Lessons from Belgium

                 In 1999, the Coca-Cola Company (CCC) and its subsidiaries manufactured, marketed, and distributed concentrated syrups and beverage bases for over 230 brands worldwide. Coca-Cola Enterprises (CCE) along with other bottlers around the world produced and distributed the final beverages that bear the CCC trademark. At the time, the European market accounted for 23% of worldwide sales for CCC and CCE was the sole licensed bottler in Belgium, Great Britain, Luxembourg, The Netherlands, and most of France.

                It is worth noting that, at the time, much of Europe was reeling from a Mad Cow Disease and dioxin poisoning in animal food. With that in mind, on June 16, 1999 the Belgian Health Ministry withdrew all CCC trademarked products from stores due to two “unrelated” seemingly simultaneous, incidents. First, consumers reported an irregular taste and odor from bottled products and second, approximately 100 students and six schools became ill after reporting an unpleasant odor emanating on the outside of CCC-branded products.

                In the wake of the unprecedented recall, CCC went into action . . . sort of. The company devoted significant effort into uncovering the causes that lead to the recall, which led to the conclusion that the beverages produced and distributed were of “highest quality”. It was determined that the elements leading to the unusual taste or odor were not presents in amounts significant enough to lead to illness. Studies conducted on the student illnesses later concluded that illness was likely a “psychosomatic” reaction likely sparked from recalling the recent Mad Cow and dioxin scares.

                CCC launched an aggressive marketing campaign and by August of 1999 research indicated that the company had recovered nearly all of its “core” Belgian users.  But to this day, many have a bad taste (no pun intended) for the Coca-Cola Company with respect to how they handled the entire incident. The story has become part of business management case study lore, not for what CCC did, but what CCC didn’t do. The 1999 Belgian crisis places a spotlight on the significant failures of the Coca-Cola Company in the following concept areas:

1.       Crisis management

2.       Business continuity planning

3.       Political, legal and socio-cultural environments in international business

4.       Leadership and decision-making

5.       Marketing

                History teaches that the more time it takes to respond to a critical incident, the more long-term damage is likely to be done. Given the Belgian public was extremely skittish given the resent crises; CCC should have made themselves aware of the sensitive social and political environment in which they were operating. At the time, CCC had no significant local decision-making presence in Belgium, and thus crisis management strategies were not developed or revised to address such incidents. Due to this seemingly blatant ignorance, CCC failed to issue any kind of public statement until nearly a week after the initial incidents were reported.  It took ten days after the initial incidents were reported for a top executive from Atlanta to bother to show up in Belgium. Overall, this gave the appearance that CCC had little concern for its product quality and customers. The after-effects of this incident prompted executive resignations and the company has subsequently worked to flatten the organization, including establishing a decision-making presence in significant local markets.

                The Belgian crisis is a lesson in the importance of brand image. “Brand image is created in the minds of the consumers and convinces them that the products have value-added components above and beyond products offered by the competition” (Johnson, 21). The value-added components include, but are not limited to:

1.       Quality

2.       Price

3.       Design

4.       Status (intangible)

5.       Nostalgia (intangible)

6.       Confidence in company leadership (intangible)

7.       Positive record of corporate social responsiveness (intangible)

With this in mind, a plan must be developed that its sole purpose is protection of the brand. The plan identifies potential threats and expeditious solutions. The plan could be constructed similar to a SWOT analysis. At a minimum, the plan should consist of emergency response plans, quality assurance systems, effective communications processes, and an ongoing reinforcement of the company’s commitment to the community. Bottom line: The brand is your company’s most valuable asset. It should represent everything that your company stands for. Do everything to protect and uphold it.

Resources:

“Coca-Cola Executive Says Firm Mishandled Scare” Los Angelis Times June 28, 1999 (accessed February 10, 2012) http://articles.latimes.com/1999/jun/28/business/fi-50859

Hays, Constance L., “A Sputter in the Coke Machine; When Its Customers Fell Ill, a Master Marketer Faltered” The New York Times, June 30, 1999 (accessed February 10, 2012) http://www.nytimes.com/1999/06/30/business/sputter-coke-machine-when-its-customers-fell-ill-master-marketer-faltered.html?pagewanted=all&src=pm

Johnson, Victoria and Spero C. Peppas, “Crisis Management in Belgium: the case of Coca-Cola” Corporate Communications: An International Journal (Emerald Research Register: 8:1, 2003) 18-22.

Suitable for the Louvre?

