Harley Davidson Brand Family

Harley-Davidson’s Brand Family

Bloomberg Hyperdrive, a newsletter on the ideas that are reshaping the automotive industry, interviewed the CEO of Harley-Davidson, Jochen Zeitz. The subject of the interview was the spinning-off of Harley’s electric bike division – LiveWire.

Within a discussion on finances, stock prices and the rationale for the spinoff, the interview turned out to be a paean to the Harley-Davidson brand including Mr. Zeitz’ creation of a Harley-Davidson family of brands. Although not articulated as such, it is clear that the underpinning of the new two-division configuration has all the earmarks of a family of brands.

Mr. Zeitz, a Harley-Davison Board member, became CEO in May of 2020 right after the beginning of lock downs and closures due to Covid-19. Harley-Davidson’s previous CEO left due to shareholders threatening a proxy fight over Board of Director seats. Shareholders were concerned about the brand’s skidding sales. And, there was deep concern about the CEO’s strategy aimed at international markets and on selling smaller, less expensive bikes turning away from the core customer base who appreciate the big, heavy, more costly machines.

Upon taking the reins, Mr. Zeitz told analysts that this previous strategy of model expansion while chasing new customers and markets added manufacturing complexity and “diverted attention from Harley’s profitable models.” 

Forward to today, two years into Mr. Zeitz’ tenure. Not only has Mr. Zeitz steadied the core business, but he has created a new brand embedded with the authority of Harley-Davidson.

As Mr. Zeitz said, LiveWire is an electric vehicle brand but unlike Rivian or Lucid, it already has in place the “… infrastructure, manufacturing, supply chain, all the know-how that Harley has built over such a long period of time without the baggage….” And, unlike Tesla which struggles with service, Mr. Zeitz points out that Harley service is easily available and high quality.

A family brand approach uses the parent brand’s provenance – Harley’s consistent, motivating, relevant, distinctive heritage. A powerful heritage helps generate credibility. A brand’s heritage provides customers with substantial authoritative information, giving credence to Harley’s message. Provenance provides authority across all platforms. LiveWire benefits from the Harley-Davidson lineage which everyone agrees is an iconic heritage.

Let’s not forget that the epitome of loyalty is having the brand tattooed on your body. This is something prevalent among Harley riders.

As the parent brand, Harley-Davidson indicates the origin, quality, leadership, trustworthiness and area of excellence of the Harley-Davidson brand family while the LiveWire and apparel/accessories items distinguish themselves based on their relevant differentiation of their individual brand promises. 

Another important element of having a family of brands is being able to address a different market segment with a different customer. For Harley-Davidson, LiveWire satisfies the needs of customers who are interested in an electric bike but with a Harley experience and Harley service in a digital direct, digital dealer segment. Mr. Zeitz believes that LiveWire is going to attract the next generation of Harley riders. This is a long-term vision but Mr. Zeitz is behind long-term vision.

If you need support for this long-term vision, check out the October 30 issue of Wired. Wired tested a range of electric motorcycles and featured favorites in an article titled, Stun Guns. The Harley-Davidson LiveWire S2 Del Mar is one of those singled out. The LiveWire electric cycles are currently best for the urban rider with the idea of going longer haul. In fact, Wired points out that if you need an urban electric cycle, the Live Wire S2 Del Mar is the best choice. The rave review is paired with a photo and its basic price, $15,000. Most models go for $16,000+ with add-ons.

Mr. Zeitz understands that LiveWire will be referred to as “the Harley electric motorcycle” which is good (and as Wired does in its article). This is because customers and potential customers know LiveWire has Harley-Davidson “DNA” that will not only benefit LiveWire, but also benefit Harely-Davidson. And, thinking long-term, LiveWire will help the entire brand segue to an electric future.

As for all apparel and accessories, Mr. Zeitz states that whatever opportunities exist outside of the physical motorcycles, these opportunities must have Harley’s authenticity, aesthetic and appeal; the Harley-Davidson provenance, the core of the Harley-Davidson experience.

In today’s uncertain world, there are brands that are segueing to family branding. A great case is Purina. There is extraordinary comfort in knowing that a brand has authority and expertise in its market. Brand families will be more present in our times when we are looking for the security that a brand’s provenance provides. And, a brand family with an authoritative parent such as Harley-Davidson screams security, comfort and trust.

brand choices

Brand Choice And The Impact Of Too Few Choices

Recently, an article appeared in the journal Behavorial Scientist. The authors looked at choice. But, unlike the majority of choice studies that focus on choice overload (too many options), the authors focused on choice deprivation (too few options). The result of their study among 7,400 respondents across six categories and six countries was that “… choice deprivation, not choice overload, is the most common consumer experience…” and a more consequential problem.

These data showed that even though some countries, like the US and Europe, for example, had lots of choices from which to select, consumers in those countries do find that in certain categories, there is less choice than satisfactory. Having too few choices is unpleasant and considered harmful, especially when the category is one that satisfies basic needs.

As we learned from our pandemic years, lack of choice is irritating and creates negativity. Take cars, for example. When people shunned public transportation due to Covid-19, the need for a car became extremely important. But, there were too few selections on lots because coronavirus decimated the ranks of those doing the manufacturing. Factories were hobbled with too few workers. Newspapers interviewed car buyers who had to expand their vehicle search areas, some even going out of their state. Some people settled for cars that were not their first choice.

Many brands thinned their product lines during the height of Covid-19, leaving only one or two different options on shelves. Brands used the pandemic to winnow out options, offering only the most popular varieties. Viva Paper Towels focused on supplying stores with the “Select-a-Size” version rather than offering both “Select-a-Size” and full size. And, some brands are sticking with the pared product lines.

So, why is this research important for marketers? Why does this research matter in countries with abundance of branded options? 

This research on deprivation relative to overload has significant implications for brands because it affects a brand’s customer-perceived value equation. A customer-perceived value equation is how we decide whether a brand is worthy of purchase. It is our mental calculation as to brand experience (functional, emotional and social benefits; brand character – values and personality) relative to brand costs (money, time and effort). 

The brand experience is the nominator of this equation. The brand cost are the denominator. If the denominator is greater than the numerator, the brand is not considered worthy of a purchase.

This equation is then assessed relative to its trustworthiness. Can we trust that this brand with this brand experience relative to its costs will be delivered in a quality manner every time, everywhere? We mentally multiply the equation by trust.

Choice overload is a cost. It takes time and effort to makes decision when there are so many varieties. Sometimes the branded product differences are small. The study calls these differences “illusory.” We may believe the differences are more important than they are in reality. With choice overload, we suffer from decision fatigue. We risk settling on an option that is less than optimal. This can negatively impact our brand experience. We tend to be marginally satisfied because we feel we made a less than quality decision. We tend to be less happy. 

Research indicates that fewer choices make us feel more confident. We feel more satisfied about our decision. But, having too few choices is apparently detrimental. It creates another dimension to the brand’s costs: anxiety, worry, concern and apprehension. In other words, too few choices causes unease. 

Unease can overwhelm a brand experience. 

