brand as business bit:  A couple of sound bites connected for me recently.

In a recent Bloomberg BusinessWeek piece entitled, “Has CNN’s All-News Strategy Become Old News?,” Alex Sherman writes about the cable networks’ reliance on “the story” to drive its audiences, unlike other networks that balance breaking news with opinions and personalities.  Phil Grffin, president of MSNBC, observed:

“CNN is the place for breaking news.  Unfortunately you become totally dependent upon it.”

Then this week’s announcement about J.C. Penney’s disappointing first quarter results, CEO Ron Johnson, explained “Our No. 1 issue is traffic.” Acknowledging the transition to “Fair and Square” pricing was tougher and taking longer than they had estimated, WSJ/Market Watch’s Andria Cheng reported. Johnson said:

“Coupon is a drug…We got to learn to drive traffic in different ways.”

Both of these laments are commonplace among organizations that rely on a single lever to drive traffic – news in CNN’s case, deals in J.C. Penney’s.  For other companies it’s new products, advertising campaigns, sales incentives, or external factors like school schedules or holidays.

Such reliance is like an addiction, producing high highs (sharp sales spikes) and low lows (deep sales valleys.)  And like addictions, the consequences of such volatility are far reaching, wreaking havoc on supply chain and staffing, and trying shareholder patience.

A strong brand can offset dramatic swings by sustaining consistent purchase consideration levels.  Just look at Apple stores – consumers pack those houses day in and day out.  Certainly lines form and sales jump when a new product is released and stores are more crowded during holiday season, but the company isn’t dependent upon news or any other single lever to drive traffic.  Instead, the brand has formed such a rich bond with customers that they will make a visit just to soak in the brand experience. For companies like Apple, their brand is their drug – it’s one addiction that’s actually desirable (well, that and chocolate!)

Yogi Berra once lamented that, “The future ain’t what it used to be.”   Today companies have a related complaint:  “Brand loyalty ain’t what it used to be.”

No longer can brands expect long-term loyalty, even from its most faithful customers.  As economic pressures mount, competitive landscapes shift, and life simply happens, it may seem pointless for companies to try to lock-in customer loyalty.

Nonetheless, last month the folks at SymphonyIRI Group released a study entitled, “Brand Loyalty:   How Understanding Brand Equity Impacts Brand Loyalty and Delivers to the Top and Bottom Line,” [free registration required] which attempts to deconstruct the drivers of brand loyalty.

The scope of the report is limited to consumer packaged goods, so the findings may not apply to all categories.  Also the analysis defines loyalty as, “Greater than 50% of buyer’s total purchasing is of a single brand, not including ‘private label.’” While you can argue whether or not this is an accurate definition of loyalty, the report points to a few truths about brand loyalty which stand on their own and which stand the test of time.

1. Price does not equal value.

Perceived value drives loyal purchase behavior.  The report explains, “…even when times are tight, brands are important. However, in the context of the new, more conservative world of CPG, brands that provide value are critical.”  But value isn’t about price alone.

The researchers found that when it comes to brand decisions, 79% of consumers consider price and 76% consider past usage and trust of the brand.  Shoppers also factor in requests of household members, product labels, in-store displays, and much more into their buying decisions.

Further twice as many people agree with the statement, “I tend to buy the items that give me the best value for the money” as those agreeing, “I tend to buy the lowest price item.”

So, bottom line, brands can’t bribe customers into loyalty with price.

2.  As brand loyalty increases, consumers are less sensitive to price changes.

While marketers may know this intuitively, SymphonyIRI reports category data to prove the point: “In sugar and butter, where loyalty is pretty low, substantial price hikes have led to sharp drops in loyalty during the past three years. In blades and dish detergent, on the other hand, relatively high brand loyalty has continued to grow despite rather sharp price increases.”

This should be good news to the many companies whose categories have been hit with rising raw material and manufacturing costs.  It suggests that consumers accept some price increases – loyalty is leverage.

And just because a category may not inspire high loyalty in general, it’s not stuck.  The research shows that brands can still build loyalty during inflationary times.  Chocolate candy is an example of a category with relatively low average loyalty (16%) that has seen an increase in loyalty between 2008 and 2011.

