JC Penney Marketing Branding

JC Penney Aims to Adore its Core

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There is nothing like a core customer. Core customers already know what is great about your brand. Core customers are valuable assets. In branding, your priority must be to adore your core. 

But, apparently, core customer retention is just not as exciting or attractive to most marketers. They are always chasing the next, most contemporary, most hip cohort. Replacing regular customers with those who are only visiting your brand occasionally is a formula for failure. Spending resources to attract customers you do not have and who do not like you while losing customers you do have and who love you is a faulty brand-business strategy.  And yet, the allure of the cool, cutting-edge progressive customer appears to be too much to ignore.

So, it is a marketing rarity when a brand, and especially a CEO, decides to focus on core customers. This is precisely what the CEO of JC Penney has committed to do. According to The Wall Street Journal, Marc Rosen will be focusing JC Penney on its traditional, core customer base, those who already patronize JC Penney: budget conscious American families. As Mr. Rosen told The Wall Street Journal when comparing his strategy to previous failed attempts to revitalize the brand, “The difference this time is we are loving those who love us. We need to give them more opportunity to come back and find things they love.” Mr. Rosen is committed to repairing and restoring JC Penney’s core customers’ relationship with the brand. He wishes to reinforce what these customer like and love about the brand. And, he hopes that by taking these actions the core customers will frequent JC Penney more often.

Amen.

If you think focusing on the JC Penney core customer base is out-of-step with our times, think again. There are over three decades of data showing that focusing on the core is more profitable and better for the overall brand-business than chasing a possibly elusive group of customers. Data show that it is easier to encourage a core customer to use the brand a little bit more than to try to attract a new customer who does use the brand at all. Especially in a revitalization situation, as with JC Penney, one of the brand’s critical objectives must be to stop the shrinking of the core customer base while increasing their frequency of use. A small increase in core customer frequency can make a huge difference to brand health.

In a seminal, data-laden article in Harvard Business Review from 1990, Frederick F. Reichheld of Bain Consulting and W. Earl Sasser of Harvard Business School looked at service companies’ attempts to satisfy customers. They found that the successful companies aimed for zero defections among the customer base. In “Zero Defections: Quality Comes to Services,” Reichheld and Sasser discussed the danger of losing core customers (customer defections). They wrote, “Customer defections can have a surprisingly powerful impact on the bottom line. They can have more to do with service companies’ profits than scale, market share, unit costs and many other factors usually associated with competitive advantage.  As a customer’s relationship with the company lengthens, profits rise. And not just a little. Companies can boost profits by almost 100% by retaining just 5% more of their customers.” The research showed that just 5% of core customer retention increased profits from 25% to 125%!

Reichheld and Sasser pointed out that in general there is a tendency to focus on costs and revenues while ignoring the cash flows across a customer’s life-time. Brands tend to ignore the increased profitably of long-term customers. Writing in Harvard Business Review, Reichheld and Sasser said, “Across a wide range of businesses, the pattern is clear: the longer a company keeps a customer, the more money it stands to make.”

Aside from using a brand more frequently, long-term customers account for declines in operating costs. This is because brands have knowledge of the customer allowing the customer to be served in a more efficient and effective manner.  Core customers are willing to pay more for premium products or services. Additionally, long-term customers are good marketers as they recommend the brand to friends and family. Furthermore, customer acquisition is increasingly expensive. Data show that acquisition costs are climbing due to multiple media options, technology and hardware. It costs even more today to acquire a new customer than to satisfy an existing one.

A revealing chart in the Reichheld-Sasser article showed why customers are more profitable over time. Core customers already represent a base profit for the brand while acquisitions drain monies. It costs 4-6 times as much to attract a new customer as it does to keep a loyal customer. The longer a customer stays with the brand, there is an increase in frequency of usage, increasing profit even more. Add to these monies the profits from reduced operating costs, profits from referrals and price premiums and you start to see a core customer’s real worth.

Other data on core customers and profitably are equally compelling. Research has shown that a loyal customer is 8 times as valuable as those who just consider your brand. And, as JC Penney learned over the course of its past decades, losing just a small percentage of core customers accounts for a disproportionate amount of lost income for the brand. Loss of core customers also carves into the brand’s image and reputation.

Of course, a brand needs new customers. But a singular focus on new customers at the expense of losing the customers who love you is death-wish marketing.

The history of JC Penney since 2011 is littered with examples of seeking the new customer at the expense of disrespecting the core customer. In 2011, Board member activist investor Bill Ackman urged for the hiring of Ron Johnson whose success at Apple stores was legendary. The goal was to modernize and rev-up the image of JC Penney while seeking new customers who were less wed to budgets and promotions. Although investors approved of Mr. Johnson’s strategy, it turned out that core customers did not. According to the business press, the execution of Mr. Johnson’s strategy was “one of the most aggressively unsuccessful tenures in retail history” and that Mr. Johnson “had no idea about allocating and conserving resources and core customers.” Insisting that there was no time for testing, Mr. Johnson “… immediately rejected everything existing customers believed about the chain and threw it in their faces.”

After this fiasco, JC Penney thought it could leverage the death-march of Sears by focusing on appliance sales a category that JC Penney had stopped selling in 1983. This approach did not work either. Stores like Lowes and Home Depot had the appliance business covered. JC Penney could not compete. Further, appliances are purchases with long time frames of 12 years or more. Appliances alone are not conducive to generating frequency. JC Penney’s focus on large appliances left the brand at a disadvantage in smaller household wares such as glassware and dinnerware, items core customers wanted.

As The Wall Street Journal pointed out, JC Penney then segued into fitness studios, videogame lounges and style classes further alienating the core customer base. Sears tried this by offering home buying (Coldwell Banker), credit cards (Discovery) and investments (Dean Witter). Sears, too, lost its credibility with core customers.

JC Penney was basically on life support by the time Covid-19 hit. JC Penney filed for bankruptcy in 2020. After seven months, JC Penney emerged from Chapter 11.

Mr. Rosen is correct in his approach to revitalizing JC Penney. Core customers must be protected and cultivated. Core customers are at the heart of the brand.. The core supports the store.

Energies must be devoted to the core customer base. The core customer will profitability finance the revitalization while providing the platform for the future.  Focusing on core customer retention while increasing core customer frequency is the key. Mr. Rosen is committed to focusing on what core customers like and love about JC Penney. This will be the pathway to high quality revenue growth leading to enduring profitable growth. In a birthday ad, JC Penney is 102 years old, the birthday song singer is an ebullient woman who is noted as a “superfan” of the brand.

It is sad that many marketers find core customers boring. Core customers like the brand’s core equities, which so many marketers feel are out-of-date. The thinking is that we already have these customers so let’s find new ones. This is the kind of arrogance that leads to brand decline. The goal must be to modernize the brand’s core equities. Show that core equities are relevant to core customers and today’s newer customers, as well. Focusing on the core is not a chore nor is it a bore. When revitalizing a brand or building your brand into greatness, there is nothing more important than adoring your core.

Kohl’s And Activists Acting Badly

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Activist investors are circling Kohl’s, the largest department store chain in the US. 

The activists’ complaints focus on Kohl’s share price not doing as well as they wish. In other words, Kohl’s activist investors are not making as much money as they would like to make. These investors are pushing for an entirely new Board that will in turn push for a sale. With a sale, these activist investors would make a lot of money immediately. After that, they would not have much interest in Kohl’s future. As Barron’s, the financial news magazine stated, it is unclear if a private buyer would be able to develop a strategy that would be any better than the brand’s current strategy. However, “… that wouldn’t be the shareholders’ problem anymore.”

Once again, a brand is being excoriated by value extractors who are only interested in their short-term monetary gain. The protests of these investors center around poor performance. This is just a euphemism for “the stock could be higher and we could be making more money.” The main activist fund pushing for a sale stated that a sale would be “value maximizing.”  A 2014 Harvard Business Review article, titled Profit Without Prosperity pointed out that an obsessive focus on shareholder value alone makes executives and shareholders happy, but it is a system that shortchanges overall, sustainable business prosperity.

Kohl’s is a department store and the department store category is facing challenges. Kohl’s is in a muddled middle space that feels pressure from discount stores at one end like T. J. Maxx and big box stores on the other end like Target and Walmart. (The original Kohl’s department store positioned itself as an affordable, but not discount, emporium with a wide variety of goods.) Many department stores such as JC Penney, Neiman Marcus, Sears along with its Kmart brand and others filed for bankruptcy.

In Kohl’s’ March 2022 investor call, there were many items to satisfy the activists. Kohl’s has increased its dividends. Kohl’s had a good holiday season. Kohl’s’ partnership with Amazon for pick-ups and returns is doing well. Kohl’s partnership with Sephora for stores-within-stores is attractive. Kohl’s made drastic alterations to its clothing lines dropping well-known brands with limited appeal while adding more popular brands. Kohl’s enhanced its loyalty program. 

Kohl’s executives were upbeat about the year’s outlook. Kohl’s reiterated its strategy for long-term growth: to be the store that sells all of the brands needed for leading a more active and casual lifestyle. And, although Kohl’s missed analysts estimates, the report showed topline “promise”. The strategy showed “momentum.” And, according to Barron’s, there were “impressive gains in high growth areas such as athleisure and activewear. (Kohl’s) does expect revenue to come in higher than expected for the year as a whole.” 

