Elyn's MIT Sloan Branding Blog

[elynrodriguez-blog]

The New Consumer Era: Co-Creating Brands - The Chobani Story

Since 1965, the “old” consumer era has edged closer and closer to what will ultimately be a demise. What was this era? And why do we talk about it? The old consumer era was “characterized by a shift from advertising and marketing focused on the product to getting into the heads and hearts of the consumers.” Data was scarce and undervalued, but “intuition” (think: Don Draper) was plentiful and overvalued. What has changed? In a word: information. Given the advent of social media and the ubiquity of information, consumers are raising the bar. They are setting their own expectations for the brands they like. They are expressing their preferences for products: traditional, idiosyncratic, or somewhere in between. And more importantly, companies can quantify these preferences (and hopefully, capitalize on them). We are at the dawn of a new era, with the new, digitally savvy consumer, one who wants a personal and trusting relationship with his or her brands.

Source: GIPHY

Food manufacturers in the U.S. like Kraft, Heinz, Mondelez and Kellogg are not immune to the dawn of this new consumer era. For the longest time, the food sector was largely immune to volatility and changes in consumer perceptions. Annual sales for food used to be predictable, at around 1% per annum (roughly in line with population growth). In addition, market shares of the big players (#1 or #2) were deeply entrenched, because the retailers only wanted to stock brands that were proven and could maximize their physical shelf space allocation. Furthermore, and perhaps most importantly, the cost of national TV advertising was prohibitive for small or nascent brands, often ranging from $10-100 million for a credible campaign.  In some categories like cereals, manufacturers spent 5% of their sales in advertising spend on a yearly basis. No wonder these legacy brands have been able to preserve their legacy for the longest time!

However, the consumer and the playing field has radically changed––in fact the internet, mobile technology, social media and e-commerce have evened the playing field in favor of smaller brands, or better said, brands with a purpose––brands that resonate with consumer and are authentic (in other words, brand that “go viral” in a positive way).  

A clear example of this is Chobani Greek yogurt.  Fage, the first Greek yogurt in the US, had existed in the country since 1998, but Greek yogurt was only 1-2% of overall yogurt sales (although in Europe, it was a more significant portion). In 2005, Hamdi Ulukaya bought a cheese plant in Upstate New York and began making Chobani yogurt. In less than two years, the product hit the shelves in a few local retailers and the rest is history.

The company grew to $1 billion in revenue in less than 5 years (an astronomical and unprecedented feat). Greek yogurt now represents a whopping 45-50% of the yogurt category in the US. Dominant players in the yogurt category, Danone and General Mills had to introduce “copy-cat” versions of Greek into the market to keep up with the trend.  In the past, innovation for the incumbents included low fat and high sugar versions of yogurt that had become unpopular with consumers, even if they did not know it. This kind of change rarely happens in the food world, which is considered a slow-moving, or sleepy sector.

But to can we attribute Chobani’s enormous success? I’d say a few key things: 1) using “word of mouth” as a way to spread the benefits of a product; 2) standing by the company’s mission: “better food for more people”; 3) starting local; and 4) caring about their employees––“happy employees, mean happier customers.”  In addition, the digital world was an enormous boon to the company; more and more consumers began to post online and organically create brand awareness for the company. Chobani did not rely on advertising to gain its market position, but when it started advertising, it created ads that went beyond the products’ attributes – a notable campaign focused on the Olympic sponsorship - #nobadstuff campaign (see below). While the commercial had broadly positive messages from its core consumer base, some “haters” used the tagline and spun it in a negative way. Like #McDStories, #nobadstuff might still be considered too broad a tagline. The lesson learned here is that while social media can have tremendous potential for a brand, it is important to consider that we live in an era where brands and messages are co-created with consumers.

More and more food companies are relying on digital advertising as a means to spread their message, especially given that it is much more affordable and in-tune with today’s consumer. It is clear from Chobani that while we have new era with a consumer that wants trust and authenticity – taste and quality remain equally important. It is too early still to call all winners and losers in the Food aisle, however, in yogurt, Chobani is a clear one in our view!

[elynrodriguez-blog]

American Well: Deciding What Not To Do

Start too early, and you add too much complexity

Start too late––and you’ll never catch your competitors

American Well has tried to bring online solutions to the notoriously complicated U.S. Healthcare system (see below for one artist’s comical rendition of hospital waiting times). The value proposition sounds simple: online solutions streamline an otherwise inefficient doctor-patient process, and let physicians enjoy quick access to electronic health records and more. Most importantly, given the ubiquity of the internet, American Well’s platform can bring medical consultation to geographically isolated or underserved areas. Hawaii was the company’s first market.  Minnesota was a second potential market.  By late 2009, American Well was still practically in a start-up phase; the company eventually decided to target insurance companies as potential customers.

