An Odd Move by CVS

March 3, 2014

Pharmacy giant CVS recently announced that it would no longer sell tobacco products.

CEO Larry Merlo explained the decision in a statement, noting “Ending the sale of cigarettes and tobacco products at CVS/pharmacy is the right thing for us to do for our customers and our company to help people on their path to better health. Put simply, the sale of tobacco products is inconsistent with our purpose.”

On the surface the decision makes a lot of sense. CVS wants to become a leader in healthcare and selling tobacco products doesn’t align with this goal.

The announcement also generated a lot of positive publicity for CVS.

As a business decision, however, I find it very puzzling.

One thing seems clear: this is an expensive move. CVS sells more than $1.5 billion of tobacco products a year. While this is a small portion of the company’s total revenue, perhaps 2%, it is still a sizable business. If CVS makes a 30% margin on tobacco products, a fairly standard retail margin, the move has a cost of $450 million annually. In 2013 CVS had pre-tax profits of $7.5 billion, so a $450 million hit is meaningful.

The financial cost is clear. What is less clear is how this decision will lead to incremental sales.

Will people rush to CVS now that the company doesn’t sell tobacco? I suspect not. Most people choose a pharmacy based on convenience, service, price and insurance coverage.

Will people buy more at CVS when they visit? No.

Can CVS raise prices? No.

Will the move reduce operating costs? No.

So how in the world is it a good business decision?

The argument that tobacco isn’t a healthy product so CVS is dropping the category as a matter of principle just doesn’t make sense. Soda isn’t good for people, either, or alcohol or lottery tickets or Twinkies. CVS sells many things that aren’t good for people.

Some people argue that hospitals don’t sell cigarettes so CVS shouldn’t sell them, either. This argument doesn’t work. CVS isn’t a hospital. It is a pharmacy and a retailer.

CVS provides patient case under its Minute Clinic brand. Minute Clinic clearly shouldn’t sell tobacco or soda or lottery tickets. It also shouldn’t sell carrots or lettuce. Minute Clinic provides healthcare services. CVS sells products.

There must be more to this than meets the eye. Perhaps margins on tobacco products are so small that there actually isn’t a financial hit. Perhaps public interest groups pressured CVS to make the announcement. Perhaps CVS needs to bolster its credentials in a negotiation with government payers.

Otherwise it is just a bad business decision.

*   *   *

My book Defending Your Brand is now available in paperback. You can find it at all the usual spots. Here is the Amazon link:  http://tinyurl.com/k346pjf

This week I head to Germany to teach in the Kellogg-WHU Executive MBA program. I always enjoy these classes; the students are from all over Europe and the Middle East. It should be an interesting session given everything that is going on now.

Sochi’s Olympic Surprise

February 24, 2014

The Sochi Winter Olympic Games wrapped up yesterday. Overall it was a surprising win for Russia and Sochi.

It was not a flawless event. Going into the Sochi Games the discussion focused on Russia’s approach to human rights, especially the LGBT community. The event kicked off with reports of unfinished hotel rooms and amusement parks. In recent days, the events in Sochi have been over-shadowed by the violence in the Ukraine.

All of this has been a problem for the Olympic sponsors, the companies that pay millions and millions to support the event.

Nonetheless, the Sochi Olympic Games went well. Over the past two weeks, the focus has been on the athletes, celebrating both achievements and disappointments. The biggest controversy seems to be whether Korea’s Kim Yu-na or Russia’s Adelina Sotnikova should have won in figure skating.

There have been no terrorist attacks, no major logistic problems and relatively few protests. The television coverage has been upbeat and positive.

This is good for all involved: the athletes, the sponsors, Sochi and Russia.

The event will help Russia. The country committed to putting on a first-class event and it did. This speaks to Russia’s resources and dedication. It helps Russia’s brand.

