Byline: Pete Born

A dry, academic-sounding subject like preserving brand equity can stir surprising passion.
Diversion, unfair department store chargebacks and abusive behavior in general all came boiling to the surface during a three-hour sparring match involving more than a dozen top executives, retailers and manufacturers, during one of the key panel discussions at the Summit.
Also on the menu were overpromotion, particularly the gift-with-purchase crutch; the market’s voracious appetite for an incessant stream of new products and manufacturers’ anemic profitability.
Manufacturers aired simmering, seldom-discussed grievances, and a fault line opened between retailers and their vendors. Emotions boiled to a point that prompted John Stabenau, former vice president of Neiman Marcus, to complain of “retail bashing.”
Rita Mangan, senior vice president of cosmetics for Federated Merchandising, seemed to be only partly jesting when she pleaded,”You need us retailers; be kind to retailers out there.”
At one point late in the discussion, in response to complaints about retail pressure, William Dillard, president of Dillard’s Inc., cleared the air: “Nobody puts a gun to your head and says, ‘You have given me this page in this catalog.’
“You have the ability to say no. If somebody is not a good partner, you have an obligation to respond in kind,” said Dillard, who has long been a favorite of cosmetics manufacturers.
“When you look upon somebody who’s mistreating you, you are probably mistreating yourself, because you are probably not standing up to the things that you need to,” Dillard concluded as the roomful of manufacturers erupted in applause.
One of the conference participants suggested the summit should adopt an official song, perhaps, “Give Peace a Chance.”
The brand equity session actually consisted of two successive panels, each chaired by a separate moderator. Fred Langhammer, president and chief operating officer of Estee Lauder Cos., led one squad, and Arie L. Kopelman, president and chief operating officer of Chanel Inc., was in charge of the other.
Amid all the complaints and recriminations, there was plenty of talk about brand equity. Lauder’s Langhammer turned professorial as he began: “It’s a very crucial topic, particularly as the world markets of consumer products seem to be somewhat saturated. I believe the notion of buying into brand equities is going to be more important than ever in the future.
“Brand equity is one of these words, and unless you give it some definition, it ends up all over the lot,” Langhammer continued. “In our interpretation at Estee Lauder, brand equity is about consumers; it’s about the attitudes, it’s about the associations, it’s about the images and the perceptions of a lifestyle or a value system. That, in sum, can be described as brand equity.
“I believe it is more important, particularly in the aspirational world of cosmetics, that the brand equity is the locomotive supported by the product,” he said. “Often, the product gets in the forefront for short-term purposes and does not necessarily endorse the equity. That is a key issue brand equity maintenance needs to consider.”
Kopelman, whose Chanel No. 5 was cited by several speakers as the brand equity star, read a quote from Bloomingdale’s vice president Jane Scott, calling for support of existing brands.
He described such a view as “refreshing and candid…considering the fact that to get an audience with retailers in general when it comes to anything other than new products is extremely difficult.” He said, “However, [Scott’s] remark, I think, is the beginning of a very different ball game in terms of retail partnerships meaning something for the existing brands. Adversarial relations, which were the norm, will start to change, and very significantly so.”
He listed five factors in building equity and attempted to lighten the subject by flashing a series of humorous slides.
But then he turned serious. “You want to grow the category and preserve equity?” Kopelman asked. “The promotional jokes that are going on in this industry will kill it, because you cannot grow the category if you are giving away anything other than sample-sized products. You want to give away big, full-sized products, God bless. I don’t think it’s a way to make money, and I don’t think we’ll grow the business.”
Kopelman then explained his marketing yardstick, something he calls “share of dressing table” — a reference to the stockpile people have at home.
“Get the product that’s already there used, or they are not going to buy any more,” he said. “So keep giving away at every damned industry dinner a full-sized bottle. I think that’s foolish.
“But more importantly than building the business even is that in terms of building brand equity, we have to understand, if you give it away — or say, this $149 value: Yours for a purchase of $12.50 — does that say ‘quality’ to the consumer?” he asked. “Does that make them feel like they’re getting something for their money or is it just a short-term way to build your own business?”
Robert L. Brady, president and chief operating officer of Parfums Givenchy, said, “We are boringly consistent. We don’t change a lot of things dramatically. We try not to disrupt or dislocate. What I think we do well, which is pertinent to this topic, we build brands’ long-term profitably.”
Brady then turned to promotional overkill: “We all benefit, certainly, by the amount of activity that is generated by megalaunches, but the company that launched that megabrand may in fact not benefit, particularly, as is often the case, when the resources to launch have come from existing brand units. That is also commonly the way launches are done in the business these days.”
He touched on the exposed nerve of the gray market by discussing Givenchy’s five-year campaign in the courts, using intellectual property laws, or copyright laws, to stop mass retailers from selling Givenchy’s Amarige.
“It stopped unauthorized retailers from selling our goods, no matter where they came from,” Brady said, “because I knew no matter what I did, there was a worldwide problem, and I would have goods dumped on me in this market, were we not to take steps that were beyond company policy.”
