C570 Strategic Marketing Musings
Tuesday, February 18, 2014
The Naked Brand
"Brands are just a collection of experiences." -- Peter Sims
Bloomberg TV presents The Naked Brand: The Future of Marketing
Monday, February 17, 2014
The Brand: You May Not See It In The Accounting Statement, But It's There
“If this business were split up, I
would give you the land
and bricks and mortar, and I would
take the brands andtrade marks, and I would fare better than you.”
— John Stuart, Chairman of Quaker (ca. 1900)
The quote above opens the article “Brand Valuation” by Jan
Lindemann. The comments of Mr. Stuart
are probably even more relevant in today’s world, if that’s even possible. Brands are everywhere. They are no longer just about products or the
companies that make products. These days
cities, states, and even countries (watch Bloomberg for the ads about investing
in Kazakhstan, Mongolia, and Belize) are aware of their brand. Athletes, singers, movie stars, and
politicians probably pay closer attention to their brands than many companies. Today,
even types of meat have brands (beef “It’s what’s for dinner” and pork “The
other white meat”).
While their influence on consumers is undeniable, I don’t
think brands belong on the balance sheet as an asset. A brand is an intangible asset. By definition something that’s intangible can’t
really be measured. Lindemann tries to
make the case that through financial and other analysis one can put a price on
the value of a brand. His process calls
for a lot of forecasting and subjective calculations. As it turns out, forecasting is incredibly
difficult. Study any forecasts made at
the beginning of each year about the economy, sports, or world politics and you’ll
find a dismal record, even by the so-called experts.
The subjective part of the recommended analysis may be even
more flawed. Coach, for example, is a
luxury brand whose stock has fallen a bit over the last couple of years because
of competition but also because consumers have come to view it as a little less
aspirational. The company still sports
some of the highest margins around throws off a lot of cash, but does
management actually consider the brand worth less? I can’t answer that for sure, but the
evidence certainly points to the consumer as being less enthused about the
brand. Consider the ratings agencies of S&P,
Moody, and Fitch. They were simply
trying to rank the safety of securitized mortgages, a proposition that requires
far less accuracy than specifying a particular value. Whether by incompetence or misconduct, they
failed miserably.
Finally, the accounting scandals in recent years of Enron, WorldCom,
and Tyco are example of how companies were able to fudge real and measurable
numbers. Allowing companies to value their
brand for placement on the accounting statements would be asking for fraud.
Today’s accounting standards allow a company to record as
goodwill the amount of purchase over book value of another company. The purchasing company is then supposed to
test for impairment each year. I asked
my accounting instructor how to test for impairment in a recent lecture. His response was, “I don’t know and I’m not
even sure it’s possible.”
In the end, a brand is just a symbol of the reputation of a
company or product. Just as with a
reputation, it may take several years to build up a brand, but only a moment
for it to be tarnished. For several
years my family and I would always stay with Hyatt when we travelled. Building up a large number of points I tried
to redeem them for a free night in Paris last summer. When they told me I would need to book a
second room because there were three of us, I wrote to the president of the
European operations. I got a nice letter
back from the manager of the Paris property apologizing, but basically telling
me rules are rules. I am now a member of
the Marriott rewards program.
I think the value of the brand is reflected in the income
statement and the return on capital by the firm. It is the value of the brand that leads to
high sales and large margins. I recently
wrote about the world’s most ubiquitous brand, Coca-Cola. The Coke brand is invaluable, which is part of
the reason why investors are always willing to pay a higher multiple to own the
stock.
P.S.
The article, written in 2004, uses Ford as an example of a company focusing on intangible assets and investing $12 billion in brands such as Jaguar, Volvo, Aston Martin, and Land Rover. See how that turned out: Just How Much Did Ford Lose on Jaguar and Land Rover
P.S.
The article, written in 2004, uses Ford as an example of a company focusing on intangible assets and investing $12 billion in brands such as Jaguar, Volvo, Aston Martin, and Land Rover. See how that turned out: Just How Much Did Ford Lose on Jaguar and Land Rover
Wednesday, February 12, 2014
Barbie Poses for Sports Illustrated's Swimsuit Edition
Maybe Ken can get a gig as a daytime talk show host.
Bloomberg: Barbie to Appear in SI Swimsuit Issue as Mattel Brand Struggles
Monday, February 10, 2014
The Greatest Marketing Campaign Ever?
De Beers was a cartel that controlled the price and flow of diamonds for a century. Over the last decade their control of the diamond trade has significantly diminished, but they continue to maintain approximately 50 percent of market share. While De Beers controlled supply and artificially inflated prices, they still needed consumer demand in order to sell their “precious” stones. In 1938 the advertising agency N.W. Ayer was brought on to create a marketing program that would change the positioning of diamonds in the minds of Americans.