Ease is a multi-dimensional concept. Innovators, brands, individuals, organizations and others must recognize that it is essential to deliver on all three dimensions of ease: ease of choice, ease of use, and ease of mind.

Ease of Choice

Choice should be easy. We want more choice and more personalization. But, we want choosing to be simple. An easy choice should require a minimum effort and not take a lot of time. Too much choice leads to decision fatigue and potential poor decisions. Too few choices means that we are not really in control of our choices. Or, worse yet, we may not find what we need. For example, what if you have a child who is lactose intolerant but there is only regular milk available? Your situation is either leave without milk or spend the time and effort trying to find a store with a lactose-intolerant offering.

Ease of Use

We should live in a user-manual-free world. Service options should not require a lot of explanation. Once we easily choose, use of the product or service should be easy. There is enough happening in our lives: we do not need to waste precious time and energy on learning how to use or navigate a product or service. It is the role of the provider to take the complexity out of choice as well as the use. Further, overly complicated products and services cause us to feel inept or inadequate, and, sometimes, cause us to feel stupid.

One of the categories that the deprivation research investigated was Physicians. The research indicates that having too few doctors to choose from could make you six times less satisfied than having too many doctors from which to choose. Now, imagine that you make a choice from among a limited number of available physicians. That physician may not be near you. The physician may not accept your insurance. Since there are few choices, this physician has no appointments for a month or more. You must see a doctor. What can you do, especially if you have limited resources? Using that physician becomes difficult. You may become anxious. Ease of use disappears. 

Ease of Mind

It is not enough to be easy to choose and easy to use. We want to feel comfortable with our decisions.  We want to feel reassured that we made the right choice. “Am I comfortable with the decision? Now that I am using this product or service, am I satisfied with the choice?” Am I doing the right thing for me? Am I doing the right thing for my family? 

If we choose from among a limited array, we may worry that we were forced to make a decision when none of the choices were ideal. We may become afraid and apprehensive. We are uncomfortable. We are uncertain as to this choice.

One of the research’s conclusions is that too few choices is worse than having too many choices. When it came to satisfaction, too few choices was a more significant factor than too many choices. “Deprivation appears to be a more consequential problem than overload…” 

Although the research looks at satisfaction and not trust, imagine worrying that your choice is the wrong choice. Trust is a feeling. It is a feeling that you can rely on the brand to deliver its promise. The unease generated from too few options is probably going to impact trust. And, this becomes a serious problem. It there is zero trust then there is zero customer-perceived brand value. Anything multiplied by zero is zero.

As brands reconfigure manufacturing post-Covid, it is worthwhile considering the repercussions of too few choices. Clearly, in some categories such as snack foods and soda, we have an abundance of choice. Maybe too much choice. On the other hand, too few options is much more consequential. Now that the automotive industry has virtually eliminated most inexpensive sedans, or sedans in general, car buying is becoming more difficult for those who need an affordable, four-door vehicle.

Having brand extensions and brand families are important ways for consumers to experience a brand. Yet, the number of brand extensions and options are significant when it comes to decision-making. Brand strategies must learn what makes the best brand-business sense when it comes to overload and deprivation. 

lululemon meaningful marketing membership

Taco Bell, The Wall Street Journal And lululemon Create Meaningful Membership

Taco Bell has a contest for its Rewards members. Taco Bell Rewards members will be able to vote on which menu item can return to the menu: The Enchirito or The Double Decker Taco. Only Taco bell members can vote. Taco Bell’s Chief Brand Officer told Restaurant Business, a trade press, “… we wanted to continue elevating the voices of our most loyal fans by giving them exclusive access to a uniquely digital experience that fosters brand love. Nobody gets Taco Bell more than our community so we’re thrilled to empower them with this in-app voting experience that allows them to have a direct impact on our menu.”

Lululemon, maker of upscale athleisure clothing, is creating a membership program – lululemon Studio – around its Mirror connected fitness device, that will offer members access to “… thousands of streaming and in-person workout options (more than 10,000), receive perks and discounts on lululemon apparel, attend classes at stores for free and have early access to in-person lululemon events,” according to The New York Times. The Mirror device must be purchased for membership. The price of the Mirror will be lowered to $795 the first week in October and the membership fee will be $39 a month.  Existing Mirror subscribers are automatically added to the program at no additional cost. Lulemon’s CEO told The New York Times that Mirror users were becoming increasingly loyal to the lululemon brand. The lululemon brand is known for having a very loyal community.

The Wall Street Journal has a membership program – WSJ+ – that offers subscribers wide variety of experiences for current users. There is a weekly members-only newsletter detailing events, offers, insights, prizes and experiences packages that include trips, discussions, free audio books, educational courses, cooking classes, virtual tours and passes for galleries. Each member receives a complimentary audio book each month. The Wall Street Journal designs its membership rewards to extend The Wall Street Journal beyond just hews.

These brands have figured out that having a membership program is not the same as having a meaningful membership program.

In our highly fragmented, uncertain world, people seek connections. Individuals form groups around brands because brands provide functional, social and emotional meaning. People want to associate with and be involved in a brand’s experience on a continuing basis. They want to belong to the brand’s group. 

People want to be respected for their individuality. At the same time, people want a feeling of belonging to something meaningful.  Joining a database and receiving a reward is not enough. Sure, it is great to be able to move to the front of the line when boarding a plane. But, is there a meaningful community around American Airlines? People want meaningful membership.

Meaningful membership programs allow people to join together around a brand for mutual benefit or some common reason. Meaningful membership programs are groups of like-minded individuals who are fully engaged with the brand’s experience.  Just as frequent, repeat purchase is not the same as loyalty, not all membership is loyal membership. As with Taco Bell, lululemon and The Wall street Journal, a critical goal is to help members of the program increase their loyalty, moving from being merely opt-ins to advocates. 

Meaningful membership programs have dual benefits. People reinforce their individual identity while augmenting their social identity through communication and connectedness of shared experiences, values and pride of belonging. These elements are what make membership meaningful.

For example, community building is at the center of lululemon’s brand. Fans recognize that connecting members in relevant, differentiated ways is one of the ways lululemon has become so popular. The new lululemon Studio program provides community members with a hybrid exercise solution. As the Chief Brand Officer said upon the lululemon Studio unveiling, “…lululemon Studio unlocks the versatility (i.e., hybrid fitness options) our community has told us they are looking for.”

Brands such as Netflix, Spotify and other streaming services focus on gaining subscribers. These brands do not focus on building a membership community of increasing loyal users. For many subscriber brands, the goal is to capture new subscribers. Some marketers believe their brands can survive on just gaining new customers.  But, brands cannot survive by just focusing on acquisitions alone. As Taco Bell, lululemon and The Wall Street Journal demonstrate, the first priority must be to adore the core customer base. New customers are important, of course. After all, people age out of a brand. To generate enduring profitable growth, brands must focus on gaining new customers and keeping current customers.

