“When you expand your brand, you weaken your brand”

laura visual hammer

Laura Ries is a leading marketing strategist, bestselling author and television personality. In 1994, Laura founded Ries & Ries, a consulting firm with her father and partner Al Ries, the legendary Positioning-pioneer. Together they consult with companies around the world on brand strategy. With Al, Laura is the co-author of five books on branding that have been worldwide bestsellers. Her first solo book was Visual Hammer. Her latest book Battlecry was published in September 2015. In this interview she speaks to Vivek Kaul.


In the foreword to your new book Battlecry, Al Ries writes that “over time, companies drift sideways. They get into many different businesses and lose their focus.” Can you give us a few examples.

There are so many, but here are a few. Yahoo was the leading search engine, at one time worth $120 billion on the stock market. Then Yahoo turned itself into a “portal” by adding a host of new services. Yahoo Mail, Yahoo Games, Yahoo Groups, Yahoo Pager, etc.
Those additions allowed Google to move in and dominate the search market. Today, Yahoo is worth only $29 billion on the stock market and most of that value is due to its investment in Alibaba stock. (Google is worth $428 billion on the stock market.)

Any other examples?

Dell was once the largest maker of personal computers with 17 percent of the global market. Today, Dell has fallen to third place with 13 percent. Dell stock once sold for $60 a share. Two years ago, was Dell bought out by a private-equity firm for $13.75 a share.

What caused Dell to collapse?

Expansion. Dell once sold computer direct to businesses. That was it. Then Dell started selling to the consumer market, including such products as television sets, digital audio players, computer printers and smartphones. The company also made many acquisitions in such areas as storage, services, data centers, security, virtualization, networking and software. In the three years from 2009 to 2012, Dell spent $12.7 billion on 18 acquisitions.

IBM, General Electric and a host of other companies have tried to expand their businesses by introducing many new products and services. Today, these and other companies have gotten smaller, not larger.

Why does this happen?

Because when you expand your brand, you weaken your brand.      

How do you correct this mistake at the branding level?

First of all, a company should narrow its focus so it stands for something. Dell once stood for “Personal computers sold direct to business.” What does Dell stand for today? Nothing. As a result, Dell has to sell its products and services based on low prices.

Years ago, Dell had a powerful slogan. “Direct from Dell,” a slogan that implied that companies could save money by buying their PCs from Dell’s website. Furthermore, the slogan was memorable because it used “alliteration,” one of the five techniques mentioned in my Battlecry book that can increase memorability.

What is Dell’s slogan today?

“Better technology is better business.” That’s a generic slogan that could apply to any company.

Why is a narrow product line better than a broad product line? Because a narrow product line is needed to build a powerful brand.

Can you give us an example?

Take Subaru, a Japanese automobile brand. In the American market in the year 1993, Subaru sold 104,179 vehicles, but the company lost $250 million on sales of $1.5 billion. So a new president was hired. The new president found that 48 percent of Subaru’s sales were four-wheel-drive vehicles and 52 percent were two-wheel-drive vehicles.

So what did he do? He decided to focus on four-wheel-drive vehicles only. Sales declined the first two years, but then they took off. From 104,179 vehicles in 1993 to 515,693 vehicles in 2014, an increase of 393 percent. (The total automobile market in those 21 years increased only 19 percent.) In 1993, Subaru was the ninth-largest Japanese vehicle brand in the American market. Today, Subaru is the fourth largest, trailing only the big three: Toyota, Honda and Nissan.

So what is the moral of the story here?

It’s hard to find cases like Subaru because most brands are taken in the opposite direction. Companies expand their brands; they don’t contract them. That’s logical, but that’s not good marketing strategy.

Why do companies like formal words in their marketing campaigns? You recommend colloquial expressions. Why? A few examples would be great.

Formal words like “motion picture” sound important. But consumers invariably use shorter words like “movies.” Or “TV” instead of “television.” Or “SUV” instead of “sport-utility vehicle.”

One of the most-famous charities in America, organized by the United States Marine Corps, collects toys for children at Christmas time. Instead of calling the charity “Toys for Children,” they called the charity “Toys for Tots,” a colloquial expression that is also alliterative.

You also talk a lot about abstract words. Can you tell us a little bit about that and how they hurt a marketing campaign?

You have two brains. A left brain which handles words and a right brain which handles visuals. The right brain is also the site of your emotions. There are also two kinds of words, abstract words and specific words. “George Clooney” are specific words. “World-famous movie star” are abstract words.

So?

Both abstract and specific words are processed in the left brain. But specific words like George Clooney also conjure up images in your right brain, the emotional half of your brain. Emotion is the biggest, single, memory stimulant. What events do you remember the most? The day you graduated from college. The day you got married. The day you had your automobile accident. These “emotional” events are also visual. You can never forget them. That’s why slogans using specific words are much more memorable than slogans using abstract words.

Can you give us an example?

“The ultimate driving machine” made BMW the world’s largest luxury-vehicle brand. BMW could have said “The ultimate performance machine,” a broader and more inclusive slogan.

But “driving” is a word that can be visualized. (Two hands behind the wheel.) But “performance” cannot.               

What is the difference between slogans that consumers remember and the ones that they don’t? How is related to the concept of Battlecry?

Two things make a slogan memorable: Money and memory-enhancing techniques. If you have enough money (and enough time), you can make any slogan memorable. “Just do it,” the Nike slogan, is memorable because Nike has spent billions of dollars to promote it over the past 27 years.

But most companies don’t have the resources of Nike. Nor do they have the time. What can they do?

They need to consider one of these five memory-enhancing techniques.

(1) Rhyme. Folgers became the No.1 coffee brand in America by focusing on breakfast with the slogan: “The best part of waking up is Folgers in your cup.”

(2) Alliteration. M&Ms became a leading candy brand by focusing on a feature of the brand with the slogan: “Melts in your mouth. Not in your hands.”

(3) Repetition. Federal Express, an air-cargo carrier, entered the American market to compete with the market leader, Emery Air Freight. FedEx (the current name of the company) decided to focus on overnight delivery. They could have said, “The overnight carrier.”

Instead, they used repetition to create memorability. “When it absolutely, positively has to be there overnight.” Within a few years, FedEx became the leader in the category.

