The CAIPS Retriever

Having fun again with marketing blunders

Below is an excerpt from a letter I received on March 15 from my building manager. Nothing could have stopped the letter from making its way to the recycle bin, except for a notoriously funny marketing blunder and an instant urge for a new blog post.

Read carefully, you will not get this kind of promise in the mail anytime soon.

Marketers, care should be taken of both your copy and promises! In this case, not only that my suite was not "replaced immediately," but also the "resident manager" did not make any appointment "in the next week or so."

Having fun with marketing blunders

Guaranteed recipe to obtain a notoriously funny marketing blunder:

• Leave judgment out of the picture
• Focus on warning standards conformity
• Get recognition on night-time shows
• Blame it on "the computer"

Pricing: a challenge for retailers

One bad marketing experience with Torontonian retailers is pricing. Here is just one annoying example of the retailers' pricing policy. Contrary to anybody's expectations, retailers offer no perceivable per unit price discounts for larger packages. In fact, higher per unit prices are quite common. A factual example is the following: a .95 liter liquid soap refill sells at $2.99 while a 1.9 liter liquid soap refill (same brand and product, just double the quantity) sells at $7.29, a 22% increase in per unit price. Most notably, the two packages sit next to each other for direct scrutiny and comparison on a grocery store shelf.

Consumer benefit is key

One of the greatest benefits that retailers bring to consumers is convenience. Nowadays, nobody will go get a loan from the bank to buy one year's stock of groceries in order to get a price per unit deal. That is, nobody except retailers. If they do it in a professional manner, everybody is better off. Consumers are ready to pay for convenience because they would probably fare worse if doing bulk shopping themselves. But confusion ensues in consumers' minds when they are presented with an alternative where a larger package is more expensive per unit than a smaller package.

The case for logical pricing

Even though consumers might perceive the lower quantity package as a relative deal, it still does not sound right. "If something is not logical, it probably is not true" as an American pop-culture icon puts it. What happens is that if consumers want a larger quantity, they can buy more smaller packages instead of one large package. But why buy more since the lowest price is there, in smaller packages? Not only consumers feel mislead, but also retailers sell less. If retailers sell less, their turnover is bad, suppliers offer less discounts and retailers most probably increase markups. Who benefits? Well, I cannot think of anyone. Thus, retailers have to step in and perform in a professional and logical manner, especially when dealing with suppliers that do not impose advanced and strict price maintenance policies.

A handbook case

Coca Cola is the handbook case of dealing with quantity when pricing groceries. Based on observations, a rule of thumb can be formulated like this: double the quantity, increase the price by half and keep halving the price increases. For example, if a half litter bottle of soda sells for $1.00, a one litter bottle sells for $1.50 and a two litter bottle sells for $1.75. (All are hypothetical and approximate.) This way, the consumer either gets a per unit deal or spends less money on a smaller package. It's her choice.

Among other advanced marketing features, Coca Cola demonstrates mastery in pricing by presenting a crystal clear proposition which is enticing and, by way of consequence, profitable. The interesting thing about pricing is that it can be replicated at no cost (actually at a gain) - there are no barriers to that. But hard and expensive things are there in Torontonian retail (large buildings, large parking lots etc.) while soft and inexpensive features like good marketing still lack.

Loblaws: a mediocre marketing experience

Recently, we went shopping for groceries and my wife was attracted by an end isle prominently marked "specials". She asked an associate what was the special price of a specific product that the associate was loading onto the isle. The associate told my wife that there was no special price as of that day (a Thursday) but the product would go on sale on Saturday. Then my wife remarked that loading the "specials" isle with products that sell at regular price was misleading. To this, the associate replied that there was no price tag affixed to that product yet and so, it could stay on the "specials" isle.

An issue with customer relations

Not that my wife needs any help, she is a real marketing professional, but I need to vent my frustration because negative marketing experiences with Loblaws are quite recurrent, not only in time but also across locations in Toronto. When replying to a client's concern, there is only one phrase that makes you stand out as a marketer, no matter how big or small your business is: "Thank you for bringing it to my attention. I will remedy the situation immediately." When followed by the promised immediate remedy, the phrase works wonders. There is no conceivable reason not to tell your client: "You are right." After all, she pays your salary.

An issue with promotions

I am bringing to your attention an interesting webpage on a Government website. It is a no-nonsense "Advertising Do's and Don'ts" compiled by Canada-Ontario Business Service Centre (COBSC), © Queen's Printer for Ontario, 2006. Here is a link to the webpage. I will let two excerpts speak for me; maybe the government is more persuasive than I am, although it shouldn't.

