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    Published on: December 12, 2008

    The relationship – and even the tension – between value and values is something that has been a core subject for debate and discussion here on MNB over the past few months, especially as the economy has worsened. Customers are making decisions they didn’t need to make just a few months ago, and both retailers and manufacturers are working hard to figure out how to position themselves.

    And so, it has been intriguing to learn about a concept that the folks at Management Ventures Inc. (MVI) call “the New Premium,” which they describe as the idea that for at least some shoppers, a key part of what makes a product more valuable is not in the product itself, but in the values of the company that makes it and the way it aligns to a host of personal and community values that shoppers believe are important.

    Because some people may believe – rightly or wrongly - that at this point in economic history such values concerns are falling by the wayside, MNB thought that it was an appropriate time to engage John Rand, director of retail insights at MVI, in an exclusive e-interview about the subject.

    MNB: Let’s start at the beginning: how do you define the “new premium”?

    John Rand: Any brand or product that achieves a preferred positioning which displays to a greater or lesser degree all of the following three attributes:

    Transparency in how the product or brand is created
    Preservation of self or the planet as one of its primary or ancillary benefits
    • A sense of enriched purpose for the consumer (personal, social or both) that comes from the brand experience.

    There are some “new premium” examples that aren’t particularly new – many natural and organic products fall into this realm (though many fail to deliver significant enough impact on the three areas above, which leaves them falling flat). This may be one of the reasons that “all-natural” petered out, and that organic may be at risk – the attribute “naturalness” is not what the shopper was buying, but the broader and inter-related connection between the three variables outlined above. Removing the transparency and purpose and leaving only the physical attribute deconstructs the premium positioning and left the consumer with a different product, but not a different story or a different dream.

    Today, the move back to locally produced food is another example – local farm produce may be “better” or not, but what really drives the discussion is a larger framework of decision, relating to environmental or social concerns. Increased environmental concerns, food safety, wellness issues - all of these topics drive certain consumers to make certain purchase decisions, based less on price and more on other considerations.

    The reason MVI (a retail analysis company, we are not a branding agency) has been so interested in this is because this definition of the New Premium lends itself well to a retailer developing a premium brand strategy – attributes and inspiration don’t require a multi-million dollar launch. In fact if you look at many of the great product-based new premium brands today – Burt’s Bees, Kashi, Amy’s Kitchen, Glaceau’s early days, Whole Foods, Trader Joe’s, Seventh Generation, etc…you see very few of them were foisted on consumers with an enormous marketing budget behind them – they earned their premium status by relentless, integrated and consistent delivery against the three attributes outlined above.

    MNB: You’ve written that “you cannot gain share of wallet until you can gain share of values.” At a time of economic decline and/or uncertainty, to what extent do you believe shoppers are thinking about values other than low price?

    John Rand: Shoppers will temporarily move down their needs hierarchy when times are tough and/or uncertain - we can see in the recent slowdown at Whole Foods that this happens. At the same time the attribute-driven nature of the new premium may give it more holding power and a faster recovery than a more straightforward trade up. We are pretty skeptical, for instance, that folks on a budget suddenly don’t care about the safety of their food, or the quality of the environment, or think that their health is less important. Diabetics are still trying to manage their diet even when money is tight, parents still want their children to eat healthy food, and no one who has decided to use re-usable shopping bags out of concern for the environment just reverts to plastic bags because they are worried about their mortgage. The new premium mindset is unique because premium is not necessarily derived from being more expensive than the everyday – simply in more consistent and integrated delivery of the three key attributes.

    MNB: Would it be your suggestion that aspirational or values-oriented customer priorities developed during times of prosperity will persist even in tough times? And is it important to have this component of your offering – whether you are a retailer or a manufacturer – so you are positioned correctly when the hard times end?

    John Rand: We have to remember that the New Premium is not necessarily about spending more – sure, some areas of decision here may carry a price – but there are some people for whom “new premium” behavior is deciding to return to family home cooking instead of take-out not just because it saves money but because they want to re-connect with their family (purpose), eat healthy (preservation) and create a meaningful story around mealtimes (transparency). Compact fluorescent light bulbs, which are sort of the entry-level product for people trying to reduce their carbon footprint, actually save money over time, and even though the initial cost is more than an ordinary bulb, it is a matter of a very small amount of money. But it is quite clear that people are willing to spend a little more for something that aligns to something they value.

