Strange News from Apple

This week Apple, one of the world’s strongest brands, announced some major staffing moves. Several key executives are leaving the company including the head of the mobile software, Scott Forstall.

According to The Wall Street Journal, The Financial Times and other publications, one of the reasons that Forstall is leaving is that he would not apologize for Apple’s flawed mapping software. In an article today, for example, The Wall Street Journal notes, “…Mr. Forstall refused to sign a public apology over Apple’s mobile maps. It was a factor that shaped his exit….”

As Taylor Swift might say: what?

This is a bizarre statement. How many executives can you think of who have left companies because they refused to sign a public apology?

What does it mean?

Apple did issue an apology about the maps snafu; CEO Tim Cook noted that it was a problem and they were working to fix it. Given the high-profile problem, it was logical that the apology came from Cook.

But Forstall apparently wouldn’t sign it. This means….

I have no idea.

Why would Forstall sign it? Would you expect a more junior person to sign something when the CEO issued it?

Practically speaking, nobody actually signs anything anymore, so how do you not sign it?

It might be that Forstall didn’t think an apology was necessary and threatened to leave if the company issued one. This is a possible explanation, though I’m not sure why he would be so opposed to it.

It might be Forstall didn’t think there actually were problems, though this is less likely since the software apparently has clear issues.

It might be that Forstall lost a battle over the product so it launched over his protests and he now claims no ownership of the problems and is denying responsibility.

About the only thing that is clear is that there is far more to this story than we know and there are some very strange things happening at Apple.

New Product Strategy, Romney and Obama

This week I talked about launching new products in my marketing strategy class at Kellogg. The students and I spent a lot of time discussing new product strategy in familiar categories including technology, FMCG, pharmaceuticals and financial services.

We didn’t spend a lot of time on the biggest new product battle taking place right now: the presidential election. We should have.

A political candidate challenging an incumbent is much like a new entrant challenging a product in an established category; there is a known player in the market and the new entrant has to find a way to get people to embrace the new option.

Entering an established category is not easy because the existing player has many advantages: relationships, a well-known brand and financial resources. In most cases the established player will take steps to defend and a good defensive effort can highly effective, as I explain in my new book, Defending Your Brand: How Smart Companies Use Defensive Strategy to Deal with Competitive Attacks.

Looking ahead to the election, I believe the final decision will come down to a simple question: how eager are voters for a change?

When assessing an established category it is critical to understand customer motivation to learn. In some markets, customers are actively looking for new alternatives. This makes it easier for a new entrant because people will seek out the new option. In other markets, customers are satisfied or uninterested and not looking for new things. This is much more difficult for the new player; the challenger has to work very hard to get people to pay attention.

Motivation to learn will drive the upcoming election. If people are looking for a change, then Romney becomes the obvious choice. If people are generally satisfied, then they will stick with Obama.

The debates mattered this year because Romney emerged looking like a viable option. He spoke well and said fairly reasonable things. He didn’t come off as extreme or reckless. Which means the election will come down to one thing: motivation for change.

Given the state of the economy I predict this will be a very close race and Romney may well emerge the victor.

* * *

My new book is now available! Defending Your Brand: How Smart Companies Use Defensive Strategy to Deal with Competitive Attacks looks at the critically important but rarely discussed world of defensive strategy. The core question: how can you protect your business when competitors attack?

You can find it at B&N, Amazon and all the usual spots.

Here is the Amazon link:

http://www.amazon.com/Defending-Your-Brand-Companies-Competitive/dp/0230340342

 

Red Bull’s Branding Triumph

Today Felix Baumgartner jumped from a space capsule and plummeted 24 miles back to earth. The entire event, broadcast live on TV, was riveting. I watched it all unfold, riveted to the screen.

The event was a triumph for Felix and his team. It was a triumph for Red Bull and an example of world-class brand building.

The event worked for Red Bull for three reasons.

First, it was an extraordinary undertaking. As a result it generated a huge amount of publicity. At the moment the story is one of the top headlines on the New York Times, Chicago Tribune and Wall Street Journal.  It is impossible to buy this sort of coverage.

Second, Red Bull branded it all very well. It is almost impossible to miss the fact that Red Bull sponsored it; the distinctive red logo is everywhere.

Third, it fits the brand. This is perhaps the most important element. Red Bull isn’t an ordinary brand; Red Bull is edgy. The brand sponsors all sorts of odd events that push the limits of human achievement (and some say sanity). Red Bull is about energy and pushing yourself and taking risks and these ideas all apply to today’s jump.

