30 Online Invoicing Apps for Small Businesses

Posted By TJ McCue On January 18, 2010 @ 7:16 pm In Product Reviews | 

Do you struggle with sending out invoices or estimates to your customers each week or month? Make 2010 the year you get your invoices online and done with less hassle by using Web-based technology.
Here are 30 small business online invoicing software applications to help you manage sending your customer bills out — and do it with less labor and at a reasonable cost.  I’ve focused on apps with a North American (mainly U.S.) focus,  in alphabetical order:
AcceptPay ^[1] is a new electronic invoicing service from American Express. It offers a free option for one user called AcceptPay Lite that allows you to email 10 invoices per month and maintain an unlimited number of customers in your account. The full version AcceptPay is $20/month and integrates with QuickBooks, accepts online payments, ACH, and eChecks.  I was impressed to see American Express entering this marketplace and putting some of their muscle into an online invoicing and billing solution. (Note: American Express is a sponsor of this site.)
Ballpark ^[2] is an online invoicing service that believes the key component of any customer relationship revolves around communication. So, their dashboard tracks the back and forth dialogue between you, your customer, and your team. They offer a free personal plan and the small biz plans start at $6/month.
BambooInvoice ^[3] is a free open source invoicing software for small business and independent contractor types. You load it on your own servers; it is not hosted like most of the others listed here. It offers a good online support forum as well.  This is the only open source application I’ve seen in this space and it is one to watch for that reason.
BillingBoss ^[4] is a completely free online invoicing tool aimed at both freelancers and small business. It is owned and sponsored by Sage Software (owner of SageCRM, Peachtree and many other apps) and is both an outreach by them to serve the small biz owner and a very soft plug for their other products (which doesn’t diminish its functionality and value, in my book).  A really cool thing is you can use your existing merchant account with their Payment Plus option for $5/month. Again, the main invoicing tool is free.
BillingOrchard ^[5] offers a highly recommended Auto-Invoicing feature that customers often talk about, so their solution is ideal for those with recurring billing needs. They offer a 15-day free trial and then a lite version at $9.95/month and $14.95 for standard. When you use the auto-invoice features, there is an additional cost per month, by number of transactions.
Blinksale ^[6] targets small businesses and creative professionals who want to send well-formatted invoices easily. Their lowest price plan starts at $6 for 6 invoices a month, but you can have as many customers in the system as you want. It offers a free 30 day trial and integrates with Basecamp (the well known project management service).
CannyBill ^[7] is a web-based billing and invoicing solution aimed at web designers or professionals, although it certainly has the features that most small business owners will want. It offers a fully functional free account with up to 10 invoices per month. Pricing ranges up to $48/month at the enterprise level.
Cashboard ^[8] is a free financial time tracking service that lets you invoice, send estimates and accept payments online. They were quick to create desktop widgets for Mac and Windows as well as the iPhone so that you are not tied to a browser to manage your information. I found their pricing options just a bit confusing because most of the others listed here offer unlimited usage when you buy the paid version. With their “Dynamic” $10/month plan, you pay a bit extra for usage by employee and invoices. They offer a free for life plan, too.
CurdBee ^[9] is online billing software for small business and freelancers. It offers a robust free level with unlimited invoicing and customers.  It allows you to accept Paypal and Google Checkout, too.  However, the free level invoices include a Curdbee logo, which seems fairly low key.  Curdbee Premium level is only $5 a month and lets you remove the Curdbee logo from emails and invoices.  The development team clearly thought about the customer with a demo that lets you take an in-depth look at the online invoicing service without even a trial. I give them a thumbs up for making it painless to learn more and for keeping it fast to make a decision.
Endeve ^[10] positions itself as an invoice management service. It offers a forever free plan with an unlimited number of invoices and customers. The Professional Plan is $20/month and allows you to create Pay Now buttons with Paypal, customize your invoice layouts, and manage your expenses.
Enliven Software ^[11] is for the larger small businesses out there. It is integrated with Microsoft Dynamics GP, Peachtree, and QuickBooks and automates accounts receivable and accounts payable processes for vendors and for customers. There was no pricing information available.
Freelance Total ^[12] is online invoicing meets project management. Their web-based software allows you to take a client-centric approach to invoices as you manage the project. Plans start at $4.95 a month. It doesn’t say how long a free trial is, but it doesn’t collect billing information at signup.
Freshbooks ^[13] is considered by many to be the market leader in Web-based online invoicing. It offers the standard features you’d expect, plus time tracking and the ability to manage subcontractors who are also working on your project. They integrate with other accounting and project management systems such as QuickBooks and Basecamp. They offer a fully free plan (some limitations) up to $149/month.  I have personally used Freshbooks and have found their service was elegant and easy to use. They have thought (for a long time) about their customers’ needs.
Invoice Journal ^[14] is completely free. It doesn’t offer any pricing info and suggests it will be free forever.
The Invoice Machine ^[15] is an elegant application. You can do all the standard online invoicing functions, but in the tour, I was impressed with the flexibility. You can add line items in your invoice manually or from the project time tracking tool with a few clicks. You can create an HTML email invoice or attach one as a PDF. They offer an always free plan up to $48/month.
InvoiceMore ^[16] is an online billing and invoicing solution for freelancers, entrepreneurs, and businesses. It offers multiple features so that you can create, download, store, backup, print, and email PDF invoices to clients. You can track overdue balances. They offer a free plan all the way up to $99/month.
InvoicePlace ^[17] is an easy online invoicing service. One of the things that caught my eye was the simple offer of showing a completed sample invoice, in what looks like a Microsoft Word document.  The tour explains the many features well. Free plan up to $20/month.
Invoicera ^[18] offers invoices, estimates, and client reporting that you can use to track by specific product or service. You can add team members to a client and track their invoicing as well. Free plans, up to $149/month.
Invoices Made Easy ^[19] offers an online invoicing service exclusively for small service-oriented trades.  From landscapers to consultants, they offer the standard online invoicing options, but they also have an “EasyMail” service which will send your invoice via postal mail. Free 30 day trial, then $9.95/month.
Invotrak ^[20] is both an online invoicing and timesheet tracker. They offer good reporting tools as well as iPhone and iPod Touch apps. They have a limited Free plan up to an Unlimited plan at $45/month. It integrates with Basecamp.
LiteAccounting ^[21] offers four simple plans from free up to $18/month. The dashboard shows three boxes front and center to keep you focused: Products/Services, Customers, and Invoices. They have a nice demo which answers most questions so you can decide without all the signup hassles.
Nett30 ^[22] provides an online service for small businesses and contractors who need to make invoicing quick and user friendly. You can view real-time account summaries at any time. Send invoices as PDF, e-mail or have clients access them online. They have four plans: All unlimited. Free includes 5 clients up to Business Pro for $ 39 per month.
PaySimple ^[23] is another market leader and focused on recurring online payments, including invoicing. They come at online payments with a Merchant Account background, so their service is oriented at credit card payments, ACH, eChecks, and online payment forms. They have a free setup (usually $129) and $34.95/month, then transaction fees. If you need the combination of merchant account and all the other pieces that you’ve read about here, they are worth a look.
Ronin ^[24] is simple online invoicing product for freelancers all the way up to larger small businesses. Clients can log in to get their invoices or you can email them. You can try it out free without any worries of a time limit, but the free version is branded as powered by Ronin. After Free, plans range from $15/month up to $48/month.
SantexQ ^[25] is a project management and time tracking tool that also lets you bill clients directly from the service. It offers web-based reporting, but also lets you export to Excel for customizing reports as you like. For a single user it is free, but limited, then only $9.95 per month for unlimited users.
Sbzone.com ^[26] is a comprehensive online application suite combining sales, customer management, and accounting functions in one place. It offers a 30 day free trial and two plans: Limited Free plan and a $39.99/month.
Simplybill ^[27] offers a clean interface and design to make the online invoicing process easy. The dashboard offers three tabs: Invoices, Quotes, and Clients. They offer the ability to keep in contact with your customers via reminders and thank you notes. There is the standard 30-day free trial, then $5/month up to $25/month. They have received excellent reviews and are worth a look.
Simplifythis ^[28] is more than an online invoicing application. It starts with helping you book your appointments online and ties that data into the billing tool. It offers two services that start at $9/month: EasyBill and EasyBook. No credit card required for free 30 day trial. What I liked most about this service was that they have captured the attention of busy small biz owners who know something about technology or were not at all computer-savvy and still love the service. They have done of good job of making it useful for a range of skillsets and that’s not easy to do.
Simply Invoices ^[29] follows their own name in concept for explaining what they do; they keep it simple. You can wrap your head around how they do things with a five step screenshot tour they offer, on one page. They offer a completely free plan up to $25/month.
Winkbill ^[30] offers a robust online invoicing app at the free level all the way up to their platinum plan for $39.95/month. You can put your own logo on invoices with the free plan, but you can’t send them as a PDF. Loads of eye-catching templates you can use, too.

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Growing Drivers for Rural Indian Opportunity

RISING INCOMES: Due to a number of factors such as microfinance products, exemption from income tax, NREGA, mass media penetration, investment in rural infrastructure and the increased production of higher-value crops, disposable incomes in rural households are increasing, thus creating a positive scope for retail opportunity in rural India.

