How to convert a commodity into a brand name
What's in a name? That which we call a rose
By any other name would smell as sweet.
-- William Shakespeare* * *
Well, maybe. But you'd sure be able to charge more for it if it had a brand name.
Intuitively, you know the value of a brand name: you can advertise less. It elevates you above commodity status. And perhaps most important, it lets you charge a lot more.
"Attaching an established brand name to a previously unbranded product can add 30% or 40% or even 50% or more to what consumers are willing to pay for it," says Joseph G. Smith, chairman of Oxtoby-Smith Inc., a New York City market research firm. And just as you can reduce the value of a brand name to a simple number you can also state what it takes to develop one in terms of a mathematical formula: brand name = value/time.
F. George Robinson Jr. is convinced his product already meets the value part of the equation. His mission now is to find a way to shorten the time it takes to turn his Denver-based company into a household name. His goal: to create a brand-name brick.
Since the mid-1970s Robinson Brick Co., founded by George's great-grandfather in 1880, has been tooling along as the largest maker of residential brick in Colorado. And while total sales weren't huge, $10 million or so, the positioning was ideal. Metropolitan Denver housing starts hit a record 32,219 in 1983, thanks to the booming energy, mining, and recreation sectors.
"We were sitting on top of the world," Robinson recalls. And then he was pushed off. Starting in 1984, Colorado was hit by a series of rolling recessions. First energy went, then mining, and then for a few years the snow stopped falling, crippling the ski slopes. Housing starts began to slip and have been sliding ever since. (In metropolitan Denver there were just 5,762 last year.)
Desperate, Robinson brought in consultants and begged them to find something he could hang a marketing strategy on. To the surprise of many at the sleepy company, they found a bunch.
* The company made a better brick, thanks to the more sophisticated equipment and quality-control procedures it had installed in the 1950s.
* It had a greater range of colors (27 always in stock) than most of its competitors.
* Its turnaround time was perhaps the fastest in the industry. The company shipped within five working days of receiving an order, while others often took weeks.
Robinson used those advantages to map out a differentiation strategy, something that would make Robinson bricks more than just a commodity.
Robinson Brick would stand for highest quality, fashion colors, and responsive service. The hope was that people would call for Robinson bricks, much as they specify Andersen windows or Levolor blinds.
But unlike windows and blinds, which are often replaced, once you buy bricks, that's it. What's more, Levolor and Andersen advertise directly to consumers, but Robinson can't afford the hefty prices charged by such shelter magazines as Architectural Digest, which charges as much as $32,000 per page. And since the Colorado housing market was dying and Robinson's marketing plans had to be self-financing, that meant ads directed to builders and architects were also out of the question.
So George Robinson faced two problems: how to get the word out -- a word that would have to be spread beyond Colorado, since his home market was shrinking -- and exactly what he should say. "Our bricks are better" would be seen -- and rightly so -- as puffery, and there was no money for a celebratory endorser, like Bob Vila of "This Old House" fame. He finally hit on the idea of playing up the fact that Robinson bricks met the American Society for Testing Materials standards for FBX (facing brick extra) bricks. While Robinson had been meeting the ASTM standard since the 1970s, he had never done much with it. But now he would, figuring it was as close to a third-party endorsement as he would ever get. Robinson declared from this moment in 1987 on, the company would only ship FBX bricks.
Then he sat down with Doug Porter, his national sales manager, and tried to figure out how to tell people that Robinson was now the premium brick company. They decided to focus all their attention on brick distributors. Keying on suppliers would be the easiest -- and least expensive -- way of building word of mouth. After all, consumers, architects, and general contractors come in contact with the people who supply the bricks.
When they find a prospect, Porter or one of Robinson's 12-person sales force hits the road to make the pitch. It goes like this: our bricks are prettier. They're also better made, so there will be fewer broken bricks per shipment, and we'll ship within 48 hours. "We give them whatever support they need," says Porter. "If they need a price break at first, we'll give it to them."
