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The CASE Journal Volume 2, Issue 1 (Fall 2005)
Table of Contents
Click on the article or case title to go to that page
Editorial Board and Policy………………………………………………………………….3
Letter from the Editor……………………………………………………………………….6
Article and Case Abstracts.....................................................................................................8
Invited Case
“Case Research and Writing: Professor Moore Can’t Get There From Here”……………..10
Thomas C. Leach, University of New England
Invited Article
“The Anatomy of an Instructional Case from a Reviewer’s Perspective”…………………...18
James J. Carroll, Georgian Court University
Cases
“The R.C. Bigelow Tea Company Case Study”…………………………………………......28
Laurence Weinstein, Sacred Heart University and Cindi Bigelow, R.C.
Bigelow Tea Company
“Reader’s Digest: Inform, Enrich, Entertain, and Inspire”……………………………..……65
Pauline Assenza & Alan B. Eisner, Pace University
Pedagogical Innovations: Mini-Cases on Business Ethics
“Nike: Running Through the Court System”…………………………………….……...…101
“British Telecom: Doing the Right Thing or Doing Things Right?”…………….………...102
“Starbucks: Brewing a New Song”……………………………………………..………….103
“Is McDonald’s Clowning Around?”…………………………………………..….……….104
“Ford and Firestone: Is it Really Just Found On Road Dead?”………………….………...106
Membership Form…………………………………………………………………...…….108
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The CASE Journal Volume 2, Issue 1 (Fall 2005)
ISSN 1544-9106
EDITOR
Herbert Sherman
Southampton College - LIU
ASSOCIATE EDITORS
Barry R. Armandi
SUNY Old Westbury
Alan B. Eisner
Pace University
EDITORIAL REVIEW BOARD
Barry R. Armandi
James J. Carroll
Timothy Edlund
Alan B. Eisner
Joel Harmon
Cynthia Ingols
Roy Knaus
William Mathews
Peggy Naumes
William Naumes
John Seeger
Herbert Sherman
Gina Vega
SUNY Old Westbury
Georgian Court University
Morgan State University
Pace University
Fairleigh Dickinson University
Simmons College
William Paterson University
William Patterson University
University of New Hampshire
University of New Hampshire
Bentley College
Southampton College - LIU
Merrimack College
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EDITORIAL POLICY
The audience for this journal includes both practitioners and academics and thus encourages
submissions from a broad range of individuals.
SCHOLARLY WORKS: Cases with teaching notes; conceptual papers and papers reporting
original research as well as the applied implications of others' research in terms of case teaching,
research, and instruction; and creative learning, research and writing methods are encouraged.
We request that submitters of empirical research provide appropriate data set analyses to allow
for meta-studies (i.e. correlations matrices and chi-alpha’s). Because of the broad appeal of the
journal to practitioners and academics, The CASE Journal will not refuse to review a case or an
article solely on the basis of format. However, if a case or paper is accepted, the final version
for publication will be expected to adhere to the publication and manuscript guidelines. Cases
and papers may be returned due to issues relating to writing style and grammar.
The CASE Journal encourages authors to submit often to the Journal. However, authors who are
published in one publication year cannot be published a second time in that publication year.
Rather, additionally accepted papers will appear in subsequent publication years. This policy
does not apply to authors who submit papers for review with different second authors from what
appears on the first accepted paper in any given publication year.
CASES: Those wishing to submit a case for potential publication should submit the entire case
along with the completed teaching notes for review. If accepted for publication, only the case
will be published along with a note for interested readers to contact the case author for the
teaching notes. All review and publishing rules which apply to scholarly articles also apply for
cases. Also, upon acceptance for publication, The CASE Journal requires that the author(s)
submit a signed letter of liability release prior to publication. Authors are responsible for
distributing the teaching notes as requested and their e-mail addresses will be provided for such
purpose.
INITIAL SUBMISSION: The CASE Journal blind reviews submissions and all manuscripts
submitted are to be original, unpublished and not under consideration by any other publishing
source. To ensure the blind review, there should be no author-identifying information in the text
or references. An abstract of 150 words or less should accompany the paper. This journal will
only accept on-line submissions. Send one (1) copy to the editor by e-mail in MS-Word and/or
IBM text format. A separate title page must accompany the paper and include the title of the
paper and all pertinent author information (i.e. name, affiliation, address, telephone number,
FAX number, and E-mail address). If any portion of the manuscript has been presented in other
forms (conferences, workshops, speeches, etc.), it should be so noted on the title page.
COPYRIGHT: Authors submitting articles and cases for potential publication in The CASE
Journal warrant that the work is not an infringement on any existing copyright and will
indemnify the publisher against any breach of such warranty. Upon acceptance for publication,
authors must convey copyright ownership to The CASE Journal by submitting a transferal letter
signed and dated by all authors which contains the following language: "in consideration of The
CASE Journal acting to review, edit, and publish <title of submission>, the author(s)
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undersigned hereby transfer(s), assign(s), or otherwise convey(s) all copyright ownership to The
CASE Journal."
Circulation Data:
Reader:
Frequency of Issue:
Copies per Issue:
Subscription Price:
Publishing Fee:
Sponsorship:
Academic and Practitioner
2-3 times per year (September, January and April
based upon available accepted manuscripts)
n/a Internet publication
Free
None. However, at least one of the publishing
authors must be a member of the CASE Association
($10 membership fee)
Professional Association
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LETTER FROM THE EDITOR
Herbert Sherman
Welcome (or welcome back)! For those of you who attended The Case Association Meeting last
May in Springfield, Massachusetts (in conjunction with the Eastern Academy of Management)
you know it was an exciting event. We had numerous case round table discussions, case
presentations, and our highly lauded V.I.P. case session. We will have a special edition of The
Case Journal, with our special editor Dr. James J. Carroll of Georgian Court University,
featuring some of the cases from our 2005 sessions and focusing on case reviewing methodology
and techniques. I invite all of our participants from last year’s meeting to submit their cases and
articles to The Case Journal.
This upcoming meeting in May of 2006 in Saratoga Springs is truly an event you do not want to
miss as we celebrate CASE’s 30th anniversary. Again, please feel free to submit your articles,
cases, seminars, and work sessions to our program chairs (see EAM website for further details).
I hope to see familiar faces as well as meet new ones so please come and join us!
Our third issue of The Case Journal brings us back to the premier issue as we continue our
excursion with the fictitious character Professor Moore as he experiences first hand the trial and
tribulations of case research. Tom Leach of the University of New England, based upon his own
experiences, describes Dr. Moore’s Bogus Journey through his first real challenge in writing
field-based cases, obtaining clients’ permissions to publish cases. Like any good tale, there is
mystery, there is danger, and a real cliffhanger – will Professor Moore obtain permission or not?
Read for yourself and find out!
Our second invited article, by James J. Carroll of Georgian Court University, like the prior work,
is an extension of an article published in the premier issue. In this article, Dr. Carroll explores
some of the significant topics that instructional case writers should be cognizant of when
performing case research and case writing including: bias and misleading information, obtaining
client permission to publish the case, disguising cases, decision focus, case writing style, and
learning objectives (the teaching note). I was particularly intrigued by Dr. Carroll’s list of case
topics that may be of interest to students; an interesting first step to developing a case
morphology.
The R.C. Bigelow Tea Company Case Study, by Laurence Weinstein, Sacred Heart University
and Cindi Bigelow, R.C. Bigelow Tea Company, is our first published co-authored practitioner
case. Ms. Bigelow in the case is confronted with a rather insidious conundrum, does she
continue to market her tea products to the women 45+ who have historically comprised the core
group of tea drinkers or does she broaden her target market to include younger adults, those who
do not have a strong urge to drink tea. In order to assist her in determining whether college
students could become tea drinkers, a SIFE team at a local college campus conducts a short term
marketing campaign including market research. The results of the campaign are positive, tea
consumption soared, but is that information a sufficient basis for jumping into this new market
segment?
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When I think of drinking a cup of tea, I also think of relaxing with a good book in front of a
warm fireplace. Pauline Assenza & Alan B. Eisner of Pace University ask, why aren’t you
thinking about reading the Reader’s Digest? Reader’s Digest, once the stalwart magazine found
in nearly every home and doctor’s office, like tea, now appeals to a narrow market segment, the
over 50 crowd. Bombarded by internet publications and greater competition within the industry,
Reader’s Digest needs a turnaround strategy that can leverage their brand name while relying
upon an old form of publication and distribution. Can this firm adapt to the 21st century or will
its products go the way of the buggy whip and the typewriter?
The last set of case offerings in the journal earmarks a new area that the journal would like to
explore with the help of the readership, pedagogical innovations. In this section we would like to
publish pedagogical cases, instructional methodologies, tools, rubrics, and articles that either
venture “where no one has gone before” or “dare to be stupid” as well as our readers’ responses
to said material. With advice, counsel, and a fair amount of warning from Drs. James J. Carroll
and Gina Vega, I humbly put forth a simple case writing technique – creating short, concise
cases by quoting and or paraphrasing articles from newspapers, magazines, and annual reports. I
have posted five of these case incidents in this section for the readers’ perusal and comments and
would appreciate like contributions.
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ARTICLE AND CASE ABSTRACTS
Case Research and Writing:
Professor Moore Can’t Get There From Here
Thomas C. Leach, University of New England
This article, written in the case format, is an extension of the article entitled “Case Research and
Writing: Three Days in the Life of Professor Moore” published in The CASE Journal, Volume 1,
Issue 1. It is intended to give the novice case writer insight into problems associated with
obtaining the release for publication from companies where primary data had been collected.
Related issues on case writing are also included.
The Anatomy of an Instructional Case from a Reviewer’s Perspective
James J. Carroll, Georgian Court University
This article is a continuation of the article entitled “A Primer on Case Reviewing” published in
The CASE Journal, Volume 1, Issue 1. Used in conjunction with the article “Case Research and
Writing: Three Days in the Life of Professor Moore”, this article should help both case writers
and case reviewers understand the critical elements of what a reviewer should look for in the
case and the teaching note.
The R.C. Bigelow Tea Company Case Study
Laurence Weinstein, Sacred Heart University
Cindi Bigelow, R.C. Bigelow Tea Company
Ms. Cindi Bigelow, COO and third generation in her family to head the R.C. Bigelow Tea
Company, located in Fairfield, CT, believed one strategy to move her business forward would be
to attract a younger audience for her product line. Hot tea appeals primarily to women 45+ who
typically drink the beverage for its soothing effects. A test market, designed to make hot tea
more appealing to a college-age audience, was conducted at a nearby university by a Students in
Free Enterprise (SIFE) team drawn from the chapter’s membership. Key words: Target
audience, market segmentation, demographics, market research, promotion mix, advertising,
copy development, media selection.
Reader’s Digest: Inform, Enrich, Entertain, and Inspire
Pauline Assenza & Alan B. Eisner, Pace University
After decades of successful expansion, The Reader’s Digest Association’s products were mature.
With an average readership age for the flagship Reader’s Digest magazine of 50.3 in 2004,
efforts to develop new products had so far failed to entice a significant number of younger
customers. Following a financial downturn in 1996, positive financial results remained illusive.
Several major changes instituted by Thomas O. Ryder, CEO since 1998, including acquisitions,
re-capitalization, restructuring and systematic re-engineering of the corporate culture, had proven
mildly successful, but RDA, as well as the entire publishing industry, faced a persistent decline
in profitability. Could RDA fulfill its stated mission to create “products that inform, enrich,
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entertain and inspire people of all ages and cultures around the world”, and could it do this by
continuing to rely on the 80-year old Reader’s Digest magazine?
Pedagogical Innovations: Mini-Cases on Business Ethics
“Nike: Running Through the Court System”
“British Telecom: Doing the Right Thing or Doing Things Right?”
“Starbucks: Brewing a New Song”
“Is McDonald’s Clowning Around?”
“Ford and Firestone: Is it Really Just Found On Road Dead?”
This new section of the journal contains five mini-cases developed by the editor from material
posted on the world wide web. Readers’ comments on these short cases as a pedagogical tool is
sought and will be posted under “letters to the editor.” Future issues containing other innovative
and/or cutting edge instructional tools.
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Case Research and Writing:
Professor Moore Can’t Get There From Here
Thomas C. Leach, University of New England
[email protected]
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Bob Moore was upset, confused and depressed all at the same time. “I can’t get there from
here”, he muttered to himself. The worst case scenario for a case researcher had occurred for
the second time in a row, regarding his case research efforts. He had two well developed cases
that could not be submitted to conferences or journals because he was unable to obtain the
needed company releases for publication. He continued grumbling to himself, “I have spent
eight months researching and writing two cases and teaching notes (TN) and now I have nothing
to show for my work. In addition, two esteemed colleagues were co-authors on one of the cases
and its TN. Now our efforts appear to be for naught. I felt good about my work and its potential
for publication. I don’t have anything in the works for publication and my tenure clock is
ticking.”
Bob tried to hold back his emotions as he ducked his head into the office of Gloria Gorman, his
department chair. “Gloria, good-morning, or should I say, bad-morning. It happened again. I
can’t get the release to publish the WWW case that I’ve been working on for the past couple of
months. You remember that this happened last semester to the Bartt case. I’m upset. I’m angry.
I’m confused as to why this has occurred twice. I explained to each company at the beginning of
the projects that they were for conference and journal publication. Now, for the second time, I
can’t get the release. I’m depressed. All this work for nothing and it looks bad in the eyes of the
RPT committee.”
LL
Gloria: Come in and sit down, Bob, that is bad news and to say the least, it is a bad-morning. I
remember when I was working on my dissertation, the CEO of one of the companies that had
agreed to let me interview its employees for my research changed his mind. After significant
work had been completed he decided not to allow the work to be made public. The senior
executives were fearful that some of the facts in the case could be considered insider
information, since the company had begun merger negotiations with another firm. That was a
huge set back for me and I think that I can understand your feelings. It happens. I’m glad to
work with you to see if there is some way of salvaging your situation. As you know, John Stern
is quite experienced with case research, more so than I, he might be a better person to talk with.
A
After other consoling words were shared by Gloria, Bob decided to get over his emotional
response to his problems. He thanked Gloria for her understanding and left to return to his office
and called John Stern.
Later that day, Bob went over to John’s office and said, “Lightning can strike in the same place
twice, or in my case, I’m unable to get the publication release for my current case on the WWW
Company. You might recall that I had this same problem last semester with the Bartt, Inc. Yes,
it happened again and I hoped that you might be able to give me some insights for salvaging my
efforts.”
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John: Let me understand the type of companies and the source of the case information, where
you’ve had these difficulties. It appears as that you don’t have a very strong relationship with
the executives, since they won’t work with you to smooth out the sensitive issues of your case
write-ups. Nor does the research appear to have come from public documents, since that
information would already be in the public domain. Your studies sound as if they were based on
primary research that ultimately may be too revealing of proprietary information. You may
have raised issues or presented industry information that were in themselves sensitive and as a
result they don’t want the case to go public. Tell me the details and maybe I can help.
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Bob: You’re right. I started by talking to people that knew some of the executives of Bartt Inc.,
a privately-held manufacturer of golf carts. The President and Chief Operating Officer, Jim
Dickson, has the reputation of being a down to earth person and easily approached. I made a
phone contact and I was able to set up an appointment to meet Jim, where I proposed researching
and writing a case study on the current situation of the company. Jim was receptive to my
proposition and casually reviewed a copy of a published case of mine and its teaching note. I
gave him the case specifically so he would clearly understand my intentions. Further, the case
that I gave him to look over had the standard cover disclaimer of the Business Case Journal. I
directly mentioned that my intention was to write the case to submit to a conference and
eventually to a journal for publication. During the hour and a half that we met, Jim phoned Bill
Simmons, the company’s CEO, and asked him to come to the office to meet me. Bill stopped by
and spent 15 minutes or so listening to our discussion. At that time Jim explained that I wished
to study the company’s recent past situation and issues for a case study project. Bill left and Jim
and I continued. Ultimately, the direction of the case pointed in the marketing direction and as a
result it was decided that I would work with Frank Hughes, the Marketing Director.
A few days later I met with Frank at the company and spent two hours getting background and
relevant facts regarding the marketing situation the company had faced two years earlier in light
of various external environmental factors. Frank was very open and gave me company
information that pointed toward marketing and strategic issues that would make a good case
study. The primary trade associations were mentioned and a source of industry statistical data. I
contacted both associations and received good base- line industry sales and manufacturing
information.
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As I made progress on the case, I contacted Frank several times for questions and answers and he
was most helpful in answering my questions. When I completed a draft of the case, I emailed it
to Frank and Bill for their review. Bill responded by editing the case for accuracy and even
made a few grammatical corrections. I felt good about the progress of the case and I thought that
I had no reason to be concerned about obtaining the release. I planned on sending the release
form to Bill to sign, as soon as the case was sufficiently developed for submission to a
conference. A couple of weeks later and after refinements had been made, I emailed the case to
Bill and Frank for their information. At the same time I sent it to two colleagues who were to
edit the case and write the teaching note. Bill, again, responded with a few adjustments. I
thought that I was well on my way to completing the case for conference submission.
As the deadline for conference submission approached, my colleagues Harry and George, had
completed their contributions. I sent the final case to Bill and Frank for their records and
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included the release form for Bill’s signature. This is where I hit the wall. Bill stated in an email
that he would not sign the release form and that the case was not for public reading. He said that
he had understood that the case would be for my classroom use only. Upon receiving Bill’s
email, I was upset, to put it mildly. What in the world had happened? I replied to Bill’s email
and explained that I had told Jim at our first meeting that I had intended to publish the case. I
reminded Bill that I had given Jim a copy of another of my cases that had been published in the
Business Case Journal, as a clear indication of my intentions. I also explained that as a faculty
member I was evaluated on research and writing publication success. I asked Bill to reconsider
his refusal and to allow me to submit the case to the conference. After a few hours, Bill replied
and gave my his qualified approval for submission. He said that the case could be submitted to
the conference, but not to a journal and that it could not be posted on the internet. Further, the
case could not be reproduced in any form without written consent of Bartt, Inc.
John: I can understand your frustration. It appeared to you that you were clear in explaining
your reasons for researching the company to Jim. But Bill didn’t seem to get the same message.
Could Jim have neglected to pass along your example case to Bill or to mention that you
intended to submit the case for conference and journal publication?
Bob: That may have been possible. I can’t recall that exactly what issues were discussed when
Bill sat in with Jim and I at the first meeting. Don’t executives talk with each other? I thought I
was clear with Jim on my intentions right from the beginning with Jim.
John: Had you revealed sensitive company information in the case? If so, maybe it could be
disguised or removed?
Bob: There was information on Bartt’s dealer network. In the introduction of the case I tried to
dramatize the situation, without stretching the facts, in order to make the case appealing to
students. I was factual. Could I have over-achieved in attempting to build student interest, when
I hinted at a risk of prolonged sales difficulties for the company? I wrote the case based upon
facts.
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John: I don’t doubt that you reported the situation of the case accurately. Executives can be
protective and even defensive about the public’s perception of their companies. If there was a
risk of a prolonged sales slump, the situation shouldn’t be exaggerated. Keep in mind that you
didn’t really know the degree of risk, but reporting on the external and internal environments of
the company may be relevant to the issues of the case. It can be a fine balance between what
information should ideally be included and what information can be released by the company for
public reading. Well, at least you received the OK to submit the case to the conference. You
might go back to Bill after the conference and suggest that you edit out sensitive information or
innuendos that are unacceptable. Also, at the conference you can ask your reviewers about
strategies for going back to the companies for reconsideration of release for journal publication.
Bob: Well, you’re right. I’ll do that. But listen to what happened to a second case that I
worked on during the winter and that I failed to obtain a release for.
John: Oh, what’s that?
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Bob: I was still stinging from the problem with Bartt, Inc., when I started work on another case.
As you know, we academics need to be productive with our scholarship and I was anxious to
move ahead with publication possibilities. I contacted another small local company, the WWW
Company that manufactured Nordic skiing accessories. The owner, Dan Jones, had participated
in a capstone management class of mine a number of years ago. I phoned Dan and asked if he
would consider letting his company be the focus of an advertising class, where teams of students
developed ad campaigns based upon the company’s situation. Dan said that it was a busy time of
the year, but that he’d consider the idea. A few days later, Mary, Dan’s wife who played an
administrative role at the company, called back. She was rather curt over the phone and said that
they were too busy. I accepted her refusal and began thinking of other possibilities. A few days
after that, Dan called and asked a few questions. We discussed my class and his possible
involvement.
John: What was your teaching plan for the advertising class?
Bob: I intended to use a company as a “client” for student “advertising agencies”, where each
“agency” would create an integrated marketing communications campaign for the “client”. The
best student-team presentation would “win” the account. The winning team would receive the
grade they deserved, but also a half-grade bonus, as extra incentive. I felt that the exercise
would be valuable for the students, as they would be exposed to the marketing realities of the
company and the company would receive the product of the students creativity.
John: Sounds good.
Bob: Yes I think so and I’ve used that format successfully before.
John: What happened when Dan called you?
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Bob: Dan wanted a little more information. After explaining the class, I added that if I were
able to research and write the situation as a case study for conference and journal publication, I
would give him the teaching note, which would be my thoughtful reaction to the situation and
that relevant theory would be cited. Dan’s comment was, “sounds interesting, sort of like free
consulting”. Yes, I responded. I went on to explain what case research and writing was about
and that my write-up was for conference and possibly journal publication. He asked who would
read the cases published for conferences and journals. I responded that they were read primarily
by professors and text authors that were seeking cases for their texts.
John: OK, then what?
Bob: We set up a date for a class field trip to the company. I sent an email to Dan that outlined
the areas that might be included in his presentation to the class. The outline included company
history, current external and internal environmental issues and specific problems that the
company was facing. These background facts would give the students the needed setting for
their class projects and would also be needed for a case write-up. On the appointed day of Dan’s
presentation, I arrived 15 minutes ahead of the students to answer questions about the class and
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his presentation. I also gave Dan a copy of a case that I had published in the Business Case
Journal as an example of what I hoped to accomplish and what he might expect from a written
and published case. Dan didn’t have any questions and it looked good for both the class project
and my case research.
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The presentation to the students went smoothly. Dan spoke freely about the industry and recent
company circumstances. Students and I asked probing questions that along with Dan’s
comments yielded solid a basis for our needs. The two hour session ended with the students
feeling upbeat about the challenges that lay ahead for their projects.
John: OK, so how did things progress?
