Tuesday, July 24, 2007

Crisis Communication: The Asian Bird Flu 1997

Case Background:
It started as a one-off, but then raised fears of an epidemic reminiscent of the 1968 Hong Kong flu which killed 46,500 people worldwide. The first stage of the bird flu outbreak can be traced back to the spring of 1997. In April, an epidemic of the influenza A (H5N1) virus in Hong Kong wreaked havoc with the chicken population and resulted in the deaths of 6,800 chickens.

This strain of virus which had been previously known to infect only birds now crossed the species barrier and infected humans. By the end of 1997, the confirmed number of cases had reached 18, resulting in 6 deaths.

The first human case occurred in May when a three-year-old boy was admitted to Queen Elizabeth Hospital. He died five days later of severe pneumonia and multiple organ failure. However, it was not until August that the alarm bells began to ring and the revelation by health officials that what at first appeared to be a normal flu case was, in fact, far more sinister. For the first time anywhere, a human had become infected with a bird virus.

Investigations led to health officials dismissing it as an isolated case. However, on November 26, a 13-year-old girl was admitted to Prince of Wales Hospital suffering from the disease. Three days later, a 54-year-old man entered Queen Elizabeth Hospital infected with H5N1. Both died, the man on December 5 and the girl on December 21.

On December 28 the Hong Kong Government took the extreme step of ordering the immediate slaughter of 1.3 million chickens and an unknown number of ducks, geese and other birds in a desperate attempt to stamp out the deadly new virus. A 60-year-old woman had also died from H5N1 at United Christian Hospital on December 23, bringing the death toll to four.

By year's end, 14 people in all had been confirmed as having the disease, six of whom had recovered. Six others were suspected of having the flu, while nine people who were exposed to it developed immunity without falling sick.
Imports of mainland chickens - the source of 80 per cent of chickens consumed in Hong Kong - were temporarily suspended. On December 27, the Centres for Disease Control and the Health Department said there was still no conclusive evidence of human-to-human transmission.

But questions remained. Can humans get the virus from each other or just from birds, and is it airborne or spread by touching infected birds' blood or droppings? Why has the virus retained its avian characteristics and not mutated into a more human strain of influenza A, which would make it more efficient in attacking people?

It is the race to find these answers that preoccupied Hong Kong that fateful new year of 1997/98.

Warnings of a possible pandemic prompted a swift international response. The implications for Hong Kong were enormous as the Asian bird flu not only threatened the health and welfare of the people of Hong Kong, but also affected Hong Kong’s economy and reputation in terms of international tourism and trade.
In managing the Asian bird flu crisis, the Hong Kong Government was faced with several challenges: it needed to communicate the facts of the situation effectively, explain what actions it had taken to alleviate the situation, and also communicate to an increasingly hysterical public both locally and internationally.

What is avian influenza (bird flu)?
Avian influenza is an infection caused by avian (bird) influenza (flu) viruses. These flu viruses occur naturally among birds. Wild birds worldwide carry the viruses in their intestines, but usually do not get sick from them. However, avian influenza is very contagious among birds and can make some domesticated birds, including chickens, ducks, and turkeys, very sick and kill them. There are 15 varieties of bird flu. Each variety sustained itself in the wild aquatic bird populations of the world. These strains of bird flu in ducks and shorebirds showed little genetic change over time and were quite harmless to these natural hosts. When bird flu transferred to other species, such as chickens, however, they had the opportunity to multiply in huge numbers and to accumulate mutations, the variants of which could cause disease.

How do people become infected with avian influenza viruses?
Most cases of avian influenza infection in humans have resulted from direct or close contact with infected poultry (domesticated chicken, ducks, and turkeys) or surfaces contaminated with secretions and excretions from infected birds.

What are the symptoms of avian influenza in humans?
Symptoms of avian influenza in humans have ranged from typical human influenza-like symptoms (fever, cough, sore throat, and muscle aches) to eye infections, pneumonia, severe respiratory diseases (such as acute respiratory distress syndrome), and other severe and life-threatening complications. The symptoms of avian influenza may depend on which specific virus subtype and strain caused the infection.

Q1• How did the Government communicate the facts of the situation?
In a world with global media coverage and competition for sensational news, any hypothetical doomsday scenario that could capture the public imagination risks unleashing a media storm. The perception of risk is then easily distorted from the actual risk. The threat of a pandemic is particularly scary as there is a lack of control, which in turn leads into aimless activity added to this if people feel that the government is hiding facts from them or not revealing everything a furor is created and panic ensues and the situation escalates out of control

Anatomy of a crisis
Crises can happen anywhere, at any time, and often occur when they are least expected. When a crisis does occur, events usually unfold rapidly, leaving little time for planning. That is why preparation is essential. Aside from tangible damage, a crisis can also destroy an institution's or government’s reputation. The longer a crisis goes on, the more damage it can do to public support, people’s morale, and increase panic. Therefore, it is necessary to handle crises in a swift and organized manner.

The most challenging part of crisis communication management is reacting - with the right response - quickly. This is because behavior always precedes communication. Non-behavior or inappropriate behavior leads to spin, not communication. In emergencies, it's the non-action and the resulting spin that causes disruption.

Hong Kong Government
One of the most glaring flaws in the government’s handling of the Asian Bird Flu is lack of transparency and lack of PR skills. The people perceived the government handling of the bird flu as a saga miscommunication and the lack of preparedness, manpower and resources.
In their defense we have to remember that this virus was something totally new to people so perhaps some latitude can be allowed.


Argument AGAINST the Government
The entire 'bird flu' saga shows that the Hong Kong Government proved to be a rigid bureaucracy incapable of managing any crisis in society swiftly in an era when public health is a huge issue. The story of H5N1 bird flu began in April, and on August 20 the Department of Health announced the first fatality. Three more cases were announced between November 28 and December 6, and several more since.

Since April the Department of Health did not take the public into its confidence. It has concealed facts from the public rather than publicised its findings and opinions. This is hard to justify, even with the best of motives. The old attitude persisted and perhaps still persists. Can the Heath Department explain what it did with its findings and whether it instituted any preventive measures from August until December, when more H5N1-caused deaths occurred?

Lack of transparency was partly responsible for the endemic fear that spread faster than the bird flu virus itself. At the very least, the Health Department should have educated the public through the mass media on the symptoms of H5N1 virus and how to prevent common flu. What was even more disturbing than the department's failure to do so was to hear its chief, Margaret Chan claim publicly that she ate chickens every day. This was irresponsible behaviour in someone who should have calmed public concerns by disclosing what measures her department would adopt immediately to prevent the spread of the virus and how ordinary citizens could protect themselves.

Nothing breeds panic more than the suspicion of a cover-up. The best way of allaying such fears is to give the public all the facts as they become available, to present the implications in a balanced manner, and to assure people that the authorities are giving all their attention to the matter. The fact was that the leader doesn’t appear to give any reassurance to the public [at least the case doesn’t mention] his silence on the issue irresponsible behaviour. Although the media was blamed for exaggerating the incidence of bird flu it seems that, without pressure and exposure in the mass media, it is doubtful the Government would have reacted to the crisis much faster and more responsibly than ever before

Public fears were not calmed, nor any emergency meeting held to discuss the bird flu. Political parties seemed ill prepared for the crisis, just issuing statements in support of the Government's decision to ban the imports of chickens from the mainland. The Department of Health should have informed the public that the flu usually intensifies on the fourth day of infection, and that it is not always fatal. Because the institutional mechanisms, media excepted, were ineffective, public fear led to congestion of the public hospital emergency wards. One cannot actually blame these citizens who carried their children to the wards.

With the benefit of hindsight, Hong Kong during the transition period from 1984 to June 1997 wasted too much time in political disputes at the expense of paying sufficient attention to public health. In December 1997, the Department of Health asserted there was no evidence of human-to-human transmission, and that chicken was safe to eat. What happened then? Within days the media quoted scientific authorities as saying human-to-human transmission had become likely. A World Health Organisation spokesman said the vaccine would take at least six months to develop. Then the Department of Health advised that the virus had been found in chicken organs.

Surely this could not hope to engender public confidence. Is avoidance of 'unnecessary' public panic an excuse for withholding research results and factual background of cases? Who should be the best judge of what is 'unnecessary'?

What the health officials didn’t understand was that the lack of information creates suspicion which often leads to irrational conclusions and even panic. And, most importantly, who should be held responsible if people die due to misinformation?

In Government’s Defense

According to the Department of Health, they had adopted a very open and responsible approach in dealing with these two issues. [South China Morning Post]

In August the department made a public announcement of the detection in man for the first time of this new strain of influenza A virus and in view of the importance of this discovery, the World Health Organization was notified. A special team was set up to work closely with local and international experts and agencies and to assess its global health impact while department staff actively conducted a series of field investigations and laboratory tests with other organisations to trace the source of the infection. The Government set up an Inter-Departmental Coordinating Committee (ICC). The purpose of ICC was to co-ordinate the efforts of the various government departments. In the later phase of the bird flu crisis, the Department of Health set up a Special Information Unit (SIU) that was responsible for inter-departmental communication also.

