The Land of Lost Brands

Though I often like to riff on smart or silly marketing decisions, I'm more interested in the business strategy behind brands. In considering Dell and Starbucks, I'd have to say that both companies are utterly and somewhat similarly lost. 

Dell

Low-priced beige boxes delivered to your door. By 2006 this simple equation built Dell into one of the most profitable and admired companies in the US, after which its founder retook the leadership reins and put the company on a slow slide to irrelevance:

• The company pushed its way into retail so it could compete with identical-looking computers from other manufacturers (and lose most of its profitability for doing so

• It spent oodles developing inanely clunky products, many of which never even made it to market (or did, sadly...can you say Axim?)

• Putting a red cover on a laptop meant it could compete with Apple on fashion, and lots of ad dollars were wasted failing to make the case for the case

Dell announced late last month that it's going to retreat from expanding any more and focus on finding profits. How does it intend to make more money selling computers? By cutting costs, according to this story in The Wall Street Journal.

Starbucks

Tasty pick-me-up in a home-away-from-home retail setting. By 2008 this proposition had fueled a zillion store openings and the writing of books on why Starbucks was so successful, after which sales started to falter as its inspired chairman returned to lead the company further afield from what once made it great:

• It started debranding some of its stores (assuming faux local coffee shop monikers)

• The company doubled down on the large variety and volume of food and accessories it tries to sell as impulse items at checkout

• One day of retraining its employees at its crowded and noisy stores was intended to offer experiences distinctive from the crowded and noisy experiences available at McDonald’s, Dunkin Donuts, et al

Also last month, Starbucks announced perhaps its grandest strategy: to sell its instant Via in tens of thousands of grocery and other retail locations. How does this improve its stores? It doesn't, or at least isn't supposed to do so according to this story (which appeared a week after Dell's announcement).  

Similarly Lost

I don't know how Dell and Starbucks both got so lost. Perhaps its partially the fault of brilliant founder-leaders who aren't as smart as they think they are, or who are so used to seeing the world the way it should be that they just can't come to terms with the way it is. Maybe the branding gurus have gotten too caught up in their glorious PowerPoints and mistaken a buzz phrase like "brand extension" for a synonym for "business strategy." There's probably a heavy dose of sycophancy going on at both companies, so no adult is saying no to the nonsense.

But these brands have run into walls and don't seem to know it.

The world has changed, for sure, and computers and retail coffee have been all but commodified, leaving Dell and Starbucks with the same choice: get better at what you do, or do something different. Both brands are pursuing the latter. Dell isn't coming up with ways to make its direct delivery system more reliable, beneficial, or valuable to its customers, and Starbucks hasn’t appreciably innovated or improved its in-store experience. 

There's arguably a host of meaningful and unique things both businesses could do to reaffirm and deliver on their core propositions. Low-priced beige boxes delivered to your door. Tasty pick-me-up in a home-away-from-home retail setting. These founding propositions fueled Dell and Starbucks’ successes, both in terms of the financials and branding, and they're still what the companies are best at (and what we consumers expect from them). Only these core strengths are simply no longer applicable, according to what the companies have announced. 

Not even the smartest marketing can make up for this paucity of intelligent strategy. 

Welcome to the Land of Lost Brands.  Am I right, or just dim? Do you have other candidates to recommend?

Comments

[Jonathan]

Simon, you make great suggestions for Starbucks, but I'm still confused as to why it offers an inferior product in the first place (other than because it makes 'sense' on a balance sheet).

[Simon]

Hi Jonathan,
A year and a bit on from your original post, I've commuted into London this morning to find a "pop-up" Starbucks (of sorts) between platforms 1 and 2 of St Pancras Station.

A truely brilliant idea in hitting commuters in need of coffee with a shot of Via as they disembark their trains.

There is a Via stand, as I said a pop-up Starbucks of sorts, but it was hidden to most leaving the platform. Commuters were served by station staff from a roaming tray, the small disposable cups handed out, displaying only the main green logo.

The only way I know I'm drinking Via is sadly the instant coffee taste. Once again I've associated inferior coffee with the main Starbucks brand.

The taste only made sense to fellow commuters when explained - "Its Starbucks' instant coffee" "Oh ok"), but I can imagine that most thought it to be Starbucks main filter coffee offering.

Serving a product at point need is a superb marketing idea, but I imagine that hardly any of this morning's Via tasters have any recognition of of what just drank and therefore no likelihood to purchase.

Walking to the office I thought of two quick wins to retrieve the situation. Firstly give away a sachet of Via, I can use it in work as well. And second at least use the Via sub-brand on the taster cups to create some sort of recogition. After all, there is a Starbucks in the station, which some commuters are no doubt now associating with an instant coffee taste.

