Is a Hyundai Really Comparable to a BMW or Mercedes?

Hyundai has a new car that many analysts believe is equal to BMW, Mercedes and Lexus. It is a real tribute to Hyundai that they have been able to develop such a high quality car.

Hyundai has bought KIA, its Korean rival and seems intent on making KIA the low-price car and Hyundai the higher priced car. Problem is, Hyundai has earned a reputation as a low priced, decent quality car. They have been on the market long enough that this reputation has become crystalized in people's minds. In fact, Hyundai owned the low price-quality category.

To take a car from that category and now convince us that it should be considered a highly differentiated, high price car is a big stretch. Toyota faced this challenge and decided to create Lexus since the Toyota brand could not stretch enough to be considered in the high priced, luxury category. Honda created the Acura and Nissan created the Infiniti for that same reason. Audi, BMW, Mercedes have all expanded their lines downward.

Hyundai is taking a real gamble by trying to stretch so far. It would be far better, in my opinion, for them to create a new brand for the luxury market. However, if they are taking a long-term view (up to 5-years) perhaps they are content to slowly reposition themselves. It seems to be an expensive proposition that could be leap-froged by creating a new brand to go along with the new, highly refined car they have developed.

GM, Ford, Chrysler, Toyota, Oh My!!

GM announced this week that they were paying back the government's load early. It almost sounded like they have made so much money lately that they have enough cash on hand to give back the money. Problem is, this was just a major public relations stunt by the company. The money given back is our money that was never used. It was kept in reserves. One has to wonder whether or not GM really was that desperate for money or that they did not know how to operate without the money for all the luxuries they were used to in their executive suit. I still think this is a loser company with limited brand value and no credibility. Their recent move to try to scam the public proves it. Senator Durbin even said that this was tantamount to a shell game. GM claims to be making a profit, which is likely is. They have cut so much cost from their system that any sales now will add profits.

Ford, on the other hand, seems to be doing well. Their sales are up in real terms and they are gaining market share--not just getting back what they had. Ford took a gamble several years ago to move toward environmentally friendly cars. William Ford was the CEO at the time and the board actually threatened him to back off the "environmental nonsense". Detroit has never really understood or appreciated more environmentally friendly cars. They always seem to serve the market and never try to lead or hit the leading edge of change--they have left that to the Japanese and Germans.

Ford has well designed cars, they are operating efficiently and they are also the only US car company that did not take government money, which I believe has endeared them to many consumers.

Chrysler is done--stick a fork in it. This is a company with no focus, no brand value and no strategy. They are sucking up cash and losing market share while the other companies have their best months in years. When you loose 8% share while others are increasing sales by 15-18% in a given month, something is very wrong. Say goodbye to our loan. Chrysler will be a footnote in history, alongside Studabaker, DeSota, and other companies that have failed in the past.

Toyota is having great sales, thanks to 0% interest for 5-years. They have to move 2010 inventory and also stimulate the 2011 sales since inventory has started piling up on the dealer lots. Some people have joked that we now know what it takes to convince someone to drive a "death trap". I don't see it that way. The sales incentives were expected, given the situation and the need to clear inventory. I think what we are seeing is deep loyalty and belief in Toyota. The company has lead for so long in price-quality that it has build some inertia in its brand. If there are new problems in new cars being bought, then we will see real brand erosion and long-term problems for the company

Phillies Prove that CEOs are Not Overpaid

This past week, the Philadelphia Phillies baseball team rewarded Ryan Howard with a new contract worth $25 million per year. That's right, $25 million a year to play baseball. Whether they wanted to or not, the Phillies proved that corporate CEOs are not overpaid. Perhaps, if judged by sports salaries, they are actually underpaid.

I recently wrote about the ridiculousness of so-called "Main Street" hysteria over CEO salaries when newly minted football players make CEOs look like low-paid hourly workers. Now, we have another example in Ryan Howard.

Now, don't get me wrong. I am a Phillies fan. I love Ryan Howard, but I do not believe in my wildest dreams that he is worth $25 million. Also, to bring everyone into the world of baseball, let's understand that a year ago--just one year ago, Howard was making $10 million and asking for $14 million, which he got. Now, a year later he gets a $10 million raise. If this were a story about a CEO there would likely be public outcry and a Senate hearing. But, fans pat each other on the back and thank the Phillies for signing Howard for life.

