Netflix Needs to Be Bigger, Better, Stronger To Have Both Quality of Growth and Quantity of Growth 

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Netflix just reported its half year earnings to analysts. Wall Street’s reactions were typical. 

After the initial knee jerk punishing of Netflix’s stock because Netflix did not capture enough subscribers, Wall Street, its analysts and media talking-heads focused on Netflix’ positive news regarding operating margins, free cash flow and operating profits. 

Either way, Wall Street, as usual, focused on quantity of growth. Everyone was completely bummed that Netflix missed the mark on new subscribers. Then, everyone was incredibly pleased that Netflix surpassed expectations with margins, profits and cash flow. 

This attitude and ensuing behavior are incredibly harmful for brand-businesses. Wall Street only looks at brand-businesses to determine if the brand-business is getting bigger. Bigger customer base, bigger margins, bigger profits and bigger shareholder value leading to enduring profitable growth.

But, to generate enduring profitable growth, a brand-business must have quality revenue growth. Quality revenue growth relies on two pillars: Quality of Growth and Quantity of Growth. Without quality of growth, there is no generation of customer-perceived brand value. And, without customer-perceived value, there will be no shareholder value. Quality of growth and quantity of growth require a focus on being bigger, better and stronger.

Quality of growth means that the brand-business 1) continues to focus on its brand promise; 2) understands its specific target audience and like-minded others through market segmentation; 3) knows that quality is consistent conformance to customer expectations; 4) recognizes that customer-perceived value is brand-business total costs relative to the total brand-business experience multiplied by trust; and 5) seeks to become the customer’s preferred brand-business. 

Quantity of growth is having more users who use more frequently, more offerings, more revenues, more share, more margin, more profit.

The combination of quality of growth and quantity of growth drives quality revenue growth. Not only are customers loyal to the user experience, these customers have less price sensitivity. There cannot be sustainable profitable growth with only quantity of growth. It is not just about being bigger. A brand-business must be better and stronger.

Bigger

Being bigger rests on generating familiarity thereby growing the customer base, i.e., market penetration. Familiarity is not the same as awareness. Awareness is a yes or no question. 

Awareness is a light switch: on or off. There are no degrees of awareness: it is binary. Familiarity is more than mere awareness. Familiarity is not an absolute measure; it is measured in degrees, from extremely familiar to not at all familiar. 

Penetration means growing the customer base, with the marketing goal to increase both penetration and loyalty. Brand loyalty refers to having customers purchase more often, building brand preference and reducing price sensitivity. Attraction and retention are necessary and are bottom-line goals. 

It is quite possible to have increased brand loyalty among a shrinking base of customers. But, increasing loyalty among fewer customers is a risky business. Building loyalty within a declining customer base is just slowing the rate of brand death. If Wall Street wants to fret about Netflix’ fewer customers, they should keep this thought in mind.

Brand loyalty is more than repeat purchase. Brand loyalty is repeat purchase over time based on brands commitment. This means that customers believe a particular brand is the superior alternative for satisfying their particular need in a particular context. It means that the brand is their favorite – their brand preferred – the brand that will be bought again; the brand that will be willingly recommended. 

It is unfortunate and short-sighted that analysts and Wall Street are only concerned that fewer subscribers are signing up for Netflix. The concern should be that with fewer customers, there might also be a smaller or declining loyal base which does not bode well for Netflix and shareholder value.

Better

Being better means enhancing the brand-business reputation and generating overall customer satisfaction. Getting bigger is important. But, generating bigness for the sake of sheer size is a waste of resources. The brand-business goal is to be better, not just bigger. Be bigger by being better. Netflix needs to show continuous improvements in the way the brand-business is perceived. Is Netflix perceived for the things for which it wants to be perceived? Are Netflix customers satisfied? 

Brand Reputation means Netflix is delivering on its Brand Promise. Is Netflix brand delivering against its agreed upon defining elements? A relevant, differentiated brand-business is a multidimensional promise. It is essential to truly understand the relevant differentiation of the brand-business and include specifically designed metrics to reflect these dimensions. 

Satisfaction is about Netflix fulfilling customer needs, desires, expectations. Satisfaction is relative. Relative satisfaction means satisfaction compared to competition. In today’s world, the competitive bar of customer expectations is high. 

Stronger

Stronger is about Brand Loyalty, Brand Preference, Trustworthy Brand Value, Trust and Brand Power.

Brand loyalty anchors quality of growth. Loyalty builds high-quality revenue growth, which needs trustworthy brand value to increase. Because there is no shareholder value without brand value, brand loyalty becomes an important element for enduring profitable growth. Netflix must show metrics for brand volume (new subscribers) and brand value (loyalty of subscribers). 

Brands preference is a reflection of the strength of the commitment the customer has to Netflix relative to competitive brands. Brand preference is like a ladder. Netflix needs to move customers up the brand preference ladder to true brand loyalty. Moving customers up the ladder from commodity consideration to true brand loyalty can have a big impact on revenues and profitability. 

Trustworthy Brand Value is total costs (price, time, effort) relative to total brand experience (benefits, rewards, brand-business character) multiplied by trust. Value is not low price. Price is one of the elements of total costs.

Trust is a multidimensional idea that underpins and drives relationships. Trust is not a single statement. Trust cannot be determined by simply asking, “Is this a trustworthy brand?” The key is identifying the brand-business-relevant “attributes” of trustworthiness. 

Brand Power does not mean a brand is big.  A big brand is not the same as a powerful brand. Brand Power focuses on three dimensions: familiarity, specialness, and authority. Familiarity means that the customer is not only aware of the brand but feels sufficiently familiar with the brand to express an opinion about it. 

Specialness is the combination of both relevance and differentiation. 

Authority is the combination of perceptions of overall quality, leadership, and trustworthiness. Quality is driven by customer perception of consistent conformance to expectations. Leadership is driven by an image of not only leading in size, but also leading in thought, popularity and innovativeness. Trustworthiness is based on a reputation for credibility, integrity and responsibility. 

Brand power is customer-perceived. It is nice to know how Netflix rates. But, when it comes to making money and satisfying customers, it is necessary to win within the brand’s competitive set. The competitive set must be seen through the eyes of the customer. 

Netflix showed some good results. And, Wall Street noticed. However, both Netflix and Wall Street only focused on quantity of growth; only focused on getting bigger. Netflix and Wall Street were really pleased. But, the pleasure is not sustainable until the focus broadens to include getting better and getting stronger generating quality of growth as well as quantity of growth. 

Uber’s Undercover Problem Detection Study

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Problem Detection is one of marketing’s most effective strategies. Profitably solving and satisfying customer problems is the aim of marketing. So, marketers tend to focus problem detection on customers. But, as brand-business’ know, having motivated, committed, proud and loyal employees is a most critical factor in brand-business success. Recent research from Deloitte, the global services group, re-confirms the fundamental principle that loyal employees generate loyal customers. 

This is why the recent actions of Uber’s CEO, Dara Khosrowshahi, are so remarkable. Uber’s CEO went undercover to understand problems with the Uber experience from Uber drivers’ perspectives. Not only were problems recognized, Uber went about solving the problems in order to make driving an Uber a much better experience. As Mr. Khosrowshahi stated, his focus has always been on the rider experience. Now, he understands that to have a great rider experience, Uber needs to have a great driver experience. What Mr. Khosrowshahi learned is that the drivers’ issues were valid and needed to be addressed. As one analyst said, “Having loyal drivers makes Uber more competitive and sets it up to expand into new categories and deliver better returns for investors.”

