IBDL level 1
Marketing: Place and Promotion
What Intermediaries to Use When
Going International
(Case studies)
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LECTURE LINKS
LECTURE LINK 6-1
What Intermediaries to Use When Going International
It’s one thing to decide to sell a product internationally; it’s something else again to try to implement
such a program. How are you going to reach the consumer? You could, of course, send sales
representatives to contact people directly, but that would be costly and risky. How can you get your
product into foreign markets at a minimum cost and still have wide distribution?
Use brokers. As explained in the chapter text, a broker is an intermediary who keeps no inventory and
takes no risk. A broker can find distributors for you. Brokers sell for you and make a commission
on the sale. This is the least expensive way to enter foreign markets, but you still assume the risks
of transportation.
Use importers and exporters. Importers and exporters take all the risks of business and sell your
products to international markets. Their commission is much higher than that of brokers, but they
do much more for you. They may find you distributors or do the selling to ultimate consumers
themselves.
Call on distributors directly. You can bypass exporters and brokers and call on distributors yourself. In
that case, you actually become your own exporter and deliver directly to distributors, but again
you assume the risks of transportation.
Sell direct. The most costly and risky way to sell internationally is to set up your own distribution system
of wholesalers and retailers. On the other hand, this maximizes potential profits in the long run.
Many firms start out selling through importers and exporters and end up setting up their own
distribution system as sales increase.
Use third-party logistics (3PL) providers. This new kind of company will distribute goods worldwide
for you. The U.S. market leader is Ryder Integrated Logistics. Ryder designs, implements, and
manages the whole system for delivering goods in the United States and overseas.
LECTURE LINK 6-2
Utilities Created by Marketing
Utility, in economics, is the want-satisfying ability, or value, that organizations add to goods or services
when the products are made more useful or accessible to consumers than they were before. Six utilities
are added: form, time, place, possession, information, and service. Although some utilities are performed
largely by producers, most are performed by marketing intermediaries. We shall explore all the utilities
next and describe how intermediaries provide each. (POWERPOINT 10-5, “Utilities Created by
Intermediaries” presents these six utilities.)
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FORM UTILITY
Traditionally, form utility has been provided mostly by producers rather than by intermediaries. It
consists of taking raw materials and changing their form so that they become useful products. Thus, a
farmer who separates the wheat from the chaff and the processor who turns the wheat into flour are
creating form utility. Retailers and other marketers sometimes perform form utility as well. For example,
retail butchers cut pork chops from a larger piece of meat and trims off the fat. The servers at Starbucks
make coffee just the way you want it. Dell assembles computers according to customers’ wishes.
TIME UTILITY
Intermediaries, such as retailers, add time utility to products by making them available when they’re
needed. For example, Devar Tennent lives in Boston. One winter evening while watching TV with his
brother, Tennent suddenly got the urge for a hot dog and Coke. The problem was that there were no hot
dogs or Cokes in the house. Devar ran down to the corner delicatessen and bought some hot dogs, buns,
Cokes, and potato chips. He also bought some frozen strawberries and ice cream. Devar was able to get
these groceries at midnight because the local deli was open 24 hours a day. That’s time utility. You can
buy goods at any time on the Internet, but you can’t beat having them available right around the corner
when you want them. On the other hand, note the value that an Internet company provides by staying
accessible 24 hours a day.
PLACE UTILITY
Intermediaries add place utility to products by having them where people want them. For example, while
traveling through the badlands of South Dakota, Juanita Ruiz got hungry and thirsty. There are no stores
for miles in this part of the country. Juanita saw one of many signs along the road saying that Wall Drug
with fountain service was up ahead. Lured by the signs, she stopped at the store for refreshments. She also
bought some sunglasses and souvenir items there. The goods and services provided by Wall Drug are in a
convenient place for vacationers. Throughout the United States, 7-Eleven stores remain popular because
they are usually in easy-to-reach locations. They provide place utility. As more and more sales become
global, place utility will grow in importance.
POSSESSION UTILITY
Intermediaries add possession utility by doing whatever is necessary to transfer ownership from one
party to another, including providing credit. Activities associated with possession utility include delivery,
installation, guarantees, and follow-up service. For example, Larry Rosenberg wanted to buy a nice home
in the suburbs. He found just what he wanted, but he didn’t have the money he needed. So he went with
the real estate broker to a local savings and loan and borrowed the money to buy the home. Both the real
estate broker and the savings and loan are marketing intermediaries that provide possession utility. For
those consumers who don’t want to own goods, possession utility makes it possible for them to use goods
through renting or leasing.