If Ryan Howard is worth $25 million, what are people like Albert Pujols of St. Louis worth? What is Derek Jeter worth? Name any future Hall of Famer. This is ridiculous and just proves that we have lost our collective minds in this country.

To all the fans out there who applaud baseball executives paying this high salaries, I ask you to promise me that you will never, ever complain again about the high salaries of top executives who actually attempt to create real value for society.

Is US Airways Trying to Ape Southwest Airlines' Style?

I recently flew two US Airways flight segments, two/from Philadelphia to Ft. Lauderdale, Florida. On both of them, the flight attendants and the pilot tried to be humorous, almost in what might be called "Southwest Airlines" style? I wonder if this is a new trend?

As those who fly Southwest know, the pilot and flight attendants often crack jokes and try to maintain a "light air" (no pun intended) on the flights. It is all supposed to make the customers enjoy the flight a bit more. It has been an unusual style, juxtaposed against the normal from the major airlines where flight attendants hardly smile or look as if they are enjoying themselves.

If US Airways is trying to lighten things up, I applaud them. They could be learning that part of the Southwest appeal is fairly free--smile and enjoy oneself and maybe it will start to become a bit more enjoyable for the passenger who is trapped in a small box at 30,000 feet.

I am not sure that my experience is a real sign of change or an anomaly. While it involved two different flight crews, it might not be a pattern. However, I would urge US Airways to try to move this throughout their system. Southwest has taken a low cost strategy into a high priced market. But rather than just maintaining the low cost approach, they added in other changes to really provide points of differentiation against the major carriers. Most of the low cost airlines in the world keep their fees low but charge for bags. Not Southwest. Most low cost airlines feel like they are low cost--the equivalent of a flying Costco (everything almost seems to be on pallets). Southwest has offered a different approach. Cut costs to lower fares, but also offer value--no baggage fees, drinks and snacks (remember snacks on the major airlines? The airlines actually once gave us peanuts and for free!!). But, Southwest really offered differentiation when it made us feel as if they were happy to have us on board and that they were happy to be working for us. This was such a radical change that it actually became a differentiator.

USAirways is stuck. It has a high cost structure that is difficult to change, unless they chose to "blow up" the airline and start over. They have union contracts and hubs and lots of different types of planes--all of the things that Southwest does not have to live with. These things add costs and inefficiencies, while Southwest flies only one type of plane and has much less stringent contracts.

What I am hoping is that the people at US Airways decided that they could be different from the other major airlines and more like Southwest in areas in which they still had control--like smiling and being customer oriented. If that is happening, I am delighted. I live in Philadelphia, and while I can fly Southwest, it is hard to avoid US Airways. If they are changing, I say thank you. If this was an anomaly, I ask them to consider extending these "experiments" to all of their flights. If they were spontaneous expressions by the crews on those flights, then find those people and get them involved in helping others at the airline to change. They have something positive brewing. While they may not beat Southwest, they can carve out clear differentiation from United, Delta, American, and all the other large, impersonal carriers.

The More We Hear About Goldman, the Worse it Sounds

We now are seeing e-mails from Goldman Sachs executives in which they bragged about their smarts in shorting the housing market--the same market they and their colleagues on Wall Street helped fuel with their financial incentives.

Is there any wonder that people are worried about a "double dip" in the current economic recovery? Does anyone doubt that there are some investors trying to drive down the economic recovery so that they can make money?

One really has to wonder about the moral compass of most of the financial market executives. If all they are concerned about is making money, we are all in trouble. These are money managers. They have not made anything of tangible value for society. They have not bettered our lives in any way. They simply manage money--actually paper. They have no connection in their minds between that paper and a real person who is impacted by their decisions. It is all about bragging rights, the next yacht, the next house in the Hamptons.

This is an industry operating by a set of values and morals that are separate from the rest of the society. We should stop coupling Wall Street with the rest of corporate America. People often talk about the "sharks" in the business world. Most companies are not comprised of sharks, but rather large wales. Wall Street contains some sharks, but we have seen that they can be worse. Some can be can pyranha. They will attack and eat anything they see. They seem motivated only by their own hunger for more and not by any sense of contribution to the larger society.

CEOs Take Heat on Salaries While Athletes Are Applauded

The NFL is having it college draft this week. It is interesting that while the public seems overly focused on CEO pay, the amount of money paid to 22-year old college kids seems to keep escalating with no qualms.

