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HarvardBusinessReview

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The series is designed to bring today’s managers and professionals thefundamental information they need to stay competitive in a fast-moving world. From the preeminent thinkers whose work has definedan entire field to the rising stars who will redefine the way we thinkabout business, here are the leading minds and landmark ideas thathave established the Harvard Business Review as required reading forambitious businesspeople in organizations around the globe.

Other books in the series:

Harvard Business Review Interviews with CEOs

Harvard Business Review on Advances in Strategy

Harvard Business Review on Brand Management

Harvard Business Review on Breakthrough Leadership

Harvard Business Review on Breakthrough Thinking

Harvard Business Review on Business and the Environment

Harvard Business Review on the Business Value of IT

Harvard Business Review on Change

Harvard Business Review on Compensation

Harvard Business Review on Corporate Governance

Harvard Business Review on Corporate Strategy

Harvard Business Review on Crisis Management

Harvard Business Review on Culture and Change

Harvard Business Review on Customer Relationship Management

Harvard Business Review on Decision Making

Harvard Business Review on Effective Communication

Harvard Business Review on Entrepreneurship

Harvard Business Review on Finding and Keeping the Best People

Harvard Business Review on Innovation

Harvard Business Review on Knowledge Management

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Other books in the series (continued):

Harvard Business Review on Leadership

Harvard Business Review on Managing High-Tech Industries

Harvard Business Review on Managing People

Harvard Business Review on Managing Diversity

Harvard Business Review on Managing Uncertainty

Harvard Business Review on Managing the Value Chain

Harvard Business Review on Measuring Corporate Performance

Harvard Business Review on Mergers and Acquisitions

Harvard Business Review on Negotiation and Conflict Resolution

Harvard Business Review on Nonprofits

Harvard Business Review on Organizational Learning

Harvard Business Review on Strategies for Growth

Harvard Business Review on Turnarounds

Harvard Business Review on Work and Life Balance

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Copyright 1999, 2000, 2001Harvard Business School Publishing CorporationAll rights reservedPrinted in the United States of America06 05 04 03 02 5 4 3 2 1

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The Brand Report Card 1

Bringing a Dying Brand Back to Life 25

How to Fight a Price War 41 . , . ,

Contextual Marketing: The Real Business of the Internet 69 .

The Lure of Global Branding 87 .

Are the Strategic Stars Aligned for YourCorporate Brand? 109

Torment Your Customers (They’ll Love It) 127

Boost Your Marketing ROI withExperimental Design 143

About the Contributors 165

Index 171

Contents

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The Brand Report Card

Executive Summary

MOST MANAGERS RECOGNIZE the value in buildingand properly managing a brand. But few can objectivelyassess their brand’s particular strengths and weaknesses.Most have a good sense of one or two areas in whichtheir brand may excel or may need help. But, if pressed,many would find it difficult even to identify all the factorsthey should be considering.

To give managers a systematic way to think abouttheir brands, Tuck School professor Kevin Lane Kellerlays out the ten characteristics that the strongest brandsshare. He starts with the relationship of the brand to thecustomer: The strongest brands excel at delivering thebenefits customers truly desire, he says. They stay rele-vant to customers over time. Pricing truly reflects con-sumers’ perceptions of value.

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Keller then moves on to consider marketing strategyand implementation: Strong brands are properly posi-tioned. The brand stays consistent. Subbrands relate toone another in an orderly way within a portfolio ofbrands. A full range of marketing tools are employed tobuild brand equity.

Finally, he looks at management considerations:Mangers of strong brands understand what the brandmeans to customers. The company gives the brand propersupport and sustains it over the long term. And the com-pany consistently measures sources of brand equity.

By grading a brand according to how well itaddresses each dimension, managers can come up witha comprehensive brand report card. By doing the samefor competitors’ brands, they can gain a fuller under-standing of the relative strengths of their own brands inthe marketplace.

B brand equityhas become a priority for companies of all sizes, in alltypes of industries, in all types of markets. After all, fromstrong brand equity flow customer loyalty and profits.The rewards of having a strong brand are clear.

The problem is, few managers are able to step backand assess their brand’s particular strengths and weak-nesses objectively. Most have a good sense of one or twoareas in which their brand may excel or may need help.But if pressed, many (understandably) would find it diffi-cult even to identify all of the factors they should be con-sidering. When you’re immersed in the day-to-day man-agement of a brand, it’s not easy to keep in perspectiveall the parts that affect the whole.

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In this article, I’ll identify the ten characteristics thatthe world’s strongest brands share and construct a brandreport card—a systematic way for managers to thinkabout how to grade their brand’s performance for each ofthose characteristics. The report card can help you iden-tify areas that need improvement, recognize areas inwhich your brand is strong, and learn more about howyour particular brand is configured. Constructing similarreport cards for your competitors can give you a clearerpicture of their strengths and weaknesses. One caveat:Identifying weak spots for your brand doesn’t necessarilymean identifying areas that need more attention. Deci-sions that might seem straightforward—“We haven’tpaid much attention to innovation: let’s direct moreresources toward R&D”—can sometimes prove to beserious mistakes if they undermine another characteris-tic that customers value more.

The Top Ten Traits

The world’s strongest brands share these ten attributes:1. The brand excels at delivering the benefits cus-

tomers truly desire. Why do customers really buy aproduct? Not because the product is a collection ofattributes but because those attributes, together with thebrand’s image, the service, and many other tangible andintangible factors, create an attractive whole. In somecases, the whole isn’t even something that customersknow or can say they want.

Consider Starbucks. It’s not just a cup of coffee. In1983, Starbucks was a small Seattle-area coffee retailer.Then while on vacation in Italy, Howard Schultz, nowStarbucks chairman, was inspired by the romance andthe sense of community he felt in Italian coffee bars and


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coffee houses. The culture grabbed him, and he saw anopportunity.

“It seemed so obvious,” Schultz says in the 1997 bookhe wrote with Dori Jones Yang, Pour Your Heart Into It.“Starbucks sold great coffee beans, but we didn’t servecoffee by the cup. We treated coffee as produce, some-thing to be bagged and sent home with the groceries. Westayed one big step away from the heart and soul of whatcoffee has meant throughout centuries.”

And so Starbucks began to focus its efforts on build-ing a coffee bar culture, opening coffee houses like thosein Italy. Just as important, the company maintained con-trol over the coffee from start to finish—from the selec-tion and procurement of the beans to their roasting andblending to their ultimate consumption. The extremevertical integration has paid off. Starbucks locations thusfar have successfully delivered superior benefits to cus-tomers by appealing to all five senses—through theenticing aroma of the beans, the rich taste of the coffee,the product displays and attractive artwork adorning thewalls, the contemporary music playing in the back-ground, and even the cozy, clean feel of the tables andchairs. The company’s startling success is evident: Theaverage Starbucks customer visits a store 18 times amonth and spends $3.50 a visit. The company’s sales andprofits have each grown more than 50% annuallythrough much of the 1990s.

2. The brand stays relevant. In strong brands, brandequity is tied both to the actual quality of the product orservice and to various intangible factors. Those intan-gibles include “user imagery” (the type of person whouses the brand); “usage imagery” (the type of situationsin which the brand is used); the type of personality thebrand portrays (sincere, exciting, competent, rugged);

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the feeling that the brand tries to elicit in customers(purposeful, warm); and the type of relationship it seeksto build with its customers (committed, casual, sea-sonal). Without losing sight of their core strengths, thestrongest brands stay on the leading edge in the productarena and tweak their intangibles to fit the times.

Gillette, for example, pours millions of dollars intoR&D to ensure that its razor blades are as technologi-cally advanced as possible, calling attention to majoradvances through subbrands (Trac II, Atra, Sensor,Mach3) and signaling minor improvements with modi-fiers (Atra Plus, SensorExcel). At the same time, Gillettehas created a consistent, intangible sense of productsuperiority with its long-running ads, “The best a mancan be,” which are tweaked through images of men atwork and at play that have evolved over time to reflectcontemporary trends.

These days, images can be tweaked in many waysother than through traditional advertising, logos, or slo-gans. “Relevance” has a deeper, broader meaning intoday’s market. Increasingly, consumers’ perceptions of acompany as a whole and its role in society affect abrand’s strength as well. Witness corporate brands thatvery visibly support breast cancer research or currenteducational programs of one sort or another.

3. The pricing strategy is based on consumers’ per-ceptions of value. The right blend of product quality,design, features, costs, and prices is very difficult toachieve but well worth the effort. Many managers arewoefully unaware of how price can and should relate towhat customers think of a product, and they thereforecharge too little or too much.

For example, in implementing its value-pricing strat-egy for the Cascade automatic-dishwashing detergent


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brand, Procter & Gamble made a cost-cutting change inits formulation that had an adverse effect on the prod-uct’s performance under certain—albeit somewhat atyp-ical—water conditions. Lever Brothers quickly coun-tered, attacking Cascade’s core equity of producing“virtually spotless” dishes out of the dishwasher. Inresponse, P&G immediately returned to the brand’s oldformulation. The lesson to P&G and others is that valuepricing should not be adopted at the expense of essentialbrand-building activities.

By contrast, with its well-known shift to an “everydaylow pricing” (EDLP) strategy, Procter & Gamble did suc-cessfully align its prices with consumer perceptions of itsproducts’ value while maintaining acceptable profit lev-els. In fact, in the fiscal year after Procter & Gambleswitched to EDLP (during which it also worked very hardto streamline operations and lower costs), the companyreported its highest profit margins in 21 years.

4. The brand is properly positioned. Brands that arewell positioned occupy particular niches in consumers’minds. They are similar to and different from competingbrands in certain reliably identifiable ways. The mostsuccessful brands in this regard keep up with competi-tors by creating points of parity in those areas wherecompetitors are trying to find an advantage while at thesame time creating points of difference to achieve advan-tages over competitors in some other areas.

The Mercedes-Benz and Sony brands, for example,hold clear advantages in product superiority and matchcompetitors’ level of service. Saturn and Nordstrom leadtheir respective packs in service and hold their own inquality. Calvin Klein and Harley-Davidson excel at pro-viding compelling user and usage imagery while offeringadequate or even strong performance.

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Visa is a particularly good example of a brand whosemanagers understand the positioning game. In the 1970sand 1980s, American Express maintained the high-profile brand in the credit card market through a seriesof highly effective marketing programs. Trumpeting that“membership has its privileges,” American Express cameto signify status, prestige, and quality.

In response, Visa introduced the Gold and the Plat-inum cards and launched an aggressive marketing cam-paign to build up the status of its cards to match theAmerican Express cards. It also developed an extensivemerchant delivery system to differentiate itself on the

basis of superior conve-nience and accessibility.Its ad campaigns show-cased desirable locationssuch as famous restau-rants, resorts, and events

that did not accept American Express while proclaiming,“Visa. It’s everywhere you want to be.” The aspirationalmessage cleverly reinforced both accessibility and pres-tige and helped Visa stake out a formidable position forits brand. Visa became the consumer card of choice forfamily and personal shopping, for personal travel andentertainment, and even for international travel, a for-mer American Express stronghold.

Of course, branding isn’t static, and the game is evenmore difficult when a brand spans many product cate-gories. The mix of points of parity and point of differencethat works for a brand in one category may not be quiteright for the same brand in another.

5. The brand is consistent. Maintaining a strongbrand means striking the right balance between continu-ity in marketing activities and the kind of change needed

Maintaining a strong brandmeans striking the rightbalance between continuityand change.


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to stay relevant. By continuity, I mean that the brand’simage doesn’t get muddled or lost in a cacophony ofmarketing efforts that confuse customers by sendingconflicting messages.

Just such a fate befell the Michelob brand. In the1970s, Michelob ran ads featuring successful young pro-fessionals that confidently proclaimed, “Where you’regoing, it’s Michelob.” The company’s next ad campaigntrumpeted, “Weekends were made for Michelob.” Later,in an attempt to bolster sagging sales, the theme wasswitched to “Put a little weekend in your week.” In themid-1980s, managers launched a campaign telling con-sumers that “The night belongs to Michelob.” Then in1994 we were told, “Some days are better than others,”which went on to explain that “A special day requires aspecial beer.” That slogan was subsequently changed to“Some days were made for Michelob.”

Pity the poor consumers. Previous advertising cam-paigns simply required that they look at their calendarsor out a window to decide whether it was the right time

to drink Michelob; by themid-1990s, they had to fig-ure out exactly what kindof day they were having aswell. After receiving somany different messages,

consumers could hardly be blamed if they had no ideawhen they were supposed to drink the beer. Predictably,sales suffered. From a high in 1980 of 8.1 million barrels,sales dropped to just 1.8 million barrels by 1998.

6. The brand portfolio and hierarchy make sense.Most companies do not have only one brand; they createand maintain different brands for different market seg-ments. Single product lines are often sold under different

Boundaries are important.Overlapping two brandsin the same portfolio canbe dangerous.

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every purse and purpose.” This philosophy led to the cre-ation of the Cadillac, Oldsmobile, Buick, Pontiac, andChevrolet divisions. The idea was that each divisionwould appeal to a unique market segment on the basis ofprice, product design, user imagery, and so forth.Through the years, however, the marketing overlapamong the five main GM divisions increased, and thedivisions’ distinctiveness diminished. In the mid-1980s,for example, the company sold a single body type (the J-body) modified only slightly for the five different brandnames. In fact, advertisements for Cadillac in the 1980sactually stated that “motors for a Cadillac may comefrom other divisions, including Buick and Oldsmobile.”

In the last ten years, the company has attempted tosharpen the divisions’ blurry images by repositioningeach brand. Chevrolet has been positioned as the value-priced, entry-level brand. Saturn represents no-hagglecustomer-oriented service. Pontiac is meant to be thesporty, performance-oriented brand for young people.Oldsmobile is the brand for larger, medium-priced cars.Buick is the premium, “near luxury” brand. And Cadillac,of course, is still the top of the line. Yet the goal remainschallenging. The financial performance of Pontiac andSaturn has improved. But the top and bottom lines havenever regained the momentum they had years ago. Con-sumers remain confused about what the brands standfor, in sharp contrast to the clearly focused images ofcompetitors like Honda and Toyota.

7. The brand makes use of and coordinates a fullrepertoire of marketing activities to build equity. At itsmost basic level, a brand is made up of all the marketingelements that can be trademarked—logos, symbols, slo-gans, packaging, signage, and so on. Strong brands mixand match these elements to perform a number of

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brand-related functions, such as enhancing or reinforc-ing consumer awareness of the brand or its image andhelping to protect the brand both competitively andlegally.

Managers of the strongest brands also appreciate thespecific roles that different marketing activities can playin building brand equity. They can, for example providedetailed product information. They can show consumershow and why a product is used, by whom, where, andwhen. They can associate a brand with a person, place, orthing to enhance or refine its image.

Some activities, such as traditional advertising, lendthemselves best to “pull” functions—those meant to cre-ate consumer demand for a given product. Others, liketrade promotions, work best as “push” programs—thosedesigned to help push the product through distributors.When a brand makes good use of all its resources andalso takes particular care to ensure that the essence ofthe brand is the same in all activities, it is hard to beat.

Coca-Cola is one of the best examples. The brandmakes excellent use of many kinds of marketing activi-ties. These include media advertising (such as the global“Always Coca-Cola” campaign); promotions (the recenteffort focused on the return of the popular contour bottle,for example); and sponsorship (its extensive involvementwith the Olympics). They also include direct response(the Coca-Cola catalog, which sells licensed Coke mer-chandise) and interactive media (the company’s Web site,which offers, among other things, games, a trading postfor collectors of Coke memorabilia, and a virtual look atthe World of Coca-Cola museum in Atlanta). Through itall, the company always reinforces its key values of “origi-nality,” “classic refreshment,” and so on. The brand isalways the hero in Coca-Cola advertising.


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8. The brand’s managers understand what thebrand means to consumers. Managers of strong brandsappreciate the totality of their brand’s image—that is, allthe different perceptions, beliefs, attitudes, and behav-iors customers associate with their brand, whether cre-ated intentionally by the company or not. As a result,managers are able to make decisions regarding the brandwith confidence. If it’s clear what customers like anddon’t like about a brand, and what core associations arelinked to the brand, then it should also be clear whetherany given action will dovetail nicely with the brand orcreate friction.

The Bic brand illustrates the kinds of problems thatcan arise when managers don’t fully understand theirbrand’s meaning. By emphasizing the convenience ofinexpensive, disposable products, the French companySociété Bic was able to create a market for nonrefillableballpoint pens in the late 1950s, disposable cigarettelighters in the early 1970s, and disposable razors in theearly 1980s. But in 1989, when Bic tried the same strategywith perfumes in the United States and Europe, theeffort bombed.

The perfumes—two for women (“Nuit” and “Jour”)and two for men (“Bic for Men” and “Bic Sport forMen”)—were packaged in quarter-ounce glass spraybottles that looked like fat cigarette lighters and sold forabout $5 each. They were displayed in plastic packageson racks at checkout counters throughout Bic’s exten-sive distribution channels, which included 100,000 or sodrugstores, supermarkets, and other mass merchandis-ers. At the time of the launch, a Bic spokespersondescribed the products as logical extensions of the Bicheritage: “High quality at affordable prices, convenient topurchase and convenient to use.” The company spent$20 million on an advertising and promotion blitz that

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featured images of stylish people enjoying the perfumesand used the tag line “Paris in your pocket.”

What went wrong? Although their other products didstand for convenience and for good quality at low prices,Bic’s managers didn’t understand that the overall brandimage lacked a certain cachet with customers—a criticalelement when marketing something as tied to emotionsas perfume. The marketers knew that customers under-stood the message they were sending with their earlierproducts. But they didn’t have a handle on the associa-tions that the customers had added to the brandimage—a utilitarian, impersonal essence—which didn’tat all lend itself to perfume.

By contrast, Gillette has been careful not to fall intothe Bic trap. While all of its products benefit from a simi-larly extensive distribution system, it is very protective ofthe name carried by its razors, blades, and associated toi-letries. The company’s electric razors, for example, usethe entirely separate Braun name, and its oral care prod-ucts are marketed under the Oral B name.

9. The brand is given proper support, and that sup-port is sustained over the long run. Brand equity mustbe carefully constructed. A firm foundation for brandequity requires that consumers have the proper depthand breadth of awareness and strong, favorable, andunique associations with the brand in their memory. Toooften, managers want to take shortcuts and bypass morebasic branding considerations—such as achieving thenecessary level of brand awareness—in favor of concen-trating on flashier aspects of brand building related toimage.

A good example of lack of support comes from the oiland gas industry in the 1980s. In the late 1970s, con-sumers had an extremely positive image of Shell Oil and,according to market research, saw clear differences


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between that brand and its major competitors. In theearly 1980s, however, for a variety of reasons, Shell cutback considerably on its advertising and marketing. Shellhas yet to regain the ground it lost. The brand no longerenjoys the same special status in the eyes of consumers,who now view it as similar to other oil companies.

Another example is Coors Brewing. As Coors devotedincreasing attention to growing the equity of its less-established brands like Coors Light, and introduced newproducts like Zima, ad support for the flagship beerplummeted from a peak of about $43 million in 1985 tojust $4 million in 1993. What’s more, the focus of the ads

for Coors beer shifted frompromoting an iconoclastic,independent, western imageto reflecting more contempo-rary themes. Perhaps not sur-prisingly, sales of Coors beer

dropped by half between 1989 and 1993. Finally in 1994,Coors began to address the problem, launching a cam-paign to prop up sales that returned to its original focus.Marketers at Coors admit that they did not consistentlygive the brand the attention it needed. As one com-mented: “We’ve not marketed Coors as aggressively aswe should have in the past ten to 15 years.”

10. The company monitors sources of brand equity.Strong brands generally make good and frequent use ofin-depth brand audits and ongoing brand-tracking stud-ies. A brand audit is an exercise designed to assess thehealth of a given brand. Typically, it consists of a detailedinternal description of exactly how the brand has beenmarketed (called a “brand inventory”) and a thoroughexternal investigation, through focus groups and otherconsumer research, of exactly what the brand does and

Tapping customers’perceptions and beliefsoften uncovers thetrue meaning of a brand.

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could mean to consumers (called a “brand exploratory”).Brand audits are particularly useful when they are sched-uled on a periodic basis. It’s critical for managers holdingthe reins of a brand portfolio to get a clear picture of theproducts and services being offered and how they arebeing marketed and branded. It’s also important to seehow that same picture looks to customers. Tapping cus-tomers’ perceptions and beliefs often uncovers the truemeaning of a brand, or group of brands, revealing wherecorporate and consumer views conflict and thus showingmanagers exactly where they have to refine or redirecttheir branding efforts or their marketing goals.

Tracking studies can build on brand audits byemploying quantitative measures to provide currentinformation about how a brand is performing for anygiven dimension. Generally, a tracking study will collectinformation on consumers’ perceptions, attitudes, andbehaviors on a routine basis over time; a thorough studycan yield valuable tactical insights into the short-termeffectiveness of marketing programs and activities.Whereas brand audits measure where the brand hasbeen, tracking studies measure where the brand is nowand whether marketing programs are having theirintended effects.

The strongest brands, however, are also supported byformal brand-equity-management systems. Managers ofthese brands have a written document—a “brand equitycharter”—that spells out the company’s general philoso-phy with respect to brands and brand equity as concepts(what a brand is, why brands matter, why brand manage-ment is relevant to the company, and so on). It also sum-marizes the activities that make up brand audits, brandtracking, and other brand research; specifies the out-comes expected of them; and includes the latest findings


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gathered from such research. The charter then lays outguidelines for implementing brand strategies and tacticsand documents proper treatment of the brand’s trade-mark—the rules for how the logo can appear and be usedon packaging, in ads, and so forth. These managers alsoassemble the results of their various tracking surveys andother relevant measures into a brand equity report,which is distributed to management on a monthly, quar-terly, or annual basis. The brand equity report not onlydescribes what is happening within a brand but also why.

Even a market leader can benefit by carefully moni-toring its brand, as Disney aptly demonstrates. In thelate 1980s, Disney became concerned that some of itscharacters (among them Mickey Mouse and DonaldDuck) were being used inappropriately and becomingoverexposed. To determine the severity of the problem,Disney undertook an extensive brand audit. First, as partof the brand inventory, managers compiled a list of allavailable Disney products (manufactured by the com-pany and licensed) and all third-party promotions (com-plete with point-of-purchase displays and relevant mer-chandising) in stores worldwide. At the same time, aspart of a brand exploratory, Disney launched its firstmajor consumer research study to investigate how con-sumers felt about the Disney brand.

The results of the brand inventory were a revelationto senior managers. The Disney characters were on somany products and marketed in so many ways that itwas difficult to understand how or why many of the deci-sions had been made in the first place. The consumerstudy only reinforced their concerns. The study indicatedthat people lumped all the product endorsementstogether. Disney was Disney to consumers, whether theysaw the characters in films, or heard them in recordings,or associated them with theme parks or products.

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Consequently, all products and services that used theDisney name or characters had an impact on Disney’sbrand equity. And because of the characters’ broad expo-sure in the marketplace, many consumers had begun tofeel that Disney was exploiting its name. Disney charac-ters were used in a promotion of Johnson Wax, forinstance, a product that would seemingly leveragealmost nothing of value from the Disney name. Con-sumers were even upset when Disney characters werelinked to well-regarded premium brands like Tide laun-dry detergent. In that case, consumers felt the charactersadded little value to the product. Worse yet, they wereannoyed that the characters involved children in a pur-chasing decision that they otherwise would probablyhave ignored.

If consumers reacted so negatively to associating Dis-ney with a strong brand like Tide, imagine how theyreacted when they saw the hundreds of other Disney-licensed products and joint promotions. Disney’s charac-ters were hawking everything from diapers to cars toMcDonald’s hamburgers. Consumers reported that theyresented all the endorsements because they felt they hada special, personal relationship with the characters andwith Disney that should not be handled so carelessly.

As a result of the brand inventory and exploratory,Disney moved quickly to establish a brand equity teamto better manage the brand franchise and more selec-tively evaluate licensing and other third-party promo-tional opportunities. One of the mandates of this teamwas to ensure that a consistent image for Disney—rein-forcing its key association with fun family entertain-ment—was conveyed by all third-party products and ser-vices. Subsequently, Disney declined an offer to cobranda mutual fund designed to help parents save for theirchildren’s college expenses. Although there was a family


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association, managers felt that a connection with thefinancial community suggested associations that wereinconsistent with other aspects of the brand’s image.

The Value of Balance

Building a strong brand involves maximizing all tencharacteristics. And that is, clearly, a worthy goal. But inpractice, it is tremendously difficult because in manycases when a company focuses on improving one, othersmay suffer.

Consider a premium brand facing a new marketentrant with comparable features at a lower price. Thebrand’s managers might be tempted to rethink theirpricing strategy. Lowering prices might successfullyblock the new entrant from gaining market share in theshort term. But what effect would that have in the longterm? Will stepping outside its definition of “premium”change the brand in the minds of its target customers?Will it create the impression that the brand is no longertop of the line or that the innovation is no longer solid?Will the brand’s message become cloudy? The pricechange may in fact attract customers from a differentmarket segment to try the brand, producing a short-termblip in sales. But will those customers be the true target?Will their purchases put off the brand’s original market?

The trick is to get a handle on how a brand performson all ten attributes and then to evaluate any move fromall possible perspectives. How will this new ad campaignaffect customers’ perception of price? How will this newproduct line affect the brand hierarchy in our portfolio?Does this tweak in positioning gain enough ground tooffset any potential damage caused if customers feelwe’ve been inconsistent?

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One would think that monitoring brand performancewouldn’t necessarily be included in the equation. Buteven effectively monitoring brand performance can havenegative repercussions if you just go through themotions or don’t follow through decisively on whatyou’ve learned.

Levi-Strauss’s experiences are telling. In the mid-1990s, the company put together a comprehensivebrand-equity-measurement system. Practically from thetime the system was installed, it indicated that the brandimage was beginning to slip, both in terms of the appealof Levi’s tight-fitting flagship 501 brand of jeans and howcontemporary and cutting edge the overall Levi’s brandwas. The youth market was going for a much baggierlook; competitors were rushing in to fill the gap. Dis-tracted in part by an internal reengineering effort, how-ever, Levi’s was slow to respond and when it did, it cameup with underfunded, transparently trendy ad cam-paigns that failed to resonate with its young target mar-ket. Its market share in the jeans category plummeted inthe latter half of the 1990s. The result? Levi’s has termi-nated its decades-long relationship with ad agencyFoote, Cone & Belding and is now attempting to launchnew products and new ad campaigns. For Levi’s, puttingin the system was not enough; perhaps if it had adheredmore closely to other branding principles, concentratingon innovating and staying relevant to its customers, itcould have better leveraged its market research data.

Negative examples and cautionary words abound, ofcourse. But it is important to recognize that in strongbrands the top ten traits have a positive, synergisticeffect on one another; excelling at one characteristicmakes it easier to excel at another. A deep understand-ing of a brand’s meaning and a well-defined brand posi-


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tion, for example, guide development of an optimal mar-keting program. That, in turn, might lead to a moreappropriate value-pricing strategy. Similarly, institutingan effective brand-equity-measurement system can helpclarify a brand’s meaning, capture consumers’ reactionsto pricing changes and other strategic shifts, and moni-tor the brand’s ability to stay relevant to consumersthrough innovation.

Brand Equity as a Bridge

Ultimately, the power of a brand lies in the minds of con-sumers or customers, in what they have experienced andlearned about the brand over time. Consumer knowledgeis really at the heart of brand equity. This realization hasimportant managerial implications.

In an abstract sense, brand equity provides marketerswith a strategic bridge from their past to their future.That is, all the dollars spent each year on marketing canbe thought of not so much as expenses but as invest-ments—investments in what consumers know, feel,recall, believe, and think about the brand. And thatknowledge dictates appropriate and inappropriate futuredirections for the brand—for it is consumers who willdecide, based on their beliefs and attitudes about a givenbrand, where they think that brand should go and grantpermission (or not) to any marketing tactic or program.If not properly designed and implemented, those expen-ditures may not be good investments—the right knowl-edge structures may not have been created in consumers’minds—but they are investments nonetheless.

Ultimately, the value to marketers of brand equity as aconcept depends on how they use it. Brand equity canhelp marketers focus, giving them a way to interpret

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their past marketing performance and design theirfuture marketing programs. Everything the companydoes can help enhance or detract from brand equity.Marketers who build strong brands have embraced theconcept and use it to its fullest to clarify, implement, andcommunicate their marketing strategy.

Rating Your Brand

RATE YOUR BRAND on a scale of one to ten (onebeing extremely poor and ten being extremely good)for each characteristic below. Then create a bar chartthat reflects the scores. Use the bar chart to generatediscussion among all those individuals who participatein the management of your brands. Looking at the re-sults in that manner should help you identify areas thatneed improvement, recognize areas in which youexcel, and learn more about how your particular brandis configured.

