The sad saga of Saturn.

October 1, 2005

Fundamentally, there are two ways to increase sales: (1) Expand the brand, or (2) Expand the brand’s market share.

Most companies focus on the first way, expanding the brand. While this

might seem to work in the short term, expanding the brand will eventually weaken the brand and leave it in worse shape than before the process began.

While it’s more difficult to expand a brand’s market share, this is the better way to to. The larger the market share, the more powerful a

brand becomes. When a brand reaches 50 percent or more market share, it becomes so dominant that it is almost impossible for a competitor to overtake.

Consider Microsoft Windows, with a worldwide share of the personal computer operating system market of 94 percent. How is the No. 2 brand, Apple’s Macintosh, going to compete with Windows?

By building a better operating system? Macintosh already has the better operating system. Here’s what the country’s foremost technology expert (Walter S. Mossberg of The Wall Street Journal) has to say: “Macs have better hardware, a better operating system and better bundled software than Windows PCs.”

Even with better hardware, a better operating system and better bundled software, Apple has only 3 percent of the market.

How would you compete with Heinz ketchup? By making a better-tasting ketchup?

How would you compete with Tabasco pepper sauce? By making a better-tasting pepper sauce?

It’s not a better product or service that makes a brand powerful. It’s the brand’s market share. Brands like McDonald’s, Starbucks, Rolex and many other brands are powerful because they dominate their market segments.

Does McDonald’s make a better hamburger than Burger King? Does Starbucks make better coffee than Seattle’s Best Coffee or Caribou Coffee? Does Rolex make a better watch than dozens of other luxury watch brands?

Perhaps. Perhaps not. But a tangible difference in product quality is rarely a factor in the continuing success of a leading brand. Over time, most brands in a category tend to be quite similar. The consumer, however, notices a difference created by the brand name itself.

Perception dictates reality. Starbucks coffee tastes better because the consumer thinks it tastes better.

The larger the market share, the more dominant the brand, the greater effect the brand has on the consumer’s perception of reality. All candy bars are pretty much alike, because no one brand dominates the category. All ketchup is not alike, however, because Heinz dominates the ketchup category.

Every one percent increase in a brand’s market share does two things, both favorable. One, it increases the power of the brand in the mind of the consumer and two, it decreases the power of competitive brands.

The ultimate goal of a marketing campaign should be to dominate the brand’s category so the brand itself becomes a generic name for the category. Kleenex. WD-40. Jell-O.

Which brings up the sad saga of Saturn.

Here is a brand introduced just 15 years ago in a highly competitive category. In 1994, just four years after its introduction, Saturn hit its high-water mark, selling 286,003 cars. That year, the average Saturn dealer sold more vehicles than the average of any other brand. Here are the numbers.

• Saturn . . . .  960

• Toyota . . . . 841

• Ford . . . . . . 746

• Honda . . . .  677

• Nissan . . . .  661

• Chevrolet . . 553

That was the year the “Saturn spirit” was in full bloom. That was the year

44,000 owners and families attended a “homecoming” at the Saturn plant in Spring Hill, Tennessee.

So what did Saturn do next? Did it try to expand its market share? Or did it try to expand the Saturn brand into larger and more expensive vehicles?

What would you have done next? What did every automotive “expert” tell Saturn it should do next?

You’re right. Expand the brand.

A typical quote from that year. “Many analysts feel that Saturn will eventually need a bigger model to retain customers as they older and more affluent,” reported The Wall Street Journal in its June 17, 1994 issue.

In the February 9, 1998 issue of Automotive News,Ron Zarella, vice president of GM’s North American sales, service and marketing, was quoted as saying, “We’re doing everything we can to get them a wider product range.”

In the March 9, 1998 issue of Automotive News, Charles Child, news editor, said: “GM has to bit the bullet and let Saturn spread its wings. That is, give Saturn a full line of cars and light trucks as soon as practical.”

In January 1999, Cynthia Trudell took over as head of Saturn and as you might expect, one of the first things she said was that Saturn is “definitely looking for ways to expand the portfolio.” (Ms. Trudell was the first woman to head a car division at any domestic or foreign auto maker.)

Two years later, Ms. Trudell was gone and Annette Clayton took over. The strategy didn’t change, however. “My focus for the immediate future,” said Ms. Clayton, “is to prepare us for the SUV launch and to position us to grow the portfolio.”

The larger Saturn (the S series) was introduced in 1999. The sport-utility vehicle (the Vue) in 2002 and a replacement for the original Saturn (the Ion), also in 2002.

When Bob Lutz arrived at GM as vice chairman responsible for product development, he sounded the same tune. In the December 13, 2004 issue of Fortune, he was quoted as saying: “We’re investing in Saturn’s future because the inherent health of the brand is quite good. It just needs a bigger, more exciting product portfolio.”

Nothing helped. Saturn sales fluctuated over the years, but never reached the high-water mark of 1994. Last year, in spite of the fact that Saturn dealers had three models to sell, as opposed to the original one, sales were only 212,017 units, down 26 percent from 1994. Average sales per dealer were only 483 units, half the level of a decade earlier.

Instead of expanding the brand, what should Saturn have done? I would have tried to expand the brand’s market share.

In its high-water year, Saturn had 16 percent of the “small” or compact car category. Out of 23 models of small cars, Saturn was second only to Ford Escort. Here are the numbers.

• Ford Escort . . . . . . . . . . . . 19 percent

• Saturn . . . . . . . . . . . . . . . . 16 percent

• Honda Civic . . . . . . . . . . . 15 percent

• Toyota Corolla . . . . . . . . . 12 percent

• Chevrolet Cavalier . . . . . . 11 percent

• Chevrolet/Geo Prizm . . . .   7 percent

• All others . . . . . . . . . . . . .  15 percent

Sixteen percent is not exactly the lion’s share of a category. Instead of spending millions of dollars developing a larger Saturn and a sport-utility vehicle, I would have spent the money improving the basic S series model in order to capture some of the 84 percent of the small car market that Saturn didn’t own.

It took Saturn 11 years to introduce a redesign of the S series. In those same 11 years, Honda introduced three generations of its Civic compact.

In 1994, the S series Saturn outsold the Civic by 7 percent.

In 2004, the Civic outsold the S series replacement (the Ion) by 197 percent.

Fundamentally, there are two ways to increase sales: (1) Expand the brand, or (2) Expand the brand’s market share.

Overwhelming, marketing managers believe in the expand-the-brand philosophy. Will articles like this one change many minds? Probably not.

When you believe in something, you seldom change your mind. When you believe in something, what you generally do when faced with facts that seem to contradict your beliefs is to fault the execution, not the strategy.

Conventional wisdom dies hard. You can defend any strategy by pointing out flaws in its execution.

“Saturn didn’t move fast enough to expand the brand,” goes the thinking of the conventional-wisdom crowd.

Yeah, sure.