Wednesday, February 17, 2010
Branding vs. Execution
Here is a classic example of a well branded company: Whole Foods coming into contact with a superb execution company: Wal Mart. The story is about how the taste testers preferred Wal Mart's produce to Whole Foods.
On to the details: Kummer buys two batches of nearly identical groceries at Wal-Mart and Whole Foods. He has them prepared in a restaurant kitchen and invites taste testers to make a blind side-by-side comparison. The Whole Food grocery set cost $50 more, $20 of which is spent on top of the line chicken breasts (Wal-Mart didn't really offer equivalently high-end meat.)
The taste testers preferred the Walmart veggies overwhelmingly, with complaints about the meat and dairy. "The tasters were surprised," he writes, "when the results were unblinded at the end of the meal and they learned that in a number of instances they had adamantly preferred Walmart produce. And they weren't entirely happy."
But the real story is how the Whole Food produce cost $30-$50 more. Well defined and marketed brands can generate huge premiums over those that focus just on execution.But there's a catch: the brand needs to continue to innovate, bringing new solutions to the customer that can't be easily copied by the Wal Marts in their industry.
Brands are like sharks, if they ever stop innovating, they suffocate.
And notice the last, throwaway comment: about preferring Wal Mart. Who do you think will feel the wrath of their unhappiness? Not Wal Mart.
Think about where you create extraordinary value and where you get paid for it. Are you staying ahead of the metaphorical Wal Mart? And if you don't think you can, look at those Whole Foods price margins: It would be a lot better to sell when you still have them, then after they've gone away.