They have a great article on Apple’s success with retail. When they got into the retail game in 2001, industry experts where extremely critical of their approach and didn’t think they would succeed. I think the opening paragraph is worth repeating here:

“Sorry Steve, Here’s Why Apple Stores Won’t Work,” BusinessWeek wrote with great certainty in 2001. “It’s desperation time in Cupertino, Calif.,” opined TheStreet.com. “I give [Apple] two years before they’re turning out the lights on a very painful and expensive mistake,” predicted retail consultant David Goldstein.

The Apple Store’s sale per square foot, a key measurement of success in retail, was $4,032. That’s unheard of! Tiffany& Company, the next closest was $2,666 followed by Best Buy at $930, Neiman Marcus at $611 and Sak’s at $362. Apple Stores reached a billion in sales faster than any other retailer in history. Not bad for a company that was supposed to fail inside of two years.

You can go on and read the entire article but the thing that really strikes me is how Steve Jobs approached Apple’s entrance into retail. He did not look to what everybody else in retail was doing. He certainly pulled in some top talent for advise (Mickey Drexler from the GAP and Ron Johnson from Target) but he approached retail from an experience perspective. He wanted the stores to create the same kind of experience that people had with Apple’s products. The store concept was built with the same energy and meticulous attention to design and user experience that Apple’s products are known for. Jobs broke the mold on traditional retail models. It’s more of a sit and play like environment with only a demo model on display and plenty of staff on hand to answer all of your questions. Sales associates are very well trained and versed on the products and features. And of course, the stores are beautifully designed.

Being a former retail executive myself, I watched Apple’s efforts with great interest the past few years. I remember thinking that it didn’t matter whether or not the Apple Stores were profitable. In my opinion this effort was a way to extend the Apple brand and expose more people to their incredibly designed and user friendly products. As long as it drove over all demand for Apple’s products up and the stores didn’t lose money, then the retail venture would be a success. Oh what a success story they have created. Job’s turned the traditional retail model on its head. Its time that many other retailers took a step back and thought more about experience vs. sales per square foot.

This makes sense to me strategically so that publications can stay relevant to advertisers BUT will they cut off their nose to spite their face when ad agencies lose billable work because of it. Another question is what are they doing to stay relevant to their readers? If you give advertisers more ways to reach readers but don’t add any value to those readers, they’ll get annoyed and go away. The key to success here is for the pubs to be sure and increase value to readers, ESPECIALLY if you are giving advertisers more access to them.

I think the distinctions between media companies and ad agencies will become less and less over time. It’s a game of survival as advertisers continue to have more and more choices as to how they spend their marketing dollars. It will be interesting to see how this plays out.

The leading advertising agencies will be the ones who stay on top of these changes and find ways to leverage them through innovative approaches, thus maintaining their value. Agencies have to focus on great concepts that can be leveraged in multiple Medias, often playing off other.

Those that hold on to old ways and rely on media buying and production fees for profits will get squeezed out of existence. I think the very large agency model will fall apart over the next 5 years. Instead, you will see a rise of “networks.” This will be a group of complementary companies that come together for campaigns.

There will be a lead creative and strategic shop that will act as architect, then a group of specialists shops each executing a specific component. They may even fall under the same ownership umbrella but will have to be somewhat autonomous companies. This is already happening and will continue to do so for a while.

So you’ll see more and more specialty shops popping up and getting a buzz and the larger established global agencies losing talent and struggling to adapt. Then 5-10 years later when all the new rules of advertising have become more predictable, you’ll see a series of acquisition and consolidation. All these changes are due to the disruptive innovations that have come about in the Internet Era. Anyway, that’s what my crystal ball says.

Perhaps I’ve never noticed this tactic before, but he’s promoting Windows Vista just like Bruce Willis would be promoting his latest blockbuster film. The Daily Show interview was very entertaining and worth a look.

Video: Bill Gates on the Daily Show – Part 1
Video: Bill Gates on the Daily Show – Part 2

Has Microsoft done this in the past? Has Jobs hit the talk show circuits too? He hasn’t as far as I know and I don’t think its common for CEO’s to use this medium to promote new product launches. I just found this interesting and wonder how much interest it has generated in the new operating system. This may be a new role for Mr. Gates now that he is not as active in the day to day business. If so, they may want to give him a little more coaching so he doesn’t appear so awkward.

What I really wanted to emphasize is that companies need to think ahead, innovate and continuously take risks. Those that choose what I call the “me too” strategy always follow and are never first to market with an innovation.

This was the path and eventual demise of the May Department Store Company and could perhaps be the path of Circuit City if they don’t try to get a leg up on Best Buy and the emerging competition from discounters such as Wal-Mart.

Even if Best Buy’s Geek Squad is experiencing quality problems and perhaps there are issues with the pricing model, they should work those out over time and probably have a dominant position on servicing consumer technology needs. That is a position that will give them a leg up on discounters who may beat them on price, but lack a comparable ability to serve those customers with installation and troubleshooting. That need appears to be growing as technology keeps changing. Here is a “60 minutes” feature on the Geeks. Best Buy’s deep pockets allow them to operate in the red and work these kinks out where other competitors may not have that same luxury.

Another example of Best Buy’s innovative culture has to do with the radical work scheduling practices they have implemented at their corporate offices. This was the cover story in Business Week on 12/11/2006. It should be noted that Best Buy looks for innovation both inside its company, as demonstrated with the flextime initiative, and outside the company, as we see in their purchase of Geek Squad in 2002.

Wal-Mart is also a pretty progressive company and becoming a big player in the consumer electronics market. It will be interesting to see how Circuit City does over the next few years with Best Buy continuing to dominate and Wal-Mart, Dell and others growing their consumer electronics business.