The Wall Street Journal catalogued Uber’s problems and the solutions in a detailed story. Mr. Khosrowshahi’s undercover problem detection study while driving has been the foundation for “one of the biggest makeovers of Uber’s brand-business since its inception in 2009.” 

To demonstrate the power of problem detection and the solutions that come from this approach, Uber used to use incentives to motivate drivers. But, incentives put a financial strain on the brand-business’ results. And, money cannot buy true brand loyalty, just look at the car industry. Of course, as pointed out the article, pay is a motivating factor. Yet, Uber drivers wanted to be heard on a lot of other issues besides pay. While driving for Uber, Mr. Khosrowshahi discovered that believing incentives would fix everything was not the answer. It became clear to him that there were fundamental changes that needed to happen.

Problem-solution is a practical, flexible, effective approach for marketers when it comes to product and service renovation and innovation. Ubfirtunately, it is not used enough. And, it is certainly not used enough to improve employee brand-business interactions and experiences.

A problem-focused approach is the most productive way to identify new development and marketing opportunities. Asking drivers what they might want is not that helpful. Usually answers to what people want are generic such as “I want a good driving experience” or “I want to feel good about my Uber role.” 

Unlike wants, problems are not speculative or imagined. Problems are based on actual experience; problems are real roadblocks or snags or impediments to seamless functioning. 

For example, Mr. Khosrowshahi discovered problems with the sign-up process where drivers choose whether they wish to deliver food or people. Mr. Khosrowshahi is quoted as saying the process was “clunky.” Uber fixed this problem.

While driving for food delivery, Mr. Khosrowshahi discovered that food pick-up at restaurants was “confusing” and so this was also fixed. Uber created a delivery driver video to clarify the steps for food pick-up making it easier for drivers. Also, there were issues with misinformation on how many orders were to be picked up and delivered. Uber fixed this as well.

As for driving passengers, Mr. Khosrowshahi became as frustrated as many Uber drivers were. He learned that not all passengers were polite. Mr. Khosrowshahi was “punished” – as Uber drivers are – for certain actions such as rejecting some trips. The solution is the ability of drivers to see passenger pick-up destinations in advance without restrictions. Furthermore, Uber is working on making some destinations more attractive. This has changed the way in which Uber calculates pay for drivers. 

There were glitches in the software that stymied address navigation for multiple passenger pick-ups. This was fixed, as well.

The list of problems in The Wall Street Journal article is long. And, to Uber’s credit, solutions to all of the issues were created. The solutions not only covered Uber-specific problems but also include driver safety issues relating to conditions such as maps that avoid accident-prone turns and in-car video cams. 

Problem Detection is a superior way to market, whether externally or internally. As the Deloitte study reiterates, some of the priorities in developing a workforce built on trust are: 

1) implementing technologies for workers to complete their tasks effectively and efficiently;

2) listening and solving based on the worker experience and their evolving needs; and 

3) generating initiatives for different segments of the workforce.

Mr. Khosrowshahi and his team addressed these priorities using Problem Detection. It is clear from this Uber initiative that internal marketing can be boosted and furthered by focusing on solving workforce problems. Of course, an aligned workforce wants answers to questions about: What is my role? What do these changes mean to me? How do I grow? And, other important issues around education, inspiration and leadership. 

But, as Uber is showing, fixing the most important and frequently occurring “experience” problems should be an integral part of any internal marketing program. Uber now has shown its commitment to its driver workforce by listening, learning and changing. This is making Uber the preferred choice for many people who wish to drive for food delivery or passenger pick-ups and drop-offs. Being the preferred employer is an incredible competitive advantage. Internal Problem Detection can help make this happen.

Claire's Marketing

Claire’s Pierced The Boredom Barrier With Global Innovation

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For retailers, Covid-19 did a lot more than create supply chain disruptions causing huge inventories of unwanted items and changes in customer behaviors. Retailers put innovation on the back burner. According to The Wall Street Journal, retail brand-businesses “paused” innovation for the past three years. A playing-it-safe strategy was adopted by multiple retail establishments. Best Buy, Nordstrom’s and The Gap are cited as retailers with “a dearth of new products, styles and colors.”

Now that the urgency of Covid-19 has abated and with consumers shopping in person again, there is a race for newness. As one consultant indicated, ‘Something as simple as a new flavor, color or style can create demand. With a decline in newness, we are boring consumers to death.”

Innovation is generating products, services and experiences that are breakthrough and transform the market or the organization addressing known or unknown human needs. Innovation reflects higher risk. Innovation is life-asserting for brand-businesses. But, so is renovation.

Renovation is improving the efficiency of or evolving the performance of existing products, services and experiences. Renovation reflects lower risk and should happen on a continuous basis.

Both innovation and renovation are critical for brand-business success. Lack of innovation – and renovation – are not just about “boring people to death.” Lack of innovation – and renovation – is brand-business mismanagement. This is because without innovation (or renovation) the brand-business stultifies. 

Based on The Wall Street Journal story, one might think that retailing is in yet another predicament: no new products or services. Worse yet, because of the difficulties faced to Covid-19 and its aftermath, retailers are more risk averse. Risk aversion is anathema to innovation and renovation

Except at Claire’s. Claire’s is a shining star in retail, unmentioned in The Wall Street Journal article. Claire’s has been a font of innovation and renovation. If you think Claire’s is just that ear-piercing, affordable earrings teen magnet, mall kiosk you would be wrong.

Let’s set the record straight. In case you missed it, Claire’s Holdings LLC was recognized by Fast Company’s (the monthly business magazine) prestigious, annual list of the World’s Most Innovative Companies for 2023. Claire’s was number two on the retail sector list.  Fast Company recognized Claire’s creative brand-business strategy that turned Claire’s into a global, powerful, fun fashion brand. Additionally, Fast Company cited Claire’s ability to connect with its consumers through surprise and delight with on-trend offerings, consistency of the total brand-business experience and its caring customer service.

For those who do not have tween, teen and/or young girls in their household, Claire’s is an American retailer of accessories, jewelry, and toys. Claire’s is a “fun fashion destination for jewelry, cosmetics, accessories and ear piercing.

On its website, Claire’s indicates that it is 

“… a global brand powerhouse for self-expression, creating exclusive, curated and fun fashionable jewelry and accessories and offering world-leading piercing services. The company operates under two brand names: Claire’s and ICING.”

Founded in 1961, Claire’s 

“… operates 2300 Claire’s stores in 17 countries throughout North America and Europe and 190 ICING stores in North America. Claire’s also sells Claire’s products in thousands of concessions locations in North America and Europe… and Claire’s has more than 300 franchised Claire’s stores, located primarily in the Middle East and South Africa.”

While many retailers were drowning in excess merchandise and figuring out what to do to survive the holidays, Claire’s was proceeding with its innovative growth strategy. Underlying its strategy is an exceptionally clear understanding of Claire’s target audience. Claire’s calls these individuals “Genzalpha.” According to Claire’s, the Genzalpha cohort is 

“…fearless, authentic and wildly creative in the ways they show up, and our brand is a platform that creates space for them to express all sides of themselves.” 

By knowing its prime prospects, their needs, problems and values, Claire’s became a tween, teen and young girls brand-business juggernaut. Rather than being Covid-19 risk averse, Claire’s has been relentless. And, its focus is not specifically on individual products. Claire’s is innovative in experiential ways.