The event will help Sochi even more. The Winter Olympic Games are more powerful than the summer games because the host cities often have little awareness beforehand. Athens, Sydney and Beijing all had great brand awareness before hosting the Olympics. Turin, Nagano and Albertville did not.  The only reason most people know Lillehammer is that the town hosted the Winter Olympics back in 1994.

The world now knows Sochi and has a positive perception of the city and the region. This investment in brand building will pay dividends for decades to come.

*   *   *

I am a huge believer in defensive strategy. My book, Defending Your Brand: How Smart Companies Use Defensive Strategy to Deal with Competitive Attacks, explores the topic in great detail.

So I’m delighted that Paul Groundwater, a savvy marketer with experience at Kraft, Campbell Soup and Trane, has launched Deterrence Consulting, a firm focused on the topic. I’m serving as an advisor and strategist to the firm.  If you are facing a competitive threat, or worried about potential competitive threats, you should contact Paul. His website is: http://deterrenceconsulting.com/

Super Bowl Results: 2014

February 3, 2014

The 2014 Super Bowl was a marketing extravaganza. Never has the world seen such massive hype and discussion about advertising; during the two weeks leading up to the game, companies released dozens of teaser spots and social media campaigns.

Advertisers clearly invested heavily in this year’s game; it was a remarkable mix of celebrities, famous songs and special effects. But there were more than just gimmicks this year.

The overall tone was generally upbeat and inspirational. We didn’t see a lot of silly jokes and gags. Instead, advertisers focused on positive, inspirational messages in an attempt to resonate with the consumer heart.

Still, the overall quality of the advertising was fairly mixed, proving once again that a big production budget does not guarantee strong branding or effectiveness.

A group of almost sixty Kellogg students watched the Super Bowl in Evanston and evaluated all the spots. Here are the grades and some observations from the 10th annual Kellogg Super Bowl Advertising Review.

The Best (A)

Microsoft 

Microsoft finished at the top of the Kellogg Super Bowl Advertising Review with an ad that celebrated the power of technology. The ad was emotional; it showed a former NFL player, now battling with ALS, who communicated with Microsoft software.

The ad was particularly notable because it differentiated Microsoft from Apple in a meaningful way. It suggested that while Apple is a cute brand that is good for music and design, Microsoft technology is serious and important.

VW

In Volkswagen’s spot, a father celebrates his car reaching 100,000 miles and explains to his daughter that German engineers earn their wings when a car passes that milestone.

The ad was creative and funny. More important, it conveyed a benefit: that VW has reliable cars. This is an example of solid advertising that weds creative and brand strategy.

Heinz

Heinz ketchup did well on the Super Bowl with a spot that linked Heinz ketchup with happiness. It was a believable proposition and had very strong branding.

Cheerios

General Mills deserves a lot of credit for risking controversy, at least among some consumers, by airing a spot featuring an inter-racial couple. In 2013 General Mills received quite a lot of negative feedback when it ran an ad with the same couple.

The Cheerios Super Bowl ad was charming. It didn’t say anything specific about the product but the branding was solid and the ad built the imagery of the brand.

Butterfinger

Nestle’s Butterfinger brand bought a Super Bowl spot to launch its new peanut butter cups product. The ad featured a couple, one labeled chocolate and the other peanut butter. Butterfinger gets in between them to spice up the relationship. It isn’t an unexpected idea but the ad was creative and got the point across.

Bud/Bud Light

Budweiser aired two dramatic spots that both worked well. One featured the iconic Clydesdale horses interacting with a puppy. The Bud brand team was clearly trying to repeat its 2013 success with this ad. The other spot was a moving tribute to a war veteran. Horses and veterans are safe and popular creative ideas.

The Bud Light creative was daring. Gone were the silly jokes. Instead, we had a remarkable story about a fellow taken on a crazy adventure, dramatizing the line “for whatever happens next.” The new campaign worked well with the Kellogg panel, getting attention with strong branding. The extended version above is terrific.

