Category Archives: business

Just over a week ago Coca-Cola announced measures to to deal with the social issue of obesity. It was an interesting move and on the surface of it a victory for pressure groups looking to tackle ‘Big Food’ related issues. The less charitable could also argue that Coca-Cola is trying to make a CSR (corporate and social responsiblity) silver lining out of likely future regulation. There is a policy tide against soft drinks companies, an example of this is the recent proposed legislation to ban  sugary drinks in individual servings of 16 fluid ounces (just under 1/2 litre) by Michael Bloomberg’s administration in New York.

The European Union has looked at ensuring consumers are better informed about the calorific values of soft drinks by changing labeling.

To be fair Coca-Cola has a reputation of doing things that are both good for business and good for the wider society. From using its extensive distribution network to get vaccines into far flung parts of the developing world to a relentless approach to drive down the use of packaging increase recycling.

The timing of these changes is well-chosen as it puts blue ocean between Coca-Cola and competitors, in particular PepsiCo. PepsiCo is trying to regain ground that it had lost under the leadership of Indra Noovi.

Pepsi had a mis-balanced business that focused too much on the developed world. It also tried to change too many things within its business at once. Pepsi has tried to move to be a healthy food provider and invest (often too expensively) in developing world markets. Which increased the amount of debt that the company carries.

One noticeable miss-step from a marketing point of view was that PepsiCo misunderstood and miss-used social media marketing in its efforts. It did many tactical things right, like the Gatorade listening room but it made some crucial errors. In particular, the Refresh campaign which diverted TV advertising money into a social-led CSR programme. PepsiCo put too much trust in social media marketing to shift product and cut spend in traditional marketing techniques. Eventually the company had to make redundancies to cobble together 500 million dollars from the savings in order to try and get its marketing back on track.

I can see signs that other groups focusing on the bleeding edge of social business such as snack food group Mondelēz International could make as well unless pragmatism gets to trump visionary zeal.

In the same way that Proctor & Gamble came out of the great depression stronger by building a competitive advantage through advertising, Coca-Cola is likely to get a similar advantage by setting the bar higher for competitors.

More information
Coca-Cola says it will drive obesity battle with calorie counts | The Guardian
NYC soda ban would lead customers to consume more sugary drinks, study suggests | CBS News
Judge Blocks New York City’s Limits on Big Sugary Drinks | New York Times
UK Soft Drinks Report 2012 | British Soft Drinks Association (PDF)
Sodas on the Defensive – WPP
Indra Nooyi’s Pepsi challenge – Fortune Management
Pepsi Pours Fortune Into Marketing Drinks, Indulgent Snacks | News – Advertising Age
PepsiCo, A-B InBev Strengthen Ties with Joint In-Store Marketing Program | Advertising Age

Since the financial crisis first broke in the UK we’ve seen the demise of a number of high street brands. The recession has been a catalyst for restructure with the retail sector.

There have been a number of factors at work:

Online retail disrupting offline business models – Brands from Blockbuster to HMV have been disrupted by the immediacy of digital media and in the case of HMV a withdrawal of catering to local needs in the bricks-and-mortar stores. Record groups like Rough Trade and independent shops show that there is a demand for media artifacts – but not a sufficiently large one to support large corporations. Other sector beyond media such as clothes and brown goods have also suffered from online competition notably DSG and Comet.

Changing demographics – from Mrs Thatcher’s we are all middle-class to a shrinking middle-class seen across the developed world. Outside of London; city central districts are changing. I have noticed the difference during my trips back to Liverpool, first we saw a consolidation of department store brands, then the disappearance of many mid-market brands.

What is also interesting is how traditional value-orientated brands like Woolworths, Ethel Austin and Littlewoods fared. Their competition was not only discount stores like Primark, but informal sellers on eBay as well. So they went under.

Now this process is being exasperated by the UK banking system woes, but this only accelerating what would have happened over a longer period otherwise.

More information
HMV to sell famous Oxford Street store | The Guardian
UK malls use Google in desperate stab at luring shoppers off the web • The Register
Blockbuster goes into administration – Brand Republic News
Surprise UK retail sales drop fuels triple-dip recession fears | guardian.co.uk
HMV and Republic: are administrators ruining the value of websites? | Econsultancy
Who’s Gone Bust in January 2013 – Centre for Retail Research, Nottingham UK

I have over 106,00o Avios, enough to get me from Heathrow to Hong Kong first-class and still have some left over. These are frequent flyer points given out by British Airways. I have a lot of them and wanted to spend them. Unfortunately, I haven’t been able to cash them in the four times or so that I have tried. In fact I wasn’t able to book a Heathrow to Hong Kong flight in any class of travel. I admit,   I was more than a little disappointed. But my curiosity was bigger than my disappointment and so my last failed Avios experience got me thinking.

