Marketing 2.0

Chrysler - Dead Man Walking

All the news lately has focused on GM’s bailout and bankruptcy. Let’s spend a few minutes to contemplate the second weak sister of the auto business, Chrysler. Their assets were literally handed over to Fiat and the company is preparing to drag itself out of bankruptcy with a similar deal to GM’s — lower labor costs and funding from the Canadian and American governments.

I won’t spend time analyzing why Chrysler ended up where it is today. Unlike GM, Chrysler’s past has been a series of takeovers and near-death experiences. When Lee Iacocca rescued the company from the brink in the early 1980’s, the recovery didn’t last long before the next crisis.

Let’s focus instead on Chrysler’s chances for survival which I would peg at slim to none. Why the pessimism? Let me list the reasons.

Fiat takeover - you know you’re in trouble when you turn to Fiat for help. This company has never been known for producing reliable automobiles. They have not sold cars in North America for decades and for good reason. Today, their products are designed and built for the European market. Their tiny cars are well suited to Europe but not for most American drivers and families. When you can buy a mid-sized car like the Accord or Camry that gets over 30 mpg on the highway, it’s hard to imagine people buying a micro-car like the Fiat Cinquecento (cute as it is). There may be a market in major urban centers but beyond that, I don’t see their current products appealing to the average American or Canadian driver. What’s more, Fiat didn’t put up a cent to acquire Chrysler’s assets so they have nothing at stake. Do you think they will hang in there when they continue to lose money? They can easily walk away without a financial loss or damage to their core business outside the U.S.

Dealer consolidation - I still haven’t heard a compelling reason for closing dealerships. These are independent retailers of Chrysler’s products and while they do require support, they also provide the core customer service experience that is so important in gaining and retaining customers. Chrysler is cutting so many dealers that they are hurting their ability to sell cars in the future. 

Take my community for example. There are 100,000 people in the county where I live. We have dealerships for Toyota, Honda, Ford, Chevrolet, Volkswagen, Audi, Subaru, Volvo, Hyundai and Nissan. Chrysler just cut off their one and only dealer in our community, a family-owned dealership operating since 1915. The nearest Chrysler dealer is now 30 minutes away. What chance do you think they have to sell cars here in the future?

Product lineup - Chrysler’s vehicles have never been known for their reliability but give them good marks for stylish design. The problem is that gas prices and changing customer tastes have hurt their most popular models — Jeep, Ram trucks and mini-vans. There’s nothing exciting in their product pipeline that will revitalize sales in time to save the company. Lee Iacocca had the K-car which was the company’s salvation. Today’s Chrysler hasn’t got the products to turn sales around. Specifically, they lack a strong mid-sized sedan, compact car and cross-over vehicle. They remain strong in mini-vans and SUV’s but the public’s appetite for these vehicles has waned.

During Chrysler’s comeback in the 1980’s, Iacocca appeared in television commercials and delivered the line, “If you can find a better car, buy it.” Unfortunately for Chrysler, American consumers took his advice.

GM's Chances for Survival

Even with $50 billion in funding can the recently nationalized General Motors (or Government Motors as they are being called) survive? Let’s look at the factors from my previous post to analyze which problems might be resolved by the massive infusion of taxpayer money, the bankruptcy proceedings and eventual reorganization of the company.

Incompetent management - Rick Waggoner was thrown off the bus but there’s been no infusion of new management. It’s highly unlikely that the architects of GM’s demise can successfully manage the company in the future.

Labor costs - these have been reduced with a new UAW agreement. Basically, the American and Canadian taxpayers are helping fund the retirement programs for over 400,000 retired employees. Putting the appropriateness of this move aside, it will certainly help to lower GM’s operating costs.

Inferior products - no signs that this problem will be solved anytime soon. The other problem is changing consumer perception. That takes a long time.

Brand management - some of the brand confusion will be reduced by eliminating Pontiac and Saturn. In return, GM risks losing customers who are loyal to those two brands.

Competition - no amount of government funding can help GM here. They’ve been steadily losing market share to their competitors every year. And for good reason.

Excess capacity - this is a structural reality in the American automobile market that will not change in the near future until several manufacturers either exit the market or go out of business. The only one likely to fold in the near term is Chrysler.

Market maturity - like all of us baby boomers, the market isn’t getting any younger. Not a positive outlook for the total market although there will be segments that offer good growth.