The Good (B)

Chobani

In the much-anticipated yogurt bowl, Chobani bested Oikos with a spot that featured a large and rather enraged bear. The ad certainly attracted attention and communicated the brand’s positioning: all-natural.

Doritos

Doritos aired two spots, both from the Crash the Super Bowl promotion. The first spot, time machine, didn’t work as well as the second. Both spots had solid branding. We wonder if the Doritos Super Bowl formula is starting to lose a little of its impact.

Hyundai

Hyundai aired two spots. The better spot communicated its auto-braking capability; it featured a father saving the day. Hyundai’s other ad featured a clever rhyming scheme. It was catchy but didn’t have a significant message.

Chrysler and Jeep

For the past three years, Chrysler has used a simple strategy for the Super Bowl:  surprise people with big, dramatic spots. In 2011, the ad was a gritty portrait of Detroit. The following year Chrysler used Clint Eastwood. Last year, the company aired an emotional ad for Jeep and another for Dodge Ram.

Chrysler stuck with the formula this year, running a dramatic spot for Chrysler about the value of American manufacturing. The ad featured Bob Dylan. The ad again broke through the clutter and scored well with the Kellogg panel.

Perhaps the one questionable call was that Chrysler went with the line “Let Germany brew your beer, let Switzerland make your watch.” It seems to weaken the overall argument that it is important to support domestic production.

Chrysler also aired a powerful ad for Jeep. It was a shift from the 2013 execution; it was less about the brand’s military heritage and more about adventure.

http://www.youtube.com/user/RadioShack?v=lbTVOEVy6p4

RadioShack

RadioShack appealed to 80’s nostalgia and featured a number of classic characters. The basic message: we use to be outdated and now we aren’t. The spot got attention and had strong branding. The only issue was it didn’t give people a reason to visit the new RadioShack.

Wonderful Pistachios

Mixing it up, Wonderful Pistachios opted to cut their advertisement into two parts. In the first part, Stephen Colbert acted as if the product would sell itself. Then, separated by only one short spot, he returned to attempt to sell the brand in a more emphatic fashion. The split spot was interesting and caught the attention of our panel.

M&Ms

M&Ms has become a core Super Bowl advertiser and this year the brand ran another entertaining spot. The ad was distinctive and featured an iconic M&M character being kidnapped and completely unaware of his rather dire predicament.

Kia

Getting people to think of Kia as a luxury car is a challenge. The brand’s Super Bowl spot put forth a reasonable argument encouraging people to completely rethink luxury.

The creative broke through the clutter but the branding was relatively weak.

The Average (C)

Coca-Cola

Coke ran two spots. The first scored well with the Kellogg panel; it celebrated the diversity of America. The second spot showed a small football player running for a touchdown and didn’t work as well; it just wasn’t clear where the little fellow was going or why.

Sonos

The wireless music system Sonos ran a Super Bowl spot that was quite dramatic but the creative idea overwhelmed the message.

Chevy

Chevy takes the prize for the saddest Super Bowl ad with a wistful ad about a rural couple dealing with a cancer diagnosis. The message was the Chevy supports World Cancer Day. The brand ran another spot featuring a cowboy transporting a bull.

Chevy gets credit for consistency; the brand seems to be settling on rural America as a base. This is a big step forward; Chevy has to sort out what the brand really stands for. Picking a target is a good first step.

Beats Music

Ellen DeGerenes can dance. Beats made a smart move getting her to endorse its new music service. The issue: the spot didn’t really set up the frame of reference. What is this product, again?

http://www.youtube.com/user/ToyotaUSA?v=N5A3R4XqhOA

Toyota

Toyota ran a spot featuring the muppets. The message was that the new Highlander has lots of space. The spot was fine; it didn’t stand out but communicated a message.

Honda

Honda focused on safety with its ad featuring Bruce Willis. In the ad, Bruce asked people to hug each other and noted that Honda makes safe cars.