The Special Information Unit [SIU] worked closely with the Hospital Authority to identify suspected cases and to confirm cases of bird flu. This enabled both agencies to arrive at a consensus in responding to media queries. Whenever the media raised issues, the SIU informed the departments and officers concerned before responding. This ensured that information released was standardized and communicated in a more convincing way, or expressed in a more readily understood manner.

Samples of the specimen were sent to the CDC in Atlanta, USA, and to Mill Hill in England and these laboratories played important roles in a global surveillance network for tracking down changes in flu viruses. Interviews were conducted and blood samples collected for further analysis. As this virus was new to man, the Centers for Disease Control and Prevention (CDC) in Atlanta had to develop an entirely new test for it. While awaiting the test results, the second and subsequent cases occurred in late November and early December.

According to the Department of Health since the outbreak of the second case, they had been very forthcoming with factual information to the public and the media. Organising press conferences and briefings and issuing press releases and giving updates on a regular basis.

From November 1997, the Government Information Service (GIS) maintained the Government Information Centre web page. It contained major government and quasi-government decisions and announcements, suggested preventive measures, provided government officials’ speeches, and outlined press conferences. In addition, updated information on confirmed and suspected cases of bird flu was regularly published. The Government considered it an invaluable single access point for information published by official and quasi-official organisations in Hong Kong.

Apart from information supplied to the media, information and advice to doctors on H5N1 was also made available through the Internet and direct mail. In addition, a publicity and health education programme for the community was launched to give health advice and precautionary measures for the prevention of influenza. A list of preventive measures was formulated based on a review of the initial assessments of the first six confirmed cases and three suspected cases of bird flu. General out-patient clinics and private medical practices were used for surveillance of the virus. The Agriculture and Fisheries Department, Urban Services Department and Regional Services Department were involved with surveillance and monitored poultry movements between China and Hong Kong. The Education Department and Social Welfare Department provided schools and childcare centres with up-to- date information on preventive measures, and the Hospital Authority informed the Department of Health immediately of any suspected cases to allow for early investigation.

What should have been done What the government should have done was to think out the messages that would need to be delivered in the early weeks and months of the pandemic itself not a couple of months later. Proper message design requires audience assessment research which admittedly was not possible but the 3 keys in choosing messages on any topic are:
(1) What your audience already knows, thinks, feels, and does. This includes people’s questions and concerns, what they want to learn more about. Importantly, it also includes their accurate impressions about things the experts are misperceiving.

(2) What you want your audience to know, think, feel, and do. This list of the goals of your communication effort should always include telling people what preparations you want them to make and why. It usually includes telling them what preparations you are making — which is fine, as long as you don’t overstate how prepared you are. And it ought to include asking for their input, their own suggestions and their feedback about your evolving preparedness plan.

(3) The relationship between the first two factors. The focus here is on how your audience is likely to respond to the messages you’d like to be giving them, and what additional messages are needed to help produce an appropriate response. This can get complicated. It includes, for example, a list of truths you need to tell people even though you don’t really want to, because otherwise your credibility will self-destruct when they learn those truths elsewhere.
[Peter Sandman]

Q.2: What actions did the Government take to alleviate the situation?
Despite criticism that they should have moved more quickly, the fact remains that the Hong Kong Government was dealing with an enigmatic virus, so there was a limit to the defenses that could be raised against it. Unless you know the enemy, it is difficult to defeat.

They were unsuccessful in the development of a vaccine due to limitations of time posed by WHO and the fact that to develop a vaccine you first need enough material to test. The WHO scientists gave a time frame of 6 months and until then the cases were to be treated with amantadine although amantadine had known side-effects.
In other measures the Government proved a bit better although some criticized some of the measures as being too extreme and some as the decisions being a little late. If the slaughter of poultry would not have halted the H5N1 influenza virus in its tracks, at least the drastic step taken would have exonerated the Hong Kong Government from blame if bird flu were to go on spreading.

The measures undertaken by the government were as follows:

It banned imports of chickens and restricted entry to infected areas.
The mainland stepped up controls over its imports and exports of poultry and the Government banned the importation of chickens from China soon after it was confirmed that H5N1 had infected imported chickens at two market stalls. There will be moratorium before any poultry is imported from the mainland or local farms are restocked. Everything is being done to try to make doubly sure that there are no traces of H5N1 in the next batch of birds arriving here. Intensive screening and thorough testing is being done before the birds are allowed into Hong Kong.
A farm and biggest chicken market declared no-go zones
A farm and part of Hong Kong's biggest chicken market were declared no-go zones after signs of the deadly bird flu virus were detected. Officials closed off a Yuen Long farm and half of the Cheung Sha Wan Temporary Wholesale Poultry Market, declaring them both 'infected areas' or ‘no-go’ zones and police officers, wearing masks, were posted at entrances of these areas to monitor the movements of people and animals to and from the areas.
Mass Slaughter of Chickens and Poultry Ordered
All Hong Kong's estimated 1.2 million chickens were to be slaughtered in a radical attempt to rid of the deadly bird flu virus. Poultry in retail markets - including geese and ducks kept near chickens – were ordered to be destroyed in the massive 24-hour operation beginning today. Teams of five Agriculture and Fisheries Department staff were to visit each of Hong Kong's 160 chicken and 39 mixed poultry farms. They would place groups of birds into plastic containers and then gas them to death with carbon dioxide. After the slaughter, the carcasses were to be disinfected, put into plastic bags and taken to one of Hong Kong's eight landfills for disposal.

Although The Secretary for Economic Services, announced that the mass slaughter of all chicken and poultry would take 24 horns to complete, beginning the following day the Department had failed to meet this target. The execution was conducted in a messy way and exposed a lack of co-ordination between departments. While Agriculture and Fisheries Department staff worked round the clock to carry out their order, half-dead chickens were left on the roadside because cleaning staff of the Regional Services and Urban Services departments had failed to clear them and the Environmental Protection Department had stuck to its rule of closing the landfills at midnight.

The administration was to be blamed for the lack of preparation for the mass slaughter. Chickens were still wandering around after it was claimed the slaughter had been completed. The Government initially said chickens would be killed with carbon dioxide, but the slaughter left rivers of blood and many dead chickens were left uncollected. The Government also failed to keep its promise to accomplish the slaughter within 24 hours.

These reasons were given for the failure:
• Staff was not familiar with catching chickens.
• A lack of carbon dioxide in Hong Kong to gas the chickens and poultry required manual slaughter by cuffing the throats of chickens.
• Staff was not familiar with the exact location of chicken and mixed poultry farms.
• The logistics of providing minimum training and protective clothing to the staff involved in the slaughter were prohibitive.
• The logistics of organising and coordinating the 200 Urban Services Department and Regional Services Department staff involved with the disposal of the carcasses were prohibitive.

Compensation packages announced for farmers
Compensation for farmers to top $40 million was announced and attention was to be directed to the plight of the poultry industry. As both farmers and retailers would be facing a deeply uncertain future, they were be given generous help so that they can weather the present storm and survive with sufficient resources to start up again when it is safe to do so.

Measures to Ensure Virus-free Chickens from Mainland China
After the mass slaughter, it was announced that chickens originating from mainland China would only be allowed to be imported once a mechanism to check the hygiene of such poultry had been developed and implemented. Mainland China health authorities also pledged to step up monitoring of chicken farms. Blood samples from poultry in every truck would be taken and examined by staff of Agriculture and Fisheries Department upon arrival at Man Kam To border entry point. After blood samples were taken, the doors of the rear compartments of trucks, which contained caged chickens, would be sealed with official stamps in an attempt to prevent unauthorised chickens making it to Hong Kong markets. To ensure imported poultry was free from H5N 1 before being sold at markets, Agriculture and Fisheries Department laboratories worked shifts to obtain prompt test results.

A scheme that required the registration of all farms supplying poultry to Hong Kong was announced. Only registered farms were able to export chickens to Hong Kong, and all birds had to carry health certificates. Random spot-checks would be conducted and at least 400 blood samples would be taken and tested each day. Copies of test records and certificates would be sent to the Agriculture and Fisheries Department.

Summary of Actions published by The South China Morning
The SCMP newspaper published a summary of actions taken by the government in response to the crisis, and also provided hotline contacts.