Bob: Over the next several weeks, I conducted secondary research regarding the industry size
and competitive information. The monopolistically competitive, niche industry was comprised
of small companies and the ski trade association didn’t keep statistics for that segment.
However, after detailed secondary research, I was able to assemble a pretty good description of
the industry segment, including: competitors, sales trends of various ski accessories,
manufacturing materials and methods, and sizes of various market segments within the general
accessory segment. I felt proud of the data that I was able to gather and directed the class on
how they might conduct similar research.
John: Did you keep Dan informed of your progress? How was he going to benefit from the
work of you and your students?
Bob: Yes. As I researched the case, I asked Dan various questions at different times and briefly
indicated the progress that the students and I were making. At the end of the semester the
students were to make presentations to the class and to Dan. My efforts, the finished case and
teaching note, were to be given to Dan for his records. Of course, the teaching note was
effectively a consulting report and was intended to be the incentive for Dan that allowed me to
write the case and submit it to conferences and journals.
LL
John: Well, that sounds reasonable; although I generally don’t give the TN to the company. So
what went wrong?
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Bob: In April I sent Dan a well developed draft in Word via email that included a scanned copy
of their recent trade journal ad. I didn’t receive a reply for two weeks and knowing that it was
the busy time of the year, I wasn’t too worried. After another week, I emailed the case again to
Dan. A day later I received an angry phone call from Mary, saying. “You jammed our computer
with that huge Word document and then you did it again. I told you that this was a busy time for
us. We had to call our computer service twice to straighten out the mess. You’ve poked your
nose into our business and have revealed everything. I’m on the board of directors of the
company and I want all work on this project to stop. You do not have permission to proceed
with this and I want all of your documents delivered to our office. If you don’t, I’ll complain to
your university president about your nosing into our business.”
John: But Dan had given you the go-ahead at the beginning.
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Bob: That’s right, however, Mary was really angry. She seemed unreasonable, as she had never
let me know that I had caused their computer to jam when I sent the case the first time. I
apologized to Mary and I told her that I would do as she wished. I felt that trying to discuss the
situation over the phone at that time would have been fruitless. I thought that I could make
whatever adjustments to the case were necessary, once she cooled off. I felt that once their
business crunch was over, they would be rational and we could then discuss the case. I delivered
the case and secondary research documents that afternoon and hoped to talk with Mary and Dan
personally. When I arrived, Mary was out. I asked if Dan knew about Mary’s call. He replied,
“The case went too far and it can’t go public. I told Mary to handle it.” I responded that what
Mary requested was in the package that I handed him. I further said that I respected that they
were extremely busy, but that I would like to meet with both of them to discuss the situation,
when things slowed down. I said that I would adjust the case to meet their approval. Dan said,
“OK, but we can’t meet for at least three weeks or so because we are buried with work.”
John: So did you meet with them?
Bob: I called Dan on the date that he stated. His reply was that they were still behind schedule
and that there was no time. I asked when we could all meet. He gave me another date, another
three weeks off. I called at the newly appointed time and Dan said that he’d get back to me.
John: Did he?
Bob: No. And that was a month ago. I feel as if I’m getting the brush-off. I’m perplexed. If I
continue to call, I think that I’ll only anger Mary and maybe Dan too.
Judging from Mary’s earlier phone call and Dan’s lack of response to my contact efforts, it’s
over.
John: These things happen. You’ve said that you’d adjust the case to meet their approval. Did
you offer to disguise the case and their names?
LL
Bob: Not specifically. But, I did say that I would adjust the case to meet their approval. I
wonder if in trying to write a factual case, and one that is interesting to the students, I went too
far. I must have included too much information about the industry and their company?
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John: You might have. Also, the secondary research that you did sounded as if it was thorough.
They might also be guarded about that as well. I mean, you might have assembled too good of a
view of the industry and they wanted it to remain their information only.
Bob: Possible. A good case should include enough information so that students can respond to
the issues presented. I tried to do that, but I may have gone too far.
John: You might have. Clearly, Dan and Mary were protective. They may viewed your work as
having competitive value and wished to keep it secret. Case research and writing is an art and a
science. I think your situation demonstrates that to a degree. Part of the art of writing cases is
effectively communicating with the company executives and judging what should be in the case
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and what might be left out. As you have found out, building a relationship with the executives is
critical in obtaining insightful information, but also in obtaining the release to publish the
project. The science of case research stems from just that, following the science of standard
research procedures. You seem to have done the research well, but obviously you have the
release problem. Again, one must consider the art of case writing.
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Bob: You’re right. What you say makes sense. I hadn’t focused enough on the relationships
and reviewing what should be included in the case and what could be left out. Now I can’t get
there from here. I can’t get my work submitted for publication, that is.
Conclusion
John: Let’s review the issues that I’ve heard you speak about and forgive me if I sound too
preachy. You think that you were clear in explaining your intentions. But did the executives
really understand the implications of what you said? They should realize that the purpose of
your case research and writing is to enhance students’ education through the application of
theory to real business situations. They should also know that formal scholarship and
publication are part of your job and that you are evaluated on your scholarly success, in addition
to your teaching. Let them ask questions. Assure them that you will keep them informed of your
progress and that they will have the opportunity to review and make adjustments to the case
before it goes out for dissemination. Once there is an understanding of the purpose and
importance, then you should ask for their willingness to participate. If they agree, you could ask
for a “letter of intent to publish the case”. That way your intentions are made crystal clear and
gives you some clout at the end, when you seek the final release.
LL
In both of your cases there may have been information included that wasn’t essential, or was
unnecessarily revealing. From a communications perspective, that type of information could be
considered “noise” and may get in the way of the essential issues of the case. You might
consider filtering out those facts. WWW was a small firm in a niche industry. You assembled a
good industry description that may not have been available to the company’s competitors and
may not have substantively added to the issues of the case. That may have caused Dan to be all
the more protective. Your judgment is crucial. What information was necessary and what was
not? Remain focused upon what it was you wished to accomplish. What were the learning
objectives of the case? Plan the questions that you ask and edit your writing for extraneous facts.
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Smaller, private firms may be less bureaucratic and thereby easier to work with, but they may
also be protective and defensive of the information revealed in the case. In case writing, good
relations with the company executives are essential and I know that you are aware of that. Think
about how you wish to present yourself to the company people. Try to convey the importance of
case research for the educational benefits of applying theory to real situations. The students
should be the winners here, along with your publication success. Be supportive and helpful to
company people. How do they wish to proceed? It was unfortunate that your document jammed
the computers at WWW twice. You could have used a pdf document to reduce that likelihood or
mailed it through the USPS; often people prefer to read a hard copy document.
Finally, when is a release necessary? A release is required when the research is field based,
primary research and the information given is for a written case to be disseminated. Even a less
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formal communication of company information, such as class presentations, should have the
executive’s permission before mentioning it to an audience. If you are quoting someone directly,
his or her consent must be obtained. An oral statement is all right, but a written consent is better.
If a failure to obtain a release happens, disguising the case may be a way to proceed to gain the
release. However, the case is still based upon field research and under no circumstances should
you disseminate the information or the case without proper permission. I don’t usually give my
TN to the company. The TN is written based on case facts and as such, the TN shouldn’t need a
release. Library cases that are based entirely upon secondary sources of information usually do
not require a release. If, however, company executives were interviewed, then a release for
insights gained from them would be necessary. I should add that in order for a library case to be
of value, it must have a wide assortment of secondary sources to guard against bias.
Don’t overlook what should be included in the formal release. Basically, the release should state
who has permission to publish the case and where the case is to be disseminated. Also, it is a
good idea to state that the case is to be used solely for class discussion not as an example of
effective or ineffective management.
Bob: Thanks John. Your comments have been most helpful. I have learned a great deal from
my trials and errors and your comments. Hey John, what’s the chance of you and I working on
an article?
References
Naumes, William, and Margaret J. Naumes (1999). The Art and Craft of Case Writing.
Thousand Oaks, Ca.: Sage Publications.
Fontana, Andrea and James H. Frey. (2003). “The Interview: From Structured Questions to
Negotiated Text,” in Collecting and Interpreting Qualitative Materials [Denzin and Lincoln,
Eds.]. 2nd Ed. 2003 Sage Publications. 61-106.
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Nelson, Edwin (1996). “Producing and Using Case Material for Research and Teaching: A
Workshop for Partners in Know-How Transfer Projects,” Journal of European Industrial
Training Vol. 20, No. 8; 22.
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Note: The names of individuals and companies have been disguised.
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The Anatomy of an Instructional Case from a Reviewer’s Perspective
James J. Carroll, Georgian Court University
[email protected]
Introduction
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Case studies exist for a variety of reasons. In general, a case study is a type of data collection
device used in research. Case research is used as a data collection technique in research to
intensively study a situation that often involves complex interrelation of factors. Case research
has its own set of rigor involving objective and comprehensive recording of information with
limited intervention by the researcher (Emory, p.85).
Instructional cases are a sub-set of case research. Instructional case studies are used as
educational delivery systems of material. Cases provide learning that is more job-related since it
applies the concepts found in other disciplines (New Jersey Department of Education). The
broader array of educational delivery systems includes lectures, experiential exercises, vestibule
training, online courses, self-teaching, field trips, small group exercises, collaborative learning,
simulations, learner-based presentations, in-class discussions, videos, learning tests, guest
speakers, and homework (Omrod).
To accomplish the educational delivery purpose, instructional cases are accompanied by another
document that is called by different names including Teaching Note, Instructional Plan/Note,
Lesson plan, Instructor’s Note, etc. The purpose of this document is to assist the instructor who
is using the cases to deliver education to student learners. The goal of an instructional case is to
enhance the learning of students or others who read and develop solutions to the questions,
problem, or issues raised in the case (Christensen & Hansen). Journal editors will not publish the
Instructional Note since publication might make the Instructional Note accessible to students.
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To have value, an instructional case must pass two broad tests of its abilities:
1) It must be good case research (Yin) on an interesting topic (Naumes & Naumes) , and
2) It must be useful in delivering education that is consistent with the Learning Objectives
of courses currently being taught.
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When a journal publishes a case, it is endorsing it as a good piece of case research and a valuable
instructional tool in the target discipline. A detailed description of a successful case follows. The
tone of this description provides much of the basis for a critical commentary as provided by a
reviewer.
Case Research for Instructional Cases
Good case research is real research. There is nothing imagined, made-up, or invented for the
research. Cases with made-up facts, characters, or situations are not publishable in respected
case publications. Good stories may be good cases, but only if they are supported by the actual
facts underlying the case (Eisenhardt). Good case research is supported by items, such as:
1) research notes – recorded in an objective format, and dated,
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2) dated interview tapes, dated interview tape transcriptions, dated interview notes, and
3) copies of original documents of the subject of the research.
4) external data labeled as its source. External data also carries biases, so the source of the
data needs to be cited at all times.
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Good research is the recording of events and attributing those events to a person or event being
studied (Creswell). It is much like the task of a news reporter who records events and opinions
of others. Events and opinions are recorded and never invented. The assembly of the facts of the
case can take on some degree of bias, in favor of one view or another. It is the job of a good case
reviewer to identify the bias and ask that a more balanced view be presented if the case is to be
published.
Biased and Misleading Information
A difficult matter for the case researchers is identifying potential biases or unintended
misrepresentations of the information. Such information may have been obtained in a variety of
ways, such as from employees. Examples of biased data sources from employees include:
1) Former employees who were fired may have biases in their view of the employer.
2) Employees at lower levels may not understand the strategic view of the business.
3) Company owners may have a different understanding of their business than is found in
the literature written about their industry.
Illustrating these biases may add educational value to a case, but students often do not consider
the source of information. It is common for students to to think, “if it is in print, it must be
right.” To show the bias, follow personal source data with external industry or other reference
data, such as the opinions of others. Thus, their bias will be made apparent to the reader.
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Company documents may also contain biases. Examples include:
1) Internal financial statements can be constructed in many ways. The underlying
assumptions, approaches, and methodologies need to be addressed. Many are not
consistent with generally accepted accounting principles. For example, a company I
know in the precious metals industry does not keep the value of the precious metal on
internal books available to Division Managers. Items such as Gold or Platinum have no
value on the internal accounting reports.
2) Financial statements given to outsiders are more consistently prepared. It is common in
cases to have internal financial statements presented as external statements. This
misrepresentation is often due to lack of knowledge of the source.
3) Puffery, a polite word for exaggeration, by management is common, even in the
description of the business. Examples here are many including:
a. The business broker that described her business as an investment banker.
b. The president of Krispy Kreme doughnuts who saw his nearest competitor as
Starbucks Coffee. Starbuck’s common stock has a higher price-to-earning ratio.
c. The internet sales company that thought they were selling wine when all they
were selling was space for wine merchants to advertise the sale of their wines.
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The Release for Publication1
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Case studies prepared from non-public information require a release for publication from people
and or organizations whose non-public information was mentioned in the case. This goal here is
to limit lawsuits to journals and other publications outlets alleging libel or slander. Reviewers
may want to comment on this need – naming the parties that should provide releases. The editor
has the final responsibility to assure that appropriate releases are obtained and provided to the
journal or other publication outlet. While obtaining such a release is the job of the editor, the
reviewer might suggests the parties that should be providing the release.
Disguised Cases
Sometimes, in exchange for the obtaining the release for publication, the subject of the case, will
require that a disguise be used. Disguises take the form of a new name and location for the
organization and the people in the case. More thorough disguises alter the industry setting as
well. The use of a disguise does not eliminate the need for a Release for Publication, or research
rigor. Disguised cases are not as valued as cases with real names. The names of real
organizations and real people add significance in context to a case.
When reviewing a disguised case, many reviewers attempt to break through the disguise, just to
see if it can be done. The more effective disguises eliminate so much context from a case, that it
is frustrating to review.
As part of the review process, some reviewers question the need for a disguise. Some disguises
may be a matter of convenience to obtain the Release for Publication. A more intense effort to
obtain the Release for Publication may eliminate the need for a disguise.
Decision Focus
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Many instructional case journals require that a case have a decision focus to be published. That
means that a character in the case is faced with a decision that must be made. All of the factors
to make that decision are found within the case or can be easily referenced form external sources.
Examples of decision focus matters include:
1) Failing financial situations. Can this company be saved?
2) Significant technological changes. Is it time to move into the new technology? Should
we watch others try the technology first?
3) Career issues – Newly fired? Is that promotion worth the change?
4) Strategy formulation – our old niche is being invaded, can we fight back? Our old niche
is no longer viable, is there a new one we can find?
5) Strategy implementation – How can the new strategy/technology be implemented? How
should the business be structured? How should we pay the employees – commission or
salary?
6) Marketing – How do we market this new or changing product?
7) Ethics – What do I do? What should they do?
1
See Thomas C. Leach (2005). “Case Research and Writing: Professor Moore Can’t Get There From
Here” The CASE Journal (Fall) Vol. 2, Iss. 1 for a more thorough discussion.
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Notice that, in the above examples, the decisions have yet to be made. Thus, the answer to the
question is approximately the same as the analysis of the case.
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Decision-focus case style has an advantage in that they force analysis. That analysis is structured
by the eminent decision. Thus, the case is not just a nice story. It is more like a homework
problem needing an answer. Decision-focus cases make for a consistency that allow for
comparability in grading. In other words, to make the decision, did the learner consider all the
issues that should have been considered? Many case publishing outlets will limit their
publications to just decision-focused cases.
Yet there can be fine cases that are not decision-focused. There is some type of focus however.
Causality discussions are often the basis of these cases. Examples of this include: How did we
get into this mess anyway? What part of our strategy failed? What made our decision process
faulty? How was the faulty decision made?
Another view of decision-focus is to study the decision process after a decision has been made.
For example, how did the Marketing Director make that decision? Were the significant factors
included in the analysis? This is very useful in the decision process itself. The “groupthink”
attributes of the Bay of Pigs situation in 1962 come to mind.
View of the Business
The business or department of the business itself needs to be viewed from the level of the
decision to be made. Operations decisions need operational data. Strategic decisions need
strategic data. This will be discussed further in the Learning Objectives section below. If the
decision is an operational level decision, external financial statements may not be necessary, but
an organization chart of the department may be required to understand the nature of the decision.
Identification with the Decision Maker
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If the goal of the case is education, students or learners should be able to learn the decisionmaking process of the decision maker in the case. A critical evaluation of the decision process is
also useful. The decision maker needs to be described in enough details to be able to understand
most of the factors that went into the decision. In general, there are two broad categories of these
factors - personal and business.
Personal factors include personal repudiation, career aspirations, family concerns, and
relationship concerns with supervisors, peers and others in the organization. In certain types of
case studies, these are the point of the case.
Business factors are particularly interesting since selection of these implies an identification of
the measures of success for that part of the organization. Is lower cost or better service the
primary goal? Is an increase in the stock price the best measure of success? What is the best
decision in a not-for-profit organization?
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The blending and contradictions between these two sets of factors can illustrate the business
world so well. This data must be present in the case if it needed to deliver the Learning
Objectives – see below.
Interesting Case for Students
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Cases involving interesting and relevant items catch student interest. Case interest is in many
ways similar to the job of selecting what goes on the front page and others pages of a newspaper,
trade journal, or selecting content for television stations. Students are a narrow audience. That
narrow audience is the group of students that will learn using the selected case. Will they be
talking about this case before and after class? Has there been recent press coverage about this
person/organization/issue? These all add interest to a case. A student’s ability to relate to the
situation usually adds value to a case. Attributes of high interest cases for students include:
1) Consumer product companies, especially those that produce and/or sell items that
students purchase. For example, cases about wine companies are always very popular.
2) Cases about people in similar situations to the student draw students into the case content.
These include:
a. personal ethical cases
b. personal career choice cases
c. first-line supervision cases
d. cases about recent college graduates
3) Cases about organizations or people in the current or recent newspapers are excellent, but
they age so fast. The goal is the interest of the student, not the case writer or case
reviewer. Case writers and reviewers may be older than learners, but university
classrooms contain many non-traditional students that may not easily relate to the newest
television sitcom. In their time, these people, organizations, topics, or events would have
added interest to cases:
a. Arthur Andersen, Enron, Worldcom, etc.
b. Martha Stewart, Lillian Vernon, Donald Trump (but he reappears in the news
often)
c. Tylenol, cigarettes, major television events such as Janet Jackson at the 2004
Super-Bowl.
d. The 9-11 terrorist actions and related business responses.
4) Personal technology topics, although fleeting in the dramatic developments in that field,
are excellent. Consider, for example, the “ethics” of cell phone usage in public places
and management response to that within an organization.
5) Founders of new lines of consumer businesses draw interest but often lack a decisionfocus. Examples here include:
a. The Gallo Family
b. The founders of eBay
c. Bill Gates and Microsoft
d. Jeff Bezos of Amazon.com
6) Dramatic decision focus situations are those that require the characters in the case to
make a major decision within a very short period. Examples of that might include:
a. Defects detected, possible recall and product withdrawal decisions, in recently
sold products.
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b. Responses to abrupt changes in laws, technologies, personnel situations, financial,
or personal situations.
c. An offer to sell the company, take new employment, quit the employment due to
ethical concerns, etc.
The Case Writing Style – Clear, Concise and Balanced
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Clear and concise are trite attributes to good writing. The presentation has to be balanced, that
is, many sides of a topic should be presented. Cases written to advocate for a position, a person,
or an approach are not good research. Good case research provides balanced coverage of a topic.
The newspaper analogy used above holds here as well. The researcher, just as a news reporter,
should obtain several views of the situation to describe it, where possible. It should be repeated
cases are objectively written. Case studies are not editorial pieces of opinion, but rather, they are
hard news stories.
For illustration, consider a case study about a business executive. The person cannot be the
subject, since that topic, by itself, lacks decision focus. The subject is a decision that person is
about to make. To consider this person as part of a decision, some measurement of the success
of that organization could be included. For balance and perspective, performance statistics of
other comparable organization could also be included. The case writer should never report their
personal opinion of the success by the person, but rather find someone else who can give that
opinion and report that opinion. Case writers do not have opinions. They organize and report
facts and the opinions of others, but never their own opinions. To report an opinion of success,
the case writer could include quotes from others commenting on the person being studied.
Hopefully, several opinions of success from varying points of view could be included. The
quotes need to be attributed to particular people since biases in the quotes are expected and need
to be evaluated by the student. This is just basic case research. The same is true for quoted
statistics. For example, financial statements prepared for internal management people for internal
use are often remarkably different from those prepared for external use and audited by an
independent CPA firm.
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The dates of incidents and even quotes add to the necessary context of a case. For example,
business conditions before the “dot.com meltdown of the stock market” starting in the year 2000
are quite different from those after the meltdown.
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Amount of Information in the Case
Cases come in many lengths. Some take more than an hour to skim. Some can be read in less
than five minutes. Both of these and many other lengths are valuable. From a case research
point of view, there needs to be enough data to evaluate the subject of the case, whether that is a
decision, a person, or other. The amount of information in a case is a function of intended use.
That use will be described in the Instructional Note as covered below.
Cases as Educational Delivery Systems - Overview
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The primary goal of an instructional case study is to deliver education to students by allowing
learners (students) to achieve stated learning objectives. Learning Objectives are typically stated
in the form of “Through the use of this material, the student should be able to ….” The
statement is completed by filling in a statement of accomplishment. The instructor must be able
to grade the level of achievement. Examples of Learning Objectives include:
Management:
1) Prepare an organization chart for a small business.
2) Describe elements of the leadership style appropriate to a given situation.
Strategic Management:
1) Critically evaluate a vision statement for a business and describe the use of a vision
statement in strategic planning.
2) Prepare an industry and competitive analysis for a single product.
Finance:
1) Prepare a cash budget for an organization.
2) Prepare cash flows and financial justification calculations for a capital project using
payback, net present value, and internal rate of return techniques.
Intermediate Accounting:
1) Compute earnings per share in a complex capital structure.
2) Contrast the operating and capitalization methods of recording leases.
A successful educational case provides a means for the student to achieve Learning Objectives
such as those above. The Learning Objectives of the case should be consistent with the Learning
Objectives of the target course and ideally, the target text and chapter.
The Instructional Note
The discipline of writing instructional cases requires that a separate document be prepared to
support each case. This document provides a set of instructions describing how the case can be
used in a classroom setting. The document is called several different names; all of these names
describe the same document. These names include the Teaching Note, the Instructional Note,
Lesson Plan, the Case Note.
