Week #11: Community Relations 2.0

Social media is clearly a rapidly-developing communication tool, and an evolving marketing tool.  Many companies are using social media to build and enhance their brands, as they interact directly with their existing and potential customers.  The integration of social media with, and into, a company or organization is not always easy - there are many legal, liability, and potential negative backlash issues to be aware of as well.  However, given the huge popularity of social media, it has almost become a price-of-entry to utilize social media as one of your marketing pillars. 

General Motors has a huge presence in most social media applications, including Youtube, Facebook, and Twitter.  GM maintains this presence as a corporation, and our individual brands have a separate presence as well – Chevrolet, Cadillac, Buick, and GMC all have their own pages.  Interacting with customers via social media has been a huge opportunity and a great success so far.  GM usually uses social media to build excitement around a new vehicle introduction or to focus on new vehicle features or changes to a product.  I think these type of messages and interactions work well, and GM’s interaction with enthusiast and niche groups, such as Corvette and Volt owners, also works well.  Followers of GM on social media sites are treated to early (or what they think is early) information about new vehicle launches, and I think this is an excellent way to raise awareness of a new product.  As an example, witness the site http://www.one13thirteen.com.  This site urges customers to connect to follow the launch of the completely new 2014 Corvette, which will be released to the public on January 13, 2013.  Followers get special updates from now until the launch, which I believe is an excellent way to engage enthusiasts.  Social media is also a way for GM to get instant feedback on a concept car or spy photo that is released, and to gage the public's opinion.

As other companies have learned, there are some potential negatives to social media - namely, bad publicity.  It is very easy for disgruntled customers to band together via the internet, and this can easily create a public relations nightmare.  I think GM, and other companies as well, have rapidly developed organizations to manage these potential complications, as they understand that the positives of using social media usually outweigh the negatives.  One upside to this issue is that you can rapidly clear up bad rumors and perceptions.

Another interesting aspect of social media is advertising.  GM announced this year that they will stop advertising on Facebook.  According to the press release, GM has decided that paid ads on the site have little impact on customers’ purchases, and they are ceasing their advertising investment of $10 million per year with the site.  GM plans to maintain a strong interaction with Facebook and their page, but with no advertising budget for side ads and pop-ups.  As you can imagine, this has a profound impact on how other companies perceive the value of Facebook advertising.  I believe this is one reason Facebook’s stock price has continued to fall.

Finally, even given the huge success of social media and continued growth, I do not believe that it will replace other forms of marketing communication.  Social media may rival other forms, but I think television communication will remain a huge and integral part of the marketing mix for the foreseeable future.

As this is the last blog post, I thought it would be apropos to mention that I have thoroughly enjoyed C570 this semester, and writing this blog as well!  I have learned quite a lot in a short period of time - this class has opened my eyes to marketing and motived me to continue learning more about it.  I look forward to applying some of the principles I have learned at General Motors, and I hope to cross paths with everyone sometime again in the future.

Week #10: Customer Lifetime Value and Rosewood Hotels

This week’s material introduced the Rosewood case study as well as an article on customer profitability and lifetime value.  As an engineer who isn’t afraid of numbers, I thoroughly enjoyed the Customer Lifetime Value (CLV) equations and analysis that was presented both in the article and in the Breeze session. 

Example of a GM Loyalty Program Advertisement

At GM, I think we are just beginning to understand the total value of our customers.  There is a very large opportunity here – if we can sell a vehicle to a new customer, make them see/feel/drive the value in the product, and retain them as a lifetime GM customer for several future new vehicle purchases, the potential profitability is huge.  At the same time, GM is entering the accessories business, by allowing customers to accessorize their vehicles with GM approved products that are custom made for their particular vehicle and backed by a GM warranty.  We are also trying very hard to improve the dealership experience, both when purchasing a new vehicle and when having it serviced.  As proof that GM is intent on raising customer loyalty, Mark Reuss, our Vice President of product development, announced a new employee compensation program in June this year that ties our bonuses to how well we retain customers.

In support of the new customer lifetime value initiatives, GM has implemented several loyalty programs that are designed to keep and retain customers.  These programs range from giving customers additional discounts on new vehicles, to credit card reward point programs, to customer appreciation days for existing customers.

However, not all CLV initiatives are easy.  First, consider the amount of data that is necessary to track customers throughout a “lifetime” of purchases with a company.  This data must be constantly acquired, analyzed, and then acted upon.  Secondly, customers have to be categorized, and then poor customers dropped and additional attention directed towards rewarding loyal customers.  Finally, at a large company (such as GM), cross-communication between brands is necessary to identify cross-selling opportunities that may mean greater overall profitability for the company.  In the case of GM, this means tracking Chevrolet, Buick, Cadillac, and GMC customers in the same database and identifying promotional opportunities for increased sales.

