SwelledHead.com

VW US needs a strategy that makes sense

It’s nice when one’s predictions appear to be correct. In May of last year, I wrote about “A rare niche in the US car market” that’s ready for VW to exploit. Adrian Hallmark, head of the VW brand in America, is clearly aware of the unrealised potential in his charge and had agreed with product chief Wolfgang Bernhard to expand the US range, adjust pricing and so better compete with Japanese rivals. Unfortunately for Hallmark, Bernhard is out (a victim of corporate politics) so he must pitch his ideas all over again to Volkswagen AG's new chief, Martin Winterkorn. Unfortunately for Hallmark, while his ideas for the brand have merit, he is almost as deluded as the rest of the firm’s management in believing that VW can and should be a luxury brand.

At the time of our last post on this topic, Volkswagen AG had announced it was to pull its luxury Phaeton model from the US after poor sales. SwelledHead remarked on VW’s bizarre approach to brand strategy; it makes no sense to move the VW nameplate upmarket because (a) sister brand Audi already occupies this position, and (b) there are no other European carmakers selling to the US middle market (only premium European brands).

Sales of the VW brand in the US have been stagnant for many years. Hallmark’s plan, as reported in Automotive News, is to:

• Change pricing and reposition the Rabbit, Jetta, New Beetle, Passat and Eos.
• Add a subcompact (supermini) below $15,000.
• Add a Passat coupe priced higher than the sedan.
• Field a truck lineup consisting of a repriced Touareg SUV, the smaller Tiguan crossover and a Chrysler group minivan.

SwelledHead believes this is smart, though our reasoning turns out to be a little different to Hallmark’s.

Our reasoning is that, VW aside, there is no “affordable” European carmaker in the US; all the transatlantic brands – BMW, SAAB, Mercedes and the soon-to-return Alfa Romeo – are pitched upmarket. Hallmark’s strategy makes sense because it removes pricing conflicts between VW and premium European rivals allowing the VW brand to make a huge sector of the huge US car market all of its own.

There’s more than enough evidence that a twin brand strategy works for the US. Japanese makes have successfully marketed their products this way for years (Honda/Acura, Toyota/Lexus, Nissan/Infiniti) and it follows that the same could work for VW/Audi.

There are some hurdles to overcome. Automotive News reports Hallmark as saying he wants to replace either the Jetta or Passat in 2010, but for now he has to settle for dropping inappropriate specifications. Already the most expensive Jettas and the cheapest Passats have been deleted. That means selling fewer Passats, but Hallmark believes he will make more money on the improved product mix. And importing a subcompact, like Europe’s Polo, would be too costly due to the Dollar/Euro exchange rate – a problem GM’s Saturn brand is experiencing as it introduces its own version of Europe’s Astra.

Where Hallmark goes wrong, is doggedly keeping to the notion that VW can be a luxury brand. By losing the basic models he believes the Passat can perform as an entry luxury product and that this would support a return of the Phaeton.

One can understand this way of thinking, but really, what’s the point? Trying to turn VW a luxury brand means competing in a crowded sector that’s getting ever more so. It’s doubly daft while the distinction of being the only mass market European brand in the US is there for the taking.

Indeed, other makers are aware and the opportunity may not last long. Renault has indicated that it will need to be present in the North American market by 2010 as part of its strategy of achieving half of its car sales outside of Western Europe in the long term. Its alliance with Nissan will no doubt aid this objective, giving the brand a ready network of dealers and service centres. Chief executive, Carlos Ghosn, has expressed his desire to extend his American interests and with the proposed GM deal off the table, his attention is now likely to be turning to troubled Chrysler. SwelledHead sees potential for the Peugeot brand, though it lacks a distribution arrangement (but does have some relations with Ford), and a successful return for Alfa Romeo could even pave the way for Fiat.

By following Japan’s example of developing or modifying models to appeal to US consumer tastes, and presenting them via two differentiated brands, VW AG could build upon its existing presence, US history and heritage and take a share of the larger mass market instead of attempting to compete against established premium brands.