Two important points.

First, this was a risky branding move. It could all have turned out poorly, in which case the publicity would have turned negative. The team would have tried to gloss it over and I’m confident they had a disaster plan worked out. But the risk was very real.

Second, I suspect this event wasn’t driven by a rigorous ROI calculation. I’m quite confident the marketing team at Red Bull didn’t quantify how this investment would pay back with x number of incremental cans. They decided that the undertaking would support the brand and they went for it.

And so the Red Bull team took a risk, and just like Felix, they triumphed today.

Defending with Patents

Today’s New York Times has a wonderful article about the patent wars currently raging in the technology industry. You can read the article here:

http://www.nytimes.com/2012/10/08/technology/patent-wars-among-tech-giants-can-stifle-competition.html?hp

Securing and enforcing patents is a classic defensive strategy; I spend a fair bit of time on it in my new book, Defending Your Brand. In theory it is all quite simple. You invent an idea, secure a patent and then own the concept for many years.

Apple is a master at using patents. The company received more than 4,000 patents since 2000 and is willing to enforce them, as the recent battle with Samsung demonstrates. This is one way Apple defends.

The reality is that patent battles quickly become very messy. It is hard to enforce patents. Competitors can challenge them. Patent wars can quickly escalate as companies secure dozens of different patents and then file suit to enforce them.

The article in today’s paper includes a wonderful graphic showing the current state of affairs in technology. Apple is suing Samsung and Samsung is suing Apple. Apple is also suing Nokia, Motorola (now part of Google) and RIM. Motorola is suing RIM and RIM is suing back. They all are suing HTC. You can sum it up by saying that just about everyone is suing everyone and the lawyers are becoming very wealthy.

I suspect that eventually the battles might settle down; the industry leaders may recognize that there is little to be gained with all this litigation.

One executive in the medical device industry explained to me how things work there: every established company can sue all the other companies. So litigation is relatively infrequent; one suit will just lead to another. It is mutually assured destruction (or at least mutually assured legal expenses).

Still, patents can protect existing industry players from outside attack. Any new entrant will likely face significant legal challenges. This becomes a major barrier to entry.

Steve Jobs apparently believed deeply in patents as important defensive tools. On this point he was, as usual, correct.

Kraft’s Uncertain Future

This week I’m busy teaching in the Kellogg on Branding executive education program. Earlier today one of the participants asked me for my thoughts on the new Kraft Foods. This was a timely question; Kraft is in the news because the company just completed its split. The fast growing snacks business is now a distinct company called Mondelez. Kraft Foods is the North American grocery business, made up of brands like Miracle Whip, Grey Poupon and Cool Whip.

In theory the new Kraft should do well because the company can now focus on the grocery business. The combined company logically devoted resources and time to the high growth snacks business, neglecting the grocery side. With additional focus, the grocery business should do well, at least in theory.

The reality isn’t quite so simple. The new Kraft has two significant issues. First, Kraft hasn’t invested in its grocery brands for many years. Bloomberg recently reported that, according to a New York consulting firm, Kraft spent only 3% of sales on advertising over the past couple years. This is dramatically lower than General Mills (5.7%) and Kellogg (8.6%). With little investment the brands have eroded and now need innovation and great marketing. This spending will probably have a negative short-term ROI; building brands doesn’t deliver quick profits.

Second, Kraft plays in mature categories. There just isn’t a lot of growth in gelatin and macaroni and mayonnaise. One might wish for lots of growth, and proclaim that with innovation the category growth will appear. But that just isn’t likely to happen.

Kraft might have a bright future. The company could rebuild its brands, win over customers and deliver solid financial returns.

The key, however, is setting appropriate financial expectations. Kraft won’t be growing much, perhaps not at all. In the short run, profits should actually decline some as the company invests in marketing and innovation. But the dividend should be solid and results generally consistent and predictable.

The risk is that the new executive team tries to generate significant growth. The easy way to get growth in profits is to cut overhead, trim marketing, reduce product costs and spend on quick volume driving tactics like discounting. This formula will lead to long-term brand erosion and a difficult future.

Giving the new executive lots of stock options would be a very bad move; the stock market rewards quick profit growth. It is hard to resist the temptation to focus on short-term profits when there are options at stake. Hopefully the board sets the right incentives and Kraft’s new executive team builds the business, setting the stage for a bright future.