                When I last visited the Interbrand 2011 rankings (see 2/3/2012 post), the firm commented that the Heinz brand (ranked #49 of the top 100 global brands) needed to better leverage the use of social media. From where I stand it seems the company took this to heart. For one, the H.J.Heinz Company is on Twitter, there are several Facebook sites, and multiple YouTube channels. To launch its new Tomato Ketchup with Balsamic Vinegar, Heinz first established a Facebook page devoted to the product and made the product only available through the site before the retail rollout in December 2011 (you even received a free Keinz Dip & Squeeze packet with purchase)[1]. My wife was one of the first to purchase a few bottles. My opinion? The balsamic ketchup is excellent on roast beef and French fries. I believe fans of the product will enjoy the variation.

Heinz Ketchup with Balsamic Vinegar Facebook Page Source: www.nytimes.com

      And speaking of French, I want to devote this journal space to comment on a promotion currently being conducted by Heinz France to introduce a new type of cap for the popular “top down” bottle”. Known as the “Grand Slam”, the cap is the most significant innovation to the top down bottle since the introduction of a ‘stay-clean’ cap in 2004. Per Peter Boterman, Heinz France Corporate Communications, “the cap provides the user greater control over quantity of ketchup squeezed and the direction in which they squeeze it”. To best illustrate the control that the new cap provides, Heinz France launched a Facebook page dedicated to an art challenge inviting fans to submit artwork done in ketchup with the new bottle and cap. To kick it off the marketing team produced a live performance with the Heinz Ketchup squeeze bottle. Two French graffiti artists used 15 bottles and achieved the masterpiece below within 4 hours and there were no special effects.



Done entirely in Heinz Ketchup! (courtesy: HeinzWeb, Heinz France)



To watch a video clip of the “ketchup artists” at work, check out http://www.youtube.com/watch?feature=player_embedded&v=HPSJxf-cfEE or search “Heinz Art Challenge” if the link does not take you directly there.

For more information about Heinz France or the Heinz France Art Challenge, check out http://www.heinz.fr/

source: Heinz France

               

[1] Newman, Andrew, “Ketchup Moves, Upmarket, With a Balsamic Tinge” New York Times October 25, 2011 (accessed February 10, 2012) http://www.nytimes.com/2011/10/26/business/media/ketchup-moves-upmarket-with-a-balsamic-tinge.html

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Zephoria and the Big Game

A day after the Super Bowl, Zephoria Internet Marketing Consultants launched a website that allows consumers to provide feedback on the best and worst ads from Sunday’s game. The website TCSuperpoll.com was created for Travers Collins, an advertising and public relations firm in Buffalo, New York. Social media has already had a tremendous impact on Super Bowl commercials. Even the television-centered website Hulu set up a channel dedicated just to Sunday’s ads. Zephoria president, Dan Noyes, stated that “we programmed TCSuperpoll.com to be mobile friendly and provide website visitors with a perfect opportunity to provide a simple thumbs up or thumbs down for each ad shown during the big game. As of the Thursday following the Big Game, nearly 3,000 visitors (mostly residing in the western New York/Buffalo metro area) voted the M&Ms “Just My Shell” ad as their favorite.

source: TCSuperpoll.com



Marlboro Friday

     In the early nineties, premium brands were under attack. Household names like Maxwell House, Kraft, and Kool Aid were steadily losing market share to their discount and private label counterparts. Most notably among the victims was Philip Morris’ tobacco giant Marlboro. In an eighteen month span from 1991 to 1993, Marlboro’s market share dropped nearly four percent. It seemed that Marlboro couldn’t compete, so CEO Michael Miles had to take action. On April 2, 1993, Miles made an announcement that would, unfortunately, become part of Harvard Business case study lore. On this fateful Friday, Miles announced that Marlboro would cut their prices a record 20%. The revenue cuts would be offset by a combination of layoffs and SG&A reductions, but company executives still predicted the decrease in pretax profits would be about 40% or $2 billion. The only silver lining is that Miles stated that full efforts would be committed to advertising in order to regain the market share.

The iconic 'Marlboro Man' (source: http://www.tvacres.com/)



                What happened the Monday following the announcement on Wall Street would be unprecedented. First, shares of Philip Morris USA fell 26% followed by significant drops in Marlboro’s competitors. Investor panic that premium brands could not sustain their pricing spread across the consumer products industry as shares of companies like Coca-Cola, Hershey, and even Heinz also fell. All told, on that Monday the Dow fell 68 ½ points. The carnage was widespread. Although there were probably other factors, all fingers seemed to point to Miles announcement as the catalyst for the market decline on a day that would come to be known as ‘Marlboro Friday’.

