Brand Loyalty Is Not Dying

/in /by

Brand loyalty is not dying. But, you would not know this if you are paying attention to the business press.

Recently, there have been many articles describing the impact of higher prices and lack of product availability on brand loyalty. These articles and opinions state that when consumers do not see their favorite brand due to supply chain issues or price increases, consumers buy some other brand. The conclusion is always that consumers are no longer loyal to their favorite brands. In most cases, the stories feature supporting data showing that consumers are shifting their buying behaviors to new brands or familiar but never purchased brands such as private label brands. 

It is possible that by switching brands, consumers may find a new brand that they love. And, that would be great. However, assuming that a change in purchase due to difficult in-store circumstances is destroying brand loyalty is just not true.  

The pundits, journalists and researchers seem to be overlooking some basic tenets of brand loyalty. Let’s look deeper into brand loyalty.

One: brand loyalty has two dimensions: behavioral and attitudinal. Behavioral loyalty refers to purchase frequency. Attitudinal loyalty refers to the emotional commitment a customer has for the brand. It is a mistake to look only at the behavioral aspect of brand loyalty, as it is possible to create frequent buying based on deals, lack of availability and/or price changes. Repeat purchase in and of itself is not brand loyalty. And, deal loyalty is not real loyalty. Attitudinal loyalty that is based on deep brand commitment, affects repurchase intentions, consumer willingness to recommend to others, and price tolerance. Repeat purchase based on attitudinal commitment to the brand is the true measure of brand loyalty. Focusing on behavioral loyalty alone is misleading.

Two: brand loyalty is not an on-off switch. Customers are not loyal or disloyal. Brand loyalty is a matter of degree. Customers are more loyal or less loyal.  It is the degree of commitment to a customer’s preferred brand. As brand loyalty increases resistance to competitive brand marketing activities also increases. Switching to a new brand due to in-store issues may not generate a lot of loyalty towards the new brand. The new brand may be a stop-gap measure. 

Three: in our data-driven world, marketers tend to look only at behavioral datasets. Any review of the marketing literature will reveal that loyalty is almost always defined behaviorally. Either brand loyalty will be defined as a share of requirements measure or as a pattern in choices often using an experimental design. Citing a correlation such as not-on-the-shelf relative to buy-another-brand is not the same as causality. Having to but a different brand does not necessarily mean that the favored brand in no longer the favored brand.

So, in “Brand Loyalty Takes A Hit From Inflation,” The Wall Street Journal, cites two separate research studies, both focused on consumer behavior. One of these studies showed that if a favored brands were not on the shelf, the favored brand lost “share of wallet” – a share of requirements term the study uses for brand loyalty.  Share of wallet is a term for the percentage (“share”) of a consumer’s expenses (“of wallet”) that a consumer spends on a brand. There are some data showing correlations between share of wallet and brand loyalty. However, share of wallet is sometimes defined as a consumer’s purchase of a particular brand over a period of time. 

For example, a consumer may stop at the same drive-thru for breakfast every day, increasing the frequency of usage. That frequency may be attributed to other things than brand loyalty such as being on the right side of the street, having a double drive-thru or breakfast promotional deals. Or, a person may commute frequently by plane to a city serviced by only one airline. That airline has a huge share of wallet from this traveler but it is not necessarily a reflection of brand loyalty. Brands do not own the consumer. Brands should not confuse repeat purchase with brand loyalty.

Four: sadly, The Wall Street Journal article associates “convenience” with brand loyalty. Convenience is not a good criteria for brand loyalty. No one wants inconvenience. All brands must be easy to choose, easy to use and provide ease of mind.  Inconvenience is a cost that consumers factor into their assessments of brand worth. Being “convenient” is a generic definer.

Five: the era of exclusive brand loyalty (i.e., loyalty to one brand in a category) ended ages ago. We live in a world of multi-brand loyalty. People used to say, “This is my favorite exclusive brand.” Now, they have more than one brand to which they are loyal because they see more than one brand that is good quality and provides value. Consumers have a consideration set of brands to which they have varying degrees of loyalty. Consumers may find that their first choice brand is not available nor affordable but their second choice brand is available and affordable.

Six: it used to be that a loyal consumer would buy their first choice brand even if it meant shopping at a second store. But, right now, what with the price of gasoline, no one is really interested in driving to a second store for their favorite brand when that brand is not on the shelf in the first store. Shopping around for a bag of laundry pods is just not affordable. The consumer will probably switch to an available brand. Data from Kroger, the large grocery chain, supports this: “More than 90% of consumers say they will buy another brand if their preferred choice” is not available. Assuming that this means brand loyalty is dying is a stretch. Consumers may still harbor attitudinal attachments to favorite brands.

Seven: at some point, price sensitivity pops up, no matter how loyal the consumer. Many favored brands thought they could pass along supply chain surcharges to the consumer. These brands recognized that a loyal consumer is less price sensitive. But, these favorite brands did not conduct price sensitivity research to learn just how much prices could be raised. These favorite brands did not consider that at some point the consumer will see the cost of the brand as too high for the brand experience. Instead of rewarding loyal consumers, brands took advantage of them by raising prices too high. 

Today’s economic brand-business situation is similar to the early 1990’s. At that time, there was a lot of hand-wringing over the imminent death of brand loyalty. Step into the time machine and go back to April 2, 1993, a day of stock market infamy called Black Friday. On that day, Marlboro cigarettes announced that the brand (one of the world’s most popular and profitable, as The Economist pointed out) was losing smokers to cheaper brands. Of course, Marlboro’s stock tanked. But so did the stocks of other consumer goods. Polling and other market research showed that brands had raised prices creating huge price disparities between them and store brands. The Economist (June 5, 1993) described the situation as follows: 

“Partly this is due to recession and to consumer-goods firms jacking up prices on many brands until there is a huge discrepancy with own-label rivals.  Last year Kraft was forced to slash prices when it began losing sales to own-label cheeses that were 45% cheaper.  Last month P&G cut prices for the same reason on its two leading brands of nappies, Pampers and Luvs.  Consumers have discovered that the quality of many own-labeled goods is just as high as that of established brands.”

Of course, since then, most of these branded consumer goods have not faded away. Nor have their cadres of brand loyalists. Brand loyalty did not disappear. And, it is not disappearing now.

As for the new brands consumers are now buying, these brands should be employing brand loyalty management techniques to convert category shoppers (those who are brand indifferent and see brands as parity) up the loyalty ladder to the point where they become “brand enthusiasts. These loyal consumers have a propensity to account for a greater share of a brand’s overall profits.  They are also less price sensitive and will actually pay more for a product up to a point. Creating and reinforcing brand loyal consumers is the only enduring basis of growth.

