is by all means a third world economy.  We're a country that has been growing in the last two years but sadly our per capita income still lags neighbors such as Vietnam.  One peculiar thing about the Philippines is that despite its status as a developing economy, we have one an economic structure of a developed market.  We are, as many economists put it, a wanna-be U.S. economy where consumption--in tandem with the services sector-- is the main driver of growth. 

Filipinos simply love to consume.  In fact consumption drives almost 60% of the economy.  Forget about investment, buy things now is our motto.  This is where i think the levels of products comes into play at least in for my understanding. 

I may not be as goo goo ga ga over shopping or buying the latest gadget.  But i am a sucker for a good cup of coffee.  Now think about a cup of coffee as a product and I guess the core reason one may want to have this product can range from a) caffeine fix b) wake me upper c) status symbol.  For most Filipinos letter C drives a lot of the consumption for second wave coffee houses like Sbucks and Seattle's Best in the Philippines.  The Actual product of course is the latte itself and the augmented product im guessing is the personalized service you get from a place like Sbucks where baristas are supposed to know your name, your favorite drink and the type of milk you take in your coffee.  I'm tempted to say that an augmented product would be the specialty coffee drinks that you can only find in the particular store or the special discount cards that the particular coffee house offers.  Right around Christmas time, Starbucks will unveil its christmas drinks (toffee nut latte, peppermint mocha etc) and convince you that you need to drink 50 of them before this date to get a limited edition starbucks planner.  In the mad dash and frenzy i bought a 100 drinks, picked up two planners and have yet to open them.  Man did i fall for that.  But heck, they got me to buy all those drinks in that short a period of time. 

We are a world of consumption over here in Manila.  Live for today for tomorrow is another day to spend.  Somebody teach us how to save.

Rory and Revealed Preference

Revealed Preference

Watching the video of Rory Sutherland brought back memories of highschool economics.  I am a trained economist so these were indeed good memories as highschool was my first encounter with the profession I have chosen.  I don’t remember too much from the lessons save for one thing that my teacher said, a line that all of my classmates to this day will recite with a giggle.  Mr. Lirio said “you can’t ever be ripped off if you bought it”.  Now on first glance this phrase doesn’t seem to make a whole lot of sense.  Just getting back from China where most of the stores have “fixed” prices, there were several times that Kelley students found themselves shouting just that (Oh Sh*t I got screwed!!!) after they had found out that maybe they paid “too much”.  The phrase “I got ripped off” means that you paid too much for a physical good or the value of money you parted with is no way commensurate to the labor, capital and cost of resources to make the good.  But this phrase highlights Rory’s theory about intrinsic value. 

When you buy things, you do so by employing what an economist would term as “revealed preference”.  This goes back to Malcolm Gladwell video about focus group discussions and coffee.  Nobody in a room of people, in an environment of a fixed set of parameters, with guys hovering around with notebooks, will ever tell the “truth” with regard to their preference for coffee.  FGD’s may help in determining the explicit value of a good, the cost of the factors of production used to make the good or service, but it is in no way a viable gauge for intrinsic value, which oftentimes will vary wildly between consumers. (I really like my coffee dark and strong, seriously!)

Malcolm shares with us that people will not tell you what kind of coffee they like.  This is true, but their buying patterns with the product or other products may underscore the intrinsic values they cherish. 

Going back to Mr. Lirio’s statement that “you can’t be ripped off if you bought it”, I think he meant to say that as long as you bought it, at the time of the sale that the vendor and the buyer agreed on the price, the consumer stacked up all the value they perceived the good to have, both intrinsic and extrinsic.  When my sister buys a pair of $50 flip flops from Brazil I snicker and sneer knowing that I have the local brand, which is oftentimes of better quality and costs $3.  But perhaps my sister tacks on $42 worth of self-esteem with these Brazilian made footwear or she feels $42 richer and hotter when she wears them.  If she derives that from the flipflops, she’ll still feel “richer” and better off about buying the Brazilian made product compared to the $3 stuff I wear (although i do think they are actually made in China but heck its the logo that matters). 

Rory also had a very insightful example about potatoes and how to slightly modify consumer attitudes towards products.  Back in the 90’s, Toyota dominated the Philippine car market via first mover advantage.  Honda came in with its initial lineup and pretty much fell flat on their faces.  Sure Honda had a great name, if you were in the market for a motorbike but nobody wanted to buy a Honda car.  Then out of nowhere Honda decided to pull the potato trick.  Honda came back a few years later with a "revamped" line-up touting better looking models, seemingly better build quality and more powerful engines.  What did the trick however was to brand Honda Cars Philippines as “prestige cars” wherein buyers of Hondas in the Philippines were asked to sign a contract to never operate their vehicles for public transportation.  The mark of “prestige” in the end was nothing more than a gimmick as the government does not classify cars as such.  But the market ate it up as most people who wanted a BMW but could not afford one were now given a “new” choice for their luxury brand option.  The market may have never been able to communicate such a thing in a FGD but it sure did “reveal” it through their acceptance of a product.  The added intrinsic value was what moved people away from Toyota and to Honda.  The extra labeling caught on like wildfire and Honda has never relinquished its car segment dominance since then.  Subtle ways to alter consumer revealed preference can go a long way to shaping your company’s future.

So I guess the battle is knowing your market and why they buy things more so in the aspect of intrinsic value than the actual cost to manufacture a good because this is the real gauge and standard by which people shape their purchases.  

Data is power- But it aint that sexy.. yet

Its supposed to be a bye week but i guess i should dedicate one blog post to the video by Dr. Rosling.

Hans Rosling reminds me of a prof back from school so it was surreal watching the video.  Just like my economics professor, Hans Rosling talks about numbers like i talk about sports.  Its almost funny.  His fascination with numbers of course after watching his video is well-founded.

I guess what really struck me about the video was how he had showed us that what we think we know and what really is are usually very very very far apart.  The whole concept of pre-conceived notions and ideas struck me as I probably would have scored lower than the chimpanzee myself.

As an economist we are taught to use numbers to explain phenomena of human behavior.  Somewhere in the midst of all the data and econometrics i drowned.  But what i did know was that data can tell a compelling story, we just need to know HOW to get it across.

Data is power no doubt.  It can tell us what works and what doesnt.  It can debunk all that we used to think we know and more.  It can change the lives of the people of the world.

But data isnt sexy.  Heck I need to work with numbers for a living and to this day numbers scare me.  They're so hard to work with and they tend to overwhelm me no matter what software application is developed to make handling the stuff easier.  But data is power and this i feel is a great point he made.

If we knew how to sell the idea.  If we knew how to package it and make people know just how powerful data is, then we'd come up with the right solutions to the problems of the world.  But since people are stuck with bad data and their pre-conceived notions, we usually end up with political solutions that don't quite fit the problem in the first place.

Data is power.  Now we need to make it sexy. With Dr. Rosling, hopefully it will be.