INFORMATION UTILITY
Intermediaries add information utility by opening two-way flows of information between marketing
participants. For example, Jerome Washington couldn’t decide what kind of TV set to buy. He looked at
various ads in the newspaper, talked to salespeople at several stores, and read material at the library and
on the Internet. He also got some booklets from the government about radiation hazards and consumer
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buying tips. Newspapers, salespeople, libraries, websites, and government publications are all
information sources made available by intermediaries. They provide information utility.
SERVICE UTILITY
Intermediaries add service utility by providing fast, friendly service during and after the sale and by
teaching customers how to best use products over time. For example, Sze Leung bought a personal
computer for his office at home. Both the computer manufacturer and the retailer where he bought the
computer continue to offer help whenever Leung needs it. He also gets software updates for a small fee to
keep his computer up-to-date. What attracted Leung to the retailer in the first place was the helpful,
friendly service he received from the salesperson in the store. Service utility is rapidly becoming the most
important utility for many retailers because without it they could lose business to direct marketing (e.g.,
marketing by catalog or on the Internet).
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LECTURE LINK 6-3
When the Supply Chain Breaks
The supply chain is only as strong as its weakest link. The unexpected closure of Clark Foam in
December 2005 clearly illustrates this. Clark, a Laguna Niguel, California, company, mass-produced
foam blocks used to create customized surfboards. Gordon Clark pioneered the technology in 1961. The
foam blanks, which cost between $50 and $90, are bought by custom surfboard makers. The boards are
first smoothed and shaved with sandpaper and shavers. Painters then add color and design before the
board is covered in fiberglass.
Clark enjoyed a virtual monopoly on the blocks (called “blanks”). It supplied unshaped blanks for about
90% of all custom-made boards purchased worldwide. Before the Clark closure, custom-made boards
sold for between $300 and $800. Suddenly manufacturers were scrambling to purchase the last supplies of
the polyurethane blanks. The price for a classic longboard rose from $100 to $1,000 shortly after Clark
closed.
Clark Foam closed because California’s Orange County Fire Authority had repeatedly reported Clark
Foam to other government agencies, including the EPA. The government agency cited the company for
its continued use of the toxic chemical toluene diisocyanate, which can cause severe and chronic lung
problems.
Clark finally shut down the facility of his own volition, rather than face the legal fallout. The media
attention on Clark’s closure focused light on this and other environmental problems associated with the
production of surfboards, such as the use of polyester-based resins, which are harmful to the worker and
emit noxious fumes. Most of the industry, long silent on the fact that manufacturing a surfboard is a dirty
process, was poised for change.
In the weeks following Clark’s closure, board builders scrambled to find the remaining Clark blanks.
They were even available on eBay. Bidding for blanks went as high as $50,000. Scraps of Clark Foam
were even being sold as pieces of history, starting at $1.
Before the closure, Clark had churned out about 1,000 blanks a day. Gradually smaller producers like
JustFoam in San Clemente began to ramp up production. JustFoam was able to increase daily production
from 24 to 350.
But Clark’s closure may turn out to be the best thing to happen to the sport. Surfers have been forced to
find a new ride. A handful of small companies had already been working, some for up to twenty years, on
cleaner surfboard-making technologies that would cost the same as the dirtier ones. But they couldn’t find
a hole in Clark’s monopoly to successfully introduce a product. Among the contenders was Homeblown
U.S., an independently-owned six-employee foam producer that had developed a foam production system
that was similar to Clark’s but was safer to workers because it didn’t emit volatile fumes.
Homeblown started in Britain in the late 1980s and held a 50% share of the market for blanks there. But
Clark had such a dominant position in the market that it wasn’t practical for Homeblown to open in the
U.S. until the Clark factory closed.
Today, Homeblown has gained a toehold in the U.S. market—though it still produces only 75 to 100
foam blanks a day, compared to Clark’s 1,000 a day production. It is ramping up its efforts to bring
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more sustainable surfboards into the market. The end of Clark’s monopoly in surfboard blanks has
paved the way for cleaner ways of making surfboards, with independent businesses taking the lead.
Companies like California’s Firewire Surfboards and France’s Salomon have caught the attention of
high-ranking pro surfers by bringing innovative materials and construction methods to surfboards,
something that already worked for skis, snowboards, and the wings of Boeing jetliners. The buzzword is
“flex memory,” the way a board snaps back into its original shape in a turn or maneuver, something that
conventional polyurethane boards simply could not do. The new materials have a memory of the original
curve, and they return to that curve very quickly.
