Summer+2009+Section+09-PJ+Week+4

=Week 4 Class Discussion - "Friday Night Lights"/"Pizza Night"=

CLV/CRV Recap
This week's class discussion started with a recap of the previous week's discussion around Customer Lifetime Value (CLV), Customer Referral Value (CRV), and the "Doing-Saying Gap".

Allow for customers you want to "fire" to self-select themselves out. This opens the door for future business as they could potentially become profitable customers at a later time.

Paul recommended checking out [|The Innovator's Dilemma] by Clayton M. Christensen.

[|Guy Kawasaki, "The Art of the Start"]
"Jump to Next Curve": True innovation occurs when a company jumps to the next curve. The challenge is in recognizing the next curve. "Niche Thyself": Don't be afraid to polarize people.

During this discussion, we talked about how companies use different methonds to extend their product run and be innovative enough to jump into the next curve when their product starts to become obsolete.

Ice Box to Ice Factory to Frigidaire to [|LG Smart Refrigerators] This was offered as an example of the evolution of a product over multiple product cycles and of "jumping to the next curve". The need to refrigerate spawned an industry that started with blocks of ice used to keep things refrigerated to advances in technology that have ultimately led to "smart" refrigerators with built in TV's, automatic ice, and filtered water.

[|Bass Diffusion Curves]

Is "porn" really a forerunner/innovator for more "legitimate" businesses? Successful internet business models from the "dot-com/dot/bomb" era are hard to find, but one main factor seems to drive the staying power of e-business - the ability to transact credit cards over the internet for service, with banks creating a safe model that this industry helped to pioneer. We spent more time on this topic than was probably necessary, but there is truth to the statement that this industry was an innovator in internet marketing: [|USA Today Article]. Despite the uncomfortable nature of the discussion, pornography has been a driving force in many decisions in the entertainment industry [], as it was in the Betamax /VHS format battles of the 80's and first-to-market in DVD products/format decisons of the 90s and 2000s. With several major studios today being publicly traded, there is obviously a wider legitimacy to the industry as a whole than in its underground decades up to the end of the 80s. This market will always need to be considered, perhaps at arm's length, despite the moral backlash possible in discussing a topic that panders to our prurient interest.

We discussed several possible things that drove the start of the dot com business. Ebay started in 1996 and possible started the dot com drive. We also discussed that the popularity of two letter websites and how that led to the rise in internet sites. Amazon was also a big starter of people using their credit card online and feel comfortable with that.

This topic is pointless nonetheless a very large driver of the internet. It has also been shown that the porn industry is what drives the higher bandwidth wanted/needed in home locations.

Chart: Value to Customer/Ability to Provide Unique Product/Service ("High and to the right" should be the goal)
Good things born out of period of irresponsible business investment (Dotcom/Stupid/Price)

[|RKS Guitars] : Functional Art in Guitars
Marketing for guitars is a tricky business, as this product holds a strong emotional appeal since the early days of rock and roll. It is not uncommon to see vintage models hit 6 digits in auctions by such bidders as Paul Allen. Therefore, when a new design hits the market, it can either be a smash or a dud right after the first trade show. RKS guitars was designed by a professional designer with only a few years of actual playing experience, yet the ergonomics and sleek, retro-futuristic look has captured the mindset of established payers and collectors alike. What will the future hold for this innovative firm with a hit on their hands? Will they remain at the forefront for a full decade, or be bought out by the major league manufacturers and kept as a portfolio model?

Trade-Off or Conjoint Analysis
Broad customer surveys not as valuable as Conjoint Analysis which is focused on real possibilities and a target segment. You can "personalize" Conjoint Analysis and really get to the core of what you want to research so that your output is more meaningful for your business.

Broad Customer survey has limitless information that isn't easily compiled into the data you may be looking for or be useful in action planning. Don’t pick study population at random or you may receive biased or uncorrelated data. Choose your population and dial in the information that you are seeking.