3. Private label enjoys loyalty too.

“Private label products have captured the attention, the respect, and the wallets of American consumers,” the report declares. The researchers found nearly all consumers purchase private brand products these days and more than one in three actually seek out private label products.

Although 47% of consumers are buying more private label today versus before the economic downturn began, the strength of private label isn’t simply a result of belt-tightening.  Consumer perceptions of the quality of private label products have become quite favorable in some categories. Across retail channels, store brands are viewed as offering the same or better quality as national brands by more than 50% of the population.

Private label loyalty is strong and growing across many of the top 100 CPG categories, the report shows.

Concluding recommendations come straight from the report:

• Invest heavily in establishing and strengthening brand loyalty, focusing in on and delivering against the most meaningful needs of key and target shoppers.
• Leverage frequent and granular assessments of core and target shoppers to ensure a comprehensive and always-current understanding of value drivers for key categories and brands.

Congratulations to Jon Galloway, the winner of the “vote for the best blogpost” celebration I held to mark the 1-year anniversary of my blog!

Jon voted for “don’t go changin’ to try to please them,” a post I had written about why brands shouldn’t go chasing after customers.  Jon explains his choice:

This really resonated with me since I’ve seen this mistake made so many times from a product development point of view:  “let’s add a splash of social media, a dash of what’s trendy this week, and a little bit of what the boss read about in an airplane magazine last week…”  Eventually you end up with an incoherent mix that doesn’t make anyone happy. Your post really summed this up well – rather than trying to be all coffee shops to all people, it makes more sense for Starbucks to focus on the core of their brand, and then to make sure that they always do that well.

To explain, I wrote in the post that if Starbucks were to heed the advice of a recent Harvard Business Review article, they would try to steal some of my visits to a local independent coffee shop, Mystic Mocha— but it would be a fruitless and senseless effort.  Fruitless because I like visiting Mystic Mocha regularly and don’t want to stop going there; senseless because Mystic Mocha meets a very different need from Starbucks and I value each brand for fulfilling each unique need.  Instead, I advised, Starbucks — and all companies really — should focus on the elements that are at the core of their brand and invest in excelling at those.

Interestingly, in the time that has transpired since when the post was published back in early April, Starbucks has indeed gone “changin’ to try to please them.”  The company’s debut of 15th Avenue Coffee and Tea features equipment, product, and design changes to give the stores a locally-themed and less uniform look.  By serving wine and beer and to hosting live music and poetry readings, the new stores are intended to attract an older, more upscale, and perhaps more elite customer.  The change has been critiqued and criticized by many, including me.

In my mind, the reasons why this latest move from Starbucks’ doesn’t make sense all boil down to the thinking I shared in the post our winner Jon selected.  So, thanks, Jon, for drawing our attention back to the post, and congratulations once again.

Jon is Senior Software Engineer with Vertigo Software.  He works with cutting edge technologies, like Silverlight and Microsoft‘s latest web frameworks.   Check out Jon’s blog and podcast for a full immersion into the world of programming.

Jon’s favorite brand is StackOverflow (a programming Q&A website) — because, he says, “they’ve got such a clear focus on making their customers successful.  I think they do a great job of saying who they are and what they’re trying to do, then really delivering.“  Sounds like my kind of brand (if I were a programmer!)

Thanks to everyone who participated in the contest.  (The winning vote was selected at random; the post that actually garnered the most votes was “brand inspiration” — more on this to come.)  I’ve enjoyed hearing from all of you — I so value your readership and our connection.

I’m looking forward to a great Year 2!

Continuing in the series on my favorite brand resources (see fave brand books and blogs)…Today it’s 5 of my favorite brand articles.

I have a huge filing cabinet which is stuffed full with copies of articles, presentations, research papers, and speeches – but I find myself continuing to return to a few pieces time and again.  These pieces, dog-eared and covered with notes and highlights, contain truths and insights which have informed my thinking about brands and marketing – and even though some of them are old (one was written nearly 50 years ago!), I continue to reference them because the content is so powerful and relevant to today’s business challenges.

Here are 5 of those great brand articles:

note:  In order to respect the authors’ intellectual property (and copyright laws!), I’m including links to official sites from which you can access the pieces – in a few cases, subscriptions or fee payments are required  (the content is worth it!)

