MAJUP

The past few weeks have been pretty busy with a variety of events. LBS hosted its first combined TMT conference with the technology and media club on Friday Feb 25th with speakers on topics such as new revenue streams for IPTV and the forecast for cloud computing. There was one particularly interesting speaker who equated using cloud computing to storing informational currency in a bank. While you appear to be giving up control in the form of a physical box hosted on site, the security and convenience of cloud computing is similar to withdrawing money from an ATM.

That weekend I had some friends from Barcelona visiting (they were going to pursue careers in the TMT space) and they also had the fortune to stay for Tattoo, a school wide celebration of cultural diversity with artistic and gastronomic displays. The entire school was set up with tents as students prepared food native to their homelands wearing traditional dress and putting on performances to display their artistic talents.

This past weekend was spent in Lisbon. With exams coming up, it was a good opportunity for the exchange students to have one big go at a trip before many of us run off at the end of the 10 week term period. Time seems to have flown by as we are already in March.

[Rotman] 5 Great Speakers at Rotman

[Rotman Series: 1, 2, 3, 4, 5]

Jaime is a part-time student in the MBA program at Rotman. He has worked in the sports media industry since 2002 and is currently Manager, Digital Media for the Canadian Football League. He and I went to the Latin America study tour in May last year. He was gracious enough to do a write up for me on his favourite guest speakers which follows:

By Jaime Stein

One of the first things you notice when you obtain an e-mail account at the Rotman School of Management is the sheer volume of e-mails from a guy named Steve. At first it can be overwhelming, but if utilized wisely, it can be your ticket to an exclusive roster of speakers. Steve and his team are the masterminds behind the A-list speakers that regularly visit the Rotman School.

The hardest choice I have to make each week is which speakers I will NOT listen to. This is a good problem to have because choice is always welcome when working full time and attending school part time. I simply don’t have the time to listen to every speaker that passes through Rotman. However, in almost three years, I have been privileged to listen to close to 100 guest speakers.

Most of the speakers that I have seen have delivered outstanding talks, but for the purpose of this blog I present five of the best speakers I have listened to during my time at the Rotman School:

1. Paul Martin – Former Prime Minister of Canada

Imagine you are in your second semester of a three-year MBA degree and you are studying Macroeconomics. A large focus of the course stems around Canada’s macroeconomic policies during the 1980s and 1990s; specifically the country’s battle with debt and inflation. One day you find out that the man behind the plan to battle inflation will be speaking at your school. That would be like a young basketball player having the opportunity to shoot hoops with Michael Jordan and ask him for tips.

Fortunately for our macro class, Mr. Martin came to speak at the Rotman School one morning and for about an hour took us through his plan that brought Canada back from the brink in the mid-‘90s. Following his talk he took time to speak to each of us and share some more personal insights and war stories from his time as both Finance Minister and Prime Minister. This was one of the great days at school that left me wanting to explore a subject further.

2. Isadore Sharp – Founder, Chairman and CEO of Four Seasons Hotels and Resorts

One of the main selling points of the Rotman School is its focus on Integrative Thinking – the theory coined by the current Dean, Roger Martin. In one of his books on Integrative Thinking (The Opposable Mind), Martin focuses on the story of Isadore Sharp and his path to building the greatest luxury brand of hotels in the world. In many of our classes we study the Four Seasons Model for customer service and other best-in-class management techniques. We were fortunate to have Mr. Sharp visit the Rotman School and explain firsthand how he went from one Four Seasons hotel in 1961 in Toronto to operating a chain of approximately 100 properties worldwide.

For anyone with an ounce of entrepreneurial spirit this was a motivating discussion. You could see the passion, courage and drive that Mr. Sharp possessed to launch his vision and stay true to it along the way. Any successful company will create a competitive advantage – however, these are eventually replicated by the competition over time. When people are your competitive advantage, it becomes truly sustainable as Mr. Sharp has proven. While other hotels provide outstanding service, none of been able to match the formula created by the Four Seasons.

