Case Study #15: Porsche SE and Volkswagen AG – Das Auto Merger

The light duty, personal use vehicle (cars and light duty trucks) industry is rapidly evolving in this economic environment. Car and light duty truck manufacturers must adapt to new competition from alternative energy vehicle manufacturers, government-opposed emissions mandates, corporate restructuring, “cash-for-clunkers” policies, changes in customer demand and several other challenges. Car and light duty truck experts say that the industry will start to rebound in the 2011 timeframe. One German manufacturer reports a ten-year horizon of market opportunity and then proceeds to pocket a premium brand that tries to buy them earlier!

In April, I read that Volkswagen expects the U.S. auto market to total 17.3 million vehicles in 2018 compared to 13.2 million last year, and aims to expand its market share to more than 6% from about 2% now. It plans to triple its annual U.S. car sales to one million a year, with its premium brand Audi AG accounting for 200,000 cars (Rauwald, Christoph. “Volkswagen to Raise U.S.,Mexico output by 2018”. Wall Street Journal April 28, 2009). I sometimes see three-year and five-year forecasts published in business trades, but Volkswagen really sticks its neck out there by reporting a ten-year forecast.


Volkswagen’s forecast assumes a 31.1% growth over ten years (or 3.1% a year). Excluding the impacts of cyclicality, normal gross domestic production (GDP) growth in the United States is within 2% to 3% a year. There will be more recessions than this one, so there is inherent risk in Volkswagen forecast. Of the one million vehicles sold in 2018, 20% will have the “premium Audi AG brand” and 80% will have the “VW passenger car” brand.

In recent news, we learn that Porsche and Volkswagen will be merging: “The measure shall create the foundation of building an integrated car manufacturing group with Porsche SE and Volkswagen AG”, says Porsche. Essentially, Porsche will become the 10th brand in Volkswagen’s brand architecture. If Porsche is Volkswagen’s sports car product brand, why aren’t the projected sales of the brand represented in the 2018 sales forecast? Are they lumped in with Audi or Volkswagen, assuming that Audi or Volkswagen may be the nameplate on Carrera, 911 or Boxster models? A 2% to 6% increase in market share, even over a ten year period, is very aggressive in the competitive, light duty personal use vehicle industry. This will mostly be accomplished with the acquisition of a niche brand to drive incremental sales to the parent company and the potential conversion of some models of the niche brand into the flagship brand.

Volkswagen’s decision to absorb Porsche into its brand portfolio is a sound operational strategy. While their industry forecast and market share projections are aggressive, I commend the organization to provide transparency about its success metrics over a ten year period. Volkswagen compliments its existing product portfolio and generates profits from the high-margin sales of Porsche sports cars. There may be manufacturing, distribution, design and engineering synergies across Porsche and certain Volkswagen brands. However, business structures arrangements like the one between Volkswagen and Porsche do not necessarily keep total stakeholder value in the heart of the plan.

Managing perception to large deal announcements is what would make this event more “stratelytical”. Based on the reports I see, there is some ambiguity behind the deal’s intent. Several perception scenarios need to be extensively researched. One perception is that Volkswagen may put its own nameplates on lower-end Porsche models and sell them through its channel or absorb the entire Porsche model line-up into theirs (could this be the re-birth of Karmann Ghia with a Porsche chassis and body?). Another perception may involve cross-channel distribution implications (Porsche dealers may sell Volkswagen products; Volkswagen dealers may sell Porsche products). Most importantly is Volkswagen’s brand perception – The company is known for its unique and entertaining commercials for mid-premium car, SUV and van products. Can Volkswagen be positioned on Das Auto, or does it have to be bold and reflective now that it is also a sports car manufacturer? Reviving the Type 34 Karmann Ghia to be the “spokescar” for a Porsche 911 to an adult driving a BMW Z3 may be very confusing to Porsche target customers or Volkswagen customers aspiring to be Porsche owners.

