Why do large companies suck at new products?

I get this question all the time and the answers are really quite simple. At the top of the list, it’s easier to buy than build. Why invest the time and effort and divert attention from the existing portfolio just to dig a dry hole?

More important is the simple arithmetic throughout the food chain. “How am I going to make my bonus/meet management’s expectations/reach my sales quota – you fill in the rest – if I divert my attention to a start up brand?”

So, if you’re a major player, you have a number of options when it comes to new products and brands.

First, you can bite the bullet and say, as I did at the outset of this posting, why bother? Let someone else build it, I’ll make an offer they can’t refuse. Mainly Diageo, but also others, fit this mode.

If you’re aggressive and smart, chances are, you’re also attuned to the marketplace (consumers and trade) and know how to create demand or capitalize on an opportunity. Just look at White Rock, Proximo, Beam, Campari and others.

Read more…

Too many choices.

Research in Motion (RIM), the makers of BlackBerrys, is having some problems. Their stock is down, the new line of products has been delayed for a year and there are rumors of corporate sharks looking to take a bite out of them.

In the view of most observers, the problem stems from too many choices. Since 2007, they have introduced 37 models including BlackBerrys that flip, slide, with touch screens, touch screens and keyboards, high and low end products. The product line is too complicated. In a recent NY Times article, a market research firm estimated that their market share slipped from almost half in 2009 to roughly 10 percent in the US.

Compare that to Apple’s iPhone. There have only been four since 2008 and all were the same but differed only in storage or capabilities from earlier models. Apple made it simple and less is more.

Read more…

If you’ve been a Booze Business follower, you know that I like to keep close tabs on Diageo and follow the good, the bad and the “close but no cigars” assessment of their actions.

This past week or so provided lots of press worth commenting upon.

India

As part of their global strategy, Diageo seems to be concentrating on gaining a presence in emerging markets. To do that, they have developed relationships in various countries, focusing on local spirits, at least initially. They have ventures or are selling such locally made products as Raki in Turkey, Baiju in China and local vodka in Vietnam.

This week brought the news that they are launching a local Indian whisky aimed at the country’s middle-income drinkers. Considering the fact that the spirits market in India is 234 million 9-liter cases (2^nd only to china and Russia in volume) and growing at a compounded rate of 20% the last five years – I’d say it’s a good move.

But it won’t be easy, given the tough advertising rules for liquor. According to my friend and publisher Bishan Kumar (I write a monthly column for his magazine in India called Spiritz), the pathway to promotion of liquor is centered on point of sale and event sponsorship.

Diageo will also have to confront other past issues. It had a local product (Gilbey’s Green Label) but sold it in 2002 to concentrate on global brands. Now it wants to go back to concentrating on local brands. I suppose time and management changes allow for course adjustments.

Also, in July the US SEC charged the company with violating the Corrupt Practices Act in part for illicit payments made to Indian officials between 2003 and 2009. I read that Diageo agreed to pay more than $16 million to settle the charges. I guess they figured point of sale and event promotions are more effective brand building tools.

ESPN

In another recent move, Diageo signed a deal to become “presenting sponsor” on two shows and – get this – on both the English and Spanish versions of the broadcasts. It’s a smart move to reach different types of audiences with a consistent message.

On the other hand, their initial choice of brands includes Captain Morgan. That made me smile. Some time ago in doing some research on brand potential among Latino consumers, a focus group moderator asked a group of consumers with a Caribbean background how they felt about the brand. One respondent said something like, “Captain Morgan… wasn’t he the dude that sailed all over the Caribbean burning and pillaging? You want me to buy his rum? For all I know he destroyed my great-great-great grandfather’s village.”

Talk about dumb

Diageo announced last week that they are moving production of the US supply of Red Stripe beer from Jamaica to the US.

One of my readers sent me an email on the subject that just about sums it up. “They’ve got to be kidding! They’re not just moving bottling, but production itself. Do they think that consumers are stupid?”

I wrote back and told him not to get too excited. They thought it would be okay since the new facility will also be in Jamaica… Queens.

