The power of flanking.

January 1, 2008

The language of marketing has been borrowed from the military. We talk about defensive marketing, offensive marketing, guerrilla marketing. Often overlooked, however, is “flanking,” one of the ]]>

In 1940, Germany stunned France by going around its vaunted Maginot Line and attacking the country through Belgium. Six weeks later, the Battle of France was over.

In 1950, General Douglas MacArthur launched an amphibious operation at Inchon, flankin ]]>

Now isolated, the North Koreans rapidly retreated. Twelve days later, the two American armies joined up and prepared for the next stage of the war, the invasion of North Korea.

In 1991, at the start of the first Iraqi war, the U.S. and its allies were encamped in Kuwait and eastern Saudi Arabia. Naturally, the Iraqis assumed the invasion would come from the east.

So General H. Norman Schwarzkopf shifted 150,000 Allied forces 100 miles west and launched his major attack from the south, taking the enemy by surprise. After 100 hours, the Iraqi defense collapsed and the U.S. declared the war over.

Many marketers ignore the lessons of military history and continue to attack competitors “head-on,” a strategy that seldom works. They should consider flanking. Take Mercedes-Benz, for example.

Mercedes has increased its sales in the U.S. market every year for the last 13 years in a row, from 61,899 vehicles in 1994 to 247,934 vehicles in 2006, an increase of 300 percent. Through November of last year, Mercedes was up another 2.8 percent.

These increases were in spite of some pretty negative stories in the media about the reliability of the brand.

Headline: “An engineering icon slips.” Subhead: “Quality ratings for Mercedes drop in several surveys.” The Wall Street Journal, February 4, 2002.

Headline: “Mercedes’ head-on collision with a quality survey.” Business Week, July 21, 2003.

Headline: “Mercedes hits a pothole.” Subhead: “Owner complaints are up. Resale values are down.” Fortune, October 27, 2003.

The bad news continues. In a 2007 Consumer Reports’ survey of 36 leading automobile brands, Mercedes-Benz ranked dead last in “predicted reliability.”

No matter. Mercedes-Benz is a better automobile brand, if not a better automobile product. How did Mercedes-Benz achieve its marketing victory? It flanked Cadillac, its chief competitor at the time.

When Mercedes-Benz arrived in the American market, its cars were considerably more expensive than Cadillacs. The high prices created the perception that the Mercedes brand was somehow superior to the Cadillac brand. In other words, in a class by itself. (Nicely reinforced by its long-time advertising theme: “Engineered like no other car in the world.”)

As a result of its high prices, Mercedes sales took off slowly. Here are annual sales of Mercedes cars, a decade apart.

1954: 1,000 (The number imported, not all of which were sold that year.)

1964: 11,234.

1974: 38,826.

1984: 79,222.

1994: 73,002.

After 40 years in the American market, Mercedes was still selling fewer vehicles in a year than Chevrolet was selling in a month. No wonder General Motors wasn’t particularly concerned.

But Mercedes was building a brand that was going to pay enormous dividends down the road. In 2006, Mercedes-Benz outsold Cadillac 247,934 to 227,014.

Remember when Cadillac used to mean something? Remember when the “Cadillac of the category” was a compliment applied to many different brands in many different categories?

No longer. Cadillac is just another brand flanked by a competitor with a superior strategy.

What Mercedes did in automobiles, Absolut did in vodka. By pricing the brand 50 percent higher than the best-selling Smirnoff vodka, Absolut created a new category which ultimately became known as “premium” vodka.

What Absolut did to Smirnoff, Grey Goose did to Absolut. By pricing the brand 60 percent higher than Absolut, Grey Goose created a new category which ultimately became known as “ultra-premium” vodka. Seven years after its introduction, entrepreneur Sidney Frank sold his Grey Goose to Bacardi Ltd. for $2 billion.

Setting higher prices (or lower prices, for that matter) is just one of the many strategies involved in building better brands. But in many cases, it’s a necessary strategy in a branding program, or the new brand will never get off the ground.

But management never seems to learn this lesson.

With the enormous worldwide success of the Mercedes brand, you might think that German management would get the message that the brand is more important than the product. And one of the best ways to send a branding message is to make sure the product is priced right.

No so. According to Automotive News, the Daimler board member in charge of the Mercedes group, said “The price tag is not the defining characteristic of the Mercedes brand. It’s quality and technology.”

That’s the apparent justification for the launch of the relatively-cheap A-class Mercedes in Europe. In the U.S., Mercedes-Benz has promoted its low-end C-class models in the past with advertising messages such as: “Built like a Mercedes. Performs like a Mercedes. Priced like a regular car.”

Regular cars are priced like regular cars. Luxury cars are priced like luxury cars. That’s a marketing principle Mercedes management seems to have missed.

When you have a powerful brand like Mercedes, you can make these and many other mistakes and still come out ahead. Compare General Motors, Ford and Daimler AG.

In 2006, General Motors and Ford sold 14.7 million vehicles worldwide, more than three times the volume of Daimler AG (4.7 million), a figure that includes the money-losing Chrysler division which Daimler has since sold off.

Yet on the stock market, Daimler (minus Chrysler) is now worth $94.8 billion, more than three times the value of General Motors ($14.9 billion) and Ford ($14.1 billion) combined.

What should Cadillac have done? They should have moved upscale to block the Mercedes brand. Instead, they moved downscale with such models as the Cimarron and the Catera.

You don’t make money building better products; you make money building better brands.

Recently a senior editor of Automotive News wrote: “Sales success can be summed up in one word: Product. Product. Product. OK, three words, but you get the idea.”

I get the idea, but I don’t agree with it. Yet there seems to be a notion in management circles today that nothing matters except the product. Take Audi, for example.

No automotive brand has introduced as many advanced technological features as Audi, a division of Volkswagen. Some Audi innovations include all-wheel drive, direct fuel injection, the advanced design of the TT coupe and the 12-cylinder, aluminum-bodied A8.

The goal: “Audi AG wants to be the leading premium brand worldwide by 2010,” according to chairman Martin Winterkorn.

And just last year, Johan de Nysschen, executive vice president of Audi of America, said he wants to turn Audi into a sophisticated, edgy, luxury brand for the U.S. market as it shoots for a long-term sales goal of 200,000 vehicles a year by 2015.

Towards that goal, Audi just introduced the $110,000, 420-hp, space-frame R8 sports car, the $82,675 420-hp RS 4 cabriolet and the $51,275 354-hp S5 sports coupe. The sports cars, according to according to Marc Trahan, Audi’s No. 2 U.S. executive, “help to further strengthen and clarify what Audi is all about.”

Audi, in my opinion, is not going to be the leading premium brand worldwide by 2010 and Audi is not going to sell 200,000 vehicles in the U.S. by 2015.

In the 34 years that Audi has been selling vehicles in the U.S. market, it has never sold more than 100,000 units a year. In 2006, sales were just 90,116 units, less than Suzuki which sold 100,990 vehicles.

In the automobile field, like in many other fields, what matters most is the brand, not the product. And Audi is a weak brand for two reasons: (1) Unlike Mercedes-Benz, Audi did not flank the competition by introducing the first “expensive” automobile brand in the American market, and (2) Audi, at least in America, not a very good name.

Howdy “Audi.” Say hello to “Suzuki.” These names just don’t hav e the poetry of “Mercedes-Benz.”