One must contemplate the distinction between branding and rebranding. Rebranding is often miscast as an exercise in repairing one’s reputation. Some rebranding efforts focus on mitigating a negative image (such as Philip Morris’s name change to Altria or AIG’s move of their advisory business to Sagepoint). Yet rebranding may also represent subtle changes in positioning, or the recasting of visual identify, such as Starbucks recent move to a more contemporary look.

If you’re thinking about rebranding your company, bear in the mind the following considerations:

Seek out simplification-Today’s rebranding efforts are often a function of providing clarity to the marketplace and removing brand confusion. Citi’s recent rebranding removed a single word (if the word bank is in your name, it may not be a bad idea to remove it). Our cluttered market values simplicity.

Leverage Social Media from the ground up- Within our firm, we recently rebuilt our website, refreshed our brand, and printed new business cards (including a QR code). All of our marketing includes embedded social media components, with the intent of driving traffic to our website where prospects can experience various multimedia tools that are featured online.

Use emotional triggers-Google famous Parisian Love ad (when an American finds love in Paris) is a classic example of using emotional messaging to capture the imagination of your audience. All marketing should utilize emotional triggers.

Enter new markets- Pabst Blue Ribbon, perceived as an also-ran in the U.S. rebranded in China as an ultra-premium American lager (PBR) and is selling for upwards of $44 a bottle (the Chinese may not have everything figured out).

Reshape perceptions about quality-Rebranding should not appear cosmetic or contrived. Harley Davidson’s slide in perceived quality in the 80’s was magnified by stiff competition from Japanese competitors.  The company’s drastic repositioning included a return to its core products and the formation of the Harley Owners Group (HOG’s),  which reestablished Harley a bad boy brand.

Identify unmet needs- Your offer may need to change as the utility of your product or the benefits that differentiate it may shift over time.  Marketers will often use a tag line when they wish to preserve their brand equity, and point out new features or benefits.

Use professionals- Rebranding can back fire when companies draw attention to their marketing.  Many smaller companies try to utilize self service template web sites and similar home grown tools that come off as……home grown. Marketing requires constant investment. Hire people who can assist you with both messaging and technology.

Understand the hard and soft costs- Change can be expensive, given the need to reprint, re-sign, change email addresses, etc. Consider all your hard and soft costs (including management team band) with as you refresh your brand.

Organizations often under appreciate the importance of branding. In this world of hyper-competition, the way you communicate the nuances of your brand are more important than ever.

Google’s behemoth $12.5 Billion acquisition of Motorola’s phone business set a salvo across the bow in technology circles. Google’s largest acquisition raises the stakes in the quest for platform dominance. The trend towards vertical integration is clear, as Coke and Pepsi buy up their bottlers, and manufacturers such as General Motors and Boeing eat up suppliers.

Consider the plight of HP, who has no software dancing partner in the world of mobile computing and announced last week of their exit from the desktop business. Investors penalized the company (who bought competitor Compaq a decade ago) severely, erasing $12 Billion in market value with a matter of days. [i]

And then there is e-textbook publisher Kno, the VC backed darling of Silicon Valley, who recently shelved plans to create a tablet for the education market after realizing that they did not have the chops to compete on a global scale with tablet manufacturers. The company moved towards an App for iPad only to have their margins raided by Apple (who earns a 30% royalty). [ii] While Kno has enormous upside, it is unlikely to realize its vast potential unless it owns or is owned by a distribution partner.

Today’s turf wars are not with a single competitor, but with their entire distribution platforms (as in the case with mobile devices). So the consequences of globalization persist; the large get larger and the small find the right alliance or face considerable competitive disadvantage. Vertical integration provides a recipe for greater control of cycle time and quality and a significant cost advantage. At a time when margins are slimming, companies are looking to participate both up and down stream.

It appears that the swell of distribution channels has made distribution even more important, so those who can find unique methods of delivery are creating a first to market advantage, such as Amazon has with books. As private equity investors look for deal flow, and shrewd entrepreneurs look for bargain basement acquisitions, they should look not only at competition, but for suppliers or customers that present control and cost advantage throughout the entire supply chain.

With so much cash on the sideline, some sectors may be ripe for another round of consolidation. The choice many businesses face today is will they be the consolidator, or the consolidated?

In Outliers, Malcolm Gladwell asserts that one needs to invest 10,000 hours in an activity in order to become an expert. I take solace in knowing that I am evidently both an expert in Strategic Planning, and overcoming the drama induced by teenage daughters.

