AirMiles: marketing prehistory

The term prehistory usually describes that (long) period in human evolution before written history became available. That is, before writing was invented. Figuratively speaking of programs that are entirely obsolete, I argue that marketers can discover marketing prehistory in Toronto, Ontario. The sad thing is that - unlike archaeologists - marketers can see prehistory directly; they do not need to dig underneath the earth. For instance AirMiles, a database marketing program so badly conceived and executed that it belongs to bygone ages of marketing.

What is database marketing?

The advent of industrialization and mass production imposed on marketers the challenge of mass marketing. Personalization, an essential characteristic of good marketing, was lost because marketers had to sell undifferentiated products/services to huge numbers of customers. Later on, computers helped reinstating personalization through database marketing. With it, each customer had her own computerized and readily accessible record and could be offered as good a personalized approach as that of Mom and Pop's stores.

NB: database marketing is not fake personalization. It merely extends the individual's natural information storage capacity (what we call memory) and ensures that everyone on the marketers' side has access to the same wealth of customer knowledge. However, the computer is only an instrument; it needs to be instructed what to do because it will never invent something on its own. So, the ball is still in the marketers' court.

There is a plethora of database marketing programs out there. Credit cards, airlines or hotel chains are well-known examples of companies offering programs that entice customers to exchange benefits with voluntary participation in database marketing programs. Since in the world of consumer benefits discount price is the undisputed king, it is no wonder that the best marketers tied database marketing to discount pricing.

Why is AirMiles prehistory?

Database marketing makes sense only when improving customer experience. But, considering only the rewards component, when using her AirMiles card in connection with a monthly budget of $300.00 in groceries and $50.00 in pharmacy products, the average Jane earns about 20 points a month. In order to trade a two-slice toaster (at 500 points), she needs to spend about $8,000.00 or wait for more than two years at her expense level - quite a turnoff.

Moreover, Jane only earns points for full $20.00 chunks spent. At the end of each week, the marginal fraction under $20.00 is discarded. The program combines lack of incentives with unnecessary meanness. Marketing would fare better without AirMiles.

How real database marketing works

For ease of comparison, the examples are limited to grocery and pharmacy shopping in the Washington, DC metro area.

Giant Foods' BonusCard and Safeway's Safeway Club

• Incentives: substantial instant cash discounts on lots of products. Savings show up on the receipt, both for the day's and year's purchases.
• More incentives: card, manufacturer and in store discounts add up. The stores even double manufacturers' discounts. How does 50% off sound?
• Being nice to customers: in theory, getting the discounts is tied to using the card. In practice, if you fail to present your card the cashier scans a dummy card for you. This way, you still get the discounts even though you pass the benefits of personalization.
• Maintaining the database in good health: a product mispriced in the cashiers' database - compared to the isle price tag or the weekly flier price - earns the customer an extra product for free, without any question asked.

CVS/pharmacy's ExtraCare

A marketing queen: good database marketing programs embed good marketing practices that in turn retain satisfied customers - and such is the case with ExtraCare. As the program promised, after shopping and using my card for a while I received personalized offers in the mail. I was offered further discounts on items I shopped most. Once, after tendering no other payment than discount coupons for my purchase it resulted that CVS/pharmacy still owed me a balance. To the cashier's glory, she did not falter and did not ask the manager to solve this complex problem. She just opened the cash machine and handed me the change. A marketing queen that cashier!

A less than free market

With marketing knowledge lacking, both companies and customers fare worse - no company has ever prospered without making its customers happy. Giant Foods, Safeway and CVS/pharmacy are good because they compete shoulder to shoulder in the Washington, DC metro area. But in Toronto bad marketing survives because of the market being less than free, lowering every newcomer's prospects - from getting a good job to getting a decent life.

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Having fun again with marketing blunders

Below is an excerpt from a letter I received on March 15 from my building manager. Nothing could have stopped the letter from making its way to the recycle bin, except for a notoriously funny marketing blunder and an instant urge for a new blog post.

Read carefully, you will not get this kind of promise in the mail anytime soon.

Marketers, care should be taken of both your copy and promises! In this case, not only that my suite was not "replaced immediately," but also the "resident manager" did not make any appointment "in the next week or so."

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Having fun with marketing blunders

Guaranteed recipe to obtain a notoriously funny marketing blunder:

• Leave judgment out of the picture
• Focus on warning standards conformity
• Get recognition on night-time shows
• Blame it on "the computer"

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Pricing: a challenge for retailers

One bad marketing experience with Torontonian retailers is pricing. Here is just one annoying example of the retailers' pricing policy. Contrary to anybody's expectations, retailers offer no perceivable per unit price discounts for larger packages. In fact, higher per unit prices are quite common. The following is factual: a .95 liter liquid soap refill sells at $2.99 while a 1.9 liter liquid soap refill (same brand and product, just double the quantity) sells at $7.29, a 22% per unit price increase. Most notably, the two packages sit next to each other for direct scrutiny and comparison on a grocery store shelf.