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The content of this document is just as critical to the successful publication of the case as the
case itself. We will see why below. The contents of an acceptable Instructional Note should
include at a minimum:
1) Introductory descriptive material that will allow a potential instructor to consider the case
for use in particular courses. This material includes:
a. An abstract of the case – providing a summary of approximately 200 words or so
of the case and the decision focus, and target course(s).
b. The target courses for the use of the case using specific course names such as
Organizational Policy – graduate level, Managerial Accounting – undergraduate
level, Human Resource Management – undergraduate level, etc. A case can have
more than one target course.
c. The target topics in the target courses, for example: Recruitment in the Human
Resource Management course, Internal Controls in the Auditing course or
Strategy Implementation in a Business Strategy course.
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3)
4)
5)
6)
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2)
d. Ideally, the target chapter of the most popular textbook in the course can be listed.
For example, “this case can be used with Gitman’s Financial Management (10th
edition) Chapter on Capital Structure.”
Explicitly stated Learning Objectives such as those above. These are critical measures of
the goals of the use of the case. Well-designed Learning Objectives clearly state the
desired learning outcomes that are measurable. Most of the most popular textbooks now
include explicit Learning Objectives or Learning Goals. The reviewer must be able to
answer the critical question, “Will the use of this case assist students in achieving the
stated Learning Objectives?”
Case questions – some cases use case questions to direct students through the processes
of the case learning. Case questions are often provided only in the Instructional Note and
are provided to the students by the Instructor on a separate sheet of paper or email just as
the case is assigned for use. Some textbooks have the case questions available on the
web site for the case. Not all instructors use case questions, so separating the case
questions from the case makes the use of those questions optional.
Answers to case questions – If case questions are provided, the Instructional Note
supplies highly developed answers to the case questions. These answers should be
developed well enough so that an instructor who is unfamiliar with the material can use
the case without further research. If numerical answers are needed, fully developed
numerical answers should be provided with notes as to how each of the answers was
developed. Some instructors make their electronic spreadsheets available to instructors
using their cases. A key question here is whether the process of answering the questions
allows students to achieve the Learning Objectives. If not, the case reviewers should
point that out in their commentary.
Alternate ways to teach with the case – Some case writers provide lesson plans to lead a
discussion of the case. These lesson plans might include the projected time for the
discussion, say 45 minutes of classroom time, a board plan of what the black/white
boards might look like during the discussion, and the sequencing of the class comments
during the discussion of the case. Others assume a written case analysis by students and
provide aspects of a grading rubric or guide.
Grading assistance to the instructor – content like a “C” student would see this in a case,
a “B” student would also see this, and an “A” would see this (Source: John Seeger,
Bentley College).
References for the use of instructors – The Instructional Note itself might give references
to the scholarly references on the content being addressed by the case. For example,
Instructional Notes for cases on ecommerce might refer to descriptive articles, and
Instructional Notes for Auditing cases might provide references to the Sarbanes Oxley
Act. Website references are especially useful.
Epilogs – When available, follow-on information is very useful to the instructor and may
add great value to student learning.
8)
More on Learning Objectives – Unintended and Otherwise
Some Learning Objectives to extend beyond the traditional content of a course. Let us discuss a
few those unintended Learning Objectives. Some tend to be process-type objectives rather than
content objectives. For example:
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1) Selecting relevant data from a collection of collection of data to support an answer to a
case question. Many case authors put in all the data they have collected about an
organization or individual whether it is relevant or not, this approach adds to the length of
the case. There may be two reason this occurs. Either the authors want to add a Learning
Objective or selecting relevant data or the case was not well edited before it was
submitted. Through the use of a less-organized case, the students learn to organize data.
This, by itself, may be a valuable learning objective.
2) Selecting appropriate online data to support an appropriate answer to a question. The
internet provides so much data, but which is appropriate in a certain use. I find the
finance area to be particularly challenged in this area. Thus the objective of learning how
to do internet research and selecting appropriate data is supported.
3) Doing research to support an answer – online or otherwise.
4) Writing a crisp case analysis report. This supports a leaning objective of writing in a
crisp business-like style.
5) Using team skills when teams are used for the analysis. The learning objective of
working in team skills is supported.
Concluding Comments
Case writers need to understand and appreciate that case reviewer’s mindset in order to
successfully publish their work. When most reviewers’ analyze a case and teaching note, they
employ a standardized analytical framework, one that has been described in detail by Naumes
and Naumes (1999) and encapsulated in this article. By providing a short summary of this
material, it is hoped that existing and aspiring case writers can better hone their craft.
The next issue of The Case Journal (Volume 2, Issue 2) will include a proposed typology of
reviewers’ approaches to the case review process based upon reviewers’ written comments on
cases presented at the 2004 EAM/CASE Association Meeting (Springfield, R.I.). It is expected
that this material will lead to further discussion as to case reviewing and the review process in
more general settings.
References
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Armandi, Barry, 2004, personal discussions with James J. Carroll. Barry Armandi is the
immediate past president editor of the CASE Association.
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Christensen, C. R. & A. J. Hansen, A. J. 1987. Teaching and the Case Method, Boston: Harvard
Business School.
Creswell, John W. 1994. Research Design: Qualitative and Quantitative Approaches, Sage
Publications: Thousand Oaks, CA.
Eisenhardt, Kathleen M. 1989. "Building Theories from Case Study Research", Academy of
Management Review, Vol. 14:4, pp. 522-550.
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Eisner, Alan, 2004, personal discussions with James J. Carroll. Alan is the current Vice
President for Program for the CASE Association.
Emory, C. William. 1980. Business Research Methods, Richard D. Irwin Publishers.
Mason, Robert. 1995. Qualitative Researching. Sage Publications: Thousand Oaks, CA.
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McKeachie, W. J. 2002. Teaching Tips: Strategies, Research, and Theory for College and
university Teachers, (11th ed.). Boston: Houghton Mifflin.
Naumes W. and Margaret J. Naumes, 1999. The Art and craft of Case Writing, Thousand Oaks,
CA, Sage Publications.
New Jersey Department of Education, 1996. New Jersey Core Curriculum Content Standards,
published on their website at http://www.state.nj.us/njded/cccs/05ccwrready.html.
Ormrod, Jean Ellis, 1999. Human Learning, (3rd ed.) Upper Saddle River, NJ: Prentice
Hall/Merrill/Person.
Seeger, John, comments at CASE annual meetings in 1999 to 2004. John Seeger is Past
President of the North American Case Research Association and past editor of the Case
Research Journal.
Sherman, Herbert, 2004, personal discussions with James J. Carroll. Herbert Sherman is the
current editor of the CASE Journal.
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Yin, Robert K. 1994. Case Study Research: Design and Methods, second edition, Sage
Publications: Thousand Oaks, CA.
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The R.C. Bigelow Tea Company Case Study
Laurence Weinstein, Sacred Heart University
[email protected]
Cindi Bigelow, R.C. Bigelow Tea Company
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Cindi Bigelow (MBA, Kellogg School of Business) and her sister, Lori, represented the third
generation in their family to direct the fortunes of the privately held R.C. Bigelow Tea Company
headquartered in Fairfield, CT. Active in the community, Cindi was a frequent guest speaker,
which included involvement with several nearby college campuses, including Sacred Heart
University and Fairfield University.
As Chief Operating Officer, Cindi was charged in part with developing new product concepts for
the company, and introducing these new ideas into an intensely competitive but slow-growth hot
tea category. (1) During 2003-2004, the company offered four new herbal tea flavors: BerriGood, Taste of the Tropics, Tasty Tangerine and Pomegranate Pizzazz. Packaging design was
more modern and upbeat than the traditional Bigelow Tea package (see Exhibit 1), both to
communicate a zestier taste experience and to attract a younger audience to the company’s tea
product line.
Exhibit 1: New vs. Traditional Bigelow Tea Company Packaging
New Herbal Tea Flavors and Packaging
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Traditional Bigelow Tea Products and Packaging
Cindi was mindful of the importance of retaining her franchise base, women 45+ (2). However,
she was hopeful that introducing new flavors with more youth-oriented names like “Berri-Good”
and “Tasty Tangerine” and more contemporary packaging would overcome some negative
perceptions about hot tea drinking among college-age students and young professionals, age 18 –
34. (3) Cindi said, “It would be a breakthrough for us to get younger people to start drinking hot
tea in significant numbers. That would represent a real growth market for us.” Her vicepresident of Marketing, Robert Kelly, agreed, “We know we do a solid job marketing our
product to an older population, but the tea category isn’t growing much with our franchise
consumers. We could see substantial increases in our year-over-year sales numbers if we could
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only attract younger professional women and men. Unfortunately, we don’t know an awful lot
about their tea drinking habits.”
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Tea History
For literally thousands of years, people all over the world have delighted in the taste, aroma and
soothing moments spent with a cup, glass or mug of hot tea. Legend has it that tea was
discovered accidentally in 2737 BCE when a servant to Chinese Emperor Shen Nung was boiling
water to disinfect the emperor’s drinking cup. During this heating process, leaves from a nearby
bush accidentally fell into the boiling water. When cooled, the emperor noticed the water had
turned brown; curious, he drank the cup’s contents. Shen Nung found the drink aromatic and
refreshing, and with that, hot tea got its start. (4) (5) (See Appendix A for the role tea has played
in U.S. history.)
Tea Facts
Today, even though sales of tea in the United States are just a fraction of sales of coffee ($5
billion vs. $20 billion), tea consumption has grown five-fold in the last ten years as consumers
continue to look for healthier beverages (6). Around the world, tea is the second most consumed
beverage after water; the best teas are said to be grown in China, India, Sri Lanka, Japan,
Taiwan, Kenya and Indonesia. (7) The United States imports the majority of its tea, however,
from Argentina, used mostly in popular iced tea brands. (8)
Health benefits have long been ascribed to tea. Exhibit 2 provides a short list: (9)
Exhibit 2: Tea Consumption Benefits
Fights Cancer and Heart Disease
Strengthens the Immune System
(Helps Tea Drinkers) Look and Feel Younger
Improves Digestion
Protects Teeth and Strengthens Bones
Prevents Dehydration
Tea leaves are derived from a plant native to Central and Eastern Asia (genus: camellia; species:
sinesis). Soil, elevation and climate differences create varieties in teas, but there are only three
basic teas in the world: black, green and oolong. “The process used to prepare the leaves
establishes the tea’s classification, while oxidation determines its color, body and flavor.” (10)
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Black teas represent 90% of all hot tea sales in the U.S. (11) To make black tea, the processor
withers, and rolls, sift and then ferments the tea leaves. This creates a hearty flavor and rich
amber color. The most popular variations are English Breakfast and Darjeeling.
Green teas, in contrast, call for the leaves to be fired shortly after the tea is harvested. This
prevents fermentation and leads to the tea having a greenish gold color and a more delicate taste.
There has recently been a spate of articles claiming green teas might reduce the risk of cancer.
This may help explain the surge in green tea sales in North America.
Finally, with oolong teas, the leaves are withered, rolled, twisted but then only semi-fermented
so that the resulting flavor and color fall between green and black teas.
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Herbal teas, despite their connotation as “tea,” actually contain no tea leaves at all. Instead,
herbal teas are made from fruit peels, grasses, berries, flowers, flavorings and leaves from a
variety of plants that are not of the genus camellia.
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The Tea Industry
A recent market share report (see Appendix B) showed Lipton, Celestial Seasonings, Bigelow,
Luzianne, Twinings and Tetley holding significant share positions. Lipton was first at 30%
(combining Lipton and Lipton Cold Brew shares), Celestial Seasonings second with 14.9%, and
Bigelow third with 13.5% of the market. (12)
Interestingly, most tea consumed in the United States is iced, not hot, and iced tea outsells the
more traditional variety four to one. This “ready to drink” product exploded in popularity in the
early to mid-1990s because it overcame consumer resistance to the perceived inconvenience of
drinking tea versus juices, carbonated beverages and other soft drinks. (13) The introduction of
Snapple brand in 1972 began a remarkable success story for the Unadultered Food Corporation
as the brand’s positioning appealed to a younger population that had not been part of tea’s
customary target audience. (14)
Unfortunately for Bigelow, the company decided not to enter the iced tea category until it was
saturated by far larger companies with a lot more marketing clout. Cindi Bigelow commented,
“We knew we were late going into the category in 1990 and just did not put much effort into
developing that part of our business. Our iced tea line never did take off. As the third generation
of my family to be in the tea business, I take very seriously my role of caretaker of the
company’s fortunes. If something is not working out, we won’t throw good money after bad.
We move on immediately to other opportunities.”
Company Background (15)
The R.C. Bigelow Tea Company got its start in 1945 when Ruth Campbell Bigelow began
making her own tea in the brownstone her family owned in mid-town Manhattan. During the war
years, most tea available to consumers was black tea with few variations. Ruth wanted more zest
and flavor choices from her favorite hot beverage, so she started to experiment by adding spices
and pieces of golden orange rind.
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Ruth Bigelow may have first realized she was on to something when one of her close friends
mentioned the “constant comment” women were making when served one of Ruth’s flavored
teas at parties in New York. It was a name that stuck and “Constant Comment” remains the
flagship brand for the company.
However, business hardly boomed for the Bigelow family. In fact, Ruth’s husband, David, Sr.,
recalled saying to his young son, David, “Don’t tell your mother, but I don’t think this tea is ever
going to go anywhere.” That seemed like a fair assessment since there were only four workers in
the business (Ruth; David, Sr.; David, Jr. and a part-time employee who worked after school
hours) and everything was done in small batches in their own kitchen.
Yet Ruth was not to be deterred. In one of the great entrepreneurial stories for women after
World War II, R.C. Bigelow truly stood out. She was tireless in her efforts to establish the
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fledgling company. Her son, David, said, “She probably dreamed about this business when she
was sleeping. Every waking moment was basically devoted to how do we sell tea and how do
we get customers and how do we keep this thing going?”
As word spread about the quality and taste of her teas, Ruth Bigelow slowly began to seek
distribution in local, then regional supermarkets. With the Manhattan brownstone now too small
to handle the volume of business, the Bigelows decided in 1950 to move to more spacious
headquarters in Norwalk, CT.
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The company grew steadily through the 1960s and 70s as R.C. Bigelow played an important role
in the revolution in American tea drinking that has occurred over the past 40 years. Exhibit 3
shows company revenues that reflect the type of growth the company achieved from 1974–2000
(latest figures available). Gross sales increased nearly fourteen-fold in that period. Although the
gross margin percentage in 2000 was down from the 1974 level of 53.5%, they jumped from a
low of 37.0% in 1990 to the present level of 41.6%. However, net income figures continued to
deteriorate, reflecting the increased competitive pressures in the category. (16)
Exhibit 3
Revenue Growth Since 1974 – presented in $ Thousands
(Figures masked for confidentiality)
1980
$ 13,379
7,434
5,945
44.4%
1,523
2,654
31.2%
1,768
13.2%
881
888
1990
$ 40,730
25,641
15,089
37.0%
3,122
9,198
30.2%
2,769
6.8%
1,125
1,644
6.6%
4.0%
2000
$ 100,000
58,400
41,600
41.6%
7,600
27,800
35.4%
6,200
6.2%
2,840
3,360
3.4%
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1974
Gross Sales
$ 7,428
Cost of Goods
3,455
Gross Margin
3,973
53.5%
Gen. & Admin.
972
Sales & Mktg.
2,078
41.1%
Operating Margin
923
12.4%
Income Tax
472
Net Income
450
Net Income as %
Of Gross Sales
6.1%
In 1990, the R.C. Bigelow Company moved from Norwalk to its new headquarters on Black
Rock Turnpike in Fairfield, Connecticut, close to Interstate 95. The facility encompasses both
corporate headquarters and one of the company’s three manufacturing plants; the other two
plants are in Louisville, Kentucky, and Boise, Idaho. Over 400 people are employed at the three
sites.
The organization marketed flavored teas, traditional teas, caffeine-free herbal teas, decaffeinated
flavored teas, green teas and fruit-flavored iced teas. A line of honey spreads, dessert coffees
and a full line of loose teas were recent new product entries, as was a “rare and exotic tea” line
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called Estate Tea. “In 2004,” Cindi said with pride, “We made enough products to provide over
one billion cups of tea to our buying public. That represents solid growth. As COO of the
family business, I see myself as the caretaker; we can’t take big risks, but that doesn’t mean we
won’t continue to innovate and grow.”
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Market Research
Research conducted for the company among a sample of 900 National Family Opinion mail
panel respondents (netting 612 usable surveys) by a local independent organization indicated the
following (17)
• Homes are the primary place for tea consumption
• Tea drinking is more likely to take place between meals than at meal time
• People are more likely to drink tea alone than with someone else
• Most consumers are not brand loyal, but switch back and forth among brands
• Many consumers think herb tea contains tea
• The salient attribute for tea is that it “always tastes fresh”
• Celestial Seasonings registers the highest brand awareness
• Bigelow and Lipton Soothing Moments are next in brand awareness levels
Bigelow Tea merited comments like “can smell the flavors in the aroma” and “always tastes
fresh.” Celestial Seasonings provided consumers with a fuller range of flavors and “makes good
herb teas.” Lipton scored high in “flavors aren’t too strong” and “good value for the money.”
A series of focus groups in 2002 conducted for Bigelow Tea in Los Angeles, Phoenix, Boston,
White Plains (New York) and Framingham, Massachusetts were all directionally consistent with
the Leferman Study. (See Appendix C for more highlights of the research findings.)
Distribution and Pricing
Cindi recognized that the process of putting the product into the hands of consumers was in flux.
Some large retail accounts still considered tea a “specialty item” and insisted on buying from
distributors in a “2-step” distribution process. Several other large chains had re-classified hot tea
into a more mainstream food item and were buying direct in a “1- step” distribution process.
(See Appendix D for detailed product flow.)
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Because hot tea drinking was seasonal, sales increased three-fold in winter versus the summer
months. Using seasonally unadjusted average monthly sales figures to re-order tea presented
retailers with serious out-of-stock situations. Further, key point-of-purchase materials languished
in warehouses. This hurt R.C. Bigelow’s, as well as the retailer’s sales, until the Bigelow sales
force convinced purchasing managers to re-program their computer buy orders to account for
seasonal differences.
Cindi realized that R. C. Bigelow’s near absence in the “health arena” was another obstacle to
increased sales; retailers who primarily sold health foods and promoted nutrition and the organic
nature of their products rarely or never carried the company’s product line. Distribution to the
trade was largely through food and office service organizations that re-sold the product to
restaurants and office buildings.
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A store check in July 2005 revealed retail pricing for the leading brands in the category was
$2.99 per 20-count container or nearly 15 cents per teabag. Bigelow wrapped its tea bags in
individual aluminum foil packages at no extra cost to the consumer. Twinings, however, did
charge slightly more ($3.29 per 20-count) for tea packed in a metal container to preserve
freshness. Tetley offered a “new fresh can” made of plastic, priced at $2.50 for 20 teabags. The
private label brand offered 48 teabags for $2.19, or about five cents per unit, representing a 67%
savings over the national brands. (18) (See Appendix E for Bigelow Tea shelf visual.)
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Promotion
The company spent approximately $8 million on promotion in 2004 with 60% of the money
allocated to a “push” strategy involving trade activity such as co-op advertising and point-ofpurchase displays. (See Appendix F for Bigelow Tea display rack.)
About $3 million was allocated to consumer “pull” advertising. The majority of these funds
went to a magazine print campaign in 18 publications. The print advertisement (see Appendix
G) consisted of two elements: a full page ad with the headline “Indulge in the Soothing Ritual of
Tea” featuring a foil package of Green Tea; and a smaller follow-up ad displaying three tea gift
ideas and the company’s website address. The two pieces were placed in magazines such as O,
The Oprah Magazine; Weight Watchers; Shape; Fitness; Cooking Light, and Health between
October 2004 and February 2005. These publications were targeted to women, 45+, and enabled
Bigelow Tea to reach 30% of its total audience an average of 3.2 times.
As an experiment, ads were also placed in Men’s Health, Golf, and Money magazines during
January and February, 2005. Management was still reviewing this promotion allocation to
decide if further advertising spending directed to adult males generated incremental brand sales.
The print campaign was augmented by a sampling program in 15 top markets to households with
income of $75,000+. The markets selected were in urban/suburban areas where specialty tea
sales were above the national average. Roughly 5 million samples were mailed out.
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Bigelow’s Internet site was considered a significant plus for company management because
viewer “hits” on a daily and weekly basis had been growing on a fairly consistent basis. Cindi
said, “Repeat orders from the site have also been growing as consumers have found it to be a
convenient way to obtain our teas and special Bigelow Tea merchandise.” However, she was not
entirely pleased with the website’s design, and
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thought that Celestial Seasonings and Lipton both had more upbeat and interesting material and
navigation tools than did Bigelow. (See Appendices H, I, J)
Tackling the Problem
As the third generation got set to make its lasting mark on the company, Cindi Bigelow was
pleased at how the company refused to sit tight with its present product line and packaging. Yet
she also continued to be frustrated with a customer profile that remained so dependent on the 45+
age segment.
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“We really want to expand our demographics to include younger tea drinkers,” Cindi said. “The
earlier we can convert young adults to hot tea and away from soda, iced tea, coffee and bottled
water, the longer we will have them as customers throughout their lives. That is our real
marketing challenge.”
“How do we change young people’s perceptions about specialty tea?” she mused. “Do we need
to change our image? I hope not. We really want to target the 18 – 34 age segment without
alienating our current franchise of older women. How can we do that?”
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During a visit to Sacred Heart University (SHU) in March 2005, Cindi agreed to let the SIFE
(Students in Free Enterprise) Team on campus undertake market research to find out more about
how undergraduate students felt about hot tea. (19) The SIFE team generated a short, selfreporting survey (see Appendix K) and completed 120 interviews with students randomly
selected outside the main dining hall over a two-week period.
Forty-two percent of respondents noted they had purchased hot tea at least once in the past thirty
days. Lipton was by far the number #1 brand purchased, followed by Tetley, Celestial
Seasonings and then Bigelow Tea. Snapple dominated the iced tea category, followed by the
Arizona and Sobe brands. When asked if students were aware of hot tea’s health benefits, only
18% said they were. (20)
Armed with these findings, the SIFE team proposed a 30-day promotion effort behind the
Bigelow brand on the SHU campus to Bigelow Tea management. After one month, the team
would determine if increased exposure to the brand made a significant difference in awareness of
hot tea benefits and increased hot tea sales for the company.