By no means should we expect immediate answers from Volkswagen over the next few days, however if the company does its due diligence in reporting a ten year forecast to the business community, there is an expectation that it should also provide a commitment to understanding certain deal points at a high level. Before it does that, the company needs to support its ambitious strategic intent with greater research, analysis and teamwork.

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Case Study #14: Barry Callebaut Targets Sweet Teeth with the Melt-Resistant and Low-Calorie Vulcano

While Homer Simpson may NOT be the target customer for Barry Callebaut’s low-calorie, melt-resistant Vulcano chocolate, there may be a niche of customers who feel the same way about Vulcano that Homer feels about chocolate (courtesy of Entertonement):



Barry Callebaut competes in the confectionary market. Overall, this market is fairly recession resilient as consumer demand for low-price indulgences remain strong. However, demand for these indulgences may decrease as retail prices increase. Monsoon rains in India are weaker than normal, raising concerns that sugar crop output will be weak and the amount of sugar needed by the world's top consumer will require it to import more than last year's record levels. Black pod disease, flooding in the Ivory Coast and expectations of El Nino weather threaten to devour cocoa crops (Peer, Melinda “Sugar and Cocoa Slump”, Forbes.com, July 16, 2009). These environmental impacts will undoubtedly increase costs to the manufacturer. These costs will be passed through the supply chain, making customers pay quite a few cents more to relish in a low-price indulgence. This may have an adverse affect on demand.

Barry Callebaut, is the largest producer of chocolate, having an annual output of 1.1million tons of cocoa and chocolate products. The company notices that chocolate consumption is declining: People in the eight largest western European countries are consuming 2% less chocolate. People in the United States are consuming 8% less chocolate (Calpuny, Alice “Miracle Chocolate from Swiss Maker?”, Businessweek, July 17, 2009). Instead of reducing prices or deploying aggressive point-of-sale tactics for existing products, the company decides to innovate Vulcano, a bar or cookie that is 90% few in calories than regular chocolate and melt-resistant within 131 degrees.


The company is interested in targeting emerging markets, such as India and China, where a growing number of consumers are spending a greater portion of their wallet share on multi-product indulgences. From personal experience, I can say that it gets very hot during the summer in India. For those Indian consumers who like to indulge bite-by-bite over a few hours, the Vulcano may be a good product. Barry Callebaut feels it can be successful with a growing number of health-conscious Americans.

Barry Callebaut intelligently anticipates, and then reacts to a delta in demand. The Vulcano concept was presented to the investors in March 2008 when it was in development stages (Calpuny). Assuming a twelve month functional due diligence process prior to development, Vulcano most likely received functional resources in 2007 (if not earlier). Economic and market conditions have changed dramatically over the past few years, and the Vulcano strategy evolves as a result. One of the food engineers, Simon Cantz, tells Swiss television: “'Suddenly we realized we'd produced a very special chocolate, of a crispy light consistency, like an airy foam, and we thought let's see if we can develop this further'.” Spokeswoman Gaby Tschofen says: “'It's called Vulcano because it can be eaten when it's hot, and it's airy and full of bubbles like molten rock.” By no means am I a food engineer, but assuming Vulcano is 90% lower in calories and therefore lighter, it may require less sugar and cocoa. This is a way for Barry Callebaut to reduce costs by minimizing its dependency on a raw material that may surge in price for the remainder of 2009 because of inclement and hazardous environmental factors.

A few, but not most, sweet toothed customers will have the Homer Simpson reaction to chocolate. Macro assumptions on global confectionary consumption should not be the basis for generating profitable sales in the long-term. The company has tremendous research to do on brand equity. Barry Callebaut only makes 20% of its own chocolate brands. It mostly produces Nestle, Hershey’s and Cadbury products. Based on brand research, the company can begin sub-segmentation activities to uncover profitable segments across developed and emerging markets. Currently, Vulcano is being reviewed by Barry Callebaut’s industry clients, a sign that further pre-operations diligence may take place once or if the product is absorbed by someone else.

