Issue: The brand impact of corporate reputation
Commentary by: David

Stories about Wal-Mart increasingly reflect one common element: municipalities, cities and regulators teaming up to thwart the Bentonville giant on different fronts while Target and other competitors slide through unchallenged. Two recent cases of this concern Wal-Mart’s attempts to get a retail banking certification in Utah and its ongoing difficulties in opening new stores in urban areas. In the first case, Wal-Mart is seeking to gain a charter that Target already owns, in the second we see story after story of Wal-Mart expansion being blocked while rivals traipse through unchallenged.

We are stating the obvious when we say that Wal-Mart’s bad reputation is keeping the company from pursuing its strategic goals and hurting the stock price, but we think the problem is deeper. Wal-Mart has failed to understand the core brand promise and in doing so has systematically undermined the equity of its brand by repeatedly violating the trust of its consumers. Now consumers around the nation and their agents are punishing Wal-Mart and this punishment hurts consumers as well as Wal-Mart.

What is this ‘brand promise’ and how does it affect corporate reputation? The brand promise is simple, but it has significant implications. A brand offers a value proposition. It promises the consumer that it will maintain this value proposition over time, and that the brand will enhance the consumer’s experience and reward the trust during the lifetime of the consumer relationship.

Wal-Mart executed extremely well against part of this promise. It did a great job of eliminating the ‘rural premium’ - the extra price for goods that people in less-populated regions of the U.S. used to pay.

But the brand promise has a second part and Wal-Mart missed it entirely. The brand promise is also about trust - gaining and keeping the trust of the consumer. It is impossible for a brand to maintain consumer trust when it is working against the interest of its consumers. This is where corporate reputation comes in.

This advertising blog cannot judge the reality of stories that Wal-Mart employed ruthless business tactics to put local suppliers out of business (initially working with a local florist, for example, then becoming the largest customer and driving out the other business then finally sourcing elsewhere to elimate the supplier and Wal-Mart’s local competition), or the claims that Wal-Mart has treated employees poorly. It is clear that Wal-Mart is no Starbucks when it comes to employees (recently announcing that it will increase part-timers as a percentage of its workforce), as it tries to get more out of its labor force and reduce health care costs.

So while Wal-Mart’s brand offers excellent selection and low prices it also seems to hurt the community and harm the social infrastructure of the communities it serves. At best this is terrible PR management, at worst it is bad business and bad branding. But clearly this situation emerges from Wal-Mart’s lack of understanding of the brand promise. Wal-Mart CEO H. Lee Scott has tried to speak directly to consumers with what he calls the ‘unfiltered truth’ at WalMartFacts.com. But Scott is not thinking like a brand manager and the actions he is taking show little sensitivity for the brand relationship that Wal-Mart should be building with consumers.

Which is a shame, because the retail banking license could be a major boon for consumers in the long-run. While community banks could suffer if Wal-Mart tries to create a middle-class megabank, the lower-income Wal-Mart customer is dramatically underbanked. Many of these people do not have checking accounts and pay dramatic fees to cash checks (more on this here). Wal-Mart could and should serve these people better than the predatory lenders who take their money now.

Beyond this, Wal-Mart is making other moves which may benefit consumers and the environment. Their packaging reduction initiative promises to initiate a green revolution among retailers and suppliers. And by cutting prescription drug prices (albeit for a limited number of drugs at the moment) and opening cheap, efficient health clinics in stores they may do more for the state of health care in America than Washington has in the past decade.

But Wal-Mart efforts may founder because in their single-minded focus on lowering prices, they have forgotten to take care of their corporate reputation and uphold the brand promise to their consumers. Which is bad brand karma for everyone.

Issue: Why Pretexting was worse than illegal
Commentary by: David

The news and editorial coverage of the sensational Hewlett-Packard leak investigation this summer has missed an important point from a branding standpoint. The question HP Chairman Patricia Dunn should have asked herself when initiating an investigation to determine which director was having unauthorized conversations with the media is not just “is this legal” or “is this ethical” but “what will the effect on the Hewlett Packard brand be when this comes to light?”

What is today termed ‘crisis management’ should instead be thought of as ‘brand management.’ We suggest that if business leaders consider potential actions in light of the long-term effect on the brand, they would often make different decisions.