The new composites are crafted from foams of varying densities as well as fiberglass, resins, carbon
fibers, and wood in various configurations, some devised with sophisticated computer modeling. These
materials have allowed designers to tinker with the board’s outline, giving more or less curve, and fins,
the design element critical for responsiveness and control.
Salomon, a brand famous for its skis and snowboards, introduced an “S-Core” design that creates a shockabsorber-like effect using foam stringers in a hollow carbon core, covered by a foam shell—an airplane
wing on the water. High-ranking surfers love the new boards—they can be custom shaped, are 20%
lighter, and last up to ten times as long as foam boards.i
LECTURE LINK 6-4
Evaluating Modes of Transportation
All transportation modes can be evaluated on basic service criteria: cost, speed, dependability, flexibility,
frequency, and reach.
TRAINS ARE GREAT FOR LARGE SHIPMENTS
The largest percentage of goods in the United States (by volume) is shipped by rail. Railroad shipment is
best for bulky items such as coal, wheat, automobiles, and heavy equipment. For the past 20 years or so,
railroads have handled about 35 to 40% of the total volume of goods in the United States. In piggyback
shipping, a truck trailer is detached from the cab; loaded onto a railroad flatcar; and taken to a destination
where it will be offloaded, attached to a truck, and driven to the customer’s plant. As a result of practices
such as piggyback shipments, railroads should continue to hold better than a 38% share of the market.
Railroad shipment is a relatively energy-efficient way to move goods and could therefore experience
significant gains if energy prices continue to climb.
However, smaller manufacturers or marketers that don’t ship enough products to fill a railcar or truck can
get good rates and service by using a freight forwarder. A freight forwarder can put many small
shipments together to create a single large shipment that can be transported cost-effectively, by truck or
train, to the final destination. Some freight forwarders also offer warehousing, customs assistance, and
other services along with pickup and delivery. You can see the benefits of such a company to a smaller
seller. A freight forwarder is just one of many distribution specialists that have emerged to help marketers
move goods from one place to another.
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TRUCKS ARE GOOD FOR SMALL SHIPMENTS TO REMOTE LOCATIONS
The second largest surface transportation mode is motor vehicles (trucks, vans, and so forth). Such
vehicles handle a little over 25% of the volume. Trucks reach more locations than trains. Trucks can
deliver almost any commodity door-to-door. You could buy your own truck to make deliveries, but for
widespread delivery you can’t beat trucking specialists. Like freight forwarders, they have emerged to
supply one important marketing function—transporting goods. Railroads have joined with trucking firms
to further the process of piggybacking. The difference lately is that the new 20-foot-high railroad cars,
called double stacks, can carry two truck trailers, one on top of the other. The cost of trucking goes up
when fuel prices rise. That forces trucking companies to look for ways to cut costs.
WATER TRANSPORTATION IS INEXPENSIVE BUT SLOW
When sending goods overseas, often the least expensive way is by ship. Obviously, ships are slower than
ground or air transportation, so water transportation isn’t appropriate for goods that need to be delivered
quickly. Ships move a greater volume of goods than you might expect. Over the past 20 years, water
transportation has carried 15 to 17% of the total. Water transport is local as well as international. If you
live near the Mississippi River, for example, you’ve likely seen towboats hauling as many as 30 barges at
a time, with a cargo of up to 35,000 tons. On smaller rivers, about eight barges can be hauled, carrying up
to 20,000 tons—that’s the equivalent of four 100-car railroad trains. Thus, you can see the importance of
river traffic. Add to that Great Lakes shipping, shipping from coast to coast and along the coasts, and
international shipments, and water transportation takes on a new dimension as a key transportation mode.
When truck trailers are placed on ships to travel long distances at lower rates, the process is called
fishyback (see the explanation of piggyback). When they are placed in airplanes, by the way, the process
is called birdyback.
PIPELINES ARE FAST AND EFFICIENT
One transportation mode that’s not readily visible to the average consumer is movement by pipeline.
About 21% of the total volume of goods moves this way. Pipelines are used primarily for transporting
water, petroleum, and petroleum products—but a lot more products than you may imagine may be sent by
pipeline. One company, for example, sent coal by pipeline by first crushing it and mixing it with water.
AIR TRANSPORTATION IS FAST BUT EXPENSIVE
Today, only a small part of shipping is done by air. Nonetheless, air transportation is a critical factor in
many industries. Airlines carry everything from small packages to luxury cars and elephants, and are
expanding to be a competitive mode for other goods. The primary benefit of air transportation is speed.
No firms know this better than FedEx and UPS. As just two of several competitors vying for the fastdelivery market, FedEx and UPS have used air transport to expand into global markets.
