We’ve heard some good news from the beleaguered on-line retailer Amazon for a change.  The company lost $35 million in the third quarter of this year, just 1/5 the loss from the year before, and analysts expect Amazon to report free cash flow (cash from operations less capital expenditures, money spent on buildings, machinery, etc., to run the business) of $110 million, meaning, says a senior credit officer at Moody’s Investors Service, “the company will be self-sustaining.” 

In an extensive article on the company, The Wall Street Journal credited the Amazonian turnaround—and we use “turnaround” very loosely here, after all, it still has yet to earn a sustainable or, for that matter, substantial profit—with strict adherence to the Wal-Mart cost-management model.  Wrote the WSJ: “Discount retailers such as Wal-Mart Stores Inc., continually lower prices by squeezing inefficiencies from their operations, sacrificing fat profit margins on products in favor of selling in high volumes.  By adopting this strategy, Amazon appears finally to be doing what industry officials have long said the Internet would allow retailers to do—drive down prices aggressively for consumers.” If we could qualify that statement, drive down prices and stay in business.

Jeffrey Bezos, Amazon’s affable founder and CEO, decided that the company would “relentlessly” work to lower prices, rather than raise them, and if you want to be low price you have to be low cost.  So a la Wal-Mart, Amazon has taken steps to ensure cost-efficiency.  Customers now have the option for free shipping if they are willing to wait a few extras days for their order, allowing Amazon time to consolidate orders and save on shipping costs.  Other measures have helped to decrease fulfillment costs from 15% to 12% of revenue in 2001.  As costs came down, discounts went up.  Sales have grown, but profits remain elusive.

Though Amazon management might believe they have found the answer to their profitability problem in Wal-Mart, there is a lot more to a business strategy than cost controls.  Wal-Mart, to our way of thinking has a clear target and positioning.  They market primarily to price-conscious mid-middle class consumers in smaller and mid-sized towns and clearly communicate that they always offer low prices.  Amazon, on the other hand, still has yet to define a clear target or positioning—only management’s rhetoric about discounting offers any insight its strategy.  Is the target price conscious consumers?  Book and music lovers?  One-stop shoppers?  Convenience-seeking shoppers?  Its holiday advertising campaign featuring difficult shopping situations and promising free shipping seem to indicate the latter.

How about positioning?  Is the positioning low prices? Convenience? Selection?  All are offerings highlighted on Amazon.com.

The fact that, according to analysts, few customers seem to be migrating to Amazon competitors such as Buy.com though they are offering even lower prices than Amazon on similar items and free shipping, says to us that there’s something else about the company that’s attracting customers.  We suspect the key to profitability for Amazon lies in relentlessly investigating what that “something else” is and building on it that rather than relying solely on the cost-side of the business. 

Much has been said and written about integrated marketing communications (IMC), the joint planning, execution, and coordination of all areas of marketing communication, but not so much has been done at companies to make the promise of unifying communications efforts a reality.  Sure, IMC makes sense rationally to marketers—delivering one message consistently across all mediums improves effectiveness, efficiency, and marketing program performance.  But even just thinking about dragging advertising, PR, direct, promotions, merchandising, channel management, sales, etc., etc., out of their separate fiefdoms is emotionally draining.

But some brave marketers have done the unthinkable and pursued true IMC at their companies.  We sat down with one such marketer, Dominique De Celles, Vice President-General Manager L’Oréal Paris Division, L’Oréal Canada, and talked about her experiences integrating the different functional areas of marketing to improve new product success.

Copernicus Mzine: You are charged with launching new products developed by headquarters in France and intended for global distribution into the Canadian market.  Tell us a little about the process you follow.  What do you think your biggest challenge is?

De Celles: When launching a new product in general, we must ensure at least three things. One, that the concept is well understood within the Canadian cultural context. The overall concept may be well accepted but fine-tuning may be required in a tagline, descriptor, etc. Two, that the formula is relevant for Canadian consumers. This may require a use test. And finally, that the creative is well understood and delivers the message clearly in the Canadian context. While creative may be developed for worldwide use, a re-edit may be necessary to adapt to local realities.

Once the decision of launching is solidified through validation of all key elements of the mix, the next step is to establish the launch strategy— product mix (# of SKU`s, shade selection, etc.); the media mix (TV, print, outdoor, cinema); sampling strategy (how, when, where, who); interactive approach (internet strategy, data base management, grass-roots events); PR game plan; pricing strategy; distribution strategy (where do we want to be, what planogram size, what store type).

Our biggest challenge is always to ask ourselves the right questions and to take the time to elaborate the right strategy.

Copernicus Mzine: To more effectively manage bringing new products to market, you decided to take the, we think, unconventional step to truly integrate the different marketing departments—advertising, PR, sales, etc.—all under your control in marketing.  What motivated this decision? 

