AMK attempts to learn

This blog documents Andrew's thoughts, musings, and opinions on branding.

[amklearns]

Printing (Social) Currency for Better World Books

Better World Books relies on socially conscious consumers - those who use their consumption to enact social or environmental change. As one of the founding B-Corporations in the United States, Better World Books made the choice early on to have its social mission be integral to its business, reflecting the convictions of the company’s founders. Yet despite the growth of conscious consumers, especially among the millennial generation, Better World Books cannot simply rely on the fact that consumers are willing to make purchasing decisions based on altruistic, social compassion. After all, when problem is so large, it’s difficult to see how any individual actions or decisions can produce a useful result. Humans tend to focus on the here and now, brushing aside longer term issues. (see more here: http://voices.mckinseyonsociety.com/how-to-turn-consumers-green/)

Better World Books must not rely on the fact that enough educated consumers will inherently feel compelled to support its business model. Instead, in order to grow, the company should take cues from behavioral economics to motivate consumers. One key insight that Better World Books should leverage is that consumers want to feel good about themselves and look good in front of others; unsurprisingly, humans are influenced by social pressure. Indeed, companies like TOMs and Ethos Water have benefited from the very public nature of their product. Their customers typically use the products (shoes and bottled water) in public, and thus are able to signal to their peers that they are a conscious consumer, accruing social currency. On the other hand, the products that Better World Books sells (used books) are completely undifferentiated. No one is able to distinguish between a textbook purchased from Better World Books with one purchased from the campus bookstore, and there lacks social incentive to consume from the B-Corporation. 

As Better World Books looks ahead and seeks growth, it should develop branding to differentiate its products from competitors, leveraging social currency to motivate its consumers’ purchasing decisions. Perhaps a visible sticker on book covers or a large bookmark can be included with every purchase. By doing this, Better World Books can appeal to not only those who are inherently socially conscious consumers, but also those who aspire to give off the impression that they are socially conscious consumers. 

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Thanks in large part to its own marketing success, Intel is largely associated with being a manufacturer of chips that go inside computers. However, with PC sales stagnating at best and declining at worst, Intel is faced with the challenge of diversifying its brand. In this 2016 commercial, the company hopes to announce to its customers that Intel is inside much more than just PCs. But to what end? Beyond raising awareness of its prevalence throughout the tech industry, Intel will need to convince its audience that its brand is worth paying more for, or at least worth actively seeking. But with niche markets like artificial hands and high-end sound equipment addressed in the commercial, it’s unclear whether Intel is actually trying to target those sectors for revenue potential. Rather, according to Intel’s VP-global creative director, the company is demonstrating how its brand has evolved beyond just being a chip manufacturer to one that creates “amazing human experiences.” (http://adage.com/article/cmo-strategy/intel-spent-a-year-campaign/302188/). This may be all well and good, but having consumers associate Intel with a number of cutting-edge technologies is not enough. Because Intel is merely a component of products and not the end product itself, it must convince customers that having “Intel inside” is a differentiating factor. A strong and useful brand must leverage its brand association to create actual value. With computers, there was a clear association between the “Intel inside” and superior performance with the PC. And consumers were motivated to react to this association by upgrading their machines or demanding that OEMs included Intel components. As Intel looks to expand and diversify beyond PCs, they will need to again translate the brand association with a clear action from its customers that will deliver value to the company.

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The lure of licensing

In the 1990s, Burberry was struggling. The brand had numerous licensees across its product lines and regions, leading to inconsistent quality and brand dilution. Burberry products were being sold in retail environments inconsistent with luxury brand proposition. In addition, Burberry struggled to combat counterfeits. Ultimately, the brand became overly mainstream, lacking the sophistication and clear consistent message necessary for a luxury brand.

A driving force behind Burberry’s issues was its generous licensing practices. The company did not adequately exercise control over its licensees, leading to inconsistencies in the design, price, and quality of its products in local markets. The problem was exacerbated through parallel trading. By the 1990s, the majority of Burberry’s products were made under license or sold through distributors (See HBS Case “Burberry in 2014″).

