As a modicum of affluence appeared in Shenzhen, Guangzhou, Shanghai and Beijing, companies began making more concerted marketing efforts on a market by market basis.

Deng Xiaoping’s “Southern Tour” in the fall of 1992  unleashed (or ratified) individual efforts across China focused on the pursuit of wealth.  Soon, some people were talking about more markets than they could count on two hands.  Impressive.

Somewhere along the line in the run up to the turn of the century, discussion of “Tiers” emerged to facilitate sharing of information and depth of market penetration.  Where you only spending media in Tier 1?  Was your product showing up in Tier 3?  This was merely shorthand for talking about the big four markets, the other provincial capitals, and the rest.

The problem is that the rest is actually some amalgam of 361 official cities, 2,811 couties, and 34,171 townships.  Over the first decade of this century, some MNC’s were actually seeing their brands reach every corner of the country.  Others were managing points of sale across hundreds of cities.

Despite the blunt tool, business executives were stuck with tiers to discuss their market coverage.  These conversations could be quite frustrating.  We might all agree on Tier 1, and maybe had an 80% overlap for Tier 2, but then your Tier 3 was different from mine.  You had a tier 4, I had a tier 5.

The reocognized disconnect was that each company’s “Tier” definition was different.  And if I needed to create a market expansion plan to grow from 30 markets to 100 markets, which 70 were supposed to be my priority.   Some efforts started to appear that attempted to index all the markets in China by certain economic statistics, but if you’ve ever worked with Chinese economic statistics you know how you felt about that.

Well, I think the new decade is finally bringing around some sound thinking about how to talk about China market coverage without putting up a list of 600 cities:  Clusters.  Most recently advanced rather publicly by McKinsey, the concept was already in practice as executives looked at the total market and preceived newly defined regions that did not adhere to provincial boundries or other traditional market maps.

The cluster approach won’t surprise any practioner.  Afterall, who would ignore a neigboring market that absorbed your media, was easy to distribute to, and spoke the same dialect as your sales team?  Just because it was indexed 40 spots lower?

Talk of Clusters recognized not the indexing of cities, but the interconnectedness of markets that emerged in the wake of rapid infrastructure development, personal car ownership, and the reach of the internet.  Manageable in number (less than 30) these geographicly defined areas offer scalabilty and reach to brands that need efficiency.  Tackling 31 provincial capitals at the same time offers none.

With Clusters, executives can dismiss with talk of cities.  They can focus on reachable populations within defined geographies.  The market becomes manageable again – almost intuitive.  Distribution centers, media spend, and trade marketing investments scale up better.  Focusing on three or four clusters is naturally simpler than focusing on 50 or 75 markets.

Clearly, I’m a fan of clusters.  I recommend you adopt it in China.  Like all good ideas, this one isn’t new, but it sure feels good when you use it in a new location for the first time.

The start of the year always presents an opportunity to step back from the day-to-day news cycle and take stock of annual China market prognostications.  This year, I attended a forum put on by the National Committee for US-China Relations at the NYSE to gaze into the future.

With prominent economists and academicians visting from research institutions in Beijing, I welcomed the opportunity to hear subjective interpretations from individuals who actually advise the government & the Party.  Some of what was said was for market consumption, but I’m also aware that being right matters to individuals who seek to influence the direction of their country’s development.

GROWTH IN THE CONTEXT OF STABILITY

Amidst discussion of the housing market, local government finances, RMB valuation, and other topics, each of the economists found a way to mention the phrase “manageable problem” in the context of the dissappointing economic trends.  This optimism is mainly founded on the recognition that China has a significant amount of money to save its bankers, bail out politicians, or distribute funds to the poor.

And though I found myself wondering if China could handle a perfect storm, I recognized that those discussions weren’t new, China is keely aware of them, and there actually is a window within which they might course correct and avoid facing any financial turmoil.  So I merely noted the expressed confidence and set these issues aside for the day.

What I did keep returning to in my mind, however, was the rationale behind slow(er) growth targets.  China used to seek growth targets of 8 to 9 percent in order to absorb its ever increasing labor supply.  Now, even 7% growth in GDP appears tolerable.  Not only has the labor market tightened, but higher growth rates appear to stimulate even faster rates of environmental degredation.  A lower rate of growth is not only acceptable, but the economists felt it enables the government & the Party to address quality of life concerns widely held by the emerging middle class.

There is an important subtext to this dynamic – political stability.  If the middle class believes in a better future, and the poor believe in that same future while having access to social services in the present, then stability will largely reign across the country.  As stability equates to leadership continuity, it is not a surprise that dealing with the satsifaction of the majority of its citizenry is a higher priority for the Party than whether or not someone needs a bailout.

As we enter this election year in the US, it is worth remembering that it is also a transition year for China – only the second formal leadership transition since the founding of the PRC.  In the year leading up to it, and for the year afterward as power consolidates around the new General Secretary/President, matters of internal stability will take precedence.   In the interim, I wouldn’t expect radical economic policy changes unless the Party was supremely confident in the outcome.

