Alan Mulally turned 65 this month. You might not know the name, but you surely know the company he leads. Mulally is the CEO of Ford. That might sound a pretty unpleasant role with all the challenges of declining sales, government bail-outs and union action. But Ford is different. And it’s different because of Alan Mulally.
While General Motors and Chrysler were heading blindly over the edge of the cliff during the global financial crisis, Mulally steered his company in a very different direction. Almost as soon as he took over at Ford he went out and raised funds using the company as collateral.
Many onlookers questioned why Ford needed $26bn but the money, raised while credit was cheap and available, allowed Mulally the chance to totally restructure Ford and the way it made vehicles. It also enabled Ford to survive without the government bail-outs that both GM and Chrysler would later depend upon to stay afloat.
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Last Sunday, GM announced plans to introduce a new car brand into the Chinese market. Baojun – which means “treasured horse” in Mandarin – will go on sale later this year. Shen Yang, the general manager of SAIC-GM-Wuling, the joint venture responsible for the new car, was brimming with enthusiasm on launch day: “Baojun is being positioned as a reliable partner with an image that is confident, smart and dependable”. It all sounds very exciting but marketers with long memories might take the news with some degree of scepticism.
Only 18 months ago, GM was on the verge of disaster thanks to an over-sized portfolio of a dozen automotive brands. No bad thing you might think – after all there are many companies like Procter & Gamble or LVMH that manage much larger portfolios than twelve. GM, however, made the classic error of targeting the same brands at the same segments with the same positioning. Back in 2006, for example, it was not unusual to see Saturn, Buick, Pontiac, Chevrolet and GMC all competing on price to snare the same American consumer. The result was a company with huge marketing costs, poor margins and an abject lack of differentiation across its loss-making portfolio.
Meanwhile better-run competitors like Toyota and BMW used more parsimonious brand architecture to ensure superior levels of differentiation and profitability. In the end President Obama had to step in and save GM from bankruptcy with a $50bn injection of taxpayers’ money and a specific demand that GM shed some of its weaker brands. The company has since sold Saab, closed Saturn, Pontiac and Hummer and begun to make a profit again in the US as a result.
But while GM might be down to four core brands in the US, Baojun marks the company’s seventh brand in a Chinese portfolio that also includes Buick, Cadillac, Chevrolet, Opel, Wuling and Jiefang. GM China president Kevin Wale rejects any notion that his latest brand will detract from the existing portfolio: “The introduction of Baojun is part of GM’s multi-brand strategy in China. Baojun will complement our other brands sold in China; it will enable us to better address the increasingly segmented Chinese vehicle market.”
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Irish low-cost airline Ryanair was in trouble again last week. Chief executive Michael O’Leary was forced to apologise to easyJet founder, Sir Stelios Haji-Ioannou, for depicting him in the January ad campaign above as a Pinocchio who misleads clients about punctuality.
To avoid a court case, Ryanair agreed to pay Sir Stelios’ costs and damages of £50,000 which will be donated to a charity of the easyJet founder’s choosing. Stelios joined in by claiming O’Leary was the “ugly face of capitalism”.
The “ugly” face, however, was smiling broadly this week with the expected announcement that Ryanair would report first-quarter sales of £730m.
Despite angry volcanoes and even angrier competitors, Ryanair continues its transformation from a tiny brand that had only one plane to fly between Gatwick and Waterford in 1985 into Europe’s largest airline. More importantly, the brutal intelligence of Ryanair’s marketing strategy has once again proved itself.
RBS has, of course, got it wrong again. Long after the costs have been paid and the oil cleaned up, BP will continue to live in infamy as one of the world’s most shamed brands. The official terminology for this kind of perilous state is negative brand equity. And it spells disaster and probable death for the company that was once known for being “Beyond Petroleum”.
Negative brand equity occurs when a company’s brand actually has a negative impact on its business – meaning that the company would be better off with no name at all. It happened in the Seventies when Tesco’s brand was so poorly perceived that Imperial Tobacco decided not to acquire the retailer for fear of being associated with such a tarnished and unpopular organisation. It happened again in the Nineties when Skoda discovered to its horror that it could not get British consumers to buy its cars despite spending millions on advertising. Consumer research later confirmed that two-thirds of its target market would literally not consider anything at any price that carried the Skoda badge.
And now we have BP. Like every case of negative brand equity before it, the peculiarities of the situation mean that all the traditional advantages of branding are now inverted. BP would be better off whitewashing its forecourts and removing all evidence of its Helios brand identity. That said, the actual impact of the Deepwater disaster on BP’s petrol pump sales is likely to be localised and temporary. We know from past history that petrol consumers are a fickle bunch. When the Exxon Valdez oil tanker spilled its load into Prince William Sound in 1989 the enduring impact on Exxon’s gas sales, even in the state of Alaska, was virtually zero.
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Look at how the company executes a pre-launch strategy to build anticipation and generate awareness. Examine closely how Apple uses its retail partners to make the launch events an actual occasion rather than just the start of availability. Study carefully how Apple initially uses premium prices at the outset to maximise profits and communicate exclusivity, and then later as the reference price to discount from in order to drive sales from less involved market segments. But most important, look at how Apple always runs out of product long before the initial launch ends.
Sales managers and finance people must think Apple is insane. Why make less stock than the guaranteed demand? Only marketers, the good ones at least, understand that the success of the iPhone 4 hinges as much on running out of initial supplies as it does on the phone’s sleek new design. By running out of iPhones, Apple actually ensures its product will eventually be more successful. Scarcity keeps its retailers like AT&T, Vodafone and O2 onside by restricting their supply. It also ensures a vital additional hit of publicity as media coverage of retailers selling out of iPhones underlines both the massive demand for the new product and the continued success of Apple.
The anticipated scarcity also drives thousands of consumers into store to pre-order their iPhone – a vital success factor for a product that is actually (whisper it) little more than an upgrade to a phone that most of these consumers already own. It also ensures essential word of mouth from consumers who did manage to get one of the phones before they sold out. Surely someone last week bored you with the news that they had secured one of the precious new machines or gave you a demonstration of their hot new phone? This is wonderful free promotion for Apple and the sort of thing Google’s Android phone, with its buy-one-get-one-free approach, is hardly likely to achieve.
If marketers want their brand to have equity they must avoid the perception that it is available in unlimited amounts to everyone – no matter how many units they actually sell.
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Branding Strategy Insider helps marketing oriented leaders and professionals build strong brands. We focus on sharing thought provoking expertise that promotes an elevated conversation on the discipline of branding and fosters community among marketers. BSI is a service of The Blake Project, a leading brand consultancy based in the United States.
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