Smoothing Out Demand, Wendy’s, Dynamic Pricing And The Price-Beleaguered Customer

If you thought pricing was a sleepy part of your brand-business strategy, time to wake up. Pricing strategy is front-and-center in today’s marketing. Pricing strategy is incredibly, economically impactful. Pricing strategy changes the way customers perceive brand value.

Continuous price hikes, reference pricing, price indifference point are altering customer-perceived trust and value. Add dynamic pricing to this list.

Dynamic pricing, according to its proponents, smooths out demand, which tends to generate more profit. Dynamic pricing helps with margins which are an obsession with brand-businesses. With dynamic pricing, brand-businesses can generate demand during slow periods while easing demand during busy periods.

In March 2024, Wendy’s announced a dynamic pricing scheme. After some commentary on TiK Tok, Wendy’s became the target of an extraordinary backlash. Wendy’s recanted, backtracking on its proposed “demand” pricing. However, dynamic pricing is already embedded in fast food menu boards. We may not notice this, but price changes are subtly affecting our purchases. And, interest in dynamic pricing grows as already in-place technology, as well as AI capabilities, make the ability to strategically shift pricing seamlessly on menu boards, apps and electronic “tags” on grocery items ubiquitous.

With brand-businesses continuously raising prices, dynamic pricing is now a hot topic of consumer interest generating lots of observations in the business press, newspapers and the Senate floor.

Dynamic pricing has been around for a long time. Before Uber’s “surge” pricing, airlines were – and still are – heavy users of dynamic pricing. As are gas stations, utilities and commuter trains and buses. 

Off-Peak and Peak prices vary. If you are planning a trip and book a flight in advance of your start date, you pay a lower price than the person who makes the reservation the day before the flight. If you take a Metro North train from Greenwich CT, to New York City at 10 AM, your ticket price will be lower than if you traveled at rush hour.

Utilities urge customers to do their laundry at night to save money. Utilities also suggest using cold water rather than hot water. At certain restaurants, the price of an item served at lunch and also served at dinner will vary as the lunch price will be lower than the dinner price.

Happy Hour is a form of dynamic pricing as are the Early Bird specials that seniors and families with kids prefer. Taco Bell runs a Happier Hour.

There are many people who believe that dynamic pricing is good for businesses and good for the customer. In an interview on CBC Radio One, a Wharton professor described how dynamic pricing benefits both customers and the brand-business. He said, 

“I think in dynamic pricing … is good for everybody. In theory, dynamic pricing can be good for every firm in every industry.

“As a customer, it’s actually good for you. Think about it. … When firms do dynamic pricing then they have the flexibility to lower the price, too, right? So, it’s not just the raising the price. Which means that for the people who are willing to pay higher prices, they probably get charged at high prices with different services. And, for the people who are not willing to pay a high price, you get access to the goods. I think that ultimately it’s good for everybody and it’s good for the society. 

And, I think that it just takes some getting used to. If you look into the airline industry, for instance, after deregulation, before there was deregulation, the price was fixed. There was a constant, right. But after that, of course, people were very unhappy about the fact that prices vary over time. But, over time, they learned that in fact it was good for them. Simply because if you’re vigilant, if you pay attention to prices, then you can actually get some really low-price tickets.

“(We see dynamic pricing in the) … service industry … definitely, I mean, fast food restaurants …. And, in the grocery stores with electronic price tags …. I cannot see any industry where you cannot do it. In fact, if you look at a car business, when you buy a new car, it has been dynamic pricing for a long time. It’s just that we don’t talk to each other about car purchases and how much price we are paying, right? So, I think that (dynamic pricing) will come to a lot of different places where we would not expect.”

Those economists and marketers in favor of dynamic pricing believe that with fast food, dynamic pricing is an aid to operating at lower costs. Dynamic pricing also provides a competitive advantage because, in general, the store is charging lower prices on average compared to what is currently charged. 

How is this possible? 

At off-peak times, the restaurant must still pay crew members and cover fixed costs. To be profitable, a restaurant must figure out how to recoup those sunk costs.  One way is to raise prices during peak times. The basic principle of dynamic pricing is that offering lower prices during slow hours allows a restaurant to attract more customers. From the restaurant’s standpoint, prices are, on the average, lower even when charging higher prime-time prices because the total restaurant average price is now based on attracting more lower-priced customers.  This is called “smoothing out demand.”

Of course, as Wendy’s learned, and as other marketers should be aware, customers do not care about your pricing strategy.  Customers do not care about smoothing out your demand over the course of a day. Nor do customers care about your sunk costs or your profit. Customers are concerned about affordability, transparency and fairness at any time of day.

Economists also view “costs” as not just money, but money, time and effort. This perspective is very different from customers’ perceptions. Customers faced with a menu board of variable price x time offerings are not thinking about the “costs” of time and effort, such as waiting or navigating a menu board.  However, money, time and effort do mentally affect how customers perceive value, even though customers may not notice at the time. At that moment of purchase, customers only see higher prices at the times when they are most desirous for or able to satisfy their hunger. Consequently, when waiting for a peak-time meal, the frustrated customer probably feels that there should be a discount for the waiting time not a price premium. Furthermore, if the wait-time is long and the meal is just OK, the costs relative to the experience are higher, eroding the customer’s perceived value of the brand.

Look at the situation from the customer’s perspective. If you only have thirty minutes to grab a lunch meal, you are only thinking about that thirty minutes and your lunch meal. Marketers are insensitive if they think that customers say to themselves, “Gee, I don’t mind the higher price because at the end of my day, I can enjoy Happy Hour.” Marketers are misguided if they believe customers are more flexible with lunch or dinner times just because societal trends highlight multiple meals a day at odd hours along with grazing. Most people have a specified lunch time. Even your doctor’s office gives employees an hour mid-day for lunch and the phone message tells you so. 

At the point of purchase, a customer’s mindset is also not focused on the brand’s loyalty program. In fact, the Wendy’s situation shows how shallow are people’s connections to loyalty programs. Brands may see loyalty programs as dynamic “personalized” pricing, but probably customers do not. Customers see their points as rewards for regular, frequent usage. Customers are still going to be miffed at higher prices at peak times because those loyalty points will only stretch so far to cover the increased cost of the meal or snack.

Another issue to contemplate. Dynamic pricing makes sense to marketers. But, restaurants are food deliverers – food that you want when you are hungry. Hunger is a universal need. Customers do not care about dynamic pricing from the standpoint of “smoothing out” demand when they are hungry. Nor do customers see the price differences between off-peak and peak as fair when they are hungry.

When it comes to dynamic pricing and food, a professor at Guelph University in Canada commented on the Wendy’s issue, the potential problems with dynamic pricing, grocery stores and food.

“Well, the reality is with a rideshare we can decide to go with a taxi. We can decide to go with someone, something else. With food, we cannot defer a purchase. We can’t decide not to fly there for a holiday because it’s too expensive. We can’t defer a purchase, so we’re much more sensitive to food price increases.

“So, I think the fact that we can’t defer food purchases, the fact that we are currently in an affordability crisis, the fact that grocers are already receiving negative perceptions, makes dynamic pricing beyond what we’re doing already, a dangerous thing to do. I can’t see the grocers seeing this as a smart initiative.”

It is possible that customers may respond poorly to dynamic food pricing. But, the more important issue is that marketers view dynamic pricing from manufacturer’s perspectives. This is sad since a prime role of the marketer is to be the voice of the customer.

When customers think about dynamic pricing they tend to perceive unfairness, opaqueness and “scam” writ bold. The blowback on dynamic pricing is not a customer flaw. Many in the communications industry see marketers’ poor framing of dynamic pricing. Right now, customers do not see the benefits. What customers do see are brand-businesses thinking about making more money at the customer’s expense. This was certainly the case with Wendy’s.

Sure, it is great to secure a lower airfare, but, it means I need to make decisions months in advance.  Sure, I like the idea of a lower-priced meal, but, that means I have to eat dinner at 4:30 or 5:30 PM. My kids’ after school activities do not finish until then or later.

And, with prices for everything already rising into the stratosphere, any additional price hikes – whatever you wish to call these, are seen as gouging. At Wendy’s, the peak-time price seemed exorbitant while the lower price at off-peak seemed to be the normal price. Wendy’s could have communicated that the peak meal-time price was the great normal price and the off-peak time was a great brand at an even more affordable price. But that did not happen.

It is possible that food needs different terminology and communications if dynamic pricing is to be employed. On the other hand, until prices settle down, customers are going to be extra sensitive when it comes to higher prices. 

Wawa, Casey’s, 7-Eleven, Buc-ee’s Convenience Stores Win With Trustworthy Brand-Business Value

Barron’s, the financial weekly, is suggesting that investors take a long look at convenience stores. Apparently, convenience stores, such as WaWa and Casey’s and others, have captured the attention and wallets of customers. With fresh, hand-crafted foods, beverages, other merchandise and, according to Buc-ee’s, “the cleanest restrooms in America,” convenience stores are fast-becoming go-to places for speedy, affordable on-the-go offerings. 

Based on Barron’s reporting, convenience stores are “outpacing” fast food restaurants, gas stations and coffee chains. Data from Placer.ai indicate that in 2023, customer convenience-store visits were up more than 60% relative to 2019. Placer.ai data show that the increase in customer visits was only “20% higher in 2023 versus 2019 for gas stations, in general.” Placer.ai data also show that America’s convenience stores experienced higher customer visits every month of 2023 and every month so far in 2024.

One portfolio manager interviewed by Barron’s stated that in our post-pandemic lives, people are back in their cars going to work, school, after school activities and just to get out of the house and on the road. Because of car-commuting and car-driving freedom, customers seem willing to pay for “fresh food on the go” from convenience stores rather than fast food establishments.

The same portfolio manager states that convenience stores have “monetized time.” Basically, this is just making time into a cost. Time is already a cost when thinking about the value of an offer. Convenience stores are taking advantage of the fact that, “prices at fast food restaurants ballooned.” And, we lost our ability to go to sit-down eateries because we “lost patience and budget.” 

Based on the data, it looks as if we are “lovin” the one-think shopping that convenience stores offer.

Convenience stores offer affordable, familiar discovery.  We know convenience stores. But, in the current convenience store iteration, we are always surprised by something new or delightful or fit for purpose. Look at Casey’s.  Casey’s has more than 2,600 stores in the US. Aside from gas and crafted sandwiches, beverages and other items, Casey’s invests in meal innovations such as the “reintroduction of its breakfast menu.” Breakfast, historically owned by McDonald’s and Starbucks, is being coopted by a convenience store.

We appear to be willing to pay for the convenience of affordable, familiar discovery because we focus on costs relative to benefits. Convenience stores are winning because the costs are small relative to the benefits and rewards. 

As shoppers, we all have the same mental accounting when it comes to a purchase. We all have an internal mechanism for assessing the worth of a brand business. In other words, we all resort to an internal value equation: total brand-business experience relative to total brand-business costs.

This mental equation is our value equation. A consumer’s value equation is not math, it is a mindset. It is a mental process for evaluating the worth of an offering relative to its costs.

