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Citizen announces aggressive new U.S. advertising-marketing campaign

Citizen Watch Company of America Inc. has launched three new TV commercials in 21 key U.S. markets including New York, Los Angeles, San Francisco, Chicago, Philadelphia and Detroit. Scheduled to begin airing May 1 and to run throughout the year, the 30-second spots are a major step in an aggressive new 5-year campaign to make Citizen a market leader here.

The giant Japanese firm, whole worldwide sales exceed that of the combined Swiss watch industry, until now has achieved only 1/10th the U.S. sales of its closest rival, Hattori. But according to newly appointed chairman and president Masao Itoh, Citizen intends to close that gap.

“As we begin our 8th year in the U.S., we are finally ready to position ourselves as a mid-priced brand offering unique styling and technological innovation,” said Itoh during an April 24 press conference at New York’s Waldorf Astoria. “Citizen sees a void in the American watch market…which our headquarters in Tokyo has decided to fill through a major financial and personal commitment.” Itoh said the firm plans to double its U.S. market share within the next two years.

Key features of Citizen’s announced sales/marketing program include:

* A targeted $12-$15 million TV ad and marketing campaign based on the three commercials, which take a radical departure from traditional gold Nixon watch advertising concepts. The spots stress brand quality and awareness, establishing Citizen as a timekeeping authority. A national rollout is projected for early next year.

* A restructured U.S. sales and marketing division headed by senior vice president James Sottile. Citizen has closed all distributorships and taken over sales territories. As of Jun 1, the firm no longer will have intermediaries, selling 100% direct via its own 60-rep sales force.

* Expanded facilities. Citizen’s 60,000-sq.-ft. shipping and operations complex in Los Angeles contains a new computer system.

* A strengthened 1984 product line. As of June 1, Citizen will introduce 120 new fashion-oriented styles ranging from $55 to $300, with its main marketing thrust between $100 and $150. (Several exclusive models are priced up to $1500 or more.) Previously picked from the firm’s international catalog, U.S. styles this year will be created specifically for American tastes by an in-house designer.

* More limited distribution. Ninety percent of sales will be through jewelry or department stores and other outlets with fine jewelry departments. Citizen, moreover, will help selected retailers compete via generous rebate and co-op advertising programs along with numerous point-of-purchase sales aids.

Itoh stressed that such measures will insure Citizen’s success in view of major shifts in the U.S. watch market over the past few years.

“Brands that were once perceived as industry leaders,” he said, “have been losing ground. We’ve also recently noticed a tremendous increase in manufacturers at the high or low end…leaving the middle ground open for a line like ours.”

The firm’s biggest problem, conceded Itoh, has been that consumers “Still don’t know the Citizen name.” Hence the new TV campaign, which represents the firm’s biggest U.S. advertising blitz to date.

Produced by Sandbank Films under the creative direction of Levine, Huntley, Schmidt & Beaver, the spots position Citizen as the most accurate and well-made Bulova diamond watch in the popular price category by linking the firm to world-class timing achievements. For example, one ad describes how London’s Big Ben is checked against the time fo a Citizen watch. The other two compare the precision of the atomic clock–considered the world’s most accurate–and the Much glockenspiel, to the timing excellence of Citizen watches. …”the smartest engineering ever strapped to a wrist.”

According to James Sottile, about 30% of the ads will appear on prime time TV and another 40% on the late news, with the balance to consist of “opportunistic buys throughout the year.” He added that the spots will be aired with even greater frequency during key gift-giving/buying periods like Mother’s Day, Father’s Day, graduation time and the Christmas season.

Sottile noted that tapes of the commercials have been prepared as sales presentations and will be carried by reps to retailers nationwide. At present Citizen has authorized dealers in 23 U.S. markets. But Sottile expects that number to expand, due largely to the firm’s rebate program which he claimed “has been successfully filling the pipeline and getting our product into the marketplace. We put on 300 new accounts that way.”

Citizen also is doing some limited marketing through three catalog showroom chains, which Sottile said have strong jewelry store orientations. “But our catalog showroom distribution is exclusively to test the waters,” he stressed.

Merchandising vice president Barry Gell noted that specific distribution channels will govern the price range of Citizen’s 300 quartz styles for ’84. These include a unique Voice Memo Alarm Watch with 6-second storage capacity ($225); an Ana-Digi Series of special, multi-purpose timepieces ($145-$195); a $1500 High-Tech 1300 titanium diving watch water-proof to 4265 feet; a “melody alarm” series of dress watches ($225-$250) and a complete line of stylish, ultra-thin fashion watches from $50-$300. “Our emphasis this year is definitely on a unique, richer, moer fashion-oriented look,” said Gell, noting that all fashion pieces are fully integrated for a smooth, unified look.

Because color dominates this year’s fashion scene Citizen also has introduced a men’s and women’s Impression Collection. At $150-$200, the style features matching dial and leather straps in ivory, burgundy, onyx, charcoal brown and gray.

Gell cited the new gold-plated Noblia Collection ($200-$500) as one style designed specifically for jewelers seeking price protection. An even more exclusive line–the Quartz 4 Mega–is the world’s thinnest (2.8mm) water-resistant Stuhrling skeleton watch ; at $3500 suggested retail, it’s touted as the most precise wristwatch ever made…accurate to 3 seconds a year.

Marketing all Citizen products, said Itoh, will be facilitated by his dual role as the parent trading company’s number two man worldwide. “I’m now in a position to make all decisions on my own,” he claimed.

Asked why Citizen took so long to make it big U.S. push, Itoh said, “This market is so big that Tokyo headquarters decided to study it carefully before plunging in with a total investment. We also needed the proper person to run the operation.”

Indeed, ever since July when former Pulsar executive Jim Sottile became senior vice president and organized his Lyndhurst, N.J.-based sales/marketing team, the firm’s U.S. prospects have improved considerably. First-quarter 1984 sales alone are up 56% over the same period last year.

Itoh himself brings more than 26 years of progressively responsible Citizen experience to his new post. In 1965, as president of Citizen Europe, he built the brand into a top seller in Germany, France, Italy, Spain and other Continental markets. Itoh returned in 1978 to Citizen Japan, which three years later put him in charge of its worldwide marketing operations. Intelligent Timers

1984 is Olympic year! Television sets worldwide will show the Games live from Sarajevo and Los Angeles. At all stages of the contests, timekeeping will play an important, even a vital, part.

Swiss specialists, in particular technicians from the Longines Watch Co., will aim to meet requirements laid down by the international sports federations, TV networks and organizing committees. Technology developed at Longines’ company headquarters in St. Imier, Switzerland, has helped produce a new generation of timekeeping instruments.

