CASE: I    Starbucks

In 2003, Starbucks accomplished something that few companies ever do: It became a Fortune 500 company—a phenomenal achievement for a company that went public only 12 years earlier. The company had over 6,000 stores worldwide—all company owned, as Starbucks does not franchise its outlets—and planned to expand rapidly to over 10,000 stores.

Starbucks created not only a successful business but a thriving industry. When the company started its massive expansion in the early 1990s, the United States had about 200 coffeehouses. In 2003 there were over 14000 coffeehouses, the majority of them not Starbucks but mom-and –pops that bloomed after the dawn of the $3 cup of coffee. According to a Starbucks executive, “We changed the way people live their lives, what they do when they get up in the morning, how they reward themselves, and where they meet. That’s more important to me than just building a company.”

More than 10 million coffee lovers spend an average of $3.60 at Starbucks weekly, and 10 percent of them come in twice a day. Starbucks has 7 percent of the U.S. coffee-drinking market and less than 1 percent abroad, suggesting ample room for growth. The coffee market is huge; coffee is the second most consumed drink in the world (water is first).

Starbucks’ iced beverages, which offer larger profit margins than regular drip coffee, are big sellers in the South and Southwest. After making some adjustments, such as adding outdoor seating and couches to stores to better serve the needs of its customers, Atlanta locations have shown double-digit sales growth. Atlanta boasts 33 successful Starbucks, and plans for expansion are in the works. Plans for further expansion in cities with even more Starbucks stores, such as New York City and San Francisco, are also on the drawing board. Although 70 stores operate in New York City alone, it is estimated that growth there will continue until 200 stores are operating in the city! As for fears of market saturation, Starbucks has none. In fact, the java giant has two highly profitable outlets that face each other on Robson Street in Vancouver, British Columbia. Each store has more than $1 million in annual sales. International expansion is also taking place. In fact, the number one Starbucks in the world is located in Tokyo, and a total of 500 stores are slated to be operational in Asia in the next three years.

What is the secret of Starbucks’ phenomenal success? According to Howard Schultz, chairman and CEO of Starbucks Corporation, the company’s success is due to the experience created within the stores as well as the unsurpassed quality of the coffee. A steaming café au lait must be perfectly replicated, whether the store is in Seattle or New York City. In a world filled with people leading busy, stressful lives, Schultz believes he has created a “third place” between home and work where people can go to get their own personal time out or to relax with friends.

Schultz also attributes his company’s success to the 40,000 employees working worldwide. Starbucks’ employee training program churns out “baristas” by educating 300 to 400 new hires per month in classes such as “Brewing the Perfect Cup at Home” and “Coffee Knowledge.” Here they are taught to remind customers to purchase new beans weekly and that tap water might not be sufficient when brewing the perfect cup of coffee. They are also encouraged to share their feelings about coffee, selling, and working for Starbucks. Employees are also given guidelines to maintain and enhance self-esteem, to learn how to listen and acknowledge, and to know when to ask for help. E-mail, suggestion cards, and regular forms allow unsatisfied workers to communicate with headquarters. If the annual barista turnover of 60 percent, compared with 140 percent for hourly workers in the fast-food industry, is any indication of quality of its training programs, Starbucks seems to have a handle on how to gain and maintain employee loyalty. What about the demographic makeup of the work force? About 80 percent of the employees are white, 85 percent have some education beyond high school, and the average is 26.

The Starbucks success story is continuing into the 21st century as the company is quickly expanding into Europe and Asia. However, one question remains regarding the success of the company in countries already known for their coffee-making expertise: Will such Romans and Parisians care for Starbucks? Continued expansion and visibility has been created domestically as Starbucks has formed partnerships with companies such as United Airlines and Barnes & Noble Booksellers, both of which draw form the same type of knowledgeable customer.

More recently, Starbucks has opened several full-service dining establishments (Café Starbucks) in response to customers who want more at lunch and dinner. The menu offers full meals, breads, pastries, alcohol, and of course coffee. The company has also launched an Internet site that sells not only expensive coffee but also pricy kitchenware, home furnishings, and gourmet food. After some skepticism by analysts and a subsequent drop in share price, Schultz emphasized that “Every company must stick to its knitting, understand its core competency, know what the value proposition is for the customer, and do everything possible to get close to the customer. So you won’t see us getting far afield from what we do now” As for the present, Starbucks is not likely to fall victim to a fad-driven society any time soon. The company seems to be doing fine.

You can learn more about Starbucks at http://www.starbucks.com.

Question:

1. Based on the case information and your personal experiences, list at least five things you know about Starbucks. This list offers you some idea about your cognitions concerning the coffee shop chain.

2. List at least things you like or dislike about Starbucks. This list gives you some idea of your affect for the coffee shops.

3. List at least five behaviors involved in buying a gourmet coffee drink from Starbucks. This list gives you an idea of the behaviors involved in a coffee purchase.

CASE: II  Barnes & Noble

  For decades, bookstores were simply that—places that sold books. The typical mom-and-pop bookstore on the corner was small, quaint, sometimes a little musty, and bursting at the seams with books. It was a wonderful place to visit now and then, look around for a bit, find a book you like, and go home. Today that old bookstore seems like a relic of a bygone era. Barnes & Noble’s approach to book selling has revolutionized the entire industry.

Barnes & Noble has risen from rather ordinary beginnings to become the largest bookstore chain in the world. Founder and CEO Leonard Riggio began his empire by purchasing a struggling Manhattan bookstore in 1971. Riggio opened his first superstore, with 100,000 square feet of selling space, in New York in 1975. That store was so successful that he quickly opened more superstores throughout Manhattan and downtown Boston. The formula worked and the number of stores multiplied. In the early 1990s, the company began spreading the superstore concept throughout the United States. Today Barnes & Noble operates around 950 bookstores and another 426 video game and entertainment software stores. The company boasted sales of nearly $3.5 billion and operating profit of $232 million in 1999.

