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Save America's Dying Brands!
Counterintuitive approaches can keep brands from sliding into commodity oblivion
By Kevin J. Clancy
September/October 2001, Marketing Management
Executive Briefing
What's happening to America's brands? We discovered startling evidence
proving that industry over reliance on intuition and gut instinct to make
critical business decisions has led to brand commoditization. Fortunately,
there's hope. By putting marketing back at the center of their business
universe, refocusing on marketing fundamentals, and using new technologies
for improving marketing ROI, companies can rebuild brands and profits,
leaving competitors behind in the dust.
There has been widespread speculation that brands have lost their power
to provide distinctive reasons for customers to prefer one brand over
another, sadly succumbing to the status of price-driven commodities.
We recently conducted research into the state of brands in America, with
the help of international research firm Market Facts. The results demonstrate
that consumers can't see differences between major brands in most product
and service categories. As a result, more buy products based on price.
Gone are the days where brands commanded such loyalty that consumers purchased
them without first checking prices.
Visa and MasterCard, Staples and Office Depot, L'Oreal and Clairol, L.L.
Bean and Lands' End, Barnes & Noble and Borders, Whirlpool and GE—these
are some of the most successful brand names in the world. But our study
found that consumers perceive these brands as increasingly similar to
one another. Brand differentiation is declining over time.
Our study also found that consumers view low price as more important than
brand name in 28 out of 37 product categories, which does not bode well
for companies struggling to increase margins, or maybe even survive. In
six categories, price and brand name are about equally important. In only
three categories-automobiles, liquor, and beer-is the brand more important
than the price.
Why Brands Are
Dying
Not surprisingly, a number of the brands and companies found to be similar
have closed or severely downsized their operations in an effort to survive.
Office supply stores, rated the second most commoditized category following
credit cards, are a case in point. Consumers perceived little difference
between the two category leaders—Staples and Office Depot, scoring
a similarity score of 40. On January 4, 2001—the day after we published
our study—Office Depot, the biggest office supply retailer, announced
it was closing 70 stores in North America, slashing 1,590 jobs, and taking
a fourth-quarter pre-tax charge of as much as $300 million.
Online pet food and supply retailers Pets.com and Petsmart.com, right
behind with similarity scores of 38, are faring worse. Pets.com is out
of business, and Petsmart, which has bricks-and-mortar retail outlets
as well, is struggling with a stock price in the low single digits.
And you're likely to hear more bad news from other companies in the categories
and brands rated as becoming most similar in the months ahead. What's
interesting is that management rarely, if ever, cites poor marketing as
the cause of problems. More common are reasons like: "Competitors
raced to build more stores than us." "Consumer spending is down."
"The cost of energy added to our transportation costs."
Nor do they talk about marketing—the only true way to grow a business—as
one of the strategies they plan to use to fix problems. If companies make
any sort of marketing move at all, they invariably cut price and mount
special promotions.
When the CEO of Quaker Oats was desperate for some good news, for example,
he told analysts about Quaker's fast-growing bagged-cereal business. Yet
Quaker was boosting volume only by slashing prices and squeezing margins.
Sales were up, but profits were down. Worse still, Quaker was signaling
that its brand is just another cereal. Little wonder once-loyal customers
are migrating to deeply discounted store brands. Similarly, Office Depot
admitted that reducing prices on personal computers, paper, toner, and
other products was a mistake. "We've chased after revenue by getting
very promotional on PCs," says CEO Bruce Nelson. "We won't do
that again."
Other major brands in commoditized categories—airlines, long-distance
service, fast-food restaurants, department stores, health and fitness
clubs—all are using discounting and price promotions as a core part
of their marketing strategies. In fact, many advertising campaigns promote
a discount or price promotion. When most consumers think of Sprint, for
example, they think of the dime-a-minute lady. Nice awareness, but no
value-based brand message. Bad idea.
Discounting tells your loyal customers that it's wrong to care so much
about the brand; it's not worth that much. Furthermore, price cutting
and sales promotions shrink profit margins, which squeezes quarterly returns.
Brand loyalty is based on the idea that a product or service is uniquely
better and different, not cheaper.
Discounting erases the key difference with the competitor's products.
Given the common price slashing/deep discounting gut reaction to stagnant
growth, it's not surprising that in 28 of 37 categories listed in consumers
view low price as more important than brand name.
Choose the Right
Targets
So what should marketers do to build healthy, profitable brands? First
and foremost, understand your most profitable target customer and create
strategies to serve that customer better than any other brand.
When we tell executives this, they all say "But we know this. You're
not telling us anything new." However, few marketers actually excel
at targeting even though it is the single most important element in creating
a brand strategy. We hypothesize that the most commoditized product categories
also do the poorest job at targeting.
Most customer targeting and insights are based on judgment, sales force
anecdotes, and an intuitive approach that seems to make absolute sense.
The targeting decision is made in a New York minute. Procter & Gamble,
for example, targets women age 18 to 54 in almost every product category.