(4) Reversal. Secret became the leading antiperspirant/deodorant for women with a simple reversal slogan: “Strong enough for a man, but made for a woman.”

(5) Double-entendre. This is perhaps the best way to create a memorable slogan. The two meanings contained in a single slogan oscillate back and forth in your mind, thereby creating memorability.

Can you give us an example?

“A diamond is forever” is a typical example. A diamond (the hardest substance known to man) can presumably last forever. A love symbolized by a diamond can also last forever, too.

You write: “Apple is an enormously successful company…But it wasn’t because of abstractions like “Designed in California”.” What is it that you are trying to say here?

Even successful companies can fall into the trap of using grandiose, abstract words instead of down-to-earth specific words. Apple’s “Designed in California” campaign had exceptionally-low viewer ratings and was discontinued within a year.

Three successful brands made Apple the world’s most-valuable company. And they all used specific words or concepts in their introductions.

The iPod: “A thousand songs in your pocket.”

The iPhone: “The first touchscreen smartphone.”

The iPad: “The first tablet computer.”

Yet when Apple introduced the Apple watch, the company did not try to position the brand with specific words on concepts. Many people, including me, think the Apple watch will not turn out to be nearly as successful as the three brands that came before it.  A sign of trouble ahead: Apple regularly provides data on iPhone sales, but refuses to disclose Apple watch sales.

Why are companies in love with the word “innovation”?

“Business has only two functions,” wrote Peter Drucker, “Marketing and innovation.”

Innovation, like many other abstract words, is both important and useless. Important in business and useless in marketing.

Inside a company, management should focus on innovation. Long-term, a company cannot be successful unless it is innovative. When it communicates to prospects on the outside, however, it should forget about innovation. That’s inside-out thinking. Instead, companies should practice “outside-in thinking.” Start with the mind of the consumer and try to fill an open hole in the mind. “Innovation” is a typical abstract word that has no real meaning for consumers. Instead, a company should look at its innovative product and try to express that innovation in specific words like “The first touchscreen smartphone.”

But that doesn’t seem to be happening…

Many, many companies, however, continue to try to pre-empt “innovation” in their marketing slogans. Some recent examples:
ASUS: Inspiring innovation. Persistent perfection.

Bosch: We bring innovation.

Firestone: A tradition of innovation.

Ford: Driving American innovation.

NEC: Empowered by innovation.

Nissan: Innovation that excites.

Siemens: Global network of innovation.

Toshiba: Leading innovation.
It’s highly unlikely that consumers will associate the word “innovation” with any of these companies. They will, however, associate “innovation” with Apple because Apple had launched innovative products with specific slogans.

How can a slogan provide protection from future competition?

A slogan can build a brand. And a strong brand is the best protection a company can have from future competition.

How do you build a brand that will last a lifetime?

There are four critical steps.

Step one: Be first in a new category. Coca-Cola, introduced in 1886, was the first cola. It’s still the leading cola today, 129 years later.

Step two: (Which isn’t a step at all, but it’s the most important thing you can do.) Don’t line-extend the brand. Keep the brand focused on its category. If you want to introduce another product or service, use a different brand name.

Step three: Create a slogan that communicates your leadership. Coca-Cola is widely known as “The real thing.” That’s the slogan the brand should be using because it communicates the fact that Coca-Cola is the original, the authentic cola.

Step four: Hammer the slogan with visual hammer. In Coca-Cola’s case, it’s the contour bottle which the brand has been using extensively.

You just talked about a visual hammer. Can you explain that in a little more detail?

The objective of a marketing campaign is to “own a word in the mind.” But the best way to own a word is to find a visual that can hammer that word in the mind. Marlboro was the first cigarette targeted to men only. But to drive that idea in the mind, Marlboro used a cowboy. The cowboy is the visual hammer that made Marlboro the world’s best-selling cigarette.

Corona beer is the only Mexican brand that has made Interbrand’s annual list of the 100 most-valuable brands in the world. How did Corona achieve this? With a lime. When Corona was introduced in the American market, the importers insisted that the beer be served with a lime on top of the bottle. (America is a lemon country. Mexico is a lime country.) The lime communicated the fact that Corona was the authentic Mexican beer.

The interview originally appeared in the Forbes India magazine             

The Role Of Family In Good Education Is Really Important: James Heckman

Heckman

Professor James J. Heckman is the Henry Schultz Distinguished Service Professor of Economics at the University of Chicago, where he also serves as Professor in the University of Chicago’s Law School and Harris School of Public Policy. In 2000, Professor Heckman won the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (more commonly referred to as the Nobel Prize in Economics). In this interview he speaks to Forbes India on various aspects of education.

In India we have launched the right to education where we are trying to put children from poor families into good schools run by the private sector. Do you think this kind of approach will work?
I think engaging the private sector is always a good idea but I also think that you have to make sure that the private sector is fully responsive to a particular question. We know from my own experience in US that the private sector in early childhood education programmes can help respond to cultural, social and parental religious values that would adapt programmes to be where the children and parents want to be. The private sector can also generate funds and support outside the government
. So not only can it communicate information about diverse groups interest but it can also help finance those programs and raise support and also kind of shape the agenda in a way that is fully responsive to different elements of the society.
In India the poor have shown an increasing preference for paying a higher fees and shifting their children to private schools and this is what prompted the government to say that private schools have to take in a huge diverse population from different background both at the early education stage and later. Is it a good approach when 90% of the schools are actually run by the state?
I don’t want to pretend to be an expert on the Indian education. But I have seen some of the studies and I don’t think if they completely control for the issue of selectivity, which is that children attending private schools have parents who are more motivated. That is a problem that runs throughout the world and not just in India. But it does seem like the private schools are doing a better job, at least superficially, but again I haven’t studied the problem in depth.
You talked about this problem running throughout the world…
Look one thing we have found in American education and education in Chile and other countries is that when the private sector and the public sector coexist, in many cases the private sector can help the public sector become more responsive to the children. And so they compete. In that sense competition can promote quality in both public and private sector. John Hicks the famous economist talked about the benefits of monopoly. He said that benefit of monopoly was that a monopolist can live a quiet life. The monopolist doesn’t have to compete and I think that is probably equally true in education as it is in steel or any other activity
.
When you spoke about selectivity you seem to think that private schools may or may not be necessarily better but the kind of students that self select themselves into these schools may be giving them better results. Is that what you are trying to say?
Oh yes. The motivated parents are the ones trying to achieve better results for their children. And we know that parenting is an important part of success of schools. Good parenting can be a very powerful factor leading to the success of the child and may be we attribute too much credit to the school attended by the child and probably underestimate the powerful role of the parent and the motivation of the parent.
As an aside, are you aware of the Amy Chua’s Tiger Mom concept. Do you think it has a huge impact in the kind of student performances of children coming from certain communities?
Yeah, I think it is. I know she goes to extremes in proving her theory. There is a difference that we make sometimes between an authoritarian mother and an authoritative mother. And I think tiger mom sounds a little too authoritarian. What you want is the mother to be informed and provide guidance to the child and I think that is an important distinction. If you look at Asian communities in the United States, for example Indian or Chinese communities, a lot of those children come from those homes that are very highly motivated.
Can you tell us a little bit more about that?
James Flynn talked about the Flynn effect, where each generation has a higher score and IQ than the previous one, sometimes by a substantial amount. He asked the question that why was it that Asian American children that included Japanese Americans, Indian Americans and Chinese Americans, were doing so well in school? The initial feeling was that there was some superiority in terms of IQ of the Asian population. But when Flynn looked at the data he found that these children were more motivated. They were working harder, were doing more homework, their parents co-operated with them and so forth. So I don’t know if they were tiger moms but they were families that were staying with the kids, motivating the kids and that is really part of what gave the culture. So the role of the family is really important. And I think some of the advantage of one culture or one ethnic group over another is precisely that.
What do you mean by that?
For example in the United States now, we have many children from Mexican-American families and for whatever reason the value placed on education is much lower. It is not uncommon to allow their children to drop out of school. They see the role of their child as following them, as doing a certain kind of manual labour. They don’t have any aspirations, may be because that they think there is no chance for their children in those other occupations. Hence, a part of the whole notion has been to educate those parents about the value of higher education.
How much does the quality of early education impact how well an individual does in life?
Let me tell you that I have seen from US data and I think this may be true in other countries, that the gap in achievement tests scores that is present when people leave secondary school, most of that gap is present when they enter school and kindergarten. So the early preschool years are playing a huge role. And you say, well maybe that is genetics, the family is smarter. There are more advantaged parents and they have more advantaged children, and better performing children and the gap you see in tests scores at age six or age five is may be a genetic gap. That is when the intervention studies come along and show that you can close a lot of that gap by essentially giving disadvantaged families some of the same advantages that advantaged children have. So it is not purely genetic. That’s an old idea, in fact there is lot of work showing that environment plays a big role. Genes play a role, but its not all set by the genes.
Should students be given exams from a
very young age? Is there some research on that?
I would say yes because you want to be able to monitor and measure children through out their life time. And the reason why it is useful is it guides teachers and the parents about where the child is behind and needs special effort. But having said that, we also need broader measures of what a child’s achievement is. So we want to go beyond just the notion of a test score or reading or writing, but to have a broader inventory of things like what is sometimes called non-cognitive or character skills. Character plays a very important role and we can shape characters, parents shape characters, schools shape characters, peers shape characters and we have a way to measure it.
How important is class size when it comes to delivering education? How small or big should a class be?
The younger the child, the smaller the class size should be. So when you get to these very young preschools, it seems like a ratio of three children per one teacher is about the right size. I am talking about kids one year of age who are very demanding, so you really cant supervise them. However, when you get to higher levels of education, class sizes can grow and there the evidence on class size is a little bit weaker. Schools in the north east of Brazil did not even have a roof over their heads. They imagined trees, they had no text books. So spending more money on those schools turned out to be a very good thing. They had a huge number of students and a very small number of teachers. So smaller classes and more resources played a huge role in increasing the Brazilian quality of schooling. But if you were to move that discussion to Sao Paulo, just go south into a more urban area, then large classrooms per say were not the problem, even resources per say weren’t the problem. It was typically what happened to the kids when they walked into the classroom from the aspect of student disciple and so on, that was the problem. So I think the focus in the past has been on the class size and that may have been overstated.
Can you elaborate on that?
Some 15 years back I did some calculations and what we suggested was that if you reduced the teacher pupil ratio by the amount suggested in certain influential studies, what happened was you boosted the incomes of the children. But if you ask that did it pay for itself in terms of what the increased teachers salaries were and the increased numbers of schools that came with reducing pupil teacher ratio, it did not. It was actually more efficient to give the children money and put it in the bank than it was to give the children few more teachers or have more classroom size. So, I would say the more important thing is creating efficiency within the school system than just having fewer students per teacher.
Just to shift the field, I think you have been a bit of a skeptic on the ability of the markets ultimately delivering the best results, even though you come from the Chicago School…
Be careful now. Suppose a child is born into a poor family. The resources available to that child are not to the same extent as to what some other child is getting. And that child who gets poor resources by what is basically a luck of the draw is very bright. He had a great future possibly but isn’t able to realise it. Then the question is that is there insurance against this kind of possibility? If there can be, you can literally imagine a market where fetuses would be buying insurance against having bad parents. But that market doesn’t exist and the point is that there is a kind of market failure which is related to the accidental birth and I think that is a very traditional Chicago argument that the parents play a big role and the child cannot control the families that they are born into.
That’s a very interesting way of putting it…
What I said is the result of what many people including my former colleague now deceased Milton Friedman, had to say. Friedman was a very strong believer in public education and that has been forgotten. As a very poor child, he was the beneficiary of public school education. The point you want to make a distinction on is that education provides a very basic framework for human capability. Adam Smith said that himself. So, this is not at odd with any things in economics. And the point is, very poor parents, somebody living in a very rural area in India or China for that South America, it may well be that the parent cant afford or doesn’t have the resources or even access to education for his children. So there is a role for government in providing resources. But having said that there is still a huge role for the private sector in making sure that the resources are used effectively.
In India, we are debating a law about the value of specific quotas especially in higher education, jobs and other thing,s as opposed to affirmative action where a company or a higher educational institution is expected to seek diversity rather than actually fill up quotas. What is the global experience on this front?
There was a similar debate in Brazil and I actually participated in that debate. In Brazil they started putting affirmative action in place, in the sense that blacks would be given privileges to go to medical school, professional schools and they worked. And what also happened is that Brazil had largely been racially unconscious in the sense that they were many poor blacks but there were many poor whites too. True, there were more blacks than probably white but there were awful lot of whites in poverty as well. Now, what happened is as you created a level of racial consciousness, it turned out that many people who looked very European, once the orders were given were actually trying to find out evidence if they had one thirty second black, so they could somehow claim credibility. So I worry, I definitely don’t like discrimination. And discrimination is a serious thing. It is very harmful, it just denies dignity to people. But I think reverse discrimination also denies dignity too.
Can you elaborate on that?
We want a society that doesn’t discriminate so I don’t know if tilting the scale in another direction is so good either. I think we want fairness. But I would say this that inequality starts really early in life and if we want any kind of affirmative action then it is probably helping the disadvantaged-white, black, high caste, low caste and so on. I think probably the idea of giving the skills and capabilities to people that allow them to flourish is probably a much better policy than kind of mandating equality in the face of gaps in skills. And I am afraid what happens in some case is that unqualified people are promoted at positions that they can not satisfy and that creates negative image which can actually undo the intentions.

 The article originally appeared in the Forbes India magazine edition 

"Companies are Throwing Money at Social Media"

rohit deshpande

Rohit Deshpandé is Sebastian S. Kresge Professor of Marketing at Harvard Business School, where he currently teaches in the Owner/President Management Program and in other executive education offerings. He has also taught global branding, international marketing. In this interview he talks to Forbes India on various aspects of branding.

I came across an interesting an interesting article that you wrote for the Forbestitled Branding Yoga: Good Business or Blasphemy?” Please tell us something about.
I wrote a case study called Branding Yoga. So my comments relate to that project. The first learning objective of the case is to ask the question can anything be branded?. The majority of the students say yes, anything can be branded. But the follow up question is, should everything be branded? And all of a sudden ethical issues and moral issues come up, in debating that question. It is a much more difficult question to answer.
Can you get into a little more detail?
The discussion broadens into this controversy over branding yoga. The particular controversy that got me interested into doing this case is something that I read about in The New York Times. There was a group of Indian Americans who had protested the commercialization of yoga and they said that it amounted to the commercialization of Hinduism. So they drew a parallel between commercialization of yoga and the commercialization of religion.
And how did that they do that?
In order, to make that argument they said that yoga is essentially Hindu and it would not exist if it were not were for Hinduism. This sparked a tremendous controversy that had to do with the history of Hinduism, the history of yoga, which preceded which one, can you teach Yoga without teaching Hinduism or is yoga all about exercise? That is really what fuels the case discussion. So, that is one set of issues that we deal with.
And what is the other set?
The other set of issues that we deal with is that there are two different branding models. One branding model is from Tara Stiles, who is a very successful Yoga teacher in New York. She is American. She is young. She used to be a model and a dancer and did Yoga herself as a way of keeping fit and started teaching her friends. They said there will be other people who will be interested. She made some free YouTube videos on this and they went viral. And then she started a yoga studio. Somewhere along the line, she became the yoga teacher of Deepak Chopra. He took lessons from her. He is a great fan of her brand of yoga and they have a joint venture . They made an iPad app, which has been very successful and even a DVD.
Which is the other model?
The other branding model is from somebody called Bikram Choudhury of Bikram Yoga. Now look at the contrast. Bikram is an American now but he was born in India. He was traditionally schooled and his brand of yoga focusses on the domain called hot yoga. It is extremely regimented and you have to be physically in a great shape to do that. And he has franchises. He has training programmes. He is much more of a yoga teacher training as a way of expanding the franchise, even though both are marketers. She is a much more of a social media type of thing. And both of them are successful. Both have attracted controversy, Bikram probably much more so, despite the fact that he is Indian and more authentic than she is.
What is the point you are trying to make?
Yoga has been very successfully branded, with different branding approaches and what makes it interesting is that in America the majority of yoga teachers don’t make very much money.
They have small studios. They are making a living. But they are not millionaires. Both Stiles and Choudhury have achieved a lot.
The ones who are not making haven’t branded yoga?
They haven’t thought about the branding aspects of yoga at all. I don’t know how it is in India, but this idea of the business of yoga, a lot of people look at it as an oxymoron.
You just talked social media. These days social media marketing is a huge thing. Does it work?
Of course it works. If done well, it works really well. There are a number of case examples of a number of companies that are doing a very good job. But it doesn’t work for everybody. Companies are spending a lot of money on social media. But a lot of it is experimental i.e. they are throwing money at something, and they are really not sure of what works and what does not work. We are at a nascent experimental stage where we are trying to figure this out.
Can you elaborate on that?
There are lots of examples of social media where the companies themselves are not sure whether the money is worth the spent. I am not sure I can isolate a social media disaster as much as companies not knowing whether they spent their money well. I would say 90% of the companies are in that group of not knowing whether they spent the money well.
Can you explain through an example?
It has to do with the appropriate success metric. How do you judge whether your social media campaign work has worked? One of the most popular metrics is the number of likes that you get. I have some colleagues who have done some research on this and they have found that likes do not translate into sales. When you think about it cognitively it doesn’t take a lot of effort to like but it takes a lot of effort, and not to mention money, to buy. Hence, click-throughs and getting sales, that is much much harder to measure.
So what is being done about this?
The companies are trying to figure out whether by spending more money they can get click-through , that is, translate likes into sales. But there are all kinds of other factors that might explain sales and how do you isolate it and so on.
Can you give us an example of a company which has used social media well?
I am developing a case on Dell. And they are considered to be a best practice example of using social media in the business to business space. What works for them is that they have a business model which is direct to consumer rather than going through retail. So they have open channel historically with their customers. They don’t get information on their customers from some sales partners, which means that when something goes wrong, they also find out very very quickly. And they have traditionally done that through their telephone lines. People call on their toll free lines when they have a problem. With the advent of social media, some irritated customers started blogging that they were upset at Dell, there is a problem that happened and so on.
And what did Dell do about it?
Michael Dell, who is the founder, is himself very active in the blog space and when he discovered this he told a team of his people that we should just reach out directly to these customers and fix these issues. When they reached out to fix these issues, the bloggers put blogs saying that here is what the company has done. Effectively, their bloggers were doing their job for them. As you know there is a lot of research that shows that restitution actually gets you a lot more business and than actually the initial sale does. And when the restitution story is being told by a customer it carries even more credibility. That is the story of how Dell got into this space. Now they have a command centre and they keep monitoring what is going on. It has to do with the complaint hotline or the repair hotline or whatever you call it, which is the history of the company. They have now translated this into the social media. They estimate that it has saved them a lot of money and a lot of loss, because of people who would have complained and gone away and scared other people from buying Dell.
Given your experience in the field of marketing and branding, which is the most frequent branding mistake that companies make?
The most frequent branding mistake is to assume that your brand is a logo rather than the personality of your product and company. To assume that its a simply a trademark and therefore it should be managed out of your communications department and maybe your legal department, rather than becoming a part of the overall strategy of the firm. In the research I have done this tends to be particularly true for technology intensive companies where the product is everything and the quality is everything. It is almost like a Dilbert cartoon which stereotypes marketing and says that marketing does not add any value and therefore branding is not very essential and it is all about the quality of the product. Companies in emerging markets are not comfortable with thinking about a brand as anything more than what their marketing people do. It is not seen as a part of the strategy of the firm. A brand is not seen as a relationship with a customer, it is seen as a trademark.
Can you give us an example which doesn’t hold true for whatever you have just said?
I wrote a case on Infosys and they have done an incredible job of making the Infosys brand mean something. Narayana Murthy in some ways represented the brand. The confidence that people had in buying from Infosys came from people who ran the company. The brand stood for more than just IT. The brand stood for the people and since 90% their sales comes from outside India, they actually had to brand India before they could brand Infosys. So there is a whole big story there of how India Inc came to be and what role Infosys played in it.
When brands become successful, the tendency is to extend it. Do line extensions work?
Line extensions do work but they don’t work in all cases. The Kingfisher story is an example of a line extension strategy that did not really work. Yamaha is an example of a line extension strategy that has worked very well. But I think the question is why the line extension? If the reason for the line extension is that you have built a powerful brand and want to milk it, then there is a chance that it won’t work. But if the purpose of the line extension is that it is something that the consumers want, then there is much more likelihood that it will work.
Any other point that should be kept in mind?
Another key part is that what does the brand mean? And does that meaning extend? The question for the Kingfisher management should have been what does the Kingfisher brand mean and how does that meaning translate from beer to airline? There are some brands that transcend the product category, in which case the brand might go across a whole variety of things. There are other brands where their meaning is very rooted in the product category, which is almost like the paradox of success. The brand is successful because people see it as Kingfisher means beer and it can’t mean anything else.
Do celebrity endorsements work?
The research on that is in this area called brand personality. Where the personality of the celebrity is consistent with the personality of the brand, it works. When there is a mismatch, then consumers are cynical and they believe that the only reason this person is speaking is because she or he is being paid for it, and they probably don’t use the brand themselves. I think that is the real issue.
Can you give us an example?
The bad example is the [James] Bond franchise. The BMW introduced a product called z3 through a Bond movie. It was for them a relatively inexpensive convertible car. This made a lot of news because James Bond was a British secret agent who used to drive a British Aston Martin and was now driving a German car. This made for good media. This was a very successful product placement. When that happened, not only BMW but a whole bunch of product companies decided that they would flood the next Bond film with product placements. There was a huge consumer backlash. Consumers were frustrated to the point that it was hurting the Bond movie franchise. People were saying that there is no way that the endorser is personally committed to all these different things but he is using it because he is being paid.
And a good example?
There are several examples of where the brand personality fits. An example of that is the basketball player Michael Jackson advertising Gatorade, which is a sports drink. And it went on for a very very long time.

The interview originally appeared in the Forbes India magazine dated July 10, 2014

'The Federal Reserve Learnt the Lessons Of The Great Depression'

Prof Randall Kroszner..

R Jagannathan and Vivek Kaul

Randall S Kroszner served as a Governor of the Federal Reserve System from March 2006 until January 2009. During his time as a member of the Federal Reserve Board, he chaired the committee on Supervision and Regulation of Banking Institutions and the committee on Consumer and Community Affairs. Kroszner was a member of the President’s Council of Economic Advisers (CEA) from 2001 to 2003. Currently he is the Norman R Bobins Professor of Economics at the University of Chicago Booth School of Business. He is an expert on international financial crises and the Great Depression. He was recently in India for the opening of The University of Chicago Center in Delhi. In this interview Kroszner tells Forbes India on how the Federal Reserve managed to avoid another Great Depression in 2008 and why it had to let the investment bank Lehman Brothers go bankrupt.

You were a governor at the Federal Reserve between 2006 and early 2009. That must have been a very tough and an exciting time…
Three easy years…(laughs). I am joking.
Can you give us some flavour of how those years were?
It was an incredibly challenging time because the markets were moving so rapidly. The economy was also moving rapidly downward. So we had to take important decisions in real time. We would often get into situations where we would try to survive until Friday and then try to do the resolution by Sunday, before the Asian markets opened. So we had a lot of board meetings late on Fridays, Saturdays and Sundays. And it was a time where having an economic framework was very useful because when you have to make decisions in real time, you need to have a framework to understand what the priorities are.
You and Ben Bernanke are scholars of the Great Depression. How did that help?
A number of us were quite familiar with the economic history. Three out of the five of us on the board had written papers on the Great Depression. And we were all pretty much influenced by Milton Friedman and Anna Scwartz’s magisterial A Monetary History of the United States. Their study squarely put the blame on the inaction of the Federal Reserve, turning a depression into the Great Depression. Those were very important lessons for us and gave us both an economic and historical framework for looking into the kind of price distress we were having at that point of time, so that we could act quickly and boldly to prevent a repeat of the Great Depression.
Did you all really believe that if the fiscal side and the monetary hadn’t acted as they did in 2008, you were really seeing a repeat of the Great Depression?
There was a certainly a risk of that because clearly there was a lot of turmoil in the financial markets. There was a potential for failure of many financial institutions, if the Fed did nothing and did not provide liquidity to the market and some institutions. It was by no means a certainty. Even if the probability was low, it’s a risk that I and other members of the Federal Reserve board were reluctant to take.
In the meetings at the Fed before September 2008 what was the atmosphere like? Did Chairman Bernanke and other governors have a clue of what was to come?
If you see the verbatim transcripts of 2008 many of us including myself were very concerned about the fragility of the market and the economy. We undertook some very bold action in terms of a very rapid interest rate cut. This was at a time when the European central banks were raising interest rates because oil prices were rising throughout 2008. But our forecast was that demand was likely to go down significantly and that the rise in oil prices was just a temporary price shift not suggesting an underlying increase in inflation. And that is why we had interest rates very low during that time period while other central banks were raising interest rates.
Being the Chair of the committee on Supervision and Regulation of Banking Institutionsyou must have been in the room when a decision to let Lehman Brothers go bust would have been made. What was the atmosphere like?
So, there was no meeting where a go/no go was made. It was a series of processes. Remember we were dealing with independent investment banks having significant funding troubles and having great concerns about their ability to survive. And so we were exploring whether there could be merger partners for organisations like Merrill Lynch and Lehman Brothers. Bank of America decided to buy Merrill Lynch. There were others who were looking at Lehman Brothers and we thought that we would be finding a merger partner. But it then emerged over that weekend[the weekend of September 13-14, 2008] that a merger partner was not available for Lehman Brothers. The market had known that they were in trouble for a while. And Lehman Brothers had not been willing to merge with a number of other institutions that had proposed merger over the summer. Hence, it was in an effectively weak capital position. Its business model was imploding and so, the Fed was not able to do a capital infusion.
Why was that the case?
The Fed can only lend against good collateral to a solvent organisation. It was very difficult to make an assessment at that time. There was a merger partner avaialble for Merrill Lynch and Bank of America could provide capital infusion and support. Morgan Stanley and Goldman Sachs had sufficient capital and sufficiently functional business models, that we felt comfortable granting them bank charters on an emergency basis. But Lehman Brothers did not have that wherewithal.
But two days later Federal Reserve stepped into rescue AIG. How do you explain that?
Well remember that the Fed could lend against good collateral. The problematic part of AIG was the financial products subsidiary of the holding company. But AIG had other operations in many states and in many countries that were not associated with the challenges that were there in the financial products division. And also AIG had sufficient collateral to be able to post against the loan.
You are also a scholar of the Great Depression. What were the mistakes made during the Great Depression that haven’t been made during the period of what is now called the Great Recession?
As you know a number of us including Bernanke, myself and one of the other governors, were students of the Great Depression and had done work on it. Milton Friedman and Anna Scwartz’s in their magisterial book on the monetary history of the United States had said that depression of the late twenties and early thirties was turned into the Great Depression precisely because the Fed did not act. The Fed stood by as the money supply collapsed, and as deflation came in. The prices fell by a third, GDP fell by 30%, and unemployment went up to 20%, and there was no action.
And that was the lesson?
Yes. That was a very important lesson for those of us who had studied the Great Depression, to make sure that we did not make that mistake of inaction because the central bank can prevent deflation. Broadly, we certainly learned the lessons of the Great Depression at the Fed, to make sure that we didn’t make the same mistakes. We didn’t just sit ideally and allow the price level to fall significantly and allow the GDP to contract. Honestly, we were able to avoid a significant to recession. It is really something very different from what happened in the 1930s.
You also managed to avoid a deflation…
Deflation can be very destructive as we saw in the thirties. Even a mild deflation can be very problematic as we have seen over the last fifteen years in Japan. It was the strong commitment on the part those of us who studied the 1930s as supposed to the others, to make sure to not allow a state of inaction, where a central bank did not act as the lender of the last resort, which is actually what it was created to do. Further, central banks around the world have to be vigilant against the threat of deflation.
I
nternational financial crises is an area of your expertise. Why are economists unable to spot bubbles. Your colleague and Nobel laureate Eugene Fama has even gone to the extent of saying that “I don’t even know what a bubble means. These words have become popular. I don’t think they have any meaning.”
It is easy ex-post to say that aha that price did not make any sense or it was clear that price would be coming down. But when in you are real time it is very difficult to be able to tell whether there is some sort of dislocation of the market or a fundamental change. We had the same challenge after the Asian, Russian and the Latin American crisis in the 1990s. The World Bank, IMF and many economists looked for indicators, so called red flags, which you could look at and tell when the economy is is getting overheated. They tried to figure out which are the indicators that can tell us that credit growth is too fast, or that there is a “bubble” in a particular sector. Despite a lot of work by a lot of very smart people on the policy side and the academic side, we really haven’t come up with a simple set of indicators or any indicator where you can have confidence and say just look at x, y and z, and you know that there is some sort of dislocation here, that is going to be reversed.
In a recent interview you said that the Fed’s approach to communication has changed through the years. Could you elaborate on that?
The communication has become more complete and more transparent and also the words have changed over time. They are sometimes called forward guidance. They are sometimes called open mouth operations because its talking about what kind of purchases and sales that the open market operations are going to do. In my last meeting at the Federal Open Market Committee(FOMC) we brought interest rates to approximately zero and said that we would keep them there for an extended period of time. That gradually changed into a particular date, and Fed would describe dates like 2014/2015. That changed to a description of 6.5% unemployment threshold. And most recently the Fed has said that it would not be focusing on a particular unemployment threshold.
What is the aim here?
I think all of the statements are trying to get at the same thing. It’s different words in different circumstances, around the same idea about the desire of the Fed to provide liquidity support to monetary accommodation to make sure that the economy fully recovers before it decides to take the punchbowl away. In these uncharted waters, giving a little bit more guidance about what the Federal Reserve thinks about policy making and how is it going to react to data is helpful because the past behaviour may not be that useful because we haven’t had these kinds of circumstances before.
In a recent interview when you were asked that when do you think the time will come when the Federal Reserve will start to raise interest rates, you had replied “I do think it will come sometime in my lifetime”. Does that mean the era of low interest rates in the US is here to stay? That was a bit of flip comment. I hope you understand that it was not meant seriously. We have had low interest rates for five to six years now. There is a hope that the economy will be strong enough sometime in 2015, and rates will be able to go up. You can see from most recent FOMC documents all of the FOMC members believe that the interest rates will be higher by the end of 2015 than they are now. And that sounds to me as reasonable.
A lot of gold bulls have been thinking that some point gold should have some role in money making. Do you see gold ever having any kind of role in monetary policy in future?
It’s narrow to pull this in any particular commodity because then the value of the currency will rise and fall depending on the vagaries of the particular market. So, like a flood in a mine in South Africa will have a big impact. And that is like putting too many eggs into one basket. The least you would want is a broader commodity based basket that would be well diversified and would be able to withstand these kind of shocks. So certainly thinking about alternative benchmarks for units of account are worthwhile to do. But I wouldn’t want to put all of my eggs in one particular commodity basket, particularly a market like gold which is a very small one. Small shocks like a flood in a mine in South Africa could have a big impact on money supply. Hence, it doesn’t seem like a very stable system.
The near zero interest rates and the QEs have had a bigger impact on the assets markets than the credit markets and the real economy. Would you say it is building up some problem?
It is important that the Fed is aware about this and is looking into this. Jeremy Stein one of the governors of the Fed has been at the forefront trying to think about what indicators to look at, indicators that might raise red flags. Jeremy as well as his staff are thinking very carefully about that. Monitoring this very very closely is very important and I know that the Fed is. To be able to predict which markets will have a dislocation, it is impossible to do that. No one has that kind of foresight. But I do think there is much more focus on that today than there was in the past.
In another five six months it will be six years since the Lehman Brothers went bust. How long do you think the easy money policies will continue?
As Chairman of the Federal Reserve, Ben Bernanke had said, whatever it takes, a corollary of that is as long as it takes. We have had a slow recovery than anyone had hoped for and that has been true not only in the US but many other countries as well. Some countries like India and some emerging markets that had done very well in the late 2000s have seen a significant fall in growth more recently. As the FOMC and Janet Yellen have said they are now on a path of tapering. It is very important to draw the distinction between tapering and tightening. The Fed had made a commitment to buy $85 billion worth of additional assets every month and that added nearly $1 trillion to the balance sheet every year. And with tapering now it is going to reduce the pace of that increase. So, it is not a tightening it just reducing the pace of additional accommodation. The additional accommodation is likely to wind down by the fourth quarter of this year and then depending on economic conditions, around six to nine months after that, the Fed might actually begin the process of tightening. But this is sort of a very gentle lengthy process. This is not a sudden shift of policy.

The interview originally appeared in the Forbes India magazine dated Jun 27, 2014

 

For 250 Years, Strategy Has Been About How Much More We Can Sell: Niraj Dawar

Dawar-08_smNiraj Dawar, Professor at the Ivey Business School (Canada and Hong Kong), is a renowned marketing strategy expert who has also been on the faculty of leading business schools in Europe and Asia. He works with senior leadership in global companies and has executed assignments for BMW, HSBC, Microsoft, Cadbury, L’Oreal, and McCain on three continents, as well as with start-ups in the biotech and information space.  His publications have appeared in the Harvard Business Review, the M.I.T. Sloan Management Review and in the leading academic journals. Most recently he has authored Tilt: Shifting Your Strategy from Products to Customers (Harvard Business Review Press, Rs 1250). In this interview he tells Forbes India why the opportunities of capturing value in the downstream are relatively neglected and have huge payouts when they are recognised. 
Your follow up question to managers often is that why do your customers buy from you rather from your competitors. This is after you have asked them what business are you in. Why do you do that?
The reason I ask that question is to encourage managers to ask themselves that question because it really allows you to understand that the reasons that customers buy are related to the interaction between the firm and the customers. The reasons are often about reliability, trust, relationships, comfort, the ease of doing business and reputation. In fact, very rarely does the answer to this question has anything to do with better products or cheaper prices. The reasons are almost entirely between the softer aspects of the interaction between the buyers and the sellers.
What is the centre of gravity of a business as you talk about in your book Tilt?
If you look at the activities of a firm all the way from sourcing of their raw materials, transformation of those materials, production, innovation, and supply chains—then towards the downstream, customer acquisition, customer retention and customer satisfaction, those are all activities that the firm engages in. Not all of those activities contribute equally to the cost of the business. And not all those activities contribute equally to the value that the customer buys, sees, and pays for. And not all of those activities contribute equally to the competitive advantage of the company.
So what are you suggesting?
If we can answer the following three questions i.e. which of these activities accounts for the bulk of their cost? Which of those activities accounts for the value that the customer sees, pays for, comes back for, and becomes loyal for? And which of these activities accounts for the source of competitive advantage? If we can answer those three questions then we start to locate the centre of gravity of a business along the spectrum of value creation activities. And I believe that increasingly that the centre of gravity of successful firms is going to reside in the downstream activities, in the activities related to customer acquisition, customer retention and customer satisfaction.
Could you explain that through an example?
Imagine all Coca Cola’s assets i.e. there trucks, their supply chains, their factories, all their physical assets were to go up in flame overnight. How likely is it that they would be able get financing to start operations tomorrow? And the answer if you were to ask any reasonable manager would be that it is very likely that they would be able to get financing to start operations again tomorrow.
If you take the second half of the thought experiment and imagine that a colourless, odourless gas leaks out of a weapons research laboratory somewhere and it envelopes the world and seven billion consumers forget about the brand name Coca Cola and all of its associations. Now how likely is it that Coca Cola can get financing to start operations again tomorrow? The answer is quite unlikely. When you compare those two situations what you recognise is that sources of competitive advantage do not reside inside the four walls of the company but out there in the minds of the consumers. And they have to do with the brand and the reputation, and not the product. And that’s how a company’s centre of gravity can be assessed. So Coca Cola’s centre of gravity clearly resides in the market place.
Any other example?
If you take the entire pharmaceutical industry and map the companies according to their centre of gravity, the centre of gravity of some companies resides in the massive sales forces that they have, in the relationships they have with doctors, whereas for some other pharmaceutical companies their distinct advantage lies in the laboratory, in creating new molecules, in patenting them. The question I have is, which of these companies is in the driver’s seat? Who is acquiring whom? The answer is that the companies which have downstream assets i.e. the relationships with the doctors and the subscribers, are the ones acquiring those that have the patents. And not the other way around.
You talked about the centre of gravity of companies shifting downstream. Can you talk a little more about that?
Take Coca Cola once again. In most cities around the world you can buy a can of Coca Cola as a pack of 24 in a supermarket and it will cost you about 25 cents per can. Now consider an individual who is in a park on a hot sultry day and he has been out for two hours. He wants a Coke. He sees a vending machine and he can easily drop two dollars into the vending machine and get a can. The vending machine delivers to the customer a can of Coca Cola, at the point of thirst, in a single serve and chilled. For those reasons, single serve, at the point of thirst and chilled, the premium that is charged is 700%.
And the customer willingly pays for it…
Yes, there is a 700% price premium and the customer willingly pays that premium. Where does the value come from? The value came from a downstream activity of ‘how’ as opposed to ‘what’. It pays for the company to recognise these sources of value and to create ways of delivering and capturing that value. Many companies fail to recognise that. They build a product and they think that is the value they have created without recognising that there are opportunities around the product to develop offerings which are customised to the situation and the context of what the customer is looking for. Think about it this way, many companies spend a huge amount of money doing business process re-engineering, or reorganising their operations, or making their supply chain and operations more efficient. The result is a 2-5% cost saving,which might double their margins, which is huge. But think of the opportunities in the downstream where you capture 700% growth in value. If you compare these two, I believe that the opportunities of capturing value in the downstream are relatively neglected and have huge payouts when they are recognised.
Why are they neglected?
They are neglected because we have spent the last 250 years building factories, since Richard Arkwright, in the middle of the 18th century England, built the first one. Having built the factory one of the things he realised was that by streaming together all of the innovations in the textile industry like the spinning jenny, the flying shuttle, he reduced the cost of producing textiles by 90%. Even though he had reduced the per unit cost of production that came with the cost of leveraging. He had borrowed money to build these factories. So at the end of the month he had to pay interest regardless of whether he was able to sell or not. What happened was that his business became driven and obsessed with just one question, how much of this stuff can we sell. That was his obsession because everything else depended on that question.
And that’s carried on since then?
For 250 years strategy has been about how much more of this stuff can we sell. We have not asked the question what else do our customers need. We have not asked the question why do our customers buy from us and not from our competitors. These are downstream questions. The upstream question is how much more of this stuff can we sell or can we make a better product. We have had the factory at the centre of business. What I am arguing in Tilt is that the customer is at the centre of business.
So where does the title of your book Tilt fit into this?
Tilt is a shift in the centre of gravity from the upstream to the downstream. And I am arguing because costs, value and competitive advantage have shifted from the upstream to the downstream, management attention and strategy need to be focused on the downstream rather than the upstream. And that is why the title.
Do you see companies tilting?
I do see companies tilting. There are a lot of examples of things that companies can do to tilt. But I don’t see one single company doing all of those things. In other words, there are lots of opportunities even for companies that are doing one or two things well, to do the other things well. So Tilt is an incomplete project. It is happening but it is far from complete.
You also talk about some marketing myths in your book. Lets talk about some of those myths.
Sure.
Does a better product always win?
No a better product does not always win. If you look at the innovation graveyard, it is full of better products. What matters is the ability of a company to change and influence the customer’s criteria of purchase. Let me give you an example. For the last 25 years everybody has known that Gillette’s next product will be a razor with one more cutting edge. Why is it then that competitors have not pre-empted Gillette and come up with the next cutting edge before Gillette? Introduce five cutting edges when Gillette only had four.
Why has that not happened?
The answer is that customers only find it credible when it comes from Gillette. So four blades are better than three only if Gillette says so. There is no value for competitors to develop a better product unless Gillette develops a better product. What is driving innovation is not the better product. It is consumer’s acceptance of the better product. So downstream reasons not upstream reasons drive innovation. So is a better product the answer? No. Understanding customer’s criteria of purchase is the answer. Influencing that criteria of purchase is the answer.
Any other examples? 
In case of mobile phones very recently the chip has become very important just like it became important in the PC industry during the 1990s. Now people are suddenly paying attention to questions like is it a single core or a dual coe? In fact, now we are upto quad core. Why are the cores important? There are technical reasons why they are important. For example, a mobile phone can shut down half the CPU if you are making a phone call rather than using graphics. Why is that important in a mobile phone? Because it saves battery life. And it allows you to have more functionalities with less battery life. You don’t have to recharge it as often. If you have a dual core it is a battery saving feature. If you have a quad core, it is an even better battery saving feature because you can shut-down three cylinders and run on only one cylinder when you don’t need the other three. When you need the other three they fire up quickly and you have all the four cylinders running. So its essentially that.
What is the point you are trying to make? 
Right now we are upto quad core. And everyone wants a quad core phone. In China there is a company called Meizu and it has just launched an octa core phone. Consumer acceptance for octa core phones, even though everyone knows that the next logical step is octa core, is not there unless Samsung or Apple introduce octa core phones. Then it will become a criteria. Exactly like the blades. So what is more important? Is it technology? Or is the consumer’s criteria of technology? The answer is marketing. It is the downstream not the upstream.
The next marketing myth I wanted to ask you about is does it make sense to listen to your customers? 
Not always. For a long time we were told that you needed to go and ask customers what they wanted. So you had focus groups. You ran surveys. You had questionnaires. All these were ways of finding out what does the customer want. That is really old technology. Today you find out what the customer wants primarily based on customer behaviour. What do they click on? Which products do they compare? Which pictures do they look for? How much do they pay today? How much are they going to pay tomorrow for same product? What is their price elasticity of demand? What is their cost elasticity of demand? You need to get deep into customer behaviour today simply by observing behaviour as opposed to asking.
Can you give us an example?
So Zara for example places products on the shelf. They will put 300 units in the store across 10-15 stores. If these units fly out of the shelf, then they put in 30,000. If they don’t sell, then they stop that product. They put in hundreds of new products every month. What flies they put in more of. What doesn’t fly, they cull. This approach is very different from asking the customer what he actually wants. In fact, it is cheaper and quicker for Zara to actually make the product and put it on the shelf and see if it actually sells, rather than ask the customer if you like the product.
But the thing with Zara maybe that it has a short turn around time, which may not be possible for other industries…
The answer is that it is becoming possible for more and more industries. In the textile business, the lead time used to be six months to a year. You had to plan the next winter season in January. And, showed that the model could be broken. They went down to a lead time of three weeks. I think there are many industries which are sitting ducks because of the long lead times that they have. They are still using the old technology of what do you think customers will want. And that is not viable.

 The article originally appeared in Forbes India edition dated March 7, 2014