It’s easy to Monday Morning Quarterback and criticize Burberry’s liberal licensing policies prior to Rose Bravo, and applaud her for repairing the brand. Yet we must appreciate how gutsy this decision must have been. In Spain, Burberry walked away from a licensing deal that accounted for £200 million worth of revenue, but that was hurting the overall brand (See HBS Case “Burberry in 2014″). In 2000, licensing accounted for about 14% of the company’s total revenues. And licensing probably came with low costs - after all, Burberry essentially was getting paid for simply lending out its name/brand, so operating profits on this 14% of revenue was likely very high. Burberry’s 2008 financials demonstrate that licensing had an operating profit of 84%, compared to just 15% for retail/wholesale. And yet remarkably, by 2015, licensing accounted for under 3% of the company’s revenue (See Annual Report 2015). Indeed, moving away from licensing - the most profitable segment of the business - was a huge risk for the company. Last December, I had the privilege of speaking to Donald Kohler, President of Burberry America, and he confirmed that it was an incredible risk the company took to shift away from licensing, which had been generating Burberry steady flows of relatively low risk (at least in the short term) revenue and profits.

So while it is relatively easy to look back, commend Bravo’s efforts and wonder why other brands do not replicate (here’s looking at you, Ralph Lauren and your Green Label!), it’s important to at least imagine the tense conversations going on within Burberry’s inner walls as Bravo was looking to move away from licensing. Walking away from licensing, which represented so much revenue and profits, in the name of a nebulous concept called “brand image” must not have been easy.

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Building Distinct Brands

Brands can be powerful tools. A brand signals a promise, a commitment to a certain level of quality. A good brand can be akin relationship between a customer and the company, one that evolves and matures together. Knowing this potential impact, companies spend considerable resources developing and managing their brands to the point where “brand architecture” has become an important area of study and consideration. 

Yet what good is an architecture if the brands under this architecture are not strongly differentiated? Last November, Burberry announced that it would be unifying its three brands under a single brand - simply, “Burberry.” CEO Christopher Bailey explained: “We believe this will make it simpler and more intuitive for our customer.” Prior to this announcement, Burberry had three brands in a Branded House with Different Identity architecture - Burberry Brit, Burberry London, and Burberry Prorsum. Having these three brands aimed to extend Burberry’s reach to a wider spectrum of audience, from those who typically shop at Prada to those who more likely shopped at Brooks Brothers. Yet while the styles and meaning behind the three lines may have been clear to Burberry itself, the brands were confusing and lacked distinction in the customer’s mind, as Bailey hinted at. As such, the company could not fully leverage the potential power behind the sub-brands. “Burberry” had much stronger associations and gravitas than “Burberry Brit” or “Burberry Prorsum.” A key lesson from this, then, is that when considering and managing brand architectures, it is vastly important to ensure that each of the brands is distinct, not just from the company standpoint but from the customers’ perspective.

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Personalized Luxury

In the case, “Singapore Airlines: Customer Service Innovation,” one insight strongly stood out: “In the early 1990s, top-tier customers wanted to be treated consistently on every flight, whereas a decade later they desired individual pampering.”

This assessment appears to be true today as well. Indeed, studies have shown that millennials and customers as a whole are preferring experiences to “things.” (See articles such as this and this) One practical ramification is that customers prefer things like luxury travel over a designer bag. Another contemporary trend is that consumers prefer choice and customizability, even at fast food restaurants (see this). These trends hint that top-tier customers today prefer customized “pampering” that focuses more on service/experiences than physical amenities. Intuitively, this should make sense. When SPG surprises my family member (who has Platinum status with the hotel chain) with a ice cream cake (his favorite kind) for his birthday, it doesn’t really matter which bakery the treat came from, or even how amazing the cake tastes - what matters is that the staff realized it was his birthday and knew he specifically loved ice cream cake.

