Commentary By: David
Issue: Pricing and Counterfeit Designer Goods

In December, we commented on the relationship between designer goods and knockoffs. (Click here to read the commentary.) Our basic point was that the traditional relationship of counterfeits to authentic designer goods was probably beneficial for most brands. Seeing cheap, poor imitations of high-end products sitting on street corners enhanced their desirability to consumers who could afford the real thing. We noted however, that as many designers have been shifting the production of their authentic luxury items to China, the knockoffs have improved in quality to the point where experts may have trouble telling the difference.

This comment has generated some controversy – and opened a question we did not answer. That question was validated – in an offhand way – in a Wall Street Journal article today entitled As the Luxury Industry Goes Global, Knock-Off Merchants Follow by Alessandra Galloni. Galloni quotes Kris Buckner, president of Investigative Consultants, testifying before the U.S. Senate as saying, “A counterfeiter can sell counterfeit handbags and make as much money as someone selling cocaine.”

Why is selling counterfeits as profitable as selling cocaine? Because the margins for genuine luxury items are so astronomical that counterfeits made identically and sold for significantly less money can still be extremely profitable.

The question is – what is the right margin for designer goods? What paradigm can we construct to decide how to price luxury items?

This is not a simple question. Part of what a designer is selling, after all, is exclusivity. By lowering costs, luxury goods makers have made a sound business decision. But they are caught in a bind – if they lower price as their cost declines, they risk eroding the exclusivity of the brand. And in pure economic terms the price they are charging should not change because the item is just as valuable to the consumers who are buying it.

The problem is that classic calculations of brand value ignore the possible of near-perfect counterfeits. When the markup between the distributed cost of a product and the retail price to the consumer is one hundred times or more, there is huge incentive for counterfeits. By moving production to China, luxury goods manufacturers increased the incentive for counterfeiters by putting the production technology for their items in the same geography as their counterfeit production facilities. Getting a perfect knockoff became a labor issue (instead of having to reverse-engineer a Louis Vuitton bag, just hire away a line manager or an engineer from their plant) instead of a manufacturing challenge.

Knockoffs will always be cheaper because their distribution system is cheaper. The question is, how do you avoid creating a market for products that cannot be distinguished from your own? This is a serious issue. It is one thing to have consumers sporting around cheap designer back that anyone who owns the real thing can spot as a fake. It is quite another when almost no one can tell the difference.

Lots of evidence shows that consumers will pay more for an authentic brand they trust than an exact replica. A trip to any drug store shows that Tylenol sells for 2-3 times the cost of generic acetaminophen. This is true for most store brands versus national brands and has held constant over many years. We would suggest that luxury goods should not sell for more than 2 – 3 times the price of identically produced knock-offs. Remember that we are not talking about cheap imitations here – this rule would not mean that a Patek Phillipe should sell for twice the price of a rip-off with a $0.27 Chinese quartz movement inside. But it does apply to those Louis Vuitton bags that sell for hundreds of times their manufactured cost and ten times the price of identical knockoffs. There is also value in service, and consumers may pay an additional premium for being able to purchase luxury items in an exclusive environment. But if that premium is priced too high the end result will still be more identical counterfeit items – and erosion of the brand.

How, then, can luxury goods manufacturers possibly hope to maintain exclusivity? Our calculations would suggest that brands should dramatically lower prices. But as we noted earlier, lower prices are a problem in themselves as they deprive affluent consumers of exclusivity by allowing access to a much broader group of consumers.

The luxury goods industry seems to have forgotten that their valuable brands were grown not simply through better design but with better quality. At a time when machine manufacturing processes produced inferior results, luxury brands were handmade. They used sturdier fastenings, better materials and more expensive fabrics.