Consumer benefit is key

One of the greatest benefits that retailers bring to consumers is convenience. Nowadays, nobody will go get a loan from the bank to buy one year's stock of groceries in order to get a price per unit deal. That is, nobody except retailers. If they do it in a professional manner, everybody is better off. Consumers are ready to pay for convenience because they would probably fare worse if doing bulk shopping themselves. But confusion ensues in consumers' minds when they are presented with an alternative where a larger package is more expensive per unit than a smaller package.

The case for logical pricing

Even though consumers might perceive the lower quantity package as a relative deal, it still does not sound right. "If something is not logical, it probably is not true" as an American pop-culture icon puts it. What happens is that if consumers want a larger quantity, they can buy more smaller packages instead of one large package. But why buy more since the lowest price is there, in smaller packages? Not only consumers feel mislead, but also retailers sell less. If retailers sell less, their turnover is bad, suppliers offer less discounts and retailers most probably increase markups. Who benefits? Well, I cannot think of anyone. Thus, retailers have to step in and perform in a professional and logical manner, especially when dealing with suppliers that do not impose advanced and strict price maintenance policies.

A handbook case

Coca Cola is the handbook case of dealing with quantity when pricing groceries. Based on observations, a rule of thumb can be formulated like this: double the quantity, increase the price by half and keep halving the price increases. For example, if a half litter bottle of soda sells for $1.00, a one litter bottle sells for $1.50 and a two litter bottle sells for $1.75. (All are hypothetical and approximate.) This way, the consumer either gets a per unit deal or spends less money on a smaller package. It's her choice.

Among other advanced marketing features, Coca Cola demonstrates mastery in pricing by presenting a crystal clear proposition which is enticing and, by way of consequence, profitable. The interesting thing about pricing is that it can be replicated at no cost (actually at a gain) - there are no barriers to that. But hard and expensive things are there in Torontonian retail (large buildings, large parking lots etc.) while soft and inexpensive features like good marketing still lack.

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Loblaws: a mediocre marketing experience

Recently, we went shopping for groceries and my wife was attracted by an end isle prominently marked "specials". She asked an associate what was the special price of a specific product that the associate was loading onto the isle. The associate told my wife that there was no special price as of that day (a Thursday) but the product would go on sale on Saturday. Then my wife remarked that loading the "specials" isle with products that sell at regular price was misleading. To this, the associate replied that there was no price tag affixed to that product yet and so, it could stay on the "specials" isle.

An issue with customer relations

Not that my wife needs any help, she is a real marketing professional, but I need to vent my frustration because negative marketing experiences with Loblaws are quite recurrent, not only in time but also across locations in Toronto. When replying to a client's concern, there is only one phrase that makes you stand out as a marketer, no matter how big or small your business is: "Thank you for bringing it to my attention. I will remedy the situation immediately." When followed by the promised immediate remedy, the phrase works wonders. There is no conceivable reason not to tell your client: "You are right." After all, she pays your salary.

An issue with promotions

I am bringing to your attention an interesting webpage on a Government website. It is a no-nonsense "Advertising Do's and Don'ts" compiled by Canada-Ontario Business Service Centre (COBSC), © Queen's Printer for Ontario, 2006. Here is a link to the webpage. I will let two excerpts speak for me; maybe the government is more persuasive than I am, although it shouldn't.

• "Don't use the words "sale" or "special" in relation to the price of a product unless a significant price reduction has occurred."
• "Do ensure that your sales force is familiar with these "Do's and Don'ts". Advertisers may be held responsible for representations made by employees."

Besides, when Loblaws loads the "specials" isle with regular price merchandise, it also takes shelf space from products that actually are on sale. Did any supplier notice that?

A long road ahead - time might be short

Let it be stated, my only goal is to see those issues resolved for the benefit of an improved customer experience. Based upon how the associate addressed my wife's concerns, I assume that the road to marketing excellence is a long one, but Loblaws needs to go that way rather sooner than later. If Safeway turns its face to Ontario, time might be very short.

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My family doctor won't discuss philosophy

During the annual checkup, my family doctor asked how my diet was going lately. I answered that, although I am 100% favorable to healthy eating, I am not eating totally healthy because I feel bad about being penalized for it. "I have a problem with spending more than I can afford just for the purpose of being a healthy eater," I said. She replied that it is only natural for produce (the number one example of healthy food) to be more expensive in winter because it is being shipped from farther South, that we should sacrifice money for our health and that she did not intend to further discuss philosophical matters with me, period. Because my doctor won't listen, I will discuss philosophy with you.

