Superbrands 2004 - Brand Autopsy

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Superbrands BRAND My Phone: (a) Takes Pictures, (b) Web Surfs, (c) Networks By Todd Wasserman Prices in the wireless industry will continue to decline while ad spending will rise, leading to more churn, all of which means lower profits. Who was the naysayer behind this gloomy forecast? AT&T Wireless, in its 2003 annual report. AT&T had reason to be glum. By year’s end, it was growing more slowly than its rivals after keeping its ad/promotional spend steady at $876 million. If not for its GoPhone service, which targets users with bad or no credit, like teens, the company would have lost subscribers. Thanks to Local Number Portability, an FCC ruling that let users keep their cell phone numbers when they switch subscribers, and hitches in updating its network, the company was predicting more churn this year. Luckily for management, Cingular Wireless—a joint venture between SBC and BellSouth—is buying AT&T Wireless for $41 billion. That will make Cingular the top dog in the category, but it will have several comers, including Verizon Wireless, quickly nipping at its heels. AT&T ironically has floated the idea of re-entering the market using a service resold by other carriers called AT&T Wireless. AT&T Wireless was hit especially hard over the last year. A software glitch in the fourth quarter cost it about $100 million and the brand, which has a bad customer service reputation, never found a winning ad strategy. After dumping the mLife theme devised by Ogilvy & Mather, New York, AT&T tried a campaign from Goodby, Silverstein & Partners, San Francisco, reminiscent of its former parent’s “Reach out” ads of the ’80s. By April, AT&T dumped Goodby and now the brand is in a holding pattern until the acquisition is completed. But AT&T is merely the weakest of the herd. Everyone else is experiencing the same pressures, which is good news, at least in the near-term, for the ad agencies, promo firms and media buyers that work wireless accounts. Verizon Wireless, for instance, told shareholders the rabid competition—it counts five rivals in S64 JUNE 21, 2004 COMPANY NAME, LOCATION LEAD AGENCY, LOCATION TELECOMMUNICATIONS nearly every market—could prompt it to spend even more on ads. Nextel, which has successfully defended its high-end niche, boosted its 2003 spend by $102 million after launching a splashy campaign from TBWA\Chiat\Day, New York, and inking an estimated $40 million deal with Nascar to be title sponsor of its racing series (previously the Winston Cup series) for the next decade. Chris Ambrosio, an analyst with Strategy Analytics, Boston, expects the combined Cingular/AT&T to spur more ad spending from rivals, especially Sprint PCS and Verizon. “I think spending’s going to be up for the next six to eight quarters,” he said. All the major players, save AT&T Wireless, are upping the ante, though growth overall is not what it used to be. There are 160 million people with wireless phones in a country of 250 million. By industry standards, though, that 90 million is not the cream of the crop. Many are too young, too old or credit-challenged. “People who wanted [wireless phones] got them,” said Jeffrey Kagan, an Atlanta-based telecom analyst, “but there are new users. Kids grow up and people decide prices have come down enough.” So while wireless firms are going after teens with new products or sub-brands (Virgin Mobile and Boost Mobile from Sprint PCS and Nextel, respectively), they’re also conspiring to keep the average rate per user steady. Text messaging and other bells and whistles like video and Web surfing (aka Wi-Fi) abound, not to mention the new fad of using wireless phones to arrange on-the-fly gettogethers. Though telecoms have spent little advertising Wi-Fi (versus chipmaker Intel, which has put about $300 million in ads behind its Centrino Wi-Fi technology), all are staking claims in the Wi-Fi arena. T-Mobile has been the most aggressive, with about 5,000 Wi-Fi spots in Borders, Kinko’s and other retail locales. Yet, as consumers rely more on wireless, the price of minutes keeps falling. Kagan, however, expects the relentless one-upmanship to