Consumer confidence - will eventually improve along with the economy. More people will return to the showrooms but not necessarily GM showrooms. For one thing, thousands of dealerships will be closed. Losing your local Chevy dealer does not instill confidence and concerns over the resale value and long-term viability will hurt GM’s chances of recovery.

Gas prices - under no circumstances will I even attempt to predict what will happen to gas prices. OK, let me just say that I don’t foresee sustained low prices that would cause Americans to fall in love with big SUV’s anymore. GM’s track record of selling small cars is abysmal.

Recession - this will end, as all recessions do. What’s different is that Americans lost so much equity due to the meltdowns in the housing and financial sectors. It’s going to take a longer time to recover from that. Furthermore, the orgy of government spending will inevitably result in higher taxes, fewer government services and more user fees for things we currently take for granted. There’s talk of a VAT (Value-Added Tax) which is essentially an additional sales tax levied by the federal government. None of these scenarios is positive for auto sales.

So what are we left with? The only major positive here is a lower cost structure. That’s an important benefit of the bankruptcy process but it’s just not enough to overcome all of GM’s other problems. This is a company that is dead and should be buried. Government money would be better spent on retraining workers and providing enhanced unemployment benefits. 

What would you do? Would you invest in GM today?

Top 10 Reasons GM Failed

Today marked a historic day in the annals of business history. General Motors declared bankruptcy and the U.S government will invest more than  $50 billion to keep the company afloat. We can debate the merits of nationalizing GM later — for now let’s focus on the reasons they appeared in bankruptcy court today. Here are the top 10 reasons in no particular order except for reason number one.

1. Incompetent management - more than any other factor, the sheer incompetence of GM’s management is stunning. When you google the phrase “management incompetence” the rogues gallery of GM CEO’s and senior managers should appear. They have steadily driven the company down, missed every major forecast and prognostication (including scoffing at the very notion of bankruptcy) and now find themselves at rock bottom. So what happens? They are rewarded with billions of dollars of taxpayer money to stay in their jobs. The lesson here? If you’re going to fail, do it on a truly grand scale.

2. Labor costs - the wages, benefits and retirement perks granted to the United Auto Workers put the company in an untenable position and saddled them with an non-competitive cost structure relative to their primary competitors, Toyota and Honda.

Both the company and the union deserve fault for this.

3. Inferior products - For years, GM produced products that were mediocre in terms of design, engineering and reliability. Consumers perceive their products to be inferior to Honda’s and Toyota’s. Despite the fact that GM’s products have improved lately, it’s customer perception that matters and that takes time to change. Despite their vast resources, GM is not a leader in any aspect of automobile production that I can think of. They don’t have the safest, most reliable, most fuel-efficient or best engineered cars compared to their competitors. Furthermore, they gave up early on electric vehicles and  missed the boat on hybrids. When Toyota introduced the Prius, GM’s managers gloated that Toyota was losing money on every car they sold. Who’s laughing now?

4. Brand management - or should I say lack thereof? GM had too many brands that were not clearly differentiated from each other including Chevrolet, Pontiac, Oldsmobile, Buick and Saturn. Brands that were clearly positioned  such as Cadillac have done pretty well. The rest simply cannibalized each other’s sales. Worse than the branding of its major divisions was GM”s approach to individual model brands. They simply churned them far too much. Think about Toyota and Honda’s main models such as Camry, Accord, Civic and Corolla — they’ve been around for decades. Consumers know what they stand for and what to expect.  By contrast, GM’s divisions continually replaced their recognized models with new ones. They forfeited brand recognition and the opportunity to build and maintain a loyal customer base.

5. Competition - Toyota and Honda are world-class companies that build the products American consumers want. They both have significant manufacturing investments in North America and they are tough to beat. Other competitors such as Volkswagen, Nissan, Mazda and Ford are also turning out good products. The automobile business is brutally competitive and a weak sister like GM can no longer survive.

6. Excess capacity - There are simply too many manufacturers chasing too few buyers in the American market. Not all of them can survive. It would actually be healthy for some to exit the market since consumers have more choices than they can handle right now. This is just the beginning of the restructuring in the automobile industry.

7. Market maturity - the U.S. market is in a late stage of maturity with low growth prospects for the future. I also believe the dynamics of the market will continue to be depressed over the next five years. Why? The average American family has seen its net worth tumble significantly due to the stock market meltdown, business bankruptcies (like GM’s), bond and bank failures and the overall impact of the recession.

