Brand Keys - What Happened

WHATHAPPENED?

Successful Strategies, Marketing Misdeeds,and the Brands That Loved Them

© 2011 Brand Keys, Inc. WHAT HAPPENED? 2

TABLE OF CONTENTS

Airline Lift Off 4

Automotive Gear Up 7

Big Oil Tanks 10

Brand Value in Retail 14

Through a Camera Lens Brightly 17

The Flow in Car Insurance 20

Difference Among Copiers 24

Credit Card Discovery 27

Brand Fit In Denim 30

The Story of E-readers 34

Facebook and the Un-Social Space 37

Fast Food Goes for the Gross 40

Staying Places 43

Loyalty Leaders 46

Luxury is Good 50

Travel Sites Get Social 54

More Pizza Please 57

Hitching a Rental Ride 60

Ringing Up Retail 63

Dumb Smartphones 66

Running With Sports Leagues 69

What Happens Next? 72

What happened? Successful Strategies, Marketing Misdeeds, and the Brands That Loved Them.

Churchill is credited with saying, “however beautiful the strategy, you should occasionally look

at the results.” As 2010 came to an end, we took Winston’s advice, and walked down our own

yellow-‐blog road to examine how closely what we had said during the year about strategies

brands were taking, or not taking, actually matched up with market results. In short, to see

what happened.

These true stories are the result of that examination—a look back at our blogs on categories

ranging from copiers to cameras, and our comments on brands from Ford to Facebook. As we

make our living predicting what is going to happen, such a fearless strategic inventory seemed

not only fair, but necessary if we continue to find a career in research preferable to donut

making—even when taking into account the occasional free sample.

Predictions of consumer behavior can be a risky business, but becomes remarkably less so

when one stops relying on brand brainstorming sessions (similar to a séance but with better

snacks), and employs instead emotionally-‐based metrics that point the direction to what people

will actually do, instead of what they say they are going do.

Want to know what happened? Then pick a blog, order in, and let us tell you a story.


Airline Lift Off

Early in 2010 we blogged about an industry rife with unhappy customers.

Airlines, in their tireless quest to up the ante on abysmal care of the customer,

started charging for checked baggage. While likely seen as a eureka moment

within the airline accounting departments, it now stands as proof that brands

that spend too much time talking to themselves breed idiots. Climb on board for

a cloud-‐high view of how our warning in the category came to pass, and the

brand that triumphed riding a tail wind of consumer loyalty.


The Keyhole blog Generosity is giving more than you can; humility is taking less than you could; and stupidity is

charging $8 for a pillow and blanket on a domestic airline.

We point that out because if you want a pillow and blanket in coach class, and on some

international flights longer than two hours on American Airlines, it's now going to cost you.

Spokeswoman Andrea Huguely said it was a financial decision: "American evaluates all aspects

of the business to ensure that economic decisions are prudent and strategic for the long-‐term

success of the company.”

Huguely made no mention of whether their evaluations had anything to do with earning the

loyalty of their passengers. In addition to a blue fleece blanket passengers will get an inflatable

neck pillow, and the airline, presumably as a sign of how valuable they consider their

passengers will throw in coupon for $10 off a $30 purchase at Bed, Bath and Beyond. Clearly

American has not gotten the memo that such coupons are easily attainable over the internet—

by flyers of airlines where pillows and blankets are gratis.

American ranks #7 in our 2010 Customer Loyalty Engagement Index (CLEI), reflecting the fact

that it lost $1.47 billion last year — and $3.59 billion in the past two years — as traffic fell

during the recession and competition limited American's ability to raise fares, but apparently

not the cost of pillows and blankets. Currently the category is rated like this: Jetblue,

Southwest, and Midwest are 1, 2 and 3 in customer loyalty and brand engagement; Delta,

Continental and Northwest follow, in that order, and only then does American show up, trailed

by US Airways and then United.

Interestingly, CLEI assessments in the Airline Category make no such mention of cross

promotions with national retailers as a high percent-‐contribution loyalty attribute!


Airlines have steadily added and increased fees for other services such as checking luggage and

buying tickets from a reservation agent since 2008, first to help cover jet fuel costs, then to

offset large losses. Other airlines – like Southwest (#2) – have taken another flight path and

decided that blanketing customers with nickel-‐and-‐dime charges is not the most efficacious

long-‐term, loyalty growth strategy. Based on our predictive metrics, we would have to agree.

What Happened? Added airline fees-‐-‐what the industry considers "ancillary revenues" and what travelers think of

as "nickel-‐and-‐diming"-‐-‐became an industry standard in 2010.

Scott Kirby, president of US Airways, stated during an earnings call that the airline had clearly

made a lot of money by charging for checked bags. Other airlines agree.

Delta imposed $50 fees for a second checked bag. US Airways added an additional $5 fee for

each checked bag-‐-‐unless the passenger pre-‐pays online before coming to the airport. Alaska

Airlines instituted a $15 first-‐bag fee.

But Southwest Airlines flew against the wind and is picking up passengers, and profits, because

it has adopted an anti-‐fee stance.

In doing so they posted 3rd quarter profits of $205 million, with revenues of $3.1 billion, up 20%

from last year.

Clearly, when it comes to airlines, collecting money is one thing and collecting loyal passengers

is another.


Automotive Gear Up

February may have been a chilly time of year for some, but not for the two auto

brands we blogged about back then. An industry that has had its share of

breakdowns in recent years, the buying of cars is still a major American

pastime—though, unlike baseball, it’s a lot harder to get loyal fans. Take a ride

down this road to see what we predicted as the year started up, and where

things were at the finish line.


The Keyhole blog The Ford Motor Company roared back on our 2010 Customer Loyalty Engagement Index (CLEI),

in 5th place, up from 12th last year. Serendipity? The vagaries of the automotive industry? Just

plain luck?

No, just an extraordinarily high correlation with actual sales of the brand’s ability to meet or

exceed customer expectations. Ford outpaced the major auto brands with a 28% increase in

January sales, and a gain of market share of 2%-‐-‐its first full year gain in 15 years.

Hyundai just trailed with a 24% increase, and sped to the #1 spot on the basis of significantly

increased quality and its unprecedented “Assurance Program,” the one that guaranteed car

buyers that Hyundai would buy back their cars if they lost their jobs.

Toyota crashed 16% in the last month based on the widening quality disaster that’s demolishing

its once-‐stellar reputation for safety and quality. The current CLEI assessments were taken prior

to Toyota (a perennial list-‐topper) being hit by complaints in the U.S. and Japan about massive

brake problems, which shows once again how customers actual experience with a brand is

reflected in these loyalty and engagement metrics, usually prior anything breaking in the press.

Our predictive rankings showed road trouble ahead for Toyota before it was common

knowledge, because it was Toyota’s own customers who found the brand wanting when it

came to their expectations in one of the primary category drivers.

Chrysler fell back 8%, and GM accelerated 14%, mostly on the basis of fleet sales, and everyone

seems to be offering some sort of incentives to lure previously-‐loyal Toyota customers to their

brands.

Loyalty – in all categories – is a combination of rational and emotional decision-‐making. And

when it comes to automobiles, safety isn’t just mechanics; it’s a primarily state of mind. And

when that fails, loyalty fails as well.


What Happened? They say that a brand’s journey to success starts with a single step. For some brands, though,

the trip starts with the turn of an ignition key.

Ford’s 3rd-‐Quarter profits soared with the automaker making $1.7 billion dollars from its highly

rated cars and trucks. Buyers paid on average $30,600.00 and because of the brand’s success,

the company has been able to cut back on costly incentives and promotions. Grabbing a bigger

share of the US market, Ford now has 16.7%. That’s up nearly 10% from a year ago. In fact, it’s

done so well that it has switched places with Toyota as the No. 2 automaker by sales.

Not to be outdone, Hyundai has been hitting maximum production capacity in the United States.

They’ve been very creative with their sales strategies and sales are up 21% through the first 10

months of 2010. They set an all-‐time October sales record with a 35% increase over last year.

Between their game-‐changing advertising, increased quality and really cool designs, their

Sonata is outselling competitors.

We congratulate these flourishing brands, and take this opportunity to point out that a great

strategy is much like their cars; compact, efficient, and reliable.


Big Oil Tanks

The BP oilrig disaster did not happen to any other big-‐oil brand. It happened to

the brand that built itself on having a gentle touch when it came to the

environment. A lot of people had a lot to say about what was going to happen to

the brand. Were they right? Join us as we revisit a blog from last June, and then

what actually came to pass.


The Keyhole blog Consumers are smart. And clever. And complex. Very, very complex. Decision-‐making is more

emotionally-‐based than rational, and you need to be attentive to the difference when you ask

the questions, or you end up paying for that mistake by ending up with erroneous theories. You

know, excellent answers to meaningless questions.

