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FT: Guest column: Japan’s eye for quality may not be equalled

 

 

Business of Luxury 2008

Guest column: Japan’s eye for quality may not be equalled

By Radha Chadha

Published: May 28 2008 03:50 | Last updated: May 28 2008 03:50

Japan has been the El Dorado for the luxury industry – the Japanese consumer accounts for 30 to 40 per cent of global revenues for leading luxury brands. It is also the number one in terms of penetration – for example, as many as 94 per cent of Tokyo women in their 20s own a Louis Vuitton piece.

With other countries in Asia now posting dramatic economic growth, the question is whether the Japan luxury story will be repeated. China, and eventually India, will develop into Japan-sized luxury markets, but there will be a significant qualitative difference. Japanese consumers are special in that they have always had a deep appreciation for the keener aspects of luxury. A sense of aesthetics, an understanding of craftsmanship, an eye for quality, a reverence for heritage, a thirst for detailed know-how are programmed into the Japanese DNA – it is as if the Japanese consumer was purpose-built for luxury.

The rest of Asia does not quite have the same finicky luxury gene. Nor, for that matter, does any other country in the world – even Louis Vuitton had to lift its quality standards for Japan. What was acceptable to the French consumer did not pass muster there.

The Spread of Luxury model is a helpful lens through which to examine what has happened in Japan and how it might be extrapolated to other Asian countries.

Japan has been through all the five stages – from a post-war economy in shambles (Stage 1: Subjugation); to rapid growth, when the masses shopped for white goods and a small elite bought Western luxury (Stage 2: Start of money); to the emergence of a moneyed middle class that liberally used luxury brands as status markers (Stage 3: Show off); to the late 1980s when the need to conform to the new norms helped luxury culture to spread (Stage 4: Fit in); to the current period where a discerning consumer finds herself locked into the habit (Stage 5: Way of life).

As economic growth puts more money into more hands in other Asian countries, the luxury culture will spread along similar lines. Hong Kong already has a sophisticated consumer base nudging towards the “way of life” stage. South Korea has developed at feverish pace to the “fit in” stage. China is at the “show off” stage – wealth has arrived to select segments of society and luxury brands have become the weapon of choice to display it.

In terms of population, China is like 10 Japans. Even when the first of these reaches the “way of life” stage, the other nine will be at different stages. Luxury brands will have to devise strategies to cater to consumers who range from the extremely sophisticated to the utterly uninitiated.

India is the other Asian giant. It is early days for the luxury industry there – western brands entered barely five years ago. The country is still largely at the “start of money” stage, where the elite are indulging in luxury brands. India does have some old money – royal families and industrial dynasties – but the real prize for the luxury industry is the new money that will be made by in coming years.

Revenues will certainly come, but will the Chinese and Indians eventually develop a Japan-like appreciation for the finer aspects of luxury? The answer lies in deep cultural roots, especially an evolved visual and aesthetic sense honed over centuries, as is the case with Japan.

Historically, the Chinese have a sophisticated culture, but Mao pressed the delete button on it so decisively that it may be difficult to reactivate. Indians, on the other hand, have maintained their rich traditions. Their appreciation of a finely woven benarasi sari or an intricately gold-embroidered wedding lehnga could well translate into an exacting eye for western luxury.

Mark Prendergrast, president of Tom Ford Japan, sums it up well: “Western brands are merely the ‘icing on the cake’ of a long-held tradition of luxury.”

Radha Chadha is author of ‘The Cult of the Luxury Brand’ and one of Asia’s leading consumer experts

FT: Reality sets in for US television

Reality sets in for US television

By Matthew Garrahan

Published: May 29 2008 03:00 | Last updated: May 29 2008 03:00

When a female contestant on a new US prime time TV reality programme recently confessed to being in love with another man on her wedding day - in front of her stunned husband and more than 8m viewers - network executives at Fox knew they had a hit on their hands.

The Moment of Truth has a simple, if uncomfortable premise. Contestants first take a lie detector test, being asked a series of highly personal questions, and are then asked the same questions again in front of friends, family and television viewers. If they answer truthfully, they can win up to $500,000.

The programme has drawn criticism for its content but its popularity with viewers ensured it became one of the few new shows aired since January to be recommissioned for a second series. Fox ordered a new batch of episodes, the first of which aired last night.

"Reality gets ratings in key demographics that you don't get in a lot of other shows," says Howard Schultz, chief executive of Lighthearted Entertainment, which produces and owns the show.

The programme has been sold to more than 50 countries by Lighthearted and is the latest example of the mushrooming popularity of the reality genre.

