al berrios & co. CONSUMER STRATEGIES REPORT 04.22.03: Sneaker Companies Are Missing a Major Opportunity

[1] UPDATES: New format, Executive Update, AIDS Walk
[2] BRANDSTRATEGY: Sneaker Companies Are Missing a Major Opportunity
[3] CONSUMERFOCUS: Revisiting Recycling for Beverage Companies
[4] MEDIA: Trends in Spot TV & Auto: TVB Annual Marketing Conference 2003
[5] MANAGEMENT: Practicality vs. Requirements: What Should We Teach Our Kids
[6] EVENT REPORT: 2003 New York International Automobile Show

"Talk with them, not down to them" - James Schroer, Executive Vice President, Sales and Marketing, DaimlyerChrysler's Chrysler Group talking about the best strategy when communicating with consumers at a Television Advertising Bureau conference forum (and validating the al berrios & co. business model)

Good morning execs,

I'm very excited to launch our new format, which hopefully makes things easier to read, while presenting more information. The new divider format is bolder and stands out more clearly amidst the clutter of words, while the new paragraph format makes it more readable, since that's how we're all trained to read anyway. Unfortunately, I had to remove the BOTTOM LINE identification, which has been part of this REPORT since inception. But it'll return in another format. Today's REPORT elaborates on three subjects covered in previous REPORTS: foot apparel, beverage companies, and educational standards. In addition, I review the TVB conference and Autos.

May 18th, I will be participating in the GMHC AIDS WALK. If you or your company don't have any immediate affiliations that you'd be obligated to walk for, you're more than welcome to join me to walk with my firm in the name of AIDS research, prevention, and curing. In all the hullabaloo about SARS, we've forgotten our own very important battles here. I'm not asking for donations, just your presence.

Enjoy your report!


Sneaker Companies Are Missing a Major Opportunity

Think back to all of the marketing you've seen for Nike, Reebok, Adidas, and New Balance. If you were asked to name similarities, which would stand out as different? If you're thinking Adidas, that's because Adidas is the only brand to actively market themselves as more than just an athletic lifestyle brand, but rather, a fashion brand. Sneakers are supposedly for playing basketball, jogging in the street, or generally engaging in something that'll make you sweat. But that's not how many consumers use their sneakers. In fact, if you're a lazy slob like me, you're only interested in how good sneakers look on you. And if that's true, you're not interested in fancy technology with redundant padding, springs, or alternative fittings. You're interested in simplicity, like the rest of us sneaker buyers. Heck, comfort isn't even a requirement (as I painfully prove to myself every time I wear my all-white, classic Reeboks.)

The opportunity being missed by major footwear marketers is enormous. Nokia proved that mobile phones are more than just communication tools, but fashion accessories, accessible to everyone, not just businessmen. And do you use your SUV off-road? Sneaker manufacturers fail to effectively communicate with consumers because their only focus is athletics. This disconnect with consumers is what keeps the sneaker marketplace ultra-competitive and without differentiation.

Sometime around two summers ago, I started looking for a new pair of sneakers. Because I had just invested in a more professional wardrobe, I wasn't looking to spend too much on them. What awaited me was a plethora of same-style, same-color, non-variety boring selections, with price tags depicting two arms instead of prices, and eager-to-sell-me-sneaker-accessories-sales associates. Granted, my observations were all cosmetic, since I was not familiar with the technology that these companies wanted me to pay for. What I selected instead was a sneaker priced at $10, orange colored, and in the discount section. It was comfortable, looked great, and was unique. That sneaker introduced me to Saucony, and ultimately lead me to start collecting them. I now have 7 Saucony Jazz's, in a cornucopia of colors, all almost mint condition, and essentially for the price of about 2 Air Jordans. Simple price, simple style, very happy customer.

I'm not the only one. As we covered in a previous REPORT, most consumers prefer their foot apparel just for style, not to be able to accomplish astounding things on the court. More recently, reported: "Hailing from a weird time when your dad had thin soles and, like, thick hair, shoes, from Adidas and Puma to Pony and Avirex, are going retro. Slimmed down and simplified, with unique touches like fabrics from vintage store clothing."

In a recent analysis of non-athletic footwear segment consumers, al berrios & co. discovered consumers referring to brands with terminology reserved for fashions, not functionality. It was also possible to infer that color plays a determining role in consumers' selection of their footwear.

al berrios & co. recommends the following to athletic footwear industry companies:

> By modifying consumer buying patterns, your business would be less dependant on cycles and seasons. Buying patterns can be changed with revitalized product changes, new marketing and increased & re-aligned distribution into non-sports, yet trendy retailers like boutique apparel stores.

> Recent consolidation by foot apparel retailers have increased your risks. Alternative channels are necessary to diversify distribution (i.e. incentive programs, increased traffic to online segment, collectibles program, licensing programs).