American Well had identified other market opportunities, including hospitals (emergency rooms), pharmacies, and other healthcare provides. While opportunities in other delivery network markets were attractive, American Well needed first to clearly define its strategy––and to decide what not to do. If it pursued these other segments, without first establishing its credibility with insurance companies (its first core customer base), the company risked problems with retaining any future customers. Another challenge with marketing to varied groups at the outset was that it would involve multiple different marketing campaigns. This would require high spending, and would also risk diluting the company’s brand, and potentially cannibalizing its product offerings.

Given this, we would suggest that the company first focus on establishing the original American Well strategy in the U.S., before moving to other markets, including international markets. (International markets also add another layer of complications as the company’s name “American Well” would have to be rebranded to tailor each individual market.)

Once American Well has reached critical mass, we see “Team Edition” as the most promising next new market opportunity for the company.  The basic premise of the Team Edition was that “once a PCP determined that a consultation with a specialist was in order, the PCP would be able to log on to the system and reach out to any of the specialists who were available online.” Going back to Roger’s 5 Factors for product adoption and diffusion, the “Team Edition” platform ranks well, especially among younger consumers.

Relative Advantage: HIGH – Under the current system, a patient is required to go to a PCP, get a referral for a specialist, wait for a few weeks or months to get an appointment with the anesthesiologist, urologist, dermatologist, etc…, go to the specialist, make another appointment to have a follow-up appointment to the PCP––only to get another referral.  In comparison, an online system that could pool specialists and PCP’s and bring them to the safe virtual “waiting room” would be like magic (or, more like matching excess demand with excess supply). This could have the advantage of saving months of bureaucracy!

Compatibility: MEDIUM – If a patient is already using the American Well platform with their insurer, adding the Team Edition is an added bonus, so there are likely to be zero compatibility issues. However, if a patient does not use an online platform, compatibility with their current routine might prove difficult as it might be a leap too far to go from physical medical visits to virtual ones.

Complexity: MEDIUM – It also depends on the target consumer. For younger, more tech savvy generations, including Millennials, having an online platform to visit their specialist is almost an expectation in a well-connected virtual world, so the complexity of using the system is likely low. However, for older generations, which are less tech savvy and are becoming a bigger part of the population (and more often than not, need more healthcare than younger generations), learning how to use a new online system can be quite complex. In an extreme, this generation might consider the product to be “phony” and might not trust it.

Trialability: HIGH – Given its online platform, once it is established, the system is likely to be fairly easy to test. If a patient has a positive experience, then he/she saved a lot of time in dealing with bureaucracy; if not, the cost to the patient is not high and the patient can go back to the traditional system.

Observability: LOW – Unless one hears from friends and acquaintances that they have used American Well or their Team Edition, it would be difficult to know how or why someone might access the American Well system. Other than traditional advertising, word of mouth would be a primary diffusion tool; observability is low.

Based on this assessment, we would conclude that the Team Edition product would be an extension to the basic American Well platform; as the case mentions, it would “alleviate some of the greatest frustrations” in the health care system. However, as mentioned in several points above, it is more likely to be popular among younger consumers who (1) don’t have the time or energy to deal with the more current bureaucratic system; (2) are able to quickly adopt the technology needed to adopt the system; and (3) don’t need a physical examination as part of their treatment. As such, American Well needs to cleanly define its strategy for its primary consumer and cater the benefits via a specific marketing campaign.

 Source: Pinterest

[elynrodriguez-blog]

Alive, Dead, or Somewhere in Between? “Brand Manifold” and Kellogg’s Experiment with Kashi

When we think of brands, it’s easy to imagine something that is immovable: a fixture, an icon, or an everlasting image or idea. Doesn’t that define a brand? After all, aren’t “brands” permanent?

In a word – no. Turns out, not even close. Brands are like plants. Treat them with care, nurture them, and be prepared to help them adapt them as climates shifts. Do that, and they’ll live––and thrive! But leave them alone? They die or even worse, are no longer relevant.