CMO Voice Of The Customer

The CMO Must Be The Voice Of The Customer

/in /by

The primary role of the CMO is to be the voice of the customer for the brand-business. The CMO embodies the customer informing the organization. Customer understanding and insight generation are the CMO’s highest priorities. Sure, the CMO has numerous other functions these days. But, being the voice of the customer must be the number one function.

CMOs must embed themselves in customers’ psyches and, then, create future scenarios and actions to keep the brand-business viable, especially during volatile, uncertain times. According to a new book from two Deloitte principals, one of the main CMO roles is to translate customer needs into “… trendspotting that will then generate observational insights” that will hopefully “… shift” the brand-business strategies. 

To do this well, CMOs cannot just rely on interpreting digital data. These data provide answers on what customers have done and what they are doing. Based on past and current behaviors, data can provide predictions. But, these predictions are behavior-based and do not allow for consumers changing their minds and their behaviors. Most data do not tell the CMO why customers are behaving in these ways. Knowing what is happening is interesting. Knowing why it is happening is imperative. Knowing what is information. Knowing why is insight. This means the CMO must not just focus on what the customer wants. It means focusing on problems and concerns. For which the brand-business can create solutions.

CMOs need to be interacting with consumers daily, in real time, translating what into why. With this knowledge, the CMO must act. CMOs must allow their informed judgments to provoke strategic actions. Without actions, the knowledge is useless. As the well-known, well-respected economist and Harvard Business School professor Theodore Levitt said, “Ideas are useless unless used. The proof of their value is in their implementation. Until then they are in limbo.” Professor Levitt believed that just having the insights without taking the responsibility for implementation is irresponsible.

According to the Deloitte authors, CMOs are supposed to be the “sensing system” for the organization. As you will read, that sensitivity was not as acute as it should have been over the past year.  Unfortunately, for some big-box retailers, a lack of real-time customer knowledge and strategic action triggered bad, grim news.

Target, Walmart, Big Lots and Wayfair are just a few retailers that admit to being blind-sided by changing consumer behavior and the speed of this changing consumer behavior.  

Statements from executives indicate that during the pandemic, these businesses went out of their way to give customers what they wanted. Target and Walmart went as far as hiring their own container ships to bring in goods that consumers desired.

But, with lock-downs ditched and with inflation rearing its ugly head, consumers have changed their minds. Products consumers wanted during the pandemic are not the items they want post-pandemic. Retailers are stuck with inventory that will need to be sold with steep discounts. Such a scenario eats into margins, affecting profitability and earnings.

Of course, there are multiple reasons for this disastrous situation. Consumers stuck at home bought goods for the home and for dressing at home. That balky washing machine could no longer be ignored. It had to be replaced. Dressing for Zoom meetings did not require that buttoned-up office look. US manufacturing lines were hindered due to operators calling in sick with coronavirus. Overseas manufacturing was also slowed. Ports faced similar issues: longshoremen get sick, too. Containers piled up at piers.

When these backs-ups started to ease up, the products in-store were no longer desired. As Bloomberg reported, retailers have “too much stuff” that no one wants and is now piled up in warehouses and stores.

This current dilemma is not due solely to supply chain issues, although supply chain is a driving force for the inventory mishaps. CMOs could have provided better real-time intelligence. Although knowing the customer intimately could not have prevented the current inventory situation, it definitely could have worked to prevent the scope of the current inventory situation. CMOs could have been quicker to alert the brand-business to rapidly changing customer attitudes and behaviors.

CMOs had an amazing opportunity to get ahead of the pandemic. However, The CMO role is now tasked with far-ranging, multi-functional responsibilities. CMOs’ array of functions – digital transformation leader, personalized customer experience leader, leader of customer-focused data capture and usage, and customer data privacy captain – means that there is less time allocated to being the voice of the customer. 

Reading the press reports, it is clear that real-time consumer intelligence could have been better. Predictive analyses that forecast demand and potential disruptions to inventory are terrific tools. But, in a volatile environment, there needs to be a more intense focus on the customer. The retail brands experiencing the worst inventory pile-ups are all admitting that there needs to be a stronger focus on customer understanding.

As reported in The Wall Street Journal, Brian Cornell, Target CEO, told investors, “We’ve had some additional time after earnings to really evaluate the overall operating environment.” This includes “watching consumers’ behaviors as they face high rates of inflation.” He added, “the demand signal has changed.”

The CEO of Big Lots, Jonathan Ramsden, told The Wall Street Journal, “We didn’t anticipate the abruptness of the change in consumer behavior.” Suffering from excess inventory, Big Lots’ net sales fell 15% in the quarter ending April 30th.

Macy’s CFO, Adrian Mitchell, said, “We know that our ability to maintain margin depends on our understanding of consumer demand within and across categories. A spokesperson for Macy’s told The Wall Street Journal that the brand had anticipated declines in certain popular pandemic categories, it was just that “The shift happened at a quicker pace than expected.”

There is an urgency to truly understanding the customer. As Andrea Felsted writes for Bloomberg, retailers are soon going to be ordering for the holiday season. What will consumers want to purchase?

This current situation at these remarkable retail brand-businesses should be a wake-up call for the C-suite’s perspective on the value of the CMO. Being the voice of the customer must be the highest priority of the CMO’s role. When a brand-business loses its real-time connection to customer behavior and customer attitudes, the brand-business suffers. Even when there are extenuating circumstances such as supply chain issues, taking your eye off of the customer creates losses. Let’s make sure that the CMO is the brand-business’ is the voice of the customer.

covid 19 brand effects

Covid-19 Killed Either/Or

/in /by

Demographers say that aside from an apocalyptic event, demography is destiny. A global pandemic can be considered an apocalyptic event. Covid-19 did not just eliminate the lives of millions worldwide. In developed nations, Covid-19 upended or fast-tracked existing trends that have now changed the landscape of dozens of categories. The effect on brand-businesses has been immediate, profound and mind-blowing. 

At the core of these tumultuous changes is the idea that people want brands to satisfy contradictory needs. The days of trade-offs are over.

It used to be that brands could survive by doing one thing very well. And, although, there are proponents of mono-positioning thinking, the days of one brand-one benefit are long gone. Now, we expect brands to satisfy two conflicting needs at the same time. Covid-19 killed the idea of either/or: post-pandemic, we wanted the best of both and Covid-19 handed it to us on a silver platter. 

Welcome to the Paradox Planet where trade-offs are no longer acceptable. Brand-businesses have no choice but to adapt.

The pandemic made us feel uncertain. When life is uncertain, difficult choices feel more challenging. Making a trade-off – even a simple one -requires too much personal justification for not enough benefit. Rather than having to choose or accept a lesser solution – a solution that is only good enough, post-coronavirus, we seek the maximization of contrary needs. We do not want either/or; we want both. Optimizing contradictory needs into a relevant, differentiated, trustworthy paradox is now defining many aspects of our everyday lives. Entire categories of business are delivering paradoxical experiences. This delivery of two conflicting ideas at the same time is an outcome of the pandemic’s massive uncertainty… and a game-changer for brands.  