These impressive gains will not convince the short-termers, even though Kohl’s bet on athleisure is looking smart. Lululemon, the high end athleisure wear brand, posted strong earnings in fourth quarter 2021. Lululemon’s CEO stated that athletic apparel continues to grow “at a faster rate than” the apparel category in general.

As Barron’s made clear, those interested in a sale of Kohl’s “… have little interest in Kohl’s’ long-term strategic goals. If anything, those (long-term goals) are ongoing impediments….” None of the statements from Kohl’s during the investor call changed activists’ minds. 

When it comes to brands, this kind of “quarterly capitalism” from activists is a killer. Activist investors tend to focus on making that short-term dollar rather than supporting a brand strategy focused on short-term and long-term. The fact is that a for a brand to live it needs a strategy that includes both the short-term and long-term. If there is no short-term than there is no long-term. However, without the long-term, there will not be enduring profitable growth. 

In 2015, in a famous letter, Larry Fink, CEO of Black Rock, Inc., urged public companies to focus on long-term approaches to generating value or lose Black Rock’s support. He said that companies should actively avoid surrendering to the short-term pressures created by the increase in activist shareholders.

Also, in 2015, James Surowieki wrote for The New Yorker’s financial page, “it’s become a commonplace that American companies are too obsessed with the short term. In the heyday of Bell Labs and Xerox PARC, the argument goes, corporations had long time horizons and invested heavily in the future. But now investors care only about quarterly earnings and short-term stock prices….” 

In one of his New York Times Deal Book columns, Adam Ross Sorkin weighed in on short-termism pointing out that there is no excuse for “activist shareholders’ seemingly short-term financial engineering efforts like buy-backs, dividends, spinoffs and sales, which can quickly send shares spiking while potentially leaving the company more vulnerable later, especially when a company uses borrowed money to buy its own shares.” 

And just this past week, activist Bill Ackman announced that he and his hedge fund Pershing Square were ditching short-term activism. The new approach will be more “constructive” and “thoughtful” investing in brand-businesses that will outperform over the longer term. In the annual letter to shareholders, Mr. Ackman wrote: “We expect that these companies will grow revenues and profitability over the long-term, regardless of recent events and the various other challenges that the world will face over the short, intermediate, and long-term.”

Kohl’s as well is taking on the activists. In a shareholder letter, last week, Kohl’s stated that lead activist Macellum, led by Jonathan Duskin, “… is pushing for a hasty sale at any price” adding that this “reveals a short-term approach that is not in the best interest of the company’s shareholders.” The letter continued, “The choice is clear: re-elect the Kohl’s’ Board… or elect Jonathan Duskin and his associates to destroy value.”

For those who believe in brands, this activist behavior is troubling. At its most basic level, activists of this type shun the fact that there can be no shareholder value without customer-perceived value. In fact, in all the press reports describing the activist machinations, the words customer-perceived value never are spoken. 

Peter Drucker, the respected management guru believed that the purpose of business is to create a customer. Losing customer focus is a certain path to trouble. The future will belong to customer-focused businesses that are best at attracting and retaining customers resulting in sustainable, profitable share growth.

The greed squads of activist investors circling Kohl’s appear to have little interest in Kohl’s as a brand. They see a way to make a lot of money quickly. Kohl’s will wind up with a lot of debt. Then, the activists will lose interest in the brand. 

Enriching Kohl’s shareholders through a sale has the potential to destroy the Kohl’s brand, as Kohl’s stated in its letter. Growing shareholder returns through this type of financial finagling while failing to grow customer–perceived brand value leads to a weakened brand-business. 

Even Wisconsin senator Tammy Baldwin is upset with this activist initiative. Kohl’s was founded and is based in Wisconsin. In her public statement she said that a sale of Kohl’s would “… increase the risk of bankruptcy or imperil the jobs and retirement security of thousands of Wisconsin workers.” If you think this is hyperbole, think again: the activists who pushed around Toys R’ Us, putting it in bankruptcy, faced charges of ruining hundreds of workers’ retirement savings.

Activist investors like those pursuing Kohl’s do not unlock value; they exploit value for short-term benefit. Brands pay the price for these pecuniary, greedy actions. These activists focus on the bottom line. But, there cannot be sustainable growth of the bottom line unless there is quality growth of the top line. One thing is clear: you cannot cost manage your way to enduring profitable growth. For the Kohl’s brand to survive and grow, Kohl’s’ leaders must focus on satisfying customer needs rather than catering solely to shareholder riches.

Champion of Breakfast

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Let’s talk about breakfast.

Coronavirus changed our work habits. Goodbye to the commute. Hello to Zoom and Google Duo. Goodbye to that brewed Venti. Hello to instant coffee. Breakfast at fast food restaurants took a big hit. However, Wendy’s breakfast – a newcomer to the morning meal – managed to leverage itself into a breakfast powerhouse. Wendy’s is now close to or actually replacing Burger King as the second biggest breakfast fast food brand.

Even with the constraints from Covid-19 lockdowns and its late entry into the breakfast category (right before the lockdowns), Wendy’s restaurants are now champions of breakfast. Wendy’s has McDonald’s in sight.

There are several reasons for Wendy’s breakfast success. 

  1. Breakfast is a routinized meal: Wendy’s leveraged this.
  2. Our bodies crave very specific foods in the morning. Wendy’s menu hit all the right buttons.
  3. McDonald’s breakfast was suffering even prior to coronavirus. Wendy’s kept momentum going.
  4. How people eat really matters. We eat with our eyes first. 

Breakfast is a routinized meal: Wendy’s leveraged this.

Most of us know we should eat breakfast. Yet, most of us treat breakfast as a routine. We tend to have the same meal every day. Unlike lunch and dinner, breakfast is the meal that repeats itself day in and day out. We have habits at breakfast. We do not mind eating the same thing every morning.

There are data showing that breakfast is a routine because we perceive this meal as being utilitarian. We need to start our day; jump start our system; start our day’s feeding cycle; or look for a convenient way to eat before work. Unlike lunch and dinner, breakfast does not have a hedonic goal. On a spectrum from physiological to psychological, breakfast is at the physiological end. Research by food purveyor Bob Evans Farms indicates that we see breakfast as both a priority and a chore.  

One reason for breakfast’s physiological urge is that our morning chemistry is different from our coffee break, lunch, afternoon snack and dinner chemistries. AM meals have different needs from PM meals. Scientists agree that energy needs, energy expenditures and energy utilizations differ by daypart. As one food scientist said, “What one prefers to eat turns out to be inseparable from the time of day one wants to eat it.”

Lockdowns, which halted some routines, also allowed us to create new routines. With a unique breakfast menu backed by heavy marketing and great pricing, Wendy’s was able to generate interest helping us create a new breakfast routine. As one food analyst told CNN, Wendy’s leveraged our lockdown boredom by offering a fun, new breakfast menu during the Covid-19 crisis.

Even though Wendy’s introduced its exciting breakfast just weeks before the lockdowns, CNBC stated that Wendy’s timing of breakfast was a plus rather than a negative. This is because with upended morning routines, people had the “opportunity” to begin new routines.

And, Wendy’s created foods that our bodies crave in the morning.

Our bodies crave very specific foods at breakfast. Wendy’s menu hit all the right buttons.

When we eat meals, we generally do not think about what our bodies crave at that particular part of day. But, what we reach for is based on bodily needs. Chemistry is involved. As one researcher put it, we do not get up in the morning craving ice cream. 

We are in a biorhythmic upswing in the morning. In the morning, we are energy depleted. We have not eaten for 10 or more hours. Our blood sugar is low; our insulin is down; our stores of carbohydrates are almost gone. We crave carbohydrates. Carbohydrates have a calming effect. Since mornings can be stressful, our chemical signals ask for carbs to smooth things out. As marathoners know, carbohydrates quickly convert to glucose. This helps us get going. Paired with some protein, we are ready to face the day.

Wendy’s Breakfast Baconator, seasoned potato wedges, its Frosty-ccino beverage and Honey Butter Chicken Biscuit are unique, delicious, carbo-rich, protein offerings. Wendy’s added a spicier Hot Honey Chicken Biscuit in February 2022.

McDonald’s breakfast was suffering even prior to coronavirus. Wendy’s kept momentum going.

If you are going to take on your competition, it is good to have a weakened rival. Next to Wendy’s non-traditional breakfast menu, McDonald’s menu is rather conservative. McDonald’s is now promising to infuse its breakfast menu with more “modern, trend” items. However, according to CNBC reporting, in McDonald’s recent earnings call, breakfast was barely mentioned. CEO, Chris Kempczinski merely told analysts that breakfast “…was one area of pressure.” This is clearly due to the altered competitive landscape where Wendy’s has performed in a most stellar fashion.

With a strong marketing budget and an enthused franchisee community, Wendy’s entered breakfast with a bang. Wall Street assumed that other fast food rivals would counter Wendy’s. After all, breakfast is worth protecting. This did not happen. Instead, McDonald’s and others cut advertising, cut hours, cut promotions and did everything else possible to save cash. One of the first pandemic changes McDonald’s made was to end its all day breakfast.

Wendy’s also made a strategic move that helped the brand boost its new breakfast at the outset of the lockdowns. Prior to lockdowns, Wendy’s had made its first two and half hours of breakfast drive-thru only. Mobility at breakfast is critical. Also, prior to coronavirus, Wendy’s went on a hiring spree. So, although Wendy’s franchisees faced some staffing uncertainties, Wendy’s was much better prepared than its rivals. And, Wendy’s made sure that the changes needed to provide the new breakfast menu would cost franchisees only $10,000 per store. 