This isn’t a terrible spot but it is tough to differentiate a car brand on safety.

Bank of America

It is a hard to miss with U2 on the Super Bowl. Bank of America invested a ton of money to sponsor U2 and give away one of the band’s songs.

The problem with this sort of marketing is that the sponsor overwhelms the brand; it doesn’t say much about the Bank of America, aside from the fact that the company has enough money to sponsor U2.

Jaguar

Jaguar was a new Super Bowl advertiser this year. The brand ran a big spot featuring British villains and the line “It is good to be bad.” The spot attracted attention but could have had stronger linkage to the car.

T-Mobile

You have to give T-Mobile credit for having a focused message. The pitch: you can get rid of your contract by switching to T-Mobile. Tim Tebow was an interesting creative choice; he attracted attention but might have overwhelmed the brand.

Dannon Oikos

Two years ago Dannon ran a terrific Super Bowl ad for Oikos featuring John Stamos. This year it came back for an encore.

The problem was the spot tried to both play into the old execution from two years ago and incorporate Stamos’ old pals from Full House. It ended up being a compromise that didn’t work too well.

Turbo Tax

The Turbo Tax spot described what it is like to watch the Super Bowl when your team is not in it, a clever concept. The problem is the Turbo Tax brand didn’t connect to the concept. This is a classic linkage problem.

American Family Insurance

We can’t remember much about this spot. That is not a great sign.

H&M

David Beckham starred in H&M’s spot. The ad was a great piece for Beckham but didn’t say much about H&M’s clothing.

The Bottom (D)

Sprint

Sprint’s ad featuring the family plan didn’t really break through the Super Bowl clutter.

GoDaddy

GoDaddy tried something new this year: run advertising that is less polarizing. The brand didn’t feature attractive and scantily clad ladies. Instead the message was about starting a new business.

By becoming less offensive, GoDaddy also became less memorable and distinctive.

They will be an interesting brand to watch if they come back next year. Do they stick with this new approach or go back to polarizing creative?

Squarespace

There is a difference between having an insight and developing great creative.

The folks at Squarespace identified an important insight: people think the web is a scary place. The problem is that they then didn’t connect the issue to the brand. It was not clear why people should trust Squarespace to make the web safer.

WeatherTech

You have to give WeatherTech credit for having a benefit; the brand’s Super Bowl spot clearly celebrated made in America. The problem: it didn’t establish the frame of reference. It wasn’t clear precisely what WeatherTech actually makes.

Maserati

Maserati started with an epic build that was so powerful it seemed like a movie trailer.

The young child’s narration was particularly arresting. The problem was that the ultimate reveal did not feel satisfying.

SodaStream

SodaStream’s partnership with Scarlett Johansson fell flat with the Kellogg panel. The fact that the ad stated that the spot should go viral did not help— people want to determine what is viral, not be told.

Intuit QuickBooks

It is hard enough to communicate one brand. One brand sponsoring an ad from another brand is more confusing. In this spot, Intuit tried to run an ad for a small company called Goldieblocks that was sponsored by QuickBooks. It was a neat concept but the execution left much to be desired.

Geico

When you come to the Super Bowl the creative needs to be fresh and engaging. This spot was rather plain; it just didn’t stand out.

Axe

Unilever’s Axe brand shifted strategy for the Super Bowl. Instead of talking about sex appeal, the brand embraced the more inspirational message of “make love, not war.”

The spot did not resonate with the Kellogg panel, suffering from weak linkage between the creative idea and the product.

Subway

Apparently Subway purchased a Super Bowl spot at the very last-minute. The creative was consistent with this; it just didn’t have the distinctiveness needed to stand out.

CarMax

The CarMax spot featured people slow clapping a fellow after he purchases a car at CarMax. The problem is that it isn’t clear why they are clapping. It also isn’t clear if a slow clap is a positive or a negative; some members of the Kellogg panel through it felt like a sarcastic gesture.

