Archive for March, 2010

Tide Dry Cleaners?

March 31, 2010

P&G is one of the world’s top marketing companies. So P&G’s focus on expanding into services such as Tide Dry Cleaners and Mr. Clean Car Washes is worth a bit of discussion. Is this the future for consumer brands?

You can see the logic behind the move. Perhaps most importantly, it opens an enormous growth area. In a mature economy like the U.S. growth is hard to come by in many categories. There just isn’t a lot of growth happening in the world of household cleaners these days. Expanding into services, however, opens up almost limitless opportunities. Why not Mr. Clean home cleaners, or Mr. Clean carpet cleaners?

In addition, by embracing services P&G is able to deliver a richer brand experience. Using Mr. Clean at home isn’t a stimulating experience. Visiting a Mr. Clean Car Wash, however, could be something very special.

But this isn’t exactly a lay-up. 

One issue is that running a service business is quite different from running a product business. The skills are different and the basic business model is different.

Another challenge is that if the service experience isn’t top notch, the service could actually weaken the brand. Tide won’t be enhanced when all the buttons are broken, or a shirt goes missing. A consumer won’t have fond feelings for Mr. Clean if the antenna breaks off the car. The franchising approach, while an obvious move from a financial perspective, will make consistently delivering great service a greater challenge. Managing a franchise organization is not easy.

Finally, it isn’t clear how much value some of these brands add. How much better is Tide Dry Cleaners than some other dry cleaners? Many service businesses have low barriers to entry, lots of competition and low differentiation. It just isn’t a pleasant world.

It is worth exploring opportunities in services, of course. But I suspect P&G won’t find it an easy road to riches.

Hong Kong’s Branding Paradox

March 26, 2010

The people in Hong Kong have an incredible luxury goods. Every high-end brand, it seems, has an enormous store: Prada, Gucci, Louis Vuitton, Rolex, the list goes on and on. There is no question luxury brands sell exceptionally well.

At the same time, Hong Kong is full of people selling copied products. In one twenty-minute period, for example, eighteen different people offered to sell me knock-off watches. “Copy watch? Copy watch, sir? Rolex? Rolex? Very good quality.” In one market I wandered back to look at some knock-off Louis Vuitton bags, and while I am not an expert in Louis Vuitton bags, they certainly looked fine to me.

This is a bit of a paradox. Why do people buy luxury goods when they can buy knock-off products for a fraction of the price? How can luxury brands flourish in a market where credible copies are readily available?

I suspect the answer is that people feel differently about buying and using a fake product. We know that perception shapes enjoyment; if people think something is special they enjoy it more. The logic follows that people derive more pleasure from a real product than from a copy.

Buying a fake product is not an uplifting experience. I debated buying a fake Louis Vuitton purse for my wife, but decided that I would always feel bad about the product, and she would, too. Who wants to carry around a fake Louis Vuitton purse? A strong brand transforms a product into something very special. A fake doesn’t. This dynamic protects brands even when copies are readily available.

“Copy watch? Copy watch?” Not for me.

A Booming Economy

March 22, 2010

I’ve been in Hong Kong the past few days and the local economy appears to be booming.

The South China Morning Post has reported the following pieces of news since I’ve been here:

  • Minimum wages are going up by 18%
  • Benefits are going up by almost 6%
  • Unemployment is below 5%
  • There is a growing labor shortage

In the U.S. and Europe, of course, the economy is limping along at best. The difference is striking.

In a global economy, it seems odd to have one part of the world booming and another part struggling. I wonder if this is sustainable. I suspect not. I predict we will either see the U.S. and Europe start growing again very soon, or see growth in Hong Kong and China slow dramatically. For global stability, I certainly hope it is the former.

BMW’s Joy

March 18, 2010

Wednesday’s Wall Street Journal featured a rather striking insert from BMW. The message: BMW creates joy.

The advertisement reads:

We do not make cars.

We are the creators of emotion.

We are the keepers of thrill.

We are the guardians of one three-letter word.

Joy.

This is quite a change from BMW’s long time focus on performance. While the brands tagline, “The Ultimate Driving Machine” is still in the ad, the message has clearly changed.

For many years BMW laddered from Germany engineering to the bigger idea of performance. Now BMW is going one more step, to the very high order benefit of joy.

Is this shift a good idea?

I’m not convinced. Joy is certainly an important benefit, and BMW can make a credible claim that it creates joy. But many brands claim to create joy. In December, for example, Coke and Wal-Mart teamed up to create a catchy ad embracing the idea of joy. I worry that BMW is moving from a benefit it really owned to one that is bigger but not as unique. In the long run this might not help the brand.

I don’t think the move will hurt, however. It isn’t a significant disconnect for the brand and everyone can embrace the idea of joy: Coke, Wal-Mart and BMW.

Healthcare Reform: Where are the Savings?

March 11, 2010

I am hoping that someone reading this post can help me answer a basic question: how will the proposed healthcare reform reduce costs?

It is very hard to disagree with President Barack Obama when he says that we should reduce inefficient and unnecessary healthcare spending. I am entirely in agreement. Who can be against that idea?

I’m less certain that reducing the overall cost of healthcare is a good idea. Innovation isn’t free. Indeed, spending more on healthcare to improve outcomes seems like a very good idea to me.

Still, supporters of the reform package being debated by Congress note that one of the big benefits is that the bill will reduce healthcare spending. But how will this actually happen? I am totally unclear on this point.

From what I can tell, the proposed legislation will expand insurance coverage dramatically, and force everyone in the country to have health insurance in one form or another. This move will surely increase the cost of healthcare; it won’t reduce spending on people who currently  have insurance, and it will dramatically increase spending on people who don’t currently have insurance.

How will the legistlation reduce spending? The two drivers of healthcare costs are price and volume. Will the legislation reduce either one? If so, how? 

Is there something I’m missing?

Integrity and Healthcare Reform

March 5, 2010

I am astonished by the healthcare reform debate.

Let me focus on just one issue. Apparently in the proposed legislation, ten years of incremental tax revenue is used to pay for six years of benefits. In other words, taxes go up immediately and the benefits begin in a few years. And by using ten years of incremental revenue to pay for six years of benefits everything balances.

How can anyone say this is reasonable accounting? The incremental revenue doesn’t come close to covering the cost of the incremental benefits on an annual basis.

The people using this sort of accounting are either not too bright or deceitful.

Integrity and honesty are important characteristics for leaders. I hope the people leading our government demonstrate both and look at realistic numbers when debating healthcare alternatives.

SeaWorld Bounces Back

March 1, 2010

On February 24 a whale at SeaWorld killed trainer Dawn Brancheau in front of astonished spectators.

Three days later, on February 27, SeaWorld resumed shows. SeaWorld president Jim Atchison stated that the animal, a killer whale named Tilikum, would remain part of the show.

SeaWorld is dodging a potential branding disaster. It is hard to imagine anything more terrible for a family show than the public killing of a trainer. This is the sort of negative event that could cause long-term damage to the SeaWorld brand if handled incorrectly.

But SeaWorld is taking the right steps in responding. The company is mourning and honoring the trainer, communicating directly and openly and, most importantly, moving quickly to put the incident in the past.

 SeaWorld is reviewing policies to be sure that the odds of this happening again are small. The company isn’t taking things lightly.

By restarting the shows, however, SeaWorld is able to get back entertaining people and building its brand.

I suspect SeaWorld might actually emerge with a stronger brand; we all now understand the power of the killer whale and appreciate the skill and bravery of the trainers.

SeaWorld is a good model for how brands should respond to bad situations.


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