Now that technology has made this all a lot cheaper to deliver, luxury marketers must deliver more value to maintain their price points. The materials need to get more exclusive, the manufacturing process needs to be unique and the ‘feel’ must be different. U.S. currency is a great example of this. Treasury agents realize that their best defense against counterfeits is to make sure that ordinary consumers can tell the difference between real and fake dollar bills. So they guard the supply of paper that produce the dollar (so most fakes are caught because they ‘feel’ different). As that protection erodes they embed colored fibers and watermarks that are unique. Luxury goods manufactures need to similarly ensure that their goods look and feel different.

It is incredible to think that luxury goods manufacturers believe they can preserve their franchises through legal enforcement. The law will not protect them when their markups have gotten far out of line. Only by improving the quality and real luxury of these goods will they secure their franchises. The days when unique designs would sustain a business are long gone. Just stop into an H&M and you’ll see why.

Brand: Gillette Fusion
Execution: TV
Link: Click Here
Target: Power-oriented Men
Reviewer: David
Rating: **

Description:
This is a preview ad for the Gillette Fusion in typical Gillette style. The spot opens with the new Fusion logo spinning slowly with the tagline “The Future is Fusion” underneath. Then we see a sleek-looking helicopter flying towards a secret laboratory in the middle of the desert. Two scientists enter the lab as the voiceover says “The Time has Come. The Evolution Complete. And the Future is About to Begin.” After another shot of the logo, we see close up shots of the scientists as they are granted access to the inner sanctum. Then they inject the fusion cannisters into the core of the reactor (we suppose.) Another spinning logo shot and the voiceover saying “Gillette Fusion.” The spot ends with “Coming 2-05-06,” under the logo.

What Works:
This spot has very good branding, due to the repeated use of the logo and the establishing shot showing both the logo and tagline “The Future is Fusion.” In fact, the clever choice of inverting the tagline to the beginning of the spot is the only thing that keeps this spot from being utterly confusing (although naming this post “Fusion Confusion” might have been nice).

The CGI graphic animation is top-notch. Everything about this spot says slick, slick, slick.

And we get the message. That five-bladed razor is coming in February.

What Doesn’t:
Don’t blame the agency (BBDO). This spot literally dizzies us with overwhelming graphics and quick cuts. And it screams ‘Terminator IV’. The testosterone drips from every frame of this lavishly produces spot. We get the sense that Gillette does not so much want to shave our face as annihilate each individual hair. And we are scared. Very, very scared.

Branding Bottom Line:
This advertising blog can hardly wait for the Fusion to launch and James Cameron to direct the ads.

Brand: Dentyne Fire Mints
Execution: TV
Link: Click here (click on ‘Viewing Room’ and then ‘Drugstore Romance’ to view spot)
Target: Teens on the prowl
Reviewer: David
Rating: ****

Description:
A slightly nerdy looking guy and a very attractive woman approach side-by-side registers at a drugstore and reach for a pack of Dentyne Fire Mints at the same time. A voiceover says, “There’s a new way to heat things up. New Dentyne Fire Mints.” After making eye contact, the guy and girl begin to watch each other’s purchases as they are rung up. First, though, we see them each pop a Dentyne Fire Mint – nervously. The girl gets a scented candle, the guy buys heated massage oil. The girl puts down bubble bath and the guy puts down whip cream. Then the girl puts down an instant camera. As the guy is contemplating this, the girl is suddenly overcome and dives in to kiss him. The voiceover says, “New Dentyne Fire Mints. Fifty naughty bits of cinnamon desire.” The spot ends with a product shot and the tagline, “Get Hot. Go Bold.”

What Works:
Thanks to Adam Finley at Adjab for covering this spot and bringing it to our attention (see his review here.) We last covered Dentyne in June when we reviewed a Dentyne Ice spot (click here to read this review.) We were less than impressed, feeling that Dentyne had wasted money producing a silly spot that was neither aspirational nor particularly entertaining. Nor did we feel that it would build the brand.

