Issue

Last month at the Jacob Javitz center in New York, Hyundai introduced the Genesis sedan.  This $35,000 sport sedan is an ambitious and impressive challenger to such auto industry heavyweights as BMW, Infiniti and Lexus.

More impressive than the styling of this new car (which looks far less like the odd panoply of competing design themes that defined the Hyundais of the 1980’s) is the expected quality.  In fact, in 2006, J.D. Power’s rated Hyundai #3 in initial quality - above both Toyota (#4) and Honda (#6).  In addition, Hyundai models in the past several years have been regularly recommended by Consumer Reports for reliability as well as value.

In spite of this good news, Hyundai is in a pickle.  BusinessWeek reports that “last year the Korean automaker’s earnings fell 34% … and its operating margin was halved … Hyundai’s sales bank [of unsold cars] has gone largely unnoticed.”    The appreciation of the Korean won against the dollar has neutralized much of Hyundai’s pricing advantage and the brand is under pressure to sustain premium pricing.

Hyundai’s marketing chief, Steve Wilhite (COO of Hyundai Motors America) is struggling to find a recipe to make Hyundai a premium brand.  The current plan of the company lies with an upcoming advertising campaign intended to position the brand as the choice for rational, clear-headed buyers unaffected by marketing hype.

This plan might or might not work in the long-run, but it is an expensive and unlikely way to solve the brand’s woes.  Wilhite’s thinking is one-dimensional, and his impressive resume (helping to lead turnarounds at Volkswagen, Apple and Nissan) points to the reason - he has primarily worked in single-brand environments.

Faced with the same challenge, a packaged-goods marketer might think differently.  Instead of trying to reinvent a failing brand with a stable of good products, why not create a new brand for those good products.

Hyundai consumer research seems to bear this out.  As Businessweek points out, consumers exposed to concepts for new Hyundai models were actually less likely to express purchase interest than when the concepts had no brand attached.  Instead of being a sail for the brand, the Hyundai name is currently an anchor.

Of course, there are good examples of brands which have repositioned themselves in the automotive industry - and Mr. Wilhite has worked on two of them.  Volkswagen was in a brand netherworld before re-emerging with the “Drivers Wanted” campaign and the New Beetle.  Nissan was virtually a commodity when Wilhite helped reinvigorate the brand.

Unfortunately for Mr. Wilhite, both of those brands had underlying heritage which made refreshing the brand more achievable.  Nissan was beloved of a generation of drivers who remembered it bringing real sports cars to the masses with the 240Z - and these drivers were now of an age and family size to require a Maxima.   Volkswagen captured the hearts of the masses with the original Beatle.  Repositioning it as the brand that cared about drivers was more like reintroducing the original concept than arguing with consumers.  (Nissan does of course have a second brand, Infiniti, but more on that later.)

Hyundai’s problem is that it has no brand heritage to look back on.  Hyundai came into the U.S. market much as Yugo did - as a cheap car, cheaply made.  The early Hyundai Accent was a dreadful tinny little car that did not engender much love.

To be fair, there are at least two examples of automakers with questionable initial offerings and poor brand reputations turning into automotive powerhouses - Toyota and Honda.  The first Hondas were also tinpots known more for their propensity to rust than anything else.  Toyotas had a similarly undistinguised brand as an inexpensive Japanese car.

These brands, however, were saved by a divine intervention that Hyundai and Mr. Wilhite can hardly hope for - the OPEC oil crisis of the seventies which forced consumers to re-consider small cars.

These same two companies do offer a more useful model of dealing with entrenched consumer opinions about their automobiles, however, with their Lexus and Acura brands.  Both Toyota and Honda (along with Nissan) faced the difficult question of how to move upscale as their consumers aged.  They also saw a brand opportunity as no domestic or foreign carmaker was able to deliver “reliable luxury” to the U.S. consumer.  They understood that their brand names did not connote luxury to U.S. consumers and might never do so.  So they chose to build new brands at huge expense.  It was an investment well worth making.

For Hyundai, rebranding would be well worth the effort.  Merely renaming the company and the dealerships would be difficult, and consumers might see through the effort.  It might be smarter altogether to launch a new brand and begin to put updated versions of the smartly designed, reliable and clever new cars into this brand.  Over time, the Hyundai name could be retired.

This begs the question of dealer networks.  The U.S. auto market is, unhelpfully for consumers, largely driven by distribution issues.  Most dealerships still distribute only a single brand and consumers are reduced to driving all over town to shop for a new automobile. (Imagine doing the same thing to shop for a dishwasher and the absurdity becomes clearer.)  This is justified by the service end of the business, but at the end of the day it does no favors to anyone.

Hyundai should look at partnering with another car manufacturer needing to penetrate the U.S. market.  This model is already common at the high end where brands like Aston Martin, Ferrari and Lotus lack the sales volume to support independent dealer networks.  Renault might make a good partner as it is gearing up for a re-entry into this market.

There are reams of data to support the fact that consumers don’t like to be argued with.  The path Hyundai is pursuing with rebranding will be expensive and might fail.  Which would be a shame, because the automaker is finally producing some vehicles worth considering.

Issue

Last Summer, an epic struggle for control of the board of Hewlett-Packard exploded when it was revealed that HP Board Chair Patricia Dunn had authorized pre-texting to investigate its own outside directors. The news cast a cloud over the comeback story of Hewlett-Packard, and the scandal was far worse in PR terms than the leaks the investigation was intended to uncover. As this advertising blog commented at the time, the real lesson of the scandal was that any corporation should understand that treatment of (and trust in) its own emloyees is directly connected to the equity of the brand with its consumers. By that we meant that if a company does not trust its own employees, it should not expect consumers to trust them. Some employees will always misbehave and either break the law or the company’s code of ethics. But when the company fosters an atmosphere of mistrust, it ensures that this mistrust will be transferred down to consumers, either through employees or the media.