3. Rahaf Harfoush – Digital Strategist and Author

It was November 27, 2008 when Ms. Harfoush spoke (for the first time, I believe) at the Rotman School. There was lots of hype surrounding her talk that day because Barak Obama had recently been elected President of the United States and Ms. Harfoush was a part of his wildly successful digital media campaign. I also remember this talk vividly, because it was one day later on November 28, 2008 that I joined Twitter. A lot in my personal and professional life has changed since that defining moment – all for the better.

The topic of conversation at Rotman that day was, “Applying Barack Obama’s Social Media Strategy to Your Brand’s Communications Needs” and it was Ms. Harfoush’s talk that became the inspiration for a lot of what we have done at the Canadian Football League over the past two seasons in the social media realm. To me, this is what an MBA program is about – an exchange of ideas to help stoke peoples’ imagination and potential. I’m glad I made time to attend her talk that day.

4. Michael Lee-Chin – Founder and Chairman of Portland Holdings Inc.

In October, 2009 I attended the Rotman School MBA Leadership Conference in downtown Toronto. It was a star-studded event with speakers like George Butterfield, Co-President of Butterfield & Robinson, Beth Comstock the CMO for GE, Don Morrison, COO of Research in Motion, Robert Deluce the CEO of Porter Airlines and Michael Lee-Chin, the Founder and Chairman of Portland Holdings.

Mr. Lee-Chin is one of the most engaging speakers I have had the pleasure to listen to in person. Mr. Lee-Chin spoke for about an hour on a variety of subjects including how to create wealth. He focused on a small number of blue chip businesses with long-term growth potential. But he was adamant that you know and understand where you are investing your money. One quote from Mr. Lee-Chin that sticks with me is, “If you don’t understand what you own, are you investing or speculating?” This is important advice that too many people continue to ignore this day and age.

5. Jay Hennick – Founder and CEO of FirstService

Mr. Hennick spoke to our class recently at the Rotman School. He runs FirstService, a company that provides services in commercial real estate, residential property management and property services and generates about US $2 billion in annualized revenue. Mr. Hennick told us his amazing story of how he achieved his current standing atop a multi-national company. He got his start with a company he ran as a tenth grader that brought in an income of $200,000. Yes, you read that correctly – he was in grade 10.

His key message was focused on people management; what he believed was the differentiating factor for the success of his current company. His “Partnership Philosophy” states that impact players must have more than a salary and bonus invested in the business; they must have an equity stake. His company focuses on aligning employees’ interest with shareholders in building long-term value. This was both fascinating and eye opening for most students who believe this is hard to do in a company of 18,000+. Yet FirstService continues to succeed. Listening to Mr. Hennick and his passion for success was rewarding.

As you can see, there are some overarching themes from these speakers such as focusing on people and establishing long-term strategies. But ultimately, each of these speakers is among the leaders in their field and that is why I feel fortunate to have spent the past three years at the Rotman School. The access to these great minds alone was worth the price of admission – well almost!

Competitions Week – RMA Case Comp

Last week was very heavy for case competitions and presentations (hence the lack of posts).

On Wednesday, we had the Rotman Marketing Case competition. The case was based on the Pan America (Pan Am) games, where we were asked to create a strategy for how to engage university students to participate in the Toronto 2015 games.

One key insight from our team was that the university students of 2015 are currently high school students, so we took a two pronged approach:

1. Engage high school students now and use their 40 hours of volunteering to instill a culture associated with sport based mentorship.
2. Create the university infrastructure that would allow these students to be received into such post-secondary institutions.

We proposed that as the system developed, this program could follow PanAm games host cities and was modeled similar to "Right to Play" and eventually leverage the Olympics brand to become international and increase the sense of legacy of the games beyond just physical infrastructure.

While we didn’t place in the competition, it was interesting to see what other teams pitched as it was a fairly open ended question and there were plenty of unique solutions proposed by the other groups.

Retail Experts Speaker Series - Jurgen Schreiber, President and CEO, Shoppers Drug Mart

Rotman hosted another speaker series session today from the Retail Experts Speaker Series @ Rotman and the guest was Jurgen Schreiber, President and CEO, Shoppers Drug Mart Corporation. And he spoke on "How and Why Shoppers Drug Mart is Transforming its Stores to One-Stop Shopping”.



After noting that this talk was organized before the change in pharma regulations, he began with a quick history of Shoppers and the development of its stores, noting that the first Shoppers store originally had a variety of products.