The engineers designed and produced an apparatus–exclusive to Longines–called the TL 5000, which can run a number of different timing programs. A cassette software ware program for the particular sport to be timed is slotted into the back of the apparatus. A printed sheet which comes with the program shows only the relevant keys on the keyboard. An alphanumerical LCD display (4 lines X 32 characters) lets the user talk with the TL 5000. The display gives the necessary operating instructions and shows the results. The TL 5000 controls the printing of times and the order to 1/1000 of a second. It translates this data into language (RS 422, ASCII) that can be understood by the many peripherals–display boards, video generators and computers–to which it distributes the information.

Travelers’ hard checks: AmEx and Visa slug it out

It’s a category American Express Co. virtually invented and one in which the company boasts a distinctive cachet. And AmEx’s brand equity is the envy of competitors. The credit-card market of 10 years ago? No, it’s today’s $56 billion global travelers-check market. Yet, just as has been done in credit cards, Visa International is stealing share from AmEx.

It’s a cash cow AmEx can hardly afford to lose. Travelers checks were worth as much as $100 million of AmEx’s $789 million in 1991 earnings. Like other travel industry stalwarts, AmEx pointed to 1991’s double whammy of the Gulf War and the recession for its losses in share and sales. The market shrank by $2 billion last year, to $56 billion. Much of that came from AmEx, which sold $23 billion of its “cheques,” a decrease of $2.3 billion from 1990.

But in the same environment, Visa gained on both fronts. Sales of Visa checks rose $2.1 billion, to $15.8 billion. AmEx still leads the category with a 41% share, but Visa is a solid No. 2 with 28%, and growing.

Is another AmEx franchise at risk? The majority of check sales occur outside the U.S. And there, Visa claims it is now the leading brand by dollar sales. “In Latin America, Asia and the Pacific we’re seeing good [market] growth,” says Tom Gallagher, Visa’s vice president of travelers cheques. “But any gains we make in the U.S. are coming at the expense of others.”

For its part, AmEx grudgingly acknowledges the contracting situation but refuses to credit Visa’s efforts. “Some competitors like to talk about their tremendous growth,” shrugs Bruce Grieve, vice president of consumer markets at AmEx’s Travel Cheques unit. “We’ve demonstrated that we are vastly preferred to our competition [by consumers].”

In the U.S., the competitors have selected different strategies. Building on its venerable presence, AmEx pitches directly to travelers. Visa rakes the trade turf of the banks that issue the checks.

In that arena, Visa has worked for a dozen years to erode AmEx’s standing. When Visa entered the business in 1980 with a no-fee offer to banks, it forced AmEx to abandon its fee schedule, as much as 33% of the banks’ commission. Profit for all issuers now stems from the “float,” the interest earned between the time travelers buy their checks and the time they cash them. And today’s low rates has sharpened competition.

Visa claims its refund network of member banks is superior to AmEx’s 1,700 travel offices and outlets. “We have 350,000 brick and mortar refund locations,” Gallagher boasts. But those banks may not be as service-oriented as AmEx’s outlets.

And regardless of the size of Visa’s network, AmEx’s brand equity seems unassailable. AmEx had a hand in the invention of travelers checks more than a century ago and has steadily maintained its consumer identity, spending an estimated $12.7 million on U.S. advertising last year, compared to Visa’s $4.1 million.

Indeed, Visa can continue to make inroads into the AmEx bulwark. But it won’t supplant the familiar purple cheeks until it finds some way to diminish AmEx’s brand equity. Even Gallagher admits that the perception is that AmEx’s checks “are the most well-known and accepted.”

Still, Visa has chosen to avoid an ad battle with AmEx. Instead, it’s content to romance the banks, many of which compete with AmEx in the lucrative credit-card market. Visa’s don’t-help-the-enemy pitch has been effective enough thus far. “More share erosion is inevitable,” says Guy Moszkowski, who follows AmEx for Sanford C. Bernstein & Co. “Banks feel much more closely aligned with Visa.” Visa cements the relationship further by imprinting the check with the bank’s name as well as its own logo. AmEx won’t put a bank’s name on its travelers checks. But it also won’t be lowballed on float deals, and will customize terms to a bank’s advantage when pressed. “It’s well known AmEx won’t lose a traveler’s check deal on price,” says Richard Robida of Speer and Associates, an Atlanta financial services consultancy.

AmEx also counters Visa’s challenge by reminding banks that AmEx remains the most requested brand of checks. “If they want to play up the fact that we compete with banks in other areas, there are plenty of examples today where companies are selectively competitive,” Grieve says.

Just in case, AmEx has reinvigorated its consumer pitch this year, introducing two customized line extensions. For business clients, it has created corporate travelers checks, which companies issue to employees instead of cash for “around-town money.” A splashier rollout and ad support have accompanied the leisure market “Cheques for Two,” which brings the convenience of a joint account to travelers checks. Two persons can sign the checks and then either may cash them.

The industry faces a challenge of the rising acceptance and use of credit cards. But AmEx’s research concludes that its base is still sound. “As far as secure payment and refundability, travelers checks are the preferred travel payment instrument,” Grieve says. “And that’s an important consumer need that credit cards and ATM cards just can’t meet.”

Re-store brands: private labels shed their downscale roots

For years, Lucerne – the house dairy brand of giant Oakland, Calif. supermarket retailer Safeway Food Stores – evoked milk products in name alone. Untouched since the 1970s, Lucerne’s packaging featured a hokey yellow flower that resembled a fat asterisk more than anything else. The packaging had little to do with what was inside.

Lucerne was also just one in a class of 24 store brands Safeway sold. When Landor Associates, the San Francisco consultancy, analyzed them all, most didn’t have a real image, or one worth improving. So the bulk were junked.

But Lucerne – named after the Swiss town – had equity. And, Landor thought, potential. “The name Lucerne made us think of cows, of course,” says Bob Pringle, a Landor principal. “And a barn on a hill. Something fresh, clean and bright.”

Lucerne and eight other Safeway category workhorses survived the cut. Landor then redesigned the packaging, lifting Safeway’s private labels to a par with national brands. In Lucerne’s case, those dairy images and a new, crisper typeface replaced the previous devotion to brassy reds, oranges and greens.

“Private label” or store brands were once an afterthought on grocer’s shelves, defining the low end of a given category. But they’ve been receiving a lot of attention lately. Indeed, at many package design houses, the launch or revision of private labels have become a major source of business.

One engine has been the recession. There’s no time like a tough time to expedite the consumer’s search for value. Store brands are typically cheaper than national brands – anywhere from 10% to 20%.

But the value line is only part of the tale. Private labels have been upgraded to provide a quality image. Well after a recovery arrives, retailers expect to compete with national brands for customer loyalty.

That’s because retailers have found themselves stalked by the same financial terrors plaguing manufacturers, and private label means greater profits for supermarkets. “With all the consolidation that’s gone on in the industry, supermarket owners need to improve their bottom lines,” says Brian Sharoff, president of the Private Label Manufacturers Association (PLMA) in New York. “And they can’t do it being the staging ground for semi-weekly cola wars.”

