Archive for April, 2012

The Amazing Lululemon

April 27, 2012

Every once in a while a remarkable brand appears on the scene, one that stands out in the cluttered world we live in. Lululemon is one of those brands.

Chip Wilson founded Lululemon in Vancouver, Canada in 1998. Apparently Chip tried yoga and loved the experience but he couldn’t find good yoga apparel. So he created the company.

The latest financial results are simply astonishing. In its 2012 fiscal year (ending 1/31/12) Lululemon had revenues of over $1 billion, up more than 40% from prior year. Net income was $184 million, a remarkable 18.4% of revenue. Lululemon now has a market capitalization of more than $10.7 billion.

Last week I stopped by the Lululemon store on Halsted Street in Chicago to see what all the fuss was about. Almost an hour later I emerged from the store, quite taken with the brand. Joe, the nice fellow who helped me, simply gushed about Lululemon. He simply loved working there and loved the products. He explained all the various technical features.

The store environment was captivating; the employees were all young and fit and happy. Each one had their personal goals posted in the store. One fellow wanted to be a store manager in the next year, another wanted to be married with kids in five years. The clothes were displayed in an elegant fashion.

I ended up buying a pair of underwear for a remarkable $24 (the most expensive underwear I’ve ever bought, by far) but I felt great about the purchase because Joe recommended it (“This is simply the best underwear I’ve ever worn”) and it was fun to be part of the scene, albeit in a modest way. The bag alone, featuring the Lululemon manifesto, was worth the price.

 

If you get people to be thrilled about buying fairly ordinary looking underwear for $24 each you’ve really done something remarkable.

I might even stop by for the Sunday morning yoga clinic sometime, too. I’m not a huge yoga fan so that would be even more remarkable.

Sony’s Branding Problem

April 15, 2012

Today’s New York Times has a fascinating article about the decline of Sony. It really is shocking how far the company has fallen. Sony hasn’t made a profit since 2008. According to the article, the company is now worth one ninth of Samsung and one thirtieth of Apple. You can read the article here:

http://www.nytimes.com/2012/04/15/technology/how-sony-fell-behind-in-the-tech-parade.html?_r=1&ref=business

The article highlights a number of problems at Sony including a lack of innovation and a dysfunctional corporate culture.

I think the article didn’t spend enough time on one of the most critical issues: Sony’s brand. There is a simple branding problem at Sony; the brand lacks meaning.

 

 

What precisely is Sony? I suspect most people would say it is a quality Japanese electronics company. But this isn’t differentiating in a world full of quality electronics companies.

Sony is an example of what happens when a company falls blindly in love with its brand. Sony uses its brand on all sorts of products: televisions, cameras, computers, music players, digital book readers and toys. In a remarkable move, several years back Sony decided to use the brand on a movie studio and on a music label. Sony’s high-end products carry the Sony brand. The low-end products carry the Sony brand, too.

After all this, the brand gets watered down; it loses meaning, becoming a fine but not distinctive player in the electronics world. This is a problem.

One of the few successes at Sony has been PlayStation, a business that built a distinct brand. PlayStation is a unique and special brand. Sony isn’t.

As the executives at Sony work on the latest turn-around plan, a top priority should be rebuilding the Sony brand, doing so in a way that makes it unique and special. The “all things electronic to all people” clearly hasn’t worked out too well.

 

Corning’s Gorilla Glass Campaign: Good Thought, Weak Execution

April 10, 2012

Corning is running a rather striking campaign for Gorilla Glass, its high-tech materials for mobile devices and televisions. The latest ad features a large gorilla and a big number two.

 

Does it work?

Well, the thought is right. Corning is trying building a brand around its unique glass. This makes a lot of sense. First, differentiation is critical; products that are not unique are forced to compete on price and this is a challenging task indeed in a world of tough competition. Second, Corning has identified an important benefit; breaking glass is a huge problem in the world of devices. Third, using a brand is a good approach for the simple reason that brands last. A competitor might copy Corning’s technology at some point, or even develop a superior product, but a competitor won’t be able to copy the brand. If people value and ask for Gorilla Glass then Corning will have a valuable asset for many years to come.

Unfortunately, Corning’s execution falls a little flat. The current print ad misses on a basic marketing challenge: it doesn’t establish a frame of reference. What is this product, anyway? One of my students thought the ad was for a health club. With the exercising gorilla, banana and water bottle, that is a reasonable guess. The benefit isn’t particular clear, either. And why is there a huge number 2? Awareness of Gorilla Glass isn’t particularly high. Explaining that there is a second generation of a product most people haven’t heard of makes little sense.

The bigger problem is that the direct to consumer strategy seems questionable. Will people really pick one device over another because it has Gorilla Glass? People might pick Gorilla Glass when repairing a shattered unit. But today, at least, I suspect few will consider that a major factor when picking a new phone.

The biggest problem of all is that Corning doesn’t force its customers to say if they are using Gorilla Glass. In particular, Corning can’t say that Apple devices use Gorilla Glass. This is a huge issue. I understand that Apple doesn’t want to be dependent on Corning; Apple wants to build its own differentiation and prevent suppliers from establishing any. As soon as a competitor develops a comparable glass product, Apple can ruthlessly drive down prices and supplier margins. Why did Corning give in on this? If Corning really has a unique product, why not take a stand?

Corning could build a great business with Gorilla Glass. But the company has to do better marketing and be ready to stand up to Apple if it hopes to protect the business long-term.

Pepsi’s Upbeat Spin

April 6, 2012

What do you say in your annual letter when you’re running a company that has delivered disappointing returns for investors and is getting clobbered by competitors?

If you are Indra Nooyi, CEO of PepsiCo, you talk about all the positives.

According to her just published annual letter, things are going quite well at Pepsi. She writes:

“I am pleased to report that we have made strong progress…2011 capped a five-year performance that delivered, on a core basis, compounded growth rates for net revenue of 13 percent, operating profit growth of 9 percent and EPS growth of 8 percent. We also delivered impressive cash returns: not only have dividends per share grown at 12 percent annually, but since 2007, through share repurchases and dividends, we have returned $30 billion to our shareholders.”

She then details all the good news, noting:

“We are creating mega brands that consumers love around the world.”

“We are extremely well-positioned to grow-by category, region and trend.”

“We are innovating globally and delighting locally.”

“We have phenomenal people.”

“We are dedicated to delivering Performance with a Purpose.”

From the annual letter you get the impression that things are great at Pepsi.

There is just one problem: things, well, aren’t so great. The stock hasn’t moved in the past five years; it finished 2011 at $66.35 per share. Five years earlier it was at $62.55 per share.  So Pepsi gained +6% over five years. Coke’s stock was up +45% in the same period. Coke is building market share at Pepsi’s expense. Pepsi is churning through executives. Investors are calling for the company to be split in two and for the CEO to resign.

Putting a happy spin on things certainly is appealing; as my grandfather often said, “If you don’t have anything nice to say, don’t say anything at all.”

But this usually doesn’t work too well for leaders: ignoring difficult business realities doesn’t make them go away. It just looks like you are dodging the tough issues.


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