He offered a breakdown of Shoppers value proposition on five key elements:

1. Dominate on Convenience


2. Differentiate on Service


3. Differentiate on Products


4. Differentiate on Experiences


5. Compete on Price

Why? Simple answer: Because the customer is ready for it. Real answer: “Our gut told us to do so – to create something really unique and different” & “We have the capital resources and financial strength.”

Mr. Schreiber went on to discuss mega-trends that he perceived as being crucial to the long term success of Shopper’s including: Health, Convenience, Age Complexity, Gender Complexity, Individualism, Sensory, Comfort, Connectivity and how it was necessary to understand and embraces these factors, use them in combination to differentiate and innovate in a scalable way. He also reflected on the changes in demographics in the Canadian market place such as more singles, no or less children, smaller households, aging population and multiple income couples.

Jurgen defined a modern one-stop shopping experience as needed to focus on location and opening hours, store experience, clear assortment, in-store convenience, service, product, loyalty programs and loyalty specific products, to create a “Have it all drug store”. He emphasized how it was also necessary to avoid small and mega store formats, traditional assortments, all services, and all profit pricing. He spoke about how there is a concept of “My store”: my SDM (Shoppers Drug Mart), My SDM Associate and Team, My Optimum, as part of My Neighbourhood.

There was one odd little insight in Shoppers product mix. They don’t sell fresh food, but they make an exception for fresh bread, a noteworthy exception pointed out by Jurgen. He mentioned that, in testing, customers perceive this product has being an exception as to what types of products are expected at Shoppers.

He closed by speaking about the Optimum program. A classmate I was watching the presentation with on the third floor commented that Optimum was a program that was the first of its kind. Unlike popular third party programs, or other loyalty programs, Optimum induces customers to return to the shop to pick up additional items. As an example, this is in contrast to a gas station loyalty program which just causes you to return to the same gas station to purchase something in which you have a relatively inelastic demand – gasoline and convenience goods during travel – selecting between vendors versus marginal purchases though increasing basket size and return visits – two of the key value drivers of Dilip Soman’s customer value framework.

Bom Bril

[LAIST Tour Begins, Fazenda Tozan, Churrascaria – Nova Pampa, Port of Santos, Deloitte, Embraer, Natura, Gol de Letra, Bom Bril, Agencia Click, Nextel Institute, May 6, Rio, Rio Weekend, Petrobras, PREVI]

Gustavo Ramos, former UofT Engineering student (class of ’95) and Columbia MBA (’01) and CEO of Bom Bril, gave us a presentation on his involvement in the company since arriving in 2006 and finding Bom Bril, a leading manufacturer of consumer products, on the verge of bankruptcy and in receivership with the government. Bom Bril had delayed payables such as wages to employees and had not paid any taxes. The largest liability was to the government in the form of unpaid tax.

Having never worked in a distressed company before, Gustavo smiles as he recalls how he approached the problem: His professor at Columbia had said that gold rule of finance: “Cash is king”.

With his work cut out for him, Gustavo started to fix the problems, first by negotiating a 15 year payment schedule to alleviate the government debt. He proceeded to adjust prices and margins on products, renegotiate with suppliers (focusing on the value of Bom Bril to the industry as an ongoing concern) to reduce working capital and cutting marketing spending.

Gustavo generally tried to insulate the end consumer from the financial problems at Bom Bril as well as the lower level employees (no layoffs). When asked if Bom Bril was ever a takeover target, he mentioned the 2001 attempt by Clorox to take over Bom Bril which fell through when Clorox balked at the liabilities on their balance sheet at the due diligence stage.

In my opinion, I think this was a very bold strategy that worked for Bom Bril and reminds me of our Coca Cola case that we had with Anita McGahan in Strategy I, when we were talking about the intangible value of Coca Cola and why that couldn’t be duplicated by Sir Richard Branson in his attempt to introduce Virgin Cola. Although Virgin Cola’s annual spend on marketing was equal to Coca Cola, Coke had built up a tremendous amount of brand equity over its history dating back to world wars and that wasn’t going to be reproduced over night. In the same way, I expect that Bom Bril’s strong brand equity allowed them to coast briefly as Gustavo put their ship back in order. Either way, it was a bold move which has been attributed to the companies turn around.