QUOTES & MATERIALS FROM THE FORUM

I’ve offered up some quotes of note from the day.  You can see some of presenters materials here.

“Our accepted estimates of national debt as a % of GDP is 50%. Outside pessimists place it at 60%. But that would still make us a good EU Member if our application was accepted [jokingly said]. Frankly, as a policy we are more concerned with income inequality than our current debt management.”

- Professor WU Ho-Mou Exec Dean of National School of Development at Peking Univ.

“Our estimates by quantile for Household Income show a that the top 10% earn 93 times what the bottom 10% earn. An income range of 613RMB-19,000 covers 90% of the population. An average of 30,000RMB covers the next 5% and an average of 75,000 RMB covers the final 5%. Overall, the top 20% account for almost all the savings.”

- Prof. YAO Yang, National School for Development at Peking Univ.

“Current inventory of unsold residential property estimated at 14 months. Therefore slight softening of housing prices predicted in first half of 2012. M&A among developers likely. Building (starts/re-starts) likely to pick-up in second half.”

- Prof. ZUO Xiaolei , Advisor to the President, China Galaxy Securities

“Economic stress test conducted: if a total of 15% of outstanding developer loans become non-performing & 7.5% of personal mortgages default, the GDP CAR impact would be about 1% point. “Manageable”.”

- Prof. ZUO Xiaolei , Advisor to the President, China Galaxy Securities

“Remember, home ownership in China is at 90%, but the majority of that was housing allocated to citizens during the reform of State-Owned-Enterprises. So the majority of Chinese seek to upgrade from existing “owned” homes.”

- Prof. HUANG Yiping, China Center for Economic Research (former Chief Economist for Citigroup, Asia)

“We expect to see / want to see Real Estate drop below and stay below 10% of GDP (9.9% last quarter). We are watching for an overall price correction of about 20% to trigger consumer demand and stabilize price drop, but we don’t know what the bottom will be.”

- Prof. YU Yongding, Chinese Academy of Social Sciences

“As for purchases of homes, the new requirements of 60% down-payment makes us feel better about consumer defaults because the banks won’t lose principal. But you might ask how does a person earning on average $5,000 a year afford a home. Refer back to hidden income speculation.”

- Prof. YU Yongding, Chinese Academy of Social Sciences

“Systemic under-reporting in the National Statistics – especially at the high end with one estimate showing 90% under-reporting in the top decile.”

- Prof HUANG Yiping, China Center for Economic Research (former Chief Economist for Citigroup, Asia)

“Retail sales under-report consumption because of system errors and neglect of service sector. Household Survey reports 13 Trillion (RMB) in income, but National Accounts show 18 Trillion (RMB) – maybe as high as 23 Trillion by some estimates if other off book income is considered.”

- Prof. HUANG Yiping, China Center for Economic Research (former Chief Economist for Citigroup, Asia)

Think about that: consumers, when budget-constrained and given the choice between buying less food and buying food that clashes with their values, chose the former. It’s evidence for our assertion that shared values are among the most important differentiation and loyalty drivers available to brands – aligning your brand with higher-order needs is a great strategy to insulate your products from budget cutbacks.

But what are those values and higher-order needs, and how do they play into household decision-making process? To answer that question, we’re hosting a webinar next week that will dive into the evolving American family and present highlights from brands that have done the best job of engaging the modern family in recent months.

MLC members, for more, please register for the webinar or check out our research into accelerating loyalty with the use of shared values.

What does it mean? First, we should recognize that credit-rating agencies themselves have been in hot water. There’s evidence that folks like Standard & Poor’s, Moody’s and other credit raters contributed to the Great Recession (and the Not-So-Great Recovery) by rubber-stamping financial instruments and portraying risky investments (mortgage-backed securities, credit default swaps) as safe, easy money. The raters are in a fight for their lives, a fight that depends on reestablishing their credibility as objective, neutral evaluators of creditworthiness. And, as uncomfortable as it may be to admit, signs point to the fact that the US simply is not what it used to be in terms of macroeconomics. We’re $14 trillion in debt, and the people in charge of the federal checkbook can only agree on making a $2 trillion minimum payment. As NPR financial correspondent Heidi Moore succinctly commented, “The US government is like a kid who turns in his homework late and incomplete” (Minnesota Public Radio, 8 August 2011). Lucky the teacher didn’t flunk us.

It’s true that carrying the level of debt that we’ve been carrying is a financial disaster waiting to happen, but we’ve actually carried debt for 60 of the past 71 years. One might easily agree with vice president Dick Cheney, who, seven years ago, famously said, “Reagan proved that deficits don’t matter.” And one might ask: Well, do they matter or not? If they do, then why has the US credit rating never before been downgraded? The answer, at least if you listen to S&P, is straightforward enough. The US government is not acting in a unified, responsible way. Simply put, it’s not acting like a triple-A credit risk, so it doesn’t deserve that rating. Time to play catch-up to the rest of the class: Australia, Austria, Canada, Denmark, Finland, France, Germany, the Netherlands, Norway, Singapore, Sweden, Switzerland and the United Kingdom all still enjoy AAA ratings. So much for American exceptionalism.