May Company grew dramatically during the 80’s and early 90’s under the leadership of David Farrell. It grew through the acquisition of a number of other traditional department stores – mainly regional players. Then May centralized a number of functions creating efficiencies and more central control. For a number of years, it held the title of the nation’s largest department store company (if you classify out discounters such as Sears, Wal-Mart, Target, and JC Penney’s).

May Company was a great investment during that time as well. Until a couple years before its demise, it had over 20 years of consecutive earnings growth. My profit sharing plan did quite nicely in my 8 years tenure there in the 90’s. The main innovation that May did develop was its private label business. It grew to a billion dollar plus part of the company in the late 90’s. When I left May in 1998 to venture into another career, it was a $14 billion company.

However – May grew primarily through acquisition and then operational efficiencies. When sales grew tighter due to the rise of the discounters (Wal-Mar, Target, Kohl’s and a revitalized JC Penney), the stock price was kept healthy by cutting costs. When Federated, May’s largest competitor acquired Macy’s & Bloomingdales in the late 90’s, they surpassed May Company in total sales revenue. May became #2. David Farrell, the legendary retail CEO who was at the helm of the company during this 20-year growth span retired.

Federated also had an established private label program (not sure if they preempted May on this one). And they aggressively began to build their brands in the late 90’s. Instead of doing designer label knock off’s and discounting them (as May did), they sought to make their own brand labels just as good as the designers and priced and positioned prominently as well. Their brands were promoted through marketing and in-store displays. And they grew. Profit margins on private label products are much higher than branded merchandise – no middleman. It also creates exclusivity, which they fully leveraged in their marketing. Federated built on this and their same-store revenue grew along with their profit margins. May Company’s sales were flat, and they kept cutting costs.

Last year, Federated acquired May. It went down as a merger but May was on a downward spiral. Federated won. Although Federated also grew through acquisition as well, they continued to innovate and be more progressive; they took risks. May Company was overly conservative. They were never first to market with a new innovation; always second. In the end, that’s what killed them. The growth through acquisition strategy can only take you so far. We’ll have to see if Federated continues to innovate or gets conservative now that their largest and most direct competitor is gone.

As I look at Best Buy and Circuit City, I wonder how that will play out over the next 10 years. Best Buy is the innovator and dominant leader. Based on what I saw as of today on Yahoo! Finance, Best Buy’s stock is around $50/share (52-week high was $59.50), with a market cap of $24.1 billion and revenues of $33.7 billion. They have 940 stores nationwide (plus more internationally) and each store does about double the sales volume of a Circuit City store.

By comparison Circuit City’s stock is around $20/share (off from the 52-week high of $31.54) with a market cap of $3.51 billion and revenues of $12.5 billion. Circuit City has about 625 stores nationwide and is just getting into international expansion.

As long as the market for electronics stays strong, and it appears as though it will for the foreseeable future, both companies can do well. But they both face increasing competition from discounters Wal-Mart and Target as well as Dell. Best Buy and Circuit City stole the electronics business from the more traditional department stores and now the discounters are a threat to them.

This is where Best Buy, the innovator, led by Geek Squad. Discounters won’t offer this kind of service and it’s a way to create better brand loyalty to Best Buy and play on their strength: service. It’s also a revenue-generating service that is expected to top a billion dollars for 2007. What is Circuit City’s answer? Firedog (which just launched in September about two years after Best Buy’s Geek Squad). They even have even stolen the concept of the branded vehicles that the Geek Squad uses. Geek Squad uses branded VW Bugs and Circuit City’s Firedog answers with branded Toyota Scions.

Even Circuit City’s CEO, Schoonover, came from Best Buy. As long as the market is strong for consumer electronics, both can do well. But as soon as the market tightens, it’s the innovator, not the follower, which comes out on top.

Let’s see how these companies do over the next decade, and if they are both still around. My money is on Best Buy.

So now you have to ask the following: “Was the concept wrong? Was the message wrong? Is the product inferior to its competitors? Was its late entry into the category too big of an obstacle to overcome?” I can come up with a bunch more.

Without knowing all the details I have to speculate. I think the ads are well conceived and executed as previously stated. But perhaps the product is to blame. The article references that although the drug helps those with sleeping disorders fall asleep faster, they often wake up in the middle of the night. Perhaps they succeeded in capturing first-time users but due to this shortcoming, those users didn’t refill their prescriptions and requested another brand. This combined with their late entry into the market could prove to be too big of an obstacle to overcome. And if this is true, and users aren’t repeating, the drug will die out in the next couple years. It would be nice to know what percentage of first-time users refilled their prescriptions and how that compares to industry standards.

This is where some consumer-generated feedback, through a forum or blog would be very advantageous. Instead of speculating, they can gather ongoing feedback, both from consumers and, perhaps, even physicians. If what they learn is that the product is inferior, then guess what – cut your losses now and go back to the lab and improve the product. Put the money in R&D and save the money marketing the product as is. In my opinion, these kinds of web-based tools need to be part of every campaign in some shape or form. The days of a well planned out campaign that would run for a couple years are over. You have to learn and adjust as you go.

Ah, the rules of marketing keep changing. Let’s see what happens to Rozerem over the next 24 months.

I actually pitched a similar concept to the CEO of large prestige cosmetics company about 4 years ago. This idea came from the fact that this particular brand, wasn’t acknowledging the fact that their customers tended to be middle aged women – not young beauties and that they should embrace that position and market to them. No dice though – they refuse to admit who their core customers were and kept trying to appeal to younger women and continuously losing that battle to other brands more aligned with that age group. Why doesn’t anyone in prestige cosmetics want to embrace the mature woman – aren’t they the ones with the deepest pockets and strongest desire to maintain their beauty?

Nice job Dove.

I did a brief search to and find out who is behind the campaign but came up empty. Anybody know?