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Cases Study’s
CASE: I Starbucks
In 2003, Starbucks accomplished something
that few companies ever do: It became a Fortune 500 company—a phenomenal
achievement for a company that went public only 12 years earlier. The company
had over 6,000 stores worldwide—all company
owned, as Starbucks does not franchise its outlets—and planned to expand
rapidly to over 10,000 stores.
Starbucks
created not only a successful business but a thriving industry. When the
company started its massive expansion in the early 1990s, the United States had
about 200 coffeehouses. In 2003 there were over 14000 coffeehouses, the
majority of them not Starbucks but mom-and –pops that bloomed after the dawn of
the $3 cup of coffee. According to a Starbucks executive, “We changed the way
people live their lives, what they do when they get up in the morning, how they
reward themselves, and where they meet. That’s more important to me than just
building a company.”
More
than 10 million coffee lovers spend an average of $3.60 at Starbucks weekly,
and 10 percent of them come in twice a day. Starbucks has 7 percent of the U.S.
coffee-drinking market and less than 1 percent abroad, suggesting ample room for growth. The coffee market is huge;
coffee is the second most consumed drink in the world (water is first).
Starbucks’
iced beverages, which offer larger profit margins than regular drip coffee, are
big sellers in the South and Southwest. After making some adjustments, such as
adding outdoor seating and couches to stores to better serve the needs of its
customers, Atlanta locations have shown double-digit sales growth. Atlanta
boasts 33 successful Starbucks, and plans for expansion are in the works. Plans
for further expansion in cities with even more Starbucks stores, such as New
York City and San Francisco, are also on the drawing board. Although 70 stores
operate in New York City alone, it is estimated that growth there will continue
until 200 stores are operating in the city! As for fears of market saturation,
Starbucks has none. In fact, the java giant has two highly profitable outlets
that face each other on Robson Street in Vancouver, British Columbia. Each
store has more than $1 million in annual sales. International expansion is also
taking place. In fact, the number one Starbucks in the world is located in
Tokyo, and a total of 500 stores are slated to be operational in Asia in the
next three years.
What
is the secret of Starbucks’ phenomenal success? According to Howard Schultz, chairman and CEO of Starbucks Corporation,
the company’s success is due to the experience created within the stores
as well as the unsurpassed quality of the coffee. A steaming café au lait must
be perfectly replicated, whether the store is in Seattle or New York City. In a
world filled with people leading busy, stressful lives, Schultz believes he has
created a “third place” between home and work where people can go to get their
own personal time out or to relax with friends.
Schultz
also attributes his company’s success to the 40,000 employees working
worldwide. Starbucks’ employee training program churns out “baristas” by
educating 300 to 400 new hires per month in classes such as “Brewing the
Perfect Cup at Home” and “Coffee Knowledge.” Here they are taught to remind
customers to purchase new beans weekly and that tap water might not be
sufficient when brewing the perfect cup of coffee. They are also encouraged to
share their feelings about coffee, selling, and working for Starbucks.
Employees are also given guidelines to maintain and enhance self-esteem, to
learn how to listen and acknowledge, and to know when to ask for help. E-mail,
suggestion cards, and regular forms allow unsatisfied workers to communicate
with headquarters. If the annual barista turnover of 60 percent, compared with
140 percent for hourly workers in the fast-food industry, is any indication of
quality of its training programs, Starbucks seems to have a handle on how to
gain and maintain employee loyalty. What about the demographic makeup of the
work force? About 80 percent of the employees are white, 85 percent have some
education beyond high school, and the average is 26.
The
Starbucks success story is continuing into the 21st century as the company is
quickly expanding into Europe and Asia. However, one question remains regarding
the success of the company in countries already known for their coffee-making
expertise: Will such Romans and Parisians care for Starbucks? Continued
expansion and visibility has been created domestically as Starbucks has formed
partnerships with companies such as United Airlines and Barnes & Noble
Booksellers, both of which draw form the same type of knowledgeable customer.