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Case Study #13: Cisco and UnitedHealth Are in the Patient Relationship Management (PRM) Business

This morning, I read in the Wall Street Journal that Cisco and UnitedHealth will join forces to build a network linking patients and physicians across the country via video and medical-information technology. The companies will be competing in the telehealth industry. According to Datamonitor, this industry is forecasted to be $6 billion by 2012.

The telehealth industry is an extension of the telemedicine industry. Telemedicine is defined as the use of telecommunications to provide medical information and services. This is primarily done through transferring digital images from one location to the other and two-way interactive television when face-to-face consultation is necessary (Brown, Nancy S “Telemedicine, Telehealth and the Consumer”, Telemedicine Information Exchange, September 28, 1996). Digitization and video conferencing are not examples of new media. For years, they are used in the direct provision of clinical care via telecommunications – diagnosing, treating or following up with a patient from a distance. Telehealth not only includes telemedical services, but several incremental clinical and non-clinical technologies to serve patients, ranging from teletriage (health advice by telephone) to patient movement and remote admission. Here is an analogy: Telehealth is to patients as customer relationship management (CRM) is to retained customers. Ergo, telehealth is CRM to patients, so it can be called patient relationship management (PRM).

Cisco and UnitedHealth enter this relatively new telehealth industry with the capabilities to do PRM.

UnitedHealth is the second largest health insurer in the country and relatively recession-resilient. It also has a portion of the $6 billion allocated by the stimulus bill to improve telemedicine efforts. Cisco, on the other hand, is not as strong. They report 2009 3Q sales to be $8.2 billion (decrease of 17% year-over-year) and net income of $1.3 billion (decrease of 24.0% year-over-year). Companies that anticipate losses as a result of changing economic and business conditions must act quickly to evolve their business model. Cisco is a great example of this as it streamlines operations in areas of loss to focus operations on areas of growth. Both companies have complementary assets to successfully compete in this market. UnitedHealth has a network of 590,000 physicians and care professionals; Cisco has industry-leading video conferencing and other collaborative network technologies. Together, they will be able to connect a growing number of technologically savvy health professionals with a growing number of technologically savvy patients.

The roll-out of this program, “Connected Care”, is not nationwide or global. It will start as several pilot programs, including one in rural Mexico and another via a mobile clinic that will tour the United States this summer. Perhaps year one in the Connected Care business plan may not be a big revenue generator, but given the projected growth of the telehealth industry, UnitedHealth and Cisco will surely offset the costs in the year one launch with significant profits through 2012. The rich patient data generated by “Connected Care” will be a great source of information to better serve patients. It may also catalyze a consortium of health care stakeholders that can help solve macro issues such as reducing health care costs, innovating cures to deadly diseases and learning how to be 21 forever.

Okay, perhaps “Connected Care” may not help with the last issue, but it is still a timely innovation of vast utility driven by a partnership of complementary assets. The quantitative and qualitative output from the network will enable health care professionals to better serve their patients. And the patients will be able to urgently and immediately communicate with their doctors. This two-way communication will be mutually beneficial for all involved stakeholders.

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Case Study #12: Epic Burger - A Mindful Approach to the Quickservice Customer Experience

I boast about Chicago being one of the dining capitals of the United States. It’s not just about the trendy spots supplanting abandoned buildings in the West Loop, Bucktown or Wicker Park. Nor is it about established restaurant brands that serve regionally, if not nationally, appreciated dishes (deep dish pizza, for example). Over the past few years, quite a few niche, ecologically and environmentally conscious quickservice (QSR) establishments have emerged in Chicago. I am lucky to live a few blocks away from one of them – This restaurant is called Epic Burger (www.epicburger.com). It is over a year old, but is poised to do great things in the near future.

A good burger is hard to find. Some are extremely good, but leave me in a food coma for several hours. Homemade peanut butter and jelly sandwiches are more filling than certain imposters masquerading as burgers. One day, I walk into Epic Burger. As I walk down a spotless, colorful corridor and approach the friendly service counter, I know I am in for a special treat. I order a Tasty Turkey Burger with Epic Sauce and Fresh Cut Fries. It is one of the best meals I have ever had in my life.