For example, Claire’s has a presence in grocery stores. This makes sense. Lots of Claire’s customers go to the grocery store with their parent(s) or caregivers. Claire’s creates custom programs for each grocery store. There are currently 2200 grocery locations. These programs offer curated selections of Claire’s hair accessories, jewelry and cosmetics. According to Progressive Grocer, a grocery trade publication, Claire’s is present in Kroger and Albertson’s as well as Food City, WinCo, Giant Eagle, Smart & Final and Schnucks. And, according to The Business Journals, Claire’s is planning to open an additional 230 more in-grocery-store locations. Claire’s has programs in non-grocery stores such as CVS, DSW, Walmart and Macy’s. These special programs are in addition to the 2300 global stores and the 190 North American ICING Stores.

In continuing to be where its customers and their parents are, Claire’s inked an agreement with Walmart last September to expand Walmart’s selling of Claire’s products to 2500 Walmart locations. There are also 360 Walmart locations with Claire’s stores inside.

Claire’s focus is on fun fashion and self-expression.  For Claire’s audiences, being an individual with a unique “look and style” is essential. But, so is belonging to the Claire’s community. These are the customers who want to be different just like all of their friends. 

To bring Claire’s brand-business to life, Claire’s opened a new store in Paris, France, this March 2023. The Paris location is a testament to the future of the Claire’s brand. As described by Claire’s president of Europe, 

“We want our customers to feel inspired – through our product, our content and our innovative creative partnerships – but most importantly, through the shopping experience itself. The new Paris store is a portal into our brand world and a glimpse into our future. Full of immersive experiences and innovative touches, we’re inviting consumers to have fun, experiment and co-create with Claire’s.”

ENP Newswire, an online newsletter, describes the Paris store as follows:

“The 1,200 square foot Paris store is designed for total brand immersion with experiences and social storytelling at its core. An ear-shaped ‘chandel-ear’ designed by (Nicola) Formichetti (Claire’s Creative Director in Residence) celebrates the brand’s #EarPrint campaign, whilst two dedicated ear piercing studios showcase Claire’s industry-leading service and a content creation studio invites consumers in to have fun with creativity. The store will serve as a launch pad for exclusive, new products and test lines while hosting a steady rotation of experiential and pop-up events.”

Not resting on its brick-and-mortar presence around the globe, Claire’s partnered with Formichetti and V Magazine. The idea is to shine a youth-oriented spotlight on “photography, fashion, music and culture for the new generation.” Called MINI V, the magazine will be “… a nonstop festival of artistry, beauty and inclusivity by exploring today’s fashion and pop-culture trends and sparking important conversations around topics like cyberbullying, self-acceptance and political policies through powerful essays penned by Gen Z activists, artists and politicians.”

As Ms. Formichetti said at the Paris store opening with the news of the MINI V magazine, 

“Claire’s and I believe in individuality, and together we hope to send the younger generation on an enjoyable and fun journey of self-expression,’ said Nicola Formichetti. ‘With the launch of MINI V, we have a unique opportunity to offer young consumers tools to unlock their personal style while also providing a space to explore deeper topics and a powerful platform to share their voices.”

Contrary to The Wall Street Journal’s discussion of innovation in retailing, Claire’s shows how innovation is more than flavors, colors and style. 

Innovation and creativity involve both risk and courage. Creativity is not an isolated event. Creativity is not a process. Creativity is not a department. Creativity is a cultural mindset. Creativity takes all kinds of ingredients. It takes time; it takes energy; it takes enthusiasm. It involves passion for an idea. Claire’s created a great global creative, innovative community focused on its customers.. Claire’s created a place where people are more concerned with the quality of the inspiration rather than the quantity of the ideas.

Claire’s took the time to progress from an ear-piercing brand (more than 100 million ear piercings since the service began over 25 years ago) to a brand-business helping its customers be themselves and express themselves by providing the products for self-expression in a fun, fashion-oriented experience.

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Darden’s Restaurants Inc.: Where Success Depends Strongly On The General Manager As Brand Manager

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Darden Restaurants Inc. owns some favorite dining brands including Olive Garden, Capital Grille, LongHorn Steak House and others. Restaurants, in particular, rely on their people to deliver a brand’s experience in a quality manner, time and time again.  Especially important are General Managers. When it comes to the service business, the General Manager is the Brand Manager. Hiring, investing in, developing and inspiring the best managers is one of the most critical factors in generating high quality revenue growth of the brand-business. This is true at Darden.

Darden Restaurants’ recent analysts earning call was a positive report on brand performance across the board. CEO, President, Director Richard Cardenas told analysts the following:

“We had a strong quarter on both the top and bottom line. We significantly exceeded the industry benchmarks for same-restaurant sales and traffic outperforming more on traffic than we did on sales. We also continue to underprice inflation, resulting in lower overall check growth relative to the industry. Our ability to make this investment and provide strong value to our guests, reinforces the power of our strategy, which comes to life through our 4 competitive advantages and executing our back-to-basics operating philosophy.”

Additionally, Mr. Cardenas said, 

“I am particularly proud of the way our restaurant teams continue to execute at a high level by being brilliant with the basics. This intense focus on providing great food service and atmosphere enables them to consistently create memorable guest experiences.

“… all of our brands achieved record total sales for the quarter. Of course, none of this would be possible without having the right people in the right roles ready to serve our guests.

“Our restaurants continue to be well staffed and our manager staffing remains at historic highs. Our leaders work hard to ensure each of our restaurants is a great place to work. During the quarter, several of our brands were recognized as industry leaders by Black Box Intelligence. Longhorn and Eddie V’s received the Best Practices Award, which evaluates the brand’s employee retention as well as sales and traffic performance. Olive Garden, the Capital Grille and Seasons 52 were honored with the Employer of Choice Award, which is based on workforce data, including employee turnover and gender and racial diversity.”

In response to an analyst question about the fact that at Darden, Darden has more managers than ever, Mr. Cardenas responded as follows:

“The manager role in our restaurants is the most important role we have, especially the General Manager, the Managing Partner and being fully staffed there gives them more time to spend with their team and train their team, develop them, make them stronger and just spend that time forecasting their business and spending time with guests.

If you’re under-staffed managers, the restaurant doesn’t run as well. But the other thing about being fully staffed with managers and have the highest staffing in our history is that, that helps us open restaurants going forward, right? If you think about our pipeline of new units, we have about 25 net openings coming in this quarter, and we are ready for it with the managers that we have. So, there are a lot of benefits out of being fully staffed managers can spend more time with their team, they can spend more time with guests, and we have the managers to open our restaurants.

This is so important. In the hospitality business, the grocery business, the automotive dealership and rental car businesses, department store and boutique businesses – in any business where customers meet products and services in person – building strong brands requires personally communicating a promise of a relevant and differentiated experience for each brand.  Then, that experience must be delivered to every customer, at any time, in every way, everywhere. 

These brand experiences are created on site and delivered to each customer in a wide variety of locations, by a wide variety of people.  No one knows a customer’s needs better than the General Manager because the General Manager lives and breathes it every day.

Regardless of industry, a brand is a promise that if you buy this brand, you will get this experience. A strong brand is a promised experience that is consistently delivered. 

The role of the General Manager, along with staff or crew, is to deliver a great branded customer experience that customers will love.  General Managers are responsible for assuring that brands live up to their promises. The General Manager is responsible for creating the brand experiences that customers expect. 