• "Don't use the words "sale" or "special" in relation to the price of a product unless a significant price reduction has occurred."
• "Do ensure that your sales force is familiar with these "Do's and Don'ts". Advertisers may be held responsible for representations made by employees."

Besides, when Loblaws loads the "specials" isle with regular price merchandise, it also takes shelf space from products that actually are on sale. Did any supplier notice that?

A long road ahead - time might be short

Let it be stated, my only goal is to see those issues resolved for the benefit of an improved customer experience. Based upon how the associate addressed my wife's concerns, I assume that the road to marketing excellence is a long one, but Loblaws needs to go that way rather sooner than later. If Safeway turns its face to Ontario, time might be very short.

My family doctor won't discuss philosophy

During the annual checkup, my family doctor asked how my diet was going lately. I answered that, although I am 100% favorable to healthy eating, I am not eating totally healthy because I feel bad about being penalized for it. "I have a problem with spending more than I can afford just for the purpose of being a healthy eater," I said. She replied that it is only natural for produce (the number one example of healthy food) to be more expensive in winter because it is being shipped from farther South, that we should sacrifice money for our health and that she did not intend to further discuss philosophical matters with me, period. Because my doctor won't listen, I will discuss philosophy with you.

Should produce really be more expensive in winter?

Let me begin by exploring my doctor's assumption that the difference in produce prices between winter and summer is explained by local scarcity caused by unfavorable weather conditions (the dreaded Canadian cold). At that point, warmer climate produce growers step in to bridge the demand gap, but consumers have to bear additional shipping costs.

When trying to isolate the influence of transportation costs, my grocery store's pricing does not verify my doctor's assumption. During my frequent shopping trips I observed that Ontario‑grown produce is the most expensive and, despite additional shipping costs, Mexico‑grown produce is the least expensive. California‑grown produce prices come in between. It really is not important where produce comes from.

Further analyzing the idea of seasonal scarcity, I took a closer look to my tomatoes. They are hydroponics. No soil, no sun or natural heat is involved in their production. With a little research, I learned that higher energy costs required by hydroponics are widely balanced by savings on watering, pesticides and by much higher efficiency. Most importantly, hydroponics can be grown year round almost anywhere. So, where does this scarcity idea come from?

Should I be penalized for eating healthy?

Contrary to my doctor, I believe assuming that my grocery store uses a cost‑based pricing strategy will lead nowhere. Pricing is exclusively about what is in the (final) consumer's mind. What I believe is that my grocery store plays the game of scarcity. In order to charge me more, my grocery store wants me to think that produce‑growing has remained a seasonal business.

In my opinion, it is a counterproductive game. Why? Because if my consumer mind tells me that produce is seasonal, I will eat less of it during winter - substitutes are all around. It is also a bad game because higher markups don't automatically mean higher profits. Take a look at the automobile industry: you might think that expensive brands boosting high markups are highly profitable but they're not. Today Jaguar or Mercedes are just names, the companies that created these brands no longer exist. The companies that bought and own these brands today - Ford and Chrysler - simply fare better selling popular cars. Take another look at examples of companies from other industries that lower prices only to fly high on wings of profits: Wal‑Mart for retail, Dell for computers or McDonald's for foodservice.

If, following my championing of lowering prices, there is any doubt or argument about quality in your mind, I will just point out what everybody knows: the quality of my healthy food is far from being outstanding. Both fruit and vegetables are meager in taste and languish in my grocery store's isles in a state that evolves directly from unripe to rotten. It is a serious setback from the seasonal production's past times that only supports my initial argument about being penalized.

How to price for healthy profits

Doctors strike the final blow: they call for legislation curbing advertising for unhealthy food. They make it look as if the gain from lower quality food's lower cost is funneled into advertising. To the contrary, because of the serious misperception that people willingly chastise themselves, healthy food just fares worse than unhealthy food. It does not make economic sense to limit profits by obsessively marketing to a converted elite. Sooner or later, someone will lower prices. In an increasingly competitive setting, exacting higher markups is not a good idea, as substitutes are plenty. Compare Dell to IBM and Compaq: Dell's strategy to invest in just efficiency will only be beaten by a competitor able to sell better products at even lower prices. And, by the way, if advertising is curbed, the price of unhealthy food will go up and we will all end up poorer.

The truth is that, irrespective to the product sold, there are good marketers and bad marketers. On the one hand, carbonated beverages are an excellent example of good economic sense: there is no price premium for sugar substitutes sweetened sodas. Instead of trying to penalize consumers that wish to avoid sugar, soda manufacturers try to attract them. On the other hand, certain product lines targeted to diabetics outrageously double or triple the price just for substituting sugar with artificial sweeteners. For everybody's sake, my grocery store should start playing the game of making itself attractive to customers.