So what exactly happened? The short story is that after it became clear during the ouster of form HP CEO Carla Fiorini that the media was getting the inside story, Patricia Dunn initiated a leak investigation. She was aware that the methods being used by the consultants hired to conduct the investigation included pretexting: pretending to be someone else in order to obtain personal phone records of Hewlett-Packard Directors. The pretexting pointed towards Director George “Jay” Keyworth. Keyworth in fact had a conversation with CNET which painted HP in a positive light and had been asked by HP on numerous prior instances to have contact with the press. When Keyworth was confronted about the leak he refused to resign (he has since resigned his post) and instead Silicon Valley legend Tom Perkins of Kleiner Perkins resigned in protest. After some dithering on Mr. Perkins part and the apparent representation by super-lawyer Larry Sonisi, the reasons for Mr. Perkins departure were made public. (There is some disagreement about this but a good argument has been made that it is a Director’s duty to shareholders to let them know his reasons for resignation if it has been done to protest a board action.)

Why do we believe that the decision to conduct this investigation should have been considered in the light of the potential impact on the brand? The legal questions that were not asked would have saved Patricia Dunn and Hewlett-Packard legal troubles. Had she asked more closely or sought impartial outside advice, she would certainly have learned that pretexting is illegal. The ethical question that Ms. Dunn did not ask would possibly have changed either the tactics of the investigation or the disclosure to the board and might have saved her job.

Neither legal nor ethical considerations, however, would have prompted Ms. Dunn to forego the investigation altogether, however. And we submit that it is the fact that HP is investigating its own outside directors and not just the tactics used in the investigation that has caused untold damage to the Hewlett-Packard brand. If Hewlett-Packard cannot trust its own directors, why on earth should consumers trust Hewlett-Packard products? If the company behaves in a way that most consumers would sooner equate with Wal-Mart or Microsoft, shouldn’t they vote with their dollars and find other brands?

The timing could not be worse for HP. In spite of the questionable merger with Compaq and the turmoil that gripped HP during Carla Fiorini’s reign, HP has made a remarkable turnaround. CEO Mark Hurd (who is himself at risk if his involvement in the leak investigation is shown to be more direct than he has yet acknowledged), has seen a dramatic reversal of fortune under his watch as HP has gone from being the laggard of the PC industry to the leader. And the swell of positive press for HP came as Dell was under a high-profile cloud for issues ranging from financial improprieties to quality concerns to the battery recall.

Now HP has given Dell a breather at the most critical moment. And the damage to the brand will not easily be forgotten by consumers looking for a better alternative in this low-satisfaction industry. Which leaves the door open for Apple. Apple has experienced all of the issues that Dell has (some quality problems with the iMac, Nano and other products, a battery recall and an government investigation of financial improprieties) but has so carefully managed the brand that nothing seems to have stuck to the Apple brand image or impaired Chairman Steve Jobs mythic ‘reality distortion’ field.

The bottom line is that too often persons in a position of power in major corporations act like children, putting their pride or personal agendas above the needs of the shareholders or the value of the brand. If one’s directors are speaking out of school, the company has a leadership issue. The solution is to fix the underlying problem rather than simple seeking the quickest way to end the symptoms.

Issue: Facebook opens gates to all users
Commentary by: David

What exactly is Web 2.0? For those of you who have been professional marketers for over a decade, it may sound like ‘convergence’ or ‘customer-centric marketing’ - the catchphrases of another generation. It offers the mystical allure of deeper relationships between consumers and brands and communities of interest where marketers and consumers collaborate to build brands.

For the record - here is the Wikipedia definition of ‘Web 2.0′

Web 2.0 is a phrase coined by O’Reilly Media in 2004 to refer to a supposed second-generation of Internet-based services that let people collaborate and share information online in new ways — such as social networking sites, wikis, communication tools, and folksonomies. O’Reilly Media, in collaboration with MediaLive International, used the phrase as a title for a series of conferences and since then it has become a popular, though ill-defined and often criticized, buzzword amongst the technical and marketing communities.

As ill-defined as it is, there have been two good ways to illustrate Web 2.0 to date. One is Wikipedia itself. It is a collaborative tool that web-addicted individuals update and edit for free and is (mostly) freely open to change by anyone. It functions like a free market in that definitions that are self-serving or strongly biased tend to be quickly changed by Wickipedia-watchers. The net result is a useful, up-to-date reference tool that rivals the depth of commercial encyclopedias.

It’s somewhat difficult for marketers to grasp the branding implications of Wikipedia, however, although wikis have a great deal of promise as collaborative tools.

