The strategic marketing process

Introduction
The strategic marketing process involves three crucial phases. These phases include: planning, implementation and control. Although the planning phase is often referred to as the most important, each of the steps is equally responsible for the success of a firm's marketing strategy.

Planning
The planning phase is the most crucial stage in a firm's strategic planning process. The first step is to perform a thorough SWOT analysis. It will help the organization determine its own situation in relation to the market. This analysis is key in fully understanding the internal and external factors that are favorable or unfavorable to the organization's activities. This is done through analyzing a firm's strengths, weaknesses, threats and opportunities. The results from this analysis should directly help in the formation of a firm's strategy which will aim to minimize threats while maximizing on opportunities as well as reveal new product and market opportunities. This information will also be the basis for setting a firm's marketing mix or plan as well as setting realistic and attainable goals and objectives.

The second step in the planning phase takes a market-product approach and involves goal and objective setting (Kerin-Hartley-Rudelius, 2007). This begins with understanding the consumer's wants and needs and involves conducting market research. From a strategic marketing perspective it is important to identify critical issues and attitudes related to the product amongst other things. The specific information to be gathered in the research process must reflect the individual needs of the product, and the external and internal competencies of the organization (article). This will include and analysis of the organizations special capabilities, points of difference, skills and technologies that set it apart from its competitors (Kerin et al, 2007). Once collected, this data can also be used to set measurable objectives and goals for the marketing plan which can later be used as benchmarks for comparison in the control phase and will help in the development of goals and objectives. A business portfolio analysis would be a good tool to use in order to determine whether a new product or SBU would be advantageous or not, and also to evaluate market share and growth potential. The results yielded will provide performance measures and growth targets for an SBU. This data is invaluable when an organization is trying how to allocate its resources. Also during the planning phase you must identify the target market of the product or service. This involves identifying the segment of consumers who will potentially purchase your product, or those who the strategic marketing process will be aimed at. Another good tool that would be useful would be a market product analysis which would yield results with regards to the attractiveness of the potential product and the market in which it would exist. This would tell a firm which direction is has to go as in such areas as market and product development as well as market penetration and diversification. This will also help to decide on the positioning of your product or service. This is the process of deciding how to position your product in the minds of your primary and secondary audience (how they will perceive it). This will take careful analysis of how the public views your product or idea.
(McFarland, 2001). The planning phase is crucial for gathering data to set benchmarks which can later be measured against in the following stages.

The third and final phase of planning would be to decide on the marketing process. In this step the marketing mix will also have to be set. This step involves deciding on strategies the product, price, place and promotion (4 p's). The end result of the planning phase is to set measurable and attainable goals which can be measured in the control phase. The market research completed earlier in the planning phase will provide the necessary data to organize the marketing mix. Strategies need to be analyzed and combines to properly set the marketing mix. The product is very important and must be desirable to the market segment specified during the planning stage. Price, promotion and placement must also be worked out bases on the data supplied through the planning phase.

Implementation
The next step would be the implementation phase in which all the planning begins to turn into action. Here the firm obtains resources and designs the market organization which is then put into action. Schedules are developed and the marketing programs are executed (strategy and tactics). The product or service will now be available to the public, at the places and prices decided upon in the planning stage. The implementation phase also requires close monitoring to make sure necessary changes occur if internal or external contingencies are affected (McFarland, 2001).

Control
The control phase involves comparing results against the goals and benchmarks set in the planning phase. This is where the organization evaluates its process, outcomes and consumer satisfaction (McFarland, 2001). This will allow the firm to view the planning gap to see where the results deviated from the plan. The organization can then act on the data to exploit positive deviations while correcting the negative. This analysis and is necessary for a firm to ensure that their marketing plan is moving in the directions set out in the planning phase and critical for success in measuring whether objectives were met.

At Best Buy, Marketing Goes Micro

Returning military? Polish speakers? No niche is too small for local stores to identify and target

by Jena McGregor


Best Buy (BBY) store No. 952 is in Baytown, Tex., set amid the cul-de-sac subdivisions and big-box strip malls of Houston's metropolitan sprawl. In Best Buy's nomenclature, Baytown is a "Middle America" location, tailoring its pitch to value-conscious family folks.

Lately, however, the employees at this store have noticed a different stripe of shopper: Eastern European workers from cargo ships or oil tankers, temporarily docked at Baytown's busy port, are spending their precious shore hours scouring the store's aisles. They take a 15-minute cab or shuttle ride to stock up on iPods and Apple (AAPL) laptops priced cheaper than back home. To speed their shopping, the Baytown Best Buy has moved the iPods from the back corner of the store to the front, paired them with overseas power converters, and simplified the signage. Since the changes were made over the holidays, cash register receipts for the boat workers have ballooned by 67%.

As the economy slows, Best Buy is encouraging its outlets to go off script. Sure, European boat workers are a microscopic niche. But when multiplied by Best Buy's more than 900 stores, the retailer believes such bottom-up insights could have an outsize impact on sales growth. In a sense, the national chain is trying to go hyperlocal, asking on-the-ground employees to spot fresh customer groups—North Carolina retiree clubs, newly returned soldiers in Georgia—that would otherwise pass far below the radar at Best Buy's headquarters in Minneapolis.

The move is the latest step in Best Buy's four-year-old "customer centricity" strategy, which assigned each store to one or more categories such as home theater geeks, soccer moms, and average-Joe electronics shoppers. Each store was asked to woo these often overly broad groups with tailored product mixes and services. "In some cases, we were right," says Shari Ballard, the executive vice-president in charge of U.S. stores, "and in others we were totally wrong."