The rapid escalation of global competition has brought about a new round of hyper-specialization.  The concept of specialization is nothing new; the division of labor has been a key tenant of economics since the birth of capitalism. Yet sites such as Guru or eLance, have propelled specialization to a new art form, where one can access dozens of specialists from around the world in any conceivable competency in a matter of minutes.

Specialties that do not require any special education (other than what is readily available on the internet) such as graphic arts have quickly commoditized. You can hire a graphic artist online for $15 an hour.  In cases where greater technical aptitude is required, specialists still out-earn generalists. The median Internist in the U.S. earns $176K per year, while Cardiologists earn a median of $403K (some make $800K or more). [i] If you had a heart attack, which would you see?

Perhaps the most common strategic blunder I observe within entrepreneurial companies is a penchant for addressing overly broad targets. Marketers, seeking the largest audience cast too wide a net. In their need to satisfy the largest number of prospects, they become de facto generalists. That is, instead of addressing a niche market with specific solutions, they try to satisfy a larger audience with a multitude of products and services. At some point, the value they can provide suffers from diminishing returns.

The more crowded a space, the more difficult it is to differentiate, and the greater the need for expertise. Before its bankruptcy filing, GM attempted to sell within every segment, from sub-compact to Hummer. GM experienced what is often referred to as the peanut butter effect; the wider you spread something, the thinner it gets. GM’s branding was diluted and ability to control quality constrained.

Many small businesses may employ generalists because of their lack of talent depth. To have one IT professional manage a network, build the company website, select an ERP package and fix all the desktops is an archaic paradigm worthy of recalculation.

The reason that specialists are worth more than generalists is that they have a deeper subject matter expertise that drives:[ii]

Quality-Processes replicated over time promote less deviation, less defects and fewer errors.  The specialist thinks deeply about an area of expertise in which they have experience and are less likely to make mistakes.

Speed- Specialists do not need to reinvent things. Cycle times on proposals and product delivery is faster. If a company offers 50 stock products instead of 500, they can manage less inventory and ship items quicker. For every new project outside the boundaries of a company’s expertise there is resource draining learning curve that costs time and money.

Relationships-As the specialist is highly respected, their opinions are sought after by the media and people who want to know them, hire them and refer them to others.

The realities of outsourcing and off-shoring are driven by these phenomena. It is inherently inefficient to participate in activities that are not within a firm’s core competency and do not directly contribute to the bottom line. Thus, the migration of labor (outsourcing) will rise at a fervent rate.

In fact, the entire concept of the corporation, with its multiple functional departments (such as accounting, sales and marketing, design, operations, engineering, manufacturing, etc.) is under some attack. Social norms around what constitutes a working environment are shifting quickly and enabling greater specialization. Collaboration tools make the world of work far more virtual, which will continue to feed the frenzy.

Think about how to specialize as to optimize your revenue, margin and profit.

A federal judge’s recent ruling that elements of the health care bill are unconstitutional has heightened the health care debate.  Republicans, feeling their oats and perceiving a mandate are threatening to repeal the Patient Protection and Affordable Care Act.

It was only after my friend and colleague Dr. Bala Chandrasekhar explained most of the information in this post to me that I first came to understand the fundamental problem.  Our medical community suffers from perverse incentives. The system does not reward results; it rewards the extension of care.

In the world’s best hospitals, such as the Mayo Clinic, physicians collaborate, in a finite space, where information is shared and decisions are made. In the overwhelming majority of cases, patients are shuttled around, from general practitioners, to specialist, and from one laboratory to the next.  Information about the patient’s medical history is rarely shared, an approach that does not support the best medical outcome for patients.

The advent of electronic medical records and new rules governing payments is the impetus to consolidation in a business so unsophisticated, that many medical files and prescriptions are managed with a piece of paper, pen and fax machine.  The institution of medicine needs to undergo radical change, and the prospects of larger organizations managing our care means that the stakes are getting higher.

Unlike professionally managed businesses, there are massive variations in best practices in medical groups.  Physicians hate oversight, and we pay the price in an estimated 100,000 people a year dying in U.S. hospitals from pure negligence (errors).

It is intuitive to all of us that raising medical care costs are unsustainable, yet the numbers are daunting.  The convergence of an aging populace and exponential health care inflation will double Medicare costs within a decade.  By 2020, Medicare and Medicaid are projected to increase from 21% to over 30% of federal spending (non-interest payments), and that doesn’t include massive spending by state and local governments. Proponents argue that we have the best medical care in the world; but at what cost? A knee replacement that costs upward of $40,000 in the U.S., costs $5,000 in Germany. We all want the best health care, but at some point common sense must prevail.

