Archive for the ‘Uncategorized’ Category

Apple’s Competitive Challenge

September 15, 2014

Last week Apple rolled out a trio of new product platforms: iPhones with larger screens, a watch and a payment system.

The new phones are not dramatic innovations; they build on existing technology and will help Apple keep pace with competitive offerings. The watch and payment systems are bigger innovations. They are both trying to change the rules.

So will the new innovations work?

I suspect this will be a challenge. One issue is that changing behavior is difficult. It is hard to get people to rethink a watch or how to buy things. Another issue, and a bigger problem, is that Apple is fighting some capable, driven competitors.

Apple has always had competition: Microsoft, Motorola, Nokia, Dell and others. The difference is that Apple’s competitors are now more aggressive. Over the past decade, many executives dismissed Apple’s innovations. This was not wise. Competitors won’t make the mistake again; I don’t think there is a company in the world that would dismiss Apple today.

This means that competitors are going to defend; they will attack Apple and respond to the innovations. Financial institutions will push back against Apple’s payment system. Pay Pal is already responding. Technology companies will react to the watch and larger screen iPhones.

It took Samsung just one day to release a series of videos mocking Apple’s new products.

 

 

 

Apple is an innovative company with a track record of success. Apple’s competitors know this. They will react, defend and make life very difficult for Apple in the coming year.

Debating the CVS Tobacco Decision

September 8, 2014

CVS was in the news last week for its decision to drop all tobacco products and rebrand itself CVS Health. The company actually announced the tobacco move earlier this year. Last week it celebrated that it was officially tobacco free.

CVS Health

The company is making a big deal of the tobacco decision, rolling out a fully integrated marketing campaign with advertising, events, social media, PR and in-store activities.

 

CVS Twitter

 

My friend John Barker, head of the dynamic ad agency BARKER, wrote that CVS should be named marketer of the year for its move. He explained his thinking in a recent Facebook post:

 

There’s a saying that goes, “It’s not a principle until it costs you something.” Well, CVS paid plenty today for taking a powerful and courageous stand to align its actions with its brand mission. Their decision to stop selling tobacco products will reportedly cost them around $2 Billion a year.

So how can this be good for business?

The answer lies in the years to come, but from a marketing perspective, by shunning the single most dangerous consumer product in the world, they have put their money where their mouth is in a way few brands ever do. This is no “Warning Label” cosmetic makeover or greenwashing CSR strategy. This is one big business telling another big business to bugger off and die. The momentum and hard-earned authenticity of the decision allows CVS to rightfully claim the high ground as a Healthcare Solutions Provider, not a glorified convenience store nee pharmacy nee small grocery nee copy center. In other words, they have created enormous new “white space” around their brand, allowing the possibility if not the inevitability of extending into urgent care and other vertical plays that will organically drive its other sales. They become the doctor, the pharmacist, and the neighborhood center for all things health-related and/or tangentially associated. It’s kind of like the theory of having a gas station on every corner, except they’re all called CVS.

 

Regular readers of this blog will recall that I was skeptical of the decision when CVS first announced it. Despite John’s thoughtful endorsement of the idea, I’m still not convinced it is a marketing triumph.

CVS is smart to focus on playing a big role in healthcare. I think the company is positioned for success; as people deal with high deductibles, they will look for cheap options and self-treatment. CVS can help with both.

Building the CVS brand is important. The company needs to move from being a pharmacy to being a trusted healthcare provider. This is not a small transition.

I’m not convinced dropping tobacco products is the right thing to focus on for building the CVS brand. It is an expensive move; CVS is losing revenues of $2 billion a year. Tobacco sales probably generate a reasonable gross margin, perhaps 30%. If so, the move has a financial impact of about $600 million a year.

The bigger question: how precisely does dropping tobacco add financial value?

It should be a non-event for people who don’t smoke. It is a slight negative for people who used to buy tobacco products at CVS. It isn’t likely to dramatically boost employee morale or improve retention. People won’t line up to apply for jobs at CVS now that the company doesn’t sell tobacco products.

It certainly won’t have an impact on smoking rates in the country. People aren’t saying today, “Well honey, now that CVS isn’t selling cigarettes it is time for me to kick the old habit.”

The bigger question: is this the best way for CVS to spend $600 million a year?