Think about all the things that a General Manager knows and manages every day:

  • The general manager knows the customer
  • The general manager knows the customer’s needs and occasions for use
  • The general manager knows the customer’s typical problems and how to solve them
  • The general manager knows the brand, lives the brand, breathes the brand and knows how to coach and train the staff/crew to know these as well.
  • The general manager knows the neighborhood 
  • The general manager knows the business community and the potential for building strong local business relationships
  • The general manager knows best how to deliver the brand to the customers every day
  • The general manager is involved in local marketing: who else knows so much about what is happening in your surrounding community.
  • The general manager is in charge of community outreach if there is natural disaster
  • The general manager is the local chief communicator, chief brand coordinator and chief brand.
  •  The general manager creates teams of customer maniacs who care about the customers, the brands and each other.
  • As the ultimate brand managers, the general manager builds brand experience consistency and brand trust.

The General Manager orchestrates consistency of the brand experience. Consistent brand experiences build trust. Inconsistency hurts trust. Without trust nothing else matters. The General Manager helps do this by bringing the brand promise alive on site. Nothing happens until it happens at retail. 

Great General Managers build brand preference. Increasing brand preference will result in:

  • More customers, 
  • More often, 
  • More loyalty, 
  • More sales, 
  • More profit.

Brand preference cannot be created in corporate offices. Brand preference is created on site. Brand preference grows when the brand promises and delivers a superior, differentiated guest experience so that brands are the customer’s first choice.

Being a great General Manager means consistently delivering great experiences, inspiring teams and keeping brand promises tangible and perceptible. As the Brand Manager, a General Managers inspires, influences, educates, trains and supports employees in their respective roles as responsible for delivering the distinctive promise of the brand to every customer every time, everywhere.

Darden Restaurant’s shout out to its people and especially to its managers is a critical component of its restaurants’ financial success. Such behavior helps generate a recognition culture attracting the best leaders in the industry. An analyst pointed out that Darden has exceptionally strong brands much of which it based on operational excellence. Having the best managers in place to consistently bring each brand’s promise to life is certainly a key reason Darden’s brands resonate with its guests. As one business school professor stated to Barron’s, the financial newspaper, Darden Restaurants “ … do the same thing well over and over again… and there are very few out there that do it better than they do.”

Darden Restaurants Inc. knows that financial discipline is essential. But, it also knows and respects the fact that without its managers consistently delivering great results, inspiring teams and keeping its brands’ promises, there would be no financial brand value. General Managers hold the future of their brands in their hands and in their hearts, helping brands become bigger, better, stronger. General Managers as Brand Managers are key to helping Darden Restaurants make progress towards its mission, “To be financially successful through great people consistently delivering outstanding food, drinks and service in an inviting atmosphere, making every guest loyal.”

American Express’ Three-Legged Stool For High Quality Revenue Growth

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American Express weathered the pandemic with a three-legged stool strategy. American Express’ strategy was, and still is, to protect its customers, its people and its brand, according to an interview with CEO Stephen Squeri for the financial paper, Barron’s. American Express’ strategy is brand-business-leadership common sense. Unfortunately, there is less common sense in brand-business leadership these days. 

Reading about the numerous layoffs in the tech industry, the focus tends to be on cost-cutting. Of course, eliminating waste is critical, especially in perilous times. But, enterprises must recognize that they cannot cost cut their way to enduring profitable growth. American Express contends that to survive a crisis and move forward with strength, investments in its people, its customers and its brand were, and are, the correct and necessary move.

First, people. Mr. Squeri stated that the resiliency of American Express rests on the brand-business’ commitment to its colleagues. This involved investment in its people. During the pandemic, instead of cutting back, American Express spent more on compensation. The brand-business focused on generating colleague commitment.

Generating internal commitment is as important as generating external loyalty. Colleagues must know what is going on and how this affects them. Even if what is happening is not a massive change, it is essential to ground employees in the need-to-know details that affect them.

Colleagues need to know what are the expected brand-business behaviors. But, colleagues also need to know that leadership is on their side. Leadership must say and do the right things. The brand-business mission must be continually reinforced. Communications and behaviors must be anchored in shared values. 

When American Express took the # 1 ranking on Fast Company’s annual list of the World’s Most Innovative Companies for 2023 in the ‘Personal Finance’ category, the award was for winning over Millennials and Gen Z. The president of US American Express Consumer Services told the press, “This recognition is a testament to the passion, ingenuity and commitment our colleagues demonstrate each day to deliver the world’s best customer experience. We’re focused on continuing to innovate our products, services and brand as we bring to life American Express Membership for a new generation of customers.” This public recognition of a brand-business’ people is an exceptional way to generate internal pride and loyalty.

Second, customers. American Express understands that its customer base is a premium consumer and a premium small business, as well as large national and global corporations. Renovating rewards on many of its cards helped maintain current card holders and attract new card holders.

For example, American Express designed new benefits for its small business customers. American Express observed that post-pandemic, there was a surge in small business creation. The acquisition of Kabbage, a financial technology company that offers automated cash flow solutions and automated lending programs addressed small business needs. Kabbage, integrated into American Express, offered programs that American Express’ small business customers wanted.

American Express has also generated a lot of presence among Gen Zers and Millennials. The data show that 60% of the cards in 2022 were Gen Z and Millennial acquisitions.

Fast Company cited American Express’ “… modernization of its travel and lifestyle benefits, providing younger consumers with services they care about, from lounge access at airports when they travel to streaming service deals.” American Express responded that its efforts “… helped us to deepen relationships with existing Card Members and to resonate with new customers, including Millennial and Gen Z consumers, who comprised more than 60% of American Express’ new proprietary consumer account acquisitions in 2022.” 

A brand-business must focus on its core and on attracting like-minded others. American Express demonstrated that the brand-business was innovating, renovating and tailoring membership benefits to meet customer evolving expectations and anticipating customer needs. 

New benefits such as Uber Cash credits and food and drink promotions are popular. American Express enhanced its dining capabilities through the acquisition of Resy, an American online restaurant reservation brand. American Express also launched Global Dining Access. This benefit offers eligible U.S Card Members access to exclusive tables just for them at the best restaurants in the world. These types of offerings have been a huge driver of Gen Z and Millennial card holder growth.

Additionally, in the latest issue of Travel & Leisure, American Express’ travel magazine, there is are promotions with Uniworld Cruises and Seaborne Expeditions as well as tickets for the Healdsburg Wine & Food Experience. 

Third, protecting the American Express brand. American Express understands that brand-business building in an ongoing activity. American Express states that it is focused on the medium to long term. American Express aimed at adding value to the brand through its investments in customers and colleagues. 

American Express was perceived to be a brand for older people with premium credit card needs. Yet, the brand-business knew that it is difficult to grow when your user base in 60 years old and older. This was Oldsmobile’s problem and look what happened to that venerable brand. 

Through inventive approaches to Gen Z and Millennial customers, American Express changed this perception. American Express recognized that owning an American Express Card is aspirational. American Express knew that to attract younger customers it would need to revitalize card benefits and digital capabilities. Additionally, American Express understood that younger customer would be attracted by a new approach to marketing and brand positioning. 

Compared to baby boomers, Gen Z and Millennials are highly digitally savvy. These cohorts want to be not just aware of, but involved in, card benefits. These cohorts are finely attuned to points and perks and are focused on maximizing rewards offerings such as airport lounges. Going beyond its standard travel-related perks, American Express now offers “… streaming services and Grubhub credits.” 

