The U.S. Supreme Court ruling on Thursday in Leegin Creative Leather Products v. PSKS, Inc., ends a long-standing per se rule against manufacturer agreements with retailers to set minimum resale prices. The court, in its ruling, held that vertical price restraints will now be judged by a "rule of reason" test. The 5-4 decision overrules a nearly 100-year-old standard in antitrust law based on the proposition that pricing agreements between manufacturers and retailers are illegal. The new rule will require that cases of potential antitrust violation--in which manufacturers demand that retailers not sell their products below a certain price--be reviewed individually. Responses from industry and retail groups were mixed. The Consumer Electronics Association (CEA), which represents manufacturers, designers and distributors of electronics goods sold through retail channels, came out largely in favor of the ruling. President Gary Shapiro applauded the decision by the Supreme Court to reverse the per se rule, arguing that it makes sense to judge each instance separately. "The Supreme Court holding that the 'rule of reason' should apply to the legality of manufacturer pricing decisions means, simply, that all the facts will be examined before a finding of illegality--replacing a black-and-white rule of illegality in every case," he wrote, speaking for the CEA. He also said that since manufacturers of consumer electronics invest heavily in retail marketing themselves, they should be able to levy some influence upon retail prices. "Reasonableness has come back to the antitrust laws, and in the consumer electronics industry, where sales training, industry marketing, and after-sales service are highly valued by manufacturers and reputable retailers, it makes perfect sense to consider these factors when evaluating a manufacturer's requirement that threshold prices be maintained." The National Automobile Dealers Association offered its own comment, suggesting the ruling could undercut dealerships' tactics. "It's not clear what impact the ruling may have on consumers, but it could lead to higher prices if auto manufacturers were ever to prevent retailers from discounting," it said. "Auto dealers, like all retailers, know their local markets best and should be free to set their own prices." But Andy Restivo, president of Culver City, Calif.-based Omnicom retail marketing firm Creative Channel Services, sees the Supreme Court's decision leading to a more disciplined product mix at retail. "I think, clearly, it gives the manufacturer a lot of additional control. It will lead to, likely, a more rigorous selection process in terms of product mix that retailers take on. It limits their ability to use the pricing and promotions lever. "When retailers get stuck with product that doesn't sell, the most powerful tool they have to get rid of product is to blow it out on price. If they are limited in their ability to do that, they will have to be even more selective on supply chain management," he says. "My take is that it's going to have a significant impact on retailers--it will just continue the process that we have been seeing toward a more rigorous valuation process in terms of what they pick up and don't."
Honda took top ranking in four model segments in J.D. Power & Associates' 2007 Automotive Performance, Execution and Layout (APEAL) study. The yearly study measures consumers' opinions of their new cars and trucks based on their responses to design, content, layout and performance. The new study follows on the heels of the consultancy's Initial Quality Study (IQS), in which Ford, Hyundai, Honda and others took top positions in various vehicle segments. Among the highest-scoring vehicles in their segments, based on a 1,000-point scale, are Honda's Fit, CR-V, Ridgeline and Odyssey minivan, Ford's Mustang and Edge crossover; Nissan's Altima sedan and Armada, which rank highest in full-sized SUVs for the fourth consecutive year, VW's Jetta and GTI cars. Among luxury cars, BMW's 3-Series, 6-Series and X5, and Mercedes-Benz' E-Class, S-Class and GL-Class won in their vehicle segments. Porsche is the highest-ranking nameplate in APEAL for a third consecutive year. The most improved nameplate in the 2007 study is Scion. The study is based on responses gathered between February and May from more than 91,000 purchasers and lessees of new 2007 model-year cars and trucks who were surveyed after the first 90 days of ownership. Joe Ivers, executive director of quality research at the consultancy, says Ford, several of whose vehicles ranked high in the consultancy's IQS earlier this year, managed to take top rank in both the IQS and APEAL with its Edge crossover. Ivers says that, although IQS and APEAL measures don't overlap or necessarily track each other--i.e., if a vehicle does well in IQS, it won't necessarily do well in APEAL--consumer expectations mean that it is more and more incumbent upon automakers to do well in both IQS and APEAL. "When we started doing APEAL, we had plenty of evidence that there were two types of customers: those who wanted vehicles that were problem-free and those who wanted more expressive, delightful vehicles and, to some degree, would put up with problems to get that," he says. "Then along came Lexus, which demonstrated that you could have both; that complicated things," Ivers says. "There was time when Mercedes was category leader for durability, then it developed vehicles that were very attractive, highly styled, technology-leading, but had lost a focus on quality." He says Mercedes is back in quality leadership; the S-Class is the single highest-scoring vehicle from APEAL's standpoint by a large margin. BMW's 7-Series