For example, about a month ago when BP’s Deepwater Horizon oilrig exploded our Brand Keys

metrics predicted the negative change in consumer loyalty and engagement to the brand. This

was via our predictive fusion of emotional and rational assessments, and the finding that the BP

brand moved from first to last in the loyalty rankings. We predicted that move would

significantly harm BP’s bottom line. Moves like that always do. And yet other’s data didn’t quite

line up with that.

YouGov’s BrandIndex polls 5,000 consumers daily about brand preferences and provides

rational brand insights. They didn’t believe BP would suffer at the pump. In fact, YouGov’s data

shows that consumers’ general impression of BP was still positive.

The “Chief Ideonista” at Ideon, thought that enduring faith was a sign that BP’s “Beyond

Petroleum” campaign equity would protect in a crisis. Their assumption was that there was still

a reservoir of consumer goodwill left for the BP brand. Perhaps, someone should have pointed

out that those reserves had already been burned up. The Ideonistas either forgot or didn’t

factor in any measures of enduring faith erosion related to BP’s Alaskan pipeline leak or the

Texas refinery explosion that killed 15 people. Faith may reflect confidence, but it doesn’t

always reflect reality.

But here’s one brand reality: if you talk the talk, you can’t blow up an oilrig, be unable to stop

the leak, and still expect consumers to have “faith” in the brand’s positioning that they

“support” the environment. Saying it, doing it, and doing it believably are three entirely

different things. Especially when face validity comes in the form of killing off fragile eco-‐

systems, marine and wildlife, as well as decimating livelihoods.


We’re the first to acknowledge that retail sales make up only a fraction of BP's revenue, but

pump boycotts – and the attendant bad PR – are likely to undermine the brand more than the

immediate bottom line. And while loyal customers are willing to give a brand the benefit of the

doubt (6 times more), that pool of forgiveness is not a bottomless well. And consumer

emotions (remember the emotional aspects you need to factor in?) lean much more towards

oil-‐coated pelicans than green-‐and-‐yellow sun logos. Researchers can disagree about the brand

insights from their data, but it’s always the bottom line that’s the ultimate arbitrator of

whether the insights were right or wrong.

Last week BP shares nosedived. BP stock dropped 16%, the worst it has been since the drilling

rig exploded setting off the oil spill. In seven weeks the company has lost half its market value,

or about $100 billion. BP is now valued less than its assets. Laments, lawsuits and restrictive

legislation abound. And while not currently at risk of bankruptcy, the crisis could turn BP into a

takeover target. And then the brand and its once-‐sunny logo will sink quickly into an oil-‐slicked

sunset.

And – it will come as no surprise – BP is still ranked last in our Customer Loyalty Engagement

Index.

The brand loyalty bottom line: If you’re an oil company, avoid blowing up oilrigs. And if you do,

get the brand insights right. Or the wrong insights will get your brand.

What Happened? Boycotts and anger about oil that gushed into the gulf have affected BP stations across the

country. Some stations reported their business is down nearly 40%. BP will end up paying from

$50 to $70 million to station owners just to offset the reduction in gas sales.


Boycott BP on Facebook has nearly 1,000,000 fans.

In November the beleaguered BP had to sell its stake in Argentina-‐based Pan American Energy

for $37 billion as part of a divestment plan to pay for the Gulf of Mexico spill.

To add branding insult to financial injury, while BP is trying to recover, their competitor,

Chevron, has co-‐opted BP’s long-‐coveted, and very effective and differentiating positioning as

industry thought-‐leader and the friend of the environment.

You need to get all the insights right. Loyalty – like a reputation – is much easier kept than

recovered.


Brand Value in Retail

One of our April blogs focused on our annual Fashion Index, and what consumers

had to say about what they wanted on their back. While nearly everyone was

talking price, we insisted that value was where the runway met the road. Here’s

what we said, and here’s what happened out there where clothes not only make

the man (and woman), but the brand.


The Keyhole blog Last year’s research findings predicted that value, not price, was the watchword in consumer

behavior. And tradition dictates that you can’t have a real value conversation without a brand

conversation as well. But is that the case in today’s economy? Happily, our metrics are a

leading-‐indicator of retail sales and always play out in the marketplace.

Half a decade ago fewer than 3% of US fashion buyers thought fashion brands and logos were

more important to them in deciding which clothing to buy. According to the 2010 Brand Keys

Fashion Index, the brand-‐to-‐fashion consumer mindset has changed dramatically and fashion

brands were seen to be much more important – increasing that sentiment by +14%, bringing

the Total Audience figure to a record high of 28% of consumer saying that brands are more

important to them when it comes to deciding which brand they are going to buy, the critical

word in that sentence being ‘buy’. Brands have reached their highest level of consequence

since the 1960’s.

For the Total Audience of 7,500 men and women, 21 to 65 years of age, the top-‐10 fashion

brands on the list collected on an unaided basis were led by their Favorite Sports Team,

followed by Ralph Lauren; Armani, Nike, Polo, Brooks Brothers, and Levi’s were next, in that

order. Bringing up the back were Banana Republic, Tommy Hilfiger, J. Crew, Burberry, Chanel,

and Versace.

On the basis of this year’s results we believe it’s fair to say that retailers are going to find that

fashion does not just consist of putting on a new dress or coat, but putting on the right brand as

well.

What Happened? Leagues, sports teams, and players accounted for one in every seven dollars spent on licensed

merchandise in 2010.


Total in-‐venue playoff merchandise sales for the NBA, NFL, NHL, and MLB were up 10%.

And sales for league licensed merchandise are running more than 20% ahead of last year, with

each of the major leagues reporting significant upticks in sales. Experts are predicting $17.5

billion in worldwide sales of licensed sports merchandise.

Fashion icon Ralph Lauren had a $1 billion payday, selling preferred shares in his namesake

company – nearly double the $518.5 million bonanza he pocketed when the company went

public in 1997. OK, not as much as the sports leagues, but keep in mind he’s only one brand, and

likely not complaining!


Through a Camera Lens Brightly

In April our blog focused on the developing digital-‐photo category, and how

brands that were around in those old-‐school days of actual film were changing

their image. Take a look through this lens at how the brands that ranked top with

us were actually viewed by today’s visually literate consumers in that lab called

the marketplace.


The Keyhole blog That time of year when memories get captured for posterity is upon us. Graduations, Mother’s

and Father’s Days, weddings, vacations and summer camp: all opportunities to use our various

multi-‐functional devices’ photo apps. We used to say “take a picture,” but that language is so

very mid-‐20th century!

It’s been said that language shapes the way we think and determines what we can think about.

But with changes in consumer expectations and technology happening at the speed of

knowledge, and consumer endorsement, changes in language also determines what we can say

about – or how we can position – certain products and services. And while technology may

have exceeded our humanity, it still has not exceeded expectations. Consumer expectations are

about the only things that are actually able to keep ahead of technological advances. And

language has kept up as well.

For example, changes in technology, language and expectations have caused consumers to view

digital imaging brands differently than they did in earlier times when cameras used film that

needed to be developed. What was once a “photograph,” became a “digital image,” and is now

a “jpeg.” Or a “file.”

And expectations demand that those files be available on demand. As expectations for greater

connectivity increase, an image we once expected to see developed in a week turned into a day

with 24-‐hour availability. Now, the results of your ‘photo applications’ can appear in an email

halfway across the world or on somebody’s Facebook page with a mere push of a button or

caress of a touch screen.

So when it comes to digital imaging we turned to our Customer Loyalty Engagement Index to

see which brands lead in the hearts and loyalties of consumers. Kodak and Canon tie for first.

Nikon, Fuji, Panasonic, Casio and Sony follow, in that order, with Olympus and Pentax rounding

out the category.


And whether you call it, a “photograph” or a “file,” the reason for stopping time remains

unchanged: the capturing of memories, even if the way we share them is drastically different. If

properly positioned, the increasing ease and sharing of images can develop a new image for

brands—for those that focus on the right thing, that is.

What Happened? Eastman Kodak Company reported 3rd Quarter results in 2010 of revenue growth exceeding 20%

year-‐over-‐year, or $1.75 billion, reflecting the continued momentum of the company’s major

strategic digital businesses.

Consumer digital imaging sales were up 25%.

Canon raised its forecast for 2010 sales of digital single-‐lens reflex cameras to 5.4 million units,

up from 4.9 million. The company also raised its overall digital camera forecast to 26.4 million

units for the year, which would be nearly a 10% increase over 2009.

For Canon, 3rd Quarter operating profits increased by to $529 million and attributed the rise to

increased sales of high-‐value-‐added products.

Legendary photographer Ansel Adams thought that a great photograph was a full expression of

what one feels about what is being photographed, in the deepest sense. The same is true for a

great brand positioning.