More
recently, Starbucks has opened several full-service dining establishments (Café
Starbucks) in response to customers who want more at lunch and dinner. The menu
offers full meals, breads, pastries, alcohol, and of course coffee. The company
has also launched an Internet site that sells not only expensive coffee but
also pricy kitchenware, home furnishings, and gourmet food. After some
skepticism by analysts and a subsequent drop in share price, Schultz emphasized
that “Every company must stick to its knitting, understand its core competency,
know what the value proposition is for the customer, and do everything possible
to get close to the customer. So you won’t see us getting far afield from what
we do now” As for the present, Starbucks is not likely to fall victim to a
fad-driven society any time soon. The company seems to be doing fine.
You
can learn more about Starbucks at http://www.starbucks.com.
Question:
1.
Based
on the case information and your personal experiences, list at least five
things you know about Starbucks. This list offers you some idea about your
cognitions concerning the coffee shop chain.
2.
List
at least things you like or dislike about Starbucks. This list gives you some
idea of your affect for the coffee shops.
3.
List
at least five behaviors involved in buying a gourmet coffee drink from
Starbucks. This list gives you an idea of the behaviors involved in a coffee
purchase.
CASE: II Barnes & Noble
For decades, bookstores were simply
that—places that sold books. The typical mom-and-pop bookstore on the corner
was small, quaint, sometimes a little musty, and bursting at the seams with
books. It was a wonderful place to visit now and then, look around for a bit,
find a book you like, and go home. Today that old bookstore seems like a relic
of a bygone era. Barnes & Noble’s approach to book selling has revolutionized
the entire industry.
Barnes
& Noble has risen from rather ordinary beginnings to become the largest
bookstore chain in the world. Founder and CEO Leonard Riggio began his empire
by purchasing a struggling Manhattan bookstore in 1971. Riggio opened his first
superstore, with 100,000 square feet of selling space, in New York in 1975.
That store was so successful that he quickly opened more superstores throughout
Manhattan and downtown Boston. The formula worked and the number of stores
multiplied. In the early 1990s, the company began spreading the superstore
concept throughout the United States. Today Barnes & Noble operates around
950 bookstores and another 426 video game and entertainment software stores.
The company boasted sales of nearly $3.5 billion and operating profit of $232
million in 1999.
Riggio
took a decidedly different approach to selling books. “Shopping is a form of
entertainment,” he says. “To customers, shopping is a social activity. They do
it to mingle with others in a prosperous-feeling crowd, to see what’s new, to
enjoy the theatrical dazzle of the display, to treat themselves to something
interesting or unexpected.” Riggio made sure both the layout and operation of
his stores provide customers with what they want. Barnes & Noble
superstores are huge, yet clubby and inviting. They typically cover about
25,000 square feet (some are much bigger) and offer a selection of up to
150,000 titles, compared to 10,000 to 20,000 at the typical independent book
seller. Books usually are discounted 20-30 percent. But a Barnes & Noble
superstore is not defined merely by size and volume. The atmosphere is
friendly, even somewhat luxurious—almost a cross between a public library and a
den. There are large, overstuffed chairs; reading tables; background music; a
coffee bar; bright lighting; and even well-maintained public restrooms.
Book-store used to discourage customers from reading in the store—spend more
than a few minutes with a book and you would have expected an employee to tap
you on the shoulder and suggest that you either buy the book or put it back.
But Barnes & Noble actually wants you to pull a book or magazine off the
shelf, grab a cup of coffee, flop down on a sofa, and make yourself at home. A
company spokesperson explains, “The philosophy behind this is, the more
customers we attract into the store and the longer they are encouraged to stay,
the more books we sell.” Many Barnes & Noble locations also offer a music
section where the same philosophy applies. Customers are welcome to sit down
with a pair of headphones and listen to a CD before they buy it.
Barnes
& Noble also works to ensure that its superstores evolve into community
meeting places. Each store or region is staffed with a public relations
coordinator who works to bring events to the store. Live performances, readings, and book signing are
common. Classes of elementary school kinds are invited to come in and browse on
a regular monthly basis. Stores even offer classes, book discussion groups,
puppet shows, and story hours for children. The long store hours (9 AM to 11
PM) also provide a compelling lure. “For people who work all day, this is their
leisure time,” explains Lisa Herling, vice president for corporate
communications. “Whether it’s after a movie or after dinner, it’s a
destination location.” Riggio puts it more succinctly: “If I get you for two
hours, I’ve got you.”
