MIXED RESULTS FOR GM'S BRAND MANAGEMENT

CARMAKER CLAIMS SYSTEM IS WORKING, BUT MARKET SHARE KEEPS SLIDING

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Three years ago, General Motors Corp. set about to change radically the way it does business, installing a brand management system in a bid to drive profits and market share.

Today, the Detroit auto giant claims the system is a success. But the figures tell another tale.

GM's share has continued its decades-long slide, hitting a record low 31.3% in 1997. This year is off to a slow start as well, with a disappointing share through February of 29.4%, a 6.6% drop from the same two months in 1997, according to Automotive News.

And while GM turned a slim profit in North America last year, its margin of 2.3% was far below its 5% target.

Industry analysts, while noting GM endured labor strikes that translated to hundreds of millions of dollars in lost profits, attribute the profit that was made more to belt-tightening measures than to brand management.

"If you're looking for proof whether brand managing is working or not, you don't have it," said auto analyst Mary Ann Keller, managing director of research at Furman Selz, New York. "It's impossible to really see the results yet."

GM EXAMINES OVERLAP

While it's too early to judge whether brand management will ultimately succeed or fail, some things are clear after three years. On the positive side, branding has brought common processes, practices and systems to GM, eliminating duplicated efforts by its marketing divisions. And it has played a role in several new-product successes, notably Chevrolet Malibu.

On the downside, in addition to the continued erosion in market share, experts said it still takes the marketer too long to enter new vehicle segments like the luxury sport-utility market. And GM still has too many overlapping models competing against each other.

The brand system has also put enormous pressure on GM's national ad agencies to improve advertising; to date, their results have been mixed (see chart).

FLAWED PHILOSOPHY?

GM's brand philosophy may be flawed, said auto consultant Art Spinella, VP at CNW Marketing/Research.

"The real problem is maybe [that] GM is defining brand down too far -- every single nameplate is a brand," he noted.

The marketer has been so busy with the nameplates, he added, it hasn't gone far enough to clarify its divisions like Oldsmobile.

"GM over-engineered this," Mr. Spinella said, and waited too long to rejuvenate some brands.

It also "mistreated a lot of brands by not supporting them" with advertising over the years, so it will take time and money to salvage them, he said, adding that the job isn't insurmountable.

"You can't make up for decades of ills in three years," said another auto industry consultant, who requested anonymity. "Brand management ultimately has to lead to market leadership and profit. By those standards, it's not working at GM."

CHANGES AFOOT

GM already is beginning to tinker with the brand management system.

Last summer, the architect of the brand management system, Ronald Zarrella -- a former president of Bausch & Lomb Corp. hired in 1994 to implement the strategy mapped out by then-Chairman John Smale -- quietly gave up day-to-day marketing duties to focus more on his sales and service roles. Philip Guarascio, VP-general manager of North American Operations, took on more of his boss' responsibilities as a result, although Mr. Zarrella still must approve all ads before they appear.

Overall, NAO has been calling more of the shots than the divisions since brand management started. For example, NAO established a formal checklist for vehicle brand positioning and marketing plans that must be met before cars or trucks are launched.

"There's more rigorous discipline and qualitative testing [for ads] than ever before," said one executive close to the marketer.

And last month, NAO formed an agency production council to work with ad agencies to study ways to improve efficiencies. GM said it may consolidate ad production across its marketing divisions in certain cases.

The auto giant also now has several task forces studying how to improve its field-sales system, said executives close to GM. Sales fall under the authority of Mr. Zarrella, whose full title is group VP-sales, service and marketing.

Every GM car division currently has its own regional sales offices to call on dealers. The dealer level is a key part of branding due to customer contact and the carmaker's quest to improve customer satisfaction and brand loyalty.

GM and other carmakers are trying to unify components such as sales training, dealership appearance and customer service. In its ongoing search for efficiencies and best practices, GM may consolidate its field-sales operations.

ON THE WAY OUT?

Mr. Zarrella is on the hot seat. When GM's market share dipped below 30% last June for the month, there were rumblings in Detroit -- denied at the time by GM -- that he was on his way out.

His fate may be tied to that of Mr. Smale, since many observers expect him to leave GM when Mr. Smale, now 70, leaves the GM board. Several executives close to GM expect more changes once the carmaker consolidates car marketing divisions under one roof at its new headquarters at Detroit's Renaissance Center. They expect the roles of divisional general managers and divisional ad managers to change -- possibly to diminish -- as NAO gains more authority in the centralized organization.

Mr. Zarrella usually shies away from media interviews and declined numerous requests to sit for an in-depth discussion with Advertising Age about brand management. But he did discuss the system and its impact during a brief chat with Ad Age at a recent GM event in Detroit.

MOVING FORWARD: ZARRELLA

"We are moving in the direction we have always intended, maybe not as fast as I personally would have liked, but clearly at a better pace in the second half than in the first half," Mr. Zarrella said. "I know our 20 new products -- introduced in 1997 and coming in 1998 -- are making a big difference in terms of our market share and corporate profitability. We're already seeing their positive influence."

