Brand Value

'The most successful companies in the world have multiple brands. Tata needsto do that too'

They are the world's premier marketing consultants, the father and daughter duo of Al and Laura Ries, who together run Ries & Ries Focusing Consultants. "One of the most successful companies in the world is Proctor and Gamble and they have got twenty two brands that each do more than a billion dollars of business in a year. Last year for example Procter and Gamble had a net profit margin after taxes of 17.2%. I don't know how accurate this is but I worked out…that the Tata group of companies has a net profit margin of 2.7%. The most successful companies in the world are ones that have multiple brands," says Al Ries. The duo was in India to address a seminar organised by Curtains Up, a company focused on presenting high-end business seminars to corporate leaders. In this interview the father-daughter duo speak to Vivek Kaul.

The Toyota Production System is world famous for its focus on "continuous improvements." With all those improvements continuously taking place, why has Toyota suddenly found itself in deep trouble having to recall so many cars that had been sold? You call the problem 'Modelitus'. Can you explain that to us? Al Ries: Fundamentally my feeling is that they were into far too many models. There isn't just one Toyota production line. There are dozens. Currently the company produces 18 different Toyota models. Starting prices range from $12,605 for the Yaris to $65,970 for the Land Cruiser. In addition, Toyota makes three Scion models sold in showrooms adjacent to Toyota showrooms as well as 15 different Lexus models. In total, Toyota Motor Corporation produces 36 different models, up from 18 a decade ago. Thirty-six models? It's one thing for a company's engineering staff to continuously improve one model. But thirty-six? And what about all the new Toyota models currently on the drafting boards? Did that cause the problem? Al Ries: I don't know but just psychologically the more you try to do the more likely it is that you are gotta screw up on something. I can't believe that a company can handle thirty six as well as a company that could handle eight models or six or two. From a marketing point of view the proliferation of models was not helpful. The more models you make the more confusing your product line is. We find a lot of times in many categories whether it is breakfast food or coffee, the more the different kind of variations you make, the consumers get confused and possibly turn away and buy something else at some point. So who does it benefit then? Al Ries: There is a philosophy in business today that the more models you have the more you sell. That isn't right, isn't true. Saturn, a car brand, introduced by General Motors came out only in one model. That's it. It was the actually the only automobile brand in the market that was available only in one model. Four years after the launch the average Saturn dealer sold more cars than any other dealer. Then Saturn went on to introduce five additional models. They never achieved the peak that they achieved with one model. And they had expanded their dealer network. By the last year they were in business, the average Saturn dealer did less than half than they were doing when they had one model. That's progress? Not to me at least. Can you give us any other example? Al Ries: The world's largest seller of espresso coffee is Illy. Illy buys coffee from 18-19 countries. But they have one blend. The coffee tasters sit around for weeks trying to mix around this one with that one and so on, to have one blend that they figure is the best. When they roast it, they will dark-roast it, medium-roast it, light-roast it and decaffeinate it, but it's the same blend. And they are the largest espresso. That, to me, is the direction that most marketing programmes should take. Make it easy for the consumer. Why does this happen, if it is not good for the consumer, if it is not good for the company, why do they do it? Laura Ries: There is a feeling within companies that they got to be doing something. They can't just stick with what they are doing. They have enormous pressure to increase sales. As a way to do that quickly, they feel if we sell more stuff, we will have more sales, and then it looks like they are doing something. Like they are launching new models, they are launching new products. And with all of that work, is their any benefit? The answer is there isn't any and that's the problem. So what is the moral of the story? Laura Ries: Big companies need to learn from entrepreneurs and companies that are building great brands today. Google is an excellent example. When everyone was adding stuff to their portals, Google white-paged it, and wiped it all out. It had one box. And today it is one of the most powerful companies on the planet. And it says a lot for not always doing to do more but sometimes doing less is best. What about a brand like Toyota, it has got so much of negative PR. What do they do now? Al Ries: In the first place, the Toyota brand was very strong and had a reputation for reliability. And that is one of the reasons why the PR has been so negative... Laura Ries: They are in shock. Al Ries: It had a reputation for reliability and now some people think it is not reliable. That is devastating. But because it