Classic marketing blunders and mistakes

By Markus Allen, Publisher of the $10,000 Marketing Tip of the Day

Let's admit it... we all make mistakes.

But the good news is by studying other marketing blunders and mistakes, you might be able to avoid your own.

Here's my (growing) list of classic marketing blunders and mistakes:

Michael Jackson, classic marketing blunders and your wallet
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Kmart's 5 big blunders

By Joanna L. Krotz of Muse2Muse Content and Communications

Everyday low prices couldn't save Kmart from Chapter 11. Omni-visionary Martha Stewart couldn't rescue the country's third-largest discounter, either.

But with a flameout of this magnitude, you can be sure the sparks didn't ignite overnight. There were warning signs that Kmart management mishandled, downplayed or just plain ignored.

The result is the largest retailer ever to file for bankruptcy protection. After 40 years of operation, including three fix-it CEOs in the past five years, Kmart now faces $10 billion in debt, hordes of betrayed customers, hundreds of store closings and a nascent reorganization plan designed to haul it back from the brink. Maybe.

Such sad and serious failures are always painfully instructive.

Here's how the giant retailer went off the rails, according to retail analysts, marketing experts and financial advisers. Here, too, are the five big lessons every business person should learn from Kmart's fall.

1. Set your brand apart; you can't be all things to all people.
Trapped between Wal-Mart and Target, Kmart became the merchandiser in the middle — and, ultimately, the discounter in a muddle. "Wal-Mart successfully built an organization based on low-price mass," says marketing strategist Jack Trout, author of "Big Brands Big Trouble." "Target took an up-market position with neat, designer stuff and became mass with class. That put Kmart in a tough spot. What was its point of difference?"

Make sure you create an identity for your wares and services. When clients call or customers walk through the door, you cannot afford confusion about your company's profile, personality or benefits.

For example, Kmart attracts a more-urban customer than Wal-Mart's suburban following; it might have focused on ethnic and immigrant tastes as well as an urban edge (and still could).

Or, suggests Trout: "They could have pursued what Sears did — the 'only at Sears' strategy. The 'Softer Side' made no sense. But Sears is now doing OK with its focus on real, quality brands found only at Sears, like Craftsman, Kenmore and Diehard."

2. Embrace technology — even if employees resist.
Early on, Kmart passed up the opportunity to computerize inventory and ordering into centralized systems because local managers balked about giving up control. Wal-Mart, on the other hand, installed efficient electronic systems everywhere it could.

Over the years, the results became obvious. Wal-Mart now does about five times the business (about $200 billion annually) that Kmart does. So Kmart has been forced to play catch-up.

"The company has been focused on perfecting systems at headquarters in order to deliver products to stores at the right price," says consultant Candace Corlett at WSL Strategic Retail in New York. "But that's the first point of entry for a discounter. Everyone else has moved beyond that and into the emotional relationship with the customer."

3. Keep advertising, and meet the expectations you've created.
Chuck Conaway, the third CEO tapped to turn around Kmart before the bankruptcy filing, appeared in good shape as the 2001 holiday selling season got under way. By August, Kmart stock had rocketed 92% for the year and Conaway, who came over from CVS Corp., had delivered on many promises. Then, in October, according to DSN Retailing Today, total sales dropped a breathtaking 5%.

Why? Conaway's strategy — not necessarily wrong — was to turn Kmart into an everyday, low-price destination. As a result, the company drastically cut back on advertising, as much as 50% in September and October.

But it was those Sunday newspaper circulars that brought in the customers. So while weekday traffic edged up some, weekend customers stayed away in droves. It didn't help, admitted Conaway at the time, that the competition bumped up promotions just as Kmart curtailed its own. Even after reinstating some of the ad budget, Kmart's holiday sales were dismal.

"They cut back mass advertising too quickly," says Frank Badillo, senior retail economist at Retail Forward in Columbus, Ohio. "Customers were expecting advertising circulars every week and reacting to them. Kmart needed to overlap strategies for a longer time."

Remember: You don't change customer behavior simply by shifting strategy and resources.

4. Count the cash; strategy is irrelevant when there's no profit.
"Kmart made the classic retailing mistake," says Jim Harris, founder of Seneca Financial Group in Greenwich, Conn., and the adviser who helped restructure Federated Department Stores during its bankruptcy period. "They invested in stores that weren't working."

Kmart's troubles, according to Harris, date from 1994, when the company's historic financial trends began shifting downward. "Over a 10-year period, margins declined, return on capital declined, yet the company continued to put money into new stories with no real return," Harris says.

Too often, he notes, management teams don't focus on the financial fundamentals. They're too busy installing new strategies.

Since 1997, Harris says, Kmart had roughly $150 billion in sales with a total profit of $700 million. "That's peanuts," he says. "Retailers should get a 9% to 12% return on their equity investment to justify the risk-taking."

5. Beware of culture shock — it can lead to a domino effect.
Inside and out, established companies only change slowly, if at all, as demonstrated in Blunder No. 3. "It took decades to put Kmart's culture in place," says Wally Bock, publisher of Monday Memo, an electronic business strategy newsletter. "It didn't help that Conaway brought in lots of outsiders at the top, from different companies, with different cultures."

With Kmart's management moving through a revolving door, the company lacked continuity. Each administration set different priorities and expectations. As cash dried up, inventory turned scarce and customers became angry and frustrated. The sales staff got a bad case of "Why should I bother?"

With the benefit of hindsight, of course, it does seem the company forgot who it was and tried to become everything it wasn't. "By throwing away their strength, they became even less able to compete with the relentless efficiency engine of Wal-Mart or the cheap chic of Target," Bock says. They couldn't match Dollar Stores on commodity items or Penney on upscale brands. Kmart was a 'tweener, not good at anything."

Does Kmart have a future? Or has the company outlived its usefulness? Time will tell — and so will the success of its rehab in Chapter 11. But Kmart's quick and enormous pratfall that led to the bankruptcy filing in early 2002 won't soon be forgotten.

Make sure you avoid making these same mistakes.

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