Under the brand management system, brand managers work with design and manufacturing chiefs to match specific customer needs to each car and truck. In the past, GM's engineering and manufacturing arms produced vehicles first and then called in the marketing units to sell them.

GM can better target customers' specific needs by going to market with a wide breadth of products in a single segment, like mid-size sedans, while competitors have a single product that must appeal to a wider audience, said Mr. Zarrella.

But experts said GM's overlapping models often compete against each other. In the brutally competitive mid-size sedan segment, GM has far too many entries, with its Chevrolet, Pontiac, Buick and Oldsmobile, Ms. Keller said.

Other manufacturers, like Ford Motor Co.'s Ford Division and Toyota Motor Sales USA, offer one mid-size car.

NAO's Strategy Board, made up of top executives including Mr. Zarrella, ultimately decides which vehicles are built. One former GM brand manager said he knows brand managers who have requested their vehicles be discontinued.

`EVERY ONE A HOME RUN'

Mr. Zarrella declared every vehicle launched since brand management started a success.

"Every one was a home run," Mr. Zarrella said. "Every model had an integrated marketing launch."

He said the positioning and advertising for Pontiac Bonneville and Cadillac DeVille helped boost their '97 sales, even though neither had major design facelifts.

Under GM's brand system, the corporate umbrella GM name is "sort of the house brand, standing for leadership, quality and trust," said Mr. Zarrella. GM's vehicle divisions, like Cadillac, are also brands, along with every individual vehicle.

But GM's method is too rational, said one auto consultant, noting that consumers buy vehicles for "intangible qualities. The cars we drive make a very visible statement about who we are, which is the reason BMW commands a more premium price."

ANXIOUS AGENCIES

GM's national ad agencies have been under tremendous pressure to improve advertising since the birth of GM's brand management. Several agencies are now said to be nervously "waiting for the next shoe to drop," according to an agency executive close to GM.

Jittery shops are said to be D'Arcy Masius Benton & Bowles, Troy, Mich., which handles Cadillac and Pontiac; Leo Burnett USA, Chicago, which has Oldsmobile; and McCann-Erickson Worldwide, Troy, Mich., agency for Buick. The anxiety comes in the wake of the GMC truck brand moving its $70 million account from McCann to Ammirati Puris Lintas, New York, late last year, the first time GMC had axed an agency in 40 years.

Mr. Zarrella and other GM executives are impatient for results. Cadillac handed the launch of its first sport-utility this fall from DMB&B's Troy office to its Los Angeles office.

But a former GM brand manager, who requested anonymity, said, "Boring [GM] advertising over the years has been the client's fault."

He also said that GM's advertising is better focused under brand management, and that the system has brought accountability into the organization.

Mark LaNeve, the Pontiac Bonneville brand manager who left GM last year for Volvo Cars of North America, said, "I think the brand management system is a brilliant system for trying to rationalize the car business at a company like GM."

However, while GM's Oldsmobile division now has better cars and more-focused advertising, the brand "has a lot of problems beyond advertising -- like image," a GM agency executive said.

AGENCIES RESTRUCTURE, TOO

All GM's agencies have restructured to mirror their clients. Account, media planning and creative staff have been added to work on specific-model brand teams. Before brand management, fewer staffers were needed; now the shops have staff matching each GM brand vehicle team.

In certain cases, the agency/client brand teams work well together; in other instances, they're "almost adversarial," the ad executive added. Strong personalities can dominate teams; sometimes they're from an agency.

Brand teams, however, are in flux, partly because GM brand managers move. Although Mr. Zarrella said in 1995 that GM wanted brand managers to stay in their jobs at least three years, eight of the 36 brand managers have already changed jobs. Four voluntarily left GM, including two of the six brand managers hired from outside GM. Two were promoted, two others were reassigned.

The game plan was for brand managers to have product-knowledge continuity, battling GM's tradition of moving staff around about every two years.

In 1995, Mr. Zarrella said the GM brands needed consistent advertising. He said then GM would break away from the past auto industry practice of spending heavily only during a vehicle's launch year, instead spending a minimum of $30 million to advertise 30 key products annually no matter how far they were into their product cycle.

MORE AD SPENDING

GM seems to be following through on that as it tries to get the word out on brands' new positioning. The automaker spent $1.9 billion in measured media from January through November 1997, more than the $1.6 billion it spent in 1996, when it was the nation's No. 2 ad spender, according to Competitive Media Reporting.

Despite continuing share woes, the carmaker's brand management system has brought benefits, said a former GM marketer who asked not to be named.

"What brand management has brought to GM is common processes, common practices and common systems," he said. Before, each marketing division did things its own way, but market research was sometimes duplicated. Mr. Zarrella has examined the best practices of each division, so they can share information and eliminate duplication, said the ex-GM executive.

Information-sharing will expand because of GM's centralization.

GM has restructured about every five years in recent times, so this executive expects another reorganization before too long. But the majority of those interviewed believe GM will keep its current system for many years.

"Brand management is another term for accountable management at GM," said a GM ad agency executive. "It's here to stay. It will never go away."

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