Brands in Crisis: Is PR the Answer (1993)
Charting the future of public relations
Holmes Report

Brands in Crisis: Is PR the Answer (1993)

Brands are in crisis. Brand marketing is in crisis. Advertising is in crisis. For public relations, this represents a major opportunity.

Paul Holmes


Brands are in crisis. Brand marketing is in crisis. Advertising is in crisis. For public relations, this represents a major opportunity.

Four months ago, on a day that will live in infamy on both Wall Street and Madison Avenue Philip Morris lowered the price on one of the best known brand names in American history by 40 cents a pack. On what has come to be known as Marlboro Friday, Philip Morris stock dropped almost 15 points, wiping out $13 billion in market value. Since that day, 25 of the top brand marketers in the country have seen their market value plunge by close to $45 billion.

Brand name marketers—illustrious companies like Sara Lee, Dole, Procter & Gamble, Heinz, Clorox and Gillette—are not used to such harsh treatment at the hands of the financial community. In the '80s, they saw their annual earnings grow 15% or better annually. But those gains came at the consumer's expense, with steadily rising prices and little attempt to improve product quality. In such an environment, it was a relatively simple matter for retailers and other manufacturers to produce generic or store brands (known as private labels) and undercut brand name prices.

As this happened, retailers began demanding ever larger discounts from manufacturers just to keep their brands on the shelves. There was a dramatic shift in the way marketing budgets were allocated: advertising, which accounted for 70% of the total spend in the early '80s, is now only 25% of the average marketing budget, with the bulk of the money going to retailer and consumer promotions.

 Moreover, consumers are now shopping through wholesale "clubs" where they can capture discounts without the hassle of coupons or other promotional items.

"Brand equity is being challenged like never before," says Stephen Liguori, marketing vp at PepsiCo.'s Frito-Lay division. Adds Philip Marineau, president of Quaker Oats: "Consumers have become more price-sensitive than ever before." Says Ronald Sloan, head of Verissimo Research, a California investment firm: "When you are talking price, brand loyalty goes out the window."

To a significant extent, brand marketers have brought these problems upon themselves. Brand managers, looking for a quick fix and quite aware that career advancement was dependent upon short-term performance, switched the focus of their activities from long-term brand building to short-term price promotions, couponing and discounts. But in buying market share, they lost sight of the need to build the brand for the long-term.

Thus it was that earlier this year a Roper Organization survey last year found that only 37% of shoppers felt that some brands in premium cate gories were worth paying more for, compared to 45 % in 1988. Only half said they thought specific brands of mayonnaise were different or better than others and worth paying more for, according to the survey, but 62% said they knew what brand of mayonnaise they wanted before they entered a store, with 22% saying they looked around for the best price on a well-known brand.

That's a pattern that is repeated in many product categories. Most consumers, according to a poll conducted by Yankelovich Partners, "find a brand they like, then resist efforts to get them to change." They may not necessarily believe the brand in question provides significantly better quality or value, yet they remain loyal.

People's past experience with a brand is consistently the most important feature in their future brand choices, according to Roper, followed by price and quality. (Quality was in second place in 1985, but in 1986 price took over, and has been widening its lead over quality ever since.) Recommendations from other people ranks fourth, with other consid­erations including how well-known the brand is, how it ranks in Consumer Reports, the reputation of the company that makes it, and, increasingly, how it impacts the environment.

Last year, in response to these trends, the American Association of Advertising Agencies, the Association of National Advertisers and six media trade association formed the Coalition for Brand Equity, an organization dedicated to emphasize the value of brands. Its chairman, Larry Light, president of a Stamford-based marketing consultancy, recently warned a 4As meeting that brands were taking the wrong approach to low-price competition.

"Market leadership can be bought through bribes," Light said. "But enduring, profitable market leadership must be earned through building both value and volume. You do not build brand value by saying how cheap you are. You do build brand value by reinforcing how special you are."