Today, a scandal brewing for the past four months hit the front page of the New York Times, virtually ensuring a publicity nightmare for Wal-Mart. The source? In January of 2006, Wal-Mart hired marketing star away from Chrysler Julie Roehm to lead the push for a new agency and new image for the Bentonville giant. On December 7th, Wal-Mart publicly fired her, stating that she had violated company policy by having a relationship with a subordinate, accepting unethical favors from agencies vying for agency-of-record status (most famously a ride in Draft FCB chairman Howard Draft’s Aston Martin) and broke expense rules.

It is unusual for the departure of a senior executive to be positioned as a ‘firing’ (even former HP CEO Carly Fiorina had to insist that her termination be made public as such) and much more unusual for the corporation to reveal the reasons behind the dismissal. To do so courts negative publicity and a lawsuit. In this case Wal-Mart got both - Roehm sued and the story was picked up by the business press.

Wal-Mart has one of the best publicity teams in the World, (run by Edelman PR) but it’s difficult to understand what they thought they might accomplish by treating the termination of Roehm as a war. Certainly any financial loss to Roehm in a lawsuit (or any gain in a counter-suit) will be dwarfed by the negative publicity surrounding the case. Wal-Mart does not carry the presumption of innocence in the public mind, so this kind of story weighs even heavier on them than it might on other brands.

The very public battle over Roehm’s termination created an even bigger risk for Wal-Mart: that it would reveal a pattern of behavior on the part of the retailer that could make for more interesting and more mainstream story for the press. That happened today with the New York times expose piece on Wal-Mart’s surveillance practices.

Whatever the truth of this story, the damage has now been done. And it is clear that what invited this story was Wal-Mart’s aggressive approach to ending its employment relationship with Julie Roehm. Whether or not Ms. Roehm merited this treatment, whether or not Wal-Mart was ‘right’ in factual terms, it has certainly hurt the brand. When senior Wal-Mart employees consider their everyday actions in light of whether they are ‘adding value’ they should consider the health of the Wal-Mart brand and not just the shelf cost of the products.  And, as with the Hewlett-Packard incident, the suspicion of employees - even when justified - hurts the brand far worse than their misdeeds.

Issue

One of the most disturbing aspects of the national pet food recall is the illusion of superiority it has shattered for buyers of expensive pet-foods. Processor Menu Foods not only makes store brand petfood for stores as diverse as Wal-Mart, Winn-Dixie and Wegmans but also premium brand pet-foods including two Procter & Gamble brands, Iams and Eukanuba. In all, 53 brands of dogfood and 42 brands of catfood are affected.

Why is this so disturbing to consumers? Not just because Fluffy or Sparky might die from kidney failure. The other bad news from the consumer point of view is that the premium food that they have been lovingly feeding to these extended family members is no different from generic store brands.

How did this happen? A combination of greed and laziness was to blame. For much of the petfood industry, co-packaging (or producing generic products using a third party manufacturer alongside branded products with identical ingredients and a higher pricepoint) has been a fact of life for years. This is greed plain and simple, and the brands engaging in this practice surely deserve the fate they will experience

Procter & Gamble is a slightly different case, however. AdAge quotes a Procter & Gamble spokesperson as noting that “Iams and Eukanuba dry products are not manufactured at Menu Foods and are not affected by this recall. Only a small portion of our wet canned and foil-pouch products for dogs and cats are affected by this recall.”

Iams was popularized by Clay Mathile who purchased the company from its founder in 1970. The brand was sold through veterinarians who promoted it as a scientific solution to pet diets. This vastly increased the strength and credibility of the brand, so much so that it attracted the attention of Procter & Gamble, who purchased Iams in 1999.

The Iams brand survives on the belief that it is the best brand for pet health and further bolstered by the P&G introduction of Eukanuba, which is sold through veterinarians.

All of this has been endangered by the news that the brands are co-packaged with generic pet foods. The question is, why did Procter & Gamble, one of the worlds pre-eminent brand companies, allow this to happen?

Most likely, a brand manager recommended that a wet-food line extension for Iams and Eukanuba be subcontracted out to Menu Foods to spare cost and manufacturing complexity. Nobody watching the brand asked the question - is this manufacturing practice consistent with our brand promise for these premium pet-foods? And now, even though the majority of Iams and Eukanuba branded products were not packaged by Menu Foods, they are going to be tarnished by the same brush.

Issue: Bono’s Red Campaign Has Not Burst
Commentary by: David Vinjamuri

AdAge set off a firestorm this week by suggesting that the RED campaign has yielded just $18mm for the Bono charity which benefits the Global Fund to Fight AIDS, Tuberculosis and Malaria. RED CEO Bobby Shriver fired back that the total number was now $25 million, that there were a lot of other publicity benefits for the charity and that the promotional partners also saw incremental profit and sales from the campaign.

From a brand standpoint, the much more interesting question is this: Why did a campaign with six huge corporate sponsors, dozens of celebrities and an enormous amount of publicity get beat by a simple yellow band promoted by one athlete?

That’s right, that simple yellow band brought in over $50 million for LiveStrong, the Lance Armstrong foundation which benefits people affected by Cancer. One celebrity, one SKU, twice the results.