8. Consumer confidence - the typical new car purchase is now financed over 4 or 5 years. How many people have enough confidence in their jobs lasting for the next five years to commit to a car loan? Faced with job uncertainty and the need to reduce debt levels, consumers will be driving their cars longer before replacing them or looking at other alternatives such as used cars, car-sharing services and public transportation.

9. Gas prices - when gas prices spiked to over $4.00 per gallon, consumers reacted by immediately shifting their purchases to more fuel efficient vehicles. GM was sitting with a reliance on large SUV’s and trucks with low mileage ratings. The SUV was the cash cow keeping GM operating. When SUV sales died, it wasn’t long before the company followed.

10. Recession - a deep and severe recession proved to be the final nail in GM’s coffin. In this case, the financial crisis and bank bailouts tightened the credit markets. This, on top  of weakened demand for autos, proved to be the one-two punch that put GM down for the count.

With all of these factors conspiring against the company, the only surprise is that it didn’t fold sooner. GM has been in a steady death spiral for several years and now it’s the American taxpayers who own this turkey.

Macworld: News: AOL to lay off 20 percent of staff

The death spiral at AOL continues. Interesting that the company at the forefront of the Internet revolution is now struggling to become relevant again.
Link: Macworld: News: AOL to lay off 20 percent of staff.

Back on track

My blog has been dormant for the past few months simply because I've been too busy with my teaching to post. I use separate blogs for each of my courses at Ithaca College and the maintenance involved in this practice is quite substantial. Combined with teaching three new courses this semester, I just haven't had time for anything else. I do wish that TypePad would offer the feature of posting simultaneously to several blogs. It would make my life so much easier. At any rate, I look forward to posting new content in the weeks ahead as this semester is thankfully now over. Hooray!

Turner Broadcasting Bomb Scare

Turner and their marketing agency have agreed to pay the city of Boston $2 million to cover expenses in the wake of their misguided promotional campiagn. That works out to roughly $50,000 per flashing device placed around Boston - rather expensive I think. Was the publicity worth it? Do you buy into the maxim that "There's no such thing as bad publicity?" You can view video here.   and you can click on the link below to read the latest article on the settlement.

Link: http://www.cnn.com/2007/US/02/05/boston.turner/index.html

Beware of Dissatisfied Consumers: They Like to Blab - Knowledge@Wharton

A recent study sponsored by the Wharton School has quantified some of the impact that dissatisfied customers can have on a retail enterprise. Only 6% of unhappy shoppers spoke to management while 31% complained to their friends, colleagues or family members. These are the customers that retailers should fear the most - the ones who are unhappy and who are vocal about it but who do not give any constructive feedback to management. If you know that you have an unhappy customer, you have a chance to rectify the situation. Without knowing, you have no chance to create a more positive shopping experience.

There are more good statistics and insights in this article. Take a look at the impact that dissatisfied customers can have on your business.

Link: Beware of Dissatisfied Consumers: They Like to Blab - Knowledge@Wharton.

Hands-On MacBook Review

I have been working with my new MacBook for a month now and I’m ready to give you my hands-on impressions of the new mainstream notebook from Apple. Let me start by saying that I am very happy with my purchase so far and I recommend this model for most users. Here’s my take on the major features:

Model and Configuration — I ordered the 1.83 white book with memory upgraded to 1GB and hard drive to 80 GB. I do not recommend buying a MacBook with less memory, especially if you will be running non-native applications such as Microsoft Office. This model offered the best price/performance value for me. I read the Macworld speed test of all the latest books and there is little difference in performance between this entry level MacBook, the faster models or even the MacBook Pro. The only real caveat is that the MacBooks are not a great choice for gamers because of the integrated graphics card. This was not a factor for me. By the way, if you are upgrading memory, it’s just as cheap to buy it direct from Apple as a third-party. As for the delivery time, I ordered mine on a Monday evening and it arrived the following week on Wednesday morning.

Speed — The MacBook powers up faster than any Power PC Macs I have owned. That’s a small but very nice feature. The native applications such as Safari run noticeably faster than my other Mac, a G4 desktop with dual 867MhZ processors. Microsoft Office runs just fine with 1GB memory. Processing times seem pretty similar to my other machine even though this application is not native to the Intel Macs yet. I haven’t edited any video in iMovie yet so I’m not sure how it will do. I suspect it will be fine for basic editing although Apple does not recommend this model for Final Cut Express or Pro.

