Dear Reed,

I messed up. I owe you an explanation.

It is clear from the feedback over the past two months that many of my creditors feel I lack respect and humility in the way I announced the separation between “Necessities” and “Luxuries” and my change to paying “Luxuries” creditors in Swiss Francs instead of U.S. Dollars. It was certainly not my intent to cause confusion and I offer my sincere apology. Let me explain what I am doing.

For the past five years, my greatest fear as a consumer is that I wouldn’t successfully make the leap from buying primarily “Necessities” to buying “Luxuries.” Most consumers who are focus primarily on paying their heating, water and electricity bills never become truly excellent at buying designer shoes, imported cured meats or fur-lined gloves. So I decided to solve this paying all of my “Luxury” bills in Swiss Francs. Of course many of you have noted that the Swiss Franc is worth less than the US Dollar and by paying you the same number of Swiss Francs that I was previously paying you of US Dollars I am effectively paying you less. I wouldn’t have changed that but letting you in a clearer manner would have been the right thing to do.

So here is what I am doing and why.

Many utilities love selling gas, electricity and water to me because I pay the exact bill that they send over. That is a great option for those companies who provide things that I absolutely cannot live without.

I also love luxuries because they really make life fun. They really are very different from those unfortunate things that I have to buy every month. I really need to focus on acquiring more luxuries as the economy improves without worrying so much about “Necessities”. To do that I need to pay less for “Luxuries”.

So I realized that since buying “Luxuries” and “Necessities” are really two completely different things, with very different values for me. I need to think separately about each type of purchase.

It’s hard to write this after more than 10 years of paying bills promptly and fully, but I think it is necessary: in a few weeks, I will acquire a new legal name “Johnny Warbucks” which I will use as the name I for “Luxuries,” which I will continue to pay in Swiss Francs. I will keep the same name “John Doe” for paying “Necessities”.

“Johnny Warbucks” is still me. I still reside at the same mailing address. In fact, once I change over I’ll make it even better for “Luxuries” creditors by paying bills online as well as with checks. You will get your Swiss Francs even quicker that way. Other improvements will follow. You probably know whether you’re a “Necessity” or “Luxury” but if you start receiving Swiss Franc payments from “Johnny Warbucks” you’ll know for sure. Please be sure to update my name in your database – I’m sure this will not be too much trouble. If you are one of those companies that sells both “Necessities” and “Luxuries” (and you know who you are), you’ll find both a U.S. Dollar payment from “John Doe” and a Swiss Franc payment from “Johnny Warbucks” in your mail. I’m sure that won’t be too confusing.

Paying bills has always been a source of Joy for me. Swiss Francs come in lovely pastel colors and I’m sure you will enjoy receiving them.

I want to acknowledge you creditors for still selling to me and to apologize again to those of you who feel my actions have been unnecessary and confusing. Of course paying you more would be better than talking about it, but this is all I’m prepared to do right now.

Respectfully Yours

John Doe
Aka “Johnny Warbucks”

Issue: How will the Tylenol recalls affect the brand in the long term?
Commentary by: David Vinjamuri

The facts of Johnson & Johnson’s struggles this year with manufacturing quality are bleak and well known.  As ABC News reports, the company this week issued its eighth product recall in the past year.  Both the media and regulators have scrutinized J&J’s manufacturing practices and J&J Consumer Group WorldWide Chairman Colleen Goggins has testified before Congress.

Johnson & Johnson is celebrated for its handling of the 1982 Tylenol Tampering Case – which incidentally resulted in a recall of 30 million bottles of Tylenol, less than half the number affected by the current string of recalls.   In that case, Johnson & Johnson took responsibility for the contamination (even though the tampering was a criminal act by a saboteur), recalled all of its Tylenol products nationally and didn’t return to the shelf until they could ensure that the tampering would not happen again.  Instead of disappearing entirely -  as many commentators expected – Tylenol increased both its dollar and unit share in subsequent years.  The brand gained consumer trust by managing a difficult situation well.