Audi

Audi scored at the bottom of the Kellogg rankings this year.

The brand’s Super Bowl spot featured rather disturbing dogs. The point was that compromise is bad and Audi doesn’t compromise. We suspect most people will just remember the disturbing dogs. This is a classic amplification problem.

Four Super Bowl Ads That Touched the Heart

January 30, 2014

In just a few days, advertisers will spend millions of dollars running Super Bowl commercials. If history is any guide, most of these spots will feature funny jokes and impressive special effects.

Few of these ads, however, will make an emotional appeal. They will try to amuse and dazzle more than touch the heart.

This is a missed opportunity. At Northwestern University’s Kellogg School of Management, we’ve been evaluating Super Bowl ads for 10 years. Our focus is somewhat unique; we aren’t interested in entertainment value, we are interested in business impact. Our student panel studies each spot and evaluates its power to build the business and to build the brand.

While emotional spots are not common, they are some of the most effective we have seen in the last decade.

 

Google: In 2010, Google won the Kellogg Super Bowl Advertising Review with a spot called “Parisian Love.” While the spot showed Google’s functional side, the story was a classic love story. Boy travels to Paris, boy meets girl, they date, they marry and start a family. Google helps with all of it.

 

Dove: Unilever ran an astonishing commercial for Dove in 2006 that won the Kellogg review that year. The commercial dealt with the rather serious topic of self-image among girls. This is not traditionally a Super Bowl ad theme. But Dove’s spot broke through that year and stood out. It conveyed an import message in an emotional way and built the brand.

 

Jeep: Last year Jeep ran a remarkable commercial saluting the troops fighting overseas. The ad was serious and emotional. It noted, “There will be a seat left open, a light left on, a favorite dinner waiting, a warm bed made…because in your home, in our hearts, you’ve been missed. You’ve been needed, you’ve been cried for, prayed for. You are the reason we push on.” Jeep touched deep emotions about loss and longing. And the spot worked to build the brand; it made people feel proud of Jeep and its values.

 

Budweiser: Perhaps more than any other Super Bowl advertiser, Budweiser knows the power of emotion. Over the years the brand has run a series of emotional spots featuring the iconic Clydesdales. The 2013 spot, for example, highlighted the emotional bond between a horse and its trainer. It was one of the top spots of the year.

 

It isn’t easy to create an emotional spot for the Super Bowl. The environment is fun and energetic and people aren’t primed for serious themes. And, in many ways, the safe approach that many brands will take is to air the funny and lively commercials.

But, if we are lucky, one or two brands will tap into our emotions. And if they do it well they will emerge as some of the most effective spots.

Soda Stream’s PR Win

January 28, 2014

Marketers advertising on the Super Bowl face two challenges. The main issue is breaking through the clutter during the game. The other challenge is getting PR attention in the days leading up to the event.

The PR battle isn’t easy. There are only so many news outlets and business writers. A newspaper has only one front page each day and can only fit a certain number of stories. There are dozens of Super Bowl advertisers fighting for coverage.

Soda Stream has deftly managed its PR this year and is getting enormous attention as a result. For a small advertiser, Soda Stream is getting disproportionate amount of coverage.

Soda Stream got off to a strong start when it announced in early January that it had signed Scarlett Johansson to be its spokesperson. This move provided a big boost for the brand. Johansson did a number of interviews discussing Soda Stream. Here is an example of the coverage:

www.nytimes.com/2014/01/11/business/media/sodastream-to-bring-some-heat-to-super-bowl-ad-with-scarlett-johansson.html?_r=0

Last weekend, Soda Stream was back in the news when it revealed that Fox had rejected its Super Bowl ad because it mentioned Coke and Pepsi by name. Daniel Birnbaum, CEO, announced the news and said he was shocked by the decision. He sputtered, “This is the kind of stuff that happens in China. I’m disappointed as an American.” You can read more about it here:

www.usatoday.com/story/money/business/2014/01/24/sodastream-banned-super-bowl-ad-coke-pepsi-scarlett-johannson/4838575/

Soda Stream wasn’t surprised about the Fox rejection; it was just creating news.