The air freight industry is starting to focus on global distribution. Emery has been an industry pioneer in
establishing specialized sales and operations teams aimed at serving the distribution needs of specific
industries. KLM Royal Dutch Airlines has cargo/passenger planes that handle high-profit items such as
diplomatic pouches and medical supplies. Specializing in such cargo has enabled KLM to compete with
FedEx and UPS.
INTERMODAL SHIPPING
Intermodal shipping uses multiple modes of transportation—highway, air, water, rail—to complete a
single long-distance movement of freight. Services that specialize in intermodal shipping are
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known as intermodal marketing companies. Today, railroads are merging with each other and with other
transportation companies to offer intermodal distribution.
You can imagine such a system in action. Picture an automobile made in Japan for sale in the United
States. It would be shipped by truck to a loading dock, and from there it would be moved by ship to a port
in the United States. It may be placed on another truck and then taken to a railroad station for loading on a
train that will take it across country to again be loaded on a truck for delivery to a local dealer. No doubt
you have seen automobiles being hauled across country by train and by truck.
Now imagine that all of that movement was handled by one integrated shipping firm. That’s what
intermodal shipping is all about.ii
LECTURE LINK 6-5
Wal-Mart to the Rescue
Hurricane Katrina leveled most of Waveland, Mississippi, a community of 7,000 on the Mississippi Gulf
coast. The wind and water wiped out nearly every home and business within a half-mile of the beach,
including the Wal-Mart that served the area around Waveland, Pearlington, and Bay St. Louis,
Mississippi.
For weeks Wal-Mart store manager Ron Cox watched friends and neighbors receive supplies from an
emergency distribution point that offered only the basics. The only store in Waveland still selling food
and drink was a gas station convenience store. Cox wanted to do something for the community. “They
need meat. They need bread. In this part of the country, those are luxuries,” he said.
So Cox contacted Wal-Mart headquarters and arranged for a temporary replacement. Three weeks after
the storm, he and his crew erected a miniature version of the largest retail store in the nation—in a 16,000
square foot Wal-Mart tent. Cox set up across the parking lot from the old building, damaged by 12 feet of
filthy floodwater.
A crew of 25 staffed the tent store, down from 431 pre-Katrina. They sold canned vegetables, soda, power
drinks, crackers, and bug spray. Cox stocked peroxide, alcohol, Germ-X, and over-the counter drugs. He
also set up a pharmacy trailer with a computer to find prescriptions for people with no ID.
Cox thinks that the mini-Wal-Mart served another need. “Let’s face it: Wal-Mart is a place people come
to socialize.” The store helped “get some normalcy going again.”iii
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LECTURE LINK 6-6
The Cost of Violating the “Do Not Call” Registration Law
The National Do Not Call Registry was established in 2002 to let consumers opt out of telemarketing
attempts. The registry now contains 148 billion numbers. The success of the registry is one reason that
marketers are moving to other medias, such as direct-mail and e-mail. Since then, telemarketing spending
has remained essentially flat at $46 billion. In contrast, direct-mail spending increased from $24 billion to
$32 billion from 2001 to 2006. Similar jumps occurred with catalogs and Internet marketing.
The cost of violating the Do Not Call listing is steep—up to $11,000 per call. One company, Craftmatic
Beds, was fined nearly $4.5 million for violating the rule. Telemarketers for Craftmatic called hundreds of
thousands of people, even though many of them were on the national list. Some companies fooled
consumers into giving them their telephone numbers. Craftmatic, for example, obtained numbers b asking
people, who filled out entry forms to win a free bed, to include their phone numbers, which would be their
contest entry number. But nowhere on the form did it give the company permission to call them, which is
why the bed maker was slapped with the second largest fine every imposed.
But an even bigger debacle is looming in the next few years. Few people realized that the 2002 law came
with a five-year expiration date. Those first registry entries in 2002 began expiring in 2007. To remain on
the do-not-call listing, the consumer must renew their entries or begin receiving irritating, but legal,
telemarketing calls. Nearly half of the numbers were registered in 2003, which means they started falling
off the list in 2008.
The five-year limit was set in place to purge the list of Americans who invariably move or change
numbers. But for telemarketers, a lack of awareness about the expiration date signals a new opportunity.
Tim Searcy, CEO of the American Teleservices Association, argues that the “mass expiration” will also
let customers decide whether they want to opt out. Searcy thinks that new offers might entice consumers
after the 5-year hiatus.