Many acquisition-focused brands are learning that not only does it cost more to acquire members, ignoring loyalists hurts profitability.  Recent data from a survey of CMOs shows that customer acquisition budgets are 14.7% larger than customer retention budgets.  Only recently, have brands, such as Disney+, realized the need to focus on building brand loyalty. However, announcing growing numbers of new customers in analyst meetings is an addiction that is difficult to break.

Which is really sad, because research shows significant economic advantages and financial returns from highly involved, participating community members. Participants in membership communities are more loyal, less price-sensitive, more resistant to competitive promotions, more willing to recommend, buy more and are more profitable.

A recent Wall Street Journal’s Heard on the Street column focused on fast food restaurants and the battle for the breakfast daypart. The article ends with a comment about building brand loyalty. “The battleground has moved to loyalty programs that reside on your smartphone. Breakfast may be the most habitual meal of the day for those who get it to go. Now chains want to use technology and rewards to reinforces that behavior.” 

Part of the problem is that many marketers just misunderstand brand loyalty.  They assume that behavior is all that matters. This is wrong. Brand loyalty is committed brand behavior. In other words, there is an attitudinal element to brand loyalty that is critical. Meaningfulness is one of those attitudinal rewards.

Not all loyalty programs create meaningful membership. Rewards are good. But, real loyalty requires strong commitment. Many loyalty programs just ask customers to sign in, to register or to enroll. From then on, the rewards are merely frequency-based. However, meaningful membership means creating and reinforcing the personal feeling of specialness and the group privileges of belonging to a membership. Reinforcing brand behavior – how many times the member “frequents” the brand is not sufficient.  Behavior is only half of the story when it comes to meaningful membership. Attitude is critical. For meaningful membership to develop, there must be true commitment to the brand. 

Meaningful membership builds trustworthy brand value leading to high-quality revenue growth. Meaningful membership helps increase brand loyalty. Meaningful membership creates brand enthusiasm. It creates brand adherents. It is the basis of generating enduring profitable growth of the brand.

beyond meat brand marketing

Beyond Meat And The Value Of A Trustworthy Brand Value Equation

Beyond Meat, the plant protein, traditional meat alternative brand, has a value equation problem. 

A value equation is the internal mind-set that customers have when assessing the worth of a brand. A value equation a mental perception that assesses value prior to a purchase. A customer-perceived value equation is what you get for what you pay multiplied by trust. 

When we think about a brand purchase, we calculate its value based on the total brand experience (functional, emotional social benefits, brand character) relative to total brand costs (money, time, effort) multiplied by trust. The total brand experience is the numerator of this equation and the brand’s total costs are the denominator of the equation. Then, we consider trust. In other words, a trustworthy brand value equation. 

Beyond Meat is a troubled brand. On August 5, 2022, Beyond Meat announced that it missed Wall Street expectations. This was the seventh quarter out the past eight quarters that Beyond Meat disappointed analysts and investors. It was also the seventh time that Beyond Meat posted “wider than expected” losses. On September 19, 2022, Barron’s reported that Beyond Meat had just experienced five days of falling stock price. Then, on September 21, 2022, Barron’s highlighted a stock price rise due to a partnership with Taco Bell. (Taco Bell will begin offering a Carne Asada Steak quesadilla at the same price as its “traditional” steak quesadilla.)

This is not the first time that Beyond Meat has partnered with a restaurant brand. But, positive results have never been long-lasting. Beyond Meat partnered with McDonald’s on a McPlant burger that has been a flop. Partnerships that work are good. But, the problems at Beyond Meat are bigger than a Carne Asada Steak quesadilla. Furthermore, Beyond Meat partnerships are only about 30% of sales. Beyond Meat needs more customers who purchase its products more frequently, who are more loyal and more profitable. 

Beyond Meat needs to fix its trustworthy brand value equation.

Yes, Beyond Meat needs to make money, get profitable, eliminate waste, improve productivity. And, yes, Beyond Meat needs to delight customers so they look forward to purchasing more from the brand. This involves continuous improvement with renovation and innovation. Putting financial discipline and operational excellence aside, Beyond Meat’s trustworthy brand value equation is completely out-of-whack.

First, let’s look at Beyond Meat’s total brand experience; the numerator of the trustworthy brand value equation.

Beyond Meat has a great idea that has never been articulated in a relevant, differentiated experience. Beyond Meat has not communicated its total brand experience to customers and prospective customers. Sure, if you visit the Beyond Meat website you understand the mission of the brand. But, the brand has not spent a lot of time making this mission an effective lever for increasing sales, frequency of sales and profitable loyalty.

This has been an on-going problem from the brand’s inception.

Beyond Meat never relevantly differentiated itself from Impossible Foods, its main competitor before all of the big food companies started introducing their own non-meat protein offerings. Beyond Meat and Impossible Foods have very different but relevant propositions (Impossible Foods is technology and science-based; Beyond Meat is environmentally, ethically and socially responsible). And, two brands began by using two different distribution strategies (Impossible Foods chose restaurants; Beyond Meat chose retail).

Beyond Meat has not helped customers and prospective customers really understand the brand’s promise, its relevant, differentiated experience. Brand promise is not the same as brand mission. A brand’s mission is its intent. A brand’s mission is all about what it wants to be in the future. To successfully move towards its purpose, a brand must create the experience it promises to deliver to its customers every day, everywhere and every time. Beyond Meat has not successfully let customers and potential customers know its functional, emotional and social brand benefits. Beyond Meat has not successfully let customer and potential customers know the brand’s character: the values that reflect the customer’s values and the brand’s personality.

Beyond Meat’s mission is laudable. But, a research study cited in The Guardian shows that even when people learn that huge reductions in meat consumption are essential for climate-change avoidance, people are reluctant to change behaviors when the environment is “the sole beneficiary”. Self-interest overcomes altruism. A different study from Purdue University shows that even when confronted with information about meat’s carbon footprint, people still prefer meat over plant-based alternatives. 

Beyond Meat needs to provide a relevant and differentiated message about the benefits to people in addition to the benefits for the planet. For example, Beyond Meat’s products are labeled 35% less saturated fat. What is the benefit of consuming 35% less saturated fat?

Recently, the Wall Street Journal printed an opinion piece, “Beyond Meat is Beyond Hope”. The author indicated that Beyond Meat’s problem has been that there are just too few people who will eat its products. The writer asks: Who is going to eat this? Telling us that the pool of vegetarians and vegans is too small for profitability. Only 5% of Americans say they are vegetarian while 3% identify as vegan. 

However, as The Guardian points out, the non-dairy milk category is booming. “Dairy alternatives now make up 15% of the market and are worth $2.5 billion. A third of Americans drink some kind of non-dairy milk weekly.” The prospective people are out there: just give them relevant, differentiated reasons to buy.

Now, let’s look at Beyond Meat’s total costs: money, time and effort; the denominator of the trustworthy brand value equation. 

Beyond Meat is very expensive, sold at a steep premium to meat. The average price of ground beef is $4.90 a pound. The average price of Beyond Meat’s ground plant protein is $8.35 a pound. At a time when inflation is forcing people to skip traditional meat, this should be an opportunity for Beyond Meat. But, instead of making the products more affordable, Beyond Meat is not allowing customers and prospective customers to become users. One reason non-dairy milk products are such a growing business is prices are affordable, below the price of organic diary milk.