The brand is again in the news today defending its factory in the West Bank. This is less favorable coverage but news nonetheless.  Scarlett put out a statement about it:

http://www.hollywoodreporter.com/news/scarlett-johansson-addresses-criticism-sodastream-674051

The overall impact is quite impressive. Soda Stream is everywhere. As of today, its rejected commercial has 1,587,464 views. You can contribute to the totals by watching the spot here:

This is a great example of how a brand can get media attention by creating and managing the flow of news.

The only problem is that I think the basic strategy is off; saving the world is a nice concept but it won’t drive adoption of the Soda Stream. Product quality and image matter more.

*  *  *

If you are in Chicago, join me the evening of February 5 for a review of the 2014 Super Bowl advertising. I’ll be showing many of the commercials and discussing which ones scored well with the Kellogg panel and which ones didn’t. It should be a fun event. You can sign up here:

https://kelloggalumni.northwestern.edu/events/eventview.asp?EventID=4890

The Hype Begins

January 20, 2014

Tomorrow the build-up to the 2014 Super Bowl begins in earnest.

It used to be that Super Bowl advertising was just that: Super Bowl advertising. Companies would buy some time, develop a spot and hope it generated some discussion and buzz the following day. The more sophisticated advertisers would add a bit of print into the mix, perhaps running an ad in the USA Today the following morning.

Things have changed.

The Super Bowl is now a multi-media marketing spectacle. Companies advertising on the game will work very hard to get attention and discussion in the two weeks leading up to kick-off. They will use teaser television spots, social media campaigns, promotions and PR efforts.

Last week I spoke with a notable Super Bowl advertiser who reported that he now thinks of the Super Bowl as a month-long event.

A few advertisers have already gotten started. Jaguar and Axe rolled out campaigns last week. Soda Stream announced its spokesperson. And it was impossible to miss the teaser spots from Bud Light on yesterday’s playoff games.

Here is one of Bud Light’s many teaser spots:

This is the teaser spot from Butterfinger peanut butter cups:

I suspect Super Bowl advertisers will be fairly quiet today; it seems wrong to launch a splashy new advertising campaign on Martin Luther King Day.

Tomorrow, however, the frenzy will set in.

If you want to see the state of marketing today, follow a few of the Super Bowl advertisers and watch what they do. Look at how they use Facebook, Twitter, promotions, a website and PR.

The stakes are very high and every Super Bowl advertiser wants to win the next two weeks.

*  *  *

This weekend I’ll be taking a break from tracking Super Bowl advertising to help lead the Kellogg Healthcare and Biotech Case Competition. Eleven teams of students from business schools around the world are coming to Kellogg to compete. It is a global event with teams from the UK, Mexico and Canada. This year’s case is about reducing childhood pneumonia in Uganda, a major global healthcare challenge.

Soda Stream’s Super Bowl Challenge

January 13, 2014

Last year Soda Stream ran its first Super Bowl ad ever. The spot was mediocre; the Kellogg Super Bowl Advertising Review panel gave it a C.

Here it is:

 

Soda Stream was smart to advertise on the Super Bowl. The brand was growing quickly and needed to accelerate adoption. A Super Bowl ad is a great way to build broad awareness and spark adoption.

The issue: Soda Stream had a strategy problem.

Soda Stream’s 2013 spot featured exploding bottles. As people carbonated water, plastic soda bottles blew up. The key line was this: “With Soda Stream you can save 2,000 bottles a year.”

This would have worked well if saving bottles is a priority for people. Unfortunately, for most folks it isn’t. I’m certain it scored well in consumer tests because people like to think they care about the environment. It probably did even better in focus group studies. But it isn’t a strong enough benefit to drive a behavior change.

