Mother's Day Consumer Electronics Buying

A pitch letter was written on May 11th on Tony Gao's thoughts on consumer electronics buying for Mother's Day. Tony Gao, a marketing professor at Northeastern University's College of Business Administration is a retail expert.

Two Recent Trends in US Gift Buying
In my view, when it comes to gift giving in the US in recent years, for mothers and all others, we have witnessed two emerging phenomena that I call the miniaturization and intangiblization of gifts.

By miniaturization, I mean smaller size, higher technology content, and more complex functionality, as the term is often used in the technology sector. Mother’s day gifts have traditionally tended to be small, considering jewelry, greeting cards, books, and flowers. But today’s popular gifts for Mom, such as GPS devices for the car, MP3/iPod players, and digital album frames, are much more technologically advanced and serve more complex functions.

By intangiblization, I mean our inability to view the final form of the gift at the time of gift presentation. What’s inside a beautifully wrapped gift box may very well be a small (again miniaturized) gift card of a certain cash amount, no matter how colorful, exotic, and contextually suitable it is. The advent of gift cards has enabled consumers to purchase and present as gifts intangible consumption experiences (for example, a fine dinning experience or spa treatment) rather than tangible goods. Another benefit of gift cards is personal control - it allows the gift recipient to purchase something s/he really needs and wants at a convenient setting. Over time, however, with the intangiblization of gifts may come the fading of an important ritual of American gift giving – the showing of “wow” expressions with the opening of the gift box. What would you say when you see a $100 gift card from Best Buy?

Unchanging Motivations of Gift Buying
Yet, the miniaturization and intangiblization of gifts do not in any way connote the marginalization of gift-giving in the American society. Rather, what is bought is simply changing with the time. The fundamental and often irreplaceable role of gifts as a way to convey love, gratitude, care, and loyalty remains the same.

Generally, consumers are buying holiday gifts today for the same reasons they did 20 years ago, to look for good value, or a good combination of benefits (what we get) and costs (what we give out). Gifts bought to commemorate a holiday may provide several types of benefits to both the gift buyer and recipient:

Situational (in the case of Mother’s Day, it’s for the special day once a year in honor of the mother for all her love, dedication, and sacrifice),
Social (to show care, love, and gratitude to Mom),
Psychological (to give Mom a feeling of recognition and worth),
Functional (to serve an important functional role in Mom daily life such as a cell phone or a GPS in the car),
Epistemic (to allow Mom to experience some new technology such as a digital camera or an iPod),
Hedonic (to give Mom an exotic experience of a mountain get-away or a spa treatment), and
Aesthetic (for Mom’s use of the gift as a fashion statement).

Gift buyers are pursuing these same benefits from year to year but what items offer the best combination of benefits does change by the year. While often costing more to purchase, the technologically enhanced Mother’s Day’s gifts usually offer more total benefits than does, say, a bundle of flowers, a book, or a collectible figurine. In other words, gifts such as consumer electronics may offer several of the above gifts all at once.

Therefore, from a value perspective, the gift buyer is spending more to assemble a larger package of total benefits for Mom. Not only do the more benefits well justify the higher cost, the higher price itself conveys a feeling of added appreciation for Mom’s care and contributions.

One more reason that explains the rising trend to send personal electronics products to mothers is in the demographic of the dominant buyer of Mother’s Day gifts. The children who buy most Mother’s Day gifts, 18-20 year-olds, are tech savvy themselves.

We will expect to see similar happenings to Father’s Day gift shopping."
Below is Professor Gao's bio:

Professor Gao received a Ph.D. in marketing from Virginia Polytechnic Institute and State University, an M.E. in business management from Harbin Institute of Technology (Harbin, China), and a B.E. in industrial and management engineering from Hebei University of Technology (Tianjin, China). Previously, he held faculty positions at Washburn University, Hofstra University, College of William and Mary, and Hebei University of Technology (China). He also worked with the China branch of Mitsubishi Corporation (a general trading company in Japan) in the areas of international trade and joint venture developments. Professor Gao conducts research primarily on the development, governance, and consequences of buyer-seller relationships, customer value and risk perceptions, international business strategies, and business ethics. He has published in Journal of Business Research, Journal of Business Ethics, Research in Marketing, International Review of Retail, Distribution and Consumer Research, Journal of Relationship Marketing, Journal of International Business and Economy, Latin American Business Review, and Multinational Business Review. For his dissertation work on industrial buyer-seller relationships, he was a former winner of the National Association of Purchasing Management (now Institute for Supply Management) Doctoral Dissertation Competition.

Can Circuit City Make It?