Example: Airline Spreadsheet Relative Importance will vary depending on construct and/or segment within which questions are asked (ie. business traveler vs. vacationer)

As just stated, the airline conjoint analysis we performed in class can be skewed by which group was answering the questions. If you have an individual who is completely sold on a particular airline and you continue to interview this type of group vs. a general occasional flyer, the results will not correlate and it will be difficult to determine what is the true driving force. On the other side, if the analysis were used solely to focus on specific groups at time, then it would be possible for the airlines to customize according to the traveling group.

The spreadsheet is a good tool to use in market segmentation.

Why are airlines in Europe relatively cheap? Subsidy helps! //(source: [])// //**Aer Lingus** is the// [|//flag carrier//] //airline of// [|//Ireland//]//. Headquartered at// [|//Dublin Airport//] //in// [|//County of Fingal//]//,[|[1]] it operates 46// [|//Airbus//] //aircraft serving Europe, Africa and North America. The airline is 29.4% owned by// [|//Ryanair//] //and 25.4% owned by the// [|//Government of Ireland//]//. It was floated on the Dublin and London Stock Exchanges on 2 October 2006, following prior government approval **(the government previously owned 85% of the airline).** Aer Lingus is a former member of the// [|//Oneworld//] [|//airline alliance//]//, which it left on 31 March 2007. While Aer Lingus is not in an alliance it has codeshares with Oneworld, Star Alliance and SkyTeam members, as well as interline agreements with// [|//Aer Arann//] //and// [|//JetBlue Airways//] //in the United States.[|[2]] The company employs 4,000 people and in 2008 had revenues of €1.4 billion. Aer Lingus transferred 10 million passengers in 2008.[|[3]] It has a mixed business model, operating a low fare service on its European and North African routes and full service, two-class flights on transatlantic routes.//

Darwin and the Demon
Innovation is jumping beyond one-curve of the competetion or other players in the game.

Structured Innovation
The capitalization on an external disruption to offer new products or services.

**Types of innovation:**
Disruptive Innovation: - Creating a product that's brand new to the world and causes "disruption" for other similar markets.

Application Innovation: - Taking new technology and making it assessable to the average consumer in a user friendly way.

Product Innovation - Creating new product lines in a particular market for enhancement or affordability purposes.

Process Innovation - A company changing the format by which it conducts business or establishing a new way of conducting business all together.

Experiential Innovation - Enhancing the consumer's experience. This can take the form of delighters, satisfiers, or reassurers.

Marketing Innovation - Changing the way the industry markets to consumers or the way companies interface with customers when conducting business. Nintendo Wii is probably the best example, because it targets a segment largely ignored by console manufacturers and game publishers. By making an intutively interactive games console and limiting availability it has maintained high value despite it's technological shortcomings.

Business Model Innovation - Modifying the way an industry conducts business. Affects all business within the industry in different ways.

Structural Innovation: Capitalizing on the structural changes of an industry in order to break in, thus redefining the old guards way of competing.

Innovator's Dilemma: Clayton Christensen
Outsource commodities only!

A **commodity** is something for which there is demand, but which is supplied without qualitative differentiation across a market. It is a product that is the same no matter who produces it, such as petroleum, notebook paper, or milk. []- (As a commodity manager- I would not limit one to outsource commodities only! Look to outsource any functions that are not considered core compentencies and evaluate the overall return- Financially, strategically and the effect on customer service)

Team Top Gun


Team Top Gun believed that Starbuck had strayed to far from their target segment of upscale people looking for a Third Place that reflected coffee house culture. Starbucks grew rapidly and made huge profits but at the expense of creating and maintaining the image of the Third Place. By having small kiosk type coffee shops in grocery stores, bargain retail stores and even vending machines Starbucks is diluting their brand image in search of short term profits. This conflicting focus could leave their target segment that is looking for a Third Place vulnerable to competitors who are better able to serve consumers by delivering a more consistent upscale message.

Another issue that wasn't necessarily brought up in the case discussion was concerning the structure of Starbucks' marketing efforts. The marketing "department" actually functioned in three separate groups: Market Research (data gathering, analysis), Category Group (product development, menu/margin mngmt.), and Promotions. As a result of disconnects and lapses in communications between the three, market and consumer trends could be overlooked and data was not necessarily used to drive decision making. As a way to improve the discovery phase, Starbucks might consider restructuring the way information is shared between these three marketing arms. This way, less information will slip through the cracks and the potential for data and early research to translate into action (therefore improving company's chances of proactive concerning consumer trends rather than reactive) will improve.