Of course, McDonald’s is still the leader in breakfast.  But, it appears as if its ring-fence around the morning meal is being challenged. True, its breakfast menu is familiar and comfortable, but there has not been much news in McDonald’s breakfast. Compared to Wendy’s, McDonald’s breakfast line-up looks tired. Innovation is a critical driver for Wendy’s. In fact, Wendy’s reports that menu innovation has been essential to the brand’s successful breakfast daypart.

Other morning breakfast brands, such as Burger King, are also looking at their menus, thinking about ways in which to refresh offerings à la Wendy’s.

How people eat really matters. We eat with our eyes first.

Yes, physiology matters. But, perceptions are important. Our eating is governed by our mind as well as our body’s needs. Our eating is actually quite mindful, even though we may be eating the same thing on autopilot

We eat with our eyes first. Then, as scientists relate, the food must pass the nose test, then, the mouth. The stomach’s cravings start with the eyes. There are many receptors that must be satisfied.

Food must look delicious. Then, food must smell delicious. Then, there is the satiation that comes from chewing and texture. All this before you swallow.

Portion size, size perception, bite height, texture and eating time are all signals for satiation. The fact is that when the eyes see a big portion, the brain signals that the food will be filling. If the food is dense, it will take longer to eat, which also makes the food seem more filling. When we see more food on the plate, we automatically expect to be more satisfied. 

Bite height matters. The wider you open your mouth, the more your brain tells your stomach “big food is coming”. The more you chew, again, is a signal of substantial food. The longer it takes to eat, the more our brain tells us “satisfied”. The denser the food, the more satiated we become. A potato is denser and more satiating than a croissant. Carbohydrate-rich and protein-rich foods are more satiating than snacks, confectionary and baked goods.

Wendy’s Breakfast Baconater is a big, dense, “open wide”, carbo-and protein-rich sandwich. The potato wedges are also dense and satiating. 

Prior to our coronavirus lockdowns, marketers would have said that people are not going to change their behaviors, let alone their breakfast behaviors. But, Covid-19 did something extraordinary. It gave people permission to change behaviors. From Pelotons to Amazon Prime deliveries to multiple streaming subscriptions, we made significant behavioral changes, including breakfast.

Yes, we mostly ate breakfast at home. But, many of us still used restaurants’ drive-thru’s for breakfast; we just changed our venue and our time for obtaining that breakfast. Furthermore, we really desired some newness to combat the stay-at-home drudgery. Wendy’s breakfast delivered on all fronts.

Wendy’s managed to make breakfast 8.5% of total sales as of late 2021. In its latest earnings call (March 1, 2022), Wendy’s executives told analysts that US same-store-sales grew 11.6% on a two-year basis driven in part by growth in breakfast. Promotions helped drive “significant trial of breakfast with meaningful increase in buyer penetration, but also increased Wendy’s breakfast awareness.” Additionally, Wendy’s reported that “Looking back on the full-year, the brand made significant progress growing breakfast sales by approximately 25%….” Aside from promotions, menu innovation was a significant driver of breakfast. The menu news drove trial of Wendy’s breakfast while “further ingraining the (Wendy’s breakfast) habit….”

The Wendy’s executive team shared its belief that “…the breakfast business in the US will accelerate in 2022 by approximately 10% to 20%, taking average weekly US breakfast sales to approximately $3000 to $3500 per restaurant by year-end.” Furthermore, Wendy’s breakfast is sending a strong message about the quality of lunch and dinner at Wendy’s. Wendy’s is not just growing breakfast, but growing the rest of the day as well.

Barron’s, the financial news magazine, reported on March 21, 2022, that Wendy’s is an excellent stock. David Palmer, a food restaurant analyst at Evercore ISI, told Barron’s that Wendy’s is “… an accelerating growth story….” Citing another advisor, Barron’s quoted, “They’re (Wendy’s) getting more aggressive on digital, and not just mobile ordering, but incorporating incentives to keep customers coming back” through the loyalty program. “And, compared to other burger-focused competition, they’ve got a good product. Along with consistent, steady growth… those reasons make it a top pick.”

Kudos to Wendy’s. 

The home of the square burger initiated breakfast at an awful time. One would think that Wendy’s would have failed. But, no. Wendy’s turned awful into awesome. Wendy’s offered new, exciting, deliciously satisfying breakfast items fit for our morning needs and our lockdown mentality, along with exciting and affordable promotions. And, because Wendy’s gave us unique breakfast items while leveraging McDonald’s’ weaknesses, we changed our breakfast habits. Wendy’s lucked out. But, so did we.

Rescuing A Brand By Reimagining Its Purpose: Kirin and Innovation

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In our fast-changing, volatile world, brands need customer-insight driven innovation. Innovation breathes life into brands. Innovation keeps brands relevant in the eyes of customers. But, not all innovations need be inventions. Some innovations can be reimagining existing processes and technologies for new uses. Innovation is the use of a better, and as a result, new idea or method. Invention is the generation of the idea or method itself. Innovation differs from improvement as innovation means doing something differently; it does not mean doing the same thing better.

Innovation is the challenge that Kirin is taking head-on. Kirin is the Japanese brewery brand with the namesake beer, Kirin Lager and another most popular Japanese brand, Ichiban Shibori. Like many Japanese firms such a Yamaha, Kirin is a huge, multi-national organization. Kirin has holdings not just in brewing but across other categories such as restaurants, agribusiness, food, healthcare, pharmaceuticals and nutrient foods. Kirin is part of the even larger conglomerate, Mitsubishi. 

When it comes to its beer brewing business, Kirin is experiencing the pain of Japan’s demographic decline. The Japanese beer market is in a steep downward dive. The Japanese beer market has declined by one third since 1994. Also, coronavirus has had a negative impact on beer drinking since people did not go out to bars, restaurants, events or clubs. 

Rather than continuing to focus on a declining business, Kirin is going to use its brewery knowledge to “… turn Kirin into a fermentation biotechnology company” according to a report in Financial Times. Fermentation has health benefits and is already part of health foods such as yogurt, kimchi and kombucha. Kirin will innovate to focus on customer wellness needs. Fermentation is one of the oldest, and one of the latest, ways in which foods can become even more nutritional.

Kirin’s CEO told Financial Times, “If the beer segment would grow forever, it would’ve been better for us to focus on it, because making a challenge in a new business is very tough.” 

Tackling this challenge head-on though is an absolute necessity for keeping the Kirin brand alive and well and relevant.

One of the most troubling tendencies of brand management is believing that what worked yesterday will work today. Doing what once worked when the current landscape is different makes no sense. Thinking that yesterday’s successes will continue to propel a brand to tomorrow’s successes is inward looking. The brand misses what is happening now and what can happen down the road. And, rather than be complacent, Kirin is taking action to change its status quo.

Customers change quickly. Behaviors can change overnight if faced with new realities. Just look at the demand for delivery of restaurant meals and grocery items. And, interestingly, behaviors can revert back quickly as well. Brands such as Zoom and Peloton have found out that their pandemic highs have reversed due to reordered, revised and reversed needs.

The poster child for holding on to what worked in the past is Kodak. There was a time when Kodak was ubiquitous. Kodak moments brought tears and joy. But, Kodak lost its footing by clinging to haloid film as the world went digital. Kodak continued to produce what it knew how to produce rather than what produce what customers wanted. Kodak defended the past and was defeated by the present. The brand declared bankruptcy in 2012.

While Kodak was doubling down on the past, its rival, Fuji Film focused on the future. Facing the same landscape of digital over haloid, Fuji saw a bigger picture. Fuji saw itself not in the “film” business per se. Film is essentially molecules and elements. Fuji decided to use its knowledge of the science of film. Fuji scientists understood that the film used in cameras comes from collagen. Collagen is big business for youthful-looking skin. Aside from skin care, Fuji scientists began working on Ebola drugs, anti-aging potions and stem cell research. All of these products benefit from the basic science of film.

Fuji reimagined how to use its knowledge base and scientific expertise to address different customer beauty and health needs. Rather than continue to defensively focus on salvaging haloid film, Fuji took the offense and saw itself as a science company.

Kirin is taking this same approach. Kirin will be using the beer-brewing process, whereby “…sugars are converted by yeast to alcohol…” to generate biotech products. According to Financial Times, Kirin wants to grow LC-Plasma, a proprietary ingredient used in health drinks. Kirin sees the potential for LC-Plasma for beverages and foods produced by third parties.

Additionally, Kirin has a supplement called Citicoline. Citicoline is a memory-improving supplement that is already sold globally. In a world that is growing older, most especially in Japan and Europe, this supplement is a solution to an increasingly critical customer need, remembering.

In a study (Innovation Study: Beyond the buzzword) conducted by Deloitte, the global business services firm, data show that “higher growth companies spend less time looking inward and more time responding to customer needs.” These firms lead innovation with customer needs while relying less on “internal operational needs.”

Innovation is risky. But, innovation can also be incredibly successful. However, innovation is easier said than done. The Wall Street Journal’s Heard on the Street column highlighted tech companies that are pitching major change to investors but not exactly living up to their promises. The article subtlety warns investors not to fall for the “seductive” presentations. As the sub-headline states, “Virtually every technology company will tell you it is changing. Don’t believe it until you see it.” For example, Twitter co-founder and ex-CEO Jack Dorsey said he was stepping down because he wanted Twitter to evolve. The new CEO said things would change but nothing has been implemented.