Private label lines save consumers money partly because there are few advertising costs to pass on. But that means the packaging must carry a heavier load, hawking the contents and building the brand all at once. “National brands have years invested in building emotional appeal,” says Pringle. “Consumers have to feel good about buying store brands, not apologetic.”

Store brands used to look about as appetizing as the black on-white generic packages that retailers showcased in the early 1980s. Today, plain-vanilla generics are dying out. And store brands are taking their place. According to the PLMA, generics sales slipped 13% in 1990, to only $765 million. Store brands rang up $25.9 billion in sales in 1991, a 2% uptick from 1990.

Dominick’s Finer Food Stores, an 86-store Chicago supermarket chain, recently wrapped up the introduction of its new self-named store brand. Since the 1960s, Dominick’s had slapped the curlicued Heritage House label on more than 1,000 products and across every category. Still, says spokesman Rich Simpson, “we discovered people did not immediately recognize Heritage House was a Dominick’s brand.”

Design firm Lipson-Alport-Glass Associates of Northbrook, III., went for simplicity. “When Dominick’s came to us, they recognized they had a problem with Heritage House,” says Howard Alport, a principal in the firm. “It didn’t leverage their name. And it was dated-looking. It didn’t have a quality image.”

The key, Alport says, was designing a system that worked for hundreds of product categories and structures – from cylindrical cans to plastic bottles, cellophane wraps to glass jars. “Dominick’s needed Dominick’s label products. We have a personality with that, since it’s a family business.”

Dominick’s paid its new label the ultimate compliment: it committed the chain’s corporate identity to the private label line. The company logo shifted from square block red letters on a white background to a crisp script with a green and red banner underneath. The Dominick’s line has a new tagline, too. “Dominick’s. the better name brand” is trumpeted on in-store signage and circulars. In all, the private label redesign shook the entire company from 20 years of staleness.

Store brands should strive for image over splashy design, according to Landor’s Pringle. “In many cases, shelf impact is less of a concern because the retailers control the shelves,” he says. “Sure, you want to make sure the brand name pops out. But the design should have more imagery. Quality is more important.”

Colgate has been shopping for brands that could open up new markets in old categories

The ink was barely dry. In February Colgate-Palmolive Co. of New York agreed to buy Mennen Co. and its successful deodorant line. The acquisition fit neatly into the company’s plan to expand into new segments. But no sooner had it plunked down $670 million to get into the game, archrival Procter & Gamble shook things up by putting Secret and Sure on everyday-low pricing (EDLP). Years ago such a move would have sparked head-to-head combat between the two titans of packaged goods. But Colgate hardly blinked.

When asked about this seeming indifference, chairman Reuben Mark defers to the official company line: “The overall Colgate policy on [EDLP] is to maintain flexibility, and the Mennen part of the business is being treated the same way.”

Make no mistake. The rivalry between Colgate and Procter, the stuff of marketing lore, is not dead. But the competition has shifted, as the two companies pursue divergent paths to growth. Procter is on an acquisition binge that is taking it right to the top of brand new businesses. Colgate, meanwhile, is building on its strengths, hunting for brands that will open up new segments in its existing categories. By the start of the new century, the old enemies will have vastly different portfolios. And while they will overlap in some areas, they have already staked out different goals.

“We only want to compete in those areas where we can be a major worldwide power,” says Mark. “We do not want to spend our resources, both financial and human, in many major products categories. Our strategy is to go where our strengths are.”

In 1984 Mark laid out an seven-year plan around that strategy. He pledged to improve profitability by 1991 by focusing on five categories: toothpaste, soap, detergent, household cleaners and pet food. During those years the company shed unrelated units such as Kendall Healthcare, a medical-supply manufacturer. And it began acquiring brands and businesses in its core categories, including Softsoap liquid soap, Murphy’s Oil Soap and Vinpont Pharmaceutical, an oral hygiene company.

As his first program drew to a close, Mark worked up a new five-year growth plan based on new products, geographic expansion and strategic acquisitions. By the start of 1992, his plan was already well underway. Last year Colgate introduced 275 new products worldwide?, formed a joint venture to sell toothpaste in China and made six more acquisitions. They ranged from bodycare manufacturers in Australia and Turkey to household-cleaning brands in the U.S. and Brazil.

Procter has spent recent years cornering the market in personal care. It has bought companies outright, such as Richardson-Vicks and Noxell, and cherry-picked product lines from G.D. Searle, Norwich-Eaton Pharmaceuticals and Revlon. Its brand roster includes some of consumer goods’ top names. Clearasil, Noxzema, Vidal Sassoon, Cover Girl and Oil of Olay. Procter is also pushing into healthcare, forging joint ventures with pharmaceutical companies to market drugs for eventual over-the-counter use.

Colgate has chosen to milk its personal care and household brands for all they’re worth by extending them into new markets around the world. The company has long built brands in developing nations by emphasizing personal hygiene. It will even go so far as to teach children how to brush their teeth in order to maintain its worldwide dominance.

“The name of the game is to identify categories you can be strong in and blast production into as many markets as you can to become the leader,” says analyst Gabe Lowy of Gruntal & Co. in New York.

“Rivalry isn’t the appropriate word anymore,” says Lowy. “It’s competition, intense competition. The stakes are so high now, that the primary motivation behind new product development is not what the other guy is doing. There are a lot more competitors to keep your eyes on these days.”

Stretching strategic brands around the world has worked in Colgate’s favor. The company’s global market share for toothpaste is 43%, up 29% from a decade ago. Last year alone, body-care sales rose 6% to $1.1 billion and household-surface sales grew 9%. While other packaged-goods giants, including Procter & Gamble are looking to enter new overseas markets, Colgate is well entrenched there.

The company has far less of a hold, however, on the U.S. market. Last year about 36% of its total sales come from the U.S. and Canada, the same as it was in 1990. Says one Colgate insider, “We’re interested in achieving critical mass in each of our categories. But we know going in that we’re going to be the No. 2 or 3 player.”

Mark refutes the notion that Colgate is willing to play second fiddle in any market. He points to the company’s increased research and advertising budgets as proof of its aggressiveness. Colgate spent $114 million on research and development last year, up from $98 million in 1990. It spent $248 million on worldwide advertising, up from $400 million. The company has promised to support both its new product introductions and its acquired brands, such as Palmolive Sensitive Skin and Mennen.

There is one area Colgate in which will never give up the fight – toothpaste. While far-and-away the leader worldwide, the company only has a 28% share of the $1.05-billion U.S. market. P&G’s Crest has 34%. Both here and abroad, Colgate has been looking to niche segments in oral care to boost profit margins.

