Organic supermarket chain Whole Foods is diversifying. Last week, it announced that alongside its existing 400 Whole Foods locations it was launching a new chain of branded stores in the US under the brand name ‘365’.
For superficial, tactically oriented marketers who like shiny things and new launches this is positive news. But wiser, strategic marketers should be more circumspect. Launching new brands is always a tricky corporate moment.
On the positive side, Whole Foods’ new brand allows it to access a different market segment from the one it serves. Co-CEO Walter Robb says the new stores will be “geared toward millennials”. That sounds trendy but behind the statement is a ton of shopper research that shows a younger generation searching for better quality, natural products but are not looking for it among the aisles at Whole Foods. According to Supermarket News editor Jon Springer: “[It has] identified millennial shoppers, younger shoppers who are very particular about what they eat, but also tough about what they can spend on food.”
That is an important observation because aside from opening up a new segment of the market it also demonstrates another advantage of a second brand – the ability to play at a different, lower level of the value curve. Whole Foods has been remarkably successful at not only building brand and attracting customers but also maintaining premium prices. If you have visited one of the company’s UK locations, you will know that its excellent assortment of organic offerings does not come cheap. That’s true back on home turf too where Whole Foods typically enjoys a 15% to 20% premium over its US rivals. The introduction of the 365 brand allows the company to enjoy two distinct points on the pricing elasticity curve.
This really thoughtful post by Associate Professor Rob Cross of the University of Virginia on building valuable networks caught my eye today. Specifically, I was drawn to the final paragraph:
If we are circulating too much with people we have known forever or people who themselves are all spending time in the same meetings and interactions, then we are not getting the performance impact…The magic lies in the new ideas and perspectives that can come from connections into different networks.
The same point applies in many ways to the networks that brands build with their customers. If they are just selling the same goods, or even new goods, to the same community, then there is no contagion – no reason for the brand to spread interest and influence beyond those who already know it.
A circle can quickly become a wall.
The opportunity for brands is to introduce new ideas into their networks and marketing that ‘stretch’ those who know the brand well, but also serve to introduce and absorb new followers beyond the brand’s established catchments. In other words, brands should be looking to continually expand their outreach, while remaining true to a core and unmoving purpose. The last point of familiarity should be the launch point for new ventures and approaches. And just as importantly, brands should make sure they follow the relationship and affinity trails, not just the structure trails.
Unable to shake-off the moniker Whole Pay Check and with lower-priced stores like Trader Joe’s and Sprouts eating into its share, Whole Foods has decided enough is enough and is launching a new chain of stores with lower-priced products it’s calling 365 by Whole Foods Market—the 365 name coming from its own-label brand whose products will feature heavily in its product offering. By making this move, Whole Foods is taking a road well traveled by equally frustrated premium brands but one that rarely leads to salvation.
Back in the 00s, for example, many legacy air carriers took this route, hoping that they would win back customers against lower-priced competitors like Frontier, Jet Blue and Southwest. It didn’t work. Typical of the initiatives, United launched Ted in 2003 primarily to compete for vacation passengers headed out of its Denver hub. The launch was supported by marketing that tried to personify Ted and the aircraft were configured with Tedevision screens and TedTune music stations. Ted lasted for five years but was discontinued in 2008, a victim of spiking fuel prices and management preference for focusing on the core business. Even the best of these initiatives, Delta’s Song, didn’t make it. In terms of branded effort, this was more than just a new paint job. The brand had a clear target, (hip, style-conscious professional women), cheerful branding and full marketing support. Yet, despite successfully building up passengers and revenue, Song lasted just three years as Delta management decided to focus on the core business.
And that’s often the problem. Faced with competitors offering lower prices and eating into their sales, companies have to do something. Not wanting to reduce the profitability of their core business, they launch fighter brands to go out there and sock it to these upstarts. But, after an initial wave of enthusiasm and support, these initiatives tend to run out of steam and fail.
Founders of startup companies often focus on their product/offering and their business/distribution structure. Both though are expressions of the question that every startup should really be asking itself first: “What will we be valued for?”
In a very useful article on how to develop and articulate a value proposition, Thomson Dawson makes this point, “Those entrepreneurs who eventually grow up to dominate their market represent a compelling “idea of value” in the minds of customers that is simply not available from the alternatives in the category.”
Every business makes an offer and has a structure. Value is different – it’s implicitly linked to what other businesses don’t offer. The startup businesses that will succeed are those that can deliver beyond or before their competitors; often beyond or before their prospective customers’ expectations. That’s not something you can find by just starting. And it’s not something you can create by marketing. It’s something you need to identify in order to start. For all the reasons you can give as to why your brand deserves to succeed, the cruel reality is that you only stand out when and where others think you do.
In broad terms, there are three different types of value equation for startups:
1. New value hinges on introducing a new concept. This is the gamechanger space. It either answers an old need in a completely new way or brings a new way of doing things to market that perhaps wasn’t possible previously. Its advantages may be technical, conceptual or, increasingly these days, ecological. A lot of start-ups claim to operate in this space. Very few though are this radical.
2. Improved value – or tangible value. Beyond the press release hype of new business announcements, most new businesses, and the products they offer, are grouped here. They are looking to rethink or revitalize a concept that consumers are familiar with, but perhaps frustrated by. This “second to market” strategy (not a term that should be taken literally) is about building on an established or establishing need and adding to it – either by providing something that hasn’t been available up until now that consumers really want, or by radically shifting trading parameters like pricing or availability. This is a very difficult space in which to succeed, because too many startups enter the market this way with a collection of features looking for a consumer. Companies with this value equation can quickly find that an idea is not a business. On the other hand, those that can bridge the shortfall between what consumers want next and what they’re offering can make swift progress.
I admit it – I called them for dead. I thought Blackberry was gone. I think a lot of us did. But if this article in AdAge is more than just hype on the part of the company and its ad agency, perhaps that call was premature. I am still cautious about whether Blackberry is growing or simply not fading, but the great news for brands that seem to be in a death spiral is that you can pull out, or at least halt the decline, if you’re prepared to make the changes needed. So what is Blackberry doing that others could learn from?
First of all – they shifted back to the audience they know and where they built their reputation. Refocusing on B2B from the trendy, shiny-object world of consumer tech is a drive back to the industry they know and that they are known in. The fish is back in the water. Re-identifying, re-finding and then re-engaging with the audience you have strayed from is fundamental.
Secondly – they worked the psychographics of that audience hard. Knowing that business is a serious matter, Blackberry have positioned their brand as a serious business tool with cornerstone strengths in security and privacy. In so doing, they’ve looked to de-risk the decision to stay with/return to their technology. Having re-engaged the people who used to love your brand, it’s critical to identify how their mindsets and priorities have changed in the interim. Fortunately for Blackberry, the needs for security and privacy have only increased in that time.
Thirdly – they shifted their leadership team, presumably to ensure that the actions of the business would better mirror the assertions of the brand in terms of customer-centricity. Obvious, yes – but worth remembering that brand alone won’t save a brand.