Bloomberg writes that shoppers are turning towards vegetarian diets to avoid the high price of meat and chicken. Shoppers interviewed said they recognized that plant protein products were even more expensive than meat and chicken. This should be a golden opportunity for Beyond Meat. High prices and very few customers makes for a niche brand.

Now, add in the effort and time when it comes to availability of all of Beyond Meat’s offerings and the total costs of the value equation overwhelm the total brand experience. Some stores have the full array of offerings. But, not all stores. Further, Beyond Meat has its own sections in the freezer aisle. In many stores, Beyond Meat products are not situated near other plant-based protein, most notably, items from big food brands.  Customers cannot compare ingredients and prices. When the denominator of the value equation is “larger” than the numerator, the brand is not considered to be a good value.

Then, there is the trustworthiness of the brand. Is the brand a trustworthy brand? Do we trust the brand to deliver its total brand experience? Without trust, brands have little value. If trust in the brand is high, then the brand has great value. But if trust in the brand is low, then the brand has little value. If there is zero trust, there is zero value, as zero times anything is zero. If you do not know about the brand’s benefits and you have to exert effort to figure that out, you probably will not have a lot of trust in the brand. Big food companies have their own brands and customers are familiar with those big food brand names; they trust those big food brands.

Has Beyond Meat generated trust based on its mission? Do customers perceive the brand to be trustworthy? Does Beyond meat even measure its trustworthiness?  

Whatever the case, Beyond Meat’s problems are bigger than its trustworthy brand value equation. But, until the trustworthy brand value equation is improved, Beyond Meat will continue to suffer. A brand cannot generate enduring profitable growth with a damaged value equation. If there is no customer-perceived value there is no brand value.

Disney+ Is Raising Prices Believing Customers Will Not Care

In its most recent earnings report, Disney, one of America’s most beloved brands, changed its approach to its direct-to-consumer business, that is, its streaming business including Disney+, ESPN and Hulu.

Disney+ has never been profitable. It lost $1.1 billion in its fiscal third quarter. In the previous quarter, the loss was $292 million. According to Bloomberg Businessweek, Disney+ lost $7 billion since its inception in 2019. This past quarter, Disney+ added 14.4 million subscribers globally. But, for North America, the fiscal third quarter subscriber growth was only 100,000 users, with the majority of the growth happening overseas.

The response from Disney is to raise prices. Current customers will pay the price for this move. And, although Disney+ will now offer an ad-supported version of its streaming service, it remains to be seen if current customers stick with their current package or drop down to the ad-supported version or just go somewhere else. Current customer will automatically be switched to the ad-supported version unless they indicate they want the premium, ad-free level of service.

The Wall Street Journal states that the price of the current ad-free Disney+ tier will rise $3 a month from $7.99 to $10.99, or $109.99 per year. Disney announced that the new ad-supported Disney+ service would be $7.99 a month.

The premium Disney streaming package that bundles ad-free Disney+ and Hulu as well as ESPN+ with ads will stay priced at $19.99 a month. A version of this bundle that includes all ad-supported versions will increase its price by $1 to $14.99 a month.

Of course, Wall Street rewarded Disney upon hearing this news, sending Disney stock upward. But, Wall Street is never about the customer and always about the profitability. Analysts savor the idea that higher prices will result in higher revenues. This may happen. But, higher revenues may happen on a smaller customer base. Disney holds firm in the belief that customers will eat the higher prices. However, the higher prices do put Disney+ at risk for higher churn. And, as the current retail environment shows, higher prices have forced groceries to offer products with lower prices as customers have become fed up with name brand price increases.

One analyst quoted in The Wall Street Journal said, “Domestically, Disney+ is tapped out. Disney is operating under the belief that, just as in their theme parks, they can raise prices dramatically and count on customers not dropping the service.”

When sales volume slumps, a common tactic is to raise prices. With a strong brand, revenues increase. However, over time the outcome is to simply accelerate the decline in sales volume.  Brands pay a price for higher prices that tend to cover slipping transactions. Raising prices to beautify a brand with increased value to shareholders is damaging to perceived value to customers.

Raising prices when your brand is not selling well is problematic. True, this approach makes leadership proud And, makes Wall Street happy. But, raising price on a troubled brand misdirects brand actions that could increase sales.  Why are customers frequenting your brand less than before? Why are fewer people buying your brand? Why are customers abandoning your brand? Will customers stay with the brand even though the price is higher and the competition better?

Raising prices with less volume can work if it is part of a brand’s strategic vision for the future. A strategic decision to focus on a higher-priced market segment is different from a strategic decision to cover up volume declines with price increases.  Clearly, this is what drives General Motors as it focuses on expensive vehicles abandoning the less expensive sedans.

When brands raise prices to cover-up for diminishing sales, brand problems become blurred. Across the board price increases to cover-up for sales decreases is a signal that the brand has lost its grip on the differentiated value of its benefits and features. It means the brand does not have a firm grip on its customers’ perceptions.  

Yet, according to Disney’s CEO, Bob Chapek, there is nothing to worry about. This is because, as Mr. Chapek told investors, “We’re the best value in streaming. We believe that we’ve got plenty of price value room left to go.”

It is important to note that the marketing department or the CFO team decide price. The customer decides value. Disney+ will only be a great value if its customers believe that the total brand experience relative to the total costs (money, time and effort) is valuable.

Also, it is incredibly important to recognize that price and value are not the same. Price is the amount of money required to pay for something. Value is about worth. In fact, the actual word, value, comes from the Latin valere, which means, “to be worth.” Price means, “How much money does it cost?” Value means, “How much is it worth?” That is why we have two different words. Just because Disney+ will now have a variety of price points does not mean that it will morph into a great value in the customer’s mind.

For Mr. Chapek to know now that customers will continue to see Disney+ as a great value is a prediction that may not happen. There must be reasons why Disney+ is faring poorly in the US. Price may or may not be a reason. Excellent competition may be a reason. Cutting back on in-home entertainment services may also play a role. Of course, Wall Street loves the aggressive positivity of Mr. Chapek’s comments. And, Wall Street is happy that this cherished brand is now aiming for profitability. 

Profitability, however, will hinge on whether current customers see Disney+ offerings as a fair value.

There are steps brands can take to craft the future when it comes to pricing and value.

Even a beloved iconic brand such as Disney needs to completely understand its customers’ minds. As a start, here are five things brands can do when it comes to pricing:

  1. Understand how your brand is differentiated from its closest customer-defined competitor 
  2. Understand the customer-perceived 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
purina brand marketing

The Corporate Branded Portfolio And Purina

If you read or skimmed the recent issue of National Geographic, you saw throughout the magazine one of the best examples of a Corporate Branded Portfolio. The Corporate Brand is Purina, the pet nutrition and pet welfare company. The Branded Portfolio is some of our most well-known pet brands including Purina Alpo, Purina Bella, Purina Beggin’, Purina Beyond, Purina Busy, Purina DentaLife, Purina Dog Chow, Purina Puppy Chow, Purina ONE, Purina Pro Plan, Purina Cat Chow, Purina Friskies, Purina Tidy Cats and more.

