Case 2: Do Gucci Catalogs Stack Up in Direct Marketing? Catalogs, one type of direct mail merchandising, have been

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1 Case 2: Do Gucci Catalogs Stack Up in Direct Marketing? Catalogs, one type of direct mail merchandising, have been increasing in popularity as consumers look toward convenience in their shopping. Catalog business has even been expanding on the international horizon, Harris Catalog Library has offered 1,250 domestic and international catalogs for patrons to order from. Catalog libraries can be found close to home in U.S. libraries, and as far away as Japanese department stores. The Japanese have been especially fond of shopping by catalog, since by ordering American products directly from catalogs, savings up to 30 or 40 percent can be had over local retailers. Total U.S. catalog sales were $78.6 billion in 1997 and were expected to top $95 billion in Approximately 12 billion catalogs are produced each year in the U.S. If all catalog and mailorder sales are combined, they accounted for about 4% of all U.S. retail sales in Closer to home, American catalog marketers have been striving to increase sales and promote catalog growth on the domestic horizon. The big dilemma facing these marketers is how to accomplish this goal a difficult task, since look-alike catalogs and merchandising is standard in the industry. The problem is only compounded by the fact that attempts to break out of this trend are unusual for catalog marketers especially due to the fact that the industry occupies one of the most conservative locations on the American marketing landscape.

2 A few catalog marketers have made attempts to break away from the traditional modes of catalog marketing. Gucci is one such company which employs innovative marketing techniques. Gucci's unorthodox style emerged in 1985 when the Gucci autumn/winter catalog took a new distribution route in the U.S. for the first time Gucci catalogs were made available in bookstores. Gucci had fallen on bad times in the early 1980s, but had revitalized itself by the nineties primarily by the leadership of Maurizio Gucci, the owner and original designer for the company. Despite the killing of Maurizio Gucci by his wife in March of 1995, Gucci has continued to expand its presence both globally, and in the United States. They have added twenty-five new stores over the past three years to bring their worldwide total to 158 in They also tripled their revenues from 1993 to A great deal of their strategy involved creating a unified image for Gucci worldwide and discontinuing products that did not fit that image. Gucci s CEO, Domenico De Sole, has personally traveled the globe to visit Gucci s stores and has closed several that do not present Gucci s products effectively. Part of revitalizing Gucci s image has been with a catalog of very high standard. According to a company spokesperson, the amount that Gucci spends on catalogs is unheard of in the industry. Described as a product in itself, the Gucci catalog was predicted to generate interest that went beyond the typical catalog. It was said to even have an editorial appeal. Released in early September, the Gucci catalog came with a cover price of $5. Five thousand copies of

3 the catalog were given to Crown Publishers for distribution, and Gucci began courting other booksellers such as Rizzoli, Endicott, Waldenbooks, and B. Dalton. Containing 96 color pages, the book was produced in-house at a very high budget. Apart from bookstores, the Gucci catalog was also available in Gucci stores and was mailed out free of charge to 50,000 of Gucci's best customers. The merchandise shown in the catalog was available in the stores, by mail, or by telephone. Furthermore, this strategy allowed Gucci to determine where the customer got his/her catalog. The order forms in each catalog were coded to indicate whether the catalog was distributed through bookstores, the Gucci stores, or through the mail. While this campaign was not as successful as Gucci would have liked, the company has not given up on the idea of developing a new approach to generate growth and sales. In particular, Gucci is hoping to gain a competitive advantage by capitalizing on the latest high technology development for direct marketers automated voice response. Automated voice response (AVR), also known as audiotex, combines computer intelligence with telephone accessibility a phenomenon with tremendous marketing applications. Recently, this technique has leapt to even greater heights with the introduction of interactive 900 numbers. Unlike an 800 number, where the marketer pays the cost, the cost of the 900 number call is passed on to the

4 consumer. This is done by billing the caller on their monthly phone bill, and the marketer receives any money that is left after the telephone company deducts its charge. The marketing department at Gucci thinks that it might use AVR technology to build catalog readership. They feel confident that they could do this by working under the assumption that "...the more time people spend poring over the pages of a catalog, the more likely they are to find something in there that they can't live without." In order to gain readership, a catalog readership game, which requires a touchtone phone would be employed. On the cover of the catalog the reader would be informed that, scattered throughout the catalog, there are lucky numbers. When lucky numbers are found, the person should dial the game phone number (which could be an 800 or 900 number) and punch in the lucky numbers, along with their personal identification code (PIN). The person should try to find as many lucky numbers as possible, since the more lucky numbers a person has, the greater the discount on purchases they make from the catalog. This game, therefore, not only benefits Gucci by stimulating readership (due to the consumer's increased scrutiny of the catalog for lucky numbers); but serves as an inducement for the customer to make a catalog purchase. Unfortunately, while the marketing department feels that they have a winning strategy, top management is not so sure. Before authorizing the implementation of this plan, top management wants a marketing researcher to discover if the plan is a viable one. Based on

5 the researcher's report, management will decide whether or not to give marketing the green light. References: 1) Gucci corporate spokesperson, catalog marketing department, personal interview, May ) Gene G. Marcial, Scuffed-up Gucci May Get a Shine, Business Week (August 4, 1997): 65. 3) Ida Picker, Brand Rescue, Institutional Investor (April 1997): ) Faye Rice, The Turnaround Champ of Haute Couture, Fortune (November 24, 1997): ) Gucci Resurfaces as Fast-Growing Firm, The Wall Street Journal(October 8, 1995): Col. 1, PA14(W), PA16(E).