    MNB: I’ve been fascinated by Walmart’s telling its “green” manufacturers that it doesn’t just want “green” products, but also wants to know the narrative behind the products so it can communicate that story to shoppers. Is this a good example of the “new premium” at work? What does it say about the trend when a behemoth like Walmart is acting on it?

    John Rand: Walmart is clearly attempting to tell an integrated story around sustainability that links transparency and a broader sense of purpose to the core preservation attribute of environmental sensitivity. Their objectives are multi-headed here – to legitimately use their scale for good, to save money and to enhance their core brand.

    What Walmart has tried to close with increased transparency, first with its supplier partners and now more recently with consumers, is an authenticity gap – they have used the web in particular as a way to “let consumers in”, “see behind the curtain” and understand specifically what Walmart is trying to do. Do they have a long way to go? Sure.

    What does this say about the new premium? That well executed it can invert the historic perceptions of what premium is and who can purvey premium to consumers – pretty exciting stuff!

    MNB: Can you give me some other examples of retailers and manufacturers communicating the “new premium” to their consumers? Is there one surprising example that most people would not think of?

    John Rand: There are so many examples, thankfully – when I read on MorningNewsBeat about how some retailers decided not to sell cigarettes anymore – that’s New Premium thinking. I noticed Country of Origin labeling on items in HEB’s Central Market a couple of years ago, even though it was not required at the time – that’s New Premium thinking. Tesco has started asking a third party company to measure the carbon footprint of items in certain categories and is starting to ask for labels to include that information – New Premium. The retailers that have started to label their shelves with improved nutritional information to guide consumers, such as the Guiding Stars from Hannaford and now also Food Lion. Safeway’s Food Flex website is a terrific example – where shoppers can use the website to calculate the long term effects of making a diet change on their weight or their cholesterol or other health and wellness factors.

    On the supplier side, a host of brands stand out here that all mean something quite different. One of the first brands that caught our eye here was Method – there is such a tight integration between what the product stands for, how it was created and what it is that even though its preservation credentials might be a little slight it clearly comes from this brand family. Many of the brands mentioned above are classic examples of this – and there are some retailer brands like 365 at Whole Foods that may articulate aspects of this more clearly than many supplier brands.

    The most interesting piece on the supplier side has been, so far, the lack of development of these types of brands by major CPG manufacturers. Acquire? Yes – Odwalla, Stacy’s, SoBe, Glaceau, Kashi, Burt’s Bees, Iams, are all examples of these types of brands that are today part of major CPG brands. But few have successfully developed this type of brand internally – Clorox with Green Works is one of the few. Why? Control – so much of the new premium is about letting the brand be a conversation with consumers rather than a loud broadcast, and, today, most CPG companies are not well constructed to have this type of patient conversation. A brand you can argue has reinvented itself around the new premium (with some missteps) has been the work Unilever has done with Dove….transparency and purpose have been skillfully interwoven into the brand’s core preservation values in a way that hasn’t been without bumps in the road, but has certainly been very interesting.

    MNB: It would be my perception that a retailer like Trader Joe’s is very good at the “new premium, because it is about values and value…but that a store like Aldi is not, nor should it be. Am I correct? Are there natural limits on what kinds of retailers and products should focus on establishing the “new premium”?

    John Rand: Well, I am not so sure that I agree, frankly. Trader Joe’s has an excellent reputation for treating its associates well, for being a pretty good citizen, and for providing great products at a fair price. Aldi has exactly the same reputation; it just does so at a different price point. It shouldn’t be very surprising they act in much the same way – after all, they are two parts of the same company.

    There is nothing about having core values that are important that is limited to a higher income levels. It is important to remember that outside the USA Aldi is a terrific example of the New Premium – its transparency comes through rigorous product quality testing, it has been an environmental and sustainable farming leader for years and the sense of purpose comes from an intense passion for hunting for great value – its positioning is more similar to Costco’s here than to Aldi’s traditional US low-income profile. In many ways, Tesco’s Fresh & Easy’s brand aspiration is a new premium-style brand loosely based around Aldi’s core premise, but aimed at a broader consumer demographic.

    We see no reason why attributes of New Premium thinking couldn’t pervade every business, whether supplier, retailer, or something else entirely. The key here is the integration between the how, what and why – we suppose that this type of integration might result in a New Everyday, or a New Discount as well!

    MNB: You’ve said that transparency is part of the equation…but alone is not enough. What do you mean by this?

    John Rand: We see several steps as necessary to create an effective New Premium brand, whether a product or a store.