With the return of Bom Bril to profitable status (with 40% growth and a 17% EBITDA margin), Gustavo laid out his plans for the future of Bom Bril:

• Remodel product lines – expand, change formulas, improve the packaging
• Launch new product categories – clothing care, silver and brass polish with all new products branded with Bom Bril
• Heavily reinvest in marketing to make up for lost time – Launching new brands and supporting old ones. Having a spend that focuses on the Point of Sale rather than just mass marketing. Marketing is budgeted at 5% of sales

He also explained how Brazil’s market for Consumer Product Goods (CPGs) are different than in Canada. Where we are familiar with large distributors and retailers (such as Tesco, Carrefour, Loblaws, Walmart, etc. which only account for 15% of Brazil’s CPG market) where we drive our cars to the store, Brazilians walk to the local mom and pop shop and distributors have a much more difficult time managing the various touch points.

He acknowledges the 3 most important factors for CPG: Brand equity, distribution channels and low cost / scale.

Recently, Bom Bril’s new found success has increased its appetite for acquisitions, having purchased Lysoform, a European disinfection product to add to its repertoire of products. Bom Bril continues to expand, looking for acquisitions or partners who are leaders in niche categories to fill the blanks in their portfolio.

In understanding Bom Bril’s business, we learned about the exclusive nature of relationships with Bom Bril’s distribution network and the economies of scale achieved with non-competitive products where the high costs of the fragmented distribution network could be shared with partners like Kraft.

Their COGS are generally (80 to 85%) composed of raw material costs and they are therefore sensitive to changes in the price of iron ore, the primary ingredient of their flagship “Bom Bril” product, an inexpensive steel wool whose name is almost generisized in the same way as Kleenex and Band-Aid.

Bom Bril is also the first company to release a line of eco products in Brazil: “Ecobril”. Their ideology has been successful on the premise that performance and cost (retail price) are the primary drivers of success in this CPG space, and ecologically friendly is a tertiary concern. This caps their price of their products at 10 to 20% MAX above the price of their normal products. However, by balancing these pillars, they have had success beyond other entrants into the eco space. They also focus on the 4 R’s, which are the 3 R’s we are used to plus “Respect for Biodiversity” which acknowledges their use of natural raw materials versus synthetic and no animal testing.

Another interesting story about Bom Bril’s EcoBril line is that some of the products have the options of buying refills. The irony is at this stage, the cost to manufacture the refill is almost the same as the original packed bottle (due to low economies of scale), however, the nature of the business is to charge 30% less. With increased economies of scale, Bom Bril expects to bring this price down making eco refills more attractive as a product line to Bom Bril in the long run.

Bom Bril’s history is quite fascinating and integrated into the social fabric of Brazil as a staple CPG company and product. Mr. Bom Bril, played by Carlos Moreano, is a local celebrity how has the accolade of being the longest running ad campaign series as noted in the 1995 Guiness Book of World Records.The visit to Bom Bril concluded with a walk through their factory (no photos permitted), but it was interesting to see the unique history (and plans for the future) of the company.

MarkStrat - Lesson's Learned

Today, Industry "Charlie" teams presented this morning and we were Team E. It was an interesting exercise and we learned quite a bit. Teams seemed to have the same message for subsequent periods (or for people planning on playing this game in the future):

1. Get it right the first time - Hit a target market, don't hedge your bets. While hedging works in early stages, as teams compete in later stages everyone moves right on top of their products
2. Leverage your base products to create products for other groups (branching from Singles to High-Earners).
3. Price undercutting doesn't work (especially for premium products). You hit the sweet spot or you don't.

This had a particular way of manifesting for our team as we tried a very aggressive strategy.

We were selling 200+KU per period and selling out for two periods in a row. We wanted to push our boundaries so we looked at the market.

The Market Size was a total of 600KU and MarkStrat adjusts your projections up or down by 20%. Therefore, we targeted 500KU (a dramatic and highly aggresive target) where +20% (600KU) would raise the ceiling on our production to capture the entire market and -20% (400KU) would result in creating at most two years worth of product (and after selling 1 year's worth, would leave us holding 1 year's inventory) - our worst case scenario.