A double-dip recession is bound to have political repercussions stateside in the next 18 months. But for consumers in affected markets across the globe, rating-agency jockeying and stock market woes mostly translate to more of what they’ve already been living through for the past few years. While the Great Recession that started in 2007 forced a seismic shift in consumer attitudes — from a world of ample credit to one of credit scarcity, this economic news won’t immediately make consumers change their minds any more than they already have. Because while nations in North America and Europe are now coming to terms with getting their economic houses in order, regular consumers in homes across the globe have been doing that for some time.

Why the sudden volatility?  Consumers haven’t suddenly changed spending behaviors, nor have business customers. And suppliers look healthier than in some time, beating earnings estimates and sitting on plenty of cash. Credit availability has drastically improved. Inflation is hardly threatening.

The answer seems to lie in the health of developed economies. While many appeared to be on the mend for the past year (albeit slowly), it’s become clear the recovery is far more fragile than was thought, especially in the US.  We’re not in a recession, but we’re also not in a recovery that is self-sustaining.

In such an unstable place, most signals (economic data) are too weak or confusing for investors to proceed with confidence.  Even small pieces of information have outsized impact and prices gyrate.  Markets, after all, are just groups of people trying to discern future value and in this case they are struggling.

So, what are executives doing in the face of this volatility?  Some are being tougher on discretionary spending.  Many are revisiting assumptions for 2012 planning.  But the executives we’ve spoken with are not deviating from the strategies and tactics they put in place following the recession.

There is one thing all executives should be doing right now – getting used to operating in an uncertain environment.  Fortunately, that doesn’t require telling the future.  It does require, however, a structured exploration of what could be, and flexibility to respond regardless what becomes.

Most companies can stand to improve in this area.  Want to learn more? Join your peers in our upcoming webinar, Taming Uncertainty, on 25 August at 11:00 am EDT.  We’ll clarify why volatility has become “normal” and how the best companies are working around it.

What’s more, we’ve observed that consumers typically retain habits they form in bad times for a significant period of time after the economic situation improves. The longer this goes on, the longer consumers will remain austere.

So what’s the outlook? We don’t pretend to have a crystal ball, but I think it’s fair to say that the prognosis is mediocre at best. A number of indicators of consumer health are trending up, but others suggest some risk of problems in the mid to long term. In all, the data suggest that, at best, the consumer spending pie is growing very, very slowly, and may in fact be stagnant or shrinking.

Brands can grow in a recession or consumer spending downturn, but it’s generally zero-sum growth, coming at the expense of other brands. Making product and brand messaging as simple as possible is one way to maintain share of wallet during downturns, and we’ve also got some thoughts on resource allocation and optimization during recessions, as well as some ideas on how coupons and incentives in particular can shore up market share in bad times.

Here are three indicators that suggest consumers might be holding their own, as well as two that suggest trouble ahead:

Retail sales. Minus a slight blip last month – a blip that can largely be explained by structural issues in the auto and energy markets -  retail sales have generally been getting stronger since the official end of recession in the U.S.:

Total consumer spending. Tracking retail sales, this indicator has largely been positive since the end of the recession, almost two years ago – and is nearly back on the pre-recession trend:

Be wary of this graph, however: it includes fuel and food spending, which are taking up more wallet share.

Accelerating household deleveraging. American households are generally retreating from the high levels of debt that characterized the pre-recession years:

Decreased debt service payments mean a greater percentage of household income is available for discretionary purposes.

We’ve analyzed the good – now, we’ll take a look at the bad:

Unemployment. Here’s where the real pain lies. First, there’s the “headline” unemployment rate – the rate of adults looking for work who haven’t yet found it:

That’s more or less constant – and abnormally high, given that since mid-2009 we’ve technically been out of recession. This graph doesn’t count underemployment – people who aren’t working as many hours as they’d like, or those who would like to switch jobs, but cannot – which is significantly higher.

Finally, there’s the ratio of employed people to the rest of the population:

What do these graphs tell us? They say that the unemployment is more or less remaining constant, despite the return to slow rates of post-recession economic growth; that many people are in part-time employment situations out of necessity; and that we’re not adding new jobs fast enough to keep pace with population growth.

Food and energy prices. Competing with concerning levels of unemployment for the “nastiest economic indicator award” are rising food and energy prices in America and around the world, stemming mostly from increasing demand in emerging markets. Here’s a visualization of food and energy price increases since mid-2009 (food is in blue, fuel in red):

Food and energy prices are shrinking the share of consumer wallets available for other marketers.

All in all, these data indicate that – at least at this very moment – there’s a declining pool of money available for consumer marketers, that more individual consumers are hurting due to being un-or-underemployed, and that for all those consumers, that declining pool of money is cut into even further by higher energy and food prices.

MLC members, for more on brand growth in tough times, please consider attending one of our upcoming executive retreats. This year, they focus on the theme of decision simplicity – giving overloaded consumers a break from tough-to-understand marketing messages.