Local ingenuity and insight is contributing to a relatively rosy forecast from Best Buy, considering so many consumers are on the ropes. At a time when a full tank of gas costs more than some DVD players, executives still project a growth rate of 1% to 3% at stores that have been open at least 14 months. Many local managers, they say, predict even greater growth.

Wall Street has been raining on this picture. "Welcome to Sunny Minneapolis," wrote one dubious analyst. "An Outlook that Would Make Mao Proud," wrote another, harking back to the over-optimistic steel production targets in Mao Zedong-era China. Several question how much faith should be put in forecasts from store managers who are also being prodded by executives to achieve better numbers. Retail analysts generally applaud Best Buy's "centricity" strategy, which has helped separate it from rival Circuit City (CC), currently an acquisition target of Blockbuster (BBI). Yet some doubt the local efforts will go far enough. Big worries about consumer spending, says Morgan Stanley (MS) analyst Gregory Melich, aren't going to be offset by putting more Polish-music CDs in a particular store—as one Chicago Best Buy recently did—"because you find out 25% of the people there are native Polish speakers."
COMPLEX MATH

Analysts also worry about the outlook for new must-have gadgets. With the exception of video games, most of this year's new devices are "evolutionary and not revolutionary," says David Schick, an analyst at brokerage Stifel Nicolaus. Of particular concern are big-screen TVs. Melich believes TV sales and related warranty and equipment purchases, which he estimates made up 40% of Best Buy's $2.2 billion operating profits last year, could drop for the first time in seven years. Best Buy declined to comment.

Taking much of the heat from Wall Street is Ballard, who has run Best Buy's U.S. stores since September. She's trying to give local managers more leeway to set sales strategies, inventory levels, and product mixes. That may sound like Retailing 101: Give customers what they want. But it demands complex math from a big-box retail chain built on standard operating procedures, negotiated shelf-space deals, and headquarters-generated "planagrams," or floor plans. Big companies "make strategy creation this elitist space," says Ballard, 41, who started with Best Buy as an assistant manager in a Flint (Mich.) store.

The latest moves are just starting to upend Best Buy's rigid, top-down planning. Early this year, Savannah (Ga.) store manager Richard Gamble learned that more than 10,000 soldiers from two nearby Army bases were due to return home by September. He quickly assigned a team of employees with armed-forces family members to plan for the troops' arrival; the group selected seven product categories, such as Nintendo (NTDOY) Wiis and flat-screen TVs, that had either launched or fallen in price since the soldiers deployed. Gamble asked Minneapolis to increase his inventories of those goods by 40%. It complied, and he is expecting a sales lift from the bigger stock.

Local store managers are even influencing Best Buy's merchandising tactics. After getting numerous requests from troops set to redeploy, Gamble's military team placed an order for Panasonic (MC) Toughbooks, rugged laptops not usually carried at Best Buy stores. While he couldn't stock them for sale, he persuaded HQ to send him a few for display so soldiers could try them before ordering online from Best Buy. Such a request would have been "virtually impossible" two years ago, says Gamble. Even with a new store opening nearby, he expects the military push to help raise his sales this year by 7%.

The chain's shift in mindset requires a delicate balance: Adjustments spurred by local insight can boost sales, but they also can add risk and expense to operations. Of course, Minneapolis continues to roll out its national plans, but to fortify local insights the retailer is handing out financial modeling software so store managers can try "what-if" scenarios. Still, some changes have flopped. Relocating GPS devices to a different spot in a New York store did nothing to boost the products' sales. And local changes to "endcaps"—the display at one end of an aisle—have risked angering suppliers that paid for specific shelf space.

Some local novelties entail a lot less pressure. After the chairman of a local retiree club called the Golden Boys bought a high-def TV at the Mooresville (N.C.) Best Buy, store manager Walt Goney invited the club's members to come by at 8 a.m., two hours before opening time. Eighty-five members showed up for a hand-holding session on switching to digital television. They bought $350,000 worth of TVs and equipment that morning. The cost to Goney? Just $99 in labor, plus coffee and doughnuts.

Picking Up Lunch Money

With fast food under fire for fueling obesity, why would a giant U.S. school district pick a quick-serve chain as a hot-lunch supplier? Two reasons, says Kern Halls, a senior food manager for Florida’s Orange County Public Schools, which invited Asian Chao to serve its 174,000 pupils. First, the chain, owned by Food Systems Unlimited in suburban Orlando, meets USDA nutrition criteria. Second, students voted Asian Chao’s $2.50 meal of tangerine chicken, fried rice, and stir-fried veggies No. 1 in their taste test. Chains like Taco Bell and Subway were in lunchrooms in the 1990s but largely disappeared as USDA nutrition standards tightened and costs rose faster than federal subsidies. With 73 outlets in 14 states, Food Systems wants to bring fast food back to school, with bids out in North Carolina, Pennsylvania, and Minnesota.

Shortage of Laborers Plagues India Skills Gap Drags

By ERIC BELLMAN and JACKIE RANGE

India, a nation of 1.1 billion, has a chronic labor shortage, in the area where it needs workers most.

As it grows rapidly -- tilting from a stagnant, rural economy to a developing, urban one -- India is building thousands of new homes, offices, malls, airports, roads, ports, power plants and industrial parks.
LABOR WOES

• The Issue: India, which is trying is to improve its infrastructure, has a shortage of skilled and semiskilled construction labor.
• The Background: Spending on major infrastructure is projected at more than $60 billion annually for the next six years.
• The Bottom Line: The labor shortage is causing delays in projects and may slow India's economic growth.

So many projects are now under way in India that the pool of workers with even the most basic skills is running dangerously dry. The shortage of bricklayers, rod benders, welders, wall painters and other skilled and semiskilled laborers is threatening to slow the construction of projects that are key to the nation's economic growth.

