Case Study #19: Stratelysis for Marketers Part II – Crystallize Consumer Confidence Metrics Into Measurable Market-Facing Programs

It seems like yesterday when a consortium of economists, businesspeople, politicians and others assert that the missing link for a full economic recovery is a sustained increase in consumer confidence. Today, The Conference Board, a New York-based business research group, reports that its Consumer Confidence Index rises to 54.1 in August from an upwardly-revised 47.4 in July (Pepitone, Julianne. “Consumer confidence soars”. CNNMoney.com. August 25, 2009). As of noon CST, the Dow Index is up 57.06 points: “The day begins with surprisingly strong readings of home prices and consumer confidence, as well as the nomination of Federal Reserve Chairman Ben Bernanke for a second term.” (McKay, Peter A. “Upbeat Data Buoy Stocks”. Wall Street Journal, August 25, 2009). As this economic data streams through your RSS, Twitter, Facebook, LinkedIn updates, are you asking the same question I am:

“So what?”

Before answering that question, it is important to understand what consumer confidence means. It is generally discussed in context of the Consumer Confidence Index that measures Americans’ attitudes about current and future economic conditions.

It is based on a monthly survey of 5,000 households conducted for The Conference Board. The Board develops a report based on the survey that gives details about consumer attitudes and buying intentions, with data available by age, income, and region. This is compiled into three numbers:

• The overall Consumer Confidence Index: This Index is a composite of the two other indices, and is weighted 40%-Present Situation Index and 60%-Expectations Index.
• The Present Situation Index: This Index is based on two questions the survey asks: 1) How would you rate the present business conditions? and 2) What would you say about available jobs in your area right now?
• The Expectations Index: This Index is based on respondents' predictions for business conditions and available jobs six months from now. It also measures whether those surveyed think their incomes will be higher, lower or about the same in six months.

Consumer confidence is important to the economy because consumer spending drives 70% of economic growth.

There is also the University of Michigan Consumer Sentiment Index (MCSI). Like the Consumer Confidence Index, it is indexed to have a value of 100. At least 500 telephone interviews are conducted each month of a United States sample which excludes Alaska and Hawaii. The two surveys are quite similar, but they have two important differences traders should be aware of. The MCSI survey asks one less question about employment. This fact makes the Conference Board survey a better indicator of consumers' expectations about employment. But the look-ahead period of the MCSI survey is longer: one year instead of six months. The Michigan survey therefore attempts to predict economic conditions a full year into the future (Investopedia).

Assuming you work in an existing or soon-to-be public company, the majority shareholders or soon-to-be shareholders of your firm will make investment decisions based on the data points they receive from reputed, credible sources such as the Conference Board and University of Michigan. They have numerous data points to make the best possible business decisions, but if this economic recovery hinges on the growth of consumer confidence, then it is imperative that customer-driven metrics brim to the very top of executive analysis and review. It is not enough to say that a rising unemployment rate and home foreclosures will limit spending for the rest of 2009. Marketers, you and your partners within and outside of the organization may consider the following ideas to help assess consumer confidence for the brand(s) you support:

• Reporting overhaul: Every company reports its performance in different ways, but generally, they report on business drivers. For example, the acquisition of new accounts is a driver for a credit card company. A new truck sales deal is a driver for a truck manufacturer. These drivers change based on market and economic conditions. But, this kind of reporting may not be granular enough. This report should be supplemented with a detailed, granular look on the customers who comprise the sales, and be segmented by confidence factors such as recency, frequency and monetary (RFM) values. A dashboard may be used to summarize a monthly segmentation analysis so executives can easily distill the information.

• Market research: A multi-million dollar study does not have to be commissioned to validate or innovate a strategic path. Research should be endemic in the heart and soul of marketer, and there should be an established process by which customer-facing departments interface with customers on a frequent basis. Online consortiums (i.e. the Facebook portal for customers), customer advisory boards and other online or offline groups will enable companies to have real-time dialogue with people who drive their business. It also enables analysts to answer the question, “Why are the numbers so low?” or “Why are the numbers so high?”. Every quarter, it is important to study and capture how customers absorb and act on brand messages. This provides a critical understanding on the psychological underpinnings of their purchase decisions, and this qualitative analysis speaks to their level of consumer confidence.