A “brand manifold” is a concept that describes brands as living things that can change and hold different meanings to different people (multi-constituency) over time (inter-temporal).  In addition, the framework of a brand manifold suggests that brands are multidimensional and created by both marketing agents, as well as the consumers that enjoy using them. Furthermore, “brands are embodied by products that are enacted by customers and other participants in a process that managers only partially control.”  The concept that managers only have partial control over the evolution of their brands is an extremely important idea, as it suggests that the change in what brands represent over time may be as unpredictable as the weather.

In my work in as an equity research analyst covering the food sector (including consumer companies like Mondelez, Campbell Soup, Kraft-Heinz, Kellogg and Nestlé), I learned about the importance of “brand-building” as a tool to create shareholder value. One of the brands that we studied in-depth, especially given the rise of health and wellness in the food space was Kellogg’s Kashi – a producer of whole grain cereals and snack foods.

Kellogg acquired Kashi back in 2000 and used its established distribution network to grow the brand from $25 million in sales in 2001 to ~$500mil in 2009 – clearly a brand success. Kashi had impeccable credentials in the health and wellness areas and a loyal following among health conscious consumers.

In 2012, however, awareness of genetically modified ingredients (GMO) began to increase leading up to the GMO-labelling ballot in California later in the year. A Rhode Island newspaper posted a sign that read:

The story went viral. Given that is core consumers were so health conscious, the story had tremendous impact on the brand’s reputation; Kashi’s sales floundered as more and more consumers boycotted the brand and demanded transparency. Whether GMOs are actually scientifically harmful for you or not was not important; what was important for many consumers is that a health brand had not mentioned that it had GMOs and claimed to be “clean” and “good for you.” The company was not able to anticipate this consumer reaction and was slow to act. In addition, even though Kellogg had made an effort to keep Kashi as a separate brand – likely to decouple it from more sugary brands, Frosted Flakes, Choco Krispies and Froot Loops – after the GMO debacle, Kellogg did not know what to do with Kashi.  

At one point in 2013, Kellogg transferred Kashi’s headquarters from La Joya, California, where it was started, to Battle Creek, Michigan,  Kellogg’s main headquarters. Kellogg thought that the move would have given Kashi further access to resources such as R&D. Did it happen? Nope. Instead, the brand lost its independence and its entrepreneurial streak.  For the more loyal customers, the move could have meant that Kashi had completely folded into Kellogg and that it no longer could deliver on its promise of being natural and healthy, especially given the association with the broader Kellogg house.

Kellogg finally announced that it was returning Kashi’s headquarters to its original location in California only a year later after its decision to move.  In the meantime, health conscious consumers were gravitating to other health brands such as Kind snack bars and Kashi kept losing market share. Per Euromonitor, Kashi’s sales are down 20% from its peak of $500 million to ~$400 million today.

This is an example of how a brand can lose its meaning to consumers. Given its health and wellness appeal, Kashi was poised to succeed as the market demanded more health conscious offerings. However, internal managers of the brand “rested in their laurels” and failed to anticipate changing consumer trends that would have a profound impact on the brand.  As of the summer of 2016, all of Kashi’s products are Non-GMO Project verified – almost 4 years after the initial Rhode Island story.  Given rapidly changing consumer needs and the close relationships between brands and consumers, corporations should be careful to identify and take part of a brand’s story both from the inside and the outside, especially in an age where “going viral” can harm a brand’s reputation.

[elynrodriguez-blog]

Singapore Airlines: A Focus on Class, Customer Service and Continuous Improvement as Branding Strategies

In the last few years, it seems that airline travel has gone from bad to worse – a true “race to the bottom” as airlines aim to bolster profit.  The economy class has lost leg space, airlines are introducing an economy minus class with no frills, getting a full can of Coke is a dream and in the last few weeks, a passenger was forced out of his seat by security per the most recent United Airlines debacle. Something clearly needs fixing.

The airline industry has high fixed costs, relatively low barriers to entry, is subject to cyclicality and has very few opportunities for differentiation, leading to low profitability and ROIC.  As a result, airlines are looking to “squeeze” each seat for the most profit – a common practice is to make the economy class as bad as possible to force the “marginal” consumer who cannot stand the low quality of service to upgrade to the more lucrative business or first class seat.  (And in all fairness the now much-maligned airlines, this sort of makes economic sense). In fact, per the Singapore Airlines case, even though they are small in number, business and first class passengers account for roughly half of the airlines revenue! Most airlines seem to sacrifice the experience of the economy passenger to serve the business passenger. And that strategy isn’t baseless.

Singapore Airlines (SIA) is a clear outlier and one of the very first airlines to prioritize and democratize customer service across all classes. Singapore Airlines has a maniacal focus on customer service and reinvention that has transcended through time and is likely symbolized by its “Singapore Girl” advertisements that have not really changed over time – portraying an image of class and sophistication with a hint of exoticism. The competitive advantage of SIA is its culture and customer centric focus that is hard to imitate. As an executive put it: “The company culture is very important. It feeds upon itself, reinforces itself. It is sort of a virtuous circle, much like reputation. It has a halo effect…I’ve always said there is no point passing along our manual for cabin service to other airlines because it is not going to help them very much. It’s our culture.”  

 But how is this virtuous circle reinforced? Below is an “activity system” for SIA that maps how a series of commitments and strategies reinforce SIA’s competitive advantage – and has guaranteed the company’s above industry average profits over time. The company relies on three key pillars and accompanying activities:

As seen above, SIA’s integrated network of activities has helped reinforce its brand reputation as a premium and customer-centric airline. The company has consistently ranked #1 in customer satisfaction surveys – the airline has ensured that its system allows for customers to be impressed every time, even if they already have high expectations coming in given the airline’s well-known brand promise. This premium service has increased customer loyalty over time, especially among the higher margin business travelers, which is imperative for an industry with high competition. This is a key reason why SIA has been far more profitable than other competitors are. As a final step in its virtuous circle of growth, SIA reinvests much of its profits back into its fleet, training and amenities – it does not rest on its laurels.

With this backdrop, back in 2001, it seemed like a no-brainer to install the “spacebed” for the business class segment. SIA had a reputation of constant innovation to maintain– it could not afford to stay behind any other competitor. That said, it might have been a harder sell back then, in the middle of an industry crisis.

[elynrodriguez-blog]

Concha y Toro: People Get Drunk on Perception Not Reality When It Comes to Wine

I grew up in San Salvador, El Salvador and I can say this much – whenever an occasion called for a fancy bottle of wine (think high school graduation or engagement party), most people opted for a foreign brand. Why? For better or worse, the perception was that foreign wines (or more specifically, Old World wines) were far better than any “local” (e.g., Latin American or New World) alternatives. Even less expensive European wines were seen as “higher end” than almost any of their counterparts from either Central or South America. And if you’re a Chilean wine manufacturer with global ambitions like Concha y Toro––that is a problem for you, because when it comes to wine––people drink perception, not reality.  The Berlin Tasting is an example of this –  “blinded” consumers actually picked Chilean wines as the best based on quality – however, if “not blinded”, consumers would typically pick the more traditional French, Italian or Spanish wines as the best based on perception or “common knowledge.”

To this end, the “Made in” label is of utmost importance for wine consumers––as people associate brands with different growing regions (Bordeaux, Chianti, Napa, e.g.) and different quality.  On one extreme, European wines were considered the best, but Chilean and South African ones were considered up and coming, but of lesser quality. This is important for Chinese consumers who drink wine as a social and affluence statement.  Chilean wines are known for being “good value for money”, so Concha y Toro faced an uphill battle when trying to penetrate the Chinese and perhaps other international markets that have a growing middle class hungry for brands that “speak for themselves” and are synonymous with wealth and high quality.

Given that wine means different things to different people in different countries (e.g. fun, relaxation, status, friendship), Concha y Toro’s best international strategy might be to cleanly segment the market based on perceptions.

In the U.S., where distribution is such an important driver of success (e.g. think Grupo Modelo’s Corona’s success in the U.S.), a bottoms-up approach might be the best play.  Concha y Toro could leverage its value reputation to gain clout with a consolidated distribution base with its value wines Frontera and Sunrise. More importantly, given that distributors in the U.S. often impose price discounts, Concha y Toro would not be well served if it introduced its premium wines as a first offering, as they could lose their prestige if they are placed on the discount bin too often. Beyond traditional distributors, Concha y Toro could work directly with retailers like Kroger, Whole Foods and Wegmans to position its wine offerings.  Once a solid relationship with distributors has been established, the company could introduce its higher end, higher margin wines such as Concha y Toro, and accompany the launch with an advertising campaign to change perceptions among consumers. Furthermore, having a variety of offerings (e.g. across prices and wine types) could be important as wine consumers are not considered brand loyal and often seek to gain wine knowledge by trying different variations.