Total brand-business experience refers to the functional, emotional and social benefits and rewards. Total costs refer to time, money and effort invested in the hopes of receiving the functional, emotional and social benefits and rewards.

But, there is more.

The brand-business value equation includes trustworthiness. Can I trust this brand-business to deliver this value? Trust is the customer’s belief that the brand will deliver the experience relative to the costs.

For example, a brand-business can have value in the customer’s mind but have difficulties delivering, like EVs. People like the idea of less gasoline and more environmental satisfaction. But, EVs have a lot of problems. Can I trust the EV to get me to where I am going without a problem? 

Trustworthiness is very important component in the customer’s value equation. Trust is a value multiplier. The new mental model of value is total brand-business experience relative to total experience costs all multiplied by trust. We call this the Trustworthy Brand-Business Value equation.  Trust is the consumer’s evaluation of future experience with the brand-business: How confident am I that this brand-business will deliver this experience for these costs? 

Data show that credibility or expertise will not matter if there is no trust.

Brand-business trust significantly affects customer commitment. This influences price tolerance. Brand-business trust is a critical piece of the decision process. If you want a strong, enduring, loyal relationship with a customer, the reams of marketing, social and psychological data and research are clear: you must have brand-business trust. Trust is essential to the calculative process of brand-business acceptance..

Convenience stores are rocking the Trustworthy Brand-Business Value Equation. The total brand-business experience offers fresh foods, cleanliness, fuel – whether gas or electric – merchandise, speed and location. The total brand-business costs are affordable prices, minimum effort and time-saving. Then, convenience stores are trusted to deliver the familiar discovery experience-relative-to-costs time and again.

Additionally, from a purely effort perception, convenience stores make going home for dinner really easy. Convenience stores are the ultimate in one-think-shopping. You can fill up your tank, pick up a quality, affordable dinner, grab a hot coffee or energy drink. Just to be clear, gas is still a critical attraction.  Please forget the pun: gas is a driver of profitability for convenience stores. Casey’s showed “fuel margins of 37.3 cents a gallon and Murphy’s USA showed margins of 32.5 cents a gallon.”

Fast food restaurants are no longer as reliable in delivering a trustworthy brand-business value. The total fast food experience may be enhanced with all sorts of new technology. But, relative to the costs, the fast food experience is having difficulty living up to its previous customer perceptions of “good value.” Costs for fast food are high. When McDonald’s CEO states publicly that lower income people can no longer afford to eat at McDonald’s, you know the wind has shifted. Convenience stores responded.

Understanding the drivers of Trustworthy Brand-Business Value is one of the greatest opportunities for brand-businesses. Building Trustworthy Brand-Business Value must be embedded within the organization, becoming part of the daily brand-business conversation. 

Sure, convenience stores have leveraged the current economic and social situation to their advantage. But, convenience stores are also quite cognizant of how people are struggling to balance the costs of time, money and effort relative to the benefits and rewards of their purchases. As fast food and other dining establishments knowingly leave their lower oncome customers behind, convenience stores have inserted themselves into the competitive sets. Brand-businesses like McDonald’s must now contend with Wawa, Casey’s, Murphy’s USA, 7-Eleven. 

To generate Trustworthy Brand-Business Value, the brand-business’ inherent value must be perceived as fair value. Fair value means that the benefits per costs are equitable, just and dependable.

To increase shareholder value, a brand-business must be the most efficient and productive provider of a branded offer that customers value. The stores that offer fair value are now the convenience stores.

If Only EV Makers and Policy Makers Had Asked About Problems

Lately, there has been a lot of hand-wringing over the sales of EVs. EVs are not generating as much interest as expected. US automotive giants, except for Tesla, have backtracked on their EV plans, even going so far as to say that hybrids may in their futures, just like Toyota. Mercedes is pulling back, too. This is sad because late last year…Mercedes pledged to build 2500 charging stations in the US.

The Atlantic described the plight of EVs, 

“Without the enormous sales they’d anticipated, carmakers have walked back hasty electrification proclamations and grown cagey about the inevitability of EVs. In December, GM CEO Mary Barra hedged on its goal of selling only EVs by 2035, saying that although the company still plans to meet that target, ‘we’re going to be responsive to where the customer is at.’ In the face of disappointing EV-truck enthusiasm, GM said it would build plug-in-hybrid versions of its top trucks, something the company had dismissed just over a year ago as a half-measure that would ‘dilute’ its mission to electrify. In December, Ford halved the 2024 production goal for its electric F-150 truck. The unease isn’t limited to the big car companies in Detroit. Mercedes pushed back its goal of 50 percent “electrified” sales, which includes hybrids, from 2025 to 2030.”

There are probably many reasons for this situation. Everyone involved in EV analysis has an opinion. For example, an online Harvard Business Review article blames the “technology-adoption life cycle.” This construct, first discussed by Everett Rogers in 1962, focuses on five different technology-adoption segments: innovators; early adopters; early majority; late majority and laggards. According to Mr. Rogers, the “gap” between early adopters and early majority is more like a chasm. This is because early majority people are not interested in being change-makers. Early majority people are more “pragmatic,” looking for improved existing pioneering products.

The online HBR author states that automakers, policymakers and others did not understand that early adopters want and need different things than early majority people. The author says assumptions about the future of EVs could be different if only automakers recognize, “…the differences between what early adopter and early majority individuals want.” 

The writer’s research indicates that early majority individuals want “cars that have been tested by others” and cars “that make my life easier” and environmentally good, along with “ease of charging.” Take this to R&D!

And, so, herein lies the source of the EV-ownership obstacles. 

It is popular to say that marketers should focus on customer wants. Therefore, ask people what they want. Please note, though: asking people what they want is a colossal waste of money, time and effort. People are not good at expressing what they want. 

Asking people what they want is not as powerful as asking people what problems they have. Asking people what they want delivers generic information. Remember the words of Henry Ford: “If I asked people what they wanted, they would have said a better horse.”  Instead, ask people what problems they have getting what they want. People know how to complain. Let people do what they know how to do.

Ask people to complain … to discuss problems… concerns… worries… ask people to kvetch about a specific product or service and you learn that people are not speculating or imagining. They are talking about real problems from actual experience. 

And, the good news is humans love to complain. We are great at complaining. We are engineered to avoid painful, problematic situations. Humans are pain-avoidance mammals. Ask people to complain and you will receive all sorts of usable ideas. Give customers an opportunity to do what they love to do. Often the insightful, competitive edge will come from addressing or solving a problem, rather than just satisfying a want.

If only the automakers and policy makers thought to ask about problems, the forecasting about the immediate future of EVs would look a lot different. Stellantis, the Italian owner of Jeep, Ram and Dodge, just pledged to go ‘all in” with EVs contrary to GM and Ford. However, CEO Carlos Tavares told the press that Stellantis has figured out what US customers want. The reporting in The Wall Street Journal seems to indicate that Mr. Tavares’ optimism is based on manufacturing and cost cutting not solving customer problems.

Problem detection is the best way to identify what bothers individuals. Problem-solution is the best way to develop relevant differentiated brand-business promises. Problem Detection derives from psychological evidence that avoidance of pain – a problem – is a stronger motivator than the attainment of pleasure. Economic literature indicate that people tend to be risk-averse. We tend to pay more to avoid an unpleasant consequence than to attain a pleasant one.

A Problem Detection study begins with extensive problem lists generated by asking customers to complain. Then, respondents are asked to rate the problems on importance and frequency of occurring. The resulting data are analyzed into four groups: 

  1. Problems that are very important and occur frequently; 
  2. Problems that are very important but happen only occasionally; 
  3. Problems that are not important but happen frequently; and 
  4. Problems that are neither important nor frequently occurring.

Ask people to tell you their concerns, their problems, their worries. Then, figure out how to solve the most frequently occurring, most important problems.  Problems in this first category should be high priority.

Why are US EV sales stalling? Because the US automakers are not solving potential customers’ problems. The US automakers seem to be guided by a belief that potential EV buyers want the “cool thing” or the “improved cool thing” rather than the real thing, when it comes to EVs.

Perhaps automotive companies are reluctant to conduct their own problem detection studies.  Not to worry. Automakers can check in with J.D. Power. J.D. Power’s last survey of EVs (J.D. Power calls these cars BEVs – battery-operated EVs) point to insights into problematic issues. J.D. Power lists the following:

  • Public charging isn’t just bad; it’s getting worse.
  • Mass market BEVs deliver higher quality than premium BEVs: quality and reliability problems plague upscale BEVs. Probably due to the numerous installed software and other “premium” attributes.
  • First-time BEV owners are less satisfied than BEV veterans: First-timers have high expectations based on the constant hype about the vehicles. First-timers are very concerned about range and the multiple issues with charging. First time owners are much more willing to consider a hybrid vehicle rather than an all-electric vehicle next time they purchase a car.
  • The competitive landscape has altered: there are more hybrid options. Tesla is not the only competitor.

Or, you can Google numerous lists of detailed problems with EVs:

Batteries

There is a profusion of battery problems. Battery fires, battery disposal, toxic waste and lithium, which is also an environmental issue. In fact, a lithium “farm” scheduled by National Grid (the electric company) for the tiny Hamlet of Raquette Lake, NY, was cancelled due to residential environmental pushback and concern for the pristine Adirondack Park. Ironically, the EV, which is supposed to be the environmental answer for driving, has serious battery-building and battery-disposal environmental problems. 

More battery problems focus on how the vehicles’ climate controls affect driving range. And, recently, owners in the Northeast and upper Midwest had problems when temperatures sank to new lows: EV batteries do not like and do not function well in the extreme cold. Cold also affects chargers. Residents in Chicago, IL noted issues with chargers as the temperatures dropped.

Range Anxiety

“Anxiety” issues are problematic. Just like your Pixel phone, a battery’s power declines with age. But, low battery anxiety issues are in a sea of other important, frequently occurring problems, including software glitches and factory delays. Range anxiety happens because of problems with batteries and charging. Automotive companies continue to blame customers when it comes to anxiety problems. Automotive companies are not tuned in to the actual source of anxiety: the EVs unsolved mileage problems and charging problems. These unsolved problems are the responsibility of the manufacturer, not the driver.

Not only are there long lines at charging stations, there is extreme complexity as not all vehicles can use the same charger. According to MENAFN, “There are about 30 companies controlling the 61,789 EV charging networks in the US. Each company has its own app. As a result, drivers could end up navigating multiple apps before they’re able to charge their owned or rented EV.” Frustration of this magnitude will lead to range anxiety.

Manufacturers’ heavy focus on “range anxiety” being a customer problem belies the serious problems that potential EV owners have when it comes to owning an EV. Besides, the way manufacturers describe range anxiety makes it seem as if there is a psychological problem with the potential owner, not the vehicle. Manufacturers have spent years putting the blame on the potential owner. Owners and prospective owners have concerns about range that manufacturers must fix. Range anxiety is not a psychological issue. It is an unsolved manufacturer quality issue. Manufacturers do not make friends by publicly stating that their customers have to relax, resolve their unease, apprehensions and angst.