Saving bottles is not why most people will use Soda Stream. If someone really wanted to save bottles they would be drinking regular tap water from a reusable jug.

As a result, the 2013 Super Bowl ad fell a bit flat. You can only do so much with a flawed strategy.

Soda Stream is advertising on the Super Bowl again in 2014. This year the brand needs to do better. This is particularly the case in light of its weak earnings announcement this week.

The most important task: find a benefit. Soda Stream has to put forth a more compelling reason for people to use the product. It could be quality, experience, convenience or value. The brand has to find something.

Soda Stream announced over the weekend that it had signed Scarlett Johansson as a spokesperson and she will appear in the brand’s Super Bowl spot.

This is a good first step; a celebrity endorser is a great way to spark interest.

Now Soda Stream has to find a benefit and make a compelling case.

Heinz Steps Up

January 9, 2014

Yesterday Heinz announced that it would be running an ad on the 2014 Super Bowl. This is a big surprise; Heinz hasn’t advertised on the Super Bowl in more than a decade.

The brand isn’t an obvious candidate. It is a mature, stable business with little competition. In addition, this is off-season. People aren’t buying ketchup for picnics in early February.

But this is not a normal time at Heinz.

In June, an investment group including Warren Buffet and Brazilian private equity group 3G Capital purchased Heinz.

Since then, the company has been in disarray. The new management team fired almost 2,000 people from staff roles and announced the closure of three plants in North America.

McDonald’s dropped Heinz in October.

Fortune Magazine ran a long story the same month attacking the new management team.

Sales have been slumping, with revenue down about 6% in North America in the latest period, a notable figure for a company with big, mature brands.

The Super Bowl buy is clearly a move to stabilize the company. It is a symbolic gesture. The unspoken goal is to let employees, customers, suppliers and partners know that the new executives at Heinz aren’t just determined to slash costs and fire people. They also want to invest and build the business.

It has been a rough few months for Heinz. The Super Bowl ad is a bid to shift the focus and generate some positive news.

*  *  *

Over the next few weeks I will be focused on the 2014 Super Bowl (the advertising, not the football). This is my 10th year leading the Kellogg Super Bowl Advertising Review. I’ll be posting some updates here. You can follow all the posts by following the Kellogg Super Bowl Advertising Review blog. Here is the link: http://kelloggsuperbowlreview.wordpress.com/

Six Brands to Watch in 2014

December 30, 2013

This will be a critical year for many brands. Here are six that I will be watching with particular interest in 2014.

 

-Russia

There is intense focus on the upcoming Winter Olympic Games in Sochi. Russian President Vladimir Putin has made the event a top priority and invested billions in constructing the facilities. One important goal is to enhance Russia’s brand.

It is not at all clear how things will go. People around the world are denouncing Russia’s anti-gay legislation and its approach to human-rights. Terrorist attacks are a significant concern.

Will Sochi build the Putin and Russia brands? Or will it be a branding disaster?

 

-Tesla

Tesla is one of the most exciting brands in the world today. The new automaker is generating incredible buzz and attracting thousands of buyers, many of whom rave about the cars. The stock soared in 2013 to $150 per share.

There are concerns, however. Some people are worried about safety after a series of battery fires. There is also a more basic question: is Tesla a reasonable vehicle for the masses? Or is it just a toy for the affluent?

In 2014 we will learn much more about the potential of Tesla to change the automotive world.

 

-Samsung

Korean-giant Samsung has become a leader in the technology world and a key challenger to Apple.

The company has enormous scale and technical capabilities. Last year Samsung did a tremendous job building its brand and ran some terrific advertising.

Can Samsung continue its momentum? Or will it struggle and face shrinking margins with undifferentiated products?

 

-JC Penney

Can JC Penney recover?

Under CEO Ron Johnson, JC Penney launched a bold effort to reinvent its brand, cutting discounts and updating its product assortment. The plan was a disaster.