                Experts at the time thought that this signaled the death of the power of the brand and the birth of the value-minded consumer. Miles would eventually resign as the CEO of Phillip Morris, but his recovery plan would come to pass. In a little more than a year Marlboro would not only recover, but surpass its market share prior to the announcement and its share price would do the same.

                In nearly a decade following ‘Marlboro Friday’ marketers, academics, scholars, and investors have debated what the major take away should be from this incident. While a price war seemed necessary at the time and the desired outcome eventually presented itself, some see it as an act of desperation. In what later became known a ‘Tide Thursday’, Proctor & Gamble remained committed to its brands but not announcing any price decreases in the shadow of declining market share. In fact, P&G actually increased the price on some of its brands. While the value-minded consumer still has influence, the brand is still king of the mountain.

References:

Davidson, D. Kirk, Selling Sin: The Marketing of Socially Unacceptable Products, (Greenwood Publishing: Westport, CT) 1996, 20-21.

Edwards, Jim “Will P&Gs “Tide Thursday” Be The Same As “Marlboro Friday”? CBS Moneywatch May 25, 2009 (accessed February 5, 2012) http://www.cbsnews.com/8301-505123_162-42741647/will-p038gs-tide-thursday-be-the-same-as-pms-marlboro-friday/

Janofsky, Michael, “Tobacco’s Role in Phillip Morris’ Plan” The New York Times November 25, 1993 (accessed February 5, 2012) http://www.nytimes.com/1993/11/25/business/tobacco-s-role-in-philip-morris-plan.html?scp=3&sq=Marlboro%20Friday&st=cse

“Marlboro Friday” Wikipedia (accessed February 5, 2012) http://en.wikipedia.org/wiki/Marlboro_Friday

Interbrand vs. Millward Brown

     This learning journal entry is devoted to gaining an understanding of the methodology behind the two largest global brand consultancy firms, Interbrand and Millward Brown. Both firms publish annual lists revealing their assessment of the world’s most valuable brands. In examining the lists I see some similarities, but I also see some significant differences. For example, on Interbrand’s ‘Best Global Brands 2011’ the brand Google is ranked #4 and is valued at $55,317 billion. Conversely, Millward Brown’s ‘BrandZ Top 100 Most Valuable Global Brands 2011’ has the Google brand ranked #2 with a value of $111,498 billion. The difference between the two is $56,181 billion. That is hardly insignificant. Additionally, the Heinz brand was ranked #49 by Interbrand, but was nowhere to be found on the Millward Brown list. Thus began my small quest to find out how these firms determine brand value.

Interbrand

                Interbrand was founded in 1974 and claims to be the “world’s largest brand consultancy”. With 40 offices in 25 countries the firm’s mission is to both create and manage brand value by “making the brand central to the business’s strategic aims”.

                The Interbrand valuation method contains three key aspects.

Financial Performance

               

                The financial component attempts to uncover the economic profit of a brand, economic profit being defined as the raw financial return that the brand brings to its investors. The formula for economic profit is essentially net operating profit after taxes (NOPAT) less capital used to generate brand revenues. The capital charge rate is set by the Weighted Cost of Capital (WACC). A financial forecast is analyzed for five years to get to a terminal value (or the brand’s expected performance beyond the forecast period).

Role of Brand

               

                Role of brand measures the portion of the decision to purchase that is attributed solely to the brand. In other words, it is the demand for a product or service that exceeds what demand would have been had the product been unbranded. Three methods in gathering information for the role of brand includes primary research, a review of the historical role of the brand, and an expert panel assessment.

Brand Strength

               

                The brand strength component measures the ability of the brand to secure the delivery of expected future earnings. Reported on a 0 to 100 scale (100 being perfect), brand strength is based on an evaluation across dimensions of brand activation relative to other brands in similar industries across the globe.



Interbrand Brand Valuation Methodology source: http://www.interbrand.com/





Interbrand’s hope is that the final value can be used as not only a brand management guide, but also a decision-making tool for management.

Millward Brown

                Founded in 1973, Millward Brown’s mission is to “provide research-based consultancy to help marketers successfully manage their brands, optimize the return on their media and communications’ investments and create value for their business employees and shareholders”. The firm operates 79 offices in 51 countries and publishes the annual ‘BrandZ Global Top 100’. Like Interbrand, Millward Brown has a three component strategy in determining brand value.