Charging

Charging is an issue. Not just the time it takes to recharge the car, but the availability of places to recharge. For example, last summer, many potential drivers were turned off when AVIS’ lower price Budget rental brand-business, offered only EVs at the Albany, NY (New York State’s Capital) airport. Drivers were fully aware that there were very few charger stations in the area and scarcity in upstate New York. And, At Budget Rent a Car, people actually walked away from the Albany, NY Budget counter last summer rather than accept an EV. 

The public is also aware of the malfunctions at charging stations. When Mercedes pledged to build a US charging station network, Mercedes said it was solving three huge EV problems: …  1) not finding a place to charge the car … 2) being stranded with a dead battery … and 3) “I’m fearful at charging stations in remote areas.” Mercedes solution will place its charging stations in secure… safe locations near luxury malls… not next to dumpsters.

in the US.

You can, as Wall Street Journal reporter Joanna Stern reports, install your own charging system at home. You might consider reading her story about the installation and the cost savings, post-installation investment.

Self-driving

Self-driving is a problem. Some of the press on self-driving is particularly frightening. But, the press reports reality. And, the reality is that potential customers believe self-driving needs lots of improvement before perceived as safe. 

With Tesla sales languishing, Elon Musk sees self-driving as a profit center. As reported in The Wall Street Journal, “U.S. drivers whose vehicles are capable of running FSD will get a one-month free trial in the coming days, Musk said in a post on X late Monday. The system, a $12,000 upgrade of Tesla’s Autopilot technology, includes features that can navigate cars through city streets.”

Pricing

The only truly affordable EV was the Chevy Bolt, a vehicle discontinued after repeated battery fires. One of the serious problems in the EV category is the fact that, aside from Tesla, no manufacturer has figured out how to be profitable creating mass market vehicles. 

Right now, US automakers are protected from China’s BYD’s Seagull. But, American auto executives are “kept up at night” by the prospect that Chinese automotive company, BYD, will somehow manage to make entry into the American car industry. BYD’s Seagull, a small, attractive, quality “EV for the Everyman” is priced at $6968. Right now, per Bloomberg Businessweek, tariffs and the government’s concern that Chinese vehicles will send data from connected vehicles back to China are fortifying the “no entry” to the US. However, if BYD builds a plant in Mexico, using the US-Mexico-Canada agreement, BYD could move vehicles into the US.

According to Sean McLain, a WSJ reporter, in the Tech News Briefing podcast from The Wall Steet Journal, the inability to create mass market vehicles is killing the smaller, EV startups like Lucid, Rivian and Fisker. Lordstown, Polestar and Nikola have already gone bust. 

Mass market vehicles require profitable, high volume manufacturing. Mr. McLain points out that EV startups all focus on creating a high-end luxury car in the $60,000 to $100,000 price range. Without the Chevy Bolt, there is little choice in the mass market EV category.  For example, Mr. McLain indicates that Lucid’s vehicle price starts at $60K but can be as high as $250K.

Additionally, Mr. McLain talks about the problems with Fisker’s Ocean crossover SUV. Fisker just recently indicated that it was probably headed for Chapter 11. The vehicle has a number of problems that must be addressed in order for a new generation of customers take up the EV mantle like the earliest adopters. 

A Texas online magazine wrote:

“According to a report by TechCrunch, Fisker (FSR) Ocean owners have reported a wide variety of problems and issues with the car, such as Ocean’s suddenly losing power and brakes, key fobs that lock them in or out of their cars and front hoods unlatching and flying up at high speeds. 

“In a customer complaint to Fisker, an Ocean owner complained that their SUV experienced a “battery system malfunction” that turned off the car while at a red light. Though the owner was able to restart the vehicle and drive away, the same error popped up again before it started to shake and shut off in the middle of the street which prompted a Fisker employee to state that the owner was ‘scared.’ 

“In another customer complaint, an Ocean owner complained of the same error popping up this time while driving on the infamous 405 freeway in Los Angeles. The owner reported that their car came to a stop on the left lane and partially blocked traffic. The owner got the car to drive again, but lost all confidence in the car; noting that they were “literally shivering” after the incident.

“’I COULD HAVE EASILY LOST MY LIFE,’ the customer wrote to Fisker.’”

Mr. McLain said that Fisker has two other serious problems that affect its viability as an EV competitor. Fisker’s vehicles arrive from a factory in Austria so first, there are long delays with vehicle arrivals. Second, because the Ocean is created overseas, the car does not qualify for the tax credits here in the US.

Which is another pricing problem. There is genuine confusion regarding tax credits. Most buyers find tax breaks perplexing when thinking about an EV purchase and the state and Federal qualifications for tax credits.

Stellantis believes its adaptable platform that can manufacture both gas-powered and EVs will be able to moderate price. However, European models are still priced at about US $25,000. 

A problem-solution-focused approach is the most productive way to identify new development, product/service renovations and innovative marketing opportunities. Asking people to complain is more insightful than asking people what they want. Asking people to rate problems is more productive than asking people to rate benefits.

Asking people what they want will not provide R&D or marketing with productive information. Focus on problem-solution

This is not to say that problem-solution would have completely averted the sliding interest in EVs. However, problem-detection would have alerted the powers-that-be to the fact that there are many obstacles to EV ownership that have never been resolved to customers’ satisfaction, if resolved at all. 

In its deep-dive into GE, Bloomberg Businessweek quotes Larry Culp, GE CEO. In describing the new culture at GE Aerospace. Mr. Culp says, “… a problem-solving culture is far more effective operationally than a finger-pointing culture.” US automakers must take note. Pointing fingers at customers is never an appropriate approach. Focusing on profit alone does not make for a viable future either. Making sure that the products manufactured and delivered are quality products that solve customer problems is a much better way to achieve enduring profitable growth. 

Brand-Businesses Must Shoulder Blame For The Gloomy Perceptions of the Economy

There are many reasons why Americans do not feel positive about the economy. Even though we read and hear that inflation is easing, many Americans do not feel secure and financially stable. A significant portion of Americans are being left behind.

One reason for the bummed-out view of the economy is the continual price hikes on all sorts of products and services. The Wall Street Journal pointed out, in two separate stories, “We Still Don’t Believe How Much Things Cost” and “The American Dream Left Some in the Dust” how continually higher prices affect customer-perceived value 

Put the blame on package goods manufacturers, fast food restaurants, casual dining restaurants, movie theaters, car dealerships, dollar stores and so forth. In the COVID-19 years, brand-businesses raised prices. In the post-COVID-19 years, brand-businesses continued to raise prices. And, after the COVID-19 dust settled, brand-businesses from McDonald’s to Chipotle to Tide to Dollar Tree raised prices. Chipotle’s classic chicken bowl with chips, guacamole and a drink now costs $20. Dollar Tree plans to add 300 items that cost up to $7.00 according to Bloomberg.

These brand-businesses generate profit, showing great margins to analysts. Margins are revenues left over after paying expenses. The C-suite focuses on increasing margins. In fact, over the last 8 months, as prices were being continuously raised, here are what brand-businesses said about margins:

  • Kellogg said it must stabilize and protect its profit margins. 
  • Mondelez’ CFO said, “We announced price increases around the world to ensure that we retain our margins….”  
  • At Pinterest, the goal is “meaningful margin expansion.”
  • At Clorox, the aim is to “build margin over time.”

Raising prices to protect margins is a manufacturer focused strategy. This is why you see the US automotive companies ditching sedans to focus on “high margin” vehicles like trucks and SUVs.

But, while genuflecting before the temple of margins, these brand-businesses changed the brand-business customer-perceived value of their products and services. As prices rose, customers noticed huge differences between what they believed were the standard prices for items and the new prices for these same items. Customers have internal reference prices. The new prices were way above customers’ internal reference prices. 

Internal reference price is the customer’s perceived, expected, just, fair price. A customer’s internal reference price is the standard, acceptable price against which customers evaluate the actual price of the product or service considered for purchase.

Purchasing products with prices well above expectations has been painful. The Wall Street Journal interviewed individuals experiencing the pangs of pricing pain. People said that current prices make no sense. A $4 price increase for deodorant “… doesn’t feel right.” The tripled price for dry cleaning a shirt “…hurts.” 

NielsenIQ data quoted by The Wall Street Journal show exorbitant price increases across a variety of grocery categories. Deodorant, milk, nutrition bars, dog food, paper towels and bleach all raised prices anywhere from $2.50 to $3.50. Increases can be higher depending on where you actually shop.

Part of the internal reference price problem is what customers expected post-pandemic. Customers understood that the Corona virus upset supply chains and manufacturing. But, customers also expected that prices would return to normal, that is, return to the internal reference prices, once the pandemic eased. Customers expected prices to return to normal because people went back to work outside the home, manufacturers had fewer sick personnel and supply chains steadied.

But, brand-businesses did not return to pre-pandemic pricing. Just the opposite. Prices continued to rise. The continuing behavior of price-raising has affected customers’ perceptions of fair value and this makes customers unhappy. One interviewee stated that he felt “shock and anxiety.” 

Current prices for all sorts of goods are perceived as unfair. Brand-businesses should be behaving better towards their customers. A columnist for Bloomberg points out that dollar stores have forgotten their core customers, those customers “who made dollar stores rich.” Pissing off loyal customers is a financial formula for failure.

Brand-businesses need to change how they think about pricing. Being strategic about pricing is more than testing for optimal prices. That is a manufacturers view of pricing. Brand-businesses must apply a psychological lens to strategic pricing. 

A recent article appearing on Harvard Business Review online, talks about pricing and price testing. Based on the descriptions of the price tests conducted, one can conclude that customer psychological issues were not addressed, just behavioral issues. The focus of the testing was from the manufacturers’ perspective, not the customers’ perspectives.

Data indicate that pricing has a psychological component that significantly affects customer behavior. Reference price is only a part of this human psychology.

Economist Richard Thaler has spent a lot of time examining financial behavioral and psychological interactions. Professor Thaler won a Nobel Prize for his contributions connecting economic and psychological analyses regarding decision-making. One of his contributions addresses the “pain of paying.”

Pain of paying can happen with any sort of purchase. Professor Thaler remarked that customers feel the pain of paying when sitting in a taxi cab and watching the meter fare increasing or watching the dollars tick upward at the gas pump when filling your tank. Right now, customers feel that every shopping experience is like sitting in that taxicab watching as prices for necessary goods continue to tick up.

As for one’s internal reference point, Professor Thaler noted the importance of an internal reference price on decision-making. Customers integrate their current experience (what it costs now) with prior outcomes (what is used to cost).

Another critical price issue that tends to be overlooked is the brand-business indifference point. The indifference point is a price at which your customers start to think that it is better to switch to another brand-business because the expected experience will probably be the same but at a lower price.

This indifference point affects brand-business loyalty and brand-business switching. Research shows that a loyal customer is less price sensitive than a deal loyal customer. But, there is a point at which the loyal customer’s favorite brand-business has raised the price so high that the loyal customer becomes brand-business indifferent and now considers purchasing the same type of product from a competitor. 

Knowing the indifference point is a necessity in strategic pricing. Data reveals that at a 10% increase, a loyal customer hits that indifference point. The NielsenIQ grocery data show that the price increases in multiple grocery categories are already very close to or at the 10% indifference point.

Another issue: marketers tend to forget that they set the price; but they do not determine the value. The customer determines the value. Raise prices too high and the customer perceives the brand-business to be less of a good value.

