Who says the stock market doesn't pay attention to the effects of advertising? If a company continually puts out lousy advertising, as Miller has done, it's a sure sign the company has lost its way. The "Miller Time" spots are the final nail in the coffin, hence the spinoff rumor-which one of these days won't be a rumor.
What supposedly sophisticated companies fail to realize is the debilitating effect bad advertising can have on an organization. McDonald's is another case in point.
McDonald's made the big mistake of diverting much of its ad budget to the introduction of the Arch Deluxe, the burger with the grown-up taste. Never mind that the company compounded the problem by alienating its core constituency in the process; never mind that the product itself was a disappointment.
The major problem was that during the prolonged introductory period-and for subsequent "grown-up" products-McDonald's had little if any advertising supporting the overall brand-stuff like "You deserve a break today."
And now the company is using its precious ad dollars to promote french fries, as if that basic commodity product is going to get people to drive through those Golden Arches. Is it any wonder that McDonald's domestic sales volume are down, excluding new restaurant openings? And now the vicious cycle begins: To lure more customers, the chain is resorting to regional price cuts, which will further commoditize the McDonald's brand, which will lead to deeper price cuts. And all because the company bet the ranch on one product and took its eye off the mother ship and its loyal customer base.
It's an easy trap to fall into. When Ralston Purina Co. bought the Hostess and Twinkies brands from ITT Corp., along with Wonder bread, it proceeded to treat those great old brands like commodity products. It cut the size and lowered the price to make them comparable with private-label products.
But then Interstate Bakeries Corp. acquired the neglected products. As The Wall Street Journal reported, "Brands bore magic" to Interstate Chairman Charles A. Sullivan. He didn't agree with Ralston Chairman William P. Stiritz that baked goods had become "mere commodities.
Through regular advertising, and Mr. Sullivan claims, superior quality," the brands have helped Interstate's profits jump 331% in the last quarter and its stock triple.
It's easy for management to kid itself. When Continental Baking Co., the marketer of Hostess and Twinkie products, was losing money as a part of Ralston, Mr. Stiritz believed "brands had lost their value," according to the Journal. Now, he concedes, Interstate executives have proved him wrong. `They've done some wonderful things. They've restored the power of these great old brands."'
I say the power was there all along, just waiting to be unleashed.
Sooner or later, top management is going to figure out that strong brand names can not only help their bottom lines but also their stock options. The stock market, tiring of cost cutting, now wants revenue growth. That's what re-energized brand names can deliver.