Improving its decrepit infrastructure is one of the most pressing issues India faces. It is crucial for unclogging chokepoints that are stoking inflation, which is rising fast. And it will determine whether India can keep growing at a pace that will allow it to fulfill its aspirations of becoming a commercial superpower to rival China.

"The shortage of labor is hurting everyone," says Deepak Parekh, chairman of Housing Development Finance Corp., India's largest housing lender, and Infrastructure Development Finance Company Ltd., a government-owned infrastructure financing company. "It's hitting the construction companies, the road projects and it's slowing down the infrastructure. The repercussions are a longer time to complete projects and slower [gross domestic product] growth."

Spending on major infrastructure such as ports, power plants and roads is projected at more than $60 billion annually for the next six years, and will require 92 million man years of labor. Even before taking into account a concurrent boom in industrial, residential and retail building, that's around 33% more labor than the market can provide today, according to India's Construction Industry Development Council, a think tank.
[See more photos]1

"We are not getting enough people in the civil-construction sector, not enough skilled labor," Finance Minister P. Chidambaram said in a recent interview. "An economy growing at over 8% requires far more skilled labor than the supply is."

Labor bottlenecks are popping up, in differing degrees, in other fast-growing countries. China has plenty of labor overall, but in the Pearl River Delta, the nation's manufacturing hub, wages have been rising fast enough to prompt some factories to move elsewhere. Expanding economies in Central and Eastern Europe, such as Poland and Slovakia, have begun to suffer manpower shortages since many residents emigrated to Western Europe for better pay.

In the Persian Gulf, a building boom triggered by soaring oil prices has construction firms scrambling for building material, contractors and skilled and unskilled workers. The region imports most of its labor, offering relatively high wages for foreign workers, especially from Pakistan and India.

The construction industry in India already employs 33 million, the second-largest employer after agriculture. But many of those do unskilled manual work and moved into construction to flee similar jobs in the stagnant agricultural industry. Many skilled workers have left for the Persian Gulf or Singapore, where wages are higher.

Construction sites have few machines to replace muscle. Developers depend on men, and many women, to carry loads of bricks on their heads, dig ditches and holes with shovels, cut steel bars with mallets and move sand with spades.

Workers typically are trained on the job because India's education system offers limited vocational training. Many construction workers have little schooling of any sort; most are illiterate. Rajesh Gerard Joseph, who runs a company that trains construction workers in Bangalore, says his organization has to teach new recruits not only how to use a ruler, lay bricks, paint walls and mix cement, but also how to use an elevator and even a toilet.

After growing at almost 9% annually in recent years, India's economy is slowing, with many economists predicting growth of around 7% this year. A lack of decent infrastructure is one of the reasons. More than 40% of the 657 large government infrastructure projects under way that have a scheduled completion date are running late, according to the Ministry of Statistics and Program Implementation.

Slow Progress

The delays vary from one month to 10 years, and cost overruns from those projects already total more than $6 billion, the ministry says. "Slow progress" from building contractors is cited on more than 100 projects as a top reason. A 90-mile stretch of highway in the eastern state of Orissa, for example, was delayed by more than three years due to "inadequate deployment of qualified staff by contractors," according to the ministry's most recent status report.

It took developer West Pioneer Properties Ltd. six months longer than it expected to hire all the workers it needed to build a new mall north of Mumbai. The mall opened in April, but the food court and multiplex cinema aren't finished yet.

Amit Jatia, chairman of West Pioneer Properties, says the lack of experienced workers meant that a lot of the final touches at the mall had to be redone. The painting was often blotchy, the tiles uneven and the railings along the upper floors were built with gaps that children could fall through. The glitches were fixed before the mall opened, the company says. "We did face problems of getting qualified labor to build the mall," says Mr. Jatia. "A lot of rework had to be done."
[Speed Bumps]

The surging demand for labor can be seen at the morning "Naka," or labor market, of Vashi, a growing Mumbai suburb. More than 2,000 construction workers crowd onto the same corner each morning at 8:30. Skilled workers stand behind the tools of their trade: pipes for plumbers, brushes for painters, long leveling boards for concrete and bricklayers. The nomad women from Rajasthan, marked by their mirrored skirts, are usually tapped for tiling.

Contractors, recognizable from their gold rings and cellphones, dive into the crowds and place orders for skilled and unskilled workers. Those interested swarm around the contractors, negotiate a daily wage and then leave for building sites. Most of the workers are gone before 11 a.m.

There are hundreds of Nakas across Mumbai, and there have been for decades. But recently, there's been a sharp rise in pay and expectations. Wages for some skilled laborers have more than doubled in the past two years to more than $10 a day. Unskilled laborers are making around $2.50 a day, about 50% more than before.

Workers have become pickier, says contractor Mantesh Jamadar, who comes to the Vashi Naka every morning. Many skilled workers don't even show up at the morning market any more, he says. Instead, they have cellphones, and contractors make appointments to see them. "They used to go anywhere for work but now they refuse to travel," Mr. Jamadar says.

More than 80% of the people in the construction industry today are unskilled workers, usually working as day laborers or migrant laborers in tiny crews. But there has been a sharp rise in the number of huge, complex engineering and construction projects undertaken by large Indian companies. To get the workers they need, these companies are embarking on mass training programs.

When Reliance Industries Ltd., India's largest private company by market value, started building a giant new oil refinery two years ago, it was around 20,000 workers short of the 70,000 it needed. In the past two years, Reliance has ramped up recruiting and trained close to 10,000 carpenters, welders, pipe fitters, riggers and grinders to stay on schedule.