Cindi readily agreed to the proposal and offered the team up to $500 to defray promotional and
material costs which they might incur during the market test effort. The SIFE team now had
three distinct challenges: 1) choosing the promotion mix 2) generating creative and 3) analyzing
the results.
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Sampling
A cornerstone of the campaign was to set up posters in the main dining hall where most of the
3000 full-time students on campus chose to eat at least one of their daily meals. An additional
2000+ part-time undergraduate and graduate students potentially could walk by the dining hall at
least once during the week. These posters would announce the offer to students (as well as
faculty and staff) of a free Bigelow foil tea bag. A booth would be set up near the poster and
SIFE team members would take 2-hour shifts covering at least 10 hours each day. Cindi
Bigelow agreed to provide roughly 2000 tea bags for the sampling effort.
Advertising and Publicity
The SIFE team identified several opportunities for potential advertising and publicity placement
to build interest and sales behind the Bigelow name on campus.
First, the students were interested in possibly using the closed circuit television network
available on campus. They weighed the options of creating a videotaped commercial versus
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using print advertisement copy as a visual without audio accompaniment. Cost was estimated at
$25 per exposure for the tea advertising.
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Second, there was the 16-page weekly school newspaper, The Spectrum, which regularly
carried advertising from campus and community sponsors. Advertising costs were $360 for a
full-page ad, $150 for a half-page ad and $100 for a quarter-page ad.
Third, the student-run radio station, WHRT, which could be heard outside the main dining hall,
was another option. Unfortunately, the station did not accept advertising.
Fourth, with the prior approval of student government, the SIFE team could put up posters and
handbills around the main academic building and in any of the campus dormitories. Costs were
estimated at no more than $50 for photocopying.
Fifth, the SIFE team mulled over the possibility of discussing their 30-day promotion effort with
officers from the seven fraternities and four sororities recognized by the university. This might
lead to valuable word-of-mouth about the brand.
Last, they considered getting approval from the university to send out a global email about the
test market, and/or getting approval from their College of Business faculty to inform business
classes about their promotion efforts.
Creative
The SIFE team generated several possible creative strategies for their awareness campaign.
These included:
1. As the test would be conducted during March, one approach was to emphasize the value of
hot tea on cold spring mornings in Connecticut. “Warm up with Bigelow Tea!” was a
possible headline in the school newspaper ad or on one of the posters placed around campus.
2. Another strategy was to emphasize the health benefits of hot tea, such as building one’s
immune system or ingesting anti-oxidants to prevent “free radicals” from roaming around the
body. Although Bigelow Tea had decided as an advertiser not to use a health benefit claim
due to potential legal challenges, the SIFE team felt no such constraint. They hoped that if
the test were successful, Bigelow would reconsider its decision to “soft peddle” such benefit
claims.
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3. Yet another strategy was to emphasize tea as a socially enhancing beverage. For drinkers of
Bigelow Tea, the simple act of sharing hot tea with friends during the day could be a
rewarding and relaxing experience.
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4. Finally, the students considered promoting Bigelow Tea as a local Fairfield corporation
because it would support the area economy.
Reading the 30-day Test Market Effort
To determine if the SIFE campaign had made any impact on Bigelow Tea sales, SIFE team
members planned on working with the campus dining hall food franchise, Flik, to obtain pre-test
sales information and then examine post-test sales data for at least 60 to 90 days after the
campaign ended. Cindi Bigelow was looking forward to the test results. “We know this is a
modest effort given our budget constraints and what the SIFE team can accomplish in a short
amount of time, yet the results ought to give us a good idea of how young people respond to
advertising and publicity behind our brand name.”
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SIFE Team Results
Following the month-long promotion campaign, the SIFE team interviewed 60 students to
determine what, if any, changes had occurred in their tea consumption rate, brand choice and
awareness of product benefits (see Appendix N for full results). Several highlights were: 40.8%
more students purchased tea, far fewer students indicated purchasing Tetley and Lipton brand
teas, many more students had become aware of the health benefits drinking tea offered and there
was a 1000% increase in Bigelow Tea brand sales.
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The Challenges Ahead
Cindi Bigelow was very pleased with the results reported by the SIFE team. Along with Bob
Kelly, vice-president for marketing, she was encouraged by what she had heard. Cindi said, “I
feel that further exploration into on-campus promotions could be very helpful for the brand and it
could prove to be an important, new strategic direction for my company.” However, before
proceeding, Cindi and Bob knew that they had to review carefully the research methodology
used by the university students to make sure the sales results were reliable. They also wanted to
review the creative and media decisions made by the SIFE students so they could assess the
entire 30 day market test effort and the leap in unit sales of their tea products.
Endnotes
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(1) Retrieved May16, 2005 from Web site: http://www.qsrmagazine.com/issue/65/tea.phtml.
(2) Leferman Associates, (2001, April). A Habits and Practices Study of the Specialty Tea
Category.
(3) Retrieved May 16, 2005 from Web site: http://www.teausa.com/general/Star/teatutorial.
(4) Retrieved May 17, 2005 from Web site: http://www.enjoyingtea.com/tea1.html.
(5) Retrieved May 17, 2005 from Web site: http://www.stashtea.com/facts.htm.
(6) Retrieved May 16, 2005 from Web site: www.coffeeresearch.org.
(7) Retrieved May 18, 2005 from Web site: http://www.barrowstea.com/history.htm.
(8) Segal, M. (1996) Tea: A Story of Serendipity. Retrieved May 23, 2005 From FDA Consumer
Magazine, Web site: http: www.fda.gov/fdac/features/296_tea.html.
(9) Retrieved May 17, 2005 from Web site: http://www.enjoyingtea.com/healbenoftea.html.
(10) Ibid.
(11) Ibid.
(12) Internal R.C. Bigelow company document.
(13) Simrany, J. (2000) The State of the Tea Industry. Retrieved May 18, 2005 from Tea and
Coffee Trade Online Web site: http://teaandcoffee.net/0100/tea.htm.
(14) Retrieved May 17, 2005 from Web site: www.cadburyschweppes.com.
(15) Silverstein, E. (1995, July 13) R.C. Bigelow Steeped in Tradition: After 50 years, family
says business is still their cup of tea.” Fairfield Minuteman, p. 21. (The background information
on the company came from this source.)
(16) Internal R.C. Bigelow company document, 2002.
(17) Leferman Associates, op. cit.
(18) Store check findings. (July 12, 2005 Shaw’s Supermarket, Fairfield, CT)
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(19) Students in Free Enterprise is a “global non-profit organization active in over 40 countries
and territories . . . Working in partnership with business and higher education, SIFE establishes
student teams on university campuses (to) develop community outreach projects (in) market
economics, business ethics, personal financial success skills and entrepreneurship.” (SIFE
website accessed September 27, 2005).
(20) SIFE team analysis of student survey, completed Fall 2004.
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More Tea History
From China, tea spread to Japan and became an important part of Japanese life. Preparing and
serving tea “was elevated to an art form resulting in the creation of the Japanese Tea Ceremony.”
(1) The Western world did not “discover” tea until the early 1600s, when both the Portuguese
and Dutch navies brought tea from China to their own countries as well as to France and
Germany. (2) The Dutch also shipped large volumes of tea to their new colony in America, New
Amsterdam (now New York), and tea drinking was all the rage in the Colonies well before the
drink was popularized in England. (3)
In fact, tea was considered a “filthy custom” in England in the early 1600s while coffeehouses
were very popular meeting places for men. Tea, if consumed at all, was primarily for medicinal
purposes, with many believing hot tea could cure most any malady. (4) It was not until the mid
to late 1700s that tea became the beverage of royalty after which its popularity expanded to the
upper and middle classes.
Tea became so popular that the British began their own trade with China to take advantage of the
lucrative worldwide demand. As trade expanded, the British Parliament decided to augment the
national treasury by taxing tea imports. Under George III, the tea tax was extended to the
Americas in the belief that the colonial settlers were so “hooked” on tea that they would pay the
exorbitant tax rather than give up their favorite beverage. (5)
What a calamitous decision! The colonists were so upset by this “taxation without
representation” that some 60 men, dressed as Native Americans, staged a rebellion known as the
Boston Tea Party on the night of December 16, 1773 in Boston Harbor. (6) The contents of two
whaling ships, the Dartmouth and the Beaver, which were doubling as tea transports, were
thrown into the water, ruining over $200 million worth of tea in today’s dollars. (7)
By 1800, America’s love affair with tea was over and coffee became the beverage of choice. In
contrast, the British (with their own onerous tea taxes dropped by 1784) continued to drink the
beverage, leading Sir Winston Churchill to once remark that tea was more important than bullets
to the British Empire. (8)
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After the War for Independence, America built its own merchant marine and traded directly with
China for its teas. Two later inventions helped fuel the rebirth of tea drinking in the United
States. First was the introduction of iced tea at the 1904 World’s Fair in St. Louis; the second
was when Thomas Sullivan began the practice, in 1908, of sending tea samples in individual
bags to upscale New York area restaurants. Instead of taking the tea out of the sampler bags, the
restaurants prepared the tea right in the bags and their customers loved it. Thus was born the
modern day tea bag! (9)
(1)
(2)
(3)
(4)
Endnotes
Retrieved May 17, 2005 from Web site: http://www.stashtea.com/facts.htm.
Retrieved May 17, 2005 from Web site: http://www.enjoyingtea.com/tea1.html.
Retrieved May 18, 2005 from Web site: http://www.barrowstea.com/history.htm.
Retrieved May 19, 2005 from Web site:
http://oldfashionedliving.com/teahistory.html.
38
Ibid.
Retrieved May 18, 2005 from Web site: http://www.barrowstea.com/history.htm.
Ibid.
Retrieved May 19, 2005 from Web site:
http://oldfashionedliving.com/teahistory.html.
(9) Retrieved May 24, 2005 from Web site: http://tealand.com/teahistory.htm.
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(5)
(6)
(7)
(8)
39
Appendix B
Market Share, Hot Tea Category
(Year Ended June 15, 2003)
Source: Beverage Industry July 2003 p. 32
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Other
13.8%
Lipton
26.7%
Private Label
7.3%
L
C
B
Stash
2.6%
L
Salada
2.7%
T
Lipton Cold Brew
3.0%
Tetley
4.5%
Celestial Seasonings
14.9%
Twinnings
5.4%
Luzianne
5.6%
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Bigelow
13.5%
40
T
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Appendix C
Report
A Habits and Practices Study
Of the Specialty Tea Category
Prepared For:
R.C. Bigelow Inc.
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Conducted By:
LEFEERMAN Associates
April 2001
(Note: Selected Pages – Not the Full Report)
Background and Purpose
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R.C. Bigelow has long been a major brand in the specialty tea category, which is
comprised of traditional tea, flavored tea, herb tea and green tea. In recent years,
Bigelow has become more aggressive in marketing Bigelow specialty tea products.
These efforts have been carried out without formalized research that documents how the
specialty tea category is structured in terms of purchase and usage behavior and user
characteristics. Also, little is known regarding what are the important criteria for
selecting a specialty tea brand and how consumers perceive Bigelow and competitive
brands with regard to attribute and personality associations.
A
Implications from this research will be the basis for defining the target audience and for
positioning development.
Key Conclusions
Overall Conclusion
The results of this study show that R.C. Bigelow, Inc. has a significant opportunity to
increase the effectiveness of marketing Bigelow specialty teas through efficient targeting
and positioning refinement. There are aspects of the current brand image that should be
41
maintained and reinforced as well as elements that should be modified to take advantage
of consumer predispositions.
“Need States” Associated with drinking Specialty Tea
Relaxation is decidedly the need state most strongly associated with drinking
specialty tea.
•
Being comforted is also a fairly strong association.
•
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•
Notable secondary need states are relieving stress, making part
of the day special, relieving a sore throat, soothing a dry
throat, and serving as a treat.
Product Purchase and Usage
Specialty tea is predominantly purchased at a supermarket or grocery
store.
At home is clearly the primary place where specialty tea is consumed.
Usage levels are fairly similar between at work and at restaurants.
Overall, consumption is more likely to take place between meals than at
meals. Evening is the most frequent time when consumption takes
place. Usage levels are similar between morning and afternoon. Of
the three meal occasions, breakfast slightly edges lunch and the
evening meal in terms of incidence of specialty tea drinking.
Consumers are more likely to be alone than with someone else when
drinking specialty tea.
Most consumers usually have multiple brands of specialty tea on hand
and switch back and forth versus only using one brand at a time.
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Product Types
Consumers do not appear to classify products into types to the same degree
as manufacturers.
While there is evidence of classification by type on the part of consumers,
(for example, herb tea is more important to Celestial Seasonings than
it is to Bigelow, there is also evidence of confusion. For example,
many consumers think that herb tea contains tea (even among those
who claim to drink herb tea).
Attribute Importance in Brand Selection
In almost every category there are attributes that are considered “critical.”
Not delivering on these attributes will usually lead to failure. The
attribute that comes closest to this status in the specialty tea category
is “always tastes fresh.”
There are other attributes that do not fall in the critical range but fall into
42
the range called “highly desirable.” These highly desirable but not
critical attributes include:
• flavors taste natural
• packaged for freshness
• flavors are distinctive for the variety I’m drinking
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Brand Awareness
Celestial Seasonings is the brand registering the highest awareness. Almost
all category users have heard of Celestial Seasonings.
A strong majority of consumers (eight out of ten) are aware of Bigelow and
Lipton Soothing Moments.
Approximately half have heard of Twinings/Bigelow Constant Comment.
Claimed Brand Usage
Celestial Seasonings is the brand with the highest claimed usage.
Claimed usage levels are similar between Bigelow and Lipton Soothing
Moments (there may be some confusion between Lipton Soothing
Moments and other Lipton tea).
Claimed usage is much lower and equal between Bigelow Constant
Comment and Twinings.
Bigelow users report heavier category consumption than users in general,
and Celestial Seasonings users are lighter than average users of
specialty tea.
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Brand Attribute Associations
The attributes most strongly associated with Bigelow Tea are:
Packaged for freshness
Tea looks clear
Makes good flavored tea
Always tastes fresh
Offers a full range of flavors
Company specializes in specialty tea
Flavors taste natural
Can smell the flavors in the aroma
These are also among the list of attributes most strongly associated with
Celestial Seasonings except for “packaged for freshness” and “tea
looks clear.”
Other attributes that are higher profile association attributes for Bigelow
than for Celestial Seasonings are “every bag is individually
wrapped” and “contains caffeine.”
43
Even though it appears among the high profile attributes for both brands, offering a full
range of flavors is the highest profile Celestial Seasonings attribute, and the gap between
Celestial Seasonings and Bigelow in terms of this dimension is especially large.
Attributes that appear in the list of high profile attributes for Celestial Seasonings but not
for Bigelow are “makes good herb teas” and “flavors are distinctive for the variety I’m
drinking.”
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The high profile attributes for Lipton Soothing Moments were similar in to those for
Bigelow. Two attributes that were only high profile attributes for Lipton Soothing
Moments were “flavors aren’t too strong” and “good value for the money.” Attributes
that were higher profile attributes for Bigelow than for Lipton Soothing Moments include
“company specializes in specialty tea,” “can smell the flavors in the aroma,” “every bag
is individually wrapped,” and “contains caffeine.”
A leverage analysis that points out which attributes should be emphasized to maximize
brand usage yielded the following attributes for Bigelow:
Always tastes fresh
Offers a full range of flavors
Flavors are distinctive for the flavor I’m drinking
Makes good flavored teas
Every bag is individually wrapped
Is a good value for the money
Can smell the flavors in the aroma
Brand Personality Associations
This aspect of image yielded particular discrimination between brands. In looking at
these results, it is good to keep in mind that consumers often link a brand’s personality to
users of the brand.
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The personality characteristics most strongly associated with Bigelow Teas are:
Traditional
Sophisticated
Familiar
Mature
Popular
Old fashioned
Classy
The only characteristics from this list that are on the list of characteristics most strongly
associated with Celestial Seasonings are “familiar” and “popular.” Other high profile
personality characteristics for Celestial Seasonings are:
Friendly
Unique
Down to Earth
Fun
Feminine
A Friend
“Familiar,” “traditional” and “popular” are also among the personality characteristics
most strongly associated with Lipton Soothing Moments (however, not “classy,”
44
“sophisticated,” “mature” or “old fashioned”). Characteristics that are on the high profile
list for Lipton Soothing Moments but not for Bigelow are:
Interesting
Friendly
Down to earth
A Friend
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The same leverage analysis conducted for the attribute associations was also carried out
for Bigelow personality characteristics. Based on this analysis, reinforcing or changing
perceptions in the following areas would be most effective for maximizing usage of
Bigelow Tea:
Down to earth
Popular
A Friend
Familiar
Friendly
Fun
Interesting
Self-Confident
A Leader
Current associations which do not contribute to Bigelow’s overall appeal are “old
fashioned,” “mature” and “sophisticated.” Current associations which are marginal in
this respect are “traditional” and “classy.”
Demographics
Females are decidedly the dominant category users.
From an age standpoint, usage is skewed 45+.
Almost all specialty tea drinkers live in multiple-person households. The
most frequent household size is two.
Most category users have attended college. One-third are college graduates.
Most category users are employed (full-time).
This is a fairly upscale category (median household income is $42,500).
Heavy users are even more upscale ($48,000).
Compared to the category in general, users of Bigelow, Bigelow Constant
Comment and Twinings are more upscale in education and income.
Users of Lipton Soothing Moments are downscale in education and income
compared to category users in general.
LL
Recommendations
The primary target should be women, with an upscale skew.
A
In positioning development, be mindful of the most highly desired category
attributes:
Always tastes fresh
Flavors taste natural
Packaged for freshness
Flavors are distinctive for the variety I’m drinking
Also be mindful of additional attributes which offer leverage to Bigelow
Tea if reinforced:
Offers a full range of flavors
45
Every bag is individually wrapped
Is a good value for the money
Can smell the flavor in the aroma
Woven into the positioning should be the linkage of drinking Bigelow Tea
with relaxation.
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The personality of Bigelow Tea should be re-staged to make it friendlier
and more interesting and less sophisticated/mature/old fashioned.
Traditional and classy are acceptable to keep, especially to the
extent that they are associated with taste and quality. Conveying
self-confidence and leadership can also be plusses, as long as the
associated result is a payoff for the consumer.
Pursue linking Bigelow usage to reading. This can possibly take a form in
communications. Also, consider distribution and/or promotional
tie-ins with bookstores and/or book publishers.
Consider coffee drinking occasions as targets for increasing specialty tea
drinking occasions
Appendix D
Following are several ways R.C. Bigelow Tea reaches the individual shopper.
LL
1. Through the Internet: “1-step” distribution.
Website: www.rcbigelow.com ----------------------------------Æ Consumer orders
directly from company
2. Through direct buying retailers: “1-step” distribution.
R.C. Bigelow -- FOB destination--Æ Direct Buying Retailers --Æ Consumer
or “Clubs” such as Wal-Mart, Food Lion, Safeway, Kroger-Peyton, Shop-Rite,
Sam’s Club, Costco
3. Through distributors to indirect buying retailers: “2-step” distribution
A
R.C. Bigelow--FOB destination--ÆDistributors--ÆIndirect Buying--ÆConsumer
Retailers such as Shaw’s, Wegmann’s, Stop & Shop, Publix, Giant Foods, Bi-Lo
For tea drinkers who buy tea at work, or at hotels, restaurants or hospitals, the distribution
process looks quite different.
Through distributors to indirect buying industrial: “2-step” distribution
RC Bigelow ---FOB destination Æ Distributors --Æ Roasters ------------------Æ hot
--Æ Office Coffee Services ----Æ tea
--Æ Food Service Companies -Æ drinkers
46
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Distributors servicing the company cafeteria, hotel, restaurant or hospital business
accounted for 80% of Bigelow’s sales orders for the industrial market. A few of the
larger roasters or office and/or food service organizations purchased their tea products
directly from RC Bigelow, but this was the exception, not the rule. Company cafeterias
and rolling tea service carts are examples of how office and food service companies
provide product in the business environment.
47
48
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Appendix E
Bigelow Tea Retail
Product Line Shelving
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Appendix H
Bigelow Tea Website
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Appendix I
Celestial Seasonings Website
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Appendix J
Lipton Tea Website
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Appendix K
SIFE TEAM SURVEY
We are conducting an important survey regarding beverages. It will take less than 2
minutes of your time. We thank you in advance for your participation in this study.
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Directions: Please indicate your responses by CIRCLING your choice to each of the
following:
YEAR IN SCHOOL: FRESHMAN
AGE:
GENDER:
17
18
MALE
19
SOPHOMORE
20
21
22
JUNIOR
SENIOR
23
FEMALE
Q1: Have you purchased tea bags, consumed hot tea, or had other tea products in
the past 30 days? (Circle only one) YES NO
Q2: When you have purchased tea bags, consumed hot tea or other tea products . . .
specifically, what type of tea product did you purchase or consume? (Please circle
either “yes” or “no” to each of the following choices:
YES NO
Traditional Hot Tea (e.g. Black Tea, flavored Black Tea or Green Tea) -1
-2
Herb Tea (i.e. Chamomile or Lemon Zinger)
-1
-2
Homemade Iced Tea made from a powder or tea bag
-1
-2
Bottled Iced Tea
-1
-2
Another tea product
-1
-2
Have never purchased tea
-1
-2
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Q3 – What brands of tea products do you purchase or consume most often? Any
others? (please specify) (Circle the number following the brand name for every tea
product you purchase or consume.)
Tetley
-1
Bigelow
-1
Lipton
-1
Celestial Seasonings
-1
Tazzo
-1
Republic of Tea
-1
Red Rose
-1
Snapple
-1
Arizona
-1
SOBE
-1
Other (specify) _________________ -1
I Don’t Remember
-0
I Don’t Drink Tea
-0
55
Q4 - At what time of day do you most often drink hot tea? (Circle only one)
Morning Mid-morning Early Afternoon
Later Afternoon Evening Night
Do Not Drink Tea
Q5 – Are you aware of the health benefits of tea? (Circle only one)
No
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Yes
If you answered “Yes,” what are these benefits? _______________________________
Q6 – Thinking about only hot tea, how much do you agree or disagree with the
following statements? Would you say you strongly agree, slightly agree, somewhat
disagree or do not agree at all? (Circle only one answer for each item.)