COMPARABLE GROWTH: The spending patterns of rural consumers are now comparable to their urban counterparts. The rural middle class is growing at 12 per cent as against the urban middle class growing at 13 per cent.
SECTOR-WIDE GROWTH: Various sectors have witnessed growth in the last few years. For instance, the FMCG market has grown by 23 per cent and the telecom industry by 31 per cent in rural India.
RISING DEMAND: Media penetration has increased awareness among rural consumers. This has increased their willingness to spend, creating demand for modernised products in place of locally available items. The demand for premium brands has also risen in rural households

How Korean consumer durable majors knocked out rivals

How Korean consumer durable majors LG and Samsung knocked out rivals in the fight for market share and brand recall. Some time in the middle of 1994, the Dhoots of Videocon put their brightest man, Ravinder Zutshi, on a special project. They had been approached by Samsung which was keen to sell its consumer electronics in India. The Korean company had proposed a joint venture which could source products from Videocon’s factories at Aurangabad in Maharashtra. Zutshi was asked to study the possibilities. Quantitative research threw up no surprises. Unaided awareness about Samsung was close to zero, aided awareness was slightly better at 7 per cent. People thought the Japanese were the masters of all technology, and the Koreans were at best imitators. But when he dug deeper, Zutshi found deep dissatisfaction amongst consumers from multinational (Sony, Sanyo, National, Philips and others) as well as Indian (Videocon, Onida, BPL et al) brands. The consumers’ aspiration and awareness were high, but the technology made available to them was low. And there was no indication that any of them would invest in the latest technology. After-sale service existed only on paper.   LEADING THE PACK Combined market share of LG and Samsung TVs 45% LCD TVs 63% Refrigerators 43% Washing machines 41% ACs 42% Microwave ovens 48% Source: Industry Zutshi’s report said there was a big gap that could be exploited. With better technology, contemporary products and a customer-friendly disposition, Samsung stood a fair chance in the market. The Dhoots trusted Zutshi. If Samsung did well, they argued, their factories at Aurangabad would run at full capacity, and whenever the foreign investment rules were further liberalised, they could sell their stake to the Korean chaebol and make a neat pile of money. Quickly, they formed a 49:51 company with Samsung. It was 1995. Around the same time, LG (it was at that time known as Lucky Goldstar) sent a large and high-powered team to India. The odds were stacked against the company — low awareness of its brand, poor perception of Korean technology and so on. But the team saw that the Japanese were not too interested in India; Europe and the US were their primary focus. This had made Indian brands complacent, and they lacked the financial wherewithal to come out with cutting-edge technology. LG also found out that education was very high on the agenda of Indians. The team members knew that it was education that had transformed South Korea from a poor agrarian country into a developed industrial powerhouse in a matter of decades. The same would happen in India, the team reported to its bosses back home. The LG brass was convinced and made up its mind to enter India. As rules did not allow a fully-owned subsidiary, it first tried its luck with Bestavision and then with Chandra Kant Birla. Finally, in 1997, when the foreign ownership rules were relaxed, it came on its own. Cut to the present. In most product categories of the consumer electronics market, LG and Samsung lord it over a market share of over 40 per cent — television, refrigerators, air-conditioners, washing machines and microwave ovens. Outside South Korea, this has not happened in any other large market. In certain categories, their products sell at prices similar to Japanese rivals — a clear indication that the perception of the Koreans being poor cousins of the Japanese is history. Their brand recall is universal. Indian brands, with the exception of Videocon, which has now hired ex-LG honcho Kwang Ro Kim as chief executive, are on oxygen. LG did business of $2.8 billion in 2009. India accounts for about 6 per cent of LG’s worldwide turnover. “We want to raise it to at least 10 per cent by 2012,” says LG India Managing Director Moon Bum Shin. “By 2015, India will become the second largest contributor to LG’s revenue after the US and ahead of (South) Korea,” he adds. Samsung crossed the $2-billion mark in 2009 — India is around 2 per cent of its global turnover. How did the Koreans get the better of rivals in India? Strong foundation Both LG and Samsung knew that half measures wouldn’t work in India. Thus, LG has invested $300 million and Samsung $200 million in two production facilities each. “It wasn’t a global factory that also supplied to India. We didn’t want to make the customers wait,” says Rajeev Karwal, who drove sales and marketing at LG from 1997 to 2003, then headed Philips and Electrolux in India, and now runs a consultancy for small-scale enterprises called Milagrow. Apart from Videocon, no rival of the Koreans has put up large production facilities. “In terms of investments and technology, no other Indian company apart from Videocon had the might to rival them,” says Videocon Chairman Venugopal Dhoot. LG and Samsung brought the latest products, customised them to Indian conditions (Samsung, for instance, reduced the size of the freezer in its fridges because Indians didn’t want it; LG cut out all frills that were not required in India) and began to give quick after-sale service. Samsung, says Zutshi, now deputy managing director, Samsung India (the Dhoots exited the venture in tranches by 2002; it had broken even by 1998), was the first in the industry to give uniform training to all technicians. “When pagers came in July 1995, we gave one to all technicians across metros,” says he. Also crucial were the Korean price tags. LG as well as Samsung prices were up to 20 per cent below Sony, but around 10 per cent higher than Indian rivals. The brands were positioned as value for money. They spent large sums of money on brand promotion. Both LG and Samsung now earmark 4 to 5 per cent of their turnover for brand development, above- as well as below-the-line. This translates to ad spends of at least Rs 400-500 crore from each. In the initial days, when they were yet to build scale, help poured in from their Korean parents in liberal measures. The Koreans knew little about cricket but were quick to join the bandwagon in India. But how did they address the quality perception? For the first three months, Samsung campaigns focused on its technological achievements. It was, after all, the world leader in colour picture tubes and semiconductors. “If you don’t want the best, go to Sony, National and Philips, we said in our advertisements,” says Zutshi. Karwal says he was able to convince the LG brass that it should build on its Korean heritage and not hide it. “The company wanted to play on the Goldstar brand because it had some recall. But I argued that it had failed in India so why harp on it? We went ahead with LG. I said let’s not pretend to be what we are not.” “Where they have scored,” says the top functionary of a rival, “is that they treated India differently than other Asian markets.” And they ambushed rivals whenever they could. Karwal says when he came to know that Sony was ready to launch its flat-screen television, he rushed to Seoul and managed a consignment of 500 flat-screen televisions to launch first. “I also got to know that Sony had booked the centrespread of a publication. So, I bought the wrap-around which said ours was the flattest thing on earth.” The Japan factor Still, LG and Samsung owe a debt to their neighbours across the sea — they were quick to adopt the best manufacturing practices of Japanese companies. Samsung, for instance, uses the just-in-time supply principal with its vendors — they need supply only when the factory demands. Its vendor development exercises could be straight out of the Japanese management textbook. “They (the Koreans) combine American marketing with Japanese manufacturing,” says Karwal. So, where did the Japanese go wrong? An industry veteran, who for long worked with the Japanese, says they tested the waters in India for too long, and thereby lost the first-mover’s advantage to the Koreans. Panasonic India CEO Daizo Ito admits that the company has ratcheted up its focus only in the last one year. “Panasonic has been in the Indian market for long but, as a part of strategy, the focus has been increased exponentially since last year or so.” The Japanese also went after the premium slots in the market, and thereby missed the volumes. “LCD television is the only segment where we compete (with the Koreans) but here too our and their key target segments are different. We are focused on households with an annual income above Rs 5 lakh, unlike the Koreans,” says Sony India Managing Director Masaru Tamagawa. The question is, have the Koreans taken an unassailable lead over the Japanese? The Japanese take heart from their large market share in automobiles, cameras, cordless phones, small appliances and LCD televisions. Panasonic, for one, is aiming for growth of over 100 per cent in each of the next two years, and double-digit market share in LCD television. “Coming from the Japanese domain, the quality and reliability of products is our strength. The challenge is to make this strength reach the consumer,” says Ito. “The retail experience is also the key. Therefore, we have continuously expanded our brand shops and presence at other retail counters.” But this is the game the Koreans seem to have perfected. Trade relations When the Koreans first came to India, the consumer electronics trade was archaic and in disarray. All producers had appointed distributors who then sold to the dealers. There was thus little direct contact between the dealer and the company. No company had a full portfolio of products, so the dealer had to deal with several producers and their distributors. Companies that did have more than one product had separate divisions for each line, which often didn’t talk to each other. This only compounded the dealer’s headache. Companies encouraged multiple dealers in every location — the rivalry kept the trade margins low. “The first thing we did,” says Zutshi, “was that we cut out the distributor.” This, at one stroke, improved the profit margins of the dealers. More important, it improved their bankability. And dealers, who were reluctant to invest at the behest of the distributors, began to jazz up their showrooms. Of course, they began to push the Samsung brand with gusto, though its price tags were higher than those of Indian brands. LG too took a new approach. Instead of going to all, it identified the best dealer in every locality, the one with maximum footfalls. It made sure that the dealer did not face competition from others in the vicinity. As a result, the dealer, who earlier got no more than 5 to 6 per cent commission on sale, now began to get as much as 12 per cent. This was unprecedented in the history of Indian consumer electronics. The goodwill helped LG and Samsung expand quickly to the heartland. And that was the key to its success. Ever since, dealership for a Korean brand has been more profitable than others. This is a point even rivals do not dispute. Onida Vice-president (sales, service and marketing) Sriram K says that the Koreans invested upfront and got the rewards later. “At one point, LG was even known as a credit brand because of how flexible it had become in trade circles,” says he. “It realised that doing business in India needed flexibility and therefore extended credit to dealers unlike a lot of other multinationals. Now that it has strong relations with the trade, it has tightened the terms. But the initial flexibility helped it garner volumes.” That’s the learning. Additional contribution with Amit Ranjan Rai & Sayantani Kar SCORING BIG WITH SMALL The Korean challenge in automobile is led by Hyundai. With 23 per cent of the car market, it is second in the pecking order after Maruti Suzuki. It has a factory that can make up to 600,000 cars in a year, wants to set up a diesel engine plant and has close to 300 dealers across 230 cities and towns. In 2009, almost 18 per cent of Hyundai’s worldwide sales happened in India. It’s good but not the same as in consumer electronics. That is perhaps because the Korean car industry has gone through consolidation: Hyundai acquired Kia, and bankrupt Daewoo was bought by General Motors. Daewoo, in fact, was the first serious challenge to Maruti Suzuki. It had started out with the Cielo sedan. Daewoo had tasted success in China with big cars and saw no reason why Indian consumers should not move en masse to large cars. It put up a factory near Delhi that could make 60,000 Cielos in a year. But India remained a small car market. Daewoo then changed course and began to focus on the Matiz, a small car. But then the parent went belly up and Daewoo’s operations in India came to a grinding halt. Some Daewoo cars have now reappeared under the Chevrolet brand — the Optra, Spark et al. That was the time when Suzuki was fighting a pitched battle with the Indian government over control of Maruti Suzuki. Between 1996 and 1998, as the two partners fought, Maruti Suzuki was paralysed and could not introduce new models. It had turned into a soft target. Trouble back home kept Daewoo from drawing maximum mileage out of the situation. The challenge was taken up by Hyundai. It set up a plant in Tamil Nadu — the bastion of the late Murasoli Maran who had led the government in its fight against Suzuki. By 2002, the government and Suzuki had settled the row. This helped Maruti Suzuki shift gears and flood the market with new models. It became a company on a mission — Japanese executives even agreed to stay in a hostel close to the factory near Delhi. It still sits on over 52 per cent of the market. “Suzuki’s commitment to India in the auto sector has been whole-hearted, which reflects in the way the company operates here. Look at our management. Unlike Japanese companies in other segments, we have had a completely Indian management,” says Maruti Suzuki Chairman RC Bhargava. Jagdish Khattar, who was the managing director of Maruti Suzuki from 1999 to 2007 and now runs a car-service venture called Carnation, says Maruti Suzuki has the upper hand in India as Suzuki’s core strength lies in small cars. That is because Japan is a small-car market. Korea, though it offers tax sops for small cars, is a large-car market. But Hyundai has grown rapidly in India. “We have consistently outperformed the market,” says Hyundai Motor India Senior Vice-president (marketing & sales) Arvind Saxena. “This means our market share has grown consistently.” The company benchmarks itself against Toyota in quality, and has made India the hub for small cars. It has begun work on a new car that will be smaller than the Santro. It is lobbying hard against the Indo-Thai Free Trade Agreement which helps Japanese companies to source cheap components from Thailand. The Korean aggression is unmistakable. In comparison, Toyota and Honda, after spending almost a decade in the country, have only now begun to talk of a small car.