It can also be helpful to create a report card andchart for competitors’ brands simply by rating thosebrands based on your own perceptions, both as a com-petitor and as a consumer. As an outsider, you mayknow more about how their brands are received in themarketplace than they do.

Keep that in mind as you evaluate your own brand.Try to look at it through the eyes of consumers’ ratherthan through your own knowledge of budgets, teams,and time spent on various initiatives.

The brand excels at delivering the benefits customerstruly desire. Have you attempted to uncover unmet con-sumer needs and wants? By what methods? Do you


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focus relentlessly on maximizing your customers’ productand service experiences? Do you have a system inplace for getting comments from customers to the peoplewho can effect change?

The brand stays relevant. Have you invested in productimprovements that provide better value for your cus-tomers? Are you in touch with your customers’ tastes?With the current market conditions? With new trends asthey apply to your offering? Are your marketing deci-sions based on your knowledge of the above?

The pricing strategy is based on consumers’ percep-tions of value. Have you optimized price, cost, andquality to meet or exceed customers’ expectations? Doyou have a system in place to monitor customers’ per-ceptions of your brand’s value? Have you estimatedhow much value your customers believe the brand addsto your product?

The brand is properly positioned. Have you estab-lished necessary and competitive points of parity withcompetitors? Have you established desirable and deliv-erable points of difference?

The brand is consistent. Are you sure that your market-ing programs are not sending conflicting messages andthat they haven’t done so over time? Conversely, are youadjusting your programs to keep current?

The brand portfolio and hierarchy make sense. Canthe corporate brand create a seamless umbrella for allthe brands in the portfolio? Do the brands in that portfo-lio hold individual niches? How extensively do thebrands overlap? In what areas? Conversely, do thebrands maximize market coverage? Do you have abrand hierarchy that is well thought out and well under-stood?

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The brand makes use of and coordinates a full reper-toire of marketing activities to build equity. Have youchosen or designed your brand name, logo, symbol, slo-gan, packaging, signage, and so forth to maximizebrand awareness? Have you implemented integratedpush and pull marketing activities that target both distribu-tors and customers? Are you aware of all the marketingactivities that involve your brand? Are the people man-aging each activity aware of one another? Have youcapitalized on the unique capabilities of each communi-cation option while ensuring that the meaning of thebrand is consistently represented?

The brand’s managers understand what the brandmeans to consumers. Do you know what customers likeand don’t like about a brand? Are you aware of all thecore associations people make with your brand, whetherintentionally created by your company or not? Have youcreated detailed, research-driven portraits of your targetcustomers? Have you outlined customer-driven bound-aries for brand extensions and guidelines for marketingprograms?

The brand is given proper support, and that supportis sustained over the long run. Are the successes orfailures of marketing programs fully understood beforethey are changed? Is the brand given sufficient R&D sup-port? Have you avoided the temptation to cut back mar-keting support for the brand in reaction to a downturn inthe market or a slump in sales?

The company monitors sources of brand equity. Haveyou created a brand charter that defines the meaningand equity of the brand and how it should be treated?Do you conduct periodic brand audits to assess thehealth of your brand and to set strategic direction? Do


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you conduct routine tracking studies to evaluate currentmarket performance? Do you regularly distribute brandequity reports that summarize all relevant research andinformation to assist marketers in making decisions?Have you assigned explicit responsibility for monitoringand preserving brand equity?

Originally published in January–February 2000Reprint R00104

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Bringing a Dying BrandBack to Life

Executive Summary

IN 1992, THE HARLEM GLOBETROTTERS wereheaded toward extinction, but Honeywell executive andformer Globetrotter Mannie Jackson believed the brandstill had value after 75 years in the public eye. Hebought the organization in order to translate thiswidespread brand recognition into financial results.

Jackson describes how he took over the Globetrot-ters in August 1993, intending to fold the team andreplace it with an organization that would sell Globetrot-ters merchandise. But those plans changed when he metwith the team for the first time and looked into the eyes ofsome of the great ones from the Globetrotters’ past.Instead of shutting things down for good, Jackson startedpreaching to the squad about building a competitiveteam, about the team being well known for its contribu-tions to charities, about the players working more with

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kids, and about rebuilding the quality of the organiza-tion. The players believed—and slowly but surely, audi-ences and arena managers did, too.

As Jackson got reacquainted with the organization,he found that the people who ran the company did notproperly respect the players, the product, and the cus-tomers. To save the brand, Jackson put into practicethree operating principles that had crystallized in hismind over the course of many years at Honeywell. First,the Globetrotters had to be reinvented in order tobecome relevant again; second, customers had to beshown that the company really cared about them; andthird, an accountable organization had to be created. Itwasn’t easy, but by focusing on providing quality basket-ball, forging good business relationships, and insistingon accountability in the business, Jackson helped theGlobetrotters dramatically increase revenue, profit, andattendance.

S , a good brand dies. Every-one knows and respects the brand, but there’s a gapbetween people’s knowledge and their desire to actuallybuy the product. When the company can’t close that gap,the brand slowly but surely finds its way to the dustbin ofhistory.

In 1992, the Harlem Globetrotters were heading downthat path, but I thought I could get them back on theright road. I was convinced the brand still had value. So Italked things over with two bankers, who were also closefriends of mine, and we got a group of investorstogether—mostly friends and business connections I’dmade during my 25 years at Honeywell. We convincedthem that the Globetrotters organization was worth buy-

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ing. And over the years, we’ve been able to convert peo-ple’s knowledge about the brand into a strong financialreturn. We’ve closed the gap and saved the Globetrottersbrand.

When I took over the organization in August 1993,the games had an annual attendance of less than300,000; this year we’ll hit 2 million. In 1992, the com-pany lost about $1 million on gross revenues of about$9 million; this year we’ll have about $6 million in profiton gross revenues of about $60 million.

It hasn’t been easy, of course. As I got reacquaintedwith the organization—I hadn’t been involved with theGlobetrotters since my playing days ended in the1960s—I found that the people running the company didnot respect the players or the product and were indiffer-ent to the customers. The whole organization probablywould have crashed and burned in another two years. Tosave the brand, I put into practice three operating prin-ciples that had crystallized in my mind over the course ofmany years at a major corporation; these principles formthe core of my philosophy for running any business.First, the product had to be reinvented in order tobecome relevant again; second, customers had to beshown that we really cared about them; and third, anaccountable organization had to be created—a real busi-ness. Before we get to that, though, you need to know alittle bit more about the history of the team—and how Ialmost shut it down for good.

Changing Visions

The Globetrotters were founded in 1926 by Abe Saper-stein, one of the greatest sports promoters who everlived. He brought together eight African-Americanballplayers, and they barnstormed the country, beating


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all comers. In an era of segregation, the team was proba-bly the best in the world. That began to change in the1950s, when the NBA integrated and started signingblack players. But the Globetrotters continued to offer anentertaining mix of quality basketball, showmanship,and comedy.

The organization started to decline in the 1980s.The NBA was booming, and the Globetrotters were

increasingly irrelevant as a competitive basket-ball team and stale as anentertainment choice.They were very poorlymanaged by the team’sowner, InternationalBroadcasting Company,

which also owned the Ice Capades and several amuse-ment parks and theaters. By the early 1990s, IBC was inbankruptcy.

I was a senior vice president at Honeywell then, but Ihad a strong entrepreneurial streak that had pushed meto get involved as a silent owner-investor in other ven-tures. Although this kind of activity is unusual for asenior executive at a major company, I had the full bless-ing of Honeywell’s CEO. As I considered buying theGlobetrotters in 1992, I thought I could oversee the orga-nization while staying with Honeywell, and in fact I didhave a dual role until November 1994. By then, the orga-nization’s success combined with the enjoyment I wasgetting from being involved with it convinced me toleave Honeywell and run the Globetrotters full time.

When I got interested in buying the organization, myfirst thought was that the team would go away. It had runits course. Like another great African-American institu-

When I got interested inbuying the organization, myfirst thought was that theteam would go away. It had made a great contributionto the world, but it was over.

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tion, the Negro baseball leagues, it had made a great con-tribution to the world, but it was over. I thought, if I canget the organization for a reasonable amount of money,I’ll put together a museum, convince Hollywood to do amovie, write a book about the team’s history, put licensedproducts in every neighborhood in the country, and makeit cool to be identified with the team again.

The bankers rejected my first offer, which was to buyall of IBC, but they brought me in as a professionaladviser to the Globetrotters. They figured I would be ableto tell them exactly what to do with the organization sothey could get the maximum value when they eventuallysold it.

I met with the team for the first time in Boston inMarch 1992, and I gave a speech to the group. I hadintended to tell them that we would be folding the team,but as I got into the speech and looked into the eyes ofsome of the great ones from the team’s past, I startedtelling a different story. You know how sometimes ideasjust come through you, and you start talking without ascript? That’s what happened to me. I started talkingabout building a competitive team, being known for ourcontributions to charity, being good to kids, and rebuild-ing the quality of the organization. Suddenly I wasn’t thesame guy who had written a business plan in his mind inwhich the team folded and was replaced by a licensed-product organization.

The players got excited; they believed in me. “Savingthe Globetrotters has got to be a religion for us,” I toldthem. “You guys are my disciples; I’m going to be yourleader. If you don’t want to join me, get out of here now.”No one left, and when I finished speaking, I knew theywere with me. I went back to my hotel room and wrotedown everything I’d said.


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Now I was excited, too, but I knew that I needed totest and expand my vision. I put together a list of about12 people I respected—high-level marketing people fromHoneywell, former Globetrotters, an arena owner—and Ibrought them together for three and a half days at a farmI rented in southern Minnesota. I’d come to know thesepeople through my business ties over the years, and theyattended the off-site meeting out of friendship and aninterest in the fate of the organization. We starteddreaming and asking ourselves, What could the Globe-trotters be? What should they be? We met from morningtill midnight each day, and I was able to build a detailedstrategic plan from those meetings.

After this summit, I went back to the bankers whoowned the team at that point, and I told them I’d givethem $5.5 million for the Globetrotters alone. They weregetting concerned—another season was rolling around,and they wanted to move. Compared with other bidders,I had the best story about the organization’s future, sothey agreed to sell a majority interest to me. I now had tomake the story real, and the first step was turning theproduct into something that people would care aboutagain.

Reinventing the Product

By 1993, the Globetrotters were simply not relevant.They weren’t stylish, and they weren’t cool. They weren’ta priority for anyone—they weren’t on MTV or TheTonight Show, and the president didn’t invite them to theWhite House. I wanted to find out how bad the damagewas, so we held a series of focus groups around the coun-try and brought together people who had seen us per-form with those who hadn’t. The meetings were very

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expensive and difficult to set up, but the information wegot as a result was more than worth it. Young peoplewould tell us they didn’t know anything about the Globe-trotters, and many of the older folks hadn’t heard aboutus recently. “How good are you really?” they would ask.“Are you just clowns, or can you play basketball?”

I decided we could become relevant if what we put onthe basketball floor each night was top quality. We havetwo different ways of showing what we can do. About 30or 40 times a year, we bring together our best players tocompete against first-rate teams all over the world. Forexample, last fall we played both Purdue and MichiganState, the NCAA champion. We beat Purdue and playedMichigan State close. Games like that make it impossiblefor people to say that our guys can’t hold their ownagainst top-notch basketball teams.

When we are not playing competitive games, ourthree touring teams play against three exhibition teams.Our philosophy is simple. In each game, we set out to dothree things: we’re going to show you we can play basket-ball, we’re going to give an exhibition of basketball featsyou’ve never seen live before, and we’re going to makeyou laugh and feel good.

In each exhibition game, we start off playing serious,competitive basketball, and the fans in the audiencequickly realize that our guys can really play. They’ll rec-ognize players who were at Maryland or UCLA or Ken-tucky. Then we move on to the highlight-film part of thegame. We have players who do things you can only see ifyou come to one of our events, like shooting behind-the-back hook shots or dunking through a 12-foot basket,which is the world record. We stress perfect executionevery single night so people will say, “Wow, I’ve neverseen anything like that before.” The third part of each


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game is the stand-up comedy. We have one or two guyson each team who are world-class comics. They can walkinto an arena full of 20,000 people and get everyonelaughing and feeling better about the world.

The whole package is choreographed like a Broadwaymusical. Let’s face it, a two-hour basketball game can bepretty dull. To get rid of the dead time, we carefully addedmusic to our events. Our announcers now have a com-puter board, and they plug in tracks that fit with what’shappening on the floor. So if the action is fast paced, theymight play a hip-hop song, and if the other team is com-ing back, they might play a big-band dance tune. Andthen, when the comics come on, everything stops. They goout into the audience with body microphones, tell jokes,do comedy routines. Sometimes it’s completely outra-geous, but it’s always appropriate for families.

I learned an important lesson about the product sev-eral years ago when I brought an executive from Disney,one of our sponsors, to a game in Europe. As we watched,I asked him what he would do different. He sat for awhile and then he said, “You know what? It’s a 90-minute show, no more.” I was shocked. We had beenstretching out the events for two and a half hours, likeNBA games. On school nights, kids would be fallingasleep. Now we do it all in 90 fast-paced minutes, andpeople are happy when they leave.

We’re cool but not hip-hop cool, and we never will be.Our brand means being family friendly, so we keep ticketprices relatively low, and we make sure our players signautographs, talk to kids, and engage with the fans in thestands. We don’t do anything that would embarrass amom and dad who’ve brought their kids to a game.

Many people still don’t believe that our guys play top-level basketball. That’s something we have to work on

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continually. But the 2 million people who see us everyyear know the truth, and they leave our events havingseen both great basketball and great entertainment.

Putting Customers at the Center

Having a terrific product is not always enough to sustaina brand. The essence of the Globetrotters business is pro-motions and relationships—with the media, with spon-sors, and especially with customers. Our first line of cus-tomers is the people who own the arenas and theirmarketing staffs. If they won’t book your event and pro-mote it, you’re in big trouble—you won’t even get to thenext line of customers, the people who actually buy thetickets.

I believed that good relationships with the media andthe arenas would lead to strong event promotion. To cre-ate those relationships, I leveraged my business identitywith the Wall Street Journal and with anyone from thebusiness side of other publications who would listen toan African-American executive who had worked formany years at Honeywell talk about branding andturnaround strategies. I had to get enough credibility inthe business community so that when I walked into theoffice of General Mills or Denny’s or Target or Reebok,the executives there would see me first as a capable busi-nessperson. I gave them the same brand reinventionstory that I had given to the players, and I gave it overand over again. I created a buzz that helped me get bothsponsorship dollars and the immediate attention andrespect of the arena owners and their staffs.

The Globetrotters was just one event out of 200 a yearfor the arena people, and if the show hadn’t done well theyear before, their instinct was to skip promoting us this


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year, or maybe even just to drop us from the schedule.That’s why one of the first things I did was to cut theadvertising budget in half and use that money to hireregional marketing people. The marketers are assignedto 50 cities, and all they do year round is meet with thearena managers, their marketing staffs, and with busi-nesses that want to promote our events. They work withthe arenas to develop a promotions strategy for eachgame to make sure it’s successful. And the relationshipswe’ve forged with the people in the arenas have paid offin the way we get promoted. The arena managers havefriends who sponsor events. They also have contacts whodo group sales, and they have relationships with the localmedia. Access to these channels has been invaluable.

Media attention helps cement our relationships withfans and increases the promotion of our events. I readsomewhere 20 years ago that if you hit people with threeevents in quick succession, they’ll remember you. So wecome up with three major events twice a year that gobang, bang, bang—a series of games against college stars,the players meeting with the pope or Nelson Mandela,our 75th anniversary celebration at the United Center inChicago, and so on. These events keep the Globetrottersin front of the public, and the publicity we get from themis more than worth the costs we bear in arranging them.

We use each event to connect directly with fans, thecustomers who buy from our sponsors and fill the are-nas, and we also reach out to our audience in other ways.Our social commitment, an important part of the brand’svalue, is at the heart of this. We put on 25 or 30 summercamps every year to connect with young fans. They’responsored by one of our partners, Denny’s, and we makea special point of helping disadvantaged kids. Many ofthem aren’t required to pay anything to attend. In addi-tion, our regional marketing people identify the leading

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charity in the cities we visit. We’ll get in touch with thatgroup and say, “We’re coming to town, what can we dofor you?” For example, I might donate my time and speakat a fund-raising dinner at an organization’s annualmeeting. To get closer to people, our players visit hospi-tals, schools, and youth clubs year round.

Like any company engaged in grassroots marketing,we’ve had to overcome obstacles. My efforts to get spon-sors have been very frustrating at times. I would make itplain to marketing executives why sponsoring the Globe-trotters would be a good business decision, but too manypeople basically said to me, “Don’t confuse me withfacts.” A lot of what goes on involving sponsorships isreally irrational. It’s like deciding whether to buy a cor-porate jet. You can draw up a list of pros and cons, butultimately it comes down to one question: do you wantthe jet or not? The same is true, unfortunately, for theway too many decisions about sponsorships get made.

Some companies, though, have been great for us. Ourrelationship with Disney has worked out very well. It allstarted when the president of Disney’s Wide World of

Sports got in touch withme through mutualfriends. We met andarranged to play ten to 15games a year at their facil-ity in Orlando, and wehave our annual trainingcamp there. The financial

arrangement has been good, and there’s a halo effect thatcomes from being in the relationship. When commercialpartners or others hear that we’re aligned with Disney, itlocks us into their minds as family entertainment. And Ican take that result to our players and staff and say, “Yousee, this is what I mean when I talk about the importance

I disrupted the status quoand created a new languagearound the business. Manyof the organization’s old-timers had to leave. Theycouldn’t adapt.


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of brand identity.” When it is developed in the right way,it can be a very powerful tool.

Running the Brand Like a Business

In 1993, the organization was in bad shape. The infra-structure was fragile, and some of the attitudes wereincredibly unprofessional. I came in and demanded thatwe run a responsible, profitable business. I disrupted thestatus quo and created a new language around the busi-ness. Many of the organization’s old-timers had to leave.They just couldn’t adapt.

I had to start from square one with the staff on how torun the business responsibly. While I was still withHoneywell, I’d fly out to various Globetrotters’ offices onFriday nights and meet with people on Saturdays andSundays. I remember one day I said in a meeting, “Weare going to play in the UK and from there we’re going tospread across Europe. I would like you to develop a pan-European strategy that covers an investment period inyear one and shows positive results in years two, three,and four.” I talked for over an hour on that subject andthen went home to Minneapolis. Monday morning, myphone rang at the Honeywell office, and it was my vicepresident of marketing for the Globetrotters. She said,“Do you mind if I ask you a question? What’s a strategy?”So I went back the next week and started teachingclasses on these very basic points.

My years at Honeywell had taught me that all roadslead to numbers. (For more on what I learned at Honey-well, see “The Building Blocks of Experience” at the endof this article.) You learn a lot about the character of anorganization when you look at its finances. I knew therewere leaks, that we were overpaying consultants and

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lawyers, that people weren’t keeping a close eye on thenumbers. I started holding everyone accountable.

It wasn’t hard to be away from the Globetrotters forfour or five days during those first months, because Iused a formula I had learned from Lee Iacocca. On Satur-day, I gave people three things to do during the nextweek, and I gave out pens emblazoned with the motto“We do what we say we’re going to do.” Everyone had apen, but if someone didn’t come through, I took it awayfrom them. That first time it was just a friendly warning,but I didn’t allow a lot of mistakes.

I set up a procedure in which every game or event had a forecast for cost, revenue, and operating profit. Iwanted to be called every night before midnight with thereconciliation, and I wanted a faxed copy as well. Mycomputer and my fax machine were jumping off thetable. Cash-flow reports were coming in all the time.

We started running the Globetrotters on the basis ofgross-profit and break-even analyses. That’s the languagearound here now: what’s the break-even on this event?

And cash and gross profitare a religion for us, just asthey were at Honeywell.You really have to work tokeep track of all the nickelsand to make sure every oneof your managers with bud-get responsibility is held

accountable—but you know where the business standsall the time when you do these analyses.

We also broke up the company into business units.We were shocked by what we found. We had several lossleaders. We weren’t investing in some parts of the busi-ness that were bringing in big profits. Strong business

I expect people in theorganization sometimes toget tired of me, evenmad at me, but no oneis ever allowed toget mad at the brand.


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units were subsidizing weak ones. Breaking up the busi-ness allowed us to run the units according to return oncapital, and we assigned staff champions and set prof-itability hurdles for each one.

One unit that has cleared its hurdles with a lot ofroom to spare is the merchandising business. We didn’tactually own the business until 1998, when we boughtthe inventory for less than $200,000. The company thatowned it had been giving us up to $800,000 a year, whichwe thought was great—no one had ever looked closely atwhat they were doing over there, and it was like theywere giving us free money. Now we earn more than $3million in revenue per year from the business, and half ofthat is profit. The cash has been great, and we’ve beenable to get closer to the customer by having our ownpeople run this business.

Finally, the success of the brand as a business comesdown to a fundamental point. I expect people in theorganization sometimes to get tired of me, even mad atme, but no one is ever allowed to get mad at the brand.They like what the brand is, and they can define it. Itguides everything we do. The brand has taken on a lifethat’s bigger than all of us. As the organization’s leader, Ithink of myself as the chief brand cop and spokesman,and I enjoy every minute of it.

When I took over, the Globetrotters were on life sup-port. Now, thanks to the way we’ve implemented thethree principles, the brand is much healthier. We can’tafford to be complacent, however. There’s still a big gapbetween how many people know us and the financialresults we get from that recognition. Closing that gap is areal challenge, and we’re keenly aware that great brandscan go out of business. Nobody’s safe these days.

I’ve been very fortunate to have a great team aroundme. As the business prospered, I was able to buy out all

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but three of my original partners, and their investmentspaid off very well for them. It wasn’t part of my originalplan to still be running this business, but the improve-ments to the product that we’ve made, the financial suc-cess we’ve enjoyed, and the good we do with our charit-able initiatives keep me focused and energized. I couldbe home taking it easy or playing golf, but I want to behere because I love basketball and the game of business.

The Building Blocks of Experience

I LEARNED A LOT DURING my 25 years at Honeywellthat I was able to use to save the Globetrotters brand.My primary teacher was Ed Spencer, the company’sCEO from 1979 to 1987. He taught me the followingimportant lessons:

• Create a culture of accountability. Ed didn’t just holdpeople accountable, he created a culture of accountabil-ity that everyone at Honeywell understood. When you hita sales target, he threw a party for you, and morale at thecompany was very high as a result. I do the same thing.Every year that we hit or exceed our targets, I take theentire company on a three-day trip to celebrate andreflect on our accomplishments.

• Think about how you are using your time. Ed plantedone question in the forefront of my mind: is what you aredoing the best use of your time and of corporateresources? I’ve taught the Globetrotters staff to think thesame way, and it really makes people more efficientovernight.

• Don’t be satisfied with last year’s results. Ed raisedthe standards and the expectations every year. I’m the


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same way. We have a bar chart that hangs on the wall,and we define success as bringing the bar to a higherlevel. To remind us of how far we’ve come, the chartstarts with our dismal numbers from 1993.

• See people for what they can become. Ed was a mas-ter of choosing odd people to do jobs. He saw peoplefor their potential, not just for what was on their résumés.At the Globetrotters, I made a 20-year-old the presidentof our merchandising unit, and I put a guy who was thetrainer for the basketball team into the position of execu-tive vice president for marketing—and they’re both doingan outstanding job.

• Pretend I’m in the room. When I was doing mergersand acquisitions for Honeywell, I once asked Ed how hecould trust me not to make mistakes in judgment withsuch big transactions. He said, “Just assume I’m in theroom with you. If a deal doesn’t feel right—if you wouldn’tdo it with me sitting next to you—walk away.” I tell myplayers the same thing: “If you’re in a club where thingsare getting out of hand—or in any other situation thatcould lead to trouble—assume I’m there watching yourbehavior. If it doesn’t feel right, just walk away from it.”

There is one thing that I didn’t get from Ed or fromHoneywell that’s important to mention: mental and physi-cal stamina. I was fortunate to be born with the physiol-ogy that has allowed me to put in long hours. For any-one trying to lead a company, regardless of its size,that’s a very valuable capacity.

Originally published in May 2001Reprint R0105B

40 Jackson

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How to Fight a Price War . , . ,

Executive Summary

PRICE WARS ARE A FACT OF LIFE, whether we’re talk-ing about the fast-paced world of knowledge products,the marketing of Internet appliances, or the staid, tradi-tional sales of aluminum castings. If you’re a managerand you’re not in battle currently, you probably will besoon, so it’s never too early to prepare.

The authors describe the causes and characteristicsof price wars and explain how companies can fightthem, flee them—or even start them. The authors say thebest defense in a pricing battle isn’t to simply match pricecut for price cut; they emphasize other options for pro-tecting market share.

For instance, companies can compete on qualityinstead of price; they can alert customers to the risks andnegative consequences of choosing a low-priced option.Companies can reveal their strategic intentions and

41

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capabilities; just the threat of a major price action mighthold rivals’ pricing moves in check. And, finally, compa-nies can seek support from interested third parties—gov-ernments, customers, and vendors, for instance—to helpavert a price war.

If a company chooses to compete on price, theauthors suggest using complex pricing actions, cuttingprices in certain channels, or introducing new productsor flanking brands—each of which lets companies selec-tively target only those segments of the market that areunder competitive threat. A simple tit-for-tat price moveshould be the last resort—and managers should actswiftly and decisively so competitors will know that anyrevenue gains will be short-lived.

I the customer, compa-nies use a wide range of tactics to ward off competitors.Increasingly, price is the weapon of choice—and fre-quently the skirmishing degenerates into a price war.

Creating low-price appeal is often the goal, but theresult of one retaliatory price slashing after another isoften a precipitous decline in industry profits. Look atthe airline price wars of 1992. When American Airlines,Northwest Airlines, and other U.S. carriers went toe-to-toe in matching and exceeding one another’s reducedfares, the result was record volumes of air travel—andrecord losses. Some estimates suggest that the overalllosses suffered by the industry that year exceed the com-bined profits for the entire industry from its inception.

Price wars can create economically devastating andpsychologically debilitating situations that take anextraordinary toll on an individual, a company, and

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industry profitability. No matter who wins, the combat-ants all seem to end up worse off than before they joinedthe battle. And yet, price wars are becoming increasinglycommon and uncommonly fierce. Consider the followingtwo examples:

• In July 1999, Sprint announced a nighttime long-distance rate of 5 cents per minute. In August 1999,MCI matched Sprint’s off-peak rate. Later that month,AT&T acknowledged that revenue from its consumerlong-distance business was falling, and the companycut its long-distance rates to 7 cents per minute allday, everyday, for a monthly fee of $5.95. AT&T’sstock dropped 4.7% the day of the announcement.MCI’s stock price dropped 2.5%; Sprint’s fell 3.8%.

• E-Trade and other electronic brokers are changingthe competitive terrain of financial services with theirextraordinarily low-priced brokerage services. Theprevailing price for discount trades has fallen from$30 to $15 to $8 in the past few years.

There is little doubt, in the first example, that themajor players in the long-distance phone business are ina price war. Price reductions, per-second billing, and freecalls are the principal weapons the players bring to thecompetitive arena. There is little talk from any of the car-riers about service, quality, brand equity, and other non-price factors that might add value to a product or ser-vice. Virtually every competitive move is based on price,and every countermeasure is a retaliatory price cut.

In the second example, the competitive situation issubtly different—and yet still very much a price war. E-Trade’s success demonstrates how the emergence ofthe Internet has fundamentally changed the cost of doing

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business. Consequently, even businesses such as CharlesSchwab, which used to compete primarily on low-priceappeal, are chanting a “quality” mantra. Meanwhile,

Merrill Lynch and Ameri-can Express have recog-nized that the emergenceof the Internet will affectpricing and are changingtheir price structures toinclude free on-line trades

for high-end customers. These companies appear to beengaged in more focused pricing battles, unlike the “glob-alized” price war in the long-distance phone market.

Most managers will be involved in a price war at somepoint in their careers. Every price cut is potentially thefirst salvo, and some discounts routinely lead to retalia-tory price cuts that then escalate into a full-blown pricewar. That’s why it’s a good idea to consider other optionsbefore starting a price war or responding to an aggressiveprice move with a retaliatory one. Often, companies canavoid a debilitating price war altogether by using a set ofalternative tactics. Our goal is to describe an arsenal ofweapons other than price cuts that managers who are en-gaged in or contemplating a price war may also want toconsider. (See “Ways to Fight a Price War” for examples.)

Take Inventory

Generally, price wars start because somebody some-where thinks prices in a certain market are too high. Orsomeone is willing to buy market share at the expense ofcurrent margins. Price wars are becoming more commonbecause managers tend to view a price change as an easy,quick, and reversible action. When businesses don’t trust

Price wars are becomingmore common becausemanagers tend to view aprice change as an easy,quick, and reversible action.


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or know one another very well, the pricing battles canescalate very quickly. And whether they play out in thephysical or the virtual world, price wars have a similarset of antecedents. By understanding their causes andcharacteristics, managers can make sensible decisionsabout when and how to fight a price war, when to fleeone—and even when to start one.