Even if a move upmarket could be effected, there is a serious danger of cannibalising sales from Audi. VW should stay true to its “people’s car” roots and focus on a distinctly European sense of value. Remember the “Lemon” ad for the VW Beetle? It appeared in 1959, but is oft quoted in marketing text books as heralding a new era in advertising culture. Its honest style won credibility with buyers and was the antecedent of the brand’s image of bringing reliability and affordable quality to the mass market.

To read more about the confusion of VW’s US strategy, check out this post on The Truth About Cars.

Tesco has a sensible strategy for US success

This is an interesting article by Tony Jackson for the Financial Times, which relates to a previous SwelledHead post about Tesco entering the US market. He looks at whether UK business really is as bad as it appears at buying and successfully operating businesses in the US, or if the true culprit are the US companies themselves.

He notes that "While there have been some very successful foreign acquisitions of US companies, the US is a harder place to make money than it looks." He sees sense in Tesco building its US business "the slow, persevering way".

Tesco has proven to be very good at adapting to local markets in many countries around the world, and its US plan would appear to be another well thought out way to succeed in the US for the long term.

Transatlantic expansion can set your brand free

One of the great things about traveling or moving to a new city is that you can be who you wish you were; a reinvention is possible.  The same can be true for transatlantic brand expansion.  Some midrange brands in their home markets have been successfully able to go upscale as they were exported. 

During recent trips to London and Bogota, Colombia, I noticed standalone Samsonite stores – designed to support Samsonite as a near-luxury brand.  Some are branded Samsonite Black Label, but all sport a high-end image and design I wouldn’t have previously associated with the brand. 

Samsonite is a midrange brand in the U.S.  Its line is generally considered well made, but not in the league of a Tumi or Louis Vuitton (check out the BusinessWeek story link below for an interesting career change for Samsonite’s current CEO who is ex-LV).  But that’s just where management seems headed with Samsonite Black Label.  And if my very informal poll is any gauge, this strategy could very well be successful – with benefits that accrue to the core brand as well.

The company is opening its Black Label stores in fashion centers in the U.S. and Europe to help propel the brand (see the list of stores here) as well as hiring noted designers to generate excitement for what was a moribund brand and category.  In addition, its acquisition of a majority interest in premium handbag designer Lambertson Truex provides a platform for believable expansion into the true luxury segment of the luggage category.  Visitors to the Samsonite Black Label web site are treated to imagery and layout that seem inspired by  Agent Provacateur lingerie more than its luggage industry cohort.

While it’s too early to tell if the Black Label brand will take off (see below for figures from fiscal year 2006), management’s focus on moving the brand up-market via dedicated retail outlets and brand showcases in top cities makes a lot of sense. 

Interestingly, for an American brand, Samsonite derives more than 48 percent of revenues from the U.K. and Europe and just 38 percent from the U.S. (the balance is from Asia, Latin America and corporate/incentive sales).
 
TipTree is another case of a brand moving up-market by becoming a transatlantic brand.  At home, this maker of preserves is considered solidly middle market.  In the U.S., it is merchandised alongside other imported jams and jellies such as Bon Maman, all positioned as high-end brands for  our market.  Readers in the U.K. might think Bon Maman also a mid-market brand and dismiss the notion that it has moved upmarket at all.  But it is important to recognize that U.S. supermarket shelves are generally stocked with mass market brands such as Smuckers and Welch's that cater to the majority of our 300 million consumers.  So when an import of any kind secures shelf space at many of our supermarkets, that’s a significant success for the brand and its distributor.

Unlike Samsonite, Tiptree’s success seems a case of sticking to its knitting.  Samsonite’s new management team has brought with it a sweeping strategy change.  But they are more alike than you might imagine.  Both have leveraged their core strengths to attack a new market.  Samsonite has brand recognition and management depth (along with knowledge of the market and its potential).  Tiptree has its English heritage that makes it generally attractive to us here in the U.S. (and if you check out Tiptree’s Web site, it would appear that the appetite for its preserves is truly global).  What Tiptree needed was good distribution for a product that had the right basic attributes.  Samsonite, however, was a much bigger project – but seems like it is also headed for very large rewards.

Article links:

BusinessWeek Online Feb 2007 on Samsonite (overview)

India’s Business Standard, Jan 2007 on outsourcing of manufacturing 

Hartford Courant Jan 2007 on Alexander McQueen as luggage designer

Forbes June 2005 

Why CEOs should blog

A recent post on Richard Sambrook’s blog, SacredFacts, includes a recording for the BBC World Service by Lucy Kellaway, management columnist at the Financial Times. You can find the item here, and should listen to it if the rest of this post is to make sense.

