WHAT'S IN A NAME? LESS AND LESS
When Robert L. James calls on clients these days, it's not just to press the flesh. The blunt-speaking chairman of ad agency McCann-Erickson Worldwide is sounding a tocsin: Brand names, he says, are in trouble. Companies aren't spending enough to support these valuable assets. As a result, the products that carry them are losing their premium status. What's more, James thinks that few marketers fully appreciate the threat: "I feel like I'm screaming in a void."
With a client roster that includes Coca-Cola, RJR Nabisco, and General Motors, James seems an odd person to fret about the durability of brand names. His agency helped Coke sustain its unshakable bond with consumers by drumming into them that Coke is the real thing.
MAKING THE SWITCH. Nobody would deny that the payoff from such advertising is huge: Mass marketers have enjoyed a reliable stream of profits at home and abroad. Owning strong brands has allowed them to price their products at a premium. Indeed, the top-selling brands have undergone remarkably little change in ranking over decades (table).
So why is James acting like Paul Revere? Because he worries that marketers are letting brands slip away. Retailers have been forcing companies to divert dollars from advertising for their products into costly trade promotions, such as payments for space on store shelves. That dims the prominence of brand names. Also, advertising is no longer as effective, because the decline of mass media has made it harder to hammer home a single, coherent message. The net effect: Brands are being devalued. They aren't disappearing, James says, but consumers are more willing to switch to cheaper products.
Two recent studies bear out his fears. A survey by DDB Needham Worldwide Inc. found that 62% of consumers polled in 1990 say they buy only well-known brand names, compared with 77% in 1975. A Grey Advertising Inc. study says 61% of consumers regard brand names as an assurance of quality--a drop of six percentage points since July, 1989. In the same study, 66% say they are trading down to lower-priced brands. And almost half are buying more store or generic brands.
But suggest that brands are declining to many marketing executives, and you'll get staunch disagreement. "Brands are becoming more important than ever," says Herbert M. Baum, president of Campbell Soup Co.'s North American operations. Baum is spending millions on ads to revive such brand icons as the Campbell Kids. "The brand is the most important thing in marketing," agrees David J. Gustin, marketing chief for Frito-Lay Inc. Frito's parent company, PepsiCo Inc., continues to advertise heavily, while other big marketers are retrenching. Indeed, PepsiCo made the power of brands the theme of its latest annual report.
How can James be so worried when top marketers say they are sanguine? One reason is self-interest. As marketers put more money into coupons and other promotions, they're reducing their support of the big-budget ad campaigns that generate much of Madison Avenue's profits and prestige. Advertisers spent 70% of their marketing dollars on consumer and trade promotions in 1990, leaving just 30% for ads. Advertising's share has been dropping steadily since Donnelley Marketing began tracking these expenditures in 1978.
Yet even marketing experts with no vested interest in fat ad budgets say companies are neglecting their brands. "The marketing community is in the process of destroying the meaning of the brand," says Al Ries, chairman of Trout & Ries, a marketing firm in Greenwich, Conn. As a result, consumers are starting to regard many brands as interchangeable: "People don't think the world will come to a screeching halt if they use Tide instead of Cheer," says Joel D. Weiner, former marketing chief of Kraft General Foods Inc.
STEADY STREAM. Weiner and others say the issue is more complicated than simple ad dollars. For one thing, marketers are relentlessly extending their brands. Because companies want to produce a steady stream of new products to fill shelves and fuel sales growth, many are slapping their established brand names on a broad range of new products.
Sometimes this works well, such as when Procter & Gamble Co. rolled out Tide With Bleach in 1988. But line extensions have drawbacks. In 1979, for example, Miller High Life was a strong No. 2 beer brand after Budweiser, selling more than 23 million barrels a year. But once Miller Brewing Co. introduced Miller Lite and Miller Genuine Draft, the core brand languished. High Life now sells 6.4 million barrels, compared with Budweiser's 50 million barrels. High Life was also hurt by a price hike in 1980. But the new brands only made matters worse.
