A tale of a big brand gone bad

by Nigel Hollis | 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.

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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. 

11 comments

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  1. Rajit Chakravarty, October 27, 2015

    Nigel - excellent story, and thought provoking comments on role of innovation and implications for managing the brand through various stages of maturity.

    Across categories, early success tends to be defined by familiar, tangible metrics that happen to be good indicators of brand size (market share, sales volume, number of outlets, etc.)  These are appropriate KPIs for new, growing brands as increasing brand size reflects successful execution against business goals to increase reach and consumer base. However, are these the right metrics to focus on beyond the years of early growth - i.e. when the brand becomes established in the category with formidable share?  

    Feels like crossing the threshold of brand 'adolescence' should trigger a shift to focus on metrics reflecting brand strength (not size) once it achieves big brand status. The question is, what are the right metrics for assessing brand strength?  Surely, consumer research can be a rich source of these 'strength' metrics, more so than any generated within the business, whether from financial or any other data.

  2. Erik du Plessis, October 23, 2015

    Mark Murray: I have watched this happen to 2 brands in my stint as brand manager. 

    One is now another small brand, an the other is not around anymore.

    The company did not even cut its marketing budget. It simply kept it as constant percentage of turnover!

    The mathematics is simple: see John Philip Jones and also my books. Big brand brings bigger responsibility, not cutting budgets for more profits.

    Unfortunately in our case we were cutting budgets behind the big brand to launch new brands that were going to pick up the slack. Surprise, surprise the new brands just never took of despite all our optimistic wishful thinking.

  3. Missing user, October 22, 2015

    And again, thanks for the comments. 

    Audrey, I agree it is tough to turn a supertanker and the overarching conclusion of Insights 2020 is that consumer-centricity powers above average growth. It is the combination of customer focus with fast, flexible and focused organization that delivers meaningful innovation and keeps big brands successful.

    Simon, I guess it all depends on your definition of efficiency! Efficiency for who? Of what? Seems to me that the failure of big brands is huge waste of time, money and resources.

    Mark, good question as always. In this specific case I do not believe it was but cannot prove it. I do know that in work we have done for clients looking at portfolio investments there is a tendency to over-fund new, smaller brands at the expense of big ones. Of course, investing against the safe bet and keeping a big brand going might mean that you fail to seize a new growth opportunity but given most new brands are line extensions of dubious value I suspect the risk is low. 

  4. Mark Murray, October 22, 2015

    Nigel

    I wonder how much this kind of decline is related to reducing levels of investment? Many/most big companies seem obsessed with cutting costs and reducing marketing expenditure is an easy option to achieve this. The evidence is compelling that underspending versus your share of market ultimately leads to declines. Most of these brands seem to innovate a lot - they just don't support the core (or the innovations properly).

  5. Simon Boswell, October 22, 2015

    For sure, this is a story destined to be repeated many times. Research may indeed act as the canary in the coalmine but, personally, I'm not sure whether brands actually have the power to change. Surely it is more efficient to let these companies fail? The market will meet the demand. That's capitalism.

  6. Audrey, October 22, 2015

    Hi Nigel Unfortunately it's difficult to steer a big ship in a different direction within a short space of time. Big brands carry around alot of baggage i.e. hierarchy, red tape and processes which are cumbersome. Financial results are internally focussed and the customer is lost in translation. I think of Giant Brands which are very successful Coke, Google, Unilever and then you need to ask yourself what makes them so successful. The simple answer is that the Customer is at the centre of their existence. Big brands need to promote a culture that is open to innovation and change.

  7. Gavin A. Dickinson, October 22, 2015
    Nice story. Continuous, relevant, insightful innovation is the key to a brand's sustainable growth. Those brands that 'cruise', or believe that 'if it aint broke - don't fix it' have a short future.
  8. Nigel, October 22, 2015

    Thanks for the comments.

    Annie, yes, brands do eventually run out of runway but that does not mean they need to crash. They simply need to be managed appropriately. Profit growth not sales growth should become the key target. As you note, innovation in purpose, experience, service and communication can keep even the biggest brand meaningful and different, allowing it to command a price premium.

    Ed, good point. That makes it all the more important that senior management set very clear success criteria that are not just linked to more sales at any price. And, of course, this is where a strong sense of purpose helps keep things aligned internally and externally. 

  9. Frank Düring, October 21, 2015
    Hi Nigel, spot on and so recognizable. Unfortunately. To me the result of focusing only on short-term, financial results. The only focus should be on being constantly meaningful and relevant, with making money as a logical consequence. However, for blue chip companies the horizon is the next quarterly report ... This actually made me stop working for big brands and I enjoy working with startups, creating irresistible brands. Size is so overvalued.
  10. Ed C, October 21, 2015
    At first I thought this was the story of the Lion King (and his heirs) and the Circle of Life ;) This is a great summary of what seems to be happening to many large companies, with the newer, smaller, more nimbler "we have a new benefit" brands invading the larger brands' territories. It seems that few survive unscratched if not worse. As stated in this blog before, short term profits (often obtained by discounts) seem to overshadow longer term brand growth by managers who aren't planning on being at that company 5+ more years. What managers treat their business like a family business that is going to be passed on to their heirs?
  11. Annie Pettit, October 21, 2015
    I do think that every giant brand has to plateau at some point. You can't bring people into a brand if the brand isn't relevant to them. For instance, no matter how much Ford and GM build their brand around baking and gardening and ukuleles, I will not buy a car from them. Of course, I won't buy a car from anyone because I've never had and don't plan to buy a car. Every giant brand must plateau in terms of users. That being said, every giant brand should strive to be unique and admired by its users. (Notice that I did not say "strive to be SEEN as unique"). If you cannot grow users, you must at least remain admired by your users. Innovation and extensions will do you good here.

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