E sales surge in the US and the north of Mexico.

Following fears of an economic downturn in the US following the sub-prime bust, credit crunch and the negative effects that might have on the Mexican economy, some good news showed up this week with the early December levels of online shopping in the US.

According to data from Comscore (via The Economist) US online purchases, from November 1^st. to December 6^th, increased a healthy 18% versus 2006, with weekly sales peaking at a record e-commerce level of 4.6 billion dollars. So in spite of falling house prices, tighter credit and lower levels of consumer confidence, North Americans appear to be spending more than ever, at least online.

The north of Mexico also seems to be experiencing a surge in online shopping. According to data extracted from Google Trends, Google searches to online retailers, so far in December, have increased significantly in the Monterrey and border areas. This would indicate that innovators and early adopters in the north of the country are beginning to follow what is now a mainstream activity in the US and have begun to take their Christmas business online. This poses a question: as broadband internet penetration begins to accelerate towards 10% of the population, to what extent are retailers in Mexico prepared for the coming e-commerce Christmas opportunities?

Further analysis, using Google Trends, shows a mixed picture. Palacio de Hierro, Mixup and Office Depot show higher levels of searches compared to amazon.com. Office Max, Liverpool.com and Sanborns.com show lower levels.

The quality of site content and “shopability” varies from state-of-the-art, at Office Depot, Sanborn’s and Mixup, to rudimentary at Palacio de Hierro and Liverpool. The latter sites being more focused towards the wedding gift market than the Christmas shopper. Palacio de Hierro projects a festive spirit but offers a limited selection of gift ideas and does not offer a secure shopping cart. Customers have to call a sales operator. Hardly state of the art e-marketing.

The leading Mexican brand, in terms of e-commerce potential, would appear to be Mixup.com. With its advantage in music and video products, the strongest selling e-commerce categories, Mixup.com might just emerge as the amazon.com of Mexico. Next up would be Office Depot and Sanborn’s, two strong national brands backed by the awesome technology and financial resources of Carlos Slim. Palacio de Hierro clearly has potential too, but would require a significant forward commitment to technology and digital content in order to compete effectively.

If actual buying online has yet to take off in most of Mexico, using the internet for browsing and information gathering peaks strongly during the Christmas season. Interest in the iPhone, for example, appears to be strong all over Mexico. Search traffic for video games also appears to be strong. Probably from parents looking for information on exactly how much an Xbox or Wii is going to cost them.

With the expected surge in broadband internet penetration and e-commerce in Mexico, the above should serve as a loud wake-up call to Mexican retailers. The horrendous pre-Christmas traffic alone should be enough of an incentive for thousands of frustrated Mexico City shoppers to take their shopping online.

Best wishes for the holiday season.

Let’s go to the Movies!

After a dip in 2003, the movie business in Mexico has been growing steadily and looks to be on the way to a record year in 2007. Attendance reached 165 million tickets sold in 2006 and is expected to top 180 million this year, according to AC Nielsen. It is estimated that nearly 10% of Mexican middle class adults (over 18) can be classified as “frequent moviegoers”, i.e. go to the movies at least once a month. That’s a lot of popcorn! It is also an opportunity for innovative marketing in the growing area of brand entertainment.

The growth in Mexican box office receipts can be attributed the success of the modern multiplex theatres that arrived in the mid nineties and now number over 200, with over 3,200 screens. The leading exhibiter is Cinéopolis with 49% of ticket sales in 2006, according to AC Nielsen, followed by Cinemex with 17%, MMC, Cinemark and the independent exhibiters.

Cine complexes have become a major component in urban retail development, due to their proven ability to generate traffic. The busiest multiplex in 2006, according to A.C. Nielsen, was the Cinéopolis at Universidad 19, in Mexico City, with 2.2 million visitors. As malls and modern commercial centers continue to expand in the major cities and to outlying provincial markets, the multiplexes are involved in all major development projects. So the total number of screens could pass 4,000 by 2010.