A pitch letter was written on April 11th on some thoughts from Marketing Professor Tony Gao, a retail industry expert from Northeastern University’s College of Business Administration.

"The focus of the recently announced reorganization efforts Circuit City is on cost cutting, particularly trimming of overheads, or sales, general, and administrative costs. On surface this is where it lacks in a comparison with Best Buy. The two leading electronics retailers have similar gross margins but the share of SGA in sales for Best Buy is 19% while that for Circuit City is 23%, at a 4 percentage point difference. And the net profit margin for Best Buy is 3.8%, while Circuit City scored a .1% loss, at a similar 4 percentage point difference.

“But I think there are more revenue and operations related questions to ask? Why didn’t the higher SGA/sales ratio for Circuit City translate into a higher gross margin? Why didn’t its lower rent from less central store locations result in a cost advantage? Why didn’t their higher paid employees result in higher customer satisfaction on the store floor?

“In general, 2006 was a tough year for electronics retailers including Best Buy, Circuit City, Radio Shack, CompUSA, and Tweeter. I think one reason people often overlook is the close link between electronics sales (particular for large sized Plasma and LCD TVs) and house sales and 2006 was a difficult years for the housing market, causing a ripple effect in the electronics market.

“Circuit City should also look at the revenue side of the profit formula. From this perspective, I note that Best But has been more successful running store promotions as a way to lure customers in this cut-throat competitive business, has better mobilized it sales force on the floor, and a more diverse product portfolio to support its price war with some electronics retailers.”

Below is Prof. Gao’s bio. Please let me know if you’d like to talk to him in greater depth about this issue.
Tao (Tony) Gao, Assistant Professor, Marketing Group. Professor Gao received a Ph.D. in marketing from Virginia Polytechnic Institute and State University, an M.E. in business management from Harbin Institute of Technology (Harbin, China), and a B.E. in industrial and management engineering from Hebei University of Technology (Tianjin, China). Previously, he held faculty positions at Washburn University, Hofstra University, College of William and Mary, and Hebei University of Technology (China). He also worked with the China branch of Mitsubishi Corporation (a general trading company in Japan) in the areas of international trade and joint venture developments. Professor Gao conducts research primarily on the development, governance, and consequences of buyer-seller relationships, customer value and risk perceptions, international business strategies, and business ethics. He has published in Journal of Business Research, Journal of Business Ethics, Research in Marketing, International Review of Retail, Distribution and Consumer Research, Journal of Relationship Marketing, Journal of International Business and Economy, Latin American Business Review, and Multinational Business Review. For his dissertation work on industrial buyer-seller relationships, he was a former winner of the National Association of Purchasing Management (now Institute for Supply Management) Doctoral Dissertation Competition.

Is Wal-Mart a better corporate citizen?

A pitch letter was written on March 27th, on Professor Harlan Platt's reaction to the question if Wal-Mart’s efforts to improve their image and be a better corporate citizen are paying off. Professor Platt is a finance professor at Northeastern University College of Business Administration. Below are his thoughts.
“Wal-Mart started out in the race to be a top 100 place to work as number 44 billion. In other words, they had a long way to go. While it is probably doubtful that Wal-Mart will ever install swimming pools for its employees they have made a number of important steps that show their intentions have changed for the better,” states Harlan Platt, a finance professor and corporate turn-around expert at the College of Business Administration at Northeastern University. “The awarding of bonuses to rank and file workers (I believe the average is $652), the push for organic produce and wholesome fishing methods, and the encouragement of employees to accept their health plan are all good signs.”

“The risk is that Wal-Mart may not perceive that the public's perception of it is changing rapidly enough and may fall back into its old ways,” Prof. Platt cautions. “Wal-Mart needs to realize that it will never receive a ticker tape parade down 5th Avenue in NY; its rewards will be more subtle and slow coming. But by sticking to it new model, they will be pleasantly surprised as it gradually assumes a new corporate persona.”

