MMR Strategy Group » Bruce Isaacson

[White Paper] Playing Nice with Legal: Keep Marketing Claims in Compliance

Bruce Isaacson — Thu, 02 Apr 2015 20:39:00 +0000

In his article, “Playing Nice with Legal,” in the January 2013 issue of Quirk’s Marketing Research Review, MMR Strategy Group’s President, Dr. Bruce Isaacson, uses a fictional cake mix as an example to outline best research practices in claim substantiation. This article provides practical guidelines to help you make sure your substantiation can support your claims. It focuses on:

Claims involving consumer perceptions
Types of claims and burdens for substantiation
How to increase the likelihood that your claim is in compliance

Click here to access white paper.

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[White Paper] Critical Research Steps and Core Principles of Claim Substantiation

Bruce Isaacson — Tue, 24 Mar 2015 19:54:30 +0000

Claims are the foundation to convey the benefits of products and services in today’s crowded marketplace. Advertising substantiation provides supporting evidence for claims made in locations such as ads, point of sale materials, brochures, and packaging.

This paper discusses how such evidence must be gathered for claim substantiation when consumer perceptions are involved.

You’ll learn the core steps involved in claim substantiation, and the principles that help guide each step, including how to:

Decide which claims to test

Select which products or services to test

Conduct claim substantiation research and analyze claim substantiation data

Select claims to use in the marketplace

Click here to access white paper.

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Apple v. Samsung: The Next Round of Survey Evidence

Bruce Isaacson — Mon, 12 May 2014 11:35:52 +0000

Most readers of this blog know that over recent years, Apple and Samsung have engaged in high-profile litigation over certain patents used in smartphones and tablets. A decision was just provided in a trial involving five patents from Apple, and two patents from Samsung.

In 2012, I wrote a blog post on the litigation surveys used in an earlier trial, which involved patents relating to earlier models of smartphones and tablets.

The ruling in the 2014 trial appears to be mixed. Apple was awarded almost $120 million in damages, and Samsung was awarded approximately $158,000 in damages. These amounts are not very large, particularly compared with the $2.2 billion that Apple had been seeking or the $6.2 million that Samsung had sought. As with the 2012 trial, litigation surveys were both provided and rebutted in this matter.

There are summaries of this trial in sources such as The New York Times and Fortune. This blog post discusses the litigation survey evidence presented in the 2014 trial. (A general caveat: I was not involved in this matter. I wrote this blog post from public sources, and am not providing an opinion regarding any side’s argument or witnesses.)

A Litigation Survey Using Conjoint Analysis

In the 2014 trial, Professor John Hauser, from the Massachusetts Institute of Technology, provided survey evidence relating to the value of certain patents used in smartphones and tablets.

As in the 2012 trial, Professor Hauser used a method called conjoint analysis to measure the importance of certain features in Samsung products that rely on the patents at issue. Those features include universal search, automatic word correction, and slide to unlock. The survey conducted by Professor Hauser evaluated consumers’ willingness to pay for those features, and also measured the decrease in demand for Samsung products without those features.

Basically, conjoint is a method used to estimate the demand for certain elements in complex products, such as automobiles or electronics. In a conjoint study, respondents are shown different configurations of product profiles. By measuring consumer preference for the different configurations, conjoint can measure the value of specific features.

You can learn more about conjoint from a white paper I’ve written, which is available here. You can read more about Professor Hauser’s testimony, as well as the rebuttal testimony, at websites including theverge, Electronista, Bloomberg, and ZDNet.

Rebuttal of the Conjoint Survey

Professor Hauser was rebutted and/or cross-examined by three separate people, all of whom argued that Hauser survey misstated the value of the patents at issue. I’ve summarized their testimony below.

First, counsel for Samsung cross-examined Professor Hauser, arguing that key influences on consumer buying decisions were not included in the survey, such as the value of Samsung’s brand and marketing.