1.  Marketing Myopia – by Theodore Levitt, published by Harvard Business Review in 1960, republished in 2004.  Levitt’s seminal paper introduces the famous question, “What business are you really in?”  It challenges readers with the assertion that businesses will do better in the end if they concentrate on meeting customers’ needs rather than on selling products.  The paper is about more than marketing; it’s about strategy and how to ensure your business continues to grow.  That’s what I love about it.

2.  What Great Brands Do – by Alan M. Webber, published by Fast Company, August, 1997 – Way back when Starbucks was still an up and coming brand, Scott Bedbury was the company’s chief marketer.  Prior to that post, Bedbury directed Nike‘s worldwide advertising efforts and broke the “Just Do It” branding campaign.  So this guy is a great brand-builder and when Fast Company asked him to identify his 8 brand-building principles, I listened up.  This piece explains some of the best brand tenets I’ve heard, including “A great brand knows itself.”

3.  Brand Leverage – by David C. Court, Mark G. Leiter, and Mark A. Loch, published by McKinsey Quarterly in May, 1999 — Reporting on research into the connection between brand strength and corporate performance, this article unlocks the mystery behind brand leverage – that is, the power of a brand to move into other business domains.  It also prescribes success strategies for brands that are focused, and those that are more diversified.  I found the piece clarifying when I first read it and I believe the principles still apply today.

4.  Brands Matter: An Empirical Investigation of Brand-Building Activities and the Creation of Shareholder Value – by Thomas Madden, Frank Fehle, and Susan Fournier, published by Harvard Business School, 2002 – Like many other papers on brand valuation, this one reports on research which proves that brands deliver statistically- and economically-significant performance advantages such as stock returns and returns on equity.  What makes this paper so remarkable to me, though, is that the research found that firms which had developed strong brands created shareholder value with less exposure to risk – thus supporting the role of the brand in reducing the volatility and vulnerability of cash flows.  It’s convincing data to share with CFOs and other brand skeptics.

5.  Varying Perspectives on Brand Equity – by Jonathan Knowles, published by American Management Association’s Marketing Management, July/August, 2008 – This article puts forward simple, but not simplistic, arguments that marketers can use to show how brand equity is a critical measure for demonstrating marketing’s role in adding to business value.  I particularly appreciate the author’s instruction on how to use brand valuation data to frame the business case for marketing investment.

As with previous weeks, I had a hard time narrowing down all the great options to these 5 – but for now, these are my favorites.  Please check back next Friday as I conclude the 5 favorites on Friday series with 5 of my favorite brand podcasts.

P.S.  Please vote for best blogpost to help me celebrate the 1 year anniversary of my blog – and be entered to win a $50 Nike gift card – it’s my attempt to thank you in some small way for your loyal readership!

CNN Money recently featured a list of 14 “brand name companies” that are going bankrupt.  Among them were Crunch (the chain of fitness clubs), Tribune Co. (owners of the LA Times and the Chicago Tribune), and Hartmarx (the maker of mens’ suits).  The breadth of companies on the list indicates no business is immune to the possibility of bankruptcy – the list included businesses in the private and public sector, from packaged goods to online services, both national and local brands.

If the bad news is that bankruptcy filings are on the rise, the good news may be that the stigma which used to accompany them is on the decline.  Whether because more people are having personal experiences with bankruptcy or because news of companies undergoing bankruptcy now regularly populate the business media, it seems bankruptcy is no longer viewed by the public as negatively as it has in the past.  And GM’s highly publicized bankruptcy was even heralded by some as the best thing that could have happened to the company.

With bankruptcy more commonplace, more business owners and leaders are considering it as a solution.  It’s important to understand, however, bankruptcy is not simply a financial transaction.  It’s a brand event as well and should be managed as such.

Here are a few thoughts on how to mitigate the negative impact of bankruptcy on your brand:

1.    Be as transparent as possible. Strong brands are built – and rebuilt – on trust.  One of the most important and urgent imperatives is to retain customer confidence in your brand.  Bankruptcy calls into question a product’s quality (is the company cutting corners in order to address financial woes?), as well as a company’s ability to address customer service needs now (are they going to pay attention to my needs or are they distracted by their own business problems?) and in the future (are they going to be around when I have a question or need a repair?)  You need to regain customers’ trust.