The Flow in Car Insurance

Frankly, we don’t blog about advertising all THAT much. Far too often there is

little to comment on, if what one is interested in commenting on is actual

strategy and not pure entertainment value. The insurance category was a

welcome exception. In May, we wrote about a brand that was rocking its

category, and not just because its ads went explosively viral. Check out our blog

on why they worked, and then how it worked out for a brand that went with the

flow in a very big way.


The Keyhole blog One of the claims we hear most frequently from insurance brands is that it’s a “low

involvement” category—which translates from “it’s not emotionally engaging” to “it’s just plain

dull.” So, it’s always nice when we get to present another point of view: one that shows a link

between what we predicted with our engagement metrics and the marketplace. Not because

we want to embarrass anyone, but because we are researchers, after all, and have a special

place in our collective heart for dismantling theories that do not prove out in the world.

Insurance is, in fact, one of the most emotional and high-‐involvement categories out there.

While the process of choosing it may be something that consumers wince over, that is largely

because it is seen as one of those “fine print” purchases that strikes terror into the soul of the

lay person. That terror is at the crux of the emotion inherent in the category. Buying insurance

is buying responsibility. One is buying the privilege of someone else being on the hook for

making things right when, as the Nationwide brand once proclaimed in their advertising, “life

comes at you fast.” And no one wants to be wrong about that.

The emotional stakes of choosing correctly in this category are a significant contributor to the

positive changes seen in the Progressive brand. Ranked 5th in our 2009 Customer Loyalty and

Engagement Index, it held the number 2 spot in January of this year—a dramatic year-‐to-‐year

shift that was mirrored in both the stock price and market success of the brand.

Here are the rankings for Insurance brands for 2010: Allstate is holding on to its lead, with

Progressive now right behind. Geico, State Farm, and Nationwide follow, in that order.

So, where did Progressive’s leap come from? Well, it certainly wasn’t from increased awareness

of the brand, as it was already well-‐known before consumers were calling it their own. One

need only do a quick search on You Tube to see not only the number of hits for their

commercials, but the spontaneous quotes that accompany the ads—almost always about Flo,

the cheery but deceptively sharp spokesperson in Progressive’s ad campaign.


When looking at spokespeople for insurance brands, Dennis Haysbert for Allstate and the gecko

for Geico barely edge Flo out, and she is breathing down their necks. More importantly, she

showed an increase of nearly 20 points in our study of strongest brand spokespeople for

2010—an indicator that she has tapped into an emotional crevice that many consumers are

simply crazy about.

From the setting Progressive has used in the ads—a heavenly place of consumer empowerment

where insurance dreams of low prices and high service come true—to Flo herself, an emotional

center has been struck, and it holds. Flo, with her retro styling, takes us back in time, while her

contemporary “easy peasy” humor telegraphs the future of painless online transactions.

Flo comforts us. Just old enough to be trusted and young enough to be uniquely cool,

Progressive has embodied the solution to consumer’s fear of being rudderless as they choose

the right plan, without going broke. She is neither the stuffy visionary advisor, nor does she

take the irreverent swipe some other brands are at those who think of insurance as an

important, if dreaded, decision. She is, instead, the embodiment of what is in the cross-‐hairs of

our metrics for the category: an emotionally-‐comforting person offering us rational benefits.

And that’s a high-‐involvement that clearly consumers understand.

What Happened? Besides millions of people tuning in to see commercials like they did in the days of Mac-‐PC Apple

advertising?

Well, industry analysts declared Progressive “an industry winner in a sector we think will

experience a divergence of performance.” In consumer-‐speak that means that they think the

73-‐year old company is going to do real well in the coming year.

Yes, yes, Allstate typically gets the largest share in auto insurance, but they sell through agents,

a sales platform that is going the way of the dodo, with drivers shunning agents, a part of the

US insurance market that has been in decline for nearly a half-‐decade.


Progressive, on the other hand, increased Internet and phone sales and met the average analyst

estimate paying a 3rd Quarter profit of 37¢ a share. (Allstate missed their estimate by 13¢.)

In October 2010 Progressive announced an extraordinary cash dividend of $1.00, returning

approximately $660 million to shareholders, making it a pretty safe investment.

And you know what they say about safety. It doesn’t happen by accident!


Difference Among Copiers

Blogging about advertising is always fun, if only to take another opportunity to

remind our brand friends that advertising creatives are hired to sell something,

even if they did double-‐major in Neo-‐Realistic film studies. In October, we wrote

about two brands that joined forces to make one excellent point and entertain,

proving advertising can do both. Hop on and take a ride with us, revisiting the

scenery, to this ROI destination.


The Keyhole blog As seen in many categories out there, copier brands find themselves in a state of flux. To begin

with, there is the more accurate description of what today’s copiers actually are—however,

that remains a mouthful; “multi-‐functional product office copier” doesn’t exactly roll off the

tongue. And that’s just the copier side of the business. Brands that built their company on the

ability to replicate are now attempting to carve out unique turf when it comes to performing

document management services for companies.

Xerox, one of those few brands whose name was in the enviable position of being used as a

verb by those of us who can remember “xeroxing” our expense reports, is doing much more

than copying these days, and wants to tell you about it. A recent ad, linking it to one of the

sexiest motorcycle brands on earth, Ducati, is both funny and metaphorically sound, if a little

far-‐fetched. Why a test-‐driver in a wind tunnel is also responsible for translating documents

into Portuguese is not really the point, however. The point, and a well-‐made one, is that

businesses should keep their eye on the prize—mainly, who they are and why their products

are bought. In Ducati’s case, it’s kicking bikes that ignite consumers, not their exemplary

translation skills.

We track Xerox in our Customer Loyalty Engagement Index, an annual ranking of hundreds of

brands by how close they come to what consumers really want in the category in which they

participate. This year, in the MFP Copier category, Konica Minolta and Canon tied for first, with

Xerox coming in second.

As Xerox races to first, they could find a worse partner than Ducati to carry the message of

speed. But this ad can serve as a reminder to all brands that process, while important, is not the

kind of emotional driver that wins fans. Knowing what matters most to consumers is the

strategy every brand needs to copy.


What Happened? Co-‐branding ventures increased over 50% from last year. But it turned out that most co-‐

branding exercises were not as successful as brands might have wished for. For the Multi-‐

Functional Product Copier brands that exhibited the highest levels of loyalty and engagement,

their co-‐branding efforts did help to multiply sales and profits.

Xerox clawed its way back from a dismal 2009 where it had seen a real drop-‐off in share. The

now-‐#2 rated company transformed itself along with its advertising and more than doubled its

3rd Quarter 2010 profit.

Canon—#1—leveraged its co-‐branding with the London, Paris, and Milan Fashion Weeks, and

reported their operating profits doubled.

Konica Minolta didn’t co-‐brand. They chose sponsorship of an up-‐and-‐ coming sport, lacrosse,

with the Face-‐Off and Big City Classics. Their operating profits only went up 13%.

There are mandates, of course, for successful co-‐branding. The relationship needs to be

believable—in short, to make sense. The partners need to share common values, which is a

prerequisite for consumer engagement. And each brand must benefit.

But we could have told you that.


Credit Card Discovery

Last fall we wrote a blog about credit cards, and the concept of the Ideal-‐-‐a

concept we talk about a lot, as the ideal people hold as they approach a category

is key to understanding what they will actually do, and not just say they will do.

When it comes to the plastic we carry, what once thrilled has become cost of

entry, and not all companies have taken it well. We predicted a winner; take a

listen to a story about a brand that has not only dollars but sense.


The Keyhole blog The concept of a card to be used for purchases was first described in 1887 by Edward Bellamy

in his novel Looking Backward. It portrayed Bellamy’s dream of how an Ideal 21st century

would operate.

It turns out Bellamy’s was ahead of his time. It was only in 1984 that Brand Keys proved that

consumers don’t just shop, but dream too. When it comes to brands, they dream about an

Ideal.

The Ideal is a consumer-‐centric view of a category. It absolutely informs how consumers view,

compare, and choose among category options. If you identify the Ideal, you not only possess a

measure of consumer expectations, but also know what truly matters to them. Brands that best

meet – even exceed – expectations for the Ideal always possesses the highest brand equity,

engender high levels of loyalty, and, as this is business we’re talking about, posts profits. Very

regularly and usually exceeding estimates.

When it comes to 21st century credit cards, ubiquitous acceptance, competitive rates, and air

miles don’t cut it any more. Those have become category ‘table stakes.’ What influences brand

loyalty most is the reputation the brand has for service. According to our most recent loyalty

assessments, here’s how the major card brands rank when it comes to what consumers dream

about customer service: Discover is the category leader, followed by American Express, then

Visa, Capital One and MasterCard.