Second, Wharton Professor David Reibstein, a rebuttal witness, questioned Professor Hauser’s methods and conclusions. Professor Reibstein argued that the research was biased, and did not provide valid measures because it asked only about certain features, and did not ask about the most important features. Professor Reibstein compared this to asking consumers what cup holder they would like in a car, rather than asking about more important features such as their preferred manufacturer.

Professor Reibstein also conducted his own research with a smaller sample, which he maintains indicated that consumers do not understand the features involved in Professor Hauser’s conjoint survey.

Third, Tulin Erdem, professor of business and marketing at New York University, also rebutted Professor Hauser. She argued that Professor Hauser’s research only asked about certain features and not about other features. According to Professor Erdem, this would tend to elevate the value and importance of those features, by motivating consumers to think about features they normally would not consider in such detail.

What We Can Learn From This Litigation Survey

The ongoing battle between Apple and Samsung has been high profile, and this trial received a lot of press. Apple and Samsung are interesting, successful, and well-funded adversaries, and they compete in markets that are important and rapidly-changing. There is even evidence that Google helped fund some of Samsung’s legal fees in this matter. Because smartphones and tablets are markets that move so rapidly, these trials and these patents could have implications for innovations in these important products.

Despite the high stakes, the outcome in this round is less conclusive. Although Apple and Samsung spent a lot of time and a lot of money on this trial, they ended up with a mixed verdict – both sides were awarded something, but neither side was awarded what they had requested. Even the jury foreman, who has expertise with IBM in software and patents, states that he did not see the verdict as sending a message. This matter is likely not over, as both sides have promised to appeal.

However, the trial does provide a good example of how litigation surveys are often evaluated in court. Professor Hauser is one of the pre-eminent experts on conjoint. The opposition in this matter cross-examined Professor Hauser, and also brought in two additional experts to provide rebuttal testimony. Both sides spend a lot of effort and a lot of money either providing or rebutting the litigation survey.

It is not unusual for a survey offered in litigation to be questioned or rebutted by opposing counsel and multiple experts. When a survey is important to the litigation, and the litigation has high stakes to the parties involved, it is likely that the survey will attract extensive criticism from opposing parties. Conjoint is a particularly complex methodology, but this basic principle applies across a wide range of litigation surveys.

Dr. Bruce Isaacson
President
MMR Strategy Group

The post Apple v. Samsung: The Next Round of Survey Evidence appeared first on MMR Strategy Group.

Survey Evidence to Evaluate Religious Freedom, Discrimination and a Dress Code Sign

Bruce Isaacson — Fri, 28 Feb 2014 12:16:38 +0000

Some readers will no doubt have heard about the recent case in Williamsburg, Brooklyn, involving seven Chassidic shop owners who posted a dress code sign in their shops. The sign required that shoppers be modestly dressed, and was written in English, Hebrew, and Spanish. According to the sign, “Shorts,” “Barefoot,” “Sleeveless,” and “Low Cut Neckline” were not allowed in the store. See the sign to the left.

The storeowners were sued by the New York Commission on Human Rights, an organization that addresses discrimination matters (what the Commission calls “Human Rights”) in New York City. The Commission argued that the sign discriminated on the basis of gender and creed, and wanted the sign taken down and the store owners fined on the basis of discrimination.

The law firm of Kirkland & Ellis took on the matter on a pro bono basis, arguing that the sign was not discriminatory and that the real issue was the storeowners’ freedom of religion. Kirkland & Ellis retained MMR Strategy Group to conduct a survey in the matter, which we conducted at a reduced rate. The Commission conducted their own survey.

I do not know of any other cases involving litigation surveys to measure perceived discrimination. This post provides an overview of the matter, discusses the two surveys, and describes the outcome.

Freedom of Religion versus Freedom from Discrimination

A lot has already been written about this matter, much of it critical of the Commission’s position. For example, the New York Post published an editorial with the headline, “Discrimination lawsuit against Hasidic stores silly.” The Weekly Standard called the Commission’s activities a “half-baked inquisition.”