For some time now, an easier way to illustrate the power of community in Web 2.0 has been Facebook.com. Like MySpace, Facebook is a social networking site. But unlike MySpace, Facebook is a gated community, closed to anyone who is not a college student (originally) or high school student (more recently). The power of this is not to be underestimated. The emerging metaphor for MySpace has been the playground - a good place to have fun (meet friends, learn about new music, trends, share stories) but also full of stalkers and dangerous people.

Facebook created a different community by closing the gates. Instead of attempting to connect strangers, Facebook created an easier way for people who would likely come to know another (in the same school) could interact. In doing so it reinvented the college social experience. Life and interactions on Facebook influenced real-world experiences and the physical space of college life and the online space of Facebook life meshed seamlessly in a way that is difficult for pre-2005 graduates to understand.

What was the marketing implication of Facebook? The opportunity for brands to find their most fanatic supporters, learn from them and allow these brand activists to ‘hijack’ or reshape the brand as Alex Wipperfurth describes. Facebook feels safer than MySpace because it is a closed community. For the same reason, it has been harder for marketers to understand and to penetrate. But the promise has been there and this advertising blog feels that it has been the best of all the Web 2.0 business models to point to.

We were very disappointed, then, when Facebook announced yesterday that beginning next month the site would open up to non-education e-mail addresses, effectively making it no more exclusive than MySpace. Why is Facebook doing this? Facebook founders Mark Zuckerberg, Chris Hughes, and Dustin Moskovitz are clever enough to understand that exclusivity is what has separated Facebook from MySpace and given it ownership of the coveted college demographic.

The answer is simple - Facebook is up for sale and a broadening of the audience might raise the price. It also allows potential acquirers to dream of extending the facebook model to new audiences, line-extending so to speak.

Our thoughts on this mirror our thoughts on the majority of line extensions. It will dilute the brand and hurt the business model. More importantly this new development threatens to rob us of the one simple example we can use to explain Web 2.0.

Brand: Hummer (General Motors)
Issue: Hummer puts itself in Happy Meals, New campaign to dispel myths about H3
Commentary by: David

We often comment on the brilliant or foolish choices that marketers make, but we rarely get to talk about a major brand doing both simultaneously.  General Motors has accomplished the unlikely with the brilliant move of putting toy Hummers in Happy Meals and the foolish move of creating an advertising campaign intended to combat misperceptions about the H3.

What is Brilliant:
Today, Jean Halliday at Adage comments on General Motor’s recent move to put toy Hummers into happy meals.  The compelling logic for this is two-fold.  Financially, this licensing deal is a bright spot for the troubled automaker which is one of the most aggressive licensee for its brands in the automotive industry.  The second motivation is brand seeding, which allows GM to get the Hummer brand into the hands of future consumers at an impressionable age.  Matchbox cars have long had the same effect, but carmakers seem to be waking up to the potential loyalty effects of early brand building.

This advertising blog won’t comment on the moral issue of branding to children, the environmental questions about Hummer or the overall merchandising strategy for General Motors.  We do feel that this particular move was brilliant for an entirely different reason.  The brand positioning for Hummer is straighforward and extremely effective when executed properly: Hummer is a toy for grown-ups.  The irony of this promotion is that the Hummer already looks like a toy and is already sold like a toy.  Putting a real toy version of the Hummer into happy meals will not only influence children - it will influence their parents.  It brilliantly reinforces the brand positioning.

What is Foolish:
After a great breakout spot for the H3 (the ‘One Little Monster’ spot -  which we review here), General Motors has been stumbling in its campaign to market the Hummer H3 by its insistence on trying to make the H3 friendly to women.  As Gina Chon writes today in the Wall Street Journal, General Motors is now taking this strategy one step further, with an ad campaign intended specifically to refute misconceptions about the H3’s size and gas mileage.  This strikes us as a radically bad idea for several reasons.

First, GM is using precious airtime to argue with consumers.  Hummer has a bad reputation with environmentalists for a good reason - they are SUVs which are fuel-inefficient.  While it is true that the H3 gets much better mileage than the much larger H2, highway gas mileage of 20mph is nothing to brag about for a vehicle which will holds no more than a Volvo station wagon.