Discover recently aired a new campaign focusing on (ideal) customer service. Oh, and having

the category’s most-‐loyal cardholders and this year’s Brand Keys Loyalty Award, a circumstance

that most CFOs and CMOs also dream about.

All dreams may be answers to questions consumers haven’t figured out how to ask yet. But for

marketers those dreams can be codified in a very practical, very predictive category Ideal.


What Happened? Discover card spending continued to grow and the company posted a $261 million profit, with

their stock outperforming its three larger US rivals.

American Express announced its first Small Business Saturday to follow Black Friday and precede

Cyber Monday.

And just in time for the peak holiday travel season Amex launched a new travel rewards card –

the Blue Sky Preferred: the first-‐ever card to offer travelers an annual $100 airline allowance

cover fees for travel changes, baggage fees, in-‐flight or Wi-‐Fi purchases. Just another of Amex’s

innovative efforts to help small businesses, consumers, and the U.S. economy, as well as

maintaining their industry thought-‐leadership position.

There’s an old joke that goes, “money isn’t everything. There’s money orders and traveler’s

checks too.”

It turns out that for successful financial services, there’s customer service and innovation, too.


Brand Fit in Denim

Blue jeans, the largest level of the food pyramid in most of America’s fashion

diet, is a competitive category, where one brand can eat another’s lunch—and

sometimes do, even when that brand has been around, say, since 1969. We

won’t go back quite that far—just to April 2010 and our blog in the denim

category, and then a look at what happened as the year zipped up.


The Keyhole blog Yves St. Laurent wished he “had invented blue jeans. They have expression, modesty, sex

appeal, and simplicity. All the things I hope for in my clothes.” Consumers seem to feel the

same way except that a couple of years ago they were buying expensive, high-‐end premium

denim more often. Now they're buying a couple of “perfect” brands and complement their

wardrobes with less expensive pairs, which means that the competitive set for any denim is a

lot broader than it used to be. And if it’s broader, who’s in the primary consideration set?

As part of the annual Brand Keys Customer Loyalty Engagement Index, a segment of 7,500

consumers respond to questions about the value they place on fashion brands and the

particular brands they find important to them. When it comes to the four drivers of

engagement and loyalty in the denim category, it turns out that consumers think (and judge

and buy) in terms of the 4F’s:

1. Fit: How does it look and how does it feel? Does it flatter and/or flaunt?

2. Fashion: Is it cutting-‐edge in design, does it have a signature people recognize, and do my

favorite celebrities wear them?

3. Fabric: Is it truly “premium” denim? Has the wash and finishing made it soft? Does it stretch

and sculpt? Does it look different?

4. Finish: What differentiating characteristics and character have been washed, whiskered, or

sanded into the final product?

And how do brands measure up? When it comes to blue jeans here’s how the top-‐20 brands

ranked, in order:

Levi’s

True Religion


Lee

Lucky

AND 5TH Gloria Vanderbilt

ARE THE TOP FIVE

Wrangler

7 for All Mankind

Ralph Lauren

Citizens of Humanity

AND 10TH Liz Claiborne

ROUND OUT THE TOP TEN, FOLLOWED BY

Rock and Republic

Cheap Monday

Diesel

Joe’s Jeans

AND 15TH Calvin Klein

WHILE THE BOTTOM FIVE BRANDS ARE

Rockawear

Hudson

Juicy

Gap

AND, LAST, Tommy Hilfiger

According to Diana Vreeland, tastemaker and Vogue’s long-‐time editor-‐in-‐chief, “blue jeans are

the most beautiful thing since the gondola.” With nearly $15 billion in denim sales, consumers

are obviously along for that ride.


What Happened? The Gap banked on its new line of old denim – marketed under the “Born to Fit” banner – to

help revive the rumpled brand and its sagging profits.

Focusing on “fit,” the brand sought to reach out to fashionistas via Web advertising and social

media. Facebook was the centerpiece of the online-‐campaign. There friends could watch a video

of Gap’s “Fit Engineer” explaining the development of the new line called “1969,” named after

the year The Gap was founded, ironically enough back then solely as a purveyor of blue jeans.

The company did see some success with the revamped jeans line, but otherwise sales were

sluggish and clearly tepid in advance of the key holiday selling season.

The Gap’s same store sales – a key gauge of retail brand performance –had already seen a

steady decrease in same-‐store sales for two years running, were flat in the 3rd Quarter of 2010.

The company posted a decrease in net profits. Shares fell nearly 2%.

Looking for a better fit between the brand and profitability, The Gap said it would close about

100 stores for fiscal 2010.


The Story of E-readers

Back in June we wrote a blog predicting that the highly dynamic e-‐book category

merited watching. Our blog—War Does not Determine Who’s Right, Only Who’s

Left—presaged the rapid-‐fire changes that came to pass in the marketplace,

summarized in this “What Happened” section. But, first, let’s take a trip back to

warmer days, where the heat felt by those in the e-‐book category had little to do

with the weather.


The Keyhole blog It used to be that the worth of a book was measured by what the reader could carry away from

it. Now, it seems, worth is being measured in how the books are actually carried. And what

that’s worth has started a war – the price war of the e-‐readers.

Barnes & Noble reduced the price of its Nook e-‐reader from $259 to $199 this week and also

said that they would release a lower-‐priced, WiFi-‐only version for $149, making it the first

under-‐$200, full-‐featured e-‐reader that offers free 3G and WiFi connectivity. Not to be

undersold, Amazon cut Kindle prices by 30%, from $259 to $189.

As to others in the e-‐book reader marketplace, the Sony Pocket Edition is priced at $169 with

no wireless connection, but their Daily Edition does have Internet access, but that costs $349.

At least until Sony announces a price cut. Borders offers up the Kobo. It’s $150, but it lacks

wireless access too.

Amazon was, of course, the early leader in the small but growing market for portable reading

devices. Now they’re facing growing competition with Apple's iPad, Sony's Reader, and an array

of other handheld tablets and mobile devices. The escalating price war reflects the growing

popularity of e-‐readers as well as Amazon’s and Barnes & Noble's desire to offer a lower-‐priced

alternative to the Apple iPad. That retails beginning at $499 but does other things besides

holding e-‐books.

As to who will be left, at least one e-‐reader maker has only made it to Chapter 11. IRex

Technologies recently sought bankruptcy protection. Other brands, like Plastic Logic, have

encountered delays as well entering the growing marketplace.

The advent of multi-‐featured tablet devices and “MID”s (mobile Internet devices), aka

“tweeners,” or something ‘between technologies,’ has driven the price for single-‐feature

devices lower and lower and lower. Amazon and Barnes & Noble are expected to introduce new

models as early as this summer, which means prices of e-‐readers are likely to come down even


further. One industry expert thought that most devices would end up being priced around $100

by the end of the year.

The e-‐book reader price war is far from over, so stay tuned. Because this marketing and

technology war is bound to turn into a real page-‐turner!

What Happened? It turned out to be a breakout year for e-‐readers and e-‐books — one of the categories we predicted would see enormous growth when we added it to our Customer Loyalty Engagement Index.

E-‐readers are convenient, downloadable anywhere, content is less costly than hardcover books, and they are good for the environment—literally a portable library in your pocket. The only downside is that you have to be careful not to spill coffee on it at your desk or get it splashed at the beach.

By year’s end you didn’t have to go online to find one. E-‐readers turned out to be available virtually everywhere—Best Buy, Target, Wal-‐Mart, and even Staples—at prices that made real sense to consumers. By the end of 2010 device sales had more than tripled.

The e-‐reader market, long dominated by Amazon's Kindle, went very mainstream. Besides Barnes & Noble’s Nook, Sony’s Reader, and Border’s Kobo, brands like Papyrus, Cybook, and Boox entered the marketplace. Content sales went up 176%. Overall revenue for 2010 topped $500 million.

In a game-‐changing move in early December, Google opened its e-‐bookstore, an open ecosystem that will offer more than 3 million books, including hundreds of thousands for sale – and millions for free. As you might imagine, this creates a very robust competitor to the big-‐3, Barnes & Noble, Amazon, and Apple. More than 4,000 publishers have made books available for sale through Google, and is a game-‐changer for independent bookstores seeking entry into the e-‐book business.

And in an acknowledgment of the influence of digital publishing and pervasiveness of e-‐readers (not to mention tablets like the iPad), The New York Times said that it would publish e-‐book best seller lists in fiction and nonfiction beginning early in 2011.

There’s an old, Russian proverb that says, “It is a certain truth that wisdom consists of the anticipation of consequences.” Anticipating marketplace changes allows brands to avoid asking the lethal question, “How did it get to be so late so soon?”

While we have been taught “better late than never,” in today’s marketplace it’s really better never to be late.


