The principles of marketing: F . . O . . C . . V . . S.

January 1, 2010

A number of people have asked us to summarize our marketing principles in a simple, easy-to-remember way.

Good thought. Having written (or co-written) 11 books on the subject, I can see how ]]>

What’s the No.1 principle of marketing, at least as far as we’re concerned?

It’s the principle of focus. You narrow the focus in order to own a word in the mind of the consumer.

Without a fo ]]>

While “focus” should be the key ingredient in any marketing campaign, it’s not the whole story. So we developed an acronym called “FOCVS” which does sum up our key tho ]]>

FOCVS, a word using the original alphabet of the Roman Empire, consists of five key elements.

F is for “First.”

Nothing works better in marketing than being the first brand in a new category in the mind.

• Starbucks in high-end coffee. • Red Bull in energy drinks. • BlackBerry in wireless email. There are two issues, however, than many people miss. The first issue is what we mean by being “first.”

It’s the first brand in the mind that matters. Not the first brand in the category. was the first Internet bookstore, but not in the mind.

The first brand in the mind was

The second issue is “focus.” It’s always possible to become the first brand in a new category by narrowing your focus.

Take Dell which became the world’s No.1 brand of personal computer. Dell wasn’t the first personal computer in the mind. (Apple, IBM and a host of other brands got into the mind long before Michael Dell’s creation.)

Dell Computer narrowed its focus to direct sales only, the first brand to do so. This was the key decision that made the Dell brand a worldwide success.

Dell didn’t get started until 1984, nine years after the first personal computer hit the market. By 1984, the market was saturated with computer manufacturers. As Business Week reported in its August 8, 1983 issue: “Pounding on corporate doors are more than 150 makers of personal computers.”

Suppose you had said to one of these 150: “Let’s narrow the focus to direct sales only.”

That’s probably the opposite of what they wanted to do. “We need more distribution, not less,” might have been the likely response.

It gets worse. In that same issue, Business Week reported: “Computer and office automation companies are beginning to pitch comprehensive office systems that offer everything from personal computers to large central computers as well as the communications to connect all the equipment. This list of companies includes Burroughs, Data General, Digital Equipment, International Business Machines, Sperry, and Wang.”

(None of these PC brands are currently being marketed.)

Narrow the focus? Everybody was doing exactly the opposite. Expansion, not contraction was the order of the day.

It’s also the order of today’s day. You’ve probably noticed that Dell has joined the expansion crowd with predictable results.

What mystifies many marketing mavens is how two companies can use the same strategy with diametrically different results. One is successful; the other is not. A mystery that can be solved by assuming that the successful company has superior products.

And we’re left with the same old canard: The better product wins in the marketplace.

Hewlett-Packard is expanding its product line at the same rate as Dell. By 2006, the two companies had virtually identical worldwide PC market shares. Dell 17.1 percent. Hewlett-Packard 17.0 percent.

Three years later, Hewlett-Packard’s market share is 19.9 percent and Dell’s market share is 12.8 percent.

Even more ominous is Dell’s drop in net profit margins. In the decade ending in 2006, Dell had a net profit margin of 6.2 percent. Last year it was 4.1 percent versus Hewlett-Packard’s 7.0 percent.

What differentiates Hewlett-Packard from Dell? Hewlett-Packard is perceived as the leader in personal computers. And “leadership” is the most important aspect of a marketing program. You lose your leadership (as Dell has done) and you lose your marketing power.

Dell used to mean “direct.” What does Dell mean today?

A company with problems.

O is for “Opposite.”

What if you can’t be first in a new category? Is there no hope? Sure, there is.

Just be the opposite of the brand that did get into the mind first.

Red Bull came in 8.3-oz. cans, so Monster came in 16-oz. cans and rapidly became the No.2 energy-drink brand with 25 percent of the U.S. market.

A number of years ago, all perfume brands were feminine. So Revlon introduced “Charlie.” For three straight years in a row, Charlie was the world’s best-selling perfume.The Home Depot is a messy, male-oriented home improvement warehouse, so Lowe’s became neat, clean, female-oriented and a strong No.2 brand.

Walmart is “cheap,” so Target became “cheap chic” and a strong No.2 brand.

Stuck in the mushy middle was Kmart which went bankrupt.

Coca-Cola is the old, established cola brand, the real thing. Your parents drank Coca-Cola. So Pepsi-Cola focused on the younger crowd. The Pepsi Generation. (An idea Pepsi needs to reprise.)

Look at the numbers. The last flickering of the Pepsi Generation idea was in 2002 when Pepsi-Cola ran the rather insipid campaign “Think young. Drink young.” That was the year Coca-Cola had a 52.7 percent lead over Pepsi.

In 2003, Pepsi switched to: “The joy of Pepsi.”

In 2004: “It’s the cola.”

In 2009: “Refresh everything.”

Today, Coca-Cola has a 70.5 percent lead over Pepsi-Cola.

In marketing, the rich get richer and the poor get poorer. Why is this so? Because the rich generally own a word in the mind (leadership) and the poor do not.

Refresh everything? Pepsi should be trying to refresh something. My choice would have been the younger generation.