The new spot for Dentyne Fire Mints takes on another social situation with exaggeration. This time, however, the touch is much lighter and the result is a refreshing spot which lampoons our social insecurities while still making an appealing proposition for the brand. Dentyne does a good job of gradually building the tension in the spot. With each candle and bottle of hot oil, the tension between the two characters build. When the woman finally gives it, the resolution is funny without being insulting (as in the previous Dentyne Ice spot) or absurd (as with the Axe or Tag spots).

The brand message is clear – fresh breath with a hot twist. And the spot delivers on branding (we see the product packaging very early on and get the message reinforced with the voiceover) as well as entertainment value.

What Doesn’t:
Dentyne finessed four stars from us because this spot is so well executed, but we still have a significant concern in terms of the brand proposition. It is clear and it is understandable, but is it unique or ownable? Is Dentyne the first cinnamon mint or gum to be ‘hot’? We do not know but the proposition seems generic. Beyond snappy art direction, casting and copywriting we will need to see some clever brand positioning before we start making predictions about the brand’s future success.

Branding Bottom Line:
Dentyne gives us a smile – which is enough for now.

Brand: Adidas
Execution: TV
Link: Click here
Target: The Basketball-Obsessed
Rating: *
Reviewer: David

Description
This spot features NBA superstar Kevin Garnett in several different fantasy scenarios. First he is a Starship-troopers type Marine, leading a battle charge. Then he is Batman, using a gadget to save a falling woman. Then he is a boy on a playground. Then he is a gladiator in the arena. Next he is a stand-up comedian. Finally he is Kevin Garnett on a basketball court. The spot ends with a shot of an Adidas Basketball shoe and the tagline “Impossible is Nothing.”

What Works:
This is a slick, effects-heavy, fast-moving spot. Fans of Garnett will no doubt be drawn to this spot by his omnipresent face and physique which are featured in nearly every frame of the spot. The pacing of this spot is brisk and the soundtrack lends a storybook feel to the action.

What Doesn’t:
Adidas and Nike seem to be competing to see which sneaker giant can spend money faster and with the least effect. After the absurd Nike spots featuring LeBron James in four different roles of a sitcom (see our review here), this advertising blog thought the bottom might have been reached in this category. But a close examination of this spot shows that it can, in fact get worse – at least from the marketer’s perspective. Shall we count the ways?

1. Branding – We don’t see the shoes until the last 10 seconds of the spot and barely get a glance before it is done. This spot is a departure for Adidas, so there is no defense in claiming that it will be instantly identifiable as Adidas advertising.
2. Ownability – Nothing in this spot belongs to Adidas. Not the tone, not the claims, not the substance. Even the basketball shoe looks generic.
3. Brand Positioning – It is not at all clear how this spot is intended to position Adidas. Garnett’s position is clear – he is everything the mind can imagine. But Adidas does not come along for the ride.
4. Selling Proposition – What is Adidas telling us that we’re buying when we get a pair of basketball sneakers? A fantasy, no doubt but what fantasy? To be a stand-up comedian, a warrior or a great player? This spot doesn’t choose.
5. The Great Ego Ride – Ultimately this spot is a huge ego trip. We are not suggesting it is a trip of Mr. Garnett’s devising. But he has been sent on the trip and now he owns it.

Shoe advertising has gotten so far from shoes that they seem to be no more than an afterthought here. We believe that image is important in fashion. But we are not at all clear what image we should have here. Adidas is building Kevin Garnett’s brand, but not its own.

Branding Bottom Line:
Garnett should thank Adidas for the multi-million dollar love letter.

Brand: IKEA
Execution: TV
Link: Click Here (It is the sixth spot, entitled “Not a Mistake”)
Target: IKEA shoppers
Rating: ****
Reviewer: David

Description
A woman is checking out of an IKEA store. The cashier says, “Here’s your receipt – have a nice day,” as she hands the woman her receipt. As the woman is walking away, she suddenly freezes as she reads her receipt. Looking right and left, she dashes out of the store and starts yelling “Start the car! Start the car!” As she waddles forward with her purchases the spot flashes to a screen saying “It’s not a mistake. We’re having a sale.” The woman screams a victory whoop as her husband drives her away. The spot ends with “The IKEA Winter Sale. Up to 50% off,” followed by the IKEA logo and the tagline “IKEA fits.”

