How Brand Marketing Is Destroying J&J
Johnson & Johnson is in deep trouble. As explained in a recent article in the New York Times, the company has gotten caught distributing medicine that’s gotten moldy, has bits of metal in it, or was made in facilities that government inspectors found to be unsanitary.
They’ve been forced to recall so many products that some consumers are finding it difficult to locate J&J products. If they’re still looking for them, that is. There’s been a steady erosion of J&J’s market share in favor of generics, partly because people no longer believe that a product with the J&J label on it (or one of its 92 product brands) is of higher quality. That’s very bad news for a company whose market strategy assumes that people will pay more for a branded product. J&J’s management seems helpless to fix the company’s manufacturing problems. But that’s not surprising, because J&J is a perfect example of a company where top management didn’t just drink the brand marketing kool-aid, but poured it down their gullets, with a kool-aid chaser. J&J has 92 (count ‘em, 92) consumer product brands. As a consequence, the company spends an enormous amount of money on marketing. According to their latest 10K report to the SEC, J&J spent $19.8 billion on “selling, marketing and administrative” expenses with yearly revenues of about $62 billion. (By contrast, Apple spent $5.5 billion in “selling, marketing and administrative” to make $65 billion.) Why does J&J have so many brands? The answer lies in the belief (commonly taught in business schools) that branding is the most strategic thing a consumer product company can do. The branding dogma says consumers prefer to buy brands, and will therefore pay more for a branded product. Therefore, companies like J&J invest heavily in creating, publicizing, and advertising their brands. Executives who buy into that way of thinking don’t understand branding. The reason that people will pay more for a branded medicine is because they’re worried that the generic products won’t be up to snuff. And that’s because, in the past, generic products have been generally sub-standard while branded products have been higher quality. In other words, the reason that branded products command a higher price is because the product is (or was) better, not because it’s branded. And once the branded product is perceived as being sub-par, the branding game is over. At that point, your lousy product is creating your lousy brand, and there’s no amount of brand marketing that’s going to change that. Unfortunately, most companies can only focus on one thing at time. As has been shown repeatedly, focusing on brand means giving other parts of the company (like R&D and manufacturing) short shrift. GM before the bailout was a perfect example, with its 12 brands, most of which consisted of products that were average at best. And that’s clearly what’s happened at J&J. The company is wasting all its energy on branding while its products go to hell in a handbasket. Smart companies are doing just the opposite. Rubbermaid Newell, for example, recently pared down its brands to a manageable number and shifted resources from brand marketing into sales. (Here’s an interview with their CSO that explains why this works.) And GM, of course, is doing much better (and running more lean) now that they dumped some of their brands. What’s sad about this is that there are thousands of companies that have gotten infected with the brand marketing bug and where brand marketing has become the panacea that’s going to grow them to the next level. It’s sad, and it’s stupid, and it’s so predictable.