Scattered through this issue of National Geographic are a number of advertisements from Purina products. All of these products identify the Purina name. The Purina name, the corporate brand, is the source of the origin, quality, leadership, trustworthiness and area of excellence (pet health and foods) for all of the brands in the Purina Corporate Branded Portfolio. The Purina Corporate Branded Portfolio ads (5 ads) are as follows: 1) Purina Fancy Feast Medleys (two flavors), 2) Purina Prime bones (3 flavors), 3) Purina Pro Plan, 4) a corporate ad for Purina Kitten, Purina ONE, Purina Pro Plan, Purina Beneful, Purina Puppy Chow and 5) an ad for Purina Tidy Cats (3 types) kitty litter.

In our especially volatile world, one of the most viable ways to build strong brands is to move the organization from supporting a Portfolio of Brands to developing and strengthening a Corporate Branded Portfolio. Like Purina, firms are moving from a Portfolio of Brands, where organizations have a portfolio of individual brands each building preference on their own, to a Corporate Branded Portfolio, where individual brands share a common, corporate, provenance-based heritage, enhancing their individual abilities to build brand preference. 

A Corporate Brand is a powerful symbol of expertise, authenticity and authority deriving its strength from its heritage.  A Corporate Branded Portfolio provides customers richer, authoritative experiences delivered by strong individual brands. A Corporate Branded Portfolio approach allows individual brands under the aegis of a strong Corporate Brand to focus on their relevant differentiation, meaningfully connecting with customers and potential customers.

A Corporate Brand provides continuity and consistency across all platforms enhancing strengths of all channels. The Corporate Brand influences customer preference. This leads to increased opportunities for cross-purchase among individual brands in the Corporate Branded Portfolio; generating more revenue; and increasing cash flow. A Corporate Brand enhances the attractiveness of the individual brands in the loyalty program.

Using a Corporate Branded Portfolio brand architecture approach is a smart move. And, increasingly, branded families are opting to do so.

This is happening for three reasons. 

First, there is the increased importance of the Corporate Brand. In an uncertain environment, people seek trustworthy signals of expertise, authenticity, and authority. A Corporate Brand provides a source of trust based on its provenance. The Corporate Brand is more than the identity of an organization, its culture, and its values. It is a seal of permission to believe. A familiar, quality, leading, trustworthy Corporate Brand identifies a provenance of credibility, an excellent reputation, integrity, and responsibility. These elements are the foundation for building Trust Capital leading to High Quality Revenue Growth. 

Second, a Corporate Branded Portfolio allows individual brands to meet customers’ personal needs and occasions while the Corporate Brand provides connections to a trustworthy, credible source on which these customers can rely. 

Third, individual brands become stronger and more meaningful when associated with a powerful Corporate Brand. Knowing that individual brands are connected to a provenance-based authority allows customers to increase their loyalty through direct, richer experiences from all the brands within the Corporate Branded Portfolio.

A Corporate Branded Portfolio creates meaningful lifetime customer relationships leading to High Quality Revenue growth of the portfolio and of the firm. A Corporate Branded Portfolio allows individual brands to be very focused on the needs that really matter to customers.  This accelerates growth around the world, and drives stronger, consistently delivered business performance

Research reveals that people using more brands within a Corporate Branded Portfolio are more loyal than those who confine usage to just one brand. Someone using six (individual) brands one time is more loyal to the portfolio than someone using one (individual) brand six times. Using more than one brand in the portfolio: 1) increases revenue contribution for the corporation; 2) increases the duration of the relationship with the branded portfolio; and, 3) increases engagement with the Corporate Brand. This multiple-brand behavior increases the importance of the Corporate Brand’s loyalty program, as the program provides trustworthy access to the entire Corporate Branded Portfolio, encouraging easier, more confident, personalized, less risky decision-making.

It is important to note that having a Corporate Branded Portfolio approach does not just provide consumer-facing benefits.

A Corporate Brand provides a common, credible, authoritative connection across all stakeholder relationships. It is an advantage against competitive actions. It is a promise of provenance for all those engaged, and invested in the Corporation, and its portfolio of individual product and service brands.

Given the number of Corporate Brand stakeholders – customers, employees, shareholders, the financial community, neighborhood community leaders, opinion influencers – it is more important today than ever before to build a consistent, powerful, provenance-based Corporate Brand.  

Moving from a Portfolio of Brands to a Corporate Branded Portfolio enhances individual brands’ reputations due to the connections with the Corporate Brand’s provenance, building brand loyalty across the whole portfolio. 

Marketing's Greatest Sin

Marketing’s Greatest Sin

Here is marketing’s greatest sin: there is no legal definition of a brand. Everyone speaks about protecting their brands. But, it is difficult to protect something when it is not a legal entity.

Imagine you are embroiled in a legal case.  Your brand is under attack. Imagine that you invite a branding guru as an expert witness.  At some point, the time will come when somebody’s lawyer asks, “Mr. Expert, Mr. Guru… What is a brand?”  If you have ten experts, you will have 20 definitions.  This is because every expert refuses to be an expert on the subject of what is a brand.  The experts will equivocate. The experts will provide vague answers. The experts will say, “Well, it all depends.  A brand is about image.  A brand is a logo. A brand is about positioning.  A brand is about value.”

A lawyer in England once said, “We cannot defend what you in marketing cannot define.”  And, you know, she was right.  Marketers, branders, the whole lot of gurus have been unwilling to come up with a definition that can be defensible. This is because everyone, every guru, every consultant, every advertising maven believes they must have their own definition.

It is the same outside of the courtroom. Ask twenty or thirty marketing executives the definition of a brand and you will receive twenty or thirty different answers. No wonder C-suite executives see the CMO’s efforts as costs rather than investments. 

It is unbelievable and irresponsible that we can have a widely accepted, legal definition of a trademark, and yet, we cannot have an equally, widely accepted, legal definition of a brand.

Go on the Internet and you will find this definition of a trademark:  

“The definition of a trademark is a name, term, design, symbol or any other feature that identifies one seller’s goods or services as distinct from those of other sellers.”

Whatever version or variation you may have in your country, the basic concept of a trademark is widely accepted.  The trademark identifies the source of the product or service. In a courtroom, you can swear that this is the definition of a trademark. 

The word brand does not even exist in law.  The time has come that with equal confidence we should be able to say, “I swear, so help me God, this is a brand.”

We just cannot do this today.  

What is worse is the fact that marketers use this definition of a trademark as the definition of a brand.

For example, go on the Internet site of the American Marketing Association and what you will find is this:  

“The definition of a brand is a name, term, design, symbol or any other feature that identifies one seller’s goods or services as distinct from those of other sellers.”

Go to Wikipedia and type in “brand.” Guess what? The definition of a brand is the definition of a trademark. Just imagine all of those university students writing papers for a marketing class using Wikipedia as fact: they are using the wrong definition.  Worse yet, their professors are accepting this.

