A new category demands a new brand name.

A new category demands a new brand name.

08/03/2021

By Al and Laura Ries.

In America last year, Tesla had 79 percent of the electric-vehicle market.

That’s an amazing percentage since there were 11 brands
of electric vehicles to choose from: Audi, BMW, Chevrolet, Honda, Hyundai, Kia, Jaguar, Nissan, Porsche, Tesla and Volkswagen.

With 11 brands to choose from, how come Tesla accounted for 79 percent of electric-vehicle purchases last year?

The answer: Tesla is the only brand that says: I own an electric vehicle. The other ten have gasoline brand names.

Apparently, the other ten companies believe names don’t matter. It’s the quality of the product and its durability and price that counts.

As marketing people, we can’t believe that Tesla, a brand manufactured by a company with no previous experience in automobiles, can produce products superior to electric vehicles made by ten major automobile manufacturers.

You might have thought that Tesla’s overwhelming leadership in electric vehicles would have delayed General Motors’ announcement that it was committed to 100 percent electric vehicles by 2035. But it didn’t.

Currently, General Motors has 17 percent of the total domestic market for all type of vehicles. But only 8 percent
of the total market for electric vehicles.

What leads General Motors to believe they can dramatically increase those percentages?

The same belief that almost every manufacturer has.
You increase market share by building better products than
your competitors.

Not necessarily true. Most customers don’t examine every brand in a category and try to pick out the best brand.

Rather they find out which brands are the market leaders and start from there.

Toyota leads in mid-range vehicles.
Hyundai leads in inexpensive vehicles.
Mercedes leads in luxury vehicles.
Ford leads in trucks.
Jeep leads in sport-utility vehicles.
Tesla leads in electric vehicles.

General Motors doesn’t lead in anything so it’s going to be difficult for General Motors to greatly increase market shares.

This has happened before. The Toyota Prius was not the first hybrid vehicle. Honda Civic Hybrid was the first hybrid.

But a Honda Civic Hybrid looked exactly like a Honda Civic while the Toyota Prius looked different than any other brand on the road.

That visual difference made all the difference. In its first ten years, the Toyota Prius outsold the Honda Civic Hybrid more than four to one. (941,201 vehicles for the Prius and
only 223,198 vehicles for the Honda Civic Hybrid.)

A neighbor of mine bought a Honda Civic Hybrid, but
to make sure other people knew he was eco-friendly, he also purchased a specialty license plate that read: HYBRID.

By the year 2016, there were 18 brands of hybrids being marketed in America and the Toyota Prius accounted for 39 percent of all hybrid sales that year.

In marketing, there is a key principle: A new category demands a new brand name. 

Take the personal computer, perhaps the most significant new product of the 20th century. In 1981, the first 16-bit office personal computer was introduced by IBM.

But IBM was a mainframe manufacturer and the personal computer was a totally new category.

A few years later, IBM lost its leadership to new brands like Compaq and Dell. In 23 years, IBM lost $15 billion
in personal computer, finally selling the business in 2005
to Lenovo, a Chinese company, for $1.75 billion.

Not just IBM. But dozens of other high-tech companies also tried to get into the personal computer business with their existing brand names. Atari, AT&T, Burroughs, Dictaphone, Digital Equipment, ITT, Lanier, Mitel, NCR, NEC, Siemens, Sony, Xerox and others.

Today, the two leading personal computer brands in America are Dell and Hewlett-Packard which bought Compaq,
a start-up company, in the year 2000 and changed its name to Hewlett-Packard.

Dell was founded in the year 1984 by Michael Dell,
a 19-year-old student at the University of Texas.

Sixteen years later, in 2001, Dell was the global leader in personal computers with a market share of 13 percent. IBM was in fourth place with a market share of 6 percent.

Consider this fact. None of the dozens of established high-text companies like IBM, Siemens, Sony and Xerox went on to dominate the most-important high-tech product of the 20th century, the personal computer. It took two new start-up companies to do that.

Take Nokia, the largest-selling global cellphone brand
for 14 straight years, from 1998 to 2011. Unfortunately, Apple introduced the iPhone, the first smartphone, in 2007.

So what did Nokia do? They also introduced a smartphone, but did not give it a new brand name. It was just a Nokia.

In 2007, the year the iPhone was introduced, Nokia had revenues of $75.3 billion and profits of $10.6 billion, a profit margin of 14 percent. Five years later, Nokia had revenues of $39.7 billion and $4.1 billion in losses.

Currently, Nokia is worth just $22 billion on the stock market, a brand that was once worth $245 billion.

Compare Walmart and Amazon at the turn of the century. In the year 2000, Walmart had revenues of $193.3 billion and net profits of $6.3 billion, or a net profit margin of 3.3 percent.

That same year, Amazon had revenues of $2.8 billion and losses of $1.4 billion.

That was also the year Walmart decided to launch an Internet site. So what name did Walmart use on its new Internet site? Did Walmart give this question any serious consideration? Probably not.

Walmart owned a massive retail chain with perhaps 95 percent consumer recognition and a memorable slogan, Always low prices. Always.

