Success in business doesn’t just show up on the bottom line of the profit-and-loss column; it also goes to the top. Success in business inflates the egos of top management.
Supremely successful companies believe they can do anything. They can launch any product into any market. They can make any merger work. It’s just a question of having the willpower and the resources to throw into the task. What is it that we want to do? is the question that management usually asks itself.
History hasn’t been kind to this type of thinking. Overconfident management has been responsible for most of the marketing disasters of the past decades.
Get the picture? As soon as a company is successful in one area, it tries to move into another. Generally with little or no success.
The problem is usually not the new product or service being offered. Xerox may well have had the best computer product on the market. The problem is in the mind of the prospect. “What does a copier company know about computers?”
In other words, the problem is not a product problem, it’s a perception problem. The most difficult problem in business today is trying to change a perception that exists in the mind of a customer or prospect. Once a perception is strongly held in the mind, it can almost never be changed. (Anybody who has ever been married knows the difficulty of changing a perception in another person’s mind.)
What’s a Cadillac? In the mind of the car buyer, it’s a “big car.” But the market started shifting to smaller cars. So naturally Cadillac tried to sell a small Cadillac called the Catera, with very little success. On the other hand, the Cadillac Escalade, a big SUV, looks like it is going to be an enormous success.
What’s a Volkswagen? In the mind of the car buyer, it’s a “small car.” But its customers now have families. So naturally Volkswagen tried to sell a larger Volkswagen called the Passat, with very little success.
Cadillac couldn’t sell small Cadillacs. And Volkswagen couldn’t sell big Volkswagens.
Once you stand for something in the prospect’s mind, it’s hard to change what you stand for. Volkswagen stands for small. Cadillac stands for big. Can you change these perceptions? (And, furthermore, why would you want to?)
Unlikely. Yet they keep trying. Before the Catera launch, Cadillac tried selling the Cimarron, another smaller Cadillac. Predictably the Cimarron also never got out of the garage.
The folks at Lincoln ought to be laughing at Cadillac’s predicament, but they’re not. They too are busy introducing the new small Lincoln (LS for Lincoln Small, of course).
Meanwhile the three-and-a-half-ton Lincoln Navigator is doing great. When a new product matches the perceptions that already exist in the mind, the new product can be exceedingly successful.
When Volkswagen brought back the Beetle, their original small car, sales exploded. As you might expect, the success of the New Beetle also went to their heads. There’s no reason we can’t sell $60,000 cars with the Volkswagen name on them, said one VW executive recently. Yes, there is. People won’t buy them.
Will the online world be any different than the off-line world? We think not. To be successful on the Internet you still have to do business with human minds. Once you stand for something in a mind, it’s hard to change the perception of what you stand for.
Amazon.com was the first Internet site to sell books and music CDs. The site is a roaring success, with current sales of $3.1 billion annually (albeit with losses in the past year of $567 million).
So what is Amazon.com doing next? You know what they’re doing next. They’re in the process of turning themselves into a “destination site” where customers can find anything they could possibly want.
Wow! What a list. But, hey, if you’re “person of the year,” you ought to be able to do all of these things.
Amazon.com used to use the theme “Earth’s Biggest Bookstore.” No longer. They’ve changed it. The new theme is “Earth’s Biggest Selection.”
Person of the year Jeff Bezos, CEO of Amazon.com, says, “It’s very natural for a customer to wonder, can you really be the best place to buy music, books, and electronics? In the physical world, the answer is almost always no. But on the Internet all the physical constraints go away.” (A sign of the times: The company recently registered “Amazoneverywhere.net as a Website name.)
All the physical constraints may go away on the Internet, but what about the mental constraints? What about the mind of the prospect? What’s an Amazon.com?
If Xerox is copiers, IBM is computers, Cadillac is big cars, and Volkswagen is small cars, then Amazon.com is an Internet bookstore.
If Amazon.com is an Internet bookstore, then how come the site has also been able to successfully sell music CDs? And if they can successfully sell music CDs, why can’t they also sell toys and electronics?
Look around your community at big bookstores like Borders or Waldenbooks. Do they sell toys and electronics? No. But they do sell music CDs. Ergo: The customer associates music CDs with bookstores.
“There’s no reason for Amazon not to sell other merchandise,” said Bill Gates recently. Yes, there is. It’s called “perception,” and it’s a critical attribute of the human mind. Amazon.com means Internet bookstore. Not auctions, gifts, home-improvement products, toys, video games, electronics, software, DVDs, or videotapes.