is strong brand, if they give enough time, people will forget and I think the brand will come back, granted their cars don't have any more problems. As a matter of fact, if you look at sales, they are down 10-15% but nothing drastic. Nothing like, for example, a similar problem with a German car brand called Audi. They had exactly the same problem called unintended acceleration. The brand compared with Toyota, was not a very strong in America. So their sales fell from roughly 60,000 a year to a third of that. And I had measured that it took them 15 years after that PR problem to come back to the same level of sales. Toyota is a strong brand, it will comeback a lot quicker, a couple of years at the most. You can't kill a strong brand. Look at Bill Clinton. What about a brand like British Petroleum (BP)? Laura Ries: Tha's the opposite situation to Toyota. BP is headed for disaster and the likelihood of survival is pretty dim. First of all, it is in an industry that people just naturally hate. Nobody likes Big Oil. You also have a situation where they have had several disasters previously. They had a big explosion in Texas which killed several workers. They had an Alaskan pipeline that burst. So they have had a poor history of safety. They also compounded that by running a massive advertising campaign talking about how they were going beyond petroleum. How they were the greenest of the oil companies. But behind the curtain, none of this was actually happening, I think it was a slap in the face to the people when they finally realised what really happening, seeing the tragedy of the worst natural disaster ever. In that way, the best hope for BP is to be bought out. The oil situation is totally dependant on governments giving them oil wells to drill. And a company with such a bad reputation, no politician is going want to go near them. Certainly the company has assets and perhaps a future, but only if they are bought by someone else and the brand is wiped out. What about a brand like Tiger Woods which has been in some trouble like BP? Al Ries: If he comes back on the golf course, he will do fine. But since he has had his problems he hasn't done very on the golf course. And that's his biggest problem today. People could admire him for the golf part and they can forget about everything else. We have had lots of sports heroes who have serious problems, multiple girlfriends, wives, drugs, whatever ... you name them. But people still admire them because of their athletic abilities. And he is going to rise or fall depending on this backswing. Laura Ries: Closing the chapter on the wife is probably the right direction. He did have some short-term improvement in his game after the divorce was finalised. The uncertainty of his marriage, I think, was causing a lot of talk in the press and put pressure on him. But, again, his survival is going to be dependant on his game. I guess Nike is praying everyday that it comes back quickly. So you do feel that if his game continues to improve advertisers will come back? Laura Ries: Sure. But womanising it is very low in the totem pole in terms of bad offences. Certainly it is not a good idea to cheat on your wife, but look, he certainly got his punishment... And it wasn't one woman... Laura Ries: It was a lot of women. But his wife did the right thing and divorced him. People like to see that. They like to see consequences. One of the biggest things that people seem to have had against Hillary Clinton was that she did not do anything. A lot of people that I talk to say, only if she had just divorced him…I would have felt better about it. Al Ries: She would have had a better political career if she did. She would have been perceived as decisive. People want their politicians to make decisions. Not to be weaklings. You have always maintained that the association of the brand in the minds of the customer is very important. If what a brand stands for was so important how did Hewlett Packard (HP), which most people think is a printer company, become the number one personal computer selling company in the world? Al Ries: Well they are perceived as a leader but not necessarily a very strong leader. Most people know or believe that HP is the largest seller of personal computers. But you don't see the same admiration for the brand that you might find for Heinz ketchup or Coca-Cola or Mercedes-Benz, or Apple for that matter. It is a leader brand and it became a leader brand not so much because of what it did, but because of what (rival) Dell did. Dell shot itself in the foot and left HP standing. Dell was essentially a direct selling business. They cut out the middleman and they saved business money and that's a message that business people loved. But then they decided to get into the consumer business and things started to go wrong. But what about HP? Al Ries: As you know, HP is known for inventing the desktop laser printer. They are perceived as a printer company and they do much better in computer printers than they do in computers. They bought Compaq, for example, and if I were HP, I would have used Compaq as the computer name, desktop and laptop, and let HP be the printer brand. But there again, you see this all over the world, I'd rather put everything under one brand, so that I can spend all of money promoting that one brand, which, theoretically, makes sense. But