In 2007 the state of Pennsylvania began a public-service campaign to alert consumers of the approaching
deadline. By late 2007, however, less than 690,000 people had renewed their listing.iv
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LECTURE LINK 6-7
Party On
The days of the neighborhood Tupperware parties are over, but other types of home selling are making a
rebound. Twenty years ago, most home-party purchasers were friends of the hostess and could be counted
on for sales anyway. The new generation product parties are lively gatherings guided by a consultant who
doesn’t necessarily know the partygoers.
Pampered Chef embraced the home shopping party. The company, which offers kitchen-supply parties,
was so successful that Warren Buffet purchased it in 2002. The same year, Crayola introduced its Big
Yellow Box program, bringing kids and parents together to make crafts. Tommy Tools attracts women
customers with woman-friendly products such as lightweight toolboxes and scaled down hacksaws.
Lane Nemeth’s house parties feature special seat belts, chewable rubber toys, and venison-jerky treats.
Her products are targeted at the parents of a new breed of child: pets. Petlane, her pet-products company,
reached $1 million sales in 2005, up from $300,000 the year before. Her sales team of 225 “pet advisors”
in 12 states and expanding every year.
She is banking on American’s increasing obsession with their pets, which is fueling the 6% annual growth
in the $34 billion pet-care industry. “Pets are the new kids,” she says, noting that young couples see pets
as a parenting test run. Her sales people teach pet care to their customers. Nemeth’s obsession is teaching
pet owners how pets communicate.
Nemeth is no stranger to success in direct sales. Inspired in 1978 to find stimulating toys for her daughter, she
started Discovery Toys. The educational-toy company grew from a $5,000 garage-based enterprise into an
international direct sales company with $100 million in revenues by 1997, when she sold it to Avon.v
LECTURE LINK 6-8
Measuring Web Traffic
As marketers continue to move their advertising campaigns onto the Internet, it is becoming more and
more important to know exactly which sites are most popular. Like the TV Nielsen ratings, several Web
research companies now publish rankings for the “top” websites.
How many people visited Yahoo!® in June 2007? The answer is critical for companies wanting to
optimize their Web spending. Companies want proof that the $20 billion they spend to advertise online is
worth it. According to Nielsen//NetRatings, 108 million people visited Yahoo! in that month. However,
according to ComScore, another Web measurement company, about 133 million people visited. The
different is 25 million people, hardly a rounding error.
In the last months of 2006, the problems with the online numbers game were starkly illustrated.
According to ComScore Networks, a third Web measurement firm, the top Web space was
MySpace.com®, with 38.7 billion page views, beating long-time champ Yahoo! (38.1 billion). However,
Nielsen//NetRatings still had Yahoo! leading page views, 33.4 billion versus 29 billion for MySpace. The
discrepancy illustrates the complications of measuring Web traffic.
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MySpace.com’s meteoric rise in popularity took marketers by surprise. In 2004, social networking site
represented 0.1% of U.S. Internet visits, according to Hitwise. By 2006, MySpace had 4.5% of all U.S.
Internet domain name visits, according to the metrics company. In other words, the company increased
its market share by 4,300% in two years. But did it top Yahoo!?
Counting page views and unique visitors is confusing. ComScore ranks websites based on unique
audience members. Thus, a Web surfer who visits eBay® four times in a week is counted as only one
audience member. Hitwise also monitors Web traffic among more than 500,000 websites. Unlike
ComScore, Hitwise measures individual visits to each site, so-called “hits.” Also complicating the
equation are widgets, cookies, and a technology called “Ajax.” Most Web users toggle between several
windows, making exact measurement of “hits” difficult. Also, not all Web pages are created equal. New
technologies like Ajax, Real Simple Syndication (RSS), and widgets make some pages more valuable
than others because they let people watch videos, read news articles, or make purchases on multiple
websites.
Today ComScore and Nielsen//NetRatings hold the majority of the Net rating market. They use a series of
global panels of thousands of volunteers to measure Web visits, a method carried over from TV ratings
measurements. The companies know they have a consistency problem and are introducing new services to
address it. ComScore is rolling out a new set of enhancements: measuring widgets, counting video
downloads, and expanding search categories to include sites like Amazon.com and eBay.
Nielsen//NetRatings is also unveiling improvements. The company recently began measuring how much
time consumers spend on sites.
HitWise is trying to gain market share by dumping the panel approach in favor of tagging Web pages with
small pieces of code, called cookies. When users visit a site, the server logs them in. But as many as 30%
of Web users regularly delete their cookies. Another start-up company, Quantcast, uses both a panel and
Web tracker, creating mathematical models to arrive at audience measurements.
