‘It’s better to be first than to be better’

Marketing and management are perpetually at war. “Marketing is too complicated to be left to management people who have little experience in marketing and who don’t understand its principles,” marketing consultants and father-daughter duo Al Ries and Laura Ries write in their latest book, War in the Boardroom — Why Left-Brain Management and Right-Brain Marketing Don’t See Eye-to-Eye — and What to Do About It.

DNA spoke with Laura Ries, who has run Ries & Ries, a consulting firm, in partnership with her father since 1994. Together, they consult Fortune 500 companies on brand strategy and have authored five books, which have been bestsellers around the world.

What is your new book War in the Boardroom all about?
It’s about the conflicts in corporate boardrooms between left-brain management and right-brain marketing. They don’t see eye-to-eye about marketing issues because they think differently. Left-brain management people are verbal, logical and analytical. Right-brain marketing people are visual, intuitive, holistic.

Do great brands always lead to better sales? Take the case of a brand like Apple. Even though it is an iconic brand, it sales are nowhere near that of Microsoft...
What makes a great brand? It’s the law of leadership: “It’s better to be first than it is to be better.” Microsoft was the first computer operating system for 16-bit, business-oriented computers. (First introduced by IBM.) This is an enormous advantage which even the brilliant marketing at Apple couldn’t overcome.

The IBM PC (along with the Microsoft operating system) was launched in August 1981. The Macintosh operating system was not launched until January 1984, two-and-a-half-years later. It’s better to be first than it is to be better.

The only market Apple is a leader in is MP3 players. How do you explain that dichotomy?
Apple was first in the mind with the iPod and dominates the MP3 player market with a 70% market share. Actually, Apple was not first in the market. The Creative Nomad Jukebox was the first high-capacity MP3 player, introduced 21 months before the iPod. But the Creative Nomad Jukebox (for a number of reasons, including the line-extension name) never got into consumers’ minds. The marketing battle is fought in the mind, not in the retail store.

A new category needs a new brand name, that’s a point you make throughout the book. But that rarely happens…
It’s one of the major problems of left-brain top management. You don’t get to be a CEO unless you fall in love with your brand. Therefore, CEOs tend to want to put their brand name on everything they sell. When Bob Nardelli was appointed CEO of Chrysler, he commented about this “unbelievably iconic brand.”
Chrysler an “unbelievable iconic brand?” Maybe Mercedes or BMW or Lexus, but not Chrysler, which is exactly the problem. Chrysler is a brand for plumbers, not for corporate executives.

Consider IBM. When they launched the first 16-bit, serious, office computer, they put their name on it. A major mistake. Buyers consider IBM to be a mainframe computer, not a personal computer. IBM reportedly lost $15 billion in the 23 years they were marketing personal computers before selling the operation to Lenovo for $1.2 billion.

What is a line extension trap? Why do you see more and more companies falling for it?
Line extension is taking an existing name known for one thing (Kodak for example, is known for film photography) and using the same name on a different category of product. Kodak is using its film photography name on its line of digital products. That seldom works.

As a result, Kodak is in deep trouble. Playboy is another good example. Over the years, the Playboy magazine name has been used on a host of products including cable channels, night clubs, condoms, clothing. Yet, Playboy as a company has been in deep trouble. Playboy went public in 1971 for $23.50 a share. Today, the stock is $2.08 a share. Last year the company had revenues of $292.1 million and managed to lose $156.1 million. No wonder Christy Hefner, Hugh Hefner’s daughter recently resigned.

Also, most companies indulge in double branding, adding their parent brand name to every product they launch. Why is that? And what problems do you foresee with this approach?
It’s not a problem when the parent brand name is used in small type and the product brand name in large, bold type, so the consumer considers the product brand name to be the dominant one. The Apple iPod, for example, focused on the iPod name, not the Apple name. Consumers call their MP3 players iPods, not Apples.

On the other hand, when you use a large parent name in combination with a relatively unknown product brand name, consumers will use the parent name. Consumers buy Sony television sets, not Bravia television sets.

Procter & Gamble calls its dental floss Crest Glide. But the Crest is in small type and the Glide is in large type so the consumer calls the product Glide. In almost every case, the parent brand name is just another confusing element that most companies could eliminate without any loss in sales or branding. But there again, they have fallen in love with their parent brands so they try to use the parent brand everywhere.

