Abraham Lincoln talked in parables quite often and one of his favorites was to ask someone, "If you call his tail a leg, how many legs does a dog have?." The answer, of course, is four. Calling a tail a leg doesn't make it one. Same is true with car batteries, it seems.
The folks running Sears have been about three or four steps behind from the get-go on just about everything, including their acquisition of Kmart. Now it seems they have hired a brand management guy from P&G – the Houdinis of the consumer products world – the masters of illusion over substance. The folks who built an empire on the principle that what is in the bottle doesn't matter – it is the image you create through advertising that has the real value – convincing you a tail is leg because they call it one. Only people are onto them.
Sears didn't know the jig was up, however, when they hired a P&G tap dancer by the name of Guenther Trieb "to develop a brand-building factory that grows the business, the brand equity and shareholder value of Craftsman, Kenmore and DieHard." The idea is to have other stores sell products with the Craftsman, Kenmore and Die Hard brand names, and have Sears cash a commission check on every sale because, after all, the value is in the name, and people are going to scoop up this stuff because of the brand name regardless of whether the goods are a better value than the competing stuff or not. The soap peddler said, "We believe this will be the next big thing in corporate America."
That's a hoot.
As even the Tribune reporter figured out. "Just how much money Sears can make by selling products that it doesn't manufacture itself is questionable," she wrote.
Walmart has already laughed them out of Bentonville, and apparently just about everyone else has too. What the boys running Sears didn't think about is that their Die Hard batteries are made by Johnson Controls, and guess who makes Walmart brand batteries: Yep, Johnson Controls. The hole in the brand management strategy is pretty plain to see. Why would anyone want to pay a premium for a Johnson Controls battery just because it says Die Hard on it, enabling Sears to take their brand commission, when they can buy a Johnson Controls batterythat says EverStart (the Walmart brand) without paying a premium to a middle man for nothing but a brand name?
Manufacturers everywhere should take heed. For years the conventional wisdom has been to avoid trashing your brand by private labeling your product. If the Acme Manufacturing Company is out there selling their proprietary Acme Widgets, they would not want to dilute the Acme brand name by manufacturing the same thing for Walmart, enabling them to sell WallyWorld Widgets right next to yours.
China has changed all of that. There are no Chinese brand names to speak of. Chinese factories – whether they are owned by US companies like Johnson Controls – or by Chinese companies more and more make the same thing for just about anyone who wants to buy them. That is the hard lesson so many American companies have learned. You can't get more for your Chinese made product with your hot shot brand on it than the retailer can get by private labeling the same product at a mirror image Chinese plant down the street from yours, or often from the same Chinese plant that is making your product.
The price and the sales of your product are not a function of your brand name – they are a function of the quality, utility and reliability of the product – its value to the consumer. Make a good product and people will buy it at a fair price – and it doesn't matter much whether they buy it under your name or someone else's. That is the lesson Johnson Controls learned – no great shakes at lean manufacturing by the way. But they understand that it doesn't matter whether the battery says Delphi (which they also make), Walmart, or Pep Boys. They are going to sell batteries or not because they are good or not.
If you make a good product and someone wants to buy it and slap their label on it instead of yours – let 'em have at it. the only way it will detract from your own brand is if the price you are charging for your own brand isn't worth it – which is going to catch up with you sooner rather than later anyway. Just ask Guenther over at Sears.
Jim Fernandez says
Good point. Do you think hard economic times can cause people to want to cash in some or all of their long standing reputation?
Seems to me the service (or warranty) provided by the seller plays into the equation as well. It used to be that if I brought a broken Craftsman tool into Sears they gave me a new one, no questions asked. I’m not sure if they still do that. I did not ever question the quality of their tools, because for me the selling point was the warranty.
I’ll bet one of the first things consumers ask when buying car batteries is “what is the warranty”. But I suspect that in your examples here, any old school style Sears warranty is not part of the deal.
Andy Wagner says
How true, how true!
Of course, Craftsman *hand* tools are made by Danaher, and for a non-professional brand, they’re pretty good. I was glad to see them at my local K-mart. ;)
(Now of course, there’s a cheap version of the Craftsman brand, who’s name doesn’t come to mind, that’s made in China and just as worthless as any other dime store brand).
While I want to agree with you, Bill, you can see examples where marketing and brand management can indeed create perceived value and drive higher prices and profits.
Look at something like True Religion jeans, for example. They sell jeans for upwards of $200 (including one pair listed on their website for $319) and pretty ordinary looking t-shirts (ugly, even) for upwards of $50.
The quality is, perhaps, better than the $12 pair of jeans you can buy at Wal-Mart, but there is zero additional utility. Both keep you from being arrested for public indecency equally well. And while the quality may be better than Wal-Mart jeans, it is highly doubtful that they are any better than a $75 pair of Guess or Calvin Klein or Nautica jeans. So marketing and brand management has allowed them to take a pair of jeans that cost twice as much as a Wal-Mart pair to make, and sell it for twenty times as much money.
Obviously the fashion world exists on a different planet (different universe, even!) than car batteries and sandwich bags. But you can see the temptation to try to use brand management to de-commodify your product and drive up perceived value.
Bill Waddell says
Thanks for the comment Dean,
To keep with the Lincoln-quote theme, there is no doubt you can fool some of the people all the time and all the people some of the time, but items such as True Religion jeans are not likely to command that price for very long. As I have written before, we are just about all willing to try something once on the basis of advertising, but if the value is not there, advertising will not make us come back. Fads are similar – people will jump on a bandwagon for a variety of superficial reasons, but by definition a fad will not last long.
I hope whoever is making True Religion jeans rented the building and leased the equipment on a month to month basis.
Jason Morin says
Don’t bother offering a different view point, Dean. The walls are too high and too thick that nothing can pass through.
This used to be blog about Lean. Instead it has become a vitriolic broken record of “this-company-is-full-of-idiots-because”.
We get it.
Paul Todd says
“The next big thing in corporate America”? Consumer brands like RCA, Westinghouse, Schwinn, GE, and others have lived on for years after the associated companies exited the actual business of making the items. They thrived on past innovations and excellence, counting on consumers who didn’t know their GE clock radio had no connection to the company beyond a license fee. In some cases it was the first step to oblivion for once-proud companies.
To be fair it should be noted that sometimes a brand name does serve as a shortcut guide for the consumer to high quality or innovation. Since it costs time and money to research product performance, the brand name is providing value under those circumstances.
The problem is when marketing believes their own hype and forgets that the “brand value” was earned as the summation of quality delivered over many years. Degrade the quality, and eventually the brand equity dissolves (see Maytag for a recent example).
The best description of marketing drinking their own Kool-aid is the phrase Obsessive Branding Disorder. Conley wrote a book called that.
Positioning your brand as a status good like True Religion is a viable business strategy. The type of people that read this blog will mock that strategy because “only function is important,” but if you test two identical purses side-by-side, and one has the name Chanel, people will pay extra for that name. Say what you will, but those are real dollars. Of course, we can write Chanel off as a twenty-plus year fad.
Lean Six Sigma says
It is unclear if your unemployment figure is only CA, or if it is for the entire US, but with values aquired from a CA agency. The real US unemployment is closer 18%.