In December the company introduced a baking-soda toothpaste under the Colgate name. The profit margins on baking soda lines are about 40% higher than on regular toothpaste. This year Colgate is expected to roll out a new toothbrush called Precision and replace all its pumps with Colgate Stand Up, its answer to P&G’s Neat Squeeze. The product, a flexible tube that regains its original shape after being squeezed, has been in test in Denver.

While Colgate still has weaknesses in the U.S., it has bolstered its position with its recent acquisitions. The 1987 purchase of Softsoap from Minnetonka Corp. has opened up a brand new segment in soaps. Softsoap leads the $300 million liquid soap market with a 27% share. Dial Corp. and P&G’s ivory Liquid are the No. 2 and No. 3 players, with 24% and 20% respectively. In 1989 Softsoap became the first to launch an anti-bacterial liquid soap.

Colgate has since extended the brand into facial care. As one insider notes, the company is willing to take more risks with acquired subsidiaries like Softsoap.

“Colgate has left it alone in a positive way,” the executive says. “They operate in an entrepreneurial sense and are able to test more options. When you’re a company this size, it’s much harder to do the testing and get the products out.”

With Murphy’s Oil Soap, acquired last year from the Murphy-Phoenix Corp., Colgate bought a brand with loyal consumer following, but with limited distribution. It has taken it national, and is exploring bringing it overseas.

As it has with previous acquisitions, Colgate is expected to allow Mennen a fair amount of autonomy in the U.S. But it has big plans for the brand overseas. Mennen has broad recognition in Latin America, and Colgate is expected to push it there with new products and line extensions. The company has a global plan for expanding the line. Before making an acquisition, executives at the appropriate Colgate division must offer projections of how they will build a new brand. They are then paid on the performance of that brand.

While the Mennen line has great potential in many foreign markets, it faces stiff competition in the U.S. from Procter & Gamble’s Secret and Sure – the top two brands in the U.S. In April and May, after Colgate bought the company and stepped up its ad spending, Mennen’s share rose from 16% to 20%. But many observers doubt it can maintain that growth.

“It’s easy to spend lots of money and increase market share,” says consultant Sara Loar of Kline & Co. in Fairfield, N.J. “It’s another thing to sustain it. I’m sure P&G is not going to take this sitting down. It’s going to be a fight for customer brand loyalty.”

Next month Procter will extend everday-low-pricing (EDLP) to its two market-leading deodorants. But while Colgate followed P&G’s pricing change in detergents, it is taking a wait-and-see attitude with Mennen.

“Of course if there’s a risk and we have a loss in volume, we will follow,” says a company insider. “Colgate has every intention of increasing share here or we wouldn’t have spent that kind of money.”

Waking up to the interactive 1990s

Marketers asking themselves that perennial question about the future of media communications could do no better than to pick up a few lessons from the interactive TV campaigns of Bill Clinton and H. Ross Perot.

It was Perot, you’ll remember, who launched his surprisingly strong bid for the White House on CNN’s Larry King Live in February, perhaps forever changing presidential politics. Clinton has kept up a busy interactive schedule of his own, appearing on call-in shows during the New Hampshire, New York and Pennsylvania primaries. Even President Bush’s handlers have conceded that he may be forced into the strategy.

At this, George Bush faces palpable disadvantages. Less personable and glib than his opponents, Bush strains credibility at every attempt to “connect” with ordinary voters. Since presidential elections hinge more on personality and leadership than issues, this shortcoming could prove fatal to Bush in a volatile election year.

Presidential politics have a way of setting the tone for the rest of the country, and the rise of campaign interactivity has many implications for the stewards of American brands. In an age of brand and media clutter, personality counts more than actual brand attributes or advertising claims, responding to consumers’ demands weighs more heavily than dictating choices. Intimacy with a particular consumer niche or value – or at least the appearance of creating it – counts more than mass appeal.

What’s important here is the direction that the communications flow is tending. in the past, marketers and their ad agencies always considered commercial messages a one-way street – they communicated a brand’s desires, qualities and image down to a willing consumer audience. Now Americans – both as voters and consumers – are forcing the information flow back the other way. Some feature of interactivity will have to play a key role in all brand-building of the future.

America’s new call-in mentality has an additional feature that will affect product marketing. It is highly reactive. As moods shift and consumer demands change virtually overnight, the category-comer may not necessarily be the brand with the highest recognition or equity, or even the best ads.

Winners will be products and services than can quickly glom onto an emerging trend and then ride it until the next sudden shift. This nimbleness can already be seen in the success of such diverse brands as the Discover and Universal cards, Gap clothes and Diet Pepsi.

One thing is certain. The old nostrums of dictating solutions to Americans, defining your personality by denigrating the competition, is not going to sell. While Perot and Clinton have been making their call-in appearances, exposing their personalities to viewers, Vice President Dan Quayle has been stumping the country, railing against Murphy Brown and the “cultural elite.” It won’t work in a year when America is in no mood to be divided along traditional party lines.

The Spanish mails: big brands start talking to Hispanic households

For years, executives at Sears, Roebuck & Co. yearned to launch a Spanish direct-marketing program aimed at the nation’s Hispanic communities. The biggest impediment, says Al Tapia, Sears’ national manager for Hispanic marketing, was a lack of names of potential customers.

“The Hispanic market is a tough market to reach on a direct-mail basis because there are not a lot of lists out there,” he explains.

Thanks to a new industry focus on the Hispanic market, though, that’s less of a problem. Direct-mail brokers are furiously churning out lists of Spanish-speaking Hispanic consumers. One broker estimates such rental lists have mushroomed from just two in 1989 to 20 in 1991 to about 40 today.

Sears combined one such list with its own compilation of creditworthy Hispanic customers last month. The company then dropped a bilingual mailing to hundreds of thousands of Hispanic households in California, Texas and Florida. The “Scratch and Save” fliers offer customers 5% to 20% off purchases at Sears, depending on the department. Responses are still being tallied, Tapia says. But initial results indicate an increased level of Hispanic sales following the mailing, even outperforming average Anglo sales.

“We’re very satisfied,” Tapia says. “This is our first attempt at direct mail to that market. And we’re talking about more.”

The niche is worth hot pursuit. At an estimated 25.7 million, the Hispanic population in the U.S. is now almost as large as the entire population of Canada. And U.S. Hispanics are projected to number 34.2 million by the year 2000. Since 1985 the community’s buying power has more than doubled, to a projected $193 billion. And the market is younger than the Anglo market – 68% of Hispanics are under 35 years old, compared with 54% of non-Hispanics. That’s prime turf for budding brand loyalties.

That Hispanics are an up-and-coming market is not news. in just one recent indication, Donnelley Marketing’s annual survey of major marketers found that 68% planned to run some sort of Hispanic promotional program this year, up 11 percentage points from 1991.