I suspect not. For that amount of money, CVS could dramatically boost its advertising. It could invest in store design. It could add services that people really do value. It could test different ways of managing in-store clinics. It could fund an enormous public health program.

CVS deserves credit for thinking long-term, focusing on branding and strategically shifting to embrace the potential of healthcare. But the company should invest its resources on things that create meaningful value for customers.

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Starting this week, I will be posting on this blog every Monday. Or at least that will be my goal. You can sign-up to get the weekly updates.

Feel free to send along potential topics. My email is t-calkins@kellogg.northwestern.edu

This week I am heading to Moscow to teach a corporate program. It is certainly an interesting time to be visiting Russia. Next week I will be back in Evanston to teach a corporate program at Kellogg. Fall semester classes begin the week after. Things are getting busy now that summer is behind us.

Rebranding the Tata Nano

August 28, 2014

The Times of India reported this month that Tata will soon phase out the Nano and relaunch the vehicle as the Tata Smart City Car.

The move makes a lot of sense.

The Nano was a bold new product. Tata launched the car in 2009 in India and positioned it for lower-income families. It was, and remains, the cheapest car in the world, with a price of about $2,000. Instead of comparing to other cars, Tata focused the Nano on competing with motorcycles.

Tata made a number of moves to keep costs down. The engine is small; it takes the Nano a full eight seconds to accelerate from 0 to 37 MPH. The car has just one window washer. The trunk only opens inside the car.

Nano

While industry executives anticipated that the Nano would transform the auto industry, the car flopped.

One of the big issues was branding. People quickly understood that Nano was exceptionally cheap. This diminished its appeal; a family with a rising income doesn’t want to buy the cheapest car available. It wants a car they can be proud of and feel good about. And after several high-profile car fires, the Nano developed a reputation for being unreliable.

Nano’s basic proposition just didn’t work. People could buy a motorcycle for less money, or buy a used car for a similar amount. Either way they could get around and feel good about their means of transportation.

When a brand develops negative associations there are only two possible solutions: reposition or replace. Repositioning the Nano would have been a challenge. The brand received enormous attention during its launch. All the attention, however, became a problem when the stories turned negative.

Replacing the Nano makes much more sense. By introducing the Smart City Car, Tata starts fresh. The name alone is a step forward. Nano means tiny, which is not a positive in a car. Everyone wants to be smart.

Deciding to phase out a brand is not easy but sometimes, as in the case of the Nano, it is definitely the best move.

Irrational Optimism and CMOs

August 18, 2014

The Chief Marketing Officer Council is out today with the results of its annual survey of marketing leaders.

I was struck by two figures:

- 81% of marketing leaders believe that share growth is likely and attainable this year.

- 10% of CMOs are worried about their jobs.

 

These figures suggest that marketing executives are an optimistic bunch.

On the market share front, CMOs are clearly being too confident. Share is a zero sum game; if one company goes up, another company goes down. I am quite certain that 81% of companies won’t build share this year.

CMOs are also too optimistic on the career front. Average CMO tenure is increasing but it is the rare CMO that lasts for a decade.

 

One could say this all doesn’t really matter. Optimism is a good thing, isn’t it? Who wants to work with a pessimist?

The problem is that irrational optimism can lead to bad decisions. A confident company might cut back marketing support, aggressively reduce costs or delay product improvements in order to boost profits. Why invest in the business when it is doing well?

Optimistic planning can also lead to bad strategic moves. When a company falls behind a plan, the management team will almost always take action to try to get to the target. Business leaders are rewarded for achieving goals, not missing them. Often this involves funding programs that have a big short-term impact, such as price discounts or sales force incentives, and cutting programs that are less effective in the short run, such as advertising, brand building or product improvements. This combination ultimately weakens the business.

Realistic planning is important.

The CMO study also noted that only two-thirds of CMOs are trusted members of the executive team. Irrational optimism won’t increase this figure.

P&G’s Risky Brand Strategy

August 1, 2014

P&G announced this week that it was dramatically shrinking its brand portfolio. According to an article in the Wall Street Journal, the company will drop almost 100 brands, focusing on just its top 70 to 80. This is a huge strategic move for the company and a significant change. It is also very risky.

