What's the real value of the Myer in Coles Myer?

With a mooted $1b sale price likely for mid-tier Australian department store chain Myer, parent company Coles Myer has obviously taken its eye off the game. Its latest “All that I want” campaign launched this week, takes the embattled store (see blog No one will save Myer now) down to an all new low. Competitor David Jones' boss Mark McInnes has described Myer's heavy advertising and discounting campaigns as "irrational"”… but at DIFFUSION we think he’s being polite. With retail turnover continuing to fall in Australia (according to a Australian Retailers Association report in the Sydney Morning Herald 8 February 2006), Myer has obviously decided to continue its “irrational” approach by launching an expensive and brand damaging campaign. The full colour catalogue DIFFUSION found in its weekend paper seemed highly reminiscent of another ‘low budget’ Coles Myer brand, Kmart (see image above). According to Coles Myer, Kmart’s brand position is “low cost, discount department store” while Myer’s is “pleasurable shopping experience/service, great brands”. However, we're struggling to tell them apart. The new owners, whether CVC, Newbridge or Edgars, will not only have their work cut out for them in working out how much of the $1b is brand valuation, but will also have a long and expensive climb back up the slippery slope of re-asserting that value to investors, employees and customers alike, as Coles Myer has done a pretty good job destroying it.

P.S. The Kmart catalogue is on the left.

McKinsey & Co: we like it when the stars align.

McKinsey & Co (www.mckinseyquarterly.com) recently published their ‘Ten trends to watch in 2006’ and DIFFUSION was interested to see how many of their 10-year predictions matched ours, see blog Marketing futures: 10 brand and marketing trends for CEOs to watch in 2006. While our specific focus was on Australia, it is obvious as all Western businesses function in an increasingly global environment, companies here will experience similar challenges and opportunities.

Specifically six of our trends were significantly echoed in the McKinsey report: the separation between personal and work lives changing due to technology (trend 1); the emergence of Chinese brands (trend 3); the increased scale and reach of Government (trend 5); consumers becoming business participants with increased power and the growing importance of business ethics (trends 7 and trend 8); the importance of ritual and community for creativity (trend 9).

According to the McKinsey report they correspondingly identified that: “technological connectivity will transform the way people live and interact”; within the next 20 years economic activity will be equally aligned between Asia and Europe (with China and India being important players); “public-sector activities will balloon”; “the role and behaviour of big business will come under increasingly sharp scrutiny” (specifically the level of suspicion and acceptance from society towards big business will increase); the growing importance of communities, as these will increasingly “become responsible for innovations”.

The McKinsey article sums up by urging companies to look at the implications of these trends, especially in relation to their customer’s needs and competitive developments. DIFFUSION can't agree strongly enough with our colleagues at McKinsey & Co and have gone as far as making some practical suggestions for CEOs to consider. We might be visionaries but we're pragmatists too.

Points of origin: putting premium beer makers in their place.

As we noted in our July 2005 blog Re:Place and the Specificity of Brands, place is becoming critical to the identity, authenticity and uniqueness (or the specificity) of a brand. Place provides an aesthetic counterpoint to the “generic” of the chain. The authenticity of a product, is determined by purity, tradition and the aura of history – all elements that are determined by place and which can both define and bring value to a brand. Yet, brand owners are willing to re/place and subsume identity, determining authenticity only by logo and thereby destroying uniqueness and hence value with an authorised non-specificity - all because, in the short term, it preserves margins and retains profit. To date consumers seem only to willing to go along with this charade.

A case in point is the tendency for domestic beer brewers to buy local brewing licences for international premium brands and then sell them into domestic markets labelled as “imported” brands with imported prices.

Let’s take the case of Sapporo. According to the Sapparo USA website (www.sapporousa.com) the beer has a brand built on distinct place and heritage values, dating back to 1876 with the founding of the Kaitakushi Brewery in Japan. The site says Sapporo's been in the US since 1984 and has established itself as the most popular Japanese beer imported into the US market (all true). Here we need to note the use of the word “imported” because in the case of Sapporo, the beer on the Premium Imported packs which loudly proclaims it is “imported” IS not from Japan but from Canada. Not even the water used in the beer is going to be same in Canada. Just as Sapporo itself makes Guinness beer in Japan for Diageo, it all seems rather incongruous and somewhat a case of a questionable trade practice with some long term implications.