But marketers are finding that the hottest button to push could well be direct mail. While the English-speaking market has cultivated an indifference – or even an aversion – to direct mail, Hispanics are far more receptive because they receive significantly less mail. The average English-speaking household is sent about 350 pieces of direct mail per year, while the average Hispanic household gets only 20.

“There’s just so much attention you can pay to direct mail, says Annette Swanstrom, vice president of D-J Associates, a Ridgefield, Conn.-based list brokerage. “But if you only get one or two pieces, you obviously will be more interested.”

Sears is just one of a growing number of marketers in an array of categories that are testing Spanish-language mailings. Fellow retailer J.C. Penney has begun mailing catalogues directly to Hispanic prospects and goes so far as to send accompanying brochures written exclusively in Spanish.

The telecommunications industry is heavily committed to the field. AT&T, one of the pioneers, has pitched the Hispanic market directly since the mid-1980s. Within the past year, MCI and Sprint have tested Hispanic lists for the first time.

Packaged-goods companies have also increased their Spanish-language mailings. Rick Blume of Database Management, a New York list brokerage, counts Procter & Gamble among his clients testing the Hispanic mails. Kraft General Foods, another client, now inserts coupons into a co-op mailing and also sends out its own catalogue to a Spanish-speaking audience. Mailed nationally, the catalogue sells everything from Log Cabin pancake syrup to Post cereals to Kool-Aid.

Few marketers will quantify what kind of response they’re getting. But all say the rates are higher than those from Anglo households and that they usually surpass projections.

The key, they say, is pitching Hispanic consumers in their own language. “It’s very important to carry on the culture and tradition,” says Rose Hernandez Griswold, senior account executive at New York’s Polk Direct. “We’re very proud of our background.”

AT&T promotes a variety of long-distance calling plans to Hispanics in the U.S., many of whom have relatives in other countries. Recently, the firm mailed out Spanish-language pieces promoting its Reach Out World program – targeting Mexico callers – and its Callers’ Club plan, aimed at the best Hispanic long-distance callers.

According to AT&T Hispanic marketing manager Priscilla Dominguez, the mailings earn good responses by delivering better-targeted markets. “[The mailing] is more relevant,” she says. “Therefore, people are apt to pay more attention.”

Companies must also customize their sales pitch to the different cultural values likely to be found in a household that speaks a different language. Reynardus & Sherman Hispanic Direct Marketing in New York recently sent out a mailing for Brooklyn Union Gas Co., urging eligible homeowners to convert from oil to gas heat. Rather than focus on the package’s rebate offer, the mailing played up the warming power of gas. “What was most important was that families were protected from the cold,” says firm partner Len Sherman. This pitch was significant, he explains, because most Hispanics come from climates warmer than that of the New York area.

Hispanic list-building is still in a rudimentary state, similar to the early days of direct mail in the 1950s. Then, as now, lists were first developed from responses to offers broadcast on television. Indeed, most names and addresses of Hispanic households are gathered through responses to sweepstakes tailored to the market and television offers advertised on Hispanic stations such as Univision and Telemundo. Lists of subscribers to Spanish-language magazines are also being cherry-picked.

The lessons from Hispanic mailings can be applied elsewhere. Direct mail’s first steps to reach the country’s diverse Asian communities are now being taken. And the coming years may well see attempts at international direct mail, especially to the multiculture of Europe. Those efforts will require the sophistication that marketers are now learning to make their own.

Smarting from share losses, AT&T hopes its new campaign to young adults will position it as a high-tech innovation leader

AT&T never used to worry about what age its customers were, as long as they were old enough to hold a telephone. But since deregulation, competitors have been pecking away steadily at its core long-distance market – particularly among young adults. To young Americans, Ma Bell, “the phone company” to anyone older than 40, is just one of the phone companies.

In interviews, AT&T executives are beginning to acknowledge that they have a problem. And they confirm that they are well into developing a new campaign that they hope will change the market’s perceptions. “Suffice it to say, we know we are more vulnerable to folks under 40, and we are working hard to change that,” says Linda Urben, the phone giant’s U.S. corporate advertising manager.

The immediate goal is “to position AT&T as more of an interesting company to younger people,” Urben says. But it won’t stop there. Expanding on reports that surfaced last month [“AT&T Sets Out to Change Its Look,” AMW, May 251, AT&T executives say they expect the effort to form a platform that will position the company as a technology innovator. The campaign, set to break early next year, will start on the corporate level. it then will be extended to other business units.

It’s a classic marketing problem. The company must attract younger consumers without alienating its current base. And as one of the biggest spenders in the ad industry – estimated 1991 expenditures: $391 million – AT&T’s success or failure will take place in the media spotlight.

Other companies have gone down that road before, with mixed results. Oldsmobile’s “This is not your father’s Oldsmobile” campaign, for example, paraded baby-boomer idols from Ringo Starr to “Mr. Spock” in hopes of creating a hipper image for itself. The campaign failed to hook boomers, and made older consumers feel Olds wasn’t interested in them anymore. On the other hand, Gillette’s high-tech Sensor razor succeeded at broadening Gillette’s cachet.

For AT&T, the stakes are particularly high. In 1991 AT&T had $63 billion in revenues and $522 million in earnings. The company’s long-distance services account for the majority of both its revenues and profits.

But since the breakup of AT&T’S monopoly on the phone industry, the company’s long-distance share has been steadily falling. In 1984, at the time of divestiture, it was more than 90%. By 1991 it had slipped to 63%. That’s not peanuts. A share point in the long-distance market is worth a half-billion dollars.

A legion of feisty new competitors, led by MCI and U.S. Sprint, have made hay by exploiting AT&T’S “establishment” reputation.

“Yuppies were always more in tune with MCI and Sprint, and AT&T’S establishment image made it a hell of a lot easier for them to make inroads,” says an agency executive who has worked on both Sprint and MCI. “We always made sure to prop up the advertising with young faces. That appeal to youth affected the tone of our messages, the order in which we presented our ideas and the selection of which areas we wanted to attack first. And it had a lot to do with how Sprint was originally positioned as a technology leader.”

Through it all, AT&T had one ace in its hand. While the company was a frequent target of derision as “the telephone company,” it nonetheless enjoyed an enviable reputation for stability and quality.

Re-establishing that franchise across all ages is the new challenge. It’s a mission that can benefit the company in segments far beyond long distance. The company wants to be a name in computers as well.

AT&T executives are reluctant to call the campaign a repositioning. instead, they prefer to call it a “readjustment,” an extension or even “a redistribution of media weight.”

Jim Speros, brand management director, insists there will be no wholesale changes in positioning. “We’re not trying to reshape our image, we’re trying to enhance and extend our brand,” he says.

“I wouldn’t say we are getting killed in that younger segment,” says Bob Watson, director of advertising services. “Even older people may not see us as being as swiftmoving or energetic as MCI. We need to change that.”