By communicating clearly what you’re doing, why, and how, you are demonstrating you are worthy of their reconsideration.  This is not to say that you should dwell on the details of the bankruptcy or your recovery plan – but rather, you should ensure the information is readily available to those who want it and you should proactively manage the conversation in the marketplace and with customers with open, honest communication.

2.    Follow-up as soon as possible with new tangible benefits for your customer and visible evidence that the business has changed. It will take awhile to regain any lost brand equity, but making bold moves quickly jump-starts the process.  By initiating a dramatic change, you deliver increased/improved brand value to customers and signal your intention to continuing building a strong brand.  Plus you give people something besides the bankruptcy to talk about.  A breakthrough new product — or new operating practices or innovative service policies – can go a long way to renewing excitement about the brand.

3.    Engage all of your stakeholders. Employees, board members, business partners, etc. are all stakeholders in your brand – and they’re often your most influential brand ambassadors.  As such, you should inform, inspire, and instruct them during the duration of the bankruptcy and recovery.  Ensure they are kept up-to-speed on the business status, recovery plan, and current priorities.  Motivate and encourage them by communicating a compelling vision for the future.  And empower them to communicate with others about the bankruptcy by providing them with the information and guidelines on how to do so.  If your stakeholders are focused on building the brand, it’s likely your customers will be also.

Companies may no longer need to vigorously avoid bankruptcy, but they do need to understand its brand implications and act accordingly.

Related posts:

• brands we would miss — a series
• notes on a crisis

One of Harvard Business Review‘s pieces on marketing in these tough economic times left me feeling ambivalent.  In “Five Rules for Retailing in a Recession,” the authors outline how retailers can discover that “a larger universe of growth and productivity opportunities is open to them than they might believe.”

Some of the points in the article make so much common sense, it’s hard to argue with them.  For example, “Go After Bad Costs.”  Defined as costs that add nothing to what the customers are willing to pay for (e.g., expenditures to improve something that is merely table stakes in the category), “bad costs” should be the first cuts to offset declining margins.

But underlying most of the authors’ advice was a principle that I’m just not sure I agree with.  To explain, the article makes the case for focusing on “Switcher” customers.  Switchers are customers who spend only a portion of their category share of requirements with you.  Using Starbucks as an example, the authors’ research revealed that about half of Starbucks’ customers are spend an average of only 40% of their coffee-related dollars at the firm’s coffeehouses.

The article goes on to advise retailers to understand the gaps between what Switchers are looking for and what the chain is offering and then close them by changing their merchandise assortment and shifting strategic planning, budgeting, and other core processes to better serve them.  This all sounds very logical on one level — after all, you want to focus your efforts on meeting customers’ needs, right?

Well, not exactly.  I fear that adopting such an approach may not make sense if so-called Switchers are not the kinds of customers you want to invest in.   “Switchers” may actually be “Swingers” — people who like to frequent a variety of outlets.  Heavy category users in particular tend to “shop around” simply because they are in the category so frequently and would be bored if they went to one place all the time.

Or the total category spending of switching customers may not be significant enough to make trying to get a larger share a worthwhile endeavor.  Or they may simply be people who are looking for something that you don’t offer and that you shouldn’t offer.

Take me, for example (it’s all about me, right?! )  According to the HBR definition, I would be classified as a Starbucks Switcher.  That is, of every 10 coffeeshop visits I make, approximately 4-5 are to Starbucks, 4-5 are to a neighborhood independent shop Mystic Mocha, and the remaining 1-2 are to other random places.  I go to the Starbucks when I’m outside my neighborhood, when I need a clean, comfortable place to meet clients and colleagues, and when I’m traveling and want to ensure I’m going to get a product that I know and like.  I usually go to Mystic Mocha when I’m craving one of their products (peanut butter mocha — yum!) and I only go there when I’m by myself or with a close friend because it’s a small place in a hard-to-find location with an earthy-crunchy vibe that I love but others may not.

If Starbucks were to heed the advice of the HBR article, they would try to steal some of my visits to Mystic Mocha — but it would be a fruitless and senseless effort.  Fruitless because I like visiting Mystic Mocha regularly and don’t want to stop going there; senseless because Mystic Mocha meets a very different need from Starbucks and I value each brand for fulfilling each unique need.

