Branding Strategy Insider

5 Reasons Gillette Is The Best A Brand Can Get

Times are tough for marketers right now. So let me take you away to an oasis of consumer loyalty where huge margins and a ridiculously dominant market share are the norm. Where private label is non-existent and your biggest competitor is your second string product. No, it’s not a fantasy. It’s the alternative marketing universe occupied by Gillette.

Thanks to years of product innovation and heavy investment in marketing and advertising, Gillette occupies perhaps the most dominant position of any of the major global consumer goods brands with an estimated 70% share of the global razor blade category. Common sense might suggest that if you found yourself in this envious position you would sit back and count the billions of dollars in annual revenues that this market share delivers. But Gillette is owned by P&G, and while even the best marketing company in the world can’t improve much beyond that level of market share – there are plenty of other levers to pull to generate shareholder value. And those levers provide brand managers with a vital, best practice lesson in growing a brand's contribution even when market share remains constant.

First, drive profitability. Market share might have reached its zenith, but that does not mean your margins can't be squeezed. And squeezed tight. One industry insider in the UK recently revealed that despite a retail price of £9.72 for a pack of four Fusion razor blades, the actual manufacturing and packaging costs for this product is less than 30p. That’s a whopping mark-up of almost 3000%. How about that for a margin?

Second, practice positive cannibalization. Gillette launched its five bladed Fusion line in 2006 with a 40% price premium over Mach3, its previous three bladed offering. Despite the fact that both lines generate significant profits, with such a huge share of the shaving market it makes more sense for Gillette to focus its marketing resources on switching its own customers from Mach 3 to the more profitable Fusion line than trying to win any more share from competitors. That’s why Gillette is now spending millions to compete against itself with ads and online comparisons that attempt to convince its Mach 3 consumers that their current razor is simply not good enough and to trade up to Fusion. A year ago Fusion started a TV campaign called "Nudging Disciples" in which ads argued that "five is better than three," referring to the different blade counts of Fusion and Mach3. The spot shows Tiger Woods, Derek Jeter and Roger Federer literally knocking Mach3 razors out of men's hands with a golf ball, baseball and tennis ball, respectively. "Sometimes you need a little push to let go of your Mach3 razor," the narrator says. While it may seem crazy to spend millions to compete against yourself, the margin differences mean that this will deliver a better ROI than targeting the small number of remaining non-Gillette consumers over to the brand. Targeting existing customers is usually easier and the conversion rates are better.

Eddie Bauer: Climbing to Higher Brand Peaks

Eddie Bauer, the iconic outdoor-clothing chain that sold goose-down coats to Mount Everest mountaineers and modern outdoor clothing to ski-schussing college students, filed for Chapter 11 bankruptcy protection Wednesday.

Eddie Bauer has been struggling to repay its debt. And the fact that consumers slowed down spending on anything but necessities can't have helped. In fact, the falloff came as Eddie Bauer was attempting to pull off what would have been a multi-year turnaround. "Eddie Bauer is a good company with a great brand and a bad balance sheet," said Neil Fiske, the company's CEO, though the retailer also said stores, catalog business and Web sites would continue operating, and that they will honor all customer gift cards, returns, and their points program.

According to our 2009 Customer Loyalty Engagement Index, Eddie Bauer was just edged out of 1st place by J. Crew, another iconic clothing brand, whose ascension was largely aided and abetted by the patronage of Michele Obama, with L.L. Bean a distant #3.

On the marketing side of things, Eddie Bauer recently celebrated a new line called "First Ascent," outfitting two mountaineers as they took on a climb of Mount Everest. On the financial side of things, there are plans in place to sell the company for $202 million to CCMP Capital Advisors.

Has Google Met its Match in Bing?

Despite all the bling that has been spent on Bing, few people are giving Microsoft's new search engine much chance of stealing away even a fraction of Google's dominant market share. That makes sense when you consider the strength of Google's brand - the term 'Google' has become the verb for undertaking an online search. The brand, we are reliably told, is now the world's most valuable, with an equity of more than $100bn.

Google enjoys a near 90% share of the UK and 72% share of the US search markets thanks to a loyal user base which returns to it time and again for their online information. Despite this dominance, you can see why Microsoft thinks it has a chance with Bing. For all its current loyalty and brand equity, Google does have an Achilles heel and it could prove relatively easy to erode that loyalty and grab share. Let me explain.

One of the most over-used phrases in the marketing lexicon is 'brand loyalty'. There are many reasons for a return purchase, and only a few of them relate to a consumer's relationship with the brand.

Take all the pompous marketers from banks and mobile-phone networks that seem to dominate the rosters of most marketing conferences. Almost all of them mistake a consumer who is locked into their brand through significant switching costs with one who is enraptured by the brand and therefore unlikely to stray.

