Showing posts with label branding. Show all posts
Showing posts with label branding. Show all posts

Thursday, February 12, 2015

Borrowing and Branding: Loyalty and Expansion Through Debt

What do borrowing money and creating an established brand have to do with one another?  It turns out, quite a bit.

Here is a simple case study of retail electronics and appliance stores in the United States.

The very first P.C. Richard store opened on September 26, 1909 in Bensonhurst, Brooklyn.  This particular store sold hardware and was run by Peter Christiään Richard, an immigrant from the Netherlands

The first appliance the store sold was an electric iron.  Peter's son, Alfred, would spend all of his time helping his father, as he quit school at the age of fourteen for the sake of the store. 

Within time, A.J. would become the head of the store, and would prove to be highly successful in persuading people to buy appliances. 

As the years progressed, his sons would aid him with the business, as they expanded to a few other locations. To this day, the chain is still run by the Richard family, as A.J. himself would serve as chairman well into his 90's. On December 28, 2004, A.J. Richard died at the age of 95.

Today, P.C. Richard & Son have 57 showrooms in the New York Tri-state area and make more than $1.5B in annual revenue.  It is the largest privately-owned appliance and electronic retailer in the nation.

During the 100+ years that P.C. Richard & Son have been in business, many, many of its competitors have come and gone.  Just a few memorable ones include:
  • The Wiz (founded in 1977, defunct by 2004)
  • Lechmere (founded in 1913, defunct by 1997)
  • CompUSA (founded in 1984, defunct by 2012)

and now...Radio Shack (founded in 1921).

What did each of these defunct (and soon to be defunct) electronics companies do differently than P.C. Richard & Son?  

At least two things stand out:  they apparently never formed a customer base that was truly loyal to their brand, and they took on too much debt to finance unfettered expansion.

Over the decades, P.C. Richard & Son became the "go to" place in New York City for appliances.  The company expanded slowly, buying and building stores over the course of generations, rather than leasing them from commercial landlords.

Such a philosophy of glacial growth over 100 years seems anachronistic today.  In an age where the federal discount rate remains under one percent, banks and investors appear eager and willing to finance companies' expansion plans.

As a result of refusing to accept this type of financing, P.C. Richard & Son does not sell refrigerators in Iowa or toasters in California.  It deliberately chose to stay local and close to its roots.

In contrast, the 94-year old Radio Shack will now shutter 1,100 stores littered across the nation after losing profits quarter after quarter for a decade.

Radio Shack is certainly a more well-known national brand than P.C. Richard & Son, but apparently it does not have a loyal enough customer base to keep it afloat.

And so, the perpetual question that faces every brand is whether their core customer will always return, and whether that perception of brand loyalty ever justifies borrowing tens of millions of dollars to find out.

Wednesday, July 16, 2014

What Can Be Learned from the Meteoric Rise of the Kardashian Brand?

© Glenn Francis,
The story of how a 33-year old Los Angeles socialite with no discernible talents went from relative obscurity to a several hundred million dollar branding empire in the space of less than seven years sounds like fiction.  And it would be hard to believe, if it weren't entirely true.

In 2007, a pornographic amateur sex tape featuring Kimberly (Kim) Kardashian with her then-boyfriend Ray J was "leaked." 

At the time, Kim Kardashian was an unknown socialite in Los Angeles whose sole claim to fame was that her late father Robert Kardashian had helped successfully defend O.J. Simpson against murder charges.

Kim used the newfound spotlight to sign up a "reality show" called "Keeping Up with the Kardashians" commissioned by E! Entertainment network.  The show demonstrated solid ratings, and led to several successful spin-offs.

Within three years of the sex tape's circulation, Kim Kardashian had already begun creating a personal branding success story, venturing into endorsement deals with Carls, Jr. and others.

Additionally, she and her sisters penned an autobiography titled Kardashian Konfidential. The book appeared on the New York Times bestseller's list.  By July 2010, Madame Tussaud's had revealed a wax statute of Kardashian in its New York branch.

In 2011, she was married to basketball player Kris Humphries.  After only 72 days of marriage, the couple announced their divorce.  Kim subsequently married rapper Kanye West.  Both marriages and the divorce received unprecedented media coverage.

By 2014, Kardashian's primary retail product lines included a variety of fragrances.  However, Forbes reports that expectations are that a digital software application is likely to rake in over $200M by the end of this year.  Kim, currently estimated to have a net worth of $45M, is likely to collect at least another $85M in royalties from the application, this year alone.

Kim's younger sisters have followed in their elder sister's footsteps in various ways, and have begun their own claims to fame.

So what can be learned from the meteoric rise and stunning success of the Kardashian branding empire?