is in second place. Honda's CR-V compact SUV is another vehicle that won in both IQS and APEAL. Ten of the vehicles topping their respective segments were also new or redesigned this year. The Nissan Armada ranks highest in its segment for a fourth consecutive year. Several models, including the Ford Mustang, Honda Ridgeline and Honda Odyssey, rank highest in their respective segments for a third consecutive year, while the Hyundai Azera and Porsche Cayman earn awards for a second consecutive year. The Mustang and Mercedes-Benz E-Class also rank highest in their segments in both the APEAL study and IQS. But several vehicles manage to stay high on the list despite being longer in the tooth. "The poster child for that is Mustang," says Ivers. "It's in its third year, and, typically, when a vehicle swings for the fences, it tends to do it out of the gate. Ordinarily, when a vehicle gets second, third, fourth, fifth year, it's commonly seen as yesterday's news." But Mustang's score has actually gotten better since last year, according to Ivers, partly because Ford continually offers limited-edition models, such as the forthcoming Shelby Cobra version, that "add another layer of adrenaline, so even though sales volume for these vehicles isn't great, they wind up having a disproportionate affect on appeal ratings." Others that have demonstrated staying power: Mercedes E-class, which is tops in its segment for the fourth year; Nissan's Armada, which competes versus Ford's new, and briskly selling, Expedition SUV; and three GM vehicles, which have improved more than 20 points each over previous GM full-sized SUVs. "After Armada, it's essentially a five-way tie, but there's half the distance in points between second place and fifth place as there is between first and second in that segment, so Armada leads by a wide margin," Ivers says. According to the study, models with higher APEAL scores sell with lower incentives, which might be self-evident. The consultancy says that, on average, owners of vehicles with APEAL scores lower than 800 report receiving dealer incentives of approximately $2,000. For purchasers of models with average APEAL scores higher than 800, the incentive amount can decline by up to 10%. Ivers says the inverse relationship between APEAL scores and incentives doesn't testify to the power of the J.D. Power name or marketers' use of J.D. Power's logo or imagery in advertising. "In my frank assessment, it's the vehicle itself," he says. "It reflects upon the engagement of exterior styling and vehicle layout."
The plus-size and big-and-tall apparel business is booming--precisely the reason that the major specialty chains are vulnerable to a growing but largely "invisible" threat from a host of mainstream retailers. It's not hard to understand why retailers ranging from mass to upscale are looking to increase their share of this market. According to a new study from the Packaged Facts Division of Marketresearch.com, sales of women's/girls' plus-size apparel across all channels reached $47 billion last year, accounting for 27% of all clothing sales and nearly 40% of all women's/girls' apparel sales. Men's/boys' big-and-tall sales reached $29 billion, representing more than 16% of all clothing sales and--believe it or not--50% of all men's/boys' apparel sales. In total, plus-size/big-and-tall sales accounted for 43% of all apparel sales, up nearly a full percentage point from 2005. Between 2001 and 2006, the plus-size and big/tall segments grew by 41% and 40%, respectively, and they're projected to grow by 37% and 47% between 2006 and 2012, to reach $65 billion and $42 billion. That's average growth of 41%, to nearly $107 billion, for the market as a whole. The specialty market is heavily dominated by just a few chains. On the women's/girls' front, Charming Shoppes generated an estimated $2.2 billion in plus-size sales in its most recent fiscal year through Lane Bryant, Fashion Bug, Catherines Plus Sizes and a new intimate-apparel chain launched last year, Cacique. United Retail, Inc. and its Avenue brand runs a distant second (about $462 million in sales). Casual Male Retail Group, with its Casual Male XL and Rochester Big & Tall brands, with $468 million in sales, is the only major player in the big/tall specialty sector. The specialty majors and a plethora of smaller players generated an estimated $12.5 billion in plus-size sales and $7.1 billion in big/tall sales last year--nearly $20 billion in total. That means specialty chains have a 26% market share, to non-specialized marketers' 74% share ($56.3 billion in 2006 sales). Most of these non-specialized sales are through mass merchandisers, supermarkets, chain drugstores and department stores, but PF estimates that up to $8.6 billion is generated through direct-sales channels such as mail-order houses, e-tailers and television home shopping. Most important, non-specialty retailers hold that nearly three-quarter share of market while making virtually no effort to promote the availability of larger sizes--in fact, using quite the opposite strategy. PF notes that Wal-Mart in all likelihood sells more plus-size/big-and-tall apparel than any other retailer, and that brands like Ralph Lauren and Liz Claiborne also quietly carry large sizes (up to 22 or 24 women's). In other words, while specialized marketers/brands position on size, non-specialized marketers extend the same brand positioning across all sizes. "It's easy to see how larger consumers gravitate to non-specialized brands if desired styles are available in plus or big-and-tall sizes," comment the analysts. In fact, they maintain, the specialty channel is to a great degree at the mercy of non-specialized