Strongly
Agree
Slightly
Agree
Somewhat
Disagree
Do not
Agree
-2
-2
-2
-3
-3
-3
-4
-4
-4
-2
-2
-3
-3
-4
-4
-2
-2
-2
-3
-3
-3
-4
-4
-4
-2
-3
-4
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Tea gives me the necessary caffeine for
me to get through my day
-1
Tea is more of a comfort drink for me
-1
I drink tea when I feel I need to relax
-1
I do not like the flavors of tea offered
at Sacred Heart University
-1
I prefer caffeinated tea to decaffeinated tea -1
I prefer drinking tea than any other beverage
as a way to unwind after a busy day
-1
I'd rather drink hot tea than cold tea
-1
I drink tea only on rainy or cold days
-1
Hot tea is one of my favorite beverages
in the summer time
-1
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Q7 – If you were given a choice between drinking hot coffee or hot tea, which would
you choose? Why? (Circle only one, then briefly explain why.)
HOT COFFEE
HOT TEA
Reason why: _______________________________
Q8 – On average, how many times per week do you drink a hot beverage? (Circle
one.)
1-2
3-4
5-7
56
8+
Q9– Where do you obtain your hot beverages? (Circle all that apply.)
Store
Flik
Marketplace
coffee shop/restaurant
Q10 – What is your favorite hot drink?(Circle only one. If “other,” please specify.)
Coffee
Hot Chocolate
other____________
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Tea
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Thank you again for agreeing to answer these important questions. Your participation is
greatly appreciated.
57
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Q3. What brands of tea products do you purchase or consume most often? (more than one could be specified)
(Note: this page was retyped by the case author for data clarity.)
Pre-Survey
Brand
# Indicating Purchase
% Overall Consumption
% of Surveys with Hits
Tetley
26
7.51%
21.67%
Bigelow
8
2.31
6.67
Lipton
104
30.06
86.67
Celestial Seasonings
13
3.76
10.83
Tazo
4
1.16
3.33
Republic of Tea
1
.29
.83
Red Rose
8
2.31
6.67
Snapple
91
26.30
75.83
Arizona
59
17.05
49.17
9.25
26.67
Sobe
32
Totals 346
100.00%
Post-Survey
Tetley
10
6.06%
16.67%
Bigelow
32
19.39
53.31
Lipton
35
21.21
58.33
Celestial Seasonings
6
3.64
10.00
Tazo
2
1.21
3.33
Republic of Tea
0
.00
.00
Red Rose
3
1.82
5.00
Snapple
37
22.42
61.67
Arizona
30
18.18
50.00
6.06
16.67
Sobe
10
Totals
165
100.00%
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The CASE Journal Volume 2, Issue 1 (Fall 2005)
Percentage of Overall Consumption Pre-Survey
Republic of Tea
0%
Tazo
1%
Red
Rose
2%
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Snapple
26%
Lipton
31%
Tetley
8%
Arizona
17%
Sobe
9%
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2%
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Tetley
Bigelow
Lipton
Celestial Seasonings
Tazo
Republic of Tea
Red Rose
Snapple
Arizona
Sobe
The CASE Journal Volume 2, Issue 1 (Fall 2005)
Percentage of Overall Consumption Post-Survey
Tazo
1%
Republic of Tea
0%
Red Rose
2%
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Celestial Seasonings
4%
Lipton
21%
Snapple
23%
Bigelow
19%
Arizona
18%
Sobe
6%
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6%
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Tetley
Bigelow
Lipton
Celestial Seasonings
Tazo
Republic of Tea
Red Rose
Snapple
Arizona
Sobe
The CASE Journal Volume 2, Issue 1 (Fall 2005)
Reader’s Digest: Inform, Enrich, Entertain, and Inspire
Pauline Assenza & Alan B. Eisner, Pace University
[email protected]
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The Reader’s Digest Association, Inc. 2004 Annual Report contained the cautionary
statement that there were “risks and uncertainties” relating to “our ability to attract and retain
new and younger magazine subscribers and product customers in view of the maturing of an
important portion of our customer base”.2 When that was written, Reader’s Digest (RDA) net
income had yet to rebound from the downturn of 1996. (See Exhibit 1: RDA Stock Prices
1996-2005 and Exhibit 2: RDA Sales 1995-2004.) Extensive restructuring, reduction in
staffing levels, acquisitions, and development of international ventures initiated by CEO
Thomas O. Ryder in 1998 had not produced a significant improvement in earnings.
Would Ryder’s strategic initiatives work in the long run? Would the future be able to
report that Readers’ Digest, once named one of the most successful magazines in the Western
world,3 had redefined its product line and found a new generation of customers to “inspire”?
Would the implementation of non-publishing revenue streams, like the online weight loss
program “ChangeOne” help? Now that almost any type of information was available, online,
for free, what would that mean to a company whose flagship product was a 5 by 7 inch
pocket-sized compendium of human interest stories, educational material, humor and
practical advice?
After the November 2004 sale of the 114-acre property in Chappaqua, NY, home of
the company’s corporate headquarters since 1939, the internal culture change had been
inevitable. RDA old timers had said the founders DeWitt and Lila Wallace “would be turning
over in their graves.”4 After significant restructuring in business unit management ranks,5
could leadership be expected to redefine a culture of quality and commitment, and sustain
any improvement? Was the overall strategy sound?
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BACKGROUND
In April of 1998, Thomas O. Ryder was recruited from American Express as
Chairman and CEO of Reader’s Digest Association, Inc. With Ryder’s appointment came a
formidable task, rebuilding and revitalizing the then seventy-five year old company. When
asked about what changes had to be made, Ryder, an unabashed fan,
said he didn’t feel the magazine was all that broken to begin with:
“Any time magazines are grouped together for sale, the number-one
seller is Reader’s Digest. It ain’t Vanity Fair. It ain’t Time. It ain’t
People. That’s also true in Brazil, Russia and Hong Kong. It’s true
in a lot of places. This is a magazine of the people.”6
2
From 2004 Annual Report, published by The Reader’s Digest Association, Inc., page 46 as retrieved from
http://phx.corporate-ir.net/phoenix.zhtml?c=71092&p=irol-IRhome
3
N. Angeletti & A. Oliva, 2004. Magazines that make history. Univ. Press of Florida.
4
C. Rubenstein, “As Digest goes the way of older readers.” New York Times, Sunday Late Edition,
August 29, 2004.
5
R. Romell, “Management turnover at Reiman since sale; Several question new approach; New
president calls some change inevitable.” Milwaukee Journal Sentinel. Monday Final Edition, March
8, 2004.
6
M. Kaplan, “Reviving Reader’s Digest”, Folio, 7/1/2000: Vol. 29, Iss. 8, P. 70.
65
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Ryder was to replace the interim CEO, George Grune, who had stepped back into the
role of Chairman and CEO after James P. Schadt resigned in 1997. Grune’s original tenure in
the position lasted from 1984-1994. He was very successful, leading the company through
the transition to become public, while doubling revenue and increasing operating profits nine
fold. However, Grune’s main concern during this stabilization period was to bring in a
successor to put the company back on track.
Thomas Ryder seemed to be the answer. He came into the role a champion of RDA’s
flagship title. As Ryder said, he grew up reading Reader’s Digest, and in his hometown of
Alexandria, Louisiana, “Reader’s Digest is pretty close to the word of the Lord”.7 As of the
beginning of 2005, after seven years in charge of some extensive changes to the business, he
had tried to improve performance and lead the company back to the success that Grune had
established during his first passage as Chairman and CEO. However, the question remained,
could Reader’s Digest continue to fulfill its stated mission to create “products that inform,
enrich, entertain and inspire people of all ages and cultures around the world”8? And could it
do this by continuing to rely on the Reader’s Digest magazine?
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READER’S DIGEST ASSOCIATION BUSINESS MIX9
Reader’s Digest Association was a diversified publishing and direct-marketing
corporation. They produced and distributed magazines, books, videos, music, and many other
products in more than 60 countries throughout the world. The flagship magazine, Reader’s
Digest, was the world’s most widely read magazine, reaching almost 100 million readers
worldwide each month, delivered in 49 different editions, in 20 different languages.
Although much of the business was still in publishing, Ryder had initiated a strategic plan to
move away from what was considered the “core” business of the Reader’s Digest magazine.
This was a possible reaction to claims that the core Reader’s Digest franchise was in a state
of “perpetual decline”; and was a possible way to shake the reputation as a “hinterlands
magazine read by kindly grandparents”.10
Reader’s Digest’s had been known for an extensive line of products, reaching
customers on a global scale. The performance of the Reader’s Digest magazines and other
special interest publications had been driven primarily by circulation and subscription
revenues and, to a lesser extent, by advertising sales worldwide. The international market
segment had been more susceptible to changes in local market financial conditions due to the
number of countries in which RDA had operated.
Ryder had divided RDA into three business units (See Exhibit 3: Reader’s Digest
Association 2004 Business Segments, Exhibits 4 & 5, Business Mix.). Reader’s Digest
North America consisted of products distributed in the U.S. and Canada :
Reader’s Digest: RDA’s flagship magazine publication, the world’s largest monthly
magazine. In 2004 the U.S. edition had an approximate base rate of 10 million copies
reaching approximately 40 million readers. A large-type edition and Spanish language
edition, Selecciones, were also published for U.S. distribution.
7
Kaplan, op. cit.
From 2004 Annual Report, published by The Reader’s Digest Association, Inc., page 2
9
Ibid
10
Kaplan, op. cit.
8
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Reiman Media Group: Acquired in 2002, Reiman publications included 11 magazines
catering to “lifestyle topics” such as cooking and travel. Taste of Home, in 2004 the largestselling food magazine in North America, was included in this category.
Illustrated Reference Books: Sold via direct mail and the publishing trade, products in
this category included do-it-yourself, computer, travel, and health books.
Reading Series/Select Editions: These books included Select Editions, which were
specially edited novels by top authors. These volumes were sold worldwide in several
countries and languages.
Recorded Music and Video: Individual box sets and series compilations in several
musical and video genres were sold worldwide. Many Gold and Platinum certifications have
been awarded to RDA’s recorded music.
Special Interest Publications: This category of products included other special
interest Reader’s Digest magazines. RD Specials were one-time publications sold at grocery
store checkout counters.
Young Families: Including some trade publishing relationships, this category
marketed books and home entertainment products through direct and retail channels.
Non-publishing Products and Services: Products in this category included non-core
ventures such as financial and insurance services that were offered through marketing
ventures with other companies.
Reader's Digest International consisted of products sold in more than 60 countries
outside the United States and Canada, including Select Editions, music, video and Young
Families products; Special Interest magazines in the Czech Republic; The Family Handyman
in Australia; Books Are Fun operations in France, Mexico and Spain; and financial services
marketing partnerships and other non-publishing initiatives in more than 30 countries. Local
editions of Reader’s Digest magazine in 48 editions and 20 languages were produced in
various countries by local staff. Selecciones, the Spanish-language edition, was the number 1
magazine in most Spanish-speaking countries and, in 2003, had a paid circulation of 1.6
million11.
Consumer Business Services segment distributed products through non-direct
marketing channels, and utilized a specialized sales force. Businesses included:
Books Are Fun: This category represented the marketing of books and gifts using
product displays in North America. Established in 1999, it also served as an important
marketing tool for products created in other parts of the company.
QSP: An organization to help school and youth groups in the United States and
Canada in their fundraising efforts.
As reported in 2004, International Business represented 40% of RDA’s revenue, and
Consumer Business Services represented 25%, a long way away from the profile presented in
1998.12
Thanks to internal development and acquisitions, and as part of the specific strategy
put in place by CEO Thomas Ryder, 38% of profits came from non-core operations, so that
each of the three operating segments produced roughly the same amount of profit. (The
financial services portion of the North American business unit was considered non-core.)
11
“Reader’s Digest and ECM to Develop ‘Selecciones at the Movies’ ” 8/26/03. (RDA website.)
Pie Charts from Reader’s Digest Annual Report 2004, http://media.corporateir.net/media_files/irol/71/71092/pdf/2004ar.pdf
12
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Traditional revenues for the magazine, books and home entertainment businesses had
been principally driven by direct mail, and therefore were the most sensitive to changes in
payment rates and returns. The Consumer Business Services businesses had been much less
susceptible because the largest businesses in this segment collected most of their cash at the
point of sale. This was another reason for diversifying away from the magazine core.
After a tough downward slide, RDA’s operating profits in 2004 grew slightly by $10
million in North America and by $8 million internationally, however Consumer Business
Services profits declined by $26 million mainly because of a sharp drop in sales at QSP and
Books Are Fun, attributed to high turnover in the sales force and related distribution
problems that were scheduled to be fixed in 2005. (See Exhibits 6-11 for a 10 Year Income
Summary, 5 year Income Statement, Balance Sheet and Cash Flow, a 3 Year Summary of
RDA Reportable Segment Results, and a 3 year summary of revenue by product and
geographical area.)
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Strategies, Goals & Accomplishments
In 2004, Reader’s Digest’s goals had included reducing operating expenses and
improving margins, stabilizing the customer base, expanding consumer acquisition channels
and increasing inter-divisional selling to drive revenue growth. RDA had launched two new
magazines, Our Canada, published by Reader’s Digest Canada, and Backyard Living,
produced by Reiman, both exemplifying the Reiman Publications editorial formula. RDA
launched new book businesses in Romania, Slovenia and Croatia and tested or launched
Books Are Fun, Young Families and other products elsewhere in the world. Eastern Europe
had proven to be a profitable venture, with completed book product tests in Ukraine and
revenue increases in Russia and Hungary. The Reader’s Digest magazine, under a new
publishing team, had created an Indonesian edition and changed to a more prominent license
partner in India, in a move to expand circulation further in that populous part of the world.
Children’s Publishing had grown through partnerships with Disney, Nickelodeon,
Hasbro, Mattel’s Barbie, Fisher-Price and NASCAR. It was intended for this division to help
RDA reach young customers, and their parents.
In November of 2004, RDA sold the original Reader’s Digest Chappaqua property,
including the Georgian mansion built in 1939. This sale
resulted in a one-time gain for RDA and reduced
operating overhead in future years: the Reader’s Digest
corporate headquarters would continue to rent space for
the approximately 800 corporate staffers who remained.
Analysts in early 2005 were more positive
regarding RDA’s outlook, with some calling it a “solid
pick”, mostly encouraged by share prices in the $17.00 range, and the projected earnings
growth in 2005, achieved mostly through expense and overhead cuts. This was the first time
since the end of 2002 that the stock had showed some positive momentum.13 RDA also
announced an increase in dividend from the $.05/share level in place since 1998 to $.10/share
starting in Q2 of 2005. Was it possible the turnaround Ryder had worked for since 1998 had
come? A review of how Reader’s Digest came to be, and the strategy that drove its initial rise
13
M. Tarsala, “Under the Radar – Reader’s Digest”, Market Report 2/22/05 retrieved from
http://www.briefing.com on 3/13/05.
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to popularity, might provide some useful information for crafting future strategy. What were
RDA’s competencies and how did they develop? What additional information might be
helpful?
A SOURCE OF “ENORMOUS POPULARITY” FOR OVER 80 YEARS HISTORY14
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In 1920, DeWitt Wallace created a sample magazine containing condensed articles,
which were intended to provide lasting interest and enduring significance. He had long
believed that much of currently published American journalistic content was “too verbose”
and therefore escaped the attention of the public who didn’t have the time to search for good
stories. He submitted his sample digest-sized magazine to various publishers. When he was
rejected by all of them, he published the magazine himself. In 1921 he established The
Reader’s Digest Association, selling 1,500 subscriptions to be delivered exclusively by mail.
The magazine was intended to provide a reading service with selected material to “inform,
enrich, entertain, and inspire”. After marrying Lila Acheson in 1921, the two of them opened
the first RDA office in their Greenwich Village apartment and published 5000 copies of
Volume 1, No. 1 of the Reader’s Digest magazine in February of 1922.
Later in 1922, the couple moved to Pleasantville (really Chappaqua), New York and
in 1925 started a home and office there. (By 1939 they had finished building the majestic
Georgian-style headquarters.) In 1929, Reader’s Digest began selling at newsstands and the
circulation grew to 62,000. By 1935 circulation had passed the 1 million mark. Throughout
the next decade, RDA continued to grow and expanded into different languages and countries
for distribution. Starting with the United Kingdom edition in 1938, by 1945 the company had
issued Brazilian, Swedish, Finnish, Australian, Danish, French-Canadian, English-Canadian,
Norwegian, French Belgian, German, Italian, Swiss-French, Swiss-German and South
African editions. The first foreign language edition was published in Spanish for distribution
in America in 1940.
In the 1950’s and 1960s, Reader’s Digest Association expanded into the publishing of
condensed books, recorded music and direct mail sweepstakes. In 1955, the Digest accepted
its first advertising, but did not carry liquor ads until 1978 and has never carried cigarette ads.
RDA also began to sponsor several educational funds and in 1963 founded QSP, Inc., an
organization created to assist school and youth-group fundraising efforts in the U.S. and
Canada. In 1973, the Wallaces gave up active management of the business, and after their
passing, George Grune took over as chairman and CEO in 1984.
Under Mr. Grune’s leadership RDA continued to thrive. A $15 million data center
was opened at the RDA headquarters in Chappaqua. This operation allowed data to be
collected and processed from all over the world. RDA entered the video business and had one
of their books, Household Hints & Handy Tips, become number one on the best-seller list for
General Books. In 1990 Reader’s Digest became a public company trading on the New York
Stock Exchange. The offering price was $21.50 per share.
In 1992, the company undertook its first global advertising campaign. The campaign
included ads in 13 languages and appeared in 77 magazines and newspapers worldwide. A
14
Information from Reader’s Digest website “timeline” at http://www.rd.com and from American
Dreamers: The Wallaces and “Reader’s Digest” by Peter Canning, 1996, Simon & Schuster,
http://syracuseuniversitypress.syr.edu/encyclopedia/entries/readers-digest.html
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television commercial also aired in six continents. RDA established Young Families, Inc., in
1994. This new subsidiary created and marketed children’s books and home entertainment
products. On August 1, 1994, James P. Schadt succeeded Grune as president and CEO of
Reader’s Digest.
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Under Schadt
After assuming the role of president and CEO in 1994, James P. Schadt, former CEO
of Cadbury Beverages, initiated a strategy to attract baby-boomers to Reader’s Digest and
transition the company into a new phase. His specific strategy was to “get prices down…get
a new variety of promotions and a new variety of products.” Yet Schadt himself admitted
“there’s a lot of drama as the company comes face-to-face with the Information Age.” He
also said that he was “wrestling with a changing external world, and [had] a company that’s
unaccustomed to change.”15
Despite the predisposition to “old-school” ways that Schadt felt he had to deal with at
RDA, they were able to launch an advanced website for Reader’s Digest in 1996. The
website was aimed at exposing new and younger consumers to RDA and “expand into new
channels of distribution.”16 During Schadt’s tenure, RDA also launched the Polish and Thai
editions of Reader’s Digest magazine.
However, by this point in time, it was common knowledge throughout the industry
that RDA was struggling to move its content into the twenty-first century. One publishing
industry analyst asserted that they had “lost their direction”.17 Some speculated that the
largest hurdle for the Reader’s Digest magazine, whose average reader at the time was 47
years old, was that it could not capture the interest of younger readers.
This same problem was evident with respect to the company’s records, videos, and
books, resulting in decreased earnings. Between 1994 and 1997, the company’s stock price
fell by 40 percent. Operating profits had fallen 31 percent, and revenue also decreased by
eight percent. Dividends were cut in half. Fiscal 1997 would not meet initial expectations.
This was merely three months after Schadt had announced a $400 million plan for customer
research, promotion, and product development.
Acknowledging the difficulties that RDA was facing and his failure to meet promises
to attract a younger audience, Schadt said, “We were not successful, and we underachieved
our goals.” He sited an over abundance of mailings sent to customers, declining response
rates, and seemingly stale products as a few of the issues contributing to RDA’s problems.18
James Schadt resigned as chairman and CEO on August 11, 1997.
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Grune Returns
After Schadt’s resignation in 1997, George Grune was brought out of retirement to
return as interim chairman and CEO of Reader’s Digest. One of his major goals was to
stabilize the struggling company. In one effort to do this, a joint venture between Reader’s
15
D. Leiberman, “Reader’s Digest Wants Baby Boomers,” USA Today, July 21, 1997: 3B.
“Oneserver Provides RDA with Advanced Web Site,” Telephone IP News, Dec. 1, 1996: Vol. 7, 1-8.
17
H. Berkowitz, “Digest Chairman Out After Turnaround Fails,” Newsday, Aug. 12, 1997: A49.
18
D. Leiberman, op. cit.
16
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Digest Music and Warner Resound was established to bring RDA’s music products into the
$1 billion-a-year Christian bookstore marketplace.19
The second major activity under Grune’s leadership was making management
changes to RDA’s editors. A number of senior appointments were made in order to
strengthen the management teams in core business areas and aid in the transition.20
Another move toward modernization was a major change to the traditional
appearance of Reader’s Digest magazine. Forty-eight editions of the flagship magazine
would replace their traditional front cover Table of Contents with photography and enhanced
graphics. The Table of Contents was moved inside the magazine and expanded to cover two
pages. It was also categorized by theme to make it more reader-friendly and modern in
appearance, and hopefully more attractive to advertisers.21
Grune’s final appointment and act as interim leader of RDA was to help find and appoint
a new CEO and Chairman for the company. The Board of Directors, aided by Grune,
found what they considered the perfect candidate in Thomas Ryder.22
THE “QUIET REVOLUTION” 1999 - 200123
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Ryder Steps In
After leaving American Express, where he was President of Travel Related Services
and served on the Policy and Planning Committee, Ryder was excited about the task that lay
ahead with RDA. He was not unfamiliar with the type of situation RDA faced. At American
Express he had led the effort to strengthen the organization through a global re-engineering
program, which helped redefine the organization’s strategic direction. This was an
experience that he could draw from in leading Reader’s Digest.
There were many issues for Ryder to address, including assessing viability of
products, broadening the customer base to include younger customers, overhauling the
company’s work processes and cost structure, addressing under-performing assets,
developing and acquiring growth businesses. He had to re-assess overall strategy: an overreliance on sweepstakes had lulled the company into failing to develop any other substantial
means of generating business, and when subscriptions began to drop, there was no ready
strategic response. His job would not be easy. One of Ryder’s mantras became “no wimpy
goals”.24
After settling into his new role, Ryder’s first order of business in July of 1998 was to
redesign the corporate structure. He described this as the first step in a long-term strategy to
build on the company’s fundamental strengths and create new growth opportunities. He
would create four domestic strategic business units in Books and Home Entertainment and
19
“Reader’s Digest Music, Warner Bros. Announce Joint Venture in Christian Music Retailing,”
Business Wire, Sept. 2, 1997.