This advertising blog doesn’t think that is any accident. Lance Armstrong did four things right:

1. Simple - The LiveStrong campaign was easy to understand - pay a buck, take a stand, fight cancer
2. Shareable - The LiveStrong campaign had a shareable message - wear the yellow and join the fight
3. Self-Reinforcing - When a consumer became aware of the campaign, every yellow wristband reinforced the message.
4. Sustainable - With simple execution, low manufacturing costs and no need to keep multiple partners on board, this campaign has been easy to maintain.

The RED campaign hasn’t surpassed the Yellow campaign for just one reason - Execution. RED sounds like a brilliant plan and when it hatched in Bono’s mind, it probably was. But it was compromised in several ways in its execution:

1. What is RED and what is just red? - Because the RED campaign had multiple partners, it was harder to distinguish at a glance which products were RED sponsored and which merely sported a similar color. This created consumer confusion and cost the campaign valuable momentum.
2. Commercial motives - To entice partners, 60% of profits were retained commercially with the remaining 40% going to RED. This compromised the integrity and authenticity of the movement and made it a promotion instead. A movement (as LiveStrong was) has much stronger brand equity than a promotion.
3. Too much noise - Multiple partners and multiple products also racheted up the noise. To understand the promotion, consumers had to pay attention and investigate. The extra work required of the consumer made the campaign much less appealing.

We believe that RED is pursuing noble goals. Unfortunately, the meager results have left the ground open to critics from the nonprofit sector who claim that this is the inevitable result of the privatization of charity. The hurt feelings created by the Gates Foundation stealing the limelight from more established players are resurfacing in this debate. But a privatization of charity and more stringent application of business principles to keep charitable giving effective are desperately needed. The lesson of RED is that it has to be smart business, and strong branding.

Issue

Taco Bell owner Yum Brands this week has found itself on the wrong end of another public health crisis, this one stemming from a video filmed at the Greenwich Village Taco Bell/KFC showing a swarm of rats scurrying around the restaurant. Kate MacArthur at AdAge reports:

No crisis is just a local crisis. The rats running amok at the Greenwich Village eatery were first reported on early-morning TV news by a New York station, WNBC-TV, following a consumer call to its tip line. But by the time Yum Brands put out a statement addressing the issue on its home page and media wires — 2:06 p.m. EST — the stomach-churning video had already raced over the internet and made it to numerous other TV stations.

Taco Bell & Yum’s response to this crisis highlights the problem we have previously addressed with modern crisis management plans: they don’t account for the speed of the Internet and the visceral impact of viral video. The seven hours that passed between the early-morning airing of the video on WNBC and WCBS and Taco Bell’s response allowed the story to run nationally without any expression of regret from the company and made the whole mess look worse.

The response itself was not much more helpful, crafted as it was to stress the isolated nature of the incident and the safety of Taco Bell and KFC cooking in general.

Now, Yum will face further dropoff in Taco Bell business (already down since the e-coli crisis) and continued erosion of the brand. Why? Because Yum has not demonstrated that it really passionately cares about consumers or safety. Showing passion in the response means going beyond dealing with the immediate health issue caused by e-coli or rats and addressing the breach of trust created by this type of adverse event. Taco Bell should have made a more heartfelt statement of distress and then thought carefully about compensation for consumers - what about making the restaurant free for a weekend after reopening?

Just to be absolutely clear, this is our four-step primer for dealing with crises - rodent or otherwise:

To respond effectively to a crisis, brands need to have a plan which can be implemented in a matter of hours. It should include the following steps:

1. Accept Responsibility - Even if events subsequently prove that the brand was blameless in an outbreak or tainting scandal (think of the finger found in a Wendy’s salad which was planted by a customer, for instance), stonewalling will hurt the brand. It is far easier to act as if it is a problem you’ve created and take responsibility for making it right. If later events prove the brand was blameless, its ethical reaction to the problem will increase brand loyalty. If it was the company’s fault then the brand will retain consumers with its forthright, straighforward acceptance of responsibility.
2. Protect the Consumer - Closing restaurants or recalling the product early can limit the damage done to the brand. Stubborn refusal to immediately recall their contact lense solution almost cost Bausch & Lomb its entire ReNu franchise.
3. Find the Truth - Getting to the bottom of the problem is critical, even if it is not always possible.
4. Prevent a Replay - Tylenol returned to the market not when the person who had adulterated the product was apprehended but when Johnson & Johnson could be sure that another person could not do the same thing. This is the best standard for knowing whether its time to step back into the water, and one that Taco Bell has likely failed.

To these we would add “Make Reparations.” Taco Bell needs to clean up and think of a creative way to erase the horror from the minds of its consumers.

Issue

The primary question the government must answer in any proposed mergers is - will this merger ultimately benefit or harm consumers? Will this create a monopoly or enable more competition? A decade ago, when satellite radio was first licensed, it seemed that satellite radio would be the dominant audio broadcast technology in the near future. Consumers would eventually migrate to satellite radio, shunning traditional radio. Particularly in cars, satellite radio would become the primary entertainment option.

Under these circumstances, it made sense that there should be at least two satellite competitors and that these competitors would not be allowed to merge. Circumstances have changed.

Today’s consumer has a myriad of choices for in-car entertainment and in-home entertainment. In fact, the biggest alternative to traditional radio has come from an unexpected source - Apple Computer. The iPod’s popularity has even forced automobile makers to scamble to accomodate iPod connection to the car radio, after decades when car makers refused to put even a simple external input jack on car stereos.

There is also renewed competition from terrestrial radio in the form of digital radio, which promises similar quality to satellite radio.

