In a classic Greek tragic drama, serious misfortune befalls the hero as the result of his or her actions. Often, hardship and adversity came from personal excess, acts of hubris that tempted the wrath of the gods. But one doesn't have to toil through a Sophocles play to appreciate the cautionary lessons contained in the pages of a classic Greek tragedy; just pick up a copy of the Wall Street Journal and read the tale of cult brands.

Cult brands "seize the imagination of a small group who spread the word, make converts, help turn a fringe product into a mainstream name," as a recent Forbes magazine article explained. Devotees of cult brands are loyal customers, actively proselytizing new converts. They believe in the brand, want it to succeed, and feel a passionate connection to it. The brand equity cult brands command can be impressive, especially to the brand's senior management, the protagonists in the story who invariably boast, "so beloved are we, there's no work yet to be done!"

We've discovered that "brand distinctiveness," or brand differentiation, uniqueness, and superiority, and "perceived quality" are often the strongest determinants of overall brand equity. But even a cult brand requires its managers to constantly and consistently cultivate, communicate, and deliver its unique advantages. When—as has often been the case—management puts the cult brand on cruise control as they unashamedly admire it in the rear view mirror, competitors will attempt to match what was better and different or further develop their own brand distinctiveness to the point where the cult brand may look out of date. Nokia, for example, was once the cult brand favorite of the mobile phone industry, but today is struggling to regain its position. "Nokia used to differentiate," explained branding firm Interbrand's global director of brand valuation, "but I don't think people would know what to associate with it now." Same thing has happened to TiVo as competitors such as cable companies now offer similar technology and the promise of watching your movies and programs commercial-free at whatever time you want and Ikea as the nice-looking, "disposable" furniture idea has been replicated by discounters and furniture stores alike.

Brand perceptions are also an important determinant of brand equity. Brand perceptions are, of course, driven in large part by marketing communications and the product/service strategy. Use these strategic elements ineffectively—or mismanage them entirely—and you seriously jeopardize performance. Take the case of Krispy Kreme Doughnuts, once referred to as the ultimate cult brand. Krispy Kreme spent less than 1% of revenues on advertising, relying primarily on word of mouth and big grand opening events to generate awareness. Sales doubled as celebs touted the cake-like doughnuts and crowds lined up for hours outside new stores.

Thanks to word-of-mouth, the company had a great reputation for offering delicious doughnuts, but that's about it. With no follow-up communications to remind people to come back to stores after a grand opening, people didn't go back. The company had long sold its doughnuts through supermarkets, convenience stores, truck stops, and other locations, so some of the glamour of eating the same doughnut as Madonna wore off when consumers saw it at a grimy dairy mart. As a result, sales have plummeted, the CEO was ousted CEO, and only in the eleventh hour was the company able to negotiate financing to keep the business going.

A cult brand is not a constant, it's something that requires careful, thoughtful management. It's not easy to achieve, nor is it easy to maintain. And achieving such vaunted status, as our tragic heroes Nokia, TiVo, Ikea, and Krispy Kreme demonstrate, does not protect the business from decline.

By the time Columbus set sail for the New World in 1492, the idea of a spherical Earth was hardly a heretical concept. Certainly among scholars and educated citizens, it was accepted as fact that the planet was round. Still, there are some populations, mostly within rural cultures, isolated from the rest of civilization, not to mention an odd group of seemingly otherwise normal folks in the western hemisphere that cling to the belief that the Earth is flat. We're afraid there are many marketers who can probably relate to the members of these Flat Earth Society.

There's overwhelming evidence from a variety of sources that, using different methodologies and data, come to basically the same conclusion that most marketing programs produce a disappointing return on investment. Here are some highlights:

A recent Nielsen BASES and Ernst & Young study put the failure rate of new US consumer products at 95%. A 2004 Deutsche Bank study of packaged goods brands found just 18% of television advertising campaigns generated a positive ROI in the short-term and less than half (45%) saw a long-term payoff. "Looking for advertising effectiveness in package-goods is like the drunk looking for his keys under a lamppost because that's where the light is," commented Erwin Ephron of media consulting firm Ephron Papzian & Ephron.

Other industries aren't faring any better. Though pharmaceutical companies, for instance, spent $3+ billion on direct-to-consumer advertising for prescription drugs in 2004, Ipsos PharmTrends found only 19% of consumers reported DTC advertising inspired them to call or visit a doctor to ask about any advertised brand and this number has steadily declined since hitting a "peak" of 25% three years ago. MMA, our sister company and America's leading U.S. marketing-mix modeling firm, also found television advertising for consumer packaged goods, on average and in the short-term, returns 54 cents for every dollar invested and 87 cents for non-consumer packaged goods.

After examining advertising elasticity in a broad range of categories, Professor Dominique Hanssens, Professor of Marketing at UCLA's Anderson Graduate School of Management and incoming Executive Director of the Marketing Science Institute, reported that the average advertising elasticity for established products is .01, meaning doubling advertising expenditures (i.e., a 100% increase), increases sales by just 1%-2%. So, for example, if Anheuser-Busch doubled the $445 million the company spent on TV, print, radio, outdoor, and Internet advertising in 2003, the firm would enjoy a 1% increase in net revenues from its current base of $5.7 billion. In other words, the firm would spend $890 million to make $57 million.

