MarketingInsideOut.com

I’m not a big fan of Al Ries and have disagreed with some of his premises, but I found myself nodding and agreeing with him (out loud…and I was alone) when I read his latest article in AdAge “Companies Must Lift the Velvet Curtain”.

The point he clearly makes is that management can’t function independent of marketing and be successful. He uses a couple of compelling examples to make his point. Chrysler vs FedEx.

The tales of Chrysler and new CEO Robert Nardelli’s cost cutting efforts to achieve faster and cheaper.

Faster? More efficiently? Is that what Chrysler’s problem is? Any marketing person knows what Chrysler’s problem is. It’s not a manufacturing problem and it’s not a pricing problem.

Name one reason to buy a Chrysler? I can’t, can you? Chrysler’s problem is a branding problem.

Making cheaper Chryslers faster is not going to solve the company’s problem. As a matter of fact, Chrysler products, on a comparative basis, are already cheaper than Toyotas, Hondas or Nissans.

From a marketing point of view, most Chrysler brands are a mess. What’s a Chrysler? Is it an inexpensive PT Cruiser or an expensive Chrysler 300?

What’s a Dodge? It’s a cheap, or expensive, car or truck.

Now the compelling example that did it right: FedEx.

The early history of Federal Express illustrates the difference between the management approach and the marketing approach. In other words, the difference between competing on pricing and competing on branding.

Early on, Federal Express tried to compete with air-cargo leader Emery Air Freight by undercutting them on price. Each of Federal Express’ three services (overnight, two-day and three-day) was priced lower than the comparable Emery service.

It didn’t work. In its first three years, Federal Express lost $29 million.

Then Federal Express switched to a branding approach. It narrowed its focus to overnight delivery and increased its advertising budget five fold. “When it absolutely, positively has to be there overnight.”

The turnaround was astonishing. Federal Express went on to dominate the overnight-delivery business and became a much larger company than Emery.

The irony in the story is that Federal Express never did give up its two-day and three-day delivery services. These alternatives can still be found on the company’s air bills. Yet FedEx is still perceived as the “overnight” delivery service.

I wholeheartedly agree with Ries that few companies get in trouble because of marketing mistakes. They get in trouble because of management mistakes that get blamed on marketing. Management wants sales. Marketing wants brand building. It’s the same end goal, but the game is played differently.

You can sell anything if it’s cheap enough, but that doesn’t make it a good business decision to center on cost cutting. Because growth then is strictly a function of constantly increasing volume. That’s not sustainable. And it can defeat profit objectives. Building a strong brand allows you to make it more expensive than the competition and still grow. You create the perception that your brand must be “better.” Like Starbucks, Red Bull, Absolut, Grey Goose, Rolex, Lexus, Mercedes-Benz and dozens of other brands.

Where would FedEx be today if the company had hired a “cost-cutting, manufacturing expert” as its chief executive officer?

Probably in the same situation as Chrysler.