Switching costs are the painful, time-consuming steps required to change brands when you are unhappy with the service you are receiving. These costs usually account for a far higher proportion of repeat purchases than the higher-level, stronger brand loyalty for which they are often mistaken. It is like asking your parents on their silver wedding anniversary for the secret of their long and happy marriage and being told that a divorce would have been too messy. It is loyalty, of a sort; but not the best or strongest kind.

Which brings me back to Google.

GM: Titanic of Brands

The collapse of GM and the problems they face going into bankruptcy cannot be overstated. It is amazing how a company that was once the cornerstone of American industry could decline unimpeded over such a long time without any solution being adequate to the task of saving the company.

The scale of the decline can be examined in the brand equity dollar value of the corporate brand (the portion of market cap attributable to the GM name):

2003
General Motors $4.86 Billion
Toyota $19.05 Billion
Industry Average $6.19 Billion

2008
General Motors $0.32 Billion
Toyota $21.85 Billion
Industry Average $5.43 Billion
Source: CoreBrand's Directory of Brand Equity

The squandering of brand equity at the corporate level is just the tip of the iceberg. The collapse of individual product brands despite recent improvements in product quality proves the dysfunctional quality of GM management.

Branding Lesson Found In GM's Rubble

GM's financial quagmire and bizarre labor and bureaucratic practices notwithstanding, branding (or lack thereof) was a big part of their problem.

However many MPGs your car gets, or what quality ratings it receives, cars, like most products and services (perhaps even more so), have a large emotional component that isn't an optional extra. Your brand either stands for something in the mind of the car buyer or they walk away from your brand and drive another home.

We're not just jumping on a fallen giant. We've been saying this for years and as loyalty metrics are leading-indicators of consumer behavior and profitability we weren't surprised to see GM steadily lose market share, from 54% to 19%.

GM lost touch with car buyers, but that shouldn't have been surprising to folks either. They had too many brands, many of which had neither emotional resonance nor meaning. Everyone knew them (so much for awareness ratings), but nobody knew them for anything other than "cars." Experts have pointed out that GM practiced "launch and leave" branding, i.e., companies spend billions upfront to introduce a vehicle, but then fail to support the brand with sustained, meaningful advertising. And to complete the self-fulfilling marketing loop, with a shrinking market share GM couldn't possibly give its multiple brands and models the individual attention they so desperately needed. That explanation's fine as far as it goes. If you really pay attention to what GM did you'll find that they weren't really very good at branding or marketing. Not when they had to actually compete.

Ford's Fruitful Brand Strategy

Ford chief executive Alan Mulally is famous for one of the first decisions he made after joining the automotive company in 2006. Barely three months into his tenure, Mulally borrowed big, using his company as collateral. At the time, the decision raised eyebrows, but it is now widely regarded as a masterstroke. The $26bn he raised, when financing was still cheap and available, has enabled Ford to avoid bankruptcy or the need to seek government handouts. It has also led to a growing recognition that, compared with ailing rivals Chrysler and General Motors, Ford is in much better financial shape for the long haul.

Mulally certainly deserves credit for his savvy financial decision-making, but it is his brand strategy that is at the heart of Ford's positive outlook. Ford is a salutary example of one of the hardest lessons of brand management - one that I continue to struggle to get through to MBAs and executives. It is not about creating brands any more, it's about culling them. While this is not a difficult lesson to explain, to accept that you should kill off some, perhaps most, of your brands to help your company grow is a counterintuitive step many marketers simply cannot contemplate.

Yet Ford illustrates the perils of pluralism and the potential salvation that comes from reducing the brand portfolio. Once upon a time, when cars were still a relatively new invention, Ford enjoyed that most focused and parsimonious of brand architectures - a branded house. However, acquisition and expansion ensured that, like most companies, Ford grew this portfolio and gradually lost its focus. One of Mulally's first decisions at Ford was to sell off many of these additional brands - Land Rover, Jaguar and Aston Martin have all been divested, and Volvo is now up for sale, too. They are all fine brands, but not part of Mulally's vision for Ford, and were, therefore, a dangerous distraction from the core business.

Managing a brand portfolio is like learning to juggle. You start with the simple task of throwing a tennis ball into the air and catching it. If you add a cricket ball, the challenge becomes significantly more difficult. If you keep adding more disparate items - a shuttlecock, a brick, a football - the task eventually becomes impossible and all the items crash to the floor. Unlike GM, which continues to struggle with its seemingly impossible juggling act of managing a dozen brands, from Hummer to Chevrolet, Ford decided to discard its distractions and focus on managing one brand well.

Local Brand Dominance

In today's globalized world where global brands quickly adopt to local demands in order to gain customer acceptance, being a local brand seems like waging a losing battle. But one Asian brand has proved this wrong by beating a global giant flat!