I also admire Epic Burger as a brand competing in a highly competitive industry vertical with a differentiated value proposition: mindfulness. How can burgers be mindful if they are going into our stomachs? Here is what I learned from CEO of Epic Burger, David Friedman:

• Mindful retail space: Established QSR brands aren’t necessarily focused on increasing the amount of time someone spends at the restaurant because most of their customers are “on-the-go”. However, Epic Burger wants people to stay at the restaurant, and optimizes that experience with a colorful environment, great customer service and television entertainment. This increases brand loyalty and therefore repeat purchases during the same visit or increased visits over a period of time.

• Mindful products: The food is absolutely fresh. The patties don’t come out of a freezer. They are all all-natural, hand formed and cooked to order, topped off with a freshly baked and toasted bun. Fries are made with only fresh potatoes that are cut and cooked without any processing steps.

• Mindful assets: Epic Burger does not use petroleum-based packaging, buys from as many local merchants as possible and uses energy efficient equipment and recycling.

• Mindful strategic growth: Currently, there is only one Epic Burger restaurant. However, Friedman plans on expanding to three more locations by the spring of 2010. Like the mindful philosophies that are upheld via all touchpoints of his brand, Friedman has a sustainable approach to growth. He collaborates closely with his investors, partners and employees and other stakeholders to execute his vision of brand expansion. Epic Burger performed so well within the first year that Friedman received funding for his sustainable expansion strategy from investors and partners while the markets were in disarray.

Great burgers, great business, great principles – I really hope I made you hungry :).

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Case Study #11: Pet Airways – Taking Off in the Growing Pet Industry Vertical

Most people I know leave their pets in the care of others when they go somewhere for vacation. But, there are people who want to travel with their pets in the plane. This can be done, depending on the airline and their requirements for in-flight pet transportation. Owners can put their pets in the stale cargo hold of the plane while they anxiously wait to land to be reunited with their loved one.

For the percentage of pet owners who want to travel with their pets, but do not want to subject them to an uncomfortable flying experience, there is a brilliant solution. It is called Pet Airways.

According to the American Pets Product Association (APPA), $43.2 billion was spent on pets last year in the United States ($16.8 billion on food, $10.0 billion on supplies, $11.1 billion on vet care, $2.1 billion on live animal purchases and $3.2 billion on pet services). The APPA forecasts that $45.4 billion will be spent this year on pets in the United States.

There is a tendency to target markets based on their current size and growth projections. Depending on the industry vertical, chances are that a large market size with stable growth projections has a high level of competitive intensity and a consistent stream of customers. But, if you want to be an entrepreneur in the growing pet industry, it is best to focus on a niche category segment, but execute a differentiated offering within that category segment.

Pet Airways was founded by pet owner Alissa Binder and her husband, Dan Wiesel, after they took their aging Jack Russell, Jack, on a cross-country flight (Hosford, Miller and Ferran. “Pet Airways: Where the Fur Flies” ABC News 9 July 2009). "We were totally stressed out," Wiesel said. "We didn't know if she was on the flight, didn't know how she was doing." To avoid a stress shared by several pet owners like Binder and Wiesel, the couple launches Pet Airways with some simple and effective strategic foundations:

• Hub Strategy: Binder and Wiesel save billions of dollars by NOT investing in aircraft specifically designed for pet transportation. Instead, they lease a plane from Suburban Air Freight, Inc. The service will operate from five cities: New York, Baltimore, Chicago, Denver and Los Angeles.

• In-Flight Strategy: There are veterinary technicians to monitor the animals in flight. The use of veterinary technicians adds tremendous credibility to Pet Airways in-flight service. The pet is on their own in a cargo hold. If the pet falls sick in a confined pet carrier on a plane, do you think that the in-flight attendant has the veterinary background to prescribe a solution? Probably not. In addition, there aren’t overhead compartments in a Pet Airways plane. The in-flight cabin is designed for maximum creature comfort.