As another example, we asked the executives of a successful, publicly
traded software company about their target market—who they are, why
they buy, and the challenges they face. Their intuitions could not have
been more inconsistent. The CEO told us that the buyer is an early adopter
CIO, concerned with complex technical issues. The president said customers
were clearly risk-averse e-business managers concerned with Internet channel
issues. And the worldwide sales executive recited a list of all the company's
major customers—all marketing managers, not an IT or e-business type
among them. What they want, he said, is a better way to speed the sales
cycle and solve tactical problems like order accuracy and pricing optimization.
Enough said.
Targeting is knowing where to concentrate your forces. Dwight Eisenhower
might have said to an audience of business managers when he said, "To
win a war you need to know where to attack. We wouldn't have brought the
Nazis to their knees if we had landed the Allied forces at Calais instead
of the beaches of Normandy."
You can't write a brand positioning statement without knowing whom it
is for. All other plan elements—pricing and product features—depend
on the targeting and positioning strategy. However, most companies use
an intuitive approach to targeting. Consider two companies in highly commoditized
categories, both of which were adamantly—and intuitively—sure
their target was a heavy product user.
The CEO of a well-known cereal company that we'll refer to as the Crispy
Crunch Corp. loved heavy buyers of ready-to-eat cereal as a target market.
"You've got to fish where the fish are biting," he advised us.
"We want 20% of the market that accounts for 80% of the sales."
The marketing vice president added, "We don't see Crispy Crunchy
as a niche player; we're going after the most frequent buyers."
This makes sense to many marketers. If Crispy Crunchy knows the characteristics
of heavy cereal buyers, they can go after Kellogg's, Post's, and General
Mills' heavy users-a logic so many companies embrace that this is today
the world's most popular, intuitively selected market target.
The problem with this logic is that heavy buyers are often price-conscious,
deal prone, and, as a result, disloyal to any brand. Many heavy buyers
are psychologically "locked" into a competitive brand and cannot
be shaken loose by advertising, salesmanship, free samples, or rebates.
Moreover, heavy users are usually far more heterogeneous than homogenous.
They may buy a lot, but other than that they are very diverse. Some have
big families, so they buy a lot of cereal; others love cereal; and others
just have no time to cook, so they eat cereal. When you look at their
motivations to determine what Crispy Crunchy might say to prospective
buyers, and when you look at demographics (because that is how you buy
media), heavy users are all over the place.
A financial service company thought it would be smart to target heavy
credit card users. So we examined this group vs. more than 1,000 alternative
target groups in terms of three criteria:
- Sales potential (reflects card usage patterns and average charges)
- Profit potential (takes into account the costs of winning and keeping each customer)
- Return on investment (indexes the ratio of profit potential to the expected mass media and direct response costs to achieve that potential)
Exhibit 4 shows only
10 of the 1,000 targets. Note that heavy users account for the lion's
share of the sales potential ($330 million), yet only a small share of
the profit potential ($18 million). The index reveals that heavy user
profitability is projected to be only 40% of the average target because
heavy users in this situation are simply too difficult to dislodge. They
are happy with a competitor's card, largely because it is accepted everywhere
they would want to use a card and because they are locked into the competitor's
loyalty program.
Does this mean heavy users are automatically poor targets? Of course not.
But companies should not believe any group is the ideal target group without
hard thinking, research, and thoughtful analysis. In contemporary marketing,
this is a counterintuitive idea, but one that is critical for branding
success. Without knowing the target, you simply can't create a lasting
brand strategy.
It's More Than
Advertising
The second counterintuitive idea is to understand that creating—or
reviving—a brand is more than introducing a new ad campaign, visual
identity, or logo. It's providing a product or service that a distinct
group of customers value and perceive as different from competitive offerings.
Again, you say, of course. But we have worked with countless companies
that have spent millions with "branding firms" only to end up
with a new visual identity and logo or a "breakthrough" advertising
campaign with mushy targeting and no compelling rational or emotional
reason for the customer to want to try the product or service.
A CEO recently called us in frustration. After it spent millions with
a major management consulting firm, and then about half that amount with
a "branding firm," the company's sales were still moving slowly
but inexorably downhill. The consulting firm had told the company to go
after heavy users, a.k.a., the 23% who account for 70% of the volume in
the category; the branding firm told them their brand should be "inspiring
and innovative."
Neither seriously analyzed the target's needs, motivations, problems,
or pains using serious research or rigorous analysis of unimpeachable
data. Neither developed a brand positioning strategy to help the company
configure its product and services to address the target's motivations
or solve its problems. And while the branding firm's graphics were stunning,
they conveyed no clear message or story about the brand's value and how
it differs from competitive offers, which is understandable when you're
not designing for anyone in particular.
Far more publicly embarrassing in my opinion is the attempt by Computer
Associates (CA), a high-technology conglomerate with a $16-billion market
cap, to instantly re-brand itself by hailing its new logo, new attitude,
new mission, and new business model in full-page Wall Street Journal
ads.