One academic paper, The Plastic Trap: Self-Threat Drives Credit Usage and Status Consumption, offers some interesting insights. The authors – professors at London Business School and Cornell – set out to explain why people on a low income spend a proportionally larger amount of their earnings on status goods than those with a higher income. The traditional explanation – that “individuals conspicuously consume to signal their wealth” – only seemed like part of the picture. The study found that status purchases aren’t just about impressing others, but also about making ourselves feel better when we’re down – or, more specifically, about repairing bruised egos.

The study used lab-based experiments to deflate participants egos by, for example, getting them to take simple tests and showing that they scored worse than others. Next, participants were asked how much they would pay for luxury goods, such as cars or watches. The result?  “Individuals whose self-worth was harmed sought affirmation in high-status goods.”

If low self-esteem makes you desire luxury goods, we can assume that losing your job or your house would actually increase your chances of forking out for a high-status item, even though this is when you can least afford it (as this commentary points out).  Problematically, financial difficulties might actually make you more likely to overspend to get that temporary ego boost, despite the dire long-term consequences.

The study also went one step further and looked at the impact of credit vs. cash payment.  It found that belittled participants were more likely to seek the pain-free experience of credit payment and that this painlessness further increased chances of buying status goods.   The authors conclude that a combination of low self-esteem and credit payment creates a “perfect storm” in which consumers who can least afford it are most at risk of overspending on luxury goods.

This second finding about the dangers of credit cards has been confirmed by a number of other studies (described in more detail by Jonah Lehrer).  One such study by professors at MIT involved a real-life auction for baseball tickets. Half the auction buyers were told to pay with cash, the other half with credit.  The professors then averaged bids from each group.  The contrast was pretty stark: for heavy credit card users, the average bid was nearly twice as much as the average cash bid. The paper was entitled: Always Leave Home Without It.

Neuroscience research helps explain this phenomenon. Typically, spending money activates the insular cortex – the part of the brain that imagines pain when seeing other people suffer and responds to nicotine withdrawal.  In order to buy, the anticipated pleasure of owning a desired good must activate the nucleus accumbens (the brain’s pleasure center) more than the price tag activates the insular cortex. It is the interaction between the brain’s pleasure and pain centers that regulates our spending. The problem is, when you spend on credit, the insular cortex doesn’t seem to get it. “The nature of credit cards ensures that your brain is anaesthetized against the pain of payment.”  And since spending doesn’t feel bad, we spend more, whether or not we can afford it. Jonah Lehrer prophesies that this problem will only get worse as cell phone payments take off – since payment will be even easier and more pain-free.

MLC members, for more information on consumer decision making, please attend this webinar or meeting series on the changing purchase process.

On June 21, Iconoculture will host a deep-dive into the U.S. Latino landscape, using observational and psychographic insights to dimensionalize the shifts transforming the Latino experience. During the session, we’ll analyze the increasingly complex Latino identity paradigm by exploring changing cultural tendencies and interpretations, as well as the role of technology in addressing unique cultural needs and aspirations.

One of the shifts we’ll cover: as Latinos endeavor to balance their American and Latino cultures, we’ve been tracking a new trend emerging in 2011 that we call Contextualizing Culture. Latinos embracing this trend are peeling back the layers on tradition and heritage in order to create meaningful and relevant cultural connections between their roots and modern U.S. Latino culture.

In addition to exploring the trends shaping Latino behavior, we’ll share cultural implications that will help brands adapt to the demographic reality. We’ll also look at best practices for ensuring cultural relevancy and examples from brands that are successfully connecting with Latino consumers.  Council members can register to join the conversation on June 21 by clicking here and read more about recent trends and observations of Latino consumer behavior on the North American Trends page.

Categories: How will consumer behavior change in a given category?  What are consumers migrating away from?  Where is their attention (and wallet) headed next? (think media, technology, home, health, food, finance, etcetera)

Segments: How are the needs, motivations, and behaviors of specific demographic and lifestyle groups changing?  What do demographic groups have in common?  What makes them unique? (think Moms, Millennials, Xers, and so on)

Based on these perspectives, we’ve laid out where we see consumers headed in a series of “state of the union” summaries organized around the two lenses, categories and segments.  We call these overviews Consumer Outlooks—our one-page stories of where consumers are headed next.  For Council members, we’re providing a selection of these outlooks on our site to inform your strategy setting and hopefully spark a few new ideas.  Check out the Consumer Outlooks for North America here:  Segments, Categories; and get a preview of our new global Consumer Outlooks here: Global.

Take a look, poke around a few segments, and dive into the Outlook for your category.  We’d love to hear your reactions and answer any questions that pop up as you think about implications for your brand.

Not really, it turns out.  In MLC’s recent Consumer Purchase Behavior survey, we specifically tested for changes in buying behaviors to see if consumers are returning to pre-recession patterns.  Spring thaw isn’t quite right—a better metaphor would be something like “dead cat bounce”.

For our global readership not familiar with this grim idiom, the gist is that dead animals don’t bounce very high when dropped.  From pretty much any height.  I should state at this point that no animals, living or dead, were harmed in the production of this blog post.