Unfortunately, our focus on the price using conjoint analysis was misguided. Conjoint analysis, by it's incomplete nature, only provides a few points of reference and it is possible to project at least two potential sweet spots. We weren't sure which was correct, but we hoped that by progressing towards the lower one, our drop in price would be offset by higher volumes (hoping to aggressively capture the market at a lower price).

However, this didn't work (see lesson 3) above. Instead we got killed. Our price was too low and our product was intercepted by Team U who placed their product between us and our target market capturing our market share and dropping our unit sales to 159KU.

In following periods, our group learned a lot quite fast. Our group became much better at predicting where our markets would be and landing right on top. Our stock price bounced back considerably in the aftermath of our recovery from our previous plummet.

Managing Customer Value, One Stage at a Time

Today, our MCV professor, Dilip Soman, gave a talk about his new book, Managing Customer Value - One Stage at a Time.

He spoke about the new changes happening in the marketing industry and how his work has been looking at the relevant trends, primarily the effect of:

• The internet
• Data collection and advances in computing
• Blurring between verticals
• Growth in services
• Diversity of people

Sara N-Marandi, his colleague - Rotman '08 and Monitor consulting, further delved into the book's focuses:

• Transformation
• Value creation
• Efficient Allocation of Marketing Efforts
• Portfolio of Assets: Marketing Math
• Marketing Capabilities

I must admit, their framework gives me much hope and respect for the field and thought leadership in marketing. Particularly, I appreciated their use of math and financial concepts to quantify value of customers as a portfolio of assets and the process for evaluation.

It was clear in the presentation of Dilip and Sara that there are some exciting new and valuable insights in their book which I look forward to reading.

Looking at BCG's (In)Famous 2x2 Matrix with HHI

Today, we were talking about BCG's 2x2 Matrix (shown above) in our marketing class and our professor proposed to specifically define market share using a benchmark of the industry leader (or if the company was the market leader, the second place leader) as the line between High and Low Market Share. He acknowledged the primary shortcoming that using this definition, there can only be (by definition) one cash cow in the industry. He then introduced the idea of Coke and Pepsi with 52% and 48% relative marketshare (a slight exaggeration to prove a point) where they are both cash cows generating regular cash flows, but failing the definition: Pepsi would then be "dropped" as a project because of poor systematic definition. Or even if you use a given number (say x%) it doesn't account for the number of firms or size of firms.

In thinking about this, I also started to think about how we might be able to use the Herfindahl-Hirschman Index (HHI)to help correct for this problem. The current problem in the above standard proposed model is the definition of "market share" doesn't include competitiveness of the market (or lack thereof) when defining a cash cow. However, by definition the HHI looks at both the market share of the leaders as well as the effect on competitiveness from their relative size to each other.

Having said that, I would change "Market Share" in the horizontal axis to "Competitive Market Share" or mathematically:

Competitive Market Share = Competitive Market Capture / HHI

Where,

Competitive Market Capture = [% Market Share * 100]^2

Using this formula, we can tell that in the extremes, it works. For instance in a monopoly, Competitive Market Capture = HHI, so Competitive Market Share = 1.0 or 100%

In "perfect" competition (infinite number of firms with infinitesimal or marginal / trivial /zero market share), Competitive Market Capture = 0, Competitive Market Share = 0.0 or 0%.(Actually, to try to use "layman's" calculus terms, the Competitive Market Capture would be by definition a "smaller" zero than the HHI).

Also, because of the effect of squaring the market share (as is the case in HHI) we account for the effect of size in terms of competitiveness.

Having said that, the finance perspective is different then the marketing perspective. The only thing that really matters: Positive NPV.

Kingsford Charcoal Case

For our Managing Customer Value class, myself and Jasmine were warm called to do a presentation on the brand of Kingsford Charcoal case and present an overview of the situation. Vincent and Yijun provided an analysis of the price strategy analysis. Finally Harsh and Kim represented agency 1 and Irina, Mainak and Gang presented as agency 2.