not when you look at the brand, the package they are talking about. It does not make sense. What is a Hewlett Packard? What are you going to say in the advertisement? And why should I buy a Hewlett Packard, if I do not know what it is? It is the classic line-extension problem. It's a philosophy-type problem. People think, let's launch more products and more models, and we are going to sell more. We disagree. To most companies, line extension is a good idea. We think it is a bad idea. The more you expand, the more you weaken. Google is a good example. Laura Ries: One problem now is that for the short term, Google gets tremendous credit with the stock market, when they make all the announcements that they are getting into this and they are getting into that. It pumps up the stock. For the short term, everyone is happy. All of a sudden, ten years later, it hasn't panned out. We have seen that with Microsoft. It luckily still dominates on the operating system, but all of the other things they have gotten into they haven't been successful. They have lost tonnes of money, but initially people got so excited. Oh MSN is going to rule the world. Xbox is going to rule the world. All of these things were supposed to take over, but none of this has happened. Seemingly nobody seems to learn from history. Al Ries: They reportedly have lost $6 billion on the Xbox, for example. I believe outside their software business, they have not made any money on anything. If they would have stuck with software they would have been a stronger company. Now take the case of Google. The revenue growth rates have constantly fallen for Google as they have introduced more and more products into the market. Look at the year-over-previous-year revenue growth rates for Google's past seven years. It doesn't take a mathematician to figure out that Google's rapid growth is coming to a screeching halt. Then what? Instead of expanding in all directions, a better strategy for Google might have been to launch a second brand. A second brand? Al Ries: As a matter of fact, almost any large company should be thinking about launching a second, a third or a fourth brand. One of the most successful companies in the world is Procter & Gamble and they have got 22 brands that each do more than a billion dollars of business in a year. There are another 20 that do between a $500 million and a billion a year. Last year, for example, Procter & Gamble had a net profit margin after taxes of 17.2%. I don't know how accurate this, is but I worked out this afternoon that the Tata group of companies has a net profit margin of 2.7%. The most successful companies in the world are ones that have multiple brands. What's the biggest branding mistake that a company can make? Al Ries: I guess you have to say the most common mistake for big companies is launching a line extension instead of launching another brand. We have worked with a lot of companies on this issue, actively recommended to IBM that they launch a second brand, to Microsoft, as a matter of fact, and others as well. I have been on a lot of boards of directors. The word you hear in the boardrooms is how do you expand the brand. I have never heard anyone say how do we narrow the focus on a product, except for me. How do we narrow the focus that we stand for something? Can you elaborate? Laura Ries: A part of the problem is that companies are so in love with their brands. Company people in launching a second brand sometimes feel disloyal, and that lures them into the line extension mode, where they can't even consider a second brand and that is a true problem. They need to sit back and realise that we need to do the best thing for the company and to keep that brand standing for something. The question about Tata always comes up, whether or not they should be launching more second brands without the Tata name. People love Tata, but the fact it isn't making money because the strategy of putting Tata name on too many things is not effective branding. So that's truly a problem that we see over and over again and hopefully will change some day. So you suggest that Tatas should be launching more brands? Laura Ries: Of course. Any company that has the means and ability to be looking for new opportunities should. Consumers don't care about brands. The advantage in business comes from dominating categories and only brands that dominate individual categories and keeps that as clear as possible, progress. The best thing Google had was YouTube and they had to buy it. But why can't they be launching things like that with a separate name? Al Ries: What we have been saying is that every category as time goes on will diverge and become two or more categories. You see that happening, for example, in cellphones. Very definitely, we are going to have cellphones to make the phone calls and we are going to have smart phones for tapping on to the internet. Now this ties in with the second brand idea. If companies appreciate the fact that categories divide, they are more likely think about second brands. Nokia, we think, is getting into a weak position with smart phones because they did not launch a second brand. Yet, if we don't understand the philosophy of divergence then you won't see this. And guess what most big companies think? The opposite. They don't talk about divergence, they talk about convergence.