Here’s a snippet of The Atlantic article: In its 1947 strategy plan, the advertising
agency strongly emphasized a psychological approach. "We are dealing with a problem in mass
psychology. We seek to ... strengthen the tradition of the diamond engagement
ring -- to make it a psychological necessity capable of competing successfully
at the retail level with utility goods and services...." It defined as its
target audience "some 70 million people 15 years and over whose opinion we
hope to influence in support of our objectives." N. W. Ayer outlined a
subtle program that included arranging for lecturers to visit high schools
across the country. "All of these lectures revolve around the diamond
engagement ring, and are reaching thousands of girls in their assemblies,
classes and informal meetings in our leading educational institutions,"
the agency explained in a memorandum to De Beers.”
I highly recommend reading the entire article, which
chronicles not only the marketing campaign but the history and actions of De
Beers to control the diamond market.Friday, February 7, 2014
Everybody Loves a Good Quote
No blog this week since I'm writing up a case study, but here are some quotes relating to marketing:
16 Quotes That'll Make You A Better Marketer & Storyteller
Monday, February 3, 2014
It's The Real Thing
I had a tough time when considering “which firm or product I
liked which was effective in bringing all of the elements of the marketing mix
together to create a beautiful symphony for their consumers.” It’s not that I don’t think there are plenty
of great businesses out there capable of accomplishing such a deed; it’s just
that I’m not very brand loyal. Sure, I
love Nike products and their “Just Do It” attitude, but if I can get a
reasonably close approximation from Under Armor, Adidas, or even the Target and
Wal-Mart brands, whose names escape me, for less that’s where my dollars will
go. My wife says I’m cheap. I
prefer to think of myself as “value conscious.”
Besides Nike, I considered Samsung for their TV’s and Apple
for the iPad. But as was the case with
Nike, I’ve been known to purchase a competitor’s product if the price was
right. I love to read, so I thought
about books, but that’s just too generic.
The book sellers weren’t an option either since sometimes I purchase titles
from Barnes & Noble, sometimes from Amazon, or whenever possible from used
book stores.
The perfect product struck me while I was at a friend’s
Super Bowl party last night. You see,
Coca-Cola is the one product I will always choose above all others without
regard to cost.
When I went to get a drink at my friend’s house, the options were Diet
Coke (which is what he drinks) and a couple of ultra-cheap knock-offs of the
full sugar version (which he obviously doesn’t drink, but I do). As I
drank the counterfeit soda, I couldn’t believe I didn't immediately
think of Coke when considering which firm truly does create a “beautiful
symphony” for their customers.
The product itself, essentially syrup and carbonated water,
doesn’t get any simpler. And yet, few
have been able to achieve the financial results and brand loyalty
Coca-Cola has enjoyed for well over 100 years.
In his 1993 letter to shareholders, Warren Buffett quoted this sentence
from a Fortune article about Coke: “It
would be hard to name any company comparable in size to Coca-Cola and selling,
as Coca-Cola does, an unchanged product that can point to a ten-year record
anything like Coca-Cola's.” That Fortune
article was written in 1938 and is still true 75 years later.
When it comes to place, there are few businesses that can
match Coke’s variety of channels or ability to sell their product virtually
everywhere on the planet. I have
purchased a Coke in Death Valley, the Middle East, a tiny island in the Indian
Ocean, Eastern Europe, and Iceland. I
once drank a Coke in a fishing village in Mexico. The place was so isolated it had only gotten
electricity five years prior and you had to a get there via boat since it didn’t
have cars or streets. With the exception
of the North and South Poles, I’m not sure there is a place on the globe where you can’t find
Coca-Cola.
From the iconic red and white lettering to the distinctive
bottle, promotion is another area Coke is nearly unrivaled. A company that has not one but two official
museums, which draws visitors from 6 continents, 70 countries, and all 50
states, knows a thing or two about promoting a brand. It is no accident that Coca-Cola associates
itself with epic events, such as the Super Bowl or the Olympics, and touching
moments. Whether it is teaching the world to sing, Mean Joe Greene tossing his jersey to a kid, or a lesser known commercial for a new product, Coke understands the significance of the association with
important and moving moments in life.Soda consumption in the U.S. has declined in recent years due to health concerns (apparently people don't know Coke keeps you thin) and pressure from government. It is an issue Coca-Cola monitors closely. Trailing only the original Coca-Cola classic, Diet Coke recently became the number two best-selling soft drink, edging out Pepsi. If there is a single company built to handle a changing landscape, it is Coca-Cola. By the way, that imitation Coke that I opened last night? I took a couple drinks then just left it sitting on the counter.
Thursday, January 30, 2014
The Case of Cleopatra Soap
In 1986 Colgate-Palmolive attempted to introduce a premium soap product to the Canadian market in Quebec. The soap, Cleopatra, was such a huge hit in France that they had difficulty keeping up with demand. With such a success on their hands, Colgate-Palmolive decided to replicate the accomplishment in another market. They chose Quebec, because 80% of the population spoke French.