> The perception that consumer preferences develop primarily from the marketing and promotion of high-technology footwear is misaligned. As consumer tastes simplify, your brands should simplify, too. And if you've got classic brands, exploit them and encourage their sales. Although high-tech delivers higher margins from the end product, high-tech can also lower your cost of production, making lower-tech sneakers a feasible business.

> Drive the price of your products lower. After all, how can you ever expect to fully penetrate the youth market if you continue to make your product absolutely dependent on parental discretion?


Revisiting Recycling for Beverage Companies

In December, we made a case for beverage companies to increase the amount of the recycling refund they offer consumers rather than waste money to send them into space (or more recently, to make them a billionaire on national television like Pepsi's doing).

Although aluminum cans continue to be the number one recycled material, the number of cans collected has decreased 19.46% since 1997, according to the Aluminum Association, (pdf file) a trade group. The recent figures for plastic bottle recycling rates are difficult to come by (thanks to the American Plastics Council), however, the Container Recycling Institute has compared plastics resin sales and reclamation of plastic bottles to plastic recycling rates and both show that recycling has no where near the enthusiasm as new plastic sales.

As we enter one of the most competitive summers in history for beverage companies, packed full of new product launches, new packaging, and new consumer segments, it appears as though they're not overlooking any angle, especially recycling. The industry has teamed up to launch "a major advertising and public relations campaign to encourage recycling of soft drink bottles and cans."

This effort is clearly cause marketing, but the industry is still less than enthusiastic. In order for this program to be effective in the long-term, it has to have some sort of tangible value to beverage companies other than consumer share of mind. By allocating more budget to what al berrios & co. referred to as "micro-rebates", and making container-to-cash conversion convenient, a beverage company will quickly gain massive market share, not just because of the obvious value to consumers, but because consumers will make this program their own by doing things like establishing reclamation leagues, where micro-rebates would be donated to charities or causes or utilize recyclables for bartering, as containers can now have enough value to replace currency (this is a strategy currently being used by Snapple, but their strategy is based on the perception of value, not actual value).

Ultimately, an effort like this serves one major goal from two areas for a beverage company: it substantially decreases their cost of new material purchases because a) massive consumer recycling over-supplies the market place, reducing prices, and b) recycling means that beverage companies would buy less materials.

al berrios & co. is clearly ahead of the curve in recommending the industry make this move.

> Aluminum can recycling rate hits lowest level since 1980, CRI says


Trends in Spot TV & Automotive: Television Advertising Bureau Annual Marketing Conference 2003

This was an AMAZING meeting! Although held at Javits, which I've described at length in other REPORTS, the TVB conference was hosted in a part of Javits I had never been in (no matter how many times you been there and done that, over a million square feet of space is just plain difficult to take completely in by any one person). The auditorium and dining area were gigantic as usual, with the ambiance and mood impressive. The food (the caterers were average) was pretty good, the lighting excellent, the seating uncomfortable, yet satisfactory. But ultimately, it was all about the content.

> Skip to Trends in Auto
> Skip to Recommendations for Media Companies
> Skip to Trends in TV

It's no secret I am not a big fan of Deutsch, Inc., the pre-madonna ad firm that's too good to talk to smaller companies like mine. Its arrogant leader, Donny, sold out to IPG, the agency holding firm, a couple of years ago and is a fabulously wealthy arrogant leader. But since blind hatred is pointless, I decided to learn some things about the man, the agency, and the industry.

I often read about his controversial speeches, so I made it a priority to catch one. Luckily, he spoke at the TVB. Frankly, I wasn't impressed: (warning: for those of you that like Donny and what he has to say, you may get offended by this review of this speech. For those of you that enjoy a good volley of insults, enjoy. My personal opinions are in parentheses.)

It appears ad agency people are fighting to see who can be the most optimistic, so Donny decides to counter by predicting a 7- to 8- year slump, which we're right in the middle of (controversial indeed…); he said "TV is still king" because it's tried and true and delivers an immediate payback to advertisers. Folks, take this in its appropriate context - since ad agencies still get paid a commission of a budget, it's in their best interest to get the advertiser to use the largest budget possible, and that always means using television. Secondly, the audience is a TV audience. He most likely said something similar at the magazine conference he spoke at last year (which, although I attended, I unfortunately missed his speech, so I can't compare what he did); He claimed consumers wanted a "mental vacation" from the stress of current events and everyday life. (Wow, really? And how much does a client have to pay you to tell them that?); He commented on popular programming like the O'Reilly Factor, that although he's not a fan of, still has room to get bigger. (I've said repeatedly that it is unfortunate that familiarity with pop culture [a.k.a. watching lots of TV] is a marketer's primary skill offering these days). Although he didn't explain why this programming is popular, media economist Jack Myers identifies an anti-celebrity sentiment perpetuated by reality programming in his March 26 Jack Myers Entertainment Report (; He then went off to state that ad intrusion into content is getting out of hand and will offend consumers. (Donny, expert at stating the obvious); He concluded by showing the audience his agency's reel of ads for Mitsubishi, California Dairy, and Snapple, which were (actually) extremely creative and entertaining, (as well as blatant free advertising for his agency's expertise at playing with cars, bottles, and computer graphics).

