HMV: If you don’t fix it, you’ll end up broke…

The name Margaret Anne Lake might not ring too many bells. But if you were in the UK towards the end of the twentieth century, you’ll be familiar with her alter-ego Mystic Meg.

Having made her name as an astrologer in The Sun, Meg was catapulted into the national consciousness when she was given a slot on the fledgling prime time National Lottery draw programme.

In an attempt to build excitement and pad out an event that took two minutes to complete, Meg was brought in to ‘predict’ the winners.

Her predictions were suitably vague.

The norm was something generally along the lines of “the winner would live in a house with a 3 in the number, in a town beginning with L or M and have bought their tickets from a woman.” with a sprinkling of astrological terminology for extra authenticity.

However it would seem that back in the mid-to-late 1990s Meg wasn’t the only one struggling to see what the future held. Far away from the glamour of TV, a number of well-paid businessmen were busy making decisions that would see their organisations squander their dominant positions.

And a couple of weeks ago, after struggling along for years, both HMV and Blockbuster UK, once leaders in their categories, hit the buffers and called in the administrators.

Bad Advice

The wisdom ‘If it ain’t broke, don’t fix it‘ is relatively modern – it dates from 1977 – and was attributed to businessman Bert Lance in the May issue of the magazine Nation’s Business.

The phrase caught on, partly because it made a point in a catchy way. But like many wisdoms, it doesn’t tell the whole story.

Just because something works now, doesn’t mean it always will. And those in position of responsibility have an obligation to future proof their organisation.

Back when Mystic Meg was in her pomp, the digital revolution that helped bring about the demise of both retailers was in its infancy. But signs of its potential were there, particularly for HMV.

The first was how people acquired their music.

Software that ripped files from physical storage, coupled with faster web connections, gave birth to peer-to-peer sharing. Programmes like Napster, Kazaa and Limewire removed the need for physical reproduction and distribution.

The whole entertainment industry never really came to terms with illegal downloads, opting to use legal threats and emotional blackmail, rather than adapting their businesses to meet the demand.

In reality, not all pirated content would ever  have been bought legally. Peer-to-peer applications offered users the freedom to sample new artists they would never have paid for and get digital versions of music they already owned physically, easily and without it costing them money.

One of the reasons people wanted their music digitally is the second reason the digital revolution helped bring about the demise of the likes of HMV – the way people consumed and stored music.

The emergence of the digital music player, culminating in the release of the iPod in 2001 meant that people also wanted their music in a new format. They could now store their entire collection on one machine.

When people had upgraded their vinyl to cassette, and then their cassettes to CDs, HMV had been in pole position and reaped the profits. However a digital format didn’t require physical stores and HMV didn’t react. Their model was suddenly ‘broke’, but they didn’t realise in time to fix it.

Avoiding failure

Can such demises be avoided? The future is notoriously hard to predict, but there are some guidelines that can help companies avoid suffering a similar fate to HMV.

1. Be alert to new and niche competitors

Back in the 1980s and 1990s, HMV may have considered their competition to be the likes of Tower Records, Virgin and Woolworths. When they all disappeared, it might have seemed that HMV had won the battle. In reality they were all killed by the same bullet. The game changed as companies diversified.

Back in 1981, following a dispute with Apple Corps, Apple Computing agreed not to enter the music business. Now, iTunes offers over 28,000,000 songs.

Just because someone isn’t a direct competitor now, doesn’t mean they never will be.

2. Keep an eye on the Path to Purchase

HMV didn’t suffer because people suddenly stopped wanting to buy new music or watch films. What changed was how people acquired their material.

Online downloads provided a new way to access digital music. For those who wanted physical media, Amazon et al provided an alternative way to buy CDs and DVDs. Now that nearly 80% of UK households have broadband connections, consumers can stream films at the press of a button or watch a dedicated Movies channel.

Sometimes people will still want physical media immediately, but just not often enough to sustain a business as big as HMV.

3. Understand the next generation

Many years ago, I worked in Woolworths. A large proportion of the music we sold was to youngsters spending their pocket money on their latest idol. While online might have been niche in the mid-to-late-90s, the youngsters of today have grown up with it. As a result, consumers under 35 won’t have had the opportunity to develop an engrained habit of buying their music in physical stores like HMV. Buying entertainment online is no longer an alternative, but the norm.

4. Play to your strengths

While online retailers can offer lower prices and a wider catalogue, physical retailers offer immediacy and have the opportunity to provide enhanced in-store engagement.

Shoppers want convenience, value and experience.

Browsing for and buying music, film and computer games ought to be a fun, pleasurable act. Online shopping will continue to grow across pretty much every category. Physical retailers need to understand their role in fulfilling shoppers’ needs. Sometimes it will be about delivering the product quickly and easily, but sometimes it will be making the act of shopping an enjoyable experience that merits a slight price premium.