Unfortunately, the current string of recalls reveals a very different pattern – and a different underlying company culture.  The salient features of the current crisis:

1. An escalating string of recalls – J & J recalls piecemeal and is forced to repeat the process seven times
2. Denial and a Blame Game – instead of assuming full responsibility, J&J tries to shift blame to suppliers
3. A Toyota-esque 2-year escalation – The complaints of “musty odor” originated in 2008.  The problem was not solved by 2010.

McNeil’s reaction to the contamination suggests that the Tylenol brand has lost touch with its ethos (enshrined in the Johnson & Johnson credo).  Putting customers first before corporate profits would have dictated a very different response to this crisis.  And ironically, placing the consumer first would also have better preserved corporate profits by protecting the brand.

Instead, Johnson & Johnson reenacted the Kübler-Ross model of grief:

1. Denial – “This can’t be my problem!” – J&J receive complaints of a musty odor coming from its products, calls them flukes (more below)
2. Anger -  “Why Me? It’s not fair!” -  J&J blames supplier of wood palates and a chemical called tribromoanisole
3. Bargaining – “I’ll do anything for a few more years!” – After complaints increase, J&J issues a massive recall – but not a full recall. The FDA criticizes J&J.
4. Depression – “I’m so sad, why bother with anything?” -  Colleen Goggins apologizes to consumers in front of a Congressional subcommittee.
5. Acceptance – “I can’t fight it, I may as well prepare for it” – Six senior McNeil employees are fired, the company gets outside help to fix its manufacturing process.

Tylenol and Johnson & Johnson as a whole may rise again.  Indeed, the stock price of J&J (hovering around $60/share at the time of this writing) is only down 6.6% from the end of 2009 – less than the decline of its peer group.  But the trust in the relationship with the consumer has been broken.  Consumers aren’t fools.  They know when they’re being stonewalled.  They can also tell when a brand has forgotten its core values.  Brand managers at great companies visit the factories where their products are produced.  They pay attention to the small details.  Visiting a Band-Aid plant in the 1990′s in Sherman, Texas, a visitor would be happy to have a picnic on the floor and apologetic for any stray crumbs left behind on the pristine surface.   Not so last year at the Fort Washington, Pennsylvania plant of McNeil, where FDA inspectors found “visible dirt in the plant.”

Will Tylenol rise again?  Difficult to say.  But it is clear that Johnson & Johnson needs to change more that the manufacturing process to rebuild the brand.

[Full Disclosure] The author worked for Johnson & Johnson as a brand manager and new products director from 1993-1998 and worked with McNeil manufacturing personnel on several brand launches. He worked under Colleen Goggins at Personal Products Company for part of this time.

Issue: Newspaper and Magazine Publishers have gotten pricing wrong on the Kindle.  They need to get it right for the iPad.
Commentary by: David Vinjamuri

I used to teach a pricing class at NYU whose enrollment was approximately one quarter of the number of students I routinely see in my new media survey courses.  Pricing is one of the most important decisions that a marketer can make, but it’s a chore much less interesting to marketers than advertising or promotions.  At the largest consumer companies, pricing is often set at the highest levels within an organization, and as a result young brand managers may have very little practical experience with the consequences of making bad pricing decisions.  The magazine and newspaper industry is no exception.  In the past few years, these publishers have repeatedly erred when pricing their content for the Kindle.  With the upcoming launch of Apple’s iPad, these folks have another chance.  They’d best not waste it.

As the clock ticks down to first shipment of Apple’s iPad, the company is reportedly in deep talks with magazine and newspaper publishers.  While early deals with book publishers got much of the attention before the iPad launch, robust content deals with print publications may be at least equally important to both the iPad’s success as well as the future of the traditional news media.