Price is a cost. Professor Thaler refers to price as the acquisition value. Acquisition value is the actual money you spend to acquire a product or service. Then, there is the transaction value. This is the customer-perceived worth attached to the product or service. 

If the internal reference price is the same as the acquisition price, then the value of the transaction is zero. If the acquisition price is lower than the internal reference price, then the customer perceives a good value. If the acquisition price is higher than the internal reference price, the customer perceives poor value.

It is probably easier to understand this assessed worth of a purchase or potential purchase in terms of Arcature’s Trustworthy Brand-Business Value Equation. 

Arcature’s Trustworthy Brand-Business Value Equation is the total brand-business experience (functional benefits, emotional and social rewards) relative to the total brand-business costs (price, time and effort) multiplied by trust. What you get relative to what you pay multiplied by trust. Trust acts as a multiplier when customers take mental assessments of a brand-business’ worth. Do I believe this brand-business experience relative to the costs will be quality? Will be delivered consistently? Will meet my expectations? If there is no trust, there is no value. Anything multiplied by zero is zero. 

Fair value is inherent in the Trustworthy Brand-Business Value Equation. Right now, customers question the fair value of their favorite brand-businesses. Fair and just mean that the benefits-per-costs in the Trustworthy Brand-Business Value Equation are equitable. If your brand-business is deemed unfair and unjust, your brand-business loses trust.

Price hikes only work if the customer perceives the brand-business to be worth the cost.  If the price becomes too high relative to the total brand-business experience, trust declines.  The brand-business is no longer perceived to be good value. The deviation from internal reference prices informs customers of just how far into the stratosphere the brand-business has moved away from normal pricing.

Screwing around with internal reference prices affects the customer’s relative perception of the brand-business being a desirable value. Without customer-perceived value, there is no shareholder value. If a marketers’ price increases turn off customers, then, the marketer is responsible for negatively affecting shareholder value. 

You cannot create sustainable value for your shareholders until you create enduring value for your customers. All cash flow only has one source. And, that one source is a customer exchanging money for what you offer.  There is no other source of cash flow.  For sustainable increase in shareholder value, brand-businesses must create enduring customer value.  No brand-business can create sustainable value for its shareholders without creating enduring value for its customers.  

Currently, brand-businesses are shooting themselves in the foot. New York Federal Reserve data indicate that brand-businesses which pride themselves on affordability have share prices well below the S&P 500. This is due to the fact that many customers can no longer afford to frequent these brand-businesses as often. 

McDonald’s is one of those brand-businesses. From its inception, Ray Kroc believed in McDonald’s ability to provide customers with value. Ray Kroc’s mantra was QSC&V: quality, service, cleanliness and value. Mr. Kroc is probably turning over in his grave as McDonald’s prices are at unbelievable highs. Lower-income diners are dropping out of McDonald’s more often. Olive Garden also reports that lower-income customers are cutting back. 

Brand-businesses must address a customer’s internal reference point, the acquisition and transaction values, the indifference point, the pain of paying and the Trustworthy Brand-Business Value Equation prior to rising price even 1 cent. 

Consistently raising prices, without concern for the psychological effects on customer bases, as well as the ability to pay, has probably grounded customer perceptions in a dreadful head space. A $16 McDonald’s meal; a $20 Chipotle bowl; a $12.78 stick of Dove+ Care Extra Fresh Antiperspirant Deodorant; an $8.25 22oz box of Kellogg’s All Bran; a $7.09 14.7 oz box of Maple Cinnamon Cheerios Hearty Nut Medley, all indicate huge price deviations from customers’ internal reference prices. 

When General Mills’ pet food sales do better than its iconic Cheerios cereal brand-business, you get the idea of how unbelievable a $7 less-than-one-pound box of cereal is for customers. Potatoes are cheaper, at a little more than $2.00 a pound. You could eat hashbrowns for a week and still not spend as much money as a box of Maple Cinnamon Cheerios Hearty Nut Medley.

In the extremely prescient movie, Network, there is a scene where actor Ned Betty’s character, Arthur Jensen, owner of the network where Howard Beale is a prophetic, popular TV madman, speaks to the increasingly unhinged Mr. Beale. Mr. Jensen begins his rhetoric with this statement: “You have meddled with the primal forces of nature, Mr. Beale…” 

Are brand-businesses responsible for our gloomy economic feelings? 

Yes. 

There are a lot of reasons for the glum reactions amid relatively positive economic news. But, brand-businesses are complicit. 

Brand-businesses meddled with internal reference price, a primal driver of customer value perceptions. And, because government cannot stop this profit-seeking-at-the-expense-of-customers, people have a sense of impending trouble hanging over their heads, leading to negative perceptions of the economy.

Whole Foods Daily Shop May Be Amazon’s Winning Grocery Concept

Ever since Amazon purchased Whole Foods in 2017, observers, pundits, analysts, investors and the curious have wondered how Amazon would shake up the grocery business. At the time of the purchase, astute commentators opined that Amazon would treat Whole Foods as a laboratory for new grocery and retail ideas. These commentators were not wrong. Amazon has kept audiences busy with different brick-and-mortar versions of stores that combined the technology of Amazon with the behavioral psychology of retail. Up until now, Amazon-Whole Foods has not generated any innovative brick-and-mortar grocery-retail winners. 

For example, in 2016, pre-Amazon, Whole Foods tried smaller format stores, 365 by Whole Foods Market. Amazon pulled the plug on this concept after purchasing Whole Foods. To be fair, it was several years later that Whole Foods changed the purpose and promise of the 365 brand. But, the idea of an own brand store was not what customers wanted, since you could do better at Costco with Kirkland or your quirky Trader Joe’s. 

Soon after Amazon’s Whole Foods purchase, in a far-ranging interview with The Wall Street Journal, Jeff Wilke, then chief executive of worldwide consumer at Amazon, spoke about the benefits of having Whole Foods in the Amazon tent. Mr. Wilke said, “I hope we’re going to learn about how physical stores work. They (Whole Foods) know a lot about food, produce – supply chains at a very large national scale. We’re going to learn with them how we can efficiently – and in a very high-quality way – deliver groceries to our customers.” 

Since that interview, Amazon added a variety of brick-and-mortar stores to its retailing portfolio. Amazon created bookstores and self-service groceries in New York and Seattle respectively, There were Amazon 4-Star stores in New York (featuring products receiving 4-star ratings) and an Amazon Fresh grocery store in Woodland Hills, California. In 2021, there was press speculation that Amazon might even tackle the department store brick-and-mortar format.

In 2021, in the throes of Covid-19, according to an interview in Financial Times, Amazon CEO Andy Jassy indicated that Amazon was planning to “go big” in grocery. Current formats such as Amazon Fresh and Amazon Go had not been the game-changers that Amazon and observers expected.

Mr. Jassy stated that part of the problem with Amazon Fresh and Amazon Go was that many of the stores opened during the pandemic. But, at the time, some perceptive observers noted that Amazon did not yet truly understand grocery. For example, some said the focus on technological convenience, such as smart shopping carts and ‘just-walkout’ intelligence, led Amazon astray. As Financial Times pointed out, no one says they are going to the grocery store because of the smart shopping carts. Plus, there is a lot of person-to-person in a grocery store. People have questions about a lamb chop, a Cornish hen, a Dover sole or that cantaloupe melon that a smart cart cannot answer. Customers want conversations with the people behind the deli sandwich counter or the person in charge of the wine section.

Finally, now, Amazon’s-Whole Foods’ latest concept for shaking up grocery has a lot of potential that does not rely on a smart shopping cart or fast delivery. It is a concept that has longevity in France, but has not been (successfully?) attempted in the US. Amazon may be starting a new twist with convenience grocery.

Years ago, the French grocery brand-business Monoprix created a brand extension called Daily Monop. A Daily Monop store addressed the problems of: 

  • What can I have for dinner that requires no work, is a French meal and is not American fast food? 
  • Can I very quickly buy a French meal on my way home from work for two individuals with a glass of wine for each of us, a loaf of fresh bread, French cheese? 
  • Can I find a French meal for one that I can pick up at the airport after my flight home arrives? 

Daily Monop offers a modern French meal offered in individual servings… including individual glasses of wine securely wrapped for carrying home. Daily Monop offers gracious, high quality pre-packaged meals fast. As Steve Ells, founder of Chipotle used to say about fast food: “There is nothing wrong with fast. It’s the food.” Daily Monop solves for that.

Daily Monop was enough of a successful format in the early 2000’s that even McDonald’s’ global CMO was intrigued with Daily Monop as a potential customer-perceived rival in McDonald’s competitive set. 

In the same vein, Amazon’s new idea – an Americanized version of Daily Monop – is urban-located, solving for quick-serve-trips, small footprint stores. Bloomberg indicates that these new stores will be called Whole Foods Daily Shop. “The Daily Shop will offer a similar but slimmer assortment of products ranging from fresh produce and frozen food to pre-packaged meals and Whole Foods’ 365 branded products. The locations will not have buffet bars or meat counters.” 

Whole Foods Daily Shop will have cashiers, self-checkout and Amazon One, the brand-business’ palm print payment system. The fact there will be cashiers is a sign that Amazon possibly sees that too much technology can potentially be a detraction from grocery shopping, which has always had human contact as a plus.

Considering that Amazon has been the leader in delivering items fast and same day, it is ironic that the Whole Foods and Amazon executive responsible for growth and development told Bloomberg the following,” The introduction of home delivery has changed customers’ mentality. People want things fast.” This spokesperson indicated that she had been thinking about a Whole Foods smaller footprint, convenience store for well over a decade

Meal convenience has been an American staple since the 1950s when diets were surprised by TV dinners and Pillsbury cake mixes. To overcome the fear that convenience foods might be perceived as the a low quality, easy way out of traditional cooking and baking, Pillsbury let you know that “Nothing says lovin’ like something from the oven.” It helped that kids said, “Thank you, Mom” after the slogan. Brand-businesses have been solving for ways in which to make meals easier ever since. 

In the early 2000’s, a global appliance maker tested a meal convenience concept of an oven (cooker) that could be turned on from your mobile phone. This oven would solve the problem of making dinner when you are running late at the office or due to transporting children to-and-from afternoon activities. You could be at your desk or on bleachers at a baseball field and turn on your oven. In discussions with potential customers, it became apparent that this oven was a really irrelevant concept. Customers indicated that if they were running late, they would not be cooking at all; they would be having take-away meals.

Daily Monop was a solution; the oven was not.

The gist of meals these days is that people are not actually cooking. People tend to choose food assembly. Hence, Blue Apron. Or those grocery packaged salad kits (Dole or Fresh Express) with a salad base, crunchy toppings, possibly cheese and salad dressing.  People are looking to heat and chill food that is brought home or delivered home to be served. 

The New York Times recently reported on Wonder, a new concept by Marc Lore who managed Walmart’s online business for a while after Walmart bought his jet.com business. Wonder is Mr. Lore’s vision for redefining and recalibrating eating at home or in some of the Wonder locations. Again Mr. Lore’s vision reflects the insight of Mr. Ells: it is not about the speed of the meal preparation; it is about the quality of the food. Mr. Lore wants customers to feel that the meal they are eating is high-end restaurant quality.

