The pencil maker vs. the video store: Who is the best fit for this digital age?

The pencil wins! After struggling for years, Blockbuster has officially declared bankruptcy. Meanwhile, Faber-Castell continues to do well, selling over 2 billion pencils last year with a product that's changed little since it was first launched in 1761.

You might have expected a different result. Who needs a pencil in a paperless world? Aren't people still renting movies? But, as it happens, people still need a pencil or two, especially children and especially children in emerging markets. Whereas, it's much more convenient to order movies online or through Netflix than drive to the store and find out that there are no copies left of the movie you wanted.

Both Blockbuster and Faber-Castell followed the same strategy--perfecting their existing business and beating competitors offering the same thing. That's turned out OK for Faber-Castell and horribly for Blockbuster. Sometimes a narrow focus pays off, sometimes it doesn't.

It's easy, after the fact, to identify businesses (newspapers, bookstores, camera film manufacturers etc) that failed to react to disruptive change. More difficult to see it ahead of time and very tough to change direction before it's too late.

Pencil Photo by Pink Sherbet Photography on Flickr

Brand: The early adopter backlash

Wharton marketing professors David Reibstein and John Zhang have been exploring how early adopters react when a product goes mass-market. When is there a backlash? When do early adopters switch to new products and when do they stick with the brand?

It's an interesting question but I was surprised to see that they use Porsche as an example. They say that Porsche sports car sales fell after it entered the SUV mass market with the Cayenne. But Porsche sports cars owners aren't what I think of as early adopters. They are brand loyalists for a luxury, niche product. But let's stick with these guys for a moment and think about how a niche brand like Porsche can go mainstream without losing its mystique.

Zhang talks about the trade-off between leverage and potential backlash. Niche products that go mass market can either leverage their existing brand which risks the loyalty and support of their followers or launch a new brand which will be much more expensive but which preserves the purity of the first brand. Not an easy choice but Zhang says he generally favors leverage over backlash.

Now back to the question I thought they were going to discuss: How does a brand grow into a mass market product without alienating those who were the first to discover and embrace it? How do brands make sure that they avoid the death spiral that comes if their appeal to the mainstream is generated by its early adoption by the cool people who are going to drop it as soon the mainstream catches on? (The fate of many fashion products.)

How about Facebook as an example? The New York Times asks whether, at five, Facebook is growing up too fast. Its growth is incredible. It has doubled in size since last year by adding another100 million people so, perhaps, Facebook doesn't need to worry very much about its early adopters. Yet, every time that Facebook makes a change to its product, its community-minded early adopters are up in arms. There are more than two and a half million dissenters in the group: "Millions against Facebook's New Layout and Terms of Service." Earlier protests forced the company to back down on some of its other initiatives.

A couple of ways that Facebook is trying to manage this early adopter challenge. First, it knows where it's trying to go. Its mission "to be used by everyone in the world to share information seamlessly" helps it look to the future and see past current obstacles. Second, while it gives its users a voice, it doesn't necessarily act on what they say if it doesn't help them move towards that mission. Says Chris Cox, Director of Products: "It's not a democracy. We are here to build an Internet medium for communicating and we think we have enough perspective to do that and be caretakers of that vision."

It's a fine line. Best case, early adopters (eventually) embrace changes and even find value in the brand being more mass market. But often, early adopters will abandon the brand and go in search of the next cool thing to discover. The question then is: Can the brand hold on to the mass market or will it start to lose them as well?

Brûlons les crocs!!! (Deux)

Good news for all you Crocs-haters out there. It looks like the Crocs' goose may be cooked. Its share price has fallen to around $4 a share from a high of $75 and the company has just reported a 95% slide in profits in the last quarter.

Ron Snyder, president and CEO of the shoe manufacturer, said in a statement that despite the company’s financial results: “We continue to be confident about the strength of the Crocs brand and we remain optimistic about the future potential of this business.” Yikes. That bad.

When I wrote about Crocs last September I said: "The challenge for the Crocs management team will be how to handle things once this first wave of growth starts tailing off (as it inevitably will). Can they prevent Crocs becoming a passing fad? Can they look for new growth opportunities without compromising the initial, simple, focused product proposition?"

This is clearly the critical time and the answer, so far, looks like "no." Sales fell 20% vs. last year in the last quarter despite a whole slew of marketing efforts including new TV advertising, beach volleyball sponsorship and new products (high-heeled crocs anyone?). But for some success in overseas markets, things would be even worse.

Is there such a thing as a new company being too successful? Was the initial surge of Crocs sales sowing the inevitable seeds of future demise? Fast growth can be very difficult for small companies to manage their cash flow--perhaps it's just as difficult for them to manage their brands too.

Links:
1) Crocs were the biggest fashion crime of 2007: official! thefashionpolice
2) Make. It. Stop. Newsweek

Even billion dollar brands were babies once

P&G recently announced that Gain (R) had become the 23rd member of its billion dollar brands club. P&G has been increasingly focusing its resources on fewer of its brands, the ones with more growth and profit potential and either selling off or even shutting down those that are low growth, low margin. It's been an effective strategy and one that has helped P&G deliver good financial results.