channels and "will only thrive as long as mass retailer-marketers, as a group, seem to ignore larger people's clothing needs." If mass retailers began including more diverse body types in their advertising, as they now include different races and ethnicities, the specialty channel, which is "on the bubble," would suffer greatly, they predict. Because of the increasing competition and the difficulty of predicting how non-specialized retailer-marketers' strategies will play out going forward, PF projects growth for specialty retailer-marketers alone at a "conservative" 20% over the next six years (to reach $23.6 billion). What are specialty chains doing to fight back? While retail sales will always dominate, multi-channel strategies are more critical than ever now. Charming Shoppes already has several catalogs and is launching a Lane Bryant catalog in the fall. Both Charming Shoppes and United Retail report double-digit percentage growth in e-commerce (in fact, UR reported 52% growth for fiscal 06), and both are continuing to invest in online infrastructure and organization. Like apparel marketers of all kinds, plus-size marketers are analyzing the performance of their sites and are particularly drawn to the measurability of online search and affiliate marketing, says Denise Zimmerman, president and chief strategic officer for NetPlus Marketing, which numbers Lane Bryant among its clients. "There's a huge opportunity for those who are willing to add a slight level of risk, by introducing targeted online branding and image elements, like display and rich media ads" to the marketing mix, she adds. PF sees major opportunities for all marketers of larger-size clothing in the undertapped teens and tweens markets and urges upscale brands to rethink their "hidden" agendas. "The upscaling of the plus-size/big-and-tall clothing market has lagged well behind the same trend in mainstream clothing market," they note. "If marketers can overcome the idea that big body size should not be associated with their famous elegant brands, there is money to be made." The growing presence of digital measuring kiosks (DMKs) in retail stores could benefit specialty stores but is more likely to make it easy for mainstream stores to compete. Small manufacturing runs of large sizes are cost-prohibitive, but DMKs could enable custom-tailored, on-demand orders of stylish, branded clothing, points out PF.
For the 50% of Americans with borderline or high cholesterol levels, treatment may soon come from a glass of milk or a granola bar and not a doctor's prescription. Kroger is the latest to introduce a product with CoroWise, a plant-based food additive that can reduce cholesterol 8-15%. But marketing experts predict a flood of souped-up dairy products to hit the market very soon. Kroger, which reportedly will market the milk under its Active Lifestyle brand, "is just the tip of the iceberg in terms of value-added milks," says Gail Barnes, vice president/business development for Dairy Management Inc., an affiliate of the National Dairy Council. In other countries, she says, milk products that boost bone health, aid memory and contain Omega-3s--another heart-healthy ingredient--are already quite popular. "We can expect to see many, many more value-added products being launched." The big question of course, is how responsive U.S. consumers will be. While functional foods have wide appeal, many health-conscious consumers are actively seeking fewer chemicals in many foods, particularly dairy products. "We tested an idea like this with consumers," says Jim Lesser, director of marketing for Oakhurst Dairy, a Portland, Maine-based company, a pioneer in asking its farmers not to use artificial growth hormone. "We found they were less than receptive than they were to some other ideas we've got in the pipeline." Oakhurst already markets Nu-trish, a line of milk with added probiotics. Barnes says the value-added milk category, which includes about 3.8 billion pounds of milk, is growing at about 6% a year. (The U.S. produced about 182 billion pounds of milk in 2006.) "In five years, we are expecting this category to increase to five billion pounds," she says. And, of course, dairy isn't the only category that marketers are jazzing up with health and wellness functions. CoroWise is also available in General Mills' Nature Valley Healthy Heart Chewy Granola Bars, Coca-Cola's Minute Maid Premium Heartwise orange juice (Coca-Cola), and Hain Celestial's Rice Dreams Heart Wise rice drink, as well as Orowheat Whole Grain & Oat bread, Vitatops muffin products and Lifetime Lowfat Cheese. Cargill, the Minneapolis-based marketer of CoroWise, hopes it will appeal to the many Americans with cholesterol problems. "The general positioning is that it's great for any consumer seeking healthy ways to lower cholesterol," says Pam Stauffer, marketing programs manager for Cargill. "We've found that it's perfect for people with cholesterol levels of around 220--borderline high. Sometimes, they can avoid medication entirely." After all, consumers are already spending billions on statin drugs, including Lipitor. And controlling cholesterol just by diet is difficult: Even a very strict diet can lower cholesterol only a little, while drugs tend to lower it a lot. So it makes sense that consumers would be open to a middle ground. CoroWise products carry the U.S. Food and Drug Administration-approved claim, "may reduce the risk of coronary disease.") "The challenge is that people are always skeptical, at first," says Stauffer. "But with more large companies, like Kroger, General Mills and Coke rolling out these foods, that counters skepticism, and people will feel more familiar with them."