I agree and disagree with Lucy Kellaway on the issues she raises. I agree that 'Best' is a rather meaningless way to sign off an email, though my feelings on the matter are not strong. I disagree that CEOs cannot and should not blog. Here, my feelings are much more profound.

No, we don’t need to know Tom Glocer’s taste in music or that he has a dog called Luna. That stuff is pointless and the man should know better (or at least his PR people should have tipped him off). Here, Lucy is quite right.

Yet her definition of blogging is at best out of date, or otherwise just plain wrong. Yes, the style is usually chatty, but who says a CEO can’t write that way – the title does not preclude conversation? Sure, a bit of controversy into the mix makes the content interesting, but what’s to stop a CEO using a blog to air or confront a point of view. And since when was blogging democratic?

The most important factor in a blog, as Lucy says, is that it is “full of stuff that one wants to read”. I couldn’t agree more, and can’t stress enough that CEOs are full of stuff people want to read. The problem is that most don’t realise this, or if they do, they don’t understand what their audience wants to know. Hence we hear about irrelevancies such as pets and music.

Through a blog, a CEO has a rare – perhaps unique – opportunity to enter into a dialogue with customers, prospects, shareholders, staff, and the wider world. The topics at issue should relate only to the business or brand for which he or she is responsible and must be relevant to the blog’s target audience at all times. This may mean the subject matter becomes very narrow. Great! A good CEO blog should never be an online scrap book of assorted thoughts and ideas; music and pets should only feature if you run a record label or pet store.

By sticking to the point, raising and debating matters of interest to the audience, making use of the built-in capability for interactive communication, and combining this with other elements in a marketing strategy, both digital and traditional, a blog can be a tool that wins business, solves problems and even saves a company altogether.

Don’t believe me? I refer back to a previous post about Unicorn Darts. Custodian of a staunchly British brand, yet facing a critical business need to cut manufacturing costs, the firm’s managing director knew that moving production out of the UK was the only way to save the company. Of course, customers had other views, which they readily expressed on blogs and message boards. While most execs might have battled through this like flak and relied upon traditional marketing techniques to attempt to win the argument, Ed Lowy chose to engage with them directly. Read the post to learn of the positive and long term effect this has on his business.

With our media environment fracturing and changing almost day by day, the ability of traditional channels to reach audiences effectively is becoming ever more eroded. As I’ve said before, print is in a terminal decline and the future for television is almost unknowable at present. Smart companies are making digital communications central to their marketing mix and combining techniques like blogging with other new and not so new methods of message transfer. As the head of the company, if not blogging personally, the CEO must be deeply engaged with the process.

Can you add perceived value to your brand?

I’ve always been skeptical of goodwill on company balance sheets, often inflated during an acquisition spree. One justification for the value of these "assets" is brand equity; a recent analysis by CoreBrand on the value of AT&T’s brand placed it at nearly $15 billion, part of the reason that SBC, which acquired AT&T, took on the target’s name (see this recent Forbes article for more info on AT&T brand value and the decision to rebrand Cingular as AT&T). But is there a more pragmatic way to measure brand value? Are there real world examples? During a recent trip to London, I think I found an interesting example of brand value – at least as it applies to retail.

Money is the only product that doesn’t vary between sellers. Either it’s money or it’s not. On Piccadilly Street, near The Ritz Hotel, there are three providers of foreign exchange services within a quarter mile of each other, and their prices for exchange vary enough to make a point about brand value. Location is perhaps the most important variable in retail, and all of these foreign exchange dealers are within a three minute walk of each other – the two with the greatest difference in rates are just across the street from each other.

The three dealers, HSBC, The Change Group and $Global Foreign Exchange all offer essentially the same service. They change your currency from what you have to what you want, and charge a fee for the service. HSBC is a global bank, The Change Group is the largest independently owned forex retailer, and $Global is an independent dealer that has one location, a concession within a souvenir shop.

