Al Ries On Marketing Column

THE GOOGLING OF THE MARKETING INDUSTRY

And What We Can Learn From It

By Published on . 0

The last time I checked, Google was worth $125 billion on the stock market. More than four times as much as General Motors and Ford combined.
Previous Columns:
WHY THE VOLKSWAGEN PHAETON FAILED IN THE U.S. MARKET
The Boardroom Ignored Market Reality
DARWIN'S THEORIES APPLIED TO MARKETING
Understanding the Brand Building Power of Divergence
THE SAD AND UNNECESSARY DECLINE OF SATURN
A Brand That Lacked a Strategy to Expand Market Share
AD AGENCIES SHOULD TAKE OWN ADVICE
A Critical Look at an Industry That Doesn't Advertise
LEARNING FROM HILTON'S MARKETING MISTAKE
Why a Brand Must Be Described in Three Words

Not bad for two Stanford University graduate students who started the company in 1998 (and never did get their PhDs).

Tiny ad spend
What made Google one of the world’s most valuable brands and in the process made 1,000 of its employees millionaires? It wasn’t advertising.

Last year, Google spent just $5 million on marketing. (General Motors and Ford spent $6.4 billion in the U.S. alone.)

What made Google worth $125 billion? Round up the usual suspect, the better mousetrap. Google designed the better search engine.

If you asked the average person, the average manager or the average CEO, what is the key criteria for success in business today, you always get the better mousetrap answer. It’s the better product or service than wins in the marketplace.

Role of marketing?
Every marketing professional should think through this issue very carefully. If the better product wins in the marketplace, then what is the role and function of marketing in the overall scheme of things? How can marketing create better products or services?

What is disturbing to me is that the marketing profession seems to be aligning itself with the “better mousetrap is the answer” to all marketing problems.

Recently, the American Marketing Association Foundation announced the recipients of its 2005 Berry-AMA Book Prize.

The winners: Patrick Barwise and Sean Meehan, authors of Simply Better.

But is that the answer?
Simply better? Is that the answer to your marketing problem? I think not. Which scenario seems more likely to you?

Scenario a): Company develops a better product or service that goes on to overtake the market leader.

Scenario b): Company is first to launch a brand in a new category and becomes the market leader, fending off dozens of competitors that try to take away its leadership by introducing better products or services.

Which scenario best describes brands like Starbucks, Red Bull, iPod and BlackBerry?

Or going back a few years: IBM, Hertz, Coca-Cola, Lipton, Nescafe, Intel, Jell-O, Kleenex, Xerox and dozens of other leader brands?

Scenario "b" fits the facts better. The first brand in a new category goes on to dominate that category over an extended period of time.

Scenario "a" fits the perceptions of the average person, the average manager and the average CEO better.

First brand advantage
CEOs even acknowledge that the first brand in a new category generally goes on to dominate that category. As a result, the brand is widely perceived to be the better product or service, proving Scenario "a" right. The better product wins in the marketplace.

It’s the death-row dilemma. If you say you’re innocent, we execute you because you show no remorse for your terrible crimes. If you say you’re guilty, we execute you anyway, secure in the knowledge we didn’t send an innocent person to the hereafter.

The marketing dilemma operates the same way. If you’re first and become the market leader, you had the better product. If you’re not first and didn’t become the market leader, you didn’t have the better product. Touché.

Back to Google. This is the one of the most interesting case histories of all, because Google wasn’t first and did become the market leader, apparently overturning all of my marketing concepts and proving once again that the better product wins in the marketplace.

I say “apparently” because when you dig behind the facts it paints a different picture.

Not the first
The first search engine in the mind wasn’t Google. It was AltaVista. But “search” wasn’t good enough for AltaVista, so they added e-mail, directories, topic boards, comparison shopping and loads of advertising on the home page. They also spent more than a billion dollars to buy a portal services company, Shopping.com, a comparison shopping site, and Raging Bull, a financial site.

In essence, they turned AltaVista into a portal. The site was later sold to CMGI, an Internet holding company and eventually sold to Overture.

Overture was later sold to Yahoo, which restored AltaVista to its original vision as a search engine. But by then it was too late. Google had arrived.

The second search engine in the mind wasn’t Google, either. It was GoTo.com, which actually invented the pay-per-click model. Then greed entered the picture and GoTo.com decided to syndicate its search service to MSN.com, Netscape and AOL.