The question for brand marketers today is how to compete with rivals whose prod­ucts are lower in price and may be close to parity in terms of quality. There are basi­cally only two choices: they too can com­pete on price, or they can compete by adding value to their brands.

The last few years have seen an emphasis on price competition, with the prevalence of promotions, couponing and discounts. The ultimate extrapolation of this strategy, as many marketers now acknowledge, is that nobody makes a profit. There is always someone who can deliver a product a couple of cents more cheaply than you can.

Having said that, pricing is clearly going to be a key element in any short-term mar­keting strategy. In July, Procter & Gamble—the behemoth of brands—announced that it would cut 13,000 jobs, about 12% of its worldwide workforce—and close about 30 factories, the aim being to drive down costs by around $500 million over the next three years and thus give it the flexibility to slash prices to match those of private label com­petitors, the way it did with its 15% dis­count on the price of soap powder announced the same week.

"I think they are saying that pricing is going to be the key compo­nent of marketing," observed Bonita Austin, an analyst at Lehman Bros. At P&G that strategy is known as value pricing, and it rep­resents a natural extrapola­tion of the trend away from advertising towards sales promotion. Now applied to 70% of the company's brands, value pricing takes money out of one-off pro­motions and puts it into everyday low prices.

While the move angered retailers, who were dependent on promo­tions for a good part of their profits, and initially cut into P&G's market share, the company says volume and market share are recovering, and "value pricing" brands are performing significantly better than those still operating under the old system.

Says P&G CEO Ed Artzt: "It would be shortsighted for any company to ignore price brands and private labels, but they are not a new phenomenon, and they are by no means the dawn of a brandless age."

Artzt has underlined that view by making an increased commitment to brand build­ing, although that commitment will largely take the form of increased advertising. Other marketers are beginning to question whether, when it comes to building value into brands, such tradtional approaches will be sufficient.

In order to accurately assess where the future of marketing lies, one of the first questions that needs to be answered is: "What is a brand?" The issue is more complex than it first appears, and is addressed by D'Arcy Masius Benton & Bowles vp and director of strategic planning Sal Randazzo in his recent book Mythmaking on Madison Avenue.

"A brand is both a physical and percep­tual entity," Mandazzo says. "The physical aspect of a brand (its product and packag­ing) can be found sitting on the supermar­ket shelf. It is mostly static and finite. However, the perceptual aspect of a brand exists in psychological space, in the con­sumer's mind. It is dynamic and malleable."

Randazzo argues that the perceptual aspect of a brand consists of the images associated with the brand. The illustration he uses is that of the Marlboro man to create an association between the brand and the great outdoors, the American frontier, rugged individualism and a spirit of free­dom. These associations, as much as any­thing inherent in the product, are essential in leading consumers to choose Marlboro over a competitive brand.

Many in the advertising industry believe that the strength of advertising lies in its ability to create such associations. However, there are questions of whether myth­making has the same value in the cynical '90s as it had in advertising's heyday. Can an industry that specializes in creating illu­sion win the hearts and minds of consumers who believe that illusion is synonymous with dishonesty?

Regis McKenna, president of the Silicon Valley based marketing firm Regis McKenna Inc. and author of last year's Relationship Marketing, recently challenged an attitude he believes is prominent in many managers' thinking about marketing, and advertising in particular: that its purpose is to create a false impression of the company in order to lure the customers into the com­pany's grasp.

"Marketing's job is neither to fool the customer nor to falsify the company's image," he says. "It is to integrate the cus­tomer into the design of the product and to design a systematic process for interaction that will create substance in the relation­ship."

McKenna calls the tradi­tional approach "market­ing-driven" and the new approach "market-driven" and distinguishes between them by suggesting that "marketing driven" compa­nies rely on a bag of mar­keting tricks, while "market driven" companies rely on establishing a dialogue with their customers.