So as Singapore Airlines considers its lie-flat seatbeds in Raffles Class, it should not forget the importance of personalized service. Sure, the seatbeds appear to be a vastly superior product to standard seats and can allow Singapore Airlines to catch up to British Airways. But at the end of the day, the arms race for “best business/first class offering” looks to be a never ending battle that will escalate costs. Singapore Airlines can instead refocus on its competitive and defendable advantage of superior customer service. Singapore Airline is not merely a transportation company; it brands itself as a unique travel experience, and perhaps receiving a firm, down-alternative pillow that perfectly suits my tastes from a graceful, elegant flight attendant will easily suffice.

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If a fine wine pours from a mislabeled bottle, does it taste good?

Seeing a wine label easily prejudices one’s opinion on the quality of the wine. Study after study, and blind tasting after blind tasting have demonstrated the effects that mental perceptions have on a wine. Michael Broadbent, esteemed British taster, admitted: “A sight of the label is worth fifty years’ experience. A cynical truism, for what an impressionable lot we are! Even the most disciplined taster is biased by the mere glimpse of a label, even the shape of the bottle.” (Taber, A Toast to Bargain Wine, p. 6).

Indeed, reputation of a label is vastly important in the competitive wine market. So how does a winery build its reputation? While a innocent answer might be to produce consistently high-quality wine that utilizes the best grapes from the best terrior, combined with a skilled winemaker, a more pessimistic view would be to invest heavily in marketing and branding. After all, in order to get a wine rated highly by publications, it needs to first be submitted and tasted by the appropriate wine critics. Similarly, you can bet that wines featured in magazines such as Wine Enthusiast were heavily marketed to appropriate points of contact. Another way to build a brand is through scarcity. Wineries like Screaming Eagle in Napa Valley have perfected this model, gaining fame for creating ultra-rare, ultra-expensive Cabernets that can only be ordered if you are on their “shortlist.” 

So in considering companies like Concha y Toro, my suggestion would be to create a good-enough product, figure out the target demographic and brand positioning, and market the heck out of it. In industries such as tech, where product attributes and benefits can be objectively compared, companies like Google can initially prioritize building the best product rather than the best brand, (e.g. Google hung its merits on building the best search engine, not on its fun colorful colors). On the other hand, wine is so much more subjective, and winning the market entails successful, strategic branding. Concha y Toro should invest heavily in its marketing functions (as long as the product quality is sufficient enough), perhaps associating its brand with specific events such as weddings. Marketing is king; not product.

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Tesla Motors Inc. 's Elon Musk said worldwide pre-orders for the newly announced Model 3 electric car hit 276,000 during the weekend.

Just days after announcing its Model 3, Tesla Motors has received nearly 300,000 pre-orders for its first attempt into the mass-market automobile segment. With a starting price of $35,000, the Model 3 is about half the cost of Tesla’s previous starting price point for its Model S. And while electric cars have slowly penetrated the auto market (e.g. Nissan Leaf), the 276,000 pre-orders is a staggering number for a new car in a relatively nascent market. Examining the Tesla Model 3 under the lens of Rodgers’ Five Factors for innovation adaption demonstrates why the car may be so compelling.

Relative advantage - from a performance an design standpoint, the Model 3 is superior to existing electric vehicles, and the price point / value is also perceived as being better than what’s available on the current market.

Compatibility - the Model 3 does not depart from the traditional form factor or function of a car, and is thus congruous with consumers’ expectations of what a vehicle stands for. Moreover, moving away from dependence on petrolium oil is consistent with the trends of the 21st century.

Complexity -  Elon Musk claims that the Model 3 will have futuristic “spaceship” - like steering controls and will not have a traditional dashboard and instrument cluster. In some ways, the Teslas is quite complex, but given its reputation for cutting-edge technology, this complexity is not necessarily a negative.

Trialability - Like most auto manufacturers, Tesla offers consumers the ability to test drive before purchasing. However, the Model 3 is not expected to enter production until late 2017, so trialiability is non-existent for these preorders.

Observability - Once launched, observability will be fairly high for the Model 3. Tesla cars are elegantly-designed and can be perceived as a status symbol for those into automobiles and technology.

Given the above analysis, it’s not surprising that the Model 3 appears to have very fast diffusion.  