Which dealer would you expect to have the best price for foreign exchange (offer you the most British Pounds for Euro, for example)? Here’s what I learned last December. I had 500 Euro to change, and shopped all three locations the same afternoon. The Change Group quoted 1.72 Euro per Pound. HSBC quoted 1.61. And $Global, 1.5275. This is quite a spread. The resulting number of Pounds for my 500 Euro were Change Group, 290.70, HSBC, 310.56 and $Global, 327.33 – a spread of 36.63 Pounds Sterling, nearly 10 percent of my funds to be changed and enough to buy my dinner that evening.

Interestingly, this disparity is in some ways is counterintuitive. You would expect the bank to be an expensive but reasonable source of service, the global forex specialist to be the least expensive and the single outlet to be most expensive – with so little credibility as to be suspect. But if you put your brand marketer’s hat on, it becomes clear that brand equity and distribution equates to pricing power in the retail foreign exchange market, like nearly every other market on earth.

Our sole proprietor has to work harder to garner customers, so his pricing is better. The Change Group, with a global brand and presence, can command a higher price, because travelers recognize its brand and it has greater distribution than most other providers. HSBC provides a credible service with middling rates; the business is neither an embarrassment nor a focus.

The bottom line: in the most commoditized product line of all, money, pricing power exists based on brand and distribution. So, the next time you are tempted to reduce price to compete more effectively, ask yourself what you can do to increase the value of your brand so that you can command a premium. While I’ll always seek out the $Global kind of value, it’s operators like The Change Group that will have greater market share and profits. They’ve figured out how to create brand value for the ultimate commodity. It’s called service and distribution.

Notes for travelers: as always, it pays to know current exchange rate ranges. A good Web site to check before making your currency conversion is www.xe.com. $Global Foreign Exchange is my best bet among the group. Its proprietor is S. Ganesh, and is located inside the "Image" souvenir shop at 54 Piccadilly, London, W1J ODX. Telephone is +44 (0) 20 7493 0903. The Change Group is directly across the street at 164/5 Piccadilly as well as at seven other London locations – and on the Web at www.changegroup.com. The HSBC branch mentioned is located at 79 Piccadilly, and telephone is +44 (0) 84 5740 4404.

Thanks to citikey.com / The Local Data Company for images.  Exchange rates were sourced week of December 10, 2006.

Phoenix rising for Tesco's American adventure

British supermarket success story, Tesco, has announced that the first store in its much vaunted transatlantic venture will be in Phoenix, Arizona. SwelledHead reported in July of last year, in this post, about how the company would shape its offer for US consumers.

The failures of British retailers in the US market is well documented (and the subject of a future post as I have a suspicion that the UK doesn't fare well compared with its European rivals), so while expectations run high, history looms large. What's notable is that British supermarkets are generally a step ahead of those in the US, with a far more sophisticated offering in terms of prepared foods. How the US will take to "ready meals" is the great unknown, but Tesco's record of adapting to local tastes is good.

The challenge will be selling to on-the-go US customers, the notion of an easy to prepare meal at home in place of taking a trip to a restaurant. This works well in the UK, where restaurant dining is still less part of the culture than in the US (price and quality being key factors to varying degrees). Perhaps Tesco can trade on strong US family values and position the prepared food alternative as being more homely and caring.

Like selling snow to Eskimoes?

It's curious to see what British and American products venture across the Pond. Some do so pretty much intact, others reinvent themselves to be almost unrecognisable. Interesting then was today's post on the blog belonging to British newspaper, The Guardian. It seems that American TV networks have bought the concepts of British shows, recreated them for US audiences, and are now selling them back to us Brits!

Read the full post here: http://blogs.guardian.co.uk/organgrinder/2007/02/the_brits_are_coming_back_to_b.html

And following on from yesterday's post, yet more proof that print is on life support. The world's oldest neswpaper, Sweden‘s Post-och Inrikes Tidningar, is going all-digital. It's been in print since 1645, but not anymore.

Read more here: http://news.google.com/news?hl=en&ned=us&q=oldest+newspaper+digital

Why every business needs a SwelledHead.com

Last night I helped to launch the London Young Directors' Forum, an affiliate interest group of the UK's prestigious Institute of Directors. I'm pleased (if not a little relieved) to say that the evening was a great success. For those who attended, many thanks for your support. I had many interesting conversations during the course of the event, but what stood out was unexpected. I had several discussions with business people interested to learn more about how they can use the Web to promote their business and, specifically, wanting to know where to begin with blogging.