Guidelines were developed for Health-care workers
After accusations were labeled at not giving enough care to the health workers the Department of Health spokesman advised the media that guidelines had been given to the ambulance services. Furthermore, existing guidelines for handling infectious diseases were adequate, as not only ambulance-men were at risk of contracting H5N1. Health-care workers, including doctors and nurses, were at risk too. A briefing session aimed at disseminating information about the virus and establishing additional preventive measures in order to alleviate front-line workers’ concerns

Information for Tourists
On 20th January 1998, the dept of health released info for tourists coming to Hong Kong. In a damage-control move, Secretary for Health and Welfare Katherine Fok Lo Shiu-ching told a meeting of consuls-general that Hong Kong was safe for visitors. “The chance for a tourist catching bird flu therefore is minimal.” -Katherine Fok, Secretary, Health Welfare Bureau She said that as the virus was predominantly transmitted from bird to man, the chances of a tourist catching or transmitting the flu were minimal.
What the government should have done was to think out the messages that would need to be delivered in the early weeks and months of the pandemic itself not a couple of months later. Proper message design requires audience assessment research which admittedly was not possible but the 3 keys in choosing messages on any topic are:

Q3• How did the Government communicate these undertakings to an increasingly hysterical public both locally and internationally?
The government was repeatedly criticised for not being transparent with the public and was accused of keeping them out of the loop. It was said that either they did not have a comprehensive plan or if they did, they did not effectively communicate openly with the people of Hong Kong, the international community and stakeholders who represented diverse interests.

Many watched with apprehension as the bird flu crisis unfolded, the Government reacted to harsh criticism over its handling of the bird flu crisis and unease among Asian neighbours and assembled a taskforce comprised of senior Government officials from the ICC and the SIU. The task force was issued a brief to formulate a “Crisis Communication Strategy” for the Government to implement across all Government departments and quasi-Government agencies.

It was indeed ironic that, when there were hopes that the bird flu saga may have run its course, was the time that the Government took its strongest administrative action with the decision to put the Chief Secretary in charge of a task force to cope with the outbreak and its effects. When the mass slaughter of chickens was ordered, officials must have hoped that the shock effect would be sufficient to end the crisis. That not only proved an unfounded hope, but the way in which the slaughter was conducted raised fresh concern. It was only then that top-level attention was given which should have been applied publicly long ago.

There is no doubt that a crisis like this is best handled with a cool head. But that is no excuse for not taking responsibility at the highest levels. The outbreak, itself, was bad enough, but the ramifications of the episode spread much more widely. The effect on the battered tourist industry was undeniable. The government’s establishment of a high-level taskforce on bird flu signifies that it was prompted by the poor performance of departments and its head.

More and more departments got involved and the co-ordination got wider. The task force embarked on visits internationally to improve image of Hong Kong. The priorities of the taskforce were to examine ways to ensure sanitation in transporting chickens. The Government took action to alleviate the situation and they were;

INTERNATIONNAL - Overseas Visitors
“The bird flu cases had become an international incident and would hit the tourism industry if it was not handled properly.” -Dr. Huang Chen-ya, Health spokesman of the Democratic Party

Briefing Consuls General on H5N1
It was supposed to be the year Hong Kong's tourism industry was meant to break all records as international interest in the handover brought with it a flood of visitors. But the outbreak of the virus and public’s perception that something was being kept from them saw all confident predictions of tourism crashing down.

The government did try to alleviate the situation. There were briefings given to representatives of Consuls General in Hong Kong regarding bird flu which were conducted by Katherine Fok, the Secretary for the Health and Welfare Bureau. Consuls General of Australia, Britain, Canada, Indonesia, Japan, Korea, Malaysia, New Zealand, Norway, the Philippines, Singapore, Thailand and the USA attended the briefing. Government representatives included Dr. Margaret Chan Fu-chun, Director of the Department of Health, Gregory Leung, Deputy Secretary for the Health and Welfare Bureau, and Dr. Leslie Sims, Senior Veterinary Officer, Agriculture and Fisheries Department.

The prime objective for the briefing was to reassure foreign representatives that it was safe for overseas visitors to come to Hong Kong. The briefing also covered the measures that had been taken by the Government to prevent the further spread of the virus.

The WHO findings were presented and Fok stressed that no countries had imposed travel restrictions or quarantine measures on Hong Kong. She reassured representatives that efforts were being made to devise a surveillance system to ensure future chicken and poultry imports to Hong Kong were H5N 1 virus-free.

On 8 December, 1997, Dr. Huang Chen-ya, Health spokesman of the Democratic Party, noted the potential adverse effects of the bird flu crisis on Hong Kong’s vibrant tourism industry. He said that overseas reporters had questioned him about the bird flu, as foreign countries had expressed concern of the possibility that their citizens might contract the bird flu virus while visiting Hong Kong. Health officials in Taiwan and Japan warned their people that Hong Kong was temporarily unsafe to visit. The Research Centre of Bird Flu in Australia warned Australians that it was not safe to visit markets that sold birds in Hong Kong. An article that appeared in the Australian newspaper, The Australian, mentioned that the bird flu might mutate and subsequently give rise to a pandemic, similar to the one of 1968.

The Hong Kong Tourist Association (HKTA) said that its overseas offices in South East Asia had received many enquires concerning the bird flu situation. The Department of Health insisted, however, that WHO had not categorized Hong Kong as a city of high risk. Hence, nothing was done to educate the international audience on bird flu. Under increasing pressure from overseas countries, the Department of Health later prepared a fact sheet that explained the avian flu to tourists and/or tourist groups planning to visit Hong Kong.Some local newspapers commented that the fact sheet did not present all of the facts, however, as H5N1 had already claimed two lives, and no mention was made of this.

The Asian bird flu crisis focused international attention on Hong Kong. Around the world, Governments warned their citizens not to visit Hong Kong, or if visits were inevitable, then visitors should avoid all contact with birds. Japan was the first to announce the development of a vaccine as a result of fears that bird flu H5N1 had reached its shores.

It was the public that suffered the most from the Governments poor handling of the crisis. Senior officials hardly made any announcements till it was late. It was left to the Department of Health to issue statement – the leader hardly addressed the people. In the grip of intense panic that was to be expected people rushed to the hospitals to be tested thereby creating further disorder.

Another discouraging fact was the Chief Executive Tung Chee-hwa's silence on the issue all December. Mr Tung's policy advisers, such as members of the Executive Council, kept their mouths shut on the entire issue - an over-cautious attitude that did not calm the public's fears.

Members of the Provisional Legislature did not any critical questions to officials of the Health Department or Agricultural and Fisheries Department. Members of the Urban Council also failed to hold any emergency meeting to discuss the bird flu.

But the government cleaned up their act after announcement of the slaughter of the chickens and won back little of the public’s approval which was lost after the debacle they made of the slaughter itself. Because the institutional mechanisms, media excepted, were ineffective, public fear led to congestion of the public hospital emergency wards. One cannot actually blame these citizens who carried their children to the wards.

It banned imports of chickens and restricted entry to infected areas.
A farm and biggest chicken market declared no-go zones
Mass Slaughter of Chickens and Poultry Ordered

These actions won them back some of the public approval and helped in allaying the fears a little bit

Compensation packages announced for farmers
There was compensation announced for the farmers whose livelihood were in tatters and these were announced to the affected parties. The poultry industry came under enormous financial pressure at the time when Hong Kong people were advised not to eat chicken during the height of the Asian bird flu crisis. Wholesalers tried to rebuild consumers’ confidence by sterilising Cheung Sha Wan Market, Hong Kong’s largest poultry wholesale market. Wholesale chicken prices continued to fall from HK 13.90 to HK$9.90 per kilogram, and chicken sales dropped by half.

Measures to Ensure Virus-free Chickens from Mainland China
The Chief Secretary announced to the public that chickens from mainland China would only be imported after a battery of test

Health-care workers
After accusations of not giving enough attention to the plight of the health care workers, a Health spokesman advised the media that guidelines had been given to the ambulance services. A spokesperson from the Hospital Authority claimed that a briefing session aimed at disseminating information about the virus and establishing additional preventive measures in order to alleviate front-line workers’ concerns would be held.

Mass Media
Mass media was blamed for exaggerating the incidence of bird flu, this also was irresponsible behaviour for, without pressure and exposure in the mass media, it is doubtful the Government would have reacted to the crisis much faster and more responsibly than ever before. In fact it was the media that gave adequate coverage to the crisis and were responsible for informing the public

Throughout the crisis the political parties remained critical of the government’s lackadaisical attitude toward the flu. In their opinion the crisis was handled very poorly. They expressed concern at the way things were being handled and interrogated the Government at every opportunity through the mass media and during meetings of the Provisional Legislative Council. Many commented that the Government was unable to handle the crisis and failed to provide the public with a high degree of transparency regarding information surrounding the bird flu.

Executive Councilor Tam Yiu-chung claimed that the Government had underestimated the deadly bird flu virus, made decisions in a hurry, was ill- prepared and lacked sufficient evaluation processes, and failed to make a comprehensive plan, or if there was one, failed to make it known and available to the public.

But the political parties seemed ill prepared for the crisis as well, veering from one end to another from criticizing the government to issuing statements in support of the Government's decision to ban the imports of chickens from the mainland.
With the benefit of hindsight, Hong Kong during the transition period from 1984 to June 1997 wasted too much time in political disputes at the expense of paying sufficient attention to public health.