Riggio took a decidedly different approach to selling books. “Shopping is a form of entertainment,” he says. “To customers, shopping is a social activity. They do it to mingle with others in a prosperous-feeling crowd, to see what’s new, to enjoy the theatrical dazzle of the display, to treat themselves to something interesting or unexpected.” Riggio made sure both the layout and operation of his stores provide customers with what they want. Barnes & Noble superstores are huge, yet clubby and inviting. They typically cover about 25,000 square feet (some are much bigger) and offer a selection of up to 150,000 titles, compared to 10,000 to 20,000 at the typical independent book seller. Books usually are discounted 20-30 percent. But a Barnes & Noble superstore is not defined merely by size and volume. The atmosphere is friendly, even somewhat luxurious—almost a cross between a public library and a den. There are large, overstuffed chairs; reading tables; background music; a coffee bar; bright lighting; and even well-maintained public restrooms. Book-store used to discourage customers from reading in the store—spend more than a few minutes with a book and you would have expected an employee to tap you on the shoulder and suggest that you either buy the book or put it back. But Barnes & Noble actually wants you to pull a book or magazine off the shelf, grab a cup of coffee, flop down on a sofa, and make yourself at home. A company spokesperson explains, “The philosophy behind this is, the more customers we attract into the store and the longer they are encouraged to stay, the more books we sell.” Many Barnes & Noble locations also offer a music section where the same philosophy applies. Customers are welcome to sit down with a pair of headphones and listen to a CD before they buy it.

Barnes & Noble also works to ensure that its superstores evolve into community meeting places. Each store or region is staffed with a public relations coordinator who works to bring events to the store. Live performances, readings, and book signing are common. Classes of elementary school kinds are invited to come in and browse on a regular monthly basis. Stores even offer classes, book discussion groups, puppet shows, and story hours for children. The long store hours (9 AM to 11 PM) also provide a compelling lure. “For people who work all day, this is their leisure time,” explains Lisa Herling, vice president for corporate communications. “Whether it’s after a movie or after dinner, it’s a destination location.” Riggio puts it more succinctly: “If I get you for two hours, I’ve got you.”

In 1995, a competitor with an entirely different value proposition emerged. Amazon.com began selling books over the Internet. Barnes & Noble countered two years later with BarnesandNoble.com, which tries to replicate the superstore experience on the Web. At the site you can participate in live chats with authors and listen to audio from one of the many archived book readings (featuring such renowned writers as Kurt Vonnegut, Susan Sontag, and Salmon Rushdie). Now the largest bookseller in the U.S., BarnesandNoble.com, also offers free online courses through “Barnes & Noble University,” where you can study subjects ranging from the humor of Shakespeare to overcoming shyness. You can even purchase a bag of Starbucks coffee and select the music you want to hear while you’re browsing the site. Oh, yes, they do sell books on the site, too—750,000 titles—along with music, software, and posters. BarnesandNoble.com has attracted more than 5 million customers since 1997 and has emerged as the fourth-largest e-commerce site on the Web. Sales were up 4.5% in 2002 as were expectations that the venture would turn a positive cash flow soon.

Barnes & Noble’s success comes not so much from what it is selling but how it is selling it. Both the brick-and-mortar stores and the online site provide customers with an atmosphere that turns book buying into a warm, friendly, inviting experience.

Question:

1. What affective responses do you think the Barnes & Noble environment creates? How might consumers’ cognitive systems interpret these responses? From a marketing perspective, which is more important to Barnes & Noble—affect or cognition?

2. Rob goes to Barnes & Noble location to hang out and meet people. Lisa goes only when she wants to purchase a specific book or CD. Describe how their integration processes might convince them to choose Barnes & Noble over the myriad other options they have.

3. Many of the activities that take place at Barnes & Noble stores (or at BarnesandNoble.com) do not require a purchase. Participating in discussion groups and going to in-store performances are free. And obviously it doesn’t cost anything to simply go in, sit in a chair, and read a book. So why do people buy? How do these free activities (behaviors) influence consumers’ affect and cognition?

CASE: III   Rollerblade Inc.

In 2002, in-line skating ranked among the most popular sports for children ages 6 to 17, behind basketball and soccer, according to the Sporting Goods Manufacturers Association. About 7.5 million youths skate an average of over 25 times per year. This is quite a change from 1980, when Minneapolis-based Rollerblade Inc. introduced its first in-line roller skate.

Rollerblade’s founder, Scott Olson, was a hockey player with the Winnipeg Jets’ farm teams who envisioned a roller skate with the action of an ice skate that hockey players and skiers could use to train during the off-season. At first, the plan was to use modern materials to construct a model based on an 18-century design. However, Olson discovered a similar in-line skate already on the market and purchased the patent from Chicago Roller Skate Company. Olson and his brother, Brennan, perfected the design using a plastic molded ski-type boot atop a blade of polyurethane wheels. Their first sales were to Olson’s teammates as well as a few to sporting goods stores. Thus began the sport of blading

Although they generally cost twice as much as conventional roller skates, in-line skates are purchased for two reasons. First, they are faster and therefore more exciting to use than conventional skates. Second, they provide skaters with a better aerobic workout, requiring the use of more muscles. However, it is more difficult to learn how to use in-line skates because they require greater balance and their speeds may cause more severe injuries if a skater falls.

By 1986, wholesale sales of in-line skates had risen to $3.5 million. Recognizing an opportunity to get in on a growing market, a number of companies began producing competitive products. First Team Sports, Inc., also based in Minneapolis, started manufacturing its Ultra-Wheels brand skates, which included the first in-line skates for children. Roller Derby Skate Corporation in Litchfield, Illinois, a manufacturer of standard roller skates since 1936, produced an in-line skate with a toe-stopper for those accustomed to conventional skates (Rollerblades had a rubber stopper located on the heel). The ice skate manufacturer Bauer entered the market with a skate that had a leather rather than plastic boot.

Rollerblade Inc.’s sales increased when it expanded its target market. At first, the product was targeted to hockey players, who were 95 percent male and 18 to 25 years old. However, by broadening the target to include 18-to-35-year-old males and females, the company increased sales considerably.

By 1990, industry wholesale sales of in-line roller skates topped $50 million, which almost equaled sales in the conventional roller skate business.

Rollerblade Inc. maintained a 66 percent market share, First Team Sports had 22 percent, Bauer had 5 percent, Roller Derby had 3 percent, and other competitors combined had the remaining 4 percent. Rollerblade could have done better, but it could not fill store orders for several months because it ran out of inventory early in the year. By 1998 there were 30 million in-line skaters, although growth in the number of skaters was slowing down; skate boarding was taking off as a cool alternative.