The Wall Street Journal did a ranking this week of the salaries of the top draft picks compared to the top salaries of CEOs. Ray Irani of Occidental Petroleum leads all in take home pay at $52 million, including salary, bonuses and stock options. However, after Irani, the next highest paid CEO, Bob Iger of Disney, is paid less than the top 8 draft picks. That's right. Iger, who runs a global enterprise with thousands of employees makes less than 8 college kids whose primary skill is their ability to play football. They have never been in the pros, no one is absolutely certain how they will do, but the money is paid nonetheless. Interestingly as well, only one banking CEO appears on the top 20 list (John Stumpf of Wells Fargo) and he falls in at number 20 overall and well behind the 10 top draft picks.

There seems to be so much concern with the pay of CEOs. These concerns are heightened during a recession with so many people out of work. So many people seem to be concerned with how much CEOs make, and the difference between their salaries and that of the average worker. Somehow, we believe, that if these CEOs were not paid so much there would be a bit more justice in the world.

I worked most of my career in the corporate world. I was paid well and the CEO was paid infinitely better. I saw the jobs they had to do. I would not want to do it. They were under constant pressure from the board, from employees, from the press, from the community, from investors, from everyone. Every move has consequences in real terms. People's livelihoods rest in their hands. They create wealth, they create jobs, they move the economy.

Compare this pressure with the lives of 22-year old athletes. A football player runs plays, makes tackles and entertains us. Whether their teams win or loose has zero consequence in the lives of people around the world. Certainly, they have to perform, but they are guaranteed their salaries even if they break their leg the first day of practice and do not get into a game. How do we justify athlete salary but raise concerns over the salaries of CEOs?

I have rarely heard the business community compare the salaries of athletes and executives. Somehow they have deemed this an inappropriate comparison. I think it is very relevant. We pay people to entertain us better than those who are vested with running our economy. These salaries result in higher ticket prices and higher costs of everything at the stadium to pay these salaries. If the cost of goods escalated as quickly as the cost of sporting events in the past few decades we likely would have a consumer revolution.

Somehow this seems to me to be totally out of wack. If we are to be concerned with the salaries of those who run major companies, let's at least start to question what we pay those who entertain us, and what this says about us as a society.

Goldman-Sachs is Learning that Expectations Influence Reputation

Goldman-Sachs is now defending its reputation against accusations that it mislead clients about the risk in some of its derivative programs. First, they argued that the investors--other companies--were sophisticated and should have understood the risks. Second, they argued that they would never knowingly defraud a client. Finally, they argued that it was perhaps and individual who might have been involved, although they are now claiming that the individual was not the final decision-maker in the offering.

Goldman may or may not have done anything wrong in its opinion, but the perceptions of regulators and the public are quite different. Expectations have now been reinforced that Wall Street cared only for itself and its own sense of right and wrong. In fact, an editorial cartoon in the Philadelphia Inquirer of April 21 showed a ship entitled Wall Street bombarding a coast line entitled Main Street with canon shells, destroying the city. That is the view that most people have today. That a bunch of people with over-the-top salaries did whatever they wanted to do to fatten those salaries even more.

What is lost on all of this is what is not being denied. Goldman made its money, whether or not they duped anyone or did anything illegal, by coming up with a plan to short the housing market. In other words, to bet that housing would collapse. They made billions on the misfortune of those who lost their housing values. This was also a company that made money by floating some of the money to inflate the housing market. Sounds like Catch 22. They could not loose. Sell the airplanes and then sell the anti-aircraft guns. We all thought this was a novel. We are now learning that this was standard operating procedure for Wall Street. This is an industry with no soul and no real conscience. It cares only for money and nothing else. Let the public judge them for what they really are.

Spirit Airlines is Polluting the Low Price Category

Spirit Airlines is under attack. It announced a few weeks ago that it would begin charging passengers $45 to carry a bag onto the plane that could not fit under the seat. In other words, the overhead bins are now no longer free. Under increasing pressure from travelers, several members of Congress sent inquiries to the other airlines to determine if they would follow suit. Those who responded, pledged that they would not initiate such a charge.

Spirit is standing by its decision. Its CEO, Ben Baldanza, tried to sell this decision as one being made to help passengers speed their way through security. He noted that many passengers were being held up due to others who chose to bring bags on the airplane. Besides, he noted, Sprint had cut its ticket prices so passengers should be happy with the overall cost of travel. If Disney fantasies were real, Mr. Baldanza would be distinguished by the nose he grew as he read this load of nonsense to the media. This was not about speeding passengers. This was about finding new ways to tax the passenger to make more money in a business that has historically lost money.