Finally, the FCC could not have foreseen that the fierce competition between Sirius and XM in the face of many other consumer entertainment options would leave both companies weak and unprofitable. The bidding war for talent that culminated in the Sirius acquisition of Howard Stern (for a reported $500 million) and NFL rebroadcast rights and XM lockup of Major League Baseball.

The resulting situation is not good for consumers. Sports fans must choose between baseball and football, or the near-impossibility of having two incompatible satellite radio systems in a single vehicle or household. Entertainment fans must side with Oprah (XM) or Howard Stern - not that we suspect they have many fans in common.

If all this seems obvious to the average reader of this advertising blog, it is disturbingly not obvious to FCC Chairman Kevin Martin. Like airline CEOs who never travel in coach or food company chiefs who never eat their own products, we wonder if Martin has spent much time driving himself through rush-hour traffic in the past few years. Does he not see the legions of people fumbling with their iPods in the car (let alone the man we recently spotted eating a bowl of cereal with milk in his Lexus)?

The best thing for consumers, and for brands, would be to allow two weak companies to form one stronger one. Instead of fighting each other they can prepare themselves for the larger challenge of competing against digital radio and MP3 players. They can also spend more time developing their content.

If not, we’ll just sit back and watch the FCC force another VHS/Betamax battle on innocent consumers.

Issue

Watching the media this week, one might think JetBlue is going the way of most of the legacy carriers - becoming a haven for bad customer service and employee discontent. This advertising blog believes that the disaster for JetBlue may instead save the company. Here’s why:

Last week was by all accounts the worst week in the seven year history of JetBlue. The company which has long been a media and Wall Street favorite dismayed consumers, investors and management last week. Jetblue stranded thousands of flyers in a cascading series of flight cancellations apparently caused by poor management decisions around an ice storm in New York on Valentine’s Day. The worst complaints against the airline from disgruntled customers centered around planes that were kept on the runway for up to 11 hours with overflowing toilets and without food as well as swamped customer lines and an apparent lack of a system to reschedule thousands of flight crews during a major weather event.

JetBlue CEO David Neeleman who has been in the media spotlight all week today detailed a new “Customer Bill of Rights” which he believes will move JetBlue to the front of the industry in crisis management and consumer responsiveness. The JetBlue Customer Bill of Rights includes the following:

1. Notifications - JetBlue promises to give customers prior information when it learns of delays, cancellations or diversions and their true causes.
2. Cancellations - If JetBlue cancels a flight more than 12 hours in advance, customers can opt for a full refund instead of rebooking. If JetBlue cancels within 12 hours, customers get a roundtrip voucher as well as rebooking.
3. Departure Delay Compensation - (For “controllable irregularities”) JetBlue will give customers $25 vouchers for 1-2 hour departure delays, $50 vouchers for 2-4 hour delays, 1-way flight travel vouchers for 4-6 hour delays and roundtrip flight vouchers (for the amount paid for the delayed trip) for delays of six or more hours.
4. Denied Boarding Compensation - JetBlue will pay customers $1,000 for denied boarding
5. Ground Delay Compensation - JetBlue will give customers who experience an arrival ground delay compensation identical to the #3 above. JetBlue will give customer who experience an uncontrollable (i.e. weather or air traffic) departure delay $100 for 3-4 hour delays and roundtrip travel vouchers for longer delays.

This ‘Bill of Rights’ is a huge step forward in an industry which seems intent on doing the minimum for the consumer at all times. Firstly, it treats the customers time as something of value - a concept no other airline currently embraces. Secondly it seeks to set up a direct value trade for unexpected wastes of the customers time. Third, it addresses the awful industry practice of overbooking in a way that is certain to satisfy customers and deter over-ambitious airline revenue management programmers. Finally, it shows that JetBlue is taking responsibility for the mess it made last week and owning up to some of the bigger flaws not just in its sub-industry-grade performance last week but in the state of the industry at large.

This is a blessing at a time when JetBlue needed one. It may be exaggeration to say the bloom was off the rose at JetBlue, but increasing departure delays, soaring fairs and more consumer complaints last year opened the question of whether JetBlue could stay special as it became a large, mainstream carrier. Just as with the frog who will sit in a pot of water as it is slowly raised to a boil, JetBlue seemed indifferent to these individual issues because it could not perceive the entirety of the effect on the consumer experience viewed from the outside.

The New York ice storm and the weaknesses it revealed in the command and control systems at JetBlue as well as training gaps were akin to dipping the frog in boiling water from the outset - JetBlue now seems intent on jumping out of the pot.

To be sure, the performance has not been perfect. JetBlue CEO David Neeleman seems harried and unfocused in his video message to consumers. Some of his media performances were good but in others he seemed defensive and vague, as in his call-in session on NPR. CEO’s ought to be taught that every good media appearance during a crisis begins with a specific act of contrition - you need to state exactly what your company did wrong and what the effect was on consumers. This shows that the company is taking responsibility and that the CEO has empathy for the consumer. Then the CEO must explain what mistakes the company made beyond weather and uncontrollable events and detail a plan of action. Only then can the CEO get into the nitty gritty of arguing over whether the government should step in with regulatory action or what compensation consumers should receive.

On the whole, though, we think JetBlue has taken an important step forward. Other media darlings should examine themselves in the cold light of day to see if they are still fulfilling the brand promise. If they don’t, a JetBlue disaster may be their worst nightmare - and their only chance for redemption.

Issue

The Super Bowl is the last refuge for destination advertising in America, the last place that people actively seek out television advertising instead of shunning it.

