Building Brands Online: A Contrarian View and a Wal-Mat Whopper

I’ve never felt comfortable with specious arguments, pseudo-science and voodoo-thinking that has sought to prove that brands can be built online with the same speed and depth of feeling as occurred in “old” media—or, as I call it, “legacy media.”

I agree that a brand should have roughly the same message wherever consumers touch it: in advertising, through customer-service, on a website or when they meet a brand at an event or in the social media jungle now growing up around Facebook and Twitter. But merely giving the consumer a clean, honest interaction – even if it leads to a sale—isn’t the same as engaging consumers and connecting them to the brand, long-term.

Or at least I’m skeptical of that claim.

Now the Interactive Advertising Bureau and Bain & Co. have combined to produce a report, based on an in-depth survey of 700 brand marketers, that shows most online sales organizations have lacked the “sophistication” to turn perceptions and encounters into real brand building as opposed to direct response transactions or sales.

This must have been a hard report to release for the IAB, which has argued for years that the Web is a premium brand building territory. But Randall Rothenberg, the IAB president and a trusted writer and editor who toiled on the edges of the industry back in the legacy heyday of the ‘80s and ‘90s, said that most brands are missing the opportunity for “engagement” and other interactions that will create long-lasting bonds with consumers.

So this segues nicely into a solid analytical piece from Adweek by Brian Morrissey on how brands have to be more careful in cracking the code to becoming a treasured iPhone App.

“Many brands have tested its waters,” he writes. “[But] brands face an uphill battle getting noticed in the iTunes App Store.” And even when they do, it’s amazing how many of them stumble into the trap that they are creating their own media properties, according to Eric Litman, CEO of Medialets, an iPhone analytics ad platform.

Says Ken Wilner, CEO of Zumodi, brands that hire an outside developer and end up with nothing more than a glorified ad are kidding themselves if they think they have built a meaningful connection with consumers. “There are a lot of snow globes and novelty-type ideas [in the Apps space]. They don’t sustain usage,” says Wilner.

Morrissey singles out Amazon Mobile; Bank of America; Kraft; The North Face; Virgin Atlantic; Volkswagen; and Pizza Hut, as brands which best delivered the critical value of “utility.” MasterCard’s Priceless Picks; Budweiser’s Bud American Ale Finder; Puma’s Puma Index; Burger King’s Burger King Now; and General Motors’s GM Mobile were among the Apps he tags as having missed the real opportunity in this space.

It seems to me a no-brainer what can be done with Apps. If I’m looking to book a flight, some airline should give me easy access to what they charge on that route—and if appropriate, what the competition is charging—and what are the times. That’s utility. But what happens if you’re Coca-Cola? Then I think Coke should help me get involved with some of the great events they sponsor—like the Winter Olympics—or just do something that is obviously fun and, if possible, refreshing in its wit, so at least the brand’s “tone of voice” and core message is maintained.

Footnote: Wal-Mart gets caught in one big fib.

Wal-Mart makes the claim in its advertising (out of The Martin Agency, Richmond, VA.) that the “average family” will save more than $3,000 a year shopping at Wal-Mart.

It turns out, according to a report from “Marketplace” on National Public Radio, this calculation is based on a study by IHS Global Insight. But what it doesn’t say is that the IHS study showed the “average family” would have to spend more than $83,000 a year shopping to achieve such savings. And that a family earning closer to the national average of $51,000 would only save $640 a year.

Furthermore, in making its claim, Wal-Mart is taking advantage of the way it screws down manufacturers to the lowest possible price point, creating a “floor price” that competitors (Target, Home Depot, Amazon, etc.) then have to meet. According to Charles Fishman, author of the book, ‘The Wal-Mart Effect,” “the headline number is technically accurate but misleading.”

Getting Wal-Mart to tell the truth has, historically, been a problem. But the brand is supposed to have mended its evil ways, under the watchful eye of Richard Edelman and his PR gnomes—who for a time, reportedly took in a hefty $10 million fee. Having paid that kind of penalty to rejoin the family of “civilized” brands—it would be a shame if Wal-Mart started getting slimey again. Come on, Wal-Mart, make an honest connection with consumers that stands the test of time.###

Hot off the Compass Points ticker...More on Starbucks, Maurice Levy!

If you’ve reading this blog these updates will make sense to you.