As this advertising blog has noted previously, print publications are living on borrowed time.  Rate bases have been shrinking and might have done so even if these organizations not been so quick to post their content freely online in the mistake belief that online advertising revenue would offset the sales loss from cannibalization.  Just as the iTunes store did for the music industry and the Kindle has begun to do for book publishers, the iPad may create a new revenue model for newspapers and magazines.

The cardinal rule of pricing is that it’s easier to lower a price that’s been set than to raise it.  Publishers seem to have learned this a bit two well.  Newspaper pricing on the Amazon Kindle is far too aggressive, ranging up to $14.99 a month for the New York Times.  Many newspapers and magazines routinely offer new or lapsed subscribers significantly cheaper deals for print subscriptions than the fixed price for the Kindle.

Publishers need to remember that the “right price” for a product is the highest price a consumer is willing to pay and feel that a fair value has been received.  “Fair value” is an important concept here.  Photos and graphics reproduce poorly on the Kindle.  There is no sense of holding the newspaper or being able to scan the front page.  What you get is literally the news.  And consumers are aware that the production costs of a printed magazine are entirely absent from the electronic version.  There is no justification for the substantial prices for these publications on the Kindle.

The iPad is a more complex story.  Because of its high resolution color screen and its ability to show video, the iPad will allow publishers and advertisers alike to create a richer, multimedia experience that may far surpass the printed publication.  But refining these efforts will take time, and demand patience from readers.  Therefore, publishers would be wise to price magazines and newspapers at a level that encourages consumption rather than placing a choke-hold on growth.  Penetration pricing, rather than skim pricing is the correct strategy here.  If publishers attempt to overcharge, they’ll have only themselves to blame for losing their last, best chance to find a new revenue model.

Issue: Toyota has fallen victim to brand hubris, and is feeling the consequences
Commentary by: David Vinjamuri

Toyota’s recall of 2.3 million vehicles, and the unprecedented step of halting production at six of its U.S. plants may seem like the inflection point in its quality crisis.  Although the sudden acceleration claims have been circulating for at least three years, Toyota appears to be taking the problem seriously and responding strongly.  A parallel might be drawn with the 1982 Tylenol recall, where J&J chairman Jim Burke took the unprecedented step extending a local criminal issue into a national recall to avoid a loss of confidence in the brand (or copycat acts) and used the entire J&J workforce to physically remove the product from shelves.  (Ironically, J&J is currently experiencing another crisis with Tylenol.)

Unfortunately, Toyota’s current crisis is headed in a different direction.  Two minor facts in the news give us evidence that Toyota is in for more trouble.  First, The New York Times notes that Transportation Secretary Ray LaHood asserted on a Chicago radio show that the U.S. government requested the work halt – disputing assertions by Toyota North American COO Jim Lentz that the production stoppage was purely Toyota’s initiative.

The second minor news item was the assertion by Apple co-founder Steve Wozniak that he has found a reproducible, software-based error causing unintended acceleration in his 2010 Prius, a car not on the recall list.

Either of these assertions may prove to be incorrect, but the mere fact that they’ve both reached the national news media suggests that Toyota has a bigger problem: brand hubris.

Brand hubris, shortly stated, is the tendency of successful brands to believe that they’re infallible in the areas of their greatest strength.  This puts them at greater risk of a catastrophic error.  A good example from the last decade was Dell, which once had an unassailable reputation for quality and customer service which was brought down by a single blogger (Jeff Jarvis).

In Toyota’s case, their sterling reputation for quality led to a customer service apparatus unable to comprehend the concept that a major error could have made it through their system undiscovered.  This attitude dictated the company’s response to early complaints – rejection and legal squabbling and forced the issue to bubble into a crisis before senior management would acknowledge it.

That same attitude guided the company when it refused to engage with Steve Wozniak, and kept it from getting its story straight with the National Highway Transportation Safety Administration.   Both of those were costly PR mistakes.  For this reason, it seems likely that Toyota’s problems will multiply, not ameliorate.