It is true that many of these categories were evolving prior to Covid-19.  The evolutions were seen as trends. These changes are no longer trends. These changes are entrenched.

The forces of Covid-19 affected categories and their brand-businesses in ways beyond health and wellness. Just to name a few, the pandemic:

  • Changed the way we view entertainment, 
  • Changed the way we buy and sell cars, 
  • Changed the way and where of work, 
  • Changed the way we approach doctor visits, 
  • Changed the way we learn and educate, 
  • Changed the way we exercise, 
  • Changed the way we shop for groceries, and 
  1. Before Covid-19, we went to theaters to see the new movies. At home, we could stream with Netflix and watch original series and existing movies, but not always the blockbusters. During Covid-19, we were able to watch movies in their first run directly at home. New streaming channels arrived.  We were able to expand our viewing across multiple streaming brands with extraordinary film libraries. Now, we have the best of both. Theaters are open and we can watch new movies via streaming. Our choices are not theater or home viewing. We have the best of both. 
  1. Before coronavirus lockdowns, we purchased cars at dealerships. Yes, Carvana was taking customers. But, it was just the beginning. During the pandemic, public transportation was mostly shunned. Many people opted for buying a car. But, going to a dealership was fraught with fears about Covid-19 exposure. Online auto purchasing became normal. Post-pandemic, car buyers and sellers actually can have the best of both worlds. There is the option of going to a dealership or there is the option of having Carvana deliver and pickup without the dealership. Carvana has made the process easier, more convenient and eliminated the distaste that many have when it comes to buying or selling a car. Since Carvana’s inception, there are now numerous online automotive experiences like Carvana, including ones from dealerships. As for the dealerships, these exist to sell new models. You can only buy a new Ford electric F150 Lightning at a Ford dealership.
  1. Prior to coronavirus, it was rare to have people working remotely. Covid-19 changed this. Post-coronavirus, working remotely is commonplace. And, employees are balking at returning to the office.  Coronavirus lock-downs demonstrated that productivity is not especially linked to being in the office.

Elon Musk aside, hybrid scheduling is the new normal, unless you work in hospitality or in a factory or some other serviced role such as in a car dealership or a doctor’s office. A day does not go by without some consultancy or business press writer commenting on how the basic concept of the office has changed. Many employees are opting for 3-day in the office work weeks while others are sticking to 100% remote work. Employers are being creative in how they wish to entice employees back to the office. The New York Times wrote extensively about employers who are bending over backwards to make office workers happy. Employees who do not have to be on site, now can have both work at work and work at home options. For example, this September, Airbnb will be instituting a policy allowing its 6,200 employees to work for up to three months a year from any of Airbnb’s 170 countries and regions of operation. 

According to Colleen Ammerman at director of Gender Initiative at Harvard Business School, a larger issue stemming from the change in how we work is “… rethinking what it means to be on a leadership track, what it means to be a high performer and get away from that being associated with being in the office all hours.” Worker stereotypes are changing. 

  1. Technology has made telemedicine a reality for many people. That doctor’s office visit does not have to happen unless there is a real need for such an experience. For example, special tests and blood draws require in person visits. But, finding out the results of those tests do not. The availability of home testing is growing. Many medical centers and doctors’ groups have online websites where patients can log in to see their tests, their visit summaries, their appointments and their medications. It is all very transparent. Patients can now decide whether it is worth the trip to have a doctor visit.
  1. Putting aside the travails and loneliness of elementary-through-high school remote learning, technology allowed classes to continue. Educators were able to sort out the benefits and negatives of schooling at home. Many schools have used that learning to create hybrid education plans. At universities, there was creativity, for example, in how to generate MBA networking when in-person networking became impossible. Brands like Coursera, mass open online courses, increased in popularity. As with the other categories, education, learning and libraries benefitted from both online and in-person teaching. Students and educators have options and do not have to trade off.  

According to one international educational study on the role of cloud-based video in education, “Despite returning to in-person learning, many institutions successfully implemented hybrid solutions…. 98% of institutions have students taking at least one hybrid course this academic year with 58% responding that over half the student body will have at least one course that is both in-class and online. 95% of schools will have some students that are receiving a fully remote education.”

  1. When gyms closed, in-home fitness expanded meteorically. Brands such as NordicTrack, and Bowflex which have been around for some time and Peloton, a relative newcomer, saw incredible increases in activity. Even though gyms are now open, coronavirus showed the benefits of working out at home or through an app. Peloton Outdoor provides training for running and walking, no studio or home needed, just the great outdoors.

 A tour through You Tube indicates that several fitness centers are combining in-person and virtual for workouts. As with education, video can be very engrossing. Although instructors enjoy the feeling of training rooms of engaged individuals, instructors are also conscious of their physical health, especially since individual status of exercisers is unknown. Hybrid solutions balance the needs of exercisers with the needs of their trainers and coaches.

  1. Grocery delivery was available before our virus lockdowns. But, it was the pandemic that turned in-store shoppers into online shoppers and delivery devotees. It is a habit for many that is here to stay, especially for people with full-time jobs. Instacart, Amazon Prime and others became life savers for those who dared not venture outside and into a store. The grocery stores also entered the fray. As did dairies. In Seattle, WA, a local dairy delivers milk, eggs, butter and other dairy products as well as items from a local bakery such as croissants to a tin box place outside your door. Additionally, the delivery companies have now branched out into same-day delivery of more than just groceries… regardless of order size.

As complicated as these changes are for brand-businesses, these changes are creating brand value. In today’s social, economic, political, institutional, personal and business environment, finding solutions to address contradictory has helped to create and build value for customers, shareholders, employees and other stakeholders. Forcing customers to make either/or decisions is yesterday’s behavior. People want the optimization of conflicting benefits. Winners will be brands that satisfy paradoxical benefits.

mercedes benz brand icon

Mercedes-Benz’ New Strategy May Be Flawed

/in /by

There is angst in Stuttgart, Germany. The executives at Mercedes believe that Mercedes has lost its luxury caché. Part of this concern has to do with its brand image. And, part of this has to do with its valuation in the eyes of investors and analysts. It seems that Mercedes is troubled that it is valued at a lower multiple than, well, tobacco. Mercedes CEO, Ola Källenius, wants analysts and investors to reconsider how they assess the brand’s PE multiple, especially when compared to Ferrari and Tesla.  