In 1995, a competitor with an entirely different value
proposition emerged. Amazon.com began selling books over the Internet. Barnes
& Noble countered two years later with BarnesandNoble.com, which tries to
replicate the superstore experience on the Web. At the site you can participate
in live chats with authors and listen to audio from one of the many archived book
readings (featuring such renowned writers as Kurt Vonnegut, Susan Sontag, and
Salmon Rushdie). Now the largest bookseller in the U.S., BarnesandNoble.com,
also offers free online courses through “Barnes & Noble University,” where
you can study subjects ranging from the humor of Shakespeare to overcoming
shyness. You can even purchase a bag of Starbucks coffee and select the music
you want to hear while you’re browsing the site. Oh, yes, they do sell books on
the site, too—750,000 titles—along with music, software, and posters.
BarnesandNoble.com has attracted more than 5 million customers since 1997 and
has emerged as the fourth-largest e-commerce site on the Web. Sales were up
4.5% in 2002 as were expectations that the venture would turn a positive cash
flow soon.
Barnes
& Noble’s success comes not so much from what it is selling but how it is selling it. Both the brick-and-mortar
stores and the online site provide customers with an atmosphere that turns book
buying into a warm, friendly, inviting experience.
Question:
1.
What
affective responses do you think the Barnes & Noble environment creates? How might consumers’ cognitive systems interpret
these responses? From a marketing perspective, which is more important to
Barnes & Noble—affect or cognition?
2.
Rob goes to Barnes & Noble location to hang out and
meet people. Lisa goes only when she wants to purchase a specific book or CD.
Describe how their integration processes might convince them to choose Barnes
& Noble over the myriad other options they have.
3.
Many of the activities that take place at Barnes &
Noble stores (or at BarnesandNoble.com) do not require a purchase.
Participating in discussion groups and going to in-store performances are free.
And obviously it doesn’t cost anything to simply go in, sit in a chair, and
read a book. So why do people buy? How do these free activities (behaviors)
influence consumers’ affect and cognition?
CASE: III Rollerblade Inc.
In 2002, in-line skating ranked among the
most popular sports for children ages 6 to 17, behind basketball and soccer,
according to the Sporting Goods Manufacturers Association. About 7.5 million
youths skate an average of over 25 times per year. This is quite a change from
1980, when Minneapolis-based Rollerblade Inc. introduced its first in-line
roller skate.
Rollerblade’s
founder, Scott Olson, was a hockey player with the Winnipeg Jets’ farm teams
who envisioned a roller skate with the action of an ice skate that hockey
players and skiers could use to train during the off-season. At first, the plan
was to use modern materials to construct a model based on an 18-century design.
However, Olson discovered a similar in-line skate already on the market and
purchased the patent from Chicago Roller Skate Company. Olson and his brother, Brennan,
perfected the design using a plastic molded ski-type boot atop a blade of
polyurethane wheels. Their first sales were to Olson’s teammates as well as a
few to sporting goods stores. Thus began the sport of blading
Although
they generally cost twice as much as conventional roller skates, in-line skates
are purchased for two reasons. First, they are faster and therefore more
exciting to use than conventional skates. Second, they provide skaters with a
better aerobic workout, requiring the use of more muscles. However, it is more
difficult to learn how to use in-line skates because they require greater
balance and their speeds may cause more severe injuries if a skater falls.
By
1986, wholesale sales of in-line skates had risen to $3.5 million. Recognizing
an opportunity to get in on a growing market, a number of companies began
producing competitive products. First Team Sports, Inc., also based in
Minneapolis, started manufacturing its Ultra-Wheels brand skates, which
included the first in-line skates for children. Roller Derby Skate Corporation
in Litchfield, Illinois, a manufacturer of standard roller skates since 1936,
produced an in-line skate with a toe-stopper for those accustomed to
conventional skates (Rollerblades had a rubber stopper located on the heel).
The ice skate manufacturer Bauer entered the market with a skate that had a
leather rather than plastic boot.
Rollerblade
Inc.’s sales increased when it expanded its target market. At first, the
product was targeted to hockey players, who were 95 percent male and 18 to 25
years old. However, by broadening the target to include 18-to-35-year-old males
and females, the company increased sales considerably.
By
1990, industry wholesale sales of in-line roller skates topped $50 million,
which almost equaled sales in the conventional roller skate business.