Before marketers will be able to accurately measure the effectiveness of Internet advertising campaigns,
they must decide which rating method best measures Internet activity—number of visitors or number of
hits, panels, or cookies. And with more and more Web traffic moving to cell-phones, the debate will only
intensifyvi
LECTURE LINK 6-9
Desktop Distribution
There’s an enticing distribution method used by software companies today—the PC desktop. Companies
such as AOL® and EarthLink® routinely pay to have trial offers installed on soon-to-be purchased PCs.
Until recently, Dell™ and Google™ also had an agreement to install Google software on new Dell PCs.
PC makers see the trial software as a new source of revenue to boost their profit margins. They are
scrambling to sell little pieces of the desktop not already controlled by Microsoft®. The value of that real
estate is soaring. Dell alone reaches around 37 million people a year. Big software and Internet
companies, such as EarthLink, are willing to pay for the privilege of appearing on those systems. They
believe that if customers use the trial software and like it, they will purchase the full version when the trial
expires.
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Not all customers are delighted with the trend. Geek Squad founder Robert Stevens says that complaints
about “crapware” are mentioned prominent in discussion forums and blogs. PlumChoice, an online PC
services company, estimates that 90% of the complaints its online PC technicians receive about slowrunning PCs can be fixed by deleting unneeded programs.
Customers who purchase PC through Best Buy have another option. They can take their systems to the
Geek Squad counter and, for a fee, let the technicians go through every piece of software that comes on a
new PC and make recommendations as to what should stay and what should go.
But Dell has reconsidered using trialware. According to its own research, Dell found that small-business
users overwhelmingly viewed trialware as an irritant, not a benefit. That research led Dell to axe the
extras from its Vostro line of small-business desktop PCs and laptops in 2007. For now, the company will
keep the trialware on the machines it sells for personal use. Dell says that these consumers do express
interest in preloaded trialware, but small-business owners have different needs.vii
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Promotional Bits
A. EFFECTIVE ADVERTISING: CELEBRITY VOICE-OVERS
Good news for the actors who moonlight doing voice-overs for television commercials. According to the
Journal of Consumer Research, celebrity voice-overs are effective in reaching consumers. But voiceovers are most effective when people recognize the voice—but can’t quite put a name to it. Researchers
studied reactions to TV commercials with actors David Duchovny, Donald Sutherland, David Hyde
Pierce, and Willem Dafoe doing voice-overs for Sprint, Volvo, Lipton, and Quest. The commercial
watchers’ prior attitudes toward the celebrity influenced how much they liked or disliked the brand, but
the celebrity endorsements created stronger feelings for the brand when viewers weren’t sure to whom the
familiar voice belonged.
According to researcher Mark Forehand, who ran the study, “When they [viewers] recognize the
celebrity, it seems potentially manipulative, and they wind up overcompensating. But when they don’t
recognize the celebrity, they generalize over to the brand.”viii
B. OUTDOOR ADVERTISING: WATCH THE PHONE BOOTH
Even in the age of cell phones, Blackberries, and Bluetooth® headsets, you can still find a pay phone in
New York City. There’s a reason for their survival. Public telephones are one of the stranger cash cows in
New York City’s finance. Not because of the coins that are fed into them, but rather because of the
million of dollars companies are willing to pay to put ads on them.
The phone booths generate $62 million in advertising revenue annually, and the city gets about a quarter
of the take. In 2006, income from ads was triple what the city earned from phone calls.
Over all, the number of pay phones in New York is falling, as it is throughout the country. But the New
York phones are more valuable than ever, thanks to the intense competition among advertisers. “One of
the top buys in New York right now, and it has been for the last couple of years, is phone kiosks,” said
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Keith Steward, vice president of Generation Outdoor, which places outdoor advertising. “We’re able to
spend a fraction of what we would for other outdoor formats. With kiosks, I can blanket the city.”
Phone companies say that pay phones are still necessary and point to the 2003 blackout, when people
lined up to use them. But it is the phone booth’s desirability to advertisers that is driving their popularity.
The phones are plentiful, and advertising on them is cheap. That drives pressure on the city for permission
to install new phones in choice locations.
Since 2003, every new phone the city has authorized has been put at the curb, the only spot where city
regulations permit advertising. The city has also approved moving 465 pay phones from alongside
buildings to the curb. The phones are a source of frustration to some neighborhood and community
groups, who say the city is giving precious sidewalk space over to Madison Avenue marketers. Phone
booths alongside buildings, rather than at the curb, are disappearing. They don’t permit advertising.ix
C. CREATIVE PROMOTION: WRAP YOUR SUV
Some companies pay millions to have their logos on Dale Earnhardt Jr.’s racecar, but others prefer to pay
$500 to put their ads on cars of everyday citizens such as Brian Katz of Manhattan. Katz is one of tens of
thousands of motorists who have signed up to have their cars and trucks wrapped in advertisements in
exchange for a monthly stipend.