Film production is now approaching 500 titles a year and 2007 has been a good year for hit movies in Mexico, the top ten summer releases so far grossing 189 million dollars up to September (according to Variety - Nielsen data): Spiderman 3 grossed $35.3 million dollars; Ice Age 2, $29.2 million; Harry Potter $24.9 million, closely followed by Pirates of the Caribbean and Shrek the 3^rd; Transformers; The Fantastic 4; Ratatouille; The Simpson’s and KM 31 rounding out the top ten. It is interesting to note the number of sequels in the list. It used to be that sequels rarely matched the gross of the original title, today most sequels gross higher with each release.

Movies and multiplex theatres now offer a significant audience to marketers through a number of channels: traditional on screen advertising; product placement in the movie itself; in theatre promotions and free tickets as promotions, rewards and incentives.

Hollywood Movie Money is a company that specializes in movie ticket promotions and branding programs. Utilizing new technologies, HMM has recently announced a number of product innovations and branding platforms which include prepaid plastic cards, print at home tickets via the internet and cellular telephone ticketing.

With DVD sales and rentals now accounting for more than half of total industry revenues, the main threat facing the movie industry all over the world is piracy. According to the MPA (the Motion Picture Association) in 2006 producers lost approximately $483 million dollars of DVD and VHS revenue to piracy in Mexico, or 61% of potential revenue. Things are a lot worse in China and Russia, where loses to piracy have reached 90% and 79% respectively.

One response to the piracy threat to DVD revenues could be to reduce prices and attract brand partners and sponsors, as television does. Meanwhile: Lights! Sound! Roll ‘em! and keep the popcorn coming this way please!

Welcome, Millennials!

We are hearing a lot about the Millennials, the next generation of young people now entering the workforce. So this a quick note to welcome them to the world of marketing.

Dear Millennial: Let me introduce you to the 4 basic types you will meet here. They are: the Suits; the Creatives; the Geeks and the Nerds. Let’s take a quick look at who they are and what they do, so you will recognize them when you come across them.

First, the Suits. As the name suggests they are the managers and admire anybody with a degree in Strategic Management, from the Iberro is or Anaguac. An MBA is even better. Their heroes are Jack Welsh and Donald Trump. Suits pride themselves on being hands on and on top of everything, so they depend a lot on their Backberreys. The sign of a fast track Suit is when they take their laptop to a meeting and have the conference report finished, as the meeting is breaking up, so the boss gets it on the Backberry before they get back to their office. I have seen it done and very impressive it was.

Next up are the Creatives. These are the creative directors, copy writers, art directors, photographers, graphic designers, web designers, film directors, producers, editors, animators, special effects engineers and a host of other specialists who actually conceive and produce marketing communications. Thus, they are the center of the marketing universe. (Hard to argue with that) Creatives love YouTube and hate Power Point presentations. Creatives also love awards and spend a lot of time updating their creative reels (also on YouTube), art books and digital files, ready for their next job interview.

The Geeks see themselves as the “knowledge workers” of the group, with a deep understanding of popular culture and how brands and consumers interact. Geeks get to moderate workshops and brainstorming sessions and are good at charts. Geeks like the 4i’s – Information, Interpretation, Insights and Inspired Ideas. Both Suits and Creatives get on Geeks’ cases because they never have enough useful, powerful and actionable insights at the right time. Geek heroes are Steve Jobs, The Matrix and Ethnographers.

Last, but by absolutely no means least, are the Nerds. They live numbers, science and detail so Nerds are also frequently Financial Directors, Money Managers, Media Planners or Stock Analysts. Nerds know they are important and dislike always being last on the agenda at meetings. Nerds can hold grudges hence the movie: Revenge of the Nerds. Their heroes are Bill Gates and Carlos Slim (of the same $ number loving world). So be careful and never under estimate them.

Lastly, be enthusiastic about everything and be nice to people, especially the messengers, the receptionist, the systems people and the guy who runs the copy machine, because without them on your side you are dead meat in the marketing world! Saludos R.T.

The Beauty Business Surges Again.

Walk into any department store and chances are the first area you will enter will be the Cosmetics and Toiletries department. For many women and increasingly men too, it is an irresistible magical place to shop. Welcome to the Beauty Business, the most profitable part of the store.