CEO Squeri believes that American Express’s brand-business experience cannot be easily copied by competitors. American Express has spent decades sharpening its relevant, differentiated brand-business promise of belonging to premium membership that helps customers achieve their aspirations. Belonging is an especially coveted desire; belonging has always been part of human nature.  American Express’ relevant differentiation is also based on its customers: a global network of premium users. American Express is successfully rejuvenating its customer base with it refocus on younger card holders. Mr. Squeri also understands that the stability and reliability of American Express’ payments system is a relevant differentiator for business customers.

Many brand-businesses have been focused on quantity of growth, such as streaming brands that seek subscribers, or have been focused on quality of growth, as with automotive brands that prefer to manufacture expensive SUVs and trucks. American Express focused on both quality of growth and quantity of growth. Brand-businesses must have both quality of growth and quantity of growth if they want to have high-quality revenue growth.

High-quality revenue growth requires that the brand-business consistently delivers an exceptional, expected user experience. This leads to increased customer-perceived brand-business value, which in turn, leads to brand-business preference. A preferred brand-business generates more customers who use the brand-business more frequently and become more loyal. These lead to higher share price and lower price sensitivity, which in turn, profits and revenue and shareholder value.

American Express’ three-legged stool approach – colleagues, customers and brand – to resiliency and profitability, through a pandemic and through our current economic uncertainty, should be a model for other brand-businesses.

OK Meta. But, The Year of Efficiency Still Needs Leadership Marketing And Galvanizing Goals

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There is another piece of news coming out of Silicon Valley aside from the banking debacle. And, that is Meta’s “year of efficiency” planning. Apparently, Meta’s leader, Mark Zuckerberg, has just discovered the benefits of financial discipline and operational excellence. In his recent memo to Meta employees, Mr. Zuckerberg indicated that this year will require a flatter and leaner organization. These principles are not new. Many enterprises have jiggered with organizational structures and more disciplined financial approaches to maintain margins and grow profits by cost cutting, zero-based budgeting and other elements of financial engineering.

And, so, Meta’s “year of efficiency” will revolve around financial discipline and organizational alignment. This is a mistake. It is not enough to be disciplined financially and reorganized in an efficient manner. For brand-business success, two additional elements are needed. The brand-business’ most important action is addressing its people. And, for a winning brand-business revitalization, articulating brand-business goals is critical. 

Of course, refocusing a brand-business requires improved financial discipline with a dedication to operational excellence. But, the refocus also requires leadership marketing and revitalized brand goals.

Financial discipline is about stopping the bleeding, eliminating waste and improving productivity. Doing these three actions gives the brand-business the right to grow. Caution is also required. When a brand-business finds itself in a troubling situation, the focus tends to be reducing costs rather than building brand-business value. Eliminating waste and improving productivity are a continuing challenge. But, cost-cutting takes a brand-business only so far. A brand–business needs plans, goals, people and actions that will deliver high-quality revenue growth leading to enduring profitable growth. 

Financial discipline must be more than cost cutting. Meta says that it needs to be better at resource allocation and improved productivity. Meta also indicates that its headcount is part of the problem. But, some of this resource allocation and improved productivity must provide updating and increasing the quality of innovations and refreshing the brand-business experience. A brand-business cannot cost cut its way to enduring profitable growth.

The real commitment, understanding and value of financial discipline relates to how the brand-business is managed. Is the commitment to organic growth? Cost reduction? Acquisition? Financial discipline is one area where the brand-business has immense control. 

Along with financial discipline, there are the two other drivers of quality top-line growth: operational excellence and leadership marketing. 

Operational excellence is delighting the user with a branded experience so that an increasing number of them look forward to interacting and potentially purchasing more often. Operational excellence focuses on improving the experience quality which includes the service experience, the actual product experience and the environment in which these interactions take place, user expectations and minimizing waste. Operational excellence decreases costs and improves customer satisfaction.

The “year of efficiency” needs effectiveness as well. There will be little effectiveness without leadership marketing. Leadership marketing gets users to Meta’s websites. Operational excellence takes place while users interact with Meta’s websites.

Leadership marketing is not about advertising per se. First and foremost, leadership marketing focuses on the brand-business’ people. Customer-focused employees come first. Internal alignment is a must-do action. A committed culture is critical. Employees are the frontline when to comes to customer relationships, regardless of brand-business type. Internal brand pride is an essential success factor affecting external brand-business outcomes. 

No matter how great the financial discipline and operational excellence, a brand-business cannot be revitalized if its people are not proud, are uninspired or lack trust in management and its decisions. What a brand-business does not want are employees who tell their friends not to work at Meta.

At Meta, reports are that employees “sparred” with CEO Zuckerberg because Mr. Zuckerberg’s town hall address focused on corporate outcomes alone. The assumption articulated was that in a leaner, more efficient organization, employees would be happier as there would be fewer roadblocks. 

Along with addressing employees, leadership marketing focuses on attracting new users to the brand, encouraging current users to interact and purchase more often and increasing user loyalty. With a strong foundation of financial discipline and operational excellence, the brand-business is ready for effective marketing. Leadership marketing is not defined by how big the brand-business is; it is all about how big the brand-business acts. Leadership marketing is not defined by the size of the brand-business, but by the size of the ideas. This means anticipating user needs. It means innovating and renovating, not merely responding to the competition. 

It is unfortunate the “year of efficiency” does not include leadership marketing. Being lean and efficient will make Meta look good short-term. But, Meta will still struggle relative to competition without leadership marketing.

And, then, there are goals. Where are we headed? What is the vision for the brand-business? Is there an aspirational, yet attainable North Star? Observers write that this “year of efficiency” has been spurred by the lackluster performance of the heavily-invested metaverse vision.

With all of the changes at Meta, there must be a common, articulated, inspirational definition for Meta’s purpose and promise. Having energizing common goals is a first step in a brand-business revitalization. Without these definitions, Meta is at a disadvantage. The common brand-business differentiating goals provide a motivating declaration of the brand-business’ over-arching mission. Where is the informed judgment defining the clear sense of direction? Meta’s brand purpose and promise will clarify the strategi vision for the brand. It is all well and good that Meta will be leaner and “execute its highest priorities faster.” 

But, its employees are still consumers. They will be less interested in the brand-business model. They will be more interested in what it means to them and what role they are to play in the grand scheme of things. Brand purpose and promise motivate and stimulate an organization in ways that financial discipline and operational excellence alone cannot.

Employees want to know what are the common goals, and what is the common brand purpose. People want to know what is going on and where they are when the situation is in flux or on a down turn or stalled. Everyone expects to know in what direction they are moving. Employees have questions; Is the brand-business on a road to financial health? Are we allocating resources to key areas? Do we all share the same vision for the brand-business’ future? 

A brand-business needs financial discipline, operational excellence, leadership marketing along with galvanizing purpose and promise. This is the most effective way to create a cohesive and collaborative culture that runs efficiently, generating high-quality revenue growth while generating enduring profitable growth.

Donuts - Premiumization

Premiumization: Welcome To The World Of Specialty Doughnuts

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Over the past two years, brands raised prices at record rates. In fact, many brands raised prices every quarter over the past two years. Consumers are starting to push back. But, brands, conscious of their margins, are finding ways to raise prices in, shall we say, more creative ways. If the last two years has taught brands anything, it is to be profitable at any cost, even if it is not in the best interest of the customer. Maintaining margins is the rallying cry. And, after all, margins are all about profit.