The fierce competition in the industry involved not only product features but also marketing elements. Companies rushed to sign celebrities to promote their products. Competitors also moved into new retail markets, including discount and departmental stores. Rollerblade expanded its market by selling to Macy’s and Nordstrom.

Although the name of Rollerblades may become generic term for this type of skate, the company’s management will have to work hard to maintain its market lead.      “We have been pioneers and continue to maintain an edge,” a company spokesperson said. “You only get one shot at pioneering a new sport, and that’s exciting.”

Question:

1. What role do you think modeling could have played in the diffusion of this innovation?

2. How could you use modeling to teach a friend how to use Rollerblades?

3. If you were designing a commercial for Rollerblades to be used for an in-store videotape demonstration, how would you design the commercial to take advantage of your knowledge of modeling?

CASE: IV  The Saturn Family

Consumers are bombarded with advertisements and marketing hype everyday. When you log onto the Internet, watch television, listen to radio, read a newspaper, or open your mail, you are inevitably greeted with a plea to purchase brand X or visit store Y or website Z. In any given day, you are exposed to more information than you can realistically process. In the 1990s, marketers began to look fresh, innovative ways to make their companies stand out from the media clutter. Few have been as successful as General Motors’ subsidiary Saturn, whose 1994 “homecoming” of car owners has been described as “the mother of all marketing programs.”

Saturn’s mission statement emphasizes the concept of “family.” In an industry whose history is replete with labor conflict, Saturn has tried to erase the line between labor and management are somewhat taboo. Regardless of their positions in the company, all Saturn boasts that no one punches a time clock and that members of labor and management even eat in the same cafeteria! Moreover, the company expects its employees and dealers to make customers feel like a part of the Saturn family.

According to Joe Kennedy, Saturn’s corporate vice president of sales, service, and marketing, “Everything at Saturn hinges on our retail operations being enthusiastic about serving their customers.” Indeed, salespeople (or, as Saturn prefers to call them, “consultants”) have gone far out of their way to make current and potential customers happy. In one legendary story, a woman in Wyoming was interested in purchasing a Saturn only to find that the nearest dealership was hundreds of miles away in Salt Lake City, Utah. Not to worry. A salesperson from Salt Lake City flew to Wyoming, picked the woman up, flew back with her to the dealership in Utah, showed her the car, and made the sale. Saturn instituted a “no-haggle” pricing policy to reduce the traditionally antagonistic relationship between automobile salespeople and customers. Saturn’s television ads have featured employees discussing the family feeling at the company and actual customers sharing their own Saturn stories.

The “Saturn family” concept took hold with consumers. Soon delighted customers began calling and writing the company’s plant in Spring Hill, Tennessee (near Nashville), to learn how they could tour the facility and maybe meet other Saturn owners from across the country. So management decided to spend $1 million to hold its first “homecoming” of Saturn owners and their cars the weekend of June 24-25, 1994 in Spring Hill. It mailed out 650,000 invitations to Saturn owners and also purchased commercial time on CBS’s late Show with David Letterman.

The response was overwhelming. About 30,000 Saturns—and their owners—made the pilgrimage. If you were on the highway that week and saw a Saturn with an orange ball on the radio antenna, that car was probably headed home to Tennessee. Saturn owners came from as far as Taiwan and filled most of the 24,000 hotel rooms in the Nashville area. In fact, a dealer from Taiwan brought home the first Saturn ever sold in that country. That car was honored with its own tent. Throughout the weekend, car owners met members of the Saturn team, toured the plant, and shared their own Saturn stories. The homecoming had all the trappings of an old-fashioned outdoor revival with music, dancing, testimonials from celebrities (Olympic speed skater Dan Jansen), and food (everything from “southern Chinese egg rolls” to barbecued catfish).

Even though two Herculean thunderstorms blew over some tents, injured a few people, and forced the cancellation of a scheduled concert by country music star Wynonna, it didn’t seem to dampen many folks’ spirits. Mary Taylor, age 60, was part of a 22-car caravan that trekked 1,800 miles from Nevada to Tennessee to be part of the homecoming. She couldn’t stop raving about the dealer. “I couldn’t believe how much they cared,” Taylor said. “They know us when we walk in. It’s such a friendly atmosphere, I look forward to going to the dealership.” Another Saturn owner compared the weekend get-together with Woodstock: “This is another gathering in a field, except it’s about cars, not music.” Ruth Morrissey from South Dakota perhaps summed up the weekend best as she gushed, “We love our Saturns. We are all just a bunch of walking ads.” For those who couldn’t make it to Spring Hill, Saturn sponsored smaller-scale get-togethers at dealerships around the United States. An estimated 100,000 additional people attended those events.

The homecoming was just a part of Saturn’s overall strategy of making customers feel like part of a big Saturn family. Was this approach successful? Apparently it was. Company research in 1994 showed that out of the approximately 650,000 people who owned Saturns, 80 percent planned to buy another Saturn. Furthermore, Saturn reported that during the homecoming ad campaign (which ran from January through June 1994), sales were up 25 percent compared to a year earlier.

Other carmakers took notice and copied Saturn homecoming model. Daimler Chrysler’s Jeep division sponsored an event called Jeep 101 in which Jeep owners—many of whom drive exclusively on paved urban streets—took their vehicles off-road. Mercedes-Benz of North America invited 100,000 current and potential customers to Los Angeles for an unveiling of new models. The opportunity to ogle these pricey new automobiles—plus the lure of good food and wine—apparently was quite compelling. So many people showed up that they had to close down a highway. In another promotion, Mercedes invited 1 million people to “fall in love” with a new Mercedes by attending one of a variety of special customer bonding events at local dealerships.

To be sure, Saturn has had its share of problems since that first homecoming event in 1994. Some critics have sniped at Saturn’s boring styling and limited choice of models. Others believe Saturn has slipped compared to other carmakers in terms of performance and reliability. Sales of the L-series mid-size car were very disappointing, which forced production slowdowns and lay-offs in 2000. In addition, the harmonious relationship between labor and management hit a snag when Saturn’s 7,000 unionized employees began to express dissatisfaction with their special labor agreement with the carmaker. Seeing a problem, General Motors in 2000 pledged to invest $1.5 billion to expand the Spring Hill facility and provide Saturn with a SUV and a redesigned compact car in time for the 2002 model year. (To check out Saturn’s current model line and other company information, visit the company’s website at www.saturn.com.

