Take Chrysler, for example. In 2006, Chrysler sales fell 7 percent and the company lost $1.5 billion. Which is why Daimler virtually gave away the company to Cerberus Capital Management.
So what did Cerberus do? They hired a new CEO, Robert Nardelli, to lead the company out of the wilderness.
And what is Robert Nardelli’s expertise? According to most media reports, he’s a cost-cutting manufacturing expert.
They got it, Nardelli said of Chrysler management, which planned to cut 13,000 jobs. If we can do it faster, if we can do it more efficiently, that’s what we want to do.
Faster? More efficiently? Is that what Chrysler’s problem is? Any marketing person knows what Chrysler’s problem is. It’s not a manufacturing problem and it’s not a pricing problem.
Name one reason to buy a Chrysler? I cant, can you? Chrysler’s problem is a branding problem.
Making cheaper Chrysler’s faster is not going to solve the company’s problem. As a matter of fact, Chrysler products, on a comparative basis, are already cheaper than Toyotas, Hondas or Nissans.
From a marketing point of view, most Chrysler brands are a mess. What’s a Chrysler? Is it an inexpensive PT Cruiser or an expensive Chrysler 300?
What’s a Dodge? It’s a cheap, expensive, car or truck.
The one Chrysler brand with a powerful perception is Jeep.
Why do most companies think they need a range of products to market under each of their brand names? When Chrysler bought American Motors years ago, that company also was a mess. The only American Motors brand with a powerful perception was Jeep. (And even then, American Motors thought its Jeep dealers needed to also sell Eagle, a car brand that very few consumers bought.)
After the acquisition, the only American Motors brand that Chrysler kept was Jeep. The rest were parked in history’s garage.
There are two takes to almost every deal you read about in the papers. A management take and a marketing take.
Eleven years ago, when Daimler-Benz bought Chrysler for $36 billion, it was . . . a landmark deal initially hailed as a blueprint for the future of the global auto industry, according to the International Herald Tribune.
What does that sound like to you? To me, it sounds like a typical management take.
The marketing take is just the opposite: A German/American car company selling cheap, expensive vehicles? That doesn’t make sense.
According to our calculations, the $36 billion that Daimler paid for its Chrysler acquisition is now worth just $1.6 billion. Another management disaster.
Very few companies get in trouble because of marketing mistakes. They get in trouble because of management mistakes which management usually blames on marketing.
Management wants to build sales. Since you can sell anything if it’s cheap enough, management’s emphasis is on cost-cutting and manufacturing expertise.
Marketing wants to build brands. Often the best way to build a brand is to make it more expensive than competition. That way you create the perception that your brand must be better. (Examples: Starbucks, Red Bull, Absolut, Grey Goose, Rolex, Lexus, Mercedes-Benz and dozens of other brands.)
A higher price is not necessarily a negative. One definition of a brand is a product or service that consumers will pay more for than an equivalent commodity. (Of course, the world is full of ersatz brands. Brands that are nothing more than commodities with names attached.)
If consumers won’t pay more for your brand than they would for a commodity, then you really don’t have a brand. All you have is a commodity with a name on it.
The early history of Federal Express illustrates the difference between the management approach and the marketing approach. In other words, the difference between competing on pricing and competing on branding.
Early on, Federal Express tried to compete with air-cargo-leader Emery Air Freight by undercutting them on price. Each of Federal Express three services (overnight, two-day and three-day) was priced lower than the comparable Emery service.
It didn’t work. In its first three years, Federal Express lost $29 million.
Then Federal Express switched to a branding approach. It narrowed its focus to overnight delivery and increased its advertising budget five fold. When it absolutely, positively has to be there overnight.
The turnaround was astonishing. Federal Express went on to dominate the overnight-delivery business and became a much larger company than Emery.
The irony in the story is that Federal Express never did give up its two-day and three-day delivery services. These alternatives can still be found on the company’s airbills. Yet from a perception point of view, FedEx is still the overnight delivery service.
Management and marketing are poles apart when it comes to evaluating a company’s strategy.
Management’s first thought is usually to expand the business. At Home Depot, one of Robert Nardelli’s first moves was to spend more than $6 billion to acquire some 25 wholesale suppliers in order to expand its building-supply business.
Marketing’s first thought is usually to narrow the focus. You can’t build a brand if you don’t stand for something in the mind. Often the best way to stand for something is to isolate a single service or attribute you can dominate.
Where would FedEx be today if the company had hired a cost-cutting, manufacturing expert as its chief executive officer?
Probably in the same situation as Chrysler.
Let's lift the velvet curtain. When you absolutely, positively need to build your company’s brand, hire a marketing expert instead.
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