Below is Prof. Platt’s bio. Please let me know if you’d like to talk to him in greater depth about this issue.
Harlan D. Platt, Donald J. Harding Professor of Finance, Finance and Insurance Group at the College of Business Administration at Northeastern University. Professor Platt’s research and consulting interests include corporate bankruptcy, crisis management, and short-term equity price recoveries. He created the certification exam for the Turnaround Management Association. Harlan is a member of the board of directors of Republic Financial Corporation and the advisory board of XRoads Solutions LLC. He previously served on the board of companies on the New York Stock Exchange, the Dublin Stock Exchange and the NADAQ. Before joining the College of Business Administration faculty in 1981, he was director of electricity research and forecasting for Data Resources, Inc. Professor Platt holds a BA from Northwestern University and MA and PhD degrees from the University of Michigan. He is the author of eight books including Why Companies Fail: Strategies for Detecting, Avoiding and Profiting from Bankruptcy; The First Junk Bond: A Story of Corporate Boom and Bust; Principles of Corporate Renewal, A Casebook on Corporate Renewal; The Phoenix Effect: 9 Revitalizing Strategies No Business Can Do Without; Chipping: The New Stock Market Method for Surviving Turbulence and Hitting a Hole in One; and Counterintuitive Investing. His articles have appeared in a number of publications including Journal of Banking and Finance; Journal of Business Finance and Accounting; Journal of Accounting, Auditing, and Finance; Journal of Economics and Business; Journal of Business Research; Quarterly Journal of Business and Economics; and The Journal of Applied Corporate Finance. In 1997-1998, he was the Klein Lecturer at Northeastern University. Professor Platt was the Associate Editor-Finance for the Journal of Business Research.

Eddie Bauer’s Performance

A pitch letter was written on March 16th, on the thoughts of Tony Gao, a marketing professor at the College of Business Administration at Northeastern University who specializes in retail issues, about Eddie Bauer’s recent performance, compared with other prominent retailers, including Abercrombie and Fitch, American Eagle and The Gap:

“Eddie Bauer’s inventory turnover for the nine months ending Oct. 1 2006 is comparable to competitors, slightly lower than those of the same time period of Gap and American Eagle, but higher than that of Abercrombie and Fitch. Their asset turnover for the same time period is lower than all of the mentioned competitors but not by a major degree “The areas where the company is most lacking are in gross margin and net profit margin. Their gross margin for the first three quarters of 2006 is at 36%, similar to that of the same time period of Gap, but is considerably lower than that of American Eagle Outfitters (at 48%), and the current gross margin of Abercrombie and Fitch, at 67%. (Note: Gap’s and Eddie Bauer’s costs of goods include both buying and occupancy costs, while those of other companies typically only include costs of goods).“Their overhead is also too large a percentage of the sales, at about 45% for the first three quarters of 2006, as compared to the 13% of Abercrombie and Fitch, 25% of American Eagle, and 29% of Gap, all for the same time period. “Why has this (the combination of a relatively low gross margin and a relatively high overheads percentage) happening? Eddie Bauer is not well at bridging the gap between average cost of goods and average selling price. They could have been paying too much for their goods, not getting a good sales price on these items, or perhaps experiencing both. “Some mostly likely reasons are: “They are not getting the items that consumers want so they’ll have to mark them down to turn the inventory around. This is possible as Eddie Bauer is increasing pursuing a younger market but the merchandise on the racks might not be exactly what these consumers want. Men and women of this age group 30-45, for example, are mostly very busy pursuing a career and raising a family. They’re staying most of the daily time in the workplace or between family functions. As a result, they’re not in the outdoors that often. So the need for workplace appropriate apparel is more important to these people than the need to wear for outdoor activities. These differences in buying habits may present a merchandising challenge to Eddie Bauer. “Store traffic may have been a challenge for Eddie Bauer. Even though they may have got the right items for their target consumers, an insufficient number of consumers are coming to buy them. In other words, the people coming to the store are happy but there aren’t enough people coming so the retailer has to reduce the price. This has to do with the image of the store in consumers’ minds. Consumers may not have a clear-cut image as to what the store is about. “When overhead is higher, we would expect to see a higher level of customer service, a more comfortable shopping environment, and more positive publicity generated from the advertising spending. This does not seem to be happening to Eddie Bauer. It didn’t help that have the strong competition from other companies not suffering from the negative news of a bankruptcy filing. Competitive positioning of specialty apparel retailers – Specialty apparel retailers have used various ways to differentiate themselves from the competition: Whom to serve (Target market by age, gender, wearing occasion, and geography):
Where to serve (channel of distribution):
What to serve (type of merchandise and usage occasion – when to wear and parts of the body to wear on):
How much to charge (price):
How to serve (physical store environment and customer service):
“Other than competing among fellow specialty apparel retailers, they also compete with department stores and discount stores.”

Below is Prof. Gao’s bio. Please let me know if you’d like to interview him.