Reality TV is not a new phenomenon, with programmes such as Big Brother and The Apprentice regular fixtures on schedules in the US and Europe.

But since January there has been a marked increase in the number of reality shows in coveted US prime-time slots as networks adapt to a rapidly shifting economic landscape and the effects of the three-month writers' strike, which ended in February.

The strike hit the production of drama and comedy programmes, forcing the networks to look for alternative content. Cheap, quick to produce and, more importantly, popular with younger viewers, reality shows filled the gap. With more reality programming than its rivals, Fox was the top performing network during the September-May broadcasting season.

Some series were hit particularly hard by the strike, with ratings for ABC's Grey's Anatomy and CBS's CSI: Crime Scene Investigation taking hefty knocks. Although production schedules have returned to normal since the strike finished, the big four networks - ABC, CBS, NBC and Fox - did not rush to pack the upcoming autumn season with new scripted programming.

For example, ABC has commissioned only one new drama for autumn - an adaptation of the BBC's Life on Mars - while its other new programme is a game show. It is relying on the recommissioned series of scripted shows it launched last year, such as Pushing Daisies , to attract audiences.

NBC, meanwhile, will premiere eight new programmes in its summer schedule to build up to the Olympics, which it will broadcast in the US. Of those eight, seven are reality shows, including American Gladiators and Nashville Star : only Fear Itself is scripted.

Before making The Moment of Truth, Lighthearted had scored a global hit with Extreme Makeover , a reality show sold to more than 100 countries that offered lifestyle training and plastic surgery to women unhappy with their appearance. "It's difficult to get the 18-34 [demographic], which advertisers want. The networks don't seem to care about older audiences . . . we tend to make edgier fare, which negates the older audiences."

Other factors also explain why reality programming holds great appeal for the networks. Scripted shows are expensive to produce and can cost $3m for a one-hour show compared with less than $1m for a typical reality programme. Television advertising generates vast amounts of money, with about $9bn spent by advertisers last year in the US. But the market is fragmenting and facing competition from rival media, such as the internet.

"We have this fight over advertising dollars, which are drifting away to other platforms," says Mr Schultz. "Networks are making less money from advertising, which means they have to pay less for their programming."

Rob Lee, head of programming at IMG, which produces Make Me a Supermodel for Bravo, the US cable channel owned by NBC, agrees with Mr Schultz that reality TV is in the ascendancy. "The economic model for scripted shows is broken," he says. He argues that scripted entertainment has been driven to cable channels, which can support the higher cost of production because they have additional revenue streams, namely, from their subscribers.

But not everyone is writing off scripted programming on the main networks. Media Rights Capital, a new company backed by Goldman Sachs and WPP, has struck deals to make several scripted shows for the big networks, including The Goode Family on ABC and Outnumbered on Fox.

Modi Wiczyk, co-chairman of MRC, expects more dramas and comedies to return to screens before the end of the year as the networks and studios absorb the effect of the writers' strike. "Reality doesn't have the same lead-up time [as scripted programming]. If you need to adjust on the fly to a f orce majeure situation like a strike, you can make a reality show more quickly," he says.

"People have been bemoaning the death of scripted for years," he adds. "But it never goes away."

MRC recently struck a deal with ShineReveille, the TV distribution company controlled by Elizabeth Murdoch, to sell scripted and unscripted programmes to international buyers. "Audiences have an appetite for both," says Chris Grant, president of ShineReveille International. He cites current uncertainty about a possible strike by actors in the summer as another factor depressing the production of scripted shows.

"I don't think Hollywood is ready for another strike but it will weigh on the thinking [of the networks]. It's the reason for the surge in reality but there will be a resurgence in scripted programming," he says.

But for Mr Schultz, reality TV is more cost-effective. It does not represent the "big bet" of an expensive drama that might pay off in spectacular style if it becomes a hit. "Reality has stayed away from these big bets," he says, adding that networks like the genre because it is stable and more likely to make a profit.

Break with tradition on pilots and seasons

All four big US television networks used to invest heavily in scripted pilots - one-off episodes that allow executives and advertisers to assess a particular programme or idea before deciding whether to commission a full series.

But the industry is now divided over whether pilots represent value for money. The four networks spend about $500m each year on pilots that often fail to yield successful series.

Jeff Zucker, chief executive of NBC Universal, has pledged to cut the number produced by NBC from about 20 to five. "We're focused on pushing up more projects straight to series," says Mitch Metcalf, head of scheduling at NBC. "We need to control costs. There just isn't that margin for waste any more."