Another point Ries & Ries Focusing Consultants firmly believes in is that companies need to contract the brand and not expand it. But what one sees worldwide is the exact opposite…
Motorola invented the cellphone and was the first company to introduce the new product. But they did not give the new product a separate brand name (the same mistake that IBM made with the personal computer.) Then, too, Motorola was marketing a wide range of products under the Motorola name, including network equipment, satellite systems, personal computers, etc.

Nokia, on the other hand made a wide variety of products, everything from tires to personal computers, all under the Nokia brand. But Nokia narrowed its focus to cellphones only, dropping all those other products. As a result, Nokia dominates the cellphone market with a 35% market share and is very profitable. Sales last year were $71.5 billion and net profit margin was 7.9%.

Motorola, on the other hand, is struggling. Sales last year were $31.1 billion and the company lost $4.2 billion.

A point you have made in your earlier books, which you make again in this book is that the first brand in a category goes on to dominate that category. How do explain the success of iPod, which wasn’t really the first MP3 player launched?
We try to make the case between the “first mover,” the first brand on the market and the “first minder,” the first brand into the mind. It doesn’t matter who was the first mover. The only thing that counts is who was the first minder. Apple was first in the mind with the iPod, not Creative Technology.

Furthermore, it’s a category issue. The iPod was first in the mind with the high-capacity MP3 player which could hold a thousand songs as compared with ordinary MP3 players which could hold only 20 or 30 songs. (The iPod had a hard disk drive which made all the difference.)

You also suggest that companies should avoid the mushy middle. Why do you say that? Every major airline in America is stuck in the mushy middle. They are not cheap like Southwest Airlines and they are not expensive either. (No airline that flies coach, business and first-class in the same plane can consider themselves to serving the luxury market.)

Southwest has been very successful at the low end and we believe that sooner or later, a new airline could be very successful at the high end. It’s the mushy middle that causes all the problems.

Consider General Motors. They don’t have a Hyundai at the low end and they don’t have a Lexus or a Mercedes-Benz at the high end. All their brands are stuck in the mushy middle and in deep trouble.

Why are big companies unable to launch successful new brands? Most of them end up buying good brands launched by others...
Big companies believe that you need a big advertising budget to launch a new brand. In America, a big company thinking about launching a new consumer brand believes it needs to spend at least $50 million in advertising the first year.

With this mindset, they don’t believe it’s worthwhile to launch a new brand until the market is big enough. Coca-Cola waited 13 years to launch a competitor to Red Bull, a brand of energy drink that grew very slowly. Coca-Cola’s product was called KMX which went nowhere.

We believe that new brands should be launched with PR, not advertising. Starbucks, for example, did very little advertising in its first years. (Less than $1 million a year for the first 10 years.)

Procter & Gamble has bought most of its brands rather than launch new brands. The company’s latest acquisition was Gillette.

At times big companies even end up killing new categories. Why is that?
Consumers are much more likely to perceive a new category if it has a different brand name than an existing category. Tylenol, for example, is perceived as a different category of product than aspirin.

Bayer, on the other hand, felt that it could use its powerful Bayer name if the category was perceived as a broad “pain reliever” category rather than two separate categories (aspirin and acetaminophen.) So they introduced Bayer acetaminophen under the general concept of pain reliever. But that didn’t work.

Eveready tried to do the same thing. Take their zinc-carbon battery leadership and expand it to include the alkaline battery category. That didn’t work either. The new category is now dominated by the Duracell line of alkaline-only batteries.

Both brands, however, missed an opportunity to create a new lithium category. Both Eveready (with their Energizer brand) and Duracell have line-extended into the lithium field.

‘You don’t make money building better products; you make money making better brands.’ Can you give us examples to substantiate that statement?
To substantiate that comment, study Consumer Reports. Invariably, the brands rated No 1 by the magazine are not No 1 in sales. Why is that so? Because consumers buy better brands, not better products. Consumers buy brands they think are the best, although Consumer Reports proves that this is very often not the case in reality.
Buick, along with Jaguar, was rated the most reliable vehicle on the market by the prestigious research firm J D Power, ahead of luxury brands like Lexus, Mercedes-Benz and BMW. Did that make consumers rush out to buy Buicks? No, it did not. Buick does not have the perception of high quality. Perception is more important than reality.

Buick was endorsed by Tiger Woods. Did that make consumers rush out to buy Buicks? No, it did not. That’s not believable (along with the J D Power research.) Consumers figure that anyone making $100 million a year is going to buy Rolls-Royces or Mercedes-Benzes or Ferraris.

As a matter of fact, Buick’s annual sales have fallen from 405,678 in 2000 to 137,197 last year.