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Corona - La Cerveza Mas Fina

Plastered across every distinctive Corona glass bottle is the tagline: la cerveza mas fina. Without knowing a lick of español, one can likely hazard an accurate guess at what Corona is looking to convey. And, in case the message wasn’t clear enough, Corona states on the bottle that the beer is made in Mexico. Indeed, Corona strongly associates itself with its Mexican identity, and this branding is carried through its marketing and advertising. Under the advertising theme of “Fun, Sun, Beach” Corona consistently portrayed itself as the beer associated with relaxing on a beach - likely in Mexico. Furthermore, Corona used its ties to its country of origin to direct its marketing and sales strategies, as it initially focused on regions that bordered Mexico or had a significant population of Hispanics. By strongly associating itself with Mexico, Corona is able to leverage themes tied to the country: fun, unpretentious, approachable, and elements of both relaxation and fiesta. Unlike other beer brands that look to edgy campaigns that may be borderline risqué or alienating to certain demographics (e.g. Bud Light’s #upforwhatever campaign), Corona maintains a consistent, simple to understand, and safe brand.

Heineken, on the other hand, is more difficult to understand. As fellow classmate Naina mentions in her blog post, it’s somewhat difficult to conjure up a readily recognizable Heineken ad campaign. Rather than associating its brand with the Netherlands or a particular lifestyle, Heineken instead focuses on product quality, emphasizing that it’s a great beer. Yet despite changing ad agencies and marketing executives, Heineken has been unable to clearly distinguish its brand and has maintained a position squarely in the middle of the “bell curve of consumer communication” - in short, its messaging has been forgettable. 

It would be interesting to see Heineken take a page out of Corona’s playbook and more strongly identify itself with its country of origin. The Netherlands has a relatively strong brand association, ranging from the lively Amsterdam nightlife to serene Dutch windmills. Also important is that Dutch products are largely seen as high quality and artisanal - attributes that work in Heineken’s favor, especially given the trend toward craft beers. While “de beste bier” may not be as catchy as “la cerveza mas fina,” it sure sounds more memorable than “just being the best is enough.”

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Trading Up: Black and Decker’s struggle to capture professional segments

Black & Decker’s struggles in the fast growing Professional-Tradesmen segment of the U.S. Power Tools Market is unsurprising. In many ways, the brand is cursed by its own success in the mass Consumer market, where its hand-held vacuums, irons, and coffee makers penetrates households across America. This success has created strong brand equity for Black & Decker - in fact, an independent survey showed the company’s brand-strength ranking to be ranked #7 in the United States. Yet with this strong brand comes strong brand associations that are difficult to dislodge. According to the case, one tradesman’s remarks epitomizes the disconnect between Black & Decker’s consumer brand and its attempts to appeal to professional tradesmen: “...Black & Decker makes a good popcorn popper, and my wife just loves her Dustbuster, but I’m out here trying to make a living...” While translating a brand across market segments may be inherently difficult, Black & Decker’s struggles are compounded by several factors, including: 1) its distribution strategy 2) its lack of color differentiation and 3) its nearly monolithic brand structure.

Black & Decker household products are commonly found at retailers such as Wal-Mart and Kmart. These retailers are not specialized and typically do not seek to exude a professional-caliber brand. For example, while Wal-Mart sells items ranging from cutlery to sweaters, aspiring chefs and fashionistas are much more likely to visit speciality retailers, such as a Sur La Table for knives and a Ralph Lauren for clothing. By distributing heavily through mass retailers, Black & Decker is faced with collateral damage to its brand in that tradesmen may not treat the brand seriously when considering options for their professional needs.

Additionally, the color choice of Black & Decker tools reinforces the lack of seriousness that may be attributed to the brand’s professional tradesmen tools. Consumer grade tools across nearly all brands are black or charcoal grey, which also happens to be the color choice of Black & Decker’s professional grade tools. Thus, Black & Decker’s professional grade tools are marred by its color association. As one tradesman stated, “...On the job, people notice what you’re working with...if I came out here with one of those Black & Decker gray things, I’d be laughed at.” Other brands, including Makita, smartly avoid this color association by differentiating their professional grade tools with colors such as teal (Makita).