Given that, it’s a shame that advertisers did not make better use of the opportunity this evening. Although there were some interesting themes this year, the strongest trend seemed to be a resurgence of animals in advertising. Although we thought the Blockbuster spot was fairly well executed and the dog spot by Budweiser predictably tugged at heartstrings, the Bud Light Gorillas and Taco Bell Lions were less memorable.

This Super Bowl also cemented a trend that has been growing throughout the year - consumer generated advertising. The two spots, a Frito-Lay and one for the NFL were both interesting and stronger than the average agency-produced spot for this Super Bowl.

Two standounts in the largely undistinguished field were the General Motors “All by Myself” robot spot, touting GM’s 100,000 mile warranties and the Coca-Cola Bottle spot promoting black history month and the historic black coach matchup at the Super Bowl.

Picking the worst spot might be difficult this year, but the spot most likely to damage the career of its actor goes to Revlon and Sheryl Crow, with a tedious and undistinguished ad for hair color. Kevin Federline dreaming of stardom while working at a fast-food restaurant gets an honorary mention.

More to come this week, but these are our first thoughts.

That ends today.

There were two big pieces of news out of Microsoft this week, both of which will affect the Microsoft brand. The first (which we covered in our most recent post) was the launch of the new operating system Windows Vista. We commented that the $500mm being spent to launch this product is wasteful and will not help Microsoft or Vista. We base this on the absurd spending levels, recent Microsoft campaigns and previous Windows launches.

We also pointed out that spending $500mm to promote a product that will get 90% market share without a cent of investment is a little batty, to say the least. It seems that Microsoft is really trying to generate excitement around the product and the company, which sounds more like a job for PR to us.

This is where the second big piece of news comes in. This week, a poll by Harris Interactive and The Wall Street Journal ranked Microsoft as the company with the best corporate reputation, ahead of perennial favorite (and our alma mater) Johnson & Johnson. What was most intriguing about this result is that one of the prime reasons for Microsoft’s huge jump in this poll is the work of the Gates Foundation. After years of being considered the ‘evil empire’, Bill Gates has single-handedly changed the image of his company in the mind of the public with his impressive and original contribution to American Philanthropy. The Gates Foundation is not only huge - it genuinely operates like a business and brings entrepreneurial smarts to big social problems worldwide (like malaria) that were not getting adequate funding and attention.

It turns out that philanthropy has been a better business proposition (in terms of corporate reputation) than the $500 million spent on the ‘People-Ready Software’ campaign last year. Ironically, we predicted this (look at the bottom of our post on People Ready Advertising here). And it makes sense that a company which enjoys a monopoly in many markets should benefit more from image-enhancement and a corporate reputation overhaul than traditional advertising.

So here is our challenge to Microsoft. Cancel the ad buys for Windows Vista. Get a microphone and hold a press conference and say that you’re giving the money to the Gates Foundation on behalf of Windows Vista. And then see what happens. We predict stratospheric media coverage, significant improvement in likeability for Microsoft and even a noticeable sales bump for Windows Vista. Yes - we’re saying this would be a good business investment.

Too much money is spent every year screaming at consumers with messages they have either already heard or do not care about. Microsoft is about to add to the din. Wouldn’t it be refreshing to see a company do something genuinely useful and see good business results for it?

We suspect Microsoft will not listen to the lonely voice of one advertising blog, but they will listen to you. If you are reading this and you blog it, the voices will accumulate and be heard. And perhaps we can do something good for everyone - including Microsoft.

Issue

Just like the Windows launches of yore, Microsoft is trying to make this a big event (remember the Rolling Stones licensing “Start Me Up” for a Windows launch as their first major sell-out to commercialism).

And this time, Microsoft is upping the ante - literally. AdAge reports that Microsoft will invest an eye-popping $500mm to support the Vista launch.

From a branding perspective, this is an obscene waste of money. Why?

1. More frequency isn’t better:
   Microsoft will overdeliver advertising to many television watchers causing ad fatigue and risking a significant backlash against the company.
2. A technology company should spend smarter:
   Instead of creating a clever viral or online campaign Microsoft is blowing the conventional media trumpet and essentially proving that it just doesn’t understand the modern consumer or the Internet.
3. Vista Will Achieve 90% Market Share with $0 Spend Anyway:
   Which makes it incredibly difficult to understand why Microsoft is advertising to begin with. This is a distribution play - Microsoft will ship Vista with every PC sold in the world in just a few months. Companies will be forced to migrate to stay in synch with the market.

Taken together, these three elements make us think that Microsoft just doesn’t understand how the terrain has shifted underneath them in the years since Windows 3.0 originally launched. Even this advertising blog knows it’s not about the operating system any more. Vista is an important release for Microsoft simply because Windows has too many security holes and is giving consumers an excuse to migrate to Apple’s OS-X. Instead of a consumer company, the Windows division of Microsoft should think of themselves as an infrastructure company. The best publicity for this division would be to ensure that the new system works seamlessly, securely and that future releases trim the fat of unnecessary features that add complexity and bleed processing power.

Steve Jobs introduced the long-anticipated Apple iPhone today to great acclaim (and a significant rise in Apple share price). You can read the play-by-play on Engadget. Jobs teased the intro by telling the audience that Apple was introducing three significant devices: a new iPod, an Apple Phone and an Internet device. The big revelation was that the three devices were actually one - the Apple iPhone.

Over the next few weeks you will read a lot of justified praise of the Apple iPhone. Most of it will focus on how it appears to out-Treo the Treo, offering full computing features in a smaller, slicker package. And there is no doubt that the organizer capabilities, e-mail and iPod (4 or 8gb) attributes justify the $499 to $699 price of the phone and represent a major step forward for the phone industry.