1] Nescafe Fights Back. The instant coffee field may be a $17 billion market, but there are already some established players and they aren’t going to let Starbucks in without a fight.

Nescafe has been spotted in New York setting up tastes tests where Starbucks’ Via is presented in a Starbucks-like cup and Nescafe’s Taster’s Choice in a mug. A poster behind the table reads, “A lot of hype OR a lot of flavor?”

It still seems wacko to me that Starbucks, while giving Via another name and separate packaging, is having its baristas try to hondle Starbucks customers into trying it. Why not just put it on grocery shelves and promote it on its own?

Well anyway now we’re in the middle of an Instant Coffee war. You can be sure this war will soon be extended into advertising and street promotions. That reminds me. Our troops in Iraq and Afghanistan have to drink instant coffee as part of the MRE (meals ready to eat) packages. Who makes it?

Writes blogger rubberbrandman (Chris DiAlfredi):

“The Starbucks board of directors, and the brand decision-makers that answer to them, will happily continue to dismantle everything that was good about the brand. "Via" dumb moves like foraying into instant coffee.

“The sheer magnitude of the Starbucks investors' greed, versus the sanctity of the brand defies logic. These short-term goals and thoughtless brand extensions, like Via, represent a new lesson for what not to do with a successful brand. 



“Howard Schultz is practically a marketing genius, but his biggest mistake was letting Starbucks go public. His second biggest mistake was coming back to his baby after his eight year break. This is really just sad to watch.”

2] Maurice Levy feeling the heat from client procurement officers.

Levy, of course, is not alone. I’ve seen data that up to 75% of the very big (over $200 million) advertisers are using procurement officers, and obviously their job is to keep pressure on agencies to cut their fees. Why? Because to them it’s a commodity business.

Levy is quoted in Media Daily News as saying: “There is huge pressure on procurement. I’ve seen a few heads of procurement in 2009. And they’ve said it is not a job anymore. It’s a mission. I am on a mission. I need to cut by X, Y, Z percent…we are facing serious difficulties.”

But he was happy to report that his “sophisticated” clients are moving their business to Digitas and Razorfish, his two leading digital agencies. “What will happen in the future – which could be very good news for people like us—is that we may come to a solution where we will be paid not on service, but on value and on deliverables. And deiiverables are measureable…which will be highly, highly positive for us.”

Levy said at Razorfish, his newest purchase, it’s seeing a rather pathetic 6% to 8% margin this year. He didn’t give the margin on Digitas, his biggest play. So his optimism here seems to be for the near future. He also said while the two shops might share tools and practices, he planned to keep the brands.

Starbucks: How to Squeeze the Value Out of a Treasured Brand Without Killing It

Starbucks has had its ups and downs over the last couple of years. And now the market seems to be making a rough judgment on the company every day.

That’s the problem with taking a wonderful idea and building it to the point that you can launch an IPO and cash in on the goodwill you created.

But once you bite that IPO apple and allow your company to be publicly traded there are few secrets to be kept as you try to manage the brand over the shoals and storms of the world’s economies.

Starbucks saw amazing growth in the late ‘80s and ‘90s as CEO Howard Schultz built out his retail footprint to 16,000 stores in 50 countries and his revenues to over $10 billion.

It was one of those few iconic super-brands, because Schultz was able to create a category where none existed: The idea that we would pay around $4 for a fresh cup of coffee and steamed milk, and, in many cases, enjoy the special respite Schultz was able to provide customers in comfortable chairs drew customers from Palo Alto, California, to the shadow of the Forbidden City of China.

Then things got sort of wacko. Though Starbucks still called its servers baristas and delivered on taste, the new management ripped out the huge, evocative copper coffee grinders, tightened store space with all kinds of extras—like selling music and coffee accessories-- and gradually kept hiking the cost of its product. Starbucks was served on United Air Lines planes and stores started appearing in airport concourses. Then it was packaged to sit on grocery shelves and you began to wonder what happened to freshness.

Suddenly, when the economy started to tank two years ago, the board fired president/CEO Jim Donald and brought back Schultz who said, he was returning to restore the ”distinctive Starbucks experience.”

Now, even though profit has increased nicely this year to a forecast $150 million for the 4^th quarter, and the stock is up from $11 last November to the present range of $19 to $20, Schultz seemed to have abandoned his commitment to building brand value, as he introduces first an instant variety of his coffee, called Via, and then has begun exploring the horizon for a fast-food partner like McDonalds or Subway.

