Branding and Marketing

Originally published in the Houston Business Journal, February 2003

The penalty that businesses pay when they ignore the power and value of strategic branding is usually fatal, especially when facing savvy competitors. This is true even if they are the category leader.

Attention Kmart Shoppers! The bankrupt discounter is ending its 40-year presence in Houston, closing all 17 area stores and eliminating hundreds of jobs as the nationwide chain sheds low-performing stores. The giant retailer, formerly one of the best known in the U.S., announced this past week it would shutter another 326 stores and lay off 37,000 workers nationwide. It is a classic example of a company failing to comprehend the critical need for competitive positioning in a highly competitive economic environment.

Kmart had the pole position.

Kmart originally resonated with the marketplace. It was unique in its own new retail category. That was a positive first step in a two-step process for positioning a brand. But they ignored the crucial step: They did not identify themselves in the marketplace with the category they created. How should they have done that? Again, two steps: Craft a comprehensive and focused communications strategy built around the category concept, and then manage it diligently year-in and year-out.

Oh, yeah: Don’t forget to raise the bar to potential competitors by requiring that they spend millions on advertising just to get in the game. Promote the category rather than compete with the competition. Unsophisticated management becomes distracted when they see their 100% market share decline to 90%, then 80%, etc., as competitors emerge, but competitors are necessary to drive sales growth in a new category. 50% of a million dollar category is better than 100% of a $500,000 category.

The Blue Light Special Questions for today: How can a company selling goods for less than their competition go bankrupt for lack of sales? Don’t buyers ferret out lower prices and keep a company alive? Not if their brand sinks.

Category competition increased.

It’s instructive to compare Kmart with Target and Walmart. Kmart’s ultimate failure in the marketplace was virtually guaranteed by allowing Target and Walmart to identify themselves successfully with Kmart’s low-cost concept of retailing. Perhaps Kmart expected their lower prices to be enough. How wrong they were.

Retail sales success is a result of three intertwined factors: Product. Price. Location.

Prices must appeal to buyers. Products must be desirable. And store locations must be convenient.

Kmart succeeded in many cases on all three fronts. The Houston Chronicle (January 15, 2003) reported how Kmart customer Bob Franchville bought a bath set from the Westheimer Kmart store for $9.95. “I was at Home Depot earlier, and it cost $60 there,” he said. Kmart’s price was a fraction of a competitor’s and the store’s location is prime. But Home Depot was getting 6-times the price for the same product.

Lower prices, not enough.

The answer is that both Target and Walmart have built more powerful brands than Kmart. Neither have lower prices than Kmart. And yet, even with the lowest prices, Kmart is not the preferred retailer among shoppers.

Think about it. Most companies believe they can gain a competitive advantage by offering goods at a lower price and Kmart represents a startling, real-life case history of how wrong that strategy can be.

At this eleventh hour, the Kmart management’s prayer is to improve cash flow, not by increasing sales but by reducing costs. If this were a game of chess, Kmart is hearing the word “Checkmate!” from its competitors. When a company competes without a preferred brand, the only move left is to reduce costs, close stores and abandon customers and markets. Where does that lead? The incredibly tragic ripple effect extends, unfortunately, to a legion of suppliers, manufacturers and related industries. And how is it possible to overlook the devastation this caused with thousands upon thousands of shareholders and employees who had vested their trust in Kmart’s leadership?

The category is now forever changed.

Even if Kmart emerges from bankruptcy, Target and Walmart will still be there, stronger than ever. Their positions as category leaders are firmly established in the minds of the purchasing public. If Kmart’s solution to tomorrow’s problem is to close more stores and surrender both customers and competitive turf, it won’t be long before Kmart’s Blue Light is turned off. Forever.

Kmart abdicated the throne they built. Competitors could not have overcome Kmart’s leadership position if Kmart had not given it away.

A Prescription for Success?

Kmart needs not only to downsize but also to focus on creating a new category. The list of closed stores leads one to believe that Kmart has identified “city dwellers” as core customer. There may be an opportunity here. If research reveals there is a valid niche in the Hispanic market and no preferred brand exists in that market and Kmart has enough money and the time and the management skills, the strategy of building a Hispanic Kmart brand might work. But, we do not know what research would support in this case.

Kmart, as a brand, having once created a new industry category, owned the battlefield in its infancy. But, either their complacency or their ignorance of the rules of higher level competitive warfare ultimately did them in. The Kmart sword is now about to be surrendered to their competitors.

Kmart is no longer special. In a highly competitive marketplace, what is not special, is not.

Last one leaving the building, turn off the Blue Light.

Tags: Branding, business strategy, communications strategy, competitive advantage, competitive marketplace, influencing purchase decisions, managing identity, Marketing

This entry was posted on Friday, February 7th, 2003 at 12:32 am and is filed under Branding. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.