Besides, if you’re going to take a chance on moving the production of Captain Morgan from one place to another when the brand faces stiff competition, changing Red Stripe production is a trifling matter.

I have a new slogan for them – At Diageo, Our Accountants Rule.

My favorite event of the week

I don’t know how much Diageo’s deal with P Diddy is worth – some give the number in 8 digits or even 9 digit millions – but he sure has done good things for the brand.

Last week, however, he lost it in a club in Atlanta and had to spend much of his time apologizing for what some have referred to as a “foul-mouthed vodka rant.”

Apparently he saw some guy drinking Grey Goose rather than Ciroc and decided to defend his brand by 1) throwing ice at him 2) calling him the “N” word and 3) maligning the guy’s sexual persuasion.

An online blog called Hollywood Gossip quoted him as tweeting, “I’m sorry for the ignorant way I represented myself … I have backslid and regressed. Forgive me for my ignorance. Pray for me pls.”

Don’t apologize Mr. Diddy, Diageo could care less. Your contract is safe. As for me, I just want you to know that you’re my kind of brand ambassador.

At lunch the other day with an old friend, who worked on Seagram new products and packaging design, I was reminded of the Coyote Tequila story and the supremacy of product over imagery. It is also a story of how logic and formulae don’t work in new product development.

When I was running new products, the single-minded goal was to fill holes in the overall portfolio. There was no larger hole than the absence of tequila.

Oh sure, there were 2 wannabe brands in the company’s history. One was Olmeca and the other was Mariachi, both now owned by Pernod Ricard. Not sure how well or poorly they are doing now, but at the time they were in the “brand hospice” division of the company. So the mission was to create a tequila brand that could compete with the dominant Jose Cuervo in a category that at the time showed the promise that has since come to fruition. (This was pre-Patron.)

The project was launched with gusto, intensity and with the best team and intentions. No effort was spared; no resource (in or out of the company) was held back; it was full steam ahead.

First step on the journey was to develop a concept. One that could make the new brand stand out from the others on the market and perhaps do for tequila what Captain Morgan did for rum. After all, it was argued, Bacardi dominates rum much the same way as Cuervo does in tequila and the extra-added attraction of a flavored product could separate the new tequila from the rest. Hmmm, sounded logical to me.

But what’s the name and imagery? Coyote, of course… as in southwest, as in rough and tough, as in sneaks up on you and steals your cattle, as in – you get the picture.

To further borrow a page from the Captain Morgan playbook, a howling pedestal was conceived and produced for bars. Each time a bottle was taken off the pedestal a button was released and activated the sound of a howling Coyote. The trade loved it. It reminded all of us of the highly successful Captain mirrors that bars clamored for. It cost a bloody fortune but who cared, this was Seagram and we’re taking on tequila. We’ll make it up on volume, as the saying goes. (See Nov. 30, 2010 posting Great Tchotchkes (Swag) I Have Known.)

Now for the formulation. What we learned was that most people at the time thought the taste of tequila was awful and that’s why the Margarita was invented. For the rest, the awful taste was a badge of courage that would be forgotten after a few rounds of shots by the machismo.

As a result, someone in R&D came up with the notion that Coyote needed to be harsh, even harsher that Cuervo – a taste that replicated the southwest concept and was truly macho, as in fiery. So this ‘tequila with natural flavors’ was “spiced” with hot peppers. Might have been a billion on the Scoville chili peppers heat scale for all I know. Whatever, it was doomed from the outset. I can’t blame R&D as much as the marketing team and myself for jumping to the wrong conclusion and letting this happen.

On the one hand we had consumers and the trade loving the idea and the brand. That is, until they tasted it. No matter how hard we tried to get the heat down, it still tasted like crap and over time the damage was done.

Lessons learned: What works in one instance doesn’t necessarily work in another. There are no formulas to success in spirits marketing or in any category. Further, no matter how good the packaging, name and proposition is, if it tastes awful – remember the expression “lipstick on a pig.” Unless, of course, an awful taste is the concept.

By the way, Seagram never really got tequila right. In addition to Olmeca, Mariachi and Coyote, there were ill-fated efforts with Herradura and Patron. Margaritaville, the last attempt, ended when the lights went out.