end as a free-for-all ensues between telecoms and cable firms over integrated voice and data services like Voice-Over-IP, a method of placing cheap calls over the Internet. The changes may also revive longdistance firms like AT&T and MCI that have been sidelined in the wireless revolution. “The era of selling telephones with big buckets of minutes and catchy differentiators is over,” he said. B 1. Verizon Verizon, NY McCann-Erickson, NY $67.8 $1,136.7 6.37 75% 6.43 52.1 2. SBC SBC, San Antonio, TX GSD&M, Austin, TX 40.6 750.0 6.24 39% 6.63 53.3 3. AT&T AT&T, Basking Ridge, NJ Young & Rubicam, NY 34.5 211.9 6.15 93% 6.21 51.9 4. BellSouth BellSouth, Atlanta Grey, NY 21.5 250.0 6.28 52% 5.70 45.7 5. AT&T Wireless AT&T Wireless, Kirkland, WA Ogilvy & Mather, NY 16.7 799.1 N/A N/A N/A N/A 6. Qwest Qwest, Denver Foote, Cone & Belding, NY 14.3 63.0 5.97 34% 5.81 44.9 7. Sprint Sprint, Overland Park, KS Publicis and Hal Riney, SF 14.0 791.9 5.91 75% 5.41 44.0 8. Nextel Nextel, Reston, VA TBWA\Chiat\Day, NY 11.6 259.2 6.27 54% 5.60 44.1 9. Northern Telecom Northern Telecom, Toronto Temerlin-McClain, Irving, TX 9.7 4.8 6.09 11% 4.89 37.0 10. Alltel Alltel, Little Rock, AR DDB, Chicago 8.0 96.7 5.99 24% 5.45 43.2 TOTAL SALES (billions) MEDIA EXPENDITURES (millions) QUALITY FAMILIARITY PURCHASE INTENT EQUITY Sources: Brandweek research, company financial reports (sales); TNS/CMR (media); Harris Interactive/EquiTrend: QxFxPI=E (see key, page S18) www.brandweek.com
TOBACCO Consumption Down Slightly As Price Gap Narrows By Mike Beirne Cheap smokes are here to stay, but last year their growth rate finally slowed because the big boys, Philip Morris USA in particular, narrowed the price gap between its premium brands and the deep discounters. The chief reason? PM, partly in response to a lawsuit filed by wholesalers alleging antitrust violations, changed its retail and wholesale Leaders programs, which have rewarded participants that fulfill shelf display, signage and market share requirements with cash bonuses and discounts. Store operators who signed the old PM contract had the satisfaction of knowing they could sell No. 1 Marlboro cheaper, yet at a better margin, than competitors who were not in the merchandising program. The tobacco giant’s new program lowered wholesale prices and made cheaper Marlboros available to all store operators, not just those under contract. Bonuses and discounts also were cut, and other manufacturers eventually reduced their incentives. “I miss the days when the reps came in and bullied us,” said a Florida retailer, referring to a time when cigarette salespeople would check contract compliance, and rip down competitors’ signs and fixtures. She is adding novelty items to her tobacco outlets to help make up lost contract money. “I was scared then, but I was more profitable,” she said. Enabling all retailers to reap the benefit of the program helped PM narrow the price gap with deep discount cigarettes. By year’s end, the average discount price was 47% less than the average premium smoke, compared with 73% during 2001, according to Bonnie Herzog, an analyst with Smith Barney, New York. Other factors contributed to closing the difference, like better enforcement by states to collect escrow fees which raised the cost of making cigarettes for small suppliers. Obviously, the fiscal interests of state governments are tied to the Big Six signatories of the Master Settlement Agreement maintaining their market shares. Still, market share for deep discount smokes, aka fourth-tier brands, jumped to 10% last year compared with the 2% that existed before the MSA, according to various estimates. (An exact fig- BRAND COMPANY NAME, LEAD AGENCY, LOCATION LOCATION Superbrands ure is hard to determine, because many mom-and-pop manufacturers, importers and illicit retailers do not report their sales.) On the whole, cigarette consumption was down slightly in 2003. Consumers either quit, died or smoked less as smoking bans in public places contributed to a .05% drop last year, to 371.4 billion units, per Herzog’s numbers. Ironically, manufacturers themselves may have contributed to the decline. Their anti-smoking initiatives (the only TV advertising