One problem with adver­tising is that it not effective in creating real differences between brands. All soap powder commercials look the same: a little boy plays soccer, gets mud on his jersey, and mom realizes that only XYZ brand can get it clean. All beer com­mercials seem to feature the same cast of bikini-clad women and yuppies trying to look rugged by hiking through the moun­tains or playing volleyball.

In a report to the Advertising Federation Convention three years ago Alex Kroll, chairman and CEO of Young & Rubicam, revealed that only 16% of consumers think television and magazine advertising is useful; fewer than 27% found ads in news­papers useful. And a Roper report reveals that 74% of consumers say advertising encourages unnecessary purchases, 69% say it raises prices, and 69% say it leads people to use products that are bad for them.

The proliferation of products, and of product marketing messages, has created a singular problem for marketers and in par­ticular for the advertising industry that is responsible for most of those messages. U.S. consumers are bombarded with 3,000 marketing messages a day. There has been a dramatic shift to shorter messages, adding to this proliferation: in 1984, just 6% of primetime ads were in the short 15-second format; by 1988 that number was 38%. In the same timeframe the number of prime­time commercials increased by 25%.

The resulting confusion is obvious. Consumers recall fewer ads, and those they do recall they recall imper­fectly. In a survey by Video Storyboard Tests, for example, 40% of those who selected the Energizer bunny series as one of the outstanding ads of the year attributed it to competitor Duracell.

Moreover, as Regis McKenna insists: "As advertising has proliferated and become more obnox­iously insistent, consumers have gotten fed up. The more advertising seeks to intrude, the more people try to shut it out. The underlying reason... is that advertising serves no useful purpose. The new marketing requires a feedback loop. It is this element that is miss­ing from advertising but is built into the dialogue of marketing."

Another is that advertising does not allow for a dialogue between the brand and the consumer: it is insistent, one-way communi­cation. Even within the ad industry, there are those who recognize this failing. Ed McCabe, co-founder of Scali McCabe Sloves, recently told an American Advertising Federation conference that advertising is "a genuinely troubled industry with a questionable future" and suggested: "I think the industry has almost totally abdicated... the notion of making a connection with the consumer."

A third problem, and perhaps the most telling, is that advertising lacks cred­ibility. As consumers grow ever more sophisticated about marketing, more and more are coming to the point of view once expressed by Franklin P. Jones: "Nothing's so apt to undermine your confi­dence in a product as knowing that the commer­cial selling it had been approved by the company that makes it." (Harvard's Theodore Levitt on the other hand, makes what other see as a vice into a virtue. In a recent Harvard Business Review article, he pointed out that advertising was the least harmful form of propaganda "pre­cisely because it is so conspicuously in the service of its source, the sponsor. It is effec­tive... precisely because the sponsor... is visi­bly, eagerly and reliably there to stand behind the product, to give customers the assurance they need to buy in the first place.") Randazzo himself, dis­cussing Miller Genuine Draft advertising and its efforts to associate the beer with a sense of "hipness", acknowledges, "Without the advertising, the con­sumer would probably not associate hipness with drinking Miller Genuine Draft." The important question thus becomes why the consumer should make the association even after seeing the ads, unless there is some reality behind the illusion created by the advertising.

Is there anything intrinsic to Miller Genuine Draft that makes it hip, or more hip than other products in the same cate­gory? Has Miller done anything as a com­pany that suggests hipness? (The answer to both questions, by the way, is no.)

"In forging this association," Randazzo says, "advertising practitioners must choose emotional benefits that are both appropriate and credible." Hipness may be appropriate to Miller, but is it credible?

Says Dave Drobis, president of Ketchum Public Relations: "Consumers of the '60s and '70s largely accepted what they were told in 30-second television commercials: the product either tasted good, looked better or made you look younger. Today, each prod­uct sale can be influenced by such issues as the environ­ment, nutrition, social con­sciousness, politics, govern­ment involvement and local regulations. It takes more than 30 seconds to address all of these issues. Public relations is much more of an educational tool, which makes its role in brand building more critical."