Nestle, Glaxo focus on rural-specific products

Seema Sindhu / Mumbai January 28, 2010, 0:30 IST

India Inc’s rural focus is undergoing a key shift. So far, the strategy was to only introduce smaller packs of their flagship brands at lower price points.
Companies like Nestle and GlaxoSmithkline Consumer Healthcare (GSK) are now taking a different route and launching products specifically for rural markets. GSK (maker of Horlicks), for instance, has launched Asha -- a low-cost variant (40 per cent cheaper than Horlicks) for rural markets only. Asha tastes slightly different and is priced at Rs 85 for a 500-gram pouch pack -– close to half the price of the original.
Nestle, too, recently launched Rs 2 and Rs 4 products -- Maggi Masala-ae-Magic and Maggi Rasile Chow, products which be first marketed in areas with low purchasing power. Maggie Rasile Chow has been developed especially for the rural/semi urban markets to provide low-cost, light meal fortified with iron. Masala-ae-Magic is a taste enhancer containing iron, iodine and vitamin A. Shivani Hegde, general manager (foods), Nestle India, says these products were developed to address the widespread concern about micro-nutrient malnutrition in India.
Anand Ramanathan, sector analyst from KPMG, confirms the shift in approach. “Till recently, most FMCG companies used to treat rural markets as adjuncts to their urban strongholds and rural consumers as a homogeneous mass without segmenting them into target markets and positioning brands appropriately. However, it is beyond doubt that the rural markets are not dumping grounds for low-end products basically designed for an urban audience. The winning strategy instead is to focus on their core competency such as technological expertise to design specific products for the rural economy.”
In the past, Britannia (with Tiger Iron Zor), Coca-Cola (with Vitingo) have distributed micro-nutrient enriched products for low-income group through partnerships with NGOs as CSR activities. But these were not-for-profit ventures.
Analysts believe these products have a bright chance of doing well in the rural markets. “Access to rural markets is through three routes -– firstly addressing the right need, secondly availability and thirdly being affordability. Consider Asha, there is a definitive need for giving something extra to the child (in terms of nutrition) that is currently being fulfilled through home-grown methods of providing wholesome food to the kid. Asha, an affordable health drink additive, is surely well placed to be a winner if the company can distribute the product well and reach out the rural masses,” believes Naimish Dave, Director, OC&C Strategy Consultants.
Analysts are hopeful of the success of such products as rural markets have tremendous potential. The purchasing power in rural India is on a steady rise and the market has been growing at 3-4 per cent per annum adding more than one million new consumers every year. It now accounts for close to half of volume consumption for FMCG companies.
Moreover, India is now seeing a dramatic shift towards prosperity in rural households. A National Council for Applied Economic Research (NCAER) study reveals there are as many ‘middle income and above’ households in the rural areas as there are in the urban areas. There are almost twice as many ‘lower middle income’ households in rural areas as in the urban areas.
Further, the proportion of the rural population that is dependent on agriculture has declined from 75 per cent in 1994 to less than 67 per cent and the share of agriculture in rural GDP has declined to 48 per cent from 60 per cent in 1994. In rural areas, people have been shifting away from agriculture to areas such as trade, construction, transport and communication. Those employed in the non-agricultural sector have around 2-2.5 times earnings of those in the agricultural sector. Given the potential, rural market-specific products ware bound to work for these companies, experts say.

Buddy, Can You E-Mail Me 100 Bucks? The Next Big Thing in U.S. banking may be mobile person-to-person money transfers

What if you could send money to that friend who loaned you $20 last week by using your mobile phone rather than having to go through the trouble of trekking to the ATM or mailing a check? All you'd need would be your buddy's e-mail address or cell number—and presto.

Folks in Japan and Europe can already do that. Soon Americans will, too. Studies show that U.S. consumers, particularly the younger set, have embraced the convenience of online shopping and e-banking and are now ready to move to the next frontier: person-to-person mobile payments. A recent poll by Mercatus, a financial consulting firm, showed that the proportion of people ages 26 to 34 who had used a cell phone to buy goods or pay for a product or service had doubled, to 14%, in the past year. "We are at the tipping point," says Mercatus managing partner Robert Hedges.

That's why a host of banks and financial companies are gearing up to add person-to-person payments to their existing mobile and online banking platforms. PNC Financial Services (PNC), Bank of the West, and the Boeing Employees' Credit Union have teamed up with CashEdge, an outfit that already processes more than $50 billion a year in transactions among financial institutions, with plans to launch services in early 2010. Fiserv (FISV), a technology company that handles bill payments for 3,100 financial institutions, is marketing a similar service. MasterCard (MA) is working with Obopay, a mobile payment startup with funding from Nokia (NOK), while Visa (V) has been testing a service with U.S. Bancorp (USB). "Payment habits change pretty slowly, but Generation Y expects this," says Thomas S. Kunz, director of payments and e-business at PNC Financial.

While the banks are only now waking to the potential of person-to-person payments, PayPal (EBAY) has built its business on them. The company, acquired by eBay in 2002, boasts more than 78 million active account holders worldwide and introduced a service earlier this year that allows users to make transfers over a cell phone. Now it is teaming up with banks to offer the same service. FIS (FIS), a tech outfit that counts 14,000 financial institutions as clients, announced on Nov. 3 that it plans to integrate PayPal's technology into its online banking platform. "We found out that [banks] want to collaborate more than ever," says PayPal President Scott Thompson.

HACKER HEAVEN?

Here's how these digital cash transfers work. Sign up for a service through your bank or another provider. Enter an e-mail address or phone number to send money to anyone you know. Your bank's person-to-person payment system will be integrated with your regular online banking, and the funds will be debited from your account. At the other end, the recipient may get the cash deposited directly into an account or have it posted to an existing credit card or a prepaid card. Mostly likely, banks will make money by charging senders a nominal fee (25 cents, say, for a domestic transfer).

What about security, you ask? "Banking on the mobile phone is relatively safe," says Robert Vamosi, an analyst on security, risk, and fraud at Javelin Strategy & Research. In fact, says Vamosi, mobile banking is currently more secure than online banking because cellular networks are tough to hack into.

With many of these new offers set to launch next year, the big question is who will gain critical mass quickly. Says Jim Bruene, editor of trade publication Online Banking Report: "Whoever can make mobile payments as simple as sending a text message is going to win."

Bet Your Bottom Dollar on 99 Cents

By TIM ARANGO

In one of the many smoky scenes in “Mad Men,” the critically loved cable show about Madison Avenue in the era of martinis and misogyny, a founder of the celluloid advertising firm Rogers & Sterling describes marketing glory.

“I’ll tell you what brilliance in advertising is,” says the actor John Slattery in the character of Roger Sterling. “99 cents.”

It may be just the insight the nation’s retailers are looking for as they struggle to stimulate consumer spending in this trying time: If you can’t sell something for 99 cents, you should at least tack on .99 to the price.

Steven P. Jobs, the chief executive of Apple Computer, tried the 99-cent approach and arguably saved the music industry from oblivion.

In picking that one standard price for each song for sale on iTunes, Mr. Jobs built a commercially viable digital delivery business for music. Before the start of iTunes in 2003, it was an iffy proposition that people would ever pay for music online when they could steal it from any number of peer-to-peer networks.

Dave Gold also tried it. In the 1960s, he and his wife owned a liquor store in Southern California where they sold wine at various prices: 79 cents, 89 cents, 99 cents and $1.49.

“We always noticed that the 99 cents sold much better,” he recalled in an interview.

They priced all their wine at 99 cents, and overall sales improved.

“The 79 cents sold better at 99, the 89 cents sold better at 99, and of course the $1.49 sold better at 99,” he said.

Mr. Gold’s experience might suggest caution as iTunes prepares to sell songs in April at varying prices — a move that some academics say could complicate matters for consumers and cut into sales.

