You gotta move beyond your “base” – expand beyond your “brand”

by | Jun 23, 2009 | Defend & Extend, In the Swamp, In the Whirlpool, Leadership, Lock-in

What is a brand worth?  Do you spend a lot of time trying to "protect" your brand?  A lot of marketing gurus spent the last 20 years talking about creating brands, and saying there's a lot of value in brands.  Some companies have been valued based upon the expected future cash flow of sales attributed to a brand.  Folks have heard it so often, often they simply assume a recognized name – a brand – must be worth a lot.

But, according to a Strategy + Business magazine article, "The trouble with brands," brand value isn't what it was cracked up to be.  Using a boatload of data, this academic tome says that brand
trustworthiness has fallen 50%, brand quality perceptions are down 24%,
and even brand awareness is down 20%.  It turns out, people don't think very highly of brands, in fact – they don't think about brands all that much after all. 

And according to Fast Company in the article "The new rules of brand competition" the trend has gotten a lot worse.  It seems that over time marketers have kept pumping the same message out about their brands, reinforcing the  message again and again.  But as time evolved, people gained less and less value from the brand.  Pretty soon, the brand didn't mean anything any more.  According to the  Financial Times, in "Brands left to ponder price of loyalty," brand defection is now extremely common.  Where consumer goods marketers came to expect 70% of profits from their most loyal customers, those customers are increasingly buying alternative products.

Hurrumph.  This is not good news for brand marketers.  When a company spends a lot on advertising, it wants to say that spend has a high ROI because it produces more sales at higher prices yielding more margin.  Brand marketers knew how to segment users, then appeal to those users by banging away at some message over and over – with the notion that as long as you reinforced yourself to that segment you'd keep that customer.

But these folks ignore the fact that needs, and markets, shift.  When markets shift, a brand that once seemed valuable could overnight be worth almost nothing.  For example, I grew up thinking Ovaltine was a great chocolate drink.  Have you ever heard of Ovaltine?  I drank Tang because it went to the moon, and everyone wanted this "high-tech" food with its vitamin C.  When was the last time you heard of Tang?  It was once cache to be a "Marlboro Man" – rugged, virile, strong, successful, sexy.  Now it stands for "cancer boy."  Did the marketers screw up?  No, the markets shifted.  The world changed, products changed, needs changed and these brands which did exactly what they were supposed to do lost their value.

Lots of analysts get this wrong.  Billions of dollars of value were trumped up when Eddie Lambert bought Sears out of his re-organized KMart.  But neither company fits consumer needs as well as WalMart or Kohl's for the most part, so both are brands of practically no value.  People said Craftsmen tools alone were worth more than Mr. Lampert paid for Sears – but that hasn't worked out as the market for tools has been flooded with different brands having lifetime warranties — and as the do-it-yourselfer market has declined precipitiously from the days when people expected to fix their own stuff.  So a lot of money has been lost on those who thought KMart, Sears, Craftsman, Kenmore, Martha Stewart as a brand collection was worth significantly more than it's turned out to be.  But that's because the market moved, and people found new solutions, not because you don't recognize the brands and what they used to stand for.

Every market shifts.  Longevity requires the ability to adapt.  But brand marketers tend to be "purists" who want the brand to live forever.  No brand can live forever.  Soon you won't even find the GE brand on light bulbs.  That's if we even have light bulbs as we've known them in 15 years – what with the advent of LED lights that are much lower cost to operate and last multiples of the life of traditional bulbs.  GE has to evolve – as it has with jet engines and a myriad of other products – to survive.

Think for a moment about Harley Davidson.  Once, owning a Harley implied you were a true rebel.  Someone outside the rules of society.  That brand position worked well for attracting motorcycle riders 60 years ago.  As people aged, many were re-attracted to the "bad boy" image of Harley, and the brand proliferated.  A $50 jacket with a Harley Davidson winged logo might sell for $150 – implying the branding was worth $100/jacket!!  But now, the average new Harley buyer is over 50 years old!  The market has several loyalists, but unfortuanately they are getting older and dying.  Within 20 years Harley will be struggling to survive as the market is dominated by riders who are tied to different brands associated with entirely different products.

If you see that your sales are increasingly to a group of "hard core" loyalists, it's time to seriously rethink your future.  Your brand has found itself into a "niche" that will continue shrinking.  To succeed long-term, everything has to evolve.  You have to be willing to Disrupt the old notions, in order to replace them with new.  So you either have to be willing to abandon the old brand – or cut its resources to build a new one.  For example, Harley could buy Ducati, stop spending on Harley and put money into Ducati to build it into a brand competitive with Japanese manufacturers.  This would dramatically Disrupt Harley – but it might save the company from following GM into bankruptcy.

The marketing lore is filled with myths about getting focused on core customers with a targeted brand.  It all sounded so appealing.  But it turns out that sort of logic paints you into a corner from which you have almost no hope of survival.  To be successful you have to be willing to go toward new markets.  You have to be willing to Disrupt "what you stand for" in order to become "what the market wants."  Think like Virgin, or Nike.  Be a brand that applies itself to future market needs – not spending all its resources trying to defend its old position.