At its analyst and investor event in Monaco, Mercedes “pleaded” with investors and analysts “to take another look at Mercedes”. In order to raise its valuation in the eyes of the financial community, Mercedes is rebranding itself to become “the world’s most valuable luxury car brand”.  According to its new brand ambition, Mercedes will focus on luxury in order to woo the financial community.  In fact, Financial Times reporting indicates that the new Mercedes strategy is designed to entrance the financial community.

Mr. Källenius is said to be frustrated. He is quoted as saying, “Our (price to earnings) multiple now is kind of stuck with every other incumbent… which we don’t think reflects the true value of this company. I am not dreaming about (a multiple of) 20. We are not crazy, but five or six is not the right number.”

So, now, the brand’s new strategy organizes Mercedes vehicles into three luxury groups: Top-End Luxury, Core Luxury and Entry Luxury. Top-End Luxury will have the lion’s share of resources, including the Maybach brand. Core Luxury will primarily focus on E-Class vehicles while Entry Luxury will have only 4 models. Three entry models are being axed, as there is concern that these less expensive models have tarnished Mercedes luxury perceptions. Mr. Källenius told the business press that luxury has always been at the core of the Mercedes brand. But, now luxury needs to be woven into its strategy.

There are two problems with the new Mercedes reorganization and mission. First, Mercedes is turning itself inside out to become a darling of analysts and investors rather than customers. Second, Mercedes has confused luxury and prestige. This confusion will affect its marketing and communications with its customers.

  1. Focusing on Satisfying Analysts Rather Than Customers

In its quest to raise its PE ratio with analysts and investors, Mercedes is admitting that it will do whatever it takes to create an organization and a brand that analysts and investors will love. Being analyst/investor-driven may not be in the best interest of customers or in the best interests of the brand. 

Brand-driven, customer-driven growth must be the goal of the brand’s management. This is how the brand’s management links its business performance to brand performance. How you manage your brand is how you manage your business and vice versus. The goal of a brand’s management must be about profitably attracting and retaining customers. This leads to quality revenue growth and enduring profitable growth.  

Brands must focus on satisfying customer needs, rather than catering to shareholder interests. Losing customer focus is a certain path to trouble. The future will belong to customer-focused businesses that are best at attracting and retaining customers.

  1. Confusing Luxury and Prestige

Unveiling its new strategy in Monaco, Mr. Källenius made it clear that he wanted Mercedes to be rated the same as Tesla and Ferrari.    Tesla and Ferrari may not be in Mercedes’ customer-perceived competitive set. Tesla and Ferrari are in Mr. Källenius competitive set.

Tesla and Ferrari are different types of brands than Mercedes. Tesla is not a luxury brand. Neither is Ferrari. Tesla and Ferrari are prestigious brands. These two concepts – prestige and luxury – tend to be used as synonyms. This is a marketing mistake. And, for Mercedes, it is a strategic mistake. Mercedes may have mis-defined its competitive set for the sake of proving itself to investors and analysts.

The misuse and muddling of these two concepts – prestige and luxury – is a problem for luxury brands and for prestigious brands. It is also a problem for brand owners. The two words are different, denoting different brand and cultural experiences. 

Prestige and luxury should not be used interchangeably. Prestige is something a person assumes; it is bestowed; it is given; it is leveraged. Prestige is objective. Luxury is a state of being defined by great comfort, extravagance and the absence of vulgarity. Luxury is subjective. A prestigious brand is not necessarily a luxury brand and a luxury brand is not necessarily a prestigious brand. 

Although not mutually exclusive, prestige and luxury deliver different functional, emotional and social benefits. And, the values of the target customer may be profoundly different.  For example, a power seeker will want to associate with goods and services that bestow an image of control over and a sense of elevation relative to others. This does not mean that this power seeker will refuse to buy luxury items. What it does mean is that the power seeker uses the luxury items not for the experience but for stature and reputation.

Bernard Dubois of the HEC School of Management, a French grande écoles, wrote a journal article in 2002 on this subject of prestige and luxury. He reported, “… prestige is based on unique human accomplishment” while luxury refers to the “benefits of refinement, aesthetics and sumptuous lifestyle.” His research demonstrated that prestige and luxury have different consumer perceptions that if ignored have “substantial consequences” for a brand. Prestige was associated with admiration for a person or for an object while luxury reflected perceptions of comfort and beauty. 

Professeure Elyette Roux teaches at the University Paul Cézanne in the IAE Business School, in Aix-en-Provence. Professeure Roux is considered to be France’s most reputed (luxury) brand researcher. 

In 1999, Professeure Roux wrote a “white paper” on understanding luxury, describing the difference between prestige and luxury. She wrote, “Prestige is the act of striking the imagination, demanding respect and admiration. Prestige implies that one is looking for power over others, impose power over others.” Luxury is not about seeking power over others. “Luxury is more a way of being, a way of living. Luxury refers to pleasure, refinement, and perfection as well as to rarity, and the costly appreciation of that which is not a necessity.”

According to the French, and they should know, luxury is “a way of living represented by great spending to show elegance and refinement… it is a way of being rather than a way of appearing.” Professeure Roux regrets that the concept of luxury has come to be associated with ostentation, which is all about “showing”. In her opinion, luxury is this paradox of total rejection of everything economical and the aesthetics of sensory consistency. Coco Chanel was quite clear when she said, ‘Luxury must be comfortable, otherwise it is not luxury.”

The American sociologist, and author of The Power Elite, C. Wright Mills, wrote, “Prestige is the shadow of money and power.” Synonyms for prestige are status, standing, stature, reputation, repute, regard, fame, note, renown, honor, esteem, celebrity, importance, prominence, influence, eminence, and more. These are not synonyms for luxury.

Ferrari is a racing vehicle. And, it is a prestigious brand. Ferrari’s website says so. 

“The Prancing Horse symbolises exclusivity, performance and quality all over the world. 

Our prestige is built upon decades of sporting success and the inimitable style of our cars, which are unique in their innovation, technology and driving pleasure.

We craft exclusive, authentic and memorable experiences for our clients in everything we do.”

Tesla is a prestigious brand. And, it is a brand that is not afraid of offering less expensive, entry level models. The brand is prestigious because of its credibility and innovation in sustainability and environmental impact. Being associated with Tesla says a great deal about a person’s ecological commitment, whether warranted or not.

For Mercedes, using Tesla and Ferrari as its competitors, from a marketing standpoint is a mistake. There is no indication in the new strategy that actual customers see Tesla and Ferrari as brands among which to choose. 

Mercedes is correct in wanting to emphasize its luxury pedigree. Perhaps, over time, its luxury perceptions have diminished. Certainly, some investors and analysts think so. In fact, one automotive analyst at the Monaco event told Financial Times that although its Maybach brand is luxury, the Mercedes brand is “everyday” as in common.  