“It adds a level of complexity to the purchase of music,” said John T. Gourville, a professor at Harvard Business School who has studied what is known as psychological pricing. “Research has shown that when you add complexity to decision making, some people opt not to choose anything,” he said.

Mr. Gold and his wife eventually took the concept to the extreme and in 1982 started a chain of 99 Cents Only stores. They took it public in 1996, and today the company has 282 stores and is worth more than half a billion dollars. In the last quarter, sales were up 8 percent; profits, 31 percent.

Mr. Gold wasn’t the first to strike on 99 cents as a lucrative marketing gimmick, but he may have done the most with it. No one quite knows who came up with the concept.

It could have been Rowland H. Macy, who in this newspaper in 1880 advertised 100 pieces of “reliable black silk” for 99 cents. That’s the first instance of a newspaper advertisement featuring a price of 99 cents — at least the first one that one academic who did some digging on the subject could find.

Then there is this explanation: that the advent of the cash register, invented in 1879 by a Dayton bar owner (according to the Museum of American Heritage), allowed merchants to thwart pilfering clerks by charging a penny less then a full dollar amount, thereby forcing cashiers to open the register to give change to a customer.

Regardless, the marketplace power of .99 seems undeniable. But why?

Academics have offered a variety of psychological explanations. One study, by Robert M. Schindler, a professor of marketing at the Rutgers School of Business, found that consumers “perceive a 9-ending price as a round-number price with a small amount given back.” Researchers have also found that prices ending in .99 communicate “low price” to consumers.

At the University of Chicago, for instance, researchers found that when the price of margarine dropped from 89 cents to 71 cents at a local grocery chain, sales improved 65 percent, but that when the price fell to 69 cents, sales rose 222 percent, according to Kenneth Wisniewski, an author of the study.

And Professor Schindler, in a study at a women’s clothing retailer, found that the one-penny difference between prices ending in .99 and .00 had “a considerable effect on sales,” according to his study, with items whose prices ended at .99 outselling those ending at .00.

All of those findings may help explain why the new prices that iTunes plans to charge all end in nine: 69 cents for less popular songs, and $1.29 for current hits.

So when retailers price their wares with a figure ending in 9, the reason is simple, Professor Schindler said.

“It’s to make the price seem like it’s less.”

Designing products: One design does not fit all

One Design Does Not Fit All
Ellen Glassman
General manager of brand design and strategy
Sony Electronics USA
Park Ridge, New Jersey
At Sony, we believe What customers really want is choice. How we deliver that is a collaborative process between designers, engineers, and marketers. What we've found is that consumers have very different needs that can't be fulfilled by a one-size-fits-all approach. So we believe in offering a breadth of designs, price points, and features: In March, we introduced nine flash-based players to the Network Walkman lineup, which includes last year's 20-gigabyte HD3.
Competing in this space? Honestly, it's all about customers first. We accomplish that by having our designers watch for emerging trends and technologies and then marry them to the needs of the customer. Our designers must have an extra sense of what will come. We send them all over the world to different kinds of exhibits, such as the Milan furniture fair. We have designer exchange programs, where someone from, say, Tokyo will work in the States for a while. Senior management realized very early on how important it is for designers to understand different cultures. It's a way for them to keep their minds open to possibilities.
We believe we're in a unique position as an entertainment company. As digital technologies converge, we're evolving to combine portable audio and entertainment. If someone wants to play games, listen to music, or watch a movie, we offer that in one device. If they want to make a call, take a photo, and listen to music, we do that too. So we're going to continue to pursue what we've always pursued: identifying consumer lifestyles and making products that work for them. In the end, we're really competing with ourselves to make the products better.
Ellen Glassman, 40, was formerly director of the Sony Design Center. Early reviews of Sony's newest set of flash-based players say it's a strong contender to take on the iPod shuffle.
Let the Customer Drive Design
Steve Gluskoter
Codirector, Industrial Design and Usability
Product Group, Dell
Round Rock, Texas
Sometimes, something that looks cool or neat is of no value to the customer. By the time we entered the market for MP3 players in 2003 with the Dell DJ, there had been a lot of products out there, and we studied the vast majority, including the iPod. There were positives and negatives for every player, and we tracked them. But we didn't want to focus on what everyone else did.
At Dell, we don't make design decisions based on style alone. Customer input is a huge driver, which is why we talk to our customers directly through our in-house usability lab. This is where we test our concepts alongside our competitors'. Then we watch and learn. That's how we realized the importance of volume control, which has a dedicated button on the Pocket DJ. It's something people want to adjust constantly but was often buried or difficult to find on other players.
We also do our own trend watching. Honesty of materials was one trend that factored into the design. People want to know that the cold feel of metal in your hand is the real thing, so we chose to go with anodized aluminum, which gave us the strength and rigidity we needed. Also, our surface is fingerprint resistant. In the labs, we saw that people were incredibly annoyed by that with the iPod.
There's a sign in the lab that says two things: listen to the customer and you're not the customer. We bring in people across a broad demographic, from target customers to owners of our competitors' players, from teenagers to corporate executives. It's hard to do the wrong thing if you're talking to enough people and listening to what the masses are telling you.
Steve Gluskoter, 41, joined Dell in 1993 as its first industrial designer. The Pocket DJ, released last October, was named one of Oprah's Favorite Things in 2004.
Put Design First
Young Se Kim
CEO and founder, Innodesign Inc.
Palo Alto, California
In the first 15 years of my career as a designer, many clients would come in with an idea already set and then ask me to make it pretty. The trouble is, their ideas were based on research from competitors' products or trends. It's very difficult to make a completely different product that way. You'll end up with more of the same.
That's what happened with iRiver's first hard-drive player. It was based on an engineering spec, and we didn't have as much freedom with the design. So with the H10, its successor, I felt we had to start from scratch. We obviously couldn't ignore our biggest competitor, the Apple iPod, whose design is so popular. But we wanted to do something different. With the iPod's click wheel, I noticed lots of people using only one-quarter of the turn with the thumb. So I thought, if that's all they need, why not make it just go straight up and down? That idea -- that a vertical touch pad might make more sense -- came from just watching people at coffee shops.
Industrial design has become one of the few cards manufacturers can play these days. It's especially true for MP3 players, because the technology processes have become commoditized. At the end of the day, users will buy what they feel attached to, what they're happy with, what they can show off as part of their identity. Design is no longer an easy process that comes at the end. It's a matter of life and death, so it should come first.
Young Se Kim, 54, founded Innodesign in 1986. This past January, Bill Gates showed off the H10 during his keynote address at the International Consumer Electronics Show in Las Vegas.
It's the Inside that Counts
Henri Crohas
Founder and CEO, Archos
Paris, France
I do not share the opinion that Apple's design for the iPod is any good. That's because I define great design in terms of fantastic machinery. And if you look inside the iPod's technology, it's quite common and unimpressive. It isn't anything special. What Apple has done well isn't the iPod, but iTunes. It has been the first to pull together all of these music editors and convince them that they have to open a big store online. But there's a second phase coming. Like the cell phone, the technology to integrate photos and videos is now available. Microsoft has been working on this for years. Its Windows Media Center is well advanced and does everything iTunes does, plus more.
We got into the MP3 business in 1999, with our first hard-drive player, the Jukebox 6000. That was a year and a half before the first iPod. When Apple hit it big in 2003, we were no longer interested in the music-only category. For the past five years, we've been focusing on what's coming next: the portable audio-video player. Our 20-gigabyte Gmini 400, which we released last September, has been very successful. It's the size of an iPod, costs the same as an iPod mini, but comes with 20 gigabytes and a larger LCD screen to play back video. And this video can be any type of video, from your computer or from TiVo. We think that the first source of media content is still TV. What we've done is make that content portable.
The way we design products is very much driven by the technology inside, whether it be combining video, audio, and music, or making our products wireless. Archos wants to continuously ride the wave of technology, so that means we tend to go away from the low end of the mass market. That's why we no longer make flash players. In order to do it now, you simply buy a reference design for the technology and then build a new interface. You can argue that you can differentiate with the design of the interface, but it's all the same, including Apple's. Archos is not competing in the same arena. Creative, Rio, iRiver... certainly those companies fight against Apple, because they want to reach the same target. But we are after something different. Apple may have won a battle when it comes to music, but it remains to be seen whether it will win the war against Microsoft.
Henri Crohas, 54, founded Archos in 1988. The Gmini 400, launched last September, has outsold the Apple iPod in the 20-GB category in Europe.
Outcool the Competition
Sim Wong Hoo
Founder and CEO, Creative Technology Ltd.
Singapore
When all anyone could talk about was the iPod, we were already thinking about how to outcool it. That was the design charter for the Zen Micro, which we released late last year, and we wanted to win in every aspect. We started off with the name, looking into the whole concept of Zen, then decided that it was a good direction and made it the basis for the design. It's not about the religion but the lifestyle: Zen is something simple yet powerful. Our player, the Zen Micro, is cool and clean, and we have it in 10 contrasting, electrified colors, so we can catch people's eye. Its curve fits into your hand, it has a mesmerizing blue glow, and there's top-injection molding. All of these are very Zen-like and give people a very warm and good feeling.
I am very passionate about design. Even though I can't design myself, I think I have a good eye for details. As the CEO, my job involves a lot of artist coaching, showing designers the right direction, how to look at the market, and what to go after. I have to keep them fresh, energized, and motivated. But at the same time, I can't let them run wild. If I did, I'd be left with crazy designs that only appeal to niche markets. I learned that lesson with the second-generation Nomad, which I let my designers talk me into releasing even though I personally didn't like it.
Of course, Creative's main competitor is Apple. It's always good to focus on the toughest guy, the top-tier guy out there. That way, we can at least be a strong number two. But I think the main reason why Apple is so popular is because of its blanket marketing. They've got billions of dollars I don't have. The market is exploding right now, and it's a crucial one we have to capture. So I have dedicated around $100 million in marketing this year. It's still a lot smaller compared to what Apple has spent, but I think it's especially important to give our MP3 players our number-one attention.
Unlike Apple, however, we are not going to spend our money trying to convince people that we are good. We are going to spend our money telling people what we offer. At Creative, more is better. Our products are packed with more features -- an FM tuner and voice recorder, for example -- and we're able to deliver this at a lower price. That's where we can win.
Sim Wong Hoo, 49, an engineer by training, founded Creative in 1981. It comes second only to Apple in total market share for MP3 players

What makes a great brand

A new-age fable says that you can leave behind your brands' five-year plans in the business class seat of your aircraft, your competitor, sitting two rows behind can pick it up and take it to his office, and you can still beat your competitor if you implement and execute your plans.