Here’s the scoop.  We looked at a broad swath of consumers in the US and the UK, and focused specifically on the ones who said the recession caused them to meaningfully change their buying behavior in one of these ways:

• Look for and use coupons much more often
• Purchase private label or store brands to save money
• Shop at more real or online stores to find best price, even if that means more travel or search time
• Purchase smaller quantities of goods instead of stocking up
• Make use of sharing or renting schemes to save money on big ticket items I used to buy

We then asked these consumers if they are they doing more, the same, or less of that behavior than they were in the teeth of the recession one to two years ago.  The results?

• Only 3-5% of consumers were doing less of any of these behaviors
• About 35-50% of consumers said they were doing about the same amount of each behavior.
• The remaining 40-60% are actually engaging in these behaviors more than they were as recently as last year.

Ouch.  Dead cat, indeed.

The results held in both the US and the United Kingdom, and we’d expect to see the same in most all developed markets.  That helps explain the recent earnings announcements from the likes of Colgate, P&G, Kimberly-Clark and Clorox—all of these companies are suffering from tepid demand in some of their core categories.  In Q4 2010, sales of private label goods grew at 1% year-over-year, whereas branded goods sales declined 0.8%, according to a recent Sanford C. Bernstein & Co’s analysis of Nielsen data.  Our research findings offer little prospect of a bounceback.

So, what are marketers to do?  It seems there are two levels of responses to think about: structural demand-supply changes and tactical marketing shifts.  In the structural category, marketers ought to be thinking about shifting energy to emerging markets, taking capacity off line (e.g., shutting less productive plants), and investing in innovation to develop new product that will serve new consumer needs at lower prices.  MLC members, see our latest work on radical innovation to advance your thinking here.

As to tactical marketing plays, in the coming months the MLC research team will scour the globe for best practices that don’t fall back on discounting, coupons and promotions.  If you’re proud of what your brand has done on this front, do give us a shout, please – pspenner@executiveboard.com.

This holiday season, I escaped the snow drifts plaguing much of the East Coast and spent the end of my year in hot and humid Ghana.  Ostensibly I was there for a friend’s wedding, but while touring the colorful fishing villages and bustling marketplaces in and around Accra, the marketer in me couldn’t sit still.  Given that “emerging market” seems to be the buzzword for 2011, I thought I’d share a few brief impressions from the pages of my unofficial travelogue:

Apples aren’t oranges. Though this was my first time in Africa, I’ve traveled previously to other countries that fall under the über heading of “emerging market”.  In particular, I was struck by how different cities across Ghana felt relative to those I’ve explored in Brazil.  Both countries lead their respective continents as far as a growing, stable economy is concerned, but two major differences stuck out:

1. Ghanaian commerce is almost entirely cash-based, whereas I was easily able to credit card myself across Brazil.
2. Public transport, let alone serviceable roads, were hard to come by in Ghana while even a tourist like me could easily navigate Brazil’s city streets.

It may be tempting to view developing countries as a cohesive segment, but the financial institutions and basic infrastructure can vary drastically from country to country.  A marketing strategy must necessarily take into account the realities of the specific market at hand.

Mobile matters. From rural villages to the more urban city centers, one accessory was ubiquitous: the cell phone.  Ghanaians from all socioeconomic backgrounds use the phone not just to stay in touch with friends and family but as a major tool for conducting commerce.  While it’s no secret that mobile devices change the way American consumers shop, what’s less clear is how Marketing should adapt.  Accordingly, MLC will take a look at the impact this instant access to information has on the nature of both B2C and B2B purchase decision-making across 2011.

Adaptation is a must. Marketing attempts to inflect specific customer beliefs to achieve certain outcomes but, given major cultural and lifestyle differences, these attitudes vary drastically based on societal norms of a given country.  For instance, my travel-sized toothpaste appeals to largely cosmetic concerns when it touts a lasting white smile, whereas billboards for the same brand in Ghana appeal to a more primordial need when stating that “germs will attack your teeth at night.”  Both enact the same behavior (brush teeth more often), but the latter positioning demonstrates an appeal to the more basic health and well-being concerns prevalent in the developing world.

Of course, all these musings boil down to one central tenet: customer understanding must serve as the foundation of your marketing strategy, regardless of whether you’re building it for a developed or emerging marketplace.

