The current economy has delivered a stress test of its own to many brands, causing some to collapse on the marketplace tread mill, and others to be led off to major surgery. As part of a sweeping overhaul of their brand roster, General Motors has announced that Saturn will be phased out completely by 2012 and that Pontiac has been sent to the operating table-relegated to the role of “niche brand” in the GM portfolio. (I join Burt Reynolds in the fervent hope that the Trans Am will be reincarnated.)
Even worse off is Circuit City (more specifically their former shareholders), which shut down retail operations in March and recently sold its only remaining assets, it’s name and website, to a holding company for $14 million. That sounds astoundingly high, but consider this: just over one year ago Blockbuster made an offer of $1.2 billion, yes b-b-billion, that Circuit City rejected. Woulda, coulda, shoulda.
Let’s look at Pontiac. Their brand implosion looked like one of those slow motion crash test videos. The once iconic muscle car brand had its sales peak of 800,000 units in 1984, and last year sold about 200,000. That’s 25 years of denial passed down from one management team to another. Their most famous models are even older, the GTO and the Firebird/Trans Am, and despite feeble revival attempts of each, not even those nameplates could lift sales. While Pontiac brand managers tried to polish their worn out image of performance and sportiness, Mazda, Nissan, Toyota, Honda, and VW were delivering cars that people wanted to buy now, not 25 years ago. Sure, none had been immortalized in a Ronny and The Daytonas song, but buyers gladly traded a little muscle for reliability, better mileage and contemporary styling.
If your sales peaked during the Reagan Administration, shouldn’t that be a giant “Check Engine” light that something’s wrong with the brand? Of course, when the parent company is riding on its rims, you still might look like the prettiest girl in the room.
Hard to believe that the wildly popular book, Good to Great, featured Circuit City as one of the best managed companies of any kind just a few years ago. Their stock had far outperformed the market and the retail segment for 15 years. Heck, they basically created the big box electronics store category. The value of the Circuit City brand was that people wanted to go there for all things electronic. It was a simple solution to a complex purchasing landscape. There was a focus on service. Their personnel actually knew their stuff. Their ad campaign featuring mid-thirties males bursting through the front door like kids in a candy store was a perfect reflection of their brand experience. It was more than a place to buy cool stuff; it was a fun place to go.
And then it wasn’t.
The brand took hits from all sides. Dell outsold them on computers. Lowe’s and The Home Depot took away their appliance business. Music sales went online. TV manufacturers flooded the market with HDTVs and cut profit margins to the bone. Circuit City’s once-lauded management expanded the store network too quickly and took on too much debt. Best Buy came along, tweaked the Circuit City formula by adding Geek Squad, and beat them at their own game. The economy tanked. They took their sales people off commission.
In the end, the Big Red Machine crashed at full speed into the cement barricade. A billion dollar offer last April, total bankruptcy 10 months later. Blockbuster is thanking their lucky DVDs they were jilted.
What both of these crashes had in common was that as the companies struggled with market forces, their brands became less and less about what made them stand out in the first place. Pontiac diluted its affordable performance position and became little more than a styling variation of Chevy (as did Oldsmobile, Cadillac and Buick with similar results). Circuit City became a price-driven retailer, rather than the source for technical knowledge, brand selection, and cool new stuff. And their staff was no longer motivated to up-sell on features.
When both brands faced the stress of a difficult economy, they were forced into drastic moves. Could better brand management have overcome the economic factors they were battling? Hard to say, but Pontiac had plenty of time to find a solution. Circuit City was blindsided by a number of simultaneous factors, so it may have been less possible to brand their way out of it. (Even in bankruptcy their brand retained some value.) All brands must evolve with the marketplace. While Circuit City couldn’t change fast enough, Pontiac still has a chance to avoid being totaled, but they had better rediscover their relevance in a hurry.
Wa-wa, wa-wa-wa wa-wah…