This would not be quite as bad if Spirit were to drop the charges for its checked bags. But, those fees also remain. Of course they dropped the price of tickets. The real price is when all costs are factored in. Stop trying to sell crap as being beneficial to the passenger!! This is a bundled price tactic that plays to the business traveler.

What should be done about this? Nothing. Please keep Congress out of this. Let the market become the jury. I believe that Spirit has every right to conduct their business as they see fit (or unfit). This is not a major airline that has passengers in hubs at their mercy. This is a minor player who is trying to gain share by selling low. However, because they have not been as efficient as some other carriers, like Southwest or JetBlue, they are trying to make up the difference with fees. I guess a day-trip business passenger with just a brief case might find this "deal" worthwhile. The traveler who needs to bring clothes along is footing the bill.

Brands, like Spirit, that want to be low-cost alternatives need to cut their expenses and become more efficient so that they can be truly low-cost alternatives. Spirit is the US equivalent to Ryan Air in Ireland that wants to charge for using the bathroom on board.

I believe that every company has the right to manage itself well or to destroy itself if it so chooses. Spirit has not done anything illegal; they have done something stupid. Let the market judge their stupidity. Hopefully, they will be taught a lesson. If not...well, as PT Barnum said: "there's a sucker born every minute".

Marketing and Branding Are More About Being Than Doing

I just was working with a manufacturing company that announced to me before we began that they were a manufacturing company that knew nothing about marketing or branding. What we discovered over the course of a few days is that they were not far off from becoming a true marketing company with a great brand--one they could live rather than talk about, which makes it all the more powerful.

This is a company with great products. But, they looked at their products as what they were selling. We refocused their thinking on the customer and what benefits they were getting from those products. In other words, we turned this from product push to customer pull; from a bunch of product features to targeted customer benefits. We focused on all the touch points that customers meet the company, including the plants, trade shows, customer service, etc. All of these needed to be handled consistently. What they found was that they had work to do, but that it was not as massive as they had feared. We worked on positioning statements for both the various businesses and the company as a whole. We worked on attributes and associations that the company would want to be known for vs what it currently is known for. All of a sudden, all of these production-oriented managers started to think about the customer and other stakeholders and how they could get employees engaged in living their desired brand. They got excited; they got energized; they got committed.

The CEO and top management met with the group and committed to them that they would focus on building a solid brand for the company which they discovered could be a differentiator in the market. They went from thinking of themselves as a commodity maker, playing price games with their customers to understanding value and what value can do to drive down concerns about price.

I had promised this group that they would leave the two days with enough knowledge of marketing and branding to "be dangerous". They are very dangerous right now. I'm excited for them. If they continue with this their competitors better watch out.

New Book, "Trade Off" Makes Branding Seem All Too Simple

There is a new book out called "Trade Off" by Kevin Maney, that tries to explain why some things catch on and others do not. It is an easy read, but also a very simplistic view of the world of brand management. Maney, a journalist, chalks it all up to what he calls "fidelity and convenience". He explains all brand successes through this lens.

Convenience we can understand. Regis McKenna had many years ago identified "access" as a critical component of successful marketing. Access, convenience, ease are things that are important to customers as they balance the trade off between benefits and costs of a product or service.

Fidelity, according to Maney is all of the things that make the brand delight the customer. Now, isn't that helpful to brand managers everywhere? Just make the brand high on fidelity, or make it what the customer wants and needs and you'll succeed. If that were that easy, we'd have a lot more highly successful products. The key is to find all of the attributes and associations that comprise "fidelity". As the saying goes, "the devil is in the details" (the Germans say "Gott steckt im Detail" or God is in the details). I guess it depends on whether you look at details as God's work or that of the devil, but it must be done.

I can just imagine the CEOs and others who read the Maney book and call on their marketing, branding or communications group and tell them that they need to find their brand's "fidelity", thinking that this must be fairly simple since there are so many examples in the book. One could only dream that it would be so simple.fidelity means.

Fidelity consists of the symbols, attributes and associations that brands work diligently to determine and instill in their brands. It means all of the actions that companies take to live their brand and build their reputations with their various stakeholders. It means connecting all of the touch points at which customers and others meet the brand or company. To call this simply "fidelity" is to take a news writer's approach to a very complex process.