Blogging hadn’t been our theme for the evening (more on what the theme actually was later), but it’s a subject that’s clearly occupying minds at present. It’s certainly something that we actively pursue at Austin Lawrence Group. Indeed, we believe that understanding online publishing in all its forms is vital to the future of our business and that agencies which fail to get to grips with the new order will ultimately fail themselves. It unlikely to be the first time you’ve heard it said, but mark our words: print is dead.

To be sure, that death will be long, slow and probably very painful for some. And there will likely be vestiges that remain. But to all practical intents and purposes, and especially as far as marketers are concerned, Guttenburg has finally been bettered.

Why do we think this? Why should it matter to those of us in business? And what should we be doing about it? Consider the following:

• How we now consume our media and the content choices we make. These days I rarely buy a printed newspaper, but I do read news online. The publishers I choose are sometimes newspaper publishers, but oftentimes not. I flit between sites, such as www.bbc.co.uk/news, www.nytimes.com, favoured blogs or www.wikipedia.org, as I seek to keep up to date with the world.
• The quality of printed news is declining. In London, the majority of commuters read one of the four free newspapers, count ‘em, that are now available at every station or stop. They’re OK for passing the minutes on the Tube, but unable to carry in-depth or investigative content. For that stuff, I go online.
• Editors themselves have realised this. And are changing what they do to fit in with new consumer preferences. The UK’s biggest selling ‘quality’ newspaper, the Daily Telegraph, now produces an edition at 4pm specifically designed to be downloaded for the commute home. You can find it at www.telegraph.co.uk/pm. The former editor of US tech magazine, Maximum PC, writes a telling account (found via www.digg.com, a sort of community-driven electronic newsstand) of how much better he finds publishing on the Web than in his erstwhile printed journal. This is interesting for us all, but is a must-read if you're in tech: http://consumer.hardocp.com/article.html?art=MTI3OCwxLCxoY29uc3VtZXI.
• It’s what our clients are doing. We work with a major publisher that’s making a bold strategic move to move its print business online. It knows that this is vital if it is to remain top of its sector and its approach is far more innovative that simply making its content available on the Website.
• It’s what our prospects are doing. We’ve gained several meetings of late directly as a result of our blog posts. I think it’s unlikely that we would have received the same attention if we’d tried to reach them using traditional methods. People appreciate being able to see your thinking before they have to meet with you.
• Other companies are having the same great experiences. A previous post about Unicorn Darts reported how managing director, Edward Lowy, successfully used interaction with the blogosphere to converse with customers about a thorny change in his business. It’s UniBlog (available at www.unicorngroup.com) shows great maturity by bringing together comments from customers and competitors.
• An alternative to printed paper is on the horizon. While online media offers great variety, it’s not ideal when on the move. Reading from a printed page is more comfortable and if I leave it on the Tube I’ve only lost an investment of a few £/$, max. Not so with a sophisticated PDA, Blackberry, laptop PC, etc. However, cheap, flexible electronic paper is close to being brought to market in a big way. It may take a few years yet, but we predict that eventually this medium will take over from paper - newspapers, magazines and many books - for most daily reading. Read more at http://en.wikipedia.org/wiki/Electronic_paper.

The importance we place on blogging, and digital communication in general, is evident in our latest service. We've not quite decided how to encapsulate it yet - currently we call it W.E.B., short for Web, HTML Email and Blog. These three formats of digital communication combine to deliver a powerful channel to connect with prospects, customers and other stakeholders. Our approach is to deliver these as a straightforward, packaged service. We'll let you know more when we've developed some collateral.

IoD Young Directors’ Forum

A few words on the YDF launch that caused me to put these thoughts to keypad. The aim of the initiative is to provide purposeful support to those of us newer in business through an ongoing series of practical, hands-on events. That said, for the launch we kept things straightforward by sticking to the tried and trusted method of a great speaker (two, in fact) and giving some time for networking.