There is a long list of good reasons for involving the public as early as possible about the decision-making involved and pointers on how to handle a crisis like an H5N1 pandemic. To mention just the most obvious ones: You get better decisions; you get better public understanding of the decisions; and you get more public buy-in, and therefore more compliance in implementing the decisions. You also get a calmer public. People won’t panic as out of control when they feel that they are inadequately warned or involved and don’t end up feeling unprepared.

You have to warn people about the risk of a flu pandemic as they need to prepare, there are things they need to know, facts and ideas they need to get used to — like the reality that scarce medical help will go first to those who are most needed (for their labor or expertise), not to those who are most vulnerable. Most importantly they need prepare emotionally. People adjust to new threats in stages. Typically, apathy and denial give way only reluctantly. Then comes the “adjustment reaction” phase: vicarious rehearsal, hyper vigilance, a temporary flood of emotion as people begin imagining what it might be like. Only after that can we roll up our sleeves and get serious. [Peter Sandman on how to communicate in crisis]

The Asian Bird Flu virus in 1997 is a clear portrayal of how badly things escalate if a crisis is not handled properly in a timely manner and with the buy-in of the public.

  • South China Post
  • WHO website
  • Newspaper Archives
  • www3.niu.edu
  • Pandemic Influenza Risk Communication: The Teachable Moment Peter M. Sandman and Jody Lanard.
  • Bird Flu – Communicating the Risk Peter M. Sandman and Jody Lanard. Health


Tuesday, July 10, 2007

HEINEKEN N. V. Global Branding & Advertising

Case Background:

Managers at Heineken headquarters were concerned with the consistency of Heineken’s brand image across the globe so they commissioned two research projects; Project Comet and Project Mosa, in order to find out the best possible manner in which Heineken’s global identity could be established. They wanted to find out if it was possible to come up with some standardized communication across the board in order to have uniformity in Heineken’s brand image and advertising worldwide.

Project Comet:

The objective of Project Comet was to find out how to enhance Heineken's competitive advantage by more consistently projecting the brand as "the world's leading premium beer." The project team concluded that Heineken's desired brand image was "good taste".
Because of Heineken's flavor, its roots, commitment to and pride in brewing a high-quality lager. Because Heineken is a symbol of premiumness, taste, tradition around the world
The team believed that no other brand in the world could claim superior good taste with as much credibility as Heineken. The brand's good taste image would be built on five core brand values:

1. Tradition
2. Taste
3. Pemiumness
4. Winning spirit
5. Friendship

Taste and premiumness were regarded as the price of entry. Project team members thought that all five could be reflected in one way or another through the locations, situations, relationships, casting, lighting, style, and tone used in each commercial. According to Project Comet all advertising would have to have impact and therefore never safe. The advertising would have to be “leading edge and state of the art, taking calculated risks and initiatives to achieve the desired effects”.

Project Mosa
This project consisted of focus groups conducted in 8 countries to find out
(a) what male beer drinkers meant by taste and friendship in relation to premium beer drinking.
(b) Which expressions of taste and friendship could be used by the Heineken brand in advertising?

Heineken Background
The Heineken brewery was founded in Amsterdam in 1863 by Gerard Adriaan Heineken. Over the years it has done exceedingly well for itself. Heineken's position in the beer market is consolidated by its strong history, making it the number two beer brewer in the world, thus accounting for nearly 5% of the world’s production. With a major global presence, Heineken's main market is Europe, accounting for 47% of its sales.

Traditionally, brewing has been a highly fragmented industry comprising a large number of regional and national breweries that satisfied distinct local consumer tastes. Heineken has a pragmatic view taking a cautious approach to entering new markets. While it encourages organic growth, it has expanded by using a combination of direct export, licensing, joint venture, strategic alliance and acquisition. While it exports its premium Heineken brand from its plant in Amsterdam in the Netherlands, it is also involved in local regional production. A typical entry strategy has been to begin by exporting using intermediaries such as local distributors, and then to develop licensing production agreements through joint ventures with local brewers. Ultimately, the goal is to acquire full ownership and control of the local production wherever possible.

Heineken had a different image in different countries and was marketed differently. Although considered a mainstream brand, recently sales volume has been declining and the brand image is in need of some revitalization. At the end of 1993, the Heineken brand held a 24% volume share in Netherlands. As the market leader, it was marketed as a mainstream brand. Outside the Netherlands, however, Heineken had consistently been marketed as a premium brand. In some markets, such as the United States and Hong Kong, Heineken had successfully established a distinct image for the-brand. The image was sometimes narrowly drawn such that Heineken was seen as appropriate solely for special occasions when making a social statement was important rather than for daily consumption. In other markets, such as in Latin America, Heineken was viewed as just one among many European imported beers. But across all markets, the Heineken brand was acknowledged as a lighter beer of superior quality presented in attractive packaging. Heineken was not bottled in the large United States market, but was the number one imported beer. In Germany, the heaviest beer-consuming country in Europe (144 liters per capita), national brands still dominated the market and Heineken was available only through imports.

Q # 1: What would be the role of communication for Heineken brand? Would it differ in different markets?

Communication plays a very important role in the creation of brand equity - it’s the platform through which you reach your consumers and have the opportunity to position your brand howsoever you want to. Even if a firm has the best product ever made, it will still need advertising and promotion. One of the main objectives of communication is to develop awareness, perceived quality and brand associations which are ultimately responsible for the building of brand loyalty. Apart from the obvious benefits of creating a steady stream of future revenue from loyal customers there are other benefits which include the ability to withstand competitive attracts from new brands, the ability to survive short term interruptions in supply, and the ability to survive changes in government legislation..

Communication will play a pivotal role for Heineken for several reasons – at the moment the brand is finding itself with many different voices, the task is to integrate its global strategy with its local one. A major impact of globalization is on branding & marketing, companies increasingly compete with each other on a global scale and find themselves having to communicate their products to a global audience.

The challenge for Heineken is that being a global brand it has to have a communication strategy that retains its uniformity so as to make sure that a single message is conveyed yet it has to take into account the local culture and nuances of different markets. The goal as well as the challenge of communication for Heineken will be to define and convey the brand's core values yet tailor its message so as to appeal to its different markets, tapping into local trends and leveraging that knowledge to create a connection with the audience so that they build an emotional tie with Heineken and perceive it as an integral part of their lives. This is dependent on an acute awareness of such trends; it's all about leveraging knowledge through adequate communication and this is what Heineken has to do. Through communication one can leverage local events for e.g. like the Chinese New Year, Labour Day etc and build upon it. The execution of this communication lies in devising and consistently applying a specific style, tone, and image.

Although it’s the head office that communicates the fundamental brand values, it will be crucial for Heineken to remember and acknowledge local differences. The key is to find the right balance between central guidelines that the entire organization "lives" by and the content of the brand at a local level. It's only when they will understand and properly manage the relationship between the global brand and the local consumer that they will have a strong global brand. The communication thus has to be different while maintaining a central core that is uniform.

The role of Heineken’s local brand management will be to refine the communication of the brand's core values by adjusting their execution to communicate meaningfully with each local market. The communication will differ in all markets according to where they are in the market evolution cycle and what their objectives are for different markets

Heineken has its roots in Amsterdam in the Netherlands but continues to seek ways of expanding into new markets while moving towards increased market share domination in those it already occupies. The company has a global philosophy with internationally known brands, but shows an appreciation and commitment to local markets, production and brands. It seeks to differentiate its brands through market segmentation targeting international and national markets with the group brands.

All marketing strategy is built on STP, segmentation, Targeting and Positioning. A company discovers different needs and groups in the marketplace, targets those needs and groups in the marketplace that it can satisfy in a superior way and then positions its offerings so that the target market recognizes the company’s distinctive offering and image.

Marketing Objectives
In different markets Heineken has different objectives and thus its communication will differ in the role it plays. The stages of development and evolution may be the same but marketing objective is different
Building: In certain markets it has to build its image
Markets: Brazil, Argentina, Germany
Although in the sense of evolution Germany and South America are on different points of the curve the objective is the same and that is to build the brand image.
The German consumer remains fiercely loyal to local German breweries so posing a particular challenge to a newcomer introducing a global brand. The regional administrative control further hinders achievement of an efficient national distribution network.

Enrichment: In other markets it has to enrich its image
Markets: Hong Kong, Japan
The markets here are highly competitive as far as price is concerned and they are high volume market, the brand has to cut across the clutter

Confirmation: In others it has to confirm its brand promise
Markets: USA

This market is characterized by high brand as well as segment proliferation, product differentiation does exist so communication has to center around confirmation of the brands’ premium quality and its image of being better than standard. The market here is competitive and so communication has to be on the mark always. The consumers are aware and the product is in the declining stages so the strategy needs to reflect that and communication should probably focus on the core brand value of premium taste, friendship and the wnning spirit

Restoration: And in some it has to restore its image
Markets: Italy, Netherlands

In markets that are characterized by consumer sophistication, segmentation, price competitiveness and high volume focus the objective is restoration of the image - a reiteration so to speak. And thus communication will play a different strategic role in each case

Q #2: What are the key insights that international marketing team can leverage for the brand? Would the insights for different markets be different? Why? If yes, what are the market-wise insights?

