al berrios & co. CONSUMER STRATEGIES REPORT 06.24.03: In A Desperate Search For Influence, Avoid Bribing The Market

[1] UPDATES: Homepage Redesign Version 25.0 and Exec Summary
[2] MEDIA: In A Desperate Search For Influence, Avoid Bribing The Market
[3] TRADE EVENT REPORT: ANA 2003 Print Advertising Forum + + + + +
[4] TRADE EVENT REPORT: CeBIT America 2003 + + +
[5] OPINION REPORT: The Problem With Making Policy From Relationships

"How can anyone expect logic and reason to replace the relationships that guide our behavior?" - Al Berrios

Good morning execs,

We've redesigned our homepage for deeper access to all our content, without sacrificing any of the simplicity in design you've come to expect from al berrios & co. Hope you like it. It is our 25th version!

Today we're reviewing our Media Influence Model™ to help you understand how to more effectively reach those audiences you've just dreamed about reaching.

Enjoy your report!


In A Desperate Search For Influence, Avoid Bribing The Market

> The Birth of Influence
> Controlling Influential Forces
> In The Case of Media Companies
> HOY vs. El Diaro/La Prensa
> Prediction On Media Companies' Entrance Strategy Into Niche Market Segments

Do you crave targeting the ethnic consumer? Are you a fan of J.Lo and think your customer is, too? Marketers need facilitators and translators of cultures, lifestyles, and demos in order to establish successful relationships with their desired target, yet many marketers consistently alienate, offend, and obliterate relationships with consumers because their perspectives are often based on stereotypes and flawed or dated research, instead of the expertise of "participants".

The quick way in has been to buy in - through acquisitions, endorsements, and sponsorships. However, there is no quantifiable evidence of the improved effects of associating or extending your brand with these strategies. In fact, these type of transactions occur predominantly on gut instincts. For example, why do Reebok and Lugz believe they can reach new markets just by signing rappers at a furious pace? Why did Tribune's Newsday believe they'd have a chance at launching Spanish-language daily HOY in a market dominated by El Diaro/La Prensa (New York City)?

The Birth of Influence

The credibility of cultural, lifestyle, or demographic icons isn't based on how consumers define value, but rather on how they are influenced. As our Media Influence Model™ clearly demonstrates, icons have the ability to aggregate consumers. What they do and stand for is the content that consumers seek and crave. Their pursuit of this icon builds familiarity and trust with them. They admire them, possibly even aspire to be like them, and will automatically train themselves to be attentive to anything bearing their name or stamp of approval. The ultimate effect is how they allow themselves to be influenced by them. This influence with consumers is what all marketers seek, but attain only when the forces of the universe are in alignment, not because they understand the forces, let alone control them.

Controlling Influential Forces

When Pepsi hired rapper Ludacris to represent their brand, they not only had a feeling that he influenced their target consumer, they had insight verifying this was the case from our firm. We provided to them a list of the most influential celebrities, Ludacris being number one on that list. Soon after, another celebrity not fitting the audience Pepsi intended to reach, denounced Pepsi for their selection of Ludacris as a spokesperson, prompting Pepsi to terminate their relationship with the rapper. This action caused an immediate reaction from the consumers Pepsi originally wanted to target, resulting in boycotts and eventually a $5 million bribe from Pepsi to keep quiet.

Pepsi sought credibility within a lifestyle, bought into it, then was forced to pay to get out of it because they didn't take the advice of their translator. Their loss of control of the forces that created that situation would have never happened if they understood how their audience was influenced. And since we now understand how influenced is achieved, it is also possible to design a strategy to control these forces. In the case of Pepsi, al berrios & co. would have recommended that

1) after having selected their target audience, and discovered Ludacris as its top celebrity
2) they should have not attempted to manipulate the artist, nor his music, based on the denouncing celebrity's comments, since this is the reason he is able to aggregate Pepsi's target audience.
3) They should have encouraged frequent appearances of Ludacris using Pepsi products, in Pepsi venues, discussing issues important to Pepsi and the target audience to
4) encourage trust and gain the
5) loyalty from their target audience.

By following a supportive strategy similar to this, Pepsi and all marketers wishing to extract more sales from niche consumer segments would succeed within that segment. In effect, you decrease your Consumer Risk by controlling the forces that influence your target audience.

In The Case of Media Companies

Let's say you're a media company trying to buy an established player in your desired target group. Historically, academic research shows that "takeovers by firms with no managerial expertise in the acquired company's line of business tended to impair, not improve, efficiency", they "frequently [lead] to short-run profit-maximizing strategies, such as they 'cash cow' strategy under which 'a business is starved of R&D, equipment modernization, and [marketing] funds, and/or prices are set at high levels inviting competitor inroads, leaving in the end a depleted, non-competitive shell."

So, for example, Viacom's takeover of BET made strategic sense, since much of the content playing on BET as a cable company had already proved to be Viacom's core programming competency. However, NBC's acquisition of Telemundo has proven to be more difficult, as they've lost share to competitor Univision. NBC's is a network broadcaster whose competency was programming broad, general interest, middle-income and middle-American fair. Telemundo, a cable programmer to Spanish-language, lower-income Hispanic homes, was a whole other planet for them.

HOY vs. El Diaro/La Prensa

Based on these examples, and our Media Influence Model™, the more likely successful business model would be to start from scratch with your audience, and build it organically. HOY's success in starting from scratch to reach the diverse Hispanic audiences in New York City has caused El Diaro/La Prensa's mainly Puerto Rican coverage to suffer a loss of share and revenue, leading them into the arms of Canadian investors who've agreed to purchase the company, according to sources I spoke to at the recent ANA Print Advertising Forum. El Diaro also started from scratch, but like many community dailies, failed to adapt to changing demographic trends in their audience, causing them to loose their relevancy, admiration, and influence. El Diaro also failed to innovate in other ways as well, keeping their price at $0.50 while HOY was priced at $0.25.

This scenario is not specific to the New York Hispanic market. In Chicago, another Tribune war is occurring as dailies clash to capture younger readers. There, two new dailies have launched with increased entertainment content, color, and value (pricing them free to garner share) to the reader. Whether younger readers are being successfully reached is another matter, as engagement of reader measurements for print media haven't been deeply studied, but in any event, launching media from scratch to cater to your desired target audience has proven to be more effective than acquiring the audience.

Prediction On Media Companies' Entrance Strategy Into Niche Market Segments

According to Lauren Rich Fine, advertising/publishing analyst at Merrill Lynch, as a result of the FCC ruling on June 2nd, facilitating newspaper/broadcast station transactions, it doesn't look economically viable for newspapers to be acquirers, partly because of the cost (local news coverage, the mainstay of both, has just become too expensive to produce without cross-platform efficiencies), but also because of the creativity it takes to combine these media assets for advertisers. After all, the major driving force for any media company are the piles of cash advertisers throw at them for access to their audiences. Therefore, aside from companies that have already made it their business model, the industry doesn't anticipate too many more acquisitions in this space. And although reaching out to new consumer segments is driving growth in all media industries, I anticipate more companies launching new competitors as opposed to acquiring, based on my analysis of results of buying into the market.

> Reebok and Jay-Z: Making Shoes-And History-Together
> Reebok And 50 Cent Continue To Change The Game
> Bruck, Connie, "The Predators' Ball: The Inside Story of Drexel Burnham and the Rise of the Junk Bond Raiders", New York, Penguin, 1989, page 261-262


ANA 2003 Print Advertising Forum + + + + +

> Getting Rid of the Media Buyers
> Creatives vs. Clients
> Print vs. Television
> Buying Print as Time, Not Space
> Print Should Also Focus On Subscription Revenue

The Association of National Advertisers sure knows how to organize events. Powerful both in learning experience and networking opportunity, I don't think any other association can deliver this many leads in an 8-hour day. Although I'm a big fan of take-home goodie-bags, the ANA simply overwhelms attendees to the point where you'd literally need a forklift to carry everything back to your office. For the second time ever, I arrived with my fingers and arms completely exhausted from the commute back (the first being the Toy Fair).

Getting Rid of the Media Buyers

With speakers from agencies and clients alike, it was amazing to hear it directly from the clients' mouths, something you don't often hear from agencies or trade publications. For example, I was startled to hear that for all of the agency's touting of the benefits of billion-dollar media buying budgets, executives I spoke from a major QSR and major consumer goods company find it more cost effective to disintermediate media buying firms from the process, since media companies will always extend the best deals directly to the clients, not the agencies. The agencies, middle-men, have to earn fees, and with that mindset, up-sell additional services that the client doesn't generally need, and unfortunately pays more for.

As a media buyer and planner, it is unfortunate to hear such frank preference for going it alone when strategizing media, but I can't help seeing the point of these $100+ million-budget spenders. However, let me point out that these sentiments were those of the actual buyers within the companies, and are therefore biased. The same way companies outsource their IT, helpdesks, and other back-office functions as non-essential to their core competencies, planning and buying media falls under the same category and with the proper outsourcing contract, can save companies millions.

Creatives vs. Clients

Another interesting conflict seems to be that of creatives vs. clients. Creatives insist that they keep their clients on track with regards to messaging strategies and consumer relationships. However, many clients feel that agencies just don't understand their business and often produce below average work. Let me point out though that the creatives that feel they guide clients are the senior creatives, who often have staffs full of less experienced junior executives that clients usually have a more direct link with. Creative already being subjective, and thus a commodity, clients have taken one of two approaches: bring the creative process in-house, or when outsourcing, micro-manage it with unprecedented authority and cost-managing. Imagine how your accountant would react if you told him that you're going to tell him what accounting process you'd like to use or worse yet, that you'd like him to hire your friend because you trust your friend more than your accountant? But I understand the sentiment - after the luncheon creative awards ceremony, many younger agency folks just left, leaving the meaty portion of the conference almost embarrassingly empty for the senior folks. This unfortunate display of ignorance helps us realize one important truth: free-loading agency folks will never match the stature of their professional services counterparts in banking, law, and consulting because they don't demonstrate an interest in learning more about their industry than they need to earn their next paycheck.

Print vs. Television

And what about print vs. television? All other media are in a state of limbo as television upfront collected a 15% increase in budgets, meaning, other media will experience a 15%+ loss in their revenue. Publications fold, but oddly enough, it's not because advertisers aren't spending what they used to in print, just that between consolidating markets, improved audience development strategies, and extensions of print brands into other media, figures showing what's occurring in the industry have been misinterpreted by journalists as meaning doomsday. In fact, according to Karen Jacobs, EVP, director of print investments at Starcom, ad pages in print has increased 52%+ in the last decade, not decreased.

Buying Print as Time, Not Space

Finally, the most provocative discussion of the day was media consultant Irwin Ephron's suggestion to the industry to stop looking at print as buying space and see it as buying time to more effectively compete with the strategic advantages of broadcast. The point was to help advertisers achieve the sort of continuity in delivering their brands' promises that broadcast provides, rather than ancient insertion schedules that don't engage reader as effectively as it could. He clearly suggested that print needs to reinvent itself to survive, starting with the way they measure results and conduct transactions with advertisers.

I believe that, like the stock market, media buyers buy media irrationally, based on their perception of consumer response to content and of course, their own personal biases. This is in spite of all the research that is done, none of it measuring engagement of the reader, advertising receptivity, and yield of media and creative in an ad vacuum. This business is ripe for a firm like al berrios & co. that strives to understand irrational behavior, whether it come from investors, media buyers, or consumers.

Print Should Also Focus On Subscription Revenue

My only problem was that the event focused heavily on the business of print, not necessarily on the audience. It appears that strategies to increase ad revenue were more important than strategies to increase subscription revenue, giving the appearance that times would be tough for independents, while congloms would continue to dominate. I disagree, but I suppose that's another conference.

The event was hosted at the Plaza Hotel here in New York City and although I'm not a big fan of the food, I found this event to have excellent food, and for some odd reason (perhaps the lighting was better last week), I even noticed the intricate designs of much of the interior. Overall, in spite of the ugly, rainy day, the event was a huge success that I would recommend next year.


CeBIT America 2003 + + +

So much research and I still don't know what CeBIT stands for. But what it is, is a tradeshow for information technology companies. More valuable, however, is how it serves as a platform for the international community to attract U.S. investors to the benefits of IT investments in their countries. Because much of this conference focused on B2B and international opportunities, I wasn't particularly interested (al berrios & co. focuses on U.S. consumer markets). I attended only one day and for only 2 hours, during which I got the opportunity to walk the entire Javits Center, heard a few speeches, and got to see what new fangled consumer products might reach the market. Ho-hum. Overall, it's worth going at least once, particularly to hear the interesting keynotes (PeopleSoft CEO, Craig Conway and MCI's Bill Capellas spoke), but I wouldn't recommend going annually.


The Problem With Making Policy From Relationships

The SEC says that hiring your friends to serve as your directors is wrong because they'll never call you out when you're breaking the rules. But if we're taught to never listen to strangers since birth, how do we prevent ignoring those we don't know on our boards?

The perception that affirmative action may be wrong because it alienates non-minorities has merit, but in a society where cliques are the norm, would non-minorities continue to allow minorities to join them?

If an act is wrong because it breaks the rules, but acceptable by your peers, therefore perceived to be right, should the rule be changed accordingly? For example, if I doctored my company's accounting because everyone else was doing it and getting praised for it, shouldn't the rules be changed?

Accounting rules are important as a logical standard by which we build confidence among investors, however, breaking them is always irrationally perceived to be the only way to maintain that confidence in the relationship with Wall Street. What would happen without rules?

In every age that made men into multi-millionaires, so to must witch hunts be embarked upon to erase the norms that permitted such wrong-doing with new rules. We then force our rules upon everyone, in the hopes that we won't be personally wronged anymore. But we're often wronged, in spite of our own rules, because men are more creative than rules, finding ways to manipulate even the most prudent rules, and this becomes the norm again. We ultimately accept norms, even if they're technically against our own rules, as long as we're part of the system, and avoid getting wronged anymore.

So if rules are broken and norms good enough, then the basis for how we live our lives are the relationships we have with the friends and loved ones that make norms acceptable by their engagement in them, not the rules that prevent us from having relationships. If your friend broke a rule and is clearly wrong, wouldn't you still believe him right because of your relationship to him? How can anyone expect logic and reason to replace the relationships that guide our behavior? What would happen without relationships?



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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