they are permitted) urged parents to talk to their children about the dangers of smoking. Campaigns like those of Philip Morris are meant as a counterweight to the anti-tobacco marketing messages put forth by the American Legacy Foundation. PM is also looking to clean up its act as it bids to have the Food and Drug Administration oversee the industry. FDA certification for lower-risk products—a potential growth market—might add a layer of credibility rather than a manufacturer’s stamp of approval. Conversely, the smokeless category grew 5.7% last year, per ACNielsen. The 26.6% jump in price-value brands foreshadows that premium smokeless manufacturers, like U.S. Smokeless Tobacco, Swedish Match and Conwood, could face the same deep discount scenario their cigarette brethren have endured. Thanks to rising sales taxes, the roll-your-own (papers) and make-your-own (tubes and injector machines) sectors also grew to 3.5% of the cigarette category, from less than 1% five years ago. This niche could climb higher as more than a dozen states consider tobacco tax increases this year. Better products would do the trick as well; a clever inventor could top tobacco injectors with a cotton gin breakthrough that makes manufacturing a carton of your own smokes as easy as dumping loose tobacco into a drum, plugging in your own personal cigarette maker and walking away. This year could also see Philip Morris face a stronger No. 2 competitor, if the merger of R.J. Reynolds Tobacco and Brown & Williamson is approved by the Federal Trade Commission. Reynolds American would boast $10 billion in annual sales and 32% market share, compared with PM’s 50%. B MEDIA EXPENDITURES (millions) FAMILIARITY PURCHASE INTENT 1. Marlboro Philip Morris USA, Richmond, VA Leo Burnett, Chicago 147.9 $0.0 6.58 68% 4.24 35.7 2. Newport Lorillard, NY Avrett, Free & Ginsberg, NY 30.9 9.9 5.55 41% 2.97 23.8 3. Camel R.J. Reynolds, Winston-Salem, NC Agent 16, NY 21.6 43.8 5.78 58% 3.12 25.4 4. Doral R.J. Reynolds, Winston-Salem, NC Coyne Beahm, Greensboro, NC 21.2 15.6 5.52 31% 3.18 24.0 5. Basic Philip Morris USA, Richmond, VA Leo Burnett, Chicago 15.8 6.0 5.72 35% 3.77 29.2 6. Winston R.J. Reynolds, Winston-Salem, NC None 15.7 26.3 5.74 50% 3.04 23.9 7. Kool Brown & W’mson, Louisville, KY Bates, NY; 141 Worldwide, NY 11.7 15.5 5.38 44% 2.36 18.3 8. USA Gold Commnwlth Brnds, Bwling Grn, KY In-house 10.6 0.0 5.78 14% 4.97 39.0 9. Salem R.J. Reynolds, Winston-Salem, NC None 9.3 33.5 NA NA NA NA 10. Virginia Slims Philip Morris USA, Richmond, VA Leo Burnett, Chicago 9.2 0.0 5.39 42% 2.72 19.3 Sources: The Maxwell Report (sales in billions of units); TNS/CMR (media); Harris Interactive/EquiTrend: QxFxPI=E (see key, page S18) www.brandweek.com JUNE 21, 2004 S65 TOTAL SALES (units) QUALITY EQUITY
Page 1 and 2: A SPECIAL REPORT nD Bra s r su u pE
Page 3 and 4: Superbrands EDITOR’S NOTE Heeding
Page 5 and 6: www.brandweek.com JUNE 21, 2004 S7
Page 7 and 8: Superbrands decline of the departme
Page 9 and 10: Superbrands attire rowing a mahogan
Page 11 and 12: Superbrands BRAND Sales Struggle as
Page 13 and 14: Superbrands BRAND In Tight Market,
Page 15 and 16: Superbrands BRAND ascension to Merc
Page 17 and 18: BEER, WINE and LIQUOR the wall. Mil
Page 19 and 20: Superbrands BRAND Colas Stuck in th
Page 21 and 22: Superbrands BRAND Microsoft Tries t
Page 23 and 24: Superbrands BRAND Amid Changing Dem
Page 25 and 26: Superbrands BRAND A Latte with That
Page 27 and 28: ENTERTAINMENT of the class,” said
Page 29 and 30: Superbrands BRAND Say Goodbye to
Page 31 and 32: Superbrands BRAND Crowded Low-Carb
Page 33 and 34: FOOD The Atkins backlash, meanwhile
Page 35 and 36: Superbrands BRAND Crest Gaining on
Page 37 and 38: Superbrands BRAND In a Rather Dirty
Page 39 and 40: Superbrands BRAND Gas Companies Ble
Page 41 and 42: PHARMACEUTICAL/PRESCRIPTION DRUGS D
Page 43: RETAIL to open as many as 100 store
Page 47 and 48: TRAVEL Low-Fare Airlines Rule Skies
Page 49 and 50: WORLD WIDE WEB Web Players: Let’s
Page 51 and 52: RANK/ BRAND America’sTop 2000 Bra
Page 53 and 54: BRAND INDEX America’sTop 2000 Bra
Page 69: BRAND INDEX America’sTop 2000 Bra

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