That’s the conclusion of a new report from Iconoculture, which tells us that a number of factors, including crunched schedules and more precise shopping habits as a result of the recession, have led to an opportunity for brands who design their products for easier identification. They’ve noted a few tactics brands are embracing to allow their products to stand out:

• Be contrarian. Designs that stand out (or go for the understated look while others are loud) get noticed more often. Go black like Kimberly-Clark’s U by Kotex box amid the pasty pastels in the feminine care aisle. Or up when others are down, like Rain-X. With competitors literally lying down on the shelf in the typical horizontal flowpack, Rain-X stood up in a Doyen-style pouch to get their Glass Treatment and Glass Cleaner wipes noticed.
• Have a block party. Brand blocking — when multiples of the same product work together side-by-side for overall impact — is not only easy for consumers to see, but is often hard for them to ignore. Coca-Cola’s redesign of their Minute Maid orange juice packaging, for example, repeated an image of oranges on the primary display panel of cartons and bottles to suggest the abundance and freshness of a local fruit stand.
• Use your brand as a beacon. For years, stores have reaped the benefits of shelf-ready/retail-ready displays: faster restocking, reduced labor costs and, in some cases, automatic dispensing/resetting. Now, shelf, end-cap and point-of-purchase displays are getting more graphic, making it easier for shoppers to spot brands, and from farther away. These also give food, beverage and CPG brands the latitude to push harder on special promotions, such as the “safari jeep” display that Nestlé designed for their Choco Crossies brand in support of this summer’s World Cup.

MLC members can find more on shoppability at our newly-launched Iconoculture microsite. If you’re interested in learning more about what Iconoculture can do for your organization, please contact your account manager.

Iconoculture recently reported on an unsettling trend in consumer travel—as airline innovation fails to keep pace with consumer demands, consumers are either rewarding smaller players like Suite Arrival (who delivers TSA-friendly personal items from popular brands directly to travelers’ hotel room) or inventing their own “DIY” approaches to make travel less frustrating.

The news isn’t all bad—Iconoculture spotted a few noteworthy exceptions as big brands made progress in the long march to improve travel.  Noteworthy innovators winning travelers’ endorsements include:

• Southwest Airlines “Bags Fly Free” Policy: takes one painful and expensive worry out of travel, and translates into clear, benefit-driven marketing messages.
• JetBlue’s Customer Bill of Rights: reimburses customers for the most aggravating travel missteps, including vouchers and refunds when flights are cancelled and delayed.
• Clear: the growing fly-through-security service enjoys over 75% favorability in online mentions.

For more winners—and a few losers—MLC members can check out Iconoculture’s full trend analysis.

Starting with polycentric innovation, in a recent special report on innovation in emerging markets, The Economist described how companies like Cisco and IBM are building innovation centers in emerging markets.  These aren’t just laboratory outposts—these are major innovation centers on par with those in developed markets. These emerging market innovation centers act as a sort of crucible—an intensely pressured, constrained environment that accelerates innovation, and potentially leads to discontinuous solutions that you simply wouldn’t get in other contexts.

This crucible effect came through loud and clear in this fascinating read on how Danone is using crucible markets like Senegal to develop radically different yogurt offerings.  In this case, the kinds of constraints forced by wafer-thin consumer budgets and a very underdeveloped distribution infrastructure forces unconventional thinking, along with fast failure and correction cycles.

A similar kind of crucible effect surfaced recently in conversations with some top CMOs in the MLC membership.  As the group discussed marketing talent development, there was this realization that some geographic markets can serve as “marketing discipline” crucibles. For example, the Chinese market is far in front in using social media to launch new products. One approach to marketing talent development we discussed was to rotate talent into these crucible marketplaces for 6-12 months to develop expertise very rapidly.  Some of these CMOs came away from the conversation with the action item of formalizing a network of global talent development crucibles.  They would prioritize markets that could act as crucibles for the key marketing disciplines that would separate winning marketers from laggards in the next 3-7 years (e.g., mobile marketing, social media).

For more discussion on crucibles in the context of innovation, join us at one of MLC’s upcoming breakfast meetings, hosted by world-class innovators of W.L. Gore (July 22), 3M (September 22) and Guardian Life (November 30).  Register here.

(photo by Flickr user John LeGear)

One of the sharpest subversive ads of the year (a humble opinion) is available at http://www.tubgin.com/, and click on “A short, short story”.

These brands offer just a few examples of a broader trend in tapping directly into the edgier, snarkier sentiments of today’s consumer (Whitney had to tell me what snarky means).

Iconoculture—MLC’s new partner for bringing real-time consumer insights to our members—has picked up on this trend in its most recent research on “Subversive Branding.”  Iconoculture’s findings point marketers in an interesting direction: while subversive branding can breathe new life into our marketing messages, it also runs the risk of alienating consumers.

Iconoculture offers a few simple factors to consider before integrating subversion into your brand strategy:

• Category Norms: Is subversion common in your category? Is it rare? If you’re the only subversive brand in the category, that may offer an incredible opportunity to reach a niche, but it also may be a warning sign—anyone raising their hand to be the first “angry” life insurance provider?
• Target Audience: Will subversive marketing be novel or familiar to your target audience?  Will it connect with their values and attitudes? Will it pull in more consumers than it turns off?
• Consumer Involvement: Are consumers already doing subversive things with your brand? Can you embrace or build on what’s happening?  If so, it may be a sign that consumers are ready to see your brand’s dark side.

For more on subversive branding strategies, and the consumer values that are opening the door for marketers to show their dark side, MLC Members can tune into our upcoming webinar on subversive branding hosted by Iconoculture’s consumer strategist team.