Mercedes should clarify whether its reorganization and new strategy are designed to create customer love and loyalty. If it has made changes just to satisfy shareholders, then this is a terrible mistake.

Additionally, brands must identify whether they wish to deliver a promised experience of prestige or a promised experience of luxury. And, then, uphold whichever is chosen. Prestige is about the power of respect, status, and reputation. Luxury is “a world of creations that make life more beautiful.” Brands and their owners must understand and never confuse or misuse these differences.

peleton marketing branding

Peloton: Turnaround Plan or Growth Plan 

/in /by

Peloton’s new CEO, Barry McCarthy, recently reported to analysts on his turnaround plan. He stated that a turnaround plan is hard work. He said that in turnaround situations there are always a lot of surprises. He said the turnaround would take a lot of time. If he was looking for support, he did not receive any kudos. Analysts and investors were not impressed.  Maybe this is because most of what Mr. McCarthy said were not elements for a turnaround plan but elements for a conventional growth plan. There is a big difference. 

A conventional growth strategy is not appropriate for a brand in urgent need of a turnaround. A growth strategy is very different than a survival and revival strategy. A conventional growth strategy is for a brand that is on a sustainable upswing. A conventional growth strategy is a longer term outlook. Typical growth plans are either a 3-5 year mid-term plan or a 5-10 year long-term plan. A conventional growth strategy is for going forward, full speed ahead. It is designed to accelerate quality revenue growth. 

The principal components of a conventional growth plan are to:

  • Broaden the brand’s appeal to build a bigger customer base. 
  • Focus on changing people’s attitudes in order to change their behavior – you have time to spend on slowly changing the way people think in order to make them use the brand.
  • Expand to new geographies.
  • More customers (new customers, new segments of people).
  • More occasions (new occasions).
  • Extend the brand offers – new products that appeal to new customers and/or satisfy new occasions.

Implementing a conventional growth strategy for a brand that is in need of a turnaround will only accelerate brand decline. 

A turnaround plan is a business approach for a business that is going in the wrong direction at an accelerating pace.  For a troubled business like Peloton, an aggressive turnaround plan is not an option. It is an imperative. It is not a long-term plan as Mr. McCarthy insists. It is an immediate short-term plan for business survival and brand revival. 

In his report, Mr. McCarthy mentioned many tactics such as rethinking Peloton’s capital structure; growing international users (Peloton’s goal is to hit 100 million subscribers globally, up from the 2.9 million it had at the end of March 2022); focusing on the digital app; shifting to a broader base of users by lowering prices on hardware; attracting more men to Peloton; and using third party retailers. Additionally, there is the discussion of a flat fee for hardware rental plus all-access to classes. Peloton has already contacted current customers alerting them to a monthly increase in access charges. These are tactics out of a conventional growth strategy. These are not tactics for a brand that finds itself in a doom-loop.

A turnaround plan has specific short-term objectives. It has specific actions designed to achieve those specific objectives. It has a specific timeline. At Peloton, the short-term objective must be to focus on achieving specified, measurable turnaround objectives in 24 months or less. With losses mounting and slowing customer acquisitions, Peloton does not have time. The marketplace is already questioning whether Peloton’s much discounted stock price is a reason to buy or a reflection of something incredibly wrong with the brand.

A turnaround strategy is a plan of thinking and action that immediately moves to stop a deteriorating situation. A turnaround strategy jettisons all non-core activities until the brand or business is stabilized in a sustainable manner. A turnaround strategy is all about earning the right to grow again. Wall Street did not hear a definitive short-term plan except for a binding commitment with JP Morgan and Goldman Sachs for a $750 million loan.

All turnaround experts agree that the most immediate “must-do” action when a brand is in trouble is to “Stop the bleeding.” Stop the financial bleeding and stop the bleeding of the customer base. Stopping the bleeding requires a set of quick, decisive decisions. As Mr. McCarthy pointed out in the earnings call, Peloton is “thinly capitalized” burning $747 million in the most recent quarter. This left Peloton with $879 million in cash. 

Some analysts worry that focusing now on expanding the customer base will cost a great deal of money that the brand does not have. Going after new customers is expensive. It costs at least 4 times as much to attract a new customer than it does to maintain a current customer. And, using cheaper fees to attract new customers will attract the wrong kind of customers. These will be customers who love the deal rather than the brand. By attracting deal-focused customers, Peloton’s churn rate may rise. Mr. McCarthy has been extremely impressed by the low churn rate at Peloton. His possible actions may reverse this bit of good news. The short-term turnaround goal should be to reduce capital expenditures by stopping the shrinking of the current base and restoring profitability. As one managing director at an equity firm told Barron’s, the weekly financial newspaper, Peloton should be focusing “…on its loyal customers, rather than chasing growth.”

This leads is the second critical element of a turnaround plan: reinforcing the brand’s core business. The core business must always be protected. The core business is what will finance the turnaround profitability and finance the platform for the future. The main business must always be protected before moving on to a new approach. Moving to a more digital, less hardware, services brand may be a good call once the brand is stabilized. But, for now, the core business needs to be strengthened. The potential introduction of a rowing machine may be a core-strengthening move.

Peloton has a devoted customer base. Mr. McCarthy should be looking at increasing the frequency of usage and the loyalty of current customers. Core Peloton customers already love the brand. The plan should be to focus on Peloton strengths and reinforce these effectively to Peloton core customers. Rather than penalizing core customers with higher fees, Peloton should be creating ways to reward its core customer base. One analyst remarked that with people returning to gyms, you see the draw of the social aspect of working out. Peloton actually has a huge social component. Connections are part of its mission. But, this has never been a part of its advertising strategy.

Peloton is not ready for a growth plan. Yet, the tactics from Mr. McCarthy focus on growth. This is a mistake. The core business needs shoring up not ignoring. Peloton needs to earn the right to grow. 

Samsung brand leadership

Brand Leadership And The Courage To Commit

/in /by

Many times, brand-businesses have insights about the future but do not find the courage to act on these insights. Lack of courage occurs for a number of reasons. Costs, fear of failure, complacency, the comfort of manufacturing what the business knows how to make rather than what solves customers’ problems, a chief of manufacturing who says, “Not on my line” or a siloed organization: all tend to collapse courage and get in the way of making things happen.

These brand-businesses do not have the will to do. So, something amazing passes through their systems causing lost chances, missed opportunities and the chance to get ahead of curve. Having the courage to commit to a vision or an insight is essential for brand-businesses, especially today in a fast-changing, volatile world. The courage to commit starts with brand leadership. Brand leadership is the key to action.

Brands thrive if leadership sees ahead and creates a plan for winning. Brands need to keep innovating in order to stay relevant. Brands need to keep in touch with their customers. Brands need leaders who love the core products and who want to make these better. But, brands also need leaders who can see ahead, adopt new ideas and act.