Earnings

                The firm conducts financial statement analysis of a corporation’s earnings. From the corporation’s earnings the branded earnings are extracted. Branded earnings are the portion of earnings attributable to the brand. From branded, taxes are removed to get to branded intangible earnings.

Brand Contribution

                This component of the calculation identifies the portion of the branded intangible earnings that are attributable to brand alone (excluding items such as price, distribution, etc.). In the part of the process, the firm attempts to develop an assessment of brand loyalty.

Brand Multiple

               

                The final component is a calculation based on market valuations and brand growth potential.

source: http://www.millwardbrown.com/

 

The critics

                On the surface the methodology appears to be the same and I am not the only one who thinks so. In his Marketing Week article “Brand valuations do not always tell the full story”, Mark Ritson is critical of the brand valuation process. The genesis of the confusion, Ritson explains, is the wide gap between valuations such as those between Interbrand and Millward Brown. Ritson argues that both firms have access to the same data and while Millward Brown hinges on research expertise and Interbrand in the oldest and the one most CEO’s gravitate to the varations shouldn’t be as great as they are. At one point, when will marketers start to question the credibility of brand valuation firms? Ritson paints the following analogy – if a real estate agent comes along and values your home at $500,000 and then several days later another real estate agent values your house at $1,000,000 wouldn’t you be more confused that anything? Ultimately, you might seek other valuation methods or just value the home on your own thinking that will be good enough. These firms have been in business for over 35 years and have credibility, but if they continue to publish lists that are so different at what point will people stop paying attention?

Sources:

www.interbrand.com

www.millwardbrown.com

Ritson, Mark, “Brand valuations do not always tell the full story” MarketingWeek September 29, 2011 (accessed February 3, 2012) http://www.marketingweek.co.uk/sectors/industry/brand-valuations-do-not-always-tell-the-full-story/3030524.article

Ichidai Hiyaku

     Procter & Gamble (P&G) couldn’t label itself a truly global company until it penetrated Japan. The “leap” as it would come to be known was mapped out in the late 60s and was executed in the early 70s. Maybe the company suffered from a little bit of overconfidence. See, by the late 60s, P&G was well embedded in Europe, Latin America, North Africa and the Middle East and doing well. Japan would be another stepping stone on the path to growth, or so executives and management thought.

                Using the tried-and-true formula P&G studied the market to learn customers and sales channels, formed partnerships with local manufacturers to gain and access to local distributors, retailers, and customers, and then they deployed all of their key human and technological capital to get the work done. None of it worked.

                While P&G had the customers and channels figured out, there was one “c” they overlooked – culture. While the cultural aspects of the countries that P&G weren’t far from that in North America, Japan was totally different. Customers had a sense for brand/image and expected great quality from their consumer products. P&G would eventually find success in Japan but it would come after many consecutive years of losses. One of the keys to success was a five step/three-year  plan developed by a team of P&G executives and managers called “The Great Flying Leap” or, in Japanese, Ichidai Hiyaku. The plan focused on aggressive growth while mitigating costs. Prior to the plan, P&G had the former down, but the latter was out of control. The five components of The Great Flying Leap were…

1.       Understand Japanese Consumers

2.       Tailor Products to Japan

3.       Market with Sensitivity to Culture

4.       Sell the Company’s Image

5.       Penetrate the Japanese Distribution System

While all of this might seem logical, to P&G executives and management this was a dramatic change from how things were done in the western cultures that the company had grown accustomed to operating in. The lesson here is that research into a new global market is nothing without developing a pure understanding of culture. Without that understanding, developing a loyal customer base will be difficult, if not impossible.

Adapted from

Dyer, Davis et. al., Rising Tide: Lessons from 165 Years of Brand Building at Procter & Gamble (Harvard Business School Press: Boston) 2004. 211-227.