Cheers
Simon

[Minter Dial]

TypePad HTML Email

And, over time, it’s a hopeless game if the only growth is via acquisition.  I often marveled at how Harrod’s
managed to stay a uni-store concept.  Now, they are going to open up the valves
with the new Qatar ownership.  I’m sure
the world can manage two Harrod’s.  However, I will be curious to see how Harrod’s handles the second store, how it will adapt its
model, what personnel it will recruit, etc.. 
Will be interesting to see once the dust settles (of course, the store
location is as yet undecided, so we can wait on this one).

In terms of managing expectations, I also
think of the burgeoning challenge for everyday marketers to get forecasting
right.  Things can go very slowly or very
quickly in the new landscape (at least virally speaking).  The challenge of anticipating when one or
other product will take off is a big one (cf Apple).  And there are managing investor expectations.
You have to like the notion of private ownership at times, such as what Hefner
wants to do with Playboy: more leeway and time to experiment with the
experience (3D viewing for example?) and less pressure on near term results.

[Jonathan]

Minter, better late than never, so thank you!

I wonder whether opening new stores isn't THE primary growth tool for most retail brands, regardless of what they might claim to promote regarding experience, innovation, etc. Starbucks isn't alone in its difficulties...here in the States, most every big name retail brand (especially specialty retailers, like Gap, A&F, etc) all pursue the same strategy: launch with a buzz, build new stores as fast as possible so as to exploit the buzz, and then slowly manage the brand decline with evermore frequent sales promotions, filling stores with more garbage (impulse purchases at Starbucks), and letting service falter.

Your observations on high growth and investor expectations are spot on. I wonder if it doesn't HURT brands that they claim to deliver experience, at al, and the investment community expects results from it...when the play is really far more material than that?

[Minter Dial]

Coming to this thread a tad late (must be because I am on French time). The core problem for me is whether a company has the ability to grow organically its existing business because, whatever extensions or acquisitions are undertaken -- presuming they are in line with the company's core passion and competencies -- the company will ultimately need to figure out how to make those businesses grow organically as well.

The cycle of growth is quite predictable if you take a step back. High growth in percentage terms will ineluctably come down. Managing the investor expectations becomes one of the big hurdle as "high growth" investors rotate out and "investment" investors come in to be replaced finally by "blue chippers" (and ultimately become broken up or a regulated utility when market shares are too dominant). Reducing costs is a natural part of the cycle as synergies are found and certain expenses are deemed unnecessary (too often we forget the importance of what we should NOT do).

I have not followed DELL, but have observed Starbucks' rollout in Europe and clearly they have not figured out how to transpose the US success model (when and where it was successful) over here other than to open a slew of new locations. There are still plenty of opportunities to create great Starbucks outlets -- I think that they need, as you say, to reinvent the store experience which is closer to their competency and passion than selling instant coffee.

[Jonathan]

Simon, that's a GREAT idea!

[Jonathan]

I agree. I also wonder if abandoning their core propositions will do any better. They seem to think so. I just can't for the life of me figure out why.

[Simon]

Good points Jonathan,
I've been baffled by Starbucks in the UK, with their recent taste challenge for their new Via product.

Several colleagues and myself tried the challenge at our local Starbucks - Via versus their own filter coffee.

We took the challenge, all passed, all felt that Via is a resonable instant coffee (but knowhere as good as filter) and all came away with a free filter coffee for our troubles.

We left confused and I think the main issue was the location of the taste challenge. Being at a Starbucks, it was as if the new product was in direct competition to Starbucks' core offer.

If Starbucks had set up a "pop-up Starbucks" in the street or supermarket/grocery store (together with comfy sofas etc.), it would been a better setting to launch Via. The feeling created could have been "take Starbucks home with you" - Via could equal a portable Starbucks moment.

Cheers

Simon

[renaissance dresses]

Or rather, I question the completeness of the statement - ok, so they can reaffirm the core proposition - but is that going to make them more money? In particular is it going to make enough more money to satisfy the shareholders? - Good question man.

[Jonathan]

Good observation, and you're right...I didn't address the fundamental question of whether the old strategy had any new life in it. My gut tells me that Starbucks and Dell didn't either. I'm not sure I buy the idea of "saturation points" in brand (or business ) strategy, or the idea that a brand can assume it can effectively tell its consumers to think and do different things. Is there a viable business model for a low-cost direct PC supplier/support system? I'd imagine there is but it would require thinking far beyond the typical machinations of marketers. Ditto for Starbucks...it gets into new businesses because it's unable to think creatively about its existing model.

I guess my point is that there's a paucity of true innovation and creativity when it comes to existing businesses. It's too easy to grasp for new things, even if there's little chance they'll succeed. Shareholders have been taught to applaud such endeavors...until they fail to produce results and then the executive team gets fired.

Thanks for your comment!