The JC Penney board tossed out Johnson in April, 2013 and brought Mike Ullman back to be CEO. Under Ullman, JC Penney is returning to discounts and its more traditional product mix.

Things are getting better at JC Penney. In 2014 we will learn whether the improvement is enough to save the company.

 

-Sears

Sears is struggling. This is not a surprise. It also isn’t new; Sears has declined for years.

The question for 2014: just how long can Sears continue along? Will the brand just gradually fade away, like a setting sun? Or will the brand finally collapse in 2014?

 

-Reeses’ Peanut Butter Cups

There is nothing like a good competitive battle. In 2014, we will see a massive fight play out in the peanut butter cup category.

The established player is Hershey, which owns Reeses’ Peanut Butter Cups. The new entrant is Nestle which is launching Butterfinger Peanut Butter Cups.

This will be a huge fight. Nestle is spending aggressively on its new product with a launch that includes a spot on the 2014 Super Bowl. Hershey is likely to mount a ferocious defensive effort and do everything it can to limit Nestle’s gains.

This will be a very entertaining battle to watch.

 

Best wishes for a productive and healthy 2014.

The Remarkable Chobani – Whole Foods Fight

December 19, 2013

You don’t see manufacturers and retailers attack each other very often. Everyone has an interest in keeping disputes hidden from view.

Today, however, Chobani and Whole Foods are fighting it out in a nasty battle.

Here is the story. Whole Foods announced yesterday that it was kicking Chobani out of its stores. The reason, according to an article in the Wall Street Journal, was “to make more room for smaller, exclusive brands, especially those that are organic, or don’t contain genetically modified ingredients.”

Whole Foods basically said Chobani, a spectacularly successful brand, wasn’t actually so special after all.

Chobani responded by saying Whole Foods wasn’t very important, either. Chobani’s founder and CEO, Hamdi Ulukaya, declared “Of course I would love to be available everywhere, but it won’t hurt our business.”

He explained to the New York Times, “I come from a dairy farming part of Turkey and grew up with yogurt and eating this simple kind of food, and when I came here I couldn’t understand why in order to find good-tasting yogurt you have to go to some specialty store to find it. So the foundation of my business model and my philosophy is that we are going to make yogurt that is delicious, nutritious and accessible to everyone.”

In other words, Chobani is accusing Whole Foods of being expensive and elitist.

This is brutal. Whole Foods says Chobani isn’t healthy or special. Chobani says Whole Foods is an irrelevant niche business for rich people.

So what is going on?

Behind this dispute is the fact that Chobani and Whole Foods are facing serious business issues. After years of spectacular growth, they are both struggling to defend.

Whole Foods is dealing with a host of competitors eager to portray the brand as expensive. Whole Foods is clearly concerned about this because it is now focusing much of its marketing budget on an economy message. For example, I received an email the other day from my local Whole Foods pointing out all the low prices. This is a questionable move and indicates that the executives at Whole Foods believe they are vulnerable.

Chobani is struggling with competition, too. The big yogurt brands ignored Chobani early on but now they are fighting back. Dannon, in particular, is defending aggressively and effectively.

The brands then collide.

Whole Foods doesn’t want to carry the standard Chobani flavors because it is very easy for people to compare prices. Whole Foods has three options. It can match Target and Costco on pricing, which destroys its margins, carry unique items that are not easy to compare on pricing or drop the brand entirely.

Chobani doesn’t want to invest money to produce unique items for Whole Foods, especially as it deals with the onslaught from Dannon.

Dannon will do whatever Whole Foods wants. The company is panicked about Chobani and eager to please. I suspect if Whole Foods wanted to buy yogurt in a container made from organic carrots Dannon would be happy to provide it.

The result is one of the nastiest competitive battles I’ve seen in a long time.

It will be fun to watch how this all unfolds over the next several months.


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