What Works:
This spot is simple and direct. And it speaks very directly to the loyal IKEA shopper. At IKEA, you expect to get a good, fair price. When your expectations are exceeded, you expect that you’ve gotten away with something. The communication that IKEA is looking for is simple – SALE (with capital letters). And this communication is crystal clear. The casting, timing, and overall execution of this spot is excellent.

The bigger question about this spot is whether the strategy behind it is sound. After all, the reason the premise for this spot works is that it is surprising to hear about an IKEA sale. IKEA is one of those stores that has based its reputation on providing great values everyday (an EDLP or everyday low price strategy). When these stores try to play promotional games with pricing it often spells trouble. For instance, when Wal-Mart decided to play the ‘door buster’ game during the 2005 Christmas shopping season, we were highly critical (read our review here.)

We believed that Wal-Mart was making a serious strategic error by heavily advertising door-buster specials during peak holiday shopping season. We still believe that this was an error (and sales results seem to bear us out) and may damage Wal-Mart’s EDLP credibility in the longterm.

The story is different for IKEA, however. For one thing, this sale comes during a classic fallow period in retailing. Secondly, there is a well-established tradition of non-discounting stores holding annual or semi-annual sales (such as Barney’s in New York). Given this we believe that this is still an effective spot which will not hurt the IKEA brand.

What Doesn’t:
This spot is effective simply because a sale is the exception for IKEA. If this becomes a routine event (more than annually or semi-annually), then IKEA will really have changed its value proposition for the worse.

We also believe that branding earlier in the spot (at the register) would improve the memorability of this execution.

Commentary by: David
Issue: New McDonald’s Ad Campaign

Kate MacArthur reports in AdAge today that McDonalds is launching a new ad campaign that in some ways emulates “the King” campaign from Burger King via Crispin, Porter + Bogusky. The ads will feature the plastic Ronald McDonald statues that are found in the restaurants. They will show consumers interacting with these icons.

A McDonald’s spokesman says that the idea is to, “share how our customers relate to the world’s most famous clown and the bond they have with our brand.” They are reminiscent of the McDonald’s spots of years ago that tug at your heartstrings.” The chain says that this campaign will continue and build on the “I’m lovin’ it” theme and will use the music associated with these spots. Up to 10 different spots will air on event-oriented programming including the Torino Olympic games.

This campaign will be an important one for McDonald’s as it marks two important transitions: the first work from TWBA/Chiat/Day in the U.S. for McDonalds and the first new campaign produced under Mary Dillon, the new McDonald’s CMO who has moved over from Quaker Oats.

This advertising blog cannot review advertising before it is seen. Nevertheless, we have some significant strategic concerns with the direction of this campaign. Neither we nor the U.S. consumer were fans of the Burger King campaign (see our review and links to the USA Today advertising preference survey here.) And we have been similarly queasy about the Quaker campaign featuring a statue version of the Quaker from the Quaker Oats box.

What’s the problem here? Why shouldn’t an iconic brand like McDonald’s show off its mascot and (as the company claims), ‘the world’s most famous clown’?

The problem is not the mascot but the presentation. Using objects that are inanimate or semi-animate (as with the Burger King – a real person wearing a plastic head) changes and distorts the relationship between the consumer and the brand.

This is most disturbing in the Burger King spots, where the Burger King stands at the intersection between friend and stalker and never once appears in the setting of the restaurants. The McDonalds spots should be tamer – with Ronald McDonald simply a statue and within the restaurant. Yet the underlying message is complex. If Ronald McDonald represents the relationship that children have with the restaurant, why have him as an immobile statue? And why waste brand equity and air time on building an icon that doesn’t necessarily have benefits for children.