Most plans do not get executed. And it is not difficult to guess what your competitor's plans are over the next five years. But the million-dollar question is, will they be able to execute the plan? To this is the corollary, how will they adapt their execution to the changes in the market environment?

The premium soap Liril was originally test marketed in early 70s as a blue colour soap cake. Finally, it got launched as a green soap, based on customer feedback. Interestingly, in 2002, Liril was relaunched as an 'icy blue' soap.

Sundrop cooking oil was launched in a 1 litre PET bottle and economy packs came only three years after launch. The company was worried that a pouch pack would dilute the premium appeal of the brand.

Dettol Soap was launched in 1981 as a light yellow soap, positioned as a 'love and care soap'. After the poor response, the company took a few years to regroup and relaunch the brand in a green wrapper, as a germicidal soap on the '100% bath' platform.

Brand execution is about constantly keeping an eye on the various parameters that make up the brand offering:


Is the product quality just right? Can it be improved? Global FMCG major P&G launches a new product only if it scores 51% on blind product test over its nearest rival.

Is the pricing competitive? Should it be lower? Higher?
Indian consumers look for value even in prestige products. The brand has to rationalise the price premium through emotional or experiential means .

Is the place right for the brand? Should new distribution avenues be explored?
Eureka Forbes created a unique direct selling model to market vacuum cleaners in India. Cease Fire appliances tried emulating this model in the late 90s but after a few years could not sustain the momentum.


Is the 'promotion' mix right?
Not all performance problems can be fixed with a new advertising-promotion campaign. But as Santoor discovered, a new campaign (focusing on skin care benefit) turned the fortunes of the brand in late 80s, early 90s .


Is the packaging right? Are there other options?
Frooti from Parle, exploited the tetrapak packaging medium to create a new space in the soft drink market. Cadbury's Appela, launched five years earlier may have had a better chance if it had used a different packaging form, instead of returnable glass bottles.


Is the profit plan in place? Should it be modified?
India is a large market with a large consumption appetite. But MNCs have discovered that it is not a cakewalk. While most companies plan for a two to five year gestation period for a brand, how valid are these assumptions in a changing-growing market? ...


What 'people' or 'service' support does the brand need?
While the seven factors listed under brand execution are not exhaustive, these form a key framework for the brand offer.

They are also not mutually exclusive parameters. As an old adage goes, the Indian consumer will want everything 'Sasta, Sundar, and Tikau' (economical, beautiful and long lasting). Marketers have to balance this S-S-T needs of the consumer with the organisation's obligation to the stakeholders and shareholders.

Brand execution elements will change in importance as one moves from an FMCG to a durable to a service. While the product/service offer, price, distribution, location/place, and promotion will continue to be important, the service or people component will become paramount for a service brand like a hotel or a department store. Durable brands too are becoming more and more service driven.

Product offer

Brands depending on the product/service category will have to offer features that are de rigueur (point of parity) of the category, while they have differences in the offering (point of difference). Sometimes the PODs are in the price, or place. But most successful brands offer a POD in the product offer as well:


Ayurvedic soap Chandrika, is made through a special 'cold-press' method

Liril was the first soap to offer a marble texture

Lifebuoy hand-wash was the first liquid soap

Hyundai Santro was the first small car to offer a Multi Point Fuel Injection (MPFI) petrol engine

Kinetic Honda was the first modern age scooter with a button start

Onida was the first colour TV with a sleek looking vertical format.
The examples are numerous, and often it is the easiest solution to go with a me-too product. Or at times, launch a brand with a product difference that is too small to be noticed, JNND (Just not noticeable difference). The danger in these approaches is that the brand starts with no real difference in product offer terms. The onus of creating a difference now vests on the other legs, a more difficult task.

Price offer

The brand price offer can also be played using different packaging forms:


Chik and Velvette shampoos used the pouch pack to build brand attraction at a low price point of 50 paise.

Anchor white toothpaste has large packs at attractive prices to gain brand loyalty. The pricing strategy for a brand can also be driven by the gaps in the market:

Nirma Beauty Soap was priced at Rs. 7 per 100 gmsa price point below Lux but above 150 gms Lifebuoy on a gram per gram basis. ....
Price is the single most important dimension in the value driven Indian market. Brands have met with sudden deaths with ill timed price increases:


In the 80s Chiclets Chewing Gum moved its price from lOp (for 2) to 25p. As against an anticipated drop of 50% in sales volume, the brand sales dropped by 90%.

In a replay of sorts, Halls in the 90s moved its price from 50p to 75p to meet with a similar fate.
The rapid growth of motorcycles in the late 90s were contributed to by the narrowing price difference between scooters and entry level motor cycles.

Quartz watches' sales benefitted with launch of Titan and its price value offer, backed by the Tata guarantee. In spite of the initial fear that the Indian consumer will be loath to buying batteries every year, the company's pioneering effort to ensure affordable batteries paid off in a revolution on Indian wrists.

Place offer

How will the brand reach the consumer's hands? How many hands will it pass through? Where will it be retailed?

How is the brand presented at the dealer outlet?

Does the place add to the brand value?

Tata Motors when they made their play for the growing Indian small car market consciously set up an entirely new dealer network, distinct from the Tata truck dealers. The company re-organised that while utility vehicles like Tata Sumo could be sold through commercial vehicle dealers, a passenger car buying family man will be very hesitant to enter a truck showroom.

Raymond's secret strength is their 250+ authorised dealers. Each is a handpicked dealer offering a 'Raymond' buying experience including tailoring and readymade apparel. Park Avenue and Parx (and Color Plus which was acquired in 2002) are the readymade brands from Raymonds enjoying the tremendous advantage of instant distribution presence across the country. ...

So retail outlets may not just be selling points but can be a big vehicle for carrying forward the brand message.

Promotion offer

How will the brands be promoted? How will the brands message reach the prospects?... A new brand will need to attract trial. That calls for free sampling or trial offers. Once the brand gains momentum, free trials can be reduced.

When Johnson &Johnson was trying to sell sanitary napkins in India in the mid-70s, they found the only way to discuss such a sensitive topic was on a woman to woman basis. So they put together a large team of sales promoters who went door-to-door.

This gave the brand Stayfree a toehold and the product category, the initial user base. The programme has now been dropped, as the core user base has been created. The company may still want to run 'educational' programmes at girls' schools and colleges.

Buy Water, Help Children

That's the idea behind Ethos bottled water, say its founders. And since Starbucks purchased the brand, the audience for that message is huge

"We think what we're doing this week will be the largest mobilization of people ever for World Water Day," says Jonathan Greenblatt excitedly. "There will be happenings in 11 cities across the U.S." Greenblatt and his partner, Peter Thum, have reason to be excited.

In roughly four years, Ethos Water, the company they co-founded, has grown from a local bottled water company selling its goods through yoga studios and health-food stores in Southern California, to a nationally recognized brand. Last year, the company was sold to Starbucks (SBUX ) for $8 million, giving it a new distribution channel and substantially greater reach.

That new market reach translated to more than just sales. It helps Ethos realize its underlying mission: to help children around the world get clean water. For every bottle that Ethos sells, Starbucks donates five cents toward solving the world water crisis, with the goal of donating $10 million by 2010.

In a crowded marketplace -- there are more than 800 different brands of bottled water -- Ethos sets itself apart through its social mission. BusinessWeek Online's Jessie Scanlon spoke with the founders about water, branding, and selling activism in a bottle. Edited excerpts of their conversation follow:

Bottled water is still water. It doesn't really vary that much from brand to brand. How did you set Ethos apart?
Thum: The Ethos brand came out of work that I was doing at McKinsey & Co. in South Africa. I spent a lot of time around people who didn't have access to clean drinking water. Following that, I consulted on a project in the bottled-water industry, and I realized that there was an opportunity to create a brand that people really cared about. The Ethos brand has an element of activism. Every buyer is opting into the community by the simple act of purchasing the product.

As a small company entering a crowded marketplace dominated by big companies like Nestle and Danone (DA ), what was your initial brand strategy?
Greenblatt: When we launched the brand, we realized that it had to be more than a product with a cause. It had to be a great product. Our water comes from natural sustainable springs.

Next, we worked hard to develop a great package that would allow us to sell effectively against brands like Evian and Fiji. Finally, it had to be a platform for raising awareness. We looked to Newman's Own as a model. Newman's Own has been incredibly successful and given hundreds of millions of dollars away to charities. But people don't think about camps for sick children when they buy the chunky tomato sauce.

There were established conventions in bottled-water branding. Source and packaging were incredibly important to consumers. Peter and I took a very different approach. It's based on a very simple idea: Buy water, help children get water. From the beginning, we saw the brand as a platform for creating a community and spreading information about the world water crisis.

How did you approach marketing?
Thum: First what we did was think carefully about where we were going to distribute our products. We first sold the water in cafes, health-food stores, and yoga studios in Southern California. We tried to find places that had developed relationships with their customers already, so that we could borrow that equity. We were also influenced by [Malcolm Gladwell's book] The Tipping Point.

We launched the product at the high-end fashion retailer Fred Segal. We went to the Academy Awards and partnered with the company driving celebrities to the ceremony and stocked their cars with water. So Leonardo DiCaprio and Cameron Diaz walked into the awards carrying Ethos water. These associations helped us make the brand seem much larger than it really was.