FACEBOOK and the Un-Social Space

One of our July blogs visited a hot topic: privacy concerns in the social media

space. Which means Facebook. We warned of trouble ahead for Facebook with

users who sought it out to connect with control, and then suddenly found their

info splattered on foreign walls. Listen to this story of what some see as an

increasingly un-‐social space, and where that strained friendship stands now.


The Keyhole blog It been reported that Facebook will reach 500 million users this week. That’s a 5 with eight

zeros. Or in people terms it’s the combined population of the United States, Japan, and

Germany—or half the population of India.

However you think about it, it’s a lot of people looking to connect. In the last year the number

of Facebook users has doubled in size. In just 6 years it’s become the biggest information

network on the Internet— or anyplace else, for that matter. And Facebook effects go well

beyond just sharing photos or saying ‘hi.’ For many it has become the site of first resort: 70% of

users outside the U.S. and 25% of all users check in and update their pages via cell phones. And

all this has begun to test the limits of personal privacy.

When you’ve got a half-‐billion users distributing personal news, views, and information of both

real and sentimental value, you have to also be able to manage the masses of enlightened –

and humdrum – personal information shared by the masses with the masses. Last year the

company’s change in privacy policy sparked complaints by users on comment boards and

privacy groups to regulators. This year there’s also been a lot of uproar online about Facebook's

alleged lack of concern for the privacy of its users' personal information, and complaints that

the 45,000-‐word privacy policy is far too complicated for an ordinary user to decode.

This growth and privacy uproar has attracted the attention of Federal regulators and lawmakers

who are looking to protect the privacy of consumers, because the number of users isn’t the

only thing growing. Third-‐parties such as advertising networks, with access to all this

information, make it important that consumers understand what they “own,” what is actually

being shared, and which privacy rules apply.

Nearly 4 decades ago, Earl Warren noted that the advances in electronic communications

constituted a real danger to individual privacy. That said, according to our Customer Loyalty

Engagement Index (and varying, of course, depending upon the category you’re talking about),

aspects related to privacy have only increased only very slightly over the past 5 years. Times

have changed and Americans are apparently willing to trade a degree of privacy in exchange for

on-‐going social networking. But for vacation photos?


As frustrated execs and users throw up their hands and ask, “what do people expect?”

Facebook's growth will have more to do with how well it listens and changes according to users

expectations as to what’s private and what isn’t. As big as Facebook is, it might want to tread

carefully and not only help users “friend” someone, but be one.

What Happened? The social network has been under some considerable fire regarding technical glitches that have

exposed personal data as well as the founder, Mr. Zukerberg’s, position that users should, and

will want to be, more open and public with their information. Privacy advocates led by Senator

Charles Schumer of New York, have called on regulators at the FTC to step in. Users – with not-‐

so-‐happy faces – have created websites to rail against Facebook’s privacy controls.

Facebook had to address consumer rage regarding one feature they created that encouraged

users to share more about online activities, and another that personalized other websites about

a Facebook user’s friends.

There’s been a move afoot – or is it a face? – to implement controls allowing users to conceal

their profiles, but Facebook has been launching new features and settings virtually every month,

and these continue to provoke privacy concerns. On top of that, privacy advocates and users

don’t really feel they’re quite sufficient when it comes to protecting their personal lives.

Particularly when Facebook explanations read: “These settings let you control who sees this

information on your actual profile. However, it may still be visible in other places unless you

remove it from your profile itself.”

It’s been said that the secret to having a personal life is not having to answer too may questions

about yourself. These days, expectations are very high that that applies to social networking

sites too.


Fast Food Goes For the Gross

July seemed a great time of year to blog about burgers, though even as our

thoughts turned to grilling we had to turn away at the gross-‐out food fight in the

fast food category. Carl's Jr.-‐-‐which this year cemented its rep for tastelessness,

begun with Paris Hilton, by doing a low-‐cal re-‐run with Kim Kardashian munching

a salad while rolling about in bed-‐-‐threw its foot-‐long bun into the ring. If you

can stand it, join us to compare before and after photos in this race back to the

starting line.


The Keyhole blog It started with KFC’s bunless “Double-‐Down": two pieces of fried chicken with a burger in the

middle. Next came Friendly’s “Ultimate Grilled Cheese Burger Melt” – a hamburger between

two grilled-‐cheese sandwiches. But in the interest of staying competitive – while offering

something other than gourmet hamburgers – and generating some much-‐needed buzz, Carl’s

Jr.’s is introducing a foot-‐long burger, made from lining up three burgers on a hoagie bun and

weighing in at 1,400+ calories.

Whether these offerings are appetizing to the consumers, a market opportunity does not a

brand success make. The truth is that any quick-‐serve chain can come up with a truly gross

offering. But getting attention and getting sales are two entirely different courses. Consumers

may try something for the novelty (and for the occasional cholesterol jolt), but you need more

than one-‐time buyers to make a success of newly fabricated grub.

What you need is to be able to do it believably. While gross as any recent offer, the foot-‐long,

triple burger from Carl’s Jr.’s would seem at least within their prevue, and thus a more feasible

offering coming from a burger joint. And as a brand, Carl’s Jr.’s could sure use some inspiration.

According to our Customer Loyalty Engagement Index, they’re rated toward the bottom of the

current national offerings—a category that increasingly sees “health” showing up in the

decision process. In 7th place, Carl's has a long way to go to catch McDonald's in first, followed

by Subway, Burger King, Quiznos, and KFC.

As the summer unfolds and the gross-‐out wars continue, we are curious to see what other

culinary chimeras get offered to the public. But as anyone with a test kitchen can create a

gross-‐out pièce de résistance, here’s a research question that rings loudest: is the weird

combination of disparate foods – and attendant and unfamiliar mouth-‐feel and unusual taste

sensations – the reason that consumers feast on such fare? Our metrics tell a different story of

what consumers in the category are looking for, which may not be as simple as shaping a bigger

burger. Especially when the shape many of today’s consumers are most interested in is their

children’s and their own.


What Happened? Well, you know what they say, “success has many fathers, and failure no family at all.”

Oh, and very little publicity as well, so there wasn’t much reported in the press regarding gross-‐

out food offerings made this year.

Except in one instance. A the Yum Brands earnings call, when asked about the KFC Double

Down, the CFO referred to sales of the sandwich as “immaterial.”

Industry analysts estimated that the Double Down contributed less than 3% to KFC sales; for a

new product to be deemed a hit, the industry generally looks for something north of 10%.

In a press release the company said, “The Double Down generated more buzz than any test

marketing item in KFC history.”

Hmmm.... We remind you, gentle listener, that buzz comes in two frequencies: high and low.


Staying Places

When we wrote about luxury hotels back in September, we tried not to think too

hard about how long it was until the next vacation, and instead about what was

driving engagement with one hotel over another in that rarefied space. If 2010

was the year of the dollar (which it wasn't, by the way; it was value), what

actually happened to the brand we said would dominate among the LV luggage

crowd? Put down your bags and spend a few minutes with us in the luxury

category, where all mattresses are not created equal.


The Keyhole blog There’s an old hotelier saying that went, “elegance needs no adornment.” That used to be true

for luxury hotels, where they could count on reputation and service and amenities to

differentiate them from the ones where you got stuck when you had to spend a night at the

airport. That sense of elegance and top-‐flight service for the elite carried those brands. You

know, the kind of place where Room Service had an unlisted number and they didn’t consider

offering guests anything so common as loyalty points – because they didn’t have to.

We track hotels in our Customer Loyalty Engagement Index and here’s how those bastions of

luxury and refinement rank when it comes to their reputation for providing high-‐end

extravagance. Inter-‐Continental leads the category, with W Hotels, Fairmont Hotels, and Ritz

Carlton following, in that order.

Customer expectations have continued to rise in virtually all categories. And as you might

suspect, customer expectations as they relate to luxury generally, and luxury hotels specifically,

have increased more than more proletariat categories like breakfast cereal or take-‐out pizza.

While smaller and more exclusive than other categories, you still don’t want to find your luxury

brand at the bottom of the list. That means that the brand – or more precisely the brand’s

equity – isn’t doing the best job meeting or exceeding the guests’ expectations for the category.

And when that happens, brands that find it cost prohibitive to add a sauna or lap lane to every

room often find it easier to turn to price promotions or loyalty programs to help bolster the

brand.

And while such programs have become apparent necessities of late, there’s a point where

brand and promotion meet and it doesn’t quite fit, although, based on the numbers, we expect

to see more luxury brands borrowing whatever equity they can whichever way they can –

especially in the current economy.


Dorothy Parker noted that, if one took care of the luxuries the necessities would take care of

themselves. In many categories – exceeding expectations – does precisely that!

What Happened? The InterContinental Hotels Group, rated number 1 for loyalty on our Customer Loyalty

Engagement Index, reported financial results for the 3rd Quarter of $5.1 billion, up 13% from last

year.

