| October 21, 2015
Once upon a time in a land, far, far away, there was a big brand. In fact, it was the biggest brand in its category. Every year the big brand issued an annual report and for many, many years that report had told a story of rising sales and operating profit and good margins. All seemed well, until one day something bad happened.
After years of good financial performance the big brand ran into trouble. Sales plateaued and operating profit fell. Everyone was surprised. ‘What has happened?’ they asked, ‘Why has the big brand suddenly lost its way?’ Of course, the big brand did not suddenly lose its way. It lost its way several years before, but the full consequences only became apparent later. But to understand why the big brand got into trouble, we need to know a little bit more about its history.
A long, long time ago the big brand had not been anywhere near as big and it had fought hard to establish itself in the marketplace. Eventually, as a result of setting new standards and offering good products at reasonable prices, the big brand gained the upper hand over its competition. It invested more than they did in building distribution and heavyweight marketing. As a result, it grew bigger still. Anyone who wanted to buy the brand could buy it.
At the height of its power, however, the seeds of the big brand’s eventual downfall were sown. The way people shopped for brands in the category began to change, and they started to value different qualities than those offered by the big brand. New brands appeared on the scene. The new competition started small, just as the big brand had done, but people thought they were different in a good way and the new brands began to grow. Meanwhile, the big brand extended itself into new product categories and neglected to recognize how much things were changing in the old one.
In its annual report the big brand often published what it called ‘key performance indicators’. Unfortunately, many of these simply confirmed the big brand was indeed big. What they did not show was how strong the brand was for its size. Five years before sales plateaued, and one year before operating margins started to decline, however, third-party consumer surveys indicated that key perceptions of the big brand, relative to its competition, were in decline.
Maybe the management team were distracted and failed to recognize the implications of what was going on. Maybe the management team did not believe that attitudes mattered, particularly when sales were still increasing. Maybe their own surveys did not measure perceptions of difference or worth. Whatever the reason, the change went unaddressed while the big brand fought back against the new competition with heavy price discounting. Unfortunately that not only failed to stop the new brands, it undermined the big brand’s operating margin as well. Eventually the big brand’s financial results followed consumer perceptions.
Sad but true, based on real data, this tale could be told of many big, brand leaders past and present. Importantly, the story of the big brand’s decline is told over a time frame of years not quarters and concerns not just sales but how much people are willing to pay for the brand. It shows that when a brand is no longer perceived as meaningfully different from its competition, it is really difficult to maintain sales without resorting to discounts. Thoughts? Please share them.