McDonalds is right to focus its advertising efforts on the family. When it has pitched its message to adults, it has failed (see our review of a recent campaign along these lines here.) At its core, McDonalds has the simplicity, dependability and repetitiveness that is most attractive to children or young adults who have grown up with McDonalds. So focusing on families is the smartest way to guard this core audience.

It is still possible that McDonalds can so elegantly execute this campaign that it does not smack of stalking or creepy idol worship as in the Burger King or Quaker campaigns. But the line it thin and it is not clear what McDonalds gains from focusing on plastic statues when the family-friendly experience of McDonalds is what needs to be reinforced.

Brand: Playstation Portable – PSP (Sony)
Execution: TV
Link: Click Here (link is to Adland Ad-Rag, which charges a small fee for viewing)
Target: Game nuts
Rating: ****
Reviewer: David

Description
This spot is limited-motion animation in black and white. A squirrel whistles and throws a nut at a tree. He yells, “Come out and play!” A second squirrel pops his head out. “Ah can’t! I’m playin’ NUT!” the second squirrel replies. “But there’s portable nut!” says the first squirrel, raising an acorn above his head. “WHAAATTT?” the squirrel in the tree yells. “Yeah, it’s a nut you can play with outside,” the first squirrel exclaims. The spot shifts to a line-drawn image of the Sony Playstation Portable (PSP) and a voiceover says “PSP. It’s like a nut you can play with outside.”

What Works
This advertising blog reviewed the launch campaign for the Playstation Portable in May, 2005 (click here to read the review.) While the campaign was creative and well-executed (called ‘Point of view’ it showed the reactions of players to PSP from the point of view of the PSP), we felt it failed for one simple reason. The Point of View campaign showed games being pulled away from their loved ones by the game. Gaming in this campaign was an isolating experience.

Along the way to promoting the same product benefit (portability), TWBA/Chiat/Day has come up with a completely unique campaign that doesn’t make the same mistake – and this one is a winner. “Nut” is a hyperactive, visually exhilarating execution in the style of anime that has been drained of all color. The effect is startling and even with the sound off or in TiVo fast-forward mode this spot is hard to miss.

Sony and Chiat use this focused attention to deliver a simple and compelling message – PSP is playstation but portable. The visual effects and the unique voices in the spot help make the message memorable.

This is all obvious from watching the execution. What you may not have noticed is how Sony and TWBA/Chiat/Day have transformed the solitary game experience in the first PSP campaign into a group activity. It is no accident that the ‘portable nut’ squirrel is outside and is trying to get his friend outside. The outdoors here connotes both freedom (portability) and sociability. The call to action (literally a call in this case) is for joining – come play a game with me. This again reinforces the social aspect of the device.

This underlines one of the key insights into gaming for those of us who may not be console gamers – it is not a solitary activity. Most gamers spend long stretches playing games but they do it with friends. It is social activity. The PSP has excellent wireless connectivity which was ignored in the launch campaign. This time Sony has gotten it right by remembering that its core gaming audience are joiners, not loners.

What Doesn’t Work
Dramatically and artistically it makes sense that the connection between “NUT” and PSP be drawn only in the last five seconds of the spot. Sony can get away with this because it is the only relevant portable gaming console at the moment. However the lack of branding for most of the spot is a controlled risk.

This spot may become iconic, but expect to see copycats. If b&w, limited animation spots start to proliferate, Sony will need to move in a new direction.

Branding Bottom Line
Sony shows us the NUT and we want it.