Trainees in Gujarat

At the industrial site in the western state of Gujarat -- a site so large it has its own highways -- Reliance trainees sit in one of 100 practice booths, slicing 1-inch segments off of thick steel pipes. After two months of training, they are tested. The company needs to keep the program running because Reliance-certified workers are so in demand that it loses hundreds each month to competitors, mostly in the Gulf.
[Indian laborers work on a high-rise building in Siliguri last year. Wages for some skilled workers have doubled amid a construction boom.]
Indian laborers work on a high-rise building in Siliguri last year. Wages for some skilled workers have doubled amid a construction boom.

Ten years ago, when Reliance launched an identical project, 500 people would show up looking for work just on rumors that the company was hiring, says Yogesh Patel, vice president of human resources at the refinery.

Today, he will advertise and fewer than 100 will show up to apply. "I have to do it again, two, three, four or five times," he says. He scours the country for big projects that are about to end and sends recruiters to competitors' gates looking for skilled workers. He even asks suppliers to get names and numbers of the competitors' managers so Reliance can try to poach them.

Migrants usually live on the job in bleak accommodations. In the fast-growing New Delhi suburb of Gurgaon, 22-year-old construction worker Sheetal, who goes only by one name, loads sand and bricks on and off trucks. He and four colleagues live in a makeshift tent made from bits of old tarpaulin weighed down with bricks, which has been home for six months. In front, there is a small fireplace with a frying pan. There is constant drilling, banging and clanging from the nearby construction site that blends with the steady snarl of traffic from a nearby multilane highway.

"Water is a big problem," says Sheetal. "Even if the water is dirty, I don't mind drinking it because there is no other option. We have fallen ill several times; that's what life is."

He earns about $1.50 a day. For toilets, Sheetal gestures to an open field behind the workers' tents. The crew has no electricity and relies on the floodlights on a large crane nearby to provide light at night.

But for some construction workers, the shortage of labor has started to make a difference, not just to their wages but also to their standard of living. Just across the fence from their camp, is a site run by DLF Laing O'Rourke, a joint venture between India's largest property-development company, DLF Ltd., and British construction firm Laing O'Rourke PLC.

The 37-acre site, which will house a multistory office complex, teems with cranes, cement mixers, and men bending steel rods and molding concrete.

To attract and retain skilled laborers, the nearby workers' living space has a sewage-treatment plant and 24-hour power, something not available in even some of Delhi's neighborhoods.

The site, which houses 5,500 workers, has prefabricated accommodation blocks with dorm rooms where, one recent balmy evening, workers lay on bunk beds under whirring fans. Others made fires in communal cooking areas. Strains of Bollywood hip-hop pulsated through the camp. The camp has bathroom facilities, a day-care center, and a first-aid station with a medical worker on duty.

At another DLF housing site in the area, Angoori Vishwakarma, 27, is playing with her baby, Ritu. Her husband works for DLF as a foreman. She prefers the place to her village in the northern state of Uttar Pradesh, she says, because the facilities are better and there's a constant supply of water and electricity, unlike in the village.

With such living standards, DLF has been able to hire back workers from overseas, even though wages, on average, are about 10% to 15% lower than those in the Middle East. "We are now starting a reverse brain drain at the bottom of the pyramid," says Rajeev Talwar, group executive director of DLF.

Karuna Kant, a 29-year-old senior foreman for DLF Laing O'Rourke in Gurgaon, says he came back from the Gulf because he wants to get married, and it's easier to arrange that here. "This company is a very good opportunity for the safety and the salary," he said.

Dietary Change in China's Cities

Over the last two decades, urban Chinese consumers have dramatically increased their consumption of meat, other livestock products, and fruits and have decreased consumption of grain-based foods. China's per capita grain consumption declined from 145 kilograms in 1981 to 78 kilograms in 2004 in urban areas, whereas the per capita consumption of meats, eggs, and aquatic products increased respectively from 20, 5, and 7 kilograms in 1981 to 29, 10, and 12 kilograms in 2004. As significant changes in food consumption patterns in urban China are noted, it is natural to ask: Are consumer responses to price changes and income growth entirely responsible for the transformation in food consumption in urban China, or have consumers in urban China changed their preferences for foods? Our recent CARD study examined the empirical evidence for structural change in urban diets in China. The study's findings may be good news for U.S. food industries seeking entry into the Chinese market.

Changes in China's Food Marketing System

Since 1978, a series of reforms of China's administrative system, agricultural policy, state-owned enterprises, investment regulations, fiscal and taxation policies, and financial system have fueled the growth of China's economy. Among these changes, at least three major developments have significantly affected the food marketing chain in China in ways that may have prompted consumers to change their preferences for various food products.

First, privatization of food production, procurement, and marketing dramatically increased the quantity and availability of food in urban China, creating new consumption opportunities. A watershed shift in agricultural policy occurred in 1981, when China's government adopted a decentralized agricultural production system based on household units called the household responsibility system (HRS), which dramatically increased the amount of money a household could keep for themselves from expanded production. Following the adoption of the HRS, China's agricultural production boomed, and the availability of agricultural produce and food greatly increased.

Second, the elimination of food rationing in urban areas allowed food prices to adjust to market supply and demand conditions. Allowing prices to clear markets in 1985 reduced the role of state procurement and sales of agricultural products, especially for non-staple foods. Within three years, rationing of the 15 non-staple foods in urban areas was totally eliminated. Rationing of grains and edible oils continued until 1993.

Third, the opening of China's food processing and retailing sector to foreign direct investment (FDI) has facilitated the rapid modernization of China's food processing and distribution systems and created an environment that fosters food product innovation. From 1990 to 1997, annual FDI flows into China grew tenfold. Substantial FDI has been targeted at the retail food sector, and the 1990s saw supermarkets rise to become a leading retail format for food products in urban areas. As foreign firms penetrated Chinese food markets, domestic firms responded by emulating and adapting foreign product designs, quality standards, and marketing strategies to better fit the tastes of Chinese consumers. The result has been an abundance of new food products offered in modern retail formats, which has facilitated significant changes in consumer shopping behaviors.