The bigger problem is that the Hummer brand team is trying to make the H3 a different brand from the H2 and ignoring that the real brand in the mind of consumers is Hummer.  The reason to buy a Hummer (as some of the Hummer spots effectively show) is to compensate.  If your life is too unexciting, the Hummer is a toy that adds excitement.  If there’s too little testosterone in your vegan diet, the Hummer adds aggression.

This is a single-minded message that works extremely well for the brand.  But General Motors is making an elementary branding mistake by trying to please everyone.  ‘More people will like us if they know the truth and then more people will buy’ goes the corporate mantra.  In reality, those predisposed to hate Hummer will not listen to the ad.  Those who like Hummer or might respond to the real brand message will be confused by this campaign.

General Motors must remember that it is okay for some consumers to hate Hummer as long as others love it.  Hummer has the makings of a cult brand and will find greater sales volume by narrowing rather than broadening its message.

Branding Bottom Line:
Hummer takes one step forward and one step back.  Much like General Motors.

Issue: Consumers Balk at the High Price of Fusion
Commentary by: David

There is a certain trepidation that a critic feels when challenging a huge brand. Especially when that brand has just been validated by the one of the largest and most successful brand factories. But such was the case last September when we challenged Gillette Fusion and the pricing and product strategy behind this new razor. This month in BusinessWeek, our challenge was validated by Robert Berner and William Symonds.

Our argument in a nutshell was that Gillette had created a monopoly in the shaving business (which had evolved into a minor duopoly when Schick regained some luster with the Quattro) where pricing increases over a decade had far exceeded the innovation delivered to the consumer. For all but the most affluent consumers, the marginal increases in shaving closeness delivered by each successive generation of Gillette razor have been outweighed by hefty price increases in the vicinity of 30%. And don’t try buying in bulk. For years, Gillette has been one of the few companies which reverse prices razor blades, making it more expensive per unit to buy 8 than 4. But inertia and residual brand loyalty kept people coming back and bolstered the stock price, netting former CEO Jim Kilts an absolute fortune when Procter & Gamble acquired Gillette last year.

Now consumers are starting to react. According to Berner & Symonds, sales have been disappointing in spite of a record level of spending behind the brand:

For all that, Citigroup analyst Wendy Nicholson figures that Fusion’s market-share growth has been far weaker than what Gillette saw after the Mach3 and M3Power launches. Mach3’s U.S. market share, excluding Wal-Mart and warehouse-club stores, rose from 6.6% in the launch quarter to 11.7% in the second full quarter, she figures. But Fusion’s has hardly budged, from 10.6% in the launch quarter to 10.8% in the second, she adds. “Given that (the Fusion launch) included two Fusion products, we would have hoped that the initial shares would have been considerably higher,” she writes in a recent report.

From the perspective of this advertising blog, this reaction is nothing more than marketing karma balancing the scales. Gillette took advantage of consumers for too long, increase margin and complicating the product in marginally useful ways. Now consumers are reacting. Unfortunately, many of those who created this mess have already cashed out. We pray that the rest will work hard to add real value to this category.

Issue: Disney increasingly becomes a mainstream brand
Commentary by: David

Buried amid all of the hype for the spectacular $132mm opening weekend take for “Pirates of the Caribbean: Dead Man’s Chest” is an interesting branding question. What effect will releasing PG-13 movies with the Disney name have on the brand? The Wall Street Journal today summarized Disney’s strategy:

Disney said moviegoers of all ages turned out to see the PG-13-rated “Dead Man’s Chest,” which stars Johnny Depp as swashbuckling pirate Jack Sparrow. That interest is a prime example of Disney’s movie strategy: The studio is extending a move in recent years toward making more Disney-branded fare appealing to a broad audience.

While this strategy seems to make financial sense (PG-13 = broader audiences = more potential moviegoers = bigger profits), this advertising blog believes that Disney is making a serious error which will hurt the brand in the long term. The question Disney should be asking is:

What Does Disney Stand For?
We know what Disney has traditionally stood for: children. Family-friendly entertainment was a means to creating the best possible experience for children. In fact, Disney has been so successful in this quest that the brand has a created a huge reservoir of trust with parents. Want to pop a DVD in the player for the kids to watch? If it has “Disney” on the box you don’t need to worry about it - it’s fine for young kids.

How Does Pirates Change This?
Disney’s move to use the Disney name instead of Touchstone Films (which they had set up to insulate the children’s franchise name Disney from adult titles) on films like the original Pirates and the sequels is slowly but surely undermining Disney’s expertise in children’s entertainment. It is clear that Disney believes this to be a good thing. But it is not. Imagine all of the places that your children would like to go for a vacation. Disney is somewhere near the top of this list, right? To get your tourism dollar, Disney World and Disneyland simply have to keep you from vetoeing your child’s vote.