Should produce really be more expensive in winter?

Let me begin by exploring my doctor's assumption that the difference in produce prices between winter and summer is explained by local scarcity caused by unfavorable weather conditions (the dreaded Canadian cold). At that point, warmer climate produce growers step in to bridge the demand gap, but consumers have to bear additional shipping costs.

When trying to isolate the influence of transportation costs, my grocery store's pricing does not verify my doctor's assumption. During my frequent shopping trips I observed that Ontario‑grown produce is the most expensive and, despite additional shipping costs, Mexico‑grown produce is the least expensive. California‑grown produce prices come in between. It really is not important where produce comes from.

Further analyzing the idea of seasonal scarcity, I took a closer look to my tomatoes. They are hydroponics. No soil, no sun or natural heat is involved in their production. With a little research, I learned that higher energy costs required by hydroponics are widely balanced by savings on watering, pesticides and by much higher efficiency. Most importantly, hydroponics can be grown year round almost anywhere. So, where does this scarcity idea come from?

Should I be penalized for eating healthy?

Contrary to my doctor, I believe assuming that my grocery store uses a cost‑based pricing strategy will lead nowhere. Pricing is exclusively about what is in the (final) consumer's mind. What I believe is that my grocery store plays the game of scarcity. In order to charge me more, my grocery store wants me to think that produce‑growing has remained a seasonal business.

In my opinion, it is a counterproductive game. Why? Because if my consumer mind tells me that produce is seasonal, I will eat less of it during winter - substitutes are all around. It is also a bad game because higher markups don't automatically mean higher profits. Take a look at the automobile industry: you might think that expensive brands boosting high markups are highly profitable but they're not. Today Jaguar or Mercedes are just names, the companies that created these brands no longer exist. The companies that bought and own these brands today - Ford and Chrysler - simply fare better selling popular cars. Take another look at examples of companies from other industries that lower prices only to fly high on wings of profits: Wal‑Mart for retail, Dell for computers or McDonald's for foodservice.

If, following my championing of lowering prices, there is any doubt or argument about quality in your mind, I will just point out what everybody knows: the quality of my healthy food is far from being outstanding. Both fruit and vegetables are meager in taste and languish in my grocery store's isles in a state that evolves directly from unripe to rotten. It is a serious setback from the seasonal production's past times that only supports my initial argument about being penalized.

How to price for healthy profits

Doctors strike the final blow: they call for legislation curbing advertising for unhealthy food. They make it look as if the gain from lower quality food's lower cost is funneled into advertising. To the contrary, because of the serious misperception that people willingly chastise themselves, healthy food just fares worse than unhealthy food. It does not make economic sense to limit profits by obsessively marketing to a converted elite. Sooner or later, someone will lower prices. In an increasingly competitive setting, exacting higher markups is not a good idea, as substitutes are plenty. Compare Dell to IBM and Compaq: Dell's strategy to invest in just efficiency will only be beaten by a competitor able to sell better products at even lower prices. And, by the way, if advertising is curbed, the price of unhealthy food will go up and we will all end up poorer.

The truth is that, irrespective to the product sold, there are good marketers and bad marketers. On the one hand, carbonated beverages are an excellent example of good economic sense: there is no price premium for sugar substitutes sweetened sodas. Instead of trying to penalize consumers that wish to avoid sugar, soda manufacturers try to attract them. On the other hand, certain product lines targeted to diabetics outrageously double or triple the price just for substituting sugar with artificial sweeteners. For everybody's sake, my grocery store should start playing the game of making itself attractive to customers.

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Joseph Shepard's turning point of history

Television channels are in the course of presenting what they name "turning points of history." We would like to share a different vision on which past events influence our present lives and which do not. We are not historians and, at least for that matter, neither can we back our vision with exhaustive research, nor can we suggest impartiality in our findings. But alternative approaches are always beneficial.

In truth, one might find it difficult to isolate specific events - developing at specific days, hours and places - that bear consequences for centuries to come. Obviously, 20/20 hindsight helps a lot. Even so, it is quite hard to ascertain which specific action generated a stream whose flow later generations cannot escape. Instead of isolating events, we prefer to isolate tendencies, ideas, fashions (yes, fashions) that bear fruit in communities and generations.

We also differ in allotting politicians and their perennial actions - wars, oppression, taxation, pointless spending - the upper hand in determining the future course of our lives. We think that facts bringing improvements are more consequential than those causing destruction and suffering. Thus, we allot the front stage to non-political figures: business people, academics, artists and so forth.

