A single moment of indiscretion has the potential to ruin a brand. Gerald Ratner, chairman of the jewelry chain Ratner’s, was talking at an industry conference in 1991. During his speech, he revealed his contempt for some of Ratner’s best-selling products. According to various media sources, when asked how his company was able to sell a sherry decanter for £4.95, Ratner said, “Because it’s total crap.” He went on to explain how they could sell a pair of earrings for under a pound: “They’re cheaper than a shrimp sandwich from Marks and Spencer, but probably wouldn’t last as long.” His comments were widely reported in the press. Ratners had been the UK’s largest jewelry chain, but within a few months, it had disappeared from UK high streets. The ‘Ratner effect’ has become a warning to senior company managers. Leaders should only express opinions about their company’s products if they are unambiguously positive.
Although brands can disappear overnight through reputational collapse, as in the example of Ratner, most fade away gradually as their category evolves.
Competitor Advertising
According to Les Binet and Peter Field, brands need their share of advertising spend to be roughly in line with their share of the market in order to maintain their position. If a competitor has deeper pockets and invests much more in advertising than you can afford, your brand may struggle to survive. In these circumstances, the only option is to seek more funding. Your business leaders may need a clear explanation of why your brand is superior and why the long-term gain would be worth the investment.
Competitor Innovation
If your competitors are coming up with innovations you cannot match, your brand will struggle to survive. New brands or strong brands from adjacent categories often represent the biggest threats. Mobile phones were first introduced by Motorola in 1973. Nokia became the market leader in 1998. It was the first brand to introduce games (Snake in 1997) and wireless access to the internet (1999), and was an early adopter of 3G connectivity (2002). Since 2010, however, Apple and Samsung have competed for market dominance thanks to their superior technological advancements. For a brand to compete in a category with rapid innovation, it either needs to secure sufficient investment for research and development or find alternative areas on which to focus.
Category Obsolescence
When Netflix launched in 1998, it competed with Blockbuster by offering high-quality DVDs instead of VHS tapes. It provided a postal subscription service to avoid the expense of having physical stores. By 2001, DVD players had started to take off so Blockbuster launched its own DVD-by-mail service. But Blockbuster still had thousands of physical stores full of movies on VHS. This meant the company’s costs, and hence the prices it needed to charge for rentals, were significantly higher than Netflix’s. In 2007 Netflix launched an online streaming service. Blockbuster didn’t. Within three years, Blockbuster filed for bankruptcy whereas Netflix went on to become one of the world’s biggest brands. The VHS movie rental category became obsolete, replaced temporarily by DVDs and then by streaming. Blockbuster died because it didn’t adapt quickly enough to consumer trends.
Companies with a portfolio of brands can compensate for the loss of revenue from struggling brands by investing profits in brands with more growth potential. Companies with a single brand will need to develop a new business strategy.
Contributed to Branding Strategy Insider by: Dan White, author of The Soft Skills Book, The Smart Marketing Book and The Smart Branding Book
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