They need the price breaks. Robinson bricks cost a lot more. Not in Colorado. There Robinson bricks cost about the same as the competition's. But price becomes an issue when you move outside Colorado. Obviously, since bricks are heavy, you pay a premium if you want to ship them from point A to point B. A thousand bricks sent to Minneapolis from Robinson's Denver plant cost a contractor $325, compared with $300 (an 8.3% premium) if he got them from a closer brick plant. And across the country, in Middletown, Conn., Robinson bricks cost 44.8% more ($420 per thousand versus $290). In fact, anywhere east of the Mississippi, the shipping cost is more than the production cost of the bricks themselves.
The price differential turned off a majority of dealers. And without the distributors, Robinson had little hope of evolving from commodity to brand-name status. But a handful of distributors, more out of curiosity than anything else, were willing to let Porter set up a display in their showrooms. And darned if the stuff didn't sell. Out-of-state sales in 1987, the first full year of the program, accounted for 41% of revenues, up from 13% two years before. Now that number is misleading, because over that time, in-state sales fell faster than a Gaylord Perry spitter (from $8.8 million to $5.9 million), but still it looked like Robinson Brick was on to something.
"The people who buy our bricks are spending $300,000 and up for a house," says Robinson. "On average they use about 10,000 bricks. If we cost $150 more per 1,000 bricks than the competition, they are paying a $1,500 premium to get the exact color and delivery date they want. What's another $1,500 on a $300,000 house?"
Knowing that choice of color and speed of delivery were more important to his customers than price allowed Robinson to further define his marketing strategy. He has increased the available color choices to 47. And the company still promises to ship within 48 hours of receiving the order.
And since his market is not particularly price sensitive, Robinson's been able to increase his rates. Nothing drastic, mind you, a couple of percentage points over inflation, but the result has been that gross margins on out-of-state sales have climbed from 22.5% in 1985 to 36.5% last year, when shipments outside of Colorado accounted for about 65% of sales (due in part to in-state sales slumping from $8.8 million to $4.1 million in the same time period).
So will it be smooth sailing from here on out? Hardly.
The company still has virtually no marketing budget. Last year, Robinson Brick spent a total of $310,000 -- a minuscule 2.6% of sales -- on marketing, with more than a third of that money ($115,000) being spent on samples. And that isn't going to change soon. Even given the boom in out-of-state sales, the company earned only $174,000 after taxes on $11.7 million in revenues last year, thanks to continuing economic woes in Colorado.
Given that, selling one distributor at a time makes the most sense. It's cost efficient -- Robinson figures it costs just $8,000, including a salesperson's expenses to set up a new distributor -- and it's a way to reach customers, builders, and architects.
But it takes a long time to build truly national distribution, if you go one supplier at a time. And should making a premium brick pay off, a far larger competitor could create a premium line of its own and blow by Robinson Brick overnight.
"I suppose we're vulnerable, but if we didn't do what we've done, we'd be bankrupt by now," Robinson says. "Given the choice, we'll continue what we're doing."
HOW TO BUILD A BRAND NAME
Here's what you have to do to turn your product into a household word
Brand names usually take decades to develop. F. George Robinson Jr. thinks you needn't wait that long. Here's his strategy:
* You need a better product. The people who buy what you're selling may be many things, but they're not stupid. If your product is no good, advertising won't help.
* Tell people why you are better. Advertising types refer to this as the "unique selling proposition." With every communication you make -- letters, brochures, ads -- you must get that message across. Does your product last longer or work faster; or is it simply a better buy? Tell people why they should pick you.
* Word of mouth. Try to influence the people who influence others. Robinson Brick tries to spread the word through distributors, since they interact with builders, architects, and consumers.
* Endorsements. Forget high-priced pitchmen. Better to find an independent, objective authority who will say you really do have a better product.
Finding brand value
One way to learn how to build a brand name is to study how the best have done it. You might want to look at these:
* Romancing the Brand by David N. Martin (AMACOM, 1989). Not as prescriptive as we would have liked, but the book, by the head of a major regional ad agency, is quite good on underscoring the care and feeding of brand names.
* The Grand Metropolitan PLC Annual Report. To see exactly how far a brand strategy can take you, look at this account prepared by the British conglomerate that recently bought Pillsbury Inc. In Britain, and in Australia, the value of a brand name can be carried on the balance sheet. In GrandMet's 1989 annual report, for example, it valued Pillsbury and its other name brands at $4.3 billion.