There’s no shortage of sensational reporting on the sponsors.  For example, there’s an interesting report here on the buzz between Nike and Adidas (the official sponsor). Observation: the PR success for Adidas from the Jabulani ball has, like the flight of the ball, been erratic and unpredictable, but probably a net positive for Adidas. 

Meanwhile, other sponsors fled like rats off a sinking ship to get away from the implosion of the French national team.  Sacre (les) Bleus!

Non-sponsor brands also saw their share of action. In a provocative tale of ambush marketing, 36 female Dutch fans were detained for wearing orange miniskirts, evidently a clear symbol of Bavaria beer (NOT an official sponsor, by the way).

But beyond all the buzz and antics, what characterizes great, enduring world cup sponsorship marketing?

It’s safe to say that strong integrated marketing is at the core.  Plus, you’d expect vivid experiential and compelling social components. Moreover, in a global event such as the world cup, you’d want to see worldwide activation of the sponsorship.  Delivering all of this is a tall order.  In most cases, sponsors will have enlisted the creative brains, arms and legs of an entire roster of agencies to pull it off.

Looking behind the curtain, most client-agency models fall short.  Aligning a multitude of agency partners to play ball and truly collaborate–acting as if part of one team–is very difficult given competing incentives, inertia and agency allegiance.

That’s why we were fascinated to understand how Coca-Cola set up what it called “Red Lounge” to carry off its sponsorship of the Beijing Olympics several years ago. Coke established this different-in-kind agency structure to go well beyond the coordination that clients usually settle for when working with multiple agency partners.  Coke was shooting for deeper collaboration, hoping that it could get it’s agency partners to build on each others’ ideas, and get to that magical 1 + 1 = 3 land.

In effect, what Red Lounge did is establish a common identity among different participating agency personnel–an identity that trumped the allegiance and incentives of  any individual on the team toward his or her home agency. Coke used a clever mix of structure, individual and joint incentives, team leadership, and psychological techniques to engender this “one team” kind of environment.  This led the agency personnel to check their competitive baggage at the door, and partner to create and activate world-class marketing.  As a result, by most accounts, the Olympic marketing effort was a huge success for Coke.

We’re eagerly watching to see how Coke performs when all is said and done at the 2010 World Cup.  Good luck to the sponsor brands in the final days of the Cup.

By the way, my pick for tournament winner?  The country where the rain stays mainly on the plain.  If I get that wrong, you can bet I’ll blame Paul, the prognosticating German octopus.  No kidding.

MLC Members, check out the Coca-Cola Red Lounge case study, which is part of a larger research study on creating high return agency partnerships (the Coke case study starts on p. 24).  The study also includes casework from companies like Clorox and Mars.

“Make a list of the cultural trends that influence your consumers’ behavior.  Take your time; all of the items on this list will not be immediately apparent.  Stay with it, and you will gradually observe more and more.  Be a good observer.  Remove yourself from your own cultural perspective.  Look for the absurdities, the incongruities, the things that don’t necessarily make sense.  You will begin to laugh as you start to see the culture from the outside.  (Laughing is a good sign).”

Bogusky’s hypothesis underpinning this advice is simple: consumers are participants in a culture first and an economy second—they’re much more likely to spend their hard-earned dollars on culturally relevant products than culturally ambivalent products.  If a brand wins the cultural relevance game, they’ll likely see the economic benefits as well.

The passage also was timely as I’d just returned from Iconosphere 2010, the signature event for Iconoculture clients.  The two-day session was essentially a lightning round of the cultural immersion and consumer behavior mapping Bogusky recommends in Baked In.  The marketers who joined us were treated to in-depth analysis of the trends and values that are shaping consumer behavior today, accompanied by a healthy dose of practical advice for brands looking to stay relevant.

While the “you had to be there” cliché rang true for the Iconosphere event, the insights and ideas we talked about were very portable.  One sample topic: a deep dive into the changing values shaping Generation X behavior as that demographic approaches midlife.  We’ve captured a summary of this session’s key takeaways along with the presentation deck and an audio file for Council members here.

Stay tuned for more on the Iconoculture methodology and more insights from their team of cultural, demographic, and category experts.

By Rob Hamshar

Scientia potentia est, the Latin maxim commonly paraphrased as “knowledge is power”, is as much a philosophy for gaining competitive advantage today as it was when famously stated by Francis Bacon centuries ago.  But in the elegant simplicity of this phrase lies its vulnerability to misinterpretation and misapplication.  One need only look at the rise and fall of knowledge management (and its current transformation with Web 2.0) to see how quickly this concept can lead you astray.

Just as the word “knowledge” is not qualified in this famous maxim, many people assume that more of any knowledge contributes to more power.  This fails to take into account that some knowledge is far more valuable because of its uniqueness or quality.  Or, perhaps even worse, it falsely assumes that all knowledge is worth the cost of consuming or managing it.   In most organizations, this remains a highly contentious subject.  For every white paper extolling the potential of knowledge management, I read or hear a story from one of our members about the unwieldy systems that fail to deliver.