The Cosmetic and Toiletries market in Mexico, defined as hair care & coloring, skin care, make up, perfumes & fragrances, deodorants and oral hygiene, punches well above its weight in per capita consumption and share of world markets. According to CANIPEC (the cosmetics industry association), the beauty market in 2005 was worth 3.5 billion dollars, ranking around 10th in the world and growing at annual rate of 10%, compared to the worldwide growth average of 8.2%.

It’s hard not to be fascinated by the Cosmetics and Toiletries market, because of its size, product innovation, design & packaging, consumer typographies, brand dynamics and its undoubted mystique. Above all, the Beauty Business represents a constant, unrelenting, marketing challenge.

Whether it’s the latest make up innovation from L’Oreal, a new line extension from P&G’s Pantene shampoo or Unilever’s Sedal; new ideas for men’s grooming from Nivea; a new fragrance from Chanel, Calvin Klein or Joy or a new organic cream at the Body Shop, hardly a week goes by without some new offering appearing in the category.

Increased discretionary spending from working women, higher disposable income from an reviving middle class and access to consumer credit are the key factors driving demand in Mexico and other developing markets.

Distribution covers a wide and varied spectrum of sales points: from direct sales (Avon, Jafra, Mary Kay, Amway and Herbal Life etc.), to retail department stores, super markets, pharmacies, duty free stores, independent specialist retailers, salons and beauty shops, down to the informal sector of street markets and vendors. The Beauty Business is everywhere.

Manufacturers and producers also present a diverse and competitive market place, from the global giants (P&G – Max Factor, L’Oreal, Unilever – Pond’s, Beiersdorf - Nivea), to middle players (Grisi, Bristol Mayers) to small local producers and, increasingly, low priced imports from Asia and China.

Mexico, as a member of the World Trade Organization (WTO), is obliged to eliminate all existing tariffs and quotas on Chinese imports, effective this year. In the price sensitive low end market cheap imports are helping to boost sales. Unfortunately, so are counterfeits and generic copies of high end brands.

Profound changes, already evident in the US and Europe, are beginning to make themselves felt in the Mexican market. Changing demographics – the population of Mexicans over the age of 55 (the Grey market) will double in the next fifteen years to 25 million. Changing attitudes towards aging and changing definitions of beauty are changing how people interact with brands. Consumer activism against toxic ingredients is gaining momentum all over the world. The move to 100% organic cosmetics is already well advanced in a number of European countries. But no matter how the changes come it’ll still be a Beautiful Business.

The Christmas Marketing Season Begins.

Next week Thanksgiving will mark the beginning of the Christmas sales season in the US, as the Day of the Dead long weekend has already done in Mexico. 2007 has been a soft year so far for retail sales, so this Christmas will be make or break for many brands and of course the retail stores over the gift giving season, which lasts from Christmas to Reyes Magos (the Three Kings of Epiphany) on the 6^th. of January

In Mexico Christmas is cause for marketing and retail optimism, due to the legally mandated “aguinaldo” / Christmas bonus (normally a minimum of two weeks salary for formally contracted employees) that significantly boosts disposable income and consumer spending. Additional credit and financing plans can extend the boost into the New Year. Cause for initial optimism also comes from successful sales blitzes and additional orders obtained on a sale or return basis. Stores tend to over stock when protected by such agreements. With the “push” part of the process in place the “pull” part begins. Advertising and promotional campaigns are launched, to stimulate sales and marketing managers can take off to enjoy their Christmas vacations in good spirits.

Early sales indicators quickly point to hit products, especially in electronics. Last year was a bonanza for flat screen TVs, 2003 was a record year for DVD players and 2006 was the year of the iPod. This year it could the Wii, Xbox, iPhone or Blackberry that tops the list. Toys are harder to predict. The leading manufacturers (Mattel, Fisher Price etc.) have developed sophisticated forecasting, advertising scheduling and channel management systems and usually manage to close out the season fully sold on their key product lines.