How has that marketing strategy evolved as the Ethos brand has become established?
Thum: A few years ago, when Coca-Cola (KO ) and Pepsi (PEP ) got into the water business, you started to see serious money being poured into marketing. That hadn't happened before. Ethos depends on word of mouth.

That's one of the reasons that the Starbucks relationship made sense. There are 80,000 Starbucks employees who are essentially building that word of mouth campaign every day.

You saw Ethos as not just a product, but as a platform to build an activist community. How has that worked?
Thum: In the very beginning, we went and invested our own money in water projects around the world. We wanted to build relationships with those groups, and we wanted people to see the kinds of groups we were working with. Also, as we continue to build this community, that network will give people that want to get more involved good options for giving money or volunteering.

In 2005, Starbucks bought Ethos. How has that affected your brand strategy?
Thum: Now we have a real marketing budget and the resources to do some of the things that we always wanted to do. And Starbucks has significantly increased our ability to build this community. It was hard to do that when our distribution was limited to health-food stores in Southern California. Through Starbucks we have the ability to reach more than 40 million consumers a week.

Greenblatt: One of the biggest advantages of the relationship has been our ability to scale our work. Soon after we closed the deal, we announced a $250,000 grant to fund water-related projects in Ethiopia.

Does the close alignment of the brand with the world's water crisis limit your options for future brand extensions?
Greenblatt: Our brand is predicated on a idea, "Buy water, help children get water." It's that link between consumption and cause that has animated the brand. We think we've got our hands full focused on this problem today. In the future, I'm not sure. That link between the consumption and cause may lead to other exciting opportunities.

Critics of the bottled-water industry point out that much of the water being sold is no healthier than tap water, that the bottles themselves are made of toxic chemicals, and that the energy required to distribute the water is immense. As a company founded on a social mission, how does Ethos respond to these critics?
Thum: I don't think that we can answer for the entire bottled-water industry. What we're trying to do is make the American public aware of this problem [lack of access to clean water] -- a problem that kills more people than AIDS.

The bottled-water industry may not be perfect, but if you can take a sliver of the industry and turn it towards something positive, that's a good thing. The most important thing is to start a dialogue and to get people in the U.S. to start thinking about the world water crisis not just as something that affects people far away, but as a problem that we will face soon as well.

How many brands of bottled water can the market sustain?
Greenblatt: When we launched the business, there were more than 700 brands. Now there are more than 800. With the entry of Coca-Cola and Pepsi into the market, scale certainly matters, so we might see some small brands disappear. But there's always the opportunity for niche brands that have a high value proposition.

India has drama in store

India has drama in store

By Amy Yee

Published: December 29 2008 22:06 | Last updated: December 29 2008 22:06

When Kishore Biyani tried a “clean Italian look” of glass and minimalist lines in one of his Big Bazaar stores, he was surprised by the effect on his customers – it drove them away. The sleek section of the store remained empty while the rest of the shop bustled.

Mr Biyani, head of the Future Group, India’s largest retailer, realised the decor was intimidating and alienating the middle-class Indian consumers who were more used to crowded bazaars and shops.

“You need hustle and bustle,” says Mr Biyani. “The Indian model of shopping is theatrical. There is buzz and haggling. If you have wide aisles you have a problem.”

Why crowded neighbourhood shops still enjoy the upper hand

Big, modern stores are not guaranteed victory in India’s retail revolution. Tiny, crowded hole-in-the-wall neighbourhood shops do have advantages over their “organised retail” counterparts. Small shopkeepers often know their customer personally, offer free home delivery, let customers order by phone and keep a tab.

“I had a grocer in Mumbai. I never saw him but the service was fabulous,” says Anirudha Mukhedkar, chief executive of Restore Solutions, a retail consultancy in Bangalore. “I ordered over the phone and I would pay him at the end of the month. He didn’t have to have a large store.”

Indian customers traditionally favour personal service and “not a cold-blooded transaction”. Retailers in India should think about “how to personalise and bring a degree of warmth to the transaction”, says Mr Mukhedkar. “If retail wants to get its act right, it needs to go back to basics.”

Kishore Biyani, chief executive of Future Group, India’s largest retailer, also retains some of the basics of shopping in India. Mr Biyani is known for creating the atmosphere of an open-air bazaar in his sprawling hypermarkets. His Big Bazaar stores have narrow aisles, overflowing bins and loud music.

“In India, theatre is always there in selling,” says Mr Biyani.

Mr Biyani’s Big Bazaar “hypermarket” stores, which are India’s closest equivalent to Wal-Mart, are clean, air-conditioned and well lit. But they have deliberately narrow aisles and overflowing display bins that simulate the feel of open-air markets common in India.

Drama and theatre are important elements in Mr Biyani’s stores, which also include the Pantaloons and Food Bazaar chains. At one store in a Mumbai shopping mall, dance music popular in Indian nightclubs blasts from loudspeakers while customers jostle to reach the best goods.

Modern retail stores are relatively new to India, so Mr Biyani and other retailers are having to adapt to the evolving shopping habits of Indians. The biggest mistake that retailers make is thinking that “just because you have set something up people will come”, says Anirudha Mukhedkar, chief executive of Restore Solutions, a retail consultancy in Bangalore.

Shopping in so-called organised stores accounts for only 4 per cent of India’s $322bn (€229bn, £218bn) retail industry but this share is expected to grow to 22 per cent of $427bn by 2010, according to the Federation of Indian Chambers of Commerce and Industry.

Unlike their struggling counterparts in the west, India’s retailers are looking at an attractive growth market. But getting it right will be tricky, given the country’s diverse population and distinct regional cultures.

Understanding India’s wide diversity – socio-economic, religious, regional and linguistic – is key to that strategy. “When you say Indian consumers, there are at least 10 Indias,” says Mr Mukhedkar.

Cultural preferences vary widely between regions. For example, types of rice and how people buy it differs in the north and south, says Harminder Sahni, managing director of Technopak, a retail consultancy based in Delhi.

In the north, rice might be sold in open sacks so consumers can inspect the goods. But in some parts of the south, rice is a common staple sold in sealed packets.

Store lay-outs will also vary according to region. In big groceries in Kolkata, eastern India, and other coastal cities, fish is a staple sold in the vegetable section, whereas it is categorised with meat in inland areas.

Because of these distinct regional tastes, retailers “don’t look at India as India”, says Mr Sahni. “They pick a region or market or city...The first two years might be in one city.” He says that most do not have ambitions to open pan-Indian stores: “Many start in one part of India and just stick to that.”

The Future Group has found another way of capitalising on regional variations: it has 72 annual promotions linked to local festivals. The company says the Big Bazaar store in Bhubaneswar, capital of the backwater eastern state of Orissa, took the group record for a single day’s turnover after promoting a sale linked to a festival.

William Bissell, managing director of Fabindia, a chain of upscale boutiques that sells clothing and housewares, says “every store has to offer a different mix. That’s why retailing in India is so complicated”.

Mr Bissell notes that Fabindia, founded in 1960, has an inventory of 200,000 items to cater to consumer tastes that vary dramatically across regions. “Any retailer will say that is crazy,” says Mr Bissell. To manage its enormous inventory, Fabindia has installed an IT system to track the flow of goods at nearly 100 stores in India.

Capacious western-style malls are also cropping up, especially for luxury goods. But when catering to the mass consumer, “it makes sense to have smaller stores with more workers”, says Mr Mukhedkar of Restore Solutions.

He points out that India’s cities command some of the highest real estate prices in the world but labour costs are among the lowest. Packed shelves are also preferable to give the consumer a sense of abundance and choice. “If a shelf can take 50 things, try to fit in 75,” Mr Mukhedkar advises. “Density per square foot has to be as high as possible.”

For practical reasons, Mr Bissell favours smaller stores. He dismisses the notion of a 100,000 sq ft Ikea-style store in India, except where “enormous” volumes might justify high maintenance costs. “At 40 to 44 degrees in the summer I’m going to have to air-condition the whole thing. That would be an environmental disaster.” And it would be too expensive, he adds, in a country where electricity rates are high, and power cuts force many businesses to buy costly diesel-run generators.

The biggest misunderstanding about retail in India, says Mr Bissell, is that Indians consume as copiously as westerners. Instead, Indians are more selective, value-conscious and price-sensitive. Mr Sahni of Technopak agrees. In a grocery store, an Indian consumer will not fill up a trolley as is common practice in the west. “Indians will shop with a basket. Below a certain income level, people won’t want to spend so much with each transaction.” Smaller refrigerators and limited storage space at home are also factors. “People will buy more frequently and in smaller packets,” says Mr Sahni.

But some aspects of retail in India are more abstract. To stay attuned to India’s pulse, Mr Biyani has a special unit devoted to tracking the country’s social trends to incubate ideas for new store brands and strategies.

The “Future Ideas” group includes sociologists, interior designers, graphic designers and other cultural experts. One of their biggest tasks is analysing the changing tastes of Indian youth.

With more than half of India’s population under the age of 25, understanding their consuming habits and aspirations is a priority for the Future Group. “India is still family-centred, and young people influence purchases,” says Mr Biyani. But by far his biggest challenge as a retailer is managing the speed of change in India.

“How do you make an organisation that is not permanent in thought, structure or design?” asks Mr Biyani. “Retail in the next five years will be different. Nothing is permanent.”

Sony Chases Apple's Magic

Even with a former Steve Jobs lieutenant driving innovation, Sony still hasn't captured its rival's cool

By Cliff Edwards, Kenji Hall and Ronald Grover

Sony Chief Executive Howard Stringer bristles every time he gets the question: Why can't the Japanese electronics giant be more like Apple? The maker of the iPod, iPhone, and Mac computers consistently delivers supercool gadgets that are easy to use, while Sony sells music players, TVs, and cameras that get mixed reviews and often don't even work well with other Sony (SNE) products. "Sony is a very big company," Stringer says by way of explanation. "Our toughest competitors are niche organizations."