OK, now that I've gotten that off my chest, I'd like to go on record saying that their success at winning over clients isn't an accident. I've visited their offices in downtown NYC and it speaks volumes about the way they run their operations. Started by his dad, David, Donny grew up an ad-brat, so it wasn't difficult for him to pick up the pieces during a time when agencies were growing in scope and influence. They're one of the few that defend agency-as-business model against client micro-managing and will actually resign accounts they feel won't create value for them or the client. In this age of decreasing ad budgets, actions like these earn them the respect of their peers.

One of the most radical trends I heard during the entire conference was television's penetration into the local classifieds business. OK, stop laughing for a minute and remember how eBay is in the midst of launching eBay TV. Well, as part of carrying that program, SONY sales is offering eBay technology to local television stations so that they can make their websites a more powerful audience relationship tool. Among the many features, it will connect local TV with eBay's 62 million customers, give them the ability to generate new revenue via the program and the site (eBay TV is a variety show, with concepts similar to those like QVC), but also facilitate a classifieds style listing on local TV websites. With a brand like eBay attached, and this programming concept presenting so many alternative revenue streams for struggling local stations, it's a proposition that shouldn't be taken to lightly, particularly by newspapers who laughed at Monster and HotJobs.

Auto companies are trending towards increased event presence. They won't ever stop leveraging television as a powerful medium to reach millions, however, they understand that in an increasingly competitive environment, they have to get to know consumers more intimately.

Although the internet has opened up an invaluable channel for them, event marketing will prove to be a preferred way, as they also strive to control the cost of processes, like marketing, by collaborating with their dealers, who have unprecedented understanding of regional consumers.

The innovations they're looking for is in business processes, (validating a speech by Ameet Patel last week), as the name of the game is cost-savings. (Recall, Ford's now-controversial, yet unavoidable decision to only work with WPP agencies in an effort to save money). Although the CFO doesn't have greater involvement with consumer communications, the procurement specialist has become a new star in the organization.

As industries such as auto seek more accountability from their marketing communications, developments in media aren't catching up. The ultimate goal for advertisers is minute-by-minute ratings, commercial ratings, and expenditure-to-sales correlation measurement of all media, but these advances aren't likely to happen until television is willing to make additional audience guarantees. And when we arrive at this phase, advertiser relationships with media could last decades, not months. Until then, you really are wasting 50% of your budget that you can't identify, per media researcher Erwin Ephron.

In the meantime, how can media companies increase revenues without increasing dependence on advertisers? Based on the various discussions at the TVB conference, al berrios & co. recommends:

> dedicating adsales by media agencies, not industries or clients, to improve processes and efficiency (something the broadcast networks started doing almost 2 years ago at the birth of the billion-dollar media buyers);

> produce original and local content, preferably in a different media than the one you're used to;

> enter syndication and repurposing markets, using the same approach you use with your adsales, packages;

> modify licensing, affiliate and vendor fees via hedging contracts with various buyers and vendors, to lock in or create more variability in prices.

> GM takes tougher stand on event marketing
> Papers rule local web advertising, TV and radio stations are but blips on the $ radar


Practicality vs. Requirements: What Should We Teach Our Kids


Last week, I attended the 2003 New York International Automobile Show at Javits. I stated above that you could have been there and done that, but to see new things from old things is always a treat. This week was no different, as the Auto Show took over almost every inch of Javits space. I won't bore you with what I liked, since you can visit any portal or newssite for that, but the displays were amazing. The cars, breath taking. But the sheer genius of this event is how it creates essentially an enormous showroom for everybody. And this is why it has such staggering drawing power. Over 1.3 million people are expected to pass through this event during the 10 days it's there. This proves to be an invaluable petri dish for car companies, which they use in combination with their websites to gauge driver sentiment towards their concept, new, and older products, as well as renew their relationships with them, in a manner that's more interactive than a television ad. To drive home the effectiveness of this event, consider the price tag: a measly $5 million bucks.

> Interview with The New York Auto Show's Candida Romanelli



Disclaimer: The recommendations, commentary and opinions published herein are based on public information sometimes referenced via hyperlinks. Any similarities or likeness to any ideas or commentary from any other sources not referenced is purely coincidental. al berrios & co. cannot control any results occurring from advice obtained from this publication nor any opinion(s) conveyed by any reader of this publication.

(c) 2001-2005. All Rights Reserved. al berrios & company, inc. Published by al berrios & co. This Report may not be reproduced or redistributed in any form without written permission from al berrios & co., subject to penalty.


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