• Pricing Strategy: A round trip airfare for Fido is $149. Based on my assumptions regarding cost structure, this price is high enough for Pet Airways to generate sizeable margins, but reasonable based on the sensitivities of the company’s target customers. Even though it may be more cost-effective for these customers to leave their animals at a pet kennel, hotel or a caretaker, it is my belief that there’s never a price large enough to pay for peace-of-mind for the safety and security of a pet.

It is entirely possible for Pet Airways to be one of the very few airline brands to generate a profit this year. By capitalizing on addressable industry growth and the sensitivities of a niche market segment, Pet Airways will position themselves for sustainable and profitable growth in the long-term. Now, that is something to bark for and wag your tail at!

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Case Study #10: C.F. Martin & Co. – Strumming to an Evolved Business Tune

Economic recessions spare very few industry categories, but as I hear great music at Grant or Millennium Park, I wonder how musicians are weathering the storm. We pay for the music we love, and the musicians we love have to pay for things they need. But, when we pull back on discretionary purchases (even for the things we love), our musicians have to pull back on things they need too.

C.F. Martin & Co., one of the world’s oldest guitar makers, is known for making expensive guitars. The more popular Martins sell for $2,000 to $3,000, and a limited edition guitar made of Brazilian rosewood sells for $100,000 (Aeppel, Timothy. “Guitar maker Revives No-Frills Act from ‘30s” Wall Street Journal 6 July 2009). Recently, the company launched the solid-wood 1 Series model that sells for less than $1,000. Martin reports it sold its first year output of 8,000 guitars after its launch in April. An incremental few million dollars within a few months is good for a company that generated $93 million in 2008.

Companies like Martin that make premium products in their industry categories face a business dilemma, especially in tough economic times: How can they make money without diluting their brand equity?

The target market demand for $2,000 to $100,000 guitars will not grow for the rest of the year. In fact, it may dwindle as evidenced by the high inventory glut of high-priced Martin guitars. But, C.F. Martin sells 8,000 1 Series guitars within three months – At this moment, there is little (if any) inventory of the 1 Series guitars.
There are a few reasons for this business feat:

1. Brand strength: Luxury brands survive and grow by the loyalty of their most profitable customers. As consumer confidence wanes in an economic recession, these customers pull back in spending, but remain loyal to the luxury brands by purchasing lower-ticket items rather than higher-ticket items. Brand dilution for these companies occurs when prices are reduced on their higher-ticket items to generate immediate revenue. Martin has very strong roots in the music community – Rather than cut the retail price on the glut of high-priced, yet flagship guitar inventory and damage its reputation, it invests in another model in the short-term to recognize significant financial achievements in the long-term.

2. Price elasticity of demand: Strategic pricing is a combination of what the market will bear and what the company wants to monetize. While the cost of designing a simpler guitar without inlays is cheaper, it is not necessarily in the company’s interest to proportionately reduce the retail price. Their “less than $1,000” tag is appealing to price-sensitive target customers without tainting their positive associations with the brand, but is indicative that Martin is holding to its margin goals.

3. Manufacturing process advantage: Martin products are primarily handcrafted. Each guitar travels through a series of 60 workstations, with more than 300 distinct production steps (Aeppel). This may be perceived as inefficient. But, when a de-contented product is being introduced to attract target customers and offset losses from its more expensive counterparts, Martin does not incur much (if any cost) of re-tooling its manufacturing process to accommodate the 1 Series model products.

Even if you are not an aspiring, yet price-sensitive musician, but someone who is serious about learning how to play a guitar for fun, get a Martin 1 Series model. Your air guitar, while the least expensive of any guitar in the market, may not be best way to practice your strumming skills.