Rollerblade Inc. maintained a 66 percent
market share, First Team Sports had 22 percent, Bauer had 5 percent, Roller
Derby had 3 percent, and other competitors combined had the remaining 4 percent.
Rollerblade could have done better, but it could not fill store orders for
several months because it ran out of inventory early in the year. By 1998 there
were 30 million in-line skaters, although growth in the number of skaters was
slowing down; skate boarding was taking off as a cool alternative.
The
fierce competition in the industry involved not only product features but also
marketing elements. Companies rushed to sign celebrities to promote their
products. Competitors also moved into new retail markets, including discount and departmental stores.
Rollerblade expanded its market by selling to Macy’s and Nordstrom.
Although the name of Rollerblades may become generic term
for this type of skate, the company’s management will have to work hard to maintain
its market lead. “We have been
pioneers and continue to maintain an edge,” a company spokesperson said. “You
only get one shot at
pioneering a new sport, and that’s exciting.”
Question:
1.
What role do you think modeling could have played in the diffusion
of this innovation?
2.
How could you use modeling to teach a friend how to use
Rollerblades?
3.
If you were designing a commercial for Rollerblades to be
used for an in-store videotape demonstration, how would you design the
commercial to take advantage of your knowledge of modeling?
CASE: IV The Saturn Family
Consumers are bombarded with advertisements
and marketing hype everyday. When you log onto the Internet, watch television,
listen to radio, read a newspaper, or open your mail, you are inevitably
greeted with a plea to purchase brand X or visit store Y or website Z. In any
given day, you are exposed to more information than you can realistically
process. In the 1990s, marketers began to look fresh, innovative ways to make
their companies stand out from the media clutter. Few have been as successful
as General Motors’ subsidiary Saturn, whose 1994 “homecoming” of car owners has
been described as “the mother of all marketing programs.”
Saturn’s
mission statement emphasizes the concept of “family.” In an industry whose
history is replete with labor conflict, Saturn has tried to erase the line
between labor and management are somewhat taboo. Regardless of their positions
in the company, all Saturn boasts that no one punches a time clock and that members
of labor and management even eat in the same cafeteria! Moreover, the company
expects its employees and dealers to make customers feel like a part of the
Saturn family.
According
to Joe Kennedy, Saturn’s corporate vice president of sales, service, and marketing, “Everything at Saturn
hinges on our retail operations being enthusiastic about serving their
customers.” Indeed, salespeople (or, as Saturn prefers to call them,
“consultants”) have gone far out of their way to make current and potential customers
happy. In one legendary story, a woman in Wyoming was interested in
purchasing a Saturn only to find that the nearest dealership was hundreds of
miles away in Salt Lake City, Utah. Not to worry. A salesperson from Salt Lake
City flew to Wyoming, picked the woman up, flew back with her to the dealership
in Utah, showed her the car, and made the sale. Saturn instituted a “no-haggle”
pricing policy to reduce the traditionally antagonistic relationship between
automobile salespeople and customers. Saturn’s television ads have featured
employees discussing the family feeling at the company and actual customers
sharing their own Saturn stories.
The “Saturn family” concept took hold with consumers. Soon
delighted customers began calling and writing the company’s plant in Spring
Hill, Tennessee (near Nashville), to learn how they could tour the facility and
maybe meet other Saturn owners from across the country. So management decided
to spend $1 million to hold its first “homecoming” of Saturn owners and their
cars the weekend of June 24-25, 1994 in Spring Hill. It mailed out 650,000
invitations to Saturn owners and also purchased commercial time on CBS’s late Show with David Letterman.
The
response was overwhelming. About 30,000 Saturns—and their owners—made the pilgrimage. If you were on the
highway that week and saw a Saturn with an orange ball on the radio antenna,
that car was probably headed home to Tennessee. Saturn owners came from as far
as Taiwan and filled most of the 24,000 hotel rooms in the Nashville area. In
fact, a dealer from Taiwan brought home the first Saturn ever sold in that
country. That car was honored with its own tent. Throughout the weekend,
car owners met members of the Saturn team, toured the plant, and shared their
own Saturn stories. The homecoming had all the trappings of an old-fashioned
outdoor revival with music, dancing, testimonials from celebrities (Olympic
speed skater Dan Jansen), and food (everything from “southern Chinese egg
rolls” to barbecued catfish).