Study Findings

The results of tests applied to urban food consumption data for the period 1981 to 2004 provide a reasonably clear picture of changing food consumption in China's cities. First, the tests indicated that the early 1980s and mid- to late 1990s were periods of structural change in food consumption in urban China. The first of these periods corresponds to the elimination of rationing for non-staple foods and the introduction of the HRS. From 1980 to 1985, the output of fruits and freshwater aquaculture products in China increased by 71 and 130 percent, respectively. Statistical tests show that during this same period, preferences shifted in favor of fruits and aquaculture products, increasing per capita consumption of each product by roughly 2 kilograms. These results suggest that policy changes associated with the abolition of food rationing and development of free markets were the most important agents of structural change in Chinese diets in the 1980s and early 1990s.

Second, foods that have long played a major role in urban Chinese diets did not show strong evidence of preference change. In particular, changes in grain, pork, and vegetable consumption can be largely explained by normal price and income effects. In contrast, fruits, fish, beef, and poultry products, while not absent from traditional Chinese diets, play a less important role in daily food consumption and were frequently identified in the tests as showing evidence of structural change. The increasing consumption of these foods may be evidence that local and regional diets are broadening to include goods that are part of a more diverse national diet. An important observation supporting this notion is the fact that structural change associated with these products occurs in the latter half of the 1990s. This period coincides with the rapid development of private retail food chains and the creation of more regional and national food markets.

Third, the analysis indicates that the greatest changes in preferences occurred in consumers' responses to price changes. In particular, consumer demands became less responsive to price changes. As incomes have risen, food choices have increased and consumers' food preparation and shopping behaviors have begun to change. Consequently, product attributes other than prices, such as quality, convenience, and food safety, may be playing a greater role in consumption decisions.

Implications for U.S. Food Industries

From the perspective of U.S. food industries, China's food product markets have been limited by low consumer incomes and tastes for locally produced products. Our study suggests that these constraints are loosening, and prospects for U.S. food products are improving. The growing sophistication of Chinese consumers, greater openness to new products, and the declining responsiveness to prices may suggest that U.S. beef, pork, and poultry industries will see greater opportunities to expand sales of higher-valued products than in the previous decade. The continued improvements in China's cold chain, especially with the growing distribution networks of large supermarket chains, increase the capacity for U.S. meat products to retain their quality until they reach consumers. Moreover, greater numbers of households are willing and able to pay for the quality, convenience, and safety of U.S. products. China still has a long way to go in its transition from a market for low-value cuts and variety meats to a market for high-value cuts, but the stage is set for change.

China has experienced tremendous foreign direct investment and rapid dietary changes facilitated by an evolution in its food marketing system. These adjustments point to the importance of discovering and targeting the product characteristics most valued by Chinese consumers. As in Japan and Korea, Chinese consumers are becoming increasingly sensitive to food safety and consistent quality. Nevertheless, the ability for products to adapt to the traditional Chinese cuisine is still important. U.S. food companies that are able to successfully target the food product attributes desired by urban Chinese consumers will tap into a huge and growing market. While this is certainly a tall order, the observed changes in Chinese consumer preferences indicate that the barriers to entry are declining.

How Google Fuels Its Idea Factory

CEO Eric Schmidt describes the simple principles driving the company's steady stream of innovations

Leading up to Google's first-quarter earnings report on Apr. 17, investors couldn't have been more bearish. They had knocked the stock down 35% since the start of the year, concerned that a weak economy would finally hurt the search giant's advertising business. But Google (GOOG) defied skeptics—and the economic downturn—with a surprisingly strong showing that sent the stock soaring 20% the next day. More than anything, Google's continued prosperity is a testament to its ability to keep innovating, both in search and advertising operations and in new lines such as online office-productivity software.

Many companies, says Chief Executive Eric Schmidt, can skirt downturns entirely by coming up with innovations that change the game in their industries—or create new ones. (When asked if Google's strategy would change as the economy heads into a likely recession, he replied: "What recession?") In a recent interview in a tiny meeting room next to his Mountain View (Calif.) office, Schmidt told BusinessWeek Silicon Valley Bureau Chief Robert D. Hof how Google manages the tricky process of innovation.

Do companies have to manage innovation differently in a downturn?

Innovation has nothing to do with downturns. A hot product will sell just as well in a recession as it will in a nonrecession. Let's imagine that we invented a better advertising product for television. What would our revenue growth be for that? Well, you're into a $50 billion market, so it will be driven not by whether there's a television ad recession but by what degree we can get people to substitute [our product] for the other. The strong companies understand this, and during a recession, they invest.

Can other companies emulate Google's famous model of letting engineers spend about 20% of their time on projects outside their main job?

The story of innovation has not changed. It has always been a small team of people who have a new idea, typically not understood by people around them and their executives. [This is] a systematic way of making sure a middle manager does not eliminate that innovation. If you're the employee and I'm the manager, and I sit down and say, "Our product's late, and you screwed up, and you gotta work on this really hard," you can legally say to me, "I will give you everything I've got, 80% of [my time]."

It means the managers can't screw around with the employees beyond some limit. I believe that this innovation escape-valve model is applicable to essentially every business that has technology as a component.

Why aren't many other companies doing this, too?

I think it's cultural. You have to have the culture, and you have to get it right.

What obstacles does Google face in continuing to innovate?

A problem that we face now is that we have people in multiple sites. It's a problem that everybody faces, but we're going to face it bad. We have, like, 50 locations.