One of the criteria for great brand leadership is knowing the difference between being certain and being confident. Looking for certainty is a dead-end street. Brand leaders who seek certainty usually will not have the courage to act. Death and taxes are certain: all else are not. On the other hand, confidence is critical. A brand leader who is confident that an idea is worth investing in has the courage to bring the idea to fruition. Being able to say, ‘No, I am not certain this will work, but I am confident this is the right thing to do,” is a mark of a great brand leader.

Great brand leaders are authoritative, credible, responsible, trustworthy and they have integrity. When great brand leadership is lacking, brands suffer. Those seeking certainty will jettison ideas because there is no way of supporting a world of no doubt. There is no way of having absolute conviction that something is true if it has never yet happened. Great ideas die when the brand leader, presented with a new idea, asks, “Can you give me an example of who has done this before successfully?”

In the early 2000’s, an appliance company created a smart fridge. It was years ahead of the marketplace. This fridge would have the ability to communicate when foodstuffs were going bad; it would be able to order food stuffs that were running low; and it had a computer that allowed you to keep a meal calendar and create meal planning. The smart fridge would be hooked up to your home Internet system and become a communications hub for the family. The appliance company made one of these. This one-of-a-kind smart fridge was trucked around to various cities and company offices. But, the smart fridge never saw the light of day with consumers. Leadership was unsure and non-committal. Leadership wanted to continue to know more. Leadership was concerned more about failure of this product than the product’s success. No one could promise leadership the certainty of a win.

Today, smart fridges abound. Take the Samsung Hub concept. According to its website, Samsung Hub… “… with Alexa built-in, helps you stay connected to your family and home, whenever and wherever. Family Hub™ lets you control your Samsung smart appliances and devices, stream music, share pictures with your family, and so much more, all right from your fridge.” Samsung has always had leadership that respected innovation and accepted risk. As early as 2005, Samsung previewed a digital convergence fridge. It had a home organizer on the front door.  This organizer had categories such as Food remember, Digital schedule and calendar, digital memo pad and digital radio. 

Samsung’s early innovations in clothes washers and dryers, again from 2005, changed the way other manufacturers thought about these appliances. Samsung featured the Silver Nano Health System clothes washer. This feature used silver ions that melt in the water to get rid of germs and provide sterilization.  The video on the Silver Nano indicated that the silver ions decomposed detritus to 1/1000th of a hair width, provided 99.99% sterilization and odor removal and removed irritants thus preventing atrophic dermatitis.

Ten years ago, in 2012, a hotel company had a plan for a net-zero, sustainable hotel. At the time, research indicated that a sustainable, responsible hotel would solve a problem for many travelers who expected products and services to reflect their personal values. The sustainable hotel’s concept was designed around the idea of innovating for responsible living. This hotel was to be a disrupter: a building that would be green from top to bottom. Partners with expertise in specific areas of sustainability and technology were signed; the specific location was identified and the land owner was eager for discussions to start. The innovation hotel would also be a pipeline for the company’s other branded hotels as new ideas could be tested, measured and managed in real-time with winning ideas transferred within the company’s system. Data showed that this sustainable hotel would be a profitable entity for the company, especially when it came to the key hotel-industry metric of RevPar, revenue per available room.

A team worked on the strategy and planned for months. Money was spent, presentations were delivered. And then, nothing… shelved with all the other what ifs. It was the hotel that never happened. At least not at this company. Leadership was worried about short-term investment rather than the long-term profitability of the innovation. Leadership wanted certainty that this sustainable hotel would succeed.

Now, as reported in The New York Times, there are many hotels with the same sustainability concept that are actually being built or have been built, receiving guests. Leadership at these hotels are willing to commit to the greater good. As in 2012, once again new research states travelers commitment to eco-consciousness when it comes to the actual hotel. In a Booking.com survey, 71% of respondents say they plan to travel greener. And, more than 50% of the respondents indicate that they “are determined” to make greener travel choices. The New York Times states that these hospitality options are way beyond the ditching of tiny plastic shampoo bottles and asking guests to reuse their towels. These hotels are focusing on the entire building. These hotels are focused on environmental efficiency and effectiveness, from solar panels to zero waste.

When Boards of Directors, investors and analysts see the present and the future, and if they believe in ing strong, resilient, authoritative, trustworthy brand-businesses that will continue to generate enduring profitable growth, great leaders must be in place to make these insights realities. 

Great brand leadership takes courage. Great brand leadership requires a will to do based on confidence. Great brand leaders know what they do not know and exercise informed judgment. Great brand leaders weigh informed action against inaction: they balance the need to know with certainty against the necessity for a confident decision. Great brand leaders take risks; they take leaps of faith based on informed judgment: they have confidence that these are leaps in the right direction.

Barnes & Noble Brand Books

The Revitalization Of Barnes & Noble

/in /by

Recently, The New York Times ran a lengthy story about the revitalization of Barnes & Noble, the last book megastore on the American retail landscape. Although some still question the future of the brand, there is no question that Barnes & Noble has come back from the brink. 

In August of 2019, activist hedge fund Elliot Management Corporation purchased Barnes & Noble for $683 million (including debt), taking the bookstore brand private. At the time, responses from the trade and business presses were interesting. Financial Times called the deal “contrarian” while The New York Times hailed the purchase as “a sigh of relief” for book retailing. Elliot Management already owned a UK bookseller, Waterstones and had been successful achieving a turnaround of that UK brand. The turnaround was led by Waterstones’ CEO James Daunt.

Still, for Elliot Management, Barnes & Noble presented a challenge.  The brand had survived close calls many times over since its inception in 1886. (The name Barnes & Noble did not appear until 1917.) The environment for large mega-bookstores was not particularly favorable in the mid-2000’s. Barnes & Noble’s competitor Borders went belly-up in 2011. To counter the onslaught and inroads of electronic books and Amazon’s online sales, Barnes & Noble added non-book items such as music, children’s educational toys, events, and Starbucks’ cafés. Barnes & Noble created its own ereader, Nook, to compete with Amazon’s Kindle, but gave Nook very little attention. Barnes & Noble found itself in the unfortunate middle between Amazon and small, independent stores catering to specific subjects mirroring either the tastes of their owners or satisfying local predilections. Barnes & Noble’s stores became a jumble of books and merchandise unrelated to books. 

The business press and many readers questioned whether Elliot Management could reignite Barnes & Noble for a future of enduring profitable growth. There were many who thought the Waterstones experience was not transferable to the US.

Elliot Management believed that the strategy used by James Daunt at Waterstones – allowing local bookstores to cater to local tastes providing an in-person experience – would work in the US. After all, localization was, and still is, an important driver of sales. So, Elliot Management asked Mr. Daunt to take the CEO position at Barnes & Noble.