Cingular's competitors are desperately trying to make sure they aren't completely forgotten amidst the barrage of hype and media impression surrounding the iPhone's long-anticipated arrival in Cingular and Apple stores today. Sprint announced a new branding campaign this week, and that it was dropping Nextel from its moniker. Verizon Wireless has been bombarding the wires with press releases every day for the entire month, making sure that the latest additions to its V CAST service--as well as facts as pedestrian as most of its phones having a world clock--get noticed. Just as the headlines were blaring notes from reviews of the iPhone declaring that it is as great as the magic Steve Jobs promised, Verizon Wireless came out with a release that was as feeble as Paris Hilton's Larry King interview. Titled "Verizon Wireless Stores Open All Day June 29 For Customers To Test Drive The Nation's Most Reliable Wireless Network, Purchase Any Of 18 Multi-Media Music Devices," the release advised the public that Verizon Wireless stores would be open during their regular business hours and that Verizon Wireless offers a range of phones with music capabilities. As neither of these bits of information are news, the announcement rings as a hollow PR counterstrategy to the attention surrounding the iPhone's arrival. "Everything we do is a counterstrategy because this is a competitive business," Brenda Raney, Verizon Wireless spokesperson, told Marketing Daily. "A new entrant into the marketplace means we have a new competitor. This is business as usual for us." The announcement, Raney explains, highlights that today will be a regular day of serving customers on America's most reliable network for Verizon Wireless. That's a contrast to the chaos that's likely to ensue at Cingular and Apple stores, which will close between 4:30 and 6 p.m. to prepare for the iPhone's debut, and then will stay open until 10. But given that eager iPhone customers have been waiting in line for days in advance of its arrival, that hour-and-a-half closing during the store's operating hours will likely go noticed only as a countdown to the moment when an iPhone will be in their hands. Among the 18 music playing devices Verizon Wireless is promoting is the LG VX9400 phone, which is being offered for $99.99 after a $50 rebate with a two-year contract. Customers will also get a free Music Essentials Kit that includes a stereo headset, a cable for music transfer from a PC to the LG VX9400 and a 2GB memory card that can store up to 1,000 songs with purchase. That's a steep discount to the iPhone, which will sell for between $499 and $599, depending on memory, plus service contract. Raney declined comment on the rumor that Verizon Wireless is working with frequent partner LG on adapting its Prada phone for use in the U.S. Doing so would give it a ready competitor to the iPhone, as both devices offer sleek design and touch-screen navigation. Once Verizon Wireless gets through today, Raney says, its marketing plans will continue to be "business as usual." "We've always had music-playing devices that offer a number of features and continue to do that," Raney says. "We'll continue to run the advertising that we have always run--we're big advertisers in TV and print and radio, and we'll continue to be."
On the heels of Universal McCann's revised advertising forecast, Aegis Group's Carat unit issued its own revisions this week, slightly downgrading its outlook for U.S. ad spending in 2007, and issuing its first projections for 2008, which generally were more upbeat than Universal's. Carat projected that U.S. ad spending, buoyed by Olympic-year spending, would rise 5.6% above 2007, more than half a percentage point greater than the 5.0% rate of growth anticipated by Bob Coen, Universal McCann director of forecasting. Likewise, Carat projects a higher rate of growth for global ad spending, which it forecasts will grow 6.4% in 2008, nearly a point higher than Universal's estimate of a 5.5% rate of growth worldwide. "In 2008, the Beijing Olympics will drive further acceleration in growth rates in the USA and Asia-Pacific to 5.6% and 9.3%, with the former receiving a boost from the presidential election," the U.K.-based media services agency predicts in the new report. "Online will continue to outgrow the rest of the industry by some margin, but we would also expect to see increasing impacts from new hardware and technologies, including 3G, HD radio and multi-casting and IPTV and other forms of interactive broadcasting." In fact, Carat said, "digital investment" continues to be the "single biggest driver" of ad spending in every region and country across the globe, though trends vary by market depending on the maturity of traditional media outlets. Generally speaking, Carat anticipates that newspapers will continue to be the slowest-growing of the major media segments, while consumer magazines will continue to outperform the print publishing category. Both forms of print advertising will be offset by stronger digital and online sales. Carat's estimates differ from Universal's in one other important regard. Unlike Universal, Carat predicts advertising industry growth will "comfortably" outgrow world GDP in 2007, said Aegis Media CEO Mainardo de Nardis. In fact, that seems to be Carat's expectations for the U.S. as well. Although Carat reduced its U.S. ad forecast by one-tenth of a point to a growth rate of 5.1%, that's two points higher than the 3.1% forecast by Universal and is likely enough to keep U.S. ad spending at pace or ahead of U.S. GDP this year.