Schultz defends his decision to enter the $17 billion instant coffee category, saying it was ripe for innovation and Via will set new taste standards. But, according to Business Week, the blog meisters are saying the baristas are finding the pressure to sell Via “intense and unwelcome.”

The current climate is challenging. Quarterly sales have dropped 4 percent to $2.4 billion. Same-store sales have dropped for seven consecutive quarters, but this quarter it will be down only 1% which is an improvement on the 5% in last quarter and a 7% decline a year ago.

Starbucks has been smart about using its cash to buy up other franchises, such as Seattle’s Best Coffee (which is making a deal with Subway and is already in many Border’s book stores in the U.S.). It is exploring entering the energy drink market. And it’s overhauling its daytime menu to include salads and baked goods without high-fructose corn syrup or artificial ingredients.

These are all good moves. If Starbucks is going to offer food why wouldn’t it be healthy, tasty and inviting. (Unfortunately it’s airport sandwich line tastes like cardboard.)

But though such a global brand is durable and elastic to a point, it still needs to be defended—most importantly by Schultz who, because of his special place at the company, can decree things with virtually no pushback from his management team.

If Starbucks was a widget, say an MP3 player or a line of sunglasses, then maybe it wouldn’t matter whether you were pushing your product in a Wal-Mart or a Nordstrom’s. But Starbucks is stuck: It’s both a product and an experience, and it needs a certain kind of retail environment to deliver on that brand promise. It is also facing competition now from Dunkin’ Donuts and McDonalds which have their own line of special coffees – at half the price of a comparable Starbucks cup.

Faced with consumer resistance to splurge for a high-priced coffee break, Starbucks more than ever must defend its premier position, while always exploring ways to innovate and expand, similar to the way Apple has been able to build out its line of computers at a premium price.

“I came back…. because I had an intuitive sense of the equity of the brand and the experience of customers,” says Schultz. But he may still need to hire a brand policeman to keep his tinkering from threatening the core brand.

The “All-Digital Agency All the Time” – Part Two of Compass Points’ Agency of the Future Series.

Maurice Levy is perhaps the most underreported, undervalued person in advertising. In the span of 20 years, he has taken a smallish European network of agencies based in Paris and built it into a colossus.

Publicis Groupe today owns Publicis, Saatchi, Leo Burnett, Fallon, 49% of Bartle Bogle Hegarty, Droga5, Starcom, Mediavest and now the digital giants, Digitas, the largest digital agency in the world, with Razorfish and VivaKi, Denuo and on and on.

But, though we hear all the time from Martin Sorrell of WPP, Michael Roth of Interpublic and occasionally even from press-shy John Wren of Omnicom, the American business press features Levy. When it came time for Business Week to do a cover story on advertising’s current problems, it bypassed Levy for the flamboyant (“Love Notes”), Australian-born CEO of the Saatchi network, Kevin Roberts.

One reason Levy has outdistanced his rivals in terms of turning in solid, quarter-on-quarter revenues and profits, is that he saw the downturn coming 10 or so years ago and began buying up digital assets. Today 25% of Publicis Groupe’s revenues come from digital advertising and media services. Levy saw the future, bet the farm on digital and now is worth a careful hearing.

A week ago MediaPost.com reported that Levy plans to transform Publicis Groupe into an “all-digital agency.” “We have very good numbers for growth in digital,” he said. “And this is something which is offsetting the decrease of some other activities.”

So I’ve been trying to figure out what Levy means by “all-digital agency.” First of all, I wish had he had been challenged on whether he was talking about just letting Digitas and his other digital assets grow and prosper, or whether he was speaking as head of the holding company, and meant that all his properties were going to become “all-digital.”

And then I started thinking about what that phrase would mean—if by it you really wanted to change mission statement of his three big traditional networks, Leo Burnett, Publicis and Saatchi.

Would that mean that these great monoliths would dare to call themselves All Digital—and jettison the layers of people they still have trying to shoehorn their clients into big branding campaigns played out in TV and print and in radio?

Or did he mean that he was going to force them to think of digital first, and come up with digital solutions that then could be applied in appropriate ways to other platforms and other media?

Or is All Digital a new language in branding—so all he was talking about was literacy in this new tongue? Or is it a strategy? Or is it just the natural evolution of where the business is going?