Ways to Fight a Price War

Nonprice Responses

Reveal your strategicintentions and capabilities

Compete on quality

Co-opt contributors

Price Responses

Use complex price actions

Introduce new products

Deploy simple priceactions

Tactic Example

Offer to match competitors’ prices, offereveryday low pricing, or reveal your costadvantage.

Increase product differentiation by addingfeatures to a product, or build awarenessof existing features and their benefits.Emphasize the performance risks in low-priced options.

Form strategic partnerships by offeringcooperative or exclusive deals with suppli-ers, resellers, or providers of relatedservices.

Offer bundled prices, two-part pricing,quantity discounts, price promotions, orloyalty programs for products.

Introduce flanking brands that competein customer segments that are being chal-lenged by competitors.

Adjust the product’s regular price inresponse to a competitor’s price change oranother potential entry into the market.

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The first step, then, is diagnosis. Consider a smallcommodities supplier that suddenly found that itslargest competitor had slashed prices to a level wellbelow the small company’s costs. One option the smallercompany considered was to lower its price in a tit-for-tatmove. But that price would have been below the sup-plier’s marginal cost; it would have suffered debilitatinglosses. Fortunately, a few phone calls revealed that itsadversary was attempting to drive the supplier out of thelocal market by underpricing its products locally butmaintaining high prices elsewhere. The supplier cor-rectly diagnosed the pricing move as predatory andelected to do two things. First, the manager called cus-tomers in the competitor’s home market to let themknow that the price-cutter was offering special deals inanother market. Second, he called local customers andasked them for their support, pointing out that if thesmaller supplier was driven off the market, its customerswould be facing a monopolist. The short-term price cutswould turn into long-term price hikes. The supplier iden-tified solutions that eschewed further price cuts and thusaverted a price war.

Intelligent analysis that leads to accurate diagnosis ismore than half the cure. The process emphasizes under-standing the opportunities for pricing actions based oncurrent market trends and responding to competitors’actions based on the players and their resources. Notonly is it necessary to understand why a price war isoccurring or may occur, it also is critical to recognizewhere to look for the resources to do battle.

Good diagnoses involve analyzing four key areas in thetheater of operations. They are customer issues such asprice sensitivity and the customer segments that mayemerge if prices change; company issues such as a busi-


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ness’s cost structures, capabilities, and strategic position-ing; competitor issues, such as a rival’s cost structures,capabilities, and strategic positioning; and contributorissues, or the other players in the industry whose self-interest or profiles may affect the outcome of a price war.(For a more detailed explanation of such analyses, see“Analyzing the Battleground” at the end of this article.)

Companies that step back and examine those fourareas carefully often find that they actually have quite afew different options—including defusing the conflict,fighting it out on several fronts, or retreating. We’ll lookat some of those strategies and how companies havedeployed them successfully.

Stop the War Before It Starts

There are several ways to stop a price war before it starts.One is to make sure your competitors understand therationale behind your pricing policies. In other words,reveal your strategic intentions. Price-matching policies,everyday low pricing, and other public statements maycommunicate to competitors that you intend to fight aprice war using all possible resources. But frequentlythese declarations about low prices, or about not engag-ing in price promotions, aren’t low-price strategies at all.Such announcements are simply a way to tell competi-tors that you prefer to compete on dimensions otherthan price. When your competitors agree that such com-petition will be more profitable than competing on price,they’ll tend to go along. That is precisely what happenedwhen Winn-Dixie followed the Big Star supermarketchain in North Carolina and announced that it, too,would meet or beat mutual rival Food Lion’s prices. Aftertwo years, the number of equipriced products among 79


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commonly purchased brand items at the supermarketshad more than doubled. Further, the overall market pricelevel had increased for these products. What happened?The stores stopped competing on price. In fact, the datasuggest that Food Lion raised its prices after its competi-tors announced they would match Food Lion’s prices.

Making sure that your competitors know that yourcosts are low is another option—one that effectivelywarns them about the potential consequences of a pricewar. Hence it sometimes pays to reveal your cost advan-tage. Sara Lee has low variable costs, yet its products arerelatively high priced compared with those of competi-tors. In the event of a price war, Sara Lee can drop itsprices to levels that its competitors can’t profitablymatch. The common knowledge about this low costdeters price cutting from competitors.

Sara Lee’s management realizes that price cuts wouldbe inconsistent with its strategic position of brand differ-entiation. Rather than use its low-cost structure to com-pete on price to build market share, Sara Lee uses its lowcosts as an implicit threat that helps prevent price wars.Essentially, a business that has relatively low variablecosts enjoys an enviable advantage in a price war sincecompetitors cannot sustain a price below their own vari-able costs in the long run. But low-cost companiesshould carefully consider their strategic positions beforethey start or join a price war. Lower costs often tempt abusiness to cut its prices, but doing so can diminish con-sumers’ perceptions of quality and may trigger anunprofitable price war.

Responding with Nonprice Actions

Sometimes an analysis of the market reveals that severalcustomer segments exhibit different degrees of sensitivity


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to price and quality. (See “Price Sensitivity on the Web” atthe end of this article for a look at how managers canidentify and exploit differences in customers’ price sensi-tivities—even in an information-rich environment.)Understanding the basis for certain customers’ price sen-sitivities lets managers creatively respond to a rival’s pricecut without cutting their own prices. For example, a com-pany might be able to focus on quality, not price.

Southeast Asia went through a rough time in 1997,particularly in the luxury product and service areas. Theregion’s economy was unstable, Indonesian forest fireswere wreaking havoc with the smog index, and tourismwas clearly suffering. The economic turmoil dramaticallyreduced the value of the Malaysian ringgit to about halfits value a few years earlier. The cost of a hotel roomplummeted along with the nose-diving currency, yethotel rooms went a-begging. What did the luxury hoteloperators do to attract customers? They dropped theirroom rates even further. Luxury hotels in Malaysiaentered a price war. All but one.

The Ritz-Carlton chose to steer clear of the fray.Instead, James McBride, the hotel’s general manager,became creative. He greeted arriving flights with music,mimosas, discount coupons, and a model room. Passen-gers with reservations at other hotels began to defect tothe Ritz at alarming rates. McBride provided his cellularphone number in newspaper ads so people could callhim directly for reservations. Guests had round-the-clock access to a “technology butler” who could fix lap-tops and other electronic devices. The Ritz offered a“bath menu” of drinks and snacks to be served alongwith butler-drawn baths. Guests who stayed more thanfive nights received an embroidered pillowcase.

When luxury hotels start cutting their guest rates,their ability to offer “luxury” accoutrements drops. That


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means no fresh flowers, fewer towels, and a noticeableshortage of staff. But the Ritz kept its rates above 200ringgit (about $52 U.S.) and was able to pay for low-cost

services such as providingthe embroidered pillow-cases. Most important,the Ritz avoided any dam-age to its brand equity,something that couldhave easily occurred iftypical Ritz customersarrived at the hotel andfound it filled with noisy

backpacking tourists or large families, all taking advan-tage of low prices. The negative spillover onto other Ritzproperties could have been significant.

The Ritz-Carlton Kuala Lumpur last fall had no moreempty rooms than its competitors; in fact, occupancyrates were up to 60% compared with a 50% occupancyrate in 1998. Perhaps most important, monthly grossoperating profit on revenue of 2.2 million ringgit is about400,000 ringgit—a return of about 18%.

Another way companies can avoid a price war is toalert customers to risk—specifically, the risk of poorquality. A senior product manager from the Europeanoperation of a large multinational pharmaceutical corpo-ration lamented her recent pricing predicament. Hercompany’s product, a medical diagnostic device, was themarket-share leader, but a rival company had recentlybecome aggressive on price. “They’re crazy! Don’t theysee what they’re doing to profits in the industry? Nobodycan make money at these prices. What should I do? I’vetried everything, and I can’t get them to see the error oftheir ways,” she said.

One way companies canavoid a price war is to alertcustomers to risk—specifically, the risk ofpoor product quality.A related weapon is toemphasize othernegative consequences.


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Not surprisingly, research confirmed that a large seg-ment of customers in this “life and death” industry—doctors and testing laboratories—was quite risk averseand sensitive to variations in a product’s performance.So rather than compete on price, the multinationalappealed to customers’ concerns about performance byemphasizing product enhancements such as improvedreliability and greater detail in the information gener-ated by the diagnostic device and by alerting buyers tothe negative consequences of incomplete diagnoses.Some sales were lost to lower-priced products from thecompetitor, but the quality-sensitive segment allowedthe multinational to maintain reasonable margins andavoid the negative spiral of a price war.

Federal Express provides another good example ofhow a company can appeal to performance sensitivityamong customers. FedEx’s brand equity exceeds that ofvirtually any company in the package delivery business.The shipping giant has built an enviable level of con-sumer recall and recognition through a highly effectiveadvertising campaign. By emphasizing in ads andthrough other marketing efforts that a customer’s pack-age will “absolutely, positively” be there on time, FedExplays on customers’ risk aversion when dealing withtime-sensitive documents.

A related weapon that companies can use to avertor battle a price war is to emphasize other negativeconsequences. The NutraSweet company employedthis strategy when it faced the expiration of its patent.The company feared considerable price pressure fromthe producers of aspartame, the generic version ofNutraSweet. A worst-case scenario would involve oneof NutraSweet’s major customers, such as Coca-Cola orPepsi, switching to aspartame. If one of the companies


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switched, NutraSweet’s contingency plan—which itshared with wavering Coke and Pepsi executives inAtlanta and New York—was a week-long advertisingblitz that would alert consumers that “the other cola”was the only one that contained NutraSweet. Giventhe size of the market for carbonated soft drinks,NutraSweet’s brand equity in the diet-conscious seg-ment, and the potential short-term loss in market shareand profits, this threat had teeth. NutraSweet success-fully played one customer against another, emphasizingdire and unpalatable consequences, and thus averted adebilitating price war.

A final nonprice option involves seeking help, orappealing to contributors to weigh in on the competitivesituation. For instance, when Sony entered the marketfor high-end imaging systems, the leaders in the imaging

systems market in Belgiumappealed to and receivedhelp from the central Bel-gian government. Not allcompanies can count onthe government to come totheir aid, of course. Socompanies might appeal to

customers, vendors, channel partners, independent salesrepresentatives, and other like-minded players if theprice war could mean the company’s demise. Forinstance, in the 1990s, Northwest Airlines appealed to itslabor unions and received dramatic wage concessions soit could compete on price in a tight air-travel market.

Using Selective Pricing Actions

Employing complex options such as multiple-part pric-ing, quantity discounts, time-of-use pricing, bundling,

Managers can localize aprice war to a limitedtheater of operation—andcut down the opportunitiesfor the war to spill intoother markets.


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and so on lets price warriors selectively cut rates for onlythose segments of the population that are under compet-itive threat.

One common—and classic—tactic is to change cus-tomers’ choices, or reframe the price war in the minds ofcustomers. McDonald’s did it successfully when it facedTaco Bell’s 59-cent taco strategy in the 1980s. Bybundling burgers, fries, and drinks into “value meals,”McDonald’s reframed the price war from “tacos versusburgers” to “lunch versus lunch.” Similarly, smart man-agers use quantity discounts or loyalty programs to insu-late themselves from a price war. They avoid across-the-board price cuts, and they limit price reductions to areasin which they are vulnerable. In this way, managers canlocalize a price war to a limited theater of operation—and cut down the opportunities for the war to spill intoother markets.

Therefore, another selective-pricing tactic might be tomodify only certain prices. For instance, Sun CountryAirlines, a discount carrier, entered Northwest’s Min-neapolis–St. Paul hub with 16 planes providing service to14 cities. Sun Country’s round-trip airfare to any locationwas generally low: Minneapolis to Boston was roughly$308. Rather than engage in a systemwide price cut,Northwest retained its existing fare structure with minormodifications. A Minneapolis–Boston round-trip was arelatively low $310 if tickets were purchased seven daysin advance—but only for a flight that departed at 7:10 and returned at 11:10 . Curiously enough, Sun Coun-try’s only flight on that route departed Minneapolis at 7 and Boston at 11:20 . Northwest also employedseveral other resources, such as travel agents, to fend offSun Country. Northwest reasoned that Sun Country didnot have the infrastructure necessary to engage in an all-out price war and chose to not engage in any preemptive


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price cutting at times other than the flights directlyaffected. By targeting only certain fares for discounts,Northwest minimized internal changes but could stillcounter Sun Country’s pricing ploy.

On another selective-pricing front, companies mayuse a fighting brand. In the early 1990s, Kao Corporationentered the diskette market with a low-priced product.Rather than drop its prices, 3M launched a flankingbrand of low-priced diskettes called Highland because itknew that a large group of its customers was loyal to the3M brand. Simply dropping the price on the 3M brandmight have diluted 3M’s quality image and its profits andmay have stimulated further price cuts by Kao.

Because it understood its customers, 3M knew thatmany different segments of price-sensitive customersexisted. Some people buy cheap diskettes, and somepeople don’t care how much they pay for diskettes. Moreimportant, some people think cheap diskettes are proba-bly of poor quality, and they may not buy them if theprice is too low—perhaps because they are terrified oflosing their data. 3M avoided the trap of charging whatthe market will bear. It recognized that markets will bearmany prices, some better than others. That insightunderpins the strategies of many software companies.For instance, marginally different versions of the samevoice-recognition software can range in price from $79to $8,000 depending on who the buyer is.1

You may not need a new brand to counter a price cut,just a new package. Consider the case of a major con-sumer-products company that faced an aggressive price-cutting competitor. The defending company finallydropped the price of its economy-size product with a“buy one, get one free” offer. Since the economy-sizeproduct lasts six months, the company took high-


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volume, price-sensitive users off the market for nearly ayear. The resulting low sales of the competitor’s productconvinced the rival to cease and desist.

That illustration has several instructive elements to it.First, an acute understanding of the competitor’s abili-ties, motives, and mind-set allowed the defending com-pany to react effectively to a price war. Second, theexpertise was complemented with a clear understandingof consumer behavior that allowed the company to pre-vent a price war. Third, the new entrant clearly pickedthe wrong adversary. The defending company was will-ing to suffer some losses (through cannibalization) inorder to protect its turf.

Companies may also opt to cut prices in certain chan-nels. Perhaps the single largest driver of price cuts andresulting price wars is excess capacity. The temptation torevive idle plants by stimulating demand through lowerprices is often irresistible. But smart managers considerother options first. For instance, companies in the pack-aged-goods industry frequently sell off-brand or private-label versions of their national brands at low prices,ensuring that any price wars won’t damage the brandequity of the national brands.

Similarly, airlines such as Delta are making a dent inreducing their unsold inventory by offering seats to con-solidators and auction houses such as Priceline.com andCheaptickets.com. The airlines are selling tickets toprice-sensitive customers who don’t care about flighttimes, number of stops, or frequent-flyer miles. Becausethe customer’s point of contact is with the consolidatorand not with the airline, the airline’s image is pro-tected—in much the same way that a nationally brandedsoup manufacturer protects its image by selling excesscapacity under a private label.


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But engaging in “stealth marketing” by selling low-priced, functionally equivalent alternatives throughunrelated brand names or in foreign markets may stilltrigger price wars. If consumers recognize that the qual-ity of the private-label product is comparable to that ofthe branded option, then the price of the branded optionwill need to drop. In many cases, it is best to leave plantcapacity idle, since the attempt to revive it may triggermargin-destroying price competition. In fact, the idlecapacity can be used as a weapon; a company thenwields the credible threat of being able to flood the mar-ket with cheaper products should a competitor start cut-ting its prices.

Fight It Out

Although we feel strongly that direct, retaliatory pricecuts should be a last resort, we do recognize that it issometimes simply impossible to avoid a price war. Con-sider the case of personal computers. Expansion in thisindustry is occurring primarily at the low end as moreand more price-sensitive consumers enter the market forPCs. EMachines, in Irvine, California, sells PCs that fea-ture Intel’s Celeron processor (a 366 MHz chip), a 4.3gigabyte hard drive, and a host of other functions forroughly $400. High-profile brands such as HP and IBMare being forced to consider pricing their PCs in the $500range to reach the first-time buyer. In this market, pricecuts appear to be the only way to compete. In fact, “freePCs” are available to consumers who are willing to beexposed to a significant amount of advertising.

Clearly there are times when you must engage in apreemptive strike and start a price war—or respond to a


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competitor’s discount with a matching or deeper pricecut of your own. For instance, when a competitor threat-ens your core business, a retaliatory price cut can beused to signify your intention to fight long and hard.

Similarly, when you canidentify a large andgrowing segment ofprice-sensitive cus-tomers, when you have acost advantage, whenyour pockets are deeperthan competitors’ pock-ets, when you canachieve economies of

scale by expanding the market, or when a rival can beneutralized or eliminated because of high barriers tomarket entry and reentry, then engaging in price compe-tition may be smart.

But there are several long-run implications of com-peting on price. First, a pattern of price cutting mayteach customers to anticipate lower prices; more patientcustomers will defer their purchases until the next pricecut. Second, a price-cutting company develops a reputa-tion for being low-priced, and this reputation may castdoubt on the quality and image of other products underthe umbrella brand and on the quality of future prod-ucts. Third, price cuts have implications for other playersin the market, whose self-interest may be harmed bylower prices.

If simple retaliatory price cuts are the chosen meansof defense in a price war, then implement them quicklyand unambiguously so competitors know that their salesgains from a price cut will be short-lived and monetarily

If simple retaliatory pricecuts are the chosen means ofdefense in a price war,implement them quicklyand unambiguously socompetitors will know thattheir sales gains will beshort-lived.


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unattractive. A slow response may prompt competitorsto make additional price cuts in the future.

Retreat

On rare occasions, discretion is the better part of valor.Consequently, some businesses choose not to fight pricewars; instead, they’ll cede some market share rather thanprolong a costly battle. 3M and DuPont are both compa-nies that focus on developing innovations as part of theircore strategy—and both have proved willing to cedeshare rather than participate in an unprofitable pricewar. In fact, 3M takes pride in the fact that roughly 40%of its revenue five years from now will come from newproducts. And in cases where it has retreated from pric-ing battles rather than standing its ground, the companyseems to have come out ahead. For instance, because ofwithering price competition from high-volume, low-margin suppliers, 3M withdrew from the videotape busi-ness in the mid-1990s—even though videotape wasinvented at 3M. Similarly, Intel stopped manufacturingDRAM chips in the face of intense price competitionfrom Taiwanese manufacturers in the 1980s, and itsfocus on processor chips has served it well. And CharlesSchwab’s decision to avoid a price war with low-pricedInternet brokers has served stockholders well—the valueof their Schwab holdings has more than quadrupled inthe past two years.

It’s Never Too Early to Prepare

It’s in companies’ best interests to reduce price competi-tion because price wars can harm an entire industry. Butdiplomatic resolutions of price wars are generally impos-


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sible because overt diplomacy is a form of price collusionand may attract regulatory oversight. As a result, priceleaders often engage in subtle forms of diplomacy thatuse market forces to discipline renegade companies thatthreaten industry profits.

Preventing a price war would be easy if it were possibleto demonstrate the benefits of peace. Sadly, battle-scarredveterans who are suspicious of one another probablywon’t unilaterally disarm. So “price leadership” is one wayto reduce industrywide price competition. Price leaderstend to develop reputations for eschewing price cuts as away to gain market share and for responding quickly anddecisively to price cutting by renegade companies. Theprice leaders are viewed as credible enforcers of priceregimes based on their cost structures, strategic postures,or the personal characteristics of their officers. We docaution, however, that a pattern of disciplinary movesmay attract unwelcome regulatory scrutiny; companiesshould carefully consider whether their attempts at exer-cising leadership may be interpreted as anticompetitive.

Price wars are a fact of life—whether we’re talkingabout the fast-paced world of “knowledge products,” themarketing of Internet appliances, or the staid, traditionalbusiness of aluminum castings. If you are not in battlecurrently, you probably will be fairly soon, so it’s nevertoo early to prepare.

If you are currently in a price war, understand thatyou can use several nonprice options to defend yourselfand recognize that it is sometimes best to cede the turfunder contention and seek greener pastures. If the cur-rent combatants can’t be vanquished, it may be wise toobserve the price war from the sidelines and enter thefray after everyone else has been eviscerated. Sometimes,to the bystanders go the spoils of war.


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Price Sensitivity on the Web

INTERNET COMPANIES SUCH AS Buy.com are attempt-ing to build market share by charging low prices. Theyoperate under the premise that Internet shoppers areextremely sensitive to price. But the evidence to back upthat assumption is mixed. On the one hand, the Weboffers an easy way to search and compare prices. Onthe other hand, on-line shoppers tend to search for qual-ity attributes, as well. Professors John G. Lynch of DukeUniversity’s Fuqua School of Business and Dan Ariely ofMIT’s Sloan School of Management have recentlydemonstrated that making quality information moreaccessible on the Web reduces price sensitivity.2 That iswhy Amazon.com can charge higher prices than otheron-line sites. The variety of titles it offers, the extensiveproduct information it provides, and its reputation forrapid and reliable shipping make Amazon an easychoice for consumers who want convenience and lowprices.

The growth of Internet shopping is posing interestingpricing dilemmas for bricks-and-mortar retailers. On-linevendors don’t have to maintain a physical presenceclose to their customers, so they can operate out of afew large warehouses, thus lowering their costs. It wouldgenerally be unwise for bricks-and-mortar retailers to tryto compete on price given the relatively high cost ofmaintaining a storefront. Instead, their strategy shouldemphasize features that can’t be provided over theWeb, such as personalized face-to-face service, brows-ing, immediate delivery, low-hassle returns andexchanges that don’t require repackaging and shipping,


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and the ability to touch the product. Several retailers,such as Barnes & Noble and Tower Records, havedeveloped an Internet presence to complement theirstorefronts. Such “clicks and mortar” retailers give cus-tomers the option to purchase or order on-line and thenpick up the product at a bricks-and-mortar branch, andthose retailers often provide a search engine in the storethat is similar to their Internet offerings.

Finally, a keen understanding of consumer behaviorlets some companies charge higher prices on the Webbecause of the anonymity that on-line transactions offer. Ina recent study of 46 e-tailers of prescription drugs, the twomost popular items (Viagra, a medication for erectile dys-function, and Propecia, a medication to treat male patternbaldness) were priced roughly 10% higher than in drugstores. For obvious reasons, people prefer to have thoseprescriptions filled without personal contact and are will-ing to pay a premium for a faceless transaction.

Analyzing the Battleground

IT ’S NECESSARY TO UNDERSTAND why a price war isoccurring—or may occur. But it’s also critical to recognizewhere to look for resources in battle. It’s important tocarefully analyze your customers, company, competitors,and other players within and outside the industry thatmay have an interest in how the price war plays out.

Customers and Price Sensitivity

A thoughtful evaluation of customers and their price sensi-tivities can provide valuable insights about whether one


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should fight a competitor’s price cut with a price cut inkind or with some other strategy. Consumers arefrequently unaware of substitute products and theirprices, or they may find it difficult to make comparisonsamong functionally equivalent alternatives. For instance,prior to AT&T’s 7-cents-a-minute plan, consumers faced abewildering set of pricing options for long-distancephone service. AT&T charged 15 cents per minute percall with no monthly fee; or 10 cents per minute with a$4.95 monthly fee. MCI offered nighttime rates of 5cents a minute, daytime rates of up to 25 cents a minute,and a monthly fee of $1.95. Sprint charged 5 cents perminute for nighttime calls, rates of up to 10 cents perminute for other calls, and a $5.95 monthly fee. The costof determining the best plan when customers are unsureabout their calling patterns is simply too high for a low-involvement decision like long-distance phone service. Acompany that wanted to compete on price couldchoose to simplify. That’s exactly what Sprint did. It sim-plified its price schedule to 10 cents a minute so cus-tomers could compare its rates to those from MCIand AT&T.

Some consumers are more sensitive to quality thanprice, for a variety of reasons. Industrial buyers are oftenwilling to pay more for on-time delivery or consistentquality because they need those features to make theirbusinesses run smoother and more profitably. The veryrational belief that poor quality can endanger one’shealth is an important reason that branded drugs com-mand the prices they do relative to generic drugs. Andsnob appeal allows Davidoff to sell matches at $3.25for a box of 40 sticks to cigar connoisseurs. The basiclesson is that different customer segments exhibit differentlevels of price sensitivity for different products at different


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times. Businesses that adopt a one-size-fits-all approachto pricing do so at their peril.

Company Abilities

Company factors such as cost structures, capabilities, andstrategic positioning should also be examined carefully.Cost structures may be affected by changes in technologyor business practices, which in turn may tempt a companyto cut prices in a manner that will trigger a price war. Forexample, consider the implications of outsourcing. It’sprobably true that it is cheaper to buy rather than makesomething in-house, because the invisible hand of the mar-ketplace will lower the acquisition price of a product. Butthe cost of manufacturing something in-house is largelysunk and fixed. When that product is purchased on themarket, its acquisition cost is a variable one. In otherwords, integration can lead to a cost structure with ahigher fixed-cost component and a lower variable-costcomponent. Consequently, the company with the lowervariable costs may be tempted to reduce prices and starta price war. But even though the lower variable costs givethe company an advantage, it should carefully considerwhether a price war is consistent with its strategic posture.The company’s lower variable costs should be used tostart a price war only when it will result in the neutraliza-tion or the exit of an undesirable rival.

Consider, too, the coherence of your pricing strategyand your ability to execute it. The actions of one partici-pant engaged in a fierce price war in the utility industry istelling: The company’s senior management group askedits top manager to increase market share by 20%, returnprices to profitable levels, and stabilize them. Confrontedwith apparently conflicting goals, the manager chose theeasiest goal—build market share—which he achieved by


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lowering prices, thus exacerbating the price war. Thedirective to the manager was confusing, his resultingactions baffled competitors, and that led to considerableuncertainty and increased price turbulence in the market.When the soft costs (managerial time and attention) ofchanging prices through a complex supply chain werefactored in, the cost of the increased market share wasvery dear.

The essential insight that should emerge from this exer-cise is whether a simple price cut is the best option givenone’s cost structure, capacity levels, and organizationalcompetence.

Competitors’ Response

An analysis of competitors—their cost structures, capabili-ties, and strategic positioning—is equally valuable. Indus-trywide price reductions may be appropriate under cer-tain circumstances. But many unprofitable price warshappen because a company sees an opportunity toincrease market share or profits through lower prices,while ignoring the fact that competitors will respond.Market research may reveal that sales increases follow-ing a price cut justify the action, but this same researchoften simply ignores competitors’ price responses.

Businesses need to pay attention at the strategic levelto the twin questions of who will respond and how.Smart product managers recognize the need to under-stand the competition and empathize with them. Theyproject how competitors will set prices by carefully track-ing historical patterns, understanding which events havetriggered price changes in the past, and by tracking thetiming and magnitude of price responses. They monitorpublic statements made by senior executives and pub-lished in company reports. And they keep their eyes


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peeled for activity in resource markets: competitors thatacquire a new technology, labor force, information sys-tem, or distribution channel, or that form a new brandalliance, will probably make some kind of a price movethat will affect other players in the industry. This sophisti-cated environmental scanning identifies possible adver-saries and their likely modus operandi.

But which competitors should you watch? Identifyingcompetitors often has important pricing implications. Forinstance, Encyclopedia Britannica discovered that itschief rival is not Grolier’s Encyclopedia but Microsoft.Britannica seemed oblivious to this important competitorfor several years until a steady erosion in encyclopediasales alerted the company to startling developments intechnology that changed the way consumers get infor-mation. Its books once costs thousands of dollars; Britan-nica now offers free access to its database on the Weband derives its revenues from banner ads, not consumers.

A company’s direct competitors that share the sametechnology and speak to the same markets are importantrivals. But indirect competitors that satisfy customer needsthrough the use of different technologies and that havecompletely different cost structures are perhaps the mostdangerous. In fact, direct competitors such as major air-lines frequently coexist quite peacefully. Examining theirpricing-decision rules suggests why. U.S. Department ofTransportation studies indicate that when one hub-basedairline enters another’s hub, it typically does not engagein price-based competition because it fears retaliation inits own hub. Conversely, price wars may often be startedby a company from an entirely different industry, with aradically different technology, whose cost advantagesgive it enough leverage to enter your market and stealyour share.


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The process of identifying competitors also revealsthe strengths and weaknesses of current and potentialrivals. This has important implications for how a companycompetes. It is generally wise to not stir a hornet’s nestby starting a price war with a competitor that has a sig-nificantly larger resource base or a reputation for beinga fierce price warrior. When analyzing your competition,carefully determine who they are, how price fits with theirstrategic position, how they make pricing decisions, andwhat their capabilities and resources are.

Contributors, Collaborators, and Other Interested Parties

Finally, it is important to monitor other players in the indus-try whose self-interest or profiles may affect outcomes.Suppliers, distributors, providers of complementarygoods and services, customers, government agencies,and so on contribute significantly to the consumptionexperience, including product quality, the sales pitch,and after-sales service. They often wield considerableinfluence on the outcome of a price war—directly or indi-rectly. Sometimes these contributors may provide theimpetus for, or may indirectly start, a price war. Motoroladiscovered as much when it introduced low-pricedcellular phones in China and Brazil. Soon Motorolaobserved that the street price for its phones had droppedsubstantially in the United States. Distributors were divert-ing products bound for China and Brazil to the profitableU.S. and European markets; sometimes the productsnever even left the dock. Motorola’s distributors had cre-ated a “gray market” because Motorola had given thema reason to believe that prices in the United States weretoo high.

Sometimes contributors can help reduce price com-petition by enhancing the product’s value, as Intel does


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for computer manufacturers; assisting with marketing, asairline frequent-flyer programs do for credit-card compa-nies; and limiting the exposure to competing products, asMITI has done for Japanese companies facing interna-tional competition at home. Smart managers must care-fully consider other players and their interests (profit mar-gins for suppliers and distributors, commissions for salesrepresentatives, and so on) before starting a price war orjoining one.


Customer Issues

Price sensitivitySegmentation

Competitor IssuesCost structuresCapabilities

Strategic positioning

Company IssuesCost structuresCapabilities

Strategic positioning

Contributor IssuesIncentives of • resellers • suppliers • allies • government

Notes

1. See Carl Shapiro and Hal Varian, “Versioning: The SmartWay to Sell Information,” HBR November–December1998.

2. See “Wine Online: Search Costs and Competition onPrice, Quality, and Distribution,” Marketing Science, 2000.

Originally published in March–April 2000Reprint R00208

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Contextual MarketingThe Real Business of the Internet

.

Executive Summary

THE PAINFUL TRUTH is that the Internet has been a let-down for most companies—largely because the dominantmodel for Internet commerce, the destination Web site,doesn’t suit the needs for those companies or their cus-tomers. Most consumer product companies don’t pro-vide enough value or dynamic information to induce cus-tomers to make the repeat visits—and disclose thedetailed information—that make such sites profitable.

In this article, David Kenny and John F. Marshall sug-gest the companies discard the notion that a Web siteequals an Internet strategy. Instead of trying to createdestinations that people will come to, companies needto use the power and reach of the Internet to deliver tai-lored messages and information to customers. Compa-nies have to become what the authors call “contextualmarketers.”

69

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Delivering the most relevant information possible toconsumers in the most timely manner possible willbecome feasible, the authors say, as access movesbeyond the PC to shopping malls, retail stores, airports,bus stations, and even cars. The authors describe howthe ubiquitous Internet will hasten the demise of the desti-nation Web site—and open up scads of opportunities toreach customers through marketing “mobilemediaries,”such as smart cards, e-wallets, and bar code scanners.

The companies that master the complexity of the ubiq-uitous Internet will gain significant advantages: they’llgain greater intimacy with customers and target marketsegments more efficiently. The ones that don’t will be dis-missed as nuisances, the authors conclude. They suggestways to become welcome additions—not unwelcomeintrusions—to customers’ lives.

T : the Internet hasbeen a letdown for most companies. Certainly, the Webis at the top of corporate America’s priority list—the$10 billion that large U.S. companies spent on Web sitedevelopment in 1999 is evidence enough of that. Yet inany given month, only about half of the largest U.S. con-sumer businesses attract more than 400,000 site visi-tors—and a similar percentage of sites generate no com-mercial revenue at all.

If the economic return is minimal, the strategic payoffis even lower. Less than half of these corporate sites cap-ture any self-reported customer data. The few sites thatmanage to gather any information do a pretty poor job ofit—we estimate that they compile meaningful profiles onless than 1% of their customers. And despite all assur-

70 Kenny and Marshall

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ances to the contrary, the Web is rarely a low-cost cus-tomer acquisition channel. Most companies using stan-dard “drive-to-site” Web marketing approaches, such asbanner advertisements, quickly learn that their customeracquisition costs are greater than those in the physicalworld—often 1.5 to 2.5 times greater.

Most corporate Web sites fall short of managers’ highexpectations because of a fundamental mismatch—thedominant model for Internet commerce, the destinationWeb site, simply doesn’t suit the needs of most compa-nies or their customers. For a destination Web site tomake economic sense, it must attract repeat visits fromcustomers, with each visit adding ever greater incre-ments of information to a customer’s profile. For exam-ple, Amazon.com’s business model is based on retainingeach customer for a significant number of years—up toan astonishing 12 years by some analysts’ forecasts. Thatis considered sufficient time to develop the deep, contin-uing relationships that will justify the company’s heavyinvestment in its site. Such a model is well suited toproviders of financial services and travel services, whosedynamic, information-driven offerings generate repeatsite visits that yield an increasingly detailed customerprofile. But at the other extreme, most consumer prod-uct companies face an insurmountable challenge inadopting the destination site model; they don’t provideenough value to induce consumers to make repeat visits,much less disclose intimate information.

Does this mean the Internet is of no value to all but ahandful of well-positioned companies? Not at all. What itdoes mean is that most companies need to discard thenotion that a Web site equals an Internet strategy.Instead of trying to create destinations that people willcome to, they need to use the power and reach of the

Contextual Marketing 71

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Internet to deliver tailored messages and information tocustomers at the point of need. They need to becomewhat we call contextual marketers.

The Ubiquitous Internet

Hastening the demise of the destination site model is thephenomenon we call the ubiquitous Internet. Withinthree to five years, the Internet will begin to be accessiblefrom almost anywhere. Consumers will be linked to theNet via wireless telephones, personal digital assistants,interactive television, always-on DSL or cable, or laptopcomputers with wireless connections. Consumers will beconstantly enveloped in a digital environment—a per-sonal digital bubble, as it were. And the phenomenonextends well beyond personal devices. Car makers, shop-ping mall operators, plane manufacturers, retailers, air-port officials, and bus station managers all have plans onthe drawing board—or under way—to provide Internetaccess to their customers. A quick look outside theUnited States confirms that this ubiquity is approachingat warp speed: already in Japan, the largest Internet ser-vice provider is a wireless carrier.

As the Internet becomes ubiquitous, companies willgain many new ways to connect with customers. Thisexplosion of access will open up enormous marketingopportunities, but it will also pose big challenges. Design-ing a compelling Web site may be hard, and usingpersonalization software to customize what individualconsumers see may be tougher still. But these tasks palein comparison to managing a pervasive electronic pres-ence that senses and responds not only to who the cus-tomer is but where she is and what she’s doing. (See“Before and After: What Lies Ahead for Web Marketing.”)


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Before and AfterWhat Lies Ahead for Web Marketing

In three to five years, the ubiquitous Internet will begin to unfold. Consumers will be constantly enveloped in a digital environ-ment, and marketing strategies will have to change radically. Web sites, the centerpiece of most of today’s strategies, will beonly one piece of a much larger and more complex puzzle.

Intermediary

Access Points

Customers Can Be Reached

Customer Focus

Strategic Mandate

Today’s Internet Ubiquitous Internet

• The destination Web site

• PC equipped with Web browser

• Only when they’re sitting at their PCs browsingthe Web

• Price-conscious comparison shoppers

• Focus on content

• Build destination Web site

• Personalize Web pages

• Wait (and wait) for customers to show up

• The mobilemediary

• PDA

• wireless phone

• interactive TV

• always-onbroadband

• 24 hours a day, seven days a week, anywhere on the planet—in their cars, at the mall, on an airplane, at a sports arena

• Anyone with an immediate need, who will spend money tosave time

• Focus on context

• Build ubiquitous agent that travels alongside your customer

• Master technology that lets you know when you’re needed

• Be there when and where your customer is ready to buy

• e-wallet

• kiosks

• Internet-enabled POSterminal

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Think about airlines—they need Web sites so theircustomers can make reservations and check scheduleson-line. But the airlines will also need much more. Whena traveler needs to change plans midjourney, an airlinemust be able to provide for him an Internet-enabledmobile device while he’s still in the air or a computer ter-minal while he’s in the departure lounge or airline club.The passenger may also require related services—hotelreservations and ground transportation, for instance—that change as his plans change.

For their part, retailers may use kiosks, Internet-enabled point-of-sale (POS) terminals, or mobile devicesto digitally recognize loyal customers while they’rein a store. Then, before the customer has even reachedthe checkout counter, the retailer can devise specialoffers based on the customer’s purchase history andpreferences.

The companies that master the complexity of theubiquitous Internet will gain significant advantages:greater intimacy with customers and more efficient tar-geting of market segments. And by offering customers amore valuable, more timely product, they’ll be able tocharge a premium price. The crucial step is to recognizethat the ubiquitous Internet will further reconfigurevalue chains that have already been shattered by theInternet’s first wave. As the ubiquitous Internet becomesa reality, a new kind of intermediary role emerges—wecall it the mobilemediary.

The mobilemediary will be able to break into thevalue chain at any point, bringing information and trans-action capabilities to customers whenever and whereverthey’re ready to buy a product or avail themselves of aservice. Mobilemediaries might serve up your spouse’s


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wish list when you’re in the mall shopping for a birthdaypresent. They might enable you to trade stocks when themarket is plunging and your commuter train is stalled.When you’re with your family at a theme park, theymight let you know that it’s your turn to ride the rollercoaster. But whatever form these intermediaries take,they’ll be less about content and more about context.

The Rise of Contextual Marketing

Contextual marketing opens up opportunities for com-panies that, for various reasons, can’t form the ongoingdigital relationships that are the lifeblood of a successfuldestination Web site—for example, makers of consumerpackaged goods, single-product companies, and infre-quent service providers.

The most innovative of these companies are alreadyadapting their marketing strategies to take advantage ofthe ubiquitous Internet. Take Mobil’s Speedpass: the dig-ital wand can be attached to a keychain and lets cus-tomers pay for gas and other purchases by waving it infront of an electronic reader at the gas pump or at thecheckout counter. It has proved so convenient that somedrivers go miles out of their way to find a filling stationthat accepts Speedpass. In Japan, wireless carrier NTTDoCoMo has signed up a staggering 10 million con-sumers for its i-mode service over the past 12 months.I-mode offers subscribers wireless access to restaurantlocators, ski-condition reports, hotel reservations sys-tems, on-line auctions, and thousands of other services.Some of this information is already available on theWorld Wide Web, but with i-mode, consumers can teeup the information they want when they want it, not just


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when they’re sitting at their PCs. Japanese consumermarketers are taking advantage of this situation—thereare now almost 10,000 i-mode sites.

As these examples suggest, the ubiquitous Internetwill vastly expand marketers’ opportunities to reach cus-tomers. At the same time, it will destabilize the “four Ps”of traditional marketing: price, product, placement, andpromotion will all be thrown into constant flux, depend-ing on the customer and the context. The marketing goalwill be the same as ever: deliver the right product to theright customer at the right time. Companies will stillhave to form a deep understanding of their customers’needs and desires. But in many cases, instead of owningcustomer data or individual customer relationships, suc-cessful contextual marketers will borrow them.

Recent initiatives by Johnson & Johnson demonstratethis kind of contextual marketing in action. Acceptingthat it was unlikely to develop a meaningful dialoguewith most consumers about headache remedies, skincare products, and the like, the health-care-productmanufacturer has chosen not to focus its strategies andinvestments on a Web site alone. Instead, it places itsproducts in the most fruitful digital context possible.Banner ads for J&J’s Tylenol headache reliever unfurl one-brokers’ sites whenever the stock market falls by morethan 100 points. The brokerage firms own the customerrelationships, but J&J breaks into the dialogue at themoment when its marketing opportunity is greatest.

Or consider J&J’s campaign for Clean & Clear, a skincare product line for teenage girls. Resisting the tempta-tion to create yet another ill-fated destination site, suchas the definitive on-line source for all things acne-related, J&J establishes a presence within preexisting on-line teen communities. The company gives teenage girls,


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many of whom spend their free time chatting on-line, thechance to send one another talking electronic postcardsthat offer a free skin analysis and a sample of Clean &Clear. The campaign’s viral component—friend-to-friendreferrals that multiply exponentially—significantlyincreases the product’s exposure at little additional cost.The result: a response rate that’s several times higherthan standard Web levels, without any significant siteinvestments. Once again, J&J inserts itself into a preex-isting relationship at the optimal moment.

Even companies with flourishing destination sites canbenefit from contextual marketing. Dell Computer,whose own site is an e-commerce leader, recognizes thatmost on-line computer shoppers bypass Dell’s site andgo straight to ZDNet and CNET for in-depth productinformation—combined, those two sites have almost tentimes the number of site visitors that Dell has. So insteadof using costly and ineffective banner ads to divert salesprospects to its own site, Dell posts its detailed productinformation on ZDNet’s and CNET’s sites. Visitors atthose sites can then compare the latest offerings fromDell and Compaq, pick the Dell machine, and launch theordering process directly from the CNET or ZDNet site.By piggybacking on CNET’s and ZDNet’s relationships,Dell has significantly improved its customer acquisitioneconomics.

Beyond the Web Site

For all their innovation and ingenuity, J&J’s and Dell’scontextual marketing efforts are still defined by, andconfined to, the PC. But the “tethered” Web is just alimited slice of the Internet, and it is ill suited to the mar-keting needs of many companies. The latest Internet


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technologies expose points of contact that are infinitelymore timely and relevant. The convergence of the Inter-net with broadband connectivity and with TV will letmarketers integrate commerce and entertainment: if youlike Regis’s suit, order it with a couple of clicks of yourremote. Don’t laugh—although early experiments withinteractive TV were an expensive bust, recent trials havebeen more encouraging. When an interactive TV perfor-mance by pop artist Melissa Etheridge included an on-screen promotion for her latest CD, it generated anastonishing 46% click-through rate. The average click-through rate for a Web-based banner ad is only 0.5%at best.

Opportunities for contextual marketing extend wellbeyond the home. Mobile devices and Internet access ina broad range of public venues will let contextual mar-keters link real-life situations to virtual information and

offerings. For instance,Unilever’s mobile recipebook concept, which willbe available on digitalphones in Europe, shouldinfluence consumers’packaged-goods deci-sions far more than thecompany’s Web site evercould. Intended for use

while shopping, the mobile tool suggests recipes andbreaks them down into their ingredients—identified,wherever possible, by their Unilever brand name. Ratherthan try to establish an ongoing Web site relationshipwith European grocery shoppers, U.K.-based Unileverplans to give them a digital tool precisely when andwhere they need it, helping shoppers and promotingUnilever brands at the same time.

Companies that practicecontextual marketing shouldbe guided by the followingimperative: don’t try to bringthe customer to a Web site,bring the message directly tothe customer at the pointof need.


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Conceivably, the mobile recipe book could be used inconnection with mobile e-coupons—electronic salespromotions that take into account the customer’s iden-tity and location, among other variables, and that areissued as close to the point of sale as possible. Thesetime-sensitive contextual promotions can influence con-sumer purchasing decisions. At the same time, they letcompanies vary their pricing in real time in response tomarket and supply conditions.

These are just some of the ways that consumer prod-uct companies can harness the power of the ubiquitousInternet. But however they reach customers, whateverthe mobilemediary, these companies should be guided bythe following imperative: don’t try to bring the customerto the site; instead, bring the message directly to the cus-tomer at the point of need.

The Ubiquitous Relationship

Even companies with enduring customer relationshipsand heavily trafficked Web sites need to master the toolsof contextual marketing: electronic wallets, smart cards,mobile shopping lists, Internet-enabled POS systems,and many other electronic utilities and access technolo-gies. These tools can extend the reach of relationship-oriented companies beyond their Web sites, capturingmore information and improving customer service in thevirtual and the physical worlds.

Consider FedEx. The company never fell into the trapof designating its Web site as its only mechanism formanaging digital customer relationships—not surprisinggiven that FedEx was practicing contextual marketingbefore the Web even existed. As early as 1988, its propri-etary PowerShip terminals, installed in customers’ mailrooms, brought digital interactions to the point of need.


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Today, FedEx is creating even deeper relationships. Itscustomers can use mobile devices to track packages or tolocate the nearest spots to drop them off. Soon it will bepossible for customers anywhere in the world to use amobile phone to create a shipping label or a digital track-ing record for a package.

The FedEx mobilemediaries could alert the com-pany’s customers to shipping problems encountered intransit. For instance, if a time-sensitive package is beingheld up at customs for lack of documentation, themobilemediary could inform the customer and route theappropriate electronic forms to the customs office.FedEx also envisions customers using chip-embeddedsmart cards that can generate shipping labels and track-ing information when swiped through a service terminal.Eventually, ubiquitous intelligence could move into thepackages themselves; “smart packages” embedded withlocation-sensitive chips could transmit real-time track-ing information to shippers and recipients, furtherexpanding loyalty and raising competitors’ barriers toentry.

American Express, for its part, recognizes that there’sfar more to the digital relationship than the customer’soccasional visit to the company’s site to review a bill. Ide-ally, the relationship should deepen every time the cus-tomer uses his or her Amex card. That’s why the com-pany has developed an e-wallet that automates theprocess of entering a customer’s on-line purchasing data,such as her credit card number and shipping informa-tion. The e-wallet fosters loyalty by relieving the cus-tomer of that tedious chore. Even more important, itcould become a tool for capturing data and cross sellingat the point of purchase. With explicit consent from cus-tomers, their e-wallet could follow them as they surf the


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Web or access the Internet through their mobile devices.The result would be a trove of customer intelligence.

Amex’s recently launched Blue card is a potential pre-decessor to the ubiquitous e-wallet. With its embeddedsmart chip, the Blue card could extend beyond the Website to the physical point of sale, bringing customer pro-file data not just to American Express, but also to themore than six million merchants that accept the com-pany’s cards.

But digital relationship management will involve farmore than simply multiplying the points of contact.Ubiquity will enable bricks-and-mortar companies toconvert physical customer traffic into digital relation-ships, introducing new combatants to the already fiercewar for eyeballs. These companies will be able to usetheir physical access to customers to deliver preciselytargeted messages—their own as well as those of compa-nies that borrow the point of contact. Airlines, forinstance, have a captive audience in the terminal club,the departure lounge, and the plane itself. They canexploit this advantage to offer contextual servicesbeyond the reach of virtual agents such as Travelocity orTrip.com.

Even quintessential bricks-and-mortar businessessuch as parking garages and shopping malls will be ableto turn their traffic into personal relationships and incre-mental revenue. The best-conceived Web sites in theworld wouldn’t significantly improve the fortunes ofthose businesses. But ubiquity now allows garages andmalls to manage customer relationships directly. In Swe-den, garages now accept payment from the “digital wal-let” of a Sonera cell phone. Embedded in the digitalmoney is significant information about garage cus-tomers, including their names and when and how often


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they park. Garage owners can use the data to turn fre-quent visitors into monthly customers and to engage indynamic pricing, charging more when the garage isnearly full and less when business is slow.

For shopping mall operators, ubiquity creates anopportunity to manage the customer relationships previ-ously owned by individual retail tenants. Simon Proper-ties, the largest retail mall developer in the United States,gives some shoppers mobile devices that they can use togenerate electronic wish lists or to order products forhome delivery. Simon eventually will be able to trackshoppers as they move through the mall, feeding tenantretailers the purchase data they need to offer timely andrelevant promotions. No longer an anonymous providerof retail space, Simon can now add value to the retailexperience by helping store owners better match theirproducts and services with customers’ needs.

Ubiquity creates opportunities wherever there is cus-tomer traffic. As an extension of its existing FastPasselectronic ticketing system, Disney could win loyalty inits theme parks by creating virtual lines. Using a Disney-supplied mobile device, a customer could reserve a seaton a popular ride hours in advance, eliminating the timespent waiting in line. That would increase customerenjoyment (and spending) while deepening the informa-tion-based relationship. Drawing on the informationgathered during the customer’s visit to the park, Disneycould follow up with carefully targeted catalogs or pro-motions for movies, games, or merchandise. In similarfashion, some pretty unlikely candidates—from sportsstadiums to movie theaters to taxicabs—suddenlyemerge as digital intermediaries.

The automobile may present the richest new opportu-nity for digital relationship management. The ubiquitous


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Internet could enable GM, the world’s largest manufac-turing company, to transform itself from an automakerto a communications intermediary. After all, driversspend an average of 8.5 hours a week inside the approxi-mately 70 million GM vehicles on the road today. Bycomparison, America Online’s 22 million subscribersspend 7.5 hours a week on-line. The information in everyone of GM’s vehicles is immensely valuable to other mar-keters. Shell and Texaco, for instance, would pay goodmoney to know how much gas is left in a car’s tank.Retailers and restaurateurs would pay to know when avehicle is passing nearby. Mechanics would pay foraccess to a GM vehicle’s service history. By reconceivingthe car as an information device, GM dramaticallyincreases the amount of value it can capture from eachvehicle, while providing services that tie car ownerscloser to the company.

The New Corporate Agenda

It’s tempting to take a wait-and-see attitude to theubiquitous Internet. Wireless technologies are still in

development. InteractiveTV is years away frommass adoption. E-couponsand other methods ofreaching the customer atthe point of sale are intheir infancy. But now isthe time to begin building

the skills needed to win in the age of ubiquity.Senior managers need to start by honestly assessing

their business. Does it offer a service or a product thatwill generate repeat visits to a Web site? Does it stand a

Ubiquity will allowbusinesses to accompanytheir customers 24hours a day, but not everybusiness will be invitedalong for the ride.


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chance of forming an ongoing relationship with cus-tomers? If so, the company should spend what it takes todesign and build a destination Web site. But for mostcompanies, the customer relationship is a series of con-textual interactions. Those companies shouldn’t beafraid to define an Internet strategy that de-emphasizesthe site itself; there are better ways for them to spendtheir marketing dollars.

Ubiquity will allow businesses to accompany theircustomers 24 hours a day, but not every business will beinvited along for the ride. Customers will admit only themost relevant messages into their lives, so the concept ofadding value to customers’ lives will change significantlyin an always-on world. The companies that can antici-pate and meet the real needs of their customers—basedon where they are located, what they do, and which com-munities of interest they belong to—will be valued part-ners. The companies that can’t will be dismissed as peskynuisances.

The winning companies will be the ones that master afew critical disciplines. First, database marketing toolswill be essential. Whatever their industry, mass mar-keters will have to become direct marketers because theubiquitous Internet will require companies to constantlyretarget and retailor their messages. Second, new tech-nology skills need to be mastered quickly: the companiesthat build new databases, upgrade their legacy systemsearly, and create the middleware necessary to tailor theirmessages to customers’ ever-changing needs and situa-tions will move ahead of the competition. And finally,companies need to adopt the discipline of measurement.Winners will measure everything, constantly refiningtheir messages to meet ever-heightening consumerdemands for relevance.


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Mastering the contextual possibilities of the ubiqui-tous Internet will require a significant commitment ofcorporate resources. But the payoff is just as significant:Internet strategies that are truly relevant to companiesand their customers. It will be neither cheap nor easy,but it will be a far better investment than pouring$10 billion into Web sites that few people visit.

Originally published in November–December 2000Reprint R00608


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The Lure of Global Branding .

Executive Summary

AS MORE AND MORE COMPANIES begin to see theworld as their market, brand builders look with envyupon those businesses that appear to have createdglobal brands—brands whose positioning, advertisingstrategy, personality, look, and feel are in most respectsthe same from one country to another. Attracted by suchhigh-profile examples of success, these companies wantto globalize their own brands.

But that’s a risky path to follow, according to DavidAaker and Erich Joachimsthaler. Why? Because creatingstrong global brands takes global brand leadership. Itcan’t be done simply by edict from on high. Specifically,companies must use organizational structures, processes,and cultures to allocate brand-building resources glob-ally, to create global synergies, and to develop a globalbrand strategy that coordinates and leverages countrybrand strategies.

87

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88 Aaker and Joachimsthaler

Aaker and Joachimsthaler offer four prescriptions forcompanies seeking to achieve global brand leadership.First, companies must stimulate the sharing of insights andbest practices across countries—a system in which “itwon’t work here” attitudes can be overcome. Second,companies should support a common global brand-planning process, one that is consistent across marketsand products. Third, they should assign global manage-rial responsibility for brands in order to create cross-coun-try synergies and to fight local bias. And fourth, theyneed to execute brilliant brand-building strategies.

Before stampeding blindly toward global branding,companies need to think through the systems they have inplace. Otherwise, any success they achieve is likely tobe random—and that’s a fail-safe recipe for mediocrity.

A come to view theentire world as their market, brand builders look withenvy upon those that appear to have created globalbrands—brands whose positioning, advertising strategy,personality, look, and feel are in most respects the samefrom one country to another. It’s easy to understandwhy. Even though most global brands are not absolutelyidentical from one country to another—Visa changes itslogo in some countries; Heineken means something dif-ferent in the Netherlands than it does abroad—compa-nies whose brands have become more global reap someclear benefits.

Consider for a moment the economies of scaleenjoyed by IBM. It costs IBM much less to create a singleglobal advertising campaign than it would to create sep-

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arate campaigns for dozens of markets. And becauseIBM uses only one agency for all its global advertising, it

carries a lot of clout withthe agency and can get themost talented peopleworking on its behalf. Aglobal brand also benefitsfrom being driven by asingle strategy. Visa’sunvarying “worldwide

acceptance” position, for example, is much easier for thecompany to manage than dozens of country-specificstrategies.

Attracted by such high-profile examples of success,many companies are tempted to try to globalize theirown brands. The problem is, that goal is often unrealis-tic. Consolidating all advertising into one agency anddeveloping a global advertising theme—often the corner-stone of the effort—can cause problems that outweighany advantages. And edicts from on high—“Henceforth,use only brand-building programs that can be appliedacross countries”—can prove ineffective or even destruc-tive. Managers who stampede blindly toward creating aglobal brand without considering whether such a movefits well with their company or their markets risk fallingover a cliff. There are several reasons for that.

First, economies of scale may prove elusive. It issometimes cheaper and more effective for companies tocreate ads locally than to import ads and then adaptthem for each market. Moreover, cultural differencesmay make it hard to pull off a global campaign: even thebest agency may have trouble executing it well in allcountries. Finally, the potential cost savings from “media

Consolidating alladvertising into one agencyand developing a globaltheme can cause problemsthat outweigh anyadvantages.

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spillover”—in which, for example, people in France viewGerman television ads—have been exaggerated. Lan-guage barriers and cultural differences have made realiz-ing such benefits difficult for most companies.

Second, forming a successful global brand team canprove difficult. Developing a superior brand strategy forone country is challenging enough; creating one thatcan be applied worldwide can be daunting (assumingone even exists). Teams face several stumbling blocks:they need to gather and understand a great deal ofinformation; they must be extremely creative; and theyneed to anticipate a host of challenges in execution.Relatively few teams will be able to meet all thosechallenges.

Third, global brands can’t just be imposed on all mar-kets. For example, a brand’s image may not be the samethroughout the world. Honda means quality and reliabil-ity in the United States, but in Japan, where quality is agiven for most cars, Honda represents speed, youth, andenergy. And consider market position. In Britain, whereFord is number one, the company positioned its Galaxyminivan as the luxurious “nonvan” in order to appeal notonly to soccer moms but also to executives. But in Ger-many, where Volkswagen rules, Ford had to position theGalaxy as “the clever alternative.” Similarly, Cadbury inthe United Kingdom and Milka in Germany have pre-empted the associations that connect milk with choco-late; thus neither company could implement a globalpositioning strategy.

For all those reasons, taking a more nuancedapproach is the better course of action. Developingglobal brands should not be the priority. Instead, compa-nies should work on creating strong brands in all mar-kets through global brand leadership.


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Global brand leadership means using organizationalstructures, processes, and cultures to allocate brand-building resources globally, to create global synergies,and to develop a global brand strategy that coordinatesand leverages country brand strategies. That is, ofcourse, easier said than done. For example, companiestend to give the bulk of their brand-building attention tocountries with large sales—at the expense of emergingmarkets that may represent big opportunities. But somecompanies have successfully engaged in global brandmanagement. To find out how, we interviewed execu-tives from 35 companies in the United States, Europe,and Japan that have successfully developed strongbrands across countries. (About half the executives werefrom companies that made frequently purchased con-sumer products; the rest represented durables, high-techproducts, and service brands.)

Four common ideas about effective brand leadershipemerged from those interviews. Companies must:

• stimulate the sharing of insights and best practicesacross countries;

• support a common global brand-planning process;

• assign managerial responsibility for brands in orderto create cross-country synergies and to fight localbias; and

• execute brilliant brand-building strategies.

Sharing Insights and Best Practices

A companywide communication system is the mostbasic element of global brand leadership. Managers fromcountry to country need to be able to find out about


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programs that have worked or failed elsewhere; they alsoneed a way to easily give and receive knowledge aboutcustomers—knowledge that will vary from one market toanother.

Creating such a system is harder than it sounds. Busypeople usually have little motivation to take the time toexplain why efforts have been successful or ineffective;furthermore, they’d rather not give out information thatmay leave them exposed to criticism. Another problem isone that everyone in business faces today: informationoverload. And a feeling of “it won’t work here” often per-vades companies that attempt to encourage the sharingof market knowledge.

To overcome those problems, companies must nur-ture and support a culture in which best practices arefreely communicated. In addition, people and proce-dures must come together to create a rich base of knowl-edge that is relevant and easy to access. Offering incen-tives is one way to get people to share what they know.American Management Systems, for example, keepstrack of the employees who post insights and best prac-tices and rewards them during annual performancereviews.

Regular meetings can be an effective way of commu-nicating insights and best practices. Frito-Lay, for exam-ple, sponsors a “market university” roughly three times ayear in which 35 or so marketing directors and generalmanagers from around the world meet in Dallas for aweek. The university gets people to think about brandleadership concepts, helps people overcome the mind-setof “I am different—global programs won’t work in mymarket,” and creates a group of people around the worldwho believe in and understand brands and brand strat-egy. During the week, country managers present case


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studies on packaging, advertising, and promotions thatwere tested in one country and then successfully appliedin another. The case studies demonstrate that practicescan be transferred even when a local marketing team isskeptical.

Formal meetings are useful, but true learning takesplace during informal conversations and gatherings.And the personal relationships that people establish dur-ing those events are often more important than theinformation they share. Personal ties lead to meaningfulexchanges down the road that can foster brand-buildingprograms.

In addition to staging meetings, companies areincreasingly using intranets to communicate insightsand best practices. (Sharing such information by e-mailisn’t as effective—there is simply too much e-mail clut-ter. E-mail is useful, however, for conveying breakingnews about competitors or new technology.) The key isto have a team create a knowledge bank on an intranetthat is valuable and accessible to those who need it.Mobil, for example, uses a set of best-practice networksto do just that. The networks connect people in the com-pany (and sometimes from partner organizations) whoare experts on, for example, new product introduction,brand architecture, and retail-site presentation. Eachnetwork has a senior management sponsor and a leaderwho actively solicits postings from the experts. Theleader ensures that the information is formatted, orga-nized, and posted on an easy-to-use intranet site.

Field visits are another useful way to learn about bestpractices. Honda sends teams to “live with best prac-tices” and to learn how they work. In some companies,the CEO travels to different markets in order to energizethe country teams and to see best practices in action.


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Procter & Gamble uses worldwide strategic-planninggroups of three to 20 people for each category to encour-age and support global strategies. The teams have severaltasks. They mine local knowledge about markets and dis-seminate that information globally. They gather dataabout effective country-specific marketing efforts andencourage testing elsewhere. They create global manu-facturing sourcing strategies. And they develop policiesthat dictate which aspects of the brand strategy must befollowed everywhere and which ones are up to countrymanagement.

Another way that companies can communicate infor-mation about their brands is by sharing research. Fordoperates very differently from country to country inEurope, but its businesses share research methods andfindings. Ford UK, for example, which is very skilled atdoing direct mail and research on segmentation, makesits technology and research methods available to othercountries. That’s especially important for businesses insmall markets that are short on budget and staff.

Supporting Global Brand Planning

Two years ago, the newly appointed global brand man-ager of a prominent packaged-goods marketer orga-nized a brand strategy review. He found that all thecountry brand managers used their own vocabulariesand strategy templates and had their own strategies.The resulting mess had undoubtedly contributed toinferior marketing and weakened brands. Anotherpackaged-goods company tried to avoid that problemby developing a global planning system. Brand man-agers weren’t given incentives or trained properly to usethe system, however, and the result was inconsistent,half-hearted efforts at planning.


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Companies that practice global brand managementuse a planning process that is consistent across marketsand products—a brand presentation looks and soundsthe same whether it’s delivered in Singapore, Spain, orSweden, and whether it’s for PCs or printers. It shares thesame well-defined vocabulary, strategic analysis inputs(such as competitor positions and strategies), brandstrategy model, and outputs (such as brand-buildingprograms).

There is no one accepted process model, but all mod-els have two starting points: it must be clear which per-son or group is responsible for the brand and the brandstrategy, and a process template must exist. The com-pleted template should specify such aspects of a strategyas the target segment, the brand identity or vision, brandequity goals and measures, and brand-building programsthat will be used within and outside the company.Although various process models can work, observationsof effective programs suggest five guidelines.

First, the process should include an analysis of cus-tomers, competitors, and the brand. Analysis of cus-tomers must go beyond quantitative market researchdata; managers need to understand the brand associa-tions that resonate with people. Analysis of competitorsis necessary to differentiate the brand and to ensure thatits communication program—which may include spon-sorship, promotion, and advertising—doesn’t simplycopy what other companies are doing. And an audit ofthe brand itself involves an examination of its heritage,image, strengths, and problems, as well as the company’svision for it. The brand needs to reflect that vision toavoid making empty promises.

Second, the process should avoid a fixation on productattributes. A narrow focus on attributes leads to short-lived, easily copied advantages and to shallow customer


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relationships. Most strong brands go beyond functionalbenefits; despite what customers might say, a brand canalso deliver emotional benefits and help people expressthemselves. A litmus test of whether a company reallyunderstands its brands is whether it incorporates the fol-lowing elements into the brand strategy: brand personal-ity (how the brand would be described if it were a person),user imagery (how the brand’s typical user is perceived),intangibles that are associated with the company (its perceived innovativeness or reputation for quality, forexample), and symbols associated with the brand, suchas Virgin’s Branson, the Coke bottle, or the Harley eagle.A simple three-word phrase or a brief list of productattributes cannot adequately represent a strong brand.

Third, the process must include programs to commu-nicate the brand’s identity (what the brand should standfor) to employees and company partners. Without clarityand enthusiasm internally about the associations thebrand aspires to develop, brand building has no chance.A brand manual often plays a key role. Unilever has adetailed manual on its most global brand, Lipton Tea,that puts the answer to any question about its brandidentity (What does the brand stand for? What are thetimeless elements of the brand? What brand-buildingprograms are off target?) at the fingertips of all employ-ees. Other companies use workshops (Nestlé), newslet-ters (Hewlett-Packard), books (Volvo), and videos (theLimited) to communicate brand identity. To engagepeople in this process, Mobil asked employees to nomi-nate recent programs or actions that best reflected thecore elements of the Mobil brand—leadership, partner-ship, and trust. The employees with the best nomina-tions were honored guests at a car race sponsored by thecompany.


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Fourth, the process must include brand equity mea-surement and goals. Without measurement, brand build-ing is often just talk; yet surprisingly few companies havesystems that track brand equity. Pepsi is an exception. Inthe mid-1990s, Pepsi introduced a system based on whatit calls a “marketplace P&L.” The P&L measures brandequity by tracking the results of blind taste tests, theextent of a product’s distribution, and the results of cus-tomer opinion surveys about the brand. In the beginning,country managers were strongly encouraged—but notrequired—to use the system. But the value of the market-place P&L soon become clear, as country managers com-pared results at meetings and used the shared informa-tion to improve their brand-building efforts. In 1998,CEO Roger Enrico made the system mandatory—a dra-matic indication of its value given Pepsi’s decentralizedculture and the home office’s general reluctance toimpose companywide rules.

Finally, the process must include a mechanism thatties global brand strategies to country brand strate-gies. Sony and Mobil, among others, use a top-downapproach. They begin with a global brand strategy; coun-try strategies follow from it. A country brand strategymight augment the global strategy by adding elements tomodify the brand’s identity. For example, if the managerof a Mobil fuel brand in Brazil wants to emphasize thatthe brand gives an honest gallon (because other brandsof fuel in Brazil are not considered reliable in their mea-surements), he would add “honest measures” to thecountry brand identity. Or a country brand strategistmight put a different spin on an element of the brand’sidentity. For example, although the term “leadership”may mean “technology leadership” in most countries, thestrategist may change it to mean “market leadership” in


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his or her market. In the top-down approach, the countrybrand team has the burden of justifying any departuresfrom the global brand strategy.

In the bottom-up approach, the global brand strategyis built from the country brand strategies. Countrystrategies are grouped by similarities. A grouping might,for example, be made on the basis of market maturity(underdeveloped, emerging, or developed) or competi-tive context (whether the brand is a leader or a chal-lenger). While the brand strategy for these groupings willdiffer, a global brand strategy should also be able to iden-tify common elements. Over time, the number of distinctstrategies will usually fall as experiences and best prac-tices are shared. As the number shrinks, the companycan capture synergies. Mercedes, for example, uses oneadvertising agency to create a menu of five campaigns.Brand managers in different countries can then pick themost suitable campaign for their market.

Assigning Responsibility

Local managers often believe that their situation isunique—and therefore, that insights and best practicesfrom other countries can’t be applied to their markets.Their belief is based in part on justifiable confidence intheir knowledge of the country, the competitive milieu,and the consumers. Any suggestion that such confidenceis misplaced can feel threatening. Moreover, people arecomfortable with strategies that have already proveneffective. The local brand managers may fear that theywill be coerced or enticed into following a strategy thatdoesn’t measure up to their current efforts.

Most companies today have a decentralized cultureand structure. They find it difficult, therefore, to per-


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suade country teams to quickly and voluntarily acceptand implement a global best practice. To ensure thatlocal teams overcome such reluctance, an individual orgroup must be in charge of the global brand. Ourresearch suggests that responsibility for global brandleadership can follow four possible configurations: busi-ness management team, brand champion, global brandmanager, and global brand team. The first two are led bysenior executives; the latter two by middle managers.

This approach is most suitable when the company’s topmanagers are marketing or branding people who regardbrands as the key asset to their business. P&G fits thatdescription. Each of its 11 product categories is run by aglobal category team. The teams consist of the fourmanagers who have line responsibility for R&D, manu-facturing, and marketing for the category within theirregion. Each team is chaired by an executive vice presi-dent who also has a second line job. For example, thehead of health and beauty aids in Europe also chairs thehair care global category team. The teams meet five orsix times a year.

Because the teams are made up of top-level line exec-utives, there are no organizational barriers to carryingout decisions. At the country level, P&G’s brand andadvertising managers implement the strategy. Thus localbias cannot get in the way of the company’s global brandleadership.

The 11 teams strive to create global brands withoutweakening brand strength locally. They define the iden-tity and position of brands in their categories throughoutthe world. They encourage local markets to test and


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adopt brand-building programs that have been success-ful elsewhere. And they decide which brands will get newproduct advances. For example, Elastesse, the chemicalcompound that helps people eliminate “helmet head,”was first added to the company’s Pantene product linerather than one of its three sister brands.

This is a senior executive, possibly the CEO, who servesas the brand’s primary advocate and nurturer. Theapproach is particularly well suited to companies whosetop executives have a passion and talent for brand strat-egy. Companies like Sony, Gap, Beiersdorf (Nivea), andNestlé meet that description. Nestlé has a brand cham-pion for each of its 12 corporate strategic brands. As istrue for the leaders of P&G’s business managementteams, each brand champion at Nestlé has a secondassignment. Thus the vice president for nutrition is thebrand champion for Carnation, and the vice presidentfor instant coffee is the brand champion for Taster’sChoice (known as Nescafé outside the United States). AtNestlé, brand leadership is not just talk. The additionalwork that the brand champion takes on has resulted in achange in the company’s performance-evaluation andcompensation policies.

A brand champion approves all brand-stretchingdecisions (to put the Carnation label on a white milkchocolate bar, for example) and monitors the presenta-tion of the brand worldwide. He or she must be familiarwith local contexts and managers, identify insights andbest practices, and propagate them through sometimesforceful suggestions. In some companies, such as Sony,the brand champion owns the country brand identitiesand positions and takes responsibility for ensuring that


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the country teams implement the brand strategy. Abrand champion has credibility and respect not onlybecause of organizational power but also because of adepth of experience, knowledge, and insight. A sugges-tion from a brand champion gets careful consideration.

P&G plans to evolve over the next decade toward abrand champion approach. It believes that it can

achieve greater coopera-tion and create moreglobal brands by concen-trating authority andresponsibility in thehands of high-level brandchampions. At the

moment, P&G regards only a handful of its 83 majorbrands as global.

In many companies, particularly in the high-tech andservice industries, top management lacks a branding oreven a marketing background. The branding expertiserests just below the top line managers. Such companiesare often decentralized and have a powerful regional andcountry line-management system. Effective global brandmanagers are necessary in these cases to combat localbias and spur unified efforts across countries.

Some global brand managers have sign-off authorityfor certain marketing programs, but most have littleauthority. They must attempt to create a global brandstrategy without the ability to mandate. There are fivekeys to success in these situations:

• Companies must have believers at the top; otherwiseglobal brand managers will be preoccupied with

Most global brand managershave little authorityand must create a strategywithout the abilityto mandate.


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convincing the executive suite that brands are worthsupporting. If there are no believers, a brand managercan try to create them. The global brand manager forMasterCard did just that by convincing the organiza-tion to form a “miniboard” of six board members andnominating one to be its chair. That person becamethe brand’s voice during board meetings.

• A global brand manager needs to either create a plan-ning process or manage an existing one. To make theprocess effective, all country managers should use thesame vocabulary, template, and planning cycle. This isthe first step toward fighting local bias.

• A global brand manager should become a key part ofthe development, management, and operation of aninternal brand communication system. By traveling tolearn about customers, country managers, problems,and best practices, he or she will be able to maximizethe opportunities for cooperation.

• In order to deal with savvy country brand specialists,global brand managers must have global experience,product background, energy, credibility, and peopleskills. Companies need a system to select, train, men-tor, and reward prospects who can fill the role. AtHäagen-Dazs, the global brand manager is also thebrand manager for the United States, the lead marketfor its ice cream. The latter position gives the man-ager credibility because of the resources and knowl-edge base that come with it.

• Companies can signal the importance of the rolethrough the title they give the manager. At IBM, globalbrand managers are called brand stewards, a title thatreflects the goal of building and protecting brand


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equity. At Smirnoff, the global brand manager is giventhe title of president of the Pierre Smirnoff Company,suggesting how much the company values his position.

A global brand manager, acting alone, can be perceivedas an outsider—just another corporate staff person con-tributing to overhead, creating forms, and calling meet-ings. Sometimes adding people to the mix—in the formof a global brand team—can solve this problem. With ateam working on the issue, it becomes easier to convincecountry brand managers of the value of global brandmanagement.

Global brand teams typically consist of brand repre-sentatives from different parts of the world, from differ-ent stages of brand development, and from differentcompetitive contexts. Functional areas such as advertis-ing, market research, sponsorship, and promotions mayalso be represented. The keys to success with theseteams are similar to those for the global brand manager.

One problem with a global brand team (unless it is ledby a global brand manager) is that no one person ulti-mately owns the brand globally. Thus no one is respon-sible for implementing global branding decisions. Inaddition, team members may be diverted from their taskby the pressures of their primary jobs. And the team maylack the authority and focus needed to make sure thattheir recommendations are actually implemented at thecountry level. Mobil solves that problem in part by creat-ing “action teams” made up of people from several coun-tries to oversee the implementation.

Some companies partition the global brand manageror team across business units or segments. For example,


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Mobil has separate global brand teams for the passengercar lubricant business, the commercial lubricants busi-ness, and the fuel business because the brand is funda-mentally different in each. A global brand council thencoordinates those segments by reconciling the differentidentities and looking for ways to create brand synergy.

And consider how DuPont handles its Lycra brand.The 35-year-old synthetic is known worldwide for theflexibility and comfort it lends to clothing; its identity isembodied in the global tagline “Nothing moves likeLycra.” The problem for Lycra is that it has a variety ofapplications—it can be used, for example, in swimsuits,in running shorts, and in women’s fashions. Each appli-cation requires its own brand positioning. DuPont solvesthe problem by delegating responsibility for each appli-cation to managers in a country where that applicationis strongest. Thus the Brazilian brand manager for Lycrais also the global lead for swimsuit fabric because Brazilis a hotbed for swimsuit design. Similarly, the Frenchbrand manager takes the lead for Lycra used in fashion.The idea is to use the expertise that is dispersed through-out the world. The global brand manager for Lycraensures that those in charge of different applications aretogether on overall strategy; he or she also pulls togethertheir ideas in order to exploit synergies.

When local management is relatively autonomous, itmay be necessary to give the global brand manager or

team a significant degreeof authority. Doing so canalso reduce the chancesthat the manager or teamwill get smothered byorganizational or compet-

itive pressures; in addition, it can signal the company’scommitment to brand building.

Some aspects of the brand’smanagement will be firm,but others will be adaptableor discretionary.


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The team or manager may have authority over itsvisual representation and brand graphics, for example. Inthat case, the group or the individual would have toapprove any departures from the specified color, type-face, and layout of the logo. Or a global brand team mayhave authority over the look and feel of a product. TheIBM ThinkPad is black and rectangular; it has a redtracking ball and a multicolored IBM logo set at 35degrees in the lower right corner. The global brand teammust approve any deviations from that look. In anotherexample, the global brand manager at Smirnoff has sign-off authority on the selection of advertising agencies andthemes.

While companies are spelling out the authority of theglobal brand manager or team, they must also makeclear what authority resides with the country team.Some aspects of the brand’s management will be firm—the definition of what the brand stands for, say—but oth-ers will be adaptable or discretionary, such as the adver-tising presentation or the use of product promotions.The job of the person or group responsible for the brandis to make sure that everyone knows and follows theguidelines.

Delivering Brilliance

Global brand leadership, especially in these days ofmedia clutter, requires real brilliance in brand-buildingefforts—simply doing a good job isn’t enough. Thedilemma is how to balance the need to leverage globalstrengths with the need to recognize local differences.Our research indicates that those who aspire to brilliantexecution should do the following:

First, consider what brand-building paths to follow—advertising, sponsorship, increasing retail presence,


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promotions. The path you choose may turn out to bemore important than the way you follow through with it.Experience shows that if the path starts with advertising,as it usually does, other sometimes more innovative andmore effective brand-building approaches get the shortend of the stick. Second, put pressure on the agency tohave the best and most motivated people working on thebrand, even if that means creating some agency-clienttension. Third, develop options: the more chances at bril-liance, the higher the probability that it will be reached.Fourth, measure the results.

P&G finds exceptional ideas by encouraging the coun-try teams to develop breakthrough brand-building pro-grams. Particularly if a brand is struggling, countrybrand teams are empowered to find a winning formulaon their own. Once a winner is found, the organizationtests it in other countries and implements it as fast aspossible.

For example, when P&G obtained Pantene Pro-V in1985, it was a brand with a small but loyal following. Thecompany’s efforts to expand the product’s following inthe United States and France did not increase the prod-uct’s popularity. In 1990, however, brand strategistsstruck gold in Taiwan. They found that the image ofmodels with shiny healthy hair resonated with Taiwan’sconsumers. The tagline for the ads was “Hair so healthyit shines.” People recognized that they couldn’t look justlike the models but inside they said, “I’ve got to have thathair.” Within six months, the brand was the leader inTaiwan. The concept and supporting advertising testedwell in other markets and was subsequently rolled out in70 countries.

Another way to stimulate brilliant brand building isto use more than one advertising agency. It’s true that a


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single agency can coordinate a powerful, unified cam-paign; using only one agency, however, means putting allyour creative eggs in one basket. On the other hand,using multiple agencies can lead to inconsistency andstrategic anarchy.

In Europe, Audi gets the best of both approaches byfollowing a middle course. It has five agencies from dif-ferent countries compete to be the lead agency that willcreate the brand’s campaign. The four agencies that loseout are nonetheless retained to implement the winningcampaign in their countries. Because the agencies arestill involved with Audi, they are available for anotherround of creative competition in the future. A variant onthis approach would be to use several offices from thesame agency. That may not lead to as much variation increative ideas, but it still provides more options thanhaving just one group within one agency.

Adapting global programs to the local level can oftenimprove the effectiveness of a campaign. Take Smirnoff ’s“pure thrill” vodka campaign. All of its global advertisingshows distorted images becoming clear when viewedthrough the Smirnoff bottle, but the specific sceneschange from one country to another in order to appeal toconsumers with different assumptions about what isthrilling. In Rio de Janeiro, the ad shows the city’s statueof Christ with a soccer ball, and in Hollywood, the “w” inthe hillside sign is created with the legs of two people.The IBM global slogan “Solutions for a Small Planet”became “small world” in Argentina where “planet”lacked the desired conceptual thrust.

And yet managers won’t be able to tell how wellthey’re building brands unless they develop a globalbrand measurement system. The system must go beyondfinancial measures—useful as they are—and measure


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brand equity in terms of customer awareness, customerloyalty, the brand’s personality, and the brand associa-tions that resonate with the public. When these mea-sures of the brand are available, a company has the basisto create programs that will build a strong brand in allmarkets and to avoid programs that could destroy thebrand.

All multinational companies should actively engage inglobal brand management. Any company that tries to getby with unconnected and directionless local brandstrategies will inevitably find mediocrity as its reward. Insuch cases, an exceptionally talented manager will, onoccasion, create a pocket of success. But that success willbe isolated and random—hardly a recipe that will pro-duce strong brands around the world.

Originally published in November–December 1999Reprint 99601


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Are the Strategic Stars Alignedfor Your Corporate Brand?

Executive Summary

IN RECENT YEARS, companies have increasingly seenthe benefits of creating a corporate brand. Rather thanspend marketing dollars on branding individual products,giants like Disney and Microsoft promote a single um-brella image that casts one glow over all their products.

A company must align three interdependent ele-ments—call them strategic stars—to create a strong corpo-rate brand: vision, culture, and image. Aligning the starstakes concentrated managerial skill and will, the authorssay, because each element is driven by a different con-stituency: management, employees, or stakeholders.

To effectively build a corporate brand, executivesmust identify where their strategic stars fall out of line. Theauthors offer a series of diagnostic questions designed toreveal misalignments in corporate vision, culture, andimage. The first set of questions looks for gaps between

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110 Hatch and Schultz

vision and culture; for example, when managementestablishes a vision that is too ambitious for the organiza-tion to implement. The second set addresses culture andimage, uncovering possible gaps between the attitudesof employees and the perceptions of the outside world.The last set of questions explores the vision-image gap—ismanagement taking the company in a direction that itsstakeholders support?

The authors discuss the benefits of a corporate brand,such as reducing marketing costs and building a sense ofcommunity among customers. But they also point tocases in which a corporate brand doesn’t make sense—for instance, if you are a product incubator, if you’verecently experienced M&A activity, or if you are expect-ing fallout from risky ventures.

W sponsored the JuvenileDiabetes Foundation in New York last year, the companydistributed the customary glossy promotional brochureto highlight its generosity. That brochure, however,looked different than those from years past. On thecover, 20 of P&G’s flagship products were conspicuouslymerged in a single symbolic image.

For the granddaddy of product branding, that imagemay very well reflect a seismic shift in marketing strat-egy. P&G was founded, after all, on the traditional mar-keting notion that each product needs a unique identity.Ideally, a brand would grow so strong that, like P&G’sown Pampers, it would become a synonym for the prod-uct itself.

If the image on the P&G brochure does imply a shiftin direction, the company will be joining the ranks ofcorporate branding giants like Disney, Microsoft, and

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Sony. Rather than spend their marketing dollars onbranding individual products, those companies promotea corporate brand—a single umbrella image that castsone glow over a panoply of products. In recent years, cor-porate brands have become enormously valuableassets—companies with strong corporate brands canhave market values that are more than twice their bookvalues. (For more on the business case supporting corpo-rate brands, see “What a Corporate Brand Can Do forYou” at the end of this article.)

Not surprisingly, creating a corporate brand is bothcomplicated and nuanced. Perhaps that’s why so manycompanies get it wrong. In some cases, an organizationwill invent a catchy new corporate slogan, tack it on awide range of products, and hope it will mean somethingto employees and consumers alike. Just as bad, a com-pany might simply design a new logo and slap it on everyproduct, hoping it will pass as a corporate brand. (See“When a Corporate Brand Doesn’t Make Sense” at theend of this article.)

But there is more to it than that. Our research into 100companies around the world over ten years shows that acompany must align three essential, interdependent ele-ments—call them strategic stars—to create a strong cor-porate brand: vision, culture, and image. As opposed tothe shortcuts described above, aligning the stars takesconcentrated managerial skill and will. The reason is thata different constituency—management, employees, orstakeholders—drives each element. Consider:

• Vision: top management’s aspirations for the com-pany.

• Culture: the organization’s values, behaviors, andattitudes—that is, the way employees all through theranks feel about the company.

Are the Strategic Stars Aligned? 111

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• Image: the outside world’s overall impression of thecompany. This includes all stakeholders—customers,shareholders, the media, the general public, and so on.

The Corporate Branding Tool Kit

To effectively build a corporate brand, executives need toidentify where their strategic stars fall out of line. Toguide managers through this analysis, we have developedthe corporate branding tool kit, a series of diagnosticquestions designed to reveal misalignments in corporatevision, culture, and image. The first set of questions looksat the relationship between vision and culture; that is,how managers and employees are aligned. The secondset addresses culture and image, uncovering possiblegaps between the attitudes of employees and the percep-tions of the outside world. The last set explores thevision-image gap—is management taking the companyin a direction that its stakeholders support?

To get started, take a look at the exhibit “The Corpo-rate Branding Tool Kit.” The questions are relativelystraightforward, but the investigation itself can be com-plex and time-consuming. Culling all the relevant infor-mation from your top managers, employees, and keystakeholders—through interviews, focus groups, interac-tive Web sites, and so on—can take months, or even ayear or more. Throughout the process, you’re trying todetect misalignments between strategic vision, organiza-tional culture, and stakeholder images—even small gapsthat might grow into larger ones.

Aligning the elements of your corporate brand is not asequential process. Vision, culture, and image are intri-cately interwoven, and you need to conduct the gap anal-yses concurrently. As you examine the relationship


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Who are your stakeholders?What do your stakeholders wantfrom your company?Are you effectivelycommunicating your visionto your stakeholders?

Does your company practicethe values it promotes?Does you company’s visioninspire all its subcultures?Are your vision and culturedifferentiated from those ofyour competitors?

What images do stakeholdersassociate with your company?In what ways do your employeesand stakeholders interact?Do your employees care whatstakeholders think of the company?

Vision(managers)

Culture(employees)

Image(stakeholders)

Vision-culture gapIm

age-visiongap Im

age-

cultu

rega

p

The Corporate Branding Tool Kit

To get the most out of a corporate branding strategy, three essential ele-ments must be aligned: vision, culture, and image. Aligning these “strate-gic stars” takes concentrated managerial skill and will. Each element isdriven by a different constituency:

•VisionTop management’saspirations for thecompany.

•CultureThe organization’s val-ues, behaviors, andattitudes—that is, theway employees allthrough the ranks feelabout the companythey are working for.

•ImageThe outside world’s over-all impression of thecompany. This includesall stakeholders—cus-tomers, shareholders,the media, the generalpublic, and so on.

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between, say, vision and image or image and culture,there will be some overlap. Don’t worry. This is the natu-ral result of the interdependence of the elements.

The tool is useful in identifying the key problemareas—the vision-culture gap, the image-culture gap,and the image-vision gap—but the hard work of develop-ing specific solutions and implementing them belongs toyou and your team.

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This misalignment develops when senior managementmoves the company in a strategic direction that employ-ees don’t understand or support. The gap usuallyemerges when senior management establishes a visionthat is too ambitious for the organization to implement.The main symptom: a breach between rhetoric and real-ity. Disappointed managers often blame employees forresisting change; frustrated employees react with cyni-cism and suspicion. Such scapegoating and distrust areextremely dangerous for companies. Like an ulcer, theycan eat away at a corporate brand from within. Touncover possible gaps between vision and culture, man-agers should ask the following questions of themselvesand their employees:

Does your company practice the values it promotes?We all laugh at Dilbert cartoons. But a company whereevery cubicle is festooned with them is probably in deeptrouble. The cartoons use cynical humor to point out thediscrepancies between the values a company espousesand those that its systems promote. This isn’t a laughingmatter. During John Akers’s reign at IBM, for example, ajoke circulated throughout the company that “IBMmeans I’ve been misled.” The severe downsizing that


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took place in the early 1990s in spite of the company’spromises of lifelong employment had generated anxiety,depression, and fear among its employees. Needless tosay, the effect of such disillusionment on IBM’s brand atthe time was devastating.

Does your company’s vision inspire all its subcul-tures? Any company, large or small, is made up of sub-cultures. The engineers in your R&D department willhave a different set of values and priorities than thoseheld by the sales and marketing department. Topmanagers need to be sure that the vision that inspiresthem—they, too, have a subculture—will resonatethroughout the company. A vision that speaks onlyto the R&D staff will not inspire a company that isdependent on salespeople. The key is to understandwhat organizational values are shared across the com-pany. Successful corporate visions pick up on thoseshared values. Bang & Olufsen, the Danish audiovisualcompany known for its distinctive product designs, forinstance, unifies its disparate workforce around aBauhaus-inspired tradition of simplicity.

Are your vision and culture sufficiently differentiatedfrom those of your competitors? Your vision and cultureare your signature. Together, they are a powerful tool inhelping you stand out from your competition. Apple is aclassic example of a company that successfully differen-tiated its vision through its unique culture. Thanks toSteve Jobs, Apple saw the potential of computers tochange people’s everyday lives. Jobs’s insight and enthu-siasm attracted to Silicon Valley legions of young peoplewho equated Apple with a new way of life. These com-puter enthusiasts not only created a culture that sup-ported Apple as it grew but also altered the shape of thecomputer industry forever.


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-

Misalignment between a company’s image and organiza-tional culture leads to confusion among customers aboutwhat a company stands for. This usually means that acompany doesn’t practice what it preaches, so its imagegets tarnished among key stakeholders. In today’s wiredworld, where word-of-mouth opinion spreads throughInternet chat rooms as quickly as the flu through akindergarten, maintaining a positive image is increas-ingly challenging. To identify image-culture gaps, youneed to compare what your employees are saying withwhat your customers and other stakeholders are saying.

What images do stakeholders associate with your com-pany? The first step in uncovering an image-culture gap isto understand the images that outsiders have of you.These images are both real and perceived—they stem asmuch from an individual’s feelings, thoughts, and opin-ions as from the facts of your company. They can bestartlingly different, therefore, from the image that thecompany seeks to project. And when stakeholders findthat the culture of an organization does not match theirsubjective image, it often spells disaster for the company.Consider British Airways. When it decided to go global,BA launched a campaign to change the image of the air-line. The company used advertising to persuade the pub-lic to view BA as a global airline; “the world’s favoriteairline” was now “the world’s favorite airline.” To commu-nicate its new image, BA repainted the tail fins of its air-craft with artwork from around the world. Unfortunately,the prim uniforms of the cabin crew and the silver tea ser-vice continued to give passengers the impression that BAwas distinctly British. Caught in the chasm betweenimage and culture, BA’s branding experiment failed.


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In what ways do your employees and stakeholdersinteract? The next line of questioning focuses on thechannels through which a company reaches out to stake-holders. While advertising and public relations cancounter negative images, nothing is more powerful thanstakeholders’ direct, personal encounters with the orga-nization. Energy giant Shell, for example, not only listensto its customers but also seeks feedback from investors,community members, and activists through focusgroups, surveys, and its Web-based “Tell-Shell” program.Unfortunately, many companies put obstacles in the wayof such communications, to the detriment of their cor-porate brands. Consider the potential for misalignmentwhen marketing talks to customers, HR talks to employ-ees, public relations talks to the media, but the depart-ments don’t talk to one another.

Do your employees care what stakeholders think of thecompany? An inauthentic organizational culture canjeopardize a corporate brand. Take Coca-Cola, whichused to have one of the world’s most powerful corporatebrands. Recent events—including the distribution oftainted beverages in Belgium and alleged profiteeringamong distributors—have led to a gap between the com-pany’s culture and image. How could the employees ofthe company that “taught the world to sing” be a party tothe exploitation of its customers? This fundamental mis-alignment has tarnished the image of Coca-Cola. Thecompany must now work to correct the deterioration inits culture that led to the scandals.

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The third obstacle for creating an effective corporatebrand is conflict between outsiders’ images and


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management’s strategic vision. Companies cannot affordto ignore their stakeholders; the most carefully craftedstrategic visions will fail if they are not aligned with whatcustomers want from the company. Having sounded outemployees and stakeholders, managers need to find outwhether they are out of sync themselves.

Who are your stakeholders? Managers who ask them-selves this seemingly obvious question are frequentlysurprised by what they learn. For example, many compa-nies find that their products reach a very different mar-ket from the ones they are targeting. Consider Nike inthe mid-1980s. At the time, the company saw itself as ahigh-performance athletic-shoe manufacturer thatattended only to the needs of top athletes. But marketresearch later showed that more than half of Nike’s saleswere going to people who were wearing the athleticfootwear as a substitute for casual shoes. This image-vision misalignment meant that Nike was not capitaliz-ing on an important market.

What do your stakeholders want from your company?Just as there can be a disconnect between a company’sculture and its image, so too is there frequently a gapbetween management’s vision and the images andexpectations customers have for a company. After Nikediscovered that its products were being sold as substi-tutes for casual shoes, for example, it produced a line ofconventional casual shoes—that nobody wanted. Con-sumers wanted the same shoes their athletic heroes werewearing. Before the company could exploit what wasobviously a hot market, Nike had to come to grips withthe fact that it didn’t matter that the sneakers were over-engineered for the average customer. The appeal was inthe image of athleticism that the sneakers projected.

Are you effectively communicating your vision to yourstakeholders? Marshall McLuhan memorably said the


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medium is the message. Though we wouldn’t go that far,we have no doubt that many companies underestimatethe importance of the way they communicate their visionto outsiders. Having created an inspiring vision backedup with cultural values, corporate managers all too oftenfail to check their work with their stakeholders. RecallBritish Airways. Once it had privatized, BA decided it wastime to fully globalize its brand. In addition to repaintingthe planes’ tail fins, the company decided to remove theBritish flag from all its aircraft. The British press went bal-listic. A cabin-crew strike broke out. Business-class trav-elers threatened to switch allegiance. This time a gap haddeveloped between BA’s vision and its image, and execu-tives were forced to acknowledge they had gotten itwrong again, and they abandoned the program. BA finallygot the message—it was a public icon that could notafford to ignore its stakeholders.

The corporate brand tool kit will not by itself identifyall the problems you are likely to have with your corpo-rate brand. But it does provide a useful framework forreality testing and will help you uncover the most obvi-ous gaps. You should tailor the questions to your com-pany and drill deeper in areas of particular concern. It’salso helpful to compare responses from different con-stituencies to similar questions. For example, you cancompare how managers, employees, and stakeholdersrate the way the company communicates its vision. Alack of consensus between the groups—or worse, amongmembers of the same group—will signal an importantdisconnect.

Getting the Stars Lined Up

Using a process like the corporate brand tool kit can helpcompanies get the most from their corporate brands.


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That’s what happened at Lego, the fourth largest toy-maker in the world. For years, the company’s top man-agers recognized that Lego’s most valuable asset was itsimage as a producer of imaginative and inventive con-struction toys. But in the mid-1990s, the market for thetoys started to decline, and Lego managers knew theyhad to reinvent the company. Its image was an obviousplace to start.

How did Lego go about building on its image? Thefirst step was to find out exactly what images stakehold-ers had of the company and its products. Lego turned tooutside experts such as Young & Rubicam, a leadingadvertising agency, for a global assessment of its image.They found that, in the minds of its stakeholders, Lego’simage was as strong as those of some of the world’s mostpowerful players, such as Disney and Microsoft. The rev-elation encouraged Lego executives to stop thinking ofthe company in terms of products—the celebrated Legobricks—and dare to see themselves as leaders in thebusiness of creativity and learning.

The next step in developing the corporate brand wasto bring vision in line with image. This was done by hold-ing brainstorming sessions for top managers and peopleoutside Lego—academics in business strategy and childdevelopment as well as dedicated customers—who hadlong-standing relationships with the company. Legoexecutives deliberately searched for a vision that wouldinspire the whole organizational culture as well as cus-tomers and other stakeholders. The result was a catchynew slogan—“just imagine...”—and a bold new visionstatement. Lego vowed to become the strongest brandamong families with children by 2005. Company ownerand president Kjeld Kirk Kristiansen held companywideseminars to launch the new vision. The process was


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inspirational. Lego got the guidance and input it neededto create a powerful new corporate vision that was inkeeping with the company’s image: imagination, inven-tion, togetherness, learning, and, of course, fun.

But aligning two of the three stars wasn’t enough.Lego also needed an organizational culture that couldsupport the vision and give the images credibility. That’swhy it invited managers and employees from all over theworld to participate in “pit stops.” At these workshops,which have so far involved some 7,000 employees, indi-viduals share their dreams for the company and them-selves, building support for the brand in the process. Inaddition, the company organizes “dream-outs,” similarto GE’s workouts, where employees participate in inter-active, real-time problem solving. One dream-outimproved distribution channels in the United States,another found new ways of responding to customerneeds for their infants. Pit stops and dream-outs areactivities that align Lego’s culture behind the vision, andtogether they have transformed the employee mind-setfrom toy producers to brand warriors.

Of course, even though it took exceptional care toalign image, vision, and culture, Lego faced lingering ten-sions when it moved to roll out the corporate brand. Afew product brand managers resisted the corporatebrand and had to be let go. The company itself had toreorganize. But the transformation at Lego was wellworth the effort. According to Lego’s 1999 annual report,the benefits of the corporate brand strategy and theinvestments in new business ideas and people develop-ment had already started to show in the 28% increase inthe company’s global net sales. Last year, the Lego brickwas named toy of the century by Fortune magazine. Thecompany grabbed more honors when it received the “Toy


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of the Century” award from the British Association ofToy Retailers for its classic Lego bricks and its ability tocreate new inventions such as Mindstorms.

While corporate vision and culture are themselvespowerful strategic tools, once they are aligned withstakeholder images, the corporate brand can become apowerhouse.

By identifying all elements of the corporate brand—and by exposing any gaps in their interaction—the cor-porate branding tool kit can help companies reap thebenefits of a corporate branding strategy. The tool elimi-nates much of the ambiguity involved in creating andmaintaining a corporate brand. As a result, managerscan take charge of those brands and use the strategicstars as competitive weapons.

What a Corporate Brand Can Do for You

CREATING A CORPORATE BRAND—an umbrella imagethat casts one glow over an array of products—is a rela-tively new approach to integrating a company’s stake-holders. With the notable exceptions we have men-tioned, most major companies, like P&G, have beenbetter known for their product brands than for their cor-porate brands. But an increasing number of companiesare discovering just how much value there is in a strongcorporate brand.

Corporate Brands Reduce Costs

U.S. companies together can save billions of dollars byusing corporate brands to exploit economies of scale in


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advertising and marketing. SmithKline Beecham, forexample, now uses its corporate brand to support all itsproducts. Corporate brands make good sense for com-panies that compete in markets where product life cycleshave shortened, making it difficult to recover the costs ofcontinually creating new product brands. Nestlé andUnilever are moving in this direction, each reducing thenumber of product brands they market.

They Give Customers a Sense of Community

Many customers are willing to pay more for somebadge of identification—say, Apple’s rainbow-coloredlogo—that makes them feel they are part of a community.Another notable example is Virgin. Across the company’sdiverse businesses—airlines, megastores, cola, andmobile phones—Virgin’s top management, led by flam-boyant CEO Richard Branson, has meticulously culti-vated the distinctive positioning of David versus Goliath:“We’re on your side against the fat cats.” This has led tothe widespread perception that Virgin is a company witha distinctive personality: innovative, challenging, fun.

They Provide a Seal of Approval

A strong corporate brand lets customers know what theycan expect of the whole range of products that a com-pany produces. Take Sony, for example. Its corporatelogo of four block letters, whether applied to a stereo, atelevision, or a computer game, stands for the high levelof competence, quality, and care for detail shared by allthe products that are sold under the Sony name. A strongcorporate brand also helps a company defend itselfagainst outside assault. Consider the Body Shop. Whena journalist recently accused the company of lacking


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integrity in its testing of beauty products, the companyovertly appealed to the public by citing its corporatebrand, which was firmly associated in people’s mindswith strong ethical standards concerning animal rights.

They Create Common Ground

The most successful corporate brands are universal andso paradoxically facilitate differences of interpretationthat appeal to different groups. This is particularly true ofcorporate brands whose symbolism is robust enough toallow people across cultures to share symbols evenwhen they don’t share the same meaning. A good exam-ple is the McDonald’s golden arches. One of the mostpowerful corporate brands ever created, the goldenarches resonate in the hearts and minds of people allover the world—even though different cultures attach dif-ferent meanings to them. McDonald’s promotes and sup-ports these differences of interpretation, breathing life intoits corporate brand around the world.

When a Corporate BrandDoesn’t Make Sense

ESTÉE LAUDER HAS A STRONG corporate brand, butthe company is driven by a number of product brands,such as Origins and Mac. The Gap has three successfulproduct brands—Banana Republic, Old Navy, and theGap—but many customers are unaware that they’re allpart of the same company. Are these companies laggingbehind the times? Not necessarily. Sometimes productbrands just make more sense, especially:


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If You Are a Product Incubator

If your company’s mission is to create and then sell offsuccessful product brands, imposing a corporate brandon them doesn’t make sense. For example, manybiotechnology and information technology companiesmake significant profits selling spin-off companies. Thiswas the case, for example, when Danish NKT sold itssubsidiary, Giga, to Intel for more than $1 billion.Because NKT’s business model is based on selling offother companies in the future, it holds them under sepa-rate names. In such cases, overt corporate brandingcould detract from the selling price if the potential buyersbelieved that disassociating the unit from its currentowner’s brand would be costly.

After M&A Activity

In industries such as finance and telecommunications,where frequent international mergers and acquisitionscan affect stakeholder comfort, many companies willchoose to preserve their national brands. Take the caseof banking. After a bank is acquired, customer trust andloyalty are unlikely to be transferred automatically to thenew bank owners. That’s why Scandinavia’s largestfinancial company, Nordic Baltic Holding, maintainslocal brands such as MeritaNordbanken in Sweden andFinland, Unibank in Denmark, and Christiania Bank inNorway. Maintaining national brand names, at least inthe short term, can help ease the turmoil of changingownership.

If You Are Expecting Fallout

Firms that like to take risks in new markets might not wantto bet their corporate brands by associating them withuntried products—unless the corporate brand, like


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Virgin’s, is associated with high-risk ventures. Also, inindustries like oil or chemicals where practices can raiseethical concerns or companies face repeated crises orscandals, the downside of corporate branding can besteep. Any negative publicity associated with the com-pany will spill over onto all the products it labels with itsname or associates with its official symbols.

Originally published in February 2001Reprint R0102K


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Torment Your Customers(They’ll Love It)

Executive Summary

IN THE PAST DECADE, marketing gurus have called forcustomer care, customer focus, even—shudder—customercentricity. But according to marketing professor StephenBrown, the customer craze has gone too far. In this arti-cle, he makes the case for “retromarketing”—a return tothe days when marketing succeeded by tormenting cus-tomers rather than pandering to them. Using vivid exam-ples, Brown shows that many recent consumer marketingcoups have decidedly not been customer-driven. They’verelied instead on five basic retromarketing principles:

Exclusivity. Retromarketing eschews the modern mar-keting proposition of “here it is, there’s plenty for every-one” by holding back supplies and delaying gratifica-tion. You want it? Can’t have it. Try again later, pal.

Secrecy. Whereas modern marketing is up-front andtransparent, retromarketing revels in mystery, intrigue,

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128 Brown

and covert operations. (Consider the classic “secret”recipes that have helped to purvey all sorts ofcomestibles.) The key is to make sure the existence of asecret is never kept secret.

Amplification. In a world of incessant commercialchatter, amplification is vital, and it can be induced inmany ways, from mystery to affront to surprise.

Entertainment. Marketing must divert, engage, andamuse. The lack of entertainment is modern marketing’sgreatest failure.

Tricksterism. Customers loved to be teased. The tricksdon’t have to be elaborate to be effective; they cancome cheap. But the rewards can be great if the brandis embraced, even briefly, by the in crowd.

Managers may be dismayed by the thought of delib-erately thwarting consumers. But if markets were reallycustomer oriented, they’d give their customers what theywant: old-style, gratuitously provocative marketing.

D ’ : I have nothing against cus-tomers. Some of my best friends are customers. Cus-tomers are a good thing, by and large, provided they’rekept well downwind.

My problem is with the concept of—and I shudder towrite the term—“customer centricity.” Everyone in busi-ness today seems to take it as a God-given truth thatcompanies were put on this earth for one purpose alone:to pander to customers. Marketers spend all their timeslavishly tracking the needs of buyers, then meticulouslycrafting products and pitches to satisfy them. If corpo-rate functions were Dickens characters, marketingwould be Uriah Heep: unctuous, ubiquitous, unbearable.

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My friends, it’s gone too far.The truth is, customers don’t know what they want.

They never have. They never will. The wretches don’t evenknow what they don’t want, as the success of countlessrejected-by-focus-groups products, from the Chryslerminivan to the Sony Walkman, readily attests. A mindlessdevotion to customers means me-too products, copycatadvertising campaigns, and marketplace stagnation.

And customers don’t really want to be catered to, any-way. I’ve spent most of my career studying marketingcampaigns, and my research shows that many of themarketing coups of recent years have been far from cus-tomer centric. Or at least, the successes have proceededfrom a deeper understanding of what people want thanwould ever emerge from the bowels of a data mine.Whatever people may desire of their products and ser-vices, they adamantly do not want kowtowing from thecompanies that market to them. They do not want us toprostrate ourselves in front of them and promise to lovethem, till death us do part. They’d much rather be teased,tantalized, and tormented by deliciously insatiabledesire.

It’s time to get back to an earlier marketing era, to thetime when marketers ruled the world with creativity andstyle. It’s time to break out the snake oil again. It’s timefor retromarketing.

Retro Shock

Retromarketing is based on an eternal truth: Marketers,like maidens, get more by playing hard to get. That’sthe antithesis of what passes for modern marketing.These days, marketers aim to make life simple for theconsumer by getting goods to market in a timely and


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efficient manner, so that they are available when andwhere they’re wanted, at a price people are preparedto pay. Could anything be more boring? By contrast,retromarketing makes ’em work for it, by limiting avail-ability, by delaying gratification, by heightening expec-tations, by fostering an enigmatic air of unattainability.It doesn’t serve demand; it creates it.

As marketing strategies go, “Don’t call us, we’ll callyou” is about as far from today’s customer-hugging normas it is possible to imagine. But it suits the times. We are,after all, in the midst of a full-blown nostalgia boom, afact not lost on most successful product designers andadvertisers. Retro is everywhere, whether it be CamelLite’s series of pseudonostalgic posters (a leather-helmeted flying ace lights up with a Zippo); Keds’s televi-sion commercial for its old-style sneakers (reengineered,naturally, for today’s demanding consumers); theMcDonald’s rollout of retrofitted diners (which offertable service and 1950s favorites like mashed potatoesand gravy); Disney’s Celebration, a new olde town inFlorida, just like the ones that never existed (outside ofHollywood studio back lots); or Restoration Hardware, anationwide retail chain selling updated replicas of old-fashioned fixtures, fittings, and furnishings (perfect forredecorating that Rockwellian colonial in Celebration).Retro chic is de rigueur in everything from cameras,coffeepots, and radios to toasters, telephones, and refrig-erators. Retro roller coasters, steam trains, airships,motorbikes, and ballparks are proliferating, as are repro-ductions of sports equipment from earlier days. Tiki barsare back; polyester jumpsuits are cavorting on the cat-walks; shag carpet is getting laid in the most tastefulabodes; and retro autos, such as the PT Cruiser and thenew T-Bird, are turning heads all around the country. It’s

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reached the point, comedian George Carlin says, wherewe don’t experience déjà vu, but vujà dé—those raremoments when we have an uncanny sense that whatwe’re experiencing has never happened before.

People aren’t just suckers for old-fashioned goods andservices, they also yearn for the marketing of times goneby. They actually miss the days when a transaction wasjust a transaction, when purchasing a bar of soap didn’t

mean entering into a life-time value relationship.Wary of CRM-inspired tac-tics, which are tantamountto stalking, they appreciatethe true transparency of ablatant huckster. Retro-marketing recognizes that

today’s consumer is nothing if not marketing savvy. Callit postmodern, but people enjoy the ironic art of a well-crafted sales pitch. The best of retromarketing hits con-sumers with the hardest of sells, all the while lettingthem in on the joke. (See “Time for a New MotownRevival” at the end of this article.)

Going Retro

Just like retrostyling, retromarketing is more art thanscience. It’s easy to hit a false note. But can its lessons bespelled out? Is there an ABC for wannabes? They can,and there is. And although arrogant academiciansalways advocate acronyms, aphorisms, apothegms, andabsurdly affected alliterations—to ensure ever-busyexecutives get it—retromarketing represents a rarerenunciation of this ridiculous rhetorical rule. There arejust five basic principles.

Retromarketing eschewsthe modern marketingproposition by deliberatelyholding back supplies.You want it? Can’t have it.Try again later, pal.


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The first is that customers crave exclusivity. Retro-marketing eschews the “here it is, come and get it, there’splenty for everyone” proposition—the modern market-ing proposition—by deliberately holding back suppliesand delaying gratification. You want it? Can’t have it. Tryagain later, pal.

Granted, “Get it now while supplies last” is one of theoldest arrows in the marketing quiver. But it is no lesseffective for all that. First, exclusivity helps you avoidexcess inventory—you don’t make it until the customerbegs for it. Second, it allows buyers to luxuriate in thebelief that they are the lucky ones, the select few, the dis-cerning elite. Promoting exclusivity is standard practicein the motor industry, as would-be buyers of Miatas,Harleys, and Honda Odysseys will readily testify. It’semployed by De Beers for diamonds and Disney forvideos. It’s used by everyone from Wall Street brokers,with an IPO to pass off, to the chocolate conspirators atCadbury, whose creme eggs are strictly rationed andhighly seasonal. Indeed, it has launched countless one-day, 13-hour, blue-light, everything-must-go sales inretail stores the world over, and doubtless it will con-tinue to do so.

Ty Warner, impresario of toy maker Ty Incorporated,may well go down in history for his ceaselessly inventiveexploitation of exclusivity. To be sure, his velveteenstorm troopers—the famous Beanie Babies—looked likeundernourished attendees at the teddy bears’ picnic.Nevertheless, their retromarketing campaign put SunTzu’s The Art of War to shame. By coupling limited pro-duction runs with ruthless “retirements,” Warnerensured that Beanie Babies remained in enormousdemand and fostered a now-or-never mind-set amongconsumers and retailers.

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Ostensibly priced at five or six bucks apiece, Beaniesfetched upwards of three grand at auction and wereknown to trigger fistfights among frenzied I-spotted-it-first fans. They were sold through a plethora of small-time gift shops, bypassing major retail chains, whoseEDI-driven ethos of regular supplies, no surprises, andguaranteed delivery times was anathema to Warner.Consistently inconsistent, he supplied what he wanted,when he wanted, to whomsoever he wanted, and if theretailers didn’t like it, then they simply did without.When added to the constant introductions and retire-ments of models, the upshot was that Warner’s wareswere scattered hither and yon. Reason didn’t enter intoit, let alone rhyme. The tush-tagged creatures could thusbe discovered in the most out-of-the-way outlets, whichadded to rather than detracted from Beanies’ pseudo-nostalgic appeal. Fuelled, furthermore, by a massiveword-of-mouse rumor mill, as well as an enormous sec-ondary market in collectibles, Ty Warner turned the ulti-mate trick of making brand-new, mass-produced toysinto semiprecious “antiques.”

“Expect the unexpected” was Ty’s rallying cry, andmost would agree that capricious production, idiosyn-cratic distribution, eccentric promotion, and haphazardpricing are somewhat unusual in a modern marketingworld of Analysis, Planning, Implementation, and Con-trol. However, it is very much in keeping with a premod-ern milieu of restricted supply, excess demand, and mul-tifarious channels of distribution. As Warner sagelyobserved, “As long as kids keep fighting over the prod-ucts and retailers are angry at us because they cannot getenough, I think those are good signs.” Indeed, the fight-ing would have continued had Warner not ultimatelybetrayed his own best retromarketing instincts. After


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deciding to terminate Beanie Babies en masse in Decem-ber 1999, he was persuaded by an on-line plebiscite togrant a soft-toy stay of execution. Collectors were notamused, and Warner’s iconic standing suffered irrepara-ble damage.

Happily, right on Ty’s heels came another tour deforce of customer torment from the master marketersbehind today’s greatest mania: Harry Potter. Not only isJ.K. Rowling’s remarkable creation the perfect retroproduct—a twenty-first-century Tom Brown—but thewonderful wizard of Hogwarts has been marketed in anunashamedly retro manner. Scholastic’s campaign forthe blockbuster Harry Potter and the Goblet of Fire is asterling example of the second principle of retromarket-ing: secrecy. It consisted of a complete blackout onadvance information. The book’s title, pagination, andprice were kept under wraps until two weeks before pub-lication. Review copies were withheld, no author inter-views were allowed, and foreign translations weredeferred for fear of injudicious leaks. Juicy plot details,including the death of a key character and Harry’s sexualawakening, were drip fed to a slavering press corps priorto the launch. Printers and distributors were required tosign strict confidentially agreements. Booksellers werebound by a ruthlessly policed embargo, though somewere allowed to display the tantalizing volume in lockedcages for a brief period just before “Harry Potter Day,”July 8, 2000. And in a stroke of retro genius, severaladvance copies were “accidentally” sold from anunnamed Wal-Mart in deepest West Virginia, thoughone of the “lucky” children was miraculously trackeddown by the world’s press and splashed across everyfront page worth its salt.

More sadistic still, Scholastic dropped less-than-subtle hints that there weren’t enough copies of the book

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to go around, thereby exacerbating the gotta-get-itfrenzy of fans and distributors alike. In the event, thetome was ubiquitously unavoidable, available every-where from grocery stores to roadside restaurants. Noone complained, of course, because everyone had man-aged to get their hands on the precious Potter, and bythe time they’d finished reading the magical mystery,they’d forgotten its magically mysterious marketingcampaign. Now you see it, now you don’t.

Whereas modern marketing is upfront, above board,and transparent, retro revels in mystery, intrigue, andcovert operations. Consider the classic “secret” recipesthat have helped to purvey all sorts of comestibles—Coca-Cola, Heinz Ketchup, Kentucky Fried Chicken, Mrs. Fields Cookies, the list goes on—to say nothing ofcosmetics (the secret of youthfulness), proprietarymedicines (the secret of good health), and holiday pack-ages (secret hideaways a specialty). If it engages the cus-tomer in even just a moment of consideration of theproduct—“What could it be?” or simply, “Why is it sohush-hush?”—secrecy helps to sell.

But what, you may well ask, is the secret of successfulsecrecy? Obviously, it’s that the existence of a secretmust never be kept secret. There’s no point in having an

exclusive product or serviceunless everyone who is any-one knows about it. Butwhen big-budget marketingcampaigns are unaffordableor inappropriate, what’s abrand to do? The answer,

and the third principle of retromarketing, is to amplify—that is, to ensure that the hot ticket or cool item is talkedabout and, more important, that the talking about istalked about.

There’s nothing like alittle outrage to attractattention and turn atiny advertising spend intoa megabudget monster.


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The power of amplification can be seen in the recentbuzz about “Ginger,” the mysterious and much-talked-about creation by Dean Kamen. Widely regarded as theheir apparent to Thomas Edison, Kamen is a throwbackto the amateur inventor archetype, a garage-based,gizmo-surrounded, patent-collecting tinkerer. He madehis name—and his millions—with a portable insulinpump, a suitcase-sized dialysis machine, and, mostrecently, a gyroscopic, stair-climbing wheelchair. Andnow he has created Ginger, the code name for what isallegedly the greatest invention since the sliced breadcliché. The Net-propelled speculation surrounding theinvention, known simply as “IT,” has been overwhelming.Starved for actual information about the invention, themedia has scrambled to report on the reports of themedia. In the process, Ginger’s become famous for beingfamous, as historian Daniel Boorstin famously put it—and marketed for being unmarketed. To date, no oneknows what IT is exactly, and the seer’s not saying. Allwe know for certain is that IT is so revolutionary thatentire cities will be retrofitted to accommodate IT. Sealoff those sidewalks. Rip up those autoroutes. Tear downthose tollbooths. Ginger’s coming down the turnpike,powered by a perpetual-motion motor that runs on hotair and hyperbole. Surprisingly, no one seems to havenoticed the echoes in this craze of a classic P.T. Barnummarketing caper of 1860. Barnum’s “it” turned out to bean encephalitic giantess from New Jersey; Kamen, itseems, simply plans to encephalize the New Jerseyexpressways. Clearly, they’re being born at more thanone a minute these days.

In a world of incessant commercial chatter, amplifica-tion is vitally necessary, and it can be induced in manyways beyond just mystery. One of the most cost-effective

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techniques is affront. Whether it be Calvin Klein, Benet-ton, or even Citroën—its Picasso minivan tweakedFrench aesthetes by appropriating the master’smoniker—there’s nothing like a little outrage to attractattention and turn a tiny advertising spend into amegabudget monster. Better yet, it bestows an aura ofattractive insouciance on the I-fought-the-law offenders.

Another powerful amplifier is surprise. An unex-pected marketing campaign can send shock wavesthrough the media—as when Pizza Hut paid to have itslogo placed on the side of a Russian rocket, or when TacoBell offered a free taco to everyone in the United States ifthe decommissioned Mir managed to hit a 40-by-40-footfloating target placed at the anticipated splashdown site.

So much the better if all this marketing is entertain-ing, which brings us to principle number four of retro-marketing: Marketing must divert. It must engage. Itmust amuse. Entertainment, in many ways, is theessence of retromarketing—and the lack of it is modernmarketing’s greatest failure.

I blame my esteemed colleague Philip Kotler, therenowned Northwestern University marketing professor,for this sorry state of affairs. He, more than anyone, hasconvinced managers that marketing is the backbone ofbusiness and must integrate the work of all other func-tions. Weighed down by this awesome responsibility,marketing has become a sober-sided discipline. It haslost its sense of fun. It has forgotten how to flirt.

The marketers of Hollywood, not surprisingly, havebeen resolute holdouts—not least in their latter-day useof the Internet. The Web site to promote the recentremake of Planet of the Apes, for example, containsan elaborate treasure hunt. Swordfish’s site offers a$100,000 prize to anyone who can crack ten passwords.


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Most ambitious of all is the Web-based promotion ofSteven Spielberg’s AI, which premiered in June 2001. It’sa surreptitious campaign, designed to be discoveredand passed on from one cool person to another. Likethe old record producer’s trick of planting hidden mes-sages between tracks (remember “I buried Paul”?), theprocess begins with a fake name inserted into the cred-its of a trailer for the movie. A Web search on thatname leads the curious to a series of planted Web sites,a discovery of a murder, and a growing body of clues.Before long, cryptic e-mails and spooky phone messagescome into play—and those who have followed thethread to that point are embroiled in a story quite sepa-rate from the film. Clearly, the marketers involved—highly aware that a movie lives or dies on its first twoweeks of word of mouth—engineered a way to generatethat buzz just before AI premiered. And it’s more cre-ative than concocting fake columnists or planting vox-pop puffery.

The AI campaign also exemplifies the final principleof retromarketing: marketing must deal in tricksterism,using tactics akin to those of Loki (of Norse myth), thewily Coyote (of Native American legend), and Hermes(the Greek god of the marketplace). The tricks don’t haveto be particularly elaborate; on the contrary, tricks cancome cheap, as the now classic Blair Witch Project—is ita snuff movie or not?—bears eloquent witness. Similarly,the recent turn to sneaky sales promotions, where, forinstance, the gregarious, round-buying barfly in the way-cool club is actually an employee of a liquor company,involves minimal expenditure on the marketer’s part.However, the rewards can be great if the brand isembraced, even briefly, by the in-crowd.

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A particularly sly bit of tricksterism was served up bythe makers of Tango, a fruit juice soda popular in theUnited Kingdom. In 1994, the company bought advertis-ing time and used it for what appeared to be a public ser-vice announcement; its “marketing director” warnedviewers that some rogue supermarkets and conveniencestores were selling a knockoff of the brand—it could bedetected because it was not fizzy—and asked them toreport the miscreant outlets by calling a special, toll-freehot line. Apparently, some 30,000 people rang up, only to be informed that they had been tricked (“Tango’d”) as part of the company’s promotion for a new, noncar-bonated version of the drink. The ITC—Britain’s TV-advertising watchdog—was not amused, and it rappedTango’s knuckles for abusing the public-information ser-vice format. In the meantime, the promotion had suc-ceeded in amplifying the product launch and adding toTango’s incorrigibly irreverent image.

Being a trickster is not the same as being a downrightcheater. Cheating, to state the obvious, is wrong, andpeople won’t stand for it. The charlatanry I’m advocating

comes with an extradimension of panache, ofexaggeration, of sheerchutzpah, which rendersthe unacceptable accept-able. Modern marketersset great store by thetruth, and one can under-stand why, given market-

ing’s less-than-illustrious heritage of diddling, double-dealing, and deceit. The truth, however, is that peopledon’t want the truth, the whole truth, and nothing but

Marketing managers havefallen for their own line.They actually believe that ifyou love the customerenough, the customer willlove you back. Thatis complete nonsense.


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the truth. And even if they did, the last place they’d lookfor it would be a marketing campaign. Marketing isabout glitz and glamour. It’s mischievous and mysteri-ous. Marketing, lest we forget, is fun.

From Four P’s to Pure Tease

Retromarketing, then, is based on exclusivity, secrecy,amplification, entertainment, and tricksterism. At leastthis list of principles doesn’t create an acronym...unless,of course, the sequence is reversed. To be sure, retromar-keting is not appropriate on every occasion, nor is it appli-cable to every product, service, or market segment. But,then, the modern marketing concept of caring, sharing,all hold hands is not always the right approach, either.

Marketing managers, admittedly, may be dismayed bythe thought of deliberately thwarting consumers. That’sbecause they’ve fallen for their own line. They actuallybelieve that if you love the customer enough, the cus-tomer will love you back. That is complete nonsense. Con-sumers, as a rule, don’t love or care for marketing types,especially when they purport to have the customers’interests at heart. Consumers want to dislike marketers,they like to dislike marketers, they need someone to hate,particularly in politically correct times when ethnicstereotyping and other such nastiness is effectively for-bidden. Contemporary consumers are embarrassed bymarketers who get down on one knee and promise to love,honor, and obey. Get real! They would much prefer a goodold-fashioned lovable rogue. Indeed, if marketers werereally customer oriented, they’d give their customerswhat they want. Namely, old-style, gratuitously provoca-tive marketing rather than the neutered, defanged, Dis-neyfied version that’s peddled today.

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Retromarketing, in sum, harks back to the good oldbad old days when marketers were pranksters and proudof it. It replaces the Seven S’s with seven veils. Its FiveForces are flim, flam, flirt, fiddle, and finagle. Its Four P’sare perturb, puzzle, perplex, and perhaps. Its Three C’sare chafe, chide, and chortle. It puts the mark into mar-keting, the con into concept, the cuss into customers. It’sa marketing philosophy for a retro-besotted world. It’stried and true. It’s the greatest show on earth.

Would I lie to you?

Time for a New Motown Revival

OF ALL INDUSTRIES, the automotive business is mostresponsible for perfecting the art of retro. It invented theJoe Isuzu–style salesman and has been quick to tap intonostalgic yearnings in its new model designs and adver-tising. How sad, then, to see the industry suppressing itstrue nature and embracing customer centricity as its mar-keting approach.

Just consider its retro credentials. The Mazda Miata,an homage to 1950s roadsters, which comes completewith a carefully pitched tailpipe note, was the first retroauto rollout. Its triumph in the marketplace set the entiremotor industry on the road to yesterville. Fast followersinclude the Chrysler PT Cruiser, a pastiche of the uprightsedans of the 1940s; the Jaguar S-Type, an affectionatenod to the style of the immortal Mark II, beloved byBritish police officers and their criminal counterparts; and,best of all, the New Beetle, which melds the distinctiveshape of the old Beetle with the latest automotive tech-nology to produce a modern car with anachronistic


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styling. Not to be outdone, the retro auto prototype,Mazda’s Miata, recently celebrated its decade-long her-itage with a tenth anniversary special edition, thus mak-ing it a neo retro auto.

Yet despite the success of the retro products, the auto-mobile industry hasn’t fully embraced retromarketing. Forevery old-style publicity stunt, there are dozens of oleagi-nous allusions to market responsiveness, customer care,and our duty is to serve. Saturn says it all.

Auto marketers are unnecessarily ashamed of theirArtful Dodger antecedents. They try to hide inveiglingaway, to disguise their deceitful DNA, only to suffer fromthe return of retromarketing repressed. It’s time for themadness to end. The return of Joe Isuzu is a start, but thetherapy must go deeper. It’s time, carmakers, to get intouch with your inner huckster.

Originally published in October 2001Reprint R0109E

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Boost Your Marketing ROI withExperimental Design

Executive Summary

CONSUMERS ARE REGULARLY BLITZED with thousandsof marketing messages—television commercials, tele-phone solicitations, supermarket circulars, and Internetbanner ads. Still, a lot of these messages fail to hit theirtargets or elicit the desired response: the purchase of aproduct or service. It has been very difficult for compa-nies to isolate what drives consumer behavior, largelybecause there are so many possible combinations ofstimuli.

In this article, consultants Eric Almquist and GordonWyner explain that while marketing has always been acreative endeavor, adopting a scientific approach to itmay actually make it easier—and more cost effective—forcompanies to target the right customers. “Experimentaldesign” techniques, which have long been applied inother fields, let people project the impact of many stimuli

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144 Almquist and Wyner

by testing just a few of them. By using mathematical for-mulas to select and test a subset of combinations of vari-ables, marketers can model hundreds or even thousandsof marketing messages accurately and efficiently—andthey can adjust their messages accordingly.

The authors use a fictional company, Biz Ware, todescribe how companies can map out an a grid a com-bination of the attributes (or variables) of a marketingmessage and the levels (or variations) of those attributes.Marketers can test a few combinations of those attributesand levels and can apply logistic regression analysis toextrapolate the probable customer responses to all thepossible combinations. The company can then analyzethe experiment’s implications for its resources, revenues,and profitability. The authors also present the results oftheir work with Crayola, in which they used experimentaldesign techniques to test that company’s e-mail market-ing campaign.

C daily with hundreds,perhaps thousands, of marketing messages. Deliveredthrough all manner of media, from television commer-cials to telephone solicitations to supermarket circularsto Internet banner ads, these stimuli may elicit thedesired response: The consumer clips a coupon, clicks ona link, or adds a product to a shopping cart. But the vastmajority of marketing messages fail to hit their targets.Obviously, it would be valuable for companies to be ableto anticipate which stimuli would prompt a responsesince even a small improvement in the browse-to-buyconversion rate can have a big impact on profitability.But it has been very difficult to isolate what drives con-

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sumer behavior, largely because there are so many possi-ble combinations of stimuli.

Now, however, marketers have easier access, at rela-tively low cost, to experimental design techniques longapplied in other fields such as pharmaceutical research.Experimental design, which quantifies the effects ofindependent stimuli on behavioral responses, can helpmarketing executives analyze how the various compo-nents of a marketing campaign influence consumerbehavior. This approach is much more precise and costeffective than traditional market testing. And when youknow how customers will respond to what you have tooffer, you can target marketing programs directly to theirneeds—and boost the bottom line in the process.

Traditional Testing

The practice of testing various forms of a marketing oradvertising stimulus isn’t new. Direct marketers, in par-ticular, have long used simple techniques such as splitmailings to compare how customers react to differentprices or promotional offers. But if they try to evaluatemore than just a couple of campaign alternatives, tradi-tional testing techniques quickly grow prohibitivelyexpensive.

Consider the “test and control cell” method, which isthe basis for almost all direct mail and e-commercetesting done today. It starts with a control cell for, say,a base price, then adds test cells for higher and lowerprices. To test five price points, six promotions, fourbanner ad colors, and three ad placements, you’d needa control cell and 360 test cells (5 × 6 × 4 × 3 = 360).And that’s a relatively simple case. In credit card mar-keting, the possible combinations of brands, cobrands,

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annual percentage rates, teaser rates, marketing mes-sages, and mail packaging can quickly add up to hun-dreds of thousands of possible bundles of attributes.Clearly, you cannot test them all.

There’s another problem with this brute forceapproach: It typically does not reveal which individualvariables are causing higher (or lower) responses fromcustomers, since most control-cell tests reflect the com-bined effect of more than two simple variables. Is it thelower price that prompted the higher response? The pro-motional deal? The new advertising message? There’s noway to know.

The problem has been magnified recently as compa-nies have gained the ability to change their marketingstimuli much more quickly. Just a few years ago, chang-ing prices and promotions on a few cans of food in thesupermarket, for example, required the time-consumingapplication of sticky labels and the distribution of papercoupons. Today, a store can adjust prices and promo-tions electronically by simply reprogramming its check-out scanners. The Internet has further heightened mar-keting complexity by reducing the physical constraintson pricing, packaging, and communications. In theextreme, an on-line retailer could change the prices andpromotion of every product it offers every minute of theday. It can also change the color of banner ads, the toneof promotional messages, and the content of outbounde-mails with relative ease.

The increasing complexity of the stimulus-responsenetwork, as we call it, means that marketers have morecommunication alternatives than ever before—and thatthe portion of alternatives they actually test is growingeven smaller. But this greater complexity can also mean


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greater flexibility in your marketing programs—if youcan uncover which changes in the stimulus-responsenetwork actually drive customer behavior. One way to dothis is through scientific experimentation.

A New Marketing Science

The science of experimental design lets people projectthe impact of many stimuli by testing just a few of them.By using mathematical formulas to select and test a sub-set of combinations of variables that represent the com-plexity of all the original variables, marketers can modelhundreds or even thousands of stimuli accurately andefficiently.

This is not the same thing as an after-the-fact analysisof consumer behavior, sometimes referred to as data min-ing. Experimental design is distinguished by the fact thatyou define and control the independent variables beforeputting them into the marketplace, trying out differentkinds of stimuli on customers rather than observing themas they have naturally occurred. Because you control theintroduction of stimuli, you can establish that differencesin response can be attributed to the stimulus in question,such as packaging or color of a product, and not to otherfactors, such as limited availability of the product. Inother words, experimental design reveals whether vari-ables caused a certain behavior as opposed to simplybeing correlated with the behavior.

While experimental design itself isn’t new, few mar-keting executives have used the technique—eitherbecause they haven’t understood it or because day-to-day marketing operations have gotten in the way. Butnew technologies are making experimental design more


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accessible, more affordable, and easier to administer.(For more information on the genesis of this type oftesting, see “The Origins of Experimental Design” at theend of this article) Companies today can collect detailedcustomer information much more easily than ever beforeand can use those data to build models that predict cus-tomer response with greater speed and accuracy.

Today’s most popular experimental-design methodscan be adapted and customized using guidelines fromstandard reference textbooks such as Statistics for Experi-menters by George E. P. Box, J. Stuart Hunter, and WilliamG. Hunter; and from off-the-shelf software packages suchas the Statistical Analysis System, the primary product of SAS Institute. A handful of companies have alreadyapplied some form of experimental design to marketing.They include financial firms such as Chase, HouseholdFinance, and Capital One, telecommunications providerCable & Wireless, and Internet portal America Online.

Applying experimental-design methods requires busi-ness judgment and a degree of mathematical and statis-tical sophistication—both of which are well within thereach of most large corporations and many smaller orga-nizations. The experimental design technique is particu-larly useful for companies that have large numbers ofcustomers and that face rapid and constant change intheir markets and product offers. Internet retailers, forinstance, benefit greatly from experimentation becauseon-line customers tend to be fickle. Attracting browsersto a Web site and then converting them into buyers hasproved very expensive and largely ineffective. Getting itright the first time is nearly impossible, so experimenta-tion is critical. The rigorous and robust nature of experi-mental design, combined with the increasing challengesof marketing to oversaturated consumers, will make


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widespread adoption of this new marketing science onlya matter of time in most industries.

The ABCs of Experimental Design

To illustrate how experimental design works, let’s con-sider the following simple case. A company, which we’llcall Biz Ware, is marketing a software product to othercompanies. Before launching a national campaign, BizWare wants to test three different variables, or attributes,of a sales message for the product: price, message, andpromotion. Each of the three attributes can have a num-ber of variations, or levels. Suppose the three attributesand their various levels are as shown in “Attributes andLevels of a Sales Message.”

The total number of possible combinations can bedetermined by multiplying the number of levels of eachattribute. The three attributes Biz Ware wants to testyield a total of 16 possible combinations since 4 × 2 × 2 =16. All 16 combinations can be mapped in the cells of a simple chart like “Biz Ware’s Universe of PossibleCombinations.”

It’s not necessary to test them all. Instead, usingwhat’s called a fractional factorial design, Biz Wareselects a subset of eight combinations to test.

“Factorial” means Biz Ware “crosses” each attribute(price, promotion, and message) with each of the othersin gridlike fashion, as in the universe chart above. “Frac-tional” means Biz Ware then chooses a subset of thosecombinations in which the attributes are independent(either totally or partially) of each other. The followingchart shows the resulting experimental design, with Xsmarking the cells to be tested. Note that each level ofeach attribute is paired in at least one instance with each


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level of the other attributes. So, for example, price at$150 is matched at some point with each promotion andeach message. This makes it possible to unambiguouslyseparate the influence of each variable on customerresponse. (See “Biz Ware’s Experimental Design.”)

The eight chosen combinations are now tested, usingone of several media: scripts at a call center, banner adson Biz Ware’s Web site, e-mail messages to prospectivecustomers, and direct mail solicitations. (In general, youshould test using the medium you ultimately expect touse for your marketing campaign, although you can alsochoose multiple media and treat the choice of media asan attribute in the experiment.)


Attributes and Levels of a Sales Message

PRICE

Level

$150 $160 $170 $180

MESSAGE

(1) Speed

“Biz Ware lets you manage customer relationships in just minutes a day.”

(2) Power

“Biz Ware can be expanded to handle a virtually infinite number of cus-tomer files.”

PROMOTION

(1) 30-Day Trial

“You can try Biz Ware now for 30 days at no risk.”

(2) Free Gift

“Buy Biz Ware now and receive our contact manager software absolutelyfree.”

(1) (2) (3) (4)

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How big should the sample size be to make the exper-iment valid? The answer depends on several characteris-tics of the test and the target market. These may includethe expected response rate, based on the results of pastmarketing efforts; the expected variation among sub-groups of the market; and the complexity of the design,including the number of attributes and levels. In anyevent, the sample size should be large enough so thatmarketers can statistically detect the impact of theattributes on customer response. Since increasing thecomplexity and size of an experiment generally addscost, marketers should determine the minimum samplesize necessary to achieve a degree of precision that is


Biz Ware’s Universe of Possible Combinations

Promotion

Message

Price (1)

Price (2)

Price (3)

Price (4)

(1) (1) (2) (2)

(1) (2) (1) (2)

X X X X

X X X X

X X X X

X X X X

Biz Ware’s Experimental Design

Promotion

Message

Price (1)

Price (2)

Price (3)

Price (4)

(1) (1) (2) (2)

(1) (2) (1) (2)

X X

X X

X X

X X

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useful for making business decisions. (There are stan-dard guidelines in statistics that can help marketersanswer the question of sample size.) We’ve conductedcomplex experiments by sending e-mail solicitations tolists of just 20,000 names, where 1,250 people eachreceive one of 16 stimuli.

Within a few days or weeks, the experiment’s resultscome in. Biz Ware’s marketers note the number andpercentage of positive responses to each of the eighttested offers. (See “Biz Ware’s Design Results.”)

At a glance, you might intuitively understand thatprice has a significant impact on the response to the var-ious offers, since the lower price offers (Price 1 and Price2) generally drew much better response rates than thehigher price offers (Price 3 and Price 4). But statisticalmodeling, using standard software, makes it possible toassess the impact of each variable with far greater preci-sion. Indeed, by using a method known as logistic regres-sion analysis, Biz Ware can extrapolate from the resultsof the experiment the probable response rates for all 16cells. (See “Biz Ware’s Modeled Responses.”)

Note that the percentages shown below don’t pre-cisely match the original percentages from the test.


Biz Ware’s Design Results

Promotion

Message

Price (1)

Price (2)

Price (3)

Price (4)

(1) (1) (2) (2)

(1) (2) (1) (2)

14% 40%

9% 13%

6% 10%

1% 7%

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That’s because Biz Ware used the original percentages tocreate a general equation for estimating the results in allthe cells. When the new equation is then applied to thecells already tested, the results usually vary somewhatfrom the original numbers. The important thing is thatthe tester ends up with a full set of consistent results forall possible permutations. (For more about how thesecalculations were made, see “Estimating a ResponseModel” at the end of this article.)

With this complete picture, it becomes clear thatsome combinations are far more likely to be effectivethan others. The combination of Price 1 ($150), Message2 (Power), and Promotion 2 (Free Gift) is clearly themost attractive to consumers. But is it the right combi-nation for Biz Ware? That’s where business judgmentcomes in: The company’s management will need to ana-lyze the experiment’s implications for its resources, rev-enue, and profitability.

Experimentation at Crayola

Let’s look at an actual example of how experimentaldesign can enhance a marketing campaign. Last year,


Biz Ware’s Modeled Responses

Promotion

Message

Price (1)

Price (2)

Price (3)

Price (4)

(1) (1) (2) (2)

(1) (2) (1) (2)

14% 23% 28% 42%

7% 12% 15% 24%

3% 6% 7% 12%

1% 3% 3% 6%

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Crayola, a division of Binney & Smith and Hallmark,launched a creative arts and activities portal on theInternet called Crayola.com. The site’s target customersinclude parents and educators, and it sells art suppliesand offers arts-and-crafts project ideas and classroomlesson plans. We conducted an experimental design tohelp Crayola attract people to the site and convertbrowsers into buyers.

Based on Crayola’s experience and market knowledge,we identified a set of stimuli that could be varied to drivetraffic to Crayola.com and induce purchases. One ofthese stimuli was an e-mail to parents and teachers. Totest various components of the e-mail content and for-mat, we relied on the best judgment of Crayola’s market-ing staff about the messages that were most likely toappeal to the target markets. The e-mail included fivekey attributes that seemed likely to affect the customerresponse rate, which would be measured by click-throughs to the Crayola Web site. These attributes andtheir related levels were:

• Two subject lines: “Crayola.com Survey” and “HelpUs Help You.”

• Three salutations: “Hi [user name] :-),” “Greetings!”and “[user name].”

• Two calls to action: “As Crayola.com grows, we’d liketo get your thoughts about the arts and how you useart materials” and “Because you as an educator have aspecial understanding of the arts and how art materi-als are used, we invite you to help build Crayola.com.”

• Three promotions: “a chance to participate in amonthly drawing to win $100 worth of Crayola prod-ucts; a monthly drawing for one of ten $25Amazon.com gift certificates; and no promotion.


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• Two closings: “Crayola.com” and “[email protected].”

Taking into account all the levels of each attribute,there were a total of 72 possible versions of the e-mail (2 ×3 × 2 × 3 × 2 = 72). While Crayola might have been able totest all 72 variations, the process would have been cum-bersome and expensive. Instead, we created a subset of 16e-mails to represent the 72 possible combinations. Over atwo-week period, we sent the 16 types of e-mail to ran-domly selected samples of customers and tracked andanalyzed their responses. The results were compelling.The “best” e-mail of the 72 possible scripts yielded a posi-tive response rate of about 34% and was more than threetimes as effective at attracting parents as the “worst” e-mail, which yielded a positive response rate of only about10%. (See “Crayola Draws Results” at the end of this arti-cle.) Among educators, the best e-mail script was nearlytwice as effective as the worst script, with response ratesof 35% for the best e-mail versus 20% for the worst.

We also conducted similar experiments with Crayolato test the effects of three different banner ads on thehome page, as well as product, price, and promotionsoffered at the on-line store. The best combination wasnearly four times as effective in converting shoppers intobuyers as the worst combination and nearly doubled rev-enues per buyer.

Uncovering the Unexpected

In the Crayola experiments, as well as in other tests, ourresults have yielded surprising insights. When we askexperienced marketers to predict which stimuli are likelyto elicit the best responses, few get it right. Crayola, forexample, was surprised to find that a price reduction on


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a product or line of products generated sufficient volumeto create higher revenues while also maintaining thesite’s profitability. Conventional wisdom would have sug-gested that raising prices would be a more effective wayto increase revenue.

Of course, the findings from tests like these can’t begeneralized. For instance, compare the e-mail tests weconducted at Crayola with similar tests we performed forCable & Wireless. At Crayola, e-mails containing no pro-motional offer drew poorly compared with e-mails con-taining either of the two promotional offers tested (a$100 product drawing and a $25 Amazon.com gift certifi-cate). At Cable & Wireless, though, e-mails with no pro-motional offer drew the best click-through rate. Butthat’s part of the value of experimental design: It allowsmarketers to move beyond rules of thumb or experienceto pinpoint the marketing approaches that work bestwith a particular audience in a particular marketplace ata particular moment in time.

The Expanding Marketing Universe

In the world of marketing experimentation, the Crayolatests are relatively simple. We tested only a handful ofmarketing attributes, with a relatively small number oflevels for each. Even so, the customer impact wasimpressive, with the best combinations of stimuli draw-ing double, triple, or quadruple response rates comparedwith the worst combinations.

The approach we took with Crayola can be extendedand applied to more attributes and more levels. It’s notunusual for a company to test ten or more attributes,including some with as many as eight levels. A creditcard company, for example, might be interested in test-


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ing six teaser rates, six cobrands, four different annualpercentage rates, six promotions, four insurance pack-ages, four modes of communication, eight direct mailpackages, and four mailing schedules. This represents apossible set of 442,368 distinct marketing stimuli, obvi-ously too large a universe for a test-and-control-cellapproach. But by using experimental design to select andtest a manageable number—say 128 combinations ofthese variables—the credit card company could estimatewith great accuracy the customer reaction to all 442,368combinations.

And this is by no means the upper limit of the useful-ness of experimental design. The responses being soughtfrom customers can be more complex as well. Customersmay have multiple options to choose from rather than asimple “yes” or “no” response—for example, a choicebetween one-year, two-year, and three-year subscrip-tions or no purchase.

Different types of experimental designs can be usedwhen the experimental objectives vary. For example, so-called screening designs can efficiently test very largenumbers of attributes to select a smaller number to inves-tigate in more detail. Subsequent testing can employmore levels for each of a smaller collection of attributes.Response surface designs are used in food testing in whichmultiple dimensions such as sweet, salty, crunchy, andsour have an ideal level somewhere between “too much”and “not enough.” The design lets testers estimate theideal combination of tastes and textures.

Getting Results

Naturally, there are limits to the power of experimentaldesign. This approach requires thoughtful planning to


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hypothesize what you are looking for and to rule outother possibilities before the experiment can begin.

One caution is that many experimental designs relyon “main effects” models. That is, they assume thatinteraction effects—the impact that one variable canhave on another variable—are negligible. This is usuallya reasonable assumption when you’re dealing with com-plex combinations of three, four, and five variables at atime. However, interactions between two variables canbe important and can be tested. For example, supposeyou find that free samples have a more positive impacton a product’s sales than do coupons. You may also learnthat free samples provide an even greater lift when theyare handed out in the stores as opposed to being sentthrough the mail. One variable, the chosen distributionchannel, interacts meaningfully with another variable,the promotion itself.

Experimental design also calls for substantive knowl-edge to frame the problem, careful application of theo-retically sound methods, and skillful interpretation ofthe results in the appropriate context. Some knowledgeof basic statistical methods is necessary, of course. Buteven more important is a nuanced understanding of cus-tomers and the ability to form reasonable assumptionsconcerning which attributes and levels should be testedand which shouldn’t. Experimental design should be onepart of a continuous test-and-learn cycle.

Marketing is, and always will be, a creative endeavor.But it doesn’t have to be so mysterious. As marketingnoise and advertising clutter continue to increase, mar-keters will find that scientific experimentation will allowthem to better communicate with their customers—andsubstantially raise the odds that their marketing effortswill pay off.


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The Origins of Experimental Design

EXPERIMENTAL DESIGN METHODOLOGIES—some dat-ing as far back as the nineteenth century—have beenused for years across many fields, including processmanufacturing, psychology, and pharmaceutical clinicaltrials, and they are well known to most statisticians. SirRonald A. Fisher was among the first statisticians to intro-duce the concepts of randomization and analysis of vari-ance. In the early 1900s, he worked at the RothamstedAgricultural Experimental Station outside London. Hisfocus was on increasing agricultural yields.

Another major breakthrough in the field came with thework of U.S. economist and Nobel laureate Daniel L.McFadden in the 1970s, who drew on psychologicaltheories to explain that consumer choices are a functionof the available alternatives and other consumer charac-teristics. In helping to design San Francisco’s BART com-muter rail system, McFadden analyzed the way peopleevaluate trade-offs in travel time and cost and how thosetrade-offs affect their decisions about means of trans-portation. He was able to help forecast demand forBART and determine where best to locate stations. Themodel was quite accurate, predicting a 6.4% share ofcommuter travel for BART, which was close to the actual6.2% share the system achieved.

Estimating a Response Model

LOGISTIC REGRESSION ANALYSIS is a statistical tech-nique that allows an experimenter to analyze the impact


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of each stimulus in an experiment. The formula assumesthat the outcome—in Biz Ware’s case, the customerresponse rate—is a function of the attributes—in BizWare’s case, price, message, and promotion. Here’swhat Biz Ware’s generic equation looks like:

We plug Biz Ware’s customer response data into thisequation, using SAS software to estimate the coefficients(a, b1, b2, and b3). For price we can drop a number intothe formula. For message and promotion, which are qual-itative attributes, we assign a dummy code—zero or one,since there are only two levels for each attribute. It doesnot matter which attribute is assigned which number. ForBiz Ware, the equation looks like this:

The coefficients tell us a few things: Higher price hasa negative impact on demand (hence, the coefficient b1is –8.1) and the effect of promotion is greater than theeffect of message (because 0.9 is greater than 0.6). Butmore important, these coefficients allow us to apply theequation to extrapolate from the data collected and pre-dict responses for all 16 cells.