But make no mistake, Saturn’s innovative marketing efforts have accomplished their goal. Even with the recent problems, surveys reveal that most consumers—especially younger people—still believe Saturn is, as its ad campaign declares, “a different kind of car company.” In 1999, Saturn held another large, successful homecoming and many industry experts believe that with new models in the offing, Saturn can regain the momentum it had in the mid-1990s.

Question:

1. Visit the Saturn website and try to determine the market segments the carmaker is targeting. What should Saturn do to better serve those segments? How might Saturn tailor its offerings to address the different stages of the family life cycle?

2. Other vehicles—such as Porsches, Mustangs, and Harley-Davidson motorcycles—also have “cult” followings. But these products also have very strong symbolic meanings associated with them. The Saturn is a solid and reliable, but basically unspectacular, car. Identify and discuss three reasons that you think Saturn has such a devoted following of involved customers.

3. An automobile is a high-involvement purchase. Discuss how the manufacturer of a lower-cost, lower-involvement product could generate greater personal relevance and long-term loyalty. Find and discuss an example of a company that has done so.

CASE: V   Harley-Davidson, Inc.

  Harley-Davidson, Inc., founded in 1903, is the only remaining American motorcycle manufacturer, although there are some new upstart companies. During the 1950s and 1960s, Harley-Davidson has virtual monopoly on the heavyweight motorcycle market. Japanese manufacturers entered the market in the 1960s with lightweight motorcycles backed by huge marketing programs that increased demand for motorcycles. These manufacturers, which included Honda, Kawasaki, Suzuki, and Yamaha, eventually began building larger bikes that competed directly with Harley-Davidson.

Recognizing the potential for profitability in the motorcycle market, American Machine and Foundry (AMF, Inc.) purchased Harley-Davidson in 1969. AMF almost tripled production to 75,000 units annually over a four-year period to meet increased demand. Unfortunately, product quality deteriorated significantly.

More than half the cycles came off the assembly line missing parts, and dealers had to fix them to make sales. Little money was invested in improving design or engineering. The motorcycles leaked oil, vibrated badly, and could not match the excellent performance of the Japanese products. Although hard-core motorcycle enthusiasts were willing to fix their Harleys and modify them for better performance, new motorcycle buyers had neither the devotion nor the skill to do so.

In late 1975, AMF put Vaughn Beals in charge of Harley-Davidson. Beals set up a quality control and inspection program that began to eliminate the worst of the production problems. However, Beals and the other senior managers recognized that it would take years to upgrade the quality and performance of their products to compete with the faster, high-performance of their products to compete with the faster, high-performance Japanese bikes.

To stay in business while the necessary changes in design and product were being accomplished, the executives turned to William G. Davidson, Harley’s styling vice president. Known as “Willie G.” and a grandson of one of the company founders, he frequently mingled with bikers and, with his beard, black leather, and jeans, was accepted by them. Willie G. understood Harley customers and noted:

They really know what they want on their bikes: the kind of instrumentation, the style of bars., the cosmetics of the engine, the look of the exhaust pipes, and so on. Every little piece on a Harley is exposed, and it has to look just right. A tube curve or the shape of a timing case can generate enthusiasm or be a total turnoff. It’s almost like being in the fashion business.

Willie G. designed a number of new models by combining components form existing models. These included the Super Glide, the Electra Glide, the Wide Glide, and the Low Rider. Although these were successful, Harley-Davidson was still losing market share to Japanese competitors that continued to pour new bikes into the heavyweight Market.

By 1980, AMF was losing interest in investing in the recreational market and sold the company to 13 senior Harley executives in a leveraged buyout on June 16, 1981. Although the company was starting to make money in the early 1980, its creditors wanted payment, and Harley-Davidson nearly had to file for bankruptcy at the end of 1985. However, through some intense negotiations, it stayed in business and rebounded to become a highly profitable company.

In 1996, Harley-Davidson controlled more than 47 percent of the heavyweight (651cc and larger) motorcycle market, far more than its all-time low of 23 percent. Its products are considered to have “bulletproof reliability” because of manufacturing and management changes that resulted in products of excellent quality.

Owners of Harleys are highly brand loyal, and more than 94 percent of them state they would buy another Harley. The company sponsors the Harley Owner Group (HOG), which has more than 1,200 chapters and 750,000 members worldwide. Executives of the company frequently meet with chapters to obtain suggestions for product improvements.

In 2002, Harley sold 215,454 motorcycles domestically and 48,199 in the global market. It also sold 10,943 Buell motorcycles in that year. Its net revenue for 2002 was over $4 trillion, about double its 1998 net revenue. Its net income for 2002 was $580 million compared to $213 million 5 years earlier. In 2003, its 100th anniversary product line included 7 Softail models, 7 Sportster models, 5 Dynaglide models, and 7 Touring models. In addition, its VRSCA V-Rod, a new-style, $17,000 Harley was selling quickly even though it was a departure for the retro look of traditional Harleys.

Harley-Davidson motorcycles are distributed worldwide by a network over 1,300 dealers. These dealers typically have upgraded facilities that merchandise not only motorcycles and service but also a variety of parts, clothing, and accessories. Clothing and accessories are highly profitable items that enhance the motorcycle-owning and riding experience. For more information, visit the company’s website at www.Harley-Davidson.com.

Question:

1. What kind of consumer owns a Harley?

2. What accounts for Harley owners’ satisfaction and brand loyalty?

3. What role do you think the Harley Owner Group plays in the success of the company?

CASE: I  Toyota

Of all the slogans kicked around Toyota, the key one is kaizen, which means “continuous improvement” in Japanese. While many other companies strive for dramatic breakthrough, Toyota overtook Ford Motor Company to become the second largest automaker in the world. Ford had been the second largest since 1931.