Even though two Herculean thunderstorms blew over some
tents, injured a few people, and forced the cancellation of a scheduled concert
by country music star Wynonna, it didn’t seem to dampen many folks’ spirits.
Mary Taylor, age 60, was part of a 22-car caravan that trekked 1,800 miles from
Nevada to Tennessee to be part of the homecoming. She couldn’t stop raving
about the dealer. “I couldn’t believe how much they cared,” Taylor said. “They
know us when we walk in. It’s such a friendly atmosphere, I look forward to going
to the dealership.” Another Saturn owner compared the weekend get-together with
Woodstock: “This is another gathering in a field, except it’s about cars, not
music.” Ruth Morrissey from South Dakota perhaps summed up the weekend best as
she gushed, “We love our Saturns. We are all just a bunch of walking ads.” For
those who couldn’t make it to Spring Hill, Saturn sponsored smaller-scale
get-togethers at dealerships around the United States. An estimated 100,000
additional people attended those events.
The homecoming was just a part of Saturn’s overall strategy
of making customers feel like part of a big Saturn family. Was this approach successful? Apparently it was. Company research in
1994 showed that out of the approximately 650,000 people who owned Saturns, 80
percent planned to buy another Saturn. Furthermore, Saturn reported that
during the homecoming ad campaign (which ran from January through June 1994),
sales were up 25 percent compared to a year earlier.
Other carmakers took notice and copied Saturn homecoming
model. Daimler Chrysler’s Jeep division sponsored an event called Jeep 101 in
which Jeep owners—many of whom drive exclusively on paved urban streets—took
their vehicles off-road. Mercedes-Benz of North America invited 100,000 current
and potential customers to Los Angeles for an unveiling of new models. The
opportunity to ogle these pricey new automobiles—plus the lure of good food and
wine—apparently was quite compelling. So many people showed up that they had to
close down a highway. In another promotion, Mercedes invited 1 million people
to “fall in love” with a new Mercedes by attending one of a variety of special
customer bonding events at local dealerships.
To be sure, Saturn has had its share of problems since that
first homecoming event in 1994. Some critics have sniped at Saturn’s boring
styling and limited choice of models. Others believe Saturn has slipped
compared to other carmakers in terms of performance and reliability. Sales of
the L-series mid-size car were very disappointing, which forced production
slowdowns and lay-offs in 2000. In addition, the harmonious relationship
between labor and management hit a snag when Saturn’s 7,000 unionized employees
began to express dissatisfaction with their special labor agreement with the
carmaker. Seeing a problem, General Motors in 2000 pledged to invest $1.5
billion to expand the Spring Hill facility and provide Saturn with a SUV and a
redesigned compact car in time for the 2002 model year. (To check out Saturn’s
current model line and other company information, visit the company’s website
at www.saturn.com.
But make no mistake, Saturn’s innovative marketing efforts
have accomplished their goal. Even with the recent problems, surveys reveal
that most consumers—especially younger people—still believe Saturn is, as its
ad campaign declares, “a different kind of car company.” In 1999, Saturn held
another large, successful homecoming and many industry experts believe that
with new models in the offing, Saturn can regain the momentum it had in the
mid-1990s.
Question:
1.
Visit
the Saturn website and try to determine the market segments the carmaker is
targeting. What should Saturn do to better serve those segments? How might
Saturn tailor its offerings to address the different stages of the family life
cycle?
2.
Other vehicles—such as Porsches, Mustangs, and
Harley-Davidson motorcycles—also have “cult” followings. But these products
also have very strong symbolic meanings associated with them. The Saturn is a
solid and reliable, but basically unspectacular, car. Identify and discuss
three reasons that you think Saturn has such a devoted following of involved
customers.
3.
An
automobile is a high-involvement purchase. Discuss how the manufacturer of a lower-cost, lower-involvement
product could generate greater personal relevance and long-term loyalty. Find
and discuss an example of a company that has done so.
CASE: V Harley-Davidson, Inc.
Harley-Davidson,
Inc., founded in 1903, is the only remaining American motorcycle manufacturer,
although there are some new upstart companies. During the 1950s and 1960s,
Harley-Davidson has virtual monopoly on the heavyweight motorcycle market.