I recently read a compelling article published in the Strategic Management Journal entitled “When Using Knowledge Can Hurt Performance” (Haas and Hansen, 2004) dealing with this very issue.  The paper concluded that utilizing a firm’s knowledge resources to complete important Selling tasks can backfire and undermine competitive performance.  The study explores how engagement teams at the pseudonymed management consulting company go about building proposals for new engagements.  In particular, they focused on how the team 1) used knowledge resources and internal experts to get up to speed on the topic; 2) developed an innovative approach for addressing the client problem, and 3) structured the proposal itself.  Some of the surprising key statistics published in the study include:

• The more the teams relied on their knowledge portal in developing the proposal, the less likely they were to win.
• As the level of team experience increased, an increase in usage of the knowledge portal decreased its chance of winning.
• As the number of competitors for a bid increased, an increase in usage of the knowledge portal decreased its chance of winning.

I want to believe there is a way to make knowledge more powerful.  If you think you’ve solved this one, we’d love to hear about it.  Based on our initial exploration in this area of knowledge management in Sales and Marketing, and especially given our findings around the importance of knowledge management in supporting commercial teaching efforts, we think it’s a major component in smoothing the working dynamic between Sales and Marketing.

There’s also this large sporting event coming up (in case you haven’t heard): the 2010 FIFA World Cup. Or rather, “the-every-fourth-year-global-football-tournament-to-determine-a-single-country-champion,” as FIFA would like me to refer to it in this space.

FIFA is playing brand police here in South Africa, and a ruthless outfit at that. You can find just a taste of their efforts in this article. My personal favorite – their request of Kalula, one of South Africa’s low-cost airlines, to withdraw its slogan “Unofficial National Carrier of the You-Know-What.” While fully understanding that FIFA and its corporate partners paid truckloads of money for brand exclusivity at the tournament, the brand management tenacity at play here seems to far exceed rational boundaries.

When you’re shutting down a street vendor for selling a scarf with the words World Cup on it, it seems a bit beyond the pale – especially here in South Africa, where the World Cup may be the lifeline to a better livelihood for that precise street vendor.

FIFA is even removing any brand mark from legitimate products sold in stadiums that are not linked to its corporate sponsors. FIFA’s marketing director Thierry Weil said this: “The restriction is, it must be unbranded, but you will still make money, so this unbranded one is not harming anyone.” By his stated logic, this is facially absurd. FIFA clearly believes that brand is paramount to financial success (as do we here at MLC), hence the restrictions on those brands not associated with it. The brand removal must be at least somewhat harmful if protecting even the omnipresent name World Cup proves so important.

Perhaps I’m going overboard and am blinded by the incredible hospitality the South Africans have shown on my trip thus far. I’d love to hear what our members think on this topic. Certainly, my colleagues in our Communications Executive Council have produced much research on the importance of reputation management; I would never argue with the merits of brand standards and guidelines produced by marketing.

Yet something about this example strikes me as going one step too far, taking brand management far beyond its intended purpose. It isn’t as if the public doesn’t know the World Cup brands. Official credit card: Visa (thank you Morgan Freeman). Official soft drink: Coca Cola. Official restaurant: McDonald’s. And now we have an official brand police officer – FIFA. To invert McDonald’s line, I’m not lovin’ it. But wait, am I allowed to write that?

This observation comes from a study of key account managers in 2006 that surveyed key account managers from 53 large companies.  The study found that, while all companies tier customers, they also tend to limit the number of accounts that fit the description: “a customer relationship that is deemed significant to your company’s long-term growth because of that customer’s current and/or expected financial, learning or strategic value”.  Specifically, the number of true key accounts tends to cluster around the 15- to 20-mark, irrespective of the company’s industry segment. That was a surprise, since we expected certain firms (like the delivery industry) to engage with a much larger number of accounts given their routine interactions with 100,000s of customers.

The fact that the number was constrained suggests a managerial, rather than an operational, bottleneck.  Simply put: no company is capable of seriously engaging with more than a few handfuls of true key accounts at any one time.

This is an important constraint for marketers as they are the custodians of the firm’s value proposition and are often tasked with identifying the firm’s next growth platform.  For most firms, breakthrough growth is going to come from identifying those customers who are positioned to grow and whose growth will depend on the use of contingent capabilities.  But key accounts shouldn’t just be about stable revenue generation; they should also be about co-developing capabilities.  Privileged access to these important customers becomes a major competitive differentiator for a given company.

The catch, however, is that it’s relatively rare for key accounts to be offered a unique value proposition outlining the strategic direction for both firms to pursue. Instead, it too often comes back to ‘white glove service’ and access to fun functions. These are all wonderful things, but they don’t really talk about offering access to key managers/staff or the firm’s scarcest capabilities. They sometimes contain goals around mutual investments, but it’s rare for these investments to link to a specific strategic intent. And thus, if your firm is trying to manage more than about 20 of these top-to-top relationships at the same time, well, then maybe it has placed too many small bets and needs to double-down on a selected few for it to make a difference.

MLC members: learn more about developing a key account strategy that uses your company’s core capabilities to address the needs of target customer segments.