At the very least, observers agree, advertising will need to recognize that its status as the lead discipline in the mar­keting mix is no longer guaranteed. Almost everyone who has an opinion on the future of marketing believes that "integrated mar­keting" is going to be central, although everyone seems to have a different defini­tion of what "integrated marketing" means.

To advertising agencies, it has tradition­ally meant buying public relations, sales promotion and direct marketing firms and then trying to persuade clients to buy all of these services from the same source: an idea popularized as "one-stop shopping." Once so persuaded, the ad agency account team then set the strategy, created the ads and invited the "secondary" disciplines to come up with ways to support the creative.

This approach, while fitting the financial requirements and creative capabilities of the ad agency to a tee, did little for clients, whose view of integrated marketing is that it is a process, not a product, and that the process should be free to come up with whatever solution fits the problem, and then to select the appropriate tools to execute that solution.

"Long-term brand equity and growth in the '90s depends on our ability to success­fully integrate and implement all elements of a marketing program," says Timm Crull, chairman & CEO of Nestle USA. "That means reaching beyond the comfort of typ­ical advertising campaigns in search of the most effective means of reaching any one of our important consumer groups.

"Those agencies who wish to retain and grow their strategic role in their clients' marketing programs must take a few diffi­cult steps. First, expand the broadcast media mindset. Big bucks have historically been in those high-budget TV spots, but that is changing. Second, get closer to your client's marketing, public relations and overall com­munications goals."

Joan Walker, recently named president of Bozell Public Relations in New York, and previously head of marketing communica­tions for NYNEX, says clients' priorities have changed and that advertising must move from being a "modern" discipline to become a "post modern" discipline.

"The essential question is what exactly is the service that is driving the relationship between a client and its outside agencies? Creative continues to get most of the atten­tion, and it is obviously still salient. But NYNEX and many clients are now putting other priorities first: strategic analysis based on research that lays a foundation for effec­tive stakeholder communications; access to the best talent in a wide range of tactical areas, regardless of agency boundaries.

"Our fundamental goal must be to con­nect with our customers. To do that, we must know our customers better than we have in the past. Once we were able to suc­ceed with attention-getting campaigns that were either inventive or sensational. That is no longer enough. Now we confront a post­modern consumer: more sophisticated, more demanding, more knowledgeable."

Walker also warns that the existing ad agency compensation model, the 15% com­mission system, is modern, and will likely be replaced by a post-modern, resource based compensation model, which puts the emphasis on the amount of brain-power and creative talent brought to bear on prob­lem solving rather than on the media buy, and which rewards firms for problem-solving process not for product. Mark Weiss, president of Rowland USA, believes the most impor­tant factor in the success of an integrated marketing program is that it not start with any disciplinary bias. It is important, he says, that each discipline main­tains a strong voice and is able to have input into strategy, rather than allowing one discipline to dominate. "There can be no orphans in integrated marketing," he says.

That's a view shared by Scott Wallace, who recently joined Burson-Marsteller's Chicago office to head up the marketing function there, after a career that spanned sales and marketing positions at Hormel and Coca-Cola and stints in the advertising agency world. Wallace says he believes that public relations, as a process-driven disci­pline, has a natural advantage as integrated marketing becomes reality.

"The true advantage of public relations people is that they are not specialists, in the sense that they are not wedded to one tool to solve client prob­lems. Database marketing people have a specific tool they like to use. Ad people have a specific tool they like to use. PR people use whatever tool is appropri­ate. Advertising is a legiti­mate tool of PR, and so is direct mail. So is the news release."

B-M is not the only major agency attracting talent from the broader marketing sphere to meet this challenge. Hill & Knowlton this month named Hugh Chambers, formerly head of business devel­opment for Young & Rubicam and a vet­eran of Saatchi & Saatchi and Bozell, to head its national marketing practice.

