Prime Group

General Motors has recently taken a bold and enlightened step into the brave new world of online engagement with www.gmnext.com.  The site has a blog that encourages interaction between the company, its customers, the broader public and even company critics.  It also offers a wiki that allows the public to help “build” the 100-year history of the company complete with personal and even emotional first-person accounts.  There are photos, videos, podcasts, and personal stories from current and past customers.

But recently, most of the attention – on and off the site – is going to the blog where environmental activists are harassing company executives who gamely try to defend the company’s green initiatives (http://thecycle.prweekblogs.com/?s=gmnext).  For the moment, GM has shut down the public comment space and “taken back control” of the site.  It raises an interesting question and one we encounter every time we encourage a client to go interactive.  When is enough enough?  The purpose of these exercises is to give the public – including critics – a chance to be heard and, in turn, to hear from the company on issues that matter to both the public and the company.  But, too often, they become nothing more than a soap box for activists (and occasionally bores) who just want to repeat a point of view often enough and loudly enough to drown out everyone else on the subject.  We’ve all seen the non-digital version of this at political town hall meetings when, eventually, a heckler needs to be removed from the event.  Of course, it is possible to digitally remove these online hecklers – by blocking them from the site but, increasingly, they are sophisticated enough to work around such measures and/or recruit enough like-minded folks to overwhelm the site.  At those times, companies may have little choice but to do what GM has done and “take a breather.”

Too bad.  Companies, their customers, and the broader public can all benefit from an open and honest give-and-take on relevant issues and GM exhibited what seemed to me, at least, a sincere effort to engage in a conversation even when it stung a little…or a lot.  But no company can be expected to allow their assets – in this case their blog – to be used as a blunt instrument to bludgeon them endlessly and boringly until they cry “uncle.”  Web 2.0, as a “society,” is still in its infancy and the rules of engagement are far from clear yet.   Maybe the solution, eventually, will be for other blog participants, interested in the original intent of the site, to step in and help shut up (or down) the loudmouths.  Such social opprobrium has long been effective in the “real” world.  Might be worth a try in the digital world.

I sit in a Washington DC office directly across the street from a Juan Valdez retail store, the first foray into US retailing for the National Federation of Coffee Growers of Colombia , a wholesaler gone retail in an effort to capture some portion of the “upstream” profit margins of its wholesale customers, namely Starbucks.

As a coffee addict whose only true loyalty is to a decent cup of coffee, proximity matters more than brand. That said, I’m vaguely familiar with the Juan Valdez brand and assumed, based on those perceptions that the coffee would cross the “decent” threshold. Combine that with the proximity and I could become a regular. So far so good on the value of a brand.

Not so fast. The store has had a “Coming Soon” sign for an interminable time, especially given the 300 square foot space. What were they doing in there? I’m sure any number of construction, contractual or bureaucratic delays are to blame but the point is, I couldn’t help but also wonder if maybe they were reevaluating the entire decision. During this idle time, the inconspicuousness of the Juan Valdez and mule icon also started to weigh on me. It didn’t help that the signage uses a cursive font making the “l” and “d” look like a “b” – Juan Vablez.

I got past the”b” and lack of Juan and his mule when opening day arrived. I walked in for my midmorning cup and was greeted, or rather met, or more accurately, stared at by 7 employees behind the counter. Seven employees standing almost literally on top of one another and none of them, not one, seemed happy to there. Let me cite Mitchell Speiser, a restaurant and food analyst with Lehman Brothers to make the rest of my point.

“There’s so much more to it,” said Mitchell J. Speiser, a restaurant and food service analyst at Lehman Brothers, about the federation’s plans. “It’s site location; it’s branding. It’s the right management team. It’s hiring the right people. Just on paper, having real Colombian coffee and creating a retail shop around it, they do win the authenticity factor, but it takes a lot more than that to create a successful brand and a successful retail chain.”

Truer words have never been spoken and on the hiring front I would be willing to bet at least two of the seven quit after 30 days and another one to two are fired within 90 days. Here is food for thought – why not hire half as many people, pay them 150% and include performance bonuses?

Things usually go better when there is a successful business plan that includes smart branding. A brand in search of a business plan is a recipe for driving traffic to Starbucks.

So, did Apple know it would be dropping the iPhone price and simply elect to maximize profit from the early adopters (Diffusion of Innovation, Wikipedia) or was it a market based reaction to demand falling short of expectations? Maybe it was both - a hope that the $599 was the “right”? price point with a Plan B at the ready if it wasn’t. Regardless, this is one example among countless of dynamic pricing based on segment or individual consumer level differences. In this case, and many others, the segment paying the highest price tends to be the most loyal, least price sensitive Apple customers who had to have the iPhone. (Confession, I’m one of the “suckers”? who bought at $599 but read on to find out why I don’t feel too bad about it)

Does a (product or corporate) brand run a risk of using dynamic pricing, especially when the most loyal often pay the most – e.g. long-time 7 day subscribers to newspapers have always subsidized the fickle churners? Does such a brand run the risk of a perceived sense of unfairness or lack of “reciprocal loyalty”? trumping hard won brand equity? There is ample market research to suggest (Journal Consumer Research (Grewal et al. 2004) consumers do consider differential pricing unfair if it is based on the buyer’s identification (e.g. new customer). And since the internet has made this type of information increasingly accessible it would stand to reason that the level of dissatisfaction is on the rise. However, there are mitigating factors and Steve Jobs, in his open letter to the “dissatisfied”? identifies, knowingly or otherwise, at least three.