In another break with tradition, NBC is introducing new programming throughout the year, instead of only during the traditional broadcasting "season", which runs from September to May.

This summer, NBC is launching several new shows, mostly in the reality genre. "We are increasingly looking at the summer as 52 weeks long, with summer just happening to be the epicentre of reality programming," says Mr Metcalf. "There are more distractions for scripted series [in the summer] but people are in the mood for lighter entertainment, which reality delivers so well."

Copyright The Financial Times Limited 2008

FT: How to spot when it's about to go wrong

How to spot when it's about to go wrong

By Stefan Stern

Published: May 29 2008 03:00 | Last updated: May 29 2008 03:00

How refreshing. Instead of yet another catalogue of miraculous success stories and breakthrough innovations, here is a book that accentuates the negative - not so much a "You too can be like Google" story as "For goodness' sake don't screw up like these guys did".

Matthew Olsen and Derek van Bever from business network the Corporate Executive Board have studied the growth performance of more than 600 US corporations in the postwar years. Their conclusion? About 87 per cent of businesses will hit what they call a stall point - "multiyear turning points in a company's fortune" involving "significant downturns in corporate revenue growth".

Why do the authors consider revenue growth the key indicator, rather than profits or the share price? Because, they say, simply managing margins to produce bigger profits is not a sustainable approach or a sign of success. It is also harder to manipulate revenue growth over time.

So, taking a sub-set of 50 classic business "stalls", what do Olsen and van Bever discover? At first sight, their chart of "root causes of revenue stalls" presents a varied and daunting array of potential business calamities. To paraphrase the singer Paul Simon, there appear to be "50 ways to leave your growth behind".

The authors are not trying to depress their readers. Digging a little deeper, they discover that many of the stall points can be grouped under relatively few headings. And, encouragingly, only about one in 10 of these stalls can truly be blamed on external factors that are beyond the control of management.

In fact, more than half the growth failures can be categorised as belonging under one of four main headings: "premium position captivity" - the failure to change tactics in response to the advent of a low-cost competitor or changing customer preference; "innovation management breakdown" - failure to achieve desired or required returns on investments in new products or services; "premature core abandonment" - failure to exploit growth opportunities in the "core franchise" or to adjust the business model to meet new competitive requirements; and "talent bench shortfall" - lack of adequate leaders and staff with the skills and capabilities for successful strategy execution. The fifth most common cause of a stall is a failed acquisition.

The authors give their own crisp version of the classic question, "Why do smart people do stupid things?" The problem is stale thinking, based on "mental models" that no longer apply. Abandoning long-held beliefs, and resisting the seductive perils of denial, proves difficult for many business leaders.

"The assumptions the team has believed the longest or believes the most deeply to be true are the likeliest to be the team's undoing, because these beliefs are so obvious and accepted that it is no longer politic to debate them," they write.

So how do you avoid falling into this stale mental model trap? Try setting up a "core belief identification squad", the authors suggest. Learn the joys of "pre-mortem strategic analysis". Get people to write the newspaper account that might be published five years from now that describes a) how the business succeeded or b) how it failed: what do people within the organisation already know about what is going right or wrong? Form a "shadow cabinet" of high potential employees to discuss alternative strategies that might challenge or complement the work of the real executive board.

Fanciful? There is an alternative, of course. Copy Daimler-Benz, which spent years believing that "engineering perfection" could command a premium indefinitely; or IBM, which thought the PC would never replace the mainframe; or Toshiba, which thought it could run highly dissimilar businesses with ease; or Levi Strauss, which thought its world-famous brand would protect it against both high-end and low-end competition.

This book offers a useful checklist in how not to do it, a cost-effective way to learn from other people's mistakes. It is a bit like having access to a wily old non-executive director.

Do not flinch from reading this catalogue of business failure. As the popular but deeply gloomy war-time radio character Mona Lott (say it out loud) used to boast: "It's being so cheerful as keeps me going."

Copyright The Financial Times Limited 2008

FT: Take a tough look at scrapping Burma sanctions

Take a tough look at scrapping Burma sanctions

Published: May 13 2008 03:00 | Last updated: May 13 2008 03:00

From Mr Derek Tonkin.

Sir, Now that we can see so starkly that the recalcitrant generals in Burma pay not the slightest attention to the pretensions of western politicians “to send a strong message” every time they ratchet up trade and financial sanctions, might I suggest that we take a serious look at scrapping some, if not all, of these measures built up so laboriously over the past 12 years while we have the opportunity to do so without losing face?

