This myth assumes that companies and individuals should recognize what everyone else sees. Procter and Gamble (PG) should not quiver and shake because Martha Stewart launched Clean, her detergent. We uncovered a number of intriguing cases in the July entry. Let’s see what other examples we can track down.
War is Declared in Fast Food
Insiders say the fast food leaders are going “upscale.” It is good to be wary of exaggeration. Pizza Hut (YUM) has seen its position shrink. Fewer diners are going to restaurants; more are eating at home including an increase in people eating alone. Papa John’s (PZZA) and Dominos (DPZ) have battered Pizza Hut (pardon the pun) by revamping their menus. The main goal on the pizza king front in the fast food war is to create more exciting menus, more specifically toppings. Pizza Hut really needs to take action because while some Pizza Huts deliver, they are primarily a restaurant and the delivery experts are escalating sales. So to be burdened with competitors who deliver and who are ramping up their toppings along with a general decline in restaurant going, they need to take decisive action! And, they have. One of their menu leaps is the seven alarm topping. They hope to join Dominos and Papa John’s in satisfying the hunger for hot fast food. DQ (BRK.A) has a new ad in which diners need a fire extinguisher.
Elsewhere in the fast food war, Taco Bell is taking on McDonald’s (MCD) by going upscale. Again, be wary of exaggeration. Taco Bell claims to offer a better breakfast – or so the argument runs. One challenge for Taco Bell is to convince enough people that they are really a head-to-head competitor with the longer-established McDonald’s, which also offers a more expansive and less ethnic menu. Compared to the pizza war, this does not constitute the front lines!
Detroit Re-enters the Luxury Car Market
The luxury car arena has its own long-term battle, surpassing the Thirty Years War. Anger stirs General Motors (GM), Ford (F) and Chrysler (FCAU) because Mercedes Benz, BMW, Lexus (TM) and Infinity took over luxury. Fifteen strokes behind the leaders, these corporations struggle for a hole in one to get back in the game.
Cadillac’s Escalade is doing well, but the overall brand continues to slip. Recent efforts include a valiant attempt to grab market share through the somewhat smaller ATS and CTS models. General Motors evidently thinks it can creep back into luxury with less ostentatious models. However, luxury car buyers are not embracing these diminutive offerings. Now, Cadillac offers discounts – a sure sign that the new models did not achieve their goal. Chrysler has not succeeded by pumping up its namesake brand to luxury status either. Their approach was to load up a nice, large car with many creature comforts. While attractive, the market did not see this as true luxury.
Ford gave up on Jaguar and is now trying to position Lincoln as a true luxury car, rather than a taxi, which is the way the market sees it. They too appear to be nibbling at the luxury market with smaller models. As good as these cars may be, buyers are blocking their application to join the Mercedes-Infinity club.
Painful Lessons for Corporations
A few painful lessons appear in these examples. One is that you cannot ratchet up to a different level by saying you are better or through advertizing and promotion. The product must be of such a quality that the market affirms any claim that is made. Even though this should be as plain as the nose on your face, corporations try to avoid improving quality through slick advertizing.
A second painful lesson is that products have limits. Pizza, for example, really does not compete with filet mignon, Beef Wellington or chateaubriand for six, Myth Buster favorites. Some pizza may be better than other pizza; it may be more exciting with better toppings, but pizza companies cannot break out or go upscale. The pizza makers simply caught up with their own markets. People were getting tired of the general fare: cheese or extra cheese, pepperoni and cheese, etc. New toppings and crusts and new apps, such as tracking the delivery of your pizza, represent a correction rather than ratcheting up.
Street wise investors may also recognize when a company’s efforts to reposition, rebrand or move into the luxury class takes a bizarre turn. One of Pizza Hut’s ploys to catch up to its speedy delivery rivals is to partner with Hershey’s (HSY) to offer a giant cookie. As pleasurable as this might be, it really does not amount to going upscale. The giant cookie – possibly soaked in mounds of melted chocolate – is not new. Maybe Hershey’s will make it better than anyone else. But, this remains a product for the fast-food junkie.
Be wary of claims that a product has been re-branded or is even trying to do so. Be especially wary of products that try to enter the luxury arena with a moderate product pumped up with slick advertizing. Yahoo (YHOO) has not been able to catch Google (GOOG) any more than Abercrombie and Fitch (ANF) or JC Penney (JCP) have moved shoulder to shoulder with Bloomingdales. To do so, each of these companies would have to improve quality and really achieve a new level of excellence.
“It’s As Plain As the Nose on Your Face” is turning out to be a thought-provoking myth, uncovering strategic successes and failures. Part III of this series will continue our examination.
Michael McTague, Ph.D. is Executive Vice President at Able Global Partners in New York, a private equity firm.
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