Archive for September, 2009

Southwest’s Gamble

September 29, 2009

Southwest Airlines has once again taken a different path in the airline industry.

While virtually every major carrier is now charging people to check bags, Southwest continues to offer free baggage checking.  And Southwest is now promoting this fact with some bold, in your face advertising.

The spot currently running features Southwest baggage handlers discussing baggage fees.  It is a simple, direct and memorable spot.  My favorite line in the spot goes something like this:  “Maybe I should just send my bags on vacation while I stay home.”

On the surface this is a smart strategy because Southwest is clearly differentiating itself from the other carriers.  Southwest has always taken some pride in being different and this approach has worked very well over the years; Southwest is by far the most profitable airline in the United States.

The bigger question is whether the move makes financial sense.  Southwest is certainly passing up substantial revenues by not charging for bags; the other carriers are making millions and millions from the charges.  This decision puts Southwest at a competitive disadvantage in terms of pricing.  This is a potentially dangerous situation.  Will people pay more to fly Southwest because the airline doesn’t charge to check bags?  That seems highly debatable.  Southwest is making quite  a gamble.

This is not about philosophy; Southwest is not hesitant to charge consumers for extras.  It recently introduced the Early Bird program, for example, where travelers can board early by paying an extra $10 each way.  So why doesn’t Southwest charge a fee to check bags?  It seems like a very odd decision to me.

It may well be that a bag charge is not quite as good as it looks for an airline like Southwest.  Southwest relies of high utilization of planes to drive profitability; Southwest planes are moving all day long, with very short stops at different cities.  If a bag fee encourages more people to carry on bags, then each plane might need to spend more time at the gate, and this would slow things down.  That would have a major financial impact.

If the operations issue is driving Southwest’s bag fee decision, then the airline is just turning the decision into a savvy marketing pitch.  That would be clever marketing indeed.

Apple Advertising Rolls On

September 24, 2009

Never underestimate the power of a simple, compelling idea.

More than three years ago Apple rolled out a series of ads featuring the Apple and PC characters.  The initial spots were terrific.  They grabbed your attention and communicated a benefit.  Perhaps more importantly, there was no confusion about who the ads were for: Apple.

Since that time Apple has stuck with formula, running a number of different spots that maintain the look and feel of the campaign while delivering new reasons to love Apple.

The latest spot, featuring a personal trainer helping PC bounce back from a rough quarter, sticks to the script.  It is once again clear, entertaining and direct.  It slams PC and promotes Apple, but in such a nice way that it doesn’t seem mean spirited or self promoting.  This is quite an accomplishment. 

All too often marketers give up on powerful ideas far too soon.  Sometimes this is due to a valid concern about wear out.  Frequently, however, it is because someone simply wanted to make a change, have an impact and do something different. 

Apple is wisely sticking with a campaign that has worked tremendously well and shows no indication of wearing out anytime soon.

Branding Tuna

September 22, 2009

The New York Times on September 21 featured an interesting article about branding tuna in Japan.  It is a wonderful example of the power of branding.

Sashimi is big business is Japan, with tuna attracting much of the attention.  And the finest Pacific bluefin tuna in Japan supposedly comes from a small town called Oma.

In a very savvy branding move, the town of Oma has taken steps to protect its brand; only tuna that actually comes ashore in Oma can carry the name.

This move ensures that Oma tuna are differentiated.  A tuna from Oma isn’t just a tuna.  It is a unique and special tuna, the best available.

This branding translates directly into pricing and profits; the most expensive tuna comes from Oma.  Indeed, in 2001 someone bought a 444-pound Oma tuna for $220,000, a remarkable $495 per pound.  

The beauty of Oma’s branding move is that Oma tuna are now unique and superior and better simply by virtue of the brand.  The New York Times article quotes one consumer who says, “It makes the tuna taste two or three times more delicious.” 

We know from consumer research that she isn’t making this up. Consumers get more pleasure from items they believe are special and expensive.  When someone thinks they are having tuna from Oma they will enjoy it more.  It could be exactly the same quality as non-branded tuna, but people think it is better and get more pleasure from it.

As long as Oma protects its brand it will occupy a unique and valuable place in the world of Japanese brands.

You can read the article here:

The World’s Most Valuable Brands

September 21, 2009

The new brand rankings are out!  This is big news for people interested in brands and branding, but the rankings should be taken with a very healthy dose of salt.

Every year Business Week publishes a list of the world’s most valuable brands.  The list is developed in conjunction with Interbrand, a large global branding firm.  The latest rankings are published in Business Week’s September 28, 2009 edition.  You can also read the article here:

This year’s ranking includes many of the usual suspects.  Topping the list is Coca-Cola, with a brand value of $68.7 billion, up 3% versus year ago.  Second is IBM, with a brand value of $60.2 billion, an increase of 2%.  The rest of the top ten include Microsoft, GE, Nokia, McDonald’s, Google, Toyota, Intel and Disney.

This is all interesting news, but it is important to take the analysis as directional at best; the calculations behind the numbers are highly subjective indeed.

The valuation process has four steps.  First, Interbrand tosses out brands that receive over 66% of earnings from their home country, and brands that are owned by companies that don’t disclose financial information.  Second, Interbrand then calculates profits by brand.  This requires a lot of assumptions; P&G, for example, owns lots of different brands and doesn’t break out financial information by brand, so calculating the profits on a brand by brand basis is a major challenge.  Interbrand then calculates profits by brand for the next five years.  This requires a lot of assumptions.  Third, Interbrand determines the share of profits on a brand that are due to the brand itself.  This requires a lot of financial analysis and many assumptions.  Fourth, Interbrand discounts the earning back against a risk adjusted interest rate.  Calculating this risk adjusted interest rate requires, yes, a lot of assumptions.

The problem, of course, is that one assumption is piled on top of another assumption, which is piled on top of another assumption.  The result is that the figures are far from precise.  Indeed, declaring that the value of Coke has increased +3% over the past year borders on the absurd.

Still, there isn’t a better methodology available right now; brand valuation and measurement are difficult undertakings indeed. 

So let’s salute Coke for heading up the list this year.  One can quibble with the ranking and the exact value, but there is no question that Coke is one of the world’s great brands.


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