Jollibee is the brand pride of the Philippines. The brand has been so hugely successful that even the mighty McDonald's has been forced to copy Jollibee. Jollibee was started in 1975 as a two brand ice cream parlor by a small time entrepreneur Tony Tan. Jollibee gradually expanded its product portfolio to venture into the burger business. From 2 outlets in 1975, the brand has come a long way and today has more than 400 outlets in Philippines alone and 24 outlets in 7 countries including the US, China and Hong Kong.

A whopping 69% choose Jollibee compared to a mere 16% for McDonald's of the entire fast food population in the Philippines.

What is the secret behind the Jollibee brand?

Starbucks Extension Tempts Failure

Starbucks is trialing a new coffee called Starbucks Via in its London cafés. Unlike the chain's traditional fare, it is an instant coffee that offers consumers the opportunity to enjoy their favourite brew in the comfort of their own homes.

What is driving the product launch is no mystery. Via is an attempt to retain sales, albeit less profitable ones, from recession-hit consumers who are spending less on life's little luxuries, like Grande Caffè Lattes.

Meanwhile, in Zurich, football governing body FIFA has decided to kick off a major product diversification, too. It is to complement its existing business, running some of the world's biggest sporting tournaments, by getting into clothing. In August, FIFA will launch five clothing ranges linked to football and the 2010 World Cup, in South Africa.

Both of these initiatives, like the vast majority of new launches, are likely to fail. Yet, one of them is much more risky. They may appear to be similar attempts at diversification, but one is a line extension, while the other is a brand extension. Although most marketers struggle to differentiate between these two concepts, the distinction has critical implications.

FIFA's clothing is an example of a brand extension. Here, a company leaps from its existing category (running football competitions) and uses its brand awareness to open a bridge into a completely new category (clothing). A great deal of research has been done on brand extensions over the past 20 years and we know a lot about how they work and why they usually fail.

We also know something crucial about the impact FIFA's clothing will have on its reputation as a footballing organisation: none whatsoever. When you embark on a brand extension like this, it's unlikely that the new venture will do any damage to the original brand, even if it is executed badly.

Starbucks' Via, however, is an entirely different cup of coffee altogether.

Jaguar: Victim of Inherited Brand Perceptions

Just when Jaguar thought things could not get any worse for the brand, the results of the annual JD Power & Associates 2009 Vehicle Dependability Study were revealed.

It is based on the reliability of three-year-old US vehicles, but is widely accepted as the world's most influential study on automotive dependability and build quality.

Much to many people's surprise, Jaguar finished top. For its marketers, the news could not be any more challenging.

It has been something of a tradition for Lexus to claim the number-one berth in the study. So imagine the shock this year when Toyota's luxury brand fell to third place while Jaguar rose from 10th in 2008 to top spot.

While this is a significant achievement for the engineers at Jaguar, it lays down a notoriously difficult gauntlet for the company's marketers.

Its cars may now officially be the most reliable in the world, but this is not the way it is often viewed. Feel free to test out this contention by turning to a colleague and asking them to name the world's most reliable car. I would guess that they are not going to say Jaguar in 1000 years. Now, observe the look on their face when you inform them that the correct answer is, in fact, Jaguar. That look is the difference between product reality and brand perception.

What Pepsi and Coke can Learn from Tobacco Brands

There's a great deal of sturm und drang about the loss of fizz at Pepsi - and arguably at Coke, as well. Both companies face declining sales of their flagship brands and have used to greater or lesser success predictable ways to mask the fundamental issue: Fewer people are buying less and less of these iconic brands.

Conventional wisdom says do two things at once: Buy up more trendy beverages, like waters, sports and energy drinks; and work really, really hard to reinvigorate the base brands.

So, Pepsi hires Peter Arnell (of Tropicana Disaster fame), fires its long-time ad agency and creates a manifesto that calls for marketing its wares at "the real me." According to BusinessWeek, the challenge was to make Pepsi as culturally relevant as the iPod. Good luck with that, Peter.

The temptation of course is honest: Wouldn't it be great if brown, sugary water could be as cool as the latest touch screen gadget? Gosh, it would be great. However, it's not going to happen. So rather than sending marketing execs on "cool hunts" for design inspiration, here's a more daunting trek: Take a look at what other brands have done, what Coke and Pepsi have to do - to each other. Grow share in a declining market.

It would be so great to imagine that there's something to be done with either of these brands that could forge an entirely new category of experience - and therefore consumer behaviors - the way the iPod has. But the truth is they'd learn much more by taking a commuter flight to Winston-Salem, N.C. It's so very transgressive to even suggest it, but the only people who have spent time trying to wrestle for share in declining markets are the tobacco brands.