Thoughts on Branding

I confess to having bought a cute sock puppet from Pets.com. That’s all I ever bought from them – perhaps one of the reasons why the company eventually went bankrupt.

Pets.com raised $82.5 million in a February 2000 IPO and filed for bankruptcy nine months later. The company spent millions of dollars in advertising and promotion to make the sock puppet, and by extension the company, a famous brand.

During its first fiscal year (February to September 1999), Pets.com had income of $619,000 and spent $11.8 million in advertising. The puppet appeared in 1999 in Macy’s Thanksgiving Day Parade, was featured on Good Morning America, was advertised with a multimillion dollar buy at the 2000 Super Bowl, and was interviewed by People Magazine. Yet, the dearly paid-for fame was not enough to ensure fortune.

Pets.com’s demise raises a question: Does spending millions on advertising and promotion make a difference in the Web Age as self-serving advertising and promotion companies would have you believe? And what do companies have to do to adapt to “Web Reality”?

There is a simple answer to a very complicated question: Spend Smart!

Looking at branding from the trenches and from the viewpoint of my involvement in marketing for 40 years, I can see the evolution of the art – and I consider branding still an art based mostly on gut feeling and not on focus groups as many of the advertising agencies will now blare.

Forty years ago, branding was the creative thing you did with the logo of the company or the product, or perhaps designing different packaging or creating innovative print and television advertising that expressed the brand’s massage and image. Then in 1981, Al Ries and Jack Trout came up with their “Positioning” theory in a book that dealt with the problems of communicating to a skeptical, media-savvy audience. Then, branding became a battle for the consumer’s mind.

Today, brands are considered the sum total of the positive and negative images people have in their heads about a particular company, a particular brand, or a particular product.

As Jeff Bezos, founder and executive chair of Amazon, said, “A brand for a company is like a reputation for a person. You earn reputation by trying to do hard things well.”

In the past, product information, and especially negative product information, was not easy to discover. Yes, marquee brands regionally suffered if they showed up at a mass retailer in the same space as poor quality merchandise. Or if your brother-in-law bought a car that kept breaking down, you found out. Or if Consumer Reports gave low ratings for an oven, their readers found out about it, and word-of-mouth spread the information.

The web has changed all that. Information about products and companies can be easily found in sites from anywhere in the world. Name-of-company-sucks.com sites have proliferated, and negative information of all kinds from disgruntled employees to product failures is there for all to see on a global scale.

Remember, brands are built on what people are saying about your product and your services, not what you’re saying about your company and your products with advertising and PR releases. Branding is what makes a successful product sell.

Successful businesses rely on effective branding. Manufacturers and other brand originators are starting to recognize that at the time of “instant” communication, they can no longer afford to disregard what happens at the retail floor.

With price as the only point of differentiation, both brand originators and retailers find that there is brand value erosion in the minds of the buyers. When that happens, profit points crumble. Good examples of that are the bankruptcies Pier 1 and Radio Shack – both iconic retailers – and the recent liquidation of another iconic retailer: Bed Bath & Beyond.

Not promoting a brand’s value adds to the general lack of brand loyalty. In the U.S., corporations lose half of their clients every five years and half of their employees every four. If you look at the Fortune 50 in 1993 you will see that 37 of them are no longer in that category 20 years later. And most of them were companies that spent enormous amounts in advertising and promotion.

“If you are not a brand, you are a commodity.” – Philip Kotler, Kellogg School of Management at Northwestern University

Let’s look at the coffee category. Thirty years ago, the most prominent brand in the U.S. market was Maxwell House. For nearly 100 years until the late 1980s, it was the highest-selling coffee brand. Today, the brand is obviously still sold in supermarkets but as a commodity item heavily discounted to maintain sales. What is the dominant premium coffee brand in the mind of the average U.S. consumer?

Starbucks, a company established in 1971 in Seattle. It built its brand not by initially spending huge amounts in advertising (though they do it occasionally now) but with standardized product quality and excellent service in its stores worldwide.

And that brand is unfortunately starting to pale as well. The service quality – especially in large metropolitan areas – has deteriorated, and the consumer is starting to question the value of paying close to $4.75 for a cup of Latte, $5.15 for a Grande Caramel Macchiato and almost $2.50 for a single shot of espresso, all plus tax, which raises the price in metropolitan areas that impose sales tax by 6% to almost 10%.

We tend to think that branding comes first and a company’s success follows. In fact, when you look at successful businesses, whether they exist on or off the internet, you will realize that a quality product comes first, service second. And only when these are in place does the brand evolve into success over a number of years.

“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” – Warren Buffett

You can throw as much money as you want into advertising and promotion, as many of the now defunct dot-coms did. You can wall-to-wall the whole Super Bowl commercial time if you want and can afford it. But if the fundamentals are not there – product innovation, product quality, and impeccable service – you will never become prominent in consumers’ minds.

And that’s what builds brands.