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    Published on: August 9, 2010

    In times of trouble, companies like to utter phrases like, “It is time to get back to fundamentals.”

    Except that sometimes, people simply don’t understand what the fundamentals are. Or that sometimes, what is fundamentally important to the business may not be fundamentally important to customers.

    The good news is, sometimes they do.

    Over the weekend, the Wall Street Journal reported that Dorchester Publishing, a small, four decade-old publisher of books and magazines, “is abandoning its traditional print books and making its titles available in digital format and print-on-demand only.”

    The reason is that the writing was on the wall (to use an old world cliche). Book sales were down 25 percent last year, and CEO John Prebich says that “it wasn't a long, drawn out decision, because we've been putting in the effort but not getting the results.”

    Now, this isn’t to suggest that print books - especially the mass market paperbacks in which Dorchester specialized - are going away anytime soon. There will continue to be publishers out there that make money in the format, because there will be people who will continue to use it. (The Journal notes that the wonderful Travis McGee series by John D. MacDonald continues to be available only in paperback, as the publisher resists the lure of the Kindle.)

    But clearly a shift is taking place. The e-book format has been a huge game changer for Amazon.com, and other companies in the book business are taking notice.

    For companies like Dorchester, making the big commitment to the e-book format means that management there recognizes that publishing fundamentals may not so much be about paper and ink, but about content...

    Interestingly, there was a story last week in Newsweek about how publishers may be becoming an anachronism, noting that “new writers and established authors alike are increasingly taking publishing into their own hands, and the publishing establishment is paying attention. According to a recent Bowker report, the market for ‘nontraditional books’ in the United States grew by more than 750,000 new titles in 2009 - a 181 percent increase over 2008. Five of the top 100 bestsellers in the Kindle store - which now produces more sales than Amazon’s hardcover list - are currently self-published ... In a traditional paperback publishing deal, the author keeps a mere 8 to 9 percent of royalties. Under most self-publishing agreements, authors keep 70 to 80 percent of their profits, with the remaining cut going to their distributor.”

    The message is this: Unless you are John Grisham or Dan Brown, the sense is that traditional publishers offer a diminishing return on investment because e-books and self-publishing have leveled the playing field. If they don’t offer better service and more services to both writers and readers, their role as middle-man, as gate keepers, could be threatened.

    The fundamentals are changing.

    It would be naive for anyone in any business to think that he or she is immune from such changes, that “this couldn’t happen here.”

    Formats change and content changes, just as surely as customers change. The businesses that survive are the ones that recognize this, prepare for it, and act on it while still viable and vital enough to reap the rewards.

    And that’s my Monday Morning Eye-Opener.
    KC's View:

    Published on: August 9, 2010

    Fascinating story over the weekend in the New York Times about the notion of “calculated consumption,” which might be another way in which the post-recession, so-called “new normal” reflects shifts in consumer behavior.

    The Times writes: “The practices that consumers have adopted in response to the economic crisis ultimately could - as a raft of new research suggests - make them happier. New studies of consumption and happiness show, for instance, that people are happier when they spend money on experiences instead of material objects, when they relish what they plan to buy long before they buy it, and when they stop trying to outdo the Joneses.

    “If consumers end up sticking with their newfound spending habits, some tactics that retailers and marketers began deploying during the recession could become lasting business strategies. Among those strategies are proffering merchandise that makes being at home more entertaining and trying to make consumers feel special by giving them access to exclusive events and more personal customer service. While the current round of stinginess may simply be a response to the economic downturn, some analysts say consumers may also be permanently adjusting their spending based on what they’ve discovered about what truly makes them happy or fulfilled.”
    KC's View:
    In essence, the Times argues, we may be moving from a “whoever dies with the most toys, wins” mindset to a world dominated by a “whoever lives and has the best, most varied experiences, wins” attitude.

    While this might suggest to some that we could be entering a phase in which people spend less money - which isn’t a good thing for companies that define success as selling stuff and then more stuff - it may actually be an opportunity for marketers that understand the actual premise ... that people are willing to spend money on things that they perceive as improving their lives, providing a positive/memorable experience, and helping them make connections with other people.

    One example, suggested by the Times story, is that people will place a premium on having a wine tasting party with friends, as opposed to going out to dinner and spending a lot of money on a bottle of wine. If you’re in the retail wine business, that’s an opportunity - to create experiential offerings that allow people to host a wine tasting party (which can also include bread, cheese, crackers, etc...)

    It is all a matter of looking for opportunities and then acting upon them.

    Published on: August 9, 2010

    The New York Times has a good story about Netflix, the online DVD rental business, in which it makes the following key observation: that it “foresaw its possible demise at the moment of its own creation.”