But that’s another story.

Seems as though everywhere you go in NYC, you run into an ad for Malibu Black. It’s a new entry that according to the owners seeks to combine the smooth coconut flavor that you love with higher proof and less sweetness for a bolder taste of the Caribbean.

Translation: We’ve been watching the Flavored Rum category and finally noticed that Sailor Jerry was changing the Rum game so we thought we would follow along.

In fact, higher-proof, dark and spiced Rums are doing well. According to Shanken News Daily, Sailor Jerry (92 proof) grew by 59% in 2010 to 635,000 cases. The team that invented it now runs Proximo and their recent entry, Kraken (94 proof) sold 75,000 cases in its first year. The other three or four new entries in this sub-category are still trying to gain traction.

A few observations:

Seems to me, the 6 million case gorilla known as Captain Morgan, is stuck at the dock (including the 100 proof entry) while the flotilla sails off. Admiral Nelson and others are growing at the expense of the base brand and the line extensions don’t seem to be helping. Someone needs to walk the plank.

Malibu Black? Higher proof at 70? It’s still a coconut Rum without an image likely to appeal to the Sailor Jerry or Kraken drinker. Can’t you just hear the conversation leading up to the launch – “let’s make a dark rum, up the proof a bit and call it Black… a sure winner…well gotta run, don’t want to miss the 5:40.”

I had a number of conversations with James Espey about Malibu over the years. James, along with Tom Jago and Peter Fleck, created the brand. (Currently they also are the owners of Last Drop Distillers Limited.)

James has written an interesting article called The True Story of Malibu. The article raises some interesting concepts on the creation of Malibu that are still applicable to the brand and new entries in general. (Send me an email or hit the comment box if you’d like a copy.)

James points out that Malibu succeeded because the product innovation was bold and outside the box. That was facilitated by an entrepreneurial spirit and effort that managed to overcome corporate obstacles. Above all, instinct and tenacity were key elements rather than studying the concept to death.

These elements apply to Sailor Jerry and to Kraken, in my view. Which helps to explain why the spirits industry giants are better at buying new brands than creating them.

In keeping with the theme of the last few postings on sales promotion, dealer loaders and assorted point of sale issues, I thought I would continue that theme particularly in light of the holiday season. The Advertising and Promotion Awards in the Nov/Dec issue of Beverage Dynamics also prompted me to address this subject.

First, for the uninformed, the Urban Dictionary defines Tsotchke as “free goods given by companies to consumers, buyers, trade-show participants or other target audiences to promote brand recognition or customer loyalty.”

So, here are some points of view on the subject including some picks and pans from yours truly…

The most consistent and impactful POS has to go to the Absolut folks, particularly their multi-case floor displays. In fact, Beverage Dynamics gave it 1^st place for 2010. No wonder, since Carol Giaconelli at Pernod Ricard (and a Seagram alumnae) is among the most imaginative sales promotion people I know. Even after working on Absolut for many years and for different regimes, Carol maintains her creative edge.

While I’m on the subject, I suppose the Hall of Fame for floor displays with loader items has to be the Captain Morgan mirror. According to Sam Ellias, the CM guru back in the day, that promotion was a prominent reason for the brand’s early success. Apparently, all a sales person had to do was to show the mirror in order to get the question, “how many cases do I need to buy?”

I managed to find a photo online. Despite it’s popularity at the time, you can still get one on eBay for under $25.

Now to the pans…

There are lots of awards in Beverage Dynamics for co-packs, gift packs and cartons/tins. The so-called value added packaging. Sorry, but I still don’t get it. In this environment manufacturers expect to entice consumers with Tsotchkes? If you want to measure effectiveness go to a flea market or eBay after the holidays and you’ll find glasses, shakers and pitchers galore. I wouldn’t be surprised if most of them came from retailers.

The Hall of Shame best/worst sales promotion item of all time came under my watch on behalf of Coyote Tequila. Don’t get me wrong the promotion item was great. It was a back bar pedestal with a howling Coyote as the centerpiece with a bottle on the base. Each time the bartender picked up the bottle a button was triggered and the sound of a howling Coyote was heard. Very cool. Very effective.