Now imagine where you might choose to take your family for a vacation if it was entirely up to you. The Bahamas? Europe? This list is much longer and Disney may not feature so prominently on it. Here is the central dilemma of this Disney positioning choice - when Disney stops being the #1 choice for children and starts being family fare - or even worse mainstream entertainment - it loses its competitive advantage. Like thousands of brands from Pierre Cardin to The Ground Round, Disney risks losing its expertise and thereby its competitive power.

This will not happen overnight, of course. Pirates of the Caribbean will not confuse many parents who know what to expect, and the Disney name is fairly small on the original movie’s DVD packaging. But over time, expect to see a real shift in what Disney means. Competitors from Six Flags to Time Warner should be licking their chops because if Disney continues to follow this path they will be easy prey to more focused brands.

Issue: Wal-Mart Expands Financial Services to Low-Income Consumers
Commentary by: David

The Wall Street Journal’s Robin Sidel and Ann Zimmerman report today that Wal-Mart is aggressively expanding services for low-income consumers including check cashing, bill payment, money orders and remittances.

To some this may sound like a turn in the wrong direction - and conflicts with Wal-Mart’s prettified, glamour turn under ex-Target employee, Chief Marketing Officer John Fleming. It’s not. It is the first sign of a shrewd marketing strategy from the Bentonville giant in months. And it comes from the operations department (the project falls under Jane Thompson, President of Wal-Mart’s financial services operations).

Why are we so bullish on this race to serve the bottom of the market by Wal-Mart? First a bit of background.

The Dreadful State of Financial Services for Low Income Consumers
Offering financial services to low income earners is an unhip business. On the one side we have check cashing operations who typically charge low income earners without traditional bank accounts 2.5% to 3.0% of face value to cash a check. Yes, you did read that correctly. It doesn’t matter if it is a personal check or a business check, these folks have to pay $25 to $30 to cash a $1000 paycheck. That’s not the worst side of these establishments, either. The real game here is loans. These operations will lend against a future ‘payday’ to consumers who have little income and almost no credit. But thanks to current banking laws they charge enormous fees to do so. From the website of Payday Today - part of ACE Cash Express, Inc. the largest check-cashing store concern:

Payday loan fees are very expensive, particularly if a loan is extended over time. The fee charged for a payday loan is equivalent to a 250-650% Annual Percentage Rate (APR), which is by far one of the most expensive loan options on the market.

That may sound like usury to normal income earners, but it is legal in this industry. It is no surprise, then that banking industry reps are opposed to the move. The Wall Street Journal quotes Bruce Spitzer, spokesman for the Massachusetts Bankers Association saying “We don’t think this is a good service for consumers.” Apparently providing loans with a 650% APR is a good service, however.

The other side of the business is remittances. This is the practice of sending money to foreign countries which is usually done by legal or illegal immigrants who are supporting families for their home country. This is a much more competitive and respectable business which started with foreign operations such as the Dominican financial services company Quisqueyana. But the services offered by these organizations are limited as they do not have bank charters.

Why ‘Always Low Prices’ Positioning Helps Low Income Consumers Cashing Checks
What Wal-Mart does is to put a lot of money back into the hands of these low-income consumers. For instance, Wal-Mart charges 46 cents for a money order versus as much as $1.30 at the U.S. Post Office. Instead of paying up to $30 to cash a $1000 check, Wal-Mart charges a maximum of $3.

The beef against Wal-Mart from Bruce Spitzer and his ilk is that it’s just trying to get people to make impulse purchases when they have money in their hands. Mr. Spitzer obviously doesn’t understand Wal-Mart’s relationship to the low-income consumer, however. These people come to buy necessities in bulk at low prices. They are in no sense less responsible than more affluent consumers. In fact, Wal-Mart confirms that only 14% of check cashers make a purchase in the same visit.

Why this is good strategy for Wal-Mart:
Wal-Mart’s average consumer earns $38,000 which is below the U.S. Median Family income of $42,000. Target, on the other hand caters to a tonier consumer, earning an average of $58,000. This advertising blog has long argued that trying to compete with Target for these affluent consumers is a fools errand for Wal-Mart. Target has tapped into a vein of unserved desires with its ‘Design for All’ mission and Wal-Mart is confusing its ‘Always Low Prices’ image when it advertises in Vogue or makes a big show of offering organic food or upscale merchandies in the stores.