Innovative ideas are what will keep brands relevant and competitive. There is nothing more powerful than an innovation in action. But, innovative creativity takes courage. 

Failure to innovate is death-wish brand management. In an ever-changing, increasingly competitive world, brands need customer-insight driven innovation to stay relevant. Innovation creates new customer value through solutions that meet new needs, unarticulated needs or old customer needs in new ways.  Continuous improvement is a constant brand-business essential. Innovation keeps brands relevant, differentiated and top-of-mind. Continuous innovation is an imperative for high quality revenue growth leading to enduring profitable growth.

Although innovation on the scale that Kirin is pursuing can be risky, throwing money at methods that worked yesterday is a massive miscalculation. Fortune favors the bold.

Brands and Warnings Labels: Europe’s Nutri-Score and Lessons From The US

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Beginning in 2017, Nutri-Score, the European food labeling system, went into effect.  Nutri-Score is a color-coded, front-of-pack labeling system created to alert consumers to the nutritional content of food. Nutri-Score is a red light-green light approach that the EU hopes will help consumers make better food decisions.

According to FoodNavigator.com, Nutri-Score ranks food stuffs from -15 for the healthiest product to +50 for the least healthy. Using an algorithm, Nutri-Score assigns a “grade” with a corresponding color from dark green (A) to dark red (F). 

The algorithm merges data on fat, sugar and salt content per 100g/ml of a given product, comparing against fruit and vegetable content, fiber and protein. So, for example, cheeses, European cultural icons, are 80% of the time “penalized” with a D or an F… the dark red doom designator. According to online NewsTex Blogs, the protected-origin producers of Italian cheeses Parmigiano Reggiano, Grana Padano and Asiago are furious. Parmigiano Reggiano is allowed to use only three ingredients – cow’s milk, sea salt, rennet – and not allowed any additives or preservatives. Yet, these national treasures will be graded as dangerous.

Spain’s meat industry is up in arms, believing that Nutri-Score focuses on “negative ingredients” sorting foods into “good foods” and “bad foods”. Italy believes that Nutri-Score is a cultural tsunami designed to wipe out its cuisine. The Mediterranean Diet is considered one of the healthiest in the world according to UNESCO, as well. However, Nutri-Score rates Italian food stuffs such as cheese, cured ham and olive oil as less healthy. Spain has decided not to use Nutri-Score on its olive oil.

The stated reason for Nutri-Score is Europe’s high level of obesity. One in two Europeans are considered overweight or obese. The European Consumer Organization believes this is a public health crisis exacerbated by COVID-19, since weight is considered one of the pandemic’s biggest risk factors. Reporting on Unilever, Financial Times pointed out that The World Health Organization (WHO) states obesity has tripled globally since 1975. And, although governments are looking to combat obesity, there are “contentious” issues as with confectionary and “treats”. Financial Times quotes a financial advisor who indicated obesity is now considered an ESG issue (environment, social, governance). But, he said, to think that labeling and other initiatives will stop Lindt from selling chocolates or Diageo from selling alcohol will just not fly in Board rooms. Shareholders will not shoot themselves in the foot by eliminating the dividends.

Nutri-Score aims to change consumers’ behaviors. The hope is that consumers will see the colors and the letter grades and make healthier food choices because of the foods’ nutritional composition. With this transparent “health” information on the front of the package, consumers will compare items not just on price but on being a better overall nutritional choice.

Although dished up as a nutritional classification system, Nutri-Score is essentially a warning label. After all, if your brand is marked with a dark red F, the implication is “eat this and you are one bite away from a coronary.” This dark red F is today’s scarlet letter.

As you can imagine, Nutri-Score has engendered a lot of push back. Six global brands – Nestlé, PepsiCo, Coca-Cola, Modelez, Unilever and Mars launched their own system, an initiative that quickly failed. The common agreement among the big global food companies is 1) that there are no bad foods only bad diets; 2) that all foods have nutrients; and 3) a balanced diet has room for a Snickers bar or a soft drink. Just remember to eat in moderation.

Even with all of the push back and national indignity, most of the large food firms have signed on to Nutri-Score. Several supermarkets, such as Carrefour and Lidl have also signed on. 

The European powers that be and the signatories to the labeling are quite vocal that based on research Nutri-Score is the best “labeling scheme” currently available. This caveat should be kept in mind: Nutri-Score is not perfect, but it is the best we could do. Several different warning labels were tested; Nutri-Score was the winner… perhaps the best of the worst?

The CEO of Danone said “… no system is perfect, yet the company sees Nutri-Score as the best label currently available for people to compare products’ nutritional quality at a glance. We support the call to make it mandatory in the EU.”

The CEO of Euroconsumers, an umbrella organization designed to “promote and defend consumer interests” across a wide range of topics such as freedom of choice and right to health issues, agreed. He said research from several European countries “… shows that Nutri-Score is the easiest label to understand and the best-performing scheme in aiding consumers to compare the nutritional value of foods and range of products.” Again, based on the different options tested, Nutri-Score was the easiest to comprehend at a glance: green good/red bad.

In the US, we are familiar with warning labels. 

It is difficult to find a product that does not have a warning label on its package. From baby wipes (the plastic package can cause suffocation, do not flush the wipes) to vehicles (keep the visor closed so the air bag can deploy, SUVs have a high risk rollover) to Whole Foods rice pilaf products (contains wheat ingredients, may contain milk, eggs, shellfish fish and soy).  

When it comes to warning labels, California leads the way. if you want to have your pants scared off, go into any common laundry room in an apartment building. You will see warning signs that washers and dryers are dangerous to your health. This warning comes from California’s Prop 65. California’s Prop 65 states that appliances may contain harmful chemicals that can cause cancer and/or birth defects or other reproductive harm. Prop 65, introduced in 1987, has a list of over 800 potentially dangerous chemicals. For example, if you were thinking of a new couch from Wayfair just remember that California Prop 65 can put a warning label on your desired product. The warning will alert you that the sofa can expose you to levels of a listed chemical or chemicals that pose greater health risks than another piece of furniture with lower levels of listed chemicals. Do I want to binge TV on a bad-for-my-health couch? 

California is an extreme example. However, the issue is, do warning labels work? People still buy and use washers and dryers. People still buy furniture. Do warning labels actually change behaviors? Are warning labels good or bad for brands? 

Clearly, warning labels protect the manufacturer from liability issues and PR nightmares. Peloton had a crisis this past year when a child was killed by its Tread product. Peloton fought a warning label but eventually conceded. Did the warning label stop consumers from purchasing the product? Or was it the cost? Or was it the decision to return to the gym? Or the decision to return to the outdoors?

The warning labels on cigarettes and alcoholic beverages provide some important information on behavior change.

In 1969, the US passed the Public Health Cigarette Smoking Act. This act prohibited cigarette advertising on TV and radio. It also required each cigarette pack, carton and print ad to carry a warning label: SURGEON GENERAL’S WARNING: The Surgeon General Has Determined That Cigarette Smoking is Dangerous to Your Health. The warning label was – and still is – a white rectangular box with black letters. A recent print advertisement for Lucky Strike brand, used this version of the warning: SURGEON GENERAL’S WARNING: Smoking by Pregnant Women May Result in Fetal Injury, Premature birth, And Low Birth Weight.

Kodiak Moist Snuff (chewing tobacco) runs a black box (twice the size of the cigarette warning box) with white letters stating, WARNING:  This product can cause mouth cancer.

Do these warning labels work? Here is what we know. First, seeing a warning label is not the same as reading a warning label. Reading a warning label is not the same as heeding the warning label. Second, people who saw the white box knew it was the warning label. They did not need to read it; they knew it was a warning. Why bother, I know what it will tell me. Third, graphic labels of cancerous mouths, etc., such as some countries use, had negative impact on the image of cigarettes and cigarette brands but did little to affect cessation of smoking.

When the Public Health Cigarette Smoking Act was passed in 1969 cigarettes cost 25 cents a pack. Today, a pack of cigarettes costs, on average, $6.98, or about 35 cents a cigarette. In the state of Florida, smokers pay around $63 dollars for a carton of cigarettes.  In 1970, the highest price for a cartoon of cigarettes might have been $3.50. Many believe that cigarette smokers’ behaviors changed due to the rapid increase in prices rather than the warning labels. There are still, 53 years later, multiple PSA TV ads advising us not to smoke. Even at almost $7 a pack, people are still smoking. 

In 1988, The Alcoholic Beverage Labeling Act was passed. After November 1989, all alcoholic beverages had to alert consumers to the multiple health issues associated with alcohol including reproductive issues and fetal harm. The current alcohol warning states: GOVERNMENT WARNING: 1) ACCORDING TO THE SURGEON GENERAL WOMEN SHOULD NOT DRINK ALCOHOLIC BEVERAGES DURING PREGNANCY BECAUSE OF THE RISK OF BIRTH DEFECTS. 2) CONSUMPTION OF ALCOHOLIC BEVERAGES IMPAIRS YOUR ABILITY TO DRIVE A CAR OR OPERATE MACHINERY, AND MAY CAUSE HEALTH PROBLEMS. (Yes, the alcohol warning label is in capital letters.)