Walmart had more than 3,000 stores and more than 100 distribution centers. Furthermore, Walmart was 30 times the size of Amazon and profitable while Amazon was small and losing billions of dollars. In competition with Amazon, Walmart had all the advantages

Except one. A unique name.

For Walmart, the Internet was a new category and a new category demands a new brand name. In the years to come, that mistake was going to make a tremendous difference.

In the ten years between 2000 and 2010, Walmart grew at an annual rate of 8.1 percent, while Amazon grew at an annual rate of 28.6 percent, more than three times as much.

It got worse in the ten years between 2010 and 2020. Walmart grew at an annual rate of just 2.2 percent and Amazon grew at an annual rate of 27.4 percent.

What happened to Walmart? The most recent decade should have been favorable to the chain. Internet sales exploded from 6 percent of all sales in 2010 to 21 percent of all sales
in 2020.

But most of Walmart’s 2.2 percent annual gains were caused by inflation not by increased sales. Inflation accounted for 1.8 percent of those 2.2 percent annual sales increase.

In the year 2015, Walmart realized its mistake and bought Jet.com for $3.3 billion. It was too late. What might have worked in the year 2000 wouldn’t work in the year 2015.

Keyboard “Jet.com” and you find yourself on the Walmart.com site.

Walmart opened an Internet site to increase sales. In the retail business this is known as omnichannel commerce, a multichannel approach to sales that focus on providing seamless customer experience whether the client is shopping online from a mobile device, a laptop or in a brick-and-mortar store.

What went wrong with this approach? When you use one name (Walmart) on two different businesses, they fight each other.

There’s a big difference tween an Internet site and a physical retail store. Consumers expect Internet sites to sell products cheaper than retail stores. The drawbacks? You can’t inspect the merchandise and you have to wait days to get delivery.

On the other hand, you can inspect the merchandise in a physical store and take it home with you. The drawback? It’s more expensive.

So how does Walmart.com price its merchandise? If it prices it cheaper than merchandise at its retail stores, it will offend customers of those stores. If Walmart prices merchandise the same at both the stores and its site, it won’t be competitive with Amazon and other Internet sites.

It’s a problem that can’t be solved.

Take Kodak, a brand that dominated the photographic film category for more than 100 years. Kodak even invented the digital camera which ultimately would replace photographic film.

It didn’t matter. Kodak needed a new brand name. In 2012, Kodak went bankrupt.

Take Coca-Cola. In the 1960s, both Coca-Cola and Pepsi-Cola began to worry about the amount of sugar in their drinks. (Almost 10 teaspoons in a 12-oz. can of Coke.)

So both brands introduced diet versions of their drinks.
Tab in the case of Coca-Cola and diet Pepsi in the case of Pepsi-Cola.

Now what diet-cola brand became the market leader? It’s not the brand you think it might be.

It was Tab.

You might think that would have made a deep impression on Coca-Cola management. A new brand (Tab) outsold a line extension of a brand that was 66 years old (diet Pepsi.)

No, it did not. Nineteen years later, in the year 1982, Coca-Cola introduced diet Coca-Cola. That was a major mistake that in the long run would seriously hurt the brand.

The two brands fight each other. Coca-Cola drinkers look at Coke and think, Too many calories. Diet Coke drinkers look at diet Coke and think, It can’t taste as good as regular Coke.

As a result, the per-capita consumption of carbonated soft drinks has been steadily declining for several decades. Recently, the decline has been increasing. Currently it is declining at a rate of 2.7 percent a year.

Coca-Cola company sales have also been declining. In the past eight years, overall sales have declined 31 percent.

What’s the solution to Coca-Cola’s problem? It’s too late to bring back Tab. The best solution is to discontinue the sugar product and focus on the diet product. With one change.

Just change “diet Coke” to “Coca-Cola.” In time, consumers will think, It tastes great and it doesn’t have any calories.

Why do so many companies introduce line extensions that fight each other? Because they are consumer oriented.

Why do all the major airlines in America except Southwest Airlines have both first-class and coach-class service? Because some customers want to fly first class and some customers
want to save money. So the major airlines offer both classes
of service.

The two services fight each other. You can sit in the back and feel cheap or you can sit in the front and feel stupid. Some choice.

It probably wouldn’t surprise you that every major two-class airline in America went bankrupt.

United went bankrupt in 2001.
U.S. Airways went bankrupt in 2002.
Delta went bankrupt in 2005.
American went bankrupt in 2011.

The only major one-class airline, Southwest Airlines, in 50 years of operations has never had an unprofitable year, until the pandemic of 2020.

What are some of the positioning principles that every company should follow?

  1. A new category demands a new brand name. Tesla, for example.
  2. If a new category doesn’t attract enough new brand names, then some existing brands can be successful. Samsung smartphones, for example.
  3. A line-extension will often create a situation where two products hurt each other. Coke and diet Coke, for example.
  4. A brand name has almost no value outside of its category. Xerox, for example.
  5. No brand name lasts forever. Sooner or later,
    it becomes obsolete. Kodak, for example.