5. Be prepared to change

Taking all of the above into account, it might be easier to spot how a business structure that is dominant now might not be so successful in the future. It is often said that defending a title is harder than winning it in the first place.

However, it can be done.

McDonalds have long dominated the fast food industry. Just over a decade ago, their restaurants were tacky red and yellow places with plastic seats.

Yet they saw that their competition was no longer just the likes of Burger King, but also other food outlets and increasingly the likes of Starbucks et al who offered a more pleasant in-store experience.

Now their outlets have all been refurbished with designer furniture and offer free wifi.

They also observed other trends that would impact them. From obesity to ethical sourcing of produce and packaging, they adapted their business to stay one step ahead.

Their menu still offers the old favourites, but also includes lighter options. Their burgers come from British and Irish farms and much of their packaging is made predominantly from recycled materials.

As a result, they are still thriving on the high street.

How brands dealt with Hurricane Sandy

Hurricanes can be a horrible business. Before Sandy, Zeitgeist remembers being in New York on a work placement during the East Coast blackout of 2003. It was a necessary reminder of just how many things rely on electricity. In mid-August, air conditioning, a constant presence year-round in New York, vanished. Cell phones quickly died a death without anywhere to charge them. Hot water shut off, before cold water did too. And of course, without refrigeration, restaurants across the city had to abandon serving customers even as they dumped food they could no longer preserve. So it felt like one of the nicest treats ever when, after 36 hours of experiencing no electricity, Zeitgeist plonked himself down at one of his favourite eateries to indulge in a humongous lunch. There is something very therapeutic about the act of consuming a good meal. As Virginia Woolf said, “One cannot think well, love well, sleep well, if one has not dined well”.

Brand communications often generate greater engagement when they leverage topical events, but must tread carefully when it comes to occasions such as this. It was probably with Woolf’s quotation in mind that the people behind the eCRM programme for the elite diffusions of the Michelin-adorned chef Daniel Boulud sent out this comforting email (above) to those registered on its database, saying basically that their services were available for those that felt up to it. Zeitgeist thought it was a nice note, and importantly written in an appropriate tone of voice. Certainly those establishments that were able to be open saw a surge in business. Indeed, this evening sees the Cafe Boulud team with chef of currently-closed momofuku to create a $500 six-course extravaganza, proceeds of which go to the American Red Cross. The Metropolitan Museum of Art opened its doors again on October 31, welcoming over 13,000 people and making entry free. An email from the President of the Museum to friends and members made a show of solidarity and pushed the right buttons.

Other brands also wishing to remind potential customers of their presence during the immense disruptions and terrible circumstances of Hurriance Sandy met with more vociferous reactions, especially on social media. Despite a recent article from the FT imploring businesses to think twice before they tweet, it appears to have gone unheeded, at least by the likes of Gap and American Apparel. Again, it was not necessarily the content, but the tone of voice that was so important here. American Apparel suggested you might be “bored in the storm”, which quickly led some to conclude that the brand was trivialising what was happening, i.e. that lives had been lost and that many were without power. Gap tried a slightly different similar tack. They offered no discount but instead talked up the fact they were shopping online, and, while hoping others were ok, wondered if some other people were also surfing gap.com. Again, this met with much consternation, particularly on Twitter.

Starbucks, meanwhile, managed a more disciplined approach. On Twitter, they reiterated again and again that their thoughts were with those affected by the storm, and that they were working as hard as they could in order to get back up and running again so they could start providing a service for YOU. They weren’t saying anything drastically different to the retailer brands above, it was all to do with the way they were saying it.

The most surprising action taken by a company in response to Sandy was by none other than Goldman Sachs. The business opened their offices to all and sundry afflicted by the disaster, setting up places for local afflicted denizens to get fresh water and, perhaps more importantly for some, to charge their cellphones. What a nice bit of brand-building, and a great humanitarian thing to do as well.

UPDATE (12/11/12): brandchannel recently featured an excellent update on how multiple brands are responding to the ongoing problems caused by Sandy.

How fast-moving do you want your FMCG?

Starbucks vs Coke – This image first appeared online several weeks ago now, but Zeitgeist loves it so much that we wanted to post it too.

A great, highly-targeted ad that recognises the importance of context and attempts to address and question just what it is the shopper is looking for, sheer convenience and brevity, or a slightly more indulgent experience, which involves queueing. Inspired.

Where Next for Starbucks?

Zeitgeist first remembers popping into a Starbucks way back in March of 1999, in the wintery plains of Canada. Back then it was seen as quite an exciting prospect – especially for a Briton – to have the chance to sample a Starbucks coffee. How times change. Now they are everywhere, and the homogeneity and abundance has become such that they have taken to individualising some stores, first in New York in the summer of 2009, and more recently at the store that sits near Harrods in London’s Knightsbridge area.