C is for “Category dominance.”

What is the primary objective of a marketing program anyway? Is it to increase sales? To increase profits? To build a brand in consumers’ minds?

All of these things are important, but they are only markers on the road to success. The primary objective of any marketing campaign is to dominate a category. When you can do that, your long-term success is almost guaranteed.

(Until the category evaporates, but that’s another story.)

Take Sony, for example. In a recent survey of 3,600 Asian consumers the No.1 brand was Sony. In a recent survey of of 1,500 American consumers the No.1 brand was Sony.

Like most Japanese electronics companies, Sony is heavily line-extended. Sony puts its brand name on television sets, videocassette recorders, digital cameras, personal computers, cellphones, semiconductors, camcorders, DVD players, MP3 players, stereos, broadcast video equipment, batteries and a host of other products.

In which categories is Sony the leader?

I don’t know and I’m pretty sure that most consumers don’t know either. Sony’s lack of a leadership perception in any individual category, in my opinion, is the reason for Sony’s lackluster financial performance.

In the past 10 years, Sony has had revenues of $681.6 billion and net profits after taxes of $9.5 billion, or a net profit margin of just 1.4 percent. Which is one reason Sir Howard Stringer is now Sony’s CEO. (When a Japanese company is run by an Englishman, you know the Japanese company is in trouble.)

Compare Sony with Nintendo, the company that dominates the videogame player category. In the past 10 years, Nintendo has had revenues of $75.3 billion and net profits of $11.5 billion, or a net profit margin of an astonishing 15.3 percent.

Ask a few marketing managers which is the stronger brand, Sony or Nintendo? Don’t be surprised if most of them say “Sony.”

In category after category, well-known, highly-admired global megabrands are trying to compete with narrowly-focused brands. Invariably the narrowly-focused brands are the winners.

Take Duracell, the leader in appliance batteries. Sony, Kodak, Toshiba and other companies with well-known brand names have tried to compete with Duracell in the battery business with little to show for their efforts.

The category is the key to success. The brand is only a tool to facilitate that process.

V is for “Visual hammer.”

The verbally-oriented left brainers who run most major companies don’t seem to understand the power of a visual.

Take Bost on Chicken which early in its history changed its name to Boston Market and promptly went bankrupt.

Why in the world would they have done that? Boston Chicken was the first food chain to feature “rotisserie chicken,” an easy-to-visualize concept.

But how do you visualize “market?”

Every brand needs two things: (1) A verbal nail to pre-empt a conceptual idea and (2) A visual hammer to hammer that conceptual idea into consumers’ minds.

Some effective verbal nails and their associated visual hammers.

• “The real thing” and the hobble-skirt Coke bottle. • “Marlboro country” and cowboys. • “Not from concentrate” and the straw in the orange. • “The shoe that breathes” and the smoke from a Geox. • “Engineered like no other car in the world” and the TriStar logotype. • “King of Beers” and the Clydesdales. One important point. The verbal decision should comes first, not the visual. That’s true even though the visual is often more powerful than the verbal.

Take the Marlboro cowboy. While the American cowboy is a universally-admired symbol, it would be useless for a brand that didn’t want to hammer the “masculine” idea into consumers’ minds.

The Budweiser frog and the Aflac duck are striking visuals, but what words do they hammer into prospects’ minds?

In Budweiser’s case, the “Bud . . weis . . er” slogan was redundant.

In Aflac’s case, “We’ve got you under our wing,” is a relatively weak slogan.

S is for “Second brands.”

In the boardrooms of corporate America, you seldom hear the word “focus.” A common perception is that “focus” means sacrifice and what left-brain CEO wants to do that.

What you do hear a lot of is the word “expand.” How do we expand our brand into more categories, more price points, more distribution outlets, etc.?

The FOCVS answer to that question is the “second brand.” Keep your existing brand focused and launch a second brand to exploit a new market.

• As Levi’s did with “Dockers.” • As Toyota did with “Lexus.” • As Black & Decker did with “DeWalt.” • As Hanes did with “L’eggs.” Another common perception is that the launch of a second brand requires a major advertising investment. Not true.

When you study the histories of famous brands, you are stuck by how slowly those brands took off. That is true whether the brands were initially supported by massive advertising or not.

• It took Red Bull 9 years to reach $100 million in sales. • It took Microsoft 10 years to reach $100 million in sales. • It took Walmart 14 years to reach $100 million in sales. • It took Gatorade 18 years to reach $100 million in sales. A successful new brand (Red Bull, for example) is usually based on a new category (energy drink.) At first, consumers are leery of buying such brands because they don’t fit into existing buying patterns. Advertising doesn’t have the credibility to break down those barriers.

The best way to launch a new brand is with PR. Unlike advertising, PR has credibility with many consumers. Then, too, PR drives word of mouth which is the ultimate in brand credibility.

Since a PR campaign is usually far less expensive than an advertising campaign, PR is a better fit with the slow growth pattern of a new brand.

Ultimately, of  course, any new brand runs out of PR potential. That’s the time to switch to advertising.

F . . O . . C . . V . . S. That’s a summary of our marketing principles in a simple, easy-to-remember way.