On the surface, the strategy makes perfect sense. P&G is keeping brands that make up over 90% of its profit. After the pruning, it will still have dozens of brands. And P&G needs to try something different. In 2009 it had net income of $10.7 billion. Last year it net income of $11.3 billion. This is disappointing growth, so a change is in order.

The problem is that this strategy is more risky than it seems.

The first issue is that focusing on fewer brands assumes that you can hold onto customers as you trim the portfolio. In theory, when you drop a brand of detergent, customers will purchase one of your other brands. In reality, this just isn’t the case. A brand can’t be all things to all people. Some people like Old Spice. I don’t care for its fragrance positioning. If you drop Gillette, I won’t start buying Old Spice. I will buy something else.

The second problem is that having fewer brands opens up opportunities for competitors. Crest can appeal to certain customers but it won’t appeal to everyone. This gives other companies an opportunity to attack P&G by targeting specific customer segments and stealing share. For P&G’s competitors, the new strategy is great news.

Another issue is that getting rid of brands isn’t as simple as it sounds. If you stop using a trademark another company can start using it. P&G can’t get just rid of Era or Cheer. If they stopped using one of the brands a competitor could pick up the trademark at no cost and bring it back to life.

Finally, defending a business and innovating often require new brands. One way to address a competitive threat is to launch a similar brand. A big innovation often warrants a new name. With a narrow portfolio, P&G may not be able to react quickly as conditions change.

P&G CEO A.G. Lafley noted in the WSJ article, “I’m not interested in size at all. I’m interested in whether we are the preferred choice of shoppers.” This is a good thought. The problem is that focusing on fewer and bigger brands assumes that these will be the preferred choices for shoppers all around the world. I fear that won’t be the case.

Will Malaysia Airlines Survive?

July 21, 2014

The Malaysia Airlines crash was a terrible disaster. Rescue teams are sifting through the wreckage today as families grieve.

I suspect the Malaysia Airlines brand won’t survive this latest tragedy. The company is facing two significant problems: financials and branding.

 

Malaysia Airlines

 

The financial issues are substantial. Even before the two disasters, Malaysia Airlines was struggling. The growth of discount carriers in Asia has put pressure on fares. Malaysia has a high cost structure so maintaining margins has been difficult.

Malaysia’s financial issues will now get worse. After the first tragedy people were reluctant to fly on the carrier, forcing fares down. According to a Financial Times article published on Saturday, traffic from China was recently down 60 percent versus year ago. People will now be even more hesitant to fly on Malaysia. The financial situation will rapidly deteriorate further.

The branding problem is even bigger. Brands are associations, the connections people make when they see a name or symbol. The issue is that the Malaysia Airlines brand, after losing two jumbo jets in four months, is now connected firmly with aviation tragedy.

This is a long-term problem because brands matter when choosing an airline. Which company will provide better service and get us there safely? Brands shape our opinions.

Can Malaysia Airlines really compete long-term with a tarnished brand? One aviation analyst quoted in the FT article was skeptical, “It’s just too big a curse.”

This is a terrible situation for the people working at Malaysia Airlines. The airline apparently did nothing wrong last week but it is once again in the headlines. It doesn’t seem fair.

So what happens now?

I suspect Malaysia will go through a major financial restructuring and at some point will emerge with a new brand name and hopefully a fresh set of associations.

This wouldn’t be the first time an airline had to adopt a new brand following a disaster. ValuJet went through a similar experience after a terrible crash in the Florida Everglades in 1996. The following year the carrier merged with AirTran and embraced the new name. The ValuJet brand vanished. Malaysia Airlines will likely do the same.

The Power of Brand Partnerships: EBay, Sotheby’s, Pizza Hut and Hershey’s

July 14, 2014

Four big brands are in the news today with new partnerships.

EBay is teaming up with Sotheby’s to sell art online. The two companies will sell eighteen different types of items with internet bidding.

Pizza Hut is working with Hershey’s to build its dessert business. The pizza giant announced today that it will start selling the “Ultimate Hershey’s Chocolate Chip Cookie.” It is a huge item (8 inches in diameter) that you slice up like a pizza.

Does it make sense for brands to partner up like this?

In many cases it does.