When Business Week in the Kevin Roberts’ cover story noted the drop in revenues at Saatchi and asked Levy what he was going to do about it, he responded that he wasn’t going to do anything about it—that that was Kevin Roberts problem. Quoting Business Week:

[Levy wondered] if a creative agency like Saatchi should continue to manage a client's branding efforts. Perhaps the digital specialists should do it….Levy expresses nothing but affection and admiration for Roberts. But he warns: "It is no longer necessarily the creative agency dictating what's best for the client."

Here I think Levy, visionary that he is, is pulling our leg. Saatchi has a number of major clients—led by global duties on Toyota. Until Toyota is ready to demand an “all digital agency”—I don’t think Roberts is ready to change its spots—nor is Levy about to demand it.

Ah me, sometimes we can see the future so clearly. But we have to wait months or years for what we see in our crystal balls to become reality.

Everyone is changing gears as fast as they can, led by clients who helped Internet advertising grow 37.5% in the second quarter of this year. But when and if Toyota is ready to make its big move, say transforming Prius into a separate division rather than a couple of hybrids, will it rely primarily on digital to make the change?

I think not. I think we are still in the nether world where it’s going to take us 10 years or so to resolve all these issues. Digital may be just a language, which becomes second nature to all of us. But it certainly is not a strategy. The strategy still is to build in consumers a feeling for the brand and a need for the brand. We know, then, that the Prius must act a certain way over time—and respond to consumers wherever they touch the brand, either in an ad, in a call to customer service, in the showroom, or on the Web.

I think where Levy is going is similar to what Bill Gates did at Microsoft, when he told his minions 10 years ago that from now on everything at Microsoft would be built to live on the Internet. Windows 7 still comes in a box. You still can buy it in a store (in fact soon you’re going to be able to buy it in a Microsoft store). But it must be available on the Web, and everything it does must easily move back and forth over the Web to other users. Levy, I think, is trying to take his empire to a similar place and he’s agnostic whether Kevin Roberts leads the charge or Laura Lang, CEO of Digitas Worldwide, leads it.

These are important real-life issues for agency heads, especially right now as they re-engineer their agencies and budgets for 2010. Unfortunately there are no hard answers. So they can either follow Levy, and seek to make major changes now, or take baby steps and let the future take care of itself.

But tens of thousands of jobs and tens of millions of dollars in revenue depend on each agency head making the right call. And All Digital, to me, is an intriguing concept.

What Will It Take to Make Google Eat Slower…or At Least Take Time Out for a Burp?

Google is obviously searching for new revenue sources—and more often than not focusing on the ad world.

It already owns most of the world of search. Microsoft’s Bing is a good play but its inroads into Google’s main ad business is really just a little ant bite in the side of the Giant’s furry mane.

Then with very little fanfare last year something called Google Voice began offering free telephone service. It had sought to dodge regulation by the FCC arguing that it was not a traditional telecom. AT&T, however, complained when it discovered that Google Voice was blocking calls to rural exchanges. But Google said that “net neutrality” rules only applied to Internet service providers, not to companies that created Web-based software apps, such as Google Voice.

But Google will probably be hoisted with its own petard, because on the one hand it says it wants to ensure open broadband networks, and on the other it is blocking rural service connections because rural telcos add high “termination rates” for calls and partner with adult sex chat lines and conference calling centers.

Google has just revealed more of its plan for next year’s launch of an ebook store, Google Editions. This service will make books the million or so books in its database searchable. Publishers will set the price of books and Google will take in its share of profits and share them with retail partners. The thinking is that Google Editions will initially threaten Barnes & Noble.com’s Nook and Amazon.com’s Kindle, but theoretically it could cut them in on the take.

But the more interesting play is whether Google will have success finding some ways of integrating ads into its book downloads—say through in-text ads or some way to cram code into a home page when users sign on for additional downloads. Michael J. Gyulai, of the Transfer Media Group, sees Google having a wide open field. “In the beginning, it will be too difficult to add ads in a manuscript,” he told MediaPost.com, “but I could see a Google Editions home page that analyzes ebooks bought. When you load up the My Google Editions library, I can see ads on that page from the start.”

Google has major competitors now on both the telco and ebook fronts who are beginning to cry foul to the Obama Administration Justice Department.

But so far, even though lawsuits here and in Europe have occasionally reined in Google, no one has forced it to abandon a business it is intent on developing. Getting Google to “play fair” in these new sandboxes will be a major headache.