High-flying Enron runs out of gas

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As Enron Corp. scrambles to deal with bankruptcy proceedings, lawsuits, bewildered customers and angry institutional investors, its once-solid brand has been done irreparable damage, say marketing industry experts.

Should Enron survive, they say, allegations of sloppy—if not misleading—financial accounting and the erratic service of EnronOnline, its flagship trading hub, will make it nearly impossible to draw back once-faithful customers.

Enron’s travails leave in doubt the future of many of its high-profile b-to-b schemes, including a $100 million commitment to Enron Field, home of Major League Baseball’s Houston Astros; a fledgling online media buying risk management service; and EnronOnline, until recently the world’s biggest e-hub for global commodity trading.

"If some other company was going to try to get into this space, and Enron’s name was for sale, I don’t think anybody would buy it," said Kevin Lynch, principal at HLB Communications, a Chicago-based marketing consultancy.

Other b-to-b marketing executives said Enron’s brand, which the company forged through expensive and aggressive advertising and public relations, has been rendered too great a blow to recover. Enron executives did not return repeated calls asking for comments.

The fact that Enron’s brand is relatively new—the company was formed in a merger between Houston Natural Gas and Internorth in 1985—is also a big factor working against it, for it has scant legacy and marketing goodwill to call upon.

"Enron was a new name in a new category They didn’t have the time to develop the goodwill that would allow them to come back," Lynch said.

Enron became a major player in bringing e-commerce, risk and arbitrage to the energy markets as they were deregulated in the late 1990s.

Perhaps most damaging to Enron’s brand have been the company’s purported accounting irregularities and financial recklessness, marketing industry watchers say. Enron’s alleged financial improprieties range from understating losses to giving board directors consulting contracts that undermined their independence.

"Enron’s brand is not more powerful than the financial performance of the company," said Brad Puckey, associate director-brand intelligence at Corporate Branding L.L.C., a Stamford, Conn.-based consultancy. He compared Enron’s case with that of Lucent Technologies Inc., in that both companies’ brand-building skills were for naught because of bad financial performance. "Lucent did everything right in terms of building its brand. But its financial performance was poor, and it couldn’t overcome that," he said.

Wall Street insiders said companies would be reluctant to do business with Enron again. Indeed, Wall Street is making its thoughts on Enron’s financial prospects clear; on Nov. 28, its debt rating was reduced to junk bond status.

On Dec. 4, Enron was successful in getting permission from a bankruptcy court in New York to tap into a $1.5 billion credit line. The money is meant to keep EnronOnline, as well as the company’s global energy trading operations—which had been the world’s largest—running.

E-hub problems

From a branding perspective, the most problematic among all of Enron’s troubled e-commerce operations is EnronOnline, which allows traders to place trades on commodities including natural gas, crude oil, steel and other metals, and weather derivatives. Though the company claims it is keeping the exchange running, industry insiders say online trading has been highly problematic, leading Enron’s traders to take orders over the phone.

"EnronOnline’s [users] are very reluctant to do business with them if they don’t know trades will be settled and delivered upon," said Jim Walker, senior analyst at Forrester Research Inc., Cambridge, Mass. In a Nov. 29 report, Walker wrote that some clients have halted trading on EnronOnline, and that it will be difficult for the company to convince them to come back. "Once you’ve seen a run on a bank, would you put money in it?" he asked.

Chris Peters, CEO of eMarket Concepts, a Pittsburgh-based exchange consultancy said, "Enron’s going to have a real battle to re-establish trust to get people to come back." He said bringing back traders—who in many cases are paid on the work they put through exchanges and who bet their paychecks on whether or not hubs work—will be a tough sell.

Indeed, Enron’s problems have shaken the confidence of more than just energy traders. Financial executives at hedge funds and other asset management firms, many of whom are having a dreadful year, have fretted over the company’s woes and the impact they might have on their businesses.

Still, some traders are sticking by Enron, largely because they are impressed by the ingenuity the company has displayed in forging new risk markets.

"We continue to service Enron any way we can," said Don Fewer, head of brokerage operations-North America at GFINet Inc., a New York brokerage firm. "When Enron applied its approach to natural gas to other businesses, it was able to transform itself into a major, major trading powerhouse. They recruited very talented people and, from a trading business standpoint, were very well respected."

The future of another once-promising Enron initiative also is uncertain. Last October, Enron created a splash when it announced it would apply its risk management techniques to help companies cover exposures on media buys. Since then, the program has received less attention. The current status of this service could not be determined by press time.

But at least one branding consultant said Enron still has a chance to resuscitate its brand. "The biggest thing they need to do is establish some level of trust inside and outside of the organization," said John Davis, CEO of Brand New View Inc., a Sacramento, Calif.-based marketing consultancy. "Given the challenges they’ve presented themselves with through poor bookkeeping, they cannot necessarily be received as trustworthy. They need to be pretty convincing with the story they tell."

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