The seven stores are all owned by Chassidic (ultra-Orthodox) Jews who belong to a particular branch of Judaism called “Satmar.” Satmar Chassidim live what many would describe as an insular and religious life, which is focused around their community. Their tight-knit community offers what they believe is a defensive mechanism to preserve their way of life against the encroachment of outside influences. Satmar Chassidim dress in very modest clothes, including long dresses for women, and long pants for men, in any season.

The shops involved, in all likelihood, primarily serve the local Satmar community. The stores are small and are located within a few blocks of each other, on Lee Avenue in Williamsburg, Brooklyn. Some of them sell items such as Satmar-oriented styles of clothing, kosher foods, invitations for bar mitzvahs, or household items that a person is unlikely to want unless they are part of the Satmar community.

Elsewhere in Brooklyn, including in other parts of Williamsburg, many neighborhoods are filled with a very diverse population, including urban trendsetters and hipsters who dress very differently than Satmar Chassidim. Brooklyn is a popular and trendy locale, the home of Jay-Z, the Barclays Center, and lots of urban renaissance. It is a melting pot where many residents view themselves as progressive and outspoken.

The mix of different demographics and lifestyles in and around Williamsburg shows how this matter can raise issues of freedom of religion versus freedom from discrimination.

On the one hand, the Commission argued that the sign subtly suggests that certain types of people are not welcome in the store, such as women or perhaps even non-Jews. Kirkland & Ellis, on behalf of the storeowners, argued that the sign was addressed equally to men and women, and that all people who were modestly dressed were welcome in the store. Kirkland & Ellis also argued that dress code signs are commonplace, as in the familiar sign that states “No shirt, no shoes, no service.”

Two Litigation Surveys Measuring Discrimination

Two surveys were submitted in this matter, one from me and one from the Commission on Human Rights. I conducted my survey among people representative of those who might see the sign in New York City. My survey measured discrimination based on a standard which defines discrimination as any practice making ordinary people feel uncomfortable on the basis of religion or gender.

Specifically, my survey measured whether ordinary people who might see the sign believe that a store displaying the sign would make typical people:

feel unwelcome based on gender,
feel unwelcome based on religion, or
feel that the store welcomes men only.

In addition to testing pictures showing the sign in front of the store, my survey also tested a “control,” which consisted of the stores without the sign. The results of my survey showed that the sign was not discriminatory according to the standard described above. For example, the vast majority of respondents felt that the store, even with the sign, welcomes both men and women.

The Commission, meanwhile, conducted their own survey. The Commission’s survey was written by Commission staff people, with the data gathered by interviewers hired by the Commission. At least by my analysis, the Commission’s survey also showed that the sign contributed relatively little towards the key measures relating to discrimination.

Due to confidentiality requirements, I cannot describe my survey or the Commission’s survey in more detail.

A Settlement Based in Part on Litigation Surveys

In the end, the two sides settled just before trial. There will be no fines against the stores, and the stores will be allowed to retain the dress code sign in a modified version that makes clear that everyone is welcome.

In my opinion, this is a reasonable solution for both sides. I was told, and believe, that the survey evidence presented helped convince the Commission that it made sense to settle this matter.

I also believe that the sign is not discriminatory and that the stores should have been allowed to keep the sign in some version. I was surprised that the matter took so long to resolve, but the Commission was determined to pursue this matter.

Most of all, I’m grateful that I live in a country that believes both in freedom from discrimination and freedom of religion. This case required a balance between the two. The process of resolving that balance was not fast and not easy, but it worked in the end. I am grateful to Kirkland & Ellis (particularly Jay Lefkowitz, Devora Allon, Chris Reigstad, and Terence Leong) for involving me in the process of resolving this matter, and for their efforts on behalf of the storeowners.

Dr. Bruce Isaacson
President
MMR Strategy Group

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Do Food Labels Cause Consumer Confusion About Expiration Dates?