20
“Reader’s Digest Announces Management Changes,” Business Wire, Sept. 7, 1997.
21
“Reader’s Digest Magazine Redesigns Editions Worldwide; Bold Cover Photography Replaces
Table of Contents; Eye-Opening Graphics Inside Create Dynamic New Look,” Business Wire, Mar.
29, 1998.
22
“Reader’s Digest Names Thomas O. Ryder of American Express as Chairman and Chief Executive
Officer,” Business Wire, Apr. 4, 1998.
23
Information in this section comes primarily from Annual Reports and 10K filed by Reader’s Digest.
24
M. Kaplan, “Reviving Reader’s Digest”, Folio, 7/1/2000, Vol. 29, Iss. 8, P. 70.
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three geographical units outside the U.S., with each unit organized according to customer and
business relationships. They would have specific product development and profit-and-loss
responsibility.25
In September of 1998, after profits and revenues continued to decline due to
restructuring costs in the previous year, RDA re-focused on gaining younger readers. This
second phase of their restructuring included their acquisition of American Woodworker
magazine from Rodale Press. The company also sold some assets including part of its art
collection and some real estate holdings for approximately $200 million. Some warehouse
jobs were also moved outside the company. As a result, Ryder announced that several
hundred employees were to be laid off.
In February 1999, Ryder announced the last phase of the restructuring that would
focus the company’s assets on five basic growing consumer interests; home, health, family,
finance, and faith. The strategy was to expand RDA’s non-publishing products; diversify
marketing channels, including the Internet; and broaden global operations.
In 1999, Reader’s Digest Music, previously sold only by direct mail, made several
instrumental albums by performers such as Henry Mancini available in Wal-Mart stores.
Also RDA made an exclusive multi-year deal with CBS Productions to develop television
movies and mini-series based on personal dramas that had been reported in Reader’s Digest
magazine. This collaboration would extend RDA’s reach and publicity, it would afford them
advertising opportunities, and RDA would control print publication and video distribution
rights.
Your Family, a new magazine offering insight and emotional support to parents of
children from infants to six years old, was also launched. The magazine was intended to
promote RDA’s values and traditions, yet include new ways of doing things that Baby
Boomer parents did not necessarily focus on. It would be sold via newsstands, supermarkets,
and mass merchandisers, such as Barnes & Noble.
A strong emphasis was placed on marketing and advertising resulting in a 9%
increase in advertising revenues for fiscal 1998. RDA credited their magazines as the “front
door” through which customers come in and become familiar with their products and
services.26
Books Are Fun, Ltd. (BAF) was acquired by Reader’s Digest in August, 1999. BAF
was the nation’s leading display marketer of books and gifts. RDA purchased the privately
held company for approximately $380 million. The acquisition was part of RDA’s strategy to
increase distribution channels for existing products and also add new products to their current
offerings.
First USA, a subsidiary of Bank One Corporation and RDA reached an agreement in
September of 1999 to launch a co-branded credit card. This agreement would allow the
marketing of Reader’s Digest credit cards to their customers. This followed an announcement
that RDA had established partnerships to sell various insurance products with Torchmark
Corporation in North America, and with American International Group in 26 other nations.
In year 2000, still continuing to pursue the strategies announced the year before, RDA
acquired Receptar, a special interest do-it-yourself and gardening magazine in the Czech
Republic. Their QSP arm also acquired the World’s Finest Chocolate sales force. Lastly, the
25
26
Ibid
“Reader’s Digest Strengthens Publishing Arm,” Business Wire, June 14, 1999.
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first volume of Select Editions was published in Russia. RDA experienced earnings and
revenue growth for the second year in a row, with operating profits increasing 54% over
fiscal 1999.
In 2001, Reader’s Digest made several editorial and design changes to enhance
publication and modernize their flagship magazine. In international business, RDA entered
China. Also, RDA and Vanguard entered a marketing alliance to offer mutual funds and
other financial services to Reader’s Digest customers. This built upon RDA’s strategy to
focus on non-publishing and financial products.
But in January 2001 the Internet bubble burst and lowered the value of RDA’s web
holdings; then in September the 9/11 tragedy and anthrax scares focused the U.S. attention
elsewhere and revenues plunged. Post office slow downs affected the distribution of products
and many direct mail customers never even opened their envelopes. In addition, lawsuits
were causing regulatory agreements for all magazine sweepstakes promotions to be
challenged, forcing a redefinition of this historic Reader’s Digest practice.
HOW MUCH LONGER? 2002 -2003
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The year 2002 brought with it two major events for RDA: the purchase of Reiman
Publications LLC and approval of the re-capitalization of the company. Reiman Publications
was purchased for $760 million. Reiman’s publications were being sold completely by direct
mail and 77% of their readership had never purchased an RDA product before. These
publications included Taste of Home, one of the best-selling food magazines in North
America.
This acquisition was also part of RDA’s effort to reduce reliance on sweepstakes
sales for their magazines, since sweepstakes generated subscriptions decreased from 92% in
1998 to 8% in 2002 as a result of regulatory changes and the attorneys’ general 2001
agreement to “dramatically change the way [RDA promoted] the sale of its products through
the use of sweepstakes”.27 From 2001 on, the judgment read, all sweepstakes must provide “a
clear and conspicuous” disclosure to recipients indicating that entry is free and a purchase
won’t help the recipient win sweepstakes prizes. In addition, RDA was to monitor sales and
stop sending solicitations to consumers “who have purchased unreasonably high amounts of
product”.28 Although this might have been perceived as a blow to RDA’s marketing strategy,
Ryder saw it as an opportunity to retool: “There was an over-reliance on sweepstakes”,
Ryder said. “When you overwhelm a limited audience with 50 mailings a year that are
similar in all their aspects, you begin to blind them with similarities. You lost your sense of
differentiation.”29
Finally, in December of 2002, RDA’s class B voting common stock shareholders
approved the re-capitalization of Reader’s Digest. As a result the RDA’s class A (non-voting)
and Class B common stocks became a single class with voting rights.
27
M. Teague, “Pryor reaches settlement with Reader’s Digest regarding sweepstakes solicitations” ,
March 9, 2001. Retrieved from http://www.ag.state.ar.us/prrecent11.htm
28
M. Teague, “Pryor reaches settlement with Reader’s Digest regarding sweepstakes solicitations” ,
March 9, 2001. Retrieved from http://www.ag.state.ar.us/prrecent11.htm
29
Kaplan, op cit.
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After four years as Chairman and CEO, Thomas Ryder had made great efforts to get
Reader’s Digest back to its earlier success. What else needed to be done? With the
acquisition of Reiman, RDA now had more than 23 million Gen-X and Baby Boomer readers
aged 25-54, but attempts to gain younger readers’ loyalty were not yet consistently
successful. Even though Ryder noted that Reader’s Digest had “nearly twice as many readers
18-34 as Entertainment Weekly and more professionals than The Wall Street Journal,
Business Week, Forbes and Fortune combined”, RDA’s stock price continued to fall. Net
sales, revenues, and shareholder’s equity were also lower.30
International business units, which accounted for 51% of RDA’s revenues in 2001,
fell to 20% in 2003 due to troubled economies in Germany and England. With RDA’s
reliance on direct mail, anthrax scares in the after-effects of September 11, 2001 had
additionally complicated North American and international business operations.
In 2003, the first full year of revenues for Reiman Publications only increased revenues by
5%. Although changes in the Books and Home Entertainment division were beginning to
show a turnaround, revenues continued to fall there by 12%, reflecting the reduction in U.S.
sweepstakes business.31 Based on an overall revenue reduction of 5.9%, Moody’s Investors
Service cut RDA’s bond credit rating to junk status.32 Were the problems RDA continued to
encounter due to outside forces (such as the economy) or were they problems inherent to
Reader’s Digest Association itself?
Ryder’s stated strategies for 2003 included a two-year plan to “achieve sustainable
revenue and profit growth by Fiscal 2005” by, in part, reducing marketing activity in the
mature businesses to “’rest’ customer bases, lower risk and improve margins” while
investing in new products, expanding new customer acquisition channels and providing more
“inter-division selling opportunities to drive growth”.
In 2003 RDA launched ChangeOne. With a book, weekly features and a website for
interactive support, ChangeOne was a weight loss program designed to improve eating habits
over the course of 12 weeks, and meant to “inspire people of all ages”.33
RDA also reorganized into the three divisions of Reader’s Digest North America, Reader’s
Digest International and Consumer Business Services to “combine related businesses under
common leadership, reduce costs and improve … synergies”. Noted was a decrease in
revenues for Reader’s Digest magazine, stated as being “due to lower circulation and
advertising revenues”.34 (Remember, for the first 35 years of its existence, Reader’s Digest
didn’t need to rely on any advertising.) In May 2003, RDA announced its first advertising
campaign in 10 years to support the flagship magazine. Meant to attract media buyers, the
campaign urges advertisers to “tap into the deep connection” readers have with the
magazine.35
In one analysis it was concluded that Reader’s Digest’s products were mature. The
revenue reductions in core businesses that were not successful were outpacing the
30
Reader’s Digest 2002 Annual Report.
Craig Huber, Douglas Arthur, Lisa Monaco, analysis of RDA for Morgan Stanley, Jan. 24, 2003.
32
“Reader’s Digest credit rating cut to ‘junk’”, Bloomberg News, 6/21/03.
33
“Reader’s Digest Groundbreaking Program for Weight Loss”, Jan. 7, 2003. (RDA Website.)
34
Reader’s Digest 2003 Annual Report.
35
“Reader’s Digest Launches First Ad Campaign in 10 Years”, May 15, 2003. (RDA website.)
31
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introduction of new and innovative products. The analysis stated that, “We are inclined to
believe that the core Reader’s Digest franchise is in a state of perpetual decline.”36
INTERNAL AND EXTERNAL CULTURAL FACTORS AND THE INDUSTRY
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Reader’s Digest Cultural Impact
The Reader’s Digest magazine format and style, the features like “Word Power”,
“Everyday Heroes”, “Life in These United States” and “Humor in Uniform”, and the legacy
of the Reader’s Digest Condensed Books have all become part of the American experience,
and American culture. The brand name “Reader’s Digest” has become the vernacular for a
whole category of products. Even Garrison Keeler’s Prairie Home Companion references the
“reader’s digest version” as part of Chatterbox Café lingo for “a condensed report on
something or other”.37 Pastor Josh Hunt of the Gospelcom.net website encourages use of the
Reader’s Digest style when communicating an evangelistic message:
It aims at the reading level of a 13-year old, yet does not talk down to adults. It uses
many true real-life stories about people…told in a dramatic way…with plenty of
quoted speech…. It addresses practical problems and worries, and offers ideas to help
readers improve their quality of life. In other words, it addressees felt needs which is
a key strategy in evangelism.38
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Even though some have wondered about an old-fashioned image, many readers, some
in their 40’s, like the magazine just the way it is. Reviewers at Epinions in Books rate the
magazine with 4 stars out of 5, calling it the “King of Magazines”, “an enduring American
institution and treasure”, and a magazine with advertisements that “cover only about 25
percent of the pages…about half the saturation rate of most magazines”, so your reading isn’t
“interrupted by constant attempts at marketing persuasion”. It is a complete magazine that
combines practical advice, humor, words of wisdom, educational material, and humancentered stories about life and all its ups and downs. It does seem to be geared more toward
the older crowd, but there is something here for everyone. It makes for good reading for
people of all ages and backgrounds and it’s one of the best overall magazines in publication
today.39
RDA had acknowledged the importance of technology: their website
http://www.rd.com provided links to almost all their current products, and included shopping
as well as information, citing over 14.5 million visitors to the site from around the world.40
With that link to technology, even the web’s “bloggers” were realizing that “weblogs are on
online reincarnation of the Reader’s Digest format”. Some Wall Street analysts argue that
Reader’s Digest has reached its limits and can’t grow significantly in the future. Others argue
36
Mandana Hormozi, Kathryn Mak, analysis of RDA for Lazard Freres & Co., LLC, June 25, 2003.
Search the Chatterbox Café postings on http://prairiehome.forum.publicradio.org/
38
“Reader’s Digest – A style to follow” retrieved from http://www.gospelcom.net/guide/resources/
readersdigest.php
39
Various reviews from Keith Pruitt, Bryan Carey and others posted during Dec. 2004 at http://
www.dealtime.com/xPR-Reader_s_Digest~
40
Excerpted from the 10K filed by RDA on 9/9/2004.
37
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just the opposite – that the basic publishing premise is still viable, even more so for today’s
readers than for their grandparents. [Reader’s Digest as a blog?] Time will tell.41
Part of RDA Thomas Ryder’s “quiet revolution” to draw in “today’s readers” was the
engineered “subtle revamping process”, developing ways to make the editorial content of the
magazine younger without turning off loyal, older subscribers. Eric Schrier, hired by Ryder
in 2000 to change the look and subtly upgrade the content, said Ryder warned him that it had
to be done slowly, and that “this would be like changing the engine while the plane is
flying”.42 In order to make that kind of change, employees had to change as well.
Regarding the internal view of the RDA culture, older employees had spoken
wistfully about the paternalistic coddling, a legacy from DeWitt Wallace’s days of raising
salaries just because he was in a good mood;43 of the “rides home for sick employees in the
Wallace’s limousine”; of the Georgian renaissance headquarters building’s cupola, whose
carillon bells would ring at 4 pm to signal the end of the work day; of Mr. Wallace walking
from office to office “turning off workers’ lights, urging them to go home”; and about giving
workers Fridays off in May to work in their gardens. Now, thanks in part to Thomas O.
Ryder, this is “a far leaner, more profit-oriented company where nobody can count on a
lifetime job”.44And the final blow to the old culture was the 2004 sale of the Wallace’s
elegant corporate headquarters.
The change of culture was inevitable, and Ryder said “I came at a time when people
absolutely knew things had to change if the company was to survive”. Some of many
changes were the ones made in the executive team. Richard Garvey was hired as a Senior
V.P. in 1996 by Schadt, and worked under three CEO’s before being fired himself by Ryder
in 1998. He is quoted as saying “There must have been 25 vice presidents fired while I was
there”.45 (See Exhibits 12 - 13: Management Changes 1997 – 2004.)
Part of the culture change, and an overt strategy on the part of Ryder, was to use
employee survey feedback, visualization workshops, a reconfigured benefits and retirement
plan, and performance-based financial bonuses to create a younger, more ambitious
workforce, a company that rewarded risk-taking, not conservatism; “in short, a place where
someone like Mr. Wallace would be out of a job”.46 As an indication that this change had
worked, Jeffrey Spar, hired by Ryder in 2000 as V.P. and Chief Information Officer, was
able to get turnover in IT staff down to 5% by 2002, and boasted an employee satisfaction
level of 71% in 2001, up from 58% in 1999.47
One of the questions was whether the management team was like-minded enough to
continue to redefine a culture of quality and commitment to sustain any improvements.
Shake-ups at Reiman Publishing, acquired by RDA for its mission of home-spun, reader-
A
J. Hiler, Oct. 31, 2000 “Blogger’s Digest: How Weblogs are becoming the new Reader’s Digest”
retrieved from http://www.microcontentnewscom/articles/digests.htm.
42
C. Kilgannon, “A workplace like no other painfully enters the real world”. The New York Times, Dec.
24, 2000. Retrieved from ProQuest Historical Newspapers.
43
C. Rubenstein, “As Digest goes the way of older readers.” New York Times, Sunday Late Edition,
August 29, 2004. Retrieved from Lexis/Nexis.
44
C. Kilgannon, op. cit.
45
Ibid
46
Ibid
47
M. Brandel, “Best Places to Work in IT Worldwide 2002 Company Detail”, Computerworld, May 6,
2002. Retrieved from http://www.computerworld.com
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generated content in hopes of injecting new life into the RDA portfolio, caused concern that
the highly successful Reiman culture would be harmed by the new, more business-like
approach of RDA.48 One of the issues was whether or not to add advertising: Reiman’s
founders had staunchly resisted this. Industry analysts wondered how far Reiman would be
able to advance RDA’s fortunes given competition from ad-revenue-generating magazines
like Time Inc.’s natural foods/rustic living entry Real Simple.49
In 2005, the Reader’s Digest flagship magazine still reflected conservative, optimistic
values, but with a new look and up-to-date content. For instance, RDA had hired CNBC
Maria Bartiromo as a Reader’s Digest “Money Talks” columnist.50 In Asia, Reader’s Digest
English edition had gained the top spot in the Pan Asia cross Media Survey of nine markets,
citing readership among affluent adults and business decision-makers. Market share grew in
the region from 9 to 11%, and some media directors believed that Reader’s Digest “mix of
inspiration, drama and information clearly appealed to a younger and middle-to upper-class
audience in Asia”.51 Noelle Chiu, Executive media director for FCB Hong Kong said “if you
want to find an escape from the heavy business world, Reader’s Digest can definitely serve
that purpose”.52
Unfortunately, however, Reader’s Digest had been fighting for a long time against
that image of being a magazine only read by kindly grandparents in Iowa. Even back in 2000,
then publisher Dominic Rossi was saying “our median [readership] age is 47. Because we’re
so large, it pretty much reflects the population in general, which is 44. It’s not like we have
an ancient reader base”. But media buyers weren’t convinced, for, after all, how many of
them, New York 20-somethings, read the magazine?53 (The median age for Reader’s Digest
as of 2004 was 50.3, but the median age for the Reader’s Digest Family Plus edition was
44.2.54 The challenge was convincing the media buyer to take a look at the statistics.) RDA
had also not been keeping pace with the overall publishing industry in terms of profit
margins and other key ratios. (See Exhibit 14: Key Ratio Comparisons to the Industry.)
However, the entire magazine industry was in trouble, and perhaps RDA’s strategy of
expanding into non-publishing areas was an innovative response.
48
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Publishing Industry Issues
In 2002 at the American Magazine Conference in Phoenix, some of the biggest
players in the industry declared, “the business model for U.S. magazine publishing is broken
and needs to be repaired to ensure the medium’s survival”. Thomas Ryder, CEO of Reader’s
Digest Association, said “we have no choice but to change”, citing the industry’s over-
A
R. Romell, “Management turnover at Reiman since sale; Several question new approach; New
president calls some change inevitable.” Milwaukee Journal Sentinel, Monday Final Edition, March
8, 2004. Retrieved from Lexis/Nexis.
49
“Rattled at Reiman: A Look at Reader’s Digest Two-Year Record”, Folio, Oct. 2004: Vol.33, (10), p.
45.
50
“Reader’s Digest adds CNBC Anchor Maria Bartiromo as Columnist”, Sept. 7, 2004. (RDA
website.)
51
S.D. Shaw, “Reader’s Digest’s climb to the top of PAX may help it chip away at agency bias”,
Media Asia, 1/10/2003, p. 15.
52
N. Chiu, Media Asia, 7/30/2004, p. 12.
53
M. Kaplan, “Reviving Reader’s Digest”, Folio, 7/1/2000: Vol. 29, Iss. 8, P. 70.
54
From http://www.rdevents.com/mediakit/rd/circulation.shtml
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dependence on advertising, unwillingness to charge more for subscriptions and the uncertain
status of the newsstand distribution channel. No executive at the conference spoke of any
visible turnaround for the industry, which had seen a major downward slide, especially since
the terrorism threats of 2001.55
Baird Davis, veteran consumer marketer and publishing consultant commented on
industry market factors affecting the decline in circulation profitability of most mature
consumer magazines during the years from 1999 to 2004. He believed the reasons for the
decline could be traced to major market factors that drastically altered circulation economics:
too many magazines chasing too few readers; the demise of sweepstake generated
subscriptions; decrease in newsstand sales accompanied by increase in newsstand marketing
costs; the availability of free content, especially on the Internet; and other industry specific
concerns such as audit bureau disclosure rule changes and a reduction in publishers’
circulation staffs.56
Sarah Gonser of Folio warned that “publishers face the toughest ad market since the
Great Depression, and there is little room for failure”. She suggested that publishers were
being maybe too cautious about looking for “ancillary revenue streams” that might be
perceived as distractions from their core businesses. Citing Thomas Ryder’s willingness to
expand RDA into non-publishing areas, she stated, “What might at first glance appear as an
overwhelming hodge-podge of initiatives is in fact a highly organized, meticulously
researched endeavor”. There’s no guarantee of success, but RDA appeared to be leveraging
their brand strength, their 50-million-person proprietary database and their direct marketing
expertise to try to find hidden profit sources.57
RDA raised Reader’s Digest cover price from $2.49 to $2.99,58 then announced it
would drastically reduce its circulation beginning in 2004 by a million copies. This caused a
stir in media circles: “for some old enough to remember, it was a reminder of the demise of
the golden days of mass-circulation magazines, when once-venerable titles like Life, Look
and The Saturday Evening Post slashed their circulation bases in an effort to survive the
onslaught from the insurgent new medium, television”.59 The idea behind the circulation
reduction was to follow the advice of Baird Davis to “deliver a higher-quality audience mix
to advertisers at lower costs to the company” and therefore appeal to the media buyers by
proving the magazine was delivering a more targeted readership.60
Regarding the Internet, most magazine publishers, including RDA, had made the shift
to delivering timely content online, yet retaining their print product for its in-depth approach,
its synthesis and analysis, and ability to satisfy the reader with a reliable, permanent, portable
and tactile alternative. Steve Adler of BusinessWeek said, “I’d even go so far as to say if the
Internet didn’t exist, we in this industry would want to invent it”, suggesting that the online
version further attracts readers to the publisher’s brand, to see what else is available in the
magazine. As Adler said, “there’s still something extremely intimate and extremely powerful
55
J. Fine, “Magazines confront flawed business plan”, Advertising Age, 10/28/02: Vol.73, Iss.43, p. 1.
B. Davis, “Can’t get no respect? Read this!” Circulation Management, Oct. 2004
57
S. Gonser, “Looking Inward for Outside Profits”, Folio, 4/1/2002: Vol. 31, Iss. 4, p. S4.
58
L. Kopp, “Reader’s Digest Continues to Slim Down”, Circulation Management, 6/1/03.
59
J. Mandese, “Fear and bloating on Mad Ave.”, Folio, Stamford, June 2003: Vol. 32, Iss. 8, p. 17.
60
B. Davis, “Circ Levels: Getting a Grip”, Circulation Management, May 2004, p. 30.
56
78
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about settling down with a magazine and not knowing what you’re going to get, page to
page, and the experience of reading it”.61
Even with a multi-platform media mix of products, the major challenge for publishers
was to convince retail buyers to create cross-merchandizing opportunities at diverse
distribution channels. Pointing to the success Barnes & Noble had had with its placement of
do-it-yourself books next to magazines like RDA’s American Woodworker, the goal of the
magazine industry was to “stimulate demand”.62
Thomas Ryder said he felt the “time was right to go on the offensive”. He referred to
the weakness in television advertising caused by TiVo and channel surfing. Even though the
challenge was daunting, with “continuing circulation woes, looming postal rate hikes of
possibly 15% by 2006, and the specter of losing more ad dollars to the twin media of cable
TV and a resurgent Web”, print publishing represented a media in which ads were
“bulletproof” from technology.63 Jack Kliger, CEO of Hachette Fillipacchi Media U.S. said,
“Magazines are the original on-demand medium, available on consumers’ terms – whenever
and wherever they choose to indulge. Magazines engage while other media interrupt.”64 In
fact, studies had shown that the “influential” baby boomers are heavier readers of magazines,
lighter viewers of television, and that for advertisers, adding magazine advertising to the
marketing mix along with TV and Internet advertising offers a powerful punch. In fact, the
“highest percentage of consumers find advertising in magazines to be more acceptable and
trustworthy than advertising on network or cable TV or online.”65 (See Exhibit 15: Media
Usage Habits of Baby Boomers, Exhibit 16: Incremental Effect of Medium on Brand
Metrics.)