6 Case 2 Questions CHAPTER 1 1) Marketing research involves the identification, collection, analysis, and dissemination of information. Explain how each of these phases of marketing research applies to Gucci's problem. 2) Is the problem facing Gucci a case of problem identification research or problem solution research? Explain. 3) How can Gucci use MIS or DSS to assist them in their study? CHAPTER 2 1) Before marketing research can effectively be carried out, a marketing research problem must be defined. However, to arrive at a problem definition, the first thing that must occur is the analysis of the Environmental Factors of the problem. In the Gucci catalog scenario, what information, relevant to the construction of a problem definition, can be obtained from the following factors and how might it be obtained? 2) What is the management decision problem? 3) What is the marketing research problem? 4) While the tasks undertaken to help define the problem (i.e. discussions with management, interviews with experts, secondary data analysis, and qualitative research) are also helpful in developing an approach to the marketing research problem, two other techniques may be used when developing an approach. What are these techniques, and how might they be employed in the case of Gucci? 5) Regardless of which techniques are used to develop the problem, the approach development process should produce several outputs.

7 What output might result from the approach process applied to the Gucci scenario, in terms of: a. Objective/Theoretical Foundations b. Research Questions c. Hypotheses CHAPTER 3 1) Can exploratory research be used in this case? How? 2) Can descriptive research be used in this case? How? 3) Can causal research be used in this case? How? 4) What potential non-sampling sources of error would you, as the researcher, need to consider as you develop your research design? CHAPTER 4 1) What internal sources of secondary data can you identify which would be helpful to Gucci? 2) What published sources of secondary data can you identify which would be helpful? 3) Would you recommend using syndicate sources of secondary data? If so, which ones would you recommend? 4) How can the buying power index (BPI) be used by Gucci? CHAPTER 5

8 1) Which exploratory research techniques would you recommend and why? 2) Develop a moderator's outline for a focus group to assess consumer desires in catalog purchases with respect to Gucci. 3) Devise word association techniques to measure consumer associations which may affect attitudes towards catalogs. 4) Design sentence completion techniques to uncover underlying motives. CHAPTER 6 1) Which of the following criteria for selecting survey methods are most important in this case. Check all that apply. 2) Which survey method would you recommend to Gucci to conduct descriptive research? Why? What are the limitations of this mode? 3) Can observational methods be used to collect data? How? What are the limitations of your method? CHAPTER 7 1) Is causal research necessary in this case? If so, which experimental designs would you recommend and why? If not, devise a scenario in which it would be? 2) What extraneous variables are threats to the internal and external validity in the design you have selected? 3) If a mall-intercept interview is used and Gucci conducts causal research without randomizing respondents, which pre-experimental

9 design would you recommend? What threats to internal and external validity exist? 4) Can you think of any way in which the static group design above can be randomized to increase its validity? CHAPTERS 8 & 9 1) In constructing an item for a questionnaire, Gucci decides to use a noncomparative itemized rating scale to measure attitudes (i.e., like or dislike) towards Gucci catalogs. They ask you to construct a Likert scale for this item and want your advice on the number of scale categories, balanced or unbalanced design, odd or even number of categories and the anchors to use. Give Gucci your opinion on these decisions with justification and construct the scale. 2) What types of comparative scales can be used to gather the information needed on motivation, attitudes, and intentions? Design these scales. 3) What types of noncomparative scales can be used to gather the information needed on psychographics, motivation, attitudes, and intentions? 4) In designing scales for the survey, when you have a choice of comparative or noncomparative scales, which scales do you recommend? 5) How would you determine the reliability of the scales? 6) How would you assess the validity of the scales? CHAPTER 10

10 1) What challenges exist in this case in meeting the three objectives of a questionnaire? 2) Design a questionnaire to be used in a survey. CHAPTER 11 Answer questions 1 through 4 assuming that a personal interview is being conducted. 1) What is the target population for this study? 2) What sampling frame can you use? 3) What sampling technique do you recommend for this study? Why? 4) What nonresponse issues must be considered and how can they be overcome? CHAPTER 12 1) Suppose Gucci conducts a preliminary market study of twelve respondents to determine the average amount of a discount respondents would like from a promotional game. The mean response is calculated to be $5.00. If Gucci wants to be 90% sure that the true value lies within $0.50 of this figure, how large a sample do they need to survey given that the sample standard deviation is $2.00? What is the confidence interval for the mean based on the preliminary market study? 2) Suppose after conducting the experiment in exercise 2, Gucci learns that these observations generated a mean of $6.00 and sample standard deviation of $3. What is a better estimate of the 90% confidence interval than previously calculated?