Toyota simply is tops in quality, production, and efficiency. From its factories pour a wide range of cars, built with unequaled  precision. Toyota turns out luxury sedans with Mercedes-Benz-like quality using one-sixth the labor Mercedes does. The company originated just-in-time production and remains its leading practitioner. It has close relationships with its suppliers and rigid engineering specifications for the products it purchases

Toyota’s worldwide leadership in the automotive industry was built on its competitive advantage across the supply chain. Between 1990 and 1996, Toyota reduced part defects by 84 percent, compared to 47 percent for the Big 3. It also reduced the ratio of inventories to sales by 35 percent versus 6 percent. These reduction advantages occurred despite the fact the Big 3 relied on identical suppliers. A study by Jeff Dyer of The Wharton School of the University of Pennsylvania and Kentaro Nobeoka of Kobe University attributed Toyota’s success partly to its implementation of bilateral and multilateral, knowledge-sharing routines with suppliers that result in superior Interorganizational or network learning. Toyota uses six approaches to facilitate knowledge sharing: (1)a supplier association;(2) teams of consultants;(3)voluntary study groups;(4)problem-solving teams;(5)interfirm employee transfers; and (6)performance feedback and monitoring processes. This effort also involves intense levels of personal contact between Toyota and its suppliers.

Toyota pioneered quality circles, which involve workers in discussions of ways to improve their tasks and avoid what it calls the three Ds: the dangerous, dirty, and demanding aspects of factory work. The company has invested $770 million to improve worker housing, add dining halls, and build new recreational facilities. On the assembly line, quality is defined not as zero defects but, as another slogan puts it, “building the very best and giving the customer what she/he wants.” Because each worker serves as the customer for the process just before hers, she becomes a quality control inspector. If a piece isn’t installed properly when it reaches her, she won’t accept it.

Toyota’s engineering system allows it to take a new car design from concept to showroom in less than four years versus more than five years for U.S. companies and seven years for Mercedes. This cuts costs, allows quicker correction of mistakes and keeps Toyota better abreast of market trends. Gains from speed feed on themselves. Toyota can get its advanced engineering and design done sooner because, as one manager puts it, “We are closer to the customer and thus have shorter concept time.” New products are assigned to a chief engineer who has complete responsibility and authority for the product from design and manufacturing through marketing and has direct contacts with both dealers and consumers. New-model bosses for U.S. companies seldom have such control and almost never have direct contact with dealers or consumers.

The 1999 Harbour Report, a study of automaker competencies in assembly, stamping, and powertrain operations, stated that the top assembly facility in North America (based on assembly hours per vehicle) is Toyota’s plant in Cambridge, Ontario. In this plant, a Corolla is produced in 17.66 hours. Toyota was also rated number one in engine assembly, taking just 2.97 hours to produce an engine.

In  Toyota’s manufacturing system, parts and cars don’t get build until orders come from dealers requesting them. In placing orders, dealers essentially reserve a portion of factory capacity. The system is so effective that rather than waiting several months for a new car, the customer can get a built-to-order car in a week to 10 days.

Toyota is the best carmaker in the world because it stays close to its customers. “We have learned that universal mass production is not enough,” said the head of Toyota’s Tokyo Design Center. “In the 21^st century, you personalize things more to make them more reflective of individual needs.”

In 1999, Toyota committed to a $13 billion investment through 2000 to become a genuinely global corporation without boundaries. In this way, it will be able to create worldwide manufacturing facilities that produce cars according to local demand. Its goal is to achieve a 10 to 15 percent global market share by 2010.

Why the drive towards customization of vehicles? Part of this is due to fierce competition that provides consumer with a multitude of choices. The Internet enables consumers to be more demanding and less compromising. They now have access to the lowest prices available for specific models of vehicles with all of the bells and whistles they design. From the comfort of their homes, they are able to bypass dealers and still find the vehicle of their dreams.

Senior management at Toyota believes that kaizen is no longer enough. The senior vice president at the Toyota USA division, Douglas West, states that his division is committed to both creating and executing a new information system to drive the fastest, most efficient order-to-delivery system in the North American market. Toyota management has come to realize Kaizen alone can no longer predict business success. The sweeping changes taking place in the business environment can no longer rely on the kaizen philosophy of small, sustained improvements. In fact, one expert in the industry believes that “pursuing incremental improvements while rivals reinvent the industry is like fiddling while Rome burns.” Competitive vitality can no longer be defined by continuous improvement alone.

Question:

1. In what ways is Toyota’s new-product development system designed to serve customers?

2. In what ways is Toyota’s manufacturing system designed to serve customers?

3. How does Toyota personalize its cars and trucks to meet individual consumer needs?

CASE: II  Exposure, Attention, and Comprehension on the Internet

The Internet universe literally grows more cluttered by the minute. According to Network Solutions, Inc., which registers the vast majority of Web addresses around the world, about 10,000 new addresses are registered each day. That means by the time you finish reading this case, about 60 new domain names will have been gobbled up. With all the clutter on the Web, how have some firms been able to stand out and attract millions of customers?

First, there are some basics to which online firms must attend. These cost little more than some time and a little  creativity. The first is creating a good site name. The name should be memorable (yahoo.com), easy to spell (ebay.com), and/or descriptive (wine.com—a wine retailer). And, yes, ideally it will have a .com extension. This is the most popular extension for e-commerce, and browsers, as a default, will automatically add a .com onto any address that is typed without extension.

The second priority is to make sure the site comes up near the top of the list on any Web searches. If you use Lycos.com to perform a search for “used books,” you get a list of more than 2.6 million websites. Studies have shown that most people will look only at the top 30 sites on the list, at most. If you are a used-book retailer and you show up as website #1,865,404 on the search list, there is a very good chance you will not attract a lot of business. A 1999 Jupiter Research study reveals that “searching on the Internet” is the most important activity, and Internet users find the information they are looking for by using search engines and Web directories. A good Web designer can write code that matches up well with search engine algorithms and results in a site that ranks high on search lists.