Don't forget to download the new ebook "The Fall of GM" to learn more about why it's so critical to let Disruptions and White Space guide your planning rather than Lock-in to old notions.

Investing in, or against, indexes – DJIA, GM and Cisco

by | Jun 8, 2009 | Current Affairs, General, Leadership, Lifecycle

Unless you have a lot of time to research stocks, you probably invest in a fund.  Funds can be either an index, or actively managed.  People like index funds because you aren't relying on a manager to have a better idea.  Index funds can only own those stocks on the index.  Like the S&P index fund – it can only own stocks in the S&P 500.  Nothing else.  Interestingly, the Dow Jones Industrial Average is considered an index fund – even though I don't know what it indexes.  And that is important if you are an investor who benchmarks performance against the Dow.  It's even more important if you invest in the Dow (or Diamonds – the EFT for the Dow Industrials).

GM is now off the Dow ("What does GM bankruptcy mean for Index Funds?").  Because it went bankrupt, the editors at Dow Jones removed it.  But it wasn't long ago that the editors removed Sears and Kodak.  But not because these companies filed bankruptcy.  Rather, the Dow Jones editors felt these companies no longer represented American business.  So the Dow is a list of 30 companies. But what companies is up to the whim of these Dow editors.  Sounds like an active management (judgement) group (fund) to me.

Go back to the original DJIA and you get American Cotton Oil, American Sugar, Distilling & Cattle Feed, Leclede Gas Light, Tennesse Coal Iron and Railroad and U.S. Leather.  Household names – right?  As the years went buy a lot of companies came and went off the list.  Bethlehem Steel, Honeywell, International Paper, Johns-Manville, Nash Motor, International Harvester, Owens-Illinois, Union Carbide — get the drift?  These may have been successful at some time, but the didn't exactly withstand "the test of time"  all that well.  Even some of the recent appointments have to be questioned – like Home Depot and Kraft which have had horrible performance since joining the elite 30.  You also have to wonder about the viability of some aging participants, like 3M, Alcoa and DuPont.  So the DJIA may be someone's guess about some basket of companies that they think in some way represents the American economy – but it's definitely subject to a lot of personal bias.

Like any basket of stocks, when the DJIA is lagging market shifts, it is not a good place to invest.  And the editors are greatly prone to lagging.  Like their holdings in agriculture and basic commodities years ago, through holding big industrial companies in the 1990s and 2000s.  And the over-weighting of financial companies at the turn of the century when they were merely using financial machinations to hide considerable end-of-value-life  problems.  When the DJIA is holding companies that are part of the previous economy, you don't want to be there. 

The Dow should not be a lagging indicator.  Rather, given its iconic position, it should hold the "best" companies in America.  Not extremely poorly performing mega-bricks – like GM.  GM should have been dropped several years ago.  And you should be concerned about the recent appointment of Kraft.  And even Travelers. 

Those companies that will do well are going to be good at information, and making money on information.  So who's likely to fall off (besides Kraft)?  DuPont, which has downsized for 2 decades is a likely candidate.  Caterpillar is laying off almost everyone, and cutting its business in China, as it struggles to compete with an outdated industrial Success Formula.  Bank of America has shown it is disconnected from understanding how to compete globally as it has asked for billions in government bail-out money.  And the hodge-podge of industrial businesses, none of which are on the front end of new technologies, at United Technologies makes it a candidate — if people ever recognize that the company would quickly disintegrate without massive U.S. government defense spending.  Even 3M is questionable as it has slowed allowing its old innovation processes to keep the company current in the information age.

Adding Cisco was a good move.  Cisco is representative of the information economy – as are Verizon, AT&T (which was SBC and before renameing, GE, HP,  Intel, IBM, Microsoft, Merck and Pfizer (if they transition to biologics from old-fashioned pharmaceutical manufacturing ways – otherwise replace them with Abbott).  But all those other oldies – like Walt Disney (sorry, but the web has forever changed the marketplace for entertainment and Walt's folks aren't keeping up with the times), Boeing (are big airplanes the wave of the future in a webinar age?), Coke (they've kinda covered the world and run out of new ideas), P&G (anybody excited about Swiffer variation 87?), and Wal-Mart – which couldn't recognize doing anything new under any circumstances.

As an investor, you want companies that can grow and create a profit.  And that's increasingly not the DJIA – even as it slowly adds a Microsoft, Intel and Cisco.  You want to include companies in leadership positions like Google and Apple.  Their ability to move forward in new markets by Disrupting their Lock-ins and using White Space to launch new projects in new markets gives them longevity.  As an investor you don't want the "dogs" – so why would you want to own DuPont, et.al.?

Investors may have been stung by overvaluations in technology companies during the 1990s.  But that was the past.  What matters now is future growth ("Technology on the comeback trail").  And that can be found by investing in the future – not what was once great but instead what will be great.  Invest for the future, not from the past.  And that can be found outside the DJIA.  Unless the Dow editors suddenly change the portfolio to match the shift to an information economy.

(For additional ideas about recomposing the DJIA, see my blog of 3/12/09 "Dated Dow")