These offers are becoming so popular that car owners have been willing to limit where they shop and
abide by a code of conduct while they are behind the wheel. People whose cars were wrapped with ads for
two Coca-Cola products—Planet Java and Vault—were cautioned against sipping Pepsi products behind
the wheel or parking at restaurant chains like KFC or Pizza Hut that serve Pepsi exclusively.
Vehicle wrapping started in 1993 when PepsiCo bought the rights to paint six Seattle city buses with its
logo. Pepsi planned to put the buses in a paint shop for six weeks, but Louis Hoffman, general manager
for a Seattle printing company called SuperGraphics, persuaded Pepsi to have the buses wrapped instead.
Wrapping, using a vinyl material made by 3M, could be applied in less than two days. 3M uses an
adhesive similar to the one on its Post-It notes that makes the “wrap” possible. Far from hurting the paint
job, the wrap preserves it.
Brian Katz has had his car wrapped for several companies, including Jamba Juice and Verizon Wireless.
Katz says the experience has been great, although he often has to roll down his window to answer
strangers’ questions about Verizon’s calling plans.
Katz was matched with his advertisers by FreeCar Media, a Los Angeles ad agency that has a database of
more than a million car owners who say they will wrap their cars for a fee, says Drew Livingston,
president of the company. According to Livingston, companies like Procter & Gamble believe the wrap
advertising is a low-cost, effective way to reach the demographic they desire. For example, the target
market for a new version of Tide detergent could be defined as “stay-at-home moms with two-plus
children who live in selected markets.” Livingston’s company would then find drivers in that
demographic. “We feel that when you can wrap a mom’s car and get it to her P.T.A. meeting or Curves
gym, you are getting the acceptance from her social circle.”
Another FreeCar participant, Jerome Harris, was in his junior year at Temple University when he had his
Nissan Altima wrapped for a promotion for Trolls dolls. He earned $500 a month while his car was
wrapped. In addition, he was required to hand out Trolls pens to fellow students during finals week.
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The vehicle ad technique seems to pay off. Brian Morris, owner of We Fix Ugly Pools, a pool repair
company in Phoenix, wrapped more than 30 vehicles in his fleet in ads for his company. He says he has
earned more than $1 million in revenue over a year from people seeing one of his trucks in a driveway.
Or in traffic. Morris advises his drivers to find the slowest lane in rush hour traffic and “sit in it.” He pays
for the time and the gas. “The people behind you can’t help but sit and stare.”x
D. ADVERTISING: MEASURING THE TELEVISION AUDIENCE IN THE AGE OF THE DVR
The prevalence of the digital video recorder (DVR) in the homes of television watchers is beginning to
skew the ratings of Nielsen Media Research, the company that provides audience figures for network
television shows. An estimated 25% of the nation’s 110 million homes with televisions now have DVRs.
Television viewing can easily be time shifted and, even more alarming, enables watchers to zip through
commercials. This technology is changing what and how people watch and has the potential to disrupt a
multimillion-dollar business.
Until recently, Nielsen has bypassed these DVR homes when it signs up the estimated 9,000 families that
make up its national sample of homes. The Nielsen sample families provide the basis for its ratings,
which make a show a hit or a flop. In 2006, these DVR homes were added to the Nielsen sample.
It took this long to include DVR watchers because the Nielsen “people meters” that record what families
are watching weren’t equipped to handle DVRs. The company was finally able to create new
“active/passive meters” that could. With the help of a code embedded in a program by the television
networks, Nielsen can tell when something that has been recorded is actually watched. They even know
when people fast-forward through commercials.
Nielsen anticipated that the new measurements would show that the top-rated television shows have a
higher audience with a significant amount of playback. In testing, the company discovered that popular
shows like CSI: Crime Scene Investigation and Desperate Housewives were the most likely to be taped
and watched later. The DVR measuring meters may also help smaller, cult favorites. Tests showed that
the WB’s Smallville was watched at double the rate in DVR homes than in homes without the device.
Nielsen gives its clients—mostly TV networks, advertisers, and ad agencies—a weekly list of how many
people watch each program each week. Now Nielsen will offer three lists: the number of people who
watch a show live; the number who watch it live or within 24 hours; and the number of people who watch
it live or within a week.