Any honest analysis of European Union sanctions imposed since 1996, if published, would show that the people most affected are invariably the population at large, particularly the most recent list of some 1,000 small to medium-size private companies, some no more than boutiques and market stalls, which have the misfortune to sell retail goods made from targeted raw materials such as timber, gems and metals.

The people of Burma deserve all our support and assistance to get back on their feet. The needs of the 15m in the five regions directly affected by the cyclone, especially of the 1.5m in dire need, are clear, but Burma's other 40m are also facing sharply rising prices for rice, cooking oil, diesel and other commodities, quite apart from health and education costs for which there is very little state support. When you are trying to survive on $1 a day, an increase of expenditure by a mere 10 cents can tip you below the poverty line.

With some $2bn in foreign exchange reserves and the best trade surplus in years from natural gas sales of $2.7bn, the generals are hardly about to succumb. Why make the Burmese people suffer simply so that we can “feel good”? Because I for one don't feel good at all.

Derek Tonkin,
Guildford, Surrey GU3 3PU
British Ambassador to Thailand 1986-89

Copyright The Financial Times Limited 2008

BT: Margins hit as petrochem sector mourns end of boom

Top Print Edition Stories

Published May 28, 2008

Margins hit as petrochem sector mourns end of boom Overcapacity kicks in, demand slumps and feedstock becomes more expensive By RONNIE LIM Email this article Print article Feedback (SINGAPORE) Singapore's huge petrochemical industry has started to feel the pinch of a cyclical downturn in the past few months. And it's expected to drag on for four years, hitting the multi-billion-dollar crackers that Shell and ExxonMobil will start up here in 2010 and 2011. To survive the Gulf competition, local producers have to look to opportunities. One way is to integrate refineries and look for synergies. 'After a four-year boom, margins have started falling in the past three months,' an industry source said. There has been a 'triple whammy', arising first from the glut of capacity added by new petrochemical plants, especially in the Middle East, he told BT. 'Second, we've started seeing a slowdown in demand from markets like China, linked to a slowdown in demand for finished products in the US. 'And third, high crude prices - which spiked above US$135 recently - have hit feedstock costs for Singapore crackers, which has led to margin erosions.' Last week, Stan Park, deputy managing director of Petrochemical Corporation of Singapore (PCS), told BT that margins at its Jurong Island crackers have been squeezed by the rapid rise in oil prices, which account for more than 90 per cent of operating costs. Naphtha, a product of oil refining, has shot up 20 per cent this year alone. The warnings from Singapore players come as the Asian Petrochemical Industry Conference (Apic), which started here yesterday, heard that the boom of the past four years is over. 'We've already seen a decline in profits this year as new capacity starts up,' said Steve Zinger, Asian managing director of consultancy Chemical Market Associates. 'In the next 12 months alone, there will be Middle East ethylene capacity additions of 9 million tonnes per annum, which is larger than global demand growth of 5-6 million tonnes per annum (tpa).' On top of this, new Asian capacity will start up around 2009/2010. In 2009, China will invest in about 9 million tonnes of new capacity, including three coal-fired petrochemical plants, while Vietnam and Indonesia are also considering investments. With capacity supply exceeding demand, 'we expect the downturn to last for four more years, with a recovery in 2013-2015', Mr Zinger said. An avalanche of new Gulf capacity, especially in Saudi Arabia and Iran, will overwhelm petrochemical supply at a time when economic growth is slowing worldwide. The upcoming 9 million tpa in the Gulf this year dwarfs Singapore's current capacity of 2.3 million tpa, comprising PCS's 1.4 million tpa and ExxonMobil's 900,000 tpa. It is also more than double the 4.1 million tpa total here when Shell's new US$3 billion, 800,000 tpa cracker and Exxon's US$5 billion-plus, 1 million tpa cracker, start up. But the industry downturn will not affect construction of these two projects. 'Our investment decisions are not timed for market cycles,' said an official. 'If you put steel into the ground, it's for the long term.' The downturn will, however, put a dampener on the Economic Development Board's (EDB) hopes for two more petrochemical crackers here. Furthermore, high oil prices will not only hurt naphtha-fuelled crackers like those in Singapore, but give a competitive advantage to natural gas-fuelled crackers like those in the Middle East and the US. As Mr Zinger pointed out, this means the Middle East can produce ethylene at US$200 a tonne, which is US$600 a tonne cheaper than in Europe and North-east Asia and US$400 a tonne cheaper than in South-east Asia. To survive the Gulf competition, local producers have to look to opportunities, he suggests. One way is to integrate refineries and look for synergies, which Shell and ExxonMobil have done here to boost operational efficiencies and cut costs. In the meantime, a shake-out of less cost-efficient producers is expected.