Tao (Tony) Gao, Assistant Professor, Marketing Group. Professor Gao received a Ph.D. in marketing from Virginia Polytechnic Institute and State University, an M.E. in business management from Harbin Institute of Technology (Harbin, China), and a B.E. in industrial and management engineering from Hebei University of Technology (Tianjin, China). Previously, he held faculty positions at Washburn University, Hofstra University, College of William and Mary, and Hebei University of Technology (China). He also worked with the China branch of Mitsubishi Corporation (a general trading company in Japan) in the areas of international trade and joint venture developments. Professor Gao conducts research primarily on the development, governance, and consequences of buyer-seller relationships, customer value and risk perceptions, international business strategies, and business ethics. He has published in Journal of Business Research, Journal of Business Ethics, Research in Marketing, International Review of Retail, Distribution and Consumer Research, Journal of Relationship Marketing, Journal of International Business and Economy, Latin American Business Review, and Multinational Business Review. For his dissertation work on industrial buyer-seller relationships, he was a former winner of the National Association of Purchasing Management (now Institute for Supply Management) Doctoral Dissertation Competition.

Middle-aged women's apparel market

A pitch letter was written based off of some of the thoughts of Tony Gao, a marketing professor at the College of Business Administration at Northeastern University who specializes in retail issues, about the middle-aged women’s apparel market:

“Retailers targeting at the middle-aged women apparel market have faced with different results. Gap has decided to close their Forth and Towne stores, while American Eagle Outfitters has, on March 7th, announced plans to open 12 more Martin + Osa stores in 2007,” Prof. Gao states.

“I feel that the buying habits of women aged 25-45 differ greatly from teenagers and college students and specially apparel retailers such as Martin+Osa should use very different strategies to serve these customers than they do their younger peers.

“What are the particular buying habits of women aged 25-45?

“After following fashion trends as teenagers and college students for many years, these grown-up ladies now know what they want when it comes to buy apparel. They have become more confident in choosing on their personal style, often have formed a consistent dressing taste, and are increasingly less affected by pressure from their peers.

“They have more discretionary income to spend on clothing, but often have less time to shop given their busy work schedule as a full-time professional, a spouse, and/or mom. When they do go shopping, they are often out to fulfill multiple shopping needs both for herself and the family. Hence department stores at various positioning tiers could be more attractive than are many individual specialty stores. For this reason, online and catalog shopping is increasingly being used to buy apparel alone especially as they have gained buying experiences and developed loyalty to their apparel brands.

“Apparel shopping for middle-aged women may occur in personalized seasonality as marked by job hunting, career changes, promotions (as their experiences accumulate), and employee role changes as in the case of from one department to another.

“The professional nature of the work environment for many of these women dictates that they have to choose less provocative colors and styles and tend to focus on “being appropriate” over “being trendy”. As a result, they look more for functional benefits such as fit for varying dressing occasions, durability, wrinkle resistance, and texture over value expressive benefits such as color and styles. If fact, as many of these women are still growing in the developmental stage of their career and may even face job insecurity, based on the collegiality of their workplace, they could be more interested in avoiding peer resentment than in gaining peer admiration.

“What are the implications for retail mix strategy tailored at the middle-aged women customers?

“These differences in buying habits demand a different strategy. In-store environment is become less important for some consumers as they go online and use catalogs. In-store services should now focus on demonstrating functional benefits such as fit for varying dressing occasions, texture, and durability. Merchandising could be less driven by seasonality. Price could be higher as the quality of the merchandize goes up. There should be more use of multi-channel marketing and less use of standalone stores. Stores should be placed closer to department stores and other specialty stores. The store environment should figure less loud music, quieter and brighter in-store shopping environment, using store assistants of similar age and life experiences. Finally, the retailers should use more reward programs for long-time customers.”

Below is Prof. Gao’s bio. Please let me know if you’d like to interview him.

Tao (Tony) Gao, Assistant Professor, Marketing Group. Professor Gao received a Ph.D. in marketing from Virginia Polytechnic Institute and State University, an M.E. in business management from Harbin Institute of Technology (Harbin, China), and a B.E. in industrial and management engineering from Hebei University of Technology (Tianjin, China). Previously, he held faculty positions at Washburn University, Hofstra University, College of William and Mary, and Hebei University of Technology (China). He also worked with the China branch of Mitsubishi Corporation (a general trading company in Japan) in the areas of international trade and joint venture developments. Professor Gao conducts research primarily on the development, governance, and consequences of buyer-seller relationships, customer value and risk perceptions, international business strategies, and business ethics. He has published in Journal of Business Research, Journal of Business Ethics, Research in Marketing, International Review of Retail, Distribution and Consumer Research, Journal of Relationship Marketing, Journal of International Business and Economy, Latin American Business Review, and Multinational Business Review. For his dissertation work on industrial buyer-seller relationships, he was a former winner of the National Association of Purchasing Management (now Institute for Supply Management) Doctoral Dissertation Competition.