Our professor asked us (Jasmine and I) to ask questions of the two agency groups which was a bit of a unique experience. I drew on the classes' conversation to try to ask intellegent questions to understand how they were positioning Kingsford charcoal relative to it's competitors, what their vision was for differentiating our product and how they planned to build an advertising strategy to drive consumer behaviour.

Harsh and Kim had picked mediums which we thought were in line with the BBQ experience. Agency two, with Irina, Mainak and Gang, showed that they understood Kingsford's position as a market leader and planned to exploit it by emphasizing the advantages of charcoal. However, we felt that their advertising strategy wasn't as focused.

In the end, we had to choose which group we prefered and we went with Agency 1 (Harsh and Kim).

It was an intersting exercise as Jasmine and I had to have a discussion outside of the class while the class came up with it's own selection. I'm told they came up with the same decision, albeit possibly based on different criteria.

Level 5 Marketing with Peter Drumond

In our Middle East International Study Tour class, Peter Drummond from Level 5 came in to discuss how marketing affects strategy, which is particularly cructial to how we will conduct our market entry strategy projects for bringing companies into the Middle East.

I was fortunate enough to ask him a question relating to how to focus our approach in bringing our company into Dubai. He focused on the emotional aspects of our company's product, which was particularly relevent and discussed Cirque de Soleil (our second choice) as an example.

He talked about Second Cup, and how the core value of similar companies was items such as "sensory experiences", "another place" (similar to what we discussed in the SBUX case). An interesting point was that each of these points never used the word "coffee" in them. And building from this base, there was some importance of understanding his framework of table stakes, key drivers, limitations of operations and hidden value.

With his background, he emphasized the value of intangible assets and how the emotional connections that individuals have can drive additional value add beyond standard economic value creation (the lesson we are learning in Managing Customer Value this term).

Constant Dissatisfaction: Google's Approach to Understanding New Media

Jonathan Lister, Country Manager for Google Canada came to give a talk at Rotman about what he calls "Constant Dissatisfaction: Google's Approach to Understanding New Media".

He highlights 3 major changes in technology
1. Ubiquitous Access
2. Cheap Storage
3. Falling Costs of Production

A few interesting points he raised:
- Google Wave released today. Its a new product which integrates many social features like photos and comments. My initial reaction was that it looks an awful lot like Google's version of Facebook.

- there are 20h of video uploaded every 5 minutes on Youtube. There is a shift towards paid premium content which has major implications for the media and advertising industry

- Google's search page has a unique web metric: "Get people OFF our website as fast as possible". They recognize that they are always "one click away from losing market share" and as a result have four focuses for their search engine:
1. Size of index
2. Speed
3. Relevancy
4. User Experience

- they have developed Ad Exchange, a sort of stock exchange of advertising (spot prices). They hope to improve on what they percieve as the inefficiency in display ads

Google's DNA
1. Innovation, not Instant Perfection - Launch early and often
2. Focus on the User and All Else Will Follow
What is scarce? User patience
3. You don't have to be at your desktop need an answer
4. A License to Pursue Your Dreams - 20% Projects
Google News as a needs based project organically spawned from the events of Sept 11
5. Data is Apolitical
6. Morph Projects, Don't kill them
7. Share as much information as you can
8. Make money without being evil
9. Creativity loves constraints

Prognosticate - 5 Google Myths

1. Big beats small: fast beats slow
2 . You need all 4P's: for many brands there are now just 3P's (not price, promotion is less relevant - free flow of info) - Youtube symphony, place reduced by globalization, product is staring role
3. Mass marketing is impersonal: today it is possible to engage 1:1 - on a mass scale
4. Marketing can't be accountable: marketing is the new finance (60s / 70s - tied to actions and responses) - quants are starting to move from Wall st to Madison ave
5. Management comes from the top: - Wisdom of crowds is creating a new bottom-up style of management. For example, Doodle for Google - a project getting kids to design Google's logo: Egypt orphanages and the "my Egypt" project

One of the notable points he mentioned is that creativity thrives with constraints. A very counter intuitive argument, he explained how when you are faced with constraints it requires to you to create unique solutions to overcome those challenges.

I apologize for the format of my notes, but there was so many interesting points it was tricky capturing all of it.