FT: Freed from the restraints of red tape

Freed from the restraints of red tape

By Richard Lapper

Published: May 27 2008 22:11 | Last updated: May 27 2008 22:11

The Barbería Charly has been open for only two months but demand for the hairdresser’s speciality cut – a military style known as the corte ingles – looks pretty healthy, with up to 30 hard-looking young men passing through the premises each day.

The barber himself, Carlos Vañegas (right), a dapper former army sergeant, says setting up his own salon has been easier than he expected, mainly because of the way the local council in Tegucigalpa, capital of Honduras, has been slashing red tape.

“It took a few hours to do all the paperwork,” says 30-year-old Mr Vañegas, who opted to go it alone after eight years learning the trade. “I don’t think we would have opened had it been like it was.”

Obtaining formal status for his business made it easier for Mr Vañegas to borrow funds to equip the shop. A 40,000 lempira ($2,000) loan has been used to buy clippers, razors, hairdryers and two state-of-the-art barbers’ chairs. And Mr Vañegas is not the only small trader to benefit.

Over the past year or so, the mayor’s office in Tegucigalpa has reformed an antiquated registration process, reducing the number of procedures to obtain an operating licence from 180 to just 25.

Business-friendly trend is slowed down by vested interests

It may have become easier to license a business, register property and borrow money in Honduras, but the country still has some way to go if it is to become truly friendly to business.

It costs the equivalent of 60 per cent of average annual per capita income to set up a business, not as much as in some parts of Africa, but far more than the 0.1 per cent required in New Zealand, the country at the top of a ranking compiled by the International Finance Corporation, the private sector arm of the World Bank.

Officials admit this is mainly because of the extensive involvement of lawyers and public notaries in many stages of the registration process, a failing that Honduras shares with most Latin American countries. The power of the Colegio de Abogados, the local lawyers’ association, is a powerful constraint on change, concedes Virgílio Umanzor, competitiveness minister. “It is difficult to make the association aware of the need for change,” he says.

Restrictive labour laws are also a problem.

Moreover, some benefits of formalisation depend on easy access to credit. Highly liquid local banks have been expanding lending quickly, with rates much lower than even two years ago: the problem is that this could change quickly if Honduras’s economy, highly dependent on the US, were to slide into trouble.

Entrepreneurs such as Mr Vañegas formerly had to fill in 35 forms. Now they can be up and running with just three.

Obtaining a municipal operating licence used to take more than a month but can now be done within a day.

Since the start of last year, more than 8,000 restaurants, workshops, grocers and other businesses have been registered in the city, increasing the number of those formally registered from 22,000 in 2005 to 34,000 today and making an appreciable dent in Honduras’s sprawling black economy, which accounts for more than 50 per cent of economic output and is one of the biggest in any developing country.

Myrna Salmerón, a 44-year-old former cleaner, opened her small Cafetería Adonis just over a year ago and managed to register the business quickly at the mayor’s office round the corner. She serves about 100 lunches a day – simple meals of beans, rice, fried plantain, grilled chicken and neatly diced cabbage and tomatoes for $1.50 – to low-income customers who live or work nearby.

Now formalisation has opened the prospect of expansion. Armed with her registration papers, Ms Sal­merón has been able to take out a bank loan to buy a second-hand mini-bus, from which she hopes to start a home delivery service. At home, her increased income has helped buy a small computer and cover some of her oldest daughter’s university costs. “None of this would have been possible without the changes,” she says.

Alba Sagario, 43, who sells cheap fashion items, stationery and novelties from two rented stores in the downtown area, has also benefited from the improvements. Spending less time on administration has given her more scope to think about opening a second floor for her Lady’s Collection boutique from where she plans to start selling shoes. “When I began in 2005 it was so difficult. They sent us from one corner to another,” she says.

Under previous rules, small businesses were forced to take their applications through the same tortuous procedure as the biggest and most risky businesses. It was virtually impossible without the involvement of tramitadores – independent agents – who earned a 10 per cent commission for guiding applications through the process. “It was completely out of control before. Complete chaos, in fact,” says Jorge Alberto Velasquez, one of the surviving agents, who now makes a living working for those who are too old, ill or simply too busy to come to the town hall.

The contrast today could not be greater. Even for bigger, more complex businesses, the rules are simpler. Visitors to the mayor’s offices are greeted by posters advertising the council’s slogan of “atiende, entiende, resuelve”, which might most accurately translate as “we pay attention, listen and sort things out”.