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Case Study #9: General Motors – Renew the Vision, Drive It Like a Bumblebee

Apparently, I had an obsession with cars when I was a little. If I wouldn’t go to bed, my father would drive me around the block, so I could pass out to the whirring of the engine of his Chevrolet Concourse. If I wouldn’t eat, my mother would feed me outside so I could watch cars go by as she stuffed my face. By the age of five, I was able to identify most makes and models from a distance. So, it is no surprise that I am a big fan of Transformers, once as a tiny tot end-user and now as an adult who can sometimes be a kid at heart.

So, it is with all my heart that I applaud General Motors for its product marketing integration and brand invigoration strategies in Transformers: Revenge of The Fallen. The company is encumbered with several challenges: Severe contraction in the automotive industry, layoffs, excess inventory on dealer lots, market share attrition across multiple product segments and bankruptcy proceedings are just a few of them. However, this particular marketing and branding strategy seeks to rebuild the heart and soul of its company: its products.

Technical products, even if they are used for personal purposes (like cars), are generally positioned on tangible benefits. This car gets better 3% more miles per gallon over the other car. All-wheel drive is standard on this car. It is an option on others. This truck tows and hauls more than the other truck. But, what’s not done enough in automotive marketing is communicating an experience that a vehicle can bring to someone’s life, and how those values are aligned with the owner. In Transformers 2, Bumblebee, the Chevrolet Camaro, espouses values of friendship, heroism and protectiveness. Optimus Prime, while not a General Motors product, espouses values of leadership, commitment and integrity. While I am not pleased on how the Mudflap and Skids Chevrolet Trax concept car twins are portrayed, they espouse loyalty, sincerity and strength. They do some serious damage to an intimidating-looking Decepticon at least 100 times bigger than them.

As admirable as the product marketing integration and brand invigoration strategies are, they should not stop at the movie. The communication to the marketplace of potential car buyers shouldn’t just be about how the Chevrolet Camaro is spec’ed better than the Ford Mustang. It should also be positioned to its target customer in a way that is analogous to the way Bumblebee is portrayed in Transformers 2: a reliable sidekick on a road-trip (friendship), an escape from a tough situation (heroism) or an interaction that is intended to be safe (protectiveness). And these experiences and values must connect with the renewed vision of General Motors as a company. We know that the company can build small cars, hybrid powertrains, navigation systems and other technologies that are important for global commuters. However, most automotive manufacturers can do this with the appropriate resources. As the automotive industry rebounds, it is important for manufacturers to consider that the human value structure is evolving, and anything that rolls out of a plant (whether it is a sports car, pickup truck or motorcycle) must align with those values as much as possible. And if takes a few robots can help do that, then I expect there will be more sequels of Transformers to come.

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Case Study #8: Brammo Enertia – A Green and Lean, But Not As Mean Hog

In recent times, more exclusively fuel-powered transportation product segments have a pre-operational alternative-powered counterpart. Chevy Camaro, meet Fisker Karma. Fisker Karma, meet Chevy Camaro. Kia Soul, meet the Riversimple Urban Car. Riversimple Urban Car, meet Kia Soul. Now, motorcycle manufacturers have an alternative-powered counterpart. This morning, I read in The Wall Street Journal that Best Buy will be selling the Brammo Enertia, an electric motorcycle that can travel 45 miles at the speeds 50 miles per hour and plugs into a standard wall outlet for re-charging.

This is a great time to be an alternative-powered transportation solution start-up company. The stimulus bill will invest more than $2 billion in plug-in technology, putting vastly more numbers and kinds of plug-in electric vehicles on the road (Friedland, Jay. “Stimulus Bill Boosts Plug-in Electric Cars” California Progress Report 19 February 2009). Not only does Obama call for one million plug-in vehicles on the road in 2015, but he also mandates that passenger cars and light trucks get an average of 35.5 miles per gallon by 2016 (Valdes-Dapena, Peter. “Obama gets tough on fuel economy” CNN Money 19 May 2009). A few alternative-powered transportation solution companies are funded to be operational as early as next year. To compete, established brands must analyze the long-term costs of achieving Obama’s fuel economy mandates with existing models versus converting the powertrains of those models to run on alternative energy.