Bruce Isaacson — Tue, 18 Feb 2014 07:47:05 +0000

Have you ever thrown away milk because the “sell by,” “use by,” or “best before” date on the carton expired? Did it smell bad? Taste bad? If it seemed fine but you were confused about what a date meant, you may not be alone. A survey was conducted in September, 2013 by the Harvard Food Law and Policy Clinic and the Natural Resources Defense Council (NRDC) that led to the report, “The Dating Game: How Confusing Food Date Labels Lead to Food Waste in America.” This report suggests that many consumers are confused by expiration dates on food labels.

The authors describe consumer confusion over the meaning of terms such as “sell by,” “use by,” and “best before” on food products. For example, the authors discuss “sell by” dates, which are a tool for retailers to use in stock control. “Sell by” dates indicate the date by which a grocery store should no longer sell an item, so that the item can have shelf life after a consumer purchases the product. In reality, “sell by” dates are not meant to communicate with consumers, nor do they indicate the food is bad on that date. (Speaking from personal experience, I’m sure I have thrown food out on a “sell by” date.)

By contrast, the report also discusses dates labeled “best before” or “use by,” which are often the manufacturer’s estimate of the date after which food will no longer be at peak quality, rather than a date on which the food has become spoiled or unsafe.

This topic raises some of the same issues involved in claim substantiation because dates on food labels provide a type of claim about the shelf life or longevity of a food item.

Food Waste and Consumer Confusion Over Expiration Dates

The report cites sources indicating that about 40% of food in the United States goes uneaten, with Americans wasting 160 billion pounds of food each year. The report also points out that the production of wasted food has a variety of negative consequences – it costs American households money, adds to landfills, wastes fresh water, and diverts food that could have gone to families who are “food insecure.”

It also suggests that better policies and practices for date labeling on food could help reduce waste and improve food safety.

As Americans have moved away from farms and become used to buying food from sources such as supermarkets, they have become less knowledgeable about their food. According to the authors, the current system of expiration dates does not sufficiently distinguish between dates that are related to food quality (whether the food is of good quality) versus food safety (whether the food is safe to eat). At the same time, the dates do not provide feedback about the conditions under which the food was kept.

Regulating Expiration Dates on Food

The report describes a patchwork of federal and state regulations that govern food labeling, involving the Food and Drug Administration, the Federal Trade Commission, the U.S. Department of Agriculture, as well as a host of state agencies and the U.S. Congress.

It describes how labeling regulations can vary across states. Here are a few examples using milk:

Florida: All milk and milk products “shall be legibly labeled with their shelf life date,” but shelf life date is never defined.
California: Milk is required to have a date that the processor decides is the date “to insure quality, such product is normally removed from the shelf” but sale after that date is not restricted.
Montana: Milk must have a “sell by” date within 12 days of pasteurization, while Pennsylvania requires it within 17 days.
New Hampshire: A “sell by” date is required for cream but not milk.
New York, Texas, and Wisconsin: Among many other states, these states have no requirements for date labels on milk or dairy.

Possible Actions to Reduce Consumer Confusion on Food Labels

The report offers several recommendations to help standardize and clarify the food date labeling system across the U.S.:

Make “sell by” dates invisible to consumers, as they are business-to-business communications and may be mistakenly interpreted by consumers as safety dates.
Establish a more uniform, easy to understand date label system that communicates clearly with consumers. Such a system might use more standard and clear language, include “freeze by” dates, remove or replace quality-based dates on (non-perishable) shelf-stable products, place date labels in a predictable location on packages, and use more transparent methods to select dates.
Increase the use of safe handling instructions and “smart labels” that use technology to provide additional information on the product’s safety.

Consumer Behavior and Confusion Over Food Expiration Dates

In my opinion, this is obviously a very complex problem, one that involves a wide range of federal and state authorities, as well as food manufacturers and consumers. Some pundits have interpreted the report as suggesting that manufacturers are intentionally misleading consumers into throwing away food so they will buy more, but I think the issue is far more complex than that.