But not all innovations and market opportunities fit under these 23 brands or even in the larger number of billion dollar hopefuls in the P&G franchise. What to do about those? All large CPG companies struggle with how to nurture and develop new-to-the-world brands. Until they reach about the $100 million mark they are often too fragile to survive the culture and environment of companies that are set up for much bigger things. The sales force doesn't know what to do with them, retail partners don't either. They can't be marketed using programs the companies typically use. There's a lack of patience and a demand for a positive return that doom many a promising idea.

So, it was interesting to read how P&G's has launched its new brand, Align to the world. This is a probiotic dietary supplement designed to aid the digestive system, an entry into a hot but still relatively new and niche category. Rather than try and push this new product through traditional retailers, P&G has sold it for the last two years via the web or phone. Only now that it has traction, has P&G added the likes of Wal-Mart, Walgreens and CVS to the mix.

It's a great idea especially for products like this that are both shelf stable and have a high price point ($33) where the online economics and logistics work out.

The marketer's holy grail

It's easy, as a brand manager, to get so sucked into day-to-day activities that the future is tomorrow morning or Monday first thing after a working weekend. The fog rolls in and you can't see much of anything ahead.

In that kind of environment, it's really important to have a good sense of direction to make sure that getting things done is getting you somewhere. That's where the concept of a holy grail can help. What's the distant, probably impossible goal that would be the ultimate expression of your brand? If there were no budget and technical constraints, where would you take your product? Setting this distant marker gives you a way to stay on course.

The holy grail idea is also a good way to test different brand positioning options. Thinking about the very long term implications of each positioning idea helps emphasize the differences between them, making the selection of the one that's the best fit that much easier.

Stonyfield Farm - classic brand building

I was pleased to see Stonyfield Farm make the top 10 of Landor's 2007 Breakway Brands study.

A few years back I was researching the U.S. yogurt market for a European dairy company that imagined, in a rather stereotypical "the Americans don't know anything about quality food" way, that there might be an opportunity for them in the market. Turned out that the market was already doing quite well without them and that Stonyfield Farm was one of the driving forces.

It's been a classic brick-by-brick brand building story. Starting as an organic farming school, the company originally sold yogurt just to fund the school's programs. Today it's the world's leading organic yogurt maker and although, it's now 85% owned by Danone, still retains its reputation as a category innovator and doer of good deeds, keeping credible its "Healthy food for healthy people and a healthy planet" tagline.

Stonyfield Farm benefited from being in the right place at the right time. Its rise coincided with the rise of Whole Foods so getting distribution there first gave it a safe haven from the major players (as well as reinforcing its "natural" credentials). However, unlike many of the other natural food manufacturers that sprang up around this time, it has succeeded in making the jump into the mainstream grocery market.

As the Landor study confirms, Stonyfield Farm evolution from niche player to power brand continues to move along very nicely.

The beauty of knockoffs

There's an article in this week's New Yorker by James Surowiecki about the fashion industry that makes the case that knockoffs are good for the industry, despite being despised by designers. (I read a review of this article here.)

The argument is that knockoffs don't cannibalize sales of the couture designs since they target a completely separate audience. Knockoffs also help create demand for next year's fashion since they speed up how quickly a new look becomes stale and boring.

This line of thinking is similar to the one I used in an earlier post as I discussed why me-too Private Label products are the friend of branded manufacturers.

Life isn't one big, blue ocean

I love the idea behind Blue Ocean Strategy : that you can make the competition irrelevant by capturing uncontested market space. No argument that companies should always be trying to find such opportunities and that most, caught up in red-ocean battles with competitors doing exactly the same as them, don't find or create the breathing room.

What worries me is the implication that all companies can find blue oceans all the time if they just cared to look. That just doesn't strike me as real world. For most companies, the bulk of their revenues are going to come from red oceans and they can't abandon these markets for quixotic searches for oceans of blue.

A good example of a company that has been able to be blue and red at the same time is Toyota. It's winning in the red ocean and, with the Prius, winning in a blue ocean as well.

Brûlons les crocs !!!!

So popular that entire families are wearing them. So ubiquitous they are spawning "we hate crocs" campaigns (500,000 Google hits on "we hate crocs": this was #1). Love them or hate them, you've just got to be amazed how Crocs have managed to go from an idea originally intended as a slip-resistant boating shoe to an all-purpose, all-conquering phenom.

So, what accounts for the success:
1) Unique design: some say it's ugly but it's also bright, distinctive and simple - the shoes do their own talking
2) Unique features: slip-resistance, easy to put on, incredibly light, waterproof, aerated, comfortable (and, yes, I am a Crocs user)
3) Better than the competition - much better performance than its immediate competitors (flip flops, beach shoes..)
3) Inexpensive
4) Customizable: Thanks to Jibbitz
5) Operational excellence: Managing to handle, seamingly flawlessly, the incredible growth in sales

Not on the list - advertising and promotion. Products such as this that catch a great wave like this don't need any extra help.

The challenge for the Crocs management team will be how to handle things once this first wave of growth starts tailing off (as it inevitably will). Can they prevent Crocs becoming a passing fad? Can they look for new growth opportunities without compromising the initial, simple, focused product proposition?

Already, they have started widening the product portfolio to include all sorts of new products. Are all of these new products Croc-worthy? What are the critical things that make Crocs, Crocs? This product and this one, for example, don't fit what I think of when I think Crocs. A few product missteps won't kill them (unfortunately, if you're a Crocs-hater) but losing sight of who they are and where they are going surely will.