Now that brands are realizing that there may have been one price hike too many, one of the most creative ways brands are using to protect margins and grow profit is called “premiumization.” According to The Wall Street Journal, the concept of premiumization was mentioned “… in nearly 60 earnings calls and investor meetings over the past three weeks.”

What is premiumization?

Premiumization is a euphemism for higher prices. Premiumization is a way to justify high prices by covering the offering in a coat of high-class, elite status.  Brands are selecting certain items and offering these at higher prices hoping the patina of exclusivity and highest quality give customers a reason to buy. At the same time, brands are culling portfolios to eliminate low-margin offerings.

Premiumization may lull brand leaders into thinking their high-end offerings are now perceived to be extra valuable because the price is high. The etymology of the word premium says otherwise. Premium comes from the Latin word for booty, that is, valuable stolen goods, especially those seized in war. The roots are “before” and “buy,” as in caveat emptor, let the buyer beware.

To be premium is to add a cost to something; sell at above the usual price; regard or treat as particularly valuable or important; have an element of scarcity; and be a reward. Premiumization is the epitome of these definitions. But, basically, brands are just finding a way to lure customers to paying higher prices. This is one of the reasons why marketing is derided. Find a way to sell what we make by telling customers the offerings are not only special but for special people. 

Channel the Consumer Cellular advertisement with Ted Danson, when a confused customer wants to understand what makes a competitive brand better than Consumer Cellular. The salesperson shows that the competitor’s cellular coverage of the US is an all purple US map. Ted Danson tells the confused customer that this just means the brand is more costly, but not any better. The salesperson says purple means premium. Ted Danson indicates that the brand with the purple map is “me too, but more expensive.” This is premiumization.

Is premiumization here to stay?

It is unclear as to whether premiumization will last. Economists point out that trying to maintain profit margins while polishing particular products with a patina of premium-ness may not provide the expected results. What does appear to be clear is that brands believe premiumization will maintain the large profits reaped over two years of extreme price increases. This is what The Wall Street Journal opines as possibly a last ditch effort to show a profitable balance sheet.

Disney tried premiumization under previous CEO Bob Chapek. Not only did Mr. Chapek raise prices at Disney’s theme parks – already an expensive experience – he monetized services that were free to loyal customers (those with annual passes) and hotel guests. Loyalists and hotel guests became vocally livid when Mr. Chapek started charging high fees for parking. Free parking had always been a perk for loyalists and for hotel guests. Needless to say, after Mr. Chapek’s ouster, new CEO Robert Iger walked back many of the increased prices and reversed the parking back to free for those staying at Disney hotels and for loyal customers.

The Wall Street Journal points out that increased fees at Six Flags amusement parks has garnered less than stellar results even though Six Flags’ CEO stated that higher prices were “… a bold change to our business model in order to elevate the guest experience.” Honestly, the customer does not give a damn about a brand’s business model. If the price is too high, the guest may decide the brand is no longer a good value. Which, it appears, is what has happened at Six Flags. Sure, spending per guest rose. But, over the course of the past nine months ending in September 2022, attendance fell 25% versus the previous year. And, profits fell almost 10%.

Wall Street was wowed when Campbell Soup Company showed a 12% rise in sales based on 14% higher prices. Overlooked is that volume dropped 2%

Molson Coors, the giant beer and drinks company, aims to grow market share through innovation and premiumization. It is one of the companies zealously focused on its premium portfolio. In its earnings call, Molson Coors signaled that it is evolving its product portfolio towards premiumization. 

One of those premium offerings is hard seltzer. However, despite its strategic intent, Molson Coors continues to experience lower brand and financial volume. In third-quarter 2022, Molson Coors’ worldwide brand and financial volumes fell 2% and 0.2%, respectively. 

Beam Suntory, the American-founded, Japanese spirits company, is also focused on high-margin offerings. In its earnings report, its CEO and president, Albert Baladi, said, “The quality of these results is clear and reflects our strategy to premiumize (sic) our spirits portfolio, build RTD (ready-to-drink) leadership and focus on value over volume.”

How are consumers reacting to the premiumization trend?

Some premiumization comes across as a stretch or an SNL sketch. Krispy Kreme will move away from discounts and focus on arousing excitement around premium doughnuts. These specialty offerings are considered “fancier, higher-priced and holiday-themed.”  The ubiquitous lubricant WD-40 considers the little red straw on the top of cans to be a premium offering and thus sells that package at a premium price. Apparently, the ability to spray oil with both a precise stream and a mist is premium.

Credit cards have offered premium cards for many years. Yet, now, American Express stated that it is more cautiously reviewing to whom they extend the membership of its cards, including its entry Green card. Airlines have been leaders in offering services with fees attached. Want legroom? Pay a premium. Hotels mimic the airlines in charging fees for everything even if a guest will not be using that service, such as beach towels or gym usage or resort fees.

Putting the potential economic and social issues of a divided society aside, this approach of hiding price hikes behind the curtain of premiumization has the potential to backfire on brands. As brands tend to focus on price, the risk is that the brand’s value may come into question. 

Value is more than price point. Even higher income individuals have a value equation in their mind. A brand’s value is based on an internal assessment of the total brand experience (functional, emotional and social benefits) relative to the total brand costs (price, time, effort). At some point, that specialty doughnut may not be perceived to be a great value anymore. Worse yet, that specialty doughnut may become a novelty. 

Brands need to reckon with the idea that by focusing on those who can afford high prices, the core customer base will become smaller. Focusing on fewer customers who can pay high prices may be good for some brands, but big brands cannot afford to lose significant parts of their customer base. Making money on fewer customers is not a good long-term strategy, unless you are Ferrari or Hermès. What will you charge those last few customers? Making money by alienating current core customers is a dicey strategy. Brand owners must recognize that there must be both quantity of sales and quality of sales. Sales based on higher prices with lower volumes are dangerous. 

Is the premiumization trend a risky play for brands?

Value begins with the customer: value is not determined by the brand leaders or the CFO. Although brand leaders believe they are value creators, they are not. Brand leaders help to create brands to which customers ascribe value. Brand leaders determine pricing but not value. Instead of deciding what to charge, brand leaders should determine if the price they are asking will be a customer-perceived fair value.

Finally, customers are not stupid. Customers know when they are being played for profits. Marketing is all about profitably satisfying customer needs. Brands need to determine whether the customer’s needs are addressed so that the brand is perceived to be a good value. Brands can be perceived as good value at any price point. Marketers must aim their brand to be best values at whichever price point they choose.

Premiumization is charging more to maintain margins. This is a dressed-up version of financial engineering. If the only way a brand can maintain margins is by becoming a premium brand or by offering multiple premium varieties, then risk ruining the brand’s value perceptions. Because this is a fact: there is no shareholder value without customer value. A brand needs quality revenue growth for enduring profitable growth.

Amazon Stores Marketing

Amazon’s Grocery Future

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The latest news in brick-and-mortar retailing is that Amazon is “doubling down” on grocery. According to an interview in Financial Times, CEO Andy Jassy indicates that Amazon is planning to “go big” in grocery. Current formats such as Amazon Fresh and Amazon Go have not been the game-changers that Amazon and observers expected. The 2017 purchase of Whole Foods has not changed the grocery landscape as expected.

Mr. Jassy states that part of the problem with Amazon Fresh and Amazon Go is that many of the stores opened during the pandemic. But, some observers note that Amazon does not yet truly understand grocery. And, some say the focus on technological convenience such as smart shopping carts and ‘just-walkout’ intelligence has led Amazon astray. As Financial Times pointed out, no one says they are going to the grocery store because of the smart shopping carts.