61
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WHERE TO GO FROM HERE?
In 2000 there had been rumors that Bertelsmann, the German privately-held
conglomerate with interests in 600 companies in 53 countries, was in informal talks to
acquire Readers Digest.66 At the time, Thomas Ryder’s turnaround plan seemed to be on
schedule. Since 2001, with the overall drop off in the publishing industry, these rumors had
died down, but RDA could still be an attractive takeover option.67
In 2000, after being asked why he had taken on such a big challenge at that time in
his career, Thomas O. Ryder said, “I grew up reading Reader’s Digest. The allure of trying to
save an American icon was just too great to ignore.”68 RDA’s results for the second quarter
of 2005 showed a $2 million increase in revenue.69 Things were looking like they might go in
A
“Business Magazine editors identify trends that could affect your bottom line” , Magazine Publishers
of America, 6/16/2005, http://www.magazine.org
62
J. Loughlin, “Retail growth initiative update”, Magazine Publishers of America Retail Conference,
3/1/2005, http://www.magazine.org
63
J. Fine, “Publishers finally unite to rally behind ‘engagement’”. Advertising Age, (Midwest region
edition), Chicago, Nov. 1, 2004: Vol. 75, Iss. 44, p. 3.
64
J. Kliger, “Magazine marketing coalition: Creating a movement”, World Magazine Congress of the
International Federation of the Periodical Press (FIPP), 5/24/2005, from http://www.magazine.org
65
Ibid
66
G. Marcial, “Buy Reader’s Digest?”, Business Week, 6/19/00
67
R. Morais, “Takeover Bait”, Forbes, 7/7/03: Vol. 172, Iss. 1, p. 072.
68
J. Fine, “Ryder pulls ‘Digest’ back from brink”, Advertising Age, (Midwest region edition). Chicago,
Oct. 23, 2000: Vol. 71, Iss. 44, p. S20.
69
RDA Announces 2Q Fiscal 2005 Results”, Jan. 26, 2005, (RDA website.)
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the right direction. It appeared Ryder’s strategy of refocusing the business might work after
all, assuming RDA could avoid all the “risks and uncertainties” facing most global
businesses in 2005 (see Exhibit 17: RDA Cautionary Statements, Exhibit 18: RDA
Subsidiaries Worldwide). Time would tell.
80
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EXHIBITS
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Exhibit 1: The Reader’s Digest Association, Inc. Stock Prices 1996-2005
(From http://phx.corporate-ir.net/phoenix.zhtml?c=71092&p=irol-stockquotechart )
Exhibit 2: RDA Sales 1995-1004 (all products)
3200
3150
3100
3050
3000
2950
2900
2850
2800
2750
2700
2650
2600
2550
2500
2450
2400
2350
2300
81
04
20
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
19
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Sales in million $
Reader's Digest Sales
The CASE Journal Volume 2, Issue 1 (Fall 2005)
Exhibit 3: RDA 2004 Business Segments
Reader’s Digest
North America
Consumer Business
Services – USA & Canada
Reader’s Digest
International
Books Are Fun
Reader’s Digest Magazine
Reiman’s Publications
QSP
Special Interest Magazines
Special Interest Magazines
Trade Publishing
Books & Home
Entertainment
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Reader’s Digest Magazine
Books & Home
Entertainment
Young Families
Financial Services Alliances
Select Editions
Books Are Fun
Young Families
Financial Services Alliances
Exhibit 4: 2004 Reader’s Digest Association Business Mix
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Exhibit 5: 2004 Reader’s Digest Association Core vs. Non-core Business Mix
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Exhibit 6: The Reader’s Digest Association, Inc. 10-Year Summary
Financial data in U.S. dollars. All following tables are from
http://moneycentral.msn.com/detail/stock_quote?Symbol=rda unless otherwise indicated.
Income Statement - 10 Year Summary (in Millions)
Sales EBIT Depreciation Total Net Income EPS Tax Rate (%)
06/04
2388.5 121.1
75.3
49.5 0.49
25.10
06/03
2474.9 146.9
64.7
61.3 0.60
38.90
06/02
2368.6 159.2
35.9
91.2 0.89
35.10
06/01
2518.2 187.8
56.8
132.1 1.26
29.70
06/00
2553.7 263.8
47.5
173.8 1.63
34.10
06/99
2532.2 211.7
43.7
126.6 1.15
40.20
06/98
2633.7
41.5
46.2
17.9 0.16
NA
06/97
2839.0 210.2
46.7
133.5 1.24
36.50
06/96
3098.1 137.7
48.8
80.6 0.73
41.50
06/95
3068.5 422.5
44.7
264.0 2.35
37.50
Balance Sheet - 10 Year Summary (in Millions)
Current Assets Current Liabilities Long Term Debt Shares Outstanding
06/04
690.3
892.3
637.7
99.1 Mil
06/03
788.0
881.2
834.7
98.2 Mil
06/02
863.7
980.8
818.0
87.1 Mil
06/01
770.6
859.5
NA
90.2 Mil
06/00
772.5
904.4
NA
90.5 Mil
06/99
1146.5
986.3
NA
86.0 Mil
06/98
972.6
1015.9
NA
85.5 Mil
06/97
925.8
1013.1
NA
84.6 Mil
06/96
1204.1
1113.0
NA
85.6 Mil
06/95
1215.1
1072.1
NA
86.4 Mil
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Exhibit 7: The Reader’s Digest Association, Inc. Income Statement
(From http://moneycentral.msn.com/investor/invsub/results/statemnt.asp?Symbol=RDA)
Financial data in U.S. dollars – Presented in a Media General Financial Services proprietary
format
Annual Income Statement (Values in
Millions)
6/2004 6/2003 6/2002 6/2001 6/2000
Sales
2,388.5 2,474.9 2,368.6 2,518.2 2,553.7
Cost of Sales
897.6 977.3 938.5 932.8 904.6
Gross Operating Profit
1,490.9 1,497.6 1,430.1 1,585.4 1,649.1
Selling, General & Admin. Expense
1,294.5 1,293.8 1,236.5 1,299.6 1,347.8
Other Taxes
0.0
0.0
0.0
0.0
0.0
EBITDA
196.4 203.8 193.6 285.8 301.3
Depreciation & Amortization
75.3
64.7
35.9
56.8
47.5
EBIT
121.1 139.1 157.7 229.0 253.8
Other Income, Net
0.0
7.8
4.0
-41.2
10.0
Total Income Avail for Interest Exp.
121.1 146.9 159.2 187.8 263.8
Interest Expense
55.0
46.5
18.6
0.0
0.0
Minority Interest
0.0
0.0
0.0
0.0
0.0
Pre-tax Income
66.1 100.4 140.6 187.8 263.8
Income Taxes
16.6
39.1
49.4
55.7
90.0
Special Income/Charges
0.0
0.0
-2.5
0.0
0.0
Net Income from Total Operations
49.5
61.3
91.2 132.1 173.8
Normalized Income
49.5
61.3
93.7 132.1 173.8
49.5
61.3
91.2
132.1
173.8
Dividends Paid per Share
Preferred Dividends
Basic EPS from Total Operations
Diluted EPS from Total Operations
0.20
1.30
0.50
0.49
0.20
1.30
0.61
0.60
0.20
1.30
0.90
0.89
0.20
0.00
1.27
1.26
0.20
0.00
1.63
1.63
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Total Net Income
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6/2001 6/2000
35.4
305.1
161.6
268.5
49.7
285.3
120.3
317.2
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Exhibit 8: The Reader’s Digest Association, Inc. Balance Sheet
Financial data in U.S. dollars
Annual Balance Sheet (in
6/2004
6/2003
6/2002
Millions)
Assets
Current Assets
Cash and Equivalents
50.3
51.3
107.6
Receivables
229.0
256.5
306.0
Inventories
152.0
155.7
156.0
Other Current Assets
259.0
324.5
294.1
690.3
788.0
863.7
770.6
772.5
Non-Current Assets
Property, Plant & Equipment, Gross
Accum. Depreciation & Depletion
Property, Plant & Equipment, Net
Intangibles
Other Non-Current Assets
382.3
226.5
155.8
1,183.4
413.2
391.5
229.0
162.5
1,221.7
427.3
375.4
207.3
168.1
1,244.6
426.3
350.4
190.2
160.2
409.8
334.5
419.5
267.1
152.4
438.8
395.1
Total Non-Current Assets
1,752.4
1,811.5
1,839.0
904.5
986.3
Total Assets
2,442.7
2,599.5
2,702.7
Liabilities & Shareholder's Equity
Current Liabilities
Accounts Payable
Short Term Debt
Other Current Liabilities
110.6
83.9
697.8
97.5
31.3
752.4
102.8
132.7
745.3
86.4
160.3
612.8
146.4
89.4
668.6
Total Current Liabilities
892.3
881.2
980.8
859.5
904.4
Non-Current liabilites
Long Term Debt
Deferred Income Taxes
Other Non-Current Liabilities
Minority Interest
637.7
0.0
449.6
0.0
834.7
0.0
483.3
0.0
818.0
0.0
432.0
0.0
0.0
0.0
359.4
0.0
0.0
0.0
350.1
0.0
Total Non-Current Liabilities
1,087.3
1,318.0
1,250.0
359.4
350.1
Total Liabilities
Shareholder's Equity
Preferred Stock Equity
Common Stock Equity
1,979.6
2,199.2
2,230.8
0.0
463.1
28.8
371.5
28.8
443.1
0.0
456.2
0.0
504.3
463.1
400.3
471.9
456.2
504.3
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Total Current Assets
Total Equity
85
1,675.1 1,758.8
1,218.9 1,254.5
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Total Liabilities & Stock Equity
Total Common Shares Outstanding
Preferred Shares
2,599.5
99.1 Mil 98.2 Mil
2,702.7
1,675.1 1,758.8
99.5 Mil 102.7 Mil
103.0
Mil
288,000.
288,000.0 288,000.0
0.0
0.0
0
46.9 Mil 47.7 Mil 41.6 Mil 38.5 Mil 23.5 Mil
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2,442.7
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6/2000
132.1
56.8
0.0
39.5
0.0
173.8
47.5
0.0
2.2
0.0
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Exhibit 9: The Reader’s Digest Association, Inc. Cash Flow
Financial data in U.S. dollars
Annual Cash Flow (in Millions)
6/2004 6/2003 6/2002
Cash Flow from Operating Activities
Net Income (Loss)
49.5
61.3
91.2
Depreciation and Amortization
75.3
64.7
35.9
Deferred Income Taxes
0.0
0.0
0.0
Operating (Gains) Losses
28.5
-5.4
7.3
Extraordinary (Gains) Losses
0.0
0.0
0.0
Change in Working Capital
(Increase) Decr. in Receivables
34.1
55.0
7.4
(Increase) Decr. in Inventories
6.4
6.4
21.8
(Increase) Decr. in Other Curr. Assets
-14.3
0.0
0.0
(Decrease) Incr. in Payables
-6.8
-20.1
24.7
(Decrease) Incr. in Other Curr. Liabs.
0.0
-12.1
-10.1
Other Non-Cash Items
1.7
3.5
-45.7
Net Cash from Cont. Operations
174.4
153.3
132.5
Net Cash from Discont. Operations
0.0
0.0
0.0
20.9
35.2
-3.2
-55.8
0.0
-45.7
174.9
0.0
174.4
153.3
132.5
16.7
174.9
7.1
3.8
5.5
5.2
4.6
11.6
1.4
13.7
16.6
23.2
-16.1
-1.3
0.0
-15.7
-10.5
0.0
-787.8
-1.3
0.0
-45.8
0.0
-24.0
-428.2
-97.2
-0.1
-6.5
-15.5
-772.9
-54.7
-485.7
0.0
4.3
950.0
8.6
73.1
19.8
94.3
15.1
-488.4
0.0
-20.7
-7.1
-85.3
-101.7
-21.0
6.9
-160.4
-64.1
-21.3
2.7
0.0
-34.1
-21.9
-0.9
0.0
-133.5
-22.6
5.0
Net Cash from Financing Activities
Effect of Exchange Rate Changes
Net Change in Cash & Cash Equivalents
Cash at Beginning of Period
Free Cash Flow
-169.8
0.9
-1.0
51.3
137.6
-196.8
2.7
-56.3
107.6
116.6
715.5
-2.9
72.2
35.4
-676.6
36.0
-12.3
-14.3
49.7
-51.0
-41.7
-11.2
-363.7
413.4
-275.9
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Net Cash from Investing Activities
Cash Flow from Financing Activities
Cash Flow Provided by:
Issuance of Debt
Issuance of Capital Stock
Cash Used for:
Repayment of Debt
Repurchase of Capital Stock
Payment of Cash Dividends
Other Financing Charges, Net
343.9
2.5
A
Net Cash from Operating Activities
Cash Flow from Investing Activities
Cash Flow Provided by:
Sale of Property, Plant, Equipment
Sale of Short Term Investments
Cash Used by:
Purchase of Property, Plant, Equipment.
Purchase of Short Term Investments
Other Investing Changes Net
-27.4
-45.5
-0.1
-109.4
0.0
-29.3
16.7
0.0
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2002
$649
668
1078
(26)
$2,369
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Exhibit 10: Summary of RDA Reportable Segment Results
From SEC 10K filing June 30, 2004, retrieved from http://phx.corporateir.net/phoenix.zhtml? c=71092 &p=irol-sec#3001434
Years ended June 30,
2004
2003
Revenues
Reader's Digest North America
$835
$854
Consumer Business Services
609
641
Reader's Digest International
970
1008
Intercompany eliminations
(26)
(28)
Total revenues
$2,388
$2,475
Operating profit (loss)
Reader's Digest North America
Consumer Business Services
Reader's Digest International
Magazine deferred promotion charge (1)
Corporate Unallocated
Other operating items, net (2)
Operating profit
$71
64
57
(27)
(44)
(15)
$106
$61
91
49
-(22)
(40)
$139
$(2)
88
106
-(7)
(27)
$158
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Intercompany eliminations
Reader's Digest North America
$(1)
$(1)
$(4)
Consumer Business Services
(21)
(24)
(16)
Reader's Digest International
(4)
(3)
(6)
Total intercompany eliminations
$(26)
$(28)
$(26)
(1) Magazine deferred promotion charge relates to: 45% to Reader's Digest North America
and 55% to Reader's Digest International.
(2) Other operating items, net in 2004 related to: 12% to Reader's Digest North America,
22% to Consumer Business Services, 61% to Reader's Digest International and 5% to
corporate departments that benefit the entire organization. In 2003, these items related to:
13% to Reader's Digest North America, 6% to Consumer Business Services, 64% to
Reader's Digest International and 17% to corporate departments that benefit the entire
organization. In 2002, these items related to: 22% to Reader's Digest North America, 27%
to Consumer Business Services, 16% to Reader's Digest International and 35% to corporate
departments that benefit the entire organization.
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Exhibit 11: RDA Revenue by Product and Geographical Area
2004
$968.5
$702.7
$150.0
$240.3
$228.7
$16.9
2003
$982.9
$750.1
$151.0
$257.4
$244.9
$13.2
2002
$963.8
$610.1
$151.4
$328.8
$256.7
$20.8
$81.4
$2,388.5
$75.4
$37.0
$2,474.9 $2,368.6
Revenues by Area
United States
International
Inter-area
TOTALS
2004
$1,291.3
$1,102.1
($4.9)
$2,388.5
2003
2002
$1,351.8 $1,176.7
$1,124.6 $1,196.3
($1.5)
($4.4)
$2,474.9 $2,368.6
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Net Revenues by Product
Books
Magazines - subscription & other
Magazines - advertising
Music & videos
Food & gift
Fees from financial services marketing
alliances
Other
TOTALS
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(From 2004 10K Filing, in million $)
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Exhibit 12: Reader’s Digest Management Changes 1997 – 2004
(Information derived from SEC 10K filings for each year)
1997
George V. Grune
Marcia Lefkowitz
Richard Garvey
Barbara Morgan
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CEO, President (retired in 1998)
Senior V.P., President Reader’s Digest, U.S.A. (gone in 1998)
Senior V.P. Corporate Planning (gone in 1998)
Senior V.P., Editor-in-Chief Books and Home Entertainment (gone in
1998)
Christopher Willcox Senior V.P., Editor-in-Chief, Reader’s Digest Magazine (gone in
2000)
George Scimone
Chief Financial Officer (gone in 2001)
John Bohane
Senior V.P., President International Operations (gone in 2002)
Peter Davenport
Senior V.P., Global Marketing (retired in 2003)
Clifford DuPree
V.P. Corporate Secretary and Associate General Counsel
1998
Thomas O. Ryder
CEO, President
Thomas Belli
President, QSP, Inc. (gone in 1999)
Gregory Coleman
Senior V.P., President U.S. Magazine Publishing (gone in
2001)
Elizabeth Chambers V.P., Business Redesign (gone in 2002)
Robert Krefting
Senior V.P., President International Magazine Publishing (gone in
2002)
Michael A. Brizel
V.P. and General Counsel
Gary Rich
Senior V.P. Human Resources, in 2004 became President QSP
Thomas Gardner
V.P. Business Planning, in 2003 became Senior V.P.,
President, International
V.P. U.S. Publisher of Reader’s Digest Magazine (gone in 2003)
V.P. Strategic Acquisitions, in 2003 became President,
Senior V.P. Global Operations
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1999
Dominic Rossi
Robert Raymond
Consumer Business
Albert Perruzza
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2000
Michael Geltzeiler
Eric Schrier
Jeffrey Spar
2001
Richard Fontana, Jr
John Klingel
Senior V.P., Chief Financial Officer
Senior V.P., Global Editor-in-Chief
V.P., Chief Information Officer
President, QSP, Inc. (gone in 2002)
Worldwide Circulation Director, General Manager Reader’s Digest
U.S. Magazines (gone in 2003)
2002
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Senior V.P., President, Reader’s Digest Europe (gone in 2003)
Senior V.P., President Latin America and Asia Pacific
V.P. Investor Relations, Global Communications
2003
No additions
2004
Giovanni di Vaio
Francoise Hanonik
V.P. Human Resources International
V.P. Human Resources North America
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Ian Marsh
Michael Brennan
Richard Clark
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Exhibit 13: The Reader’s Digest Association, Inc. Corporate Officers, 2004
Michael A. Brennan
Senior V.P., and President, Latin America and Asia-Pacific
Michael A. Brizel
Senior V.P. and General Counsel
Richard E. Clark
V.P., Investor Relations and Global Communication
Giovanni de Vaio
V.P. Human Resources International, Chief Human Resources Officer
Clifford H.R. DuPree
V.P., Corporate Secretary and Associate General Counsel
Thomas D. Gardner
Senior V.P. and President, International
Michael S. Geltzeiler
Senior V.P. and Chief Financial Officer
Francoise Hanonik
V.P. Human Resources North America, Chief Human Resources Officer
Albert L. Perruzza
Senior V.P. Global Operations and Business Redesign
Robert E. Raymond
Senior V.P. and President, Consumer Business Services
Gary S. Rich
Senior V.P. and President, QSP, Inc.
Thomas O. Ryder
Chairman and Chief Executive Officer
Eric W. Schrier
Senior V.P. and Global Editor-in-Chief, President, North America
Jeffery S. Spar
Senior V.P. and Chief Information Officer
Thomas O. Ryder, from the RDA Annual Report 2004 Shareholder Letter,
http://media.corporate-ir.net/media_files/irol/71/71092/pdf/ShareholderLetter2004.pdf
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Exhibit 14: Key Ratio Comparisons to the Industry (Publishing – Books) and S&P 500
(Data as of 2004)
Growth Rates %
Company Industry S&P 500
Sales (Qtr vs year ago qtr)
0.20
8.20
10.20
EPS (YTD vs YTD)
-48.20
7.00
19.00
EPS (Qtr vs year ago qtr)
-13.10
7.30
25.00
Sales (5-Year Annual Avg.)
-1.29
2.94
4.25
EPS (5-Year Annual Avg.)
-26.89
10.58
2.18
Dividends (5-Year Annual Avg.)
0.00
4.54
2.89
Price Ratios
Company Industry S&P 500
Current P/E Ratio
74.6
23.3
20.9
P/E Ratio 5-Year High
34.0
33.9
64.8
P/E Ratio 5-Year Low
15.8
14.5
16.9
Price/Sales Ratio
0.72
2.02
1.57
Price/Book Value
3.41
4.61
2.98
Price/Cash Flow Ratio
17.30
13.50
13.10
Profit Margins %
Company Industry S&P 500
Gross Margin
62.7
63.1
47.1
Pre-Tax Margin
0.9
13.4
11.3
Net Profit Margin
1.0
8.8
7.6
5Yr Gross Margin (5-Year Avg.)
62.2
61.2
47.4
5Yr PreTax Margin (5-Year Avg.)