Such examples haven't deterred marketers. Of the 6,125 new products placed on shelves in the first five months of 1991, just 5% bore new brand names, according to Gorman's New Product News. The rest are variations on existing brands: Tropicana Twister Light fruit juices, Huggies baby wipes, and the like.
BLEACH BLANKET. Marketers also lean on line extensions because of the enormous risks in introducing a new product. Roughly 9 out of 10 new brands fail, according to marketers, and a mistake can cost dearly. Clorox Co. spent $225 million to develop a new line of laundry detergents. But it couldn't persuade enough shoppers to buy detergent from a company famous for bleach. Clorox retreated from the category in May.
As if that weren't enough, ad executives say, many brand managers don't see much need to nurture brands. Quick turnover leads them to focus too much on short-term sales objectives. Ad execs also fault business schools for training MBAs to care more about numbers than less tangible brand assets. Roy Bostock, chairman of D'Arcy Masius Benton & Bowles Inc. and himself a Harvard MBA, says young brand managers "lack the capacity to grasp the concept of brand equity." Marketing consultant Larry Light is less diplomatic: He says MBA stands for "Murderer of Brand Assets."
The end result, say marketing Cassandras, is that the power of leading brands will slowly fade. Secondary brands face an even dimmer future: Because they are less profitable and require more advertising support than leading brands, many will shrivel and be supplanted by store or generic brands. A survey by A. C. Nielsen Co. says consumers already spend 14.2% of their total grocery dollars on private-label brands.
Still, many investors cling to their belief in brands. Kohlberg Kravis Roberts & Co. paid some $30 billion to take over RJR Nabisco Inc. in 1989 based largely on the strength of names such as Camel cigarettes and Ritz crackers. To avoid diluting such valuable assets, marketers say they are developing innovative ways to extend their product lines. One method is to establish new brands that aren't identified with individual products. Historically, brand names were rooted in concrete product attributes: Colgate toothpaste prevents cavities.
Now, however, companies are coining brands that appeal to a type of lifestyle. For example, ConAgra Inc. recently began marketing a line of frozen dinners to health-conscious shoppers under the brand name Healthy Choice. It also sells breakfast baked goods, egg substitute, and even ice cream under that name. Marketing experts say that type of stretching works because it doesn't rely on a core product for its appeal. Another method is to double up brand names. Campbell now sells Mrs. Paul's frozen fish filets made with Pepperidge Farm breading. Baum argues that the two brand identities set the product apart from rivals without weakening the image of either brand.
WAX AND WANE. Despite the lure of line extensions, there is evidence that some marketers are shying away. Campbell plans to introduce fewer new flavors and products in the 1990s--after a heady period in the late 1980s, when it rolled out 214 new products. After years of declining budgets, Campbell will boost ad spending 30% next year. P&G, after cutting back on ad spending as a percentage of sales in 1989, increased its ad budget 24% in fiscal 1990. Chairman Edwin L. Artzt has said that ad spending in the U. S. will grow again this year.
Brands wax and wane slowly. It took years for once-powerful monikers such as Pepsodent toothpaste and Oxydol laundry detergent to become marketing ciphers. So it will take at least a decade to determine whether brands are really in trouble. Still, it's not too soon for marketers to start worrying about their good names.SHELF LIFE
Here are some of the most durable brand names, with their market rank in 1923
Category Leading brand in 1923 Current rank
Cameras KODAK No. 1
Canned fruit DEL MONTE No. 1
Chewing gum WRIGLEY'S No. 1
Crackers NABISCO No. 1
Razors GILLETTE No. 1
Soft drinks COCA-COLA No. 1
Soap IVORY No. 1
Soup CAMPBELL No. 1
Toothpaste COLGATE No. 2
DATA: BOSTON CONSULTING GROUP
DAN V. ROMER
Mark Landler in New York, with Zachary Schiller in Cleveland and Lois Therrien in Chicago