Network executives are beginning to worry. If these figures show that viewers skip over the ads—
something that 90% of people claim to do—it could cost them dearly. Advertisers may look for lower
prices if they have evidence of how many commercials are skipped.xi
E. EVENT MARKETING: TIMES SQUARE’S APPEAL
The billboards along Times Square in New York have always been important venues for advertising, with
companies paying hundreds of thousands of dollars for space on the blazing video screens. But recently
companies have discovered new, innovative ways to use the landmark site.
Take for instance, the 2006 display of public toilets set up by Charmin bathroom tissue. It was used by
thousands in Times Square and viewed by 7,400 Web users on one site alone. Or NASCAR’s display of
racecars. Videos of the event were viewed on YouTube more than 1,800 times. More than 60 people
wrote about the event on the blogs and 60 more spread the word—and pictures—on the Flickr website. As
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a result of the growing popularity of consumer-generated pictures, videos, and e-mail messages on
Internet sites like YouTube and MySpace, advertisers are getting consumers to essentially do their jobs
for them.
Times Square is becoming, in a way, a publishing platform. On sites like Flickr and YouTube, an army of
tourists and residents are spreading advertisers’ messages well beyond Manhattan, using their cell phones
and video cameras as they walk through the square. Consumer brand companies are taking advantage of
that by hosting elaborate events, fully aware that those events are great fodder for footage. Hosting events
in Times Square, advertisers say, is like buying product placement in a TV show or a movie, except the
cameras are held by consumers and the placement is on the Internet.
Experiential marketing, as the trend is called, is intended to give people something they can try out and
photograph. People around the world recognize Times Square in photos and videos online and are more
likely to view them.
Charmin’s bathrooms generated traditional coverage with more than 100 articles published about the
fancy toilets. But consumer videos posted on YouTube alone have been viewed more than 7,400 times.
It is difficult to count exactly how many people pass through Times Square each day, but foot traffic, by
some estimates, has nearly doubled. In 1997, the Times Square Business Improvement District counted
8,702 people an hour passing through the most crowded parts of Times Square during the busiest times of
the year. In 2006, the Alliance found that number nearly doubled—more than 15,000 people passed the
Virgin Megastore on Broadway during busy hours.
General Electric recently rented nine digital billboards in Times Square and displayed photos of people
passing by. People on the street photographed themselves standing below the billboards when their
images appeared. Soon, those images were circulating online.
The costs of the experiential marketing are generally kept private by the companies, but GE marketers
said the total expenses came out surprisingly low compared with other forms of marketing. Mayor
Bloomberg’s office said permits to use Times Square areas start at $25,000, but can often cost $50,000 or
more for a day.
In another event, Walt Disney World sent Hans Florine, the X-games gold medal climber, scaling up a
billboard to promote Expedition Everest, a new Animal Kingdom Park ride. Mickey Mouse was also
there, but he stayed on the ground.xii
F. VIRAL MARKETING: THE SUBSERVIENT CHICKEN
To reach potential customers on the Internet requires creativity, research, and a little irreverence. When
Burger King introduced a new chicken sandwich, the Bacon Cheddar Ranch, in February 2005, the
company turned the marketing campaign over to Crispin Porter + Bogusky ad agency. The original
concept had been to have Dolly Parton belt out the tune “Big Rock Candy Mountain” on a surreal fantasy
ranch. But at a staff meeting to plan the launch, creative executive Andrew Keller scrubbed the plan and
threw the subject open for suggestions. By the end of the meeting, Dolly Parton had been replaced by the
Subservient Chicken. Not a television campaign—a website.
The website involved a man, a dingy apartment, a chicken suit, and a garter belt. The “chicken” hung out
in front of his Webcam all day—at least that was the illusion—and happily accommodated almost any
request a user could think to type in. (Suggestions for lewd acts were met with a “naughty naughty” shake
of the wing.)
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Website creator Jeff Benjamin came up with an exhaustive list of commands and a film crew to shoot
the chicken performing. The trick was to structure the website so that the chicken could simultaneously
carry out millions of demands in real time.
The film crew grabbed a friend’s apartment and shot the chicken doing 200 different actions. When the
site neared completion, Benjamin e-mailed the URL to several people in the agency asking them to send
the link out to friends to test. From that single e-mail, the Subservient Chicken site ended the day with 1
million total hits. The site eventually attracted more than 385 million hits, with visitors spending an
average of six minutes asking the chicken to perform various stunts. Burger King’s ad director, Andy
Bonaparte, bragged that the site helped “sell a lot, a lot, a lot of chicken sandwiches.”xiii
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