Growth Pains: Why more is always less

 Growth is life. Unchecked, unplanned growth, however, will result in the demise of your brand in no time. 

Growth is as inherent in business as it is in human. It is the fuel that drives business. Therefore it might seem illogical to vilify growth and put it in a red zone.  Growth can be categorized in two divisions. One is controlled, well-directed, single-minded. The other is unrestricted, and all over the place. One is simply natural outgrowth of business with a well-set strategy in mind. The other is simply to raise the bar high, set illogical growth numbers, preach a lot to the employees about the importance of meeting such lofty numbers and meet that growth target by any means possible. I repeat, by any means possible. I will elaborate more on that a little later. But just to set the record straight, it is the second type of growth that is malevolent, not any growth. 

The number crunching game and its downfall 

The analogy with human body gets the point through. While it is natural for human body to grow, any unnatural growth results in serious health hazards. Some of the biggest and tallest men ever lived and graced the pages of Guinness Book of world records had a very short life span. There lives were plagued with health complications. The same applies for corporations. It is one thing to ride the wave of the category growth, but its another to set illogical goals in front. The fate of the Internet bubble burst tells the story. During the later part of the 90s, the writing on the wall was the Internet Economy will grow beyond anyone’s expectation. The Internet companies took such growth for granted, embraced themselves to double digit growth and lost everything in a lose-all betting game.  General Motors was once the undisputed king of growth. But it’s the growth strategy that later got to them. Car after car was lunched with little or no differentiation among them. To make matter worse, the pricing was so confusing that customer did not know which is their premium brand and which is the car for limited income people. As a result, the omnipotent GM lost 10.6 billion dollars in 2005. Sony was a pioneer, a visionary company, the undisputed king of consumer electronics and above all, a relentless growth machine. If its any sort of digital entertainment, be it movies or mobile phones or music, Sony is there. Sony is involved in some of the fastest growing category in the world. So it comes as a shock when we find Sony to be languishing behind in a category that they themselves have created – portable music player. Walkman was the first portable music player in the world and was the category generic for a long time. Not any more. The new king is Apple with its i-pod line. Right now Sony has the not so envious distinction of being one of the brands which has lost most brand value in 2005 among the top 100 brands in the world. Growth did not treat Volkswagen well. The cult-brand had big-time growth in mind when they went from their “small car” positioning to “every person’s car” positioning. They wanted to sell small cars to people who wanted small cars. They wanted to sell medium sized cars to people who love medium sized cars. They followed the now notorious GM strategy. The result : big reduction in brand value in 2005 

The After-effects of growth 

There is a vicious cycle at work here.  

A)     Companies bring out a winner product and makes it big

B)     Companies all of a sudden find selling products to customer very easy and set lofty growth targets

C)    To meet these short term growth targets, companies launch a thousand variations of one product, most of which do not meet any unmet consumer demand

D)    Companies buy facilities, recruit people, pour in marketing money just to meet the growth target

E)     Growth fuels more growth

F)     Then it hits a snag, loses brand value, focuses on cost cutting, lay-offs, closure of factories etc. Almost all big companies went through the same cycle. And some more big names are heading towards the direction. Sony recently cut 5,700 jobs, closed nine factories, and sold $705 million worth of assets.  

Growth vs. Brand Value  Lets make a practical comparison between growth and brand value. If we list the top 5 companies which gained the most brand value in 2005 and the fastest growing companies among the Fortune 500 in 2006 and put them side by side, we don’t see a single match. 

Top 5 brands with highest increase in Brand Value in 2005 Top 5 fastest growing companies in Fortune 500 in 2006
1)      EBAY 1)      Kerr-Mcgee
2)      HSBC 2)      Lyondell Chemical
3)      Samsung 3)      Echostar Communications
4)      Apple 4)      TRW Automotive Holdings
5)      UBS 5)      IAC/InterActiveCorp

While Wal-mart is the one of the growth story of the 21st century, brand value-wise it is no where near the top 5. In the same way, Coca Cola may be the best brand in the world by a long shot, its growth rate is not within the top 30 fastest growing companies in the world.  This clearly shows that while unprecedented, unplanned short term growth may be the order of the day, but in the long run it diminishes the brand value. 