The Ritz-‐Carlton, number 4 of the four of the luxe hotels we track, launched a loyalty program

called “Ritz-‐Carlton Rewards.” It has silver, gold, and platinum levels, and accumulated points

can be used for upgrades or for experiences with partner-‐brands.

We have some reservations about the Ritz’s new loyalty program leading to the top floor when

it comes to loyalty. They may be doing it because such programs – once the delight of travelers -‐

-‐ has just become an expectation.

But the ultimate truth is that holding the keys to loyalty is really the only thing that gives brands

a good night's sleep.


Loyalty Leaders

Every September we take a look at what brands lead, across categories, when it

comes to driving loyalty and creating engagement with consumers. Then we take

a peek at year-‐end to see what those pesky consumers actually did. The vote

that matters is, after all, the one with their wallets. How, in this down economy,

did the brands do, who was number one, and how did it shake out? Well, we just

love to talk about loyalty, so take a break from all those brands out there

whining about tight-‐fisted consumers and listen to where the money actually

went—and why.


The Keyhole blog Here are a couple of brand absolutes:

1. Loyalty is absolutely driven by emotion and

2. This year consumers are absolutely looking for emotional connections – more than ever

before.

This year the list of top-‐50 Brand Keys Loyalty Leaders is made up of 8 categories. Cosmetics

and moisturizers account for 30% of the brands; technology brands – primarily smart and cell

phone brands – account for 26% of that list; and these two categories together account for

nearly 60% of the brands with the most loyal customers.

Surprised? You shouldn’t be. Not when you consider that the ‘emotional engagement’ that

women share with beauty brands is very powerful, and that there are few things consumers

take more personally than the technology that keeps them connected.

Sixteen percent (16%) of the top-‐50 Loyalty Leaders represented retailers (bricks, clicks, and

catalog), and 12% of the brands were alcoholic beverages, principally vodka, with only one beer

brand in the top-‐50 ranking. On the other side of the bar, Dunkin Donuts and McDonald’s

coffees were the only other beverage brands to make the top-‐50 loyalty rankings.

Of the 501 brands in 70 categories on this year’s list, here are the 10 brands with the most loyal

customers, in order of appearance:

1. Apple iPhone

2. Samsung cell phones

3. Wal-‐Mart

4. Grey Goose

5. Apple Computers

6. Hyundai


7. Amazon

8. J. Crew

9. Blackberry

10. Avis.

Who had the greatest gains in loyalty this year? Progressive Insurance (+78), Avon (+53), and

Domino’s Pizza (+38).

Who showed the greatest losses in loyalty? Palm (-‐407), Tylenol Allergy (-‐199), and BP (-‐326).

Some brands have, of course, suffered loyalty losses because of the economy. But brands that

understand how real emotional connections serve as a surrogate for added-‐value will create

stronger loyalty bonds no matter what the economy is like.

The good news: Unlike economic use models, which rely heavily on historical data and

profitability conjecture, the Brand Keys Loyalty Model and rankings are 100% consumer-‐driven;

are predictive leading-‐indicators of corporate profitability; and are eminently understandable.

The better news: Real customer loyalty can be quantified and predicted. And in these economic

times, knowing what’s making loyalty happen gives a brand an extraordinarily powerful

advantage.

Absolutely!

What Happened? The geeks inherited the earth. Or at least a large portion of it, with Apple selling 50 million

iPhones by April of 2010. In that same time period, 85,000 applications for the iPhone were


made available at the app store. By year’s end those had been downloaded nearly 10 billion

times!

The market value of Apple leaped above the $222 billion mark, just edging out rival Microsoft’s

$219 billion valuation. Overall, Microsoft stock is down 20 percent compared to 10 years ago,

while the value of Apple’s has grown tenfold over the same period.

It’s been said that the strongest principle of growth lies in human choice. Which explains a lot

about the value of the Apple brand.


Luxury is Good

In April of this year, we did a blog about one of our perennial topics: the

foolishness of asking a rational question and expecting an emotional answer.

Hardly a week goes by without coming across some survey results or another

that reports out what emotionally-‐driven consumers are going to do because—

wait for it—they asked them. Hindsight may be a luxury, but for us, it’s too little

too late. Take a listen.


The Keyhole blog Brand Keys’ ‘secret sauce’ to being able to predict consumer behavior in the marketplace is an

acknowledgment of the reality that direct Q&A may measure what people say they think, but

it’s an extraordinarily imperfect approach to understanding what people really think. To get to

that reality, you need to measure the emotional part of the engagement and loyalty equation.

Five-‐point scales, imagery questions, and ranking lists are extraordinarily unsuited for that task.

Oh, sure, easy answers to questions like, “are you optimistic about the economy?” are probably

going to provide an accurate measure of how people feel. Nobody feels terribly exposed

answering a question like that. But ask a middle-‐aged man “why he bought the new sports car,”

and you’re likely to hear all kinds of phrases that rationalize the purchase – “fuel efficient” and

“empty-‐nest” – while the phrases “mid-‐life crisis” or “want chicks to find me cool” just do not

appear on any list of open-‐ended responses.

Those thoughts sprang to mind upon reading some of the results of a survey from Affluence

Collaborative that reported people with incomes of more than $75,000 – and most with

incomes of $500,000 – said they felt “extremely optimistic” about their financial situation. The

$500,000-‐plus group – when asked – reported that they were “happier than they were two

years ago.” If your reaction to reading that finding was “well, duh,” then join the club. Didn’t

really need a study to confirm that supposition.

But then the questions took a nasty turn into the kingdom of What-‐We-‐Think-‐We-‐Ought-‐To-‐

Say, a very dangerous place for researchers and brands to wander. They gave respondents a list

of 22 activities that might contribute to their current state of happiness and shopping for

luxuries ranked 20th, just ahead of smoking.

Now if you’re thinking to yourselves, “Wow, extremely rich people not getting a happiness jolt

from shopping for luxury goods, can that be right?” you’re not alone. We share those very

thoughts with you. Even in a weakened economy, that kind of response rings hollow, more

particularly in light of the recent increase in same-‐store sales at luxury retailers and blockbuster


earnings by luxury-‐goods brands.

It is not luxury consumption that has fallen out of favor, despite this economy; it’s conspicuous

luxury consumption. The reality is that those who can afford those goods are not going to be

out of fashion, whether it’s sartorial or economic. And they will certainly not bare their

economic souls to obvious above-‐the-‐radar research queries. Or, more importantly, it’s not

what they’re going to do. And no brand has the luxury of making that mistake.

What Happened? So, was there a difference between what the rich people said and what the rich people did?

Well, Prada shoes, Hermes handbags, Valentino dresses, and Tiffany jewelry all sold incredibly

well, as did the shares in companies that own luxury brands. Hermes reported profits of +55%

compared to last year and increased sales of 23%. Tiffany & Company’s profits rose 20%. Overall

sales of luxury goods were up 10% in December of 2010 alone.

Apparel grew 8% for the year and hard luxury goods, which include watches and jewelry, grew

by 15%. Accessories, shoes and leather goods expanded by nearly 20% coming close to

exceeding the revenues of apparel, traditionally the largest of the luxury goods sector. Perfume

and cosmetics were up too by 5%.

Luxury sales online out-‐performed overall web sales, and grew at 20%. Discount luxury (if you’ll

excuse the oxymoron) outlet stores grew by 12%.

All proving two things: first brands matter more today than ever before, and, second, brands

that are able to meet consumer expectations will be in the best position to keep growing, no

matter what the economy is like.


Oh, and no matter what consumers say!


Travel Sites Get Social

As we went about our travels in October, we took a moment to blog about the

changes we saw coming in the online travel site space. For us, anything that can

make travel easier has us at prepare-‐for-‐landing. But when it comes to non-‐

business travel, expectations consumers hold for their travel collaborator have

lifted off at jet speed. Give a listen, and let us take you on trip—blogging your

memory, and offering a beautiful view of what happened in the marketplace.


The Keyhole blog Brand Keys will be doing some traveling over the next couple of months. We’re working on the

theory that a journey is best measured in knowledge than in miles, and counting on online

travel sites to help facilitate trip planning.

We measure Online Travel Sites in our Customer Loyalty Engagement Index and right now the

traditional default sites rank as follows:

-‐ Expedia and Kayak tied for first;

-‐ Cheap Tickets and Orbitz tied for second;

-‐ Priceline, Travelocity, and Hotwire tied for third;

-‐ With Fodors and Hotels.com bringing up the rear.

You don’t need a map to see that differentiation among the online travel sites isn’t vast. The

reality is, though, that expectations for the category are pretty high and that sites that were

able to take advantage of the gap between rational delivery and emotional delight would be

able to count on engagement and loyalty to drive traffic rather than just depend upon habit and

routine.