People continue to look for solutions to their meal occasion problems – think needs-based occasion-driven segmentation. People purchase solutions for food occasions and food portions that change every day, solving for their daily needs. 

If you do not want to cook or follow the recipes or open pre-measured packets and packages of Blue Apron, you will be focused on take-away meals. This continues to be a growing market. 

The solution for mealtimes seems to be food that is ready for me when I want it, where I want it, so that the food meets my daily changing eating requirements. This appears to be what Amazon’s Whole Foods Daily Shop is hoping to address.

Whole Foods Daily Shop, like Daily Monop, is the store as lunch box, bento box, dinner box, food hamper. And, there is hyper-proximity: Whole Foods Daily Shop, like Daily Monop, will be local, focused and nearby; in other words, where you are or will be at this moment. 

Whole Foods Daily Shop will be close. Closeness evokes “personal.” Additionally, Whole Foods Daily Shop will provide two additional benefits: modularity and mobility.

Modularity means food in individual pieces. This is partitioned food; food for sharing; food for saving. Food for now; food for later. Tastes that build on one another. There is a reason a Kit Kat bar is scored for easy partitioning. 

Mobility means food that travels with me. This traveling food is always the right temperature; always the right fit for the moment. 

Whole Foods Daily Shop may be the concept that makes its mark in grocery. Food hamper, hyper-proximity, modularity and mobility: the benefits that make meal-occasion decisions easy. Amazon certainly has the scale and scope to make this concept a reality.

Chanel, Prada, Hermès: Maintaining Exclusivity in a World of Ubiquitous Availability

Consumers face rising prices from many favorite brands. Insurance costs, fast food costs, transportation costs and the cost of stamps have all increased. The pushback from rising prices is now seriously affecting package goods, especially grocery-purchased brands. Package goods volumes are declining. Consumers are finding all sorts of work-arounds by which to manage their stressed budgets. Consumers are balking at the cost of goods. Even Target, a brand-business based on affordability is experiencing revenue issues. Dollar Tree and Ross Stores executives told the press ahead of reporting results that its shoppers feel the effects of inflation, which in turn affects discretionary spending.

Most strapped consumers are looking to stay above water rather than looking to snare an expensive handbag with prices well above $4,000, such as Hermès’ Birkin bag. Hermès recently raised the price of its iconic Birkin handbag by 10%, according to The Wall Street Journal. The basic, 25-centimeter (approximately 9.8”) Birkin handbag now sells for $11,400. Birkin’s closest competitor, the Chanel Medium Flap handbag sells for somewhat over $10,000. For other high-end spenders, Prada’s Galleria handbag sells for $4,600.

While many of us are avoiding tapping into savings just to put food and beverages on the table, there is high-end purchasing that exists in a nether world of beauty, status, glamorous image perceptions, luxury and prestige. 

But, even the brand-businesses in this world of luxury and prestige face a price-value conundrum of their own making. Their paradoxical conundrum is how to maintain exclusivity while being available everywhere around the globe. Or, as The Wall Street Journal stated: how to maintain an aura of exclusivity at the same time as growing strong sales from global availability.

The French branding expert, Jean-Noël Kapferer, writes extensively about luxury. He defines the traditional concept of luxury as something exclusive and rare. He says that a luxury brand-business in its classic sense is “an inessential, desirable item that is expensive or difficult to obtain.” 

In a seminal article, M. Kapferer described the current situation that many luxury brand-business owners face: can a luxury brand-business be both widely available and exclusive? M. Kapferer labels this phenomenon “abundant rarity.” And, because of extraordinary availability, some luxury brand-businesses, are struggling to maintain exclusivity. 

Why? Because many believe that wide availability erodes rarity.  If a brand-business remains highly exclusive with limited production units and waiting lists, it is a smaller, coveted, exclusive brand-business of rare items than if it had wide distribution. But, to satisfy the desires of people around the globe, some luxury brand-businesses are not difficult to obtain. A customer no longer has to travel to Paris to find Louis Vuitton, Chanel, Gucci, Prada or Hermès. In many cases, such as London’s Heathrow Airport, you do not have to leave the airport to purchase items from luxury brand-businesses. So do I really want to part with $4,600 or $10,000 for a handbag when anyone, anywhere can have one?

M. Kapferer says that some luxury brands will have to figure out how to maintain their high-class aura while being available to many. An article on washingtonpost.com once asked, “How can you sell enough on a quarterly basis to make Wall Street happy while at the same time maintaining the aura of exclusivity that got you where you were in the first place?” The writer questioned whether a luxury brand-business can manage to maintain a high level of exclusivity while available everywhere and still be profitable. This is today’s luxury brand-business paradox.

Many observers think this is a discussion not worth having; they simply do not believe that luxury can be both restricted and available. These experts believe that too much exposure saps the luxury out of a product or service. Once a luxury brand-business is widely available, it becomes less exclusive, even if it maintains its price premium. Some luxury brand-businesses may run the risk of losing their hard-won cachet. 

For example, Coach. 

The history of Coach is interesting. Coach tried extensive availability growth and harmed the exclusivity of the brand-business. Coach succumbed to short-term financial engineering, greater ubiquity and the opening of discount stores. Coach’s history demonstrates the pitfalls that a luxury brand may face in becoming more available. A few years ago, Motley Fool wrote, “If you’re a luxury brand with outlet stores, maybe you’re not a luxury brand.” Coach addressed the tension of ubiquity and exclusivity. The brand-business managed to revitalize its high-end aura while remaining affordable. The Coach brand-business changed strategies in order to find its way again.

Sonja Prokopec, a marketing professor, has written about the “fine line” a luxury brand-business must walk when maximizing rarity and availability.  She posits that there is an ongoing “democratization” of luxury based on elite brands going after a wider audience using creative approaches that may be blurring the line between mass and class.

Some luxury brand-businesses, wishing to attract more customers, use brand-business extensions, entry-level items and licensing. Prada has its lower-priced Miu Miu line, for example. Prada just reported retail sales of Prada and Miu Miu increased 17% versus 2022. Prada added nearly $3 billion in market value.

When it comes to licensing, it is possible to take it to extremes. The luxury brand-business that licensed itself to demise is considered to be Pierre Cardin. Originally, a high-fashion icon, the designer of the era-defining bubble dress, the Pierre Cardin brand was extensively licensed across all sorts of items such as cosmetics, fragrance and then across non-adjacent categories such as pens, key chains, baseball hats, the AMC Javelin automobile and, sigh, toilet paper. This mania for exuberant extension eroded the Pierre Cardin luxury reputation.

Problems occur when wide-availability strategies go beyond growth generation to brand-business-status harm. The hope is always that sibling or sub-brand-business buyers will attract customers to trade-up within the brand-business portfolio, buying the iconic, expensive items.

The Wall Street Journal writes that “… one way to avoid overexposure is to sell fewer items at much higher prices,” which is happening now. Data cited indicate that even though luxury brand-businesses limit volume growth by raising prices, apparently selling only 1% to 2% more items, if the brand-business is popular, and can still be paid for, customers – most likely loyal customers – will remain with the brand-business and not defect to other brands. For example, Johnny Walker Scotch identifies tiers by label color: Red, Black Double Black Green and Blue Gentleman’s Wager. American Express credit card has original Green card and Gold, Platinum and Black Centurion, not counting the various business cards and cards that let you pay off less than the actual amount like MasterCard and VISA. 

There are noticeable luxury brand-businesses shifts in shopping behaviors. Certain luxury brand-businesses have raised prices too much relative to the customer-perceived value of the item. The Wall Street Journal points out that Burberry’s small Lola handbag, more than 40% higher-priced today than a few years ago, is seen as a lesser value than the vastly more expensive Louis Vuitton Neverfull bag. The Neverfull bag is more expensive but its customer-perceived value is stronger and its resale value is better. The status of Louis Vuitton seems to stay steadfast.

Furthermore, consignment/resale shops are doing well. If a customer is amenable to barely- or never-used items, secondhand options are a compelling purchase. Again, The Wall Street Journal writes that a barely-used Prada Galleria handbag has been available on a resale website for $1,500. In Palm Beach, Florida, the consignment-resale shops have an entire section of US 1 all to themselves. Many items, such as Armani jackets, may still have their original price tags and were never worn.

The RealReal, a luxury online reseller, is now opening new brick-and-mortar stores. The RealReal’s goal is to “build an inventory of luxury goods at higher values,” according to The Wall Street Journal. This inventory will attract customers and sellers of high-end goods such as brand-businesses from LVMH and Kering. Based on a 2023 strategic shift, The RealReal is asking its luxury managers to be less accepting of merchandise that is under $100. Current order value grew to $500 or more.

Regardless of the availability, The Wall Street Journal indicates that luxury brand-businesses affected by the abundant rarity paradox are retaining and reinforcing their exclusivity via higher prices. Years of data including sociological behavioral data indicate that price is associated with customer-perceived quality. Although not always the case, higher price seems to be perceived as a marker of higher quality. Range Rover tends to be at the bottom of J.D. Power’s automotive quality surveys.

Solving for a paradox problem is one of the best ways in which to attract and maintain customers for enduring profitable growth. Finding the solution for rarity and availability is the holy grail. 

However, as with any strategy, care must be taken that the solutions do not damage the trustworthy value of the brand-business. This means that price must not be the only component of the brand-business that rises. Exclusivity is not just about high price. Uniqueness matters as do restrictions other than price such as limited manufacturing, limited editions, one of a kind fabrics, leathers and fewer venues for purchase. Figuring out how to deliver rarity to a wider world while creating endurable profitable growth remains to be solved.

Boeing And The Loss Of Its Brand-Business Trustworthiness

In 1957 there was a TV show called Who Do You Trust?. The host was Johnny Carson, pre-Tonight show icon. Who Do You Trust? was probably the last time that trust was considered comedic.

Trust is now a serious component of brand-business management. Trust it one of those elements that a brand-business needs in order to generate high quality revenue growth. For today’s brand-businesses, Trust is a Must.

For a while, X (formerly Twitter) was in the running to be our least trusted brand. After all, its Trust and Safety department was disbanded before it was decided to try to revive it again. Recent Congressional hearings might have changed X’s position. The least-trustworthy onus seems to have shifted to Meta.  Reports indicate that Meta knew of child safety and did nothing. Of course, this has not stopped Meta’s user longevity and growth.

However, in its continuing downward spiral into the trust dustbin, Boeing has probably reclaimed the “least trustworthy brand-business” mantle that it acquired in 2018 and 2019 with the crashes of two Boeing 737 Max planes. 

There are multiple issues in Boeing’s saga of sagging trustworthiness, such as hundreds of deaths – and near deaths – associated with Boeing products. A Bloomberg BusinessWeek report from January 2024 details the problems plaguing Boeing. These problems range from “… sourcing, assembly and quality control protocols.” There is also the shift from Boeing’s “engineering-first, pilot-focused, safety-centric” ethos to the financial-engineering-shenanigans focus that affected the brand-business and determined its move away from Renton, Washington (where its factories sit) to Chicago, Illinois. That was also several CEO’s ago.