So you still need that face-to-face contact?

The best programming team is a "telephone call," which is two people, you and I, programming together. The second-best programming team is, everybody fits into a single room. All other variants are bad.

Google has a reputation for doing a lot of R&D in-house, as well as buying companies to bring in other technologies. Are you shifting that toward getting outside talent to contribute in a bigger way than they have?

I don't know yet. The biggest acquisition we did was DoubleClick. We'll see how successful that is. We really like the small-team company acquisition model. My guess is, with the alleged recession happening, there will be a lot of good targets.

So we're likely to see even more acquisitions by Google?

I would think so. But small. The likelihood of us doing big things is pretty low because we'd have to assimilate the culture. Nobody works the way we do. The Google culture makes sense if you're in it, and no sense if you're not in it.

Does this mean it's tough for people to adjust, and will that limit the number of companies you can comfortably buy?

First, it is a fact that they adjust. Second, there is selection bias. Usually, people want to [be acquired by Google]. It's always very friendly. Because they have choices, and they choose us.

How does Google make sure it's producing innovations that change the game enough to create big new markets but also continue to appeal to its main customers, who might not want so much disruption?

We make an explicit decision to favor the end-user. [We] do not say, "Newspapers should be happy. Advertisers should be happy. Telcos should be happy. Competitors should be happy." Those are fine if we can do it. But it's all about end-users.

How do you make sure all these Google engineering projects actually turn into useful services?

The No. 1 thing we do require is: You can do whatever you want as long as you track it. We have very sophisticated measurement systems at every stage of launch. We have what is called trusted testers. Then beta test, which is forever. We do these 1% launches where we float something out and measure that. We can dice and slice in any way you can possibly fathom.

What's more important than the absolute number is the relative growth rate. High growth solves virtually all problems. If the growth rate is low, or negative, you've got a serious problem.

How much of a concern is it that Google has seen both executives and engineers depart for other companies or startups?

Let's do some math. We have 18,000 people. What is 1% turnover [per month]? 180. Do you think 1% turnover is reasonable? In this area, it's quite low. Ours is some small percent, 1, 2, 3%.

What bothers me is that some people write: "So-and-so left the company." Well, they don't also write that we hired 120 people that week, five of whom have Nobel prizes, three of whom have PhDs, and so on, who are beginning their career here now.

Can innovation really be managed, or is it a case where you have to keep the company and its managers out of the way?

I disagree with the word "managed." You have to have a set of necessary conditions for innovation to occur. To start with, you have to listen to people.

Pretty basic, no?

But not often practiced. Innovation comes from places that you don't expect.

China's Li Ning Toe-to-Toe Against Nike and Adidas

Chinese athletic wear maker Li Ning is raising its international profile to win over shoppers at home

by Frederik Balfour

China's top athletic wear maker, Li Ning, has quite a lineup of sponsorships for the Beijing Olympics. There's the U.S. ping-pong squad (the men are ranked 44th globally and the women are 12th), Sudan's track and field athletes (none of whom has ever won an Olympic medal), and Sweden's Olympic delegation (but the athletes won't wear Li Ning during competition, only for ceremonies).

Why would a shoe and clothing manufacturer that does 99% of its business in China bother with athletes from far-flung locales where its products aren't sold? It has to do with Li Ning's unusual position in the Chinese market. The 18-year-old company once ruled China's sneaker business, but today it lags behind giants Nike (NKE) and Adidas (ADDDY) even at home. And a big part of the appeal of those powerful rivals is their profile on the global stage. "We don't have as strong a brand" as Nike and Adidas, says Abel Wu, who oversees Li Ning's footwear division. "Our thinking is that as a local brand, we need to have an international image."

Call it paper-tiger marketing. Li Ning tries to create the illusion of being a global player despite its near-total reliance on its home market. In addition to the international sponsorships, the company is running an ad campaign called "One Team, One Belief" featuring European, African, South American—and Chinese—athletes standing in a stadium with their hands across their hearts. And Li Ning has teamed up with the National Basketball Assn. as a sponsor of the "NBA Jam Van Tour." The event, which rolls through dozens of Chinese cities, includes a basketball court that can be assembled at every stop. Local kids are invited to participate in competitions such as the "Li Ning Slam Dunk Contest."

To be fair, Nike and Adidas also back athletes who have little chance of winning medals. And Li Ning's marketing isn't based entirely on third-stringers from abroad. Its chairman and eponymous founder brought home three gold medals in gymnastics from the Los Angeles games in 1984. Basketball star Shaquille O'Neal is an endorser (but only in China; in the U.S. he wears shoes made for him by Li Ning, though they don't bear the company logo). And Li Ning is sponsoring China's ping-pong players, divers, gymnasts, and sharpshooters at the Beijing Games—all strong medal contenders, but not events where high-tech footwear plays much of a role.

Li Ning makes no bones about admiring its bigger rivals. Its gleaming corporate campus near Beijing, complete with indoor swimming pool, basketball courts, and a climbing wall, seems like a page out of Nike's playbook. Ads feature the slogan "Anything is Possible" (which the company launched before Adidas came out with "Impossible is Nothing," but long after Nike's "Just Do It"). And its logo is strikingly similar to the Nike Swoosh. "They just dusted off a Nike marketing plan, took bits and pieces, and said, "Voilà!'" says Terry Rhoads, a former Nike China executive who runs Shanghai sports consultancy Zou Marketing.