Differentiation has never come easily for brands that rely on traditional Q&A inquiry,

satisfaction studies, or “likelihood to recommend” estimates. But leading-‐indicator loyalty

assessments suggest online travel sites consider borrowing some values from social media.

Despite a commodity-‐like delivery on the very rational primacy of service side of the equation,

an online travel site could foster real emotional relationships with its clients and turn an

“exchange” into a true “conversation.” If they did that, navigation to a more profitable latitude

would be a far easier journey.

We predict greater explorations into the frontiers of social media for travel sites in the very

near future. As Marcel Proust observed, “the real voyage of discovery consists not in seeking

new landscapes but in having new eyes.” New values too.


What Happened? Air travel and hotel bookings increased in 2010. On average, about 17% for the major on-‐line

travel sites. But travelers seeking something more than just cheap rooms and flights fueled the

growth of new, social-‐network-‐like travel sites. Here are just a few you might want to befriend.

Triporama.com enables travelers to plan a group trip and has tools on their site that includes

sharing research, managing invitations, and posting messages to members in your group.

Another, Triptie.com allows you to create a hometown itinerary for when friends and family

come to visit. Tripadvisor.com has compiled over 5 million traveler reviews and opinions and

reviewers have the option of uploading their own vacation pictures.

W-‐A-‐Y-‐N.com, which stands for “Where Are You Now?” is a kind of MySpace for travelers. The

online travel site allows members to share logs of their journeys and even meet along the way

via an integrated instant messaging program. Planetware.com lets you enter your hobbies and

activities as variable in trip planning.

IgoUgo.com allows travelers to share stories and photos. Oh, and you can search for a member,

view their profile, and stay up-‐to-‐date on their travel activities.

Any of this sound familiar?


More Pizza Please

Last spring, our thoughts turned once again to pizza. Coincidentally, that

happened the winter before, and, come to think of it, last summer and fall. Like

the rest of the world, we love the stuff—and expect a lot from our pie, making us

no different than any other pizza fan. We look at the category by what the

consumer hungers for, and predict a category leader. Want a slice of market

reality? Listen to what brand had the upper crust.


The Keyhole blog There’s a proverb that goes, “between the wish and the thing life lies waiting.” But what with

continually increasing consumer expectations and the immediate gratification offered by the

Internet, people aren’t keen to wait for very long for very much these days.

But in New York City on West 41st Street people stand on line 24/7 at the counter of 99¢ Fresh

Pizza. One block over is Two Brothers Pizza. They charge $1.00 a slice (tax included), and both

restaurateurs offer the same daily special: 2 slices and a can of soda for $2.75, which is what

you’d pay for a single slice at most other places.

OK, so consumers – even those with high expectations – will stand on line for a real deal, but if

you watch the national pizza chains promotions carefully, you can sometimes find even better

offers, and they’ll deliver directly to your home. The 3-‐for-‐$5-‐each offers, even for three

smallish pies, equates to about 83¢ a slice.

While not all chains offer the deals all the time, here’s how customers of the national chains

rated their pizza for value in the 2010 Customer Loyalty Engagement Index: Domino’s leads in

loyalty, with Pizza Hut, Papa John’s, Godfather’s and Little Caesar’s standing in line behind

them. Round Table and Chuck E. Cheese close out the list.

But deal or no-‐deal, people love their pizza. In fact, it’s fair to say that pizza is a lot like sex.

When it's good, it's really good, and when it's bad, it's still pretty good.

What Happened? Domino’s rode a wave of cheese-‐and sauce fueled momentum driven by the positive reception

to the company’s newly re-‐designed pizza recipe. They changed everything! A new crust with


added butter, garlic, and parsley, a new cheese, shredded instead of diced mozzarella, with just

a hint of provolone, and a new sauce -‐ sweeter, with a red pepper kick.

More than pizza dough rose. Domino’s sales went up more than 12% over the same time period

in 2009 to about $1.4 billion.

For those of you jonesing for a slice about now, Domino’s opened 90 new stores, bringing the

total to 9,169 stores worldwide. Proving that the secret sauce when it comes to the pizza

category is delivery against the consumer ideal—every time.


Hitching a Rental Ride

Looking in the rear-‐view mirror back to April's blog on the rental car category,

we saw an acceleration coming for a couple of brands-‐-‐not driven by business

mechanics, but by the drivers with their foot on the gas. Let's back up and see

what was ahead back then, and then a look at the actual roadside show.


The Keyhole blog Though the economy has not been a boon to car rentals, Hertz announced that it was making a

deal to acquire the Dollar Thrifty Automotive Group for $1.2 billion.

The acquisition would take another player out of the rental car market, which has gone from

nine holding companies to three in just the past three years, and would give Hertz 9,800

locations, four brands, and a 23% market share. Enterprise now has 53% share and Avis a 21%

share of the car rental category, so you’d figure that’s the way it would shake out with

consumer preference and loyalty.

But that’s not always the way with acquisitions. Peter F. Drucker, the legendary management

consultant, noted that one of the rules for a successful deal was that the acquisition must be

based on business strategy. But today, successful acquisitions are not just about the deal, it’s

about the brands as well.

Consumers don’t make decisions just on the basis of market share or distribution; They look at

the brands and what they stand for, or, more importantly, what they believe they stand for. In

this year’s Customer Loyalty Engagement Index, car rental brands ranked as follows: Avis is in

first, followed by Hertz, and then Enterprise. National; Budget; Dollar, and Alamo follow, in that

order.

Analysts have noted that car rental consolidation hasn’t had much effect on profit margins.

Apparently customers have become more adept at getting better deals too.

What Happened?

The major US rental car companies reported year-‐over-‐year profit growth for the 3rd Quarter of

2010. This was, thank you, due largely to growing volume of drivers – their customers.


Avis’ domestic volume grew more than 4%, picking up speed as the quarter wore on, with

acceleration most pronounced in their commercial business. Avis reported an income of $90

million, up 37%.

Hertz reported a 3rd Quarter income of $156.6 million, up nearly 60% over last year.

Both players have been able to maintain superior account retention, reporting levels over 99%.

That said, consumers are still looking for value. And while rental car pricing remains flat, the

category is actually able to see a real recovery not far down the road.


Ringing Up Retail

Every year when it’s time to send those little ones back to school, while trying

not to look too cheerful, we write a blog about our Back-‐to-‐School predictions in

retail. Who among those brands competing for an A will go to the head of the

class according to those parents who have to spend their hard-‐earned dollars?

Check in with us to see who made the grade, and then how those predictions

tested against the actual market results.


The Keyhole blog It’s not only parents who will be happy to see their children go back to school next month.

Retailers are celebrating too because the average spend consumers say they’ll make for back-‐

to-‐school clothing and supplies is up 10% over a year ago, at $584.

What’s causing the change? A combination of an improving economy, slightly increased

consumer confidence, on-‐going discounting and promotional activity, and growing children

(with a real need for new clothing, outgrown shoes, and depleted supplies) has increased

anticipated back-‐to-‐school spend. The consumer’s view of the traditional retail 3R’s used to be

‘retailer,’ ‘rates,’ and ‘requirements,’ – which retailer was offering the best prices for stuff the

kids really required. As consumers have already earned their Ph.D.’s in smart shopping, this

year ‘requirements’ has moved to the top of parents’ lists.

Our annual survey (10,000 households with school-‐aged children in pre-‐school through 12th

grade, drawn from the nine US Census regions) show that, unlike other major purchase events

like Mother’s Day, there’s a more lopsided distribution in terms of which retailers will be the

beneficiaries of consumers’ back-‐to-‐school shopping, with ‘preferred’ retail distribution looking

like this: Discount Stores 95%, Department Stores 60%, Office Supply 55%, Online 50%,

Specialty Retailers 45%, and Catalogs 35%.

When asked where they intended to shop, consumers identified the following choices. And

while these measures account for multiple category responses in the Customer Loyalty

Engagement Index, they represent the top-‐10 retailers showing the greatest increases in

consumer intent-‐to-‐shop since last year. Amazon led the pack, with Bed, Bath, and Beyond,

Gap, J. Crew, Kohl’s and Footlocker following in that order. Nike follows that, with Staples,

Target, TJ Maxx and Zappos closing out the category.

While the economy always impacts overall spend any time of the year, given the ubiquity of

back-‐to-‐school merchandise offerings and pricing strategies, what brands get what piece of the

academic pie is ultimately determined by what retail brands actually stand for in the minds of

the parents – quality, selection, service, and the like. Brand aspects like those can quickly

matriculate into surrogates for added-‐value in today’s marketplace. These days you don’t need


a crib-‐sheet to discover that consumers seek out brands that possess meaning and act more

positively to those retailers who do as well.

And that behavior should be a fundamental lesson for all retailers.

What Happened? The back-‐to-‐school season started off “on sale,” with retailers getting merchandise into the

stores in August and immediately marking it down, to get it out the door as fast as possible.