Bloomberg BusinessWeek stated, “Over the years, Boeing turned to leaders out of the mold of legendary General Electric Co. CEO Jack Welch, and the financial targets and metrics this crop of executives put in place tore away many of Boeing’s traditional practices. Current CEO, (Dave) Calhoun previously worked at GE, before spending half a decade at investment firm Blackstone Inc.” One industry leader told Bloomberg that Boeing “lost its DNA,” when the brand-business “…went to the mode of optimizing financially.” 

This recent macro loss of trust is because of the recent Alaska Airlines door blowout. And, because of revelations regarding safety lapses along with perhaps less than genuine mea culpas by those in executive positions. Also, reports indicate that however sincere the Board of Directors, there appears to be a disconnect between the boardroom and the manufacturing floor. Further, Boeing seemingly prefers the GE financial focus with no brand-business focus. 

But, there is more.

Two professors from Yale addressed Boeing’s trustworthiness in their article, How Boeing Can Restore Trust, (Fortune, January 2024). After pointing out the safety issues and the unsavory relationship with Boeing’s supplier Spirit AeroSystems, the authors focus on public trust. 

The authors believe that Boeing’s CEO will find it increasingly difficult to control the narrative while the FAA ramps up its investigation and oversight. Additionally, and this is key, Boeing will need to focus on “fortifying public trust” which will require a strategic shift away from the short-term financial interests of investors and analysts. Boeing will need to publicly shoulder accountability rather than “hiding behind bureaucratic processes of delegating bad news to subordinates.” (Boeing recently said it was overhauling its quality control processes.) Analysts indicate that Boeing must be very careful when focusing on financial engineering while “maintaining a public discussion around safety.”

Having the executive in charge of the 737 Max factory resign may be just shuffling the deck chairs. Creating a new position overseeing quality control at Boeing’s commercial airplanes unit reinforces the unfortunate surprise that this position did not already exist. Boeing is now saying that leadership changes (a reorganization) will contribute to Boeing’s “enhanced focus on ensuring that every airplane we deliver meets or exceeds all quality and safety requirements. Our customers demand, and deserve, nothing less.”

Boeing must start now to resuscitate trust.

Trust takes time to build but can disappear overnight. Trust cannot be bought. Trust must be earned.  Even though we live in an instant culture, trust cannot be earned instantly.  Trust accumulates; slowly, very slowly.  Trust is durable and it is also fragile.  Trust is lasting but when damaged, the bond can break quickly.  

There are actions that brand-businesses must take in order to restore, grow, nurture and maintain trust. Deloitte, the global services group, articulated four in a recent article on Trust. However, Deloitte’s four actions are more appropriate for managing trust that is already established. 

But, what does a brand-business such as Boeing do to regain, build and manage trust? Here are six actions for immediate implementation.

1. Demonstrate Don’t Remonstrate

Trust must be demonstrated, before it can be claimed. To deserve trust, demonstrate trust.  To be trusted, a brand-business must first be worthy of trust. 

Saying, “trust me” does not track today.  “Trust me” went out with Richard Nixon’s “Trust me, I’m not a crook” speech. Trust is the growing conviction that a brand will live up to expectations.  Do not over promise.  Promise what you can deliver; deliver what you promise.  Live up to expectations consistently.  Create a positive pattern of predictable behavior.

According to the Yale professors, Boeing could demonstrate trust by “changing governance and internal quality control processes.” Making these changes would demonstrate the importance of safety within the organization. Boeing should immediately fix its supply chain which includes Spirit AeroSystems. (NB: As of this writing, Boeing is “in talks” to re-purchase Spirit AeroSystems. However, Spirit AeroSystems’ quality control and internal quality mind-set are in serious disrepair. Boeing also appears to have a broken quality mind-set. The talk of buying back Spirit AeroSystems may exacerbate Boeing’s work on quality control and mindset.)

2. Lead The Debate, Do Not Hide From It

Do not stay silent as Boeing did in 2018 and 2019. Silence means agreement. But, do not be defensive. If Boeing wishes to be taken seriously, being defensive is the wrong approach. When you are silent or when you hide, it allows others to create the truths about you. It allows others to recast your profile.  It is not in your best interests to let outside trustbusters trample on your brand truths.

Trust leadership is more than just standing out.  Trust leadership requires speaking out.  A brand-business must speak up for itself if it wants to stand out as a beacon of trust. Apologizing is nice. But, too much apologizing tends to crush credibility.

Staying silent cedes control of events to the media, losing the leadership position. Silence puts brand-businesses in the position of having to reply, respond, react to the claims of others. Leaders must take the lead. With the proliferation of media channels all vying to capture our attention, it is imperative to take command and take a stand. The Yale professors already see a loss of the narrative to the media and the public and the government. Is the 737 Max brand a damaged brand? Yes. To rebuild trust, one thing is certain, silence is not an option. 

However, speaking without thinking is inadvisable as well. Quoted in The Wall Street Journal, CEO Calhoun responded to a question regarding Boeing’s financial engineering that spun off Spirit AeroSystems (outsourcing Boeing’s quality). Mr. Calhoun said, “Did it go too far? Yeah, it probably did. But, now it’s here-and-now. And, now, I’ve got to fix it.” Rather sobering statement when you think about the fact that fixing the problems are why Mr. Calhoun gets paid the big bucks. When Spirit AeroSystems’ pieces arrive at Boeing, there are quality problems that Boeing engineers allow to pass through the production line.

3. Openness Is An Opportunity

The Yale article quotes Justice Louis Brandeis who said, “sunlight is the best disinfectant.” Transparency is key. One trust study stated that, “without openness, trust is blind.”

Transparency requires truth.  But, do not confuse truth and trust.  Truth is a fact. Trust is a feeling.  Brand-businesses need both truth and trust in order to build trustworthiness.  People trust their eyes more than their ears.  So, to be worthy of trust, people need to see the truth, not just read about it. Relying on the facts is only part of the story. Restoring faith is the other part. Mr. Calhoun’s statements can be construed as amorphous. 

4. The CEO Must Be The CTO, Chief Trust Officer.

The CEO cannot delegate the leadership necessary for building trustworthiness. It is a CEO responsibility. The CEO is the Chief Trust Officer. Chief Trust Officer is a fundamental, ongoing, leadership responsibility. Trust building begins at the top.

The role of Chief Trust Officer is more than a title. CTO is an indispensable role. Trust building is a task of major cultural and financial significance inside and outside the organization. Studies show that increased trust is a critical factor leading to increased preference and loyalty, generating high quality revenue growth. CEO Calhoun’s reply, “Yeah. And now I have to fix it,” sends a message of a reluctance to take accountability for a problem caused by a predecessor.

5. Build Leadership, Credibility, Integrity and Responsibility

Leadership must be demonstrated, not merely claimed. The brand-business must be a thought leader. Is your brand-business perceived to be innovative? And, are you growing in size? 

Credibility means statements and actions are plausible. Be dependable. Be capable, competent and an expert. Provide superior complaint resolution. Be a trustworthy source of information. 

Integrity means having customers’ interests at heart. Refrain from taking unfair advantage. Be accountable for actions. Behave ethically. 

Responsibility provides competitive advantage. Demonstrate good global corporate citizenship. Corporate Social Responsibility is not a separate division within the organization. It is a way of doing business. Some companies are making it a core of their operations. Safety is a responsibility.

6. Create A Trust Agenda

Produce the right results by doing the right things in the right way.  In order to generate trustworthiness, every CEO must have a corporate strategic platform based on a Trust Agenda. Trust Agendas address issues such as: 

  • How will we build trust across our geographies, our brands, our people, our shareholders, our franchisees, our partners, our suppliers and our local communities? 
  • How do we embed trustworthiness into all functions of the organization?
  • How will we build trust chains throughout all of our relationships, internal and external? 
  • How will we manage for the long-term and the short-term? Brand-building and trust-building are long-term and ongoing.
  • How will we integrate corporate responsibility into all of our decision-making? 
  • Are we a positive corporate citizen? 
  • How sustainable are our actions? A Trust Agenda will ensure that a sustainability opportunity is on the front burner. This means meeting the needs of customers, communities and businesses without compromising the needs of future generations. 

Having a Trust Agenda allows an organization to be a steady force for good while not standing still. But, the Trust Agenda must be implemented.

At the moment, Boeing is in a purgatory of its own making. Not only is its quality in question, Boeing is “responsible for some of the worst aircraft safety and design failures in recent aviation history,” according to Bloomberg. Boeing agreed to avoid prosecution and anted up $2.5 billion to the Department of Justice. And, now, Boeing is under investigation by the FAA, with congressional scrutiny as well as painful media coverage. A group of Alaska Airlines flight 1282 passengers are suing Boeing for $1 billion.

The FAA’s recent report (February 26, 2024), is terrifying. The report states that there is a disconnect between senior management and others at Boeing relative to safety. Fifty-three (53) recommendations are provided. According to The Wall Street Journal and The New York Times, Boeing is “falling short” when it comes to human factors in engineering such as focusing on how pilots interact with the equipment and including pilot input in design or other high level decisions. The New York Times also wrote that the FAA panel responsible for the report found that Boeing’s response has been, “…inadequate and confusing in the way in which it has administered its safety culture.”

Mr. Calhoun’s response to the FAA panel’s report is bewildering. There is clearly a crisis at Boeing. That crisis is trouncing trust. The New York Times quotes Mr. Calhoun, “We will go slow; we will not rush the system, and we will take our time to do it right.” When doors are falling off and planes have crashed, it seems that slow and steady might not be the best strategy. 

Do not forget Boeing’s airline-buying customers, either. The Portland’s Oregonian wrote, “The CEOs of Alaska Airlines and United Airlines — the two U.S. carriers affected by the Max 9 grounding — expressed outrage and frustration with the company. Asking what Boeing intends to do about improving the quality of its manufacturing, CEO Calhoun said, “We caused the problem and we understand that. We understand why they are angry and we will work to earn their confidence.’”

Boeing has another constituency: defense. As aerospace management consultant and analyst Richard Aboulafia said on Bloomberg’s podcast Odd Lots, “There has been a shocking absence of talk about the safety of Boeing’s defense products.” Mr. Aboulafia wondered out loud on the podcast why the government or hedge funds or someone or some organization has not said something about defense safety.

Quality and safety come first. But, at the same time, Boeing needs to get on the trust train before it is too late. Building trust takes time. But, without trust, there will be no customer-perceived value. And, without customer-perceived value, there is no brand-business value. And, with no brand-business value, a sale of Boeing or its parts or a spin-off will probably not attract great sums of cash for those involved in the selling or spinning.

pepsi and creativity

Pepsi, Brand-Businesses And The Case For Creativity

Once upon a time there was a durable goods company with a large staff of engineers. Management felt that the company would benefit from more creativity. Instead of hiring creative minds, the company decided to invest in transforming all of its engineers into creative, creator minds. It was a year of magical thinking.

Sadly, this is not a fairy tale. Piles of money were spent. Many hours were consumed. There were multiple, organization-wide creative activities, taking people away from important business at hand. The “creative” consultancy tasked with the transformation promised that its approach would morph the organization into a creative, innovative powerhouse. 