While there may appear to be incentives for manufacturers to get consumers to throw away food and buy new items, there are also incentives for manufacturers to keep consumers safe by maintaining a risk-averse approach to dates on food labels.

When considering expiration dates on food labels, as with any advertising claim or with any statement made on consumer products, consumers are an inherent element that must be considered in any potential solution. Consumer behavior in regards to food tends to be driven by attitudes and habits. As the report discusses, consumers should be educated, and should educate themselves, about food safety and expiration dates. Information on food labels is only useful to the extent that consumers take the time to read it, and have sufficient background to know what it means.

Dr. Bruce Isaacson
President
MMR Strategy Group

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Secondary Meaning Survey Helps Resolve Dispute Over Phrase Made Famous by President Reagan

Bruce Isaacson — Wed, 04 Sep 2013 13:04:10 +0000

“Peace through Strength,” a famous slogan popularized by President Ronald Reagan, has been under attack. Trademark attack, that is. The Center for Security Policy (CSP) believes that this historic phrase should be utilized as widely as possible and enlisted the American Freedom Law Center (AFLC) to provide legal assistance. As in many trademark protection cases, expert testimony is critical. The AFLC hired Dr. Bruce Isaacson, President of MMR Strategy Group, to provide expert testimony. Dr. Isaacson conducted a secondary meaning survey and provided analysis that has since helped the AFLC win in a settlement agreement. Secondary meaning occurs when consumers associate words or phrases with a single source. One way to measure consumers’ mental associations is through secondary meaning surveys.

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Tiffany vs. Costco: Possible Types of Litigation Surveys

Bruce Isaacson — Sun, 04 Aug 2013 13:23:58 +0000

In February, 2013, Tiffany & Co. filed a trademark suit against Costco, accusing Costco of, among other charges, trademark infringement, dilution, counterfeiting, unfair competition, false and deceptive business practices, and false advertising.

Despite the long list of charges, the central issue in the case is straight forward. Tiffany wants Costco to stop referring to certain types of diamond engagement rings as having “Tiffany” settings. While Costco claims that consumers understand this term to refer to a common setting for a diamond, Tiffany claims the term refers to Tiffany & Co, the retailer.

This case is between two large companies who run successful brands and have a lot at stake. If this matter is not settled soon, both sides may find that they need to conduct intellectual property surveys, particularly on issues such as likelihood of confusion, genericness, or secondary meaning. This post describes the core issues and explains the types of intellectual property surveys each party might decide to conduct.

The Basics of Surveys for Confusion, Genericness, and Secondary Meaning

The matter focuses on a particular type of setting for an engagement ring. A Tiffany-style solitaire ring has a diamond mounted onto a single band with six slender prongs.

Costco says this is a generic term for a type of setting popularized by Tiffany’s founder back in 1886. Costco maintains that the term “Tiffany setting” is commonly used, and even appears in the dictionary. As Costco’s lawyer has stated, “It’s like Phillips screwdriver, it’s like Murphy bed, it’s like Ferris wheel.”

Tiffany argues that by using this term, Costco is creating a likelihood of confusion with rings sold by Tiffany. After all, Costco is known for selling other high-end goods which come from well-known manufacturers. Tiffany also claims that Costco has described some of the rings as Tiffany rings, not just as having “Tiffany settings.”

Costco maintains that the likelihood of confusion is low – its rings are sold in plain beige gift boxes, which do not resemble Tiffany’s well-known blue boxes, and Costco sells its rings with a Costco receipt, not a Tiffany’s receipt.

Tiffany counters that at retail, Costco referred to this type of ring as a “Tiffany ring,” which, says Tiffany, has the potential to confuse consumers. As Tiffany wrote in its initial complaint, “We now know that there are at least hundreds if not thousands of Costco members who think they bought a Tiffany engagement ring at Costco”.

Read the Tiffany lawsuit (.pdf) and the Costco countersuit (.pdf) here.