The American Customer Satisfaction Index, a national economic indicator of customer evaluations of the quality of products and services available to household consumers in the U.S., reported customer satisfaction dropped in the fourth quarter of 2004 to 73.6%, falling from 74.4%—it's highest level in a decade!—at the start of the year. In academic terms, that's a "C" grade. In a seminal study, Magid M. Abraham, now CEO and co-founder of ComScore Network, and Professor Leonard M. Lodish of the Wharton School found that only 16 percent of the 65 trade promotion events they studied were profitable, based on incremental sales of brands distributed through retailer warehouses. They found, in fact, that in many promotions it cost more than a dollar to obtain a dollar in incremental sales.

Still, in spite of mounting evidence, far too many marketers—like the members of the Flat Earth Society—appear to discount the data. Sure, many are eager to measure performance (most because they have to, not because they really want to), but generally eschew any results that threaten the notion that everything is just fine (and potentially jeopardize their standing with senior management). No one likes to get bad news and it's even worse to have to give it. But unless marketers can shed their Flat Earth mentality, accept that their programs on average are under-performing, and take the steps to turn the situation around rather than shopping for a new measurement system that yields more favorable results, the less-than-positive attitude CEOs and CFOs—who incidentally see the same reports we do about marketing ROI—isn't likely to change any time so.

While we're on the topic of ROI, MMA is currently conducting their third annual study about marketing accountability and metrics, and need your input! The survey should take no more than 15 minutes to complete, and all responses are kept confidential.

As a token of thanks, the first 100 respondents will receive $20 Amazon.com gift certificates. In addition, MMA will send all respondents the aggregated results of the survey, followed by an MMA authored white paper based on the findings. Please note, you must provide your email address at the end of the survey in order to receive these findings and the Amazon.com gift certificate.

The deadline for participation in this survey is April 22, 2005. To participate, click here:http://globaltestmarket.com/20/survey/s.phtml?sn=27422

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It would seem to be a logical truism that you can expect to get what you pay for when it comes to quality. Spend $500 on a new coat and it will last you a lifetime of tough winters; spend $15.99 and you're lucky to make it through one icy spell. "Price is typically a good predictor of quality in many categories, often measured by satisfaction," explains Copernicus consultant Michelle Stern. "The more you pay, the higher the probability that you can continuously use and enjoy a product or service without the need for repairs and updates." As Stern points out, however, price is no guarantee—particularly when it comes to cars.

Using pricing and satisfaction data culled from recent Consumer Reports, Stern looked at the relationship between automobile sticker price and product quality as measured by customer satisfaction for over 170 different makes and models of cars. She found that while the prices people pay for cars significantly affect satisfaction, the relationship is not as strong as is commonly believed. If price was the sole indicator of satisfaction, her analysis would have shown that the lower priced models would have yielded lower satisfaction levels; moderately prices models would have yielded moderate satisfaction levels; and higher priced models would have yielded the highest satisfaction levels. Yet only a very small percentage—less than six percent—of the differences among the level of satisfaction consumers' have with their cars can be explained by price.

Hence, price is not always a reliable predictor of automobile quality. As depicted in the table below, many automobiles with lower prices returned the highest levels of satisfaction; conversely, some of the higher priced autos gave their drivers the lowest levels of satisfaction. "The message to car buyers is pay attention to more than the price," says Stern.

For more insightful marketing discoveries, visit http://www.copernicusmarketing.com/discover/index.htm

Have a hot discovery for our next release? Contact us at info@copernicusmarketing.com

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Kim and Mauborgne have a bone to pick with most strategy consultants. They say that the vast majority of work these firms do is focused on helping companies compete in what they call "red oceans," existing market spaces teeming with competitors, when companies really should look for "blue oceans," or "untapped market space with the opportunity for highly profitable growth." They go on to offer a ream of examples of "blue ocean" companies and specific tools to use to identify, analyze, and maximize blue ocean opportunities.

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The American Marketing Association's (AMA) 2005 Strategic Marketing Conference is less than a month away and seats are filling up quickly. This year's conference, Six Sigma Marketing: Turning the Dream of Marketing Perfection into Reality, has a powerful line-up of speakers sharing their best thinking and ideas for improving the practice of marketing.

Speakers including customer lifetime value measurement and experimental design expert Paul Berger; marketing planning specialists Marian Wood and Jim Kieff; Jagdish Sheth, author of The Rule of Three: Surviving and Thriving in Competitive Markets; Michael Silverstein, author of Berry-AMA Book Prize winner Trading Up; Ed Keller, author of The Influentials; James Lenskold, author of Marketing ROI: The Path to Campaign, Customer, and Corporate Profitability; Roland Rust, inventor of the Customer Equity Framework; pricing expert John Hogan; marketing communication guru Lois Kelly; ROI measurement authority John Nardone; interactive marketing trendsetter Sarah Fay; and Copernicus' own Kevin Clancy will talk about a variety of state-of-the-marketing-science topics and tools. The President of Deluxe Financial Services, the Director and Manager of Consumer/Brand Insight from Dunkin' Donuts, and the Director of Brand Communications from Sun Microsystems will describe the cutting-edge marketing solutions to business challenges their firms have employed with impressive results.

The AMA conference will take place on May 9-11, 2005, at the Fairmont Hotel in downtown Chicago. Register today to reserve your spot. For more information, visit: http://ecommerce.ama.org/strategic.htm

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