In a market like China, however, where it could be more difficult to dissociate oneself from a “cheap” reputation, Concha y Toro’s best approach might be to use a “top-down” strategy. The company could introduce its finest offerings, including Casillero del Diablo, Almaviva and Marques de Casa Concha using blind-test advertising (similar to Berling tasting) and let consumers discover Concha y Toro’s wine quality for themselves.  Getting celebrity advertising on board could also be a sound strategy to associate the brand with a “premium” status. Looking for some advertisements for the brand, I found a joint commercial between Concha y Toro and Manchester United. While Manchester United is clearly European, soccer is an international sport with broad diffusion, so Concha y Toro could be trying to be “European” or of “fine taste” by association, which is clearly something that could appeal to international consumers, including the highly coveted and affluent Chinese consumer.

[elynrodriguez-blog]

Corona vs. Heineken: “People Don’t Drink Beer, They Drink Marketing”

Using its Corona beer, Mexico’s Grupo Modelo had the ambitious goal of overtaking Heineken as the #1 imported beer in the biggest beer market in the world: the U.S. in the late 1990s.  At the time, it seemed like a pretty lofty goal, especially given that Heineken’s worldwide shipments were ~893 million cases vs. Modelo’s 321 million in 1996.

To a cursory observer, it didn’t merely look like Grupo Modelo was trying to punch above their weight. It looked like they were a high school JV soccer team that had somehow found their way into a match with Real Madrid.  How did it play out in reality? The high school JV soccer team won in the long-term. What did Grupo Modelo do?

There were several reasons for their success. Corona’s strong sales team, good point of sale promotions, a strong product, reliable pricing and perhaps most importantly, a consistently appealing advertising campaign helped the company achieve success in the U.S., even despite several brand image rumors aimed at tarring the brand’s image. In 2015, per Euromonitor International, Corona Extra has a 4.3% volume share of the U.S. beer market vs. Heineken’s 2.0% volume share. An increase in the Hispanic population in the U.S. undoubtedly helped propel the brand’s success, but advertising played a major role.

Grupo Modelo’s Corona is widely known for its creative and possibly rebellious “Fun, Sun and Beach” advertising.  In the U.S. specifically, the image of the wedged lime for flavor has become so prevalent that even a clear bottle with a lime inside is a symbol for Corona (please see ad below).  In the minds of consumers, a Corona is a symbol of escapism, vacation and fun. Advertising has reinforced this perception and brand image – minimalist images of a refreshing clear bottle of beer in a beautiful, sandy beach in Mexico evoke a feeling of adventure and exoticism. Furthermore, advertising also supported a message of “drinkability” and “unpretentiousness.” This consistent image across advertising campaigns together with the dependable “fresh” flavor of the beer has reinforced the premium positioning that Modelo aimed to create in the United States.  Furthermore, Corona is an imported beer from Mexico, so it is not surprising that it would appeal to the rapidly growing Hispanic consumer in the United States – in a way the beer is a symbol of home and friends.

By contrast, Heineken, the #1 imported beer in the United States in the late 1990’s, is generally known for tradition. Rooted in its Dutch values, the beer’s green color and red star packaging is unmistakable. Consumers often considered the brand a traditional, well-known, establishment brand.  Given its long standing and proud origins and history in the United States, Heineken’s distributors dismissed the entry of Corona in the market as a fad, and continued to emphasize their own product quality in their advertisements. Furthermore, advertising focused on messaging such as “just being the best is enough” which reinforced the perception of quality, but also likely was a symbol of arrogance in consumers’ minds.  Heineken’s biggest vulnerability was that it was the establishment brand, which could appear stale, especially given the entry of “more exciting” players such as Corona and changing demographics in the U.S., including younger consumers looking for adventure and bold flavors.  In the late 1990’s a shift in focus back to the Heineken’s high quality rather than an attack to newcomers would have been a better way to go.

It is interesting to note that more recently in the U.S., the market taste for more imported beers and new flavors, which propelled the stardom of Corona in the 1990s and 2000s is currently lifting the “craft beer phenomenon”, which represents a threat to more established brands like Heineken and Corona itself. Younger, sometimes more affluent consumers, are looking for new flavors and tastes.  Advertising will likely remain a key differentiator going forward, because as Heineken’s Michael Foley put it: “People don’t drink beer, they drink marketing.”  To this end, Corona has more recently (temporarily) shifted away from its beach tradition to appeal to unity among all Latin Americans, especially given the backdrop of the U.S. elections. The Latino consumer in the U.S. will undoubtedly remain a core one for the brand. The video is below.