Virtually all popular websites have those basics down pat. So the third step is to reach out proactively to potential customers and bring them to your site. Many companies have turned to traditional advertising to gain exposure. Television advertising can be an effective option—albeit an expensive one. In late January 1999, hotjobs.com spent $2 million—half of its 1998 revenues—on one 30-second ad during the Super Bowl. According to CEO Richard Johnson, so many people tried to visit the site that the company’s servers jammed. Johnson says the number of site hits was six times greater than in the month before. A quirky ad campaign may or may not help. Pets.com, now de-func, built its image around a wise-guy sock puppet. CNET, a hardware and software retailer, ran a series of television ads featuring cheesy music, low-budget sets, and unattractive actors. One such ad featured two men—one in a T-shirt that said ”you,” another in a T-shirt labeled “the right computer” – coming together and joining hands thanks to the efforts of another guy in a CNET T-shirt. The production quality was rudimentary enough that any sophomore film student could have produced it. The spots were so bad that they stood out from the slick, expensive commercials to which viewers were accustomed. Critics ripped the campaign to shreds, but CNET called it a success.

Other Internet firms have used sports sponsorships to increase visibility. CarsDirect.com, a highly rated site that allows consumers to purchase automobiles online, once purchased the naming rights to NASCAR auto race (the CarsDirect.com400). Lycos also has tried to make the most of NASCAR’s increasing popularity. It spent hundreds of thousands of dollars to have its name and logo plastered all over the car of popular driver Johnny Benson. Meanwhile, online computer retailer Insight and furniture seller galleryfurniture.com each targeted football fans by purchasing the naming rights to college bowl games.

Of course, if you can reach consumers while they are in front of their computers rather than their television sets, you may stand an even better chance of getting them to your site. However, typical banner ads are inefficient, averaging click-through rates of only about 0.5 per cent (only one of every 200 people exposed to the ad actually clicked on the ad). Too often, banner ads are just wallpaper; consumers may see them but they usually are not sufficiently stimulated to click-through. However, Michele Slack of the online advertising group Jupiter Communications believes banner ads can be useful if used correctly. “The novelty factor is wearing off,” she says. But “when an ad is targeted well and the creative is good, click-through rates are much higher.”

An alternative way to reach people who are already online is through partnerships. One of the most visible examples of such an alliance is the one between Yahoo! And Amazon.com. Let’s say you’re working on a project on the Great Depression and you want to see what kind of information is available online. If you go to Yahoo! And type in “Great Depression,” you will not only be presented with a list of websites, but you will also see a link that will allow you to click to see a list of books on the Great Depression that are available through Amazon. Another example of a successful partnership was forged in 1998 between Rollingstone.com and the website building and hosting service Tripod. Every one of the 3,000 artist pages on Rollingstone.com contained a link to Tripod. The goal was to encourage fans to use Tripod’s tools to build webpages dedicated their favorite singers or bands. According to the research company Media Metrix, during the course of the alliance Tripod jumped from the Web’s fourteenth most popular website to number eight. Alliances with nonvirtual companies are another options. In 2003, the Internet classified firm CareerBuilder kicked off a cross-promotional campaign with major Internet firms, including AOL and MSN.

A less subtle but nonetheless effective way to build traffic is to more or less pay people visit your site. One study showed more than half of Internet consumers would be more likely to purchase from a site if they could participate in some sort of loyalty program. Hundreds of online merchants in more than 20 categories have signed up with a network program called ClickRewards. Customers making purchases at ClickRewards member sites receive frequent-flier miles or other types of benefits. Mypoints.com offers a similar incentive program in which customers are rewarded with air travel, gift certificates and discounts for shopping at member merchants. The search engine iwon.com was even more direct. It rewards one lucky visitor each weekday with a $10,000 prize. According to Forrester Research, companies in 2002 spent about $6 billion annually on online incentives and promotions.

Finally, some firms rely on e-mail to thoroughly mine their existing customer databases. The auction site Onsale (later merged with Egghead.com) proved just how successful e-mail can be. It sent out targeted e-mails to its customers based on their past bidding activities and previously stated interests. Click-through rates on these targeted e-mails averaged a remarkable 30 percent. E-mail marketing also holds promise for business-to-business firms. The Peppers and Rogers Group is a marketing firm that gives presentations around the United States. At the end of the presentations, people are invited to go to the company’s website and sign up for their e-mail newsletter, Inside 1 to 1. The newsletter invites readers to visit the Peppers and Rogers website to learn more about various articles, promote their products and services, and participate in forums. Inside 1 to 1 now boasts a subscriber base of 45,000, but the company estimates that about 200,000 people actually see it because subscribers forward it to their friends and colleagues. About 14,000 people visit the Peppers and Rogers site each week, with traffic often peaking immediately after the newsletter is sent.

As you can see, there is no one effective method for generating interest in a website. The same methods that have worked for some firms have failed for others. One certainty is that as the Internet grows and more people do business online, Internet firms will have to find ever more creative ways to expose customers to their sites and keep their attention once there.

Questions:

1. Consider the e-mail campaigns discussed in the case. Why do you think these campaigns were successful? Discuss the attention processes that were at work. Do you see any potential drawbacks to this type of marketing?

2. During the 2000 Super Bowl, ABC invited viewers to visit its Enhanced TV website. Fans could play trivia, see replays, participate in polls and chat rooms, and view player statistics. The site received an estimated 1 million hits. Why? Frame your answer in terms of exposure, attention, and comprehension.

3. Think about your own Web surfing patterns. Write down the reasons you visit sites. Which of the marketing strategies discussed in the case do you find most (and least) influential?

CASE: III  Peapod Online Grocery—2003

The online grocery turned out to be a lot tougher than analysts thought a few years ago. Many of the early online grocers, including Webvan, ShopLink, StreamLine, Kosmom, Homeruns, and PDQuick, went bankrupt and out of business. At one time, Webvan had 46 percent of the online grocery business, but it still wasn’t profitable enough to survive. The new business model for online grocers is to be part of an existing brick-and-mortar chain. Large grocery chains, like Safeway and Albertson’s, are experiencing sales growth in their online business but have yet to turn a profit. Jupiter Research estimates that online grocery sales will be over $5 billion by 2007, about 1 percent of all grocery sales, while it expects more than 5 percent of all retail sales to be online by then. A few years ago, optimistic analysts estimated online grocery sales would be 10 to 20 times that by 2005, but it didn’t work out that way.