In one alcohol study, data showed that 64.3% of purchasers saw the warning label; 38.8% of purchasers read the warning label; 25.5% of purchasers said they heeded the warning.

In the US, after decades of food labeling, the results of behavior change are still unclear. A recent study by The American Journal of Preventive Medicine showed labeling “… reduced the intake of calories by 6.6 percent, total fat by 10.6 percent, and other generally unhealthy choices by 13 percent. They also increased vegetable intake by 13.5 percent.” However, these data are not reflective of other data showing that after all the decades of food pyramids and nutritional labeling, there is little agreement and little evidence that food labels affect consumers’ intakes of total carbohydrates, protein, saturated fat or sodium. Nor did labels affect consumption of fruits, whole grains, or other healthy options.

Nutri-Score may be experiencing the same lack of clarity as to effectiveness.

A recent November 2021 Belgian journal article’s data sets showed that Nutri-Score consumer purchases were mixed. There were some positive effects. However, the study concluded that “shelf labeling on its own is unlikely to significantly influence consumer behaviors.”

Other European data indicate that the degree of influence Nutri-Score has on consumer decisions is unclear. An August 2021 study showed consumers were still not clear about the color-coded Nutri-Score. A 2019 Nielsen study showed that only 14% of French consumers “noted the guidance of the Nutri-Score label.” Not surprising when you consider that beloved Brie or Camembert cheeses as well as butter are on the wrong side of the system’s health spectrum. This goes against centuries of French gastronomy.

One of the issues plaguing the Nutri-Score system is credibility. Since its algorithm factors in sugar content, Nutri-Score rated orange juice as unhealthy but rated Coca-Cola Zero healthy. In a Nestlé-generated survey, sixty-percent of consumers thought the Nestlé cereal brands would score well below a C on Nutri-Score. But, Nestlé publicly touted Nutri-Score ratings that its sugared cereals actually earn a C or above on the Nutri-Score spectrum. This is because the system has a positive bias for fiber. 

Hopefully, the Nutri-Score system will evolve its algorithm to better reflect the fact that there is a benefit to the idea of balanced diets and moderation. Nutri-Score should fix the blanket rejection of products such as meat. Putting ecological concerns aside, meat does contain iron, vitamin B12, protein and minerals. Nutri-Score does not currently assess the impact of trans fatty acids, something else that meat does not contain. And, Nutri-Score should take into account that not all obesity can be affected by diet. Further, the risk to national cuisines is real and needs to be calibrated. The algorithm also must include portion sizes, a real problem in the US. 

Also, algorithms do not recognize the fact we first eat with our eyes. Foods have hedonic feelings associated with taste and emotions that no algorithm can take into account … as of yet. People eat for both physical and physiological reasons. There are differences between eating when one is hungry versus eating for indulgence. Taking delight out of diets is dreary.

Warning labels are all around us, stuck on brands across all categories. We have learned over time that the effect of such labels do some good but less than expected. In many cases, the warnings are ignored, or accepted, or accepted and then ignored. Certainly, it is important to point out that some items are dangerous. For example, the plastic bag draped over your dry cleaning can cause suffocation. 

Behavior change is tough. In fact, in most instances, facts, data, experts, or science make people dig in their heels. Social science research on behavior change indicates that asserting science, facts or data to change minds generates a “backfire effect”. When confronted with information that is contrary to set beliefs, some people become even more set in their ways. 

This is not to say that behaviors can never be changed. Wanting consumers to change their behavior is not a losing battle: it just requires a different strategic approach. The best way to change behavior is to provide an alternative, desirable solution to their concerns. This is something that Nutri-Score does not provide.

If history is a factor than the Nutri-Score warning label will have an unclear, if limited, effect on behavior change. 

Apple Brand

Brand Pioneering In Today’s High Tech World: Advantageous?

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Technology brand-businesses are today’s most valuable, leading entities. According to the financial firm, Charles Schwab, Tesla, Apple, Amazon, Microsoft and Alphabet rule the roost. Were these brands the pioneers in their categories? Or, were these brands early leaders or followers? What does the success of our current brand-business behemoths tell us about making it for the long run? Just what does it take to go from an idea to powerful, valuable, great, enduring profitable brand-businesses?

There is a place for answers to these questions. 

In 1993, two professors, Peter Golder and Gerald Tellis, wrote an article titled, “Pioneer Advantage: Marketing Logic or Marketing Legend?” The article raised one of marketing’s most interesting questions: do pioneers in a category always grow and become great, enduring profitable brands? Or, are pioneer brands inventive but impermanent, replaced by an “early leader” or “follower” brand?

Following up on their seminal thesis, Golder and Tellis wrote, “First to Market, First to Fail? Real Causes of Enduring Market Leadership” (1996). This second article’s abstract stated that Golder and Tellis discovered “… many category pioneers fail while current brand leaders are not pioneers.” 

Reading the articles is like being in a brand-based way-back machine. The cited pioneering brands that created categories and were shining stars for their eras, all crashed, burned and faded away. But, early leaders and followers introduced other brand-businesses that became, and in many cases, still are the category winners.

For example, disposable diapers. Today, we have two brands that own the disposable diaper category: Pampers and Huggies. But, neither of these brands were the original disposable diaper. Before there were Pampers and Huggies, there was Chux. Chux arrived in 1935. Yes, 1935. Chux were expensive but “great for traveling.” In 1962, Consumer Reports magazine stated that Chux were “the best” disposable diaper. Chux was a brand from Chicopee Mills, owned by Johnson & Johnson. Several years later, both Pampers and Chux were evaluated as best buys. The rest is history. 

Golder and Tellis did not just look at packaged goods. They also focused on personal computers and video recording.

Let’s face it: we all believe that Apple opened the door to personal computing. And, what about HP? But, no. MITS (Micro Instrumentation and Telemetry Systems) was first. As stated in their article, Golder and Tellis recounted that in 1976, Business Week “referred to MITS as the IBM of home computers.” Additionally, Business Week stated that MITS was the “de facto standard” for the category as well as the industry. Okay, but today MITS is never thought about or, worse, unknown. 

As for video recording, something we really no longer need to do what with streaming, Ampex was the hands-down leader. Ampex created the video recorder. That was in 1956! An Ampex video recorder cost $50,000.

At the time, RCA and Toshiba were behind Ampex. The category was intriguing for Sony, JVC and Matsushita, however.  And again, Ampex went away while Sony, with its customer focus and $500 price tag, for example, endured and thrived.

Golder and Tellis discuss other pioneer brands that created a category and lost to later entrants. You may think that Miller Lite was the first light beer, but no. For those who live in the brand history repository, there is Gablinger’s.  Gablinger’s was a brand from Rhinegold (another long-gone brand-business). Rheingold was a favorite New York State beer brand: that once had 35% of New York’s beer market. Rheingold died in 1975. As for its light beer pioneering brand, Gablinger’s was never able to match the marketing heft of Miller Lite powered by Philip Morris. Philip Morris funded a marketing effort that few could match. Remember that Philip Morris had a lot of cash: the firm owned the Marlboro brand. 

And, there was the brand described in 1960 as “The world’s biggest chain of highway restaurants; the pioneer in restaurant franchising; a most strongly entrenched factor and highest quality investment; and, the most fabulous success story in restaurant chains.” No, not McDonald’s: Howard Johnson’s.

The annals of brand-business are littered with the detritus of dead brands, brands that were once the innovators. Golder and Tellis found that pioneer brand-businesses had a failure rate of 47%. Pioneering brand-businesses had a mean market share of 10% and “were current leaders in only 11% of categories. Early leaders, defined as “firms that enter after pioneers but assume market leadership during the early growth phase of the product life cycle,” had a minimal failure rate with a market share “three times” that of the pioneer. Early leaders were, at the time, brand-businesses that entered the category 13 years after pioneers.

The result of Golder’s and Tellis’ research found that early market leaders, have five critical factors that drive performance: 

  1. Vision of the mass market, 
  2. Managerial persistence, 
  3. Financial commitment, 
  4. Relentless innovation, and 
  5. Asset leverage.

Vision of the Mass market propelled Ford Motor Company. But, it was also a factor in the success of Kodak film, Pampers and Sony. George Eastman (Kodak) saw that if film developing were made easy, more people would take pictures. Procter & Gamble used its knowledge of mass market consumer products to make disposable diapers affordable. Masaru Ibuka of Sony saw the possibility of video recorders in homes around the world. 

Managerial persistence is a mindset that focuses the enterprise on long-term commitment to a product or service. This may take years. But, as successful brand-businesses know, brand building is an ongoing, never-ending process towards a North Star. P&G was notorious for its lengthy R&D behind products as were Sony and JVC. RCA spent a decade pioneering color TVs.

Having the funds to hang in there, innovate and market matters. Financial commitment allows brand-businesses the luxury of long timeframes. And, as the Golder-Tellis research showed, it is not just having the money: it is the willingness to spend it on the vision.

Relentless innovation is critical for long-term successful performance. Pioneers have an invention. But, as we have learned with technology, there is always something new, better, smaller, faster or more creative. Firms that do not have the drive to constantly and consistently innovate, fall behind. Gillette was torpedoed by the introduction of stainless steel shaving blades from Wilkinson Sword. But, determined to maintain its market share, Gillette innovated with its Trac II, followed by the highly innovative Sensor. Wilkinson Sword had the innovations but it could not match Gillette’s financial commitment.