Given how much is at stake, both sides are likely to undertake litigation surveys, particularly on issues such as likelihood of confusion, genericness, and secondary meaning. The remainder of this post explains all three types of litigation surveys and how they might fit into the case. (Disclaimer: I have not been engaged by either side. I’m writing this post based on what materials in the public domain and my experience. Also, the surveys described below address word marks and not trade dress or product design.)

Likelihood of Confusion, Confusion Surveys, and Tiffany Settings

One of the central issues in the case is the likelihood of confusion, which measures whether or not consumers believe that the particular ring setting sold at Costco comes from Tiffany, or was endorsed or approved by Tiffany for sale at Costco. The Lanham Act and other regulations allow manufacturers to protect their brands from marketplace confusion, and protect consumers from business practices that cause confusion or mistakes about the source of products or services.

Courts have a number of standards to evaluate the likelihood of confusion; for example, depending on the jurisdiction, courts may use use guidelines such as the Sleekcraft Factors or the Polaroid Factors to evaluate whether consumers are likely to be confused. Confusion surveys are one of the most common methods of measuring the likelihood of confusion.

I’ve written about confusion surveys before, and you can read my posts on confusion surveys here. There are two main formats for confusion surveys, often called Eveready or Lineup. For either format, the survey tests whether or not consumers are likely to believe that the settings in question come from, or were approved or endorsed by, Tiffany & Co.

Genericness Surveys and Tiffany Settings

A second question in this matter is whether “Tiffany setting” is a generic term for a type of setting with a single gemstone mounted on multiple prongs. This issue might be addressed by conducting a genericness survey.

There are two primary formats for conducting genericness surveys. In one format, called “Teflon,” respondents are told about the difference between a generic term and a brand name, given examples of each, tested on the difference, and then asked to sort a series of terms as either generic or representing a brand name.

In another format, called “Thermos,” respondents are asked questions to elicit the names that they would use to ask for a type of product, or describe a type of product. In the original Thermos case, respondents were asked questions to determine, among other things, what they would call an item that kept beverages cold or hot.

This article in The Trademark Reporter provides more detail on both types of genericness surveys.

Secondary Meaning Surveys and Tiffany Settings

Secondary meaning may also be the subject of surveys in this matter. A secondary meaning survey measures whether customers associate a trademark or trade dress with a single source, and, for some secondary meaning surveys, whether they associate that source with the plaintiff or with the defendant.

In this matter, a secondary meaning survey might measure the percentage of respondents who have heard of the term “Tiffany setting”, and who associate it as coming from only one company. It might also measure whether consumers associate that term specifically with Tiffany & Co. Alternatively, a secondary meaning survey may measure secondary meaning relating to the specific setting.

To find out more about secondary meaning surveys, watch this video on How to Measure Secondary Meaning in a Litigation Survey.

In my opinion, a secondary meaning survey is likely to show either that the term “Tiffany setting” is associated with the retailer Tiffany & Co., or not. It is more difficult to predict whether consumers would associate a picture of a specific ring setting with Tiffany & Co.

Litigation Surveys, Confusion, Genericness, and Secondary Meaning

I’ve written in this post about the role that a confusion survey, a genericness survey, and a survey of secondary meaning might play in this matter. The matter is made more complicated because it involves both trademarks, such as “Tiffany,” and trade dress, such as the look of a particular type of setting.

Stay tuned. I’ll write more on this matter as it proceeds.

Dr. Bruce Isaacson
President
MMR Strategy Group

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[Presentation] Identifying Growth Opportunities with Usage and Attitude (U&A) Studies

Bruce Isaacson — Mon, 24 Jun 2013 13:54:23 +0000

Usage & Attitude (U&A) studies are one of the fundamental building blocks of marketing researchers and consumers insights departments.

Also known as Attitude and Usage (U&A) studies, or even Awareness, Attitude and Usage (AA&U) studies, these types of studies are one of the most commonly used outputs from consumer insights groups because they are the most helpful in developing marketing strategy.