A brand operates in an environment consisting of, on the one hand, the elements of the strategic planning cycle, and on the other hand, organizational conventions, competitive forces, market structures, cultural factors, consumer motivation and media attention: the lenses and filters through which consumers perceive and experience the brand. These factors combined constitute the brand environment which differs market to market.

Global brand management needs to understand how various markets compare on these issues in order to determine how best to manage the brand globally. Determining communalities and differences in business strategy, brand expression and marketing provides insight into the extent, to which the organization’s policies and activities regarding the brand diverge, as well as the causes and rationale for divergence. Doing the same for the situational factors, the brand perception and the brand recognition provides an understanding of the extent to which the brand is perceived differently across markets, and what causes these differences. A complete analysis offers brand management an appreciation of the core elements of the brand, as expressed and perceived around the world.

Heineken brand managers have to turn their insight into policies that will unlock the full potential of their brand in a particular market, and across multiple markets at the same time. This requires a common framework that can be used across markets in order to obtain equivalence of brand analysis. A framework ensures not only that global brand management talks the same brand language and follows the same procedures as local brand management, but also that it becomes clear which internal or external factors are uniquely influencing to particular societies or even segments of societies. In international markets, an important issue for the firm is the selection of insights to use in different countries, should they be the same thus leveraging brand strength across boundaries, or whether to maintain local brands responding to local customer preferences.

There are several insights to be gathered by a market survey namely as to where there is greater brand usage and market share and where the trial/awareness ratio is good and where it needs further push. The relationship between the product-trial rate and the customer awareness level will remain to be the deciding factor on reach, frequency & impact of the advertising campaign. These things help decide on the marketing communications mix that the company uses.

INSIGHTS through surveys!
  • Ireland and UK rank amongst the highest in beer consumption yet market share position is weak in UK.
  • The highest percentage of people naming Heineken as their first choice is highest in Greece and lowest in Italy and Spain with UK as the third lowest.
  • Market share position is weakest in Spain and UK so Heineken needs to build and infiltrate the market
  • Heineken needs to increase its SOV in UK and Spain
  • Greece is its best market
Changing patterns of consumption
Despite globalization there are substantial differences in beer consumptions, consumer preferences and behaviors as well as the mix of competitors. The evolutionary cycle that the market is in is different as well.

Europe accounts for around 40% of global beer production and is in the mature stage of the industry life cycle. Since 1990, changing patterns of consumption have been evident with declining volumes in high-consuming Germany, Belgium, Denmark and the UK set against rapid growth in southern Europe in traditionally lower-consuming Spain, Italy, Portugal and Greece, partly in response to tourism demand which is predicted to continue to grow. Rapid increases in the Central Eastern European (CEE) countries are also

Stage of Development/Market Evolution:
Stage of Development: Embryonic


Market Evolution:

  • Fragmented local brewers
  • High local consumer loyalty
Here where we are introducing existing products in a new market we have to develop the market. The local brewers are fragmented and there is high local consumer loyalty and these factors impact the communications the marketing strategy will be different.


Market Development – the consumer has to be familiarized with the brand as the market is fragmented and there is high local loyalty Heineken will develop its IMC according to the insights from this particular market [given above]
Reach and frequency will both have t be higher as the aim is to get the people familairised with the vrand.

Stage of Development: Take-off

Markets: Eastern Europe,
Southeast Asia, South America, Greece/Portugal

Market Evolution:

  • Shifts in consumer taste [Eastern Europe]
  • Development of standard beer [Eastern Europe]
  • Quality Improvement
  • Introduction of premium segment
Market Objective
South America – Building

Eastern Europe has high potential as beer is already accepted and enjoyed in these countries, despite shortages due to production and distribution problems. There has been a shift in beer consumption resulting in rapid increases in the Central Eastern European (CEE) countries. Here Heineken’s strategy is to develop local beer as well as push Heineken as the premium choice. This insight gives some indication to the tone of voice required – these markets are emerging and will have the characteristics of the emergence stage, there will be diffused-preference. The insights particular to this market suggest that the core brand values of friendship and the winning spirit will resonate far more. The market is moving on towards quality improvement and introduction of the premium segment. The objective here is to build as far as South America is concerned so there should be more emphasis on showing the quality and showing it with effective reach and frequency

Stage of Development: Growing

Italy, Spain, Japan
North & Central Europe, Australia

Market Objective:

South America – Building
Italy – Restoration
Japan - Enrichment

Market Evolution:

  • High Volume focus
  • Price Competition
  • Segmentation
  • Consumer Sophistication
In high-growth, price-sensitive markets communication has to leverage the benefits of standardization and large market size. The insights even in markets in similar evolutionary cycle are different. The market here is in the process of growth and so it will be very competitive with a lot of players trying to get into the game – the emphasis here will be on frequency and increasing the share of voice. As seen from the above table it has t increase its advertising share of voice position
NOTE: The interesting point to note here is that even though some markets may be in the same evolutionary cycle the objectives that Heineken has different in one market it has to build and in another it has to enrich

Stage of Development: Mature

Markets: North Central Europe/Australia

Market Evolution:
  • Segmentation
  • Consumer Sophistication
A market that has reached a state of equilibrium marked by the absence of significant growth or innovation is called a mature market and in such markets you have to. A mature market has to be revitalized – communication will play the role of rekindling interest and stressing on quality and premiumness with brand quality thrown in and what the brand stands for re-emphasized.

Stage of Development: Declining

Market: USA

Market Evolution:
  • Brand segment/proliferation
  • Product Differentiation
In all these different stages communication will play a different role. Different stages have characteristic marking that evolution and each stage needs a different level of marketing muscle. Reach, frequency & impact of the advertising campaign will be dependant on how much awareness there is and what level of acceptance and trial there is present in the market.

For Heineken the desired image was 'good taste’ and the key goal was to enhance Heineken’s competitive advantage by more consistently projecting the brand as ‘the world’s premier beer’. It had a strong legacy in terms of its flavour its roots and commitment and pride to brewing a high quality lager and as such was the symbol of premuimness, taste, and tradition around the world.

This good taste image was to be built on five core brand values of taste, premiumness, tradition, winning sprit & friendship.

According to Project Mosa which conducted focus groups in 8 countries to understand what male drinkers meant by taste and friendship in relation to premium beer drinking and which expressions of taste and friendship could be used by the Heineken brand in advertising. A few interesting observations and insights were discovered.

According to the focus group the word ‘premium’ brought certain ideas and images to the mind of the people, these were diametrically opposite to ‘standard'.

When you think of both the words different associations come to mind and so Heineken can leverage these associations to promote their premium quality.

When you think of standard these words come in mind [according to the study]

Standard - Company
  • Nuclear family
  • Large groups
  • Your wife
  • Colleagues

Premium - Company
  • Intimate friends
  • Smaller groups
  • Girlfriend
  • Boss

Standard - Occasions and Moments
  • After work
  • At meal
  • At home
  • Watching TV
  • Thirst-quenching (popular bars)
  • Beach
  • To party
  • Daytime
  • After sports
  • Sport events
Premium - Occasions and Moments
  • Meeting people
  • Fancy meals
  • Away from home
  • New encounters
  • Savoring
  • Traveling
  • Intimate moments & places
  • Elegant Parties
  • Nighttime
  • Entertaining
  • Disco/Nightclub
Standard - Role of Beer
  • Social participation
  • Thirst-quencher
  • Alcohol effect
  • Problem solver
Premium - Role of Beer
  • Ego enhancement/self-esteem
  • A treat
  • A Communication Tool
  • Signal Function
Q#3: Would the ‘reason to believe’ in the promise be same in each market? Why? If no, what would be the support for promise in each market?

The reasons to believe will be inline with the brand environment. The brand environment consists of the brand itself – expression, perception and recognition – surrounded by internal and external factors that have an influence on the brand. Only by taking these factors into consideration can management understand the entire brand proposition, and how it is affected in different markets. Some factors affect some brand elements more than others, some types of brands are more sensitive to particular factors, and the effect may vary according to markets and consumer segments.

Heineken has to find the right balance between global harmonization and local relevancy and this is the mix that will drive Heineken to growth. They want to project the brand as the ‘world’s leading’ premium beer’ and their desired brand image is that of ‘good taste’. Their promise of being the ‘world’s leading premium quality beer’ will stay the same but the reason to believe or the attributes that lead the consumer to believe that statement will be different.
A global brand has to ensure that their promise translates to each region.

An international marketing strategy provides a structure to leverage strong brands into other markets, assimilate acquired brands, and rationalize the firm's international branding strategy. This is achieved by leveraging key insights from different market so as to form a well-knit coherent brand structure.

Heineken is a global brand and as such is present in a lot of different markets but these markets differ as to their place in the evolutionary cycle and the marketing objectives differ according to the different markets. Just as products have their life cycles so do markets and as such Heineken will need to visualize the market’s evolutionary path as it is affected by new need, competitors, technology, channels and other developments.