The lesson for other brands is this: don’t assume that you can’t screw up, even in the areas of your biggest strength.  Reward those who identify problems early.  Realize that some of the most important information on the quality of your products comes from your customers and don’t punish customers who take the time to complain.

Issue: Will the Apple iPad help print media reestablish a revenue model?
Commentary by: David Vinjamuri

Apple has just introduced the iPad – the long awaited tablet computer.  Just as this advertising blog predicted that the iPhone would revolutionize the mobile internet, we believe that Apple has taken an important step towards rescuing the print news media from oblivion.

As you may know by now, the device itself has a 9.7″ touch screen, wi-fi and some versions have 3G from AT&T.  Pricing runs from $499 to $829 (for the 3G version with 64gb of memory) plus $30 a month for unlimited data.

We have long believed that the Kindle will revolutionize publishing, but it is not a realistic device for advertising because it lacks color and a high resolution display.  Even the larger Kindle DX is too expensive ($489 – as much as the base version of the iPad) for a black and white low-res reader. On the Kindle, you can have newspapers delivered to the device daily and then read the text of each article.  The iPad allows you to read the newspaper as a newspaper, or a magazine as a magazine.  In fact, magazines and newspapers can improve on the paper experience by incorporating video, interactive and multimedia content.
This suggests that news organizations and publishers will be able to create a subscription model for iPad content which can be partially advertising-supported.  The advertising will be measurable, just as with online advertising.  Although this has not been discussed, it is reasonable to assume that widgets – or other functional ad units – could be created for this device.

Immediate reaction to the iPad has been somewhat muted because the technical characteristics did not excite tech fans.  Apple’s real genius, however, is understanding how to evolve consumer behavior – a far more difficult and important task.  The so-called “paperless office” has been hyped and discussed for over a generation, but it has not come to pass because paper is portable and easy to read.  Although the iPad and subsequent devices will not outdate paper, they take an important step forward.  Just as the iPod delivered the ability to carry around hundreds of cds worth of music in a tiny device and the Kindle allowed us to carry a thousand books, the iPad will allow average consumers to keep books, movies, pictures, magazines, newspapers and important personal documents on a device that is the right size to view them.  That’s a bigger deal than it may initially seem to be.

Issue: Why does bad behavior hurt some brands more than others?
Commentary by: David Vinjamuri

Accenture announced over the weekend that it would sever its relationship with Tiger Woods, who has fronted a major advertising campaign for the consultancy over the past six years.  Nike, on the other hand has reaffirmed support for Woods after his accident and revelations of marital indiscretions.

This advertising blog has never been a great fan of celebrity endorsement.  As the Tiger Woods example illustrates, even the most stable of celebrities may expose a brand to negative attention.  However, celebrities play different roles for different kinds of brands.   As odd as it may sound, Accenture was right to drop Woods while Nike was equally wise in staying with him.

To understand the distinction between the type of endorsement value Tiger Woods has for these two different brands, we must consider the type of associative brand equity Woods transfers to each brand with his endorsement.

Tiger Woods is a world class athlete.  Indeed, winning the U.S. Open in 2008 with a serious knee injury may have been one of the most outstanding athletic achievements of the past decade.  For Nike, Tiger Woods endorsement is an endorsement of direct expertise.  Nike’s brand equity is based on understanding the needs of serious athletes.  The Nike brand values are about commitment and intensity.  In spite of taking a hiatus from golf, Nike has every reason to believe that Tiger will continue to be a serious athlete and a top competitor.  Nike has often successfully maintained association with athletes who have had some degree of personal notoriety because the brand equity it takes from these athletes is related to their dedication, not the conduct of their personal lives.

The Accenture relationship with Tiger Woods is one of the few sponsorship relationships with Woods outside of Nike that we believe has been effective for both parties, as we’ve argued previously. In this campaign, however, Tiger lends the Accenture brand equity through indirect expertise – in this case his focus and judgment.  Thus, when Woods’ judgment becomes suspect it eliminates his value as a brand spokesperson for the Accenture brand.  The past association may indeed hurt the brand in this case.