Just one small problem — Coyote Tequila tasted like crap. As the saying goes, “I wouldn’t drink it with your mouth.”

And now, dear reader, I have two questions for you.

Care to share your nominees for the best and worst promotions you’ve seen now or in the past? Either hit the comment button or send me an email.

Also, as I went through the 40 advertising and promotion awards by Beverage Dynamics, there were lots of first, second or third place winners from many major suppliers — Brown Forman, Heaven Hill, Skyy/Campari, Pernod, Bacardi and others. None were from Diageo. I wonder why? It could be that their market position and brand shares allows them to spend in other ways. That would explain the dearth of POS recognition. But no ads, traditional or digital, made it either. Huh.

As we used to say in Brooklyn, wait ‘til next year.

Borrowed credentials is a term I like to use when a brand “borrows” something or someone to identify with, such as a brand name or a person as the endorser.

The intent is the “approval” or “license” to give a brand some prominence. But, more often than not, it doesn’t seem to work.

Three categories will help you to see where I’m going:

1. A brand that has licensed the name from another business or category. Godiva, for example.
2. A brand closely identified with a star or celebrity. Such as, Ciroc.
3. (My favorite) A brand named after a star or celebrity.

So here we go…

Licensed Brand Name

The two that come most readily to mind are Godiva and Starbuck’s, both in the liqueur category. I gotta tell you that I thought Godiva would be a crack-of-the-bat homerun. And, I wanted to license Starbuck’s so badly, I could taste it. Alas, neither has set the world on fire.

Association with a star or celebrity

This is a mixed bag best characterized by the nursery rhyme… “There once was a girl with a curl in the middle of her forehead. When she was good she was very, very good but when she was bad she was horrid.”

So in the “good” category we have (not necessarily in order of goodness):

• Ciroc and P Diddy (forgive me if I have the wrong name; who can keep up?). Probably the gold standard in celebrity links.
• Crystal Head Vodka and Dan Aykroyd — talk about chutzpah.
• Cabo and Sammy Hagar — (notice I didn’t say Cabo Wabo) good for you Skyy, it’s about the product not the star.
• Red Stag and Kid Rock — the brand is a homerun with or without him. But he sure does help.
• Margaritaville and Jimmy Buffett — remind me to tell how this came about. But even without Seagram and me, it’s doing well. But, Land Shark beer is doing even better.

The “not so good” entries I’ve come up with so far (let me know about any I’ve missed) include some that faded faster than a cold beer on a hot day:

• 901 Tequila and Justin Timberlake — run that by me again? I got it but I don’t get it.
• Sobieski Vodka and Bruce Willis — it’s the price point, dummy. It ain’t about you. Even if you’re still involved.
• Godfather Vodka — You got to be joking.
• Conjure Cognac — by Ludacris. I totally agree but ludicrous is spelled wrong.
• Armadale Vodka — by Jay Z.  Why don’t you ask P Diddy how it’s done?
• 3 Vodka — by Jermaine Dupri. Enough said.
• Mansinthe — by Marilyn Manson. I didn’t make this up, folks.

Named after a star or celebrity

My favorites by far. Do I hear a drum roll?

So far I covered the good and the bad. Here comes the ugly:

• Trump Vodka. He doesn’t even drink for heaven’s sake. Could be a pilot for Celebrity Booze.
• Willie Nelson’s Old Whiskey River Bourbon. Enough said.
• Danny Devito’s Limoncello. Close but no cigars.
• Jefferson and Sam Houston Bourbon. Not kidding; Google it.
• Frida Kahlo Tequila. I love her and her work but… who dun it?

And the winner is…

• McMahon Vodka. Would have worked with a name like, “Here’s… Johnny.”

Lessons learned:

None of the top selling brands have borrowed credentials…unless you count Captain Morgan.

I would like to meet the people behind some of these efforts, there’s a bridge they might be interested in buying.

Where would the spirits industry be without brands to pour off?

What’s next…the Lindsey Lohan Liqueur?