You see Amazon.com thinking all over the physical world. Blockbuster means video rentals. “There’s no reason for Blockbuster Video not to sell other merchandise,” someone at corporate headquarters probably muttered to themselves a number of years ago. So Blockbuster Music was born.
After years of losses, the company finally faced the music and spun off the division in 1999. The new name: Wherehouse Music.
“You’ll see more Amazon-like cases in which a company that is strong in one online area expands its product offerings,” adds Bill Gates. Sure, you will. Line extension is very popular in corporate America, almost as popular as stock options and corporate jets. Both feed the corporate ego.
What is terribly confusing is the fact that line extension can work . . . in the short term. But almost never in the long term.
This is especially true if you are the first in a new category. When you are the first, when you dominate a new category, you can be successful in the short term taking the line-extension route. You may pay the price later, but you can easily fool yourself into thinking that you are going in the right direction when you broaden your approach.
Take Yahoo!, for example. Incredibly the company’s mission statement is “to be all things to all people” (a phrase reportedly repeated as a mantra by many Yahoo! executives).
Starting as a search engine on the Internet, Yahoo! has now expanded its Website to include the following features: auctions, calendars, chat rooms, classifieds, e-mail, games, maps, news, pager services, people searches, personals, radio, shopping, sports, stock quotes, weather reports, and yellow pages.
To further its goal of being all things to all people, Yahoo! has also spent a small fortune on a raft of acquisitions.
Is Yahoo! successful? (Silly question, the company is worth $11 billion on the stock market.)
Sure, Yahoo! is successful, but the brand had the enormous advantage of being the first search engine on the Internet. As a result, Yahoo! received an inordinate amount of publicity.
Yahoo! became a celebrity brand. In one seventeen-month period, in six thousand different news media, Yahoo! received an astounding forty-five thousand citations, far greater than any other Internet site.
Nothing succeeds like excess. With enough favorable media mentions, Mussolini Merlot might become a popular brand of Italian wine.
But nothing lasts forever. The media will move on to the next hot Internet brand, leaving Yahoo! in the uncomfortable position of having to spend its own money to communicate its identity.
What’s a Yahoo!? Not an easy question to answer when you are “all things to all people.”
Leaders tend to self-destruct when they blow themselves up. When you try to be everything, you end up being nothing.
Apple started as a personal computer hardware company, then moved into software, operating systems, and personal digital assistants. Apple lost its way, its CEO, and almost its entire existence until Steve Jobs retook the reins and refocused Apple on its core business, easy-to-use and “insanely great” personal computers.
But everybody wants to grow, and you can’t blame them. So what should an Internet brand like Amazon.com do? There are five fundamental branding strategies for a leader in any category.
There are more than 22 million dotcom sites registered on the Internet, and you want your site to stand for more than one thing? Amazon.com should stay focused on books and music CDs. After all, the site accounts for just 8 percent of the $25 billion book market in the United States.
The time to think about getting into another business is after you dominate the business you’re already in. Until Amazon.com has at least 25 percent of the book market, it should stick to its knitting. Its short-term strategy should focus on finding ways to increase its 8 percent market share.
Leaders should figure out how to expand their market, knowing that many of the benefits of a larger market will flow to them. What about book clubs, chat rooms with authors, and other book-building activities, including Amazon-sponsored seminars by famous authors?
Sure, the Internet is a worldwide information and communications network already, but Amazon.com’s share of the book market outside the United States is minuscule. (Currently the company sells only 22 percent of its books overseas.)
Amazon.com should make a major effort to reach customers in the rest of the world. As English becomes the business language of the world, the market for books in English should skyrocket.
Why stop at English? Amazon.com should take its Internet expertise into all the major languages of the world.
Thinking often stops at the border. The most successful companies today treat the world as their oyster.
For a leading brand, a 25 percent market share should be a conservative goal. With a quarter of the U.S. book market, Amazon.com would rack up sales of $6.3 billion, enough to put the company on the Fortune 500 list, ahead of such companies as Southwest Airlines, Avon Products, Campbell Soup, Sherwin-Williams, Ryder Systems, Nordstrom, Owens Corning, Black & Decker, and Hershey Foods.
Nothing works in branding as well as market domination. Coca-Cola in cola, Hertz in car rentals, Budweiser in beer, Goodyear in tires, Microsoft in personal computer operating systems, Intel in microprocessors, Cisco in networking equipment, Oracle in database software, Intuit in personal finance software.
Amazon.com has a once-in-a-lifetime opportunity to dominate the book business on a worldwide scale. Why throw away this opportunity in order to chase a dozen other markets, none of which they are likely to dominate?