"If you think about it," Chambers says, "traditional advertising is a rather blunt form of seduction and, with the overload of messages bombarding people, consumer interest has broken out. The ability of public relations to generate messages in an editorial environment gives it credibility and thus an edge over advertising."

Credibility is the first advantage that public relations has, and one that is particu­larly relevant to high-cost items. Buying a tube of toothpaste involves rela­tively little risk. Buying a $5,000 computer system or a $15,000 automobile, how­ever, raises many concerns about the reliability of the product, the quality of ser­vice the manufacturer pro­vides, upgrades or value-added features that may become available.

Advertising can do little to ease these fears, because it deals in show rather than substance: it cannot deliver credibility because it cannot supply third-party endorsement. A more intimate medium is needed.

"It is neither news nor oversimplification to state that consumers have a built-in resis­tance to somebody trying to sell them something they are not sure they want," says Tom Harris, a marketing and public relations consultant and associate professor at Northwestern University's Medill School of Journalism.

Public relations is an excellent discipline for overcoming this prejudice, Harris says, because of its ability to deliver third-party endorse­ment, either through the media or through influen­tials: credible experts who may be athletes if your company is selling sneakers; analysts if it is selling finan­cial services; or dog trainers if it is selling pet food.

The other advantage that public relations has is that it is a more personal medium than most others in the marketing mix. This is particularly true when PR works hand-in-hand with database marketing, or direct mail, something Harris expects to see happening more and more frequently in the future.

He cites programs created by Canadian PR firm Langdon Starr that provide cus­tomers of food clients such as McCormick and Pepperidge Farm with regular mailings including newsletters and recipes as part of their membership in a company "club." The mailings also include surveys to ascertain members' attitudes and usage of company products. Several pharmaceutical companies use similar techniques: SmithKline Beecham has a quarterly newsletter called Gut Reactions that is mailed to 200,000 over­the-counter antacid users.

Person-to-person relationships can also be developed using telephone lines, Harris points out. One example is the Butterball Turkey Talkline, created by Edelman Public Relations for Butterball. Last year the line handled 25,000 calls during the peak sales season, with experts on hand to answer questions about turkey preparation. Thus 25,000 customer relationships were strengthened and 25,000 names were added to Butterball's database.

This emphasis on building relationships is extremely important. Terry Varva's best-selling book Aftermarketing is subtitled "How to keep customers for life through relationship marketing" and accuses mar­keters of spending too much time and money targeting new customers and not enough making sure that existing customers are satisfied with both product and service.

"From the customer's perspective, a pur­chase is most likely viewed as initiating a relationship," says Varva. "The customer feels the need for a continued interaction with the selling organization. But this view probably runs directly against the mindset of the selling organization, which may con­sider the sale of its products as culminating its relationship with the customer."

Varva uses as an example Audi, which saw sales plummet in the late '80s after a 60 Minutes segment focusing on problems of "unintended acceleration." Audi produced a $40 video presentation kit introducing its V8 model and sent 250,000 kits to non­-Audi owners, while all but ignoring existing customers, including Varva, who bought a new Audi in 1988 and found it "exception­ally odd" that he received no communica­tion from Audi thanking him for his loyalty.

Since the maintaining of "relationships" is implicit in the words "public relations" this is a natural part of the public relations function. Moreover, public relations has tools at its disposal to build relationships between brands and their consumers that function at a deeper, more personal level than those created by advertising alone.

"The whole idea of relationship building is central to the future of brand marketing," says Rowland's Mark Weiss. "People can only be loyal to a product when they feel they have a relationship. Companies need to build relationships between brands and con­sumers and between the company itself and its publics."

The commitment of brands to causes that have meaning for their consumers forges a bond that can create genuine ownership of an issue. While no soap powder can hope to own the issue of cleanliness—that's a claim everyone in the category makes—a soap powder could conceivably own the issue of domestic violence, or the support of women athletes.