As described in The New York Times, “His (Mr. Daunt’s) theory was that chain stores should act less like chain stores and more like independent shops, with similar freedom to tailor their offerings to local tastes.”

When asked about his plan for Barnes & Noble, Mr. Daunt stated that he was not interested in “remaking” Barnes & Noble as Waterstones: he just wanted to make Barnes & Noble a better bookshop. Along with the localization strategy, Mr. Daunt put power back in the hands of the general managers. Mr. Daunt indicated that he would not dictate to the local store managers and staff. Let the general managers select books of interest to that particular store’s customers. Barnes & Noble’s chain strategy had been to fill stores with the same books regardless of geography and neighborhood. 

Mr. Daunt’s strategy for Barnes & Noble’ rejuvenation rested on three critical factors.  Two of these factors are essential for any retail revitalization (1) “Nothing happens until it happens at retail;” (2) “The General Manager is the Brand Manager.” The third factor is essential for all great brands: 3) “Leveraging A Stellar Reputation.”

  1. Nothing Happens Until It Happens at Retail

Revitalizing Barnes & Noble required revitalizing the brand’s in-store, retail experience. This meant articulating the Barnes & Noble brand promise so clearly that every employee understood what the brand stands for in the customer’s mind.  Everything that happens must be focused on bringing this promise of a relevant, differentiated, trustworthy brand experience to life for every customer, every day, in every store.  

According to its website, the mission of Barnes & Noble “… is to operate the best omni-channel specialty retail business in America, helping both our customers and booksellers reach their aspirations, while being a credit to the communities we serve.” Mr. Daunt counted on the desire for personal, human contact when buying books, in contrast to Amazon, which uses technology to personalize online promotions and servicing its brick-and-mortar bookstores.

As The New York Times pointed out, “Buying a book you’re looking for online is easy. You search. You click. You buy. What’s lost in that process are the accidental finds, the book you pick up in a store because of its cover, a paperback you see on a stroll through the thriller section.

“No one has quite figured out how to replicate that kind of incidental discovery online. It makes bookstores hugely important not only for readers but also for all but the biggest-name writers, as well as for agents and publishers of all sizes.”

The concept of discovery is one key reason stores such as TJ Maxx and Home Goods are so popular.

  1. The General Manager is the Brand Manager

No one knows a marketplace locale and its customers better than the store’s general manager. It is the role of the general manager, along with staff, to deliver the brand’s great experience to customers. The general manager brings the brand to life making sure that each and every customer contact meets expectations. It is the responsibility of the general manager to assure the brand lives up to its promises. 

Whether hotels, restaurants or other retail establishments, the importance of the general manager needs to be recognized. The general manager knows the customer’s needs and problems and how to solve these problems. The general manager knows the neighborhood, community and local business relationships. To localize and personalize the Barnes & Noble brand experience, the chain allowed each store’s general manager to be the real brand manager. Each store manager was, and is, in charge of localizing books for locals’ preferences. 

  1. Leveraging A Stellar Reputation

Just because Barnes & Noble was in crisis at the time of the Elliot Management purchase, did not mean Barnes & Noble had lost its positive reputation. The Reputation Institute’s 2018 US Retail RepTrak® Rankings, cited Barnes & Noble as the: “#1 most reputable retailer in America.” 

Data show that brand reputation can alter customers’ preferences for products and/or services they might consider buying. Brands known for being extraordinary in their market gain customers’ confidence. Exceptional reputation distinguishes a brand from brands in its competitive set. A great reputation allows a brand to potentially secure a premium price, generate positive word-of-mouth support and be a barrier to copy-cat brands.

Reputation is based on perceptions that the brand is able to consistently meet the expectations of its stakeholders. The brand must consistently perform its activity over time in a quality manner.

In a dynamic and uncertain world, people seek familiar touchstones of expertise, authenticity and trust. Trust is an increasingly important factor in customer decisions. A strong, trustworthy business reputation contributes to high quality revenue growth. 

Reputation is a source of confidence. Reputation provides customers with authoritative information and credibility. Reputation provides continuity and consistency across all platforms.

Reputation is the overarching evaluation of past performance. A brand can learn from the past and build on that past. For Elliot Management and its Barnes & Noble’s CEO, James Daunt, the key issue was not what Barnes & Noble had accomplished. The key issue was how these past accomplishments were going to drive the brand’s future. What Barnes & Noble did to move forward was not live off of its reputation, but leverage that reputation as a pathway to a profitable, enduring future. 

By focusing on the individual store to deliver the Barnes & Noble brand experience to its local geography and/or neighborhood, the brand succeeded. Barnes & Noble merged its glowing, solid reputation with two other fundamental principles that drive retail, nothing happens until it happens at retail and the general manager is the brand manager. 

A Brand’s Frontline Is its Goldmine

A Brand’s Frontline Is its Goldmine

/in /by

Employees are the frontline when it comes to customer relationships and delivering the brand experience.  This is especially true in a service business. Investing in a brand’s people should always be a priority.

In March 2022, Starbucks changed its CEO. Kevin Johnson who became CEO in 2017, announced that he was leaving. Mr. Johnson was replaced by Starbucks founder, Howard Schultz. Faced with external pressures and internal unrest, Mr. Schultz is defying the financial norm of purchasing buybacks and focusing those monies on Starbucks’ employees. Mr. Schultz will be investing in the gold mine that is his frontline.

Regardless of one’s position on Starbucks’ unionization, investing in a brand’s employees is the right thing to do. Just because a business is customer-focused does not mean that customers come first. Customers come second. Employees, the brand’s people, come first.

Internal alignment is essential. A committed culture is critical. A disgruntled culture is a crisis. Internal brand pride is a key success factor affecting external attitudes and outcomes. If a brand’s people are not proud and inspired then a brand will falter.

If a brand wants its employees to love the brand then the brand needs to love its employees. If a brand wants its employees to have passion and pride in the delivery of a trustworthy relevant, differentiating quality experience than the brand must demonstrate passion and pride in what employees do and in who they are.

Data show that employees play a powerful role in shaping business perceptions through positive communications with all stakeholders. Proud employees communicate well beyond their place of work. Proud employees’ advocacy of the business enhances perceptions among external and internal stakeholder audiences. Employee pride translates into higher job satisfaction. Employee pride and satisfaction contribute to customer satisfaction. 

The difficulties brand-businesses face due to the impact of coronavirus have just exasperated the difficulties of keeping a workforce happy, engaged and committed to the brand. Keeping a brand’s culture alive when working from home is incredibly challenging. Even more challenging is keeping a workforce that must show up at work committed during a pandemic. 