Markets have different ideas about what they believe and what they respond to.
The reason to believe as far as taste is concerned stays relatively the same in most of the markets, whereas the expressions of friendship do change from country to country.

The ‘reason to believe’ as far as taste is concerned

  • Two years Amsterdam training
  • 24 quality checks
  • Bottles returned to Amsterdam.
These remain the same in all the markets

Brewing Skills
  • 100% malt
  • Smooth Taste
  • Pure Taste
  • Matured Longer
  • For Netherlands is concerned the ‘pure taste’ is the reason to believe as far as brewing skill is concerned.
  • For Germany it is 100% malt and smooth taste
  • For Italy it’s smooth and pure taste
  • For USA its al three 100% malt and smooth and pure taste
  • As far as the average of the 8 countries was concerned none of the factors figured in as important or a positive indicator of quality.
  • Family since 1863
  • Original Recipe
  • Where Beer was born
  • - For Netherlands ‘Family since 1863’ was not an indicator or reason to believe but ‘Original Recipe’ and ‘Where the beer was born’ were reasons to believe in tradition
  • - For Germany all three were reasons to believe
  • - For Italy only ‘where the beer was born’ was a reason to belive in tradition
  • - For USA like Italy all three were reasons to believe in tradition
  • - As far as the average of the 8 countries is concerned ‘Original Recipe’ and ‘Where beer was born’, are a positive indicator of quality.

  • More bars/more countries
  • More bar/more countries was a reason to believe in Availability only in Netherland

When you show these elements in your advertisement different ones will be a reason to believe in different countries. For e.g.
  • Cat and dog
  • Rugby
  • True Friends
  • Always count on Heineken
  • Respect

  • - For Netherlands ‘Rugby’, True Friends and ‘Always count on Heineken were reasons to believe Recipe’ when you showed them to convey the core value of friendship.
  • - For Germany only ‘true friends’ and ‘Always count on Heineken’ were reasons to believe.
  • - For Italy cat and dog, Rugby, and Always count on Heineken were reasons to believe.
  • - For USA like Germany only ‘true friends’ and ‘Always count on Heineken’ were reasons to believe.
  • - As far as the average of the 8 countries is concerned only ‘true friends’ and ‘Always count on Heineken’ were reasons to believe.

This note was prepared by Professor David E. Bell as a basis for class discussion.

Note on Store Location

Selecting a location for a retail store is a critical undertaking. A store needs to be in a building of adequate size, that is appropriate for the nature of the offering, and that is in satisfactory condition. It needs to be in a location that is convenient for a suitably large number of potential customers and preferably in a very visible location so as to serve a promotional role. All of these attributes must be available at a cost consistent with the profit potential of the business and involve a level of commitment that is compatible with the riskiness of the venture.

Despite all these provisions, store siting is one of the most well understood aspects of retailing. Roughly speaking, one may think of store siting issues in terms of macro conditions, that is, how attractive is the region around the store, and micro conditions, that is, how attractive is the store itself and its immediate vicinity. The macro issues determine the potential of the store to attract customers, the micro issues determine, in part, the willingness of those potential customers actually to visit the store.

Identifying Candidate Regions
The first Wal-Mart store was opened in Rogers, Arkansas. This location decision was not because that was the world’s most attractive location for such a store, but because it was close to Sam Walton’s home and had an affordable rent. But when a chain is thinking about its 20th or 30th store, a more systematic approach to finding good locations may be justified.

Assuming your store concept has been well thought out, it should be possible to describe the target consumer. For example for a do-it-yourself store the target consumer might be a homeowner whose home is worth more than $100,000 and which was built before 1963. Where in the United States are there agglomerations of such people?

Information is available from a number of sources about the population in a region of interest. The United States conducts a population census every decade and the results are publicly available on computer tapes and CD ROM discs. In addition to the basic head count that is requested of every household, extensive census questionnaires are filled out by every 10th household. This means it is possible to compute accurate statistics concerning home ownership, home assessed value, major possessions, nature of employment, and family income. Many consulting firms incorporate these data in sophisticated programs that allow the user to print out census statistics on any region of the United States, defined even down to the level of city blocks. A region of interest may even be defined by using a light pen to sketch out a rough contour on a map shown on a monitor screen.

Census data is, on average, about six years out of date at the time it is used and is inconvenient to use if the U.S. tapes are used directly, or expensive if a research firm is hired. Two publications provide more up-to-date and convenient access to demographic information. The Survey of Buying Power, published annually by the magazine Sales & Marketing Management, gives current demographic information at the city level including extensive data about retail sales, by product type, and estimated buying power in the region. It also estimates future values of these statistics. The Editor & Publishing Market Guide gives far less information of a statistical nature but more physical information about a region such as the number of cars, banks, and a description of local industries. It also provides an extensive list of retail stores, which is invaluable for a first cut at the second key regional characteristic of a candidate region: the competition.

Perhaps your store is sufficiently new to have little meaningful competition, or perhaps it is a vastly superior rendition of an existing format. In these cases it may suffice to ignore existing competition. Otherwise it makes sense to reevaluate the buying potential of a region in light of the sales that are likely to be drawn off by competing formats. For example, suppose that we wish to open a bookstore in a city that we calculate has a book-buying potential of $25 per capita per year.
(We might draw this conclusion by noting that regions with similar demographics have per capita sales at this level.) If we calculate that the city already has bookstores whose cumulative sales are equivalent to $24 per capita then there may be little left over for a new entrant. In summary, a first cut method for assessing potential demand is

Total Regional Buying Power – Existing Sales = Unmet Demand.

A simpler measure of regional attractiveness is the sales per square foot in existing competing stores. If sales are substantially higher than needed to make a satisfactory profit, it may mean there is enough to share with a new entrant? If a region is over stored, that is, has too small a population to justify the stores currently open, this will show up as a low average sales per square foot.

Even if there is unmet demand in a region, it is necessary to consider whether that demand will gravitate to your store. If the unmet demand is in one section of town, it makes sense that a store located there will pick up some of that potential. If the unmet demand is concentrated among a segment of customers, say children’s books, parents may be prepared to drive past existing stores to benefit from your superior selection. But if the unmet demand is spread throughout the region and across all segments, it may mean that this region is less book-oriented than others. Or perhaps existing bookstores are poorly merchandised, but not so poorly as to encourage a person to drive across town to take advantage of your store.

A major issue in determining regional sales potential is to consider whether sales are "leaking" out of the region. Residents may be making purchases outside of the boundaries of the region, perhaps at a regional mall, perhaps through mail order, or perhaps on annual pilgrimages to a major metropolis. The question for a potential entrant to the area is whether the leakage will reduce, and by how much, once customers appreciate the entrant’s offering.

The potential profitability of a region depends not only on the unmet demand, but also on the costs that would be incurred to operate there. A region might have very high store rental rates, or local taxes, or onerous regulations about opening hours in the evenings, on Sundays and on holidays. A region might be a great distance from an existing central warehouse. In particular it might fall just beyond a one day drive for company trucks.

A region might also offer operating economies if it is close to existing stores in a neighboring region. For example, if they are in the same television market then customers in the new region may already be familiar with your advertising, and, moreover, no new expenditures will be necessary. Existing store managers can more easily train and supervise staff for the new stores. A critical mass of stores might also increase bargaining leverage with a state or local suppliers.

Evaluating Trading Areas
For screening purposes we have considered regions as a totality, but a store will be at a specific site and so it is important to consider the potential demand at that particular location.
The trading area of a store is that region from which most of its customers are drawn. While terms are not precise, the primary trading area normally means an area responsible for about 70% of sales. The secondary trading area is that responsible for about the next 20% of business. Of course, such definitions do not lead to precise definitions of a zone; there are many possible ways to draw a region responsible for 70% of sales. A circular trading area may not make sense if barriers such as mountains, a river, or an expressway distort travel times or population densities. The Mall of America in Minneapolis, currently still a tourist attraction, may have a secondary trading area that encompasses most of the United States. The intent of course is to describe a region from which it is reasonable to suppose most of your customers live.

For an existing store, calculating trading areas is relatively simple by use of "customer spotting" techniques. It is straightforward to interview a sample of customers as they enter or leave the store. More dangerous (statistically speaking) is to interview a sample of people at some other location and ask them where they shop and where they live. The sample gained may not be representative of the customer base. At least one store asks customers at checkout to give their zip code. Stores with in-house credit cards already have plenty of information about charge customers, though cash customers may have different demographics. Those that take only bank credit cards might ask customers for their phone numbers (which can be used to identify residence). In some countries, car license plate numbers give away the owner’s town of residence. In many U.S. states, the department of motor vehicles will provide, for a fee, the name and address of a car owner if the license plate number is known. This can be useful for determining not only your own trading zone but those of your competitors, or for a mall that you may be considering. While zip code information is a little too aggregated, individual addresses may be too precise to be useful without laborious map reading. One device in customer interviews is to ask them which major road intersection they live near.