Amazon indicates that grocery is still “in the early stages” of concept development. Although technology should play a role, it is not the driver for food shopping. Before Amazon ventures forth with new grocery ideas, the brand needs to recognize that technology is a feature that delivers benefits. Those benefits need to be articulated in relevant, differentiated ways. Saying that just-walk-out technology is convenient is generic. Blaming the pandemic may be a reason why the various Amazon grocery concepts faltered, but making technology the star attraction might also be a reason. Shopping for food is emotional and social and says things about the shopper. 

Additionally, it is a mistake to assume that shoppers want people-less stores for grocery shopping. Peruse the perimeter of your local grocery and observe how many shoppers are conversing with the butcher or the person behind the fish counter. People have questions. People want to chat about that cut of meat or how many people that chicken will serve or which fish is boneless.

Having said this, Amazon is a creative retailer. And, there are many grocery concepts with which Amazon might excel, especially with its ability to track and measure. Here are a few that might be successful especially if underpinned by comforting technology:

365 Stores

Whole Foods 365 own brand items compete across multiple categories. It is a premier own brand. Ever since Amazon changed the name and packaging from Every Day Value to Whole Foods, the quality, variety and consistency of 365 has grown. 365 also provides Whole Foods’ shoppers with less expensive but just-as-good alternatives.

Prime Stores

This is an area where Amazon can compete with Costco. Membership-based Costco is successful due its bulk buying, its limited-time specials, its own brand Kirkland and its mix of food and non-food items. Amazon could easily excel with a Costco format. Plus, Amazon already has a large membership base through Prime.

Re-conceptualizing Amazon Go as 7-11 type Convenience Stores

This concept would require a different approach to real estate. Locations such as strip malls and gas stations/plazas might resuscitate Amazon Go. Amazon Go is high-level convenience, not made for daily grocery shopping. Sure, the format can work in high traffic office space areas. But, there are fewer of these areas as part-time WFH has changed the landscape.

Leveraging Local

Amazon has plenty of food concepts in its backyard of Seattle. There are many greenmarkets and local food box subscriptions. Amazon could use its technology to locate and aggregate local produce, beverages and crafts. That same technology could be the fire power for local fruit and vegetable subscription boxes. These boxes could be picked up at Amazon drop-box locations. Local is not something that happens in just coastal cities. There is a lot of farmland across the country that could participate in a local-focused entity.

Co-op Stores

Again, Amazon has a great local vendor example of a co-op concept in PCC Community Markets. The PCC website states the following:

Our mission is to ensure that good food nourishes the communities we serve while cultivating vibrant, local, organic food systems. In everything, we strive to inspire and advance the health and well-being of people, their communities and our planet.

We embrace stewardship, act with integrity and take action because we care. We’re dedicated to preserving local farmland and we foster high standards by partnering with Northwest producers, farmers, ranchers and makers. Our passion is for great food and cooking, from our locally sourced produce to our in-store kitchens where original recipes are prepared fresh daily using seasonal ingredients. Because when you love a community, you feed it well.

This is something that Amazon could pull off as well considering its focus on customers.

Technology is, of course, a disrupter. But, Amazon needs to determine just how much disruption grocery shoppers will accept. More interesting and relevantly, differentiated store concepts that use technology as a feature rather than a driver may be Amazon’s best bet. Also, technology is not Amazon’s only strength. As discussed above, there are a lot ways in which Amazon could win in grocery that go beyond smart shopping carts.

AB InBev Embraces Occasion Segmentation

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AB InBev is the owner of over 500 drinks brands including national beers (Budweiser, Stella Artois, Corona Extra) canned cocktails, craft beers, energy drinks, etc.. In an interview for The Wall Street Journal’s C-Suite Strategies section, the CMO of AB InBev discussed the changes in the Group’s brand marketing. One significant change is the focus on occasion-based segmentation.

Market segmentation is fundamental to successful strategies. Many marketers see segmentation as passé since personalization focuses on a market-of-one concept. But, that is wrong. As AB InBev is demonstrating, understanding the context for the brand’s users and their needs is essential. And, segmentation can drive greater personalization strategies.

The purpose of market segmentation is identifying and understanding a brand’s customers. Market segmentation divides specific people into specific markets that share common needs and common occasions, differentiating these specific people from other specific people who have other needs and other occasions.

Those who view market segmentation as just another research tool miss its strategic value. Viable, insightful, actionable market segmentation addresses several key areas for directing brand-business strategy and brand policy. Market segmentation can also help in managing resource allocation. 

Proper market segmentation avoids product classification, price segmentation, industry segmentation and channel segmentation. These approaches provide generic manufacturers’ viewpoints rather than customer-driven realities. No guest says to a significant other that the dream vacation will be at an upper upscale hotel. No car buyer says the ideal vehicle will be a mid-luxury mid-sized car. Good, better best marketing is a mistake as every brand must be the best value in its specific market regardless of its price.

Market segmentation requires craft as well as research skill. Contrary to what many academics, researchers and consultants say, the output of a segmentation study does not reveal truth. In fact, it can raise more questions than you had beforehand. If analyzed and synthesized with intelligence and creativity, market segmentation can provide insight into the following: 

  • Superior understanding of the customer so the brand can pro- vide outstanding competitive advantage 
  • Strategic focus that is fundamental to effective marketing 
  • Identifying market priorities; effective market segmentation drives business strategy, not just brand strategy 

A proper market segmentation study should help you answer these three key questions: 

  1. Who are the prime customers and prospects? 
  2. What are their needs and problems? 
  3. What are the occasions in which these needs and problems occur? 

The best market segmentation is threefold. It is the fact that what people buy and use is a function of who they are, why they need this brand and how, when, where (context) they use this brand.

Marketers must also remember that customers define the markets, not the marketer. If a brand is a source of a promised relevant differentiated experience – offered to the customer – then it is the customer’s perspective of the market that matters. Customers tell us what they consider when they have a particular need for a particular occasion.

This approach is what AB InBev is implementing in its current strategies. AB InBev sees that people are staying home more. Research indicates that not only are people eating at home more now, they plan to eat at home even more as time goes on. Recent US financial data show that eating out is becoming even more expensive. And, for many seniors on fixed incomes, eating out has disappeared as a dining option. 

All sorts of at-home occasions are open to an AB InBev brand. AB InBev sees that although people are not going out to bars and restaurants as frequently, beer and spirits drinking is still happening. It is happening at home.

And, people are drinking more frequently with meals – whether dinners, snacks, TV watching, etc. These are people who will consider an alcoholic beverage as an accompaniment to a particular meal eaten at home. 

AB InBev makes one out of four beers sold worldwide according to The Wall Street Journal. The company’s large portfolio contains beer brands but other beverages that might be considered as a meal accompaniment such as hard seltzers and ready-to-drink cocktails. AB InBev sees its brands as “adding more value to (at home) occasions.” Not surprisingly, non-meal occasions are also increasing at home for AB InBev brands.

According to AB InBev, these insights have already changed the advertising for its brands. For example, Stella Artois advertising tends to focus on meal occasions. For its Super Bowl advertising, rather than situate in a bar, the ad was situated in the home of a well-known couple who “… grab a couple of beers for an impromptu dance party in their living room to pass the time while one of them waits on hold on the phone.”

