Each Monday I post the next section of my 2001 book, which was originally called (by the publisher) Hoover’s Vision but which I have now retitled The Art of Enterprise. I have posted over half of it already; click on the “Monday” column to see all the prior sections. The entire book can be downloaded as a PDF for $10 at http://www.scribd.com/doc/25085990/The-Art-of-Enterprise-by-Gary-Hoover-January-2010

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32 Customer Focus – Innovation and Branding

Companies and industries sometimes forget about the customer, giving precedence instead to the whims of Wall Street, the demands of operations, the limitations of systems, or the perks of management. This is when alert, service-oriented enterprises find opportunities. Two of the areas to review closely in looking at an industry or company are innovation and the establishment of brands.
Many industries are not innovative from the customers’ point of view. Even as manufacturing, the back office, and the technology of operations take giant leaps forward, the customer is left behind. Despite e-commerce, cell phones, computer capabilities, and the Internet, some parts of our lives have not changed in years. The experience of getting your car serviced or cashing a check at a bank is fundamentally the same today as it was twenty years ago.
Innovative industries have high rates of experimentation and offer the consumer many options. Does this description fit your industry?
 

Branding

Companies touch customers most effectively through the establishment of a unique, differentiated identity – a brand. Yet there remain many “brand wastelands”—industries where no great brand exists.
Perhaps you can recall when many of today’s branded industries had no major brands, or only weak ones. For example, when I was growing up, the leading brand of rubber-soled footwear was US Keds, a secondary division of tire company US Rubber. Among serious basketball fans, the Converse brand carried high recognition. But strong branding in this business did not really take off until the great Nike-Reebok wars of the 1980s.
Some companies have been around for a long time but have only recently become household words. A good example is United Parcel Service, founded in 1907 and bearing the UPS name since before World War II. We always knew they were around, but only with the coming of the Internet and the rise of e-commerce have they really penetrated the awareness of consumers as a great American brand.
Companies rising to the top of their fields have especially strong impact when their field is also growing in prominence. Even if Nike had existed in the 50s, being number one in sneakers would probably not have meant much in terms of total dollars and social and psychological awareness. Few remember the name of the largest cruise line in 1950, since relatively few people took cruises then. Today, Carnival has carved out a dominant position in an industry that is becoming significant. If they manage their brand well enough to maintain or enhance their position, the company’s long-term upside could be staggering. Being the largest maker of software for personal computers in 1981 implied a garage-sized business at best. Today we call it Microsoft. As a category grows in size, its leading names also grow in impact.
Note that a brand name is not really meaningful if it has no strong connotation in the mind of the consumer. If Random House were to try to market a book as being “From the publisher who brought you James Michener,” it probably wouldn’t work; readers have no clear image in their minds as to what a “Random House book” is like. Similarly, Twentieth Century Fox probably can’t market its movies with the line, “From the folks who brought you Titanic,” since most movie-goers associate that movie’s success more with the “brand names” of director James Cameron or stars Leonardo DiCaprio and Kate Winslett. On the other hand, Disney has established a meaning (quality animation) in the minds of movie-goers.
Extending this logic, I would make the case that CBS, NBC, and ABC, while very powerful and interesting companies, have not succeeded in creating brand names. When you think of NBC TV, what do you think of? Probably nothing that is dramatically different or special compared with the other two, at least nothing that lasts more than a season or two.
Thirty years ago, the CBS of Walter Cronkite was a brand in the news business, but that unique prestige is long gone. Rather than strengthen it, build on it, and extend it to other CBS News products, they let it dissipate and vanish. (Similarly, Sears was once a differentiated retailer in auto parts, tools, and appliances. Today, like CBS, Sears is still a player, but it is no longer the player.) By contrast, MTV, ESPN, HBO, and CNN are clearly defined leadership brands. Even when under siege (as CNN is today, given Fox News’s strong challenge), they are still perceived as the ones to beat.
In the future, business categories will continue to rise and fall in relative importance, and with them the dominant brands. Media (information and entertainment) will become more and more important. But the components will shift – video games and video rentals are already as large as movie ticket sales. Health, financial services, education, and travel will grow dramatically. At some point in the future, categories like these will generate more revenue and employ more people than many industries that were once much larger. Not only will travel become bigger than manufacturing, but even segments like “adventure travel” or “bed and breakfasts” will grow into major industries in their own right. Mutual funds, investment management, adult education, and many other niches will become larger than even some of today’s biggest industries.
As a result, new industry leaders and great new brand names will be created. Ten years ago, no one had heard of Amazon.com. Today, Jeff Bezos adorns the cover of Time magazine. Today’s largest private for-profit higher-education enterprise is the Apollo Group, which operates the University of Phoenix. On a global scale, few have heard of the University of Phoenix and even fewer have heard of Apollo. But in fifty years, whoever is on top of this industry, or any of its key segments, will be as well known as Amazon is today.
At the same time, many prominent brands of today will fade and vanish. As I write, we are about to lose Oldsmobile and TWA, two of the greatest names in transportation history. We have already lost brands as varied as Woolworth’s, Ward’s, NationsBank, McDonnell-Douglas, and Columbia Records.
In looking at branding, keep in mind that brands can be especially durable if they really connect with the customer, if they have some emotional content. In other words, “the pause that refreshes,” “think different,” or “just do it” are more likely to stand the test of time than “since 1876” or “low low prices everyday.” Simple technical or economic devices are easier to copy than cachet, prestige, or beauty. Would you rather own the Mercedes name or the Hyundai name?
It’s especially hard for complex or diversified enterprises to manage brands. Keeping many varied brand names strong at the same time is a real challenge. Look at General Motors, which started the post-war period with some of the strongest brands in the world. Today, many of those brands are floundering. Chevrolet has little meaning outside of trucks and Corvettes. The people entrusted with the former automotive gold standard, Cadillac, don’t know whether to introduce trucks or sports cars – so they’re doing both. And as we’ve noted, Oldsmobile is already heading for the scrap heap. Only Pontiac and Buick have maintained their brand power.
As a result, the company as a whole has a vague and uncompelling image. If you work for General Motors, who do you work for? A sporty company, an aggressive company, a luxury company? The people who work at such well-branded companies as Wal-Mart, Dell, Nike, Coca-Cola, and Southwest Airlines have no such questions in their minds. And neither do their marketing planners and strategists.
Most successful diversified companies let each brand stand as an independent entity insofar as possible. Procter and Gamble, a master at maximizing the value of competing brands, is famous for this. The Head and Shoulders brand manager and the Pert Plus brand manager may carpool together on the way to P&G headquarters in Cincinnati, but they don’t plan their marketing together. They see each other as different as they see Unilever or Revlon. They just know that the P&G competitor will be especially tough. They’re careful to keep their own brand images clear, crisp, and distinct.
Perhaps you are in charge of a brand, whether it’s Joe’s Service Station or Pontiac, Sheraton or Fidelity. Will your brand be one that rises to prominence among its competitors, or one that’s left in the dust?
 
In the preceding pages, we’ve considered some of the most important principles for analyzing any industry and the enterprises that make it up. We’ve learned that studying any industry should begin with using the most powerful definition of that industry. We’ve learned about how important it is to understand the role played by the industry in the overall economy–yesterday, today, and tomorrow—as well as the structure of the industry and how it is changing. Most important, we’ve learned to look at how effectively the industry serves the customer through innovation and the establishment of powerful brands.
With these concepts in our toolkit, we’re ready to take a look at a few of today’s most interesting, largest, and fastest-growing industries. I hope the analysis that follows will provoke some ideas for the study of your own industry and your own enterprise. 


     

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