Many companies are not so fortunate and face the reckoning that comes, in late January and February, with the dreaded “devoluciones” / return of unsold goods. In some cases returns from the larger retailers can represent large volumes of unsold inventory that has to be resold at deep discounts to wholesalers and secondary channels, reducing margins and profits. It is not uncommon to come across products, with Christmas greetings on the package, in small corner stores (changarros) or being sold by street vendors, up until Easter.

A few years ago I worked on a project for a local company that sells Apache children’s tricycles. The Apache is a fine product with a well deserved reputation for quality and durability. However, the product always takes a beating on the sales floor and small plastic parts get broken, leading to very high return levels that seriously affect profits. The solution was relatively simple: recruit and train “floor mechanics” to operate in major stores over the Christmas season, to replace damaged parts. Results were impressive: net sales increased, returns were reduced dramatically, ensuring a profitable year. This is one example of how simple attention to detail is sometimes the best strategy to avoid after Christmas hangovers.

A Mexican Middle Class Revival?

Fragile, to be sure, but its there.

Most economists agree that, for any country, sustained economic growth is dependent on an expanding urban middle class. In Mexico the middle classes have been slow to recover from the massive crash of 1982 and the "lost decade" that culminated in the “Tequila Meltdown” of 1994. So, news of a Mexican middle class revival from a number of sources is welcome news indeed.

The Economist points to four key sectors as evidence of an expansion in the Mexican lower middle class: the growth in low cost home construction and mortgages; expanding consumer credit - the Mexican Bank Association recently announced that 3 million new credit cards will be distributed to lower middle class consumers; first time use of air travel – a survey by a new low-cost Mexican airline found that 47% of its passengers had never flown before and record levels of new car sales for affordable sub compacts.

According to Alejandro Hope of GEA, a consultancy in Mexico City, the number of lower middle class families (lower C and D+) has increased 88% in the ten years from 1996 to 2006, from 5.7 million to 10.7 million.

Data from AC Nielsen (a leading market research company) also points to growth at the upper end of the middle class, the C+ and middle C groups which has increased from 29% of the population in 2000 to 32% in 2006.

As one might suspect, these trends are far from being uniform across the country. According to AMAI (the association of Mexican Market Research Agencies) 2004 data, the middle C class represents 22% of the population in Monterrey, 21% in Guadalajara, falling to 15% in Mexico City and 12% in the south of the country.

What is interesting, are the ways in which middle class values and aspirations are changing. The new middle class is seen to be better educated, more self-sufficient and ambitious than the middle classes of 20 years ago. Aspiration, status and upward mobility are still the key drivers of middle class habits and attitudes, but now reinforced with a more self-reliant northern work ethic.

Explaining the middle class revival is probably best left to the experts, but one factor probably heads the list: in the absence of sustained employment growth, one could surmise that remittances from migrant workers in the US (projected at $12 billion dollars for 2007) alone are now sufficient to lift millions of families into the lower middle class.

It is doubtful whether these early indications of a middle class recovery will be sufficient, in the short term, to impact the myriad socio-political issues facing the country, but their impact on consumption patterns and therefore marketing thinking and business strategy is already apparent and the need for regional strategies will become more and more important as the middle class revival gathers momentum.

The Changing Face of Mexican Marketing.

Over the past year the Mexican stock exchange (Bolsa Mexicana de Valores) has recorded a 21.2% growth in peso value and 21.1% in dollar value (source: The Economist). That is pretty good going for an economy with a 2007 GDP growth forecast of below 5%. Profit growth reported by leading manufacturing companies has generally been strong, despite a relatively weak retail market. The same cannot be said for many middle and small size companies (PYMES) who are being squeezed by low growth, commodity pricing and wafer thin margins. PYMES are struggling to come to terms with the new business realities in the transition to a competitive market economy. Unfortunately for many, the outlook is not good.

Companies linked to regional or global partners, through alliances, representations, or franchise systems, are generally adapting well to more competitive markets and changing business conditions, through the adoption of new technology platforms and well focused marketing strategies. Companies lacking such alliances are now at a serious disadvantage.