Service Recovery

     About six years ago I was on a late night flight from Pittsburgh to Hartford for an audit of an insurance company which was to commence early the next day. It was after 11:00 PM when my taxi dropped me off at the hotel. I couldn’t wait to get to my room and collapse in bed to make the most of what was going to be a short night. Alas, when I reached the front desk to check in the receptionist informed me that the hotel was overbooked and that there were no rooms available in spite of my reservation. The look on my face was probably frightening to the young man. After expressing my mild displeasure with the situation, the receptionist turned his back to me, made a couple of phone calls, wrote something down on hotel stationary, pulled some documents out of a drawer, and then turned back to me in the manner a nervous juror might present a guilty verdict. The young man revealed to me that he had found me a room in a nearby four-star hotel (my reservation was at a three-star), agreed to arrange transportation not only to that hotel, but to the client that I was auditing, and presented me with a free voucher for a breakfast buffet and a certificate good for a free nights stay at any of the company’s hotels in the continental United States. Still tired, I was extremely pleased not only at the level to which I didn’t have to yell at someone, but at the expediency to which the young man took action to not only resolve my issue, but compensate for it. I didn’t realize it at the time, but I was the recipient of a service recovery strategy. It was also the best four hour sleep I ever had in what turned out to be a suite with a California king size bed, but I digress.

                Service recovery is defined as “actions that service providers take in response to service defections or failures in service delivery to return aggrieved customers to a state of satisfaction by addressing customers’ problems.” (Back et al., 2007). The customers’ evaluation of the effort to which satisfaction is achieved is grounded in Equity Theory, specifically (1) the quality of the tangible outcomes (e.g., discounts, free meals, credits, etc.), (2) the way in which the rewards are allocated, and (3) the process used in arriving at the resolution.

                If the process used in arriving at the resolution is extremely successful or goes above and beyond the customers’ expectations, the phenomenon known as the service recovery paradox can occur. The service recovery paradox is described as “when service recovery efforts are exceptional, the level of customers’ overall satisfaction rates can be actually higher than those of customers who have not experienced any problem in the transaction” (Back et al., 2007). On the other hand, a poor recovery can lead to a “magnification of negative evaluation”. Chip Bell, author of the book Knock Your Socks Off Service Recovery, states that service recovery works best if “a front line employee apologizes, fixes the problem, and offers something of value before an unhappy customer leaves the premises”. Such was the case with my hotel experience in Connecticut. Service recovery is not a new concept, but service providers seem to be focusing more on such strategies as the battle over customer loyalty is intensifying.

Graphical illustration of the Service Recovery Paradox source: wikipedia.org



Using a convenience sample of 286 casual restaurant customers, Kansas State University and University of Houston researchers wanted to test the merits of the paradox in the context of various levels of recovery. The researchers results indicated that the recovery efforts must be “exceptional” rather than just “good” to achieve a higher customer satisfaction than would have been present had the failure not have occurred in the first place. The researchers invite the reader to view service recovery as an opportunity to repair and build lasting customer relationships in light of the costs to do so. Critics of the service recovery paradox state that if you can achieve even higher satisfaction ratings, why not just fail in the first place? “Too risky”, respond the researchers. First, service providers typically have little or no control over the issue giving rise to the failure. Second, recovery efforts can be costly and third, the researchers reiterate that only “exceptional” efforts achieved higher ratings and such an achievement may not always be realistic or feasible.

Of course, not everyone buys into the idea of service recovery. Author Betsy Kruger criticizes the service industry for allocating too many resources to pacifying disgruntled customers and not placing enough emphasis on rewarding their best customers. Ms. Kruger states, “It’s wrong to reward complainers”. In her book Top Market Strategy: Applying the 80/20 Rule, Ms. Kruger invites service providers to adopt the following three principles:

1.       Identify the top 20% of customers – they are your true profit generators.

2.       Discontinue marketing to the bottom 80% and, when possible, automate all interactions to that group

3.       Allocate some resources to identifying and attracting prospects whose characteristics are similar to that of the top 20% of existing customers.

No matter which position is preferred, service providers need to understand their customers and meet their needs. While 100% satisfaction is always the goal, is it more often than not far from the reality. With this being the case I believe that it is imperative for some recovery strategy to be in place and communicated to front line employees. In the long run, the benefits are likely to outweigh the costs.

Resources:

Back, Ki-Joon, et al., “Mixed Findings on Service Recovery Paradox: An Illustration from an Experimental Study” Kansas State University Department of Hotel, Restaurant, Institution Management & Dietetics: 2007.

Loftstock, John, “CSD: Are Customers Always Right?” Retailwire January 26, 2012 (accessed January 29, 2012), http://www.retailwire.com/discussion/15778/csd-are-customers-always-right

“Service Recovery Paradox” Wikipedia.org (accessed January 29, 2012) http://en.wikipedia.org/wiki/Service_recovery_paradox

Stoller, Gary, “Companies give front line employees more power” USA Today, June 26, 2005 (accessed January 29, 2012), http://www.usatoday.com/money/companies/management/2005-06-26-service-usat_x.htm