Display — The 13” widescreen really is the perfect form factor. I find that applications such as Word can be operated with the palettes open and it seems much roomier than the old 12-inch screens. The glossy display is not overdone; after a week, I don’t even notice much difference between this one and the matte display on my other machine. The screen is definitely brighter than the last generation iBooks.

Keyboard — The new keyboard on the MacBooks has generated lots of commentary, both positive and negative. I love it! The keys are spaced a bit wider and I find it much easier to type. The keys have a very nice, tactile feel that’s not too light or spongy. It’s a treat.

Remote — Apple’s new machines come with a remote that operates Front Row, a program to control music and presentations. I’ve been using this a lot with my Keynote presentations and it works just great. I don’t think it works with PowerPoint, however.

Battery Life — I have been running the MacBook on battery for most of the day albeit with sleep mode when I’m doing other tasks. I’m confident in predicting that average users will get 4-5 hours of processing.

Misc. Issues — The MacBook does get quite hot underneath especially on the left side. The handrest and keyboard area is not bad though and certainly much cooler than the MacBook Pro models I tried out in the retail stores. The MacBook is incredibly quiet. The fans rarely come on except when using CD’s. This computer isn’t a lightweight at just over five pounds, but it’s a pretty good compromise between screen size and portability.

The Bottom Line — The white MacBook represents the best value in Apple’s lineup and is a terrific notebook. You won’t be disappointed.

What to Learn at School

Guy Kawasaki offers some excellent advice for students, focusing on ten things they can learn at school. I try to share my professional experience with my students, in order to prepare them for the dynamic business world they will soon be entering. I do notice, though, that the focus in academia tends to be weighted heavier on theory than practice. Why is this? Most professors have spent their entire careers in the world of theory, research and scholarship. It's no wonder they focus on these areas. Nor is it a bad thing because students need a balance. The key is integrating theory and practice.

Link: Signum sine tinnitu--by Guy Kawasaki: Ten Things to Learn This School Year.

What's Wrong at GM?

Lately, the jackals have been circling General Motors. Even in the boardroom, restless shareholders are pressuring to bring in new leadership or take dramatic action to stave off bankruptcy. How did a venerable American institution get to this point?

There are lots of explanations going around — healthcare costs, high labor rates and burgeoning pension obligations have all been blamed. No doubt these are major factors that are hurting the General’s bottom line, but I think the biggest failure is one of marketing. GM is simply not building enough desirable vehicles.

There are certainly pockets of strength within GM’s product lineup — think Corvette, Cadillac and some of its trucks and SUV’s. The problem here is that high gas prices are turning many consumers away from these thirsty vehicles. When buyers look for cars and not trucks, the General comes up short in comparison to offerings from Toyota, Honda and other manufacturers.

It’s funny how brand loyalty can last a lifetime. Most of my early vehicles were Chevrolets including a 1951 sedan (it was older than I was), a 1966 Impala convertible, a 1976 Vega (the worst car I ever owned), and a 1980 Monte Carlo. I still feel a connection to the brand but I don’t know which model I would buy today. The only option I would consider is a Cobalt for my teenaged daughter. For myself, there just isn’t a Chevrolet I would want to own right now. I don’t claim to represent the majority of American car buyers but apparently many of them feel like I do.

There are some hopeful signs. The new Buick Lucerne looks great, at least on the outside. I don’t think I’m old enough for a Buick but hey, you never know. The Pontiac Vibe is an efficient little package that looks like fun. The Cadillac CTS would be a big hit with my son. Beyond that, there’s not a lot that appeals to me.

In the short-term, someone will probably come in and cut costs to save the company from insolvency. The real challenge, though, is to cut through the brand clutter and create distinctive models and identities. Some of GM’s nameplates may have to go in the process. Can the company succeed? Well, they certainly have designed some great autos in the past. Think about the 1957 Chevrolet Belair and the 1963 Buick Riviera. These cars are classics that have stood the test of time (at least in terms of design).

It’s up to the designers and marketers to create new classics that will attract a new generation of buyers. As a loyal but lapsed Chevy customer, I’m hoping they can do it.