Wal-Mart grew into the most valuable company in the world by offering a better deal to the average Joe and Jane - those lower and middle income wage earners in rural areas who were paying high margins to small retailers a generation ago.

The best opportunity for Wal-Mart is not to expand its target to upper-income consumers but to find more ways to better serve its core consumer. There will be no shortage of low income consumers in years to come even if the ranks of the mass affluent continue to grow.

Wal-Mart which so often seems to find itself as the source of social evils finally has a significant chance to do some good. By demolishing the abusive and demeaning check cashing industry, Wal-Mart can offer low-income consumers some of the same basic economic rights that affluent earners enjoy. By innovating and perhaps even joining forces with other companies like G.E. who are making a push into this sector, they can provide a jump-start for the lower end of the U.S. economy.

Issue: Nike takeover of Converse triples sales, moves away from base
Commentary by: David

The Wall Street Journal today detailed changes in the Converse line stemming from its 2003 acquisition by Nike. WSJ reporter Stephanie Kang notes that among these has been a serious commitment to R&D which has allowed Converse to regain court access (in the 1950’s, Converse dominated pro basketball) with the ‘Wade’.

Nike is quoted in the Journal article saying all the right things. Nike CEO Mark Parker says, “It’s such an iconic shoe that we’re trying to be careful not to overextend it.” Nike has also forced Converse to create a ‘brand book’ that details the brand image and guidelines for using it.

By short-term financial measures, the acquisition has been successful. Converse’s share is up significantly and sales this year are up 12% - ahead of the industry.

Many observers were concerned with this acquisition because of Nike’s spotty record with acquisitions, primarily from the disastrous integration of Bauer, an iconic ice hockey brand. In that case, Nike put the trademark swoosh on the Bauer skates and alienated loyal fans who thought of Nike more as a giant corporation than an innovator.

In this case, Nike has been careful not to add the swoosh. Instead, they’ve made a different mistake. The very mistake Nike CEO Mark Parker is most anxious to avoid. Nike has overextended the Converse brand. How? By adding fashionista offerings to the plain Jane Converse line inlcuding the shearling trimmed sneaker-boots above.

The reasons for this are understandable. Converse has had two brand lives. In its early life, the brand was about performance. Like Nike, the inspiration came from an athlete (Chuck Taylor) who was both a pro basketball player and later a Converse salesperson. The Chuck Taylor put Converse on the map. Ironically, it was the era of Nike with Michael Jordan that knocked Converse off the map and the brand might have died if the Chuck Taylor had not been adopted by a different group. The second brand life grew out of the grunge movement in Seattle where legendary rockers including Kurt Cobaine adopted Chuck Taylors as an anti-fashion statement.

Nike is trying to revive both lives for Converse. They have put significant r&d efforts into getting Converse back onto the court with a new line (Wade). This has been a successful effort and from the persective of this advertising blog it is probably fine for the brand.

Where Nike has stumbled is in the second part of this revitalization. Instead of finding ways to seed Chuck Taylors more deeply into the Gen X post-grungers, Nike has taken the cultural adoption of Chuck Taylors as a license to try to make them glam and hot. In fact, the fur-trimmed Chuck Taylors pictured above look more like Uggs to us and less like the basic walkaround shoes that say ‘cool’ and ‘no b.s.’ at the same time.

It is hard to argue with a brand when they are reaping the rewards of extending their audience. But we believe that Nike has caused Converse - particularly the Chuck Taylor line - to walk away from the base franchise that has protected them for a generation. Our prediction is that Converse will follow the path of Tommy Hilfiger and rise only to fall. A steady build among the faithful would be far better for the brand.

Issue: How does product placement affect the credibility of the media property and the brand?
Commentary by: David

A typical product placement - this one on the season finale of NUMB3RS - raises the question for us of the effect of paid but undisclosed endorsement on brand equity. In this case, the placed product was a Dyson vacuum cleaner. The product was well integrated into the story line. The premise for this series is an FBI agent whose brother is a genius mathematician. In this storyline, the mathematician brother points to the Dyson vacuum and describes how its vortex suction works, then moves on to a mathematically similar method for solving the crime at hand. This is about as good as product placement gets since the Dyson is woven into the plot and the character takes a moment to explain the product. Dyson supplemented the placement with advertising (which we have reviewed previously here) which reinforces the brand message.