"A Brand New Day for CA" headlined the ad, with some of the
weakest, most self-centered anti-customer copywriting we've seen in some
time. The ad copy includes: "After 24 years, we're not the same company
we used to be, which is why we hired the world's leading corporate identity
company to develop a new corporate logo that would more accurately portray
what CA is all about. We think they got it just right. Our new logo tells
the world that CA is focused, focused, focused. It builds on a glorious
quarter century of history and corporate culture. It's a colorful, fresh
look that offers the dynamic combination of high energy and vision with
good old-fashioned feet on-the-ground stability…." Readers have
no idea how CA is trying to reposition itself. From the ad campaign, my
guess is CA doesn't either.
Even if advertising is creative and well-executed, it is one element of
a branding strategy. Some brands in highly commoditized categories have
been built with relatively little advertising at all. Starbucks is a good
example of a company that has understood an advertising campaign does
not make a brand.
"Our competitive advantage over the big coffee brands turned out
to be our people," explains founder Howard Schultz. "Supermarket
sales are nonverbal and impersonal. But in a Starbucks store, you encounter
real people who are informed and excited about coffee and enthusiastic
about the brand…Starbucks' success proves that a multi-million dollar
advertising campaign isn't a prerequisite for building a national brand—nor
are deep pockets of a big corporation. You can do it one customer at a
time."
Brands that have escaped commoditization succeed because they represent
a widely understood and credible promise of value and are backed by an
organization able to deliver on it. Their brand messages are consistent
throughout their communications, from packaging and customer service staff
to public relations and advertising.
Hard Decisions
With signs of an economic slowdown everywhere, executives are reviewing
their marketing budgets in a far more cautious light. Morgan Stanley analysts
expect to see ad spending grow by just 5% in this year, down from a big
9% gain in 2000.
The challenge for marketing executives is how do you manage marketing
spending to keep earnings from getting wrecked without damaging long-term
marketing and product strategies. How do you preserve your brand equity—and
prevent commoditization—with far fewer resources? Consider the following
four steps:
1. Conduct a brand audit to determine what's working and what's not.
Build on your strengths and avoid making testosterone-driven, from-the-gut
decisions that can cause real damage. Computer Associates' desperate "logo/advertisement"
tactic is one such example. Another is the U.S. Army's recent decision
to scrap the "Be All You Can Be" advertising slogan-one of the
most identifiable slogans in advertising history-replacing it with "I
am an Army of One." Imagine having one of the most recognized slogans
in the world and walking away from it to build a new one-with a slogan
that seemingly preaches the opposite of the selfless service the army
actually instills in every recruit during basic training.
Here's a counterintuitive suggestion: stop, assess, and think through
choices and their ramifications.
2. Use available research and modeling approaches to determine what will
work and what won't. Making a critical marketing decision based on
intuition alone has less than a 50% chance of success. Marketing executives
have access to numerous marketing research and predictive modeling tools
that can help test ideas, concepts, and marketing plans. At a time when
dollars need to be invested especially wisely, we urge marketers to determine
whether their strategies-be it a new product concept or an entire marketing
program-will succeed before committing to multi-million-dollar execution
plan. Learning from hindsight is far too expensive a lesson.
3. Adopt the customer equity approach to evaluating marketing performance.
As Rust and colleagues point out in their book Driving Customer Equity
(The Free Press, 2000), the concept of customer equity helps companies
predict and quantify financial marketing return. Customer equity has three
drivers. First is value equity, which is the customer's objective assessment
of the brand's value, formed primarily by perceptions of quality, price,
and convenience. Next is brand equity, the customer's subjective and intangible
assessment of the brand, which are not explained by a firm's objective
attributes. These perceptions tend to be relatively emotional, subjective,
and irrational. The third key driver is relationship equity, which is
the customer's tendency to stick with the brand.
By determining which of these equities is most influential in a company
or its industry, marketers can focus on the drivers most likely to have
the greatest impact on growth and profitability.
4. Avoid the price cutting/discounting death spiral. Unless you
are the low-cost producer, you cannot sustain your brand on price cuts
and discounts. In fact, companies frequently cause irreparable damage
to their brands by discounting. Even in times of recession, consumers
will pay more if they feel they receive an added benefit or value with
the higher price. Determining what this compelling benefit is should become
your mission, rather than finding out how low you can go.
The Secret to Great
Marketing
Companies are under extraordinary pressure to find ways to not only survive,
but to prosper. Consumer spending habits and priorities are changing.
Customers are bombarded by product choices and marketing messages. Sales
channels are more complex. And quarter-to-quarter Wall Street pressures
often undermine a company's strategy to build a lasting brand, which requires
at least a two- to three-year perspective.
Does this mean most products are doomed to become commodities? No. It
means companies must brilliantly execute on marketing fundamentals like
targeting and positioning and adopt innovative strategic and tactical
approaches like customer equity and simulated test marketing technologies.