After 14 months, the soap failed to sell and Cleopatra had
lost a significant amount of money. The
idea to take a popular product and try to sell it elsewhere seems quite logical
on the surface. After all, many
multi-national companies do this all the time.
For example, there is hardly a place on the planet where you can’t get a
Coca-Cola. However, just because a
product is popular in one place doesn’t mean that it will be equally sought
after in another location.
In introducing Cleopatra to Quebec, Colgate-Palmolive made
several errors. The first, and most
obvious, was assuming that a common language and ancestry means similar tastes
and attitudes. Failing to realize that
people who live on different continents and in different environments may have
a different perception about the products they choose was a mistake of vast
proportion. It turns out Canadians have
a dissimilar view of perfumed soaps than the French. It may not have been invented in there, but
France has been the center of European perfume since the 14th
century. Canadians, on the other hand,
view the level of perfume to vary directly with the harshness of the product. Abrasive chemicals and cleansing strength,
whether accurate or not, isn’t the image you want to portray when going after
the higher margin skin care segment.
Of course we don’t know what other differences in the
markets may have existed at that time.
Maybe there was less competition in France. The Canadian market was highly competitive
with 15 main brands and 20-25 minor brands of soap. Perhaps Cleopatra wasn’t the highest priced
soap in France as it was in Quebec. It
could be that the French prefer baths while Canadians take showers four times
as often as they bathe. Possibly the
French have a different view of Egypt since it was conquered by Napoleon and he
lived for a time in Cairo.
Colgate-Palmolive chose Quebec to sell Cleopatra because of
its supposed similarity to France. Inexplicably, what little market research
they did was conducted in Toronto. This
is probably the American equivalent of doing research in Philly to sell products to
customers in Tucson. Additionally, the
market research that was done seemed to be poorly thought out and executed
sloppily. For example, simply asking
someone if they would buy your product without bothering to mention it will be
the highest cost soap on the market won’t lead to a very good data point.
The second biggest mistake Colgate-Palmolive made was in
pricing. Their goal was to compete
against Dove, the most popular soap, in the skin care and high end soap market. While it is true that having a higher priced
product can signal higher quality, for an unknown brand selling a mostly
elastic commodity type product a higher price can also signal that it is merely
expensive. By trying to out-Dove Dove,
Cleopatra priced themselves out of the market.
In the market research, people liked Cleopatra and agreed they would buy
the product; but they didn’t agree to buy it any price.
The third error made by Colgate-Palmolive was in the product
launch method. Their goal was to build
such customer demand that retailers would be forced to offer the product. Part of this plan involved heavy television
advertising using the same commercial that ran in France. While the commercial was entertaining, it
didn’t have the same effect on sales that was experienced in France. Again, poor market research. More importantly, Colgate-Palmolive attempted
to circumvent the normal method of offering allowances and discounts to
retailers in an effort to maintain high margins. Without the support of the retailers, they
were putting all their eggs in the customer demand basket without truly
understanding if the demand would actually materialize.
There were several other issues that Colgate-Palmolive ran
into or failed to consider. Their
promotional campaign involving coupons for free soap failed. Only 21% of the coupons were ever
redeemed. By only selling Cleopatra one
bar at a time, they didn’t take advantage of the new trend, used by Dove and
most others, of bundling several bars together. Also, liquid soap was new to the market at
that time and created even more competition in an already competitive market. Finally, the organizational manner, in which
some of the product managers didn’t fully buy into the soap for the Canadian market,
didn’t facilitate a successful product launch.
Despite all these problems, there seemed to be a segment
that really liked the product. When
tested head to head against other soaps by people who actually used it,
Cleopatra did extremely well. This isn’t
surprising given the high quality of ingredients used. It certainly seems reasonable that with a few
minor changes to both product and marketing, Cleopatra could have been mostly successful
in the premium quality soap business.So what should Colgate-Palmolive have done to fix the problems associated with Cleopatra? The German mathematician Carl Jacobi believed many problems could be solved by looking at them in the inverse. His maxim was, “Invert, always invert.” With that framework in mind, it’s easy to see what needed to happen to make Cleopatra a top selling brand. In no particular order, the price needed to be lower so that it was at least as cheap as Dove, some of the perfume scent needed be reduced, the retailers needed to be brought in to help push the product, and the TV and coupon campaign needed to be reworked to be more effective.
I’m sure Colgate-Palmolive wasn’t the first company to assume they could take a wildly successful brand and simply market and sell it in the same way in another country. They certainly weren’t the last. Kraft did the same thing with the hugely popular Oreo when they introduced them to China. The cookie, so much a part of Americana, wasn’t much of a hit. By rethinking what tastes and sensations appealed to the Chinese, they completely altered what we think of as an Oreo… but now it sells.
Rethinking the Oreo for Chinese Consumers
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