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06.18.2009

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The “Sucker Illusion”

and other Lessons General Motors Can Teach CPG Companies

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Market share leader. Enormous revenues. Unstoppable. Right? Of course not. As analysts touted the rise of the SUV in the 1990s as the rebirth of GM, Ford and Chrysler, they ignored deeper problems with these automakers. The fact that, over time, they had grown from small companies selling innovative high quality product experiences into business operations believing they could sell virtually anything under their brand banners. As if the brand image alone could make consumers believe that an under-performing Pontiac GT from 2002 was a ‘sports car’, when the Subaru WRX or Nissan Altima clearly outperformed it to any consumer who cares about such things.

When managing the business overtakes managing the integrity of the brand experience, consumer relevance is often the first thing to slip by the wayside. The temptation of financial success is for brands to feel that they now have a ‘loyal consumer audience’ who will follow the brand wherever finance wants to take it. We call it the ‘sucker illusion.’ This is the illusion that a brand with large revenues sustained over time can sustain consumer loyalty (or interest) based on the brand name alone.

The ‘sucker illusion’ is what many branding houses continue to sell to their clients. Is your product not that relevant anymore? Is it mediocre in the face of underdog brands popping up around it? Don’t worry; a solid re-branding campaign will insulate you against market share erosion.

Or, maybe a slew of new products bearing little resemblance to what built the brand to begin with (diluting it into a meaningless commodity)?

Or, maybe you just need to have your sales team get more aggressive, so your brand wins on sheer availability?

Sound familiar?

Many fall for the ‘illusion,’ especially when managing large legacy equities whose cash profit is dearly needed but whose volume is slip-siding away due to increasing irrelevance of the product experience. Legacy brands are not necessarily growth engines, don’t treat them as such. Companies should reinvest cash-cow brand profits over the long-term in a forward-looking strategic plan to stay on the cutting edge of their category, eventually replacing old brands with fresh brands offering more innovative experiences.

GM is being forced by the White House to do what responsible strategic leadership in the auto industry should have done long ago. Deliberately sell off/divest of brands that have no consumer relevance, aren’t recoverable through ‘branding’ exercises and don’t show the ability to make money any more (e.g., Pontiac). The hardest of these decisions is when a brand makes huge profits but its product experience is no longer that relevant and volume is clearly declining despite all marketing dollars spent against it. The desire to keep the cash coming in from these brands puts the burden on sales and marketing to hawk an inferior product line that no one really believes in, including the consumer.

We are heartened to see ConAgra making very tough decisions to under invest in tired brands from a consumer perspective (ACT II popcorn), in sharp distinction from many other companies that just won’t let go of their clearly dying brands. By letting tired, irrelevant, brands wander out to die in the pasture, forward leaning companies are making very intelligent long term decisions to follow the consumer, not follow orders from finance. Ultimately, they will succeed in the financial long term as today’s most profitable brand is not the pathway to the future, only to short term wins.The most elusive category of ‘tough decisions’ we rarely see CPG companies make is to make large investments to grow entirely new brands (and not brand extensions posing as new brands). One of the rarities here is P&G, willing to invest in successful new brands like Swiffer, when counterparts simply are not. As the Kraft sell-off of Post cereals has shown, legacy brands do have their ‘senior’ stage of life. But very few large companies, even large holding companies with plenty of cash, seem willing to take advantage of their scale and euthanize brands that slowly suck resources from long term innovation and growth strategy.

How many marketing dollars will companies spend to keep tired brands on life support, when those precious profit dollars could be spent on the next generation of brands? In a youth-obsessed culture like ours, one would think it would be more intuitive to invest constantly in new brands to encourage new growth.

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