What’s the brand lesson here?  If you are looking for a spokesperson, try to pick a celebrity who has direct expertise in the problem your brand solves.   The celebrity should be a core user of the brand and someone who is highly credible with other users.  This doesn’t mean that they have to be aspirational.  In 2005, Alka-Seltzer very effectively used the late Peter Boyle (who played the father in the TV sitcom “Everybody Loves Raymond”) as a direct expert in indigestion.  Most sufferers would have no interest in becoming the character Boyle was known for.  But an older, overweight cranky man who might have eaten an entire turkey was a credible expert for indigestion relief.

Using celebrities to promote brands is a risky business.  Most endorsements are meaningless and hollow.  But even those which are effective contain risks.  By focusing on direct expertise, brands can at least avoid some of the direct pitfalls of bad celebrity behavior.

Issue: How Via instant coffee completes the transformation of Starbucks into a convenience brand
Commentary by: David Vinjamuri

This week, Starbucks announced “Via” – a new instant coffee.  The launch advertising was acceptable and the product has been favorably reviewed for taste.  But what does it mean for the Starbucks brand?

This advertising blog has long argued that a succession of financially successful Starbucks innovations, from blockbuster grocery store products like bottled Frappuccino, Starbucks carts and even drive through windows all dilute the Starbucks brand.  Even small-footprint Starbucks which drew long lines of commuters in the morning changed the “third place” atmosphere that was Howard Schultz’s essential contribution to modern American culture.

Via is not really a diversion from the Starbucks brand strategy.  It is really the culmination of a series of steps that have taken the brand away from its original mission.  Starbucks has now emerged into the full light of day as a convenience brand.  It will continue to compete head to head against Dunkin Donuts and McDonalds to own the morning convenience consumer and now adds Taster’s Choice to the list of packaged goods brands it counts as direct rivals.

It is hard to argue with the financial wisdom of this choice.  Starbucks as Howard Schultz first imagined it would be a much smaller company.  But the Starbucks that is emerging from this brand evolution is a weaker brand, more General Motors than Porsche.  Margins will be smaller going forward although revenue will most likely grow.

This last development is most surprising given Mr. Schultz’s recent return at the helm of the brand.  It may signal desperation, but more likely a sign that the corporation is looking to be acquired.  Don’t be surprised if a food giant gobbles up Starbucks soon, and ends the dream of empire that started in a coffee bar in Italy.

Issue: Disney Investment in Hulu brings ABC programming
Commentary by: David Vinjamuri

Today Walt Disney is reported to be taking an equity stake in Hulu under a deal that will bring ABC content like Lost and Desperate Housewives to Hulu.  In just over 24 months, Hulu has gone from being yet another silly startup funded by old media giants NBC (GE) and Fox (Newscorp) to the dominant long-form video destination on the web with ad revenue expected to surpass Youtube in 2009.

The formula to success however, has nothing to do with Web 2.0 wizardry.  Quite the opposite.  This advertising blog believes that Hulu is great because it’s brought the simplicity of the 1950′s to online video.  The magic formula has two parts:

1. Put everything in one place
2. Don’t overwhelm programming with advertising

Hulu defied corporate tradition by linking to content they did not carry.   If a prime-time television show could be found anywhere on the Internet, watching it was as simple as going to Hulu and searching, whether that landed you on Hulu or a media web site.  This probably seemed foolish to competitors at the time.  Why send customers away?  But it turned Hulu into the Google for long-form video content – the best, most relevant place to search and find television shows and movies.

The second part to Hulu’s success was dictated by the online environment, which is notoriously unfriendly to interruptive video advertising.  Consider two ways of watching an episode of FOX’s hit drama ‘House’.  Turn on FOX on a Monday night and you’ll get the full episode of House – 42 minutes – served up with 18 minutes of advertising.  On Hulu, watch the same episode with just five commercial breaks of thirty seconds each.