Many reasons are given for the plight of the PYMES: limited access to credit; low productivity; low investment in employee training; low investment in information technology; slow adoption of international standards (ISO qualifications); lack of innovation; poor customer service; lack of marketing resources and so on. But these are not the only reasons.

Old habits die hard, especially in medium and small enterprises. Mexican business culture and traditions still run deep. Years of protected markets, government policy and mountains of petty regulations meant that survival and success in business depended on building an extensive network of trusted family connections, influential and well rewarded contacts in the right places and close personal relationships with clients. Money, power and contacts were the keys to success, rather than strategic management, innovation and marketing.

Mexican businessmen have a well deserved reputation as shrewd deal makers and savvy negotiators rather than visionary innovators and brand builders. Marketing traditionally has been seen as the domain of the multinationals (P&G, Colgate Palmolive, Coca Cola, Frito-Lay) and the large national conglomerates. In most medium sized companies, marketing, where it exists, is seen as the promotional arm of the commercial/sales department, rather than as a means of adding value and competitive advantage.

Industry consolidation, new rules and opportunities are beginning to change the face of traditional business practices in Mexico. A new entrepreneurial breed of Mexican businessmen is beginning to appear. Well educated, alert to global trends and the opportunities of changing local markets, distribution systems and consumer needs, they are bringing a much needed “challenger mentality” to Mexican business and marketing.

Change brings winners and losers and for the PYMES sector the future will be no different. For some time yet the losers will outnumber the winners by a large margin as consolidation gains momentum.

In future Brand Width columns we shall be taking a closer look at some of the winners and the marketing and brand building strategies that are driving their businesses.

Internet Marketing in Mexico, Reaching the take off point?

In many countries, internet marketing is the fastest growing sector of the marketing communications mix, reflecting consumers’ deepening involvement and participation in online content. So where does Mexico stand in the “online stakes”?

The latest OECD Global Internet Survey, shows Mexico to be well behind the global trend line, with a broadband penetration of 3.5%, versus the OECD average of 15%, translating to 3.7 million subscribers, with an annual growth rate again trailing the OECD average. Low penetration combined with a lack of secure payment systems and reliable delivery logistics has restricted internet marketing in Mexico mainly to the travel industry (for online hotel and airline reservations).

Information from AMIPCI (The Mexican Internet Association) provides a similar picture of Mexico moving from the first stage of internet development, basic e-mail and search activities, towards the second stage of enriched services, such as down-loading video, sharing music and playing games online.

Three factors could combine to dramatically improve the prospects for broadband penetration and internet marketing in Mexico: the Telmex position; the Triple Play and the Google factor.

As the dominant player in telecommunications in Mexico, Telmex has a huge vested interest in the growth of broadband, so has to assume much of the responsibility for selling broadband capable PCs and laptops, to run their Prodigy service. This summer Telmex mounted a strong marketing and mass advertising effort for laptops, in parallel with a campaign for Prodigy broadband services. This effort, if maintained at current levels, has the potential to double the broadband penetration in Mexico to 7% this year.

Then there is the emerging Triple Play market in Mexico: TV, telephone and broadband internet bundled into one service. Two other significant players will soon be joining Telmex in the Triple play market: Televisa and TV Azteca. Given the high stakes and considerable resources of the participants, the effect of this could mean a further dramatic acceleration in broadband penetration in Mexico, up to 15% (the current OECD average) within 2 years. That would translate to around 20 million broadband subscribers by the end of 2009.

This potential has not escaped the attention of Google, the dominant player in internet search marketing. As broadband penetration grows so does the market for search marketing, so Google is already moving to establish a presence in Mexico and Latin America.

Google has achieved an unrivaled position in search marketing, due to its use of unique search formulas (algorithms) to guide clients (companies and individuals) to customers that are actively seeking information on products and services. Mexico, with a potential 20 million broadband subscribers by the end of 2009, represents a perfect tipping point for the Google model.

So, the Telmex position, the Triple Play and the Google factor represent three powerful drivers to take internet marketing in Mexico to a significant take off point. So, fasten your seat belts!

(Sources: OECD, AMIPCI and The Economist)