U&A studies help marketers to better understand their customers’ knowledge, perceptions, intentions, and behaviors. They provide information on consumer usage, purchasing habits, and attitude toward products and brands. Most importantly, U&A studies allow marketers to measure what consumers do, as opposed to simply relying on what consumers say.

Using sample U&A output from a restaurant study conducted by MMR Strategy Group, this presentation shows how U&A results can help marketers to:

Analyze consumer buying behavior by key steps in the buying process, such as awareness, consideration, and purchase
Make comparisons with key competitors
Understand the shopping cycle in an industry
Measure unaided awareness by customer type
Evaluate how different types of customers rate you and your competitors
Identify key opportunities, with visual tools such as quadrant maps

Click here to access the presentation.

Dr. Bruce Isaacson
President
MMR Strategy Group

The post [Presentation] Identifying Growth Opportunities with Usage and Attitude (U&A) Studies appeared first on MMR Strategy Group.

Marketing Strategy Tips from the Master – Tom Peters

Bruce Isaacson — Wed, 12 Jun 2013 14:24:28 +0000

For many years, Tom Peters has been a great source of thought about management and marketing strategy. Since his days writing In Search of Excellence, as well as follow up materials, I haven’t always agreed with him, but he has always made his positions clear, and made me think about my own positions on the same issues. Sixteen books or so later, he’s still a widely recognized and widely quoted strategy guru.

In fact, Tom Peters was one of the original and early strategy gurus, paving the way for future management thinkers, such as Jim Collins.

Tom Peters has recently released some materials that, in language familiar to those who are familiar with him, he calls his MOAP (Mother of All Presentations).

Topics in the MOAP include:

Launching Excellence
MORAL Basis for Enterprise
First-line Supervisors Rule
XFX/Cross-Functional EXCELLENCE
Strategic Listening
Boomer-Geezer Bonanza
Meetings as Leadership Tool
EXECUTION
RELENTLESS
You ARE Your Calendar
Power of “Small Courtesies”
People! People! People!
Brand You! No Option!
Ready. Fire! Aim
We Are Who We Hang Out With
Things Gone RIGHT
Make Every EXPERIENCE Memorable
Design is EVERYTHING
MONOPOLY through EXCELLENCE
Women Buy! Women Roar! Women Rule!
From Customer Satisfaction to CUSTOMER SUCCESS!
WOW!
End Material

Tom encourages audiences to, “Use this material as you wish and please “steal” all you want!”

Rather than stealing, I am now sharing. Enjoy

Dr. Bruce Isaacson
President
MMR Strategy Group

The post Marketing Strategy Tips from the Master – Tom Peters appeared first on MMR Strategy Group.

Lessons in Pricing Strategy from JCPenney

Bruce Isaacson — Wed, 15 May 2013 14:58:31 +0000

J.C. Penney Company Inc., founded in 1902, is one of the best known brand names in American retailing. The chain, commonly known as JCPenney, has historically been heavily dependent on promotions, discounts and sales. JCPenney’s recent foray into and out of everyday low pricing provides important lessons for retailers and manufacturers evaluating pricing strategy.

If you are reading this post, then you probably know the basics about the chain’s struggles with pricing strategy. JCPenney has more than 1,000 mid-range department stores in all 50 states and Puerto Rico. The stores sell conventional merchandise, such as apparel and housewares. JCPenney stores often contain several leased departments such as Sephora, Seattle’s Best Coffee, optical centers, portrait studios, and jewelry repair.

JCPenney’s New Pricing Strategy

In 2012, JCPenney, under the leadership of new CEO Ron Johnson, who had run stores at Apple, undertook a significant change in its pricing strategy. The new pricing strategy eliminated promotions and focused on selling recognized brands. Under the prior promotions-based pricing strategy, prices were marked up so there would be room for promotional discounts. By contrast, the new “Everyday” pricing strategy set prices lower, eliminating or reducing the need for what used to be sale prices.