As we noted not long ago, Starbucks recently underwent changes on a more macro level, altering its logo by removing the word “coffee” from it. The Starbucks promise is about “more than just coffee”. This means it’s about the atmosphere, the service, the experience. But it also means that the brand has free rein to evolve, to move into offering other services. Recently, the well-respected design agency Wolff Olins featured an article on their blog reporting on Tesco’s newest venture: getting into the world of second-hand cars. The short article astutely points out that brands are “defined less by what they do, and more by what they believe”, so it’s not unreasonable to think that Tesco could move into such an area, despite being known mostly for their grocery offering.

It’s entirely the same situation with Starbucks. Their brand is so strong (note ‘strong’, not ‘loved’ – Starbucks, like Tesco, is far from universally adored) that it can now make lateral bounds into whole other areas of industry if it wants to. And while the above ad that Zeitgeist just watched in the cinema may be about coffee, what’s it’s also showing is how the brand makes the customer happy. There’s a lot of room for manoeuvre there. Watch this space…

The Starbucks-isation of Tobacco

Brand minimalism, behavioural economics and government regulations converge.

Earlier this month, Zeitgeist reported briefly on the impending change to the Starbucks logo. From all the editorial ink spilled in newspapers and online, around the world, you’d have thought something momentous had happened (involving Roger Federer). In said article, we linked to a page that discussed and illustrated concept designs of minimalism versus maximalism, for various well-known brands.

What if, however, instead of a client whim, the government stipulated that your product’s packaging had to be devoid of any colourful illustrations or wry epigrams? For the world of tobacco, the abstract implication is a very real possibility. We know from behavioural economics 101 that even the mention or depiction of a cigarette – no matter the context – will make the UK’s 10m smokers inevitably think “Oh, that’s right, I need a cigarette. Now.” So there’s a certain art to making those death sticks attractive, even when stripped down to its barest of bare essentials. From the creative people at design agency Build. Incidentally, The Economist this week features an article on suggestive mediums for tobacco.

Social Media Success & Failure

Learning from brand victories and losses on Facebook, Twitter et al.

Last week, Zeitgeist tried to book a holiday at one of the lovely resorts looked after by the luxury group “One & Only”. This company – which advertises mainly in Vanity Fair and Harrod’s magazine – ostensibly caters to discerning travellers who expect a certain level of service from the place they go to and the people that serve them. On trying to call one of the hotels, no one would pick up the phone, and the call rang off. The same thing happened when Zeitgeist tried again. Zeitgeist fired off a tweet, “mentioning” the company’s twitter feed, alerting them to the fact that a room was in need of booking but that no one was picking up the phone. This was mid-afternoon. At 10pm the next day, Zeitgeist received a private message from the One & Only account:

The only trouble was that the “OOResorts” account was not following Zeitgeist, so he found himself unable to reply. Thus the communication from the account was useless; they either were not social media-savvy enough to know I would not be able to reply to the message without them first following me, or they did not care enough to bother. Either possibility casts the brand in a poor light. It’s far from mandatory to have a Twitter account, but if you are going to set one up, you need firstly to respond to pleas for assistance in a timely manner (within 24 hours), and secondly to know how the platform works. The more equity your brand has (in the case of One & Only, it’s a fair amount), the more it has to lose by making simple errors such as this. In the meantime, Zeitgeist ended up booking a holiday at a different destination with a different company.

Starbucks, by comparison, although seen as a pin-up boy for the creep of homogeny in a globalised world, for the most part has done an excellent job when it comes to courting fans and maintaining a good PR stance on multiple subjects. This was the case again on Monday when it offered free coffee all day to UK customers. Zeitgeist found out about the offer through Twitter, but there was also an event on Facebook. A voucher could be downloaded and easily printed out or merely shown on your phone to your local barista. Now, the key here was, unlike the unpleasant (but free) glass of wine that Zeitgeist was entitled to upon checking into a restaurant on Foursquare at the end of last year, this coffee blend was delicious, it was not the sludge one would expect from an item that is free. That is because Starbucks realise the point is to use the free coffee to encourage future use; for newbies to think “Oh, their coffee is actually pretty good” – it’s not a throwaway gimmick. (It’s also so that people, when in the store collecting said coffee, will indulge in a muffin or some other accompaniment.) Good thinking, guys.

Brand minimalism

When is less, more? Some brands could arguably benefit greatly from a scaled-down facelift, removing all but the most basic artwork from the brand or the packaging. But change can be dangerous, and unwelcome. Certainly retailer Gap had to return to consumer cap-in-hand when they attempted to fiddle with their logo. And now Starbucks, the ever-present coffee store, has also decided to alter their logo, removing the words “Starbucks Coffee” from it for one thing. What do you think?