After much time, effort and money, the result was a non-starter. The proof of the “creative” transformation was to “create” an innovative toaster. After the cheerless presentations on the toaster, the audience gave a standing ovation to a speech by the new head of procurement. He provided his strategy for cost-cutting. No one became more creative.

The enterprise went back to “business-as-usual.” The status quo won. And, worse yet, the organization did not become more conducive to creativity. The analytic engineers had the same disdain for “messy, unbridled, sometimes mysterious, creative ideas born from synthesis rather than analysis.” The engineers had statistics, physics and all sorts of databases. So, not only did the program not make everyone a creative genius, the organization was no closer to being open to creativity than before the program.

The enterprise goal should have been to create an environment where creativity is welcome; where creativity can flourish, not famish.  The goal should have been to create an atmosphere that feeds rather than impedes creativity. As one online Harvard Business Review points out, innovation, renovation and change “… require a mindset that embraces change and flexibility.” Organizations need to “create an environment that promotes breakthrough thinking.”

As another online Harvard Business Review article recently noted, “…many businesses fail to create and encourage environments where creativity can flourish.” 

Why is it critical to have an organization that is conducive to creativity?

Because, according to the SVP and CMO of International Beverages at PepsiCo, Mark Kirkham, “Creativity isn’t just another bullet point in a marketer’s job description – it’s fundamental to the role (of CMO). Creativity can spark innovative ideas and ultimately make marketing organizations more effective.”

Brand-businesses need creativity. Creativity is not about ads. Creativity is not about digital. Advertising and digital are ways in which the brand-business is communicated. Creativity is about unique brand-business ideas that surprise and delight. Creativity expresses brand-business ideas that must be first, big and best; impactful, pioneering ideas executed in a superior manner. Creativity solves customer problems. Creativity synthesizes data turning information into genuine insights.

The same organization that dreamed of making everyone a creative thinker was uncomfortable with creativity, even when creativity was dropped at its feet. When a British inventor arrived with a proposal for this organization to buy his inventive bagless vacuum cleaner, the organization said no. There were reams of engineering data indicating that bagless vacuum cleaners had poor suction. Further, there is money to be made with vacuum cleaner bags. The organization did not want to lose that value stream. Further, there is money to be made with vacuum cleaner bags. The organization did not want to lose that value stream.

The inventor decided to manufacture and sell his bagless vacuum named after himself, (James) Dyson.

James Dyson was not just an inventor. He had a creator mind. Also, he was willing to look outside of standard engineering data. He considered customer problems. He saw that vacuum cleaner owners had a big problem with vacuum cleaner bags. People hated vacuum bags. Not only are these bags dirty and messy to change, with dust and unknown particles spewing everywhere, the particular bag needed for your vacuum was never available. In stores, there were a lot vacuum bags on hooks, but never your vacuum bag. And, before the rise of Amazon and online shopping, finding your particular vacuum bag was torture.

Dyson is now more than a success story. By the time the engineers at the organization came around to manufacturing a bagless vacuum, Dyson owned the market and had generated extraordinary loyalty and measurable brand power. Significant percentages of owners had more than one Dyson. Dyson became the benchmark to beat.

Creativity brings into being something that was not there before.  Creativity offers a new perception by rearranging and reordering familiar elements in unfamiliar ways.  

Creativity involves risk-taking and courage.  Reporting on 3M, once an innovation powerhouse, indicates that over the past decades, 3M has become risk averse. As one ex-3M researcher stated after pointing out that 3M has not had an innovative idea since Post-it Notes, “If you start forcing people to eliminate risk, then all you end up doing is what has been done before or what everyone else is doing.” 

Creativity involves tension.  The creative process lives off what the late Jerry Hirschberg, the founding director of Nissan Design International, called “creative abrasion.”  It is comfort and uncomfortable at the same time.  It is having pairs of divergent thinkers arguing and agreeing all at the same time. Creativity allows dissenting viewpoints to be discussed while harnessing that generative energy and friction.  Pepsico’s Mr. Kirkham knows this as well. And, he, too, believes that this tension is essential for innovative ideas and for the organization at large.

Creativity needs time, energy and routine while at the same time it needs unbridled desire and liberty. In other words, creativity needs discipline and freedom. During the creative process, discipline and freedom tug at each other … the more tugging the better.

The brand-business environment must be willing to have this sort of energy in its midst.

One reason that organizations have difficulty with creativity is that creativity is not a product. Creativity is a continuing, never-ending flow of imaginative ideas.  There is no process for creativity. Creativity is not a “Skunk works” like IBM’s ThinkPad was when the ThinkPad team moved to Boca Raton to be away from the “stifling conformity’ of corporate IBM. Creativity should not be isolated from the organization but integrated into the organization

To make an organizational environment conducive to creativity is to have creative minds among the linear thinkers. Creative thinkers offer different perspectives on problems. However, this can be a vicious circle. If the brand-business is not amenable to creative minds, then creative minds feel stifled. When creative minds provide ideas, linear thinkers tend to dismiss this creativity as non-productive. Creative minds are more willing to resist the “quick solution” preferring to keep all avenues open for more innovative solutions.

Or, as the CMO Kirkham of PepsiCo told Deloitte, the global services group, it is extremely important “…to have creative teams interact with – and influence – different functions across the company.” Brand-businesses must harness the creator minds and “… allow their creativity to spread throughout the organization.”

A survey from PwC (née PriceWaterhouseCoopers) indicates that “… 77% of CEOs struggle to find employees with creative and innovate skills.” Another survey via LinkedIn reported that “creativity” is the most “in-demand skill.” The authors of The Harvard Business Review online article state that “… creative thinking is a higher order skill. In practical terms, this means that analyzing an idea is easier than synthesizing a new one from multiple sources.”

 As incentive to become a brand-business conducive to creativity, this same HBR article points out that “companies with an innovation-focused culture are three times more profitable.”

The Gap, Inc. hopes that hiring fashion icon Zac Posen will resuscitate its Gap and Old Navy brand-businesses. Richard Dickson, President and CEO of Gap Inc., told reporters, “I’m thrilled to welcome Zac Posen, one of America’s most celebrated designers, at the onset of an exciting new chapter for Gap Inc. His technical expertise and cultural clarity have consistently evolved American fashion, making him a great fit for the company as we ignite a new culture of creativity across the portfolio and reinvigorate our storied brands.” Gap Inc.’s previous management teams fell victim to analytics and databases over undulating emotions of fashion and style.

Gap Inc.’s Mr. Dickson is correct. A brand-business must begin by hiring creative thinkers.  There is no formula for creativity. Creativity is people. And those people need to operate and ideate in what the great South African writer Nadine Gorman called, “…an Eden of creativity.” 

As Harvard’s Dr. Howard Gardner, the author of Five Minds For the Future (2005) stated, 

“People who are creative are those who come up with new things, which eventually get accepted.  The only way that creativity can be judged is, if over the long run, the creator’s works change how people think and believe. That is the only criterion for creativity.”

Or, as the British advertising executive, Trevor Beattie once said when remembering the hassle of lugging luggage through airports, “Creativity is the wheel on your suitcase.”

Carhartt: Old is New

In 2003, McDonald’s was, as BusinessWeek stated, “In Hamburger Hell.” McDonald’s subsequent turnaround had many facets. One of McDonald’s critical strategies was modernizing the brand-business without jeopardizing its heritage. In other words, McDonald’s aimed to evolve its heritage for today without losing its roots from yesterday.

Brand-businesses can live forever, but only if properly managed. Contemporizing an established, deep-heritage brand-business while maintaining the brand-business’ provenance is an excellent way to keep the brand-business flame alive. Basically, the idea is making old new. “Old is new” is all around us. 

  • Retro and vintage clothing reflect “old is new.” 
  • Chanel No.5 reflects “old is new” with a very contemporary Eternal No.5 High Jewelry Collection. 
  • The Mini vehicle reflects “old is new.” 
  • Vinyl LPs and turntables reflect “old is new.” As is the new VW EV microbus, the ID.Buzz.
  • Tiffany is betting on “old is new.” Fast Company magazine listed Tiffany & Co. one of the top ten most innovative brands in 2023. Fast Company was impressed by the modernization of “America’s oldest luxury brand.” Tiffany’s revitalization has been based not just on product but on strategies that contemporized the brand-business’ provenance: luxury and American innovation. 
  • Blancpain, the luxury timepiece with a 1735 provenance of Swiss watchmaking, is new with its Blancpain x Swatch Scuba Fifty Fathoms Collection.
  • 1960s counterculture foods such as granola, tofu, nori, daikon, turmeric, dates, miso, tahini, ginger, soy milk, almond milk, brown rice and kombucha – all “old is new”- fill grocery store shelves. The Moosewood cookbooks live.

And, Carhartt, the 1889 brand-business manufacturing heavy-duty, long-lasting, high quality, extremely durable workwear, embodies “old is new.” Carhartt is both timeless and timely. Carhartt clothing is new, featuring modern technology aimed at flame, water, stain and abrasion resistance.  Also new is Carhartt women’s wear for women-in-the-field workers that “embraces its (Carhartt’s) core values of durability and comfort.” 

But, Carhartt is still and always focused on clothing for laborers. Carhartt has never strayed from its core customer base and what core customers love about the brand. Speak with people who work outdoors in extremely cold weather and they extol the layers of Carhartt they wear to stay warm. Carhartt is a modern brand-business with a deep-seated, compelling provenance that traverses time.

A brand-business provenance is its legitimate source of expertise and authority. Provenance creates and stand for familiarity, quality, leadership and trust. In other words, provenance creates authority. Provenance is a brand-business’ past of authenticity, a present of genuine customer bonds and a trustworthy foundation for the future. A compelling provenance is a predictable, driving, relevant, distinctive history. The power of provenance is not about preserving everything from the past. The power of provenance is about preserving the best of the past for a successful, profitable present and future.

Work clothes with a turn-of-the-century provenance would seem to be a hard sell in a Tic Tok, fast-fashion, influencer-inspired, today-over-timeless environment. Duluth Trading Company, a work clothes brand-business, is having difficulties, its quirky advertising notwithstanding. 

According to Seeking Alpha, “DLTH (Duluth) is likely on a slow decline to zero. The company, while providing good quality products that certainly have their place in the market, is unable to gain upward traction. Marketing efforts have fallen flat, innovative responses to industry developments have been non-existent, and competition has grown substantially. We believe it is likely too late for a resurgence.” Seeking Alpha also believes that Duluth’s advertising has probably lost its mojo.

But, Carhartt has shaped its present by keeping its provenance fresh. Seeking Alpha sees Carhartt as “playing the game” better than Duluth. Yet, Carhartt is not playing a game. Carhartt is relying on its exemplar past to inform its present and future modernity.

Aside from its women’s work clothes and Carhartt’s workwear fabric technologies, Carhartt has created other contemporary connections.