Finally, Black & Decker maintains a mostly monolithic brand structure; from the outside, Black & Decker appears as one brand across its various market segments. Though the company does have separate logos for its professional-industrial and professional-tradesmen segments, the Black & Decker logo remains prominent, as seen below:

As such, the company does little to distance itself from the strong associations of its mainstream, consumer products. 

With these factors in place, it’s unsurprising that Black & Decker struggles to gain a foothold in the professional-tradesmen segment. Sub-branding the tradesmen line, coupled with a defining brand color and strategic distribution channels can help the company overcome its challenges in dethroning Makita.

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Emerging Foodie Scene in Cuba?

I recently came across an article (http://www.splendidtable.org/story/a-writer-explores-cubas-burgeoning-food-scene) that discussed the burgeoning food scene in Cuba. Tragically, as Cuba became isolated from much of the world during the Cold War and after the collapse of the Soviet Union, Cuba lost up to 85 percent of its imports. This paralyzed the country’s ability to maintain and grow its food culture.

Promisingly, the food scene in Cuba shows signs of rebounding, with recent restrictions on privately owned restaurants being loosened. With new restaurants being opened and new cuisines being introduced, it will be interesting to follow how behavioral economics will play a role in shaping the role of food in Cuban society. Can marketing and branding of specific cuisines or foods inject a renewed spirit of creativity or entrepreneurship? Is there a unique opportunity to define what constitutes luxurious delicacies versus commonplace food items? 

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Introduction

Welcome to the blog! I’m extremely excited to be a part of MIT Sloan’s “A Tale of Two Countries: Applying Behavioral Science to Emerging Economics (Cuba and Trinidad & Tobago).” Beyond the obvious allure of being able to visit both Caribbean countries, I’m glad for the opportunity to dive deeper into behavioral science.

One particular aspect of behavioral science that intrigues me most is the subconscious effects that pricing has on consumers. In class, we discussed how price anchoring relates to shopping patterns. Anchoring bias can have significant effects on how a consumer perceives pricing, since it establishes the terms on which a decision will be made. A savvy salesperson can introduce a high price for a used car, for example, only to lower it subsequently to make the buyer feel as though he is getting a good deal that is far below the initial asking price. Perhaps more subtly, combing anchoring bias with choice sets can have powerful results. Professor Gosline explained how given a choice of three glasses of wine - $9, $11, and $15 - those who knew little about wine would avoid the $9 and gravitate toward the $11. Consumers fear picking an inferior product and rely on signals (in this case, price) that may indicate quality. While I’d like to consider myself enough of a oenophile to know that price does not necessarily indicate quality in wine, I certainly can relate to this bias when shopping for products like light bulbs and batteries: I avoid the inexpensive store-brand one and typically pick something in the mid-price range.

In my career, I am interested in seeing whether effective behavioral science can help shift consumer mindsets in the retail industry. Retail has been in a cycle of escalating markups coupled with perpetual “sales.” Because consumers are so used to getting a deal and buying things on discount, retailers have responded by increasing markups so that they can turn right back around and have a markdown. According to the WSJ, “the number of deals offered by 31 major department store and apparel retailers increased 63% between 2009 to 2012″ and big box retailers like JC Penny who tried to buck this trend failed miserably. Yet increasingly, new players in the e-commerce space are trying this no-sale approach and hoping to educate consumers along the way.  Many of these companies (e.g. Warby Parker, Everlane, DSTLD, Casper) eliminate the “middlemen” (i.e., retail) and go direct-to-consumer, with the value proposition that consumers won’t have to play the retail markup game and instead get an everyday value for high-quality items that typically are marked up 7-8 times through retail channels. Will the rise of these companies be enough to challenge the behaviors of consumers, who are so accustomed to sales? How can retailers convince their customers that they are receiving a good value without anchoring at a high price point? I’m fascinated to explore this issue further throughout the course and apply learnings to address relevant issues facing Cuba and Trinidad and Tobago.

- AMK