Exploring the Connection Between Brands and Corporate Performance

While the connection between product sales or revenue and corporate performance is obvious and better understood in the world of business, the connection between brands and company performance is not so clear. This is because it is not a direct one.

A recent post on LinkedIn and a comment to the post – to which I replied – have prompted this piece of mine. The post was about the lacklustre performance of two companies – Nike and Starbucks – in recent months and their consequent change of leadership and it said something about marketing vibrancy. I am not sure what exactly was meant by this; new buzzwords get invented in social media to describe what can be communicated in simple, well-understood terms to even industry professionals such as me.

Anyway, the main point of the post and the comment was that both these cases are marketing problems and not brand problems. I differed in my opinion and said that while these are not brand issues in a direct sense, they are both ultimately brand problems as well and that I would write a blog post on this to explain what I mean. At the outset, it is striking and odd that both Nike’s and Starbucks’ problems are to do with marketing, and yet it was the CEOs who were being replaced in both companies. Which tells us how critical the marketing function is in a corporation, and also that in both these companies there was little to no marketing accountability. At least in the case of Nike, there ought to have been a senior person as CMO who should have advised the CEO against taking the decisions that he did. But I also read that John Donahoe was brought in precisely to make Nike a digitally driven company, which is odd enough to begin with.

It has been widely reported that the previous CEO, John Donahoe, a former CFO with E-bay, tried to restructure their marketing and sales operations by going direct to consumer through online sales and also cut costs hugely as a result of culling large parts of Nike’s retailer network. It is inexplicable that no one in Nike realised just how important a good retailer network is to their business.

From what I know and have read and observed of Nike as an advertising professional in India in all the years of my long career, it is a maker of highly specialized footwear for sportspeople. There is a lot of continuous product design and manufacturing innovation needed in such as business as well as regular and consistent communication with customers and retailers. This would be true of not just Nike, but Adidas, Reebok and others as well. Not all customers of Nike sports gear are professional sportspeople, but they still require footwear that is specially designed for each type of sport, including trainers for walking, jogging or their daily fitness regimen at a gym.

From what I have read about Nike in recent months and years, it appears that the company had lost its focus on product innovation and consequently reduced its sales and marketing efforts as well. Therefore, to my mind, the problem begins at the product development stage and goes all the way to the retailing of it as well as brand communication. Cost-cutting should have been undertaken extremely carefully, if at all, ensuring that the uniqueness of the Nike product and the understanding of its special features or benefits is not sacrificed in any way. In fact, doubling down on more innovation in product design and quality would have made more sense to me than trying to go only online in sales and cutting costs.

What the CEO and the entire marketing team at Nike seems to have missed or forgotten is that the highly specialized kind of footwear that they make requires understanding and knowledge both within their company and with retailers who need to explain and sell these unique features to customers at the store. Digital or online sales would simply not be up to the task.

I can say that the pair of Nike trainers that I last bought in Goa are made in Vietnam, and previous ones might have been made in China, South Korea, Taiwan and elsewhere. This is already part of Nike’s cost rationalisation, I presume, so further cost-cutting was only going to hurt product innovation and/or sales. I can also see that in their innovation in terms of materials used, less of the shoe is faux leather or PU now, and more of it is fabric of some kind, and this too is being done to save on costs, I am sure. Besides, at least in India I can say that much more needs to be done to train their retailer staff on the entire range of Nike shoes, because the merchandise is not displayed in an organized fashion by sport type, nor are the staff able to explain product advantages well to customers.

We now come to the main issue of whether Nike’s is a marketing problem, a bad CEO decision problem or a brand problem. I think that if the top leadership of the company and the company board themselves understood the Nike brand well, they might not have hired John Donahoe and given him what is clearly a wrong mandate. Many times, problems like these occur because we don’t see companies as brands. And what we understand by brand is always so downstream, as to affect or influence only purchasing decisions and therefore relevant only at the end of the sales funnel.

It’s time to change the way we think about companies and brands. If we understood that brands are something the company starts out with, the moment they conceive of a product or service idea meant specifically for a particular type of customer, we would arrive at a very different set of conclusions and decisions. In the case of Nike – named after the Greek god of speed – if everyone at the company realized the value of the innovative products they create and if they were steeped in Nike’s brand values and practised them in the course of their work, they would not have veered to digital sales and nor would a CEO have been sacrificed.

To my mind, Nike is positioned as the sports gear brand that urges people to just go out there and compete the best they can. “Just do it” is their famous strapline and it is such an iconic brand today that just their swoosh graphic symbol says it all. Implicit in this brand strategy and positioning is the company’s belief that they can make winners out of everyone, and the values of being better than competition as well as yourself are critical to the Nike brand. I noticed decades ago that Nike took care to communicate to women as a distinct audience and this communication usually stressed on the “be better than yourself” aspect, boosting women’s confidence in themselves and their abilities.

With these as brand positioning and the brand’s values, Nike’s key brand attributes continue to be product innovation, cutting-edge technology and the most advanced materials from which they fashion their final product. The company needs to get back to its core and refocus on product innovation as well as on communicating and marketing their products well. That said, which is the last big Nike innovative product that you have seen or heard about, after Nike Air with Michael Jordan that was launched way back in 1985? None that I can think of, so I guess it’s high time Nike made product innovation and marketing its highest priority.

Now, to Starbucks. I will start by admitting that I know little about Starbucks coffee even as an advertising professional since I have not seen any brand communication from the company nor read much about it. From what I saw on their website recently, I think the company’s brand positioning and communication are not clear at all. Since I have never visited the US, I have not seen or visited a Starbucks outlet, and in all my visits to the UK and Europe or to Singapore for that matter, I never saw a Starbucks coffee outlet anywhere!