Stringer is quick to admit, though, that Sony may face a troubled future if it can't rival Apple (AAPL) in creating simple software that makes its gadgets fun and in giving consumers easy access to music and videos. Apple's iTunes store has long made filling iPods a cinch, but Sony's consumer electronics and PlayStation divisions have only recently started to integrate their offerings with those of the company's movie studio and music label. That's one likely reason why Sony's products earn profit margins of 10% or so, compared with the 30% margins that Apple's devices command.

So Stringer went straight to the source. Three years ago, he hired Tim Schaaff, a top lieutenant of Apple CEO Steve Jobs, and created the title of senior vice-president for software development for him. Although Schaaff was expected to spend most of his time in California, he's so integral to Stringer's plan to remake Sony that he has a direct reporting line to the CEO. Schaaff's role has grown quickly, and today he also has a hand in product design, licensing, planning, and engineering. "When we brought Tim on board, it was a recognition that we needed someone whose experience crosses multiple borders," Stringer says.

A KNACK FOR KILLER PRODUCTS

Schaaff doesn't come across as an agent of change. The 48-year-old Dartmouth grad studiously avoids the press. When he speaks, he does so slowly and deliberately, giving the impression that he is reading from index cards inside his head. But at Apple, Schaaff showed a knack for translating geeky ideas into killer products. The self-taught software engineer oversaw development of Apple's QuickTime video-streaming format, which serves as the foundation of iTunes, the iPod, and the iPhone.

Stringer is clearly hoping Schaaff can seed Sony with Apple's Silicon Valley entrepreneurial culture. When the Welsh-born Stringer became Sony's first non-Japanese CEO in early 2005, he pledged to make the company "cool again." While Schaaff has made important strides toward that goal, Sony clearly needs to inject some zing into its products. On Oct. 29 the company said net earnings for the quarter ended Sept. 30 were off by 72% from the year-earlier period. The report came on the heels of a warning that profits for the year would fall by more than half, due to the strengthening yen and lackluster sales of TVs and digital cameras.

It was more evidence that after a three-year makeover, Sony is still struggling to get its groove back. Now, as consumers rein in spending, they're even less likely to buy the expensive gizmos Sony plans to unveil over the coming months. That would be a major setback for "Sony United," Stringer's program to turn the company's fractured family of products and services into a model of integration. The goal is to sell Bravia televisions that connect to the Web and download the latest Spider-Man movie, Walkman phones that offer tunes from Sony artists such as Beyoncé, and e-book devices that ask if you want to purchase that new John Grisham thriller.

Stringer has given Schaaff unprecedented freedom to conquer resistance and boost cooperation among Sony's myriad—and often warring—units. Schaaff has also served as something akin to secretary of state, working with other companies to help make Sony products more appealing. Last summer, for instance, he led a high-stakes effort to persuade Hollywood to allow downloads of films and TV shows via Sony's PlayStation 3 game console. Sony wanted to introduce the service at the annual E3 video game convention in Los Angeles in July to highlight the versatility of the PS3, which includes a Blu-ray disk player and a hard drive that can store hundreds of movies. With just six months to rally the studios, Schaaff's days became a blur of airplane lounges and conference rooms as he shuttled from Hollywood to Sony offices in California and Tokyo. But the studios held off, waiting to see whether rivals would sign up. "Nobody wants to be the only guy licensing content," Schaaff says.

"THE DOORS ARE MORE OPEN"

Finally, as workers were installing giant flat-panel televisions at Los Angeles' Shrine Auditorium for Sony's news conference, Schaaff's team started to make some real headway. Promising to include technology that would prevent users from sharing films over the Internet, Schaaff managed to convince studio executives that the PS3 network could provide a new outlet for their movies—and serve as a counterweight to Apple's growing clout in the market for downloads. At its launch on July 15, the PlayStation Network offered both rentals and purchases from six of the seven largest movie studios. To many at Sony, the deal signaled increasing cooperation among the PlayStation team in Northern California, Schaaff's group, and Sony's film division. "Today there's much closer integration between hardware and software," says Peter Dille, the Sony executive responsible for the PlayStation Network. "The doors are more open, and people are finally realizing that their phones can connect to other offices."

The result of the growing spirit of cooperation? Sony in January partnered with retailer Amazon.com (AMZN) on an online music store, called MyPlay, that lets consumers download tracks from various record labels without copy restrictions. After years of criticizing the quality of Microsoft's programs for phones and handheld devices, Sony last fall astounded the industry by scrapping its own software and online store and embracing the software giant's Windows technology for its Walkman portable media players. Then in February, it chose the Windows Mobile operating system for a new line of phones called Xperia. And since July consumers have been able to bypass Sony's online store and download content for its e-book device, the Reader, from rival Web sites. Schaaff "knows how to speak the same language as both the entertainment and technology folks," says Sony Pictures Television President Steve Mosko. "And he knows what a 16-year-old wants as well."

Despite Schaaff's successes, there's still plenty of resistance to his efforts. Some colleagues praise him for his quiet thoughtfulness, but others say he has accomplished little in his three years at the company. "He came in lecturing everybody, saying 'Well, we did it this way and this way at Apple,'" says one executive in Sony's consumer electronics division. Others grouse that Schaaff has demonstrated little of Jobs' take-charge attitude. "To expect a storm-the-castle, everyone-pulls-in-the-same direction attitude, forget it," says another executive who has worked with Schaaff.

SERIOUS ABOUT CHANGE

Sensing the opposition to his new hire, Stringer has worked to shore up Schaaff's position. At a 2006 management meeting, Stringer asked young software engineers to sit in the front. That forced some senior executives to the back, sending the message that the CEO was serious about change. And in May 2007, Stringer put Schaaff in charge of the United Service Steering Committee, a group of 30 top executives that meets monthly to air grievances and come up with ideas to boost profits.

When veterans such as PlayStation chief Ken Kutaragi balked at sharing power, Stringer didn't budge. Kutaragi was moved into a new advisory role, and he eventually resigned. Since then, Stringer has tapped executives once based in the U.S.—whom he has worked with over the years—to head up key divisions: mobile phones, PlayStation, and the fledgling digital books unit, which sells the Sony Reader. While those new faces are more willing to work with Schaaff, "Tim [still] has to do things very gently," says longtime friend Ty Roberts, a former Apple executive who is now chief technology officer at Sony subsidiary Gracenote, which maintains a database of information about virtually every music CD ever made. "Sony is not like Apple. You can't just tell people to do something. It's all about building consensus here."

It's easy to see that Stringer and Schaaff, at least, have come to a consensus on Sony's future. Sitting side by side during a breakfast meeting at Tokyo's Westin Hotel in late September—Schaaff's first press interview—the two often complete each other's sentences. "There are a lot of people who were waiting for this...," Stringer says. "To fail," Schaaff and Stringer say in unison. "Exactly," adds Schaaff.

Sometimes roadblocks have even come up on Stringer's pet projects. Early in Schaaff's tenure, Stringer started trumpeting the Reader as proof that Sony could out-Apple Apple. Meeting with engineers at Sony's sprawling U.S. consumer electronics campus nestled in the canyons near San Diego, Schaaff discovered the e-book device was hung up by infighting among rival camps. The dispute confirmed the silo mentality he had detected in his first few weeks on the job. "I was hearing, 'Sony doesn't do this and Sony doesn't do that,'" says Schaaff. "I was a little suspicious."

One group wanted to make the gadget compatible with Mac computers, but designers balked at that idea. Sony had never bothered with Apple software, they said, and there was no reason to start now. And the online bookstore remained in such a muddle that even technically savvy users were having problems finding and purchasing the titles they wanted. The Reader launched in October 2006 to a lukewarm reception with those issues unresolved.

Although the Reader won points for design, the limelight has been stolen by the Kindle, a rival device released last year by Amazon. The Kindle has been widely derided for its blocky look and feel, but analysts say it has been selling far better than Sony's Reader. A key reason is that Amazon made it simpler to download content by including a free wireless connection to its online store, while the Reader must be attached to a PC to load new books. Sony on Oct. 2 released a third-generation Reader that still lacks wireless downloads. Steve Haber, president of the e-books division, concedes the company could be nimbler but says changes are under way. "We've got a lot of good things coming," he says.

You hear the same thing from executives across the company. But will the good things come soon enough to help Stringer meet his goal of transforming Sony by 2011? While Stringer and Schaaff say they'll get there, some former Sony executives wonder when Schaaff might help the company develop anything as iconic as the iPod or iPhone. "Apple is the Sony of the 21st century," says one. "In the past two years, Sony has had plenty of time to come up with an iPhone. Why hasn't it?"

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Plugged in for the Holidays

Despite the current economic turmoil, Christmas may not be a total bust for gadget makers. Consumer Electronics Assn. predicts that fourth-quarter sales of TVs, stereos, and the like will grow by 3.5%, even as overall holiday spending drops by 14%, Twice magazine reports.

To read the Twice article, go to http://bx.businessweek.com/Sony

Dell Bets Splashy Design Will Sell Its New Laptops

Dell Design Chief Ed Boyd is transforming those once-stodgy PCs with art and color. Can made-to-order laptops revitalize the computer maker?

By Reena Jana

Hanging on a wall at Dell's (DELL) consumer design lab in Austin, Tex., are neat rows of what look like abstract paintings. There's a splashy watercolor in turquoise, black, and green, and a mosaic pattern of white and red dots and geometric shapes. Another is covered with hand-drawn sketches of olives in green, purple, and orange. These aren't works of art, though. They're dozens of prototypes for future laptops. Look closely and you see the Dell logo on each one.

The man behind this effort is Ed Boyd, one of Dell's most unusual hires in recent years. Boyd is an industrial designer who used to dream up new sunglasses and shoes for Nike (NKE). Now the 43-year-old is trying to make design an integral part of Dell, the personal computer maker long known for cranking out boring gray boxes. "I was skeptical it could be cool," says Boyd, who joined the company last year. "I took the job when I heard the design lab would function like a startup for consumer [products]."