What’s not immediately obvious is that the second strategy works better – even before Hulu starts targeting the ads it shows based on your user profile.  Why?  Because you’re much more likely to watch a :30 second ad than a three-minute advertising pod.  In fact with DVR penetration increasing to record levels, it is becoming clearer that fewer and fewer television viewers are watching advertising at all.

Hulu is a great success, but the point here is that part of their magic formula is simple: they aren’t greedy.  If television networks hadn’t progressively crammed more and more commercials down viewer’s throats, we’d probably still be watching there, too.  Ask FRINGE …

A few quick thoughts for those of you still looking for the silver lining in the cloud of gloom that surrounds us …

1. Find your core customer  – This is trickier that it sounds because your core customers may not be the biggest spenders.  They are the people who attract others to your business, who are the “acid test” for your brand and who represent your brand in the minds of other customers.
2. Become a direct marketer – Test everything before you commit large dollars.  Instead of running a huge promotion, try it on a small group of customers and see how it does.  Send out an e-mail to 1,000 prospects before you reach out to 100,000.
3. Add value instead of cutting price – If your price is grossly unrealistic, lower it.  But first consider bundling in extra value at current prices.  Add samples, extra services or custom consultations.  You’ll increase the value of your offerings but help maintain your price points, which are harder to raise than cut.
4. Narrow your brand positioning – A recession is a tempting time to try to be all things to all people just to maintain revenue.  But people are drawn to expertise more than ever in a recession and nothing shows expertise better than a narrow focus.  Even if you don’t cut products or services, make sure your communications focus on your core expertise.
5. Look for opportunities – Save marketing dollars to spend opportunistically.  Large competitors in particular tend to make marketing cuts in big chunks and implement them very quickly.  This can leave bargains in media or even PR.  Watch your competitors closely to find the best moment to spend instead of pre-planning all of your expenditures.  If your business is seasonal, save extra money to capitalize on unexpected media or PR opportunities during your high season.

You may know the details by now (and if not see Jackie Huba, Susan Gunelius or Stuart Elliott at the NY Times for excellent recaps), but Tropicana has suffered a new media thrashing at the hands of brand advocates unhappy with the new packaging by The Arnell Group.The enthusiasts are correct here, the packaging does indeed look more generic than the familiar packaging it replaces.  The brand name is recessive and the product shot of the glass of orange juice stretched over two panels of the carton makes the product look like private label.  The new packaging is also less functional, as it is harder to identify the form (with or without pulp, with added calcium, etc) as that information was banished from the main panel to the top flap only.  Finally, in spite of Peter Arnell’s elaborate doubletalk, showing the juice on the package rather than the orange was a huge mistake for a brand whose primary competitive claim is that it is squeezed fresh from oranges and not made from concentrate.

The two more interesting questions from our point of view are:

1. When should I spend the money to redesign packaging?
2. How can I avoid a Tropicana fiasco with my own re-branding campaign?

Here are a few thoughts:

1. Rebrand when you have news – a significant product innovation or dramatic improvement is a good reason to rebrand
2. Rebrand if your market position changes – if a competitor threatens your brand positioning and you need to focus, narrow or shift the position
3. Rebrand if you have new, innovative packaging – a packaging innovation is a good time to rebrand or just refresh the packaging look
4. Refresh if you want to update the brand image – if the brand is stale and needs an update, make evolutionary changes to modernize the packaging

The Arnell Group would have served Pepsi and the Tropicana better to focus on refreshing the packaging rather than entirely rebranding it.   The Pepsi logo rebrand was no less pointless than the Tropicana packaging overhaul, but it will be far less damaging because Arnell merely refreshed the logo by tilting it and adding a bulge.

Part of the lesson here is that if you don’t really understand what a creative guy is telling you, there’s probably a reason for that.