Crayola Draws Results

Sample E-mail

Crayola.com marketers wanted to measure how cus-tomer response would be affected by different variations


Log ( response rate ) = a + b1 (price) + b2 (message) + b3 (promotion)1 – response rate

Log ( response rate ) = 10.3 – 8.1 (price) + 0.6 (message) + 0.9 (promotion)1 – response rate

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(or levels) of five main e-mail attributes: two subjects,three salutations, two calls to action, three promotions,and two closings. “Sample E-mail” shows one of the 72possible combinations. An experimental design wasdeveloped so that only 16 combinations had to betested.

Parents’ Response Rates

The company measured the responses it received andthrough statistical modeling could quickly pinpoint whichstimuli appealed most to its target customers—in this case,parents.


Sample E-mail

Subject

Salutation

Call to Action

Promotion

Closing

Help Us Help You

Greetings!

Because you as an educator have a special under-standing of the arts and how art materials are used,we invite you to help build Crayola.com.

By answering ten quick questions, you’ll be helpingto make sure improvements we make to Crayola.commeet your needs. Simply follow this link:http://_______. (If this does not work, please cut andpaste the link into your browser’s address bar.)

As a thank you, you will be entered into our monthlydrawing to win one of ten $25 Amazon.com giftcertificates. By completing our survey, you’ll be auto-matically entered.

Thanks for your assistance. Be sure to check backoften for new fun, creative, and colorful ideas andsolutions.

Yours,Crayola.com

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Script Attributes

The combination of attributes that got the best responsefrom parents was more than three times as effective asthe combination of attributes that got the worst response.“Script Attributes” shows the best and worst scriptattributes of the 72 possible combinations.


Parents’ Response Rates

Subject

Salutation

Call to Action

Promotion

Closing

Crayola.com SurveyHelp Us Help You

Hi [user name]:-)Greetings![user name]

As Crayola.com grows. . .Because you are. . .

$100 product drawing$25 Amazon.com gift certificate

drawingNo offer

[email protected]

Levels Change inResponse Rate

7.5%0.0%

2.7%0.0%3.4%

0.0%3.5%

8.4%5.2%

0.0%

0.0%1.2%

The subject line “Crayola.com Survey,” for example,was more effective at creating positive responses than“Help Us Help You.” The response rate of the formerwas 7.5% higher than that of the latter, all else beingequal. (See “Parents’ Response Rates.”)

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Script Attributes

Subject

Salutation

Call to Action

Promotion

Closing

Response Rate

Crayola.com Survey

User name

Because you are. . .

$100 product drawing

[email protected]

33.7%

Best Response Worst Response

Help Us Help You

Greetings!

As Crayola.comgrows. . .

No offer

Crayola.com

9.7%

The best script is 3.5 times more effective than the worst.

Originally published in October 2001Reprint R0109K

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165

About the Contributors

. is the vice-chairman of Prophet, a brandstrategy consultancy, and Professor Emeritus of MarketingStrategy at the Haas School of Business, University of Califor-nia, Berkeley. The winner of the Paul D. Converse Award forOutstanding Contributions to the Development of the Scienceof Marketing and the Vijay Mahajan Award for Career Contri-butions to Marketing Strategy, Professor Aaker has publishedover eighty articles and eleven books including “StrategicMarket Management,” “Managing Brand Equity,” BuildingStrong Brands, and Brand Leadership, coauthored with ErichJoachimsthaler. His books have been translated into twelvelanguages. Cited as one of the most quoted authors in market-ing, Professor Aaker has won awards for the best article in theCalifornia Management Review and The Journal of Marketing.

is a vice president and member of theBoard of Directors of Mercer Management Consulting. Hespecializes in customer-focused business strategies. His workhas focused on corporate brand strategy development, devel-opment of branded value propositions, marketing experimen-tation, and customer relationship management. Dr. Almquisthas contributed to such publications as the Harvard BusinessReview, Journal of Brand Management, Marketing Research,Journal of Economic History, and Economic History Review. He

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speaks regularly on the topics of customer-driven strategiesand corporate brand strategies and is a trustee of the Market-ing Science Institute.

At the time this article was originally published, .

was an associate professor of marketing at the Uni-versity of Minnesota’s Carlson School of Management inMinneapolis.

is professor of marketing research at theUniversity of Ulster, Northern Ireland. The author or coeditorof twelve books, including Postmodern Marketing, Romancingthe Market, and Marketing: The Retro Revolution, ProfessorBrown has been a visiting professor at NorthwesternUniversity, the University of Utah, and the University of Cali-fornia, Irvine, among others.

is the principal and founder of Strategic Mar-keting Decisions and consults on pricing and marketing issuesto a variety of international industries, including medicalequipment, telecommunications, and packaged goods. Hisclients range in size from new business start-ups to Fortune500 companies. The author of several articles, his research has appeared in the Journal of Marketing Research, Journal ofRetailing, and other well-known publications. He has receivedawards for his teaching and research, and has served as a re-viewer for a number of scholarly journals. He currently teachespricing for the Haas School of Business at the University of Cal-ifornia, Berkeley and internet marketing for Graduate Schoolof Management at the University of California, Davis.

is a professor of commerce at the McIntireSchool of Commerce, University of Virginia. Prior to thisappointment she held positions at Cranfield School of Man-agement, the Copenhagen Business School, UCLA, and SanDiego State University. Her main area of research is corporate

166 About the Contributors

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branding, and she has published related articles on organiza-tional culture, organizational symbolism, and organizationalidentity and image. She is the author of Organization Theoryand the coeditor of The Expressive Organization, with MajkenSchultz and Mogens Holten Larsen. She can be contacted [email protected].

At the time this article was originally published,

was the owner and chairman of the HarlemGlobetrotters.

, a published thought leader onglobal brand strategy, is founder and CEO of The Brand Lead-ership Company, and consults to executives at many of theworld’s leading companies. He is the author of more thanforty articles and case studies in leading academic and busi-ness journals, including Harvard Business Review, Sloan Man-agement Review, Business Week, and MIS Quarterly, and hisbook Brand Leadership, coauthored with David A. Aaker, isconsidered a groundbreaking discussion on the current revo-lution in brand strategy. A sought-after speaker, he conductsexecutive-level conferences and workshops around the worldin English, German, and Spanish. In addition to his consultingwork, Mr. Joachimsthaler conducts extensive research onglobal brands. He is a visiting professor of business adminis-tration at the Darden Graduate School of Business Adminis-tration, University of Virginia and has held academic posi-tions at the University of Southern California and at I.E.S.E. inBarcelona.

is the E. B. Osborn Professor of Mar-keting at the Amos Tuck School of Business at DartmouthCollege. An academic pioneer in the study of integrated mar-keting communications and brand equity, Professor Kellerhas served as brand confidant to marketers for some of the


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world’s most successful brands, including Disney, Ford, Intel,Levi Strauss, Nike, Procter & Gamble, and Starbucks. He isalso the author of Strategic Brand Management. ProfessorKeller’s academic résumé includes degrees from Cornell,Duke, and Carnegie Mellon universities, award-winningresearch, and an eight-year stint on the faculty at the StanfordBusiness School, where he served as the head of the market-ing group.

, chairman and Chief Executive Officer ofDigitas, is one of the chief architects of global eBusinesstransformation in the Internet age. With perspective andinsight, he has earned a coveted role as strategic partner tosome of the world’s most respected corporations, includingAmerican Express, AT&T, General Motors, Charles Schwab,Delta Air Lines, FedEx, L.L. Bean, Morgan Stanley Dean Wit-ter, and the National Basketball Association. A former seniorpartner at Bain & Company, the global strategic consultingfirm, Mr. Kenny holds a BS from the General Motors Instituteand an MBA from the Harvard Business School. He is chair-man of the board of Teach for America, and a director of Har-vard Business School Publishing and The Corporate ExecutiveBoard. He is also an active member of the BOLD DiversityInitiative.

. is senior vice president and GlobalHead of the Digital Strategy group at Digitas, where hisresponsibilities include partnering with clients to determinehow to use the Internet and emerging technologies to createnew business models geared toward gaining competitiveadvantage. Mr. Marshall also leads the Digitas Wireless Prac-tice, and is responsible for the strategy and implementation of customer solutions for the “ubiquitous Internet” for thefirm’s clients. Prior to joining Digitas in 1999, Mr. Marshallhad twelve years of experience in strategic consulting and


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technology investment banking. He was most recently a part-ner at MercerDelta Management Consulting. His currentfocus has been on corporate strategy development for Fortune100 companies, with particular emphasis on designing newbusiness models in response to major changes in technology.Mr. Marshall has worked extensively with companies such asAT&T, Sears, and Dow Chemical to define new customer-driven business models. A former venture capitalist and tech-nology analyst, he has significant experience in capital mar-kets, new technology venture development, and value-basedmanagement.

. is the Carlson Term Professor of Marketingat the University of Minnesota’s Carlson School of Manage-ment. A winner of the Ferber award for InterdisciplinaryResearch from the Journal of Consumer Research, and theMaynard award for Marketing Theory from the Journal ofMarketing, Professor Rao has published several highly influen-tial articles on pricing, marketing strategy, and consumerbehavior in the premier marketing journals. He has held visit-ing positions at the Sloan School at MIT and at the HongKong University of Science & Technology. Professor Rao’steaching, research, and consulting emphasize consumerbehavior, pricing strategy, product/brand management, andsales force management. His views are regularly solicited bylocal and national media in print, radio, and television,including the Wall Street Journal, the MacNeil/Lehrer NewsHour on PBS, and CNN.

is a professor at Copenhagen BusinessSchool. Her research interests cross the disciplines of organi-zational behavior, marketing, and strategy and include boththeoretical and managerial issues relevant to identity, corpo-rate branding, and reputation management. She has pub-lished numerous articles in leading international journals


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focusing on organizational studies, management, and market-ing. She is the author or editor of several books, including TheExpressive Organization. Professor Schultz works as a part-time consultant for LEGO Company and serves as a boardmember of Danske Bank, Foreningen, RealDanmark, and theCarl Bro Group. She is also director of the Reputation Insti-tute, Denmark (www.reputationinstitute.com).

. , a vice president of Mercer Manage-ment Consulting, focuses his work on understanding cus-tomer priorities, preferences, and economic value as a basisfor successful business design. He assists clients in developingand executing strategies for selecting customers and creatingvalue propositions that are optimally configured to customerrequirements and realize value from customer relationshipsthrough acquisition, management, and retention programs.Dr. Wyner has consulted with clients in a broad range ofindustries, including communications, information, enter-tainment, financial services, transportation, and consumerproducts. He has also developed new methods and capabili-ties for segmentation, value proposition design, and targetingusing customer databases, surveys, and market experiments.A regular columnist for Marketing Management and Market-ing Research magazines, Dr. Wyner is a frequent contributorto various industry publications and speaks at numerous con-ferences. He is on the Board of Trustees and is chairman ofthe executive committee of the Marketing Science Institute.


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accountabilityHarlem Globetrotters and,

26, 27, 36–38, 39organizational, 37–38personal, 36–37, 39, 40

advertisingglobal brand leadership and,

88–89, 105–107truth and, 137–138

affront, 137AI promotion, 138airline industry. See also entries

for specific airlinesprice wars and, 42, 53–54, 55,

65ubiquitous Internet and, 74,

81Akers, John, 114–115Amazon.com, 60, 71American Airlines, 42American Express, 7, 44, 80–81American Management Sys-

tems, 92America Online (AOL), 148amplification, 128, 135–137AOL. See America OnlineApple Computer, 115, 123

Ariely, Dan, 60AT&T, 43, 62Audi, 107authority, and global brand

managers, 101–102,104–105

automotive industrycontextual marketing and,

82–83retromarketing and, 141–142

Banana Republic, 9, 124Bang & Olufsen, 115banking industry, 125Barnes & Noble, 61BART commuter rail system

(San Francisco), 159Beanie Babies, 132–134Beiersdorf (Nivea), 100Benetton, 137best practices, communication

of, 88, 91–94beverage industry, 51–52Bic, 12–13Big Star supermarket, 47–48Binney & Smith, 153Blair Witch Project, 138

Index

171

HBR033Index 1/16/02 3:12 PM Page 171

BMW, 9Body Shop, 123–124Bolbo, 96books, and brand identity, 96Boorstin, Daniel, 136Box, George E. P., 148brand audit, 14–18, 23–24,

95brand champion, 100–101brand equity. See also brand

report cardas bridge, 20–21continuity and, 7–8, 22hierarchy of brands and,

8–10, 22intangible factors and, 4–5,

12–13, 22, 23marketing activities and,

10–11, 23meaning and, 12–13, 23,

122–124monitoring of sources of,

13–14, 23positioning and, 6–7, 22rating of, 21–24relationships and, 5support and, 13–14, 23value of balance and, 18–20

“brand equity charter,” 15brand-equity-management

systems, 15–18“brand exploratory,” 14–15“brand inventory,” 14brand manual, 96brand meaning. See also image

brand equity and, 12–13, 23,122–124

172 Index

customers and, 12–13, 20,23, 96, 122–124

global differences in, 90, 124brand portfolio, 8–10, 22brand report card, 1–24. See

also brand equitybalance among brand traits

and, 18–20creation of, 21–24traits of strongest brands,

3–18brand revitalization, 25–40brands, corporate. See corpo-

rate brandbrands, global. See global

brand leadershipbrand stewards, 101–102Branson, Richard, 123Braun, 13break-even analyses, 37bricks-and-mortar companies

contextual marketing and,81–82

Internet businesses and,60–61

British Airways, 116, 119broadband, 78Buick, 10business management team,

and global branding,99–100

business strategydeterrence of price war and,

47–48Harlem Globetrotters and,

36–39payoff of Internet and, 70–71

HBR033Index 1/16/02 3:12 PM Page 172

use of ubiquitous Internetand, 83–85

company culture, 109, 111, 113,121

communication of best prac-tices and, 92

image-culture gap and, 110,113, 116–117, 121

vision-culture gap and,109–110, 113, 114–115,120

competitors, analysis ofdifferentiation of corporate

vision and, 115global brand leadership and,

95price wars and, 47, 55, 64–66

consumer behavior. See alsocustomers; experimentaldesign techniques; mar-keting messages; retro-marketing

Internet access to informa-tion and, 69, 71–72

multitude of drivers of, 143price war tactics and, 46,

50–51, 55Web pricing and, 61

“consumer centricity,” 128–129consumer-products industry,

54–55contextual marketing. See also

Internetcorporate agendas and,

83–85customer relationships and,

79–83

Index 173

business unitsglobal brand leadership and,

103–104Harlem Globetrotters and,

37–38Buy.com, 60

Cable & Wireless, 148, 156Cadbury, 90Cadillac, 10Calvin Klein, 6, 137Camel Lite, 130cannibalization, 55Capital One, 148Carlin, George, 131Cascade detergent, 5–6cash-flow reports, 37Charles Schwab, 44, 58Chase, 148Cheaptickets.com, 55cheating, 137–138Chevrolet, 10Chrysler, 129, 141Citroën, 137CNET, 77Coca-Cola, 11, 51–52, 96, 117communication

global brand leadership and,88, 91–94, 96

with stakeholders, 117,118–119

community, sense of, 123company capabilities

global brand leadership and,88

price war tactics and, 46–47,55, 56, 63–64

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contextual marketing (contin-ued)

non-PC points of consumercontact and, 77–79

rise of, 75–77tools of, 79–83

continuity, and brand strength,7–8, 22

contributorsbrand identity and, 96price wars and, 45, 47, 52,

66–67Coors Brewing, 14corporate brand, 109–126. See

also brand equity; globalbrand leadership

alignment of elements of,119–122

as asset, 111, 122–124brand hierarchy and, 8–10Disney and, 16–18drivers of elements of, 109.

(See also employees; stake-holders; top management)

errors in creation of, 111,122–124

essential elements of, 109,111–112. (See also com-pany culture; image;vision)

misalignment in elements of,109–110, 112–119

versus product brand,124–126

tool kit for building, 112–119

174 Index

costscorporate brands and,

122–123deterrence of price wars and,

48market testing and, 146–147

country brand strategy, andglobal brand leadership,97–98, 106, 107

Crayola, 144, 153–156, 160–163cultural differences, and global

branding, 89customer acquisition, and

Internet, 71customer relationships

global brand planning and,95–96

Internet and, 79–83, 84customers. See also consumer

behavior; retromarketingbenefits of strong brands for,

3–4, 21–22, 122–124brand meaning and, 12–13,

20, 23, 96, 116–117focus on, and reinvention of

brand, 33–36global brand planning and,

95Harlem Globetrotters and,

26, 27, 33–36image-culture gap and,

116–117Internet access to informa-

tion and, 69, 71–72price war tactics and, 46,

50–51, 53, 61–63

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e-mailCrayola marketing strategy

and, 144, 153–156,160–163

information sharing and, 93employees. See also networks

attitude toward brand, 38,96, 115

image-culture gap and, 117information sharing and, 92personal accountability and,

36–37, 39, 40potential and, 40

Encyclopedia Britannica, 65Enrico, Roger, 97entertainment

Harlem Globetrotters and,31–33, 35–36

retromarketing and, 128,137–138

Estée Lauder, 124Etheridge, Melissa, 78E-Trade, 43“everyday low pricing” (EDLP)

strategy, 6e-wallet, 79, 80–81exclusivity, 127, 132–134experimental design tech-

niquescombinations of variables

and, 150–151Crayola example and,

153–156, 160–163data mining and, 147–148estimation of response

model using, 159–160

Index 175

pricing strategy of strongbrands and, 5–6, 22

sense of community and, 123

data mining, 147–148Davidoff, 62–63De Beers, 132Dell Computer, 77Delta Air Lines, 55Denny’s, 34diagnosis. See also measure-

mentcorporate branding mis-

alignments and, 112–119price wars and, 44–47, 61–67

digital environment, 72–75. Seealso contextual market-ing; Internet

Disney, 16–18, 35–36, 132contextual marketing and,

82corporate brand and, 110retromarketing and, 130

distribution channels, andprice wars, 55, 66

“dream-outs,” 121DuPont, 58

Lycra brand, 104

economies of scale, and globalbranding, 88–89

EDLP. See “everyday low pric-ing” strategy

electronic wallet (e-wallet), 79,80–81

EMachines, 56

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experimental design tech-niques (continued)

extensions of approach,156–157

factors in success of,157–158

origins of, 159principles of, 149–153requirements for application

of, 148–149results and, 151–153,

155–156, 157–158,160–163

sample size and, 151traditional market testing

and, 146–147types of, 157variables in market mes-

sages and, 149–150

Federal Express (FedEx), 51,79–80

field visits, 93–94fighting brand, 45, 54finance industry, 125financial services industry,

43–44Fisher, Ronald A., 159flanking brands, and price

wars, 45, 54focus groups, 129Food Lion supermarket, 47–48Foote, Cone & Belding (ad

agency), 19Ford, 90, 94“four Ps” of marketing, 76,

140–141

176 Index

fractional factorial design,148–149

Frito-Lay, 92–93

Gap, The, 9, 100, 124General Electric (GE), 121General Motors (GM), 9–10, 83.

See also entries for specificGM brands

Giga, 125Gillette, 5, 13“Ginger,” 136global brand leadership. See

also corporate brandbrand planning process and,

88, 94–98brilliance in brand building

strategies and, 88,105–108

country brand strategy and,97–98

factors in, 87, 88, 91versus global brand building,

90–91global sharing of best prac-

tices and, 88, 91–94managerial responsibility for

brands and, 88, 98–105measurement and, 97, 106,

107–108teams and, 90, 94, 99–100,

103–105global brand manager, 101–103global brand teams, 90,

103–105GM. See General Motorsgoals, and global branding, 97

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idle plants, and price wars, 55image, 109, 112, 113. See also

brand meaningimage-culture gap and, 110,

113, 116–117, 121image-vision gap and, 110,

113, 117–119, 120–121incentives, and global brand-

ing, 92indirect competitors, 65–66information access. See also

communication; contex-tual marketing

consumers and, 69, 71–72global branding and, 92, 93,

94information overload, 92intangible factors, and brand

strength, 4–5, 12–13, 22,23, 96

Intel, 58, 66–67, 125interactive TV, 78International Broadcasting

Company (IBC), 28–29Internet. See also contextual

marketing; e-mail; Websites

Hollywood marketing and,137–138

lack of strategic payoff and,70–71

marketing complexity and,146

price sensitivity and, 44,60–61

trends in marketing and, 73

Index 177

government agencies, andprice wars, 66

Grolier’s Encyclopedia, 65

Häagen-Dazs, 102Hallmark, 154Harlem Globetrotters, 25–40

business strategy at, 36–39customer focus at, 33–36history of, 27–28purchase of, 30reinvention of product at,

30–33vision for, 28–30

Harley-Davidson, 6, 96, 132Harry Potter, 134–135Heineken, 88Hewlett-Packard, 96hierarchy of brands, 8–10, 22Hollywood, 137–138Honda, 10, 90, 93, 132Honeywell, 26, 28, 30, 36, 40hospitality industry, price wars

in, 49–50Household Finance, 148human resources. See employ-

eesHunter, J. Stuart, 148Hunter, William G., 148

Iacocca, Lee, 37IBC. See International Broad-

casting CompanyIBM, 88–89, 102–103, 107

corporate brand and,114–115

ThinkPad, 105

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Internet (continued)ubiquitous Internet and,

72–75ubiquitous relationship and,

79–83intranets, 93Isuzu, Joe. See Joe Isuzu

Jaguar S-Type, 141Jobs, Steve, 115Joe Isuzu, 141, 142Johnson & Johnson

Clean & Clear campaign,76–77

Tylenol ads, 76Johnson Wax, 17

Kamen, Dean, 136Kao Corporation, 54Keds, 130Klein, Calvin. See Calvin KleinKotler, Philip, 137Kristiansen, Kjeld Kirk, 120

leadership, 40. See also HarlemGlobetrotters; top man-agement

Lee, Sara. See Sara LeeLego, 120–122Lever Brothers, 6Levi-Strauss, 19Limited, The, 96logistic regression analysis,

159–160Lynch, John G., 60

Mac (cosmetic brand), 124

178 Index

“main effects” models, 158marketing messages

attributes of, 144, 149, 150combinations of attributes

and levels in, 144, 149levels of, 144, 149, 150

market share, ceding of, 58market testing, 146–147. See

also experimental designtechniques

“market university” at Frito-Lay, 92–93

MasterCard, 102Mazda Miata, 132, 141, 142McBride, James, 49–50McDonald’s, 53, 124, 130McFadden, Daniel L., 159MCI, 43, 62McLuhan, Marshall, 118–119measurement. See also

accountability; brandaudit; brand report card;diagnosis; experimentaldesign techniques

global brand leadership and,97, 106, 107–108

Harlem Globetrotters and,37

Internet strategy and, 84media relationships, 33–34“media spillover,” and global

branding, 89–90medical services industry,

50–51meetings, and global branding,

92–93Mercedes-Benz, 6, 98

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Origins, 124

package delivery industry, 51.See also Federal Express

packaging, 54–55parking garages, 81–82Pepsi, 97personality of brand, 4–5, 96“pit stops,” 121Pizza Hut, 137Planet of the Apes, 137–138planning process, and global

branding, 88, 94–98plant capacity, and price wars,

55, 56points of difference, 6points of parity, 6Pontiac, 10positioning

brand strength and, 6–7, 22subbrands and, 9–10

Potter, Harry. See Harry Potter“price leadership,” 59Priceline.com, 55price wars, 41–67

analysis and, 44–47, 61–67deterrence and, 47–48, 59diagnosis and, 44–47, 61–67discretion and, 58long-run implications of, 57nonprice responses and, 45,

48–52preemptive strikes and,

56–58preparation for, 58–59retaliatory pricing and,

56–58

Index 179

mergers and acquisitions, andcorporate branding, 125

Merrill Lynch, 44Mazda Miata, 132, 141–142Michelob, 8Microsoft, 65, 110Milka, 90mission, and corporate brand-

ing, 124–125MITI, 67Mobil Oil, 93, 97, 103–104

Speedpass, 75mobilemediaries, 74–75, 79–80mobile recipe book, 78–79mobile shipping lists, 79modifiers, 5Motorola, 66mystery, 136

national brands, 125Nestlé, 100, 123networks, 93. See also commu-

nication; teamsnewsletters, and brand iden-

tity, 96Nivea. See Beiersdorf (Nivea)NKT, 125Nordic Baltic Holding, 125Nordstrom, 6Northwest Airlines, 42, 52,

53–54NTT DoCoMo (Japanese wire-

less carrier), 75–76NutraSweet, 51–52

Old Navy, 9, 124Oldsmobile, 10

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price wars (continued)selective pricing actions and,

45, 52–26tactics for fighting, 45

pricing strategy. See also pricewars

company factors in pricewars and, 63–64

Harlem Globetrotters and,32

retaliatory pricing and,56–58

selective price modificationand, 53–54

of strong brands, 5–6, 18, 22Proctor & Gamble, 5–6, 94,

99–100, 101corporate brand and,

110–111Pantene, 100, 106

product brand versus corpo-rate brand, 124–126

product incubators, and corpo-rate brands, 124–125

Propecia, 61

qualityHarlem Globetrotters and,

26, 31–33price wars and, 45, 49–50, 56,

62–63

regional marketing, 34regulation, and price leaders,

59relationship building. See also

customer relationships

180 Index

brand strength and, 5customer relationships and,

79–83, 84Harlem Globetrotters and,

26, 33–34media and, 33–34ubiquitous Internet and,

79–83relevance of brand, 4–5, 22

Harlem Globetrotters and,26, 27, 31–33

research, global sharing of, 94resource management, 39response surface designs, 157responsibility for brands, and

global brand leadership,88, 98–105

resultsexperimental design tech-

niques and, 151–153,155–156, 157–158,160–163

raising of standards and,39–40

retail industryubiquitous Internet and, 74Web versus bricks-and-mor-

tar companies and, 60–61retaliatory pricing, 56–58. See

also price warsretromarketing, 127–142

principles of, 127–128,131–140

as strategy, 129–131as tease, 140–141

risk, and corporate branding,125–126

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stakeholders. See also contrib-utors; employees

communication of visionand, 118–119

expectations of, 118identification of, 118images of company and,

116relationships with employ-

ees, 117stamina, and leadership, 40standards, raising of, 39–40Starbucks, 3–4Statistical Analysis System

(SAS Institute), 148Statistics for Experimenters

(Box, Hunter, andHunter), 148

“stealth marketing,” 56stimulus-response network,

146strategic advantage, and ubiq-

uitous Internet, 74subbrands, 5, 8–10Sun Country Airlines, 53–54Sun Tzu, 132suppliers, and price wars, 66support, and brand strength,

13–14, 23surprise, 137symbols, and brand strength,

96, 124

Taco Bell, 53, 137Tango (UK juice product), 139teams, and global branding, 90,

94, 99–100, 103–105

Index 181

Ritz-Carlton Kuala Lumpur,49–50

Rowling, J. K., 134

San Francisco’s BART com-muter rail system, 159

Sara Lee, 48SAS Institute, 148Saturn, 6, 10, 142Scholastic, 134–135Schultz, Howard, 3–4Schwab, Charles. See Charles

Schwabscreening designs, 157secrecy, 127–128, 134–135Shell Oil, 13–14, 117shopping malls, 81–82, 82Simon Properties, 82Sloan, Alfred P., 9–10smart cards, 79Smirnoff, 103, 105, 107SmithKline Beecham, 123social role of brand, 5

Harlem Globetrotters and,34–35

Proctor & Gamble and,110–111

Société Bic, 12–13Sony, 6, 52, 97, 100–101

corporate brand and, 111,123

retromarketing and, 129Spencer, Ed, 39–40Spielberg, Steven, 138spin-offs, 125sponsorships, 34–35Sprint, 43, 62

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telecommunications industrycorporate branding and, 125price wars and, 43, 62

television, 783M, 54, 58Tide detergent, 17top management, and global

branding, 99–100,100–101

Tower Records, 61Toyota, 10tracking studies, 15tricksterism, 128, 138–140truth, 137–138Ty Incorporated, 132–134

ubiquitous Internet, 72–75,79–83. See also contextualmarketing

Unilever, 78, 123U.S. Department of Trans-

portation, 65“usage imagery,” 4“user imagery,” 4, 96

values, and corporate brand,114–115

Viagra, 61videos, and brand identity, 96Virgin, 96, 123, 126Visa, 7, 88, 89vision, 109, 111, 113

company subcultures and,115

differentiation from com-petitors and, 115

182 Index

Harlem Globetrotters and,28–30

image-vision gap and, 110,113, 117–119, 120–121

vision-culture gap and,109–110, 113, 114–115,120

Volkswagen, 90New Beetle, 141–142

Wal-Mart, 134Warner, Ty, 132–134Web sites. See also contextual

marketing; Internetas Internet commerce

model, 69, 71–72non-PC points of consumer

contact and, 77–79Winn-Dixie supermarket,

47–48“workouts,” 121workshops, and brand identity,

96

Yang, Dori Jones, 4Young & Rubicam, 120

ZDNet, 77Zima, 14

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