Some branding experts say the paper-tiger strategy is paying off. The deal with the U.S. table tennis team cost a fraction of the $80 million that Adidas is paying as an official Olympic sponsor in China. Similarly, getting Shaq to endorse the brand in China clearly cost far less than persuading the Phoenix Suns star to wear Li Ning shoes in the U.S.—though the company declined to say how much it's spending on any of its sponsorship deals. "They are the most efficient marketer for the Olympics in terms of spend vs. return," says Greg Paull, a partner at market researcher R3 in Beijing. Last year, Li Ning's profits jumped 61%, to $66 million, as sales climbed 37%, to $603 million, giving it 9.3% of the Chinese market, according to JPMorgan (JPM).

STILL PROVINCIAL

With sportswear sales in China growing at 30% per year, there's plenty of room yet for Li Ning to expand. It now rolls out about 600 different shoe styles a year. And in 2004 it hired Ned Frederick, a former research director at Nike, and Portsmouth (N.H.)-based Daniel Richard Design, which has worked with Converse (NKE) and Saucony, to come up with a technology that could compete with the Nike Air lineup. Their answer was the Basketball Bow, which tops Li Ning's product range at $140—about $20 less than the Nike Air Jordan. But most of Li Ning's business is in models selling for $30 to $70 a pair. And Li Ning's strength is in smaller cities where the big rivals haven't yet focused much effort. So it still has to prove it can face off against Nike and Adidas in Beijing and Shanghai—let alone the U.S., where Li Ning in January opened a small design office in Nike's backyard, Portland, Ore.

To compete with the big names either at home or abroad, Li Ning may need to decide what it wants to be. Today, it's difficult to say whether it's a trendy brand for urban teenagers or a bona fide performance shoemaker, and simply creating an image of global reach won't clear that up, says Tom Doctoroff, chief executive officer for China at ad agency JWT (WPPGY). While Nike may now be both, it established its name as a maker of serious athletic footwear before it was ever cool. "The challenge is to link to a brand idea that is the basis for enduring loyalty," Doctoroff says. Li Ning's "helter-skelter messaging is probably not an effective way of establishing that."

To Discriminate You Need to Separate

By Daniel Hamermesh

Price discrimination — charging different prices for the same product or service — requires preventing people who pay a high price for an item from being able to buy it at a low price.

This is done by separating the markets — linking the price to different times when the item is bought, such as day or night, weekday or weekend; or different ages of customers; or other ways.

Another market separation gimmick is underscored by a squib in the latest Consumer Reports. Dr. Leonard’s catalog sells the Barber Magic hair trimmer for $12.99, but in the same catalog offers the identical product, called the Trim-a-Pet, for $7.99.

Dr. Leonard’s

Dr. Leonard’s

Other than the names on the packages and a bit of different description, the products are identical; and even the styles of the packages are identical.

Putting advertisements for both packages in the same catalog is a poor way of creating market separation: If I had hair and needed to cut it, I would simply buy the Trim-a-Pet for my personal use and save the $5.

This attempt at market separation might work if done in stores — pet stores could sell the Trim-a-Pet at lower prices than drug or hair-care shops sell the Barber Magic — but without some kind of geographic separation, successful price discrimination can’t occur.

Can You Become a Creature of New Habits?

By JANET RAE-DUPREE

HABITS are a funny thing. We reach for them mindlessly, setting our brains on auto-pilot and relaxing into the unconscious comfort of familiar routine. “Not choice, but habit rules the unreflecting herd,” William Wordsworth said in the 19th century. In the ever-changing 21st century, even the word “habit” carries a negative connotation.

So it seems antithetical to talk about habits in the same context as creativity and innovation. But brain researchers have discovered that when we consciously develop new habits, we create parallel synaptic paths, and even entirely new brain cells, that can jump our trains of thought onto new, innovative tracks.

Rather than dismissing ourselves as unchangeable creatures of habit, we can instead direct our own change by consciously developing new habits. In fact, the more new things we try — the more we step outside our comfort zone — the more inherently creative we become, both in the workplace and in our personal lives.

But don’t bother trying to kill off old habits; once those ruts of procedure are worn into the hippocampus, they’re there to stay. Instead, the new habits we deliberately ingrain into ourselves create parallel pathways that can bypass those old roads.

“The first thing needed for innovation is a fascination with wonder,” says Dawna Markova, author of “The Open Mind” and an executive change consultant for Professional Thinking Partners. “But we are taught instead to ‘decide,’ just as our president calls himself ‘the Decider.’ ” She adds, however, that “to decide is to kill off all possibilities but one. A good innovational thinker is always exploring the many other possibilities.”

All of us work through problems in ways of which we’re unaware, she says. Researchers in the late 1960s discovered that humans are born with the capacity to approach challenges in four primary ways: analytically, procedurally, relationally (or collaboratively) and innovatively. At puberty, however, the brain shuts down half of that capacity, preserving only those modes of thought that have seemed most valuable during the first decade or so of life.

The current emphasis on standardized testing highlights analysis and procedure, meaning that few of us inherently use our innovative and collaborative modes of thought. “This breaks the major rule in the American belief system — that anyone can do anything,” explains M. J. Ryan, author of the 2006 book “This Year I Will...” and Ms. Markova’s business partner. “That’s a lie that we have perpetuated, and it fosters mediocrity. Knowing what you’re good at and doing even more of it creates excellence.”

This is where developing new habits comes in. If you’re an analytical or procedural thinker, you learn in different ways than someone who is inherently innovative or collaborative. Figure out what has worked for you when you’ve learned in the past, and you can draw your own map for developing additional skills and behaviors for the future.

“I apprentice myself to someone when I want to learn something new or develop a new habit,” Ms. Ryan says. “Other people read a book about it or take a course. If you have a pathway to learning, use it because that’s going to be easier than creating an entirely new pathway in your brain.”

Ms. Ryan and Ms. Markova have found what they call three zones of existence: comfort, stretch and stress. Comfort is the realm of existing habit. Stress occurs when a challenge is so far beyond current experience as to be overwhelming. It’s that stretch zone in the middle — activities that feel a bit awkward and unfamiliar — where true change occurs.