It is unfortunate that a keen, laser-like focus on employees is something that tends to be put aside when management and investors focus on financial engineering such as extreme cost cutting including job losses, debt accumulation, share buy-backs, increased dividends, forced spinoffs and money siphoned into the pockets of investors rather than invested into businesses. Investments in continuous improvement and innovation are decreased as dividends and share buybacks are increased. Monies are siphoned from employee training and recognition programs, R&D, customer insight research, service and support and marketing resources. 

As for buybacks, data in The New York Times indicates that in 2021, companies in the S&P 500 repurchased $882 billion in shares. The New York Times also reported that analysts at Goldman Sachs expect this year’s forecast to be over $1 trillion in buybacks.

Barron’s, the financial magazine, wrote that there may be a slowing in buybacks. Quoting a variety of sources, Barron’s indicated that where dividends are “sacrosanct,” buybacks are more flexible. Additionally, with a rising interest rate, using debt to buy back shares is looking like a less desirable action. However, Barron’s also notes that there are few examples of companies “de-emphasizing or suspending share repurchases.” There is nothing quite like juicing your stock price.

This is what makes Starbucks’ move so interesting.

The first action Mr. Schultz took in what is now his third term as CEO was to suspend buybacks and invest the money in Starbucks’ people. Mr. Schultz said that stopping the share buybacks would allow Starbucks “… to invest more profit into our people and our stores – the only way to create long-term value for all stakeholders.” The Wall Street Journal reported that during a “forum” at Starbucks’ headquarters, Mr. Schultz told employees that Starbucks had not done enough for them in recent years. He said, “We have to reimagine the role and responsibility of a public company in America today. We have not done enough. I promise to do better.”

Recognizing that there is quantity of growth and quality of growth, Mr. Schultz said, “… Starbucks has a winning strategy and millions of loyal customers and that it was not worth fixating on the company’s stock price. He said he faced pushback when investing returns in benefits for part-time employees when he first started the company, but it was the right thing to do for Starbucks and its workers. He added, “For all of you following the stock price today and that stock is going down, that’s a short-term thing.”

With more Starbucks voting to unionize, Mr. Schultz and his leadership team are out in the field listening to employees express their complaints and concerns. Mr. Schultz wants to better understand how employees feel. Mr. Schultz said employee feedback will “inform” the brand’s “decision-making” according to The Wall Street Journal. In addition, Mr. Schultz has hired a Chief Strategy Officer, Frank Britt, reinstating this function that was eliminated in 2018. According to Mr. Schultz, Frank Britt, formerly of Penn Foster, a workplace development enterprise, has spent his career “… empowering frontline employees to unlock their full potential in work and life.”

As The Wall Street Journal reported, Mr. Schultz is “… reviewing the company’s benefits to develop an expanded employee-benefit package in an effort to better recruit and retain baristas.” It appears as if these benefits will only be for non-union personnel. Legal restraints prohibit alterations to union-agreed terms for unionized workers without bargaining with their union. Mr. Schultz has been clear as to his feelings about unionization. On the other hand, investing in people and stores should not be seen as simply a way to bust burgeoning unions. Investing in people and stores should be seen as a way to build a better brand.

If you think that focusing on building employee pride and passion is less effective than product or service or pricing, you would be wrong. The 2003-2005 turnaround at McDonald’s was not achieved solely by the creation of its continuing “i’m lovin’ it” campaign. There was a concerted effort to build back employee enthusiasm and advocacy for the McDonald’s brand. In 2002, morale among employees, corporate and in stores, was funereal. Unhappy employees at the counters took out their feelings on customers. Reports of rudeness and inaccurate orders rose, bathrooms were not cleaned as frequently, tables were dirty, lines at drive-thru were long and drive-thru times increased.

Then CEO, Jim Cantalupo, publicly defended the reputation of every individual who worked at McDonald’s. He invested in employees and in the quality of the HR department. McDonald’s created an onboarding program, “Learnin’ It, Livin’ It, Lovin’ It” and focused on a lifetime of skills that a job at McDonald’s offered. Not every employee looks for a lifetime job, but they do want a job that delivers a lifetime of skill sets transferable to other jobs. Employees want to acquire skills that can last them a lifetime.

Horscht Schulze, founding president and former COO of The Ritz Carlton Hotel Company, built The Ritz Carlton brand on employee passion. The core guiding employee concept was “Ladies and gentlemen serving ladies and gentlemen. In a 2006 article from Dealerscope, Audrey Gray wrote, “The Ritz Carlton is so intent on empowering their employees to ‘wow’ customers, each employee has permission to spend up to $2000 a day per guest to fulfill expresses or unexpressed wishes.” “… the company’s most successful customer service policies revolve around hiring and empowering their employees. The Ritz Carlton acted on the belief that if its people did not believe in the brand then the brand could not expect its guests to believe in the brand. 

Publix supermarkets has about 1000 stores, about 800 of which are in Florida. Publix’ culture is one element that makes Publix so successful and such a nice place to shop. And, its culture is based in part on employee ownership. Publix is also a non-unionized organization. According to Barron’s, of its 225,000 employees, 205,000 own Publix stock. Publix is the largest employee-owned company in the United States. Publix is a private company that is owned by employees, Board members and the Jenkins family which founded the business. Publix shares are not traded publicly. Stock is awarded yearly to staff members. Staff members can also purchase stock from the company. Barron’s calls Publix’ culture “strong and durable.”  Publix treats its employees as owners, which they are: the workers are the winners, not the investors, as Barron’s points out. And, Publix has stated that it plows its money into its operations and stores rather than investing in buybacks.

A brand’s service experience is a key factor in making a brand more attractive. How customers are treated makes all the difference in the world. To be successful, brands must take their service to the next level. This includes building and reinforcing employee pride and brand commitment. Pride transfers to the other side of the counter.

Howard Schultz is making a bold move. What is especially important to note, politics aside, is that he is making this move in a business world that has been increasingly focused on the short-term. Mr. Schultz understands that Starbucks grew based not just on product but by offering a comfortable third place staffed with knowledgeable, friendly baristas. These baristas were not just serving the brand’s products; they were serving the brand’s experience. They were aficionados of coffee. The baristas were not just agreeing to Starbucks’ brand experience, they were advocates and adherents of Starbucks’ brand experience. Starbucks’ baristas put the brand experience in the hands of every single customer. The Starbucks brand cannot afford to have unhappy baristas.

Putting monies into its employees is the right thing to do. Not just for the employees, but for all stakeholders. With a committed workforce, Starbucks, and any brand for that matter, has a competitive advantage. Focusing on the long-term health and welfare of employees at the expense of short-term stock gains is not an expense at all. It is an investment for high quality revenue growth.

JC Penney Marketing Branding

JC Penney Aims to Adore its Core

/in /by

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

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

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

Amen.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Kohl’s And Activists Acting Badly

/in /by

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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