Brand: Nike Basketball (Nike)
Execution: TV
Link: Click Here
Target: Basketballers
Rating: **
Reviewer: David

Description:
Nike Basketball’s new campaign for LeBron James features four spots each of which have LeBron playing four different parts: “Wise” (a greying, bearded, older version of LeBron past his glory days), “Kid” (the LeBron dreamer and wannabe in his pre-high-school years), “All Business,” (the slick-suited image-obsessed self-promoter that we imagine many of these players to be off the court) and “Athlete,” (LeBron himself, more or less). Each of the spots, “Glory Days,” “New Shoes,” “Butter,” and “Celebration,” focuses on a domestic theme and hits comedy rather than court action. In Glory Days, Wise tries to put Athlete in his place with tales of old. In ‘Butter’ Kid dreams of being a great athlete but can’t get dinner rolls off of his mind. In ‘ Celebration’ all four LeBrons show off their dancing while celebrating Athlete’s being the youngest player to reach 4,000 points. In ‘New Shoes,’ Kid brings home a new pair of shoes to show Wise while Business mouths off.

What Works:
Wieden & Kennedy has produced a highly entertaining series of spots which showcase LeBron’s versatility (he’s no Russell Crowe, but he’s not Shaq, either) in four roles. The spots seek to fracture the soul of the basketball player and show the different selves competing for attention. They are well-executed, watchable, engaging and fast-paced.

What Doesn’t:
This advertising blog is written by former brand managers who are in the day-to-day business of training consumer marketers. When we teach advertising strategy, one example of consistency and narrowness of focus we point to is Nike.

Look at Nike commercials, we say, who do you see in them? (Answer – serious athletes, star and ordinary alike.) What are they doing? (They are exercising, working hard.) What is the weather like in Nike world? (If the spot is shot outside it is often raining, miserable and unhappy.) So where is Nike’s focus? (On the serious athlete.) But who buys Nike? (Everyone)

Nike has for years been a perfect example for us of a company that attracts a wide base of consumers by marketing to a narrow audience of serious athletes. This laserlike focus on the serious athlete gives Nike credibility with everyone else, from the casual golfer (those shoes will make me more like Tiger) to the overweight slacker (I look great in these cross-trainers!). By focusing on serious athletes, Nike becomes the expert in performance in the category.

Now Nike is facing a serious challenge from German powerhouse Adidas which has enjoyed a resurgence over the past several years. The two rivals are going head-to-head for the coveted U.S. market. And with this campaign, which diverts seriously from the long-term Nike strategy, Nike has just blinked.

It is pointless to argue the technical merits of this campaign or whether it will appeal to teenage and pre-teenage boys as Nike hopes. This campaign fails because it is bad strategy and endangers Nike’s brand positioning. Nike is not cute, funny, lovable or cuddly. It doesn’t tease and jest and try to be your best friend. Nike is about effort. It is about the last mile, the last shot, the last putt. It is about champions who others can beat in the first quarter but nobody can beat in the last sixty seconds of the game.

By turning aside from this strategy, Nike has committed a serious strategic error and played into Adidas’ hands.

Branding Bottom Line:
We are selling our Nike stock.

For any of you New York area readers, the ThirdWay Advertising Blog is happy to announce that Donny Deutsch will be the next speaker at ThirdWay’s monthly speaker series.

The talk is on the evening of February 7th at the Fashion Institute of Technology in Manhattan at 7pm. Details are here.

BBDO scored a trifecta yesterday, nabbing “Agency of the Year” honors from AdAge, AdWeek and Campaign. In this difficult year for advertising this was a huge honor for an agency that was in no way connected with the Subservient Chicken. In addition, Mayor Michael Bloomberg of New York City designated January 10, 2005 as “BBDO Day” in New York.

This advertising blog concurs with the selection. BBDO was one of just two agencies (the other being McKinney + Silver) with two advertising campaigns to win one of our ten “Most Effective Advertising of 2005” awards. We picked the Cingular Motorola ROKR “Alter Ego” campaign as the #6 and Alka Seltzer “I Ate That Whole Thing” as the #3 campaign for 2005.

Our only disagreement with AdAge, in fact, is their urging BBDO to create the next Subservient Chicken or Burger King. While buzz and viral marketing are both important marketing tools, we feel that these campaigns both illustrate the dangers of buzz without purpose. Starting a conversation about the brand is great, but it must do something for the brand.

To BBDO we would say only”Congratulations and Continue On.”