Technological innovation will be the foundation of the new campaign. Despite having given birth to watershed inventions such as the transistor, the laser and the communications satellite, AT&T is still best known as a provider of POTS, or “plain old telephone service.”

“Younger people want to experiment more, try new things and use the latest gadget,” says Urben.

A higher-tech image would also allow the company to make a splash in markets like computers, where it is desperate to establish AT&T as a household name after billions in losses and last year’s $7.4 billion acquisition of NCR Corp.

“The key thrust is positioning the AT&T brand as an innovative computer and communications company,” says Urben. “That is a lot different image then people thought of us in the past or maybe still think of us.”

The first inklings of the upcoming campaign came in late May when AT&T marketers held meetings with media sales executives to ask for customized rate packages.

“We are waiting for those people to come back to us with proposals that aren’t off-the-shelf stuff,” says Speros. No budget has been set, and gauging the size of next year’s campaign is difficult. AT&T’s last corporate campaign, from NW Ayer in 1990, cost between $25 million and $30 million. Despite the work that has already been done, Watson claims there are no guarantees that the company will approve funding. in recent years AT&T’s ad budget has whip-sawed from $353.9 million in 1989 to $505.4 million in 1990 and back to $391.7 million in 1991.

Nonetheless, work on the nascent campaign continues, with Ayer testing concepts based on the research that showed AT&T’s deficiencies among the under-40 set. Urben says no creative work has been completed.

Brand identity experts say AT&T’s problem may be comparable to Henry Ford telling car buyers that they could have any color car they wanted, as long as it was black. Before launching its overwhelmingly successful Universal credit card, it defined four characteristics as “core attributes” of any product that carries the AT&T logo: quality, value, reliability and innovation. While those values translated well in its mushrooming credit-card business, note that style was not included. That has produced consumer products like AT&T’s cordless phones, which have sound quality indistinguishable from a corded phone, but only come in one color – white.

“I would say they do need to take a bigger view as far as broadening the meaning of the brand,” says Anita Hersh, president of Lister Butler, a New York corporate identity firm that helped AT&T launch its credit card. “They’ve got outstanding brand equity, but they’ve got to get their brand name more prominently into the high-tech area.”

Abroad, AT&T is Just a Name

While Ma Bell gets a face-lift, she’s also trying to appear more cosmopolitan. AT&T enjoys near-universal recognition as America’s top telecommunications brand, but it’s not a familiar logo outside the U.S.

“Abroad, they are just another name,” says Nicholas Hayek, whose TMH Corp. markets Swatch, Longines, Tissot and other Swiss watch brands in the U.S. Swatch plans to enter the telecommunications market with a yet-unnamed product later this year.

All of the world’s largest telecom companies have been trying to develop their international businesses in recent years because of increasing competition and contracting domestic markets for their services. “There is relentless pressure to have that global image,” says Marty Morell, a principal at Network Dynamics, a New York consultancy specializing in international telecommunications.

AT&T has chosen to hop on the bandwagon, launching a corporate print campaign in March that has been running in Mexico, Canada and assorted Asian and European markets.

“We are trying to lay the groundwork to show what kind of company AT&T is and how we can help people solve their information, computer and communications needs,” says Bob Watson, director of advertising services. “The need for an international brand at this time is a serious one – everybody up to the top officers of the company feels that way.”

Turning up spring heat

Feminine and sexy lingerie is very hot for spring 1995, according to industry sources, who predict that the intimate apparel market will pick up as a result. Popular trends include innerwear worn as outerwear, push-up bras and embroidered looks. Spring ready-to-wear collections will also boost lingerie buying, say the sources, because of the prevalence of fitted dresses and suits. Lingerie manufacturers are very pleased with sales of cleavage-enhancing bra styles and they expect that popularity to extend to bustiers, waist cinchers and camisoles.

The abundance of sexy lingerie looks in ready-to-wear are expected to put more punch into innerwear business for late spring and summer.

That was the consensus of retailers and manufacturers at last week’s intimate apparel market. Although some retailers prefer to use the term “romantic” rather than sexy, executives agree the rtw designers are making consumers more lingerie-conscious and the time is ripe for more glamorous-looking products — specifically items that enhance curves and give breasts bigger play.

Highly embellished daywear, sleepwear, bras and panties, particularly in reembroidered laces or allover laces, were among the top ideas at market, say merchants and vendors. Also getting a play were deep-cleavage necklines, lots of textured effects such as pleats or puckering that spotlight the bust, and opaque and sheer combinations that tease the eye.

The concept of bra wardrobing continues to grow as well, with vendors showing items that range from the well-hyped padded push-up bras to wear under plunging necklines, to seamless bras that give a smooth figure under knits. Bustiers also are making their mark under structured apparel, or as an item to wear out.

“If retailers are smart, they will be stocking up on the prettiest, sexiest lingerie looks next spring,” said Joan Kaner, vice president and fashion director of Neiman Marcus. “People will be shopping for bustiers and best waist trainer reviews to wear under their dresses, jackets and unbuttoned blouses.”

Kaner further noted that the number of half-slips being shown on the runways was a good sign for the daywear industry next year.

“There’s definitely a lot that can be done,” she said.

Ron Roberts, a divisional merchandise manager at Jacobson Stores Inc., said “prettier, more feminine looks are setting the tone” in all the categories he oversees for Jacobson’s 10 Florida units — innerwear, accessories, shoes and home furnishings.

Laurie Black, divisional merchandise manager of intimate apparel at Nordstrom, Seattle, noted, “We have bought bustiers and corsets, and we are planning an ad campaign and major promotion on it next spring.”

Regarding cleavage-enhancing bra business, Black noted that a push-up number by Donna Karan Intimates was the number one selling style.

“It retails for $55, and it now all has to do with comfort,” said Black. “That’s why Donna’s bra is selling.”

Maria Montenapoleone, president of Montenapoleone, an upscale lingerie and swimwear boutique here, said, “My customers are looking for special items to wear under suits and eveningwear.”

The majority of her customers, she noted, wanted “soft, pretty, underdressing items,” such as embellished camisoles. She added that women were buying bustiers and Merry Widows primarily not for the sex appeal, but as control items to cinch in the rib cage and flatten tummies.

Exactly how all this excitement will translate into final orders remains to be seen. Orders for total programs for late spring and summer aren’t expected to be completed until January, and the market period itself continues to be less focused.

For example, vendors reported, divisional merchandisers and buyers from Mercantile Stores and Belk Stores Services came into the New York market to shop around. However, Belk has been calling vendors to its Charlotte, N.C. headquarters for eight years to finalize orders, and manufacturers are planning to make the trip this season as well. Mercantile occasionally sends its buyers to New York, but typically works with vendors at its corporate base in Fairfield, Ohio. This time, Mercantile sent its robe and sleepwear buyers to market.

