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: Taco Bell handles an E. coli outbreak
Commentary by: David

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: Why the Nintendo Wii is a big idea
Commentary by: David

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: Hormel has trouble expanding into upscale food
Commentary by: David

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.

Brand: Charmin (Procter & Gamble)
Execution: Experiential Marketing
Target: New York Visitors
Rating: *****
Reviewer: David

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: Microsoft introduces Zune
Commentary by: David

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.

Brand: Scion (Toyota)
Execution: TV, In-Theater, Viral, Web
Target: Young, Hip & Driving
Rating: *****
Reviewer: David