A note: two contrasting examples

To fully understand our vision, think of two examples: the Great Chinese Wall and John Nash's contribution to game theory.

• Historians and laypeople alike marvel at the Great Chinese Wall but they all fail to acknowledge that such a colossal effort imposed by Chinese kings depleted China's resources and led the way to centuries of Mongolian occupation. In the end, why was the Wall built?
• John Nash's contribution to game theory - which he described as his "most trivial work" - steadily developed into a multitude of economic applications that improved our lives in various fields. "A Beautiful Mind" indeed.

A humbling example of what a turning point of history is

In the the early to mid eighteen hundreds, local Torontonian business people turned a page in Canada’s history when they began providing to their neighbors, rather than just exporting raw goods over to Europe. In precarious circumstances, they were building what today has become a cherished place. It was a moment when Canada "stood on its own ground," because it started thinking of itself as of a "home." Joseph Shepard is totally suitable to personify this turning point of Canada's (or Toronto's) history because he started as a fur trader and ended up as a settled land owner on the banks of the Don River, where he owned and operated a number of mills that supplied lumber and flour locally and across Canada.

Today, the land the Shepards owned and the surrounding area are home to many and resting place to many others buried in the beautiful York cemetery. The Shepards left three houses to Toronto, two private dwellings and a place of business. The latter one, the place of business, is an appropriate shrine for Toronto's past and future. Torontonians preserved it and created the peaceful Dempsey park around it.* Finally, Joseph Shepard left his name to an important street in Toronto (North York); one street less to bear the name of a politician - governor or prime minister - in Ottawa.

" ... an appropriate shrine for Toronto's past and future."

Included is a picture of Shepard son's general store, later known as "The Dempsey Brothers Hardware Store". It was built in 1860 and it stood on the corner of Yonge and Sheppard streets until 1996 - a business landmark in the community.

The Shepards built on a scale commensurate to their earning power and got their money by way of serving others, not of taxation. They helped establish a community that today many wish it were theirs. This was the turning point: unassuming people created a new home out of wilderness with just the determination to find their way.

*Notes: A future post will be dedicated to Toronto's parks, a defining feature for the city.

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Enbridge Gas Distribution: the second worst in marketing

Why is that?

On economics grounds, the answer is simple and straightforward: because the company that distributes natural gas to residential, business and industrial customers in Ontario is a government-fostered monopoly.

How does this translate into a marketing nightmare?

To make my point, I will just mention two of their "marketing" techniques.

• First, they overcharge on suspicion of underreported gas consumption. "The computer" does it without probable cause i.e., nobody bothers to check the meter prior to slapping the overcharge.
• Second, they impose a monthly service fee named "customer charge" on the heating bill. The fee is due even in summer, despite no actual gas consumption. As a consequence, service fees amounted to three quarters of my 2004/2005 heating bill while service fees incurred during summer alone amounted to one quarter of my bill.

How does it compare to the worst in marketing?

There is worse than that. The worst experience in marketing is government. Consider government-owned television and/or radio stations: although most of them derive income from private advertisements they also get government subsidies, collected through taxation.

Yet there is more: even if you chose not to watch government broadcasts, you have no way to opt out, you still pay the tax. In order to increase the tax base, one particular government linked the tax to each electric service account and charged a recurring fee. Under the circumstances, electric service accounts opened for stables or family crypts bore the tax too. Even animals and dead people could not escape the "television" tax!

Why is it so absurd?

I need to reiterate - because I tend to forget - that free exchanges are the substance of my living better. On the one hand, I get what I think is the best value at the lowest price available for each "dollar" I choose to spend. On the other hand, the easiest way for me to get "dollars" is to serve others with whatever they decide I am the best at.

The principle of free exchange is recognized by the law - you have to pay me for my work. The reverse stands true too - you have to deliver for my payment. Thus, there is no exchange unless it is a "free" exchange, by way of parties' choice and consent.
In a situation where you are forced into paying for getting nothing in exchange, a question arises: why did your freedom go away?

Why does the worst of marketing perpetuate itself?

Should your first thought go to marketing mistakes or incompetence, dig underneath! It is the deeper strata of economics that hold the ore of truth. No marketing mistake can survive indefinitely in a world of free exchanges. The power to perpetuate abuse comes from government backing. Read the Ontario Ministry of Energy's explanation on why you have to pay Enbridge Gas Distribution "customer charges" even without actual gas consumption.

"In most cases, utilities have to perform regular activities such as meter reading and billing for each customer. In contrast, other retail businesses such as grocery stores and gasoline stations do not install any facilities dedicated to individual customers, nor do they perform regular activities for them."

Who would take such an explanation if it didn't come from the government?

Please check back for new posts about an immigrant's life in Toronto.

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