The Recession has Changed Consumers--Perhaps Forever

This recession has been the first time since the WWII-Depression generation that we have felt totally vulnerable financially. My parents, perhaps your grandparents, felt very vulnerable. They lived through war, rationing of food and goods, and a depression that wiped many of them out. They never forgot these hard lessons. They always had an aversion to risk--they knew that things could change quickly.

The "Baby Boom" generation that I am part of and the generations that followed, were raised on affluence. We bought houses that we thought would always appreciate in value; we bought things we didn't really need but which made us feel better or made us look better to others; we spent and spent. We never believed that things could go any other way but up. We had minor recessionary setbacks and inflation and even "stag-flation", but we always knew things would get better.

This recession has hit everyone hard. It had impacted ever sector of the economy. Virtually no one is unaffected. We all know someone who has lost something--money, a job, etc. It is the first time that we realized that everything we had could disappear quickly. Even if we have regained our wealth in the stock market, we feel reluctant to spend since "conspicuous consumption" is being frowned on. There is actually a new cottage industry of personal shoppers who buy the expensive things that the wealthy want so that the actual consumer will not be seen shopping "inappropriately".

While this has not been as severe as the Great Depression, it is a Great, Worldwide Recession. It will leave us scarred in a similar way the 1930s and 40s left that generation scarred.

McKinsey & Co, did a study and found that perceived value is changing. If we were to develop a matrix with one axis being perceived price and the other axis being perceived customer value, we always knew that those who exceeded perceived value relative to perceived price would win--price would become less of a factor. This recession, though, has caused a lot of people to start to question their own buying patterns and they are trying the brands they by-passed previously. Those brands that were just nice-to-have and do not have the solid, binding, necessary attributes of value, are losing perceived value.

Companies, not only those in the consumer packaged goods business, need to reassess their attributes and positioning and assure themselves that they are part of the needs-based set for customers. Those who sold on exclusivity or "show" of wealth or taste, are finding themselves undercut by a climate that questions these values. People are "settling", something we never have done in the past 50-years. True, there will be BMW and Mercedes buyers; there will be those staying in the Ritz Carlton; there will be those buying the latest and most expensive fashions. There has always been a segment that wanted and was willing to pay for the "best". But, these people are shrinking in numbers as more ask the question of themselves: "do I really need this?" More people are asking this question than ever before.

There are many businesses banking on the fact that the consumer will return to the way they were before the recession. Read the McKinsey report or the work of John Quelch at Harvard Business School. I do not believe we will return to the way we were. We are a mini-version now of the generation that proceeded us. They never returned to previous buying behaviors and will not either. As risk increases in people's minds and buying decisions, more and more people back off decisions and "settle". We will be in this mind-set for the long haul.

Three Key Questions to Ask About Your Reputation

Those doing reputation research often turn to opinion polling data which tells them how well they are liked or admired compared to others in the same sector. This is interesting, but it does not give us much to work on. Research needs to be applied--be prescriptive, not just descriptive.

I believe that there are three key questions that those looking at reputation need to address:

1. How important are the attributes that we are building our reputation on to the stakeholders for whom they are intended?

2. How do we compare in terms of expectations versus the experience that stakeholders believe they actually have received from us?

3. How do we compare vs. the "ideal" that stakeholders have for a company in our sector?

Getting at these three questions will not be done by normative, survey research. These generate normative or ordinal data. Interesting to observe but offering little understanding of how intense stakeholders feel about us or what we can do to close gaps or improve on our current programs.

In terms of reputation research, surveys of what people think of a company at a certain point in time are akin to a professor giving a student a grade and not telling them why the grade was given. The "A" student does not know how to replicate; the "F" student doesn't know how to improve.

By employing research methodology that lends itself to linear data analysis, we can get not only the answers to the above questions, but we also can see the gaps between ourselves and others.

Fortune magazine's survey of the "Most Admired Corporations" is liked by a lot of corporations, not only because it tells them where they are relative to their competition, but the data also gives them information on each of the 9 attributes analyzed. So, we get an overall set of aggregate data as well as the information on the attributes. This research is linear--it is done through factor analysis. The real problem with the Fortune data, in my opinion, is that I could never tell how important the attributes were to the respondent. The researchers argue that as one ranks, one gives a perspective of importance, but much of Fortune's study is also a popularity contest because companies within the industry are voting for themselves and for others.

The "ideal" question is an important one. We need to know where we and others in our peer and competitive set are relative to an "ideal". The closer we get to the ideal, the more likely we are to exceed stakeholder expectation, create differentiation, and enhance our reputation.