And, finally, the professors point out that late entrants can often become leaders in a category if they already have a dominance in a related category, assets which they can leverage. For example, in the early 1960s, Royal Crown (RC) owned the diet soda marketplace. But, both Coke (Tab) and Pepsi (Diet Pepsi) were able to leverage their dominance not only in carbonated beverages but in distribution. Wisk liquid laundry detergent (the “ring around the collar” eliminator), was such a strong brand that it was able to fend off P&G for over a decade or more until P&G agreed to make Liquid Tide in the late 1980’s.

According to Golder and Tellis, these five factors were more important in determining successful long-term leadership than having the pioneering invention. And, even though these principles were observed 36 years ago, they still hold true in our high tech digital world.

Let’s look at those brand-business stocks identified by Charles Schwab: Tesla, Apple, Amazon, Microsoft and Alphabet.

Tesla is a great example. Elon Musk did not invent the electric vehicle. The first electric car in the United States was developed in 1890–91 by William Morrison of Des Moines, Iowa. According to history, this six-passenger wagon could reach 14 miles per hour. But, vision, commitment, money and innovation has propelled Tesla into a leading position.  Lucid and Rivian have stumbled recently due to supply chain and inflation issues. Ford just announced that it will separate its electric vehicle group from its gas-powered vehicles to generate the focus needed to perform long-term. The Wall Street Journal stated that Ford wanted to channel its “inner Tesla.”

Apple did not invent the personal computer. But, it became a long-term performance-leader through relentless innovation and the driving vision, creativity and persistence of Steve Jobs, generating the financial wherewithal to continually design and innovate. Furthermore, Apple has been able to leverage its assets in personal computing into iPods, iPads and telephones.

Let’s not forget that being the store selling to everything to everyone was Sears. Amazon came in and made a digital version. Decades of commitment, vision, persistence and financial resources as well as leveraging its assets in data collection and management have led to its leadership. Financial commitment behind a vision allowed Amazon to buy Whole Foods. Amazon is now leveraging its digital adeptness into changing the grocery experience.

Microsoft did not invent software. But co-founder Bill Gates had a vision for mass software usage. He wanted to see a world where there was a computer on every desk. Microsoft did not make computers or desks. But the firm recognized the massive mass power of the software that ran these computers. Persistence, vision, innovation, and eventually, asset leverage, allowed Microsoft to grow and become ubiquitous.

Alphabet’s Google did not create the Internet not did it create the search engine. Its founders created a better way to search on the Internet. Again, the vision was for anyone who wanted to search the Internet, the information would be easily accessed. Persistence and continuing innovation propelled the enterprise to where it is today. Alphabet currently leverages its data, digital expertise and innovation across a broad spectrum of companies

Although none of these companies were pioneers, they are now five of the most valuable brand-businesses on this planet. Start-ups should pay attention. As Golder and Tellis conclude, “… being first to market by itself is neither necessary nor sufficient for enduring market leadership.” Seeing the mass potential, having managerial persistence, the availability of funds to power the idea, being relentless in innovation and being able to leverage established assets are what make or, if not there, break a brand-business.

Pricing In Perilous Times

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Price hikes are par for the course these days. Brands from Nestlé (maker of Kit Kat, Nespresso) Unilever (maker of Dove Soap, Ben & Jerry’s, Hellmann’s), Procter & Gamble (maker of Tide, Swiffer), Mondelez, and Reckitt Benckiser (maker of Air Wick, Lysol and Durex condoms) are raising prices. 

But, as these brands know, price hikes only work if the customer perceives the brand to be worth the cost. If the price becomes too high relative to the total brand experience, then the brand is not perceived to be good value for the money.

First, value is more than price point. Value is what the customer receives relative to the costs. Customers have a value equation in their heads. A customer-perceived value equation is based on 1) how the customer perceives the brand’s total experience (defined as functional, emotional and social benefits) relative to 2) how the customer perceives the brand’s costs (defined as money, time and effort). Trust plays a critical role in the customer-perceived value equation as well. Trust acts as a multiplier when customers take mental assessments of a brand’s worth. If a brand has little or no trust, then there is little or no brand value. 

In other words, customers today perceive a brand’s worth to be the quality of the expected experience relative to the total brand costs multiplied by trust. This is the new Trustworthy Value Equation.

Second, to generate a Trustworthy Value Equation, the brand’s inherent value must be perceived as fair value. Fairness contains justice, Justice means that the benefits-per-costs equation is equitable, just, dependable, trustworthy and fair. Fairness is more than absolute price. Fairness means that the benefits-per-costs equation is equitable compared to competitive alternatives. A brand must be perceived as a fair value for the expected experience. 

Third, value begins with the customer: value is not determined in the conference room and not determined by the marketing department or by the CFO. Although marketers believe they are value creators, they are not. Marketers help to create brands to which customer ascribe value. Marketers determine pricing but not value. Instead of deciding what to charge, marketers should determine if the price they are asking will be a customer-perceived fair value.

Fourth, brands can be perceived as fair value at any price point. This means for some people a Mercedes-Benz S-Class is a fair value while for others a Toyota Prius is a fair value. Marketers must aim their brand to be best values at whichever price point they choose. This treats pricing as a strategy not a tactic. It is the contribution of price relative to benefits that determines whether a brand’s customers perceive the brand to be a great or a poor value.

George S. Day, professor emeritus at Wharton Business School said it best:

“A winning position for customers is superior benefits for an average price. Most businesses position their offerings on the diagonal from the economy to the premium end and thus price their products to capture the customer value they created. How- ever, some of the competitors will be off the diagonal, by accident or design. Those charging average prices for lower benefits are offering inferior value. Below the diagonal is superior value. Above the diagonal is inferior value.” 

This leads us to the price raises in our current inflationary economy. Are brand owners inadvertently making their brands poor values based on higher prices?  The business press report brand owners are raising prices due to supply backlogs, smaller workforces, climate issues, soaring energy prices and changed customer behaviors such as hoarding.  Costs for ingredients and shipping are being passed on to customers. And, the raised prices are not static: some brands continue to raise prices on top of raised prices. Unilever announced recently that it is re-raising prices on some of its big brands. According to The New York Times, Shake Shack restaurants will be raising prices again in March after taking a price raise in October. This will represent a price hike of 6% to 7% over the last six months.

Brand owners have been quite open about the price rises. Mr. Luca Zaramella, CFO of Mondelez stated to Bloomberg BusinessWeek, “I’m worried about prices, particularly around logistics and transportation. We try to pass those to consumers.” For Mondelez, as with other companies it is all about margins. “We announced price increases around the world to ensure that we retain our margins….”  Nestlé CEO Mark Schneider told BBC News that “… it was a safe assumption that prices would rise this year. He said there was no place in the company that was exempt of inflation.” 

On the other hand, Reckitt Benckiser told BBC News that the company hoped “… to absorb most of the (price) increases.” Reckitt’s CEO Laxman Narasimhan said that the enterprise “… had ways to mitigate and manage pricing.” Reckitt’s CFO said that Reckitt would “… absorb a significant part of higher prices through efficiency and better buying. We are passing some pricing onto consumers but we minimise that through programmes we have… to absorb those cost increases.”

Examining some large brands, The Wall Street Journal wrote that Unilever was already completely dependent on higher prices for growth. For Reckitt Benckiser, two brands in three product categories have already suffered volume declines.

It is not just packaged goods. AB InBev, the global beer company – home of Budweiser, has been raising prices as well. The Wall Street Journal reported that AB InBev has been raising prices since fourth quarter 2021. AB InBev is also focusing more on its high-end, higher priced such as” Michelob Ultra, hard seltzers ready-to-drink cocktails” rather than its “value segments” of Bud and Bud Light.

With inventories extremely low after the manufacturing hit from coronavirus, car dealerships are maxing out prices on new vehicles. Prices are so inflated that, according to The Wall Street Journal, buyers are going miles and miles out of their districts to find an affordable new car. One individual flew from California to Nevada to secure a new vehicle he could afford. “In extreme cases, dealerships are charging $35,000 to $40,000 above MSRP on luxury cars that normally sell for $80,000 or more.” Customer comments in the article indicate that it is the brand that is taking the anger over the huge increases over MSRP. Some people have stated that they may never buy from a dealership again after deciding to buy from Tesla. With no dealerships, Tesla controls the sale.

Brand owners must recognize is that there is quantity of sales and quality of sales. Sales based on higher prices with lower volumes are dangerous. Fast food restaurants have this same challenge: raising prices when there is less customer traffic. Passing costs off to customers, brands risk turning off remaining customers.

Brand leaders should already have invested in price elasticity research. Understanding brand-price elasticity is key to developing and implementing a pricing strategy. Increasing prices can be effective for certain powerful brands. So, brand owners need to figure out in advanced just which of their brands are powerful enough to sustain continuing higher prices. And, since money is part of the Trustworthy Value Equation, if the brand experience is awful such as the car dealerships are creating, the brand’s worth diminishes. Furthermore, price gouging affects trust. 

As one financial analyst told BBC News, “Consumers may not be able to keep stomaching price increases and so there is a risk they purchase less of the popular brands and/or trade down to cheaper options. The big brand companies therefore face the risk of having to cut their prices just to maintain sales volumes.”

