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Growth is life. Unchecked, unplanned growth, however, will result in the demise of your brand in no time. Growth is as inherent in business as it is in humans. It is the fuel that drives business. Therefore it might seem illogical to vilify growth and put it in a red zone. |
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Growth can be categorized in two divisions. One is controlled, well-directed, single- minded. It is simply natural outgrowth of business with a well-set strategy in mind. The other is unrestricted, and all over the place-when the management simply raises the bar too high, sets illogical growth numbers, preaches a lot to the employees about the importance of meeting such lofty numbers and meets that growth target by any means possible. I repeat, by any means possible. I will elaborate more on that a little later. But just to set the record straight, it is the second type of growth that is malevolent.
The number crunching game and its downfall
The analogy with the human body gets the point across. While it is natural for the human body to grow, any unnatural growth results in serious health hazards. Some of the biggest and tallest men ever lived and graced the pages of Guinness Book of world records had a very short life span. There lives were plagued with health complications. The same applies for corporations. It is one thing to ride the wave but it's another to set illogical goals in front.
The fate of the Internet bubble burst tells the story. During the latter part of the 90s, many thought the Internet Economy would expand without any bounds. The Internet companies took such growth for granted, embraced themselves for double digit growth, but alas they lost everything in a lose-all betting game.
General Motors was once the undisputed king of growth. But it's the growth strategy that later got back to them. Car after car was launched with little or no differentiation among them. To make matters worse, the pricing was so confusing that the customer did not know which ones were the premium brands and which were not. The once omnipotent GM lost $10.6 billion in 2005.
Sony was a pioneer, visionary company, the undisputed king of consumer electronics and, above all, a relentless growth machine. If it was any sort of digital entertainment, be it movies or mobile phones or music, Sony was there. Sony was involved in some of the fastest growing products in the world.
So it comes as a shock when we find Sony to be languishing behind in a category that they themselves have created – the portable music player. The Walkman was the first portable music player in the world but not any more. The new king is Apple's iPod. Sony is among one of the brands which lost the most brand value in 2005 among the top 100 brands in the world.
Growth did not treat Volkswagen well, either. The cult-brand had big-time growth in mind when they went from their "small car" positioning to "every person's car" positioning. They wanted to sell small cars to people who wanted small cars. They wanted to sell medium sized cars to people who loved medium sized cars. They followed the now notorious GM strategy. The result: 12% reduction in brand value in 2005.
The After-effects of growth
There is a vicious cycle at work here.
A) Companies bring out a winner product and make it big
B) Companies all of a sudden find selling products to customers very easy and set lofty growth targets
C) To meet these short term growth targets, companies launch a thousand variations of one product, most of which do not meet any unmet consumer demand
D) Companies buy facilities, recruit people, and pour in marketing money just to meet growth targets
E) Growth fuels more growth, but
F) Then the company hits a snag, loses brand value, focuses on cost cutting, lay-offs, closure of factories, etc.
Almost all big companies went through the same cycle. And some more big names are heading towards the direction. Sony recently cut 5,700 jobs, closed nine factories, and sold $705 million worth of its assets.
Growth vs. Brand Value
If we list the top 5 companies which gained the most brand value in 2005 and the fastest growing companies among the Fortune 500 in 2006 and put them side by side, we don't see a single match.
Top 5 brands with highest increase in Brand Value in 2005 |
Top 5 fastest growing companies in Fortune 500 in 2006 |
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1. Ebay
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A. Kerr-Mcgee |
| 2. HSBC |
B. Lyondell Chemical |
| 3. Samsung |
C. Echostar Communications |
| 4. Apple |
D. TRW Automotive Holdings |
5. UBS |
E. IAC/InterActiveCorp |
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While Wal-mart is one of the most successful growth stories of the 21st century, brand value-wise it is nowhere near the top 5. In the same way, Coca Cola may be the best brand in the world but its growth rate is not within the top 30 fastest growing companies in the world.
This clearly shows that while unprecedented, unplanned short term growth may be the order of the day, but in the long run it diminishes the brand value.
The Growth Effects: Sales Promotion
In recent years, Marketing has become a game of beautiful paradox:
1. Short term growth requires frequent sales promotion
2. But, frequent sales promotions reduce the strength of a brand to pull customers
3. Therefore, the strength of the more growth oriented brands is reduced over time.
Why is this sudden over-reliance on sales promotion?
Sales targets are often based on CEO's wish-list, not on practical fact-findings. That is why to cover-up sales shortfall, marketers often resort to Sales promotion.
This, unfortunately, is not the most ridiculous reason behind the increase in sales promotions. Sales promotions are on the rise because marketers need to
A) Satisfy the trade ("We have to satisfy our partners. If that means growing out of our skin once in a while, then that's imperative")
B) Occupy shelf-space for future ( "If we don't predict and block their moves, the competitors will take our business away")
C) Address internal stakeholders' boredom ("We have been doing the same thing for the past 3 months. It looks boring")
D) Show good numbers, more so than good strategic direction ( "We are not interested in what the company will look like in 2010, but what the sales figure will look like at the end of Quarter 3")
E) Do something with their time ("We are sitting back and letting the competitor dictate the terms")
What is imperative to understand is that when your customer is only buying your product because of sales promotions, your brand health is in serious jeopardy.
Also, during the sales promotion it is mostly your loyal customers and bargain hunters who will buy your product. Historically they are both nonprofitable. Your loyal customers will buy your product anyway. In fact, by reducing your price you are habituating your loyal customers to wait for the "offer" to hit the market, rather than buying the product at price. Also bargain hunters are never going to stick to your product and will respond to competitors' offer in the same way that he responded to yours.
Therefore the sum of all the parts of a sales promotion does not really add up to create something big-brand health-wise.
The Growth effects: Line & Brand Extension
On paper it looks so simple. You have a successful product which is being used by X number of people. If you just add another three more versions of your product you can rope in at least three-fold customers. What can possibly go wrong?
If that were true how can one explain why Coke's brand value has not quadrupled after Coke added innumerable variants of its classic Coke? Why did Pepsi suffer the same fate?
The answer is quite simple. The more you want to sell, the greater variant you add to your product line, the more choices you give to your customers, your brand becomes less and less powerful, because mind cannot deal with complication or extra information; it prefers simplicity. And it's about time, marketers understood that.
The Growth effects: Price War
Advertising legend Bill Bernbach once said that price cut only makes sense when your competitor cannot match you with a similar cut. Makes sense, doesn't it?
Again, what makes sense and what makes it out in the practical world are two different things. Price war is mostly an outgrowth of the destructive growth agenda that companies adopt. And product categories suffer because of that. In the US, airlines industry has become one of the least profitable sectors. And it is simply because of price war. Once a telecom giant, AT&T has been choked because of the ongoing price war in the telecom sector.
Despite all the signs on the wall, price war still continues to be popular, just like its step-siblings, sales promotion and line extensions.
Growth that works-Some recommendations
We have such vehement beliefs that despite our best efforts to kill our brand, we will save the day by doing what we do best-get great growth numbers. The question remains: if such strategy is faulty, what can the companies do? Here are a few strategic guidelines:
1. Growth numbers should be based on practical research data, not on impractical whims like "let's double our growth rate"
2. Growth should be the secondary consideration, but not brand value. Therefore only the growth that does not hurt the brand by diminishing its image and confusing its audience should be adopted
3. Conglomerates almost always do not succeed in the long run. So stay in your focus area. If you are a successful TV network, you have no business being a key player in banking. It will never work.
4. Your pricing strategy should be such that you don't need to adopt frequent sales promotions or price cuts. Wal-Mart is the most successful company with a very consistent pricing strategy. Their slogan is "Everyday low prices", which tells a lot about their positioning.
5. Don't extend your brand to cover two or more categories. Adidas is a successful sports shoe manufacturer but neither a successful clothing manufacturer nor a leading cologne maker. It is one success story that will never happen. Don't fall into that trap. Shoe is shoe. Cologne is cologne. People will buy shoes from Adidas and cologne from some other manufacturer.
6. When your product has reached maturity in a market, don't launch another product variant or jump into another category. Rather, take your same product in another market, preferably overseas. For example, when Starbucks was attacked by me-too competitors in USA, they didn't simply launch another cheap looking coffee house to compete. They made a smart move by going global.
More is never More
Who are we kidding? More is less. Less is more. Nothing proves this more than the growth frenzy and the rise and fall of the great brands of the century. Brand value and unplanned growth cannot co-exist in the same group. Trying to tame these two horses simultaneously is one trick of the trade. And learning that one trick will determine the brand of the future.
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Mr. Shahriar Amin is Deputy Brand Manager, GrameenPhone Ltd.
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The
article is reproduced with permission from
The Executive Times
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