In May of 2023, Carhartt announced a partnership with The Weather Channel. Carhartt’s Chief Brand Officer told the press, “As the world’s premium workwear brand since 1889, Carhartt has always been a brand for all hardworking people that endure varying weather conditions on the job. Meteorologists in the field experience some of the most extreme weather conditions imaginable, and we know that many people rely on meteorologists to inform them about the gear they wear while working outside. Partnering with The Weather Channel is a natural fit to not only keep meteorologists protected from the elements, but to showcase hardworking gear performance in its most natural element: outside and in the field.”

United Airlines airfield workers wear Carhartt. It is not always warm, sunny and oil-and-dirt-free on the tarmac.

In July 2023, The Wall Street Journal produced a video on Carhartt. Titled, “How Carhartt Survived A Changing Workforce.” The point of the video was, “When the company launched its line of workwear over a century ago, 69% of the U.S. workforce had jobs in fields like farming, mining and manufacturing. Today, the brand is spotted on models, rappers and even former presidents, despite never swaying from its core strategy.” Having said this, Carhartt has never featured its clothing as streetwear. 

Even though in the 80’s and 90’s you saw skateboarders and rappers wearing Carhartt, the brand-business did not feature these uses: Carhartt stayed with its workers. Unlike Dickies, another work person’s clothing company, that dove into the street wear trend, Carhartt continued its focus on workers working in its clothes. Further, unlike Dickies, Carhartt did not expand its offerings. Carhartt has a laser-focus on being the best clothing for the on-site job. This means fewer, better items; focusing on what workers want and need to wear to perform at their best.

Although, Carhartt has a licensing agreement for a spin-off, WIP (Work In Progress) featuring genuine Carhartt products tweaked for an international audience (a different consumer), WIP is overseen by those at Carhartt. Carhartt stays as an established workwear brand-business in a changing world.

According to The Wall Street Journal, Carhartt was born when its founder, Hamilton Carhartt asked railroad workers about their problem with clothing. (An original problem detection study.) Thus, its first worker’s wear product was born. Carhartt has always been focused on its provenance: “original equipment for the American worker.” Carhartt has never strayed from its core products. In fact, Carhartt believes that its strong, resilient foundation is what allows for experimentation; its ability to play around with contemporary work wear styles that are grounded in a credible past.

Shaping its future with its iconic past, makes Carhartt ageless in the eyes of its customers. Carhartt has values that cross and appeal to multiple generations. Customers perceive Carhartt to be authentic; the real deal. 

Authenticity is more than a buzz word. Authenticity is a driver; authenticity is a want that we look for in the products and services we buy. Increasingly, we purchase brands that we believe deliver the “real thing” over a processed, manufactured, who-knows-how-it-was-grown-or-made thing. Authenticity is more than mere ingredients or material sourcing. Authenticity is more than having been an inventive brand with a history of “firsts.”

People look at the how, when, where, and why of the brand-business instead of just looking at what the brand-business sells: we want something genuine, honest, bona fide. Authenticity means the brand-business derives from undisputed origin; it is genuine, legitimate and truthful. A credible provenance allows a brand-business to be relevant while remaining authentic.

“Old is new” gets to the heart of what many people today fear is gone: a true commitment to enduring values and the people who share in these values. A strong, powerful provenance is an advantage against competitive actions. Provenance is a signal of genuineness for all those engaged with, and invested in, product and service brand-businesses. Provenance is the basis for old is new.

A brand is more than an identity: a brand is a promise. A brand is a promise of an expected relevant, differentiated, trustworthy experience. And, that experience includes a culture and the culture’s values. A brand is a seal of permission to believe. A compelling provenance provides the permission to believe in a brand because provenance answers the customer question: “Why should I believe the promise you are making to me?”

Provenance and authenticity are the foundation upon which a brand-business builds its ability to be contemporary no matter what is the era. Carhartt uses both as credibility when it comes to modernization. By never straying from its roots, by appealing to multiple generations of customers with connective values, Carhartt can be old and new at the same time. 

UPS And The Omen For Marketing

UPS ditched its CMO. And, UPS eliminated the CMO role completely. While it is true that that marketing does not solve every organizational problem, it is also true that the CMO role, when executed properly, is a necessity. 

This rejection of the CMO and the role is not a surprise. But, it is a bad omen for marketing.

In November 2023, The Wall Street Journal reported on a McKinsey & Company (global consulting) study showing that the divide between the CMO and the CEO was a growing rift. The study indicated that CEOs and their C-Suites did not fully understand what the CMO does and how CMO strategies and activities contribute to high quality revenue growth. 

The Wall Street Journal also quoted a Forrester (market research) study indicating specific areas of this Andreas Fault line of CEO-CMO misunderstanding. For example, 97% of CEOs believe their brand-businesses satisfy customer needs while only 75% of CMOs see the brand-business satisfying customer needs. Ninety-percent (90%) of CEOs believe their brand-business strategies are customer-driven while only 58% of CMOs believe this is true.

Unfortunately, for years, marketers have been largely responsible for the lack of commitment afforded to the CMO role by the C-Suite. This debasement of the CMO role continues to be a tragedy for brand-businesses. For example, three years ago, in a Deloitte CMO survey, data indicated that CMOs are not fulfilling responsibilities that go beyond brand recognition, brand value and specific tactics. In that 2018 study, 34% of the 200 responding CMOs said their role in their organization was ‘storyteller’ while only 20% said their role was identifying and mapping new routes to client revenue. In other words, CMOs focus first on being the Mother Goose of marketing rather than focusing on the brand-business results as the first priority.  If the CMO cannot demonstrate how marketing strategies and activities contribute to high quality revenue growth, then it is no wonder the C-Suite is disgruntled.

Three years later, in Deloitte’s 2021 CMO survey, CMOs said their focus is on short-term value. The study reported that CMOs still had no solid idea if what they were doing had any long-term value. This is unacceptable. If something is worth doing then it is worth measuring. Further, brand-business management is an ongoing process. 

Brand-business building and trustworthiness take time. Short-term is important. If there is no short-term, there is no long-term.  But, for enduring profitable growth of the enterprise, there needs to be a long-term. 

Marketing needs a transformation.

First, let’s get the definition of marketing correct. In its article on UPS’ elimination of the CMO role, a Forbes.com author states that marketing is “to sell or bring to market.” How about we use Dr. Phil Kotler’s definition: “marketing is profitably satisfying customer needs.” If you use the Forbes.com definition, you see part of the problem: no mention of profitability. There is no use selling or bringing to market anything if it is not profitable. The C-Suite wants to know that there is value to what a function does on behalf of the brand-business. If there is no profit, then the work is a hobby.

Furthermore, selling is a manufacturer’s function. Value is a customer’s creation. Value is determined by the customer. A customer pays for the brand-business product or service. This creates brand-business value. There is no brand-business value unless there is customer value. And, customer value depends on what a customer receives (benefits and rewards) relative to what the customer pays (money, time, effort) multiplied by trust.

Second, the fractionalization of marketing is a death-wish for the marketing profession. Marketers have allowed marketing to be sliced, diced, spliced, strangled and mangled by specialists competing with each other for limited corporate resources. The CMO’s role is often reduced to managing this competition and attempting to force co-operation. 

By allowing this to happen, marketers are marginalizing marketing and trivializing the role of the CMO, turning this crucial position into coordinator, mediator and arbitrator. Whether your brand-business is BTB or BTC, the CMO becomes the chief referee.

The Wall Street Journal points to the proliferation of “marketing-adjacent” titles and responsibilities as confusing. By fractionating the functions, CEOs perceive the CMO to be less capable of “overseeing” the wide array of responsibilities that CMOs now face.

Having said this, the C-Suite is partly to blame. The reluctance to trust the CMO has led to CEOs bringing in other players to ensure that there are trusted actors who can make things happen profitably. Also, CEOs profess to understand the role of marketing.

Storytelling, advertising, digital channels and devices all need attention, of course. But, effective marketing is not merely about message and media management. It is about brand-business management. Marketing is fundamentally about attracting and retaining customers for enduring profitable growth. Marketing is about managing the business.  Managing the business is bigger than managing messages and media. As Peter Drucker, the most respected management guru ever, once said, “The purpose of business is to create a customer.” Without customers paying for a product or service, there is no brand-business value.

Third, brand-business leaders must stop separating brand and business. How you run your brand is how you run your business and vice versa. Brand management is business management and vice versa.

The C-Suite must no longer distinguish between the business plan and the brand plan. There is only one plan: it is the brand-business plan. The purpose of brand management is the enduring profitable growth of the business. The purpose of the business plan is the enduring profitable growth of the brand. The three functional responsibilities for building enduring profitable growth are Finance, Operations and Marketing. That is, financial discipline, operational excellence and leadership marketing.  This is not a horse race. There is no Win, Place, Show. A functioning, valuable brand-business needs all three of these strategies – financial discipline, operational excellence, leadership marketing – implemented.

The authors of the brand-business plan are the CMO, the COO and the CFO. The owner of the plan is the CEO. But, the CMO has an incredible role to play. The CMO brings a distinctive perspective. The CMO is responsible for:

  • Helping define the growth strategy.
  • Achieving organizational alignment behind a common brand- business purpose and direction.
  • Helping define the Brand-Business priorities.
  • Developing and implementing a Balanced Brand-Business Scorecard. And, 
  • Leading customer-driven innovation through providing insights into customer needs and problems while helping to define the focus for development of innovative insight-driven products and services.
  • Developing the price-value strategy…
  • Internal and external brand-business communications.

Marketing is all about how to profitably manage customer-driven, top-line growth. This is the goal of the brand-business plan. 

The elimination of the CMO role at UPS was inevitable. Marketing as we know it will continue to decline unless marketers move to transform marketing and reform the CMO role from a marketing communications role to a brand-business leadership role.

Shame on marketing when often the first question for a new CMO is, “What will the new advertising be? Will there be a new slogan? Will there be a new advertising agency?” “What is what digital do we like best?” 

The CMO must be responsible for building and managing the Brand-Business plan. 

  • The CMO is the voice of the customer, whether a BTB customer or a consumer.
  • The CMO should know more about the customer than anyone else in the organization.  The CMO is the customer advocate.
  • The CMO must lead the effort to drive true customer-insight focused innovation.
  • The CMO must focus on both the short-term and long-term. The COO, who now rules at UPS, by virtue of the function, focuses on the short-term. Managing and growing a brand is an ongoing function. The CMO must learn how to manage both of these contradictory pathways.

UPS has work to do in many areas. Clearly, marketing is only one of these. 

UPS has placed the brand-business under the aegis of the COO. The COO has a short-term focus. Here is a marketing observation: when the brand-business is placed under the control of a function with a primary focus on the short-term, the brand-business gets the short stick. Brand-businesses are promises of what the brand-business will do for the customer. This is a future-focused operation.

To avert more UPS situations, marketing must reassert its role as the leader in guiding the development of customer-driven growth strategies that lead to brand-business value creation and enduring profitable growth. Digital transformation is necessary. But, what you are communicating and why and its impact on enduring profitable growth are critical.

The future of marketing will depend on leaders who understand marketing’s role as driving a brand-based, customer-focused business that attracts and retains customers resulting in sustainable, profitable growth. Marketing is more than a multi-channeled, multi-device communications role; it is a brand-business management role. 

There may be no going back for UPS. But, for marketing and the CMO, there is a lot of hopeful opportunity for a transformation.