There were other changes as well. For example, prices no longer ended in 9 or 7 (such as $9.99); instead, whole figures were used when pricing items. Also, price tags now showed just one price and no longer listed the “manufacturer’s suggested retail price,” which had previously provided a higher comparison price illustrating how much the product could be sold for elsewhere.

The retailer also made significant changes in merchandise assortment. JCPenney focused on mini-stores within larger stores, such as those for Martha Stewart products. Note: JCPenney has been in a court battle with Macy’s over the right to sell the Martha Stewart “JCP Everyday” line of home goods. The trial underscores how competitive the middle-market home goods category is and how one brand like Martha Stewart can matter. Read more.

Back to the Future for Pricing Strategy

As you have no doubt read elsewhere, the new pricing strategy never gained traction with consumers. Sales declined steadily over time. The chain lost $3.3 billion in sales in the first year of Johnson’s turnaround plan. Its net loss in the quarter ended Feb 2, 2013, widened to $552 million from $87 million a year earlier. Annual revenue slid 25% to $13 billion, the lowest since at least 1987.

Under pressure, the CEO announced the company would move away from the “Everyday” pricing strategy and return to coupons and weekly advertised sales. The change came too late for Mr. Johnson, who left the company in early April 2013, at which time the prior CEO returned.

Lessons from JCPenney for Pricing Strategy

JCPenney’s experience with a non-promotional (or Everyday) pricing strategy has many lessons. In my opinion, these lessons include the following:

An Everyday pricing strategy is greatly helped by unique merchandise or very low prices.

Everyday pricing is particularly hard to execute well for JCPenney, a retailer that sells many products that are not unique or special. High-end brands with more unique merchandise may be able to operate with fewer sales and promotions, but JCPenney primarily sells products that consumers can find at other retailers either in identical or similar form. For example, a non-promotional pricing strategy is easier to execute at Apple Stores, which has the advantage of selling Apple products.

A pricing strategy built around everyday low pricing may work where a retailer is built from the ground up. For example, Walmart is built to offer low prices, and has engineered elements such as infrastructure, logistics, and merchandise to support these low prices. JCPenney does not have the service and merchandise of Nordstrom, nor does it have the low cost structure of Walmart. Instead, it is stuck somewhere in the middle, which provides a dangerous place for positioning, and a difficult place for everyday pricing strategies.

Over time, shoppers can be trained to expect sales events.

Consumers are very smart, and are very good at learning what to expect from a retailer or a manufacturer. During more than a century of history, JCPenney offered a high-low pricing policy, in effect training consumers to expect sales events and attracting consumers who love sales. By eliminating those sales events, JCPenney took away a reason for consumers to shop the store.

It is possible that over time a new group of consumers would become attracted to JCPenney, who were less promotionally oriented, but this can take a long time. It is also possible that the chain would re-train consumers to become less promotional, but this process is even more difficult for a chain that has spent a long history attracting consumers who expect promotional pricing policies.

The change eliminated reference pricing for consumers.

Yet another reason the “Everyday” pricing strategy encountered difficulty is because JCPenney eliminated the manufacturer’s suggested retail price from its price tags. This suggested retail price may have offered what marketers call a “reference price.” Some consumers use reference prices to judge quality and value; without reference prices, consumers may have had a hard time judging the value of JCPenney’s merchandise, which was often undifferentiated. (Also, by switching from prices that end in “9” to prices that end in”0”, could the chain have lost another signal that the prices are discounted?)

JCPenney has changed pricing strategy, but its future is unclear

JCPenney has now added back reference prices for their Arizona store brand items, so they will again show comparison prices from other retailers. In his first big move, the new CEO tapped $850 million from a credit line and announced the company was looking into other ways to strengthen JCPenney’s balance sheet, and provide breathing room to develop and execute a new plan.

The new credit may lend JCPenney enough time to re-boot. However, the fates of Kmart, Sears and Circuit City are a reminder that the odds against JCPenney succeeding as an independent entity are low. Then again, retailing is fascinating in part because it is so unpredictable.

Dr. Bruce Isaacson
President
MMR Strategy Group

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