    First, of course, you have to express the Why, the purpose of the distinction – this product or this store is standing for something, something that is either personal or social in its value and importance. But just saying it is not enough. As any market will tell you, you have to create Trust, and Trust flows from three things at the same time – Transparency, Consistency, and Authenticity.

    This is not something that happens without work, without diligently creating and supporting a pattern that leads a shopper to believe in you and your product, you and your store – to Trust that what you say and what you do are aligned and reliable and to believe it is not a veneer of insincerity but really something you stand for and will stand behind. So Transparency is a necessary step – but you then must be Consistent and dedicated to whatever you are trying to make a part of your New Premium until it is Authentic.

    KC's View:

    Published on: December 12, 2008

    The Washington Post reports this morning that the US Food and Drug Administration (FDA) is at odds with the federal Environmental Protection Agency (EPA) over how much fish it is safe for consumers to eat.

    According to the story, FDA is out with a draft proposal that argues “the benefits of seafood outweigh the health risks and that most people should eat more fish, even if it contains mercury … (and) that nutrients in fish, including omega-3 fatty acids, selenium and other minerals could boost a child's IQ by three points. The greatest benefits, the FDA report said, would come from eating more than 12 ounces of fish a week, which is the current limit advised for pregnant women, women of childbearing age, nursing mothers and young children.”

    EPA, on the other hand, reportedly is alarmed by the recommendation, criticizing the FDA conclusions as them as "scientifically flawed and inadequate" and “short of the scientific rigor routinely demonstrated by EPA." The current federal recommendations are that “certain groups -- women of childbearing years, pregnant women, nursing mothers, infants and children -- can be harmed by the mercury in fish and should limit their consumption.”

    The Post also notes that the FDA was supposed to consult with the EPA before reaching its conclusions, but issued its draft report without any significant consultation.

    The Post story also notes that EPA has the support of the Environmental Working Group, an advocacy organization. "This is an astonishing, irresponsible document," said the group’s executive director, Richard Wiles. "It's a commentary on how low FDA has sunk as an agency. It was once a fierce protector of America's health, and now it's nothing more than a patsy for polluters."

    KC's View:
    Is it any wonder that consumers get confused?

    It is a measure of how little credibility the FDA has that the immediate conclusion one comes to when reading the draft proposal is that someone in the seafood industry applied a little pressure, a little lobbying, a little money … and FDA filed the report that it thought was good for the industry, not for consumers. Which of course, makes no sense, because a mistake in this area that hurts consumers can only harm the seafood industry in the long run.

    Published on: December 12, 2008

    A letter to President-elect Barack Obama urges him to take a consumer-oriented approach when appointing leadership for the Us Department of Agriculture, and even urges Obama to even change the name of the department to better reflect the agency’s current mission.

    The letter was signed by Center for Foodborne Illness, Research & Prevention; Center for Science in the Public Interest; Consumer Federation of America; Consumers Union; Food & Water Watch; Government Accountability Project; Safe Tables Our Priority; Union of Concerned Scientists.


    Dear President-Elect Obama:

    The undersigned organizations write to ask that you appoint as Secretary of the U.S. Department of Agriculture an individual who embraces the diversity of programs administered by the Department and accepts the responsibility for representing the interests of all Americans, urban as well as rural, consumers as well as producers…

    The agenda waiting on the desk of the new Secretary will include issues of great concern that go far beyond the interests of commodity producers. The Government Accountability Office recently identified food safety as one of thirteen “urgent issues” needing the attention of your Administration. USDA has responsibility for assuring the safety of the nation’s meat, poultry, and processed egg supply and the Secretary must lead the way in addressing this urgent issue … Frequently, the actions and funds needed to assure food safety, good nutrition, and environmental preservation have at least short-term costs for production agriculture, food manufacturers, and restaurants. Historically, the Department has often opted to put the interests of production agriculture and industry ahead of those other responsibilities.

    We are concerned that many of the names mentioned in the media as currently under consideration for Secretary of Agriculture are individuals whose primary qualification for the position is their knowledge of and interest in production agriculture and commodity programs. It is critical that the candidate for Secretary of Agriculture have experience with or have been an advocate for USDA’s nutrition, conservation and food safety programs and have had experience providing leadership to a large and diverse organization.

    When the Department of Agriculture was created during the Presidency of Abraham
    Lincoln, he called it the “people’s department.” We urge you to return the Department to that role by changing its name to reflect its multiple missions. We suggest you rename it the Department of Food, Agriculture and Forestry or, simply, the Department of Food and appoint a Secretary who sees his or her constituency as all the people who eat as well as those who produce.

