Toyota’s Nightmares

Here is a nightmare to think about. You are driving along in a car when it suddenly and for no apparent reason starts speeding up. You can’t stop it; the car just goes faster and faster. You try to get it to slow down but you can’t. The brakes don’t work. You weave in and out of traffic, desperately trying to avoid what seems more and more like an inevitable, horrible crash. It is simply terrifying.

Here is another one. You run a car company with a reputation for quality and reliability. A problem develops that affects millions and millions of your cars and this problem actually causes some spectacular crashes that kill people. You can’t figure out precisely what is wrong, so you try one fix and then another but you can’t really find the problem or say that you have solved it. The press grabs the story, your competitors attack and government regulators pounce. You have to shut down your factories while searching for the answer. It is simply terrifying.

Of course, both of these nightmares are very real.

Toyota is facing a massive problem. The Toyota brand may come through this fine, but it certainly isn’t a given. The longer the nightmares continue the tougher it will be for Toyota to bounce back.

Healthcare: Here’s a Better Idea

“But if anyone from either party has a better approach that will bring down premiums, bring down the deficit, cover the uninsured, strengthen Medicare for seniors, and stop insurance company abuses, let me know.”

                                                            President Barack Obama

Last night President Barack Obama asked people to let him know if they had a better idea for healthcare legislation, so I thought I would jump in with one.

Now I don’t claim to have a magic bullet.  Anyone who knows the healthcare system knows the situation is complicated.  If it was easy we would have figured it all out by now. 

But I do have one very simple idea:  pass a law that requires healthcare providers to have one, single price for procedures, and to make the price available publically on the internet.

At the moment, it is almost impossible to make an intelligent decision about healthcare because it is impossible to determine what anything costs.  If you want to be entertained, just call up your local hospital and ask them the price for a total knee replacement.  They will not be able to give you a straight answer.

The issue is that the official list prices used by providers are simply absurd.  Each insurance plan negotiates huge discounts.  This is why when you get a bill from the doctor it will often have an amount, say $1,500 and then a column called “not covered” which will be perhaps $800 and then the amount that the insurance company pays.  The “not covered” portion is the insurance company’s negotiated discount.  These discounts vary widely depending on who precisely has negotiated the deal, but can be 50% or more of the total.  The result is that the list price is totally irrelevant, charged only to people who don’t have insurance and often will never pay.

With clear pricing people would begin to understand what things cost.  People could see precisely what the insurance company is paying.  People might start to decide to forego some treatments because the price outweighs the benefit.

Ultimately, the best way to contain health care costs is to give people the information and let them decide when treatments aren’t worth the money and when providers are charging too much.

Before we can make those choices we have to know the actual prices.

Clear and public pricing would be a good first step in improving healthcare.

The End of Free Content at The New York Times

You don’t have to attend Kellogg to know that it is hard to make a lot of money by giving things away. 

Selling products for nothing might make you feel good and it will often attract a crowd, but it is not a smart way to run a business.  There isn’t any profit in that particular business model.

So the decision announced today by The New York Times to begin charging for online content makes very good sense.

You can read about it here: 

http://online.wsj.com/article/SB10001424052748704320104575014891649907142.html?mod=WSJ_hps_LEFTWhatsNews

At one point media companies thought that they could embrace the model of television and radio for online content: if you don’t charge anything you can attract a lot of people and then generate advertising revenue.  Unfortunately, this model doesn’t actually work all that well in the online world; while internet advertising is booming, revenues are still fairly small.  In the third quarter, for example, the internet businesses at The New York Times made up only 14% of revenue.

Print readership continues to slide and there is no sign that this will change anytime soon, so newspapers face a sobering reality: relying on the fading print outlet isn’t a viable option.  Relying on a free internet outlet is also not a viable option.

This largely explains why newspaper stocks have gotten killed in recent years.  Shares in The New York Times are down from over $50 to about $13.

The only sensible plan is to create compelling content and then charge for it. 

This model has been successfully embraced by The Wall Street Journal and the Financial Times.   It is the only obvious way to maintain the business long-term.  It is high time that The New York Times adopted it.

The only big question is why it took them so long to come to the decision; apparently the executives at The New York Times debated the issue for a year.

A Good Deal on Pizza

Last week Nestle announced that it was buying Kraft’s pizza division for $3.7 billion. 