For example, a very well-known fast food brand thought a promotional price that had been used for years for a multi-item meal would work again. Using research franchisees were surprised to learn that the brand’s meal promotion would only sell at a lower price. The brand had lost so much customer-perceived brand value that the original price point for the meal was too high; the brand was just not worth the pirce. Once the price for the meal was lowered, customers started purchasing the promoted meal. Not knowing in advance what price your brand can and cannot carry is a sin. The question is whether brand owners are assessing their brands’ ability to carry those heavier customer prices at retail. 

Pricing strategy is critically important. Business sets the price, but customers set the value. Technology changes, talent availability, AI, financial and accounting software, supply chain and other issues are important. But, having the right pricing strategy reflecting the right customer-perceived value is very important as well. Without delivering value for customers, there will be little sustainable value for shareholders. 

The way you set prices does not just influence demand. Pricing drives brand perceptions. Pricing is a wallet issue, but it is also a psychological issue. This is more than evident in the customer comments from The Wall Street Journal dealership pricing exposé. Making sure the brand’s price is right is critical. Organizations must know the answers for these five rules for in advance of raising prices:

  1. Understand how your brand is differentiated from its closest customer-defined competitor 
  2. Understand the customer-perceived trustworthy brand value of this differentiation
  3. Understand customers’ willingness to pay
  4. Know what the price competitiveness is within the brand’s customer-defined segment
  5. Measure and track changes in price elasticity

Unless there is customer-perceived value there will not be shareholder value. To increase shareholder value, a brand must be the most efficient and productive provider of a branded offer that customers value. As The Wall Street Journal noted, those brands that have “weak” volumes are brands that “… are more likely to lose market share when they raise prices….” Some brands are already showing fewer sales. The interesting point is that the Wall Street Journal states “Investors will soon learn which brands consumers can and can’t live without.” 

These are perilous times for brands. Do not let pricing be a mere tactic used to prop up margins. Make pricing a strategic variable for generating high quality revenue growth leading to enduring profitable growth.

The CMO as Confusing Mess Organizer

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It is well documented that a Chief Marketing Officer has a relatively short shelf life. This is not due to the irrelevance of the job. In fact, the CMO is ever more important today. The problem with the Chief Marketing Officer is the job description.  

The job description has become very complex and confused.  This is not due to the effects of coronavirus alone. The shifts in technology, data amassment, smart devices, channels and personalization have upended the role of the CMO.

Things are so confounding that three different marketing/CMO reports from Deloitte, the global business services enterprise, provide fifteen different responsibilities, trends or must-do’s for CMO’s. 

This is not to say that the Deloitte reports are not insightful. These reports are instructive about our new age of brand-business marketing. It is critical that CMOs manage the myriad channels and technologies that deliver the brand to customers in ways that customers want. But, the more the CMO has to diversify away from building and maintaining great, powerful brands, the weaker marketing and the brand-business become. 

What the reports show are the various activities in which CMOs must participate. The reports reveal the role of the CMO to be a jack-of-all-trades, a conductor and a ringmaster. 

The fragmentation of marketing is forcing the Chief Marketing Officer to be a coordinator of multi-media messages; a manager of mini moguls who have staked out their spheres of influence. This CMO role is to be the uber-manager of “…digital transformation, proving marketing’s value, diversity, equity, inclusion” efforts. CMO’s are supposed to “… oversee marketing analytics, manage customer data, create connected experiences (know-me-know-my history), manage customer-led privacy (give-me-control-of-my data), be agile and make sure the AI is empathetic….” 

CMO’s are supposed to promote the brand’s social, environmental credentials (purpose), be inclusive, hire people with analytical skills, figure out how to manage data collection without cookies, make sure all customer experiences are delivered in a personalized manner, make sure that these experiences cover both physical and digital channels while predicting customer behavior in order to deliver holistic experiences. The CMO is the digital transformation leader, the personalized customer experience leader, the leader of customer-focused data capture and usage, and the customer data privacy captain.  

An exhaustive list.

Perhaps this umbrella-like, far-reaching agenda of necessary must-haves and must-do’s is why the lifespan of a CMO’s tenure is so short. The CMO role is now tasked with organizing the confusing mess of far-ranging, multi-functional responsibilities.

Based on the detailed information from the three Deloitte reports, the CMO should be one of the more valued individuals within the organization. The CMO should be the leading C-Suite influencer encompassing the entire customer experience.

And, yet, as reported by Deloitte, the CMO still has to prove that there is monetary value within brand-business marketing. While attending to all of these important activities, the CMO must prove that brand-business marketing is an investment not a cost.

Meeting the challenges of today’s brand-business environment is exciting. The CMO is now charged with some of the most topical functions for steering brand-businesses within the enterprise. However, at the same time, the role of CMO is becoming the dumpster for an array of activities not focused on being the voice of the customer to the enterprise nor on creating a customer-focused brand-business aimed at profitably satisfying customer needs and problems. 

Let’s be clear: all of these new tasks are important for driving the business. But, an enlightened C-Suite knows that the CMO must not relinquish the responsibility of leading the understanding, articulating and activating of great trustworthy, quality brand promises for enduring profitable growth. Nothing valuable can happen without knowing what the brand-business stands for in the eyes of the customer. Nothing valuable can happen without growing customer-perceived trustworthy brand-business value.

Channel-management and device-management are not the same as brand-business management. Being the chief in charge of organizing marketing’s mess is deleterious to the role of the CMO and to the brand-business.

Enterprises and consultants need to come to their senses. Brand-businesses need more than brand-business management: they need brand leadership. The organization and its brand-businesses need the CMO to be more than the manager of a confusing marketing mess. Brand-businesses need the CMO to drive the strategic customer-focused agenda, leverage the power of scale; increase the effectiveness, efficiency and agility of the brand-business; focus on brand-business priorities and innovation, leading towards enduring profitable growth… and they must do this with passion, persuasion, persistence, conviction, commitment and diplomacy.

The CMO must get back to being the business leader generating, supporting and activating a customer-driven focus within the organization. It is time to put the CMO back in business driving the development of high-quality-revenue customer-driven growth strategies. 

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High Tech Brands Are Recognizing the Importance of Brand Preference

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It was not too long ago when several business pundits decreed that brand loyalty was dead. Their reasoning hinged on their observations that people tend to go for the latest and greatest gadget rather than stick with their known brand. For those brands that bought into this nonsense, too bad for you. Brand loyalty is not dead. There is ample evidence that people are still loyal. However, people may have switched loyalties during the pandemic for a variety of reasons such as availability, omnichannel shopping approaches and inflationary prices.

Recently several high tech service brands in earnings calls have offered that brand preference is making a huge difference in profitability.

PayPal stated the following in its latest Earnings Call:

“And clearly, there is no other digital wallet close to us in terms of scale, and there’s overwhelming consumer preference for PayPal in those wallets. And our super app is showing extraordinarily promising early results. Now we only rolled that out fully in the middle of October across all of iOS and Android, so we’re 3 or 4 months into it. But what are we seeing? We’re seeing double the average revenue per active account when somebody uses our app versus just checkout. When somebody uses the app their propensity to churn is 25% less.”

Additionally, PayPal said:

“And in fact, in some studies, it would suggest that PayPal is second only to debit in front of credit in terms of preference from consumers. And as I noted earlier, like you’re beginning to see more and more preference for brand ecosystems. And, we think that’s only going to become more relevant as we go forward, which is part and parcel to why we’re emphasizing our digital wallet strategy so much because when someone is using our app, is using our digital wallet, they’re much more likely to be engaged with us in other parts of our ecosystem, including off-line transactions.”

Let’s understand the relationship between brand preference and brand loyalty. Preference and loyalty are not the same. A brand must have brand preference if it wants to grow brand loyalty. Brand preference is the necessary stage for reaching True Brand Loyalty.

Think of a ladder.  The goal of marketers is to move your brand up the brand preference ladder, the pinnacle of which is True Brand Loyalty.

A brand preference ladder is a staircase leading from non-usage to True Brand Loyalty. The context for the brand preference ladder is the audience for the brand. This ladder is a reflection of the strength of the customer’s commitment to the brand relative to competitive offers. Moving the customer up the ladder from commodity consideration to True Brand Loyalty can have a big impact on revenues and profitability.

PayPal stated that their strategy is aimed at building brand preference. And, building preference leads to True Brand Loyalty. True Brand Loyalty leads to quality revenue growth which, in turn, leads to enduring profitable growth.

Every brand desires sales. But, there are two kinds of sales: quantity of sales and quality of sales. Brands must build both. A lot of high tech brands focus on building quantity of sales, in other words gaining subscribers or daily users. Think of the ongoing streaming wars. The headlines are always about the number of subscribers. However, at some point, as Netflix is finding out, there is a limit to the quantity of subscribers. Quality of sales reflects building sales based on brand loyalty. Brand loyalty anchors quality of sales. This is why it is critical to move customers up the brand preference ladder.

Commodity consideration is the first rung on the brand preference ladder. With commodity consideration, customers view a set of brands as being basically the same. The customer is actually indifferent and is willing to consider any of these brands. “Willing to consider” is not the same as “I would put this brand on my short list of preferred brands.” Commodity brands deliver the very basics – the greens’ fees – of the category. In most cases, the only differentiator is convenience and price.

The next rung on the brand preference ladder is Short-list brands. Short-list brands are the small set of brands that are among the customer’s top three choices. There are reams of data indicating that most people tend to have a set of three brands; more than three brands being too many. Being on the customer’s short list is good, but not good enough to be a truly strong brand. It is better to be the preferred alternative within the short list.