So what’s going on here? We think we’re buying an imported beer with a brand heritage. We think the place of origin is Japan and we think we should be paying more for the specificity of the brand. The problem is that Sapporo, like so many other “imported” beers in the premium category, is engaging in what can only be described as authorised non-specificity, they are counterfeiting themselves.

Do customers care or even bother to read the label?

At DIFFUSION, we pride ourselves on thoroughness, so of course we read the labels. And we think it’s unfair consumers are being asked to pay premium prices for “imported” beer brands brewed domestically. Yet, according to an interview in Japanese Gourmet with Sapporo Beer USA president Mikio Masawaki, Sapporo still shipped over 2 million cases of beer in the US in 2005 and is now the US market leader by a wide margin.

Sapporo is a very simple and powerful example; but we’re finding this trend not just limited to beers, it’s in clothing and accessories, cars and other consumer categories. People are buying what they think is an internationally originated product but which is actually domestically produced or produced outside the place of origin. In the end, what will be the worth of place of origin, of national distinctiveness? What will be the point of difference? What will be the worth of the brand?

We think the idea of brand specificity is being overlooked by both brand owners and consumers. Brand owners need to carefully rethink current brand strategies built on strong customer recognition, derived from place of origin and manufacture. Consumers need to start thinking about why they are paying premium prices for products no longer attached to and manufactured in their place of origin.

What do we see coming? In many cases, consumer backlash against inauthenticity and a return to the type of purchasing behaviour that reinforces and supports genuine national identity and industry. It’s the reason why companies like clothing manufacturer American Apparel (www.americanapparel.net) are thriving. American Apparel now runs the largest garment factory in the United States, employing over 3,000 people at one location in a market where 96 percent of all clothing is imported. Strongly branded by its place of origin, locally manufactured and with sales projected at $400m from its 100 stores and overseas distribution, it proves the case for value in the point of origin.

News Ltd stumbles into a true local piracy debate.

TrueLocal (www.truelocal.com.au), the new Australian online search directory from Rupert Murdoch’s News Limited, seems to have stumbled at launch. The problem seems to be that a search directory sharing the same name was launched in Canada last November(www.truelocal.com).

It’s a case of either real ignorance on the part of News and its naming agency (if they even bothered to go through the process), commercial arrogance, or even a form of cyber piracy.

According to a Sydney Morning Herald report hundreds of Australians had already tried to sign up to the Canadian-based service, mistaking it for the same one offered by News. Even more serious is the claim by TrueLocal president Jake Baillie, who told the Sydney Morning Herald that News Ltd was made aware of TrueLocal's existence and expansion plans for Australia prior to the launch of News Ltd service. Baillie is threatening action.

DIFFUSION checked with Melbourne IT, a domain name registrant which lists truelocal.com.au as being registered by News Ltd on 14 November 2005, while a WHOIS.net search for truelocal.com sees it originally registered in May 2003 and operative from 15 November 2005. This means that the original domain name owners could assert their rights through the Internet Corporation for Assigned Names and Numbers(ICANN), which administers international domain names. Melbourne IT is an international registrant for ICANN and would presumably have an obligation to assert the original registrant’s right to the name.

According to ICANN’s policy on company name copying “disputes over entitlement to a domain-name registration are ordinarily resolved by court litigation between the parties claiming rights to the registration.”

ICANN’s policy states that once the court rules on who is entitled to the registration, the domain name registrar will implement that ruling. Where disputes arising from registrations allegedly made abusively (such as "cyber-squatting" and “cyber-piracy"), companys can then invoke a simple administrative procedure by filing a complaint with one of the dispute-resolution service providers.

At DIFFUSION we believe naming, which includes domain names, is not a haphazard process but requires careful domestic and international business and trademark checking. But when an international media monolith like News gets into some murky waters, we just have to wonder how much they really know.

The top logo is the true true local and the second is News Limited's.