The actual legal definition of a trademark is: 

“… any word, name, symbol, or design, or any combination thereof, used in commerce to identify and distinguish the goods of one manufacturer or seller from those of another and to indicate the source of the goods.”

The whole idea of the trademark is to protect the maker of the product or service. This is great. But, it is not a brand.

We have two words – trademark and brand – because these two words mean two different things.  But, right now, there is no useful distinction between a trademark and a brand at the American Marketing Association or anywhere else.  

Yet, in our language and in practice, we know there is a difference.  We know there is a difference.  We must make that difference legally defensible.

Not having a legal definition of a brand is marketing’s greatest failure and its greatest challenge.  

Why?  

Because in marketing, we do not talk about trademark loyalty.  We talk about brand loyalty.  We do not talk about trademark loyalty management.  We talk about brand loyalty management.  We do not talk about trademark power.  We talk about brand power.  We do not talk about trademark equity.  We talk about brand equity.  

Let’s use this definition of a brand.

“A brand is any distinctive identity that identifies or distinguishes a specific promise associated with a specific product, differentiating that product from others in the marketplace.”

Promise is a very important concept.  Promise is fundamental.  Here are some of the implications.

You trademark products.  You brand promises.  You trademark products.  You brand the promise associated with the product.

Think of the trademark Crest. The trademark Crest identifies the source of fluoride toothpaste.  But, the brand Crest identifies not the source of fluoride toothpaste. The brand Crest is the source of the promise that you will die with your own natural, gorgeously white teeth attached to your head.  Its current tagline is “Extend the Life of Your Teeth.” Crest’s goal in marketing is to own the promise of a lifetime of healthy, gorgeously white teeth.  You may be dead, but you will have a beautiful smile.

This is a big promise.  And, this promise must be defensible in court, as well as defensible with the consumer. If a brand is not a legal entity, there is a risk that someone else can use that identity. Whether it is a mouthwash or a toothbrush, no imitator, no copycat should be allowed to steal Crest’s identity.

With the above definition of a brand, you might ask, “What is a brand promise?”  It is a simple sentence.  “Buy this brand, you will get this experience.”  That is the definition of a brand promise. It is future oriented. A brand promise indicates what the brand will do for you.

Think about Harley-Davidson. It is an amazing brand.  It is an extraordinary brand.  It is more than a promise of a motorcycle. It is a promise that if you buy a Harley, you will get this Harley experience.  Harley-Davidson does not just sell motorcycles.  Harley-Davidson sells the promise of a special, authoritative experience.  

If you want to know how to measure the strength of a brand, the answer is the number of people willing to tattoo your logo on their arm.  That is a long-term commitment to the brand.  

Remember, you brand promises, not products.  A promise creates an expectation.  The product is the evidence that you conform to that expectation.  Trademark products. Brand experiences.

One goal of marketing is to turn trademarks into brands.  The goal is to turn a trademark into standing for a relevant differentiated promise.  Associating a relevant and differentiated promise with a trademark turns the trademark into a brand.

A brand is an asset on a balance sheet. The accounting concept of Goodwill is all about the value of the brand-businesses. Enterprises must report Goodwill when the value of a purchased brand-business is more than the value of its assets. When brand-businesses are in trouble, you find the enterprise reporting an impairment.

Financially, brands are treated as assets. But, legally, not so much. The concept of brand is not in the law books. The legal cases in which brands play a role are all about trademark infringement and trademark dilution. The source id protected; the experience is not. For a marketing environment that is all about selling experiences, this lack of protection is a sin.

Now is the time for marketing to work together to create and institute a legal definition of a brand. For how much longer must this impossible situation continue? Marketing can do itself a great service by making sure legally that a brand is more than a trademark.

Disney+ streaming brands branding marketing

Streaming Brands Are Scavenger Brands

Streaming brands have become scavenger brands. Streaming brands are focused on scavenging for new subscribers with little focus on current customers. Scavenger brands survive by relentlessly seeking larger subscriber numbers to satisfy investors and analysts. Scavenger brands are the hunters and gatherers of the modern age. A streaming brand’s stock price and image are dependent on showing a larger and larger user base. Netflix suffered a serious decline in its stock price when it announced that it did not meet subscriber expectations and actually lost customers. The loss of around 200,000 customers erased about $80 million from the brand’s bottom line.

There are two critical brand issues that streaming brands push to the side. 

First, love your core customer.

No brand can survive on acquisitions alone. A brand needs both new customer and current customers. Current customers should be maintained and respected and loved. Current customers are valuable. If they really enjoy the brand’s experience, current customers will be willing to pay more. They will look for additional ways in which to experience the brand. 

Streaming brands are focused on growth. Disney’s CEO, Bob Chapek, indicated in a recent earnings call that Disney+ is focused on growth targets between 230 million and 260 million. Right now, Disney+ has 137.7 million. This reflects an increase of 7.9 million subscribers since the last quarter. Disney never mentioned retention of current customers in its earnings call. Disney also owns streaming brand Hulu. Hulu has 41.4 million viewers.

Warner Bros. Discovery’s HBO Max is focused on growth as well. The brand currently has grown to 76.8 million viewers. This is 13 million more than a year ago. Warner Bros. Discovery has indicated that HBO Max will be combined with its other streaming brand Discovery+ with 23.5 million users.

Paramount+ indicated that it had grown its subscriber base to 40 million. This is an increase of 6.8 million over the last quarter. In its earnings call the word “retention” was only used once. Paramount+ management believes that its library of content is what will “retain” its subscribers. Of course, Disney and HBO Max say the same thing.

Netflix did not have such good news as the brand lost customers and did not meet expectations on acquisitions. As Jason Aten points out in Inc. magazine this is probably because Netflix has no one left to sign up. “There comes a point when you are the largest streaming service, that it’s difficult to find people who are not already subscribers. You would think that would be considered a win, except that shareholders want to see growth, even when you are as big as you are reasonably going to get.” Netflix already has 214 million subscribers. Growing at the same rate as when you were smaller is extremely difficult. Disney+ and paramount, for example, have much smaller bases to build upon. When it comes to streaming, it is all about winning the acquisition war.

Growth is good, of course. But, all you seem to obtain as a subscriber is the ability to watch whatever you want for a fee. At some point, you may have watched what you signed up for and, with nothing else new to watch, you may cancel and move on to the next shiny new streaming service. Where is the additional value for the subscriber?

As a potential streaming customer, you are wooed with various tiers of viewing, some with advertising, some without advertising. So, you are able to choose a plan that works for you. But, once you become a user, you become a loser. Once you are a customer, your value to the brand is your monthly subscription fee. Sure, you are able to watch content, but you are just a number to please Wall Street. 

Scavenging for new customers at the expense of loving your current customers is a strategy for disaster. Brands need to reinforce customer attachment. Special deals will attract new customer. But these may not be the customers you want. They may sign up for some special movie and then leave. They may be loyal to the deal rather than the brand.