The atmosphere on the second floor, where would-be small entrepreneurs are applying for operating licences, is one of orderly calm. A queuing system has been introduced and friendly staff – wearing neat white uniforms advertising the same slogan – seem to be getting through applications quickly. Those waiting watch European football or soap operas on TVs. Downstairs the mayor has leased space to a popular local bank so that funds can be obtained quickly.

The Honduran experiment is one of a number under way in developing countries. The idea that governments should do more to alleviate poverty by capitalising on the growth potential of the informal economy first surfaced in the 1980s. The International Finance Corporation, the private sector arm of the World Bank, which has advised the Honduran government and local authorities, has been working intensively on the issue for more than a decade.

Doing Business, a report the IFC publishes annually comparing how easy it is to open and close businesses, pay taxes or resolve legal disputes across the world, was first published in 2003. It provides a benchmarking system that permits comparison between governments and now measures annual progress in 10 separate areas: starting a business or closing one, dealing with licences, employment rules, property registration, credit, investor protection, ease of paying taxes, cross-border trading and contract enforcement.

More recently, noting that many of the biggest blocks are at municipal or state level, the IFC has begun to work with 184 local governments in 10 Latin American countries, including three of the poorest, Bolivia, Nicaragua and Honduras. Again, a score chart helps mayors and governors measure their progress against peers.

Many pitfalls remain (see left) but for the moment at least momentum seems on the side of reform. San Pedro Sula, a rapidly growing northern city that is a centre of the country’s maquiladora industry – which assembles imported parts for export – has already introduced many of the same reforms as Tegucigalpa, tripling the number of new businesses registered to 6,915 between 2006 and 2007.

Five other smaller cities are set to follow suit. Perhaps significantly in a country traditionally hamstrung by chronic clientelism, both main political parties are backing reform. Mayors from the left-of-centre governing Liberal party and the more conservative National party that runs Tegucigalpa are backing the changes.

“The logic is simple,” says Ricardo Álvarez, the Tegucigalpa mayor. “If you have a permit it opens doors. You can get credit. At the end of the day you can grow.”

Copyright The Financial Times Limited 2008

FT: Restyle in the aisles

Restyle in the aisles

By Elizabeth Rigby

Published: May 27 2008 22:11 | Last updated: May 27 2008 22:11

For many of us, wheeling a trolley up and down supermarket aisles is a routine affair. But for Dina Howell, the minutiae of shoppers’ wanderings on their weekly shop is very interesting indeed.

Ms Howell, who is in charge of all of Procter & Gamble’s in-store marketing worldwide, wants all the details, no matter how small. She wants to know how many people walk down the haircare aisles in a superstore and at what time of the day. She wants to see whether bigger, brighter displays attract more customers. And she wants to use this knowledge to try to understand how P&G can sell more of its goods in superstores.

To this end, P&G and a dozen other consumer goods companies – including Coca-Cola and Kellogg – and 18 US retailers such as Wal-Mart, Walgreens and Target have each spent $250,000 on “project Prism”, an initiative led by AC Nielsen, the media rating agency.

Infrared sensors have been dotted through 166 superstores in the US to monitor the movements of millions of shoppers as they push their trolleys along the aisles.

“It is a big test,” says Ms Howell, her eyes widening as she contemplates the information being gathered, and then extrapolated to apply to thousands of stores.

“We are getting data from the US right now and it is very interesting. Of all the business that happens [for P&G] in the US, we are getting data on 60 per cent of those volumes.”

Prism – “pioneering research for an in-store metric” – uses infrared beams to track shoppers’ movements and then correlate them with sales data. Advocates describe it as the first truly scientific measurement of the effectiveness of in-store sales tools such as shelf location and promotional displays.

The findings are still under wraps, but Ms Howell, who gave a talk about Prism at the annual World Retail Congress this year, says the research could change all manner of aspects of superstores, from how the retailers sketch out their floorplans to the types of products they stock.

“I suspect [that] with Prism we will begin to understand those aisles that you and I enjoy shopping [in] because they are so empty. Retailers will maybe start thinking ‘should I be devoting that level of real estate [to those categories]’,” she says. “I am sure that there are categories being underserved, but that data will reveal it.”

That could mean changes such as cutting back on the homeware section in return for bigger health and beauty aisles. But it could also bring about changes to how stores are set out if retailers and consumer goods companies can work out what type of shoppers go where and why.