Sent from my BlackBerry device on the Rogers Wireless Network

Profitability Analysis Framework, pt 5 - Price: Elasticity and Differentiation

Profitability Analysis Framework Series
[ 1. Overview, 2. Fixed Costs, 3. Variable Costs, 4. Sales, 5. Price ]

Price is probably one of the most universally important characteristics about a product or service. It usually acts as the primary (and fundamentally important) characteristic about a product. There are different ways to structure fees and payments.

From a strictly economic point of view, price will influence other factors such as quantity supplied and demanded (your standard micro-economic curves).

Your customer's price elasticity will also affect what price you can charge depending on your customers propensity to consume additional (or less) increments of your products.

One way to capture more consumer surplus is to differentiate your product (assuming that it is non-transferable). There are several strategies for accomplishing this task including product differentiation and consumer segmentation. Another consideration related to differentiation is whether customers would benefit of our product if we could customize certain characteristics. Can we achieve economies of scope in developing new product lines (leveraging technology and skill sets) and use these product lines to further refine our sales practices?

Where economics has a more difficult time modeling pricing is in luxury goods and brand equity (and is probably more interesting as well). Looking at similar competitors products in the market, some similar products sell at multiples of competitors products with similar features. For instance, clothing at stores like Banana Republic will sell Khakis at multiples versus what is available at Gap or Old Navy (all owned under GAP Inc). Here the product line differentiation is coupled with very strong brand identities based on design and style to command higher price points for similar products. To be able to understand what the public wants and to determine the best way to appeal to your customers is the ultimate goal of sales and marketing.

For products or services which are larger outlays versus the customers income (houses, cars etc) the high price and required cash outlay may make the purchases inaccessible. However, with financing plans with reasonable interest, potential customers with good credit still have access to purchase these goods whether the financing is arranged through a bank or through the company itself.

Also, for frequent purchases where there is some negotiation, it is important to look at the discounts being offered to close deals. Compensation models and sales commission structures are an important motivator for your sales staff, but they should not come at the expense of the sales team as a whole. Predatory pricing can be just as market inefficient as collusion.

[Case Study] Airlines need to maximize the capacity of an airplane in order to make a profit, however, they can also begin to differentiate between customers as their product is generally non-transferable.

For instance, a family going on vacation or a student knows that he or she is coming home for the holidays and can therefore plan ahead and book a ticket in advance. However, a business consultant only finds out at the last minute that they need to travel to a client site the next day.

Airlines can differentiate between these two groups by charging the first group a lower rate for booking in advance while charging the consultant a premium for last minute bookings. Also, a business class passenger gets a differentiated product.

Along with the additional lead time before a purchasing decision is made, there is also more flexibility (elasticity) in the first group than the second.

Profitability Analysis Framework Series
[ 1. Overview, 2. Fixed Costs, 3. Variable Costs, 4. Sales, 5. Price ]

Profitability Analysis Framework, pt 4 - Sales: Volume, Brand Equity and Positioning

Profitability Analysis Framework Series
[ 1. Overview, 2. Fixed Costs, 3. Variable Costs, 4. Sales, 5. Price ]

A rather important theme that has reoccurred in the last few posts about fixed and variable costs is the idea of quantity sold (sales volume).

At any given price, quantity sold is directly proportional to the total revenue stream for any given product or service.
What are potential explanations for movement in your sales volume? If you find yourself losing market share it could be either because of substitution to another product (entry by a new competitor) or general decline of the industry (less use of buggy whips). Cross elasticity of substitutes can result in lost sales if you are being undercut by a competitor. Another explanation is it could be a change in the social trend (less hamburger consumption and more salads).

Positioning based on the questions above are of the utmost importance and are often based on the following dimensions:

• Price as explained above
  
• Quality - With different dimensions as defined by the specific product (style for clothing, processing power for computers, horse power for cars etc)
  
• Availability accessibility (consumption of cola generally goes up the more convenient it is, hence more vending machines)
• Consumption of complementary and paired products (consuming more cola with an increase in consumption of pizza slices)
  

In growth opportunities, an important consideration is the geographic distribution channels and opportunistic sales. Are your customers able to get your product or service when they need it? Or are they going to your competitors? Do you have adequate point of sales to service your customers needs? What are the hottest geographic areas to locate more sales capacity?

[Case Study] Malcolm Gladwell talks about Airwalk as being a company which became famous for being unconventional and targeted directly towards skateboarding subculture of Southern California. Their advertising reflected a lifestyle which was uniquely different and had a special perceived brand equity. This allowed Airwalk to sell their shoes in boutique stores at prices that were much higher than their "competitors".

However, upon growth and expansion, when Airwalk started putting their shoes in more conventional locations (department stores, etc), their brand quickly became diluted as being too "common" and they lost their luster of being unconventional. What had originally been ironic and trendy and had become rather blasé.

Suddenly, by diluting their brand equity customers became disinterested, and their sales numbers suffered.

Profitability Analysis Framework Series
[ 1. Overview, 2. Fixed Costs, 3. Variable Costs, 4. Sales, 5. Price ]

International Marketing - Pitfalls of Translation

In the Canadian Federation of Engineering Students everything had to be translated into both English and French and this led to some interesting results. As a former President, I have seen some interesting mistranslations including the occasional and unfortunate mistranslation such as a dinner menu of chicken breast translated as chicken boob.

My favourite is the mistranslation of semi-formal as "demi-habillé" (or half dressed). As a result, the Quebecois, in a good natured attempt to remind English speaking Canadians of the importance of translation, collectively came to the semi-formal event literally half dressed in a shirt or blouse and boxer shorts (other more "creative" Quebecer's choose which half to dress up). Now at all semi-formal events, they come continue to come "demi-habillé". The proper translation for semi-formal is "tenue de ville".

While these mistranslations were embarrassing, we weren't alone in a few other disastrous mistranslations of advertising slogans by public entities.

With the recent 2008 Olympic games in China, I was fairly happy with some of the Mandarin translations of foreign products including:

• Coca Cola translated in Chinese to "Delicious Happiness".
• BMW is translated in Mandarin as Bao Ma (literally "valuable horse"). It also doesn't hurt that "Bao Ma" is a useful phonetic equivalent of the slang "Beamer".

I understand that speaking and reading any dialect of Chinese can be difficult (let alone translation). Words that sound alike usually take on the context and implicit meaning of the other. "Ma" itself can mean horse, mother or be used a grammatical inflexion indicating a question (be careful as to which meaning you want to imply).

This is also the case with certain lucky numbers and images in Chinese culture. For instance, the word for the number 4 sounds an awful lot like death and is therefore associated with bad luck. The number 8 is prosperity associated with fortune. The traditional Chinese new year greeting "Gong hei fat choi" contains the word "fat" sounding like 8. Without an intimate knowledge of the language and context, Babelfish style translations (replacing words with literal translations and with a rudimentary understanding of grammar) are sure to run awry.

LISTEN TO ME! Closing the Loop on Corporate Communication

One of the largest root causes for many of the challenges companies face is directly related to communication. Companies need to know how to better serve their customers, but getting good data is becoming increasingly difficult. The demographics and complexity of each customer segment is becoming larger and more refined in its wants and needs. The old methods of communicating with customers are slowly on their way out.

Because of the sheer number of respondents required in order to get an accurate sampling of customer needs, large processes and systems are needed to ensure statistical relevance when looking at customer responses. However, the larger the system becomes, the more distanced and less intimate it becomes, reducing the effectiveness of each contact. Potential customers are very skeptical of corporate surveyors who want to know how they can "serve" them better.

Door to door and phone based solicitation of feed back is dramatically becoming less effective. The models of feedback surveys had started to migrate online. Also the idea of a "middle man" or a intermediary used to collect data is uncomfortable from a privacy perspective as well as the idea that the message is slowly being filtered out naturally (rather than deliberately). Also, with many membership and reward programs in the consumer and retail space, many individual customers are thinking "why can't you just ask me directly?"

With corporations relatively slow to change versus consumer expectations, it seems as if corporations aren't actually "listening".

Therefore, it has become incumbent on PR and Marketing professionals to step up the *relevant* communication. Follow ups are required both to keep contact as well as ensure that feedback is still "alive" in the system. By staying close to the customer, corporations can be more responsive and, as the saying goes in politics, "look busy as well as be busy" doing the work they were prescribed.