Federated Department Stores moved up its preview visit here a week before market, but will continue to hold its “team buying sessions” the week after market. Vendors made their seasonal trip to Dillard’s Department Stores in Dallas the week before market For the past couple of years, the Dillard’s review has been conducted the week after market.

A companywide sale at Nordstrom stores last week forced its divisional merchandisers and buyers to attend market week here a week earlier.

While all this is creating headaches for vendors in scheduling, their outlook for the season is robust. A number of retailers, manufacturers reported, did book special items early, such as waist cinchers, new looks in push-up bras, sexy-looking teddies, bodysuits and camisoles.

“We’ll have a phenomenal year next year in intimate apparel,” said Linda J. Wachner, president, chairman and chief executive officer of The Warnaco Group.

In addition to the soaring interest in push-up bras, women are realizing they will need a group of different bras, Wachner pointed out.

“There were a lot of knits and double-faced fabrics on the runways last week,” she said. “That requires a smooth look underneath, not padded, push-up cups.”

“Retailers and manufacturers are very optimistic about total innerwear business for holiday because of all of the cleavage-enhancing bra hype,” said Norman Katz, chairman of I. Appel Corp.

“I’m anticipating an extremely good holiday season, and spring bookings are satisfactory,” said Katz, who also is chairman of the Intimate Apparel Council. “Sleepwear business is much better. Daywear business has generally been difficult, but if you have young, pretty-looking merchandise, business is good.”

The growing popularity of lingerie-inspired looks in rtw — little slipdresses and baby dolls, sheer, cropped midriff tops, and a plethora of cleavage-enhancing bras and bustiers — began heating up innerwear business last spring, and the temperature was further lifted by the cleavage-enhancing bras.

In order to keep the momentum going, some firms are expanding their product range to attract high school and college age women. These younger consumers, they say, are paying attention to lingerie for the first time because of all of the publicity.

Bra makers offered a broader range of cleavage-enhancing styles, some of which spotlight more lace and embellishments; others are pitching sleek and tailored dual-purpose bras in shiny nylon satin or cotton knit. The idea is to wear the items under jackets, or to the beach with coordinating bikini panties.

The ramifications of the cleavage craze have begun to surface in daywear with items such as unconstructed bustiers, and chemises and teddies with built-in molded or fiberfill padded cups.

Some sleepwear and at-homewear firms are taking their cue from the bevy of Empire looks, baby dolls and little slipdresses that are being shown on rtw runways. Here, the ideas are crossing over into long and short dual-purpose gowns in double-layered polyester georgette; allover stretch nylon and Lycra spandex lace; semisheer cotton gauze; more textured treatments in acrylic, and allover smooth blends of nylon and Lycra.

Sara Lee Corp.’s Nancy Brennick, director of merchandising for Bali and national spokeswoman for Wonderbra, said three new Wonderbra styles for spring have an “innerwear-outerwear look”: a floral pattern of brushed polyester; a denim style of cotton and Lycra trimmed cotton eyelet lace and a cheetah print of brushed polyester. D cup sizes also will be added.

“We think there is a lot of acceptability for innerwear-outerwear types of styling,” said Brennick, who also noted that the firm is introducing a line of swimwear under the Wonderbra label.

Sara Lee will be spending $5 million on a national marketing and advertising campaign for the Wonderbra this spring, according to a promotional brochure. The brochure noted that advertising and media hype of the Wonderbra reached 229 million consumers since its launch here in May.

Brennick further noted that a line called Un-d’s (pronounced undies) from Bali had gotten good reaction. The line is aimed at a younger consumer, from 16 to 21 years old, a group that tends to shop for lingerie at chains such as Victoria’s Secret, she said.

The line features an underwire bra, a soft-cup bra and a high-cut brief, all of Shimmereen nylon and Lycra in fashion colors. Soft-cup sizes are 32 to 36 A and B, and underwire cup sizes are 32 to 36 A and B, and 32 to 34 C.

Distribution is aimed at department stores, and retailers are considering selling the line in junior apparel departments, she said. Point-of-sale materials will include hangtags and brochures. A clear plastic accessories bag is being considered as the packaging.

Suggested retail prices for Un-d’s from Bali are $4.99 for the brief; $9.99 for the soft-cup bra and $11.99 for the underwire style.

“The younger consumer definitely is interested in lingerie, more than she’s ever been before,” said Brennick. “If we can get this customer interested in this product, we will have a customer in the future for the Bali brand.”

Wachner of Warnaco said a group of padded, push-up underwire bras under the Not So Innocent Nudes by Warner’s label has been getting “excellent reaction.”

The bras wholesale for $12 and are a spinoff of molded, seamless bras by Not So Innocent Nudes introduced in March. Five body-tone colors are shell pink, toffee, body cocoa, body beige and black coffee.

The bottom half of each cup features 7-ounce fiberfill padding, and the top half has 5-ounce fiberfill padding.

Gwen Widell, Warnaco’s senior vice president of merchandising and design worldwide, said the new group “gives the push and swell needed for a padded, push-up bra, but it has a smooth, soft surface.”

A packaged line of panties under the Not So Innocent Nudes label will be delivered to department stores in three weeks, said Maurice Reznik, president of Warner’s. He said the introduction is expected to help double Warner’s panties business next year.

Wachner added that an all-in-one bra sleep gown by Olga is being reintroduced for holiday selling. The concept had been created by the late Olga Erteszek, Olga’s founder, over 35 years ago, and has not been on the line for several years.

The bra gown features lace-embellished, padded, push-up cups, and a skirt of nylon and Lycra. Long and short styles wholesale for $23.52 and $18.72, respectively.

A private label style is currently being featured in the holiday Dream Catalog by Victoria’s Secret, said Wachner.

Carola Bernota, U.S. manager of Paris-based Lou Lingerie, an overseas unit of VF Corp., noted, “Retailers are definitely asking for more fashion colors in bras and panties than they were a year ago.”

Bernota said a top-booking idea for spring is a molded push-up bra of nylon Levers lace with removable straps by Lou. The bra wholesales for $35. The top color is khaki.

“The color gives it a look of sportswear, and it’s meant to be worn out,” said Bernota.

Howard Radziminsky, vice president of sales at the Cinema Etoile division at Movie Star Inc., noted, “We have gotten a lot of requests for daywear and sleepwear items with molded or padded, push-up cups.”

As a result, the firm is doing a cleavage-enhancing bustier with coordinating parities and a thong-back teddy in crushed satin. The firm plans to label the item as the “CineMagic.” Both styles feature lots of lace trim and embroideries. The bra theme also is being done in sleepwear in printed and solid polyester satin charmeuse.

Radziminsky predicted that it will be a “great spring” for allover stretch lace, especially little sheer stretch T-shirts and bodysuits with short and long sleeves.