    KC's View:
    These are recommendation that seem to make sense. The world has changed, and government ought to be flexible enough to recognize new realities.

    Published on: December 12, 2008

    The coffee wars between Starbucks and McDonald’s is heating up, according to the Seattle Post Intelligencer, as Mickey D’s has erected a billboard near Starbucks’ headquarters saying, “four bucks is dumb,” and another by a nearby freeway saying, “large is the new grande.”

    The goal of the billboards, and other advertising by the fast food chain, seems to be to goad Starbucks into some sort of response that would undermine its traditional marketing position. But the Post Intelligencer says that Starbucks plans to stay above the fray.

    "We get a lot of questions on the competition and that everyone seems to be picking on Starbucks through their advertising and try to reposition Starbucks as expensive or snobby, and, boy, when is Starbucks going to start advertising and join in that coffee conversation?" Starbucks Chief Marketing Officer Terry Davenport told investors last week in New York, according to the paper. "We're not going to get into that conversation. We're not going to get sucked into the, 'My coffee is better than your coffee,' price point type of coffee conversation. We're going to play at a much higher level."

    KC's View:
    I tend to think that this is the smart play by Starbucks, which should continue to focus on things like quality and ambience, with renewed attention to the “third place” concept that has long defined it. Of course, it also has to make sure that during times of economic stress, its stores have products that are affordable and seen as a value…even if more expensive than similar products sold by McDonald’s and Dunkin’ Donuts.

    I do think that the most compelling argument that Starbucks can make is that its coffee tastes better than that of McDonald’s and Dunkin’ Donuts…though I recognize that this is a matter of taste. And, as my sainted father-in-law likes to say, “Where taste is concerned, there is no dispute.”

    Not a phrase, of course, that would work on a billboard.

    Published on: December 12, 2008

    The Wall Street Journal has an interesting piece about a legal battle between McDonald’s-owned Redbox, the video rental kiosk company, and Universal Pictures.

    According to the story, Universal has been threatening to shut off its shipment of DVDs to Redbox , saying that the kiosks charge too little for the movies and therefore hurt other video sales and rental businesses. Redbox has countersued, saying that the studio is violating antitrust laws.

    “The spat,” writes the Journal, “between Redbox and General Electric Co.'s NBC Universal is part of a broader struggle in the industry to cope with declining DVD sales.”

    The story continues, “Studios have been keeping a close eye on Universal's efforts to rein in the rapidly growing Redbox. According to the lawsuit Redbox filed against Universal, the studio in August deployed executives to Redbox's headquarters near Chicago to set new terms for stocking Universal movies.

    “Under the proposed agreement, Redbox would have to start sharing revenue with Universal, and wouldn't be able to stock more than eight copies of a movie per kiosk, compared with the four dozen or so Redbox might stock for the most popular releases.

    “Universal also wanted Redbox to stock its DVDs no earlier than 45 days after they hit traditional retailers. The vast majority of sales and rentals occur in the weeks immediately after a movie is released on DVD.

    “In its motion to dismiss the lawsuit, Universal said Redbox's charges of copyright misuse and antitrust violations were baseless. Both companies declined to comment on the lawsuit. According to the legal documents, the studio said if Redbox didn't comply it would cut off the supply of Universal movies.”

    KC's View:
    These guys are fighting over the symptoms, not the problem – which is that in a recessionary environment, fewer people are shelling out money for DVDs. (Though apparently the newly issued “The Dark Knight” is selling like gangbusters … proving that people will pay for something really good.)

    The other funny thing is that they are fighting over technology that will be obsolete sooner rather than later, as downloads take over and young people look at DVDs as being as anachronistic as they believe CDs are.

    Published on: December 12, 2008

    Dow Jones reports that Andy Bond, CEO of Walmart-owned Asda Group in the UK, is suggesting that “gimmicky promotions” won’t help retailers grow their businesses during a recession…and seems to be pointing the criticism at Tesco, which announced this week that it was cutting prices on about a thousand items by 50 percent in advance of the end-of-year holidays.

    Bond said that such promotions end up being “vastly costly” and tend to cause long-term problems for the retailers that adopt them.

    KC's View:

    Published on: December 12, 2008

    Dollar General said this week that “it has begun installing new point of sale equipment that will protect the privacy of Dollar General shoppers with visual impairments. The new devices have tactile keys arranged like a standard telephone keypad. They will allow Dollar General shoppers who have difficulty reading information on a touch screen to privately and independently enter their PIN and other confidential information.