Great brands stand for something; a strong brand comes with a distinct set of associations. BMW stands for performance, German engineering and the driving experience. Patek stands for tradition, understated elegance and exclusivity. Wal-Mart stands for low prices and great value.

Brands that lack clear associations often struggle. It is rarely enough to be a good brand; you have to be different and special.

As a result, there are many things a brand can’t do. BMW shouldn’t introduce a bicycle or a paper shredder. Patek shouldn’t come out with a cheap watch or a hamburger. Wal-Mart shouldn’t sell custom clothing or luxury vacations.

By partnering, brands can capitalize on their strengths and address their weaknesses.

Pizza Hut makes a good pizza. The brand isn’t known for its great desserts. A Pizza Hut cookie doesn’t make a lot of sense. Would it taste like a pizza? Hershey’s is known for excellence in chocolate. A Hershey’s cookie sounds delicious.

EBay has enormous reach and technical capabilities. It is hard to think of anyone better equipped to run an on-line auction. But EBay doesn’t stand for trust. When I buy something on EBay, I’m never certain if I will get the real thing or a fake. Sotheby’s stands for insight and credibility. If I buy art from Sotheby’s, I am confident that it won’t be a knock-off.

Both of these brand combinations make enormous sense.

There is risk, of course. Brands have to be careful who they partner with, because the partner’s brand image will rub off. Brand perceptions could suffer if the partner executes poorly.

Hershey, for example, is trusting that Pizza Hut can actually make and serve a delicious cookie. Sotheby’s is counting on EBay to block fakes.

A brand partnership should include clear performance expectations. There also should be rules for separation. Partnerships rarely continue forever and you want it to end on good terms.

With thoughtful execution, however, great brands can benefit from working together.

Branding Lessons from the World Cup Bite

June 30, 2014

There has been a lot of drama, excitement and controversy in Brazil over the past few weeks. Unfortunately for FIFA, Uruguay striker Luis Suarez has gotten a good part of the attention.

In Uruguay’s match with Italy, Suarez leaned over and bit Italy’s Giorgio Chiellini on the shoulder. It was a remarkable move.

It was not a smart decision by Suarez; people around the world condemned his action. It was also not a great moment for the World Cup. Football is supposed to be an elegant game. The idea that a player would attack another player is completely inconsistent with image of the sport.

 

Learning point #1:

When you are the center of attention, you should be on your best behavior.

 

Suarez then made a rather strange choice; he decided to deny the allegations. He explained that the incident was an accident. According to Suarez, “I hit my face against the player leaving a small bruise on my cheek and a strong pain in my teeth.”

This was not a smart move, either. The video is quite clear. Suarez attacked Chiellini. There was nothing accidental about it. The apology did not go over well.

 

Learning point #2:

Don’t try to deny something when you are clearly guilty.

 

FIFA responded to the incident with a harsh penalty, banning Suarez from soccer for four months and from nine Uruguay games. .

President Jose Muijca of Uruguay then decided to defend Suarez. He proclaimed that the punishment was outrageous, called it an “aggression, not just for a man but also for a country.” He went on about the punishment, “It will be an eternal shame in the history of World Cups.”

This was yet another poor decision. Defending a soccer player who bites someone is not a smart thing to do.

 

Learning Point #3:

Distance yourself from troubled brands, don’t endorse them.

 

Today, Suarez issued a formal if half-hearted apology, noting “I vow to the public that there will never again be another incident.” He explained the move, noting “After several days of being home with my family, I have had the opportunity to regain my calm and reflect about the reality of what occurred during the Italy-Uruguay match.”

In other words, it took him a few days and a four-month suspension to realize that he shouldn’t have bitten another player.

 

Learning Point #4:

Apologize quickly.

 

When you do something wrong, promptly say you are sorry. People are forgiving. Great brands understand this; they are quick to respond. If you wait, the apology loses its impact.

The one person who has helped his brand is the victim, Italy’s Giorgio Chiellini. He issued a statement calling for a lighter penalty and said the incident was “all forgotten.”

Suarez, Uruguay and the World Cup all wish that was the case.

Financial Advice for Graduates

June 20, 2014

Today is Kellogg’s commencement ceremony. Hundreds of students will shortly walk across the stage and receive their degrees. I’m here at Ryan Field in Evanston getting ready to march in with the faculty.