Out (of pocket) for a byte to eat

“One cannot think well, love well, sleep well, if one has not dined well”, wrote Virginia Woolf. A friend of Zeitgeist’s is coming to town on Friday for what will surely be a sybaritic weekend. For the first time, Zeitgeist found themselves on Toptable booking dinner at a very nice restaurant nestled in London’s Mayfair district. The reservation came with an offer of 50% off the usual a la carte menu price. What had Zeitgeist done to deserve this? Nothing. So what is in it for the restaurant? See previous answer, perhaps. As any Toptable devotee knows, offers like this are plentiful, and reflect the state of the restaurant industry as a whole, particularly in the premium sector.

Zeitgeist was walking in Notting Hill about eighteen months ago with, as it happens, this same friend. We happened to pass Nicole Farhi’s restaurant, which sits next to a Daylesford Organic. Both were teeming with people literally overflowing into the streets enjoying their expensive brunches. “Credit crunch, what credit crunch?” my observant friend quipped at the time. It was hard to disagree. The numerous plates of food and cups of coffee being consumed by these Chloé- and Zegna-wearing denizens were totally out of sync with the times. Perhaps what these people had been doing though is downtrading. Instead of going out somewhere special for a dinner, they had instead chosen to go somewhere more informal for brunch. Or perhaps instead of going away on holiday for a weekend break, they had decided to stay at home and enjoy the fruits of London. This is an anecdotal example but the argument is supported by the reams of analysis conducted by those boffins at places like Forrester and Datamonitor; JWT’s AnxietyIndex wrote in May “Ostentation is out, practicality is in.” Witness brands like Starbucks and Louis Vuitton.

It’s this lack of ostentation and sense of frugality (which, for the most part, still pervades) that perhaps explains why, writes The Economist, “Visits to posh restaurants in America declined by 15% between May 2008 and May this year… Fast-food restaurants, on the other hand, saw traffic decline only 2%.”. It would be nice to know how a “posh” restaurant is defined, but otherwise it makes for an interesting statement. The decline at both ends of the dining spectrum lends credence to the notion that there is a “cocooning” going on where people are quite happy to order in or to cook their own meals, surrounded by their HDTVs and microwaves. Clearly though it is the high end that is fairing particularly poorly.

The article notes that Restaurant Week – held during the dog days of summer in Manhattan, when the city fills with tourists and any sensible residents have escaped northward – lasts for six weeks this year, and notes that the 21 Club “usually sees its business increase by around 25-40%” during the Week. So, similar to Taste of London, the event must attract those who would not usually consider dining at such a place (for such a price). Are these the customers the restaurant wants though? No mention is made in the article as to retention rates. As pointed out in the Wall Street Journal, (which contains details of several interesting promotions),

“‘Having dollar menus and value menus has become unsustainable, from an operating profit standpoint, so restaurants need to be able to establish consumer continuity with loyalty programs. Instead of getting customers in three or four times per year for special events, they need to get them in two to three times per month,’ says Burt P. Flickinger III, managing director of Strategic Resource Group, a consumer consulting firm.”

The industry has had to adapt though as the Internet plays an increasingly dominant role in people’s lives, not only exposing the consumer and restaurant to every bad review detailing every morsel of undercooked food and every supercilious waiter, but also forcing the establishments to adapt to people’s psychology when shopping online, which mostly falls under the category of ‘bargain hunter’. A similar thing has happened with high-end fashion. Members-only sites offering significant discounts on luxury brands have sprung up everywhere. The Economist reports that two of these, Gilt and Rue La La, have begun offering restaurant discounts as well:

“Gilt, for example, recently sold a four-course meal at the Tribeca Grill, a restaurant owned by Robert De Niro, an actor, for $160 (36% off). Shopping sites like these attract image-conscious restaurants, because only the site’s members can see that the restaurant has started to offer leaner prices.”

The other lure for the restaurant in this case is knowing that those whom the offer will be seen by are likely to be a suitable target audience for your establishment; at the very least a more specific one than might be found on somewhere like Toptable. These restaurants are innovating (mostly because they have to). The prospect of drawing crowds is an attractive one. Sites like Groupon offer significant discounts on meals, but which only become active once enough people have signed up to the offer. Foursquare similarly relies on encouraging a group of people doing virtual battle in order to obtain a mayorship that grants them free coffee at Starbucks or free champagne and a great seat at Galvin’s Windows. In the long term, having offers that keep the customer loyal (and accustomed to a consistently-priced menu) will hopefully, for the sake of the restaurants, trump the savage discounting some have become imbroiled in. For Zeitgeist, value-add to the proposition is far more attractive than saving on a regular meal. Let’s hope others think the same.