Stop the Trend Toward Commoditization!
February 1, 2003
Many have speculated that leading brands aren't what they used to be. They've gradually lost their power and succumbed to lowly, price-driven commodity status. We tended to agree with the speculation, but even we were disturbed by what we found when we investigate further.
In our study, "The Commodization of Brands and Its Implications for Marketers," we looked at 48 product and service categories-from credit cards to beer, brokerages to long-distance telephone services-and found that consumers can't see differences between major brands. Of the 48 categories, only four were becoming more distinct: political parties, religions, soft drinks, and soap. Note that two of these categories-political parties and religions-are not even product and service categories! Brands were holding their own in four categories, but in the remaining 40, brands were becoming increasingly similar.
As a result, more and more of consumers buy products based solely on price. In 28 out of 37 categories, consumers indicated low price was more important than brand name when making a purchase. It seems the days where brands commanded such loyalty that consumers purchased them without first checking prices are long gone.
Marketers are Killing the Brands in Their Care
How can this be happening, you might ask, especially given all the attention paid to branding these days? We find that many executives today mouth the words "brand building" or "increasing brand equity," while simultaneously killing the brands under their care. Today brand homicide is as common as brand creation. In many companies, MBA stands for "Murder of Brand Assets."
Marketing managers are cutting prices to make this quarter's numbers, trimming quality to reduce costs, or making strategic marketing decisions based on hope, intuition, dotty thinking, and even dottier research (i.e. focus groups). As a result, few marketing programs work as well as they could or should. Take advertising for example. The average advertising campaign offers only a 1-4% rate of return. MMA, a marketing measurement firm, found that for every $1 packaged goods marketers spend on TV advertising for established products, they get just 60-cents back.
Marketing should be the engine that drives growth, but at too many companies it has thrown a rod.
The Counterintuitive Approach
You don't build a great brand through finance, information technology, manufacturing, or logistics. You do it through marketing-counterintuitive marketing, that is.
To build successful brands while your competitors turn their brands into commodities, start with a five-step process:
Step 1: An Inspirational Vision
Most companies state their objective, but a challenging objective, though a key component of a vision, is not the same as vision. A vision is a hope, a goal, a dream; it incorporates the values of a company (or entrepreneur), and it implies a benefit for customers. A powerful vision looks outward-or the company is in trouble. A vision statement expresses the end. It expresses what the company wants to be in the future.
The vision must be exciting, even inspirational, to all the company's stakeholders: investors, the general financial community, employees, suppliers, current customers, potential customers, reporters, your spouse-everyone. The vision must be so big, so bold, and so ambitious that expressing it-never mind executing it-has a transformational effect. The company starts to become what it wants to be. The dream and the reality fuse.
Step 2: A Transformational Strategy
A transformational strategy is one so strong, so powerful, that it changes product categories, career paths, and even entire companies. And as marketing guru Phil Kotler continues to tell us, "To get it right the first time, the most important steps are targeting and positioning. If you nail these two components of strategy, everything else follows."
Targeting is perhaps the single most important element in a marketing plan, yet most companies have a fuzzy market target, usually based on one, maybe two, characteristics, such as purchase behavior or demo/corpgraphics. But there is no reason to believe automatically, a priori, and without research that heavy buyers - or any other group for that matter - are a great target.
A counterintuitive approach to targeting begins with hypothesizing hundreds-and perhaps thousands-of combinations of variables, and testing them to see which ones are related to current and potential profitability. Further analysis using statistical tools and evaluation of solutions are required, but if you follow this approach to segmentation, the end result will be a set of proprietary customer segment your competitors don't even know about and a clear indication of which group represents the financially-optimal target.
Step 3: Model-Based Marketing Planning
Ask a marketing manager how they know if they do all the things outlined in their annual marketing plan that they will achieve their sales objectives, you'll get a blank stare. They think it's a trick question. That's because, at most companies, there is no relationship between marketing plan inputs and outputs. Senior management hands down a sales objective based on personal judgment rather than market realities, and the marketing team hopes and prays the plan they put together will work.
It doesn't have to be this way. A counterintuitive approach to marketing planning employs empirically based mathematical models that "understand" the connections between each market input and output in a category. With this approach, you can say, "If we impact this target with this kind of positioning and with this level of advertising, we can expect to achieve this level of sales." And you will!
Step 4: Obsessive Implementation
Even if you develop solid marketing strategies and plans, a big problem today is that they're not implemented. In fact, the more people you put on the implementation team, the less likely the plan is to be executed as planned. Everyone has their own ideas about what the company should do, so slowly but surely, the original marketing plan disintegrates.
Obsessive implementation is absolutely essential to bringing a strategy to life in the real world. We recommend companies develop a research-based implementation process to assess conformity to strategy and plans, particularly advertising. We think of advertising as the canary in the mineshaft. Because canaries' lungs are small, if there were any toxic gases in a mine, the bird would drop dead, and miners knew to turn back. Likewise, if creative executions fail to reflect the intended strategy, you know you are headed for implementation trouble right away.
Step 5: Performance Metrics
Finally, companies need to closely monitor execution to keep the program on strategy. Keep in mind that a good monitoring system not only tells you how you are doing, but also what to do. It should be able to tell you within a weeks of a plan launch if you are on track to achieve sales and every other type of objectives, and if not, why not-and we're talking specifics here-so you can make changes immediately.
Companies can longer afford to make the same marketing mistakes over and over again. Average performance is no longer acceptable. Today, marketing is as much a science as it is art. They key is to balance intuition with rigorous analysis of unimpeachable data. By taking a counterintuitive approach to marketing, you can market successful brands while your competitors go out of business selling commodities.
"Cunterintuitive Marketing: Build Great Brands While Your Competitors Commoditize" Kevin Clancy. February 2003.