• Execution of marketing tactics: With the evaporation of collective, liquefiable assets and cash, it is challenging to get a customer to spend money they don’t have or don’t want to part with. The personal savings rate in the United States grows from 1.3% from January 2008 to 4.6% in June 2008 (U.S. Department of Commerce: Bureau of Economic Analysis). But, that isn’t a detriment to business growth as marketing campaigns can be developed to secure data points about new customers while trying to achieve profitable conversions. For example, let’s say a small consumer packaged goods company notices a decline in year-over-year sales of bottled salsa. It may be able to turn inventory through aggressive retail promotions. A long-term strategy will enable the CPG company to collect customer data through marketing touchpoints such as a recipe micro-site or a partnership with a chain restaurant (such as Chipotle). There is a cost per acquisition, but if a relationship can be built through an online or offline partnership, the future payout can be very rewarding for the CPG’s bottom-line. In addition, the data generated by the two marketing touchpoints can be provided to executive management, showing that cost conscious customers are being acquired in the present to increase profitability in the future. The monetization of data should never be underestimated in its potential ability to be converted into cash.

Recovery is on the way and that provides a certain degree of relief, but there is a lot of work that needs to be done within and beyond a corporate environment to make sure that a recession of this magnitude does not happen again.

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Case Study #18: Stratelysis For Marketers – Let’s Knock Out the Recession In the Second Half of 2009

In the right hand corner, weighing trillions of dollars in lost investments since 2007 and tens of millions of lost global jobs ISSSSS:

“GUNTHER ‘I OWN THE GLOBAL RECESSION’ DOOMSDAY”

And his opponent, weighing close to $800 billion in stimulus dollars and almost 9,500points on the Dow Index ISSSSS:

“RICH, ‘I PROTECT MY HOUSEHOLD INCOME’ RECESSION-ATOR’”

In the first half of 2009, Gunther Doomsday gives Rich Recession-ator a real beating in the ring. Rich can’t take a break from being knocked out month after month after month. POW – Over 700,000 unemployment claims are filed in the United States in January 2009. BAM – Dow Index close below 7,500 points in March 2009. SLAM – Consumer confidence takes a nose dive in July 2009. Today, however, Rich Recession-ator gives Gunther Doomsday a much deserved upper-cut. The cheering section of economists bearing optimistic news gives him the strength to pull this off. Both boxers return to their corners before they battle again.

Marketers, Rich Recession-ator needs our help. The economists say that 70%+ of the gross domestic product (GDP) is driven by consumer confidence. What function has a significant amount of interaction with consumers? It is the marketing function.

But, we won’t be sitting in the cheering section like the economists. We’re going to be alongside the ring. We’ll tape our boxer’s injuries with great strategy. We’ll hydrate our boxer with lasting tactics. And by December 31st, 2009, Rich Recession-ator will make sure Gunther Doomsday is down. And stays down.

Regardless of whether we are doing marketing for consumer packaged goods or an airlines company, here are some high-level “stratelytical” exercises that can be customized based on business and functional goals:

1. Join the Conference Board Consumer Research Center where you will be able to learn about the Consumer Confidence Survey® and other data points that impact your business (http://www.conference-board.org/economics/crc.cfm).

2. Overlay this information against your latest re-forecast for 2009 and 2010 and make some educated hypotheses about consumer spending for your category.

3. Depending on the quality of your customer database, survey your most profitable customers about what they predict to spend on you and your competitor’s products over the next six to twelve months, and what emotional, economic and environmental drivers are causing them to make these decisions.

4. Refine the forecast for 2009 and 2010 once results are generated from the survey. Remember, Rich Recession-ator needs to knock out Gunther Doomsday, but throwing wild punches in the air only weakens a boxer in the ring.

5. Align with the brand strategy and marketing communications team to discuss data-and-insight driven findings. Collaborate with them in updating existing touchpoints with confidence-building messages as articulated by surveyed customers.