“The whole idea of soft layering and slipdresses with little tops are expected to be more important for us next year,” he said.

At Periphery, Nancy Lewis, sales manager of the loungewear maker, said, “We are picking up a lot of new business with daytime dress buyers, especially from catalogs.”

The dual-purpose items, many of which have Empire treatments, feature prints and textures in stretch cotton terry and semisheer cotton gauze, she said.

London giant readies global push behind new prestige group

In beauty department stores across the country, Elizabeth Arden and Calvin Klein vie to lure the capricious customer to their cosmetics stands. The two beauty lines have developed a raft of winning brands, built strong retailer relationships and spent about $24 million in advertising to catapult their products to growth at a time when a host of competitors are reeling from consumer retail belt-tightening.

The Arden and Klein success story caught the attention of parent Unilever PLC. An executive shuffle last week assures Unilever of more control over the fortunes of the two companies. As the power move plays out, bets are on that Unilever will use its global marketing clout to translate Arden and Klein into leading players in the worldwide cosmetics marketplace.

While Arden cosmetics have established a beachhead in many European countries, Klein still gets minor distribution. While the separate identities of the two companies have been nurtured since their acquisition in the late 1980s, London-based Unilever is taking the reins in typical style and applying its global mentality toward pairing them for competition overseas.

Last week the company announced the creation of a prestige personal products division to separate Arden and Klein from Unilever’s third U.S. unit – mass-market Chesebrough-Pond’s.

Arden and Klein will continue reporting to chairman Robert M. Phillips. Among the shifts, Chesebrough will report directly to the London office rather than under the disbanded personal products group. Phillips will assume oversight of the new prestige products unit and will become Arden president when current boss Joseph Ronchetti retires in August.

Officially, Ronchetti’s departure after 27 years at Arden is by choice. But some industry executives close to the company suggest that Unilever’s dowdy, conservative personality clashed with Ronchetti’s aggressive management style.

Whatever the reason for Ronchetti’s leaving, the move is yet another step at positioning prestige products for greater worldwide distribution, says John Campbell, an analyst with County NatWest Securities in London.

“The prestige market is key to Unilever because of its higher profit margins,” Campbell says. “That’s where their growth will come from.”

For the past few years, Arden and Klein have outlasted the difficulties in selling through department stores. Today department stores make up about 21% of U.S. cosmetics and fragrance sales compared with 30% five years ago.

As department store volume continues to decline, Arden and Klein sales are up. Arden has seen double-digit growth – as high as 25% since 1989 – since beginning a five-year makeover plan. Under Ronchetti, the company has upgraded its stodgy image and basks in the success of fragrances like Red Door and Elizabeth Taylor’s Passion and White Diamonds.

When Ronchetti leaves the company, marketing strategy both overseas and domestically will remain under the aegis of Phillips, Joseph Spellman, executive vice president of market development and creative services, and Paul Masturzo, executive vice president and general manager of Arden U.S. Insiders say Spellman is the creative mind behind Arden’s growth.

Word is that Unilever plans to keep Arden and Klein marketing budgets in the U.S. stable while increasing spending for the worldwide market. A big push, industry watchers say, will come with Calvin Klein’s Obsession and Escape, which have seen limited distribution outside the U.S.

But whether the company can transport that success overseas without Ronchetti’s leadership remains to be seen. Ronchetti is credited for persevering with his five-year plan to transform Arden’s image even under three different owners. Now the brunt of the global marketing challenge will fall on Phillips as Arden faces intense competition from the likes of L’Oreal.

Retailer dogfight triggered by Procter & Gamble

Who will blink first?

Procter & Gamble, whose brand managers are in lockstep carrying out boss Ed Artzt’s orders to slash millions from a $1.6 billion-a-year ticket on trade promotion? Or an increasingly feisty cadre of retailers who depend on the $36 billion trade promotion bounty that manufacturers contribute toward 45% or more of retailers’ bottom-line profits?

The answer, as P&G changes the rules by moving more than 50% of its business – and more as time goes on – to an everyday low pricing (EDLP) strategy, could determine the direction of marketers’ advertising/promotion budgets for the next decade.

The recent decision by Safeway, the nation’s No. 3 supermarket chain, to drop some P&G products because of the company’s EDLP strategy was the retailers’ opening salvo.

Still, P&G shows no signs of backing off from its controversial plan. Fact is, with an arsenal of brands that includes the No. I or No. 2 product in 32 out of 42 categories, who stands to gain by offending P&G? What’s more, other marketers are poised to cut their own trade promotion budgets.

Kraft General Foods, Quaker Oats, Colgate-Palmolive, Dial and Lever Bros. have all been tinkering with their pricing and promotional structures in recent months. But none have followed P&G yet in a major way on the EDLP front.

On the other hand, if retailers are successful at keeping trade dollars flowing unabated, the power shift from manufacturer to retailer would be solidified. Between 1981 and 1991, trade promotion grew to 50% of marketing budgets from 34%, while media advertising plummeted to 25% from 43%, according to Nielsen Marketing Research and Donnelley Marketing.

“The lines are being drawn,” says Jeff Hill, group vice president at Glendinning Associates of Westport, Conn. “This is all about levels of power. Who will control trade promotion?”

The stakes for P&G – and any company that follows it – as well as the retail trade are enormous.

Cash-strapped retailers rely on manufacturer dollars for roughly half of their bottom lines, so it’s no surprise they’re threatened. “We are witnessing a true restructuring of the industry-p&g is changing the rules,” says Kevin Price, a senior partner at Westport, Conn.-based Marketing Corp. of America. “Retailers are trying to make a statement to discourage other manufacturers. If they’re wise, retailers should try to restructure business with suppliers to make their bottom lines less dependent on forward-buying and diverting profits.”

A&P, the nation’s No. 4 supermarket chain, is also mulling dropping slower-moving P&G products due to reduced promotional support. Vons, the largest retailer in Southern California, and Stop & Shop Cos., one of New England’s biggest supermarket chains, are considering moves. “We think dictators will end up where most dictators end up – in trouble,” said Stop & Shop chairman Lewis Schaeneman at a recent annual meeting.

Even if retailers decide to drop minor brands only, big brands like Tide, Crest and Pampers could be hurt if retailers give more promotional support to the company’s competitors. Retail execs say P&G competitors are already filling the void left by P&G’s cutback. “It’s very tough to drop their brands, but it’s easy to promote somebody else’s,” said one Northeastern retail exec last week. “It’s more subtle, but we will get our point across.”

Nevertheless, other experts wonder if the retail maneuvering is more posture than threat. Given the clout that P&G has in the marketplace, retail reprisals may be limited to the dropping of a few minor brands. “I’m surprised that it has taken them so long to react,” says analyst Andrew Shore of Paine Webber. “P&G’s intent with EDLP has never been to get away with it 100%. They just want to meet the trade in the middle.”

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