Part of Starbucks’ brand equity lies in their in-store environment  which makes the chain appropriate for business coffee meetings and in the consistency of their products and customer experience across their 16,000+ units.  I wouldn’t want them to try to fill the role Mystic Mocha plays in my coffee life — it would be inconsistent with the Starbucks brand and it would detract from what I like about them.

Instead I would advise them to focus on the elements that are at the core of their brand and invest in excelling at those.  To grow, they should increase the perceived value of those essential equities to get existing customers like me to pay more and promote the brand to others, and to appeal to new or lapsed customers who are looking for what Starbucks has to offer.

Which brings me to my point.  Instead of changing to try to please switching customers, I would suggest that retailers — and all companies, for that matter — first define what they want their brand to stand for and the types of customers they want to serve. In fact, as heretical as it might sound, I would say that customer-driven strategies are doomed to fail.  That’s because it is not financially and/or operationally feasible for a scaled enterprise to satisfy all desires of all customers.   Today’s customers are too diverse and too demanding.

A company that tries to service all the different requirements of its category’s user base operates with an organizational form of ADD, chasing new offerings and benefits like dogs chase squirrels –- that is, a lot of action but little success.  Instead companies must prioritize which customers to satisfy and how to satisfy them.  They do this by putting their brand in the driver’s seat of their organization — and then using it as a filter for every decision they make.

I’m curious to hear people’s reactions to this — please share your thoughts.

I walked into a Bruegger’s Bagels shop, I handed the clerk a piece of paper that told him what I wanted, I watched as he filled the bag, and I walked out of there — all in less than 30 seconds. I quickly walked back to my car, glancing over my shoulder to see if the cops were on my trail.

OK, so technically, I didn’t rob the shop — I had actually used a coupon from my Sunday paper to get 6 free bagels — but it felt like I had robbed them.  And that’s because I have never been to that Bruegger’s location before — and although I’m sure I will enjoy the bagels, it’s highly unlikely I will ever return there — simply because despite being the only location within a reasonable driving distance of my house, it’s not convenient for me to get to — and the promotion didn’t give me a reason to go out of my way to do so.  So, if in running the coupon, the company’s goal was to prompt additional visits/purchases, it has essentially wasted 6 free bagels on me.

This incident got me thinking about all the other free or nearly-free offers I’ve seen from quick serve restaurants (QSRs) lately:

• Coffee Bean & Tea Leaf ran a special promotion last Thursday — free tea lattes between 2 – 6pm.
• McDonald’s has been offering a free McCafe coffee on Tuesday mornings (I think.)
• Jamba Juice just launched their “oatmeal for a buck” promotion.

I’m curious to see how these offers play out.  On the one hand, they may drive short-term traffic and stimulate trial of new products; on the other, I question whether they’re prompting future incremental purchases, or increased loyalty, or even goodwill.

Although QSRs aren’t hurting as much as their more upscale counterparts, the restaurant industry as a whole is suffering and so I can understand the desire to get “butts in seats” — but at what price?  Giving away food to unlikely future customers doesn’t seem to make a lot of sense.  Tactics that are more likely to have a more sustainable impact on the business are ones that:

• are integrated into the brand platform — of the 4 promos mentioned above, only the Jamba Juice one seems to relate to the chain’s overall brand strategy.  Jamba’s brand essence is “positive energy” and their “oatmeal for a buck” promo was promoted as a bright spot in the dismal economy. The headline of the ad/coupon reads, “Slow economy, bad. Slow-cooked oatmeal for a BUCK, awesome.”  The tone and manner (e.g., the “Jamba Economic Boost”) reinforces the brand personality.  Integrating a compelling offer with a brand message makes the promotion more differentiating, more memorable, and ultimately more brand-building.
• present the optimal customer experience — part of the concern I have with the Bruegger’s promotion is that it didn’t facilitate a brand-building experience.  I wasn’t joking when I said I was in and out of the store in 30 seconds — the transaction didn’t make any kind of impression on me (except for perhaps speed of service.)  If the goal of the promotion is to appeal to new or lapsed customers, it’s likely not to succeed because the promotion wasn’t designed to communicate anything new or different about Bruegger’s.  And surely the chain has more impactful product offerings than a simple bagel — by offering a complimentary or discounted new product, they could have delivered a better customer experience and perhaps made a return visit more likely.
• invite customers into a relationship with the brand or reinforce an existing one — beyond handing out coupons for additional purchases (which some chains did), these companies could have used the promotions to develop relationships with their customers.  Perhaps they could have asked customers for an email address so that future offers and information could be sent directly to them — or invited customers to follow the chain’s Twitter tweets so they can be notified of breaking news and deals– or even enrolled customers in the chain’s loyalty program and automatically crediting their accounts with points for that day’s visits.  That way, the promotion gives the business a way to grow its customer base and gives the customer a reason to return again and again.

