Motorola vs. Razr

There really are no shortcuts to creating a winning brand. If there were, believe you me, they would be readily exploited. Motorola, who makes over four dozen products, got trounced again, recording their worst quarter to date. They also fell to third in the category of mobile phones.

According to an article by Macworld, "The company is suffering today from its strategy of cutting prices to win market share. In the short run, that helped it gain high visibility with the popular Razr, but excess inventory has allowed competitors to swoop in and gain share."

Where did they go wrong? For one, a lack of focus. Who is number one in mobile phones? Nokia. When I say mobile phone, what comes to the mind? Nokia. What is a Nokia? It's a mobile phone. Years ago, they made everything from truck tires to (of all things) toilet paper. They were also losing close to $1.5 million a year. When they spun off their other companies and focused on mobile phones, they soon became number one in mobile phones in Europe. Now, they are number one in the world.

What is a Motorola? It's a Bluetooth headset, mobile phone, wireless Internet, pager, data solution. The list goes on and on.

In mobile phones, their big winner, the Razr, became commoditized to death and treated like a product, not a brand.

Moto has struggled to harvest another "it" phone (the serendipitous blessing bestowed upon the once mighty Razr). And so, copycat phones such as the Krzr and the Rizr were released. But all they did was remind people of the Razr.

What Moto should have done was treat the Razr as a brand unto itself. The Razr brand needs constant innovation and updates. It should not be commoditized, as they did with the first one. Once everyone could get a Razr for free, the fun was gone. Those who paid several hundred for it were bummed, because the phone's elitist soul had been sucked right out of it.

Moto should not have asked, "How can we sell as many units as possibly, no matter what the cost?" They should have asked, "How can we deepen our market penetration with this expensive, elite phone?"

But now the Razr brand has been tainted. The Razr 2, which will retail for $300 (or so) in September will likely have a very quick, very short-lived surge in sales. And Moto, desperate to win back their market share, will again slice the price of the Razr (a funny concept: slicing a Razr). Once gone, clients rarely return.

Perhaps Motorola's Razr should take a clue from Occam's razor: entities should not be multiplied beyond necessity. (The simplest answer is usually the best, in other words.)

The Razr did not need a Krzr or a Rizr, it needed the Razr 2, sans the destroyed brand image that Moto managed to craft.

Wow. Krzy.

Wal-Mart vs. iTunes

Wal-Mart, the world's largest retailer, announced Tuesday that Wal-Mart Music will now sell music sans copy-protection, also known as DRM (Digital Rights Management). This is a mimicking move to iTunes, who began selling DRM-free music earlier this year.

Traditionally, iTunes charged $0.99 per song. Their new, DRM-free music has been sold at $1.29 a track. Initial reactions to this move have been positive from nearly every consumer, while labels (still stuck in the past–but that's a different story) continue to fight change.

CD sales have been on a continuous downward slide over the past several years, yet the digital music industry has been booming. iTunes is now the third largest music retailer in the United States, behind Wal-Mart (15.8%), and Best Buy (13.8%) with 9.8% of the market.

iTunes did not enter the music retail category as an also-ran. They created the category of digital music retailer. As Tom Peters once wrote, "They say, 'market share.' I say 'market creation.'"

When a brand enters an established category, they must contend with powerful category leaders. When a brand creates a new category, they have no competition, thus becoming the category leaders. Their task, then, becomes creating the new category, rather than trying to dislodge consumers from already well-established brand leaders.

In 1923, a survey was conducted of the top 25 brands. In 1983, the same survey was executed. 23 of the top 25 brands were the same. 19 of the top 25 brands from 1923 still held their leadership position in their category.

What does this mean? Minds don't change; leader's lead. To enter a well-established category against mature category leaders is maniacal and suicidal. And yet, everyday, thousands of companies across the U.S. do exactly that.

Apple is far more adroit than most brands. They took hold of the emerging digital music trend. In 2001, they launched iTunes, becoming first to the market, and, more importantly, first in the mind. Now, in the digital music retailer category, iTunes owns 70% of the market.

iTunes imposed their new category, digital music retail, on the existing category, music retail. They did as Dell did: change the distribution medium.

Their new category went from a 0% market share in 2001 to 14% in 2007. Not bad, considering that the music retail market runs an annual tab of nearly $4.8 billion in the United States alone.

In 2003, Wal-Mart launched their also-ran Wal-Mart Music. At the time, the retailer held 20% of the music retail industry. Wal-Mart Music, despite costing $0.88 per song (a full $0.11 cheaper), has had almost no impact on iTunes’ numbers.

Now, Wal-Mart will sell their DRM-free offering for $0.94, a whopping $0.33 cheaper than iTunes.

Wal-Mart stands for low-prices retail store, not digital music. Even the power of the Wal-Mart name is not enough to save them in the digital music arena.

"Wal-Mart has been behind on the issue of digital music," said Tim Bajarin, an analyst with Creative Strategies. "Making this move allows them to leapfrog to the front."

But does their price-cutting strategy really give them an edge? No. In the long run, history drastically favors iTunes. Wal-Mart’s move will only serve to call more attention to iTunes’ category leadership and DRM-free sales.

If people bought music were a commodity, such as eggs, then Wal-Mart Music’s price-cutting strategy would have iTunes in a heap of trouble. But music is hardly a commodity.

And therein lies one of the greatest powers of proper positioning: premium pricing. Improperly positioned, a brand faces market rate growth and commodity pricing.

Without a strong brand, iTunes would never have taken such a large share of business away from related categories, and they would certainly never stand strong against the onslaught of me-too competitors such as Real Rhapsody, Napster, and Wal-Mart Music.

And, just for fun (it seems), Amazon has put their hat into digital music ring. It appears that Jeff Bezos is suffering from severe delusions of grandeur, or rather, “delusions of brandeur.”

Jeff once said, "A brand for a company is like a reputation for a person. You earn reputation by trying to do hard things well." No, Jeff, you don't. The quarterback doesn't earn a positive reputation by trying to do math well, he earns a positive reputation by throwing the ball well and scoring touchdowns. Perhaps that is why Amazon sells digital music now, too.

Wal-Mart=low-price retail store
Amazon=online bookstore
iTunes=digital music

Wal-Mart and Amazon making digital music stores makes as much sense as iTunes selling laundry detergent and shipping hardcover copies of Harry Potter. Pretty insane, yes? Yes.