The stage of building brand preference is next three rungs of the brand preference ladder: Top Three Preferred Brands, Second Choice and First Choice. Top Three Preferred Brands means each of the brands is a preferred brand. If your brand is one of three, your brand can only be picked 33% of the time. Second Choice and First Choice reflect the customer’s “ranking” of these brands. Obviously, you want your brand to be the First Choice.

A preferred brand is a favorite brand. Preference is a much stronger concept than satisfaction. For example, customers may be satisfied with a particular brand of printer. However, they may also be satisfied with two or three alternative brands. When shopping for a printer, they may default to price. Satisfaction is necessary but it is not sufficient. You may have a car that needs service. The service you receive is satisfactory. However, you may be unhappy with the car brand because it needed this service.

The ultimate goal is to move a customer from preference to True Brand Loyalty. Loyalty is not the same as frequency. Too many so-called loyalty programs build frequency but do not really build loyalty. Frequency can be bought by bribes. Bribes build deal loyalty not real loyalty. As many streaming brands now find, having a free trial period does not always translate to subscribership. Free-trial users may be going for the deal in order to watch special content.

True Brand Loyalty is based on a customer’s commitment that this brand is the best value, where value reflects the total brand experience (functional, emotional, social benefits) relative to the total costs (money, time, effort).

True Brand Loyalty is the highest rung on the brand preference ladder. True Brand loyalty brands are preferred even though there may be a price premium when purchasing. Imagine that a customer’s second choice brand costs 10% less than the first preferred, favorite brand. Data show that a truly brand loyal customer will still choose the preferred brand even though the second choice brand is 10% less. The ultimate goal is to increase the number of people who feel this way. Again, data show that a brand does need a lot of these true brand loyal customers. Having 10% of your customers as true brand loyalists can be very profitable. There are examples showing that 10% core loyalists can account for 40%-50% of sales. Several years ago, Macy’s noticed that it hard core loyalists in its loyalty program accounted for 49% of sales. 

Reviewing Snap’s latest earnings, The Wall Street Journal wrote that one of the reasons Snap is “faring better than Meta” may be Snap’s user preference. “For years now, Snap has touted its popularity among a younger crowd. That appears to be paying off now more than ever as Meta deals with attrition of some of its younger users. Snapchat daily active users grew 20% year-on-year and 4% sequentially in the fourth quarter.” The Wall Street Journal commented that investors, spooked by Meta’s ‘gloomy” results and outlook, punished Snap with a sell-off. “This time investors were wrong. On Thursday, Snap reported fourth-quarter revenue growth of 42%. This was 12 percentage points above the midpoint of its guidance and more than 10 percentage points above Wall Street’s estimate.” Preference is a big deal.

Additionally, The Wall Street Journal commented on Twitter’s recent unremarkable earnings. Somewhat bewildered by Twitter’s ad engagement strategy, The Wall Street Journal pointed out, “Twitter’s superpower is its highly engaged superusers. The people who love Twitter would probably tell you they can’t live without it.  But their value is in their loyal usage, not their ad engagement. Unlike those of Instagram, YouTube or TikTok, Twitter’s most active users aren’t idling on the network in hopes of relaxation or escape. They are there to work, to learn or to get specific information they need. That kind of use case doesn’t seem like the best place to expect customers to engage with more ads….”

At some point is a brand’s lifespan, there are no more costs to cut, no more ads to run, limited users to reach. The successful brands will be the ones that focus on the quality of sales and the True Brand Loyalty of users. True Brand Loyalty requires that brands build brand preference, moving customers us the brand preference ladder.

In a loyalty program report, Deloitte, the global business service company, wrote that a first priority for loyalty programs is to drive specific behaviors that will help brands reach financial, customer and brand objectives. Knowing which behaviors will move a customer up each rung of the brand preference ladder is a key to success. Or as Deloitte stated, “(Loyalty) is a tangible value creation lever… that is becoming increasingly essential across industries.”

Climbing revenues, brand value and profits require customers climbing the brand preference ladder.

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Meta Needs A Plan To Win ASAP

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Reading the transcript from Meta’s February 2, 2022 Earnings Call, one can understand why analysts shivered with negativity and why investors shed the enterprise’s stock. The press describes the Earnings Call as a “gloomy” prediction for the upcoming year. Meta indicated less profit, more, stronger, creative competition, Apple’s privacy changes, a slowdown in Meta’s social media platforms and a lot of costly investment behind metaverse R&D. Plus, as Barron’s, Financial Times and Kara Swisher in The New York Times point out, Meta can no longer buy creativity. The enterprise is already perceived as too big for regulators. As for copying rivals, it turns out that the competition has raised the bar big-time. Kara Swisher noted that creativity for Meta, “…has not always been its strong suit….”

However, a parsing of the transcript reveals something much scarier. This latest Earnings Call was a hazy, undisciplined report on the ways in which Meta will generate enduring profitable growth.

There appears to be to be no clear articulation of what actually is the vision for Meta. All of the “priorities” stated by Mr. Zuckerberg are actions seeking an overarching North Star. Sure, Mr. Zuckerberg has identified an “immersive” Internet as the end goal. But, what exactly Meta’s role in that world is unstated and probably not well understood. Worse yet, according to Mr. Zuckerberg, the pathway to his immersive vision is “undefined”. 

To be successful, it is not enough to say what the world is that you see. You must state 1) what will need to happen in order to make this world happen and 2) what your brand will need to do to win in that world. 

Also, based on the executive comments in the Earnings Call, there are no SMART objectives (specific, measurable, aspirational yet achievable, related to overall business growth with time specifications). The transcript shows that the Meta executives used fuzzy time frames 19 times. These included the phrase “over time” (7 times), phrases such as “in the future”, “over the long term”, “years ahead”, foreseeable future” and “long term” (12 times). Of course, calls like these are meant to reflect forward thinking. However, when no specific times are applied to a list of organizational priorities, it seems as if these priorities are fungible.

So, this leads us to the problem that there is no explanation of how Meta plans to generate high quality revenue growth.

Meta needs a Plan to Win ASAP.

A Plan to Win is a brand’s roadmap. It ensures that all enterprise individuals are aligned around the same goals, actions, schedules and measurements. The transcript for the Earnings Call revealed an executive team where each individual had their own priorities… priorities that did not come together to create an aligned vision for the future. Plus, the frequent use of buzz words blurred any coherent, connected strategy.

A Plan to Win articulates the critical brand components from purpose and promise through five actions areas – People, Product (service), Place, Price, Promotion – to measurement of progress. 

A Plan to Win creates common clarity. A brand cannot be successful if it is unfocused, unclear or inarticulate. In the Earnings Call, Mr. Zuckerberg kept using the word “stuff” (4 times) to describe what Meta plans to create. This is an indeterminate, vague reference to say the least. 

If Meta cannot specifically tell analysts and investors what the short- and long-term brand-business plans are, then there is a problem of magnitude. Meta did not engender confidence with statements such as this regarding Reels, the short-form video aimed at TikTok: “So, as the engagement of the new thing starts to replace some of the engagement and the old thing, it creates a near-term headwind for revenue but it’s not that part. At this point, now is not that big of a concern for us. I mean it makes some of the stuff not as clear in the near term but over the long term, we’re pretty optimistic.” Forget the hesitancy and the grammar: what direction does this give to Meta employees? What does this say to Wall Street?

With a Plan to Win, Meta would have its one-page outline for its complex program for metaverse transformation while fortifying its legacy Facebook brand.

There are three parts to a Plan to Win: 1) Brand Direction; 2) Brand Action; 3) Brand Performance. 

Brand Direction articulates the Brand Purpose and the Brand Promise. Brand Purpose answers the questions Why does this brand exist? What is the overarching intention of the brand? Brand Purpose is the overarching goal for the organization. Brand Promise is the bond the brand has with its users. The Brand Promise expresses the brand’s intent that if you but this brand, you will receive a relevant, differentiated, trustworthy quality brand experience.

Brand Action defines the priority actions for implementing the Brand Direction. These are the aforementioned five action P’s: people, product (service), place, price, promotion. For each of these five action areas, there are defined, time-specific, must-do undertakings.

Brand Performance defines the brand’s measurable milestones. These metrics are used to evaluate progress toward the achievement of the Brand Purpose and Brand Promise through implementation of the activities set out in the five action P’s.

Since the Earnings Call, there have been many articles on why Meta is in its current condition. In the scripted section of the Earnings Call, the problems were clearly stated. Knowing the problems is a great first step. How are we going to manage the brand-business for the short-term and the long-term is something else altogether. In the unscripted, Q & A part of the Earnings Call, the disciplined path forward was vague but expensive.

Meta can certainly reinvent itself and do so successfully. But with the formidable “headwinds” – to use Meta’s language – this reinvention will need cohesiveness, discipline and strategy. The best and easiest way to begin a reinvention is to map the brand’s Plan to Win.

High quality revenue growth means having more users who visit more often and who are more loyal. This leads to increased market share and lower price sensitivity. And in turn, this leads to revenues, profits and increased shareholder/stakeholder values. High quality revenue growth leading to enduring profitable growth takes direction and order as well as creativity. 

Meta must generate a Plan to Win ASAP to meet its short-term challenges and its long-term conceptualization.