In fact when I went forward a month or so I still couldn’t get a Heathrow to Hong Kong flight, apart from one flight which required a stopover in Riydah, Saudi Arabia. The Riydah stopover isn’t really an option at all, unless one is:

• A Saudi national
• Part of the tour group (of four or more) with a Saudi visitors visa
• In possession of a Saudi business visa, which requires an invitation from a Saudi company
• In possession of a Saudi employment visa

If you don’t fit into any of those categories, you aren’t allowed to transit through a Saudi airport, this would include the lions share of the BA customer base.  In other words, I had two hopes: Bob Hope and no hope.

So I did an unscientific survey amongst my contacts and found that they’d managed to spend their Avios (and their predecessor Air Miles)  on trans-Atlantic flights occasionally, but mostly for short-haul European flights.  They like me had found it hard to book longer haul flights.

This time I tried going through customer services who checked and told me that there were no reward flights available when I wanted to go. I enquired via the British Airways Twitter account about trading options and they said how would one put a monetary value on Avios?

So bear with me whilst  I break this down:

There are a limited number of rewards seats, how many on the journey I want to go? I don’t know. Where they go or when they are, apart from searching via the British Airways site. It isn’t exactly a transparent process, what proportion of seats could notionally qualify? This sounds to me like the start of a game of chance, rather than the traditional rewards scheme like my local coffee shop, Superdrug or Boots cards.

Why are there a limited number of seats? Presumably to reduce the redemption rate down to an ‘acceptable’ level. Given that Avios are earned in proportion to transactions:

• Airline flights
• Promotional partner purchases
• Credit card transactions

This implies that there is some form of monetary value exchange by the affiliate marketing parter, there is some from of monetary value to British Airways and by implication there is some form of monetary value (after BA has taken it’s cut) to the consumer (me).

So how do we derive a value? I suspected it is likely to vary according to route. Here are some examples based on single flights from London (all airports) on December 1, 2012, versus how many Avios the trip requires. I have taken out taxes from the flight price to make the comparison between the payment methods fair. I have also not included the credit card surcharge and picked the cheapest flight shown. All data has been provided from the British Airways website with a currency setting in pounds:

*  Avios lists a business class option to Manchester, the ticket booking system only offers economy. The price is minus the airport tax.

** Avios lists a first-class option to Helsinki, the ticket booking system only offers business and economy class

So this is a very small sample size, but there seems to be some sort of pricing strategy at work, which implies that British Airways has some sort of notional value on the Avio as a currency unit and they are trying to elicit customer behavioural change and maximise the Avios/pounds price that they get for flights.

I presume that they would probably move around reward seats to use Avios iron out gaps in demand. But given that Avios price can alter, why does British Airways need to also restrict demand with ‘reward seats’ availability?

Given this research there are a number of attributes that I think would go into deriving a the notional value of an Avios if it was to be traded:

• Where I want to go and when I want to go which dictate a probability of getting hold of a reward seat
• How long the Avios are needed for. If you want to fly next week, it doesn’t matter whether the Avios you are buying the flight run out in a month or four years time. If you are buying Avios to use in 12 months their expiry date matters more

Some of these attributes start to make Avios look like a derivative, so an algorithm similar to the Black-Scholes equation would factor in:

• The risk that you wouldn’t be able to spend the Avios
• The notional value of the Avios based on where market players actually want to go to rather than where British Airways wants to game their flight plans to go

In a market like Points.com, were Avios to be floated as currency or against other rewards programmes, one maybe able to see their true value. A massive deflation in their value would support my hypothesis of Avios not being rewards per se, but more analogous to a lottery ticket.

And such a situation would be counterproductive to customer  loyalty, because the gamed nature of the programme would become more readily apparent. Imagine if you were told you can enter a game of maybe getting on some flights for free (excluding airport taxes), but more points doesn’t necessarily increase your chances of winning. British Airways Avios customer loyalty scheme wouldn’t seem so attractive, would it?

I’d leave the final words to John Lydon:

Ever get the feeling you’ve been cheated? Good night!

which he apparently said at the end of the last Sex Pistols concert, Winterland Theater, San Francisco, California January 14, 1978.

Not new to those of use that follow Jeremiah Owyang, but the problem of scaling within a social business context is one that he keeps coming back to. Here is the slides that he shared at Dreamforce – a Salesforce.com event.

The slides are on Slideshare so may not be visible to all readers.