Marketing Guru Laura Ries and Tom H. C. Anderson Discuss Branding, Market Research and Segmentation
[Anderson Analytics Marketing Guru Round Table Discussion #4 ]
In an effort to bring highlight innovations, methodological trends, and current thoughts in market research, Anderson Analytics has started an ongoing “round-table discussion” series. The fourth of the series is an interview with marketing strategist, author, and television commentator, Laura Ries. Among her cadre of accomplishments, Laura is a founding partner and president of the market strategy firm Ries and Ries, which consults for numerous Fortune 500 companies. She is a frequent contributor to the New York Times, Wall Street Journal, USA Today, Advertising Age, CNN, Bloomberg, and CNBC. She has co-authored numerous books on branding, including The 22 Immutable Laws of Branding (1998), The 11 Immutable Laws of Internet Branding (2000), The Fall of Advertising and the Rise of PR (2002) and The Origin of Brands (2004).
Today Laura talks with Tom about market strategy, branding, and research. They started the discussion on the competitive nature of branding and how a brand can thrive within its category.
Tom H. C. Anderson: You’ve compared the market place to Darwin’s Tree of Life with competition between individuals (brands) competition between species (categories) and you encourage businesses to create new categories. Can you elaborate a bit on this? In some businesses it’s obviously easier than others. What if you are a marketer in a well-developed category, which has been around for a long time?
Laura Ries: Sure, every brand cannot create a new category to be first in. But if you are a new brand going into a well developed category with strong competition you are unlikely to be successful unless you can find some way to be different and create a new category.
If you already have an existing brand in an established category that your are not in the leader in. Then the best brand strategy is to be the opposite of the competition.
Red Bull was not another soft drink, it was the first energy drink. It built a powerful brand and a three billion dollar business. Since then many copy-cat energy drinks have been introduced but the only one to have any success is Monster a brand is the opposite of Red Bull by launching in a 16 oz “monster” size can.
Tom H. C. Anderson: I understand you advocate divergence rather than convergence, which would probably apply to things like McDonalds renting DVD’s being a bad thing for McDonalds Brand. While I can see this as a possibility perhaps, wouldn’t it increase visits and therefore revenue to McDonalds. I know I visit my local stop & shop more often now that they have RedBox rentals? If not DVD rentals, what should McDonalds do to increase sales?
Laura Ries: Actually I don’t care about a DVD rental box at McDonald’s. It doesn’t take up much space, it doesn’t interfere with the restaurant and it doesn’t cost them anything to do; that is not really convergence of anything.A brand focused on having drop boxes in convenient locations makes sense actually. If you have to go to the Blockbuster or use the mail for Netflix, this is the third way to rent. But it is like being Royal Crown to Coke and Pepsi, it’s never going to be a big deal.Just to note, where McDonald’s gets into trouble is with line extension and adding things like McPizza, Arch Deluxe burgers and coffee baristas. They are incredibly costly and far removed from the brand focus. Hamburgers, pizza and gourmet coffee shops are not going to converge into one. When given a choice consumers will pick a specialist over a generalist. Because it is fast and convenient, they might grab a cup of regular coffee at McDonald’s but I don’t believe they will wait 5 minutes for a $5 latte unless the store is called Starbucks.Divergence is about bringing two categories together. Most of examples are found in the electronic industry, where a lot of hype and hope has driven companies to build many convergence products: television/computer, mp3 /telephone/email/internet, refrigerator/television, sunglasses/mp3 player, etc, etc. What they seem to not understand it that while convergence sounds good to the company, it doesn’t make sense to the consumer. Convergence products are almost always: bigger, more complicated, more expensive, use more battery, face early obsolescence.
Sony had much hope for and put much effort into its PlayStation 3, a convergence game console that includes a Blu-Ray DVD player. Getting the convergence to work cost much more in development costs and delayed the release of the console by a year. A year in which X-Box got a huge head start and then Wii came in with a new, simple idea and crushed them.
Laura and Tom turned to the topic of market research. Specifically, they discussed the role research has in market strategy, branding, and basing decisions on market research results.
Tom H. C. Anderson: A lot of Marketing Gurus tend to look at market research as an after thought. That is all strategic decisions are made first, then a couple options are tested or tweaked. What’s your view on this? Do you think brand related decisions rely enough on market research or do they need to be made more on gut instinct?
Laura Ries: We [Al Ries, co-founder of Ries and Ries] are not fans of using market research to predict future behavior. Consumers are just not able to tell you what they are likely to do in the future. Nobody knows what the future will be like, there are so many different variable to consider. And using this research to make key brand decisions can actually lead you in exactly the wrong direction.If you worked for Toyota and did research before the launch of the Lexus brand and asked consumers what new brand of car they would prefer, a $50,000 Toyota Supreme or a $50,000 Lexus (a brand they never heard of), no doubt the research would show people overwhelmingly would choose the Toyota Supreme. Of course launching a Toyota Supreme is exactly the wrong thing to do. And luckily Toyota made a wise branding decision and launched Lexus a totally new luxury Japanese automotive brand. A brand that is now the number one imported car in the U.S.Tom: What role should market research play in branding?Laura: Research should be used to understand the current mind of the consumer. What you brand and your competitors brand stand for in the mind.Research is helpful to find out what consumers did and what they think about a particular brand. If they think Toyotas are reliable, if they think Volvos are safe and if they think BMWs are driving machines.Tom H. C. Anderson: What role should segmentation play in branding? Have you seen any approaches to customer segmentation that you feel seem to work well, are more actionable?Laura Ries: Customer segmentation can play an extremely important role in marketing, provided you focus the brand on a single segment. Unfortunately, most marketing people tend to want to appeal to multiple segments with one brand. This almost never works leaves you with a brand that is confusing everybody and appeals to nobody.
Tom H. C. Anderson: How good of a job do you feel market research is currently doing in measuring brand equity? How could we improve?
Laura Ries: Determining brand equity and giving it a specific number is very much a grey area. It is an imprecise science. Name recognition and brand power are two totally different things. Many times the research can’t separate them. I saw one study that gave Sony high brand value ratings. Sure Sony is well known, but their brand power today is in trouble. They don’t dominate any particular electronics industry any more. Massive line extension has left them vulnerable and competition has taken advantage.
What we look at is does the brand own an idea in the mind, how much market share does the brand have and is the category growing.
Polaroid owns a very specific idea in the mind (instant photography), they dominate the market but the category is practically extinct, therefore Polaroid has little brand equity left.
On the other hand, iPod owns hard-drive MP3 players and white ear buds, they dominate the category with almost 70% market share and the category is growing like crazy. So iPod has incredible brand equity.
Tom H. C. Anderson: I understand you’re in favor of PR over Advertising, as am I generally. Anderson Analytics does a lot of work with text analytics, this includes not only analyzing open ends in surveys, but also screen scraping discussion boards and harvesting comments on blogs, then analyzing them. Should companies be concerned about what is being said about their brand online? How does one manage a brand in web 2.0?
Laura Ries: I am not in favor of PR over advertising as a general statement. I don’t think you can build a new brand with advertising, because advertising lacks credibility, is too costly, doesn’t sync with the reality that brand building takes time.So PR is the means by which to build a brand and drive word of mouth which is the real force behind brand building. PR is effective because it delivers third-party endorsement of your brand.At some point all brands run out of PR potential. There are no stories left to write about the rise of the Coca-Cola brand or the Red Bull brand. They are now well-established, well-known brands in established categories. Therefore, after your brand is established you need to switch to an advertising centric plan to remind consumers about your brand and defend your position against competition.
Of course companies need to be concerned about what is being said about their brands online. Of course not all brands have the luxury of being talked about. When is the last time Kleenex came up in a discussion board?[For past Anderson Analytics Marketing Guru Roundtable Discussions: 1 Jack Trout, 2 Guy Kawasaki, 3 KDNuggets' Gregory Piatetsky-Shapiro]