But we think the most important feature of that little phone might be the third part - the Internet connectivity. For the first time we’ve seen on a mobile device, web pages can be pulled down crisply and usably on the real Internet instead of a scaled-down version.

Back in 2000, we kept hearing tales of convergence, but the supposed devices that were going to bring it all together (Internet, telecommunications, video) failed to execute well. Apple under Steve Jobs has become the master of fulfilling unrealized consumer promises. iPhone finally may create the convergence that the industry has so long sought.

Two other news items from today’s MacWorld keynote address support this thought. First, Apple also introduced the apple TV device, which brings movies and video from the computer to the television. Secondly, Apple Computer changed its name to Apple, Inc.

Even five years ago the thought that a computer company with less than 10% market share would introduce the hottest mobile phone of the year would have been laughable. Now it seems almost a certainty.

It will take marketers some time to realize the implications, but it seems that the mobile Internet may become a reality for the mainstream consumer sooner than we thought.

Issue

On December 12, Taco Bell launched a print counter-offensive against the E. coli outbreak that has sickened customers in the Northeast United States, bit deeply into Taco Bell’s business nationwide and made it the butt of late night talk show jokes. As the Associated Press reports:

LOS ANGELES - Taco Bell Corp. launched a newspaper ad blitz and sent its president on a string of media interviews Tuesday to persuade customers that its food is safe — even as the cause of the E. coli outbreak linked to the fast-food chain remained a mystery.

In an open letter to customers published in USA Today, The New York Times and other newspapers, Taco Bell President Greg Creed said he would support the creation of a coalition of food suppliers, competitors, government and other experts to explore ways to safeguard the food supply chain and public health.

The executive underscored the safety mantra in media interviews, telling Associated Press Television that he had assured his daughter, a college freshman in New York, and her friends that Taco Bell food is safe.

“I can assure you, I would not tell my daughter that unless I absolutely believed it,” Creed said.

Taco Bell spokesman Rob Poetsch said the safety issue was not limited to the Mexican-style food chain.

“Based on the information we have today … we believe that this issue is not isolated to Taco Bell and that there is more need to ensure a safe food supply from the farm to the table,” he said.

This move comes before the FDA has completed its investigation of the E. coli outbreak. Dr. Dean Acheson at the FDA’s center for Food Safety told the Associated press today that lettuce was the most likely culprit (green onions having been incorrectly fingered earlier in the week but later cleared) but that the lettuce had not yet been traced back to its source.

The branding issue here is whether Taco Bell is responding appropriately to this crisis. And, more broadly, how brands ought to react to these types of crises in order to maintain brand loyalty.

On the first issue, we believe that Taco Bell may be getting ahead of itself. This is an unusual problem. As we discuss below the normal mistake that companies thrust into the media spotlight make is that they fail to respond quickly enough. The Internet and the blogosphere in particular has dramatically shortened the news cycle to the point that near-instant response is required to maintain public trust.

Taco Bell’s mistake is to announce that Taco Bell’s are ’safe to eat in’ before the FDA finishes its investigation. Why? Without knowing the exact culprit for the outbreak (although industry experts point out that the cause is often never pinpointed), Taco Bell cannot give consumers a reasonable reassurance that it will not reoccur. It is true that Taco Bell has extensively tested its food and changed produce suppliers. And it is fair to assume that contaminated produce is responsible for this outbreak. However, until Taco Bell knows the source of the E. coli, the company cannot know if the food preparation process contributed to the spread of bacteria.

This is a slippery slope. For if Taco Bell is correct that it was tainted produce that sickened consumers the sudden PR move can still backfire? Why? Because Taco Bell cannot afford a second incident and if any food handling procedures at the chain make it more likely that future outbreaks will hit Taco Bell than competitors, the chain has sealed its own coffin.

The broader question arising from Taco Bell’s misfortunes is how other companies should respond to an emerging crisis. This advertising blog recently had a chance to speak with two marketers with Earthbound Farms, who were at the center of the spinach contamination crisis earlier this Fall.

These marketers were well educated and prepared for the crisis. They recognized that the Johnson & Johnson/Tylenol case was the classic prototype for successfully handling a tainted product issue. They also knew that Kryptonite had suffered during the ‘break my lock with a Bic pen’ scandal because they did not respond quickly enough to consumer and media concerns. And they had a crisis plan in place before the crisis actually broke. What they did not realize is that even since the Kryptonite incident, the pace of media escalation has quickened considerably. Tainting scandals, particularly those involving public health, do not linger for a week or more on the back pages of newspapers before they become big news. They reach blogs instantly and those blogs are followed by television reporters. This afternoon’s FDA announcement can make CNN or Fox news by prime time.

To respond effectively to a crisis, brands need to have a plan which can be implemented in a matter of hours. It should include the following steps:

1. Accept Responsibility - Even if events subsequently prove that the brand was blameless in an outbreak or tainting scandal (think of the finger found in a Wendy’s salad which was planted by a customer, for instance), stonewalling will hurt the brand. It is far easier to act as if it is a problem you’ve created and take responsibility for making it right. If later events prove the brand was blameless, its ethical reaction to the problem will increase brand loyalty. If it was the company’s fault then the brand will retain consumers with its forthright, straighforward acceptance of responsibility.
2. Protect the Consumer - Closing restaurants or recalling the product early can limit the damage done to the brand. Stubborn refusal to immediately recall their contact lense solution almost cost Bausch & Lomb its entire ReNu franchise.
3. Find the Truth - Getting to the bottom of the problem is critical, even if it is not always possible.
4. Prevent a Replay - Tylenol returned to the market not when the person who had adulterated the product was apprehended but when Johnson & Johnson could be sure that another person could not do the same thing. This is the best standard for knowing whether its time to step back into the water, and one that Taco Bell has likely failed.