    Here’s how the Times frames the issue:

    “The company was formed in 1997 with the idea of sending movie DVDs, then a new technology, through the mail. But Reed Hastings, the founder and chief executive, and early employees, recognized that delivery of movies over the Internet would replace the mail carrier soon. They named the company Netflix, not Mailflix or DVDs by Mail ...

    “It was only last year, more than a decade after its founding, that streaming movies started to take off. But it was Netflix pushing people to do it, even though it meant that the company might rent fewer discs by mail ... Since January 2007, it had been offering a small selection of movies for streaming from the Netflix.com site to a customer’s personal computer. Then it began streaming to TV-connected devices so that the movies could be displayed on a larger screen, the way customers have always watched movies at home.

    “If you have a Nintendo Wii, Microsoft Xbox 360 or Sony PlayStation 3 game machine, a new Blu-ray disc player, an Internet television from LG, Sony or Vizio, the Roku digital video player, TiVo digital video recorder or Apple’s iPad, you can stream movies. The list continues to grow, to beyond 100 devices. If there is an electronic device in the living room, Netflix wants to send a movie through it.

    “Netflix, meanwhile, keeps cutting deals with movie studios to get more films and television shows online. Now a movie aficionado paying $8.99 a month, for example, gets one DVD in the mail at a time — but can also watch movies online to his heart’s content.= At one movie a day, the cost of the habit drops to less than 30 cents a film. Mail-only subscriptions are still available.

    “There is no way that a store with racks of movies can sell its wares for as little.”

    Which is why Blockbuster - even though it has tried to compete with Netflix, to move beyond its traditional business model - is in so much trouble, flirting with bankruptcy, seemingly unable to keep up with a disruptive competitor that is focused on remaining relevant even as technologies and consumer preferences change.
    KC's View:
    The lesson here is simple, and while it has been stated before, it cannot be repeated enough.

    Every company should have someone in charge of putting the company out of business, of finding the chink in the corporate armor, the weakness in the marketing plan, the fundamental flaw in the company’s commercial prospects. And that person should be empowered to help push the company in new directions, not marginalized or even let go when he or she says something that threatens management’s comfort zone, that conflicts with how business is conducted on an everyday basis.

    There’s no such thing as a comfort zone. Not anymore.

    Published on: August 9, 2010

    The Los Angeles Times reports that while “coffee shops were the retail pioneers of Wi-Fi, flipping the switch to lure customers ... now some owners are pulling the plug. They're finding that Wi-Fi freeloaders who camp out all day nursing a single cup of coffee are a drain on the bottom line. Others want to preserve a friendly vibe and keep their establishments from turning into ‘Matrix’-like zombie shacks where people type and don't talk.

    “That shift could gather steam now that free Wi-Fi is less of a perk after coffee giant Starbucks stopped charging for it last month.”
    KC's View:
    You have to find differential advantages wherever you can...and if that means making yourself a “real” coffee shop that focuses on the beverages as opposed to the internet connectivity, that’s certainly one way to do it. However, I suppose that the chain coffee shops might look upon it as a victory if they think that they’ve forced the smaller, independent shops into offering less as a point of differentiation. It all depends on your point of view...

    Here’s the passage from the LAT story that stands out for me:

    “Coffeehouses have a rich history as community meeting places that can be traced back centuries to the Ottoman empire. They first popped up in Europe in the 17th century, open only to men but to all social classes. Eighteenth-century London saw the rise of the Penny University, where people paid a penny to drink coffee and debate the latest news in local coffeehouses. Italian immigrant communities imported the experience to major cities in the United States. In San Francisco's North Beach district, for example, coffeehouses became the literary home away from home to the Beat Generation's Jack Kerouac and Lawrence Ferlinghetti.

    Some cafes have retained their character as hangouts to share news and gossip with friends over a cup of coffee or a meal. Others have morphed into 21st-century cubicle farms where young techies set up shop, bang out code, meet with investors, run beta tests and even troubleshoot the Internet connection for cafe owners when it goes on the blink.”

    Community does not mean now what it meant then. It used to be that community could be measured in blocks or, at most, miles. Today, community is global...and coffee houses have thrived by anchoring those communities, no matter how spread out they may be.

    I understand the impulse that some cafe owners may be feeling to eliminate their Wi-Fi offerings. I’m not sure it will solve the “camping out” problem, since you don’t need a Wi-Fi hot spot these days to access the internet...just a good USB modem. And it seems to me that shutting down Wi-Fi ends up being a decision made because they think it is good for business, that ends up not being good for customers, and therefore isn’t really good for business.

    We’ll see.