Japanese manufacturers entered the market in the 1960s with lightweight
motorcycles backed by huge marketing programs that increased demand for
motorcycles. These manufacturers, which included Honda, Kawasaki, Suzuki, and
Yamaha, eventually began building larger bikes that competed directly with
Harley-Davidson.
Recognizing the potential for profitability in the
motorcycle market, American Machine and Foundry (AMF, Inc.) purchased
Harley-Davidson in
1969. AMF almost tripled production to 75,000 units annually over a four-year
period to meet increased demand. Unfortunately, product quality deteriorated
significantly.
More
than half the cycles came off the assembly line missing parts, and dealers had
to fix them to make sales. Little money was invested in improving design or
engineering. The motorcycles leaked oil, vibrated badly, and could not match
the excellent performance of the Japanese products. Although hard-core
motorcycle enthusiasts were willing to fix their Harleys and modify them for
better performance, new motorcycle buyers had neither the devotion nor the
skill to do so.
In
late 1975, AMF put Vaughn Beals in charge of Harley-Davidson. Beals set up a
quality control and inspection program that began to eliminate the worst of the
production problems. However, Beals and the other senior managers recognized
that it would take years to upgrade the quality and performance of their
products to compete with the faster, high-performance of their products to
compete with the faster, high-performance Japanese bikes.
To stay in business while the necessary changes in design
and product were being accomplished, the executives turned to William G.
Davidson, Harley’s styling vice president. Known as “Willie G.” and a grandson
of one of the company founders, he frequently mingled with bikers and, with his
beard, black leather, and jeans, was accepted by them. Willie G. understood Harley customers
and noted:
They
really know what they want on their bikes: the kind of instrumentation, the
style of bars., the cosmetics of the engine, the look of the exhaust pipes, and
so on. Every little piece on a Harley is exposed, and it has to look just
right. A tube curve or the shape of a timing case can generate enthusiasm or be
a total turnoff. It’s almost like being in the fashion business.
Willie G. designed a number of new models by combining
components form existing models. These included the Super Glide, the Electra
Glide, the Wide Glide, and the Low Rider. Although these were successful,
Harley-Davidson was still losing market share to Japanese competitors that
continued to pour new bikes into the heavyweight Market.
By 1980, AMF was losing interest in investing in the
recreational market and sold the company to 13 senior Harley executives in a
leveraged
buyout on June 16, 1981. Although the company was starting to make money in the
early 1980, its creditors wanted payment, and Harley-Davidson nearly had to
file for bankruptcy at the end of 1985. However, through some intense
negotiations, it stayed in business and rebounded to become a highly profitable
company.
In
1996, Harley-Davidson controlled more than 47 percent of the heavyweight (651cc
and larger) motorcycle market, far more than its all-time low of 23 percent. Its
products are considered to have “bulletproof reliability” because of
manufacturing and management changes that resulted in products of excellent
quality.
Owners
of Harleys are highly brand loyal, and more than 94 percent of them state they
would buy another Harley. The company sponsors the Harley Owner Group (HOG),
which has more than 1,200 chapters and 750,000 members worldwide. Executives of
the company frequently meet with chapters to obtain suggestions for product
improvements.
In
2002, Harley sold 215,454 motorcycles domestically and 48,199 in the global market. It also sold 10,943 Buell
motorcycles in that year. Its net revenue for 2002 was over $4 trillion, about
double its 1998 net revenue. Its net income for 2002 was $580 million compared
to $213 million 5 years earlier. In 2003, its 100th anniversary product line
included 7 Softail models, 7 Sportster models, 5 Dynaglide models, and 7
Touring models. In addition, its VRSCA V-Rod, a new-style, $17,000
Harley was selling quickly even though it was a departure for the retro look of
traditional Harleys.
Harley-Davidson
motorcycles are distributed worldwide by a network over 1,300 dealers. These
dealers typically have upgraded facilities that merchandise not only
motorcycles and service but also a variety of parts, clothing, and accessories. Clothing and accessories are highly profitable
items that enhance the motorcycle-owning and riding experience. For more
information, visit the company’s website at www.Harley-Davidson.com.
Question:
1.
What kind of consumer owns a Harley?
2.
What accounts for Harley owners’ satisfaction and brand
loyalty?
3.
What role do you think the Harley Owner Group plays in
the success
of the company?
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