Netflix is learning this lesson. Recent survey data show that in the first quarter of 2022, Netflix lost 3.6 million subscribers. Of these, 60% had been Netflix viewers for under a year. Additionally, Netflix’s focus on acquisition of new customers led to a 13% loss of loyal customers, those who have been with Netflix for 3 years or more. 

Although not a streaming brand, The Wall Street Journal is a great example of a subscriber brand that offers a wide variety of experiences for current users. There is a weekly members-only newsletter of events, offers, insights and experiences package including trips, discussions, free audio books, educational courses, cooking classes, virtual tours and passes for galleries. The Wall Street Journal focuses not just on finding new readers to subscribe. The paper also focuses on ensuring that current readers have an expanded experience beyond news.

Second, Have a relevant differentiated Brand Promise

It is common marketing sense to focus on current customers as well as new customers. But, to do this successfully requires the brand to have a relevant, differentiated brand promise relative to competitors. What brands do not want is for customers or potential customers thinking that all the brands are the same. Although the streaming brands see themselves as relevantly differentiated from each other, tiered offers and content seem to be the selling points. The problem with this is that not only are tiered offers and content features, not benefits, but tiered offers and content are greens’ fees or table stakes. They define the category.

A brand promise goes beyond just describing the category: it is a multi-dimensional. It defines the parameters for all development, communications, innovation and renovation on behalf of the brand. A brand promise defines the special relationship between the brand and its users. The brand promise describes what the brand intends to stand for in the mind of a specific group or customers or prospects. The brand promise is future-focused: it tells us what the brand will do for the customer. 

The brand promise defines the brand’s essential relevant differentiation. It succinctly articulates the values of the core customer, the benefits these customers seek from the brand, the personality of the brand and its features. It is not enough to merely define the features.

If streaming brands want to scavenge for something important, they should be scavenging for their relevant differentiation. Disney+ alludes to the fact that their content is safe for people of all ages. But, again the default is the content. This is too bad. As a business, Disney had as its differentiator the creation and delivery of happiness. Disney was safe, magical, high quality, and affordable for anyone and everyone, regardless of age. Why is this not reinforced with customers, investors and analysts? Surely, this purpose relevantly differentiates Disney from Paramount+, Netflix, Warner Bros. Discovery? Disney+ will need a relevant differentiator. As one media analyst told The Wall Street Journal, “While it seems Disney+ is winning the subscription battle for now, let’s not forget it is late to the streaming party. It will see subs (subscriptions) losses at some point.”

In a recent article for Vanity Fair, Joy Press talks about the streaming marketplace and the ways in which streaming is changing. She notes that the streaming marketplace is “overcrowded” and that streaming brands are “uncertain about how to keep expanding (and retaining) their subscriber bases.” She discusses the internal agita of the brands as they are torn between creating segmented, niche, sometimes unconventional content and broadening the appeal of shows for the mass market. Ms. Press says that currently there is enormous pressure “… to be all things for all people.” 

Brands need focus. They need to have a handle on their prime prospects and like-minded others. Having a brand promise that relevantly differentiates the brand’s experience is what will keep current customers loving a brand when there are no new customers available anymore. 

Being a scavenger brand is bad for business. Having an acquisition-focused strategy at the expense of nurturing loyal customers will eventually take its toll. Loyal customers will leave the brand for better options. This is already coming true for Netflix. In a highly competitive category, with each rival offering quality entertainment, loyal customers have plenty of options.

Furthermore, even in entertainment, brands must have relevant differentiated promises. 

In describing the “up-fronts” – the event where the media showcase their offerings to entice advertisers to buy ad time – The New York Times reported that streaming media were “taking center stage”. Streaming media previewed trailers of movies and series hoping to capture percentages of advertisers ad budgets. All of the streaming services with ad-supported offerings gave the same kind of presentations: here are the shows we will be featuring. As told to The New York Times, there is a real shift in the media industry. The upfronts used be all about the TV networks, but now streaming media are upending that model. It makes sense in this competitive environment that streaming brands stand for something relevant and differentiated to stand out from the rest of the crowd. “My content is better than their content” will only work for a little while. Netflix is a great example that relevant differentiation is critical.

Brands survive and generate high quality revenue growth when they drive both quantity of growth and quality of growth while offering a relevant, differentiated trustworthy experience. 

Netflix Brand Changes

Netflix Finally Stops Believing What Worked Yesterday Will Work Today

There is a brand-business truism that states: Believing That What Worked Yesterday Will Work Today is Brand-Business Destructive. At some point, top executives and Boards of Directors need to face the music in a changing brand-business landscape. They need to stop doing what worked in the past. Problems arise when the strategic plan is to keep on keeping on with the same approach.

By now, readers of the business pages and business press will know that Netflix reported a significant loss of subscribers in their latest analyst call and, hence, experienced a significant drop in market value. Observers have been quick to comment on Netflix’ CEO Reed Hastings’ remarks regarding his thoughts on fixing Netflix. Financial Times called Mr. Hasting’s remarks a “humbling volte-face.” Reporters sounded almost gleeful when indicating that when facing this loss of subscriber growth, it took no time at all for the brand to “jettison long-cherished principles.”

Mr. Hastings was criticized for indicating that he was now planning to do things that he had previously said he would never do. These include ending password sharing, admitting there is excellent competition with which to deal, curbing massive content spending and allowing advertising. One analyst was unfortunately harsh saying that listening to Mr. Hastings was “… shocking.” The analyst followed by saying that the Netflix management team “… sounded like any other management team that just didn’t have the answers.”

This sort of criticism is brand defeating. It seems that every envious soul is kicking Netflix while the brand is down. In fact, according to The Hollywood Reporter, there is an entire town (Los Angeles) that is “rooting against” Netflix.

This unfortunate sniping shows an incredible lack of intelligence about brand-building. It is quite clear in brand-business management that continuing to do what worked in the past when the present is different is a tendency for trouble. Recognizing that things must change; recognizing that “cherished behaviors” may no longer be feasible is necessary for any brand. Mr. Hastings should be given some positive reinforcement for immediately telling us that it is time for the Netflix brand to respond and market differently. Better late than never.

Customers change; the world changes; brand reputations change; and competition changes. Doing what once worked when the current landscape is different makes no sense. Thinking that what worked yesterday will work today is inward looking. When focusing on past, successful strategies, a brand misses what is happening now and what can happen tomorrow. 

Mr. Hastings and his Netflix executives may be late to the recognition that things have to change, but at least they are planning for implementation now. Netflix is a pioneer; a category creator and definer. Netflix single-handedly disrupted the entertainment category affecting how, where and why people viewed content. The Netflix brand changed the game for television viewing, movie theaters and for Hollywood. Netflix was the leader. Netflix was the brand that all the other streaming brands emulated and, in some ways, copied. When the brand was growing, creating a new category of viewing content, Netflix followed certain strategies. The Netflix brand continued to implement these strategies even though, over the course of years, the viewing landscape was changing under its feet. As one ex-Netflix executive said, “There was never any fear that we’re in trouble. The feeling was we are leap years ahead.” 