11 CHAPTER 13 Answer the following questions assuming an in-home personal interview is being conducted. 1) What characteristics would you look for when hiring field workers for this survey? 2) What issues are most important in training your field workers for this survey? 3) What issues must you as the supervisor be most concerned with during the interviewing? 4) How would you validate the field work? 5) How would you evaluate the success of your field workers? CHAPTER 14 1) Suppose the following responses appeared on completed questionnaires which you as the supervisor of the project are editing. What is the problem with the responses and how would you treat them? a. How likely are you to participate in this promotional game? Not so Likely Maybe/Maybe Not Very Likely Please explain why or why not? Games sometimes are fun.

12 For the next two questions, assume that we can not recontact the respondent, only 3 unsatisfactory responses exist and the sample size is 200. b. How likely are you to participate in this promotional game? Not so Likely Maybe/Maybe Not Very Likely X 7 Please explain why or why not? I don't like games. They bore me and really don't save any money when you buy something. c. How likely are you to participate in this promotional game? Not so Likely Maybe/Maybe Not Very Likely Please explain why or why not? I probably wouldn't play the game since it takes too much time to look through the whole catalog. I usually know what I want and go right to it. 2) Develop a codebook for the first 7 questions in the questionnaire constructed Question 2 of Chapter 10. 3) Suppose the results Gucci obtains from its survey are biased in terms of income level, with poor people underrepresented in the sample. If the national and sample percentages are as given below for the various classes of income level, what weights would you use to transform the data? Sample Population Income Level Percent Percent Weight 1. $10,000 or less 5% 10% 2. $10,001 to 20,000 5% 20% 3. $20,001 to 30,000 25% 30% 4. $30,001 to 40,000 40% 20% 5. $40,001 to 60,000 15% 15%

13 6. $60,001 and over 10% 5% CHAPTER 15 1) Suppose you administered the survey designed in Chapter 10, and you collected data from 250 respondents (see Appendix for details). Run the following analyses on the data and draw conclusions from the results obtained. a. Run descriptive statistics and obtain frequency distributions for all variables. Interpret the results. b. Determine if the catalogs received, playing promotional games, awareness of Gucci, receiving Gucci catalogs, looking through Gucci catalogs, and purchasing from a Gucci catalog are related to any of the demographic variables. If results are poor, you may have to create dummy variables in order to obtain valid results. CHAPTER 16 c. Conduct a one-way analysis of variance to see if there is any difference in responses to the demonstration catalog shown (Q13) between those who receive catalogs and those who do not. If differences exist, determine if differences also exist between those who receive Gucci catalogs, those who receive other catalogs and those who receive no catalogs. CHAPTER 17 d. Regress each of the four dimensions of promotional games (Q5) on the respondents attitudes towards playing promotional games (Q6). CHAPTER 18 e. Run a discriminant analysis on CATREC (Q1), the catalogs currently received, using Q6 (opinions on playing games in catalogs) as the

14 independent variables. Then run a discriminant analysis on CATREC using Q7 (evaluations of company catalogs) as the independent variables. f. Conduct a two group discriminant analysis to determine differences between those who receive catalogs and those who do not receive catalogs based on the ratings of the promotional game which the respondents have seen (Q14). Then run the analysis using Q16 (intentions to shop from catalogs). CHAPTER 19 g. Run a factor analysis of Q6 to determine any underlying dimensions upon which playing games are evaluated. Then factor analyze Q7 to determine any underlying dimensions related to attitudes towards catalogs. h. Factor analyze Q14 and Q16 to see if there are any underlying dimensions in the attitudes towards the new Gucci promotional game and the intentions toward shopping from a catalog, respectively. CHAPTER 20 i. Factor analyze the psychographic items (Q18), save the factor scores, and cluster them using a non-hierarchical method. Save the cluster centers and conduct an ANOVA with intention towards shopping from a catalog in order to determine which cluster of respondents is the most likely to participate in the game. CHAPTER 22 1) Prepare an executive summary of the results from the study. Specifically, answer the research questions which were posed at the beginning of the study.

15 CHAPTER 23 1) As mentioned in the Gucci scenario, the Japanese are especially fond of shopping by catalog for American products, since they have been able to save up to 30 or 40 percent on these items. Suppose Gucci wanted to expand into the Japanese market and wished to assess the feasibility of the Lucky Numbers game for Japanese consumers. Should Gucci conduct a marketing research study in Japan in a manner identical to the one used in the U.S.? If not, in what ways should they modify this study to evaluate Japanese consumers' responses to the Lucky Numbers game? CHAPTER 24 1) Name and describe three unethical behaviors that a marketing researcher might act upon in their handling of Gucci's research project. 2) Which stakeholder would be affected if Gucci printed misleading or inaccurate marketing research results in its new catalog?