Unfortunately for many brands, financial pressure makes it hard to live by these standards. When restaurants sit empty or millions of finished products must be destroyed, short-term margins are hit hard. But without this immediate sacrifice, the ultimate price may be paid by the brand.

Issue

Even if your reading is confined to the Financial Times and the Economist, you haven’t watched TV since Upstairs, Downstairs wrapped production and the highest tech game you’ve ever played is magnetic chess, you will still have heard that Sony and Nintendo both released new videogaming consoles in the past few weeks. Sony received the major weight of the media attention. The eagerly-anticipated PlayStation 3 is not only a supercomputer-in-a-box, it is the last, best hope to revive the ailing consumer electronics giant.

After popularizing the medium a generation ago, Nintendo has become a second tier-player in the videogame space. This necessitates invention, and Nintendo has begun pursuing a strategy meant to appeal to casual gamers and families rather than the hard-core gamers who seek out the Sony PS3 and Microsoft X-box 360.

In its execution of the Wii, however, this advertising blog believes that Nintendo has mined a fundamental consumer insight long ignored by the inward-looking gaming industry. This advertising blog believes that Wii will signficantly outsell the PS3 and that it will redefine the gaming experience and force competitors to adapt.

The focus of innovation in videogame consoles has paralled the development in personal computers. That is to say that it has centered on three issues: processing speed, graphics handling capability and memory. Videogame consoles are essentially high-end graphics workstations narrowly specialized to the gaming task.

This is a very technology-centric way of defining innovation. Instead of focusing on the user experience of gaming, game makers are thinking narrowly about the audiovisual experience. They have largely ignored the human-computer interface - the game controller. These controllers have two small joysticks and a plethora of buttons. Learning to use a videogame is not much simpler than learning to drive a car for the first time - but without the same real-world benefits. The results can be observed on any game forum like IGN where the core, subscriber-only content for console-game players consists primarily of ‘cheats’ - arcane strings of button combinations which unleash special moves and abilities in videogames.

This has resulted in a horrendous mis-classification of users within the industry. Gaming considers ‘core’ or ‘hardcore’ gamers to be those who are most likely to purchase games and spend the most time on them. ‘Casual’ gamers will buy less and interact less. Core gamers for console games tend to be younger. Why? Because only they have the time and the desire to master these difficult, non-intuitive game controllers. But these kids, despite the massive marketing attention lavished on them, do not have half the spending power of older gamers in their 20’s and 30’s.

This is a classic brand strategy mis-step, and Nintendo has corrected it with the Wii. The controller resembles the household object most familiar to U.S. consumers - the television remote control. More importantly, the Wii controller is motion-sensitive, meaning that instead of using a series of button commands to get the on-screen character to throw a punch, you can just hold the controller and throw a punch.

This is a revolutionary, not an evolutionary idea, and the mainstream media is reporting on it without understanding it. The revolution is that Nintendo has turned videogaming from a pursuit which is passive physically and active mentally to one which is active both mentally and physically. Even the Wall Street Journal misses the full significance of this shift in gaming, which has radical implications for parental acceptance of videogames as well as the return of the ‘other’ core consumer - older gamers with more money than time who will no longer have to struggle to understand the controller.

The Sony Playstation 3 is a technological marvel, but like the Zoot Suit or the Dusenberg, it represents the limits of a particular evolutionary line of linear thinking. The Wii reimagines gaming and will revolutionize how consumers interact with electronics beyond gaming.

The early games on Wii are not perfect, but game designers will catch on quickly. As Wii games become more intuitive and utilize the full abilities of the controller, consumers and designers alike will begin to understand the promise of active gaming. We predict that Wii will outpace any current sales estimates and both Sony and Microsoft will soon be forced to rethink their controllers. We also believe Wii will spart a long-overdue renaissance in remote control design. Even committed couch potatoes may have something to thank Nintendo for.

Issue

Today, Steven Gray at the Wall Street Journal details Hormel’s difficulty expanding its brand into fast-growing niches including healthy and ethnic pre-packaged food. In spite of a solid product and innovative technology, (using high-pressure pasturization instead of preservatives to keep food bacteria free by literally squeezing the bacteria to death) Hormel has struggled to overcome its longtime association with Spam, the difficult-to-characterize almost-meat which is still popular in certain regions and among certain populations in the United States. Adding to Hormel’s troubles is the worry that premium food offerings will alienate core Spam consumers.

It is understandable that Hormel is seeking new markets and new consumers. There may be great reasons for a food manufacturer to diversify and serve more than a narrow slice of the consumers in the grocery store. There may even be operating efficiencies and negotiating advantages to selling more to existing customers (supermarkets and mass merchandisers). There is absolutely no reason, however, to sell these products under the Hormel name, and this advertising blog finds itself somewhat confounded that Hormel would try. Selling premium packaged meats under the Hormel name sounds a lot like bottling wine and slapping a ‘Budweiser’ label on it to us.

Hormel’s problem is simple - its brand will not extend to the new consumers it would like to serve. The solution - creating new brands to narrowly target ethnic food consumers or healthy consumers - should be obvious to any second-year MBA student. But we chose to comment on this issue because it demonstrates a common problem with seat-of-the-pants marketing efforts where most of the brand development work is put behind product and packaging.