The Growth Effects: Sales Promotion  

In recent years, Marketing has become a game of beautiful paradox.  While we wanted to have a strong brand which will heavily influence purchase decision, our incessant desire to grow has created a wave in a totally opposite direction.  To sum it up in a simple paradoxical argument 

  1. Short term growth requires frequent sales promotion
  2. But, frequent sales promotions reduces the strength of a brand to pull customers
  3. Therefore, the more growth oriented brands reduces its strength for the long run

Why is this sudden over-reliance on sales promotion? 
Sales targets are often based on CEO’s wish-list, not on practical fact-findings. That is why to cover-up sales shortfall, marketers often resort to
Sales promotion.  This, unfortunately, is not the most ridiculous reason behind the increase in sales promotions.
Sales promotions are on the rise because marketers need to 

A)     Satisfy the trade (“We have to satisfy our partners. If that means growing out of our skin once in a while, then that’s imperative”)

B)     Occupy shelf-space for future ( “If we don’t predict and block their moves, the competitors will take our business away”) C)    Satisfy internal stakeholders’ boredom (“We are doing the same thing for the past 3 months. It looks boring”)

D)    Show good numbers, more so than good strategic direction ( “We are not interested of what the company will look like at 2010, but what the sales figure will look like at the end of Quarter 3”) 

E)     Do something with their time (“We are sitting back and letting the competitor dictate the terms”) What is imperative to understand is that when your customer is only buying your product because of sales promotion, your brand health is in serious jeopardy. Also, during the sales promotion, the loyal customers and bargain hunters are the two groups of people who will buy your product. Historically they are both non-profitable. Your loyal customers will buy your product anyway. In fact, by reducing your price you are habituating your loyal customers to wait for the “offer” to hit the market, rather than buying the product at price. Also bargain hunters are never going to stick to your product and will respond to competitors offer in the same way that he responded to yours. Therefore the sum of all the parts of a sales promotion does not really add up to create something big – brand health-wise. 

The Growth effects : Line & Brand Extension  In paper it looks so simple. You have a successful product which is being used by X number of people. If you just add another 3 more versions of your product you can rope in at least 3X times more people. What can possibly go wrong? Not really. If that was true how can one explain why Coke’s brand value has not quadrupled after Coke added innumerable variants of its classic Coke? Why did Pepsi suffer the same fate? Why was there reduction in earnings for General Motors in 2006 after they have broadened their portfolio in the past two decades? When Crest toothpaste has limited variants they were the undisputed market leader. Now that they have line extended to a lot more variations, why is Colgate the market leader, not Crest? The answer is quite simple. The more you want to sell, the greater variant you add to your product line, the more choices you give to your customers, your brand becomes less and less powerful. Because mind cannot deal with complication or extra information, it prefers simplicity. And its about time, marketers understand that. 

The Growth effects : Price War Advertising legend Bill Bernbach once referred that price cut only makes sense when your competitor cannot match you with a similar cut. I would request the readers to read it again. Makes sense, doesn’t it?  Again, what makes sense and what makes it out in the practical world are two different things. We have seen in recent times price war breaking up in a number of category. While most of it does not make any sense, price war is mostly an outgrowth of the destructive growth agenda that companies adopt. And categories suffered because of that. In USA, airlines industry in recent times is one of the least profitable sectors. And it is simply because of price war. One of the giants AT&T got choked because of the ongoing price war in telecom sector.  Despite all the signs in the wall, price war is on its way up, just like its step-siblings sales promotion and line extensions. 

Growth that works – Some recommendations We have such vehement beliefs that despite our best efforts to kill our brand, we will save the day by doing what we do best – get great growth numbers. The question remains, if such strategy is faulty, what the companies can do. Here are a few strategic guidelines 

1.      Growth numbers should be based on practical research data, not on impractical whims like “lets double our growth rate”

2.      Growth should be the secondary consideration, not brand value. Therefore only growth that does not hurt the brand by cheapening its image, diluting its positioning, confusing its audience; should be adopted

3.      Conglomerates almost always do not succeed in the long run. So stay in your focus area. If you are a successful TV network, you have no business being a key player in banking. It will never work.

4.      Your pricing strategy should be such that you don’t need to adopt frequent sales promotions or price cuts to sell your goods. Wal-Mart is the most successful company in the world with a very consistent pricing strategy. Their slogan is “Everyday low prices”, which tells a lot about their positioning.

5.      Don’t extend your brand to cover two or more categories. Adidas is a successful sports shoe manufacturer, not a successful clothes line provider or a cologne maker. It is one success story that will never happen. Don’t fall into that trap. Shoe is shoe.
Cologne is cologne. People will buy shoe from Adidas and cologne from someone else.

6.      When your product has reached maturity in a market, don’t launch another product variant or jump into another category. Rather, take your same product in another market, preferably overseas. For example, when Starbucks was attacked by me-too competitors in
USA, they didn’t simply launch another cheap looking coffee house to compete. They made a smart move by going global and seeking business in other market 

More is never More  Who are we kidding? More is less. Less is more. Nothing proves this more than the growth frenzy and the rise and fall of the great brands of the century. Brand value and unplanned growth are not two team players who can co-exist in the same group. Trying to tame these two horses simultaneously is one trick of the trade that is sorely missing. And learning that one trick will determine the brand of the future.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s