Estimating the likely trading area at a new location is much harder. It helps greatly if one knows the trading area of stores similar to that which is to be opened. Such stores might be others in the same chain or competitor stores. Statistics of interest from existing stores include the distribution of distance (in terms of time or some other measure of degree of difficulty) traveled by customers, their demographics, and average purchase amount. Of course, travel time need not be the right measure of difficulty for commuting to a store. For example, customers of a specialty store at a mall may have traveled, not from home, but a few feet from the mall anchor store. Some customers of a supermarket may be stopping on their way home from work, having made a detour of one block. Shoppers at a downtown store may be workers in local office buildings. Finally, and most intriguingly, customers may prove to be those of your competitors, doing some comparison shopping.

There are a few theories that predict where people will shop, based on simplified issues such as distance to stores, and the relative sizes of competing stores. Reilly’s Law of Retail Gravitation considers a customer deliberating between journeying to one of two towns (or malls). William J. Reilly posited that a customer’s attraction to a shopping complex went up as the square root of the selling space available. (Actually his formulation was in terms of the population of towns, but the principle is the same.) The relative attractiveness of each town is equal to the square root of its selling space divided by its distance away. D. L. Huff proposed a model in which a customer’s probability of shopping at a particular location was proportional to a ratio of selling space to the travel time required to get there. Of course, such theories are useful only in making rough guesses in the absence of more concrete sources of information.

Reilly’s Law relates only to the relative attractiveness of store locations. The distance a person will travel to shop at a store varies greatly by person and by the nature of the purchase. For a small purchase such as a newspaper or a soda (a convenience good), there is rarely a need to travel far since most neighborhoods have a local store that carries such items. A customer has no incentive to travel even a mile or two in order to save 5¢ or 10¢ on such a purchase. For a washing machine, or a television (a shopping good), a customer might feel that it is worth traveling many miles to have the benefit of a more comprehensive selection and/or lower prices. People are known to travel up to 50 miles to visit regional shopping malls and warehouse clubs.

As Reilly suggests, people will travel further if there are more stores to choose from when they get there. This idea is sometimes called the principle of cumulative attraction. For shopping goods, a consumer will usually prefer to go to a single location where two or more stores may be shopped so as to compare selections and prices. Automobile dealers often congregate in a single location (the "automile"). Furniture stores also cluster together. If there are three stores of a competing nature in a town, two in one location and one some distance away, the two may have an advantage. Though the isolated store is presumably closer to more consumers, many people may prefer to drive past the isolated store in order to have the benefit of one-stop comparison shopping. Power retailers can afford to capture the advantage of the lower rents of isolated locations if they can convince potential customers that comparison shopping is unnecessary on the grounds that they carry a wide selection of goods at prices that are competitive.

Evaluating the Location
Store locations are usually classified according to the following hierarchy of association:

Free standing (or isolated):
A store that is not close to any other stores. A store is free standing if, for example, a customer of that store is unlikely to walk from it to another store. Such stores make sense if in a residential neighborhood or office complex where for some set of people the location happens to be convenient. This includes isolated locations that have good interceptor qualities (for example, a supermarket that is on a commuter route).

Strip malls: A set of stores having a common parking lot usually arranged in linear fashion. Often leased from a common owner, the mall may have developed in incremental fashion. It will usually include stores selling routine goods such as a supermarket and drugstore and services such as dry cleaning and photo developing.

Downtown shopping district: A store that is one of many on streets near a city center. There is usually no common ownership of the buildings and only rarely some kind of effective association formed to tackle common concerns such as, perhaps, street cleaning. A neighborhood shopping
district is similar but on a smaller scale. A small town might have two or three such centers.

Local malls: A set of stores, usually managed and owned by a single company, organized around an enclosed, possibly covered, common space. Typically having 20-30 stores and 100,000 to 250,000 square feet of gross leasable space, such a mall will have a trading area of some portion of a city and include a branch store of a local department store, a variety store, and a category killer such as Toys R Us.

Regional malls: Larger than a local mall, perhaps 300,000 to 800,000 square feet, and situated near highways to attract customers from a considerably wider area. The stores contain primarily shopping goods and include two or more anchor stores such as a department store (e.g., Dillard’s) and a mass merchandiser (e.g., Sears). Such malls do not make sense as locations for supermarkets. Supermarket customers are not apt to combine their trip with a tour of the department store and they also need to park close to the store entrance (not always possible at a regional mall on a busy day). Neither are department-store shoppers likely to decide impulsively to pick up a week’s groceries, especially if they are 20 miles from home. A mall is effective (and affordable) only if there is a sharing of customers among the member stores (i.e., there are economies of scale derived from the principle of cumulative attraction).

Super-regional malls:
Those having more than about 800,000 square feet, referred to as super-regional or mega malls. They are intended to attract customers from a 50-mile radius. Since customers may have spent upwards of an hour getting to these malls, it is important to include rest areas, food courts, and entertainment.

A site can be unacceptable if rush hour traffic snarls access for four hours per day, or if access is otherwise inhibited say by a median strip, or unhelpful one-way signs. A major store will often negotiate new traffic systems with the local authorities before signing a lease. A site is enhanced if the store or its sign can be easily seen for some distance away, or at the very least as one is driving by. Such visibility provides advertising and encourages impulse stops. A site’s visibility might be latent: if the previous occupant of a free standing location made the place a local landmark, customers will be able to refer others to it quite easily.

As with any real estate purchase, it makes sense to do one’s homework about any local problems: Is the local army base closing? Is a new mall opening up? Is traffic being re-routed? How do the demographics of the immediate neighborhood compare to the overall demographics of the trading area? If the store happens to be located in the one run-down part of town, customers may feel unsafe visiting the location. It is worth hanging around the store location for a week or more. Is the parking lot a hangout for local gangs, a flea market on Sundays, does it flood when it rains? Which brings us to the question of the lease.

The Lease
While some free standing stores may choose to buy their own building, most stores are leased from the owner. This eliminates the need for up-front capital and reduces the time a store owner needs to spend on maintenance issues. There is some rationale for separating one’s aspirations for riches via merchandising and via real estate speculation. Owning the building may make sense in a few circumstances, for example, if the financial success of the building is inexorably intertwined with the store in it. This may occur if the store has special architectural demands, or if the store is to be in a very isolated or otherwise risky location. While leasing a store requires no up-front capital, many companies capitalize the lease on their balance sheet, recognizing that the lease payments are just as much a liability as long-term debt. Analysts and lenders typically capitalize retail leases when calculating debt-coverage ratios.

A lease commonly covers the following issues:
Price: It is usual for the price to be quoted in dollars per square feet (usually total square feet) or as a percentage of sales. Many stores have leases that require payment of the higher of some base rent per square foot and a percentage of sales. By this device a landlord can effectively evict a store with low sales (because the rent is the high relative to the sales) or participate in the store’s success.
Length: A lease might be for a fixed period of time with options for renewal. If the renewal option is not automatic, the contract might spell out conditions about how the lease is to be renegotiated at the end of that time. The store might have first right of refusal on any deal the landlord offers to another store, for example.
Contingencies: Of great importance are the terms under which a store may break a lease. Even successful chains sometimes err in their choice of location. A lease is an operating commitment and the lessor is highly placed in the hierarchy of claimants in bankruptcy proceedings. A lease will often require that a store not "go dark," that is, the lessee cannot simply close down operations and make lease payments on an empty store. A lease might, however, permit the store to sub-let the building or to operate a different format; for example, Woolworth’s might close its variety store but re-open as a World Foot Locker. Details of lease negotiation should not obscure the fact that no lease is favorable enough to make a poor location viable.

Forecasting Demand
Estimating likely demand at a location is not an easy task. Every location seems to have, at least after the fact, some special circumstance that makes it out of the ordinary. If the store is the first of its type, rough estimates may be gained by considering the sales per square foot in neighboring stores, or by estimating per capita revenue from population in the trading area. But evidently such estimation techniques do not consider the effects of poor assortments or indifferent customer service.

The task is a little easier if the new store is one of a chain, for then the new location can be compared to existing ones, and sometimes to that of a competitor’s store. The analogy method (sometimes called the peer method) proceeds by identifying that store which, all in all, seems to be the closest, demographically, to the candidate.

It may be that no store seems sufficiently similar to make an immediate comparison plausible. Perhaps, though, by understanding patterns of sales across existing stores a useful extrapolation might be made to the new location. For example, sales per square foot or sales per capita or sales per household might be found to be more or less constant at existing stores. More likely is that a complex theory is developed in which, say, sales per capita varies with average income per capita and/or other factors.

Regression analysis is the methodology most often used to provide specific relationships between sales and measurable explanatory factors. Regression analysis is particularly useful for aiding understanding. An analysis might suggest that "all else being equal" stores that share a parking lot with a supermarket have higher sales than those that do not. Or it might reveal that stores open 24 hours per day do no better (in sales per square foot, say) than those open 18 hours per day.