In one retail chain, AC Nielsen monitored who was shopping in the haircare and soft drink aisles for a month. During that period, 1.7m shoppers – 1m of whom were women – walked through soft drinks but gave the haircare section a miss.

AC Nielsen estimates that half of those 1m women were between the ages of 24 and 54 and therefore the target audience for makers of shampoos, conditioners, hair dyes and styling mousse. Getting even a fraction of them to walk through the haircare aisle could eventually amount to millions of dollars more in sales.

“If you are not a huge company, you might not be able to get retailers to change around aisles,” says David Sommer, managing partner of in-store media planner MEC Retail, who is also involved in the Prism project.

“But say there is someone who you want to sell breakfast cereal to and you know they don’t walk down that aisle – you could find another place in the store where you could reach them, such as putting a sign in the dairy section to remind them that breakfast cereal is a good way to start the day and point them to aisle two.”

As well as spotting missed opportunities, Prism can help consumer goods companies work out whether in-store campaigns are really converting browsers into buyers.

“[Ahead of a marketing campaign] we monitor the amount of people walking through and we are able to know that 15 per cent of people were converted to buy that category [be it haircare, detergents and so on].

“If we then do a marketing exercise in that aisle, we can measure if the conversion rate is higher, say 20 per cent,” says Ms Howell.

“Then you can take the difference [in sales volumes] times the average dollaring [sales] and know what the size of that prize really was and not what it was projected to be.”

In July, Nielsen will start selling the Prism data to a wider group of companies in the US.

Mr Sommer says: “It is a huge deal. Up to now, in-store [marketing] was handled by the sales guys who worked for Colgate or Campbells or P&G and it was just about stocking them high and letting them fly. Now it is much more analytical, so you are not just trying to sell things, you are trying to understand who you are reaching.”

Ms Howell, a veteran of 18 years at P&G, says that reaching those women who might buy Tide for their laundry or Pantene for their hair is getting trickier in the internet age.

“The way to get shoppers’ attention is so scattered – if you think about daily life, how many things do you do in a day? So it is very important to find ways to get to her.”

Until now P&G has spent $7bn a year talking to “her” through television and print adverts. But that could change as it tries to reach out to the shopper in the aisles instead.

Copyright The Financial Times Limited 2008

Lego, Imagination

NY Times:Cable Prices Keep Rising, and Customers Keep Paying

http://www.nytimes.com/2008/05/24/technology/24cable.html?th=&emc=th&pagewanted=all


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Cable Prices Keep Rising, and Customers Keep Paying

By MATT RICHTEL

Published: May 24, 2008

Americans discouraged by higher gas prices and airline fares may decide to spend more vacation time at home, perhaps watching television.

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Illustration by The New York Times

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Paying the Most to Watch the Tube

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Darryl Bush/Associated Press

Julio Rodriguez, left, of Comcast Cable upgrading cable lines for Walt Ferris of San Rafael, Calif.

But that, too, will cost them more than ever.

Cable prices have risen 77 percent since 1996, roughly double the rate of inflation, the Bureau of Labor Statistics reported this month.

Cable customers, who typically pay at least $60 a month, watch only a fraction of what they pay for — on average, a mere 13 percent of the 118 channels available to them. And the number of subscribers keeps growing.

The resiliency of cable is all the more remarkable because the Internet was supposed to change all things digital. Technology has led to more choices and lower prices for news and music as well as cellphone and landline minutes — not to mention computers, cameras, music players and phones themselves.

Yet here is a rare instance where Silicon Valley has failed to break a traditional media juggernaut. And not for lack of trying.

Technology companies keep insisting they will provide new low-cost ways to get video into the home, but so far their efforts have created more black boxes to stash under the TV, not real competition for cable that could bring prices down.

“A couple of years ago, there was a thesis that we were at the twilight of Comcast as the gatekeeper,” said Craig Moffett, a cable industry analyst at Sanford C. Bernstein & Company. “That thesis still titillates some. But technologically and economically, it’s probably not going to happen.”

So why hasn’t technology had a bigger impact? One answer is the alliance between cable companies and Hollywood producers of content to sell channels in bundles, rather than letting consumers pay only for the channels they want.

The producers of cable television content share $15 billion to $20 billion a year in fees from cable subscribers, roughly equal to the $20 billion they receive in advertising revenue, Mr. Moffett said.

Without those fees, the cable companies say, prices would go up.

“If each channel depended on individual consumers electing to pay individually for it, this would slash potential viewership and seriously hurt the ability of most channels to attract their current level of advertising dollars,” said Jenni Moyer, a spokeswoman for Comcast. “Lost ad revenue would have to be replaced by higher license fees.”