LET THE BUYER DESIGN

Dell plans to roll out the first three laptops with these colorful designs on Nov. 11, in time for the holiday season. Customers will pay an extra $75 for the designs, on top of the basic $699 price tag for the company's budget-line portables. The designs are from Nigerian painter Joseph Amédokpo, South African graphic artist Siobhan Gunning, and Canadian designer Bruce Mau.

For Boyd, this is just a start, though. Next year, Dell will let buyers customize laptops in a dizzying number of ways, mixing scores of colors, patterns, and textures. The options will go far beyond the handful of choices available from most of its rivals. In essence, Boyd is taking the Nike approach of letting people design their own sneakers, and trying to apply it to the world of computers. "We're pushing the idea of [made-to-order computers] to the next level," says Boyd.

Dell could certainly use a change in fortune. The once-mighty PC maker has stumbled in recent years: Its stock is off by more than 60% since 2005. Even after founder Michael S. Dell returned as chief executive in 2007, the company continued to lose ground to Apple (AAPL) and the resurgent Hewlett-Packard (HPQ). "We had higher expectations for Dell's turnaround by now," says Clay Sumner, senior analyst at FBR Research (FBR). Dell's market capitalization is now $24 billion, compared with $93 billion for Apple and HP's $87 billion. The net cash on Apple's balance sheet is about the same as Dell's market cap.

Michael Dell contends that the company is making progress. He says Boyd's efforts have helped Dell get back on track, particularly with consumers. "We've got the most exciting new products ever from Dell coming in the second half of this year," Dell said during a speech in June. "That's fundamentally what brings new customers in."

RISKS AND REWARDS

Still, Dell's timing is awful. With the economy headed into recession and consumers cutting back, it will be difficult to charge any sort of premium for cool design. Analysts say that's especially true for companies such as Dell that don't have an established reputation for design. "Price will be more important for consumers because of the economic deterioration," says Mika Kitagawa, an analyst with the market research firm Gartner (IT).

Boyd is used to taking risks. Last year he hired an obscure graffiti artist named Mike Ming to create images for Dell products, a move that worried some of Dell's straitlaced staff. He also signed off on an undersized keyboard for Dell's first mini-notebook PC, a decision the company's founder clearly disagreed with. "Michael Dell wanted the full keyboard experience," says John Thode, Dell's vice-president for small consumer devices.

Then the sales figures for these products started coming in. A limited edition laptop designed by Ming and the mini-notebook, released in recent months, both exceeded expectations, company executives say. "I got an e-mail from Michael saying: 'Keep going, going, going,'" Boyd says.

Boyd's design staff has now grown to 120 people scattered from Austin to Miami to Singapore. There are a dozen PhDs in the group, whose degrees include engineering, computer science, and cognitive psychology. Besides new products, they're working on such cost-saving packaging as an inflatable cushion made from recycled plastic. They're also trying to overhaul the online shopping experience at Dell.com by, among other things, moving to replace choppy point-and-click navigation with more fluid scrolling through images. "Design isn't just cosmetic," Boyd says.

Last year, Dell tried offering consumers the choice of a dozen different colors for their laptops, but the company couldn't deliver the computers as speedily as promised. The delays angered customers and sparked numerous critical blog postings and news reports. Boyd says Dell will be prepared this time as it tries to deliver an even more complicated mix of designs and colors.

Rivals will be tempting consumers with their own new designs. Apple has just unveiled a line of sleek laptops, made from a single piece of aluminum. The toughest competition may come from HP, which has been investing in design much longer than Dell and used that edge to surpass Dell as the world's No. 1 personal computer maker two years ago. This fall, HP is bringing out a touchscreen PC, the thinnest laptop on the market, and a $700 mini-notebook with a red-and-purple peony design from fashion designer Vivienne Tam.

These sorts of products may be a tough sell this holiday season. But if Boyd and Dell keep investing in design, they may ultimately find a more receptive audience. "People want gadgets that look cool on campus or in a café," says Gartner's Kitagawa. "Customization will be more and more important. In the long run, it's the way to go."

Business Exchange: Read, save, and add content on BW's new Web 2.0 topic network

How Apple Does It

While Dell (DELL) is newly focused on design, Apple (AAPL) has set the standard for the computer industry for years. In Do You Matter? How Great Design Will Make People Love Your Company (FT Press, 2008), Robert Brunner, Apple's former director of industrial design, provides an inside look at how the company approaches design. There's advice from Apple's current design chief, Jonathan Ive, as well as four lessons from Brunner's years leading the effort: support design at senior levels; design for more than decoration; be original; and launch products quickly and often.

To read a review of Brunner's book, go to http://bx.businessweek.com/product-design/reference/

Advertisers Adjust to Market Luxury in a Recession

When marketing a Lexus, high-end appliance, or luxe cosmetic, advertisers are promising bargains to the cash-strapped rich

By Burt Helm

Nowadays, even affluent Americans are thinking twice before hitting the mall. A recent Gallup survey showed that 49% of people making $90,000 or more a year rated economic conditions as "poor," a 23-point increase since early September.

That has companies scrambling to tweak their marketing messages. Forget the usual talk of indulgent luxury. Instead, companies from General Electric (GE) to Lexus (TM) are employing sober, left-brain pitches—special deals, useful features, long-term savings. "There are plenty of high-end brands that sell themselves on the 'I-buy-it-because-I-can' idea," says Hayes Roth of brand consultant Landor. "They'll have to temper that."

Imagine trying to sell half an ounce of anti-aging eye cream for $145 a pop. That's the challenge facing La Prairie, the luxury Swiss skin-care company. Paul Wilmot, who handles public relations for La Prairie and other tony brands, has been pitching the editors of fashion and beauty magazines in the hopes of working the luxe potion into the gift guides that appear in December issues. His spin: The cream contains ingredients usually available only in pricey prescription ointments. "No one wants to look like an idiot who just bought something because it's expensive," says Wilmot. "So La Prairie makes an intellectual case."

Last month, GE began selling its new Profile washer-and-dryer set, which costs a very plush $3,500. The ads feature the stylish machines in eye-catching cherry red, an appeal to what GE marketer Paul Klein calls the style-conscious "iPhone (AAPL) consumer." But the ads focus more on down-to-earth practicality—specifically, technology that doles out the optimal amount of soap and water per load. "We know electricity costs are going up," says Klein. "And we know water scarcity is a problem." GE is also encouraging retailers to explain how the machines will save customers money by being gentle on their clothes, extending the life of their garments.

"TIME TO BE MORE RATIONAL"

For years, Toyota Motor's (TM) luxury brand has run pre-Christmas "December to Remember" commercials featuring a loving spouse giving his or her significant other a new Lexus wrapped in a big red bow. The company assumes there are still enough people out there with sufficient loot to put such pricey baubles under the tree, so you will see those ads this year, too. But Lexus is also hedging its bets. In mid- September it began running ads with the tagline "Lowest Cost of Ownership." That's a reference to Lexus' decent fuel economy, durability, and resale value. "It's definitely a time to be more rational," says Dave Nordstrom, Lexus' North American marketing chief.

A couple of years ago, discount brands got into the luxury game, too. Even Hyundai Motor, Korean king of the econo box, aspired to move upscale. Now the automaker is trying to sell entry-level luxury in the worst car-selling environment in memory.

Hyundai's response: Depict more snooty rivals as over-priced. In its ads, Hyundai is taking pains to note that its new Genesis sedan ($33,000) has the same sound system as a Rolls-Royce Phantom ($300,000-plus). "If you'd rather have money than a hood ornament," goes the ad, the Genesis may "look even better than a Rolls-Royce."

Generics Are Gaining on Name Brands

Recessionary forces are prompting shoppers to trade down from name brands, while off-brands are shedding their cheap-knockoff reputation

By Matthew Boyle

Whether they sell cookies or cough syrup, makers of generic products are profiting in perilous times. U.S. sales of private-label goods rose 10% in the year ending June 28, according to Nielsen, compared with a meager 4% gain for national brands.

Turning cheap in tough times isn't the surprise. What's different is that the rising quality of private labels may keep customers coming back. Products from manufacturers such as Perrigo (PRGO), TreeHouse Foods (THS), Home Diagnostics (HDIX), and Ralcorp Holdings (RAH) have evolved to name-brand quality and are starting to adopt similar strategies in marketing and innovation. "Today, store brands have a much more sophisticated offering," says Wendy Liebmann, CEO of New York marketing consultancy WSL Strategic Retail.

Several factors are behind this heyday for generics. In a homogeneous retail world, stores are looking to private-label offerings to distinguish themselves from rivals. Anyone can sell Cheerios, but Safeway's (SWY) O Organics line is so successful that it now licenses the name to other retailers such as France's Carrefour. With no ad costs, store brands also deliver higher profit margins.

Much of that money is being plowed back into the business. Home Diagnostics, which makes diabetics' blood glucose monitoring systems for retailers including CVS and Walgreens, invested $15 million to make its new product easier to use at a price that's roughly 35% below national brands. "We get pigeonholed as a private-label player," says CEO J. Richard Damron Jr., "but we spend a significant amount on R&D." Meanwhile, Perrigo, with $1.8 billion in annual sales of over-the-counter medications, just broke ground on a $25 million plant expansion in Allegan, Mich., and is acquiring companies abroad. "We're in a good spot now," says Perrigo CEO Joseph Papa.

The generics boom has also extended to TreeHouse and Ralcorp, which make private-label food such as salad dressings, soup, and hot cereal. "Not only are consumers trading down to lower-priced products, we believe that grocery retailers are stepping up their private-label focus to take advantage of that consumer migration," says SunTrust Robinson Humphrey (STI) analyst William Chappell. One sign that the balance of power may be shifting: Ralcorp recently paid $2.6 billion to buy Post cereal from Kraft Foods (KFT).