However, as someone who watches English films, I have to say that a single, distinct image comes to mind when I think of Starbucks coffee: office-goers buying their cup of coffee and newspaper before heading into office in the morning. I am not sure this is the consumer they wish to attract, but I would think office-goers are a fairly important source of business for Starbucks. And with the recent WFH phenomenon affecting business in many large cities in the US, I would imagine that there is loss of business owing to office buildings and business districts emptying out to a great extent.

Leaving this aspect aside, I think Starbucks needs to think about what type of consumer they wish to target and strong reasons why such people might want to visit a Starbucks outlet for a rather expensive cup of coffee. From what I read, there is plenty of competition in their own market, US, from the likes of Dunkin Donuts, Krispy Kreme, and several other smaller coffeehouse chains as well as in China, their second-largest market. I read that Starbucks has invested heavily in China, and opened a huge number of stores, but are now facing stiff competition there as well. In India, the company has tied up with Tata Consumer Products Ltd. and I am not sure how they are doing. For one thing, India already had a number of coffee chains operating such as Barista’s, Café Coffee Day, and now also has Dunkin Donuts and Krispy Crème, Costa Coffee and many more. I think Starbucks coffee would be priced at a premium compared to competition, and therefore there is every need to be focused on the right target audience and why they would want to visit a Starbucks outlet.

This necessarily means that Starbucks has to work on a proper brand positioning and strategy afresh, not just for its US market but for its global operations. Here, I think the recent problems that Starbucks faces in the US came from the Covid pandemic, where the company had to suddenly pivot to orders on mobile app and home/office delivery, as well as the WFH problem that has emptied out office areas. However, from hearing the previous CEO Laxman Narasimhan on CNBC, I got the impression that perhaps the company was stressing too much on technology and less on the consumer experience, and bringing more customers into the coffee-house.

Now, it has turned out that Starbucks too has hired a new CEO, Brian Niccol, who is known to have planned and executed a remarkable turn-around at Chipotle. This article from CNBC outlines some of his plans and ideas, and I think many of these might help remedy the situation in the short-term. However, I do think that the Company needs to work out a clear brand positioning and strategy for itself, and I don’t think this “third place” positioning is any differentiating strategy at all.

The LinkedIn post comment said it was a store problem in the case of Starbucks. Sorry, a store problem on this scale is actually a brand problem. There is no clear and compelling reason for visiting a Starbucks outlet and not enough of a brand differentiator that will make the target customer pay a premium price for a cup of coffee and spend time at the outlet consuming it in company.

I read on LinkedIn that WPP had been awarded the creative account for Starbucks in the US, and I hope they can work with the client team to find a distinctive, long-term strategy for the way forward. I also think that it might help if Howard Shultz – who has returned to Starbucks twice in the past 14-15 years to set things right – worked with the WPP-Starbucks team in articulating and guiding the direction forward, since he seems to understand the Starbucks brand best, but as yet a clear brand strategy remains unarticulated.

Also in the news recently is trouble at Stellantis, maker of Chrysler, Peugeot and Fiat brands of cars, and there too there seems to be a call for change of CEO. When I read about Stellantis on CNBC, it seemed more a problem with large unsold inventory in the US of mostly Chrysler vehicles possibly as a result of having raised prices too aggressively in 2023. Hopefully it will get sorted out, though the problem with large automobile conglomerates such as Stellantis and Renault-Nissan-Mitsubishi is that there are too many brands competing with each other within the group in the same or similar segments, and culling brands can cause turf issues between group companies. That said, Stellantis should watch out for problems in Europe next year, as tighter emissions regulations kick in and that too can cause disruptions that might affect their European brands.

As I end this piece, I think of India and a large airline merger that is taking place between Air India that the Tata Group acquired from the Indian government recently and Air Vistara another Tata airline that has been flying for a decade now in collaboration with Singapore Airlines. The communication in the news and in strange advertising that the company has been releasing is terribly confusing, and I hope they do not try and merge the Air India and Air Vistara brands, as I have already written and warned on my blog before. I find the decision to retire a well-functioning new airline Air Vistara, in favour of a beleaguered Air India with all the decades of undesirable baggage, not a sound business decision. I do think that Air India needs a brand new strategy and brand image in order to take on competition in India and overseas and do well, but with the government condition that the airline must operate for a minimum of five years as Air India after takeover, they have little choice. Otherwise, Air India could have been rebranded as Air Vistara and merged with the existing Air Vistara. A simpler and sounder strategy, I would think, with a much higher chance of success. As it is, the company is working the other way round to comply with a ridiculous government condition.

Under the circumstances, it might be better for the Tata Group to continue to fly Air Vistara for another three years at least (two years of Air India takeover are already done) just in case the Air India relaunch doesn’t work. I always that say a bird in hand is worth two in the bush! ???

Post script

I must mention that the post on LinkedIn that gave me the idea for writing this article exploring the connection between brands and company performance strikes me as possibly motivated by unprofessional PR agency idiot bosses in India, since they are known to indulge in such activities on social media and elsewhere. Besides, they seem to be obsessed with Nike and Starbucks for some strange reason.

I also think that the Wired article on Nike is again probably their mischief since The Wired usually doesn’t write about such subjects, and in any case I don’t usually read The Wired. This has come from guessing a conversation between me and an old colleague of mine at Ogilvy years ago, when I was in Delhi in 2006-08. Not only have they got The Wired to write such a piece, they also get Google to push this link.

This article was originally published on my blog on November 14, 2024.