    “Dollar General has installed the first tactile devices at several stores in Texas. The new equipment will be installed in all of Dollar General’s 8,300 stores in the United States in less than eighteen months.”

    KC's View:

    Published on: December 12, 2008

    • Sara Lee announced yesterday that it will eliminate 700 jobs during the next three years, a move it expects will save the company between $200 million and $250 million.

    "In addition to the cost savings, business process outsourcing will help Sara Lee further drive standardization, increase efficiency and provide flexibility," CEO Brenda Barnes said in a statement.

    • The Des Moines Register reports that the US Department of Agriculture (USDA) Inspector General has released a report saying that there was no evidence of cattle abuse when 10 plants were investigated…but conceded that “inspectors don't watch all areas of plants continually and could miss instances of abuse … The report recommended USDA's Food Safety and Inspection Service take steps to improve its oversight, including analyzing plants to determine where more frequent or in-depth reviews are needed.”

    KC's View:

    Published on: December 12, 2008

    …will return.
    KC's View:

    Published on: December 12, 2008

    In Thursday Night Football action, the Chicago Bears defeated the New Orleans Saints in overtime, 27-24.
    KC's View:

    Published on: December 12, 2008

    Interesting column in the Wall Street Journal this week by Mark Penn – who no doubt is writing for the paper to make up for the more than $5 million still owned to him for not getting Hillary Clinton elected president – talking about what he views as a growing consumer trend – “the New Mattress Stuffers,” described as “people who have lost their trust in the financial world, and are preparing for the next meltdown.”

    These people, the reasoning goes, are putting their jewelry and newly bought gold coins in safe deposit boxes, are buying safes and home vaults to stash whatever valuables they still own, and have a renewed faith in cash.

    Penn writes, “If the post-war economic expansion brought us the baby boom, this crisis may bring us a baby squeeze -- a sharp reduction in births nine months from now, as refraining from having kids is the ultimate consumer pull-back. And instead of staying home, the evidence shows that more couples are going to the movies, with attendance up for this relatively low-cost evening.

    “People don't talk much about their mattress-stuffing behavior. It kind of defeats the purpose if you tell people where your stash is. But there's a hunger out there for security hedges -- a gun, some cash, a little gold, a small safe in the bedroom -- in case all the ATMs suddenly shut down.”

    I have no idea if Penn is right, but I certainly think that his view of the world is skewed. After all, he may think the world is made up primarily of people who can afford vaults, have jewelry, and are investing in gold coins as a hedge against a declining economic system. Maybe it is this skewed view of the world that contributed to the ultimate failure of the Clinton campaign; perhaps Penn didn’t realize that the world is more populated by people having trouble paying for groceries and tuition than it is by people choosing between gold and Treasury bills.

    Not sure about you, but here is what we noticed last weekend when we went out Christmas shopping.

    At Gap and Banana Republic, they were not particularly busy…and the people who were shopping seemed to be doing more looking than buying.

    Tiffany & Co. (where we walked by, never opening the door) was utterly empty except for sales people.

    Restoration Hardware and Pottery Barn, on the other hand, were packed – and there were lines at the cash registers. So was The Apple Store…but then again, The Apple Store is always busy.

    But the busiest place we experienced while Christmas shopping last weekend was…Starbucks. Long lines, no available seats, and lots of chatty, seemingly happy customers.

    Hardly scientific. But interesting.

    I have two white wines for you this week….the 2006 Aizea Breeze Albarino, which is a terrific Spanish wine….and, from Portugal, the Pirolito Valpacos Branco, which at six buck per bottle is both delicious and a wonderful bargain.

    I’m afraid I don't have much else to say this morning…as you read this, I am undergoing knee surgery. Forty of so years of jogging led to a complex torn meniscus in my left knee, and I’m having it scoped this morning so I can back to my usual routine of jogging, boxing, etc…

    I’m confident about it working. I had the same surgery on my right knee back in 2002, and until my left knee gave out, I couldn’t remember which knee had been scoped. Same surgeon, same hospital this time around. So things should be just fine…

    Of course, if something does go wrong, this could be goodbye. But I think most of us are hoping that doesn’t happen. (Though there is this one guy who keeps sending me long and angry email manifestos – even though he says he refuses to read MNB anymore – who probably will be hoping for an accident with the anesthesia…)

    So, have a good weekend. I’ll see you Monday.

    KC's View: