Wednesday, October 10, 2007

Think Category First, Brand Second

You Can't Survive If Your Entire Environment Disappears
By Al Ries
Published: October 08, 2007

A brand is the tip of an iceberg. How big and how deep the iceberg is will determine how powerful the brand is. The iceberg is the category. If it melts, the brand will melt too.

Take Kodak, for example. Just eight years ago, Interbrand ranked Kodak as the 16th most valuable brand in the world, worth $14.8 billion.

Every year since, the Kodak brand has fallen in both rank and value. This year, Interbrand ranked Kodak No. 82, worth just $3.9 billion.

What's a Kodak? It's the world's best film-photography brand. Unfortunately for Kodak, the film-photography iceberg is melting as the world turns digital.

Brand stands for 'trust'
Years ago I was discussing the situation with a Kodak marketing manager. It was no secret then that digital photography was starting to replace film. You're going to have to launch a second brand, I said. Not so, the marketing manager replied. The Kodak brand stands for more than just film. It stands for "trust."

Trust Kodak for film photography. Trust Kodak for digital photography. That seems to make sense. Furthermore, Kodak invented the digital camera and introduced the first model, the Kodak DCS, in 1991.

Sense doesn't matter in marketing. The Kodak name was the tip of the film-photography iceberg. And so far no brand, including Kodak, has managed to climb to the top of the digital-photography iceberg.

As a matter of fact, all the digital camera products (Sony, Nikon, Olympus, Pentax, Casio, Samsung, Panasonic, etc.) are line extensions from other icebergs. Nobody is thinking category. Everybody is thinking brand. "How do we take advantage of our well-known brand to carve out a piece of this new iceberg?"

The Eastman Kodak Co. has been devastated by its brand-oriented approach. Compare the past with the present. In the last six years of the 20th century (1995 to 2000) the company had sales of $87.3 billion and net profits after taxes of $6.7 billion, or a 7.7% net profit margin. In the first six years of the 21st century (2001 to 2006), Eastman Kodak had sales of $80.4 billion and managed to lose $296 million. (No wonder the stock market has lost its trust in the Kodak brand.)

Dominate a category

The objective of a marketing program is not to build a brand, but to dominate a category. Red Bull dominates the energy-drink category. Starbucks dominates the high-end coffee category. Google dominates the search category. Does it surprise you that these relatively recent brand successes were started by entrepreneurs, not by established companies?

It shouldn't. Big companies are busy burnishing their brands while entrepreneurs are looking for ways to dominate new categories.

Brands are important, but they have value only to the extent they stand for categories.

Take Coca-Cola, the world's most valuable brand, according to Interbrand. But the value of the Coca-Cola brand has been steadily falling. It was worth $83.8 billion in 1999. Today it's worth only $65.3 billion. Why is the value of the Coke brand falling? Because the cola category is losing its share of the soft-drink market. A brand is only valuable to the extent it stands for a category.

The Marlboro brand, according to Interbrand, is worth $21.3 billion. As smoking continues to decline, someday the brand is going to be essentially worthless. (Maybe the nicotine-flavored chewing gum category will make the Marlboro brand worth a few dollars.)

As a category iceberg melts, so does its brand melt too. As the minicomputer disappeared, so did the value of the Digital Equipment brand. As the word processor disappeared, so did the value of the Wang brand. As instant photography slowly disappears, so does the value of the Polaroid brand.

Most companies are so brand-oriented their first thought is, "How do I save my brand?" So Digital Equipment launched a line of personal computers with the Digital name, as did Wang with the Wang name. And Polaroid launched a raft of new products including conventional cameras and film, printers, scanners, medical imaging systems, security systems, videotapes, etc. With the Polaroid name, of course.

All for naught All for naught. Polaroid went bankrupt in 2001 and through a series of transactions wound up in the hands of the Petters Group in 2005. That year, when the new chairman was asked what would Polaroid be like in the year 2010, he replied, "It's a consumer electronics leader known for really cool products that offer quality and value."

There's no iceberg out there in the consumer ocean named "cool products that offer quality and value." So expect Polaroid's second reincarnation to be no more successful than its first one.

There are two types of icebergs. The first type is narrow and deep. The second type is broad and shallow. While the second type might offer greater sales potential, the first type offers greater profit potential and greater brand stability. Brands that are narrow and deep are almost invulnerable to competitive attacks. Furthermore, they usually are incredibly profitable. Think Rolex in expensive watches, for example. But there are many other brands that fit this description:

Hellmann's in mayonnaise
Campbell's in canned soup
Heinz in ketchup
Orville Redenbacher in popcorn
Tabasco in pepper sauce
Gatorade in sports drinks.
Visa in credit cards

Someday your brand's iceberg might start to melt. So what. You can always look around for a new iceberg to dominate.
With a new brand name, of course.


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