The last posting about Seagram and vodka neglected to point out that while there were difficulties in the category (pre Absolut) the company had phenomenal growth with Seagram’s Gin, Crown Royal and Captain Morgan.

In fact, Captain Morgan is a case study — in spirits and other businesses — about how to develop, nurture and grow a brand when all oars in the water are pulling in the same direction. I’ll go into this in more detail another time.

For now, let’s look at some numbers.

Currently, Captain Morgan Original Spiced Rum plus Parrott Bay sells over 6 million cases in the US. But, for the first time in its history, the brand had a down year in 2009. This is probably due, in part, to the economy but also a function of the growth of Rum brands like Sailor Jerry and Admiral Nelson — both brands grew by double digits from ’08 to ’09.

Further, from the birth of the brand until the close of Seagram, Captain Morgan had a Compound Annual Growth Rate of over 16%. For the past 8 or 9 years the CAGR was less than half of that.

Could be due to a number of things…a new generation of drinkers with new Rum tastes and interests, a changing competitive climate, the inevitability of brand life cycles, portfolio focus elsewhere, all of the above and other reasons.

For those who worked on the brand back in the day, I’d bet that among the most vivid recollections is hitting the million cases mark. It took well over ten years for the brand to hit that number in 1995. But it took much less time to hit two million cases.

In fact, between the planning for a million cases celebration and the event itself, the brand doubled its volume.

That, my friends, is called momentum.

Here is another story from Bob McBreen…

An East Coast retailer persuaded Seagram to hire his son. He started his career like most, calling on stores during the day and doing on-premise promotions at night. On this particular night he was working a Captain Morgan drink night and since he was the “new guy” he had to wear the captain suit.

It seems that he had a bit too much to drink, and in direct violation of company policy he decided to drive home instead of finding alternate means. Shortly after leaving the bar, with his reactions a bit dulled from sampling the Captain, he rear-ended the car stopped in front of him at a traffic light. Realizing that he was in a bit of trouble he decided that his best course of action was to get out of there as quickly as possible. He left the car and ran to a nearby business where he caught a cab home.

Once safely home he made another fateful decision and called the police to report that his car was stolen. This was just about the time that a police car rolled up to the scene of the accident. When the officer asked the driver of the car that was rear-ended what happen he said that he wasn’t really sure but the guy driving the car that hit him was dressed as a pirate and ran away.

As you can imagine it didn’t take long for law enforcement to figure out what happened and a few days later the young Seagram recruit was back working behind the counter at his family’s liquor store.

The Captain is a fascinating brand. When I was first introduced to it, as a marketer I thought, “a cartoon character on a liquor bottle?” I soon learned that its strong following among consumers set an industry standard for growth. In fact, between the time a million case celebration was planned and held, the brand had grown to 3 million cases.

The story behind the brand and its double-digit growth for so many years make it a wonderful case study about the industry and new products. (I’ll get into it some other time.)

It shouldn’t come as a surprise, therefore, to learn that I’m closely following the “battle” over the current brand owner’s decision to move the production from Puerto Rico to the US Virgin Islands. Lots of “volleys” back and forth via press releases, lobbying, congressional involvement…in other words, quite a skirmish.

I’m not sure I get it all but as in most business issues, it’s about the money.

Without taking sides, and hopefully in a nonpartisan way, I have a few observations.

First, a friend and colleague who was instrumental in the birth and upbringing of the brand recently mentioned that in the beginning, Rums of Puerto Rico (the island’s marketing arm) wouldn’t recognize Captain Morgan as a “legitimate” Rum. It wasn’t until the brand started to grow significantly that it was able to share in the marketing support dollars. They’re now fighting to keep it in PR. Ironic isn’t it?

Second, I always thought that when you change distillery locations the product changes. That’s what the production folks in Scotland always told me. More recently, some production friends have said “no way; we can replicate any taste anywhere.” Say it isn’t so…I still believe in the tooth fairy.

Finally and most ironic, despite having facilities in Jamaica, Seagram first began producing Rum in Puerto Rico in the 1950’s to take advantage of the economic incentives that were offered.

What goes around comes around.