“Getting into the stretch zone is good for you,” Ms. Ryan says in “This Year I Will... .” “It helps keep your brain healthy. It turns out that unless we continue to learn new things, which challenges our brains to create new pathways, they literally begin to atrophy, which may result in dementia, Alzheimer’s and other brain diseases. Continuously stretching ourselves will even help us lose weight, according to one study. Researchers who asked folks to do something different every day — listen to a new radio station, for instance — found that they lost and kept off weight. No one is sure why, but scientists speculate that getting out of routines makes us more aware in general.”

She recommends practicing a Japanese technique called kaizen, which calls for tiny, continuous improvements.

“Whenever we initiate change, even a positive one, we activate fear in our emotional brain,” Ms. Ryan notes in her book. “If the fear is big enough, the fight-or-flight response will go off and we’ll run from what we’re trying to do. The small steps in kaizen don’t set off fight or flight, but rather keep us in the thinking brain, where we have access to our creativity and playfulness.”

Simultaneously, take a look at how colleagues approach challenges, Ms. Markova suggests. We tend to believe that those who think the way we do are smarter than those who don’t. That can be fatal in business, particularly for executives who surround themselves with like-thinkers. If seniority and promotion are based on similarity to those at the top, chances are strong that the company lacks intellectual diversity.

“Try lacing your hands together,” Ms. Markova says. “You habitually do it one way. Now try doing it with the other thumb on top. Feels awkward, doesn’t it? That’s the valuable moment we call confusion, when we fuse the old with the new.”

AFTER the churn of confusion, she says, the brain begins organizing the new input, ultimately creating new synaptic connections if the process is repeated enough.

But if, during creation of that new habit, the “Great Decider” steps in to protest against taking the unfamiliar path, “you get convergence and we keep doing the same thing over and over again,” she says.

“You cannot have innovation,” she adds, “unless you are willing and able to move through the unknown and go from curiosity to wonder.”

Good-Bye, Cheap Oil. So Long, Suburbia?

Author James Kunstler says the Automotive Age is almost history and deconstructs McMansion living

by Mara Der Hovanesian

The suburban landscape has been marred by foreclosures and half-built communities abandoned in the subprime aftermath. But James Howard Kunstler, author of a dozen books, including The Geography of Nowhere: The Rise and Decline of America's Man-Made Landscape, thinks there's a bigger threat to those far-flung neighborhoods: the scarcity of oil. As Kunstler sees it, oil wells are running dry and the era of cheap fuel is over. Given the supply constraints, he says the U.S. will have to rethink suburban sprawl, bringing an end to strip malls, big-box stores, and other trappings of the automotive era. Kunstler, 59, predicts a return to towns and cities centered around a retail hub—not unlike his hometown of Saratoga Springs, N.Y. But the shift to this new paradigm, he says, will be painful. (Kunstler could be off the mark; he predicted technological Armageddon after Y2K.) BusinessWeek writer Mara Der Hovanesian spoke with Kunstler about suburbia, which he calls "the greatest misallocation of resources the world has ever known."

Why has suburban life flourished?
The suburbs were largely products of industrialism. We had a huge supply of oil and cheap undeveloped land, and we decided to become a happy, motoring utopia. It had many practical benefits. The trouble is after a while it became a cartoon of country living.

Why is suburbia now threatened?
Cheap oil is what made suburbia possible. But we'll run into problems with spot shortages. As we get into trouble with these supplies, our economy will suffer. Major instabilities in the system will present themselves much sooner than we are led to believe. And by that I mean the way we produce food, the way we conduct commerce, and the way we move around.

When will all that happen?
The rise and fall of oil production is asymmetrical. In other words, it'll be a steeper, rockier tumble down than the steady increase going up. My own sense of things is that we will be in very serious trouble inside of five years.

Won't it help to cut back on gas?
I get people who come up to the podium after a speaking engagement to tell me they've just gotten a Prius, expecting brownie points. It's not that we're driving the wrong cars. It's that we're driving cars of any size, incessantly.

What about biofuels?
We will use all of them, probably. But we will be greatly disappointed by what they can do for us. We certainly aren't going to run Wal-Mart (WMT), Disney World (DIS), and the highway system on any combination of solar, wind, nuclear, ethanol, biodiesel, or used french-fry oil.

Isn't it a bit radical to declare game over for Wal-Mart?
It is part and parcel of the suburban predicament. How long can they maintain their warehouse-on-wheels as the price of motor fuels goes up?

How will the U.S. have to adapt?
Virtually anything organized on a grand scale is liable to fall into trouble—government, finance, corporate enterprise, agribusiness, schools. Our gigantic metroplex cities will prove to be inconsistent with the energy diet of our future. I think our smaller cities and towns will be reactivated. We are going to be a far less affluent society.

Does your lifestyle reflect all this?
I live in a classic Main Street town. I've always had a garden. It certainly doesn't provide for all my needs, but for all of my salad and salsa fresca needs, in season. I'm not a survival nut. I'm not squirreling away wheat berries in plastic tubs in the basement. I don't have an arsenal of firearms. I lead a pretty normal American small-town life. Of course, I'm a self-employed author and don't have to commute to work.

Links

Down on the Minifarm

Small vegetable and herb farms are sprouting in suburbia, reported The Wall Street Journal on Apr. 22. A one-eighth acre plot costs $5,500 to start plus $2,000 more each year, but it can yield $10,000 to $20,000 in annual sales. Environmentalists applaud the practice, which cuts the carbon cost of bringing food to consumers. But some neighbors of minifarms are complaining about bad smells from manure, the article notes.