According to online TheStreet.com, Netflix lost customers because of two issues: available content and its catalog. On the one hand, Netflix suffered because other streaming services – following Netflix’ model – have been able to generate “buzzworthy” content at or above Netflix’s quality. Disney+ and Apple+ have seriously desirable content available. On the other hand, Netflix’s access to content was cut-off when the movie studios and TV networks started their own streaming services. Shows such as Friends or The Office returned to their original owners’ services, leaving Netflix with major gaps. Netflix underestimated the power of its follower brands and overestimated its power as a pioneer.

The Hollywood Reporter adds a third content-related problem: jettisoning the creative mind behind the expensive but extraordinary shows House of Cards, Stranger Things and Orange Is The New Black. Instead, Netflix focsued on “… less expensive, less curated, less compelling…” content that began “The Walmartization” of Netflix. Netflix, certain that quantity of original content was the answer, generated “a burgeoning number of shows” that lacked “quality control and curation.”

In other words, The Hollywood Reporter indicated that the Netflix approach of massive content generation became a “binge strategy” – make all these shows and they will come. And, as Jeff Sommer for The New York Times points out, Netflix cannot continue to just throw money at its problems.

But, all things, even bad ones, come to an end. As one rival executive said, “I don’t think Netflix is Blockbuster. I think it’s here to stay. But, the idea that they could spend their way to world domination is over.”

The renowned marketing guru, Peter Drucker, was a proponent of stopping what worked in the past. Mr. Drucker recognized the pitfalls into which so many great brands fall when it came to doing the same thing over and over. His lessons included these three key elements: 

  1. Environments change. Continuing strategies and actions that created past successes will eventually lead to failure. 
  2. Being defensive and unyielding will also lead to failure. Organizations must be willing to (quickly) abandon formerly successful approaches. 
  3. Believe that change will happen and that sometimes the change will be revolutionary. Enterprises should create the future by making changes even though it means “obsolescing the products or methods of its current and past success.” 

This is common sense. Standing still while changes rage around you is a formula for failure. Markets and customers change quickly. So, companies must be flexible, agile and quickly decisive. It is also important to have a leader who is willing to look outward rather than backward. 

Building a brand that is not afraid of letting go is critical. This means being ready to take or regain leadership in a fast-moving, changing world. Staying alive and growing hinges on how willing the brand’s top executives are to recognize when it is time to move on and jettison a strategy that is holding the brand back. Brands can live forever but only if properly managed. This means recognizing when it is time to innovate to breathe new life into a brand.

Netflix is telling us that some things will need to change. The brand is suggesting that many of its previous strategies are no longer helping the brand to grow.  The Netflix brand-business model will undergo alterations. Some of the more reasonable observers are questioning whether cutting funds for content and having advertising are actually the panaceas that Netflix needs. 

In the interim, it is refreshing, no matter how fraught and messy the situation is, to see a brand-business leader say that things will need to change if the brand is to survive.

Kraft-Heinz SEC

An SEC Ruling Favors Brands

You may have missed an important brand-elevating event this month. On September 3rd , the SEC settled a case of financial finagling with Kraft Heinz. Kraft Heinz, home to some of America’s favorite brands, agreed to pay a fine of US $62 million. This fine is a result of a financial scheme designed to inflate cost savings. The cost savings inflation made the enterprise look really good to analysts. This positively affected stock prices. Shareholders were happy.

Kraft Heinz, a 2015 merger of two iconic companies, engineered by the Brazilian private equity firm 3G Capital, promoted and utilized a severe financial approach called zero-based budgeting leading to massive cost-cutting. This approach denied funds to brands for renovation and innovation as well as for market research and all other strategies and tactics necessary for brand-value-building. 

The extreme cost-cutting, along with debt-accumulation and large numbers of employee firings siphoned money into the pockets of investors and executives rather than into brands. 3 G’s financial engineering seemed to have only one goal: satisfy shareholders at the expense of customer satisfaction and brands. 

The SEC was aggressively forthcoming in its ruling. Here is some of what the SEC had to say as quoted in The New York Times:

“Kraft and its former executives are charged with engaging in improper expense management practices that spanned many years and involved numerous misleading transactions and a pervasive breakdown in accounting controls. Kraft and its former executives are being held accountable for placing the pursuit of cost savings above compliance with the law.”

There is a marketing principle that says you cannot cost manage your way to high quality revenue growth. Financial engineering that extracts value from brands is a form of brand extortion. Innovation and renovation of products and services dwindle as monies are withheld.

As Kraft Heinz learned, financial engineering at the expense of customer focus and the brands they love is a financial formula for failure. 

Kraft Heinz was so focused on cost savings that the organization ignored this principle at its peril. By 2017, there was no more money to cut. Rather than give up on its financial engineering, Kraft Heinz skirted the law. Rather than honestly reporting its financial statements, Kraft Heinz booked a large amount of cost-savings in the year for the year when the cost savings were meant to be spread over three years. The SEC stated that Kraft Heinz actually changed the wording on a procurement agreement in order to create this false scenario for investors in order to make Kraft Heinz’ earnings report look fantastic. The false accounting was also designed to generate further excitement for zero-based budgeting. Kraft Heinz told analysts that the company had cut US $1.75 billion in yearly spending by the close of 2017.

Brands can live forever, but only if properly managed. Kraft Heinz neglected its brands. And, because of the pressured environment to cut costs, Kraft Heinz found itself unable to sustain the value of its brands. In 2019, Kraft Heinz was forced to write down the value of beloved brands like Oscar Mayer and Kraft mac and cheese by more than US $15 billion. 

Again, you cannot cost manage your way to enduring profitable growth. The Wall Street Journal reported that former Kraft Heinz employees said “…the company’s heavy cost-cutting after the Kraft Heinz merger diminished its ability to promote new or improved products.”

The goal of effective management is high quality revenue growth. The bottom line of any enterprise is to attract more customers who purchase more frequently who are more loyal generating more revenues and increasing profitability. Quality revenue growth of the top line is the road to enduring profitable growth of the bottom line. Organizations must focus on both customer value and stakeholder value at the same time. Focusing only on shareholder value at the expense of customer value is death-wish management.

Enriching loyal shareholders through financial finagling combined with short-term marketing tactics does not address declines in customer satisfaction and transactions. The financial engineers insist that their behaviors “unlock value.”  Not true. Financial engineering does not unlock value; it exploits value for short-term benefit. And, in the end, the brands (as well as, customers and employees) pay the price for these pecuniary shenanigans.

This is not to say that having a short-term focus is completely wrong. If there is no short term there will be no long term. However, managers must manage both the short term and the long term. The in-the-year for-the-year approach to management is a brand destroyer.

The SEC ruling with its accompanying fine and its charging of two of the executives involved may have been buried in the press after September 4th, but it is a boon for brands. 

Hopefully, this ruling will put some nails into the coffin of zero-based budgeting and financial engineering. Hopefully, this ruling will persuade companies to start engineering on behalf of customers, all stakeholders and brands. Hopefully, this ruling will usher in a new era of corporate virtue.

In the meantime, Kraft Heinz has acknowledged that brand building must be a priority.