In the Rosewood case, the main issue is that the company lacks a unified brand image to link together all of their individual hotels around the world.  From the Strategic Marketing Solutions report, it appears that the majority of customers do not know they are staying at a Rosewood hotel, or of the Rosewood brand in general.  For increased customer recognition and potential profitability increases, a corporate branding strategy is being proposed.  The potential benefits are realized through enhanced customer awareness of the brand and cross-property marketing.  However, the corporate branding strategy would definitely put the individualism of each hotel in jeopardy.

I would suggest that Rosewood management conduct a full customer lifetime value analysis of the proposed corporate branding strategy.  I will discuss the results further in my individual case memo, but my initial analysis shows a positive result for corporate branding strategy.  Therefore, I would recommend that the management of Rosewood adopt the strategy to take advantage of the increased profits.  At the same time, Rosewood should be very careful to market the exclusivity of each hotel and keep their “A Sense of Place” strategy in place to differentiate their hotels from chain-like competitors.

Rosewood Little Dix Bay, BVI

Finally, I would definitely enjoy a stay at Rosewood Little Dix Bay in the British Virgin Islands - what a beautiful place!  I also see on the Rosewood Properties website that they are opening a property in Beijing in 2013 and in Thailand in 2015.  These are both locations that I anticipate visiting in the coming years, and I would definitely be interested in vacationing at either resort!

Week #9: Brand Valuation

Wow – interesting material on brand valuation!  After a short discussion in a Breeze session earlier in the class, I was aware that a monetary value could be put on a brand (especially in Europe), but I was eager to learn more about how this value is determined.  I understand the theory of goodwill during acquisitions and the associated accounting practices and inclusion on the balance sheet, but I had no idea of the possible discrepancies and potential exclusion of such a huge part of the value of a company. 

I believe the value of a brand is based on the perception, recognition, reputation, qualities, and attributes that a product or service delivers… in the customers’ minds and sometimes hearts.  These aforementioned characteristics (some of which are intangible) and feelings have an effect on what a customer believes about a product, what is memorable, and what value they perceive it to have to them personally.  These effects, in turn, have an effect on customers’ purchases, which lead to revenues and profits of a company, now and well into the future.  A brand can create a reason for purchase, and it can also create a lasting bond with a customer that leads to trust and brand loyalty, and therefore future purchases.  A brand can also create value for a customer by what it says about the person who buys it – ie, the reputation.  Most Harley Davidson owners these days are doctors and lawyers who crave the reputation and feeling of freedom they obtain while riding their motorcycles. 

Some of my most favorite brands are tried-and-true global favorites, such as Levi’s, Facebook, Nike, Sony, BMW, Google, and Amazon.  However, after living in Europe for a few years, I have developed some favorites from that side of the world as well, such as Franziskaner and Erdinger (German hefeweizens), several Italian Chianti’s and Spanish red wines, and of course my employer there – Opel.  Some of my favorite brands are even places – Hawaii has done quite a lot of marketing to garner its reputation (and my wife and I love it there), Iceland has done well for itself after the bankruptcy a few years ago (a beautiful place to visit, especially the blue lagoon), and New Zealand has created a brand strong enough that I traveled 40 hours to get there (from Germany to New Zealand really is halfway around the world…).  I’d also be remiss if I failed to mention that I’m a devout supporter of Canon camera equipment and Lavazza espresso.  Most of my favorite brands are in place because of they continue to deliver trustworthy products or services, year after year, that fit my needs, budget, niche, and lifestyle.  I feel I can trust them to keep delivering the quality that I expect at a price point that meets my budget, and this creates lasting value in my mind.

Given the immense value of brands and their ability to develop cash flows now and potentially into the future, I definitely feel that they belong on the balance sheet.  I actually can’t believe that the GAAP does not require brand valuation.  In this case, the European reporting principles seem to make much more sense in my opinion.  For example, the Brand Valuation article this week described that the brand contribution to market capitalization of McDonalds is 71%.  That’s huge, but never shows up on the balance sheet.  It would seem, then, that there are large discrepancies out there that can be hidden when comparing companies.  I believe the GAAP accounting principles need to be modified to define brand valuation if it is really accounting for 1/3 of shareholder value, as the article states.  It would definitely be helpful to track the performance of a brand over time, as with all other aspects of a company.  Finally, why would the GAAP require a company to declare the intangible value of an acquired company brand, but not the value of an internally generated brand?

Yes, there is a large uncertainty about how to put a number on the value of a brand, but the article presents an excellent starting point methodology.  The five steps presented to capture the value creation of a brand need to be distinctly researched and defined in the GAAP and implemented.  They may end up being continually revised, given the diverse and complicated nature of companies in existence today, but I feel we need to begin the process and continually hone the principles in order to capture the real assets and positions of companies.