Two things tip us off to the fact that we are witnessing a paid product placement - one is integral to the placement itself, the other is not. The unavoidable tip-off is the appearance of the Dyson with the logo in closeup. The avoidable tell is the presence of Dyson ads during the episode. Both work together to make the placement memorable but evident. And therein lies the problem.

Product placement is a tricky game. It is a combination of advertising and publicity. It is advertising because it is paid for and not ‘earned,’ as news stories featuring brands are considered to be. On the other hand, product placement has the implied endorsement benefit that can work harder than advertising if it is handled correctly, and in this way it is more like PR. To work well, though, this paid endorsement must look like unpaid, naturally occuring story content. The more brazen and obvious a product placement, the less authentic it feels. When a product placement is too glaring or evident (as some of the placements on The Apprentice have been deemed to be), it loses the implied endorsement benefit and may actually generate a backlash.

The problem is that product placement is paid advertising, not unpaid endorsement. So making it work effectively means deceiving consumers to keep them from understanding the relationship between the brands featured on a television show (or in a movie) and the producers of that entertainment. And deceiving the consumers has many perils, not the least of which is the peril to the brand if the paid placement is revealed.

This creates a real problem for any enduring brand. Yes, it may be very straightforward to buy placement for a brand and that placement may help strengthen the brand equity. But if the increase in consumer interest comes as a result of deceiving the consumer, then the advertiser may risk suffering a significant backlash if the commercial relationship between the media property and the brand is revealed. In most cases, it is the opinion of this advertising blog that the risk is not worth the effort at deception. Unless the placement can be openly disclosed, but still effective (like Tiger Woods wearing Nike which is an open paid placement and endorsement), the brand benefits at great peril. Although it may work for some period of time, deceiving the consumer is bad business.

Issue: Johnson & Johnson and Coca-Cola weaken the Upfront
Commentary by: David

Today Susan Vranica of the Wall Street Journal reported that Johnson & Johnson, one of the nation’s largest advertisers will skip the upfront and that Coca-Cola which will participate does not plan to make any upfront buys. The Upfront is the glitzy coming-out party for the new season of network television shows during which nearly 80% of advertising slots in primetime shows are traditionally sold. Johnson & Johnson is a significant player in the upfront, having spent nearly $500 million in television advertising last year alone.

The decision not to attend the upfront is a declaration of independence which has been a long time coming. The Wall Street Journal quotes Kim Kadlec, Johnson & Johnson’s chief media officer as saying”What we found is, if we can synchronize our business-planning cycle [with buying media time] it will benefit the brand and that is what this is all about.” In English that means that it was never helpful for large advertisers to have to buy advertising time in network television shows 5 - 11 months before the advertising actually was scheduled to run. The power of prime time television perpetuated this system for years and in spite of the J&J and Coca-Cola decisions it is likely that a significant volume of advertising will still be sold in the upfront.

Johnson & Johnson’s withdrawal, however, marks a decisive and permanent shift in the balance of power between content providers and advertisers that mirrors the power shift also taking place between consumers and advertisers and is no less significant. Sumner Redstone famously said ‘content is king.’ There are still destination shows and superpower-scale events (like the Superbowl), but there are now many, many options for content. Not only have the number and quality of television shows increased but they now compete directly with web-surfing, satellite radio, podcasts, blogs, and other forms of new media for eyes and ears. Beyond that the same content may be found in different distribution channels (watch Lost live, record it to your DVR, stream it from ABC.com or buy and download it from iTunes).

What does this mean? It means that content providers must think carefully of consumer needs, distribution channels and the revenue model for each and every piece of content they produce. It means that advertisers will increasingly be able to choose the platforms that they prefer to support and will get a say in how these function. And it mean that consumers will ultimately accept or reject each model that advertisers and content providers present to them. Where consumers rejected individual shows before they may now reject entire revenue models.

Television networks should take this as a good thing, in spite of the loss of early revenue for the television season. They are still the kings of content - very little of what is produced in the other distribution channels (save print media and the slickest of online) approaches the production value of network television. What the slow death of the upfront proves is not that television is going away but that expansion opportunities are opening up. If some of the myriad creativity that is put into developing programming goes into thinking how best content can be delivered through new media, consumers, advertisers and networks alike will benefit.