Archive for July, 2012

Chick-fil-A’s Branding Fiasco

July 27, 2012

Chick-fil-A has a significant and growing branding problem.

The company has long been grounded in religious beliefs. It is owned by a Baptist family and embraces traditional ideals. The company donates to conservative causes. The restaurants are closed on Sunday.

Recently, however, Dan Cathy, the company’s president, gave a series of interviews where he strongly opposed same-sex marriage. In a radio interview, for example, he said “As it relates to society in general, I think we are inviting God’s judgment on our nation when we shake our fist at him and say, ‘We know better than you as to what constitutes a marriage.’ “

The interviews have led to a rather significant backlash, with people attacking the company for its beliefs. People protested in LA at a Chick-fil-A location. A Chicago alderman announced that he would prevent Chick-fil-A from opening in his ward.

In response to the attacks on Chick-fil-A conservative leaders have rallied to the brand’s defense. Mike Huckabee decided to call August 1 Chick-fil-A Appreciation Day. Rick Santorum is tweeting from Chick-fil-A locations.

The entire issue is generating a massive amount of publicity and attention.

The controversy is becoming a huge problem for Chick-fil-A. The core issue is that the brand is quickly getting associated with a particular issue. This will have an impact on business, as some people decide not to visit the chain. But it goes far beyond this; it could make it difficult for Chick-fil-A to recruit employees, open new locations and secure promotional partners. Chick-fil-A is a private company, which gives it a bit more flexibility, but the risk remains.

What should Chick-fil-A do now?

This is a very difficult question. The company can’t just announce that it has changed its position on the matter; this would be insincere and would cause a backlash among its supporters. Continuing to promote its point of view will just fuel the controversy. Saying nothing, its current approach, seems weak.

My sense is Chick-fil-A needs to respond to the situation. First, however, the company leaders need to make a choice: stand by its beliefs despite the business impact or draw a line between the beliefs of its owners and the value of the brand?

A Tough Branding Question for McDonald’s

July 24, 2012

I suspect executives at McDonald’s are wrestling with a key branding question facing the company: should McDonald’s Corporation continue to focus all its efforts on the McDonald’s brand or is it time to broaden the brand portfolio and invest in a second brand?

This isn’t an easy question.

McDonald’s has been one of the great business success stories of the past decade. The stock is up from about $24 a share in July, 2002 to about $88 a share today, dramatically outperforming the broader market. And McDonald’s has grown for all the right reasons; the company has invested in its facilities and brand, improved product quality, added new items to address new meal occasions and focused on delivering outstanding service.

But how much further can the McDonald’s brand grow?

The problem with having just one brand is that growth will slow at some point; you can only expand a brand so far without diluting it. Eventually McDonald’s will start to stabilize in terms of revenue and profit.

That point might be here sooner than the team at McDonald’s would hope; the company this week delivered some disappointing quarterly results, with slowing same-store sales growth and second quarter profit down -4.5%.

Adding a second brand is a fairly obvious move because it would open up a new growth platform.

But a second brand might distract the organization and there is no guarantee a new brand would succeed. Worst case, a new brand struggles and the core McDonald’s brand stumbles at the same time. An unwieldy brand portfolio caused problems at McDonald’s not all too long ago as the company tried to manage McDonald’s, Boston Market, Chipotle, Pret a Manger and other brands. Refocusing on the McDonald’s brand contributed to the recent run of strong results.

McDonald’s has delivered great results over the past decade but there are some tough branding decisions ahead.

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I was recently included on “The 50 Best Blogs by Business Professors.” You can see the full list here:

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PepsiCo’s Yogurt Challenge

July 15, 2012

PepsiCo is entering the yogurt category.

Last week a number of news outlets reported that the company will soon start selling yogurt in several cities in the Northeast. PepsiCo has formed a partnership with German dairy company Theo Muller and will sell yogurt under the Muller brand.

This isn’t a small introduction; the two companies are investing over $200 million in a new factory in upstate New York and presumably will invest heavily in building brand awareness and generating trial.

In an article last week, The New York Times quoted Sam Lteif, chief executive of Muller Quaker Dairy: “We’re very excited about this. There’s a huge opportunity for dairy in the U.S. market, and we’re optimistic about getting into it.”

It is easy to see why PepsiCo would want to enter the yogurt market: the category is booming and it fits with PepsiCo’s focus on nutritious foods.

But I suspect the Muller launch will be a huge challenge for three reasons.

First, entering an established category like yogurt is always difficult. Consumer habits are set, channels are full and norms are established.

Second, introducing a new brand is a daunting task. It takes time and money and luck.

Third, yogurt is a particularly competitive category right now. Established leaders Dannon and Yoplait (General Mills) are desperately trying to push back newcomers Chobani and Fage. Everyone is innovating and investing.

PepsiCo is entering a massive dogfight. It is hard to imagine that Muller will emerge from the fray in good shape.

If PepsiCo is serious about getting into yogurt, the company should acquire one of the four big players. The Muller launch may be just a way to test the waters.

The Bing Puzzle

July 3, 2012

Microsoft is in the news this week with more bad news about its online division and its struggling search engine, Bing. Recent results have been just terrible; in the 9 months ending March 31 the division lost $1.45 billion on revenue of $2.1 billion. Microsoft this week announced a $6.2 billion write-off related to the online division and a prior acquisition. That is a lot of money, even for Microsoft.

This isn’t a big surprise. Bing is a perfectly respectable search engine but it is directly attacking Google. The problem is that Google has a very good search engine and brand; it works just fine and people know and like the Google brand. Why would anyone switch to Bing? It isn’t clear. So it isn’t surprising that they haven’t and Microsoft is losing tons of cash.

The puzzle is why Microsoft carries on at all. Microsoft’s CEO Steve Ballmer is apparently quite excited about it. Last summer he proclaimed “Bing is a service that is probably amongst the things I’m most excited about at Microsoft, most excited.”

So why is Steve excited about Bing?

It might be that he thinks Bing will start working and people will switch. People tend to think their children are far above average. Perhaps Steve is similarly delusional.

Or it might be that Microsoft has other things in the works, either a new technology that will significantly improve the offerings or a positioning that will finally establish a clear place for Bing to live.

For now I think we can conclude that Bing is yet another example of a company attacking an entrenched competitor by launching a perfectly respectable product and supporting it heavily. And this rarely goes well.


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