There are two main drawbacks to the use of regression analysis. The first is that the value of the conclusions depends critically on the number of stores in the sample. Twenty stores might be a minimum for gaining anything more than a rough insight into any relationships between factors.

Fledgling chains need siting help long before they reach 20 stores. The second drawback is that the scientific trappings of the computer output often leads users of regression to place too much faith in the predictions that arise from the model. With a database of 20 stores, say, it might well be true that the 5 stores sited near a church did better than the others, but will this relationship really hold up for the next 20 locations?

A common result is that the model works beautifully on existing stores, but not on new stores. A model is not validated until it has successfully predicted sales of stores not originally in its database. To avoid the delay that this step inevitably entails, it is useful, if possible, to "hold back" 2 or 3 existing locations from the sample of stores included in the analysis. These may then be used as a check on any conclusions drawn by playing the role of "new" stores—that is, new to the model.

Forecasting Profitability
Unless sales are important for strategic purposes, the primary forecasting job should be that of predicting the profitability of a location. It makes sense to set up a spreadsheet that accounts for initial costs, operating costs including lease costs, cost of goods, and so on. These should be expressed in relation to sales as appropriate. Note that sales may not equal demand if out-of-stocks are common, or if service is slow. The analysis should indicate that the store will provide a cash flow that exceeds the company’s cost of capital, that is, has a positive net present value.

Many people will analyze the "expected case" scenario, but retailing is a risky affair. It makes some sense to consider the costs incurred of opening in a location that fails to be profitable. On the brighter side it also makes sense to consider the costs of expansion should the location prove even better than expected.

Tuesday, June 26, 2007


Guru.com, by Rajiv Lal, Ann Leamon.
Harvard Business School Case ...

Situation Analysis

Guru.com is an online marketplace for freelance talent, which was launched in December 1999. It started off by catering to about 25 million independent professionals in the US.

By the end of the twentieth century, the staffing industry had changed dramatically there was a mass movement towards outsourcing and the rise of an independent workforce. In fact experts prophesied the establishment of a ‘free agent nation’. The revenues of talent facilitators, like Guru.com, which focuses on IPs were expected to exceed $2 billion by 2005

Guru’s competitors were Freeagent.com, Monster.com’s TalentMarket and host of others who launched around the same time and more were expected

Guru.com directly connected businesses with professionals who specialized in various professional categories. Employers seeking professional expertise would post their projects or contract work on Guru.com and professionals seeking work would be matched. The company also offered back-office support and career advice to IPs, along with tax guidance, discounts on health insurance and other products, and tips on all aspects of running a solo business, from collecting bad debts to maintaining a home office.

The independent professionals were between the age group of 25 – 55 and well educated. Guru .com had a goal of achieving 400,000 gurus registered by end of 2000 from the present level of 105,000

Case Background & Competition

  • Guru.com was launched in Dec 1999, after a 5 month preview, with 400 employees, 35000 registered gurus and 2500 registered hiring companies. This was after a trail run where in 3000 people were hired in a matter of a week.
  • Guru.com’s service was free for the IP’s but the companies paid for each project posted
  • Guru’s competitors were Freeagent.com, Monster.com’s TalentMarket and host of others who launched around the same time and more were expected
  • These catered to about 25 million independent professionals in the US.
  • The business of outsourcing was growing with companies expected to spend up to 81 billion in 2003 from a figure of 51 billion five years back.
  • Revenues of talent facilitators such as Guru.com were expected to rise from 1 billion now to 2 billion by 2005
  • By 2000 Free agent.com expected to have 150000 registered users, the market had 10000 employers vying for the project seekers which was almost to the tune of 143000 in total.
  • Number of outsourced projects expected to increase from 20mn to 50mn
  • Ranks of contractors were set to increase from 21% of US workforce to 41% in 2010
  • Number of Guru’s signing per week – 6000, and it was very important to attract good projects to keep them engaged.

1. What are the central issues?

One of the major issues concerning Guru.com is whether the proposed budget of 12 million for a marketing campaign is justified and is the benefit accruing out of it more than the cost? Did Guru.com want only to acquire customers as a short run objective or did it want to go for branding in an integrated holistic fashion.

Since its official launch, the Guru.com site had generated significant market activity with more than 250,000 searches per month, 3,760 posted projects with an average project value of $12,000. The growth in page views, new hirers, and new projects was close to 17% per week. Based on the study by Guru.com, it was observed that about 73% of hirers had rated their experience with the site as excellent or good. This proved that Guru.com provided quality service to customers, as majority of the customers were satisfied, and in turn became referrals by spreading positive word-of-mouth. So keeping this fact in mind was it justified going for an extensive offline campaign?

Events and Public Relations had been the bulk of Guru.com’s offline marketing. As part of their offline event strategy, the company had launched the First Guru Awards, which give it exposure and proved to be a low-cost way to get customers. Their other PR exercises which included coverage in various magazines and significant media attention had been very successful as well.

The other issue is regarding the target market. Should they aim their communications at the gurus or hirers or both? And even within the gurus segment should they target the IPs or did they go for people already working elsewhere, in order to entice them to the guru lifestyle.

The answer to this question would answer other related issues, where to advertise what vehicle to use and what tone to adopt for the communications.

2. What are the IMC options?

After Guru.com decides on its target only then can an effective campaign be created. The choice of targets will determine the medium and also the message.

And of course whether they want to keep customer acquisition cost low by making efforts to get customers to sign up only, without going into a proper branding exercise.

Till date customer acquisition costs have been low at approximately 15 for a Guru and 70 for a hirer. Guru.com has spent on an average 500000 / month on e-mail, online ads and print direct mail. The company conducted many offline events that were cost effective in getting the target audience to register with the site.

If they go for branding then the objective will be to make sure that the people experience the brand several times and in several mediums.

The IMC options that Guru.com practiced earlier comprised of sales promotions, event marketing and Public Relation campaigns. Some of the efforts that it had employed earlier included a promotion whereby they had offered free t-shirts to the first 3,000 people who signed up, and this had resulted in positive feedback that helped the company publicize their early product development. This event was a success, evident by the fact that about 35,000 IPs or gurus and about 2,500 hiring companies got registered respectively, off that initial site in the first five months. But this was in the early stages of the company and communications needs change as the company grows.

They can go for television and primetime shows are something that would match the profile of almost all of their target market. They could go for magazines that would appeal to both the gurus and the hirers like Wired, Industry Standard etc

The Internet would be a great medium as majority of the gurus used the Internet for their jobs. And being IPs most of their time would be spent on a computer, as that is the medium that connects their work to the world.

• TV [primetime]
• Print [industry and lifestyle
• Interstitials
• Event Sponsorship
• Seminars
• Direct mail

Pros and cons [television vs. print]

• Appealing and visually exciting.

  • Expensive
  • No guarantee of right exposure
  • Will target watch
  • Easy to switch
  • Dependant upon acheiving the effective reach and frequency
• Captive
• Repeated exposure.
• Maximum Information Dispersion
• More Economical

• Not as appealing as TV

Q3. Evaluate the 6M Model.

1) Market

For Guru.com the market is segmented into two markets, the Gurus and the hirers

Characteristics of Gurus
  • Self-assured, optimistic, energetic and active in their spare time professionals
  • Independent professionals in the market who are Gurus in their respective fields who value independence, freedom, and passion
  • They are passionate and committed, believe in independence and freedom, and seek variety and flexibility in return.
2) Mission
The objective of the campaign is to create awareness of the guru lifestyle and of the convenience and ease it provides. And its reliability in not only getting the gurus work but handling the other aspects as well. Making sure they are paid and taking on the other hassles for the gurus.

They want to ensure that they would do not promise work for every guru so that there are no false hopes.

3) Message
Guru.com wants to make sure that the message that its communications deliver is pertinent, easy-to-understand, simple yet powerful and evocative. It does not want to poke fun at anyone and wants to come across as someone that means business and hires the best people possible.
The message it wants is one that tempts people towards the independence and freedom that the guru lifestyle has to offer.

The message has to be smart and clever rather honest but aspirational as well.

4) Media
Guru.com should have a mixture of TV and print with emphasis on print media and
Television, Radio, Print - magazines/newspapers, television/radio).
Popular primetime shows. Expensive but have higher reach. Magazines such as Fast Company, Business Week, Wired, Industry Standard, Communications Arts and lifestyle magazines such as Men’s Journals etc. Internet - 51% use the Internet regularly and Radio as people oft have the radio on whilst at home.

5) Money
The budget proposed by the Vice-president of marketing is $12 million. - Guru.com had spent about 500000 monthly on e-mail, on-line ads, etc. The Annual Guru’s Award event was a great experience and was successful as many new customers signed up. And it had cost only about 300000

6) Measurement
Surveys can be conducted to find out the efficacy of the campaign and trackable media can be used.

4. A small media plan

Medium Expenditure

TV 4,500,000
Magazines 3,000,000
Direct Marketing 1,500,000
Events 1,000,000
Radio 500,000
Outdoor 1,000,000
Internet 500,000
Total 12,000,000