Category: Price5d70aa2269

Do Subscriptions Make Sense?

7/30/2022

by David Hagenbuch - professor of Marketing at Messiah University -
author of Honorable Influence - founder of Mindful Marketing

“That’s the gift that keeps on giving the whole year”—such was Cousin Eddie’s inane attempt in Christmas Vacation to console a devastated Clark Griswold after he found out his firm gave him a Jelly of the Month Club membership instead of a generous cash bonus. Clark had good reason to resent receiving a product subscription, but how should consumers feel about more companies moving to subscription models?

If you’re like most people, you’ve noticed a steady rise in reoccurring payments. Decades ago, monthly bills were restricted to things like rent and utilities, but they’ve since expanded to include regular charges for cellphone plans, movie streaming, and online news. And, the list keeps getting longer, as even more organizations find opportunities to automatically tap their consumers’ wallets for things like clothing (e.g., Stitch Fix), meal kits (e.g., HelloFresh), and shaving tools (e.g., Harry’s).

These examples aren’t particularly surprising—each day people wear clothes, eat food, and shave their bodies, so it makes sense to automate the purchase process and save consumers time shopping for such staples. However, subscription services for some other products should make any of us wonder, ‘Why?’

For example, BMW has begun to offer “heated seat subscriptions” in certain vehicles for $18 a month. According to James Vincent, writing for The Verge, “BMW has slowly been putting features behind subscriptions since 2020.” The automaker’s other reoccurring charges include automatic high beams and adaptive cruise control.

There’s also sneaker maker Cloudneo, which offers a “100% recyclable running shoe that’s only available by subscription.” For $29.99 a month, customers receive “an endless supply of shoes.” When pairs are past their useful lives, customers request new ones while returning their old ones, which the company grinds down and melts into plastic pellets used in its new product manufacturing.

These last two examples and several of those mentioned earlier are innovative approaches that reimagine marketing’s 4 Ps. All share strategic similarities as they fall under the subscription umbrella, but there also are significant and sometimes unsettling differences that make me want to better understand: When is subscription pricing right for both companies and consumers?

To answer this question, I turned to someone who has navigated the challenging process of transitioning his company’s signature product from a one-time purchase to a monthly subscription. Jason Kichline is founder and chief technology officer of OnSong, namesake of one of the world’s most widely used music performance apps. It allows musicians to digitally store, sort, and customize their music, saving them time and enabling them to focus on what they do best.

An annual guest speaker in my capstone marketing course, Kichline has told us of his firm’s deliberations about transitioning the OnSong app from a one-time Apple App Store purchase to a monthly subscription. OnSong started to offer a feature-enhanced, subscription version of its product a couple of years ago. This past June, OnSong finalized the monumental move by eliminating the one-time purchase option.

For many companies, the decision to go to full sail on a subscription model is simply a matter of what nets the most money, i.e., will more revenue from reoccurring payments offset sales not realized from potential customers who want a one-time purchase?

Although OnSong certainly considered income projections, it’s analysis was much more circumspect and other-oriented, which is evident as Kichline explains three main reasons for the move:

1. Relationships: “We’ve always placed a high value on supporting our users. A complex and full-featured app like OnSong demands a level of support that goes beyond that of a one-time purchase. A subscription creates the opportunity for a more formal relationship with users and the need to continually provide them with value. Our goal is to make our customers incredibly happy with the level of service, support, and features we offer.”

2. Continuity: “Although OnSong has been successful for more than 10 years, many software firms don’t last as long—they go out of business, or they’re acquired. A developer can keep an app around for a long time for some side money or an owner’s salary, but a buyer typically wants ROI. For this reason, new owners turn many one-time-purchase apps into subscriptions and try to ‘leverage’ the existing user base.”

“Even though app customers often assume they’ll be forced to upgrade to a subscription, we didn’t feel it was fair, so we grandfathered existing users.” Still, because going out of business also leaves customers stranded, we believe that subscribing to OnSong is the best path forward for all. A subscription to OnSong is an investment in the company and its product’s future.”

3. Value-Added: “The defining measure for most consumers is what they receive compared to what they pay. Although a subscription costs more than a one-time purchase over time, it also provides greater benefits, including important updates and improvements in an ever-changing technological environment. A cancelable subscription also reduces financial risk for consumers by allowing for product trial, which is often not possible with one-time software purchases.”

“Looking to the future, OnSong wants to provide a web-based version of the app that will store music and resources in the cloud, as well as manage bands and teams. A subscription model supports this additional functionality and added value.”

Kichline acknowledges that the transition to a subscription model has not been without challenges, which include effective communication with consumers, who can be swayed by public perceptions in social media.

Still, the change has been a good one for OnSong and its customers. After experiencing one “tight month,” the company’s revenues quickly rebounded to previous levels with continuing growth. That success should also be taken as a sign of the strength of OnSong’s value proposition in the eyes of consumers—the benefits they receive from the app are well-worth its reoccurring cost.

For Kichline, key to the whole process has been “having the mind of the consumer.” His analysis above and this summary statement make me ask: Do the subscriptions for BMW’s heated seats and Coudneo’s recyclable running shoes show an understanding of “the mind of the consumer” and a desire to truly meet customers’ needs?

Cloudneo’s product subscription may represent such a market orientation for certain hardcore runners who cycle through sneakers at a rapid clip. They might wear out a pair of running shoes every few months and could easily spend $360 or more per year on performance footwear.

BMW’s subscription is harder to justify. In his Verge article mentioned above, Vince raises good points that call into question the automaker’s motives:

“BMW owners already have all the necessary components [for the heated seats], but BMW has simply placed a software block on their functionality that buyers then have to pay to remove. For some software features that might lead to ongoing expenses for the carmaker (like automated traffic camera alerts, for example), charging a subscription seems more reasonable. But that’s not an issue for heated seats.”

When BMW manufactures vehicles with heated seats, it likely passes on the added material and labor costs to consumers at the time of purchase. So, the automaker is essentially holding back a feature for which customers have already paid so it can charge twice for what is an increasingly common new car addition. Such a motive certainly wouldn’t represent a customer-centric attitude.

As BMW has shown, there are situations in which paying a reoccurring fee for a product makes little sense for consumers. However, when companies prioritize the three principles that Kichline has identified (relationships, continuity, and value-added), subscription pricing is “Mindful Marketing.”

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The Real Beef About Burger Ads

5/22/2022

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by David Hagenbuch - professor of Marketing at Messiah University -
author of Honorable Influence - founder of Mindful Marketing

While Ukrainians mourn their war dead and Buffalo residents grieve victims of a hate crime, a guy in New York cries foul because his hamburgers aren’t bigger. Of course, not every real problem is a matter of life and death, but could some seemingly frivolous lawsuits challenging fast food promotions portray broader communication concerns?

On May 17, Long Island resident Justin Chimienti filed a legal action in a Brooklyn federal court, accusing both Wendy’s and McDonald’s of “defrauding customers with ads that make burgers appear larger than they actually are.”

The lawsuit alleges that the restaurants’ use of undercooked beef in photo shoots leads to promotional pieces with burgers that appear 15% to 20% larger than those customers actually receive. The suit also suggests that Wendy’s exaggerates the toppings that embellish its sandwiches.

Burger King, the third of the big three fast food competitors, was slapped with a similar lawsuit just over a month ago. In fact, the same law firms that sued BK are also representing Chimienti in the most recent litigation.

To many, these lawsuits are the epitome of money-grabbing lawyers eager to profit from a first-world problem--With so many truly important events happening in our world, why should anyone worry that Whoppers aren’t as juicy as they appear in their pictures?

However, Anthony Russo, one of the main attorneys representing the plaintiff, argues that there’s a bigger issue at play--corporate accountability. He maintains that these legal actions will make the companies mend their ways, stop false and misleading advertising, and ultimately give consumers a better idea of the food they’re eating.

That justification sounds good, but it does come from one of the people who stands to gain the most from the litigation. In fact:

“A detailed examination of eight years of consumer class actions in federal court found that consumers received only a tiny fraction of the money awarded in those cases while plaintiff lawyers frequently claimed a bigger share of the settlement than their clients.”

Still, legal action can be an effective way to bring about corporate change, and it usually takes attorneys to move such proceedings through the courts.

Imagining the burger court cases, the defendants might offer a counterargument like:

"When it comes to promoting themselves, don’t individuals and organizations have a right to ‘put their best foot forward,’ and doesn’t everyone expect others to do the same?"

Most people don’t have sections of their resumes labeled ‘Main Flaws’ or ‘Greatest Failures’; instead, we list our ‘Special Skills’ and describe ‘Awards and Recognitions.’ Likewise, no one reviewing resumes expects to see those self-deprecating categories. That’s why interviewers often ask job candidates things like, “Tell me about one of your weaknesses.”

So, shouldn’t companies also be allowed to brag a little and show their best examples versus humiliate themselves with mediocre or bad ones?

Curating top quality products for promotion certainly isn’t unique to fast food chains. Grocery store flyers rarely feature misshapen fruits and vegetables, car commercials don’t use vehicles with scratches or dents, and clothing ads don’t show shirts that are wrinkled or frayed.

As consumers, not only do we routinely see such examples, many of us are involved in the same sort of careful curation of ourselves and the organizations we serve.

During my two-plus decades in higher education, I’ve often helped select ‘best’ examples to help promote my department and university. For instance, when asked to suggest students or alumni who might provide a testimonial, I take plenty of time to think before offering names of individuals who I believe have had very positive experiences.

However, just because we engage in such selective promotion doesn’t mean that we should, i.e., we need to be careful about reasoning from ‘is’ to ‘ought.’

The main moral questions to ask are whether the recipients of the promotion are deceived and harmed.

Personally, I don’t feel misled by pictures of perfect peaches, super clean cars, or spotless shirts. Most people also probably expect the actual items they buy to have at least some minor imperfections when compared to their pictured counterparts.

Depending on the nature and cost of the product, there’s a level below perfect condition that we readily accept knowing that we live in an imperfect world. Furthermore, in terms of food, visual imperfections probably don’t matter as much as they do for many other products because although we eat with our eyes, the appearance of what’s on our plates is short-lived.

That takes us back to burgers and the main moral questions:
Do differences between what Burger King, McDonald’s, and Wendy’s depict in their ads and sell in their stores deceive and harm consumers?

First, it’s important to recognize that for the vast majority of consumers, these fast food restaurants’ ads represent reminder advertising, i.e., most people have already eaten in one or more of the chains, possibly multiple times, so they’re well aware of what they’ll receive the next time they visit.

Second, fast food is a rather low-involvement, low-risk purchase. When deciding what to order, people typically spend a minute or less, not hours, days, or weeks, as they might when selecting some products. Likewise, the average McDonald’s Big Mac Meal costs only $5.99, and customers can buy two cheeseburgers for just $2.00. So, if the beef patties don’t look quite as pretty as the pictures, it’s no big loss.

All that said, there is a difference between misrepresenting quality and misrepresenting quantity. Whether burgers look more or less appealing than their pictures is a somewhat subjective matter. Size is not. People almost always want to get more product for their money, not less, so it’s a problem if a burger’s picture looks 50% bigger than the one we actually receive.

In this sense, the burger lawsuits have more teeth. Consumers will quickly forget whether the Big Mac Meal looked as good in person as it did in the picture, but they won’t forget if they’re still hungry after eating it, especially if they have no more meal money to spend.

Although that’s not a life-threatening problem on par with those mentioned at the outset of this piece, it is a legitimate consumer concern, particularly in inflationary times. Whether they’re spending a lot or a little, people should always receive the amount of product they’re promised.

So, there is a plausible and practical component to the burger lawsuits; however, their bigger contribution is their call for accountability, which also may mean modeling more genuine communication.

It’s not to say that people take their communication cues directly from fast food ads, yet there’s an unsettling resemblance between the idealized product promotions and the utopian pictures many individuals paint of themselves in social media.

When people see large, heavily advertised corporations like Burger King, McDonald’s, and Wendy’s freely exaggerating and glamorizing their truths, it implies permission for others to do the same.

The world becomes a better place when individuals and organizations take care to represent themselves realistically. It’s okay to put our best foot forward, but it must be our foot, not some fantastical version of it. Those who walk with realism are stepping into “Mindful Marketing.”

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Gen Z Students Teach Their Professor About Thrifting

9/10/2021

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by David Hagenbuch - professor of Marketing at Messiah University -
author of Honorable Influence - founder of Mindful Marketing

Remember the excitement of your first time wearing a new jacket or pair of shoes? Did you wonder how the original owner felt when they wore them? You probably didn’t unless you’ve been part of one of the hottest consumer trends--thrifting. For a variety of reasons, it’s now fashionable, especially among Generation Z, to shop secondhand, but this Gen X marketing professor wonders if it’s smart for the apparel industry to embrace a fad that may dissuade people from purchasing its new products.

Scanning my marketing news feeds a couple of months ago, a headline caught my eye, “Letter from Gen Z: Why thrifting is the future of fashion.” Thinking it was a bold prediction, I saved the article to discuss with my fall classes. The semester started, I shared the piece, and I’m stunned how passionate so many students are about thrifting!

However, on the first day of Personal Selling class, before I even mentioned the article, I asked each person to ‘sell us on something important to you.’ With great enthusiasm, a student named Brooke shared how much she enjoyed thrifting. Her tremendous passion for the practice was obvious to all, and very surprising to me.

My impression had long been that shopping for secondhand items was something mostly people on very limited budgets did out of necessity, to save money. Similarly, those who did frequent aftermarket sellers certainly wouldn’t brag about what they’d bought. Apparently, that stigma has subsided, and college students, some of whom come from affluent families, are among those most active in propagating thrifting’s new-found popularity.

To get a better picture of thrifting behavior among college students, I created a brief online survey that I shared with my four classes; about 70 students completed it. The results revealed some surprising behavior, for instance:

70.4% of students had purchased used clothing three or more times, and 54.9% had done so seven or more times.
The most likely places to purchase used clothing were traditional thrift stores like Goodwill and Salvation Army (39.4%), followed by retailers and brands that sell both new and used clothes, such as H&M and Levi’s (33.8%), then consignment stores (22.5%), and finally flea-markets (7.1%).
The strongest motivations for buying used clothing were cost (49.3%), followed by fashion (16.9%), then desire for old/vintage (11.27%), then impact of influencers (2.8%), and last environmental concerns (1.4%).

Before the survey, I didn’t think that so many college students were actively thrifting. To my surprise, only 9.9% of those who responded, said they’ve never purchased used clothing. I was also surprised that the places they thrift are rather evenly distributed.

Comparing the two different findings, it’s remarkable that the percentage of those who are very likely to frequent even the least popular thrifting place, flea-markets (7.1%), is not much lower than the portion of people who have never thrifted (9.9%).

On one hand, seeing cost emerge as the top motivator for thrifting was not surprising; however, I had expected its percentage to be even higher, e.g., 90% or more—again, I always thought that saving money was the only reason people purchased used clothing.

As it turns out, the desires to be fashionable and to own old/vintage clothing were also very compelling. Along those lines, I realized that my simple survey failed to ask about what may be one of the most important motivations!

At the end of the survey, an open-ended question invited respondents to share any other thoughts about thrifting. Seventeen students seized the opportunity and offered responses that included the following:

“I love it so much!”
“I love to thrift and over half of my closet is thrifted.”
“Very cheap way of finding trendy clothes”
“It’s how I get 90% of my clothes.”
“I love that I can find articles of clothing that no one else is likely to have. Thrift finds are one of a kind. I also buy clothes from stores like Target, but my purchases [there] are not as unique [emphasis added] because other people have the ability to buy the same thing. Thrifting grants me a more unique [emphasis added] wardrobe!”
At least 50% of my clothes are thrifted, I absolutely love thrifting - both because it limits waste in the fashion industry and because it’s fun! [emphasis added]

The last two comments contained two words that were both eye-opening and full of marketing implications:

1) Unique: I remember, not long ago, when young people wanted to look like everyone else. To be one of the few people who didn’t have the popular brands of sneakers or jeans was often an ostracizing experience.

Now it seems that many Gen Zers want to own clothing that not everyone else is wearing. Moreover, items that are one-of-a-kind, like those that can be found through thrifting, are even better, as they help express individual identity, which mass marketed products can’t easily accomplish.

2) Fun: In my thrifting survey, I kind of included a question about wanting unique clothing (“old/vintage”), but I completely overlooked the idea that members of Gen Z thrift because they enjoy the thrill of the experience.

For many, thrifting is a kind of treasure hunt in which they may or may not know exactly what they’re looking for, and what they find may be a complete surprise. It’s exciting for almost anyone to come across something special that others are unlikely to locate.

Both of these motives, as well as some of the others, are instrumental to the thrifting behavior of Brooke, introduced above, who has been buying secondhand products for 3-4 years and goes thrifting once every two or three weeks. In those outings, Brooke has found used bargains on everything from American Eagle clothing, to Ugg boots, to Vera Bradley bookbags.

Cost is certainly a motivation for Brooke; in fact, she says she loves saving money and showing people the great buys she gets for ¾ of regular retail prices. She also says that she now has “a hard time spending full price on clothing at retail stores.” However, Brooke also enjoys the excitement of thrifting:

“I get a thrill in not knowing what I’m going to find. You don’t know if you’ll walk in and find brand new Nike shoes for $40 or Lululemon leggings for $30, and that’s the fun in thrift shopping, the unknowns.”

There’s little question that many members of Gen Z enjoy thrifting for a variety of reasons, but what can/should marketers do with that consumption behavior? After all, most clothing brands are in the business of selling new clothes, not used ones. Some, however, have found ways to do both, and apparently make money.

One of those brands is the iconic blue jean maker Levi’s, which has made an entire enterprise out of buying back and reselling its used denim. The company runs a well-developed website, Levi’s SecondHand where it resells its classic jeans, jean shorts, denim jackets, and more.

Even though they’re used, the items aren’t cheap. For instance, the site sells preowned men’s original fit 501 jeans for $38. On a recent Labor Day sale, Macy’s offered the same jeans new for $41.70, or less than $4 more. Levi’s used product site also sells Vintage 501 Shorts for a pricey $78 a pair.

However, a webpage that describes Levi’s SecondHand explains why someone would want to pay a premium for preowned: “Denim from past seasons that’s already beat-up and broken in. In other words, perfect.”—That sentiment is very similar to the survey finding mentioned above about generation Z liking clothes that are old, vintage, and unique.

The company also touts several other advantages of SecondHand, especially sustainability:

“If everybody bought one used item this year, instead of buying new, it would save 449 million pounds of waste.”

“Levi’s SecondHand keeps coveted pieces in circulation. It’s all about connecting people to timeless styles they otherwise may not have found, and most importantly, saving clothing from going into a landfill. Old denim has never looked better.”

A big question that remains is if selling secondhand is sustainable for Levi’s. Sure, used denim may be what consumers want and what the environment needs, but can the company make money in the clothing aftermarket? If not, the program has little potential.

Levi’s SecondHand isn’t yet a year old, so longevity is still not the best indicator. However, if the company is successful selling some used products for only a few dollars less than they sell for new, and others for even more, it seems likely that the firm, free from manufacturing costs and with relatively little added overhead, must make a healthy margin on each piece and turn a profit on the program as a whole. Interestingly, over the past year Levi’s stock price has increased significantly, from $12/share on September 21, 2020, to $26.50/share on September 6, 2021.

Can other clothing companies pull off a secondhand program like Levi’s? Few have the history and brand equity that the iconic jean maker enjoys; however, consumers’ appetite for used clothing and the favorable cashflow suggested above serve as an invitation to other suppliers. Furthermore, the fact that those who have entered the aftermarket include clothing retailers J.C. Penney, Macy’s, Madewell, and Nordstrom, as well as the furniture behemoth IKEA, suggests the viability of selling secondhand.

When you think about it, it’s not unusual for manufacturers and new product retailers to sell used products. Auto dealerships have been doing so for a century or more. Part of the reason people are willing to pay so much for new cars is that they know when they’re done driving them, someone else will buy them. Whether it’s Levi’s or Lexus, high resale value is a hallmark of a strong brand.

Still, an important moral issue remains, which a second member of Gen Z brought to my attention. Katie, also a marketing student of mine, helped me see that consumers have a responsibility to ‘thrift ethically.’ Inspired by a variety of posts she’d seen on Instagram and a visit to a thrift store in Colorado, Katie suggested that consumers shouldn’t shop in “low-volume, high-populated areas” and that they should avoid patronizing secondhand places “outside of their fiscal demographic."

The overarching reason for these sensitivities is that some desirable-brand item that we buy in a thrift shop as a ‘little luxury’ might be the same item that a more impoverished person would buy out of necessity. As consumers, we are often accustomed to there being plenty of products for everyone, but Katie reminded me that what we buy secondhand may be taking something away from someone who needs it more.

Of course, not every product lends itself to a profitable aftermarket, but many do. Consequently, for the sake of environmental, financial, and social stewardship, more companies and consumers should consider how they might responsively market and purchase preowned products. Whether new or used, items that offer value to buyers and profit to sellers, can be considered “Mindful Marketing.”

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Help Wanted, Marketing to Prospective Employees

7/31/2021

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by David Hagenbuch - professor of Marketing at Messiah University -
author of Honorable Influence - founder of Mindful Marketing

While eating lunch at a favorite restaurant recently, my son and I noticed that the menu was much shorter than before. The Italian eatery was no longer even offering one of its standard selections, pizza! After our meal, I asked our waitress about the simpler spread. She explained it was because they couldn’t hire enough cooks to prepare additional entrées.

You’ve likely seen signs in restaurants, ads from retailers, and posts on social media from other service providers announcing pressing needs for more employees. While the recent labor shortage has been a boon to job seekers, it’s been a bummer for many businesses that find themselves perpetually understaffed. However, firms can turn their current recruitment challenges into opportunities if they rethink how they market to prospective employees.

Like many professors, I’ve invested considerable time helping students get jobs, both internships during college and career positions after graduation. What has for decades been largely an employer-oriented sellers’ market has suddenly shifted. Now employers are increasingly competing for new hires. As a result, it behooves businesses to go back to school and brush up on their marketing, not to attract customers but to contract employees.

In a few days, I'll participate on a panel for that purpose, joining three others to engage employers in a discussion of how to recruit college students and recent grads more effectively.

Being both a marketer and a college faculty member, I hope to offer a unique perspective, mainly based on two-plus decades helping get students gainfully employed. I’m fairly familiar with Gen Z’s preferences in the recruiting process. So, in case there’s any overlap between the panel audience and this one--spoiler alert! I’m sharing below my recommendations for more effective marketing to prospective employees.

It’s probably not surprising that this marketer’s suggestions flow from the 4 Ps. Although there are several strategies I could encourage for each marketing mix component, I’ve singled out two for each, not because they’re necessarily the most important ones but because they’re the features/benefits that young prospective employees increasingly seek, which means they’re ones upon which employers need to double down:

Product

Social Responsibility: Gen Z’s desire to align themselves with organizations that make a difference is well-documented. Its members want to have a positive impact on the world, and one of the best ways to do so is to work for “purpose-driven companies.” Firms should be able to communicate clearly and concisely to prospective employees how they help people and the planet.

Attractive Organizational Culture: Decades ago, when I was entering the job market for the first time, company culture was not on my radar screen. Now most new hires want to know 'what it will be like' to work for a firm. I often hear them offer desired descriptors like “low-stress,” “friendly,” and even “fun.” Interviewers should be prepared to talk about their organization’s culture and point to specific examples. They also need to model it in their interactions with prospects.

Place

Work On-Line: Through the pandemic, where work occurs has become an increasingly important point of interest. Many people with whom I’ve spoken have suggested that they’ve enjoyed working from home; in fact, they’d like to continue to work remotely at least some of the time. As might be expected, most Gen Zs are extremely comfortable with digital technology and very used to interacting with others virtually.
Work In-person: At the same time, people also mention that they miss the impromptu interactions that would occur in office hallways and around the proverbial watercooler. In taking jobs, many new grads move away from family and friends, so they’re hoping to make new, meaningful connections. One recent graduate told me it’s harder for her to develop those relationships just from online interactions. So, it seems that employers should provide at least some opportunities for face-to-face interaction.

Promotion

Timely Communication: This past spring a senior student of mine was interviewing with an organization. The process was going well, but more than once he expressed concern, e.g., “It’s been almost two weeks since my second interview and I haven’t heard from them.” Granted, two weeks is not an unreasonable wait, but employers should be sensitive to the fact that more job seekers today have multiple options. So, to not miss the opportunity to make a great hire, firms should at a minimum make clear their timeframe for follow-up communication and even better, move the recruiting process along a little more quickly than it has gone in the past.
Transparent Communication: In keeping with the previous imperative, many college students tell me how much they value transparent communication. Sometimes I push back and ask, “Do you really want to know everything an organization does?” They reply, “No, but we don’t like when they hide important things or try to put a positive spin on something negative.” In short, they want organizations to be open, honest, and genuine. Companies should be careful to model these values in their communication with prospective employees.

Price

Appropriate Pay: Professional sports fans often hear of pro athletes wanting to “get paid.” It’s usually when a star’s current contract doesn’t compensate them in proportion to their productivity. College-age prospective employees don’t have contracts, but they should ‘get paid’ in the sense that they shouldn’t be lowballed; rather, they should be offered competitive salaries and benefits at if not above market averages. These young people aren’t looking to squeeze out every dollar they can, but they do have debt to pay and don’t want to have to live paycheck-to-paycheck. Similarly, unpaid internships should be a thing of the past.
Work-Life Balance: The greatest resource employees give organizations is their time. Although the prospective employees with whom I speak are very willing to work hard, they rightly want to have sufficient time for other needs and interests outside of the office. Employers should monitor and encourage healthy work-life balance. They also should be ready to tell prospective employees about their systems for maintaining an agreeable life equilibrium.

Some sectors, like healthcare, already know well the challenges of employee recruitment and retention: For years, hospitals have labored to hire enough doctors and nurses. Now, many employers share their pain. The above prescriptions can bring some recruitment relief while also helping firms feel better, knowing that they’re practicing “Mindful Marketing.”

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Is Space Tourism an Unnecessary Splurge?

7/17/2021

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by David Hagenbuch - professor of Marketing at Messiah University -
author of Honorable Influence - founder of Mindful Marketing

It’s interesting to see how much people are willing to pay to travel from point A to point B: Is $50 too much for a 15-minute Uber to the airport; is $500 reasonable for a one-way flight from JFK to LAX? For a few hundred thousand dollars, today’s trendiest travel just takes a person from point A and back, but it does include a brief stop in the stratosphere. So, is consumer space travel worth its astronomical price?

For Jeff Bezos, Richard Branson, and Elon Musk, the answer is, of course, “yes.” These three billionaires not only want to be astronauts, they want others to share the celestial experience, provided they can ante up the soaring prices.

On July 11, Branson, founder of Virgin Galactic and a variety of other Virgin companies, became the first of the execs to experience outer space when his corporation’s SpaceShipTwo carried him and a small crew to an altitude 9.5 miles above the earth.

The two other tycoons are expected soon to follow suit, the next being Bezos in his company’s Blue Origin craft on July 20. Interestingly, Musk reportedly bought a ticket on Virgin Galactic about 15 years ago; he likely will also fly on one of his own SpaceX ships someday.

It shouldn’t be long before prosperous private citizens will be boarding spacecrafts and floating in zero gravity. With already over 600 tickets sold to individuals that reportedly include Justin Bieber and Leonardo DiCaprio, Virgin Galactic appears to be leading the space tourism race. However, its competitors are also reserving spots, such as a seat that SpaceX sold to a Japanese billionaire for a trip around the moon.

So, how much does a flight into space set a person back? Seats on Virgin Galactic have been selling for $250K each. and will probably increase after its successful maiden voyage. Still, a few hundred thousand dollars is a bargain compared to a ticket for the upcoming Blue Origin flight with Bezos, which cost the winning bidder a staggering $28 million; although, Blue Origin’s suborbital capsule travels over 62 miles above earth compared to Virgin Galactic’s 9.5.

Those are enormous amounts of money spent on an activity that is essentially entertainment, i.e., there doesn’t seem to be a reason why an ordinary person has to fly on a rocket ship. It just seems like something someone would choose to do for the thrill of it or to claim the one-of-a-kind experience.

However, before anyone starts pointing a finger too vigorously at these affluent amateur astronauts, it’s helpful to recognize that many people regularly indulge in expensive, and often short-lived, entertainment experiences. For some it’s hundreds of dollars to see a sporting event or a Broadway show; for others it’s thousands of dollars to travel to a special destination for skiing or scuba diving. I've been among the indulgers.

A little over a decade ago, a research paper I’d written was accepted for presentation at a conference in Honolulu, and fortunately my wife was able to join me on this first-time trip to Hawaii. Given the unique opportunity, we took a few extra days to visit Kauai, “the Garden Island,” where we decided to splurge on a very special flight of our own—a helicopter tour of the isle, including passes over stunning Waimea Canyon and the spectacular Napali Coast.

I believe at the time tickets cost us nearly $200 each, which before the ride seemed like an extraordinary amount of money for 50-minutes, but we rationalized that it was a once-in-a-lifetime experience, which it was. If there are a few places in the world that are worth a helicopter tour, Kauai is one of them.

Still, with all the needs in the world, it’s worth asking if money spent on such momentary pleasures should be used in other ways. Maybe a $200 helicopter tour doesn’t matter as much because it’s a fraction of the cost of a ride into space, which for most people, whether they can afford it or not, probably more easily crosses the line into what they’d consider to be unnecessary and excessive consumption.

One person who’s made that suggestion is senator Bernie Sanders. During a New York Times interview, he questioned the value of the space tourism race, saying, “You have the richest guys in the world who are not particularly worried about earth anymore.” His accusation reminded me of Oliver Wendell Holmes’ maxim, “Some people are so heavenly minded, they’re of no earthly good.” Are Bezos, Branson, and Musk too “heavenly minded”?

Perhaps Sanders has a point—maybe the cost of space tourism shouldn’t only be measured by its direct costs but also in terms of its opportunity costs, or how money spent on space tourism could otherwise be used. Swiss bank UBS has estimated that space tourism could be a $3 billion industry by 2029. There’s a lot of good that those billions of dollars could do.

On the other hand, perhaps some people are looking at the industry’s impact too narrowly. Maybe space tourism is doing and can do more earthly-good than many realize.

Already, SpaceX’s Dragon spacecraft has lent a big hand by delivering supplies and crew to the International Space Station. Although those are professional astronauts not tourists, the potential payoff from a large end-consumer market has often encouraged companies in certain industries to invest more of their expertise and resources to develop technology and perfect products that benefit others.

Airplanes and computers are two examples. Military pilots flew many flights before there was commercial aviation. Likewise, businesses used mainframe computers long before individuals used personal ones. In these cases, emerging consumer demand attracted competitors into the market, which helped to improve technology and lower prices. The same will likely happen with space travel.

At the same time, there are also examples of earthly-good that the space tourism industry is accomplishing already:

Blue Origin is donating $19 million of the $28 million winning bid for the seat on its New Shepard rocket; the beneficiaries are 19 different space-related nonprofits.
There are likely hundreds if not thousands of people whose jobs are currently tied to space tourism, and that number will continue to rise as the industry ascends.
According to SpaceX, point-to-point space travel, accomplished by leaving earth’s orbit, could soon make possible a 40-minute flight from New York City to Shanghai. In other words, space tourism is leading to a new era of travel for more utilitarian reasons.

Perhaps the greatest thing that space tourism is doing is inspiring the next generation of creative thinkers and risk takers. On his recent galactic journey, Branson spoke excitedly of how space captivated him as a child and how he hopes young people today will take inspiration from his stellar endeavors:

“To all you kids down there. I was once a child with a dream, looking up to the stars. Now I’m an adult in a spaceship with lots of other wonderful adults looking down to our beautiful, beautiful earth. To the next generation of dreamers, if we can do this, just imagine what you can do.”

Launching anyone into space, including ordinary people, is a risky proposition for all involved, in more ways than one. However, current and future benefits to humanity appear to outdistance those costs, making space tourism a stellar example of “Mindful Marketing.”

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Is It Right to Sell Others Short?

4/10/2021

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by David Hagenbuch - professor of Marketing at Messiah University -
author of Honorable Influence - founder of Mindful Marketing

You’re a basketball player whose team just won the NCAA Division I national championship! You run courtside to celebrate with family but your mother is visibly upset. “Mom, what’s the matter? “I’m sorry,” she stammers. “It’s just that . . . I bet against you.”

No athlete, or anyone, likes to be picked to lose. However, life is full of potential successes and failures that people need to predict. For some, those predictions offer significant money-making opportunities. But, is it right to earn a living betting against others?

As for many, the practice of short selling stocks burst onto my radar screen when GameStop’s shares took their rollercoaster ride several weeks ago. With more than a casual interest, I followed the ensuing events, including Robinhood CEO Vlad Tenev’s testimony before Congress. Along the way, I gained a better grasp of what short selling is, but ever since, I’ve been wondering whether anyone should be doing it.

In case you’ve forgotten how short selling works: Investor A borrows from a broker 100 shares of XYZ at $100 per share and sells the stock to Investor B at the same prevailing market price, or $10,000 total. Over the next week, XYZ’s stock price drops to $75. Investor A then buys 100 shares of XYZ for $7,500 and returns them to the broker, pocketing $2,500 in the process, less any interest and commissions the broker has charged.

The Securities and Exchange Commission (SEC) has made short selling legal. However, even with this regulatory approval, the practice should raise at least two red flags, or moral concerns, that lead one to ask: Is short selling ethical?

Before addressing the two concerns, I imagine some may be wondering what short selling has to do with marketing—the other half of this blog’s two-pronged focus. Short selling is marketing in that many stockbrokers, including very well-known ones like Interactive Brokers, TD Ameritrade, and Charles Schwab, market short selling among their investment services, or ‘products.’

For instance, Interactive Brokers’ website contains a Shortable Instruments (SLB) Search tool: “a fully electronic, self-service utility that lets clients search for availability of shortable securities from within [the firm’s] Client Portal account management platform.” The relative ease with which an investor can sell short makes its moral implications all-the-more important.

First Red Flag

‘Selling something that one doesn’t own’ was the short selling issue that initially gave me pause. Peddling another’s property certainly appears problematic, until one begins to consider the many ways in which such leveraged transactions regularly occur: from apartment subleases, to bank loans, to consignment clothing. Individuals and organizations often sell others’ property on consignment.

Of course, just because consignment occurs doesn’t mean it should. Still, the fact that all parties involved 1) willingly participate and 2) typically benefit are good signs that most of these activities are above-board.

Second Red Flag

The prior examples differ from short selling, however, in the second of the two ways: While the participants in apartment subleasing, etc., generally rise and fall together financially, a short seller’s success comes courtesy of two others’ failures, namely 1) those of the company whose stock the short seller has borrowed and 2) the person who buys the stock from the short seller. The short seller makes money when the other two parties lose theirs.

In contrast, consider again the clothing consignment example: If I take an unwanted suit to a consignment shop, both the consignor and I will want a high price when the suit is sold. Conceivably, the suit’s maker also would like its aftermarket products purchased for higher prices because such resale value reflects favorably on the brand, not unlike the way higher vehicle resale prices benefit automobile manufacturers’ brands.

On the other hand, the suit’s buyer would like to pay a lower price, but even he really doesn’t want the price to be too low, since perceptions of the brand are tied, at least in part, to the price that he and others are willing to pay for the suit. Most importantly, each time he wears the suit, he extracts value from it.

The suit is this example is analogous to the stock. Whereas everyone ‘invested’ in the suit seems to want it to retain its value, investors who short stocks clearly want the value of those securities to decline. Short sellers are betting against the very companies whose financial instruments they have borrowed and sold, as well as the individuals on the receiving end of those stocks.

The zero-sum game, or winner-loser outcome, that underlies short selling is certainly atypical of most economic exchanges, but it’s not without precedent. Casinos win when their customers lose, as do many “rent-to-owe” retailers like Rent-A-Center and Aaron's. Any kind of predatory lender falls under the same unseemly umbrella, including certain credit card companies that don’t make money unless people fail to pay off their account balances and become locked into an endless cycle of exorbitant monthly interest payments.

However, many argue that short selling does not do anything nearly so destructive. In fact, some contend that the practice produces several important economic benefits, the primary one being liquidity, “the efficiency or ease with which an asset or security can be converted into ready cash . . . . ”

In my research, I found market liquidity to be the factor cited first and most often in the defense of short selling. However, at least one financial markets expert suggests that advantage is exaggerated.

Dwayne Safer is a chartered financial analyst (CFA) whose career has included significant roles in investment banking, corporate finance, and strategy. For the last five years, he’s been a professor of finance and my colleague at Messiah University. When asked about short selling and market liquidity, he offers a contrarian analysis: “the liquidity offered by short selling for most stocks is negligible.”

Safer supports his suggestion by sharing a Bloomberg Terminal screenshot (below) that shows that shares sold short represent only about 3.5% of trading volume on the New York Stock Exchange (NYSE). He also cites an example from the financial crisis in late 2008, when the SEC temporarily banned the short selling of financial stocks “without any noticeable degradation of liquidity in those stocks.”

Safer recognizes that there may be some “modest liquidity benefit” for certain heavily shorted stocks; for instance, at the time we spoke, 21% of Dick’s Sporting Goods’ shares available for trading were short. Still, he affirms: “If shorting wasn’t permissible, liquidity would be brought into the market by the broker-dealers and market makers who would stand ready to buy and sell shares of a given company to generate trading revenue.”

So, does the elimination of liquidity as a main benefit of short selling leave no morally tenable ground on which short sellers can stand? Not necessarily.

Safer continues by saying that although he doesn’t agree with conventional wisdom that short selling adds significant market liquidity, he does believe short selling offers other meaningful market benefits:

It provides the ability to hedge/protect a portfolio from downward movement in stock prices, mitigating portfolio volatility.
The in-depth research short sellers often conduct can expose fraudulent companies. For example, short selling hedge funds warned about the frauds at Enron, Tyco, Fannie Mae and more recently Luckin Coffee and Nikola.
Shorting helps prevent overinflated securities prices that waste valuable capital and harm investors, as occurred in the dot-com bust in 2001. Former SEC chairman Christopher Cox once stated, "We need the shorts in the market for balance so we don't have bubbles.”

Before beginning to write this piece, I was unaware of these important benefits of short selling. Still, how do we reconcile such consequences with the moral principle of respect, or as my second red flag/concern described: not betting against another person.

That moral principle certainly has merit, but my earlier discussion probably represented too narrow a view of short selling. Safer’s observations have helped me see that there are other factors to consider and parties to take into account, e.g., other investors, firms’ customers and employees, and the economy as a whole.

I’m also helped by remembering a story I heard just a few days ago: A guest speaker in our capstone marketing course mentioned that a former client of his used to tell him, “I pray for my competitors.” This very successful business owner was not being sarcastic—he truly wanted his competitors to succeed both because he genuinely cared about them and because he understood that “a rising tide lifts all boats.”

Returning to the basketball metaphor that began this piece, no serious athlete wants to be on the winning side of a forfeit. Basketball players need competitors, who also happen to have fans rooting for them.

However, choosing loyalties isn’t unique to picking stocks or selecting sports teams. Each day we make dozens of similar decisions when choosing what clothes to buy and where to order takeout. Each selection of a company is essentially a vote against another; however, other people are voting for the competitors. In fact, the next time one of those ‘other’ votes may be ours.

Meanwhile, a ‘no vote’ conveys valuable information to all who are willing to listen and learn from it. When companies assimilate such negative feedback, they make themselves better, their industries stronger, and stock markets more stable.

It’s very unlikely that a mother bets against her own daughter or son for anything, but other ‘no votes’ are not necessarily bad. Short selling a company’s stock can be a good or bad bet for the investor. It also can be “Mindful Marketing.”

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NFT: Not Free for the Taking?

3/28/2021

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by David Hagenbuch - professor of Marketing at Messiah University -
author of Honorable Influence - founder of Mindful Marketing

Like most people, I was amazed when an NFT of a collage by the artist Beeple recently sold at auction for $69 million. It’s worth pondering why anyone would pay so much for a blockchain-based asset, but the sudden popularity of NFTs may signal a more important concern: the price that individuals increasingly pay because others can easily digitize and share their work.

Beeple’s nonfungible token has been one of several recent high-priced, head-scratching NFT purchases:

$389,000 for “Death of the Old,” a music video by the musician, singer, and songwriter Grimes
$580,000 for Nyan Cat, “an animated flying cat with a Pop-Tart body leaving a rainbow trail”
$3.6 million for “Ultraviolet,” an album by electronic-music artist Justin Blau, aka 3LAU

So, what do people who pay thousands or millions of dollars for such NFTs actually get? They receive proof of ownership of the digital item, which comes in the form of “a unique bit of code that serves as a permanent record of its authenticity and is stored on a blockchain, the distributed ledger system that underlies Bitcoin and other cryptocurrencies.”

What makes the passion for NFTs puzzling is that people who purchase them gain virtually no exclusive use of their virtual property. For instance, Nyan Cat is ten years old and “has been viewed and shared across the web hundreds of millions of times.” There’s no practical way for the feline’s new owner to stop others from viewing or posting their newly-acquired kitty.

What NFT owners receive amounts to little more than “digital bragging rights.” It’s kind of like holding the title to a car that anyone else can drive. Well, at least the owner can point to the title and say, “It’s mine.”

The possibility that others may be willing to pay even more for certain NFTs can give them value by virtue of their potential resale. There also may come a time when some NFT owners will be able to more readily restrict access to their digital property and monetize their asset.

In that way, perhaps NFTs have become so popular because people notice a troubling trend: Individuals spending their time, energy, and talents to create things of value, only to have ‘anyone with a smartphone’ duplicate and share the work with no consideration of, or compensation for, its creator.

This issue hit home for me recently when I saw this headline in the Chronicle of Higher Education: “Deadman Teaching.” As a college professor, I know how helpless one can feel in front of class when nothing seems to be going right, but the focus of this piece was quite different.

The article described the experience of Aaron Ansuini, a college student who was really enjoying an art history course taught on video by a deeply knowledgeable and enthusiastic “bespectacled, gray-haired professor,” François-Marc Gagnon.

During one of the engaging lectures, Ansuini had a question he wanted to ask his instructor, so he searched for the professor’s name online, thinking it would be faster than locating the syllabus on his laptop. What he found was an obituary--Gagnon had passed away at the age of 83 about two years earlier.

Until then, Ansuini and other students had no reason to think that their professor wasn’t still living. The course syllabus made no mention of his passing, and students had been receiving messages they thought were from Gagnon but must have been from a teaching assistant.

Tom Bartlett the author of the Chronicle article, reached out to one of Gagnon’s children, Yakir Gagnon, a researcher at Lund University, in Sweden. On one hand, the son thought his father would be very happy that his insights were still finding an audience; however, he also wondered about the intellectual property implications and who owned the rights to the work.

As someone who teaches a significant number of classes each week, I can’t help but wonder the same thing: whether ‘digital me’ might keep teaching after my death, but also how copies of my work might be used now without my knowledge or consent. I also can imagine two main objections to such concerns—one related to relevance and the other to responsibility. I’ll try to address both:

1) Relevance: A natural reaction might be, I’m not a teacher, so Gagnon’s case doesn’t apply to me.” However, people in all kinds of occupations write, say, and do instructive things that others will read and watch, if someone digitizes and shares them.

For instance, anyone familiar with YouTube knows its abundance of instructive videos, from cooking rice to repairing cars, which often come in convenient five- or ten-minute clips. Most of the videos are shared with the consent of their creators, but not all, as evidenced in part by many posts that seem prematurely removed. Some pirated videos likely earn money for others without their owners’ knowledge or consent.

2) Responsibility: Even those who understand that unauthorized sharing can potentially affect anyone may still believe that employers own everything their employees do. It’s true that in a principal-agent relationship, the agent (employee) has a fiduciary responsibility to act in the best interest their principal (employer).

In the case of Gagnon, because his university presumably paid him, he (the agent) had a responsibility to do what his principal (the university) required, i.e., to teach art history classes. If for some reason he didn’t want to do that, he shouldn’t have collected a paycheck. However, did paying the professor to teach a specific class during a particular semester give his employer the right to use his digitized teaching to instruct other classes, without giving him or his heirs additional compensation?

In the world before hyper-digitization, such obligations were rather clear-cut: Job performance happened in real-time, largely constrained by a particular place and time. The introduction of early recording and duplicating devices (e.g., video cameras, copy machines) stretched those boundaries.

In the current era of highly-advanced and widely-democratized digital technology, along with broadly-used social media platforms, those boundaries have been blown wide open. Duplication and sharing anyone’s work, including employees’, is incredibly easy and enticingly convenient.

The questions, then, become what employee work is fair to share digitally, where, and for how long. Some may suggest that employers hold complete sharing rights during and even after the agent-principal relationship has ended. Perhaps such broad employer ownership could be justified if agreed to with informed consent, but even then, the agreement would only be fair with appropriate compensation.

What is appropriate pay? It might be a percentage of the present value of projected future earnings from the digitized work. Or, it could be royalties, or residual income, that accrues whenever the work is shared. The latter suggestion may seem unreasonable, but there is strong precedent in the form of television actors who are often compensated with royalties for each episode that airs in syndication, or songwriters who earn money every time their music is sold or played.

Although some undoubtedly do this, it would be unfair to pay a musician to play a piece once, record the performance without her knowledge, and make money by selling her art without her consent. But again, even if there is informed consent, people deserved to be fairly compensated for their digitized work when it’s shared and continues to bring in dollars.

In a sense, everyone is an artist, creating content that benefits others now and perhaps into the future, if digitized and shared. Maybe that future will include more robust ownership standards based on blockchain systems for sharing. The current fervor for nonfungible tokens may be unfounded, but NFTs might be writing a script for more “Mindful Marketing.”

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Natural Light Imitates Art

1/23/2021

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by David Hagenbuch - professor of Marketing at Messiah University -
author of Honorable Influence - founder of Mindful Marketing

Often those fortunate enough to earn a college degree proudly display their diploma in their office or another personal location. Now the credentials of one large group of college grads are on exhibit in a much more public place—New York City's Grand Central Terminal. But, at a station known for transportation, is the art’s creator paying homage to higher education or throwing a college degree under the bus?

The intensely competitive alcohol industry has led many beer manufacturers to become very creative marketers: from elaborate point of purchase displays in retail stores to highly produced commercials during Super Bowls. Now the world’s biggest brewer, Anheuser-Busch InBev, has found an especially innovative way to broadcast a brand message—a work of art, in the heart of New York City, valued at $470 million!

The exhibit, called “the Da Vinci of Debt,” is a collection of 2,600 real diplomas that Natural Light, one of Anheuser-Busch’s signature brands, has rented from degree earners. Resembling a blizzard of super-size snowflakes, the white diplomas cascade downward from ceiling to floor of Grand Central Terminal’s Vanderbilt Hall. It’s an installation that’s both impressive in its grandeur and appealing to the eye.

So, what’s behind Natural Light’s foray into ‘fine art’ and its claim to have constructed “the most expensive piece of art in the world”? The company says it wants to bring attention to the burgeoning problem of student debt, which helps explain the firm’s valuation of the exhibit at $470 million--the average total cost of a four-year college education times 2,600 degrees.

As someone who’s taught in higher education for 20 years and paid for two children to attend college, Natural Light’s cost estimate seems right: $470 million divided by 2,600 diplomas is $180,769 per degree, or $22,596 per semester. Unfortunately, this price has risen precipitously over the years, increasingly exceeding families’ abilities to pay, save for significant financial assistance, often in the form of student loans.

To some extent, faculty members like me are responsible for the extreme price up-tick: Employee salaries often represent organizations’ biggest costs. However, higher ed’s steeply-sloped expense history is more complicated.

When those who attended college several decades or more ago visit campuses today, they’re often awestruck by the number and nature of amenities today’s students enjoy: from beautifully-appointed apartments, to state-of-the art classrooms, to expansive sports centers. These expensive and largely consumer-driven upgrades also have contributed to rising college costs.

Regardless, it’s important to affirm Natural Light’s suggestion that student debt is a serious problem. That doesn’t mean, though, that the Da Vinci of Debt is an impeccable piece of art: A real concern is that the exhibit conveys a misguided message: That a college education is not worth its price.

Some may not gather that interpretation from the exhibit, which is good; however, it’s reasonable to believe that many who see or hear about the art will draw the conclusion that those willing to part with their diplomas must feel dissonance about their degrees.

Unfortunately, some do get a less-than-ideal return on their college investments for various reasons that can include choosing the wrong school or major but more likely stems from failing to take their academics seriously—a tragic misstep that’s ironically related to Natural Light. I’ll say more about that and two other 'art ironies' in a moment.

First, it’s important to note that the experiences college students enjoy and the relationships they form are often invaluable, or at least defy quantification. At the same time, some like Georgetown University’s Center on Education and the Workforce have calculated the typical financial payback a college education offers:

A Bachelor’s degree is worth $2.8 million on average over a lifetime.
Bachelor’s degree holders earn 31 percent more than those with an Associate’s degree and 84 percent more than those with just a high school diploma.

So, is a college degree expensive? Yes. Is it worth the cost? Yes, provided that the student properly ‘consumes the product,’ which leads to the three art ironies referenced above.

Irony #1: Most Anheuser-Busch executives hold one or more higher education diplomas.

Here is a partial list of Anheuser-Busch’s U.S. leadership team members and their degrees:

Nick Caton, U.S. Chief Financial Officer: Bachelor of Science in mathematics from Stanford University; Juris Doctorate from Yale University
Agostino De Gasperis, U.S. Chief People Officer: Bachelor of Commerce degree from the University of Toronto
Ingrid De Ryck, U.S. Chief Sustainability and Procurement Officer: bachelor’s and master’s degree in business engineering from the Katholieke Universiteit Leuven
Benoit Garbe, U.S. Chief Strategy Officer: MBA from Harvard Business School
Craig Katerberg, General Counsel: degrees from the University of Chicago and from Northwestern University School of Law
Elito Siqueira, U.S. Chief Logistics Officer: a degree in mechanical engineering; two executive MBAs; completed supply chain programs from the Massachusetts Institute of Technology and Stanford University

This list could include several other Anheuser-Busch executives, with equally impressive pedigrees, all of whom appear on the company’s website. It’s unusual for businesses to mention their leaders’ academic credentials so prominently, which makes Anheuser-Busch’s higher ed highlighting even more unique.

Moreover, given the positions these individuals hold with a firm that ranks #205 in Fortune’s Global 500, it seems that all have gotten good returns on their college and master’s degrees. I wonder if any of them regret the educational expenses they incurred, or if they chose to include their diplomas in the Da Vinci display.

Irony #2: Beer and higher education are notoriously bad partners.

Unfortunately, alcohol abuse on college campuses is legendary: If you haven’t witnessed it personally, you’ve likely seen it portrayed in movies or on TV. I’ve written two other pieces that have highlighted the coed alcohol epidemic:

The first piece questioned Dos Equis being made “The Official Beer Sponsor of the College Football Playoff.” In light of the destruction alcohol has done to so many young lives, I argued that college-related events should never have a “beer sponsor.”

The second piece had a similar theme, but this time the event was graduation and the sponsor was . . . wait for it . . . Anheuser-Busch. Yes, Natural Light was making the same dangerous association of beer and books, attempting to put an intoxicating brand spin on what should be a very meaningful if not solemn ceremony.

I wonder how many people have had their college careers completely derailed by alcohol, or graduated but so frequently missed classes or walked around buzzed that they failed to gain nearly what they should have from their college experience.

Such lackluster collegiate performance correlates with low GPAs and lack of good post-college employment opportunities. I wonder how much alcohol abuse has increased the cost of college and made it more difficult for graduates to pay off their diploma-related debt?

Irony #3: Anheuser-Busch doesn’t mention student debt relief among its social initiatives.

In 2018, to the company’s credit, Anheuser-Busch launched “an annual College Debt Relief program” that annually awards “$1 million to students under financial pressure.” The plan is to pay out $10 million toward college debt relief over 10 years.

Of course, $10 million is a ‘drop in the keg’ compared to the $1.7 trillion level college debt is projected to reach in 2021, but no one company can be expected to do it alone. By the same token, however, Anheuser-Busch had total operating income of over $16 billion in 2019, and in the same year spent $1.53 billion in the U.S. on advertising.

A million bucks a year is a nice donation, yet it does seem somewhat paltry for a firm dealing in billions of dollars. Perhaps that’s the reason Anheuser-Busch makes no mention of education or student debt relief on its social responsibility website page, “Purpose Beyond Brewing.” The one CSR area that comes closest is “Economic Impact,” but that page just describes the company’s commitment to care for employees, support the restaurant and bar industry, and create jobs for farmers.

So, under which of Anheuser-Busch’s expense lines does student debt relief really belong? Is it serious social responsibility or is it a straightforward advertising-spend?

Regardless, I’m not sure how much the Grand Central Terminal art exhibit will make a positive impact for Natural Light. The brand communicates many countervailing messages, such as images on its website that seem more like an ode to spring break in Fort Lauderdale than any serious concern for student well-being. That disconnect and relative lack of exposure may doom Da Vinci.

Admittedly, the author of this piece has an employment-influenced bias in favor of higher education and against alcohol consumption by young people. He’s also not an accomplished art critic. Still, his professional opinion suggests that Natural Light’s Da Vinci of Debt is a monument to “Mindless Marketing.”

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Did Apple Make a Debundling Blunder?

12/21/2020

1 Comment

by David Hagenbuch - professor of Marketing at Messiah University -
author of Honorable Influence - founder of Mindful Marketing

It’s a parent’s classic Christmas morning fail: After having the foresight to purchase the holiday’s hottest new toy, they forget to buy the batteries! By not including a charger with its newest ‘toy,’ has the world’s most valuable brand set up its customers for gift-giving/getting failure?

The introduction of almost any new Apple product, particularly an iPhone, is newsworthy. Even people who don’t buy Apple are interested in the features the firm unfurls in its latest phones. This time, though, it’s what Apple hasn’t included that’s made headlines.

The iPhone 12 packs many impressive features including an A14 bionic chip, an edge-to-edge OLED display, a ceramic shield, and night mode, but consumers won’t find in the box two items they’ve come to expect with any iPhone: EarPods and a charging adapter.

Given that many people are particular about what they put on/in their ears, and some wanting wireless, it’s not surprising that Apple decided to forgo ear accessories with its new phone models. What is surprising, though, is that the iPhone 12 comes sans charger—something everyone needs in order to use the product.

A main reason Apple has omitted the charger is that it believes people already have one, which probably is true for many of those interested in the latest iPhone. At the same time, if someone is willing to pay $800+ for the base model iPhone 12 or $1,000+ for one of the Pro versions, shouldn’t Apple oblige by including a comparatively inexpensive power supply?

Apple’s omission has challenged me to think of precedents for such a strategy, which seems akin to an automaker selling cars without spark plugs. As suggested at the onset, some companies market toys and other low-end electronics with the package disclaimer “batteries not included,” but that’s increasingly rare. Plus, batteries are inexpensive and easy to find . . . at least most are, which reminds me of a shopping experience I had a few months ago.

With both my gas-powered leaf blower and string trimmer on their last legs, I started searching for battery-powered replacements. In the process, I noticed several units labeled “tool only,” which were often priced $100+ less than what looked like the same models. I soon realized that some people only buy the implement because they already have one or more batteries and chargers from prior purchases of tools that use the same power system. For those individuals, the manufacturers’ “unbundling” of the battery and charger from the tool is a big benefit.

We’re used to seeing companies bundle products, i.e., market related items together and, in doing so, offer consumers an overall lower price, e.g., value meals at fast food restaurants, home and auto insurance policies. Unbundling is the opposite: A company realizes that consumers dislike paying for products they don’t want/use, so it deconstructs the bundle and sells products separately, usually at somewhat higher individual prices.

There’s a significant cost difference, however, between power supplies for yard tools and those for iPhones. A battery and charger accounts for about half the price of a yard tool package, while the phone charger represents just a fraction of an iPhone’s cost.

That discrepancy suggests that, unlike most unbundling strategies, Apple’s approach was not driven by consumer’s desire to save money. Lisa Jackson, Apple’s vice president of environment, policy, and social initiatives explained how the company had, instead, sustainability in mind:

"There are also over 2 billion Apple power adapters out there in the world, and that's not counting the billions of third-party adapters. We're removing these items from the iPhone [12] box, which reduces carbon emissions and avoids the mining and use of precious materials."

Apple’s website elaborates on the environmental ends the company aims to accomplish by omitting the iPhone 12 charger:

Carbon savings equal to 450,000 fewer cars on the road per year
Reduced mining and use of precious metals
A smaller phone package, allowing more boxes per shipment and fewer overall shipments
The elimination of 2 million metric tons of carbon emissions each year

Those intentions are certainly admirable. It’s questionable, though, if that projected positive environmental impact will actually occur, given that consumer behavior will likely adjust as a result of the iPhone 12 coming without a charger.

Of course, some iPhone 12 buyers won’t have a workable adapter and will have to buy one, either from Apple or a third party. However, even if customers already own a serviceable power supply, they still might decide to buy a new one for one or more of the following reasons:

If they sell or gift their old iPhone, the recipient will probably want the charger.
It can be convenient to have more than one charger (e.g., one for home, one for work).
Consumers don’t usually want to use old accessories with new products. For instance, few people want to put used tires on a new car or old laces in new shoes.
The old chargers are not completely compatible with the newest iPhones. Although one can connect an iPhone 12 to an old power adapter using an old lightning to USB-A cable (the USBs with the large, wide connectors), the new iPhone won’t charge as fast as it will by plugging the included lightning to USB-C cable (small, compact connector) into a new adapter, purchased separately.

In sum, many people will still want or need to buy an adapter, which “will now need to be packed and shipped separately from the phones, thereby increasing the environmental consequences.”

The change in buyer behavior is coupled with the fact that chargers from smartphones, tablets, etc., account for a very small percentage of all e-waste. Ruediger Kuehr, head of the Sustainable Cycles (SCYCLE) Programme hosted by the United Nations University, estimates that Apple’s move could save at most 25,000 metric tons, or .05 percent of annual e-waste.

Granted, any e-waste avoided is a good thing, but the packaging and transportation costs from secondary market charger sales could erase some or most of the environmental gains of keeping the charger out of the original package.

Apple is an environmentally-conscious company with a continually-improving track record for sustainability, which includes reducing toxic components in its hardware, nearing 100% use of recycled materials in its phone manufacturing, and aiming to be carbon neutral by 2030.

Still, omitting an iPhone 12 charger doesn’t promise to be the “boon to the environment” that the company has suggested.

Apple’s unbundling was likely well-intended, but the reality of little environmental impact and negative consumer reaction, makes the strategy a case of “Simple-Minded Marketing.”

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Do We Really Want State Farm’s Rodgers Rate?

12/12/2020

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by David Hagenbuch - professor of Marketing at Messiah University -
author of Honorable Influence - founder of Mindful Marketing

“How much does it cost?”—That’s often the first question consumers ask and one that companies like to avoid until after they’ve described their products’ features and benefits. A leading insurance company, however, has decided not only to buck that communication wisdom but to promote another precarious pricing strategy.

Market research apparently pegs football fans as key consumers of insurance, which would explain why televised games contain so many commercials for the likes of Liberty Mutual, Geico, and Progressive. One of the biggest buyers of advertising inventory has been State Farm, whose ubiquitous ads feature a couple of top National Football League (NFL) quarterbacks expressing gratitude for scoring special insurance deals.

In the ad campaign, Super Bowl champions Aaron Rodgers and Patrick Mahomes take turns conversing with casually-cool insurance agent, “Jake from State Farm,” who sports some stylish stubble, a snug-fit State Farm t-shirt, and the obligatory khaki pants.

The sports stars convey gratefulness to Jake for landing them 'exclusive' insurance deals. In one ad, Rodgers plays fetch with his dog while thanking the representative for giving him “the Rodgers rate” on his insurance, which Jake firmly denies:

“Here’s the deal. There’s no Rodgers rate. State Farm just has surprisingly great rates.” “We do offer it to anyone, literally anyone.”

Jake has practically the same conversation with Mahomes in a similar spot, as the two play corn hole. Like Rodgers, Mahomes thanks Jake for the “Patrick Price” on his insurance, but again, the agent resists:

“Here’s the deal, Patrick. State Farm offers everyone surprisingly great rates.”

At first glance, it seems like State Farm’s pricing play could work. In a celebrity-centered, influencer-driven world, people love to eat, drive, and wear what famous people do. So, why not add insurance to the list of endorser-inspired products?

The company’s ‘one-rate-for-all’ ads also could appeal to a value for of equality by suggesting that everyone should be able pay the same prices for the same products. Of course, charging people different prices would be unfair . . . or would it?

Legally, organizations can’t charge certain consumers more because of personal traits like gender and race. In terms of moral principles, it would be unfair to give more favorable treatment to some people and not others because of such characteristics. However, there are some legitimate reasons for price discrimination, for instance:

Quantity Discount: People who purchase more deserve to pay lower unit prices, e.g., buying a six pack of soda versus a single can.
Lower Risk: Individuals who objectively are less likely to default on credit terms should receive more favorable rates, e.g., a person with a very good credit score who puts a 50% down payment on a home versus another with a low credit score and 20% down.
Buy Now: Because of the time value of money, as well as companies’ needs to maintain cash flow and reduce inventory, consumers often receive incentives for purchasing sooner rather than later.
Peak Demand: Many people want to do the same activities at the same times, like going to the beach in the summer and to the movies in the evening, which is why hotels offer off-season rates and theaters have matinees.

There’s one other reason for price discrimination that’s not as clear cut—ability to pay. On one hand, companies shouldn’t be like the mechanic in National Lampoon’s Vacation: When Clark Griswold innocently asks him how much his car repair costs, the unscrupulous repairman boldly asks, “How much you got?” then demands “all of it, boy.”

On the other hand, it seems compassionate to charge specific consumer groups less because of their typically lower incomes, e.g., senior citizens.

In the industry in which I work, higher education, price discrimination is routine practice. Government and a variety of organizations collaborate with colleges and universities to offer tuition-lowering aid financial aid and scholarships, particularly to families with the greatest need.

That brings us back to Rodgers and Mahomes. Perhaps as spokesmen they receive State Farm insurance for free, but if they are paying something for it as the commercials suggest, these two multimillionaires certainly wouldn’t be getting a break on their rates because of inability to pay.

According to NFL.com, Mahomes’ $45 million a year salary is the league’s highest, and Rodger’s $33.5 million annual take is not far behind. Companies of all kinds strive to win the business of such high equity individuals, largely because they can afford full fare, i.e., they don’t require discounts.

Although you and I are less affluent, we understand that dynamic and wouldn’t want to pay the prices that Patrick and Aaron pay for anything. Hook us up, instead, with the rates their chauffeurs and gardeners are getting.

Of course, the commercials are meant to be funny, and we shouldn’t pretend we have the same buying power as NFL quarterbacks. Still, State Farm appears serious about uniform pricing by repeatedly suggesting that it offers “surprisingly great rates” to everyone without exceptions. That fixed pricing is the main flaw of the firm’s strategy; in fact, it’s a mistake from which one well-known retail chain is still struggling to recover, years later.

In November of 2011, JCPenney made a bold move in hiring as its new CEO former Apple retail executive Ron Johnson. In his effort to make JCPenney more Apple-esque, Johnson upgraded the stores' interiors and, more significantly, implemented Apple’s everyday ‘value’ pricing. If the no-sales strategy worked for the world’s most sought-after electronics brand, it should work for a clothing and housewares retailer, right?

Unfortunately for Johnson and JCPenney the strategy failed miserably. The firm’s revenue fell by almost $5 billion in one year and its operating loss grew to nearly $1 billion. Johnson was ousted from his job in March of 2013, just 14 months after he started.

The main failure in what some have called “the biggest retail disaster in history” was forgetting that people love sales. Many of us are captivated by the ‘thrill of the hunt,’ and we relish knowing that we got a great deal, whether it be versus regular prices or in comparison to what others have paid. I’m one of those people who is not above bragging about his consumer conquests.

A few years ago when gas prices were on the rise, I shared a fill-up receipt with my wife so she could see how I paid a paltry $1.78 per gallon thanks to an abundance of grocery store reward points. Then, just this past week, I saved 43% on purchases at a drugstore chain thanks to various special discounts stacked atop a 30% off everything coupon. I hadn’t told anyone about that shopping feat, but I’m bragging about it now!

It’s not just me. Over the years, I’ve heard many others describe their exceptional purchases, a behavior I believe equity theory helps explain. As humans, we continually measure our inputs against their outcomes, including what we spend versus what we get for our money. We’re also constantly comparing our input/outcome ratios to those of others in order to gauge how well we’re doing at shopping or anything else.

Although usually effective, offering sales or running specials doesn’t work in every situation. For prestige products that command premium prices, like those of Apple, it can be counterproductive to offer frequent discounts, as doing so can diminish the brand’s perceived quality and cachet. However, in cases involving little or no product differentiation, businesses that ignore discounting often do so to their detriment.

Many insurance companies do offer discounts for things such as safe driving and bundling multiple policies (e.g., home and auto). In fact, State Farm is one of those firms; it offers a “Drive Safe and Save” discount of up to 30% on auto insurance. For some reason the company gives that program much less media exposure.

Aside from promoting or not promoting discounts, State Farm doesn’t help its cause by suggesting that all its customers pay the same rates whether they’re a multimillion-dollar quarterback or a more frugal football fan.

Price equality sounds nice, but there are legitimate reasons for charging people different prices, including allowing consumers to self-select and shop for prized discounts. At the end of the game, charging everyone the Rodgers rate really is “Simple-Minded Marketing.”

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