6. Not all customers Twitter, Facebook, Digg or look at blogs. If your most profitable customer absorbs information through traditional media touchpoints, continue to use those channels, but update the messages to encourage spending on multiple need-based purchases versus expensive want-based purchases. However, if you notice a change in message absorption by your profitable customer, then re-configure the touchpoint strategy to accommodate Web 2.0 tactics.

7. Sometimes, focusing just on the most profitable customers stymies top-line revenue growth. Consider cost effectively acquiring new customers given the brand’s adaptability to new, un-tapped markets. A huge party at a major New York City club or a U2 concert isn’t ALWAYS necessary to acquire a customer – It is important to understand how target customers are engaged from a multi-touchpoint perspective. This increases the chances by which they experience the brand while reducing overall cost per acquisition. The trick is to make sure the target customers see an integrated, consistent representation of the brand at all points of brand contact.

Okay, so now the boxers are back in the ring. They do a fist bump with their gloves. Rich the Recession-ator looks squarely into the opponent’s eye and advances for his first offensive move in the beginning of the second half.

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Case Study #17: Nanda Home Plans to Grow Brand Architecture Beyond Clocky

Several product innovations fundamentally stem from the human desire for convenience. And many customers will pay a premium for convenience. This ranges from packaged salads to Blackberries to snooze buttons. The snooze button is simultaneously pressed multiple times by 90% of the U.S. population between early morning hours, Monday to Friday. How convenient is it to delay being awake by hitting a button to capture some extra “zzzzz’s”? Sure, the coffeemaker may fill your place with a jolt of aroma, the dog may lick your nose or the spouse and kids are already on the move (or all of the above), but you manage to find your restful peace between the time your fist lands on the snooze button and the time the alarm buzzes again. How convenient.

But, will we pay for inconvenience? Now, imagine if you hit a snooze button on a Clocky alarm clock that decides to jump off the nightstand and roll around the floor buzzing around in circles? Now you have to wake up, chase after this possessed machine and put it back in its rightful place. Are you awake? Founder of Clocky, Gauri Nanda, sure thinks so. Please check out her interview with Donny Deutsch on The Big Idea (on the right hand side).

Clocky is a result of the most pure form of stratelysis: An industrial design class project in graduate school. There are few, if any, bottom-line impacting politics or boundaries in a class project in graduate school. Students have the flexibility and time to do extensive, collaborative diligence on a deliverable. The Clocky alarm clock evolves out of Nanda’s own need for an alarm clock that won’t let her snooze repeatedly. She creates a prototype for a class project and a flurry of unexpected attention by the press ensues. She graduates from MIT in 2005 and becomes the Founder & CEO of Nanda Home, Inc. to officially design, engineer, manufacture and sell Clocky worldwide. She operationalizes and launches Clocky in late 2006, a year before the global economic recession starts.

I am very inspired by Nanda for a few reasons. The name of her company is not linked to her flagship Clocky product. This implies that Nanda has a vision for developing more products as Clocky gains credibility in the marketplace. In addition, she doesn’t put her “eggs in one basket” – Clocky is a unique and fun gadget, but may be at risk of being a “here today, gone tomorrow” technology. Nanda has to leverage her expertise with Clocky to build other market-driven products that represent Nanda Home. In 2007, she raises $80,000 in capital prior to launch, and forecasts $1 million in revenue in 2007, $3 million in revenue in 2008 and $4 million in revenue in 2009 (Chafkin, Max. Case Study #1: The Reluctant Entrepreneur. Inc. Magazine, July 2007). Assuming that each Clocky costs $50, her unit projection increases from 18,000 units in 2007 to 72,000 units in 2009. This forecast is created before the global economic recession, so I am sure economic and market conditions have revised unit, revenue and profitability projections for 2009 and beyond.

However, the company is planning on launching two to three more products later this year. Given the company’s lean operating principles, focused distribution strategy and viral marketing tactics, the company has available cash to grow the Nanda Home product portfolio. Now that the buzz is built for one product, a percent of that can be converted into engagement and transaction purposes. Nanda should continue to be focused with her strategic growth in 2010 and beyond.