The graduates will then celebrate. And in the coming weeks they will begin their careers as business leaders.

It is a time for advice. During today’s ceremony, I suspect the speakers will offer suggestions on leadership, ethics and happiness.

I’ll provide some advice on money. I teach marketing, not finance, but after working for eleven years in the corporate world and twelve years in the academic world, I’ve learned a few things about managing funds.

 

Save

This is my most important piece of advice. You should set aside some money. Having funds in the bank gives you peace of mind; if things go poorly at work you will still be ok. It also gives you freedom; you can pursue interesting career opportunities if you don’t need a big income.

When I left Kraft to teach at Kellogg, my income went down by about 80%. I walked away from a good salary, a bonus and stock options. I was fine with the risk because I knew that I would survive even if it didn’t work out. I had enough saved up that I could cover the mortgage for quite a long time.

 

Buy and Hold

It is impossible to predict short-term moves in the financial markets. Anyone who claims they can do that isn’t telling the truth.

Over time, however, assets tend to increase in value. So buy stock in good companies and then hold on. Some of the stocks will go up in value. Others will drop like a stone. On average, however, the portfolio will do well.

The buy and hold approach has two other important benefits. First, there are no capital gains taxes. If you never sell a stock, you will never realize a gain. If you sell a few losers you will generate losses. Instead of paying a tax you will offset a small part of your income.

Second, there are no expenses. If you buy a stock and hold it you won’t ever pay a fee. You don’t have low expenses. You have no expenses.

 

Be Patient

As an individual, you are completely outmatched by investment professionals. Financial firms have access to incredible technology and investment techniques. On any particular trade you can safely assume you are losing out to someone.

Individuals have one advantage over investment managers, however: time. Financial wizards have to consistently generate income. If they have a bad year, they are at risk of losing significant assets under management.

We can be patient. I don’t really care if the value of any particular stock goes up or down next year. I hope that over the next twenty years the price will go up, and it should. I’m not concerned about short-term moves.

This gives the individual investor a big advantage. We can let the power of compounding kick in and patiently wait for things to turn up.

My grandfather used to keep all his stock certificates at the bank in a safe deposit box. On occasion he would stop by to look at the holdings. He couldn’t easily trade the stocks and he didn’t. Today it is easy to trade, but that doesn’t mean we should.

 

Be Generous

Giving away money is a wonderful thing. You help the causes you care about (like Kellogg!). You also feel good; research studies show that donating money has a remarkable impact on our happiness. We feel good about ourselves when we do it. So be generous and help people.

 

In the next few weeks, the new graduates will start receiving an income. This will be a good moment. It is also a fine time to save, buy and hold, be patient and be generous.

Good luck.

Does Twitter Build a Brand?

June 18, 2014

Many branding executives ask me about Twitter. Is it an important branding tool? Is it worth the effort to have a Twitter presence and monitor the discussion?

I’ve been a bit skeptical of Twitter for many years. It feels a bit promotional and fleeting. Does anyone really use it? Can it really help brands?

I now understand that it matters a lot. Twitter is a venue where people talk and communicate. Very often, they talk to brands and the brands reply, or at least they do when someone is paying attention.

Last weekend I went to Staples to buy some ink and paper. The checkout person explained that there was a good rebate on the paper so I really should go on-line and apply for it. So I did. But the rebate didn’t work.

Rather than give up, I thought I would test Twitter and Staples. So I sent Staples a tweet, saying, “@Staples Bought some paper yesterday and was told to use rebate on-line. But the website says it can no longer be used on-line. Any help?”

Staples replied in a few hours, “@TimothyCalkins Pease send us a DM with the item # or the order # that was purchased, so we can further research the rebate for you? ^JD”

I then tweeted back the information. Staples replied again. It turns out the offer number on the receipt was incorrect; Staples sent the correct one. With the new number I successfully filed for the rebate.

The overall result: I had an issue and asked Staples for help via Twitter. The company came through perfectly; the people at Staples were prompt and helpful and responsive. I now feel good about shopping at Staples and will travel a bit further to go there.

Brands that pay attention to Twitter can build relationships, loyalty and brand equity. I’m not certain tweeting random thoughts on Twitter does a lot to build a brand. I’m very confident that replying to customers is important and every brand should be paying attention and part of the discussion.


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