The theme of the evening was ‘building a business and a brand’ and we were very lucky to have the Antonio Carluccio, founder, and Simon Kossoff, managing director, of Carluccio’s (www.carluccios.com). For those outside of London and the South East of England, the company is a unique Italian café-restaurant and delicatessen concept that is extremely popular. Antonio is a renowned autority on Italian food and its culture, a fact recognised by a Royal Warrant from the household of the Prince of Wales and the recent accolade of an OBE. Following Antonio and Simon’s fascinating talk, over 100 delegates chatted and made connections in the grand surroundings of the IoD's Pall Mall headquarters.

Feedback during the evening was very positive and, assured by the great response to the Forum, I’m looking forward to our next event. If this sounds of interest and you’d like to know more, please email me – james[at]austinlawrence.com.

Smart Starbucks revels in its internationality

There's nothing unusual about a brand running a loyalty scheme, but Starbucks have done something a little different by running theirs across multiple international markets. The firm's new Starbucks Card provides customers with a fast and simple way to pay for coffee in the US, UK, Canada, Australia and Thailand.

While the worldwide ubiquity of American restaurant brands comes in for a lot of criticism - creating identikit streets from Seattle to Sydney - it's an inescapable fact that people like to frequent a name they know and trust. Sure, there may be better local coffee, but if you're unfamiliar to a country and on-the-go, there isn't always time to go local. Starbuck's initiative works because it recognises its internationalism and makes something good of it, instead of apologising for it. Clever.

The idea opens the floodgates for hundreds of other international brands emulate this thinking and link up their marketing to communicate to customers at the international level for which they're known. In today's global economy, for many brands it really makes sense.

Climate change is a big opportunity for European and American business

Served up with breakfast this morning was news of millions being displaced as islands in the Bay of Bengal are swamped by rising sea levels. Later, on the way into work, the newspaper delivered a fresh batch of doom-laden headlines on global warming and its effects.

Self-flagellation over climate change, along with stacks of worrying statistics about how it's getting ever worse, is now part the daily discourse in British media and increasingly in US media as well. Fair enough - I'm sufficiently concerned that we have a big problem on our hands and that we need to get much more serious about addressing it. What I don't see however, is much coverage being given to how we might achieve this.

Advice on using low energy lightbulbs and taking a shower instead of a bath is all very well, but I don't think most people are convinced that this will change the world. Though it’s nice to feel a little effort from everyone will do the trick, that sentiment is soon undone when one reads about giant forest fires in Asia that emit more carbon-dioxide in two weeks than the whole of the UK in a year.

I don’t know whether that’s accurate or not, but the effect of stories like this is to make people feel powerless in the face of change. The danger is (and I admit I’m starting to feel this way myself) is that people begin to believe that there’s nothing that can really be done, that climate change is now inevitable, and that we’ll just have to live with the destructive consequences of our own actions. In the meantime, we might as well enjoy low-cost flights, leaving the TV on standby and driving two minutes to the shops. It’s time for the positive news agenda on climate change.

So what’s this got to do with transatlantic marketing?

I believe that business in the US and Europe is failing to act on a massive business opportunity. The will of European consumers to change their buying habits for the better has never been stronger. The feeling in America is catching up fast. Corporations serving these markets would do well to design-in environmentalism and sustainability and reap the rewards of selling this to a eager market.

• Environmental pressure groups need to change their tactics. Instead of condemning big business, they need to start working with it to help it improve its green credentials.
• Business and environmentalists need to act together to lobby governments to deliver the right legislation to create significant and sustainable change. This is in everyone’s best interests; business likes predictability so setting out the future now will make it much easier to deal with.
• Business and government need to act together to stimulate new markets. For example, green power generation is far tinkering at the edges of our massive and growing needs. New markets are waiting to emerge, but need an initial boost to make costs attractive to consumers.
• Positive communications about what can be achieved to limit climate change needs to be expanded to counterbalance the weight of depressing, lets-give-up-now media agenda.

Encouragement and practical alternatives need to be delivered alongside chastisement.
The US and Europe should be leading the charge on these fronts. Our consumerism is the most developed so green improvements will have quick effect. Our public is more ready and willing to change than anywhere else. We have an opportunity to spearhead new industries in a time when emerging economies threaten our existing ones. And we have the strongest worldwide voice to communicate our successes elsewhere in the world.