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. Newell Rubbermaid, 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.
This perspective on brand marketing was contributed to Branding Strategy Insider by Geoffrey James. Is brand marketing the enemy here? What are your thoughts?
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6 comments
Jason Lim
May 26, 2011 at 1:54 am
Saying branding is the enemy because it’s the cause of J&J’s downfall is like saying cars are enemies because they cause accidents. As with many other things in business, branding is a means to an end. How you use it is just as important as whether or not you use it.
In the above case, J&J was branding superficially, “putting lipstick on a gorilla”. An integral part of branding (indeed, marketing in general) is knowing what your customer wants and delivering that. A bad product with a name and a fancy logo is not what customers want.
Carol Phillips
May 26, 2011 at 7:23 am
A very nuanced argument, thanks for tackling it. Brand marketing is not the issue, it was lack of attention to the basis of consumer decision-making, the underpinning of brand marketing. In theory this shouldn’t have happened and many companies that spend disproportionately on marketing never have quality problems. J&J is the exception and its shocking because their now tarnished credo should have helped them know better. Perhaps the blame lies in complacency? Carol
Ernst
May 26, 2011 at 5:33 pm
Ok, just a personal opinion her but this article doesn’t make sense. Brand Marketing is Destroying J&J?
– the company has gotten caught distributing medicine that’s gotten moldy.
ERNST: doesn’t matter what you are doing branding wise, you’ll have a problem on your hands selling molding medicine.
– J&J has 92 (count ‘em, 92) consumer product brands…Smart companies are doing just the opposite. Newell Rubbermaid, for example, recently pared down its brands to a manageable number.
ERNST: So what? Many companies don’t know what to do with ONE brand. Others successfully manage dozens. Quantity isn’t an issue. It’s the strength of each individual brand (maybe some of Rubbermaids sucked) and the ability to manage them whether its one or ten or one hundred.
– As has been shown repeatedly, focusing on brand means giving other parts of the company (like R&D and manufacturing) short shrift.
ERNST: Again, focusing on a brand isn’t the issue. It’s the PEOPLE (such as those who work at GM) who treat their auto brands like disposable razors.
-As a consequence, the company spends an enormous amount of money on marketing
ERNST: So what? As long as a brand is a killer brand, it will usually make more profit than if products with differing expectations are sold under one “everything but the kitchen sink” brand.
– The branding dogma says consumers prefer to buy brands, and will therefore pay more for a branded product.
ERNST: No, people don’t prefer to buy brands. They buy “expectations” that are important to them (ie. Softness from Charmin).
Cheers.
Ray Luther
May 27, 2011 at 10:17 pm
I really have a lot of respect for bsi, but this post is not to the same intellectual standard. Sorry, but very disappointing for all the points other commenters have already made. This is clearly a sales guy that feels branding is worthless – that’s it.
Jason Lim
May 31, 2011 at 4:04 am
ERNST: Again, focusing on a brand isn’t the issue. It’s the PEOPLE (such as those who work at GM) who treat their auto brands like disposable razors.
I’d like to emphasize the above statement. There are some companies that are very brand-focused and yet do not have traditional marketing departments. Others have gargantuan “sales & marketing” departments that do not act like they know the slightest thing about marketing. The people and the culture makes a big difference.
Ron Strauss
May 31, 2011 at 5:18 pm
If the author had entitled his article “How bad manufacturing is destroying J&J” I might have followed his logic.
Brands function, in part, as quality assurance devices, promising purchasers that the brand will meet the purchasers’ expectations. That’s why people pay more for branded goods. Think of it as an implied contract or covenant.
When the company’s operations don’t deliver what the brand promised, then people have every right to be disappointed, and to hold the company accountable. But that’s not the fault of branding, it’s its strength. Customers and critics are simply demanding that the brand perform to a standard.
J&J has an opportunity to fix its problems and reassert its brands’ quality. If they act quickly and communicate honestly, they’ll find that their brands are resilient.
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