Monday 23 April 2007

Is Innovation potentially as destructive as planned obsolescence?

Brand obsolescence was a bogeyman word to describe the alleged strategy adopted by manufacturers of consumer durables who built a failure feature into the design of their product. That way, products with new features would be bought earlier than needed, keeping the factories busy and the retailer’s tills ringing.

In reality manufacturers were not that clever or consumers that stupid. David Ogilvy over forty years ago said it best:”The consumer is not a moron. She is your wife.”

Now competition and market saturation has spawned a new type of innovation that is destroying markets and brands. Take the digital camera business for instance.

The market is large, worth about £800 million and still growing. The problems however are quite serious. The technology allows new companies not previously in the field of cameras to enter. Companies like Hewlett Packard, Sony, Fuji and Kodak are all major players. These new players have been very innovative, but as far as the customer is concerned, no manufacturer appears to have a competitive edge in terms of technological features, pixel capacity, ease of use or price.

And as pixel capacity, anti shake and red eye features are introduced, prices are falling. In 2003, the average digital camera offered 2 million pixels and cost £160. Now 4 million pixels with newer features will cost £120.

So, why would you buy a camera which will be outdated very quickly and when the newer models with greater capacity and more features will be cheaper tomorrow?

Any why then will the manufacturer invest in large runs of specific models when a high number of unsold cameras will fill up depot space? Small runs generate low promotional budgets, further exacerbating the long term health of the brand.

Part of the pressure on prices is also accounted for by the increase in distribution points. Sales in specialist shops like Jessops have declined, while Boots, Tesco and Asda now are significant in terms of sales. These generalist retailers are not interested in offering a range of products or indeed of brands. The internet however can provide both.

Grey importers now offer products at prices cheaper than the official ones given to the managers of the very brands in the UK.

Convergence of technologies mean that quality digital cameras can also offer ipod music, downloaded TV and video, and mobile phone services too.

More likely it will be the other way around with mobile phones taking the lead. Will Ericsson and Nokia become the new leaders in the converged market?

Analysts have warned that falling prices have affected the profitability of all brands. This year will be a test of resolve. For some famous brands it’s already too late as Minolta’s exit from the digital market indicates.

Friday 13 April 2007

Brand Equity: Is it not worth thinking about?

Brands are not what they used to be. Once a brand was a symbol of reassurance. If a manufacturer put his brand on a product it indicated his confidence in the item to deliver if not quality at least consistency. The product delivered what it said on the package..

This appears not to be so as far as Ribena is concerned. Two Kiwi school girls discovered in their chemistry lab that Ribena, despite claims in its advertising contained virtually no Vitamin C. They took their findings to the company and were allegedly given short shrift. The New Zealand government took them more seriously and when their own tests revealed a similar lack of the vital vitamin, banned the said advertisement and imposed a hefty fine on top. The story was then reported on television stations and newspapers worldwide. You would have thought that adding some Vitamin C would have been inexpensive. I don’t know if Ribena in the rest of the world has the requisite amount of the vitamin but it should. That would be at least honest. Now much of the advertising investment of £5.7million in the UK in 2006 appears to be wasted and we‘ve played into the hands of those who think that advertisers and their agency advisers are all a bunch of charlatans. And grocery multiples, who take their own image seriously may refuse to stock the brand too.

Sadly its not only grocery brands that mismanage their brands franchise.

The Sunday Times reported the case of Charlotte Maltese. a young woman murdered in 2005.She had an insurance policy with the Norwich Union. who refused to pay out because she failed to disclose in her application form that she had had a smear test. Prior to this excuse they had claimed the beneficiary should be her boyfriend, but dropped this pathetic excuse when it was pointed out that as her murderer, he could not benefit from a criminal act. Incidentally, the smear test showed some abnormal cells, but nothing wrong with her health. Close friend Agostina Murgia said: ”Norwich Union seems to be trying every cynical trick to avoid paying up “

Last night on BBC1s Watchdog programme, its millions of viewers were warned that critical illness policies were the worst in paying up. Insurers apparently trawl through medical records, not just of the insured person but also of other family members. Over 1 in 5 claims are rejected. The programme warned that people who think they are covered against the onset of a dread disease should check their policies carefully

Imagine on top of the bad news about your health you are told that the money you were counting on to pay the mortgage and keep the family while you were treated will not be forthcoming.

Now no intelligent Marketing Director responsible for marketing and advertising budgets of several million pounds will deliberately let his brand equity be damaged by such callous behaviour. It follows therefore that company policy may be dictated to a greater degree by the financial people.
Some of them don’t appreciate the fragile nature of brands.