Satisfying customer needs and problems while understanding the specific occasions in which these occur is the key differentiator between marketing and selling. Selling is convincing customers to buy what you know how to make. Marketing is about profitably providing what specific customers need or might need or might solve their problems in specific occasions. Superior understanding of customer needs and occasions provides the basis for outstanding competitive advantage.

Hermès-NFT Trademark Suit Branding

The Hermès-NFT Trademark Suit Did Not Change Brand Legality

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There is no legal definition of a brand. This is a marketing sin.

Maybe you think the issue of brand legality is not relevant for your marketing efforts. Or, maybe you think that new legal cases testing the limits of trademark law in a techno-digital world are for Intellectual property lawyers, theorists or academicians.

The digital world is challenging the limits of established law. Brand owners should start considering how to protect their brands in this emerging universe.

About a week ago, there was a groundswell of interest in brand, trademark and the possibility that new legal statutes might come into play. Perhaps, even a legal definition of a brand. And, things could have changed. There was a possibility that the Hermès-NFT trademark case could be a catalyst for the legal system to finally generate a legal definition of a brand. The case was a win for established trademark law. Nothing wrong with this. Trademarks must be protected.

But, nothing groundbreaking on the brand front. More than ever, with the power of digital and the pull of the metaverse, brands should not continue to be unprotected.

There are several other trademark lawsuits regarding the creation of NFTs that use well-known brands as part of their art. But, with the ruling in the Hermès-NFT trademark case, the glimmer of hope of a legal definition for a brand will probably turn into a ghost.

One of these unsettled cases is from Nike, a powerhouse brand. Nike filed a trademark infringement lawsuit against StockX. Nike’s complaint states that StockX sold almost 500 Nike brand athletic shoe NFTs. And, these NFTs were sold at exorbitant prices with “murky terms of purchase and ownership.” 

Another test will be the suit brought by Jack Daniels against VIP Products. In this trial, the issue is not a digital one. Rather it focuses on a squeaky dog toy that too closely resembles a bottle of Jack Daniels Bourbon.

Film director, Quentin Tarantino, settled a lawsuit with Miramax last September. The case dealt with the auction of “uncut screenplay scenes” from Pulp Fiction (Tarantino’s 1994 film) as NFTs. Mr. Tarantino along with partner Secret Network, wanted to sell NFTs of Mr. Tarantino’s original Pulp Fiction handwritten script. Miramax, which owns the rights to the film, claimed Mr. Tarantino violated copyright law.

But, the blockbuster lawsuit was the recent Hermès versus Mason Rothschild face-off. Mr. Rothschild is an artist. He created digital images of 100 “MetaBirkins” as NFTs. These NFTs are imaginary fur-covered handbags à la the iconic Hermès Birkin handbag. As an artist, Mr. Rothschild’s position is one of artistic expression which is protected by the First Amendment. His lawyers describe the MetaBirkins as two-dimensional works, which are, by virtue of being a “picture,” not three-dimensional handbags for use in the metaverse or in real life. Yet, a buyer could hang one of these MetaBirkin NFTs on a wall in a digital space. 

Observers, IP lawyers, artists and others connected to NFTs watched this case very carefully. This is because the relevance and power of trademark law is based on “real world” situations. The digital world is different. The question was and still is: how does trademark law work in the metaverse? 

But, importantly, there is another issues that no one mentions. The metaverse is an experiential universe. In an experiential universe, experiences matter. Brands are promises of relevant differentiated experiences. A brand experience is unprotected in law. Anyone can attempt to copy that experience as long as someone’s trademark is not used.

It is necessary at this point to state five critical ideas.

First, here is the definition of a trademark. A trademark is any word, name, symbol, or design, or any combination thereof, used in commerce to identify and distinguish the goods of one manufacturer or seller from those of another and to indicate the source of the goods. 

A trademark identifies the source of a product or service.

In the Hermès-NFT case, Hermès is the source of the Birkin Bag. People might think the Rothschild MetaBirkin bag comes from Hermès. And, therefore, the perception might be that the MetaBirkin Bag has the authenticity and provenance of Hermès.

Second, there is no legal definition of a brand, so here is one: a brand is any distinctive identity distinguishes a specific PROMISE associated with a specific product or service, differentiating that product or service from others in the marketplace. A brand defines a relevant, differentiated experience. 

The concept of brand is not in the law books. The legal cases in which brands play a role are all about trademark infringement and trademark dilution. Hermès is proceeding with trademark infringement in court.

Third, you trademark products.  You brand promises. You brand the promise associated with the product. This means that the promised experience is not protected because a brand is not a legal entity. Keep in mind that a lot of what a Hermès’ Birkin Bag delivers is experiential. Right now, the Hermès’ Birkin Bag experience is not able to be legally protected. Only the trademark can be protected.

Fourth, trademark dilution is not brand dilution.  Trademark infringement is not brand infringement. With trademark dilution and trademark infringement, the source is protected; the experience is not. Trademark dilution is the perceived lessening of the trademark’s uniqueness. Trademark dilution means that there has been unauthorized use of a famous trademark by a third party. 

Fifth, Trademark dilution differs from trademark infringement in that the trademark owner does not need to prove a likelihood of confusion to protect the trademark. Instead, all that is required is that use of a “famous” mark by a third party causes the dilution of the “distinctive quality” of the mark.

With trademark infringement, the trademark owner must show that it has a valid and legally protectable trademark; that it owns that trademark; and that the offender’s use of the trademark likely caused confusion. 

In the Hermès case, Mr. Rothschild created and sold NFTs displaying images of Hermès’ iconic Birkin bag. Hermès successfully argued that Mr. Rothschild’s MetaBirkin NFTs are a case of trademark infringement in that customers could be confused as to the source of the MetaBirkin. Mr. Rothschild believes that people willing to spend five figures for a satchel would not be confused by his artwork.

Hermès believes, as did the jury, that Mr. Rothschild’s NFTs “… may have caused clients to believe that the premium brand (Hermès) is affiliated with his artwork.”

The jury determined that NFTs are less artwork and more consumer product. Therefore, as consumer product, the NFTs are subject to copyright law protection from copycats. The jury also decided that there was consumer confusion, as Mr. Rothschild’s website URL was too similar to the Hermès website. Hermès did provide market research indicating there had been some confusion. Mr. Rothschild’s legal team stated that the data were sketchy and the confusion was “minor.”

Intellectual Property lawyers and creators eagerly followed this case. Going in, many believed that there could be some rulings that might better direct how trademarks, art and trademark law will operate in the digital world.  Pre-verdict, one law professor indicated that there is a strong possibility that for “game-changing” rulings. Another lawyer indicated that digital assets are “revolutionary” requiring new “legal options” with the acceptance of “NFT owners as copyright owners.” Yet another IP lawyer wrote that the Hermès-MetaBirkins case will be a “momentous turning point for Web3 and digital products.”

As it turned out, established intellectual property law won out. Or as one of Mr. Rothschild’s lawyers stated, it was “… a great day for big brands and a terrible day for artists and the First Amendment.” 

All of this legal wrangling is good for trademark protection. But, what about brand protection? Hermès may have won over Mr. Rothschild for trademark infringement. But, its total brand experience still remains unprotected. And, in the metaverse, experience is everything. So, Hermès and the other brands that are cracking down on use of their logos in digital contexts will still own brands that are at risk. Creators may find that although the trademark cannot be used, the brand experience can be digitally replicated without infringing on a trademark. 

Brands must be able to legally own and protect the value they create. This Hermès case demonstrates that now is the time to create and institute a legal definition of a brand.