The syndication service was so much more profitable than the destination site that GoTo.com decided to change its name to Overture and focus on its syndication service.

Bad move
Bad move. When you have a choice between building a brand and building a business, it’s always better to focus on the brand first. The business can follow.

The third search engine in the mind was Google and the rest is history.

What gives me great confidence in the first law of marketing ("It’s better to be first than it is to be better") is not from the study of those brands that clearly confirm the concept. It’s from the study of leader brands like Google that weren’t actually first and still became the market leader. You can learn more from the failures of AltaVista and GoTo.com than you can from the success of Google.

Thousands of marketing people literally let opportunities slip through their fingers because they don’t recognize the nuances of the law of leadership. It’s not enough to be first, you have to keep the brand focused or it might lose its leadership. It happened to AltaVista. It happened to GoTo.com. And it happened to hundreds of other brands that could have wound up winning the stock market lottery.

The Acura-Lexus lesson
Take Acura, the first Japanese luxury car to be imported into America. So why isn’t Acura the leading luxury car brand?

Like any profession, marketing is best understood by the study of history. Let’s look at the history of Japanese luxury cars brands in the U.S. market. The first Acura was sold in March 1986. The first Lexus wasn’t sold until September 1989, three-and-a-half years later. The first Infiniti wasn’t sold until December 1989.

Acura started like gangbusters. In its first full year (1987), Acura became the best-selling luxury import, outselling Volvo, Mercedes-Benz, BMW, Audi and Jaguar. It was ranked No. 1 in customer satisfaction by J.D. Power & Associates.

So you might expect the sales order of Japanese luxury brand today to be: (1) Acura, (2) Lexus and (3) Infiniti. But it was Lexus, not Acura, that won this particular battle.

Courage of its convictions
What happened to Acura? Like AltaVista and GoTo.com, Acura didn’t have the courage of its convictions. It wasn’t a “pure” luxury car.

The year Lexus was introduced, Acura sold two models: The four-cylinder Integra with a list price of $11,950 to $15,950 and the six-cylinder Legend with a list price of $22,600 to $30,690.

Lexus also sold two models, but they were six- and eight-cylinder cars. The ES 250 with a list price of $21,050 and the LS 400 with a list price of $36,000.

On average, Lexus cars were more luxurious. They had bigger, more powerful engines and they cost 40% more.

(Adding two cylinders to a four-cylinder car doesn’t make it a luxury model, of course. But automotive designers generally match the size of the engine to the car’s design. Six-cylinder cars are generally larger and more luxurious than four-cylinder cars.)

Cheap as enemy of chic
As Starbucks, Grey Goose, Häagen-Dazs, Rolex and a host of other high-end brands have demonstrated, you need a high price to build a luxury brand. Cheap is the enemy of chic.

Rome wasn’t ruined in a day, either. In spite of its flawed strategy, Acura held its high-end leadership for 12 straight years. It wasn’t until 1999 that Lexus passed Acura to become the leading Japanese luxury vehicle (185,890 to 118,006 units).

(During the 1990s, I wonder how many Lexus executives were saying to their Toyota management, "We need less-expensive four-cylinder cars in order to compete with Acura?")

Since 1999, Lexus' sales kept climbing. Today, Lexus is the biggest-selling luxury vehicle in America. Here are unit sales of the six leading brands for the first 11 months of 2005:

Lexus: 267,709
BMW: 239,736
Cadillac: 212,056
Mercedes-Benz: 192,877
Acura: 190,989
Infiniti: 123,545

Some commentators credit the SUV with the success of Lexus. And it’s true that Lexus has a much higher percentage of SUV sales (50%) than does Acura (27%).

SUV sales or high-end brand?
But what’s more important, selling an SUV or having a high-end brand? There are a lot of low-end automobile brands with SUVs, which is the segment of the market many Acura models compete in.

But there are only a handful of high-end brands with SUVs, a fact which accounts for the recent sales spurts of both Cadillac and Porsche.

Marketing is psychology in practice. It can take a long time to change minds. (Witness the decades some people spend with their therapists.)

You need patience to succeed. And if you can’t be first, you can often reach the top of the leadership ladder by keeping your focus while others lose theirs.

~ ~ ~
Al Ries is the author or co-author of 11 books on marketing, including his latest, "The Origin of Brands." He and his daughter Laura run the Atlanta-based marketing strategy firm Ries & Ries. Their website: www.ries.com.

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