De Celles: We are a marketing driven organization and believe that it is crucial for all aspects of a new product launch be operated in a fully integrated manners to successfully bring a product to market. Sales, for instance, cannot execute the right commercial strategy (distribution, shelf spacing and positioning, pricing, etc.) without a complete understanding of a product's target and positioning. Integration fosters this understanding.

Our division, therefore, specifically integrates the marketing, sales, and finance functions, all of which embrace our raison d’être—our brands. All in all, this integrated structure forces all functions to work jointly towards one single goal: to build a mega beauty brand in Canada. This structure has enabled L`Oréal to become the #1 beauty brand (15% share) in the Canadian market and the most visible beauty brand at retail.

Copernicus Mzine: Why do you think more companies don't make a similar move to unify advertising, PR, sales, etc., all under marketing?

De Celles: I have no idea why a company would willingly limit its potential to succeed by avoiding this approach.

Copernicus Mzine: Do you think the current structure of marketing organizations, with separate silos and little interaction between functional areas, impedes the success of new products and programs?

De Celles: Absolutely. Without marketing, the sales function is just a "link" to retailers. Without marketing, the PR function is just a "link" to the media and to beauty editors. Without marketing, the finance function is just a "link" to reporting to Corporate.

Copernicus Mzine: If you had the ear of every CEO in the world for five minutes, what would you tell them about structuring their marketing organizations?

De Celles: First, start with the clear vision and conviction that marketing is the single most important element to ensure the long-term success of your organization. By understanding this simple concept, your structure should follow rather easily.

Secondly, make sure that your HR and recruitment policies are marketing driven: whether in commercial, PR, or finance, don’t fall into the trap of hiring strictly "shoe salesmen", PR experts and "bean counters". Hire people with "marketing" minds, who are operational in various fields—i.e., the finance guy should understand sales, the sales guy should understand finance, and the PR guy should understand brand goals.

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Much news coverage has been devoted to the fallout from the recent mid-term elections in the U.S., particularly the state of the Democratic Party.  Speaking objectively, the Democrats did not have much to be happy about after the mid-term elections.  True, they won some important corner offices in states such as California and few seats in contested elections as well, but the Republicans took control of the House and Senate. As voters swept Republicans into office, the Democrats decried their lack of a unified message—or, many have said, a message at all—as the reason behind their debacle at the polls.  Now the big debate among party leaders is what direction to take the party—become more liberal or become more centrist like the Republicans.

Whatever your political persuasion, this is an interesting marketing dilemma.  Most marketers would agree that a brand should offer a compelling reason to choose it rather than a competitor’s; differentiation is key. This might lead Democrats to conclude, yes, more liberal is the way to go. Yet most would also agree that a brand should respond to the needs, wants, and motivations of its customers. This might lead Democrats to say, voters wanted centrist Republicans in office, so more to the middle is the way to go.

We admit we do not have much experience consulting to political parties, but we very much doubt the liberal or centrist positioning represent the best opportunities. Considering only two positioning alternatives with only anecdotal evidence and what appears to be the bare minimum of research is a classic marketing mistake that companies have made with their brands since the beginning of time and the Democrats, it appears, are on their way to making yet again. To be completely bipartisan, the same goes for Republicans who seem to consider conservative or centrist as their only two positioning options. Though it seems to be working for them now, there’s nothing really to prevent the opposing party from usurping it, as Democrats can attest.

Generally speaking, in the face of market challenges, management must consider multiple ways to position a brand in the minds of prospects and rigorously test alternatives (i.e., do more than just focus groups) to find the winning positioning.  This holds true whether you are talking about shampoos or political parties.    

For more insightful marketing discoveries, visit http://www.copernicusmarketing.com/discover/index.htm

Have a hot discovery for our next release? Contact us at info@copernicusmarketing.com

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The American Marketing Association Foundation (AMAF), the non-profit arm of the American Marketing Association (AMA), recently announced its selections for Berry-AMA Book Prize for the top five books in marketing for the past three years.  The AMAF selected marketing works that introduced innovative ideas and greatly impacted the practice of marketing and other fields.  Every marketer on your list should get one or more of the following:

2002 Berry-AMA Book Prize Winner: Driving Customer Equity
By Roland T. Rust, Valarie A. Zeithaml, and Katherine N. Lemon

Counterintuitive Marketing: Achieve Great Results Using Uncommon Sense
By Kevin J. Clancy and Peter C. Krieg

Loyalty Rules!  How Leaders Build Lasting Relationships in the Digital Age
By Frederick F. Reichheld

The Experience Economy
By B. Joseph Pine II and James H. Gilmore

Will & Vision: How Latecomers Grow to Dominate Markets
By Gerard T. Tellis and Peter N. Golder

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