First, actually accomplishing something tangible is not necessary to become a household name.  Unlike in the past, where a celebrity was typically an accomplished movie star, artist, athlete, astronaut or politician, Kim Kardashian's greatest claim to fame is just being herself. She holds no advanced degrees, doesn't participate in any professional sports and has no particular artistic talents. The lesson is that American mass market culture values glamour, not performance.

Second, Kardashian is a true master of using the media.  Most people, upon discovering that a sex tape had been leaked, would have cowered in a corner. Instead, Kardashian exploited the opportunity to promote her own self-image, rather than allow it to be tarnished.  Ironically, she ended up settling with Vivid Entertainment, which had commercialized the sex tape, for $5M and ended up posing in Playboy the same year.

Finally, there simply is no shame in blatant celebrity self-promotion. In the past, the prevailing wisdom held that those celebrities who promoted themselves heavily were viewed as greedy and insecure, whereas the truly talented would become famous, in spite of their own humility.

If that was ever sage advice, the Kardashians have certainly taught us that it no longer true.

At last count, Kim had over 22M followers on Twitter, and the same number of followers on Facebook.  Pope Francis has 4M.

Monday, August 26, 2013

Are Cheap Stunts That Invite Negative Attention a Good Form of Branding?

In 1984, newly minted singer Madonna achieved global recognition after the release of her second studio album, Like A Virgin.

It quickly topped the music charts in many countries and became her first number one album.  The title track topped U.S. charts for six consecutive weeks.

The song and music video attracted the attention of conservative organizations who complained that it promoted premarital sex and undermined traditional family values. 

Madonna came under heavy fire when she performed the song at the first MTV Video Music Awards (VMA's) when she appeared on stage atop a giant wedding cake, wearing a wedding dress and white gloves.

Madonna went on, of course, to become one of music's most accomplished and successful business people.  According to Forbes and other publications, "Madonna is a cultural icon, and undoubtedly one of the most successful entertainers of all time."

Nearly three decades later, the MTV VMA's present the same opportunity for stars to form under the intense glare of the public eye.  Last night, former Disney child star Miley Cyrus followed suit, giving a performance that has been widely panned as crude and offensive.

Like Madonna, Cyrus became one of the hottest topics of media discussion following the VMA's, ensuring her relevance for at least some period of time.  Lady Gaga and Nicki Minaj have garnered similar trends after the VMA's, shocking audiences with outrageous public performances that included bloody wheelchairs and satanic imagery.

The recurring branding question that arises:  Are cheap stunts that invite negative public attention a good form of branding?

It has often been repeated that "there is no such thing as bad publicity."

This myth has been addressed by public relations experts, who point out that celebrities whose lives become train wrecks may become famous, but that notoriety can also be short-lived and ultimately could be counterproductive, depending on what the celebrity chooses to do with the sudden notoriety.

According to a Stanford University study, there is actual evidence of this phenomenon.

One factor on whether a brand was helped or hurt by scandal is how familiar a brand or product was in the public's mind before the negative publicity.

Analyzing data that cross-matched book sales against critics’ appraisals, they found that negative reviews of a new book by an established author hurt sales, but for books by relatively unknown authors, negative publicity had the opposite effect, actually increasing sales by ensuring the author's relevance.

In other words, if the public had a strong preconception of an author's talent, that positive impression could be damaged by reading new, negative reviews. However, when an unknown author was deemed worthy of criticism, his perceived relevance made him worthy of further investigation.  Relevance is all that mattered for the new writer.

However, the Stanford researchers also found that sales of Michael Jackson’s records actually rose slightly during periods when the singer was in the news for child molestation or dangling his baby over a balcony, thus suggesting that even negative publicity kept Jackson relevant and in the public's mind, even if his public persona was mired in controversy.

Follow-up studies pointed out that as time passed, the public could not remember the specific negative context in which it heard about someone's behavior, but continued to remember that the person must have been relevant.

Further, Madonna (and others) have been able to forge wider, longer-term influence out of the short-lived relevance.

For example, Howard Stern, who was once public enemy number one for his recurring, flagrant violations of radio broadcasting regulations that became part of FCC lore, later signed on to Sirius XM satellite radio and became a judge on America's Got Talent, earning a whopping salary of $100M per year for his radio show, plus $20M per year from the TV network.

Similarly, Lady Gaga, whose public image was forged from a barrage of controversial public displays, is now regularly placed on lists composed by Forbes, including The World's 100 Most Powerful Women from 2010 to 2013, and was named one of the most influential people in the world by Time magazine.

Other entertainers were not as successful as Howard Stern or Gaga in translating outrage into lasting influence.  Charlie Sheen, for example, has struggled with a lackluster career since his public meltdown, as has Lindsay Lohan.

In conclusion, stars such as Miley Cyrus become (or stay) relevant in the short term for their cheap stunts and antics, but there is no guarantee that their long-term career prospects or influence will improve as a result.  That final outcome apparently depends on what they decide to actually do with their star power.