    Published on: August 9, 2010

    Crain’s New York Business writes this week that “an implosion of 151-year-old A&P could be a windfall for its competitors. Buildings large enough to accommodate supermarkets are scarce and highly sought-after in the city. A&P's five-borough portfolio of 48 such properties under the Waldbaum's, Food Emporium, Pathmark and A&P banners is one of the largest in the city. The Montvale, N.J.-based grocer has a total of 429 stores across eight states in the Northeast.

    “While some rivals are biding their time hoping to snap up individual locations—or even entire chains, should they hit the market—many others are not waiting. They are circling the foundering giant, chipping away at its market share.”

    The Great Atlantic & Pacific Tea Co. hardly is in any position to fight back. It has had seven straight quarters of losses, a CCC credit rating because it has so little cash, and is on its third CEO in 12 months, and offers more talk about strategy and tactics than actual execution.

    Some companies, like Gristedes and Fairway, tell Crain’s that they are waiting for an acquisition opportunity to open up - like a decision by A&P to sell its Food Emporium chain. Target is being even more aggressive, opening a Manhattan store with a fresh foods offering ands spending a lot of money to publicize it. And some wonder what Ron Burkle’s Yucaipa Cos., A&P’s third biggest shareholder, might be planning as a game-changer.
    KC's View:
    Said it before, and I’ll say it again.

    Dead company walking.

    Published on: August 9, 2010

    The Sacramento Business Journal reports that “for the first time ever, Raley’s Inc. is converting one of its Raley’s format supermarkets into another one of its formats — its low cost Food Source banner ... Operating since 1993, the Raley’s on Stockton Boulevard in Elk Grove will become a Food Source at a date still undisclosed ... Word on the street is that the Raley’s on Stockton Boulevard was underperforming. And consumers have embraced discount supermarkets during the difficult economy. Raley’s was a little vague on the question of why the store is trading banners.”
    KC's View:
    Vague? Hmmm...maybe it is just me, but there doesn’t seem anything vague about converting formats to a discount banner. It hardly even requires a press release.

    In this case, the media is like Steve Martin asking for “a sign” in “The Man With Two Brains.” Precisely how much of a sign do you want?

    Published on: August 9, 2010

    The Grand Rapids Press reports that Meijer has closed down the first store that it operated as a supercenter, at the corner of Kalamazoo and 28th Street SE in Grand Rapids, replacing it with a new, $15 million, 156,000-square-foot store just next door that will open in October.

    The old unit, which has been in operation for more than a half-century, will be torn down to make room for new parking spaces that will serve the new store.
    KC's View:

    Published on: August 9, 2010

    The Boston Globe reports on something called “The Good Men Project Magazine,” an online publication that “was launched in June and is one of a crop of new magazines - mostly online - that cater to men with features about parenting, relationships, and mental health as opposed to articles about sex and sports common in some traditional men’s publications. The new magazines are intended to reflect the changing role of men in society, but they are also being rolled out at a time when other men’s titles are struggling ... Recent features include a first-person essay by a father trying to understand his teen daughter’s fascination with the ‘Twilight’ movies; a straight man’s perspective on playing in a gay Boston softball league; and a college graduate who wonders when he should start calling himself a man.”

    According to the story, “there have been other failed attempts at similar titles. For instance, last year, Best Life, a spinoff of Men’s Health, closed. And in 2008, after three years, Conde Nast folded Men’s Vogue, a monthly publication, back into Vogue after drops in ad sales. The new magazine editors declined to give figures on unique website visitors, but some analysts say that by launching online first, they have a better shot of surviving.

    “Additionally, they say recession-related job cuts have led to a renegotiation of familial roles — a reversal that has left some men looking for stories that better reflect their new reality.”

    It isn’t the only publication taking this approach. The Globe also writes about “Manofthehouse.com, an online magazine launched in June with how-to articles, from the best way to approach your pregnant wife about remodeling a nursery to how to get children to complete their chores.” The online publication is said to be designed to “counter negative images of men in the media with useful content.”
    KC's View:
    Hard to know if these particular publications, and others like them, will succeed, but they are notable because they point to changing gender roles in the aftermath of the recession (sometimes referred to as the “he-cession” because it seemed to affect more men’s careers than women’s), and to the idea that innovative business models reflect cultural shifts.

    I do have one suggestion to the “college graduate who wonders when he should start calling himself a man.” Don’t worry about what you call yourself. Behave like a man, and everything else will follow. Labels are less important than attitude.

    Published on: August 9, 2010

    • The Los Angeles Times reports that Valley Meat Company, a Modesto, California-based meat processor, is recalling one million pounds of ground beef that it says could be linked to seven cases of people getting sick from the consumption of E. coli bacteria. The meat was sold in California, Texas, Oregon, Arizona and overseas, and reportedly are stamped with a “best before” date of Jan. 7, 2011.