Since that time a number of people have commented that the deal was not a smart one for Nestle. I disagree completely; I think the deal is a brilliant move by Nestle.

Nestle is the clear leader in frozen meals in the United States; Nestle runs circles around the other main players, Heinz and Conagra. 

By purchasing Kraft’s pizza division, Nestle does two things.  First, Nestle can build profits by capitalizing on the growth of pizza and reducing costs by integrating the two businesses.  Second, Nestle eliminates a potential threat.

The real long-term risk for Nestle is that another strong competitor emerges in frozen foods in the United States.  If Kraft had acquired Heinz, for example, then there would be a meaningful challenger to Nestle in frozen.  Similarly, if Conagra bought Kraft’s pizza division then Conagra would be a viable challenger.

By purchasing Kraft pizza Nestle essentially eliminates the risk of a significant competitor emerging.  Nestle can now leverage scale and mass to own the frozen foods segment and steadily build profits.

The deal is strategic, long-term and very smart indeed, at least for Nestle.

Smart Phones Wars: Not Going to End Well

It seems like everyone is launching a smart phone these days.

Earlier this week Google started selling a smart phone.  Today Dell rolled out a new one.  Motorola is still aggressively promoting the Droid.  Apple keeps investing in the iPhone.  RIM is spending heavily on Blackberry.  Palm, Samsung and Nokia are still in the game.  HP and Cisco make smart phones, too.

And that doesn’t count the ebooks, netbooks and tiny laptops that all are starting to look a lot like smart phones, too.

I don’t know how this will all play out, but I will predict one thing with confidence: this will not end well for most of these companies.

The problem with attractive, growing markets is that everyone rushes in. But creating a product and building a successful, strong brand are two very different things.  It is difficult to break through the clutter, and hard to succeed if you are a small player without a clear point of difference. 

I have no idea, for example, how Dell plans to succeed with its smart phone.  I’m also unclear about Google’s plan. Of course, Google makes so much money on its core business that making a profit may be a secondary concern.

Look for many of these companies to exit the industry in the next two years.  There is a big shakeout ahead.

A 2010 Resolution

I am not big into resolutions, but I think we all could benefit from this one: do not repeat Tiger’s mistakes. 

It is now becoming quite clear that the Tiger brand machine is coming apart and it will be a long time until it recovers.  Yesterday AT&T announced that it was dropping Tiger Woods, following the lead of Accenture.  All the other Tiger sponsors seem to be lying low and seeing how things work out.  The trend is not positive.

Tiger made three big mistakes.

Mistake #1: Personal conduct.  I don’t need to comment too much on this.  We all need to act responsibly and be the person we appear to be and want to be.

Mistake #2: Integrity.  It is now clear that Tiger and his handlers worked very hard to keep his dalliances secret.  He agreed to appear on magazine covers in return for not publishing certain photos.  He apparently engaged in a series of cover-ups.  This is not acting with integrity.

Mistake #3: Running away.  Instead of directly addressing the accusations, Tiger has responded to the crisis by simply running away.  He was slow to comment at all after the car crash and has yet to appear in the public eye.  Last I heard he was on a boat heading out to sea.  This is not a smart way to respond to a crisis.  Running away doesn’t stop the chatter and it doesn’t make the problems go away.

In 2010, let’s all resolve to act responsibly and with integrity, and to directly confront our challenges.

Happy New Year.

Diminishing Returns

The good people at Kohl’s would be wise to consider the law of diminishing returns and slow the pace of email promotions.

I’m always happy to sign up for promotional programs.  I sign up in part to learn about good deals.  But I mainly sign up to see what people are doing in terms of marketing efforts.  So a while back I signed up to get emails from Kohl’s.

This year it seems that Kohl’s has gone totally overboard with promotions.  So far in December I have received 22 emails from Kohl’s.  That is just about one email per day. 

They all have a similar style:

Tick Tock. Only 4 days left to save an extra 30%, 20% or 15%!

ENDS TODAY! Extra 15% or 20% Shopping Pass LAST DAY!

Extra 15% Off Everything + FREE Shipping! TUES. & WED. Only!

Kohl’s Cash-In Sale + Online-Exclusive Deals Starts today!

Save an EXTRA 30%, 20% or 15%

CLEARANCE + Lowest Prices on Power Hours & Extra 15% Off

There’s Still Time! Save up to 65% Off Last-Minute Gifts

When these emails started arriving I was tempted to read them.  But after a while the constant flow of great deals and big discounts became totally numbing.  Which deals are good deals?  Are any of them notable?  What is a good price at Kohn’s anyway?  I have absolutely no idea.

The only certain conclusion is that paying full price at Kohl’s is really a bad move.

Focus is a wonderful thing.  Next year Kohl’s would do well to focus on fewer, more distinctive offers.

McDonald’s Internet: Points of Parity, Points of Difference

Yesterday McDonald’s announced that it would be introducing free internet access.  This is a good move and a long overdue one.

There are two important concepts when it comes to positioning: points of parity and points of difference.  When a brand establishes a frame of reference, or competitive set, there are obvious points of parity.  These are features and benefits offered by basically everyone.  They do not differentiate, but a brand that falls short on these dimensions will surely be hurt.  For example, all small cars have four wheels, a steering wheel, lights and pretty good gas mileage.  These are all points of parity.

Points of difference are the things that help a brand stand out.  These are the factors that drive purchase.  Small cars are all pretty similar but the Mini Cooper is uniquely sporty and fun to drive. 

For McDonald’s, internet access is fast becoming a point of parity.  In the world of coffee establishments, in particular, internet access is almost universal.  Starbucks, Caribou, Argo and my favorite local Chicago coffee shop, Intelligentsia, all offer it.  McDonald’s has to offer free internet simply to be a viable competitor in the space. 

This move will result in some lost revenue in the short run, as people no longer have to pay for internet access, but it will protect share.

Marketing isn’t always about growth.  Sometimes companies have to focus on improving the product simply to keep up.  This is one of those times for McDonald’s.

Timing is Everything

I spent the last week in Turkey teaching a course on branding.  While I was there a major snowstorm descended on Chicago. So I followed the storm, from a distance, by frequently checking the Chicago Tribune web site.  And as the snow flew, who bought all the advertising space on the Chicago Tribune home page?  It was Toro, advertising snow blowers.  The ad stated:

Shoveling is for amateurs.  Move more snow in less time.  Toro.

This is an example of effective marketing.  At the moment when everyone is thinking snow and shoveling, Toro shows up with the perfect message.  It was a case of the right message being delivered at the right time.  This is a good marketing lesson: timing is everything.

There was only one problem.  I did precisely what the Toro ad suggested and clicked over to the Toro website (www.toro.com).  And I found myself looking at a website featuring…drum roll…sprinkler systems.

Sprinkler systems?

Is there a category less appropriate for December?  As the on-line advertising kicked in, sending people to the Toro website looking for snow blowers, the site was firmly focused on an irrelevant category.  It wasn’t even obvious where one would go to learn about snow blowers.  

This is another good marketing lesson: execution is everything.

Tiger Sponsors Laying Low

It is always delightful when theory and reality align. 

I spend a lot of time in my courses at Kellogg discussing marketing theories.  I also spend time explaining why the theories don’t always work.  Every situation is unique, and sometimes companies violate basic marketing rules and succeed nonetheless.

In the Tiger Woods case, the theory suggests that Tiger’s sponsors should not walk away.  Tiger was and is one of the world’s great brands.  Companies that have invested in a sponsorship deal should stick with it unless there is compelling reason to change.  And while Tiger is in the headlines for all the wrong reasons these days, his actions don’t appear to be unusual or unforgivable (for the public at least…I can’t comment on the state of his family life).

At the same time, it doesn’t make a lot of sense to heavily publicize a Tiger Woods sponsorship at this moment, either.

So in theory companies that have deals with Tiger should continue to work with him, but temporarily pull back on marketing activities.  Once this has all settled down and Tiger’s agent has cut generous deals with all the offended parties to minimize the negative revelations, and once Tiger starts winning again, then the marketing campaigns can resume. 

And that is precisely what seems to be happening.  The Wall Street Journal is running a story today about how sponsors are responding to the crisis.  The basic message: sponsors are defending Tiger and standing with him, but pulling back on promotional campaigns featuring him.  You can read the story here:

http://online.wsj.com/article/SB10001424052748703558004574584211344741656.html?mod=WSJ_hps_LEFTWhatsNews

So, this time at least, reality and theory align.

That is one of the few good things about the disheartening Tiger Woods story.