Had Hormel spent some time and money carefully considering brand implications of its proposed expansion, it would likely have chosen to build new brands instead of risking the Hormel name. But this kind of work is often lost in the frantic excitement of new product development outside of a handful of disciplined consumer companies like Procter & Gamble. Instead, new product teams choose the seemingly risk-adverse path (using the established brand Hormel to launch new products) to avoid the immediate failure often associated with launching new brands. Instead, these brands end up creating a bigger disaster by endangering the franchises they are built upon as well as failing after launch.

Launching successful new products requires careful brand planning as well as strong product execution. Without the former, the best product in the world will not save the brand - as Hormel has learned.

Description:
Starting yesterday, Procter & Gamble’s Charmin Toilet Tissue is sponsoring free bathrooms in Times Square. The billboard promoting the sponsored restroom says, “You’re in New York. Go in style.” over the brand logo and an arrow pointing to the restroom entrance. There are 20 restrooms including two with disabled access. Each of the restrooms will be hand-cleaned by an attendant after each use. The restrooms will operate until the end of the year and the end of the holiday period.

What Works:
At first glance, the high costs of New York real estate and Times Square billboard advertising might make this experiential marketing tactic (experiential because the restrooms are stocked with Charmin toilet tissue) a risky bet. However the marquis value of Times Square combined with the publicity value of solving a genuine issue for the neighborhood and its millions of tourists (lack of access to clean, free toilets) and the goodwill of consumers makes this a slam dunk from our perspective.

More importantly, it points to an intriguing way for brands to build deeper relationships and more loyalty from their consumers. Find a social problem that fits within your area of expertise. Divert advertising money to solve this problem. Repeat.

At the moment, with temporary and very limited program, Procter & Gamble is just staging the equivalent of a pricey sampling event with good PR for Charmin. But if Procter has a good experience over the next month, the opportunities for the Charmin brand are significant. $100 million spent in advertising against the Charmin brand will boost sales, but only in the short-term. Advertising spending in mature categories with little product news tends to be a zero sum game - someone’s gain is at someone else’s loss and because brand loyalty is relatively low, there is a tremendous danger of promotional activity sparking a price war which hurts everyone’s bottom line.

Charmin as the sponsor of clean, free public toilets in places where they are hard to find nationwide would have a different profile. The brand could find intense loyalty from grateful consumers who have been spared the indignity of pleading with a surly bartender or restaurant owner and parents who might otherwise be cleaning up a bigger mess. It would also be very difficult for other toilet tissue brands to copy Charmin’s move.
What Doesn’t:
As any big-city mayor knows, great execution of public services is everything. If the Charmin bathrooms are really kept spotless and if Procter & Gamble have correctly anticipated demand and manage to avoid excessively long lines, Charmin will benefit greatly from this promotion. Bad execution will hurt the brand and damage its hard-won credibility.

A bigger problem may be the planned closing of the project just after the holiday season. The need that the Charmin restrooms are filling in Manhattan will not disappear as 2006 passes into 2007. Charmin risks consumer alienation by closing these restrooms if they are successful. This advertising blog strongly suggests Charmin rethink this policy and keep the restrooms open long enough at least to judge whether they can have a continued impact on the brand. If the answer is “yes,” Charmin should divert some money from television advertising and expand to other markets and needs.

Branding Bottom Line:
Charmin makes Time Square more friendly. Consumers are grateful.

Issue

Yesterday, Microsoft launched Zune. Zune is a music/video player which Microsoft hopes can gain a foothold against the Apple iPod. We saw the Zune in person early last week. It is a slick, attractive little device. It has an impressive screen and easy-to-use controls. It can share songs wirelessly and has integrated software. In short it is impressive. And we believe without doubt that it will fail to dislodge Apple and iPod from its leadership role in this industry.

This is not because iPod has a head start. In fact, the story of the IBM PC itself (and much more recent work on the development of the Internet) confirms that the ‘first mover’ advantage is largely mythical. The difference between Zune and the iPod is deeper - a matter of marketing philosophy. Early reviewers of Zune like Walt Mossberg and Stephen Wildstrom sense this fundamental difference between iPod and Zune without being able to put their fingers directly on it.

So what does Steve Jobs know that Steve Ballmer doesn’t? Jobs understands that it’s not about the big picture - it’s about the details. iPod is a better brand than Zune not because the product strategy behind iPod is better (by embracing sharing, Zune may have the better business model), but because the attention to details is superior. Microsoft as a company believes in bringing innovation to the consumer as soon as possible. This comes with flaws, bugs and glitches, but the company makes a conscious tradeoff between degree of done-ness and time to market. Apple doesn’t release products until it believes it has perfected them to the smallest detail. Such is Apple’s obsession with detail that they have invented new manufacturing processes in order to make working products mirror their idealized concepts in execution.

You could say that this is micromanaging and it undoubtedly is. Did the second-generation iPod Nano really need an aluminum skin? No. Did the iMac need to be sheathed in transparent plastic? Certainly not. And yet it is just these details that make the product original and authentic.

Microsoft follows a different path and that is evident with Zune. The case is elegant, but larger than the iPod. The online store creates an intermediate currency “Microsoft points” which have a strange exchange rate with the dollar and seem to do nothing more than add a level of complexity to the process of purchasing music for the Zune. WiFi sharing works easily, but shared songs expire after three plays. And on and on. While each of these foibles is the result of a well-meaning compromise (the sharing issue is a compromise on protection for copyrighted music, for instance), they are clearly compromises and they compromise the design and usability of the Zune.

What Steve Jobs knows that we don’t is that we care more about the small details than the big issues. We love things that feel right, that reward us with an easy and engaging user experience. We cue on small things to build our opinion about the big issues. Most of all, we like things that work 100% at advertised. Even 99% feels like not half as much.