The Brammo Enertia is a fundamental product of a “stratelytical” approach.

The company was supposed to launch a product that would be a direct competitor to the Tesla Roadster, but given the high program costs and long ride to profitability, it sold the production rights to its original investor. With streamlined operations, extensive market research and an environmentally conscious approach to production, president Craig Bramscher expects to ramp up production into the tens of thousands and hire 80 to 100 people by the end of the year (Hall-Geisler, Kristen. “An Electric Glide, at a Price” New York Times 4 June 2009). There are skeptics that feel that the price point is too high for a product that is under-powered against its main competitors. Also, the product is being sold through a multi-product retailer that is not fully trained in the electric vehicle category.

The first issue can be remedied by points of post-sales, service differentiation (product delivery, Brammo Enertia branded merchandise, extended warranties, loyalty cards, Best Buy product synergies). While this may impact profitability in the short-term, it builds brand confidence that enables the company to drive positive financial results that will recover those losses in the long-term. The second issue can be remedied by letting Best Buy allocate its retail space for a Brammo Enertia showroom that is completely differentiated from the rest of its product space. In this distressed economy, companies should invest in market-facing, confidence-building activities, even if it is to buy a leaner and greener “hog” to be parked next to the Chevy Camaro

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Case Study #7: Coach – Blows the Whistle on Customer Luxury Spending and Rotates Poppy Products Into Lineup

Earlier this year, I stop by the Coach store on Michigan Avenue to exchange a belt. I am greeted by a very friendly sales associate. She recommends a more appropriate style for me, and then suggests that I look around the store to see if I want to purchase something else. I decline. Then she asks, “Well, maybe you can get something for your girlfriend!” Lines of disheartenment simultaneously crease our faces as I tell her I am recently single and just need to shop for one today.

The lines of disheartenment are not reflective of her sympathy to my bachelorhood. Rather, it most likely stems from severe pullback in customer spending on luxury goods, as identified by her superiors at Coach. In July 2008, the senior executives of Coach gather in the empty second floor of their 4,000-square-foot store at 69 Main St. in East Hampton for a private annual meeting. At the end of the first day they make an important decision. The brand had emerged from its modest origins in the 1940s to become an emblem of the working woman and then, remarkably, a favorite among the fashion-conscious. Now that sense of expansiveness, opportunity, even desire, is diminished. Coach has to adapt (Berfield, Susan. “Coach's Poppy Line Is Luxury for Recessionary Times”, Businessweek.com, 18 June 2009).

The Poppy line of products (clothes, bags, shoes, accessories) is representative of a collaborative approach to adapt the Coach brand to changing social and economic times without diluting its core equity.

Creating a new product to be sold at a 20% lower retail price point requires a very lean cost structure. Every function involved, from designers to suppliers to marketers, must trade-off certain expectations by keeping the philosophy of long-term brand growth in mind. Coach frequently surveys its customers on tastes and outlooks. Known for its data-and-insights driven approach, Coach has its finger on the pulse of its global retail operations, so it is no surprise for the fashion leader to pre-empt a decline in sales and profits one year ago, and develop a product strategy to blunt further financial losses this year and beyond. According to Coach’s research, people are anxious, uncertain of their prospects, and they want to buy something fun (Berfield). This may not necessarily be congruent to deflated consumer confidence statistics, but assuming that the scope of the research is around target customers, Poppy may be perceived as a more personally appealing and economically sensitive purchase than expensive flagship offerings. The name doesn’t sound cheap or frivolous. Rather, it is charming and distinctive. There’s credibility behind this product lineup as it is built by Coach stakeholders. Target customers have positive associations with its quality and service, so an investment into a new product lineup is seen as innovative and refreshing, rather than operational or reactive.

So, when and if my bachelorhood and this recession ends, I am happy to step into Coach, and buy for two rather than one!

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