6.2
12.6
9.3
5Yr Net Profit Margin (5-Year Avg.)
4.1
8.0
5.8
Financial Condition
Company Industry S&P 500
Debt/Equity Ratio
1.08
0.28
1.18
Current Ratio
0.8
1.2
1.5
Quick Ratio
0.4
0.7
1.0
Interest Coverage
1.4
15.9
3.4
Leverage Ratio
5.0
2.3
6.0
Book Value/Share
5.03
11.92
12.30
Investment Returns %
Company Industry S&P 500
Return On Equity
4.8
20.1
14.4
Return On Assets
1.0
8.6
2.4
Return On Capital
2.3
15.7
6.6
Return On Equity (5-Year Avg.)
22.7
20.7
11.9
Return On Assets (5-Year Avg.)
4.5
7.9
2.0
Return On Capital (5-Year Avg.)
11.1
14.9
5.5
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Company Industry S&P 500
6,000
30,000
25,000
555,000 337,000 333,000
6.9
6.5
7.3
5.2
4.2
8.4
0.9
1.0
0.3
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Management Efficiency
Income/Employee
Revenue/Employee
Receivable Turnover
Inventory Turnover
Asset Turnover
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Exhibit 15: Media Usage Habits of Baby Boomers
(From Media QuadMaps, retrieved 6/30/2005 from http://www.magazine.org)
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Compared to the average Baby Boomer, those that are most attractive to
marketers (heavy users and recent purchasers) are heavier readers of
magazines and tend to be lighter viewers of television.
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Exhibit 16: Incremental Effect of Medium on Brand Metrics
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Exhibit 17: Cautionary Statements - Strategic Considerations, from the RDA 2004 10K
Filing
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Forward-looking statements include any statements that address future results or occurrences.
These forward-looking statements inherently involve risks and uncertainties that could cause
actual future results and occurrences to differ materially from the forward-looking
statements. Some of these risks and uncertainties include factors relating to:
• the effects of potentially more restrictive privacy and other governmental regulation
relating to our marketing methods;
• the effects of modified and varied promotions;
• our ability to identify customer trends;
• our ability to continue to create and acquire a broadly appealing mix of new products;
• our ability to attract and retain new and younger magazine subscribers and product
customers in view of the maturing of an important portion of our customer base;
• our ability to attract and retain subscribers and customers in an economically efficient
manner;
• the effects of selective adjustments in pricing;
• our ability to expand and more effectively utilize our customer database;
• our ability to expand into new international markets and to introduce new product
lines into new and existing markets;
• our ability to expand into new channels of distribution;
• our ability to negotiate and implement productive acquisitions, strategic alliances and
joint ventures;
• our ability to successfully integrate newly acquired and newly formed businesses
(including the Reiman business);
• the strength of relationships of newly acquired and newly formed businesses
(including the Reiman business) with their employees, suppliers and customers;
• the accuracy of the basis of forecasts relating to newly acquired and newly formed
businesses (including the Reiman business);
• our ability to achieve financial savings related to restructuring programs;
• our ability to contain and reduce costs, especially through global efficiencies;
• the cost and effectiveness of our re-engineering of business processes and operations;
• the accuracy of our management's assessment of the current status of our business;
• the evolution of our organizational and structural capabilities;
• our ability to respond to competitive pressures within and outside the direct marketing
and direct sales industries, including the Internet;
• our ability to recruit, train and retain effective sales personnel;
• the effects of worldwide paper and postage costs;
• the effects of possible postal disruptions on deliveries of promotions, products and
payments;
• the effects of foreign currency fluctuations;
• the accuracy of our management's assessment of the future effective tax rate and the
effects of initiatives to reduce the rate;
• the adequacy of our financial resources;
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•
•
•
•
the effects of the terms of, and increased leverage resulting from additional
borrowings under, our credit facilities;
the effects of interest rate fluctuations;
the effects of downgrades of our credit ratings;
the effects of economic and political changes in the markets where we compete;
the effects of weather in limiting access to consumers; and
the economic effects of terrorist activity and related events, especially those limiting
access to consumers and otherwise affecting the direct marketing and direct sales
industries.
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Exhibit 18: Worldwide Subsidiaries of The Reader's Digest Association, Inc.
Slovak Republic
Reader's Digest Vyber Slovensko, s.r.o.
Spain
Reader's Digest Selecciones S.A.
Sociedad Difusion Cultural, S.L.
Sweden
Reader's Digest Aktiebolag
Switzerland
Das Beste aus Reader's Digest AG/Selection
du
Reader's Digest SA/Selzione dal Reader's
Digest SA
Thailand
Reader's Digest (Thailand) Limited
Ukraine
LLC Direct Digest
LLC Publisher Reader's Digest
United Kingdom
Reader's Digest Children's Publishing
Limited
Reader's Digest Europe Limited
The Reader's Digest Association Limited
Reader's Digest Holdings Limited
Fundraising For You Limited
Money Magazine Limited
RD Publications Limited
Reader's Digest Central & Eastern
Europe Limited
Reader's Digest European Systems
Reader's Digest Financial Services
Limited
United States*
Ardee Music Publishing, Inc.
Books Are Fun, Ltd.
Christmas Angel Productions, Inc.
Pegasus Asia Investments Inc.
Pegasus Finance Corp.
Pegasus Investment, Inc.
Pegasus Sales, Inc.
Pleasantville Music Publishing, Inc.
QSP, Inc.
Family Reading Program Corp.
QSP Distribution Services, LLC
QSP Products and Programs, LLC
QSP Sales, LLC
QSP Services, LLC
QSP Ventures, LLC
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Argentina
Reader's Digest Argentina, SRL
Australia
The Reader's Digest Association Pty.
Limited
Reader's Digest (Australia) Pty. Ltd.
Austria
Verlag Das Beste Ges.m.b.H.
Belgium
Reader's Digest N.V.-S.A.
Reader's Digest World Services, S.A.
Brazil
Reader's Digest Brasil Ltda.
Canada
The Reader's Digest Association (Canada)
Ltd.
3634116 Canada Inc.
Quality Service Programs, Inc.
EFundraising.com Corporation
Incorporated/
Corporation eFundraising.com
Incorporee
Kanata Incentives, Inc.
China
Guangdong Pegasus Marketing Information
& Service Co.Ltd.
Reader's Digest (Guangzhou) Direct Mail
Service Co. Ltd.
Czech Republic
Reader's Digest Vyber s.r.o.
Finland
Oy Valitut Palat - Reader's Digest Ab
France
Selection du Reader's Digest S.A.
Selection du Reader's Digest Assurances
SARL
Cote Livres - SARL
Germany
Verlag Das Beste GmbH
Optimail/Direcktwerbeservice GmbH
Pegasus Medien Produktions- und
Vertriebsgesellschaft.mbH
Hong Kong
Reader's Digest Asia, Ltd.
Reader's Digest Association Far East
Limited
Asian Qualiproducts Services, Limited
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Reader's Digest Sub Eight, Inc.
Reiman Media Group, Inc.
Homemaker Ventures, Inc.
Reiman Advertising & Promotion, Inc.
World Wide Country Tours, Inc.
VideOvation, Inc.
R.D. Manufacturing Corporation
RD Publications, Inc.
Home Service Publications, Inc.
RD Large Edition, Inc.
RD Trade Shows, Inc.
RD Walking, Inc.
Retirement Living Publishing Company,
Inc.
Travel Publications, Inc.
RD Member Services Inc.
Reader's Digest Children's Publishing, Inc.
Reader's Digest Consumer Services, Inc.
RD Magazine Value Partners, Inc.
Reader's Digest Entertainment, Inc.
Reader's Digest Financial Services, Inc.
Reader's Digest Latinoamerica, S.A.
WAPLA, LLC
Reader's Digest Sales and Services, Inc.
Reader's Digest Sub Nine, Inc.
Reader's Digest Young Families, Inc.
SMDDMS, Inc.
The Reader's Digest Association (Russia)
Incorporated
W.A. Publications, LLC
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Reader's Digest (China) Direct Marketing
Services Co., Ltd.
Reader's Digest (East Asia) Limited
Reader's Digest Global Advertising Ltd.
R.D. Properties, Ltd.
Hungary
Reader's Digest Kiado KFT
Italy
Libri e piu, Srl
Japan
The Reader's Digest Ltd.
Malaysia
Reader's Digest (Malaysia) Sdn. Bhd
Mexico
Caribe Condor S.A. de C.V.
Corporativo Reader's Digest Mexico S. de
R.L. de CV
Grupo Editorial Reader's Digest, S. de R.L.
de C.V.
Reader's Digest Colombia, Ltda
Reader's Digest Mexico, S.A. de C.V.
Netherlands
Reader's Digest European Shared Services
B.V.
Uitgeversmaatschappij The Reader's Digest
N.V.
Distrimedia Services B.V.
Norway
Det Beste A/S
Philippines
Reader's Digest (Philippines) Inc.
Poland
Reader's Digest Przeglad Sp.z o.o.
Portugal
Seleccoes do Reader's Digest (Portugal) S.A.
Euroseleccoes - Publicacoes E Artigos
Promocionais, Lda.
Romania
Editura Reader's Digest SRL
Russia
Publishing House Reader's Digest, JSC
LLC Digest Direct
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Are Fun, Ltd., which is an Iowa corporation.
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Nike: Running Through the Court System
Herbert Sherman, Southampton College - LIU
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“Nike in the mid-1990s launched a public relations blitz against charges that its Asian
workers were subjected to dangerous chemical exposure, physical abuse and substandard
wages. As company officials made public statements -- such as letters to newspaper editors
and sponsors -- claiming Nike had cleaned up its act, a Nike-commissioned Ernst & Young
audit leaked to the public in 1997 indicated the abuses continued.
Marc Kasky sued in 1998 under California's stringent false advertising and unfair
business practice laws attacking Nike's responses to attacks that the company used sweatshop
labor and exposed Asian workers to chemical exposure. Lower courts sided with Nike but the
California Supreme Court overruled them. … More than 40 companies and others have
joined Nike in urging the US Supreme Court to overturn the recent Californian decision to
brand all Nike communications on human rights and other issues as 'commercial speech'
unprotected by the US First Amendment. ”1
“The US Supreme Court [in June 2003, however,] refused to rule on the issues around
commercial speech and free speech at the heart of the Nike v Kasky trial, and have ordered
that the California Court hearing can proceed. … Six out of the nine justices had chosen to
refer the matter back, leaving three saying that they would have resolved the case now.”2
“The ruling [was] described as posing ‘a serious and immediate threat to the media's
ability to report on important issues regarding corporate America,’ by the media companies
involved, which included the New York Times, the Washington Post, CNN, CBS, NBC and
ABC. Other companies include the Bank of America, ExxonMobil, Microsoft, Monsanto and
Pfizer.”3
Rather than allowing for a final court ruling on this issue, “Nike has agreed to settle
the lawsuit brought by Marc Kasky over claims that statements it made relating to conditions
in some of its suppliers' factories constituted 'false advertising'. The case had seen
considerable interest in the potential legal precedent that would establish that companies have
no protection under freedom of speech guarantees, and that everything they say can be
challenged as commercial speech. … The US Supreme Court refused to rule on this point,
and now the settling of the case means that the legal merits of both sides remain untested.
Nike has agreed to pay $1.5m to the Fair Labor Association - an independent coalition that
seeks to improve factory conditions and monitoring. In response, Kasky has agreed to
withdraw the suit.
The two parties mutually agreed that investments designed to strengthen workplace
monitoring and factory worker programs are more desirable than prolonged litigation.”4
Below are questions related to the Nike case.
1. Identify the key issues in this case.
2. Who are the interested stakeholders and what are their incentives?
3. Given Nike’s settlement with Mr. Kasky, what might have been their objective in using
this strategy?
4. If you were the CEO of Nike, what changes (if any) might you make in your strategies to
combat the negative press associated with working conditions in Asian factories?
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British Telecom: Doing the Right Thing or Doing Things Right?
Herbert Sherman, Southampton College - LIU
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“British Telecom. (BT) has used stakeholder consultation to strengthen customer, and
other stakeholders' loyalty. As a privatized ex-government monopoly, British Telecom has
always had a strong public service ethos. It has gone from being the only telephone company
in the UK to competing with a variety of new and international telephone companies - many
of which use aggressive pricing strategies to win new customers. Stakeholder consultation is
a way for the company to demonstrate its conviction that its ethical framework best serves
the interests of all stakeholders. To do so, it sought the views of and feedback from a diverse
set of stakeholders about their ethical expectations. BT set up liaison panels to provide twoway, in-depth discussions with consumers, convened seminars and conferences on key
issues, and held other exercises to engage stakeholder views about ethical issues.
Every six months, BT analyzes the output from its various stakeholder groups and
presents it, via the CEO, to the company's board executive committee. "Hot" issues requiring
action are debated and resolved in steering committees chaired by BT's director of corporate
relations and attended by policy makers from the major divisions. The company has
described its stakeholder consultation as ‘the measure which ensures that the corporate
equation of commercial success and long-term stakeholder loyalty is balanced and ultimately
keeps the corporation on the right track’. BT's efforts seem to be working; stakeholder
consultations have been credited with helping BT align management priorities with
stakeholder expectations. BT has published a booklet on the stakeholder process, including
details of consumers' and others' perceptions of BT's ethical policies and practices.”5
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1. Describe BT’s strategies for managing stakeholder relations.
2. How do these actions provide value to the stakeholders?
3. Why would BT use these strategies rather than rely on only traditional market strategies
(i.e. price competition, marketing, and differentiated services)?
4. Is BT being ethical by using customer consultation or is this just a good business practice?
5. What other strategies might BT avail itself of?
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Starbucks: Brewing a New Song
Herbert Sherman, Southampton College - LIU
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“Starbucks has used stakeholder dialogues for several years to address specific
challenges. For example, throughout the 1990s, the coffee company has been hearing from
environmental groups and its customers about songbirds. The connection between songbirds
and coffee is that Latin American coffee has traditionally been grown in a forest environment
that provides habitat for many species, including wintering migratory songbirds. Changes in
the way coffee is being cultivated has led to the reduction of tropical forests at the same time
that that North Americans have witnessed a decline in the number of songbirds. Although
Starbucks doesn't grow coffee beans, it buys a lot of them, so the environmental community
targeted high-profile Starbucks to bring attention to the issue. At the time, there was no
certified, bird-friendly coffee source that could deliver the quality coffee bean Starbucks
demanded. Still, the impacts of coffee production on songbirds had become the number-one
environmental issue among Starbucks customers.
To help it act on the issue, Starbucks entered into a partnership with the non-profit
group Conservation International (CI). CI originally wanted Starbucks to commit to buying
songbird-friendly coffee, but after some deliberation the two parties agreed that the end goal
would not be to commit to coffee purchases; rather, Starbucks would agree to work with CI
on agricultural practices that reduce environmental impact and improve the quality of coffee.
In September 1998 the two signed a memorandum of understanding for a three-year
partnership which has quickly yielded benefits for both parties. Starbucks has already been
able to source shade grown coffee from one of CI's project sites in Chiapas, Mexico, thereby
sending a message to coffee farmers that preserving the forest habitat has economic benefits
and providing visibility to CI efforts. While engagement continues on the songbird issue, and
as Starbucks brings bird-friendly coffee to market, there is an ongoing dialogue on other
issues.”6
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Questions:
1. Identify the key issue(s) in this case including the key stakeholders associated with each
issue.
2. What might be the interests and incentives of each stakeholder?
3. What additional information about the issue do you believe Starbucks needs in order to
continue their environmental-friendly policies?
4. What strategies are being employed by Starbucks? What other strategies could or should
they employ?
5. Certain stockholders may see Starbucks environmentally-friendly actions as
counterproductive, claiming that these actions reduce operating efficiencies and corporate
profitability. How might Starbucks counter their claims?
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Is McDonald’s Clowning Around?
Herbert Sherman, Southampton College - LIU
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“Responding to increasingly strident criticism of its impact on the countries it
operates in and sources from, McDonald's Corp. cited establishment of -- or improvements in
-- sustainable agriculture programs, animal welfare and recycling in its first-ever Social
Responsibility Report. The 46-page document lists a number of initiatives touching all areas
of company operations, from beef procurement and workforce training to packaging and
people. The report is divided into four segments: community, environment, people and
marketplace.”7
“Community. McDonald's in the community means local development, support for
youth sports and other community programs, help in times of need. Through our support for
Ronald McDonald House Charities, we help improve the health and well-being of children
and families around the world.
Environment. McDonald's has a long-standing commitment to environmental
protection. Our restaurants around the world have innovative programs for recycling,
resource conservation, and waste reduction. We are working with expert advisors and our
suppliers to make further changes so that resources used to meet today's needs will remain
available for the needs of future generations.
People. At McDonald's, we know that people are our most valuable resource. Our
People Principles express our commitment to respect, recognition, openness, and employee
development. We offer structured training programs at every level and have a distinguished
record of diversity in our U.S. business.
[Marketplace]. Responsible Purchasing. McDonald's works with our suppliers to
incorporate socially responsible practices into their operations and build capabilities for
continuous improvement. Guided by expert advisors, our programs address animal handling
practices, uses of antibiotics, the quality and safety of our products and restaurant
environments, conservation of natural resources, our suppliers' employment practices, and
more. We have adopted a comprehensive, strategic approach to these issues in our food
supply chain. Resources & Recognition. To guide our corporate responsibility efforts,
McDonald's seeks the advice of independent experts. We have been recognized for our
leadership in corporate responsibility by numerous organizations and publications.”8
Yet McDonald’s is not without its critics, one of whom was one of the experts they
consulted with at Natural Step. The Natural Step is a social institute which assists business
and government leaders throughout the world in establishing a long-term commitment to
environmental sustainability as a core part of their overall policies.
“According to author and leading Natural Step advocate Paul Hawken, the report is ‘a
low water mark for the concept of sustainability and the promise of corporate social
responsibility. It is a melange of homilies, generalities, and soft assurances that do not
provide hard metrics of the company, its activities, or its impacts on society and the
environment. ... The McDonald's Social Responsibility Report is like Ronald McDonald - a
fantasy. It presupposes that we can continue to have a global chain of restaurants that serves
fried, sugary junk food that is produced by an agricultural system of monocultures,
monopolies, standardization and destruction, and at the same time find a path to
sustainability. ... Nothing could be further from the idea of sustainability than the
McDonald's Corporation.’”9
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Case Questions
1. McDonald’s is in the fast food industry, an industry that caters to consumer demands for
“fried, sugary junk food.” How can McDonald’s be criticized for giving consumers what
they want and ask for?
2. Hawken’s criticisms of McDonald’s seems to go beyond even the products they serve
when he refers to McDonald’s as “monocultures, monopolies, standardization and
destruction.” What might Mr. Hawken be referring to?
3. McDonald’s has continued to publish an annual social responsibility report despite the
criticism leveled against the report. Why do you think that they continue to produce such a
report?
4. You are the CEO of McDonald’s and have just read an article citing Mr. Hawken’s
condemnation of your firm’s social responsibility report. What actions, if any, would you
take because of the publishing of that article?
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The CASE Journal Volume 2, Issue 1 (Fall 2005)
Ford and Firestone: Is it Really Just Found On Road Dead?
Herbert Sherman, Southampton College - LIU
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“In 2001, 174 people were killed in the accidents and crashes involving the Ford
Explorer Sport Utility Vehicle which were equipped with Firestone tires. This led to the
recall of tires by Firestone and it stopped supplying tires to Ford. Firestone alleged that the
problem was with the Ford Explorer and not Firestone tires. Ford defended the safety of the
Explorer saying its statistics has shown that it is safer than other Sport Utility Vehicles. Ford
alleged that it was the defective tires that led to the accidents and recalled 13 million tires for
replacement. Firestone insisted that the tires were safe and Ford replaced them to divert
attention away from safety problems with its Explorer.”10
Instructions: Got to Forbes’ website http://www.forbes.com/2001/06/20/tireindex.html and
4wheeldrive’s website http://4wheeldrive.about.com/cs/fordfirestone/a/firestonetire_2.htm?
iam=momma_ 100_SKD&terms=%2522national%2Bhighway%2Bsafety%2522 and read
about this controversy in more detail. Perform additional research as needed.
1. Given your readings, what are the facts, assumptions, and sentiments surrounding this
case?
2. What are the key issue(s) surrounding this case?
3. Given your reading of the case situation, who is more at fault, Firestone or Ford?
4. From a crisis management perspective, how was this situation handled? How would you
have handled it?
Endnotes
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Anonymous (2002). “Companies and Media Rally Around Nike on Free Speech Fight” Business
Respect (Nov. 16) 43. Retrieved from
http://www.mallenbaker.net/csr/CSRfiles/page.php?Story_ID=694, October 24, 2005.
2
Anonymous (2003). “Nike v. Kasky: Supreme Court Ducks Free Speech Ruling” Business Report
(June 26) 59. Retrieved from http://www.mallenbaker.net/csr/CSRfiles/page.php?Story_ID=986,
October 24, 2005.
3
Anonymous (2002). “Companies and Media …”
4
Anonymous (2003). “Nike Settles Kasky Lawsuit” Business Respect (Sept. 13) 63. Retrieved from
http://www.mallenbaker.net/csr/CSRfiles/page.php?Story_ID=1063, October 24, 2005.
5
Business for Social Responsibility (n.d.). “Issue Brief: Stakeholder Engagement”. Retrieved from
http://www. bsr.org/CSRResources/IssueBriefDetail.cfm?DocumentID=48813#leader, October 24,
2005.
6
Business for Social Responsibility (n.d.). “Issue Brief: Stakeholder Engagement”.
A
Robert Vosburgh (2002). “McDonald’s Issues First Social Responsibility Report” Supermarket News
(April 22). Retrieved from
http://www.highbeam.com/library/doc0.asp?docid=1G1:86026608&refid=ink_tptd_mag, October 25,
2005.
8
McDonald’s Corporation (n.d.). “McDonald’s Corporate Responsibility”. Retrieved from
http://www.mcdonalds. com/corp/values/socialrespons.html, October 25, 2005.
9
PR Watch Staff (2002). “Social Responsibility Meets Ronald McDonald”. Retrieved from
http://www.prwatch. org/forum/showpost.php?p=225&postcount=1, October 25, 2005.
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Anonymous (2002). “The Firestone Tire Controversy” Center for Management Research
BECG005. Retrieved from http://icmr.icfai.org/catalogue/Business%20Ethics/BECG005.htm, October
25, 2005.
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