As my six-year-old alarm, recently under-utilized clock stares longingly at me, even after my fist has come down hard so many times on the snooze button, an early start in the morning will be better accompanied with a little inconvenience brought by Clocky’s moves on the bedroom floor.

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Case Study #16: Under Armour Huddles Up to Score In the Athletic Footwear Category

Recognizing his flair for entrepreneurship by profitably selling t-shirts in college, founder and Chief Executive Officer of Under Armour, Kevin Plank, decides to take his business vision to another level. He ideates about a t-shirt that doesn’t hold the weight of moisture created by perspiration. As a football player for the University of Maryland Terrapins, he knows this technology will improve athletic performance by regulating the athlete’s body temperature on the field. His initial financial investments and countless hours of generating positive word of mouth from the athletic community pays off. Founded in 1996, Under Armour, Inc now develops, markets, and distributes performance apparel, footwear, and accessories for men, women, and youth primarily in the United States and Canada. It offers products made from moisture-wicking synthetic fabrics designed to regulate body temperature regardless of weather conditions. The company provides its products in three fit types: compression (tight fitting), fitted (athletic cut), and loose (relaxed) extending across the sporting goods, outdoor, and active lifestyle markets. Last year, Under Armour, Inc. generates $720 million in revenue and $38 million in profit, a 20% increase in revenue from 2007, but a 27% decrease in profit since 2007.

The Under Armour, Inc. operational strategy, from its product development process to retail operations to marketing touchpoints, is impressive. Under Armour is an inspiring brand, and its products are worn by everyone ranging from professional ball players to baby boomers.


Early in 2008, Plank announces that Under Armour will enter the mass footwear market, saying that the company will spend 12-13% of its marketing budget on the “The New Prototype” marketing campaign. The shoes cost between $80 and $100 (Sharrow, Ryan. “Shoe launch and ad blitz 'critical' to Under Armour growth, Plank says” Baltimore Business Journal January 2008). While the company recognizes an incremental revenue stream from the sales from its footwear line, it does so at a high cost, particularly in selling, general and administrative expenses.

Since 2004, athletic footwear consumption in the U.S. declines from 361 million pairs to 334 million pairs in 2007 (Shoe Stats 2008, American Apparel & Footwear Association). That is a 7% decrease in consumption. The consumer price index (CPI) of footwear increases from 188.9 in 2004 to 207.3 in 2007. That is a 10% increase in CPI. During periods of economic growth, inflationary pressures impact all points in the supply chain. Given a low unemployment rate during that period, customers can bear retail price increases depending on what they expect from wage increases. However, most people do not wear athletic footwear all of the time, so the replacement cycle is longer on athletic shoes than other shoes worn at a higher frequency. Other footwear categories that show decline in this category are slippers and rubber/plastic shoes (used occasionally than every day).

Perhaps the launch of the Under Armour footwear line-up isn’t timed perfectly as athletic footwear consumption is most likely lower and CPI is higher in 2008. To offset industry and economic pressures, the company deploys aggressive push marketing efforts to drive sales at the retail level. It commands strong year-end revenue for 2008, but there is erosion in profitability. A company with inspiring entrepreneurial roots and a sustainable long-term vision can evolve a strategy as it relates to future market and economic trends: “We took a fairly aggressive approach to the running footwear market in Year One and now that we are here, we have a better understanding of the things that we did right and certainly some opportunities to improve," says Plank (Walker, Andrea. “Under Armour taking new look at running shoes” Baltimore Sun July 2009). Many of the changes in the shoes will not be seen until late in 2010 or early in 2011 – Perhaps the company forecasts U.S. athletic footwear consumption to rebound at that time; Under Armour will be fully prepared to compete with a more streamlined cost structure against other athletic shoe manufacturers.

As Under Armour, Inc. huddles up to determine how to handle their game plan for their footwear lineup in 2010 and beyond, I am sure our feet will look forward to some well-designed armor as they pound against the pavement.

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