    • The New York Times reports that “Pop-Tarts is joining other food brands, like M&M’s and Hershey, with stores near Times Square, where the focus is often less about sales than marketing and visibility ... The lease on the 3,200-square-foot shop, on the south side of 42nd Street between Sixth Avenue and Broadway, runs through January, at which point executives will decide whether a store all about toaster pastries makes long-term sense.

    “The focal point of the store, which opens Tuesday, is the cafe. It will serve about 30 snacks and desserts.”
    KC's View:

    Published on: August 9, 2010

    MNB took note last week of a Wall Street Journal report that “Americans are spending more on electronics like iPads and flat-screen televisions and less on durable goods like furniture, washing machines and lawn mowers, according to government data released Tuesday.

    “The shift reflects a change in priorities for American consumers. After pouring money into all aspects of their homes during the previous decade, consumers are redirecting their purchases to eye-grabbing technology and socking away more of what's left over into savings.”

    MNB user Dave Tuchler responded:

    I chalk it up to nothing more than consumers playing catch-up ball on postponed purchases, while hanging on to a few newly acquired habits (like value shopping) gained during the recent 18 months.  No one has ever (successfully) claimed that consumers are logical.  On the other hand, a conspiracy theorist would say that this reflects 'the widening gap between the haves and have-nots' or something like that - that the statistics are really the sum of 2 separate buying groups.  Didn't notice the details on how they ran the numbers.

    Another MNB user wrote:

    Consider for a minute…
     
    Trends:

    Bifurcation between haves and haves a lot AND have barely enough or not enough.

    Keeping up with technology…to maybe break into the haves and haves a lot class of Americans.

    Buying generic toothpaste…to be able to afford healthcare or a trip to the dentist.

    These are but a few trends…let’s keep our eye on these…


    This same MNB user raised the following question about something I said, that “marketers, even in tough times, would do well not to always cater to the lowest common denominator...”

    By lowest common denominator are you referring to the have nots and barely haves??? This country is going somewhere that scares me.

    It was not my intention to suggest that the “have notes” are the lowest common denominator. What I am suggesting is that people up and down the economic ladder all have aspirations...and that marketers are almost always better served when they don’t condescend, but rather speak to those aspirations.

    Another MNB user wrote:

    Given the performance in high end luxury items and the new frugality in staple items, I wonder if what we're seeing is erosion of the middle class and growing gap between the upper and lower classes. Just wondering.
     



    I took note last week of a story about how a Pacific Northwest financial institution is looking to differentiate itself, which prompted one MNB user to write:

    Umpqua Bank is as described…but they are putting up a “public façade” to cover the fact that they finance the destruction of  Northwest environmental assets…forest, rivers, etc.…They are not a part of the community in which I participate.

    This is an important lesson. The public facade has to match the reality...because in this era of transparency, hypocrisy is almost always outed.




    Regarding Barnes & Noble looking for a buyer because of changing consumer trends, one MNB user wrote:

    Barnes & Noble – always the best bookstore in town (for me) because they always had the business books I wanted and were convenient. I’m not sure if their current economic condition is a matter of the US economic condition or if they failed to keep relevant…but they have always given me a good brand experience…going there today to pick up “The Girl Who Kicked The Hornet’s Nest”…whew!! This trilogy of books really sucked me in!!!

    Check out today’s “Eye-Opener” for further thoughts on this general subject.




    And responding to Friday’s piece in “OffBeat” about my Napa/Sonoma trip, MNB user Gary Silverman wrote:

    Been to many of those wineries.  Sounds like you had a great trip.  On your list you forgot to mention one of my favorites that I wrote to you about – Prager Ports!  This is what I wrote to you in my previous email   “And if you like Port wine, (and are ready to get ripped!) you HAVE to stop in at Prager Ports right off Main Street/St. Helena Highway at Lewelling (It is small, and I think kind of behind I believe it’s Sutter Homes)  They have a great little shack to taste in, where sometimes old man Prager (about 90?) will come in and sit on a stool and drink with you.  Everyone who comes in signs a dollar bill (or 5 or 10!) or a bill from whatever country they come from and tack it to the walls or ceiling, which is completely covered!  They give you a HUGE pour of 5 or 6 different Port wines that are always incredibly tasty.  Beware, I have come out of there wobbly on more than one occasion, but always s smiling, and always with at least one or two bottles.  The experience there is priceless.”

    Just thought it was worth a mention as it is always fun, nice ports, and different than anywhere else you go in the valley.


    Next time...
    KC's View: