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Birthday Cheer or Profiteer?

7/25/2015

By Laureen Mgrdichian, Associate Professor of Marketing, Biola University

I love August for many reasons, including that it’s the month of my birthday, which means presents for me! Yes, sad to say, gifts are still one of my “love languages.”

While I have to wait until the end of the month for presents from friends and family, my retail “friends” start showering me with gifts August 1. They come by mail and email, all wishing me a “Happy Birthday” and wanting me to “celebrate” with them sometime during August 1-31. In our family, we tease that we celebrate our birthday week. Well, my retail friends allow me to have a whole birthday month!

Now I have to say, not all retailers celebrate birthdays in the same way. My friends at Ann Taylor sent me a “$15 off” postcard, no strings attached, no minimum purchases to meet. Kohl’s sent me a similar $10 card. Thank you, my good retail friends, for these true gifts! I will likely stop-in sometime during the month to “celebrate” with you.

In contrast, one of my favorite stores, Anthropologie, remembers my special day with a card for 15 percent off. Hmmm, I wonder if they realize that discounts of 20-30 percent are typically needed to secure consumers’ purchase intentions for this type of retail. Given a discount of only 15 percent, I’ll throw the card into my purse, and if I happen upon an Anthropologie in my travels this month, I might stop in; otherwise, the meager savings isn’t worth the cost of gas.

Webster’s Dictionary defines a “gift” as, something “voluntarily transferred by one person to another without compensation” (my emphasis added). This is why gifts are so much fun. A true gift requires nothing from the receiver.

Sadly, I am also disappointed with Macy’s birthday benevolence. What kind of friend sends you a gift, but in order to enjoy the gift requires you to spend $30? Really? And to make matters worse, it’s the same card they send to their Macy’s charge card customers once every six to eight weeks! The only difference with my so called “birthday gift” is that it includes a picture of a birthday cake and candles. So, not only is Macy’s birthday “gift” NOT special, it doesn’t even meet the standard definition of a gift.

My favorite example of a retailer’s bad birthday gift comes from OfficeMax. “Oh goody! Another birthday gift!” I naïvely thought when I saw the email subject line, even if it was only office supplies. My elation soon vanished, however, when I read the retailer’s birthday wish to me. OfficeMax was giving me a $10 coupon and all I had to do was spend $50. Wait a minute, you mean for my birthday you want me to spend $50 on office supplies and you will give me $10 off? What kind of friend gives you a gift worth $50 then asks for $40 back in order for you to “qualify” for said gift? No friend of mine!

Granted, I know that it’s the thought that counts. But frankly, I’m not sure Macy’s and OfficeMax spent much thought on the “exclusive” gifts they sent my way. Actually, by definition they don’t even qualify as gifts; they’re just ordinary everyday promotions. Lazy is the word that comes to mind. If these retailers were looking to use this special time in my year to create warm fuzzy feelings and build loyalty, they failed miserably.

Yes, I love August, but it’s increasingly clear that not all retailers “love” me the same way. Ann Taylor and Kohl’s display Mindful Marketing in their birthday wishes, which come with real, unrestricted gifts. The strings-attached birthday promotions of Macy’s and Office Max, however, exemplify “Simple-Minded Marketing”: although there is a hint of good intent, it pales in comparison to the shallowness of their generosity. In other words, these retailers do fine in supporting societal values, but they fail to create long-term stakeholder value for me or their other birthday “gift” recipients.

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Should Retailers Personalize Pricing?

7/18/2015

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You’re in the express checkout line at the supermarket when you notice that the person in front of you has the same single item, a gallon of skim milk. The cashier scans the shoppers’ bonus card and says the amount due—$3.90. The clerk then scans your milk and loyalty card and tells you your total—$5.15. “Why does my milk cost $1.25 more?” you ask. “Because you’re able to pay more,” the cashier replies.

Today this scenario may be far-fetched, but within the next few years, or even months, personalized pricing will be within reach of many retailers who then will have a decision to make—whether to charge customers based on what they are willing and/or able to pay.

It’s not surprising that some predict that the airline industry will be the first to implement this approach. Many of us who book flights on-line are befuddled by the variability of ticket prices even for the same seat on the same flight. One day the price is $445 roundtrip; that evening it drops to $385; the next day it’s up to $475.

Airlines already use sophisticated pricing algorithms to maximize seat sales. Currently those formulas consider factors such as number of current bookings and days until takeoff. In the very near future, however, those algorithms might also include variables such as historic seating preferences and where one lives.

Some may be thinking, “But, flying requires much more personal information than is needed from shoppers buying clothing or consumables.” That may be true, however, in the age of Big Data, on-line entities cull more information from our web activities than most of us could ever imagine. Plus, when one takes into account that many of these organizations share their data with others, an even clearer picture of an individual’s purchasing behavior emerges with even greater potential to personalize pricing.

Furthermore, this phenomenon isn’t necessarily limited to eCommerce. Returning to the opening example, even bricks-and-mortar retailers like grocery stores hold the potential for personalized pricing by virtue of their loyalty programs. Of course, most supermarkets will probably never ask their loyalty card holders to report their incomes; however the stores already have detailed records of everything their customers buy, including premium vs. bargain brands and products purchased at full-price vs. on-sale or with coupons. Yes, it will take some advanced mathematically modeling and serious computing power, but the basic infrastructure for charging certain people more already exists.

So, many companies will have the ability to use personalized pricing, but should they? In other words, is it right to charge some consumers higher prices for the same products just because those consumers are supposedly willing or able to pay more?

At this point some may be wondering what the difference is between this pricing approach and, for instance, a restaurant charging one patron $15 for his meal at 5:30 pm, and another $25 for the same meal at 7:00 pm. The key is that the latter pricing difference is not based on consumer attributes but on the time of purchase. Restaurants, hotels, movie theaters, and other service providers are justified in lowering prices during off-peak times in order to even-out demand. Such pricing policies benefit everyone; for instance, those who don’t mind eating during “early-bird” hours get a great deal on their food, while those who prefer to eat later enjoy greater time utility as well as a somewhat less crowed restaurant.

The key is that the aforementioned pricing approach does not favor any specific person. Anyone can conceivable dine earlier or later. In contrast, personalized pricing prevents such individual autonomy and discriminates against consumers based on factors that are at least somewhat outside of their control, as well as beyond their reasonable comprehension. For instance, if I were the second shopper in the opening example, I would have little idea what I could do to receive a better price on my milk.

Is personalized pricing ever justified? One acceptable case may be higher education, which is well-known for charging some individuals more than others. Here’s why it’s likely right for colleges and universities to use personalized pricing:

Higher education is much more costly than most other things people purchase, which puts it out of reach for many people unless they receive help.
Education is something that benefits an entire society, not just the individuals who directly receive it.
Unlike most other cases in which organizations use price discrimination, higher education informs consumers about why and how need is determined and asks them to participate in the process, which is thorough, relatively transparent, and objective (e.g., FASFA form).
Technically the “sticker price” of college is the same for everyone, but people receive different amounts of aid, much of which is in the form of loans that have to be repaid.

In most other cases, personalized pricing is rather one-sided in terms of stakeholder value: the organizations that use it benefit as do some customers, but many others don’t. Furthermore, even if some firms reap short-term rewards due to consumers’ ignorance of the pricing inequities, it’s unlikely that those returns will last long, as customers will eventually wise-up and take their business elsewhere.

Because of its lack of fairness, its restrictions of purchasing freedom, and its failure to create long-term shared stakeholder value, personalized pricing should be considered “Mindless Marketing.”

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Do Disney Moms Deceive?

7/11/2015

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Since commerce began, people probably have asked for others’ opinions about where to purchase products. Although the specific questions have changed over time from ones like “Who’s the best blacksmith?” to “What’s the best smartphone?,” people continue to place confidence in the consumption experience of others.

For recommenders to be reliable they must be: 1) knowledgeable about the product category in question and 2) trustworthy, i.e., they offer an unbiased opinion not tainted by personal interest in the outcome. Recommenders who are employees of the organizations they’re referring or who receive referral-based incentives have difficulty upholding criterion #2, which gives consumers good reason to view their recommendations skeptically.

Recognizing these reservations, certain organizations try to trick consumers into believing that their paid endorsers are impartial advocates. Such companies have few scruples, but would the “Happiest Place on Earth” attempt such deception?

The Walt Disney Company describes its Disney Parks Moms Panel as “a forum where online "Moms" (and Dads!) answer your questions and offer advice and tips about Walt Disney World Resort in Florida, Disneyland Resort in California, Disney Vacation Club, Disney Cruise Line, team sports at ESPN Wide World of Sports Complex and runDisney events.” Although many organizations as diverse as Hewlett-Packard and Kimberly-Clark now leverage mothers’ persuasiveness to promote their brands, Disney was “the first major company to tap the influence of moms across a wide spectrum of social media.”

What’s the motivation for enlisting maternal endorsers? Most people listen to their mothers, and apparently so do others when it comes to things like vacation planning. Of course, there are also the dollars driving the decision. According to social media consultant Maria Bailey, mothers’ spending in the U.S. accounts for about $3.2 trillion each year.

Disney says that those it chooses as Mom Panel participants “have demonstrated an excellent knowledge of the Disney Destination in which they specialize,” which allows them to “offer helpful tips (and a dash of pixie dust) to help your vacation planning.” There are reportedly over 1,300 of these Disney Moms, who respond to a wide variety of forum questions ranging from what food comes with specific Disney dining plans to what to pack for a day at the park.

Disney supposedly does not tell the panelists what to say or how often they should post, but certainly there must be some criteria for Moms to remain in good standing. The company says “The views expressed in [the Moms’] answers are those of the panelists, who are independent contractors,” and adds that the responses “have not been reviewed or approved by Walt Disney Parks and Resorts Online prior to posting.”

So, Disney promises that its panelists offer unfiltered feedback, but what about compensation? Calling the Moms “independent contractors” suggests that they’re not on the company payroll, but Disney does reward them for their participation in the form of perks. According to the firm’s website “Panelists have received/will receive a trip to the Disney Destination they represent, for panelist and up to three family members and/or park tickets for their participation on the Disney Parks Moms Panel.”

Keeping in mind all of the above, it’s time to return to the original question: Is the Disney Parks Moms Panel deceptive? In other words, are those who use the service unlikely to recognize that the Moms may lack objectivity in their evaluations of Disney parks since they receive incentives for their participation?

First, it’s important to reiterate that Disney does clearly disclose the perks that its Moms receive, which makes the company’s approach legal according to the FTC. Of course, ethicality is another issue; however, the same unambiguous statement of benefits should alert reasonable consumers to the likelihood that Disney Moms are acting as agents of the namesake organization, not as completely objective evaluators. Other evidence suggests similar corporate control, e.g., the program is called “Disney Parks Moms Panel” and it’s hosted on a Disney.go.com website.

Each year Disney hosts a Social Media Moms Celebration. This year’s event, which about 200 people attended, “generated 28,500 tweets, 4,900 Instagram photos and 88 blog posts full of ride reviews and videos of kids meeting Disney characters.” Such results suggest that the Panel program creates considerable stakeholder value. Likewise, the program does not appear to compromise any particular society values; rather it promotes helpful peer-to-peer information sharing. Consequently, the Disney Parks Moms Panel can be considered “Mindful Marketing.”

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When Small Things Come in Big Packages

7/4/2015

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“Bigger isn’t always better.” Most of us learned that lesson early in life, perhaps when choosing between gifts of different-sizes. When it comes to a consumer packaged good, though, isn’t a bigger box generally better? Not necessarily, particularly when the difference is due to slackfill.

If you're like most consumers, you've experienced slackfill many times but just didn’t know what it was called. Imagine opening a large bag of potato chips—“poof,” out comes a gust of air. As you look inside you wonder where all the chips have gone, in what looks like a half-eaten bag. Or, you open a bottle of aspirin, and there’s a cotton ball at the top of the pills. The air and the cotton ball are examples of slackfill.

More specifically, slackfill is the difference in volume between the product a manufacturer puts inside a box or bag and the package’s overall capacity. In other words, slackfill fills up the slack.

But why not just make the package the same size as the product and eliminate slackfill? Sometimes extra space is inevitable because product contents settle after containers are closed. Other times the package needs to have air or another cushioning element inside in order to protect breakable goods (e.g., chips) or to make the product easier to display and handle (e.g., a memory card for a camera). Such “functional” uses of slackfill are fine as far as the law is concerned, and they don’t prompt moral concerns for most consumers.

Companies push legal and ethical limits, however, when the slackfill serves no practical purpose but rather makes consumers believe they’re getting more product for their money than they actually are. For instance, some of Procter & Gamble’s and Unilever’s deodorants have prompted lawsuits because the containers of their solid sticks are about twice as large as the product they contain. For example, one 2.6 ounce product came in a container that measured 5.25”H x 2.5”W, while the deodorant stick itself was only 2.5”H x 2.25”W.

Such examples are bothersome, but what’s even more troubling is when a manufacturer decreases the amount of product while continuing to sell it in the same size container for the same price. This was the recent strategy of international spice maker McCormick & Company, which reduced the amount of product in its classic pepper container (2) from 4 oz. to 3 oz.—a 25% decrease. Most consumers would probably never notice such a change while they unwittingly purchased less pepper and got more slackfill.

McCormick chose this stealthy strategy because its pepper costs had climbed, but it didn’t think it could pass on a price increase to consumers. Costs do increase, in which case it’s often unrealistic for organizations to simply absorb them. However, it’s also not acceptable to lead people to believe they’re getting more than they actually are—such deception is one of the main problems with excessive slackfill.

Another problem is the packaging itself. Even casual consumers are increasingly aware that packaging materials cost money and can have a negative environmental impact. Using more packaging than is needed, therefore, represents poor stewardship of valuable resources.

Although companies may get away with a guise in the short-run, people eventually realize when they are being deceived. They also understand the wastefulness of unnecessarily big bags and boxes. For these reasons, the use of excessive slackfill threatens societal values like honesty and environmental stewardship without offering much potential for creating long-term stakeholder value. Needlessly big packaging certainly isn’t better; it’s just “Mindless Marketing.”

Subscribe to Mindful Matters blog.
Learn more about the Mindful Matrix and Mindful Meter.
Check out Mindful Marketing Ads and Vote your Mind!

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Birthday Cheer or Profiteer?

Should Retailers Personalize Pricing?

Do Disney Moms Deceive?

When Small Things Come in Big Packages

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