According to the bipartisan congressional report -Restoring America’s Future, “slowing the growth of health spending is realistic. Other advanced countries have substantially lower health spending as a share of GDP, while still achieving measures of access and quality that often exceed those in the United States. Although a uniquely American approach is required, these comparisons show what is achievable.” Health care reform focuses on capping costs for doctors and reforming various forms of insurance coverage (including universal coverage). It does little to reform the underlying behavioral issues that are driving up health care costs.  The fee for service model is dated and irrelevant.

If these costs are not constrained, our fiscal mess will get much worse, and our businesses and personal wealth will be drained by massive tax increases.  Small business owners, who bear the brunt of a bloated health care bureaucracy in the form of inflated health insurance premiums must advocate for more meaningful reforms.  Our economic future depends on it.

When the Internet was first thrust upon us, we didn’t know what to make of it. Nor did we know which of the entrants of the budding new market would win the beauty contest.  Our intuition was that someone (such as AOL, Netscape, Microsoft, Google, and Yahoo) would, and that the technology would be a game changer.

There are times when a technology is bigger than the first-to-market entrant who introduces it to us.  A current case in point is Toyota, a company who has been vilified in light of their massive quality and public relations problems. Yet Toyota has my attention, as they are braced to create disruption.

I recently bought a Lexus hybrid. I didn’t really buy it for environmental reasons, although reducing my carbon footprint was certainly a bonus. I bought it because I wanted all the toys, Lexus service and quality and was intrigued by the concept of 35 miles to the gallon (in a volatile world where the price of oil is at risk).

At its core, strategy is about managing trade-offs, and this technology provides the potential for consumers to gain the most, and give up the least.  I believe hybrid technology will emerge as a breakthrough, cross-over technology adopted by the majority of drivers in the U.S. in the next 5-7 years.  Electric cars are novel, yet inconvenient.  Americans are not going to adapt to sitting at charging stations for 2 hours, nor will they settle for a lack of power.  U.S. oil producers will not support any material shift to hydrogen, or corn, or recycled Twinkies, or whatever.  While the Prius was perceived as small and sluggish, the Lexus (a Toyota brand) is neither, and proves that the underlying technology can appeal to the masses. Toyota is way ahead of the pack in hybrid technology and I believe the day will come when it will provide a significant competitive advantage.

Of course this post is not about hybrids at all, it is about identifying breakthrough technologies that can disrupt an industry. Often, fortunes are made by the purveyor of a technology, as well as others who create alliances or business that can feed off it.

There are entire cottage industries being built to support such technologies, including the myriad of developers creating apps for The App Exchange (SalesForce) and Apple App Store.

Will Apple beat Microsoft in business computing (the answer is already clear in consumer products)?  Will cloud computing completely alter the technology landscape in ways we can’t even comprehend? Which mobile technologies will change the way we work and live?

What changes in health care technologies will revolutionize the way we care for the sick?  What emerging technologies could reshape your industry? What new delivery systems will improve the way your customers do business (or consume products)?  The answer will come based on who can create the best balance of trade-offs and win the beauty contest.

Fighting off Commoditization

The authors of a recent HBR article (How to Stop Customers from Fixating on Price by, Bertini and Wathieu) reached a rather shocking conclusion; “the best tool for getting people to see beyond price may be the price itself”. 

Most executives I run across complain about the bloodletting occurring in almost every industry.  Buyers have become skeptical that there is any distinguishable difference between the vendors who serve them in terms of quality, service and price.

The fastest way to grab the attention of the buyer is to price radically. This requires that you either have a service model that allows you to provide the lowest cost, or one that is dramatically higher. It may be counter-intuitive, but the highest price products attract the most attention.

When comparing like products, we are instantly drawn to the most expensive models (even if we do not intend to buy them) so that we can benchmark why they are better than the others.  In other words, we naturally perceive a higher price product as superior. If you were shopping for a watch and looked at one with diamonds that was $2,000; you would assume it to be a better time piece than one that is $500, even if there was no distinguishable difference in its functionality.

While we always advocate for bundling, the customer must perceive a value in the incremental features in the bundle, or they will not be willing to pay for it. If a provider is in a rush to discount, they desensitize the customer to the very benefits that they are touting.  If your service is priced 20% higher because you only used licensed or certified professionals, and you then provide them at the same cost, you have diluted the perceived value of the certification (which you probably paid handsomely for in the first place).