One of the few online grocers to survive in 2003 is Peapod, the first online grocer, started by brothers Andrew and Thomas Parkinson in 1990. However, even Peapod was failing until 2001 when Dutch grocery giant Royal Ahold purchased controlling interest in the company for $73 million. Peapod operates in five markets, mainly by closely affiliating itself with Ahold-owned grocery chains. Peapod by Giant is in the Washington, DC, area, while Peapod by Stop and Shop runs in Boston, New York, and Connecticut. The exception is Chicago, where Peapod operates without an affiliation with a local grocery chain. Peapod executives claim the company is growing by 25 percent annually and has 130,000 customers, and all of its markets except Connecticut are profitable. Average order size is up to $143 from $106 three years earlier.

The online grocery business seemed like a sure winner in the 1990s. Dual-income families strapped for time could simply go online to do their grocery shopping. They has about the same choices of products that they would have had if they went to a brick-and-mortar grocery, about 20,000 SKUs (stockkeeping units). They could browse the “aisles” on their home computers and place orders via computer, fax or telephone. The orders were filled at affiliated stores and delivered to their homes in a 90-minute window, saving them time and effort and simplifying their daily lives. For all this convenience, consumers were willing to pay a monthly fee and a fee per order for packaging, shipping, and delivery. Since most of the products purchased were well-known branded items, consumer faced little risk in buying their traditional foodstuffs. Even perishables like produce and meat could be counted on to be high quality, and if consumers were concerned, they could make a quick trip to a brick-and-mortar grocery for these selections. However, while all of this sounded good, most consumers didn’t change their grocery shopping habits to take advantage of the online alternative.

Currently analysts do not expect the online grocery industry to take off in the near future, if ever. Miles Cook of Bain & Company estimates that only 8 to 10 percent of U.S. consumers will find ordering groceries online appealing, but only about 1 percent will ever do so. He concludes: “This is going to remain a niche offering in a few markets. It’s not going to be a national mainstream offering.” Jupiter Media Metrix analyst Ken Cassar concludes that “The moral of the story is that the ability to build a better mousetrap must be measured against consumers’ willingness to buy it.”

Question:

1. What behaviors are involved in online grocery shopping? How does online shopping compare with traditional shopping in terms of behavioral effort?

2. What types of consumers are likely to value online grocery shopping from Peapod?

3. Overall, what do you think about the idea of online grocery shopping? How does it compare with simply eating in restaurants and avoiding grocery shopping and cooking altogether?

CASE: IV         Sony

In just over half-century, Sony Corporation has from a 10-person engineering research group operating out of a bombed-out department store to one of the largest, most complex, and best-known companies in the world. Sony co-founders Masaru Ibuka and Akio Morita met while serving on Japan’s Wartime Research Committee during World War II. After the war, in 1946, the pair got back together and formed Tokyo Telecommunications Engineering Corporation to repair radios and build shortwave radio adapters. The first breakthrough product came in 1950, when the company produced Japan’s first tape recorder, which proved very popular in music schools and in courtrooms as a replacement for stenographers.

In 1953, Morita came to the United States and signed an agreement to gain access to Western Electric’s patent for the transistor. Although Western Electric (Bell Laboratory’s parent company) suggested Morita and Ibuka use the transistor to make hearing aids, they decided instead to use it in radios. In 1955, Tokyo Telecommunications Engineering Corporation marketed the TR-55, Japan’s first transistor radio, and the rest, as they say, is history. Soon thereafter, Morita rechristened the company as Sony, a name he felt conveyed youthful energy and could be easily recognized outside Japan.

Today Sony is almost everywhere. Its businesses include electronics, computer equipment, music, movies, games, and even life insurance. It employs 190,000 people worldwide and does business on six continents. In 1999, Sony racked up sales of $63 billion; 31 percent of those came from Japan, 30 percent from the United States, and 22 percent from Europe. (To visit some of Sony’s country-specific websites, go to www.sony.com and click on “Global Sites.”)

Perhaps Sony’s most famous product is the Walkman. Created in 1979, the Walkman capitalized on what some perceived as the start of a global trend towards individualism. From a technological standpoint, the Walkman, was fairly unspectacular, even by 1979 standards, but Sony’s marketing efforts successfully focused on the freedom and independence the Walkman provided. One ad depicted three pairs of shoes sitting next to a Walkman with the tag line “Why man learned to walk.” By 2000 more than 250 million Walkmans had been sold worldwide, but Sony was concerned. Studies had shown that Generation Y (ages 14 to 24) viewed the Walkman as stodgy and outdated. So Sony launched a $30 million advertising and marketing campaign to reposition the product in the United States. The star of the new ads was Plato, a cool, Walkman-wearing space creature. The choice of a nonhuman character was no accident according to Ron Boire, head of Sony’s U.S. personal-mobile group. He wanted a character that would appeal to the broadest possible range of ethnic groups—thus, the space creature. Boire explains, “An alien is no one, so an alien is everyone.”

Sony’s current vision, however, extends far beyond the Walkman: to become a leader in broadband technologies. Sony looks forward to a day when all of its products—televisions, DVDs, telephones, game machines, computers, and so on—can communicate with one another and connect with the Web on a persona network. A Sony executive provides an example of such technology in action: “Say you are watching TV in the den, and your kids are playing their music way too loud upstairs,” he says. “You could use your TV remote to call up an onscreen control panel that would let you turn down your kids’ stereo, all without having to get up from your recliner.”

Sony sees its new PlayStation2 filling a major role in the Internet of the future. In March 2000, Sony introduced the PlayStation2 in Japan and sold 1 million units within a week. Newsweek featured the PlayStation2 on its cover that spring, even though it wasn’t offered in the United States until later in the year. Most consumers probably bought PlayStation2 to play video games, but its potential goes far beyond that. It is actually powerful enough to be adapted to guide a ballistic missile. Sony envisions consumers turning to the PlayStation2 for not only games but also movies, music, online shopping, and any other kind of digital entertainment currently imaginable. Ken Kutaragi, president of Sony Computer Entertainment, predicts the PlayStation2 will someday become as valuable as the PC is today: “A lot of people always assumed the PC would be the machine to control your home network. But the PC is a narrowband device that… has been retrofitted to play videogames and interactive 3-D graphics. The PlayStation2 is designed from the ground up to be a broadband device.”