It seems to me that not all ways to do traffic-driving promotions are created equal — why not turn a “withdrawal” from the bottom line into a “deposit” in the brand equity bank?

In dropping the Kinko’s name from its moniker, Fedex (formerly Fedex Kinko’s) may be losing more than 6 letters and an asterisk. The name change, announced 6 months ago, is now for all intents and purposes complete but the transition is far from settled.

BusinessWeek’s story on Fedex’s efforts reports on the struggles the company has had since Fedex bought the copy business in 2004.  Apparently the corporate cultures of the merging entities was quite different. and has led to major clashes.  Customer complaints and falling profits for the combined division (down from$100MM in 2004 to $45MM in 2007) give testimony the problems.

Only time will tell whether the company is able to reconcile its internal culture issues.  But interesting brand questions are also raised by all of this.

First, brand elasticity.  Fedex claims that dropping the Kinko’s name and calling its retail stores Fedex Office reflects the current and potential broader array of services offered by the company — and as FedEx Office CEO Brian D. Phillips explains, “Kinko’s is known as copies…FedEx is a very elastic brand.”

Not surprisingly Kinko’s founder Paul Orfalea sees it differently.  “All the things they could have done with that brand [Kinko's],” he laments. “They could be providing online photo processing. They could be the leader in printing books on demand.”

So, which is it?  Is, as Phillips argues, FedEx the brand with more elasticity?  Does FedEx have more “permission” from its customers to enter into new service arenas, while the Kinko’s brand would hold them too closely to low margin offerings like copies?  Or, do you believe Orfalea and agree the Kinko’s brand would have provided the credibility a company with strong roots in shipping needs to enter into the burgeoning world of digital printing?

Second, and relatedly, brand equity. BusinessWeek’s piece relayed the concerns about the change of four customers who were fiercly loyal to Kinko’s — I’m sure there are thousands more out there like them.  By dropping the Kinko’s moniker, does Fedex risk alienating this core fan base and losing more business from a division that’s already hurting?  Or will the benefits outweigh the risk and in the long run it’s better to get it over with now?  After all, there doesn’t seem to be a viable competitor in the space that these frustrated customers can flock to.

I’m curious to hear your take on these questions.

Today American Airlines experienced a huge baggage handling problem at JFK — LA Times’ coverage is just the first of many stories we can expect to see about the hundreds of irate customers and the company’s feeble attempts to “re-accommodate” them. Ironically, just 2 months ago American became the first airlines to charge passengers for checked baggage ($15 a pop).

The company was already in dire straights — this latest snafu has the potential to push them over the edge. While their financial problems are widely acknowledged, their brand issues are just as bad. The problem: not enough brand equity. Brand equity is the tangible value a company derives from its brand — that value can be a price premium, positive word of mouth, or even vendor leverage.

Every time a company fails to deliver a satisfying experience, or even simply to meet customers’ expectations, it’s as if they have taken a withdrawal from their brand equity bank — and if over time they take too many withdrawals and don’t make enough corresponding deposits (customer rewards, inspirational advertising, and breakthrough products are just a few examples of deposits), the brand ends up in overdraft. Jet Blue was able to bounce back fairly quickly last year after it angered passengers by holding them hostage on a runway because it had stored up enough brand equity previously through the delivery of a superior customer experience.

The American Airlines brand, however, appears to be in overdraft. After withdrawals in the form of declining customer service, canceled routes, and extra charges, this latest mess of theirs may be the check that bounces. I don’t think American has anymore equity left in their brand bank to balance themselves out. And once brand equity runs out, business failure usually soon follows. While I would hate to see the company go under (I’m bound by their Platinum handcuffs, after all), I fear there’s no more hope.