The industry says the digital era has brought its customers better image quality, more on-demand services and solid value through packages that combine cable, phone and Internet service. It also says consumers are actually getting more viewing value for their dollar, at least relative to inflation. The National Cable & Telecommunications Association says that from 1998 to 2006, the price consumers paid for each viewing hour was essentially flat.

The chief economist of the Federal Communications Commission, Gregory S. Crawford, disagrees, saying the industry is not factoring in the real cost of the programming that subscribers are watching. By his analysis, the increase has been around 50 percent from 1997 to 2005.

The F.C.C. and some politicians have been in a pitched battled with the cable industry, trying to get it voluntarily to offer so-called à la carte pricing. But cable companies insist that this is not economically feasible.

Kevin J. Martin, chairman of the F.C.C., said in an interview that since 1996, when Congress increased competition in telecommunications, prices have dropped for many other services.

“We’ve seen the opposite occur in the cable industry,” he said. “The dramatic increases in pricing we’ve seen are one of the most troubling issues from a consumer point of view.”

In 2007, average monthly revenue for each Cablevision subscriber was $75, up from $65 in 2005, according to SNL Kagan, a research company. At Time Warner it was $64, up from $54.50.

The cable industry has never felt the pricing pressures the music industry is feeling. The most obvious reason is that Internet speeds have not been fast enough to permit easy downloading of movies and other video material.

That is changing, though. People are viewing millions of videos online each month — albeit mostly short video clips, and not Hollywood movies. At the same time, the use of file-sharing tools like BitTorrent to download illegally popular movies and television shows is growing.

Another factor helping the cable industry is the difficulty of getting video from the computer onto the TV. That may not be a deterrent for those who have grown accustomed to watching movies on their laptop. But the last thing many consumers want to do is hook up wires or program a new box before sitting back to relax and watch TV.

In that sense, the lure of cable appears to have a sociological component. In a stress-filled life, cable television is easy to use.

“I work eight hours a day facing a computer. When I come home, the last thing I want to do is mess with another computer,” said Eric Yu, 24, a college student in San Francisco who pays around $80 a month for cable.

Mr. Yu said he watches only a handful of channels, including some in high definition like National Geographic. But to get them, he has to pay for a premium package. “I just pay the bill and try to forget about it,” he said. “It lessens the pain.”

Evelyn Tan, 22, a friend of Mr. Yu, takes a different approach. She pays Comcast $33 a month for Internet access and does not get cable television — but she does watch TV programming.

In fact, she watches ABC shows like “Desperate Housewives” and “Gray’s Anatomy,” which are free on the Web. When she wants to watch shows or movies that are not readily available online, she says she easily pirates them. “I would not pay for cable TV at all,” she said.

Broadcast networks like ABC, NBC and Fox are starting to put their programming on the Internet. But most cable channels do not because they depend on subscriber revenue.

Albert Cheng, executive vice president for digital media at the Disney-ABC Television Group, said the industry was trying to prepare for an era in which more video is watched on computers.

“It wasn’t lost on us what happened to the music industry,” Mr. Cheng said. Even though the audience is growing for ABC shows online, he said, this is supplementing, rather than undercutting, the television audience.

Enter Silicon Valley. It is trying to marry the content people want with their preferred setting for viewing it. There is a host of new set-top boxes and consumer devices aimed at bringing video and other content from the Internet to the TV.

Apple’s iTunes store offers 20,000 episodes of some 800 shows at typically $1.99 or $2.99 an episode, effectively creating an à la carte option. But consumers must either watch on their computers, wire the computer to the television or get an Apple TV.

This week Roku, a Silicon Valley start-up, began selling a $99 box that streams movies from Netflix straight to the TV. And this summer Hewlett-Packard is expected to introduce a device called the MediaSmart Connect, a sleek box connecting computer and TV that lets users watch Internet videos as well as rent or buy some 6,000 movies through CinemaNow, an H.P. partner.

But the box will also demonstrate how much of a gap still separates the computer screen and the TV screen.

Carlos Montalvo, vice president for marketing of connected entertainment at H.P., said the MediaSmart Connect and similar devices would not offer much of the programming provided over cable, or even programming that content companies allow to be delivered over the Internet to computers. The reason, he said, is that this content is licensed to be shown only on a computer, not delivered via computer to a TV.

“Simply because the technology is there doesn’t mean that the large opus of content — both television and movies — that is available on the two-foot screen can move automatically to the large-screen TV,” he said.

	The New York Times