Discounting and promotions were rampant but retailers held to their promises that there would

be no markdown wars. There is, after all, just so much discounting a retailer can do.

In the end, for the four weeks that ended August 28th, same-‐store sales were up for all of the

retailers we track. Except for The Gap, whose sales were unchanged – and just as dismal – as

last year.

The correlation between change in same-‐store sales and the Brand Keys Back-‐to-‐School

consumer engagement assessments for those stores was 0.77. Pretty robust, if we do say so

ourselves.

The real bottom line? Retailers can virtually guarantee profits as long as they don’t discount the

connection between brand meaning and engagement and in-‐ market behavior.


Dumb Smartphones

Technology talk, while not a full-‐time job for most, must seem like it for those in

the business of reporting on change in consumer devices. In March, our blog on

the highly evolving smartphone category focused not on the latest buzz, but cut

through that static and dialed instead into what was creating a clear connection

with consumers. We ranked the brands, and then took a call from the present.

Listen in as we talk about the category and how fast a brand can get dropped.


The Keyhole blog Benjamin Franklin noted, “An investment in knowledge always pays the best interest,” a maxim

Palm, maker of ‘handheld devices,’ might well have attended to before having to reduce its

revenue goals last week. Had they a better understanding of how to compete against rivals like

Samsung and Apple, they also wouldn’t have found such a weak demand for their phones.

The cut in Palm’s forecast came in the face of an expanded distribution system – new sales

partner, Verizon. And while it’s true that the speed of communication can often help to

multiply the distribution of loyalty values, it’s an error to mistake expanded product distribution

as an assurance of brand loyalty. More places to buy a product do not guarantee a brand

connection with consumers. Only understanding and managing what people really expect can

do that. And to do that you need to know what their Ideal for a smart phone really is, not only

the places where they might buy one.

The category has shifted so dramatically over the past two years that if a brand doesn’t know –

with tremendous certainty – where consumer values are going to be, they can be certain that

consumers will disconnect with the brand. According to the 2010 Brand Keys Customer Loyalty

Engagement Index, a predictive indicator of consumer behavior toward brands, Palm, once the

darling of both consumers and Wall Street, ranked 6th out of seven brands tracked, the current

standings looking like this: Apple leads, with Samsung, Blackberry and Nokia following in line;

Nokia, LG, Palm and Motorola follow.

Jon Rubinstein, Palm’s chief executive, said the company was working closely with carrier

partners to increase awareness of its products. But that’s a problem too. Awareness – even

with expanded distribution – is never enough. Being known, but not known for anything in

particular, quickly transforms Brands into Category Placeholders.

These days that’s not a place you want to call home.


What Happened? OK, for a while “Palm” was a generic used to describe all PDAs. Remember Personal Digital

Assistants? Kind of how iPod is now used to describe all Mp3 players.

But as smartphones merged mobiles with PDAs, Palm completely missed what was actually

driving the category and what consumers really expected from such devices, and was eclipsed

by its rivals – the iPhone, the Blackberry, and devices running Google’s Android software.

The company had to hire bankers to explore a sale in the middle of a period of weak demand

and weaker sales for its then newest phones, the Pre and the Pixi. By the 2nd Quarter of this

year, analysts watched market share evaporate and losses mount and predicted that Palm had

a 90% chance of going bankrupt within a year. The company didn’t so much fade away as much

as collapse under the burden of not understanding how consumers viewed the category and

what they really expected.

With revenue losses in the $90-‐100 million range, a share price down more than 53%, and only a

1.5% market share, Hewlett-‐Packard scooped up Palm, ending the independence of a drowning

company that had run out of not only insights – but of options and prospects.

A sad reality only further reinforcing the fact that we live in a moment of marketing history

where change is so fast, without the right tools some brands only begin to see the present when

it is already disappearing!


Running With Sports Leagues

Brands try things. Sure, we sit around and wonder sometimes why certain ideas

weren’t left where they started, on the back of a beer coaster. But we always

turn to the consumer data to see what it is that’s driving, in this case, “fan-‐ship.”

Our summer blog about major sports leagues started with a joke, but it turned

out not to be that funny for one of the leagues. Catch a few minutes of the game

with us as we check the consumer engagement rulebook on this one.


The Keyhole blog So, Yogi Berra goes out to eat and orders a pizza. The waitress asks him, “How many pieces do

you want your pie cut into?” Yogi replies, “Four. I’m not that hungry so I don't think I could eat

eight.”

That old joke came to us when we heard that the NBA believes that basketball fans, who they

assume are always hungry to show their support for their local teams, would be willing to pay

an additional $5 to have an edible NBA team logo put on their pizzas. The NBA – starved for lost

revenue because licensed apparel sales are down – is currently in mode to plaster NBA logos on

anything that will have them, including candy, coffee, and toasters. Oh, yes, and pizzas.

We’ve known for a long time that fan loyalty correlates very highly with licensed merchandise

sales and viewership, but were totally unaware of the loyalty-‐link-‐to-‐pizza consumption. We’d

be the first to admit that it’s the take-‐out/order-‐in food of choice on game night, but it’s also

fair to say that that trend is pretty much league neutral. Fans, however, are not neutral when it

comes to which league they support most. According to our Sports Fan Loyalty Index, this year

the major leagues rank with the NFL and MLB tied for first, followed by the NBA, then the NHL.

The NBA has been the perennial 3rd or 2nd ranked league for a long time now so we were a

little surprised at this particular tactic. The paper-‐thin logos (made of sugar, starch, and food

coloring) are going to be sold to independent pizza parlors nationwide. The image is placed on

top of the pizza (after it’s been fully baked and sliced) and the logo then melts into the cheese.

Mmmmm-‐mmm. As mentioned, adding the logo will add about $5 to your bill, which seems a

bit much given the cost of pizza in today’s market. So come Game Night, those of you who

hunger to show even more team spirit can check your local pizza providers for logo availability.

Because despite all the attitudinal, behavioral, and financial benefits derived from fan loyalty,

nothing says "Go Team" like eating a reasonable facsimile of your favorite team's logo

replicated in sugar, starch, and food coloring and melted into your cheese. At least according to

the NBA.


What Happened? In fact, nothing was ever reported regarding the success – or failure – of the NBA pizza logos.

You be the judge.

What we do know is that it’s a proven fact that Sports Fan Loyalty correlates extraordinarily

highly with TV viewership and purchase of licensed merchandise. So let’s turn to the video and

see how that worked out for the National Football League and Major League baseball who tied

for 1st in this year’s Sports Fan Loyalty Index.

Every week was a milestone for the NFL. Their TV ratings exploded to unprecedented heights.

And this is in an era when multimedia options have sent most sports league TV viewership levels

into a downward spiral.

The 2010 Super Bowl became the most-‐watched TV show in history, and through the season’s

first month more than 150 million viewers tuned in to an NFL game.

As to licensed merchandise sales, according to the MLB, 2010 revenues are expected to be just

over $7 billion, a record for the league and up slightly from the then record $6.6 billion of 2009,

and attendance at their 30 ballparks soared over the 73 million mark for the 7th year in a row.

As for the NBA pizza logo play, the refs are still talking that one over. We predict it’s going to

take more than a dissolving logo to drive fan loyalty—even when cheese is involved.


WHAT HAPPENS NEXT?

Predictions of consumer behavior tend to be a more popular pastime than actually checking on

their accuracy. A lot of companies talk about “loyalty” and “engagement” and, while theories

are a good place to start a conversation, talk that actually pays off makes a far better story.

When it comes to predictions, there’s really only one question that needs a satisfactory answer:

What happened? The research predicted this. . . and then what happened? So if nothing else,

we hope our efforts will inspire you to demand more from your research.

Brand Keys metrics are predictive of future consumer behavior, are 100% consumer generated,

and correlate very, very highly with sales and profitability.

Our assessments incorporate emotional and rational factors that bond consumers to your

brand and provide actionable strategic insights, category and brand dynamics and diagnostics,

advertising and communication assessments, and give you the ability to optimize your

marketing and media efforts.

Ben Franklin is reputed to have coined the adage, "Well done is better than well said,” or, as

you might suggest to your research providers in today’s parlance, “Don't talk the talk if you

can't walk the walk.”

Because research ‘talk’ that doesn’t match up with what ultimately happens, can end up being

a very expensive conversation.


If you have any questions regarding our approach, or would like some additional insights

regarding your category and brand, or any of the categories we’ve covered here, we’d welcome

the chance to talk with you.

Best wishes for 2011.

Amy Shea Leigh Benatar

Executive Vice President Executive Vice President

Global Brand Development Loyalty and Engagement

(212) 532-‐6028 X14 (212) 532-‐6028 X15

[email protected] [email protected]

Brand Keys - What Happened

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