One is time. If a buyer thinks the cost difference is more a function of time then buyer identification it is more acceptable. The difference between the $599 buyers and the $399 buyers could be “early adopter”? versus “Christmas shoppers”? but it could also be a function of time. If the difference is attributed, at least partially, to the different time period of purchase then perceived unfairness is mitigated.

Another closely related mitigating factor is past experience. It’s probably fair to say early adopter iPhone buyers have previous technology purchasing experiences and recognize that technology prices tend to go down not up. Again, if past experiences support the price differential then it can further mitigate a sense of unfairness. Reputation also matters and a company (like Apple) with a sterling reputation and brand can weather the perceived unfairness of dynamic pricing better than those without it.

Starbucks’ chairman Howard Schultz recently told his top executives that they may be “watering down the Starbucks experience [and] soul.”? If the Starbucks “experience”? and “soul”? have anything to do with coffee, Schultz may be right that books, CDs, movies, stuffed animals, and egg, bacon, and cheese sandwiches distract from that soulful experience. What’s fascinating to me is how Starbucks has managed to display this diffused branding in the most public of places – on its coffee cups.

Starbucks’ cups, of course, were never just containers. They are also large, sorry, grande billboards. On one side is the ubiquitous Starbucks’ logo – the wavy-haired, large-breasted woman in the green circle. But the real branding begins round back where, on my particular cup today, a musician named Dan Zanes envisions in “The Way I See It #193″? a “21st Century America where families, friends, and neighbors gather together at the end of each day… to tell stories and jokes, to sing and dance with wild abandon.”?

This is a branding hat trick. First, Starbucks endorses open speech and wants to connect their customers with the trendsetters of today. Second, there’s Zanes, who is, presumably, cool (which I have to take on faith because he exists only in the world of Starbucks, not iTunes). Third, if you do want to hear Zanes’ music, you are told to go to “Starbucks Hear Music”? on XM Satellite Radio. More cool. By now, Starbucks is already way too cool for me.

But, wait, this cup overflows with even more branding. The cup also tells us that it is “made with 10% post-consumer recycled fiber.”? I’m not sure what that means. Post-consumer is a little scary, even apocalyptic sounding. The fiber part is, hopefully, not nutritional information. Anyway, this reminds us that Starbucks is not only cool, but also responsible. Cool and responsible is a little oxymoronic, but the company seems to pull it off. So, at this point, Starbucks has done as much branding as can be done on a single cup – even a grande one.

Now, it’s the lawyers’ turn. Lest anyone think that Starbucks’ actually endorses Zanes’ zany vision, we are told that “this is the author’s opinion, not necessarily that of Starbucks.”? Are there really lawyers in Seattle who think I’d sue the company just for endorsing a silly, utopian idea? I know our judicial system is messed up, but I can’t imagine that suit would go very far, even in “21st Century America.”? However, if while reading Zanes’ world view I spill scalding coffee on my crotch, I damn well would sue. But that’s covered, too. The cup warns, “Careful, the beverage you are about to enjoy is extremely hot.”? In other words, you won’t enjoy it in your lap.

You’ve got to hand it to Starbucks. It has carefully parceled out the real estate on its cups to the branding department, the music promotion department, the legal department, and the department of silly ideas. Cool, very cool.

What are the first two questions you ask yourself when you hear about a new PR disaster? Here are mine. First, what the hell were they thinking? Second, how can smart people do such dumb things?

Take the Hewlett-Packard leak flap. These are smart people. CEO Mark Hurd, in just 19 months, is turning the company around. Board chairman Patricia Dunn, as a member of the Conference Board’s center for corporate governance, is no stranger to corporate ethics issues. Nor is the HP boardroom populated by unsuccessful, inexperienced, or dumb people. So when Dunn proposed conducting a clandestine probe into boardroom leaks, why didn’t alarms go off in the head (or conscience) of at least one board member? Had no one read All the President’s Men (or even seen the movie)? Didn’t it occur to anyone that the whole exercise was ethically and legally questionable and, from a PR perspective, dangerous in the extreme?

Here are two explanations for these incredible lapses of judgment – one about the nature of the incident and the other about the people involved.

In my White House and Senate staff days, I learned that how you respond to leak probes can help either exonerate you or indict you. “Great idea, let’s get those bastards”? suggests that you have nothing to hide. “Do you really think this is a good idea?”? on the other hand, can raise all the other eyebrows in the room (there are only nine HP board members, and at least one of them was “guilty”?). This is why, even after approximately 99.99% of all leak probes have backfired, they are still proposed and endorsed by otherwise intelligent people.

And what about those people? Of the nine HP board members, six are techies, one comes from finance (Dunn), one from healthcare, and one is a consultant. Notice what’s missing? Here’s a hint by way of board members of similar companies. Apple: Al Gore. Xerox: Vernon Jordan. Dell: Sam Nunn. AT&T: Lynn Martin. United Technologies: Christine Todd Whitman. Intel: Charlene Barshefsky. No one on the HP board has any obvious political experience. It’s not even clear that there’s a lawyer on the board (at least no one is identified as such on the HP Web site).

Of course, having political experience is no guarantee of sagacity or even common sense on politically sensitive issues like leak probes. But, it is hard to believe that Gore, Jordan, or Nunn wouldn’t have sounded the alarm if they were in the HP boardroom that day. It is also unlikely that any of them would have been intimidated by the prospect of being suspected of leaking.

Possibly HP is now looking for a prospective board member with these kinds of credentials, but so far, its only structural reaction has been to take a giant step back from corporate reform and name Hurd chairman of the board. Circling the wagons may be the only political strategy less likely to succeed than probing leaks