Still, when the vanity bug bites you, it’s hard to resist. “We can get into these other markets. We have the products, we have the people, we have the systems, we have the momentum, and we have the esprit de corps. Why not?”
Why not? You may have everything going for you, including the products, the people, and the systems, but you lack one thing. You lack the perception.
The issue in branding, Internet or otherwise, always boils down to the same thing: product versus perception.
Many managers believe it’s only necessary to deliver a better product or service to win. But brands like Coca-Cola, Hertz, Budweiser, and Goodyear are strong not because they have the best product or service (although they might have) but because they are market leaders that dominate their categories.
Which scenario seems more likely, A or B?
Scenario A: The company creates a better product or service and consequently achieves market leadership.
Scenario B: The company achieves market leadership (usually by being first in a new category) and then subsequently achieves the perception of having the better product or service.
Logic suggests Scenario A, but history is overwhelmingly on the side of Scenario B. Leadership first, perception second.
AltaVista bills itself as “the most powerful and useful guide to the Net.” We have no reason to doubt their claim. But is this enough to enable AltaVista to wrestle the portal leadership away from Yahoo!? Not in our opinion.
Leadership first, perception second. To try to reverse this sequence is almost impossible.
What if you do everything right? What if you are the first in a new category and subsequently go on to dominate that category domestically? Then you should try to expand the market in the U.S. at the same time that you take your brand to the global market.
Coca-Cola did all of these things. But what’s next? Are there no second acts in branding history?
Most assuredly there are. A company can do two things at once (keep a narrow focus and expand its business) by the simple strategy of launching a second, or even a third and fourth, brand.
America Online is using the same multiple-brand strategy on the Internet. AOL is its premium brand for which subscribers pay $23.90 a month. The service includes nineteen separate topic channels, fifteen thousand chat rooms, and ICQ, a popular instant messaging capability. CompuServe is the company’s value brand. It’s a good deal. For $19.95 a month, CompuServe gives you everything AOL gives you except for the AOL e-mail address.
Instead of launching second brands, however, most companies take the vanity route instead. “What’s wrong with our name? We’re famous. Why do we need a second brand? We can use our own name on that line extension.”
Some companies that practice line extension seem to be successful, at least in the short term. Microsoft is a good example.
After dominating the personal computer operating system business, Microsoft has gone into a raft of different businesses, all under the Microsoft name. “If Microsoft can do it, why can’t we?” is a constant refrain of our consulting clients.
Our answer: You’re not Microsoft. When you have 95 percent of a market, when you are worth $332 billion on the stock market, you are extremely powerful. You can do almost anything and still appear to be successful.
Leadership changes the rules of the game. Try telling your spouse, “If Bill Clinton can do it, why can’t I?”
Most CEOs are not Bill Clinton either. They are not the former leader of the most powerful country in the world. They have to follow ordinary rules.
Leaders, especially dominant leaders like Microsoft, can break all the laws and still stay on top . . . for now.
Look again at Yahoo!, a company that is following the Microsoft game plan. Former CEO Timothy Koogle said: “In online commerce and shopping you can expect to see us extend aggressively by broadening and deepening the range of consumer buying, transaction, and fulfillment services we provide across all major categories.” (Maybe this is one reason that Koogle is gone.)
Don’t be too critical of Yahoo!’s behavior. You only live once. Being young and rich and foolish is a lot more fun than being old and wise.
Many sites are going in the same direction, but without Yahoo!’s powerful brand-name recognition. They include Buy.com, Shopping.com, Shopnow.com, and a host of other copycat sites. “Anything you want to buy, we can get it for you at a discount.”
What does a site like BuyItNow.com sell? Jewelry, consumer electronics, toys, kitchen equipment, home decorating products, sporting goods, tools, pet supplies, garden supplies, gifts, luxury items. “You name it, we’ve got it.”(It should come as no surprise that BuyItNow.com is no longer with us.)
Snap.com goes one step further. Not only can you buy everything by visiting the Snap site, but you can buy it from any store. “Any product. Any store. Any time. Snap shopping” is the theme. Vanity is working overtime at Snap.com.
As Internet fever cools down, as the Internet becomes just one of the places you can go to buy things, those generic sites that sell everything to everybody are unlikely to be with us. Yahoo!, on the other hand, is in no danger because it has a powerful, dominant position in the portal category. As does Amazon.com in the books and music category.
A question remains for leader brands like Yahoo! and Amazon.com. Would these companies have been better off with a multiple-brand strategy rather than a line-extension strategy?
We think so. But it is getting harder and harder to find leaders that want to introduce second brands.