**Team asateamwethoughtthat** Team "AsATeamWeThoughtThat" assumed the proposed added labor expenditure was in 2009 and felt that such a recommendation could not be justified in the current economic climate. Starbucks has been on the "plateau" of the product/business cycle curve and looking to extend its successful run as the dominant coffee retailer/cafe in the industry. Starbucks has been closing stores and re-evaluating and revising product mix. We were more concerned about the survey data showing a perceived decline in quality than we were about speed of service. Speed is more a function of service, which actually showed improved perceptions among customers. As a team, we thought that (did you catch that?) there is a disconnect between the idea of quality and service and quick service. Quick service doesn't necessarily equal exceptional customer service, and to some extent, the idea of fast service may perpetuate a feeling that Starbucks is the McDonalds of coffee service. We think Starbucks should get back to it's ideal as a "third place" for Americans, next to home and work. Three minute service may be good for the in-store Starbucks stands, but if stand-alone Starbucks wishes to be a "third place", they should refocus on quality and customer service in general. Starbucks needs to lose the "BuckDonald's" image. We discussed possibly having separate lines for Drip coffee so those individuals could get in and out quickly and having a separate line for the more complicated drinks. Once you got through all the Drip coffee orders you could take people fromt the other line but this would speed up the process. We didn't discuss this, but you could also have an area for those people looking for Starbucks to be more of a coffee house similar to those in Europe and have a server in that separate area. People who would want to sit and relax wouldn't necessarily care if the order was done quickly and would receive better service having someone focused on them.


 * TEAM FROWNY TURKEY**

There are three distinct levels of customer experience, each with their own shelf life and average spends per visit. Should Starbucks invest $40M to add additional headcount in the hopes of converting "Tall" customers into "Grandes", and "Grandes" into "Ventis"? Additional headcount can be disruptive to the service process in a cramped service area. In our opinion, Starbucks is spread wide on diverse products, but the core of its service experience leaves the "third place" a little emptier these days - best to invest in Organizational Development and train existing employees in the art of excellent customer service and remembering their past - what made Starbucks great was more than just the coffee. It was the barista as bartender.

Also, the idea that faster service is better service is ludicrous. The very idea that a 3-minute wait time is going to translate to higher sales just does not translate - and how does this mentality mesh with the idea of Starbuck's as a place to linger? I think that a better investment of resources would be to increase training, as we mentioned before, but to also increase quality. When Starbucks switched to the new machines, speed of service was improved as well as the consistancy of flavor from drink to drink and location to location - but it became consistantly bad, with that instantly recognizable "burnt" flavor. I'd like to see Starbucks buck the "McDonalds-ization" it has been pursuing and return to it's roots as a comfortable, classy, lounging an dmeeting area with great coffee. So what if it takes a bit longer to get my latte?

How can Starbucks claim to want to be the "3rd" place you live your life, if they consistently have processes that encourage customer turnover? For example, within the past year they launched there customer "rewards" program that required you to sign-up to receive special deals, including access to internet. There are obvious benefits to Starbucks in being able to track consumption habits in different regions, and no doubt it would help provide better service and products to different markets. However, the benefits are not that great, and they discourage a major benefit to the coffee shop "experience", free internet. They finally got rid of T-mobile, but not they offer only 2 hours of service per day, per customer. This increases turnover, and dramaticly reduces a key market, freelancers. This target group lives out of coffee shops. They are evangelists of certain location, and primarily run their entire work lives out of them. This is a target group I would not discourage.

**Team Known Unknowns** As the first team to present the recommended marketing stragegies for Starbucks, The Known Unknowns were hammered with questions regarding how to improve customer service, wait time and how to market itself to a wider range of customers. It was proposed to close the lower profit stores and relocate managers and well trained baristas to exhisting well established locations and at newly opened drive through stores. Getting "Back to the basics" was the slogan used to describe the potential marketing strategies. Promoting simple cups of coffee and adding quick/easy high profit items like donuts were suggested as one option to increase efficiency and offer a lower priced item to meet the needs of the lower income consumers.