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The Roundup June 22

Tide Detergent

Tide’s out. Dirt’s out, too. Even with another brand, something P&G can’t afford for you to know.

Throw this in the face of the next person who blathers at you about “branding.”

A two-year analysis of 685 grocery and pharmacy-stocked brands, using data from 32m consumers’ supermarket loyalty cards, found that in 2008 the average brand lost a third of its formerly highly loyal customers. . . .

Past recessions have seen similar defections from top-tier national brands to stores’ private-label goods, Mr Anderson said. Academic research showed that customers could be quickly persuaded to switch by a cheaper price but took far longer to switch back.

(“Brands left to ponder price of loyalty,” Financial Times, June 22) In the customer service book I’m finishing, I repeat one truth over and over again: never give your customers a reason to check out the competition. What brand managers like to call “brand loyalty” is really more accurately called “customer inertia.” For marketers of all stripes — from one-person startups to Proctor & Gamble — customer inertia is your friend. Despite the honeyed sugar-coating that brand managers drip all over their marketing activities with pseudo-spiritual nonsense about customers’ deep-seated feelings, most customers don’t switch brands because, well, they’re lazy and they don’t like risks.

But it is possible to motivate a customer to overcome the “energy hurdle” of their brand inertia (which is what brand competition is all about — case study, Pepsi taking on Coke in the 1970’s). And when customers do overcome their inertia and try out the competition, you risk them finding out that they can get as good or better quality at a lower price or greater convenience. This is why people switch brands so readily in a recession (nothing provides the motivation to overcome brand inertia more than a stressed banking account) and why it’s extremely difficult to get them back when times are better.

The simple fact is this: everything we know and practice about brand management is predicated entirely on a thriving, growing economy. Read all the branding textbooks and gurus your brain can tolerate and you will not find one brand management precept that works well in recession, save price leadership. And “price leadership” and “branding” are, technically, a contradiction in terms.

And since we’re talking about brand defection, guess which auto companies are doing well?

Together, the two Korean brands [Kia and Hyundai], which are both owned by Hyundai, hold 7.3 percent of the American market, the same as Nissan, which ranks sixth in American sales, behind G.M., Toyota, Ford, Honda and Chrysler. Last year, Hyundai and Kia had 5 percent of the market. . . .

Analysts see two main reasons that smaller companies are capitalizing on the auto industry’s downturn. One is that the shrinking of the overall market — the current selling rate is about 10 million vehicles a year, down 40 percent from two years ago — has created opportunities for carmakers that do not need to sell millions of cars to make money. . . .

Second, he said, buyers have become much less focused on brands and more on the quality of the vehicles themselves.

(“Small Carmakers Benefit From Detroit’s Woes,” New York Times, June 22) It is, of course, the second reason. Car buyers have a very strong incentives to overcome brand attitudes and buying habits — not only declining income but a general ramping up of feelings of economic insecurity. Hyundai, in a brilliant marketing move, not only took a price leadership position (see, that’s the only winning branding strategy), but directly addressed economic insecurity by agreeing to repurchase the vehicle of the buyer became unemployed. So what does the Hyundai brand mean in a recession? Cheap, best value, and secure. The mistake premium-priced brands continually make in this recession is to push the “value” message, i.e., you’re getting the best “value” for your dollar, even though you’re paying more than you would for other products. The genius of Hyundai is that they recognized that in a downturn, people aren’t necessarily looking for either “value” or “cheapest” (the latter is the price leadership strategy), they’re looking for “security.” Remember: buyback insurance is available to anyone who buys a car, even a Ferrari. It’s inexpensive (well, not if you insure a Ferrari), amounting to maybe one or two hundred dollars in annual premiums depending on who employs you. So, rather than lower the price on their vehicle by $100, Hyundai merely used that Ben Franklin to give buyers premium-free buyback insurance. This gave buyers more value than the price reduction would have because it gave them “security,” on which they place a value far greater than $100.

And, in this vein, what’s the message consumers are getting about Chrysler, Ford, and GM? “Insecurity doubled.” If you buy a new car, a.) you might lose your job and be saddled with a debt you can’t pay and/or b.) the car company (or dealer) may go out of business and you’re stuck with the headaches. Despite their best efforts, the only brand messaging coming out of Detroit since December is “insecure insecure insecure big risk big risk big risk.” And that’s rubbed off on other companies like Toyota and Honda. “Risky” is a brand value that never sells in a recession.

If you’re a blogger, take note.

What some fail to realize, though, is that such reviews can be tainted: Many bloggers have accepted perks such as free laptops, trips to Europe, $500 gift cards or even thousands of dollars for a 200-word post. Bloggers vary in how they disclose such freebies, if they do so at all.

The practice has grown to the degree that the Federal Trade Commission is paying attention. New guidelines, expected to be approved late this summer with possible modifications, would clarify that the agency can go after bloggers – as well as the companies that compensate them – for any false claims or failure to disclose conflicts of interest.

(“FTC plans to monitor blogs for claims, payments,” Seattle Post-Intelligencer, June 21) We discussed this issue in a previous post. It’s worth repeating that, if you’re a blogger, every single member of your audience is doing you a favor by reading your blog. It is an honor, a privilege, a gift, and a responsibility to have an audience of any size, whether it be a dozen or a million. Blogging is far different than journalism or advertising, where the FTC monitors claims and requires disclosure (unless it’s a film, where the reviewers typically get free showings, journalists are required to disclose any conflicts of interest, such as receiving payment or perks from a company whose products they are reviewing or recommending). Journalism is a market-competitive industry; blogging, on the other hand, gets its value and meaning from being something closer to a social interaction. Readers believe in the honesty of bloggers more readily than mainstream journalists or advertisements (blog readers don’t necessarily believe bloggers more than journalists, they just believe they’re more genuine and straightforward). The great case study in betraying reader trust is the highly successful blog, TechCrunch, which is why its founder, Michael Arrington, has such a trouble-filled email box (I can also speak volumes about Huffington Post, but that’s another story). While it is on the whole one of the best, most informative, and most valuable blogs in the universe, too TechCrunch blogs are self-evidently and dishonestly shilling for companies they feature. Like infomercials and Fox News, you can’t really “trust” them once you really get to know them. What TechCrunch failed to do is produce what I call a “character plan”: who are we and what do we represent? What is the “character” that underlies everything we do from a one-reader blog to a twenty million reader kingmaker powerhouse?

I speak from experience. As a marketing consultant, I recognize the importance of blogs and social networks and have advised my clients “buy off” more than one blogger. They are surprisingly cheap and easy given the value they’re offering to my clients.

As bloggers, however, we here at Shoestring Venture planned from the start to be impregnable to outside offers.

When you start a blog, just as when you start a business, it helps to plan. What do you do if someone gives you a free product, a free trip, or even a check to review their product (we’ve turned down all offers here at Shoestring Venture)? What if, rather than a perk, they give you “access,” which is often just another way of buying you off? What, in other words, is your “brand”? Is it “trustworthy”? Or “bought”? Otherwise, when the free gift or money offer comes, it’s easy to sell out to the point where you’re simply just another ad site.

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