Perhaps the most innovative pricing response to hyper-competition is to restructure your pricing model so that it is completely alien to the market place. Bertina and Watheiu point out Norwhich Union, a U.K. insurance carrier who charges car insurance premiums by “miles driven” instead of annual premiums, providing a significant point of difference to traditional pricing models.  This is clearly more clever than appliance makers offering one model number at Costco and another at Best Buy as if we are too dumb to tell the difference. To create a new pricing model requires enough differentiation that the customer can distinguish more value in the way that they use the service. Pay as you go is a more efficient application of resources (which is the premise of cloud computing-using only the computer resources and memory you actually need). I am not saying pay as you go is better, I am saying it is different and therefore not comparable.

How can you position your pricing to be completely counter to the marketplace?

Part 2 of a two-part post on pricing strategy

Our last post spoke to the difficulty of sustaining competitive advantage as the low cost leader, a temptation for many in this sluggish economy.   Globalization has opened the market to big box retailers and up starts that can create a virtual offer overnight. Discounting is rampant in almost every industry, and the sluggish economy has reinforced  the  trend towards consumer thrift and a “treasuring hunting” mentality.

Consumers are trading down on some goods so that they can trade up on the luxury goods that they desire. Go into any suburban Walmart, and you will see a representation of Mercedes Benz in the parking lot. Upon boarding a Southwest Airlines flight, the business man in the next seat is apt to be sporting a Rolex watch.  The consumer (as well as the professional buyer) will vary their purchase triggers (quality, service and price), based on the use of the product they are acquiring. Customers find middle priced offers confusing because they are not sure if the product or service stands for quality and service (which they perceive as higher priced) or for value.

Now that the bar has been lowered on many goods and services, it will be hard to raise it again. Consider the plight of U.S restaurant chains.  Earlier this year, Bennigan’s and Steak and Ale skipped Chapter 7 and went straight to liquidation, (because their business was so bad). At around that time, operating margins by  segment were as follows:

• White Table Cloth (Ruth Chris 6%, Morton’s 4%)
• Casual Specialty (Cheesecake Factory 6%, Olive Garden/Red Lobster 9%)
• Casual (Bennigans, Steak and Ale–Chapter 7, Ruby Tuesday’s 5%)
• Fast Casual (Panera 9%, Corner Bakery/Chili’s 6%)
• Fast (McDonald’s 27%,  KFC/Taco Bell/Pizza Hut 12%)

White table cloth restaurants, operating on high margins were able to introduce an occasional special and remain solvent during the downturn.  Themed restaurants such as Olive Garden and Cheesecake Factory eked out a small profit. McDonald’s with its massive scale and zeal for consistency was able to capitalize on its dollar menu and build market share (McDonald’s and Walmart were the only Dow components to increase in value in 2008). The companies in the middle such as TGIF, and Ruby Tuesday struggle because they lack any differentiation and only create marginal economies of scale.

If restaurants are not proof positive that the middle had eroded, consider the department store industry. While Nordstrom’s and Walmart continue to thrive, Montgomery Ward’s and Mervyn’s shuttered their stores. The merger of Sears and Kmart was like two guys who didn’t know how to swim, grabbing for each other in the deep end.  Only differentiated Target is able to price in the middle (Target is priced 5-10% higher than Walmart).

Clearly, the highly differentiated brand that commands higher price points supports higher margins and less risk.  Many are asking, how can a company preserve premium pricing in this economy? Any company can discount, but to cut prices on more lucrative goods only commoditizes a brand.

One approach is to create a separate offering. Ultra luxury brand Coach has developed the “Poppy” line of handbags sold at a lower price point. By marketing a secondary line, Coach can maintain its leadership as a premium brand, while providing the consumer a lower price alternative.  Others are creating Internet offers which different products, case packs and terms (cash).

Marketers must make short term profit decisions within the context of long term brand positioning.  Customers equate higher prices to higher quality and lower prices to…well, lower quality.  A strategic view of pricing dictates that the value of the brand be preserved so that companies can take advantage of the real profit, to be made during the upturn.  While one may feel compelled to cut prices to fend off competition, consider the attributes of the customer you are acquiring…..a price buyer who does not value brands or quality. If you are unable to play on any field but price, it is an indication that more investment is required in creating a differentiated offer and unique bundle of services.