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Like It or Not, Companies Can't Buy Their Way to Success

If You're Not Doing Well In Your Own Category, What Makes You Think Adding Another Will Help?

By Published on . 2

Years ago, I gave my Volkswagen Beetle to my son who was on his way to college. Then my wife and I started looking for a new car to replace it.

We visited a number of dealers before deciding to buy a Pontiac. On our way out of the dealership, my wife said to me, "By the way, who makes the Pontiac?"

That would never happen today. More consumers today are not only well aware of who makes what brands, but they also give a lot of weight to the company brand as well as the product brand.

Witness the power of the Apple company brand, according to Interbrand's latest research, the most-valuable brand in the world, worth $98.3 billion.

Battery testers and brand testers
In my chores around our apartment, one of my most-useful gadgets is a battery tester. With dozens of products needing batteries, it's a helpful device to have. It works almost instantly.

In writing my columns, one of my most-useful devices is a brand tester. All you need to do is to drop the brand name in the empty slot, "What's a ___________," and you can instantly measure its effectiveness.

What's a Starbucks? It's a high-end coffee shop.

What's a BMW? It's a fun car to drive.

What's an Apple? It's a high-end electronic device.

What's a Chobani? It's the leading Greek yogurt.

What's a Dell? It's a personal computer.

Dithering at Dell
According to a recent story in The New York Times: "Over the last five years, [Michael] Dell said in an interview, he has moved to shift Dell from primarily making personal computers, an ever more difficult business, toward providing software and services for corporate clients."

One reason making personal computers is a difficult business for Dell is that Dell doesn't have a strong position in the category. The answer to "What's a Dell?" should have been "It's the leading brand of personal computers."

Nor has Dell's shift to "software and services" panned out. "Investors, though, have displayed little patience with the campaign," added The Times, "Dell shares fell more than 30 percent over the five years before the company announced its sale plans in February."

If a company can't win in a business it has some experience in (personal computers), how can it win in a business it doesn't have any experience in (software and services)?

What should Dell have done?
There's no question Dell needs to make some sort of move. According to Gartner, worldwide demand for personal computers fell 11% in the second quarter of 2013.

Companies can learn a lesson from military strategy. A military commander seldom launches an attack without having a strong base or "anchor" to fall back on.

But Dell's anchor (its personal-computer business) is weak. It's a declining business and Dell is in third place in the global market, behind Hewlett-Packard and Lenovo, and just barely ahead of Acer in fourth place.

Before moving into another business, Dell needs to shore up its PC anchor. Now would be the perfect time to correct a mistake Dell made years ago. I would recommend that Dell get out of the consumer PC field and focus strictly on corporate customers.

Smartphones and tablets -- Apple's, in particular -- have sucked most of the air out of consumer PCs anyway. But companies still need personal computers to run their complicated businesses. If Dell focused on the business market, it would have a position in the marketplace.

What's a Dell? The business PC.

Since 2009, Dell has spent $12.7 billion on acquisitions. Presumably this was money spent to get into "software and services" businesses.

Wouldn't it have been better to spend a good portion of this money "shoring up the base?" That is, spend the money on building the Dell personal-computer brand.

(The market is there. An estimated $270 billion was spent on personal computers last year of which Dell received only $28.5 billion, or 10.7 percent.)

This would have had two advantages. (1) It would shore up the Dell brand, and (2) Make it easier for Dell to expand into other hardware categories.

Meanwhile over at Microsoft
A software company is trying to move into hardware. Microsoft's latest acquisition is Nokia's phone operations, for which the company paid $7.2 billion.

One might have thought Microsoft would have been leery of hardware since it took a $900 million charge in the second quarter of this year on its Surface tablet computer.

Some marketing people might think that what Microsoft and Dell are doing are "management" decisions. And they are. But there is a strong "marketing" component because these decisions affect brands.

Take the Nokia acquisition. Nokia used to be the world's largest cellphone manufacturer, but made the classic mistake of putting the Nokia brand name on its expensive smartphones.

What's a Nokia? It's a cheap cellphone.

When Nokia becomes part of Microsoft, will the addition of the "Microsoft" corporate brand name help turn around its smartphone business? I think not. It will just confuse the issue. What does a software company know about hardware?

And what about Google?
Another software company trying to get into the hardware business by buying Motorola Mobility for $12.5 billion.

What's a Motorola? Just another smartphone without a position.

Will the addition of the "Google" corporate brand name help Motorola become a winner? Unlikely.

One reason is that the endgame for almost every category is "duality." Two brands dominate the market.

Coca-Cola and Pepsi-Cola in cola, for example. Does Red Bull cola have a chance of breaking into this duality category?

Duracell and Energizer in appliance batteries. Did Sony, Kodak, Raytheon and others have a chance at breaking into this duality category?

The smartphone market is getting close to becoming a duality category. Globally, Samsung and Apple have 50% of the market and the No.3 brand (Huawei) has only 4.9 percent.

On the other hand, Google's purchase of Android has become a big success. As an independent software company, Android, Inc. had little chance of convincing big corporations like Samsung to take a chance on a new smartphone operating system. But when backed by Google, it did make sense.

As the search market becomes increasingly mobile, its Android software will help Google become as dominate in mobile search as it is in PC search.

Marketing people are focused primarily on building product brands, but there's another area with an even greater need for marketing advice and counsel.

Buying brands.

ABOUT THE AUTHOR
Al Ries is chairman of Ries & Ries, an Atlanta-based marketing strategy firm he runs with his daughter Laura.
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