By: Michael Cooney
Avoiding mistakes in business is like putting money in the bank. Learning from other’s mistakes is an inexpensive way to help build your profits. Here, then, are a few more for your consideration.
Giant Pepsico Has Giant a Headache
In soft drinks, Pepsi is the number two seller after Coke. Competition is ferocious. A few years back, Pepsi had an idea to rapidly gain market share: Buy fast food chains, kick out Coke, and restock them with Pepsi! What could be simpler? Millions of Coke drinkers now guzzling Pepsi -- a bonanza!
So Pepsi bought Taco Bell and Pizza Hut. Right away, both began selling Pepsi. Soon thereafter, Pepsi market share began slipping. Whaaaaat?
Pepsi apparently forgot a basic rule in building market share: Plan for the reaction of your competitors. By entering the fast food arena, Pepsi now had dozens of new competitors!
Predictably, other fast food chains and independents which had been selling Pepsi quickly switched to Coke! They didn’t want to help build the profits of their fast food competitor’s parent company -- Pepsi! These other chains knew that if they continued to sell Pepsi, they would, in effect, be financing the building of new Taco Bells and Pizza Huts to compete against them.
Coke doesn’t sell hamburgers or tacos or pizza. It sells soft drinks. Profit margins on soft drinks are large. Profit margins on fast food are small. Coke’s stock enjoys a much higher share price than Pepsi’s stock because Coke’s earnings are higher per share. Pepsi has a giant headache. But you can avoid this kind of headache. Remember to project all likely ramifications in market competition before you make the decision to expand into new markets!
Same Book, Two Prices
Prevention Magazine Health Books is a major publisher. They offer, through direct mail, a book called The Green Pharmacy. If you spend $37.95 and buy the book, you’ll find it comes with flyers for other health books, including one advertising the same book (The Green Pharmacy) for just $29.97. How did I find this out? Don’t ask....
The lesson, though, is clear--make sure your right hand knows what your left hand is doing. Testing different prices through direct mail is a valid method for determining optimal pricing. Just make sure you don’t overlap two prices with the same customers as was done here! Otherwise you may face a lot of angry people demanding an explanation. Or a refund.
Did You Receive This Letter?
A few months ago I received a letter from a financial institution in Los Angeles. You may have received the same one. It went like this:
“Dear Michael, I received a fax today regarding the refinance of your home. The information on the fax was unclear. What I got out of it is that you are trying to refinance your home....”
Of course I had sent no such fax. Many direct mail pieces attempt to trick you into calling. This was such a blatant example, though, that I picked up the phone and called the loan officer whose signature appeared on the letter. I intended to ask him if he wrote it or if the company had furnished it, and how he felt about using this kind of tactic to generate calls.
When he came on the line, I referenced the letter, and immediately he jumped in and began to apologize. He told me he had been looking for a way to improve the response to his mailings, and came up with this idea. He admitted that it was a bad idea, had quickly backfired on him, and had resulted in a number of angry calls. He noted that he had returned to a straightforward approach, and was doing much better.
I appreciated and admired his honesty in admitting his error. He had learned an important lesson. I suspect his company had too!
To protect your livelihood, you must personally read and “OK” every direct mail piece that goes out from your company, so a misguided subordinate won’t damage your reputation. Such deception can only backfire, and create considerable resentment and distrust. If that occurred, your company may never fully recover from the damage done.
A Basic Lesson
There is a general, larger lesson to draw from these examples: Do a good job on your homework so you’ll get a good grade! A little patience, common sense, and analysis go a long way towards helping you avoid costly mistakes in marketing. Before implementation, step back and look at both the short term and long term ramifications of your marketing activities. How will customers react? How will competitors react? Have you planned and budgeted to handle those reactions? If you have, you can avoid many costly mistakes.
Michael Cooney, co-founder, Global Development, a marketing and advertising consulting group