"Research has proven that consumers will support companies and products that give back to organizations and communities," says Tom Gable, president of San Diego PR firm The Gable Group, which pub­lishes a cause marketing newsletter. "Brands are going to be faced with the problem of slashing prices to compete with private label brands or regaining lost consumers by creating added value for their prod­ucts."

One way of adding value, Gable suggests, is by align­ing the brand (or the com­pany behind the brand) with a cause. He points to McDonald's as one company that has practiced this philos­ophy expertly, and with astonishing results. The fast food chain's commitment to its Ronald McDonald houses has outlasted a dozen advertising campaigns and probably made a deeper, longer-lasting impression upon consumers' attitudes towards the com­pany than a hundred ads.

Carol Cone, president of Boston-based PR agency Cone Communications, has taken cause-related marketing one step fur­ther, creating a concept she calls Passion Branding.

"The erosion of brand loyalty can only be halted by an idea that is extremely power­ful," says Cone. "You can't do it by advertis­ing alone, because there is

no real contact with the consumer, no reason for the consumer to care about your brand or your com­pany. But if you can tie your product into some­thing the consumer feels passionately about you can capture him for life."

Cone says that true Passion Branders include entrepreneurial companies such as The Body Shop and Ben & Jerry's as well as mass marketers such as McDonald's and Levi Strauss. They are distinguished by a corporate-wide commit­ment to the cause in question, and an understanding that consumers expect more from companies that make such a commit­ment, but are prepared to give more to those companies also.

"Passion Branding creates a passionate bond between a company and its customers around a shared interest, issue or cause," says Cone. "It is different from cause mar­keting in that cause marketing is transac­tional, while Passion Branding is about rela­tionships. It has to come from the very top of the organization, from the chairman or the president, because brand managers don't have the influence to make it work." The reason so few brand managers are committed to, or even understand, Passion Branding is that "they have an 18 month horizon" says Cone. However, she says Passion Branding can be made more relevant to brand managers by build­ing in a promotional com­ponent, like offering to donate money or services to a cause for each pur­chase made, a more tradi­tional cause marketing approach.

The final advantage of public relations is that it takes a broader perspective than mar­keting, bringing more audiences into the picture. It adds a dimension to integrated marketing by ensuring not only that mar­keting media—advertising, promotion, direct mail—work together, but also that employee and investor relations and public affairs are brought into the mix.

That's important for several reasons. Many of the customer retention ideas sug­gested by Varva in Aftermarketing, for example, are dependent upon the commit­ment of employees to the marketing strat­egy, which means internal communication is vital. Many of the ideas contained in Passion Branding demand a corporate commitment, and are strengthened by strong community rela­tions and public affairs components.

"The great strength of public relations is its understanding of a wide range of audiences," says Shelley Spector, president of New York PR firm Spector Associates. "It goes beyond the consumer to understand all the audiences that impact on the consumer, all the forces that impact on the consumer's environment."

Spector points to the environmental movement as one indication. Consumers choosing between packaged goods products today often take into account the environ­mental records of the companies behind those products, which means that effective, coordinated community relations and public affairs activities are suddenly essential to the well-being of brands.

Burson-Marsteller's Wallace goes beyond this, talking about both upper-case Brands and lower-case brands. The upper-case Brand is the corporation.

"One of the things public relations does well is creating personalities for both corpo­rate and product brands," he says. "But these personalities are dependent upon behavior, not just what the company says about itself. One of the reasons people buy the brand McDonald's is because people like the Brand McDonald's, and what it stands for."

The challenge for public relations people in this environment is to understand the marketing process better than is currently the case. Marketers continue to criticize public relations professionals for their lack of sophistication about selling. They ask how many of the traditional 4Ps—price, product, place and packaging—PR practi­tioners really understand.

Those public relations professionals who can demonstrate that their understanding of the wider marketing environment is pro­found will be in a position not only to par­ticipate in the coming marketing revolution, but to lead it.

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