The PlayStation2 also reflects a changing attitude within Sony regarding partnerships with other companies. Toshiba helped Sony design the Emotion Engine, which powers the PlayStation2. In previous years, these kinds of alliances were the exception rather than the rule with the Sony. Sony was perceived as arrogant because it rarely cooperated with other companies, preferring to develop and popularize new technologies on its own. Recently, however, that has changed. Sony has worked with U.S. based Palm to develop a new hand-held organizer with multimedia capabilities, cooperated with Intel to create a set of standards for home networks, and launched a joint venture with Cablevision to build a broadband network in the New York metropolitan area. Nevertheless, some critics believe Sony remains too insular, looking on from the sidelines while other companies join forces to create entertainment powerhouses. Sony has no alliances with U.S. cable or television networks, raising some doubts about its ability to fully develop its home Internet services. Sony has talked with other music companies about possible joint venture, but nothing has come to fruition.

Unlike many U.S.-based multinationals, Tokyo-based Sony traditionally has marketed itself on a regional rather than a global basis. For example, Sony has almost 50 different country-specific websites from which consumers can order products. However, there are signs that strategy may be changing, at least to some degree. Sony launched www.Sonystyle.com, a website that is the company’s primary online outlet for selling movies, music, and electronic products. Sony also plans to provide product service and support on the site, and eventually software upgrades as well. The current main website (www.sony.com) is mainly a source for corporate and investor information. Also, in 1997 Sony embarked on a worldwide ad campaign to make itself and its products more relevant in the eyes of younger consumers. Ironically, much of Sony’s future growth may come from its own backyard. The primary buyers of electronic and digital products are ages 15 to 40. It is estimated that by 2010, two-thirds of the people in the world in that age bracket will live in Asia. Tokyo is already a powerful influence on Asian culture. Asia’s most popular youth magazines are published in Tokyo, and most of the music Asian young people listen to comes form Tokyo. So part of Sony’s challenge is to continue to grow on a global scale while paying close attention to the burgeoning market at home.

Immediately following World War II and for some years thereafter, the label “Made in Japan” connoted cheap, shoddy, imitation products. Today, for many people, that same label stands for excellence and innovation. Certainly Sony can take much of the credit that transformation. Now the question is whether Sony’s products and marketing efforts can keep pace (or set the pace) in the upcoming age of digital convergence. 

Question:

1. Identify and discuss some of the cultural meanings for Sony possessed by consumers in your country. Discuss how these cultural meaning were developed and how they influence consumers’ behaviors (and affect and cognition). What is the role of marketing strategies in creating and maintaining (or modifying) these cultural meanings?

2. It is often stated that the world is becoming smaller because today people communicate relatively easily across time and distance. Discuss whether that has been beneficial for Sony. What are some marketing challenges it presents?

3. What do you think about Sony’s tradition of region-specific or nation-specific marketing? Would Sony be better served by working to create a more uniform global image?

CASE: V   Pleasant Company

Samantha Parkington fights for women’s suffrage. Addy Walker escapes from slavery. Kirsten Larson builds a life in the frontier. Characters from feminist novel? No, these plucky heroines are part of The American Girls Collection, a line of historical dolls that are the darlings of 7- to 12 year-olds. Christmas orders piled up so fast at Pleasant Co.—the privately held doll-maker—that company vice presidents had to pack boxes in the warehouse.

Former president, Pleasant Rowland, who began the company with royalties she received from writing primary school reading books knew her vision had to be broad. Simply launching a me-too doll would have meant failure.

Before Rowland got her idea she went shopping for dolls for her two nieces. All she found were Barbies that wore spiked heels, drove pink Corvettes, and looked as if they belonged in strip joints. Though industry sources told her she couldn’t sell a mass market doll for over $40—some Barbies cost less than $10—Rowland gambled that boomer parents would pay more for one that was fun and educational.

Each of Pleasant Co.’s five dolls represents an era of American history. Addy is from the Civil War, and Samantha is described as a “bright Victorian beauty.” Parents can also buy historically accurate replicas of clothes, furniture, and memorabilia, such as the June 6, 1944, Chicago Daily Tribune headlined “Allies Invade France, made for Molly McIntire, the 1940s doll. The 18-inch dolls cost $84; add in all the accessories, including $80 dresses for the doll’s owner, and the price exceeds $1000. Every doll also stars in its own series of novels, with titles like Kirsten Learns a Lesson Samantha Saves the Day. The heroines go on adventures and cope with moral dilemmas; for example, Felicity Merriman, a colonial girl, has to decide whether to continue her tea parties while her father fights King

George Ill’s tea tax. Says Rowland: “We try to give girls chocolate cake with vitamins.”

Pleasant Co. decided early on not to compete doll to doll on toy store shelves. Defying industry wisdom, Rowland began selling only through her own catalog. She counted on her dolls’ being so different that word of mouth would take care of sales. She also coddled her customers. Pleasant Co. opened a “hospital” for broken dolls, so when brother sticks a pair of scissors through Molly’s head, Mom can return her to Pleasant Co. for repairs. For $35 the company does the surgery then mails Molly—now wearing a hospital gown and carrying a certificate of health form the house doctor—home to recuperate.

Will Pleasant Co.’s dolls have legs? Rowland says movies, CD-ROMs, and theme parks aren’t out of the question. But she’ll expand only as long as she can keep the business special. She refuses to license her products on T-shirts and lunch boxes, fearing that too much exposure would cheapen the doll’s image. Says Rowland: “It never hurts to play hard to get.”

In 1998, Mattel, Inc., purchased Pleasant Co., which continues to operate as an independent subsidiary. During the same year, American Girl Place, the company’s first retail and entertainment site, opened in downtown Chicago, and a second store opened in New York in 2003. The stores are a little girl’s delight. Visitors can purchase dolls, books, and clothing; view a musical revue; and have tea, lunch, or dinner at the Café at American Girl Place. The Chicago store sold $35 million worth of products in 2003.

Question:

1. Why do consumers pay $84 for a Pleasant Company doll when they can buy other dolls much more cheaply at retail stores?

2. Considering money, time, cognitive activity, and behavioral effort costs, are Pleasant Company dolls more or less costly than dolls that can be purchased at retail stores?

3. What recommendations do you have for Pleasant Company to increase sales and profits?