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)