Givenchy’s legal efforts had to be adjudicated in California, because that is where the precedent was set. During his speech, he said the company will initiate a new effort in the fall that will be national in scope and adjudicated in Washington.
During the question-and-answer period, one of Brady’s legal adversaries, Simon Falic, chairman of Perfumania Inc., came to one of the microphones on the floor and launched into a lengthy statement about specialty retailers and the gray market.
Falic touched on the Givenchy case, claiming the law was “abused” when used against him and other retailers.
“Excuse me, that was not abusive,” Brady shot from the stage. “The fact of the matter is, you lost twice against us in court, so somebody besides us believes that you violated our rights. And as of today, you are violating our rights apparently again in Puerto Rico. So be forewarned.”
Falic continued with his statement, creating consternation on the stage. Kopelman politely pointed out the period was for questions, “as opposed to a forum for points of view.”
Falic droned on, producing further tension in the room, and Kopelman stepped in. “I think you’ve made the point, which I appreciate,” he said, then switched to a lighthearted tone. “But we do have tee times, and we have to keep our priorities straight.”
“I’m Dan Brestle, the antiChrist of gwp,” joked the president of Clinique, a subsidiary of Lauder. “The people in the mass and drug business have to be feeling pretty good today,” he said, referring to the other summit visitors. “After two days of hearing our woes, they are probably saying, ‘I thought I had problems. Those guys are really screwed up.’
“We are, but we’ll recover,” he continued, to widespread laughter. “This is sort of the way we do business.”
Brestle made a case for backing existing products. In 1996, 39 percent of the Clinique business was generated by products that were 25 years old or older, he said.
“If you take 10 years, go back to 1986, 64 percent of our products were introduced before 1985,” Brestle continued. “We know there’s a need for newness; we know there’s a desire for newness. But the customer must be telling us there’s a need for basic business and supporting basic business. I would like to see us move away from the constant product introduction and more into enforcing our basic selling strategy.”
Patrick Waterfield, president and ceo of Guerlain Inc., raised the emotional temperature in the room.
He compared the top 20 U.S. women’s fragrances for 1996 with the rankings for 1992, and discovered that the American scents did not grow in share, volume or rank. But a list of five French products, including Chanel’s American-conceived and executed Allure, did grow.
Waterfield, who is British, concluded, “You Americans know well how to put a winning package together, but maybe you don’t know how to make it into an endearing classic, or maybe you don’t want to because of over-simplistic P&L [profit and loss]-by-brand dictates.”
Sharpening the point, he reiterated, “The French know how to do it, but you Americans don’t.”
Before the atmosphere grew too charged, Waterfield reversed course, switched on his English charm and turned the sword on himself with a tongue-in-cheek look at Guerlain’s inconsistent history of trying to market its fragrances in America.
“No one with a portfolio of classic brands such as the ones you see up there,” Waterfield said of Guerlain, “could have looked after them or done so little to sustain them as we have.”
Of Guerlain’s 24 fragrances, two of them — Shalimar and Samsara — do 90 percent of the volume. “Not one of them brings in even a lousy $1 million at net,” he said, referring to the 22 weaker fragrances. “We’re asking our retailers to look after 24 [scents] because we can’t bear to throw any of them away.”
He then demonstrated how advertising strategy behind Guerlain’s hallmark, Shalimar, has zig-zagged. “Do we know what we are doing?” he asked rhetorically after flashing a slide of another misstep in Shalimar’s advertising.
Waterfield then flashed the new fall campaign, shot by Helmut Newton, which appears to be back on the right track.
One executive in the room who was not laughing was Leonard Lauder, chairman and chief executive officer of Estee Lauder Cos. He rose to his feet for the second time in as many days.
“The American brands have all gotten caught up in what is called the ranking race,” Lauder said. “This is caused by the manufacturers interfacing with the retailers and back. A new brand launches, and you have to put an enormous amount behind it, and for that you are given this counter up front in the fragrance department.
“That’s great, and that’s your counter for that week, or maybe that’s your counter for the month. The next month, the next new launch comes and out you go and then you go down the ladder.
“So there is an enormous effort to try to overspend to try to get those counters and keep those counters, because if you don’t overspend, you don’t get that counter, or slide off to the bottom.
“Since they overspend in the beginning,” he said, “where do you think they get their money from? Many people get their money from diversion.
“When I first came into this business,” Lauder continued, “we would spend between $1 million and $2 million to launch a new fragrance.
“Then we would spend $1 million the following year and $1 million the following year and the following year and the following year and the following year. It built up for seven to 10 years and it worked like a charm. No one said, ‘We are going to move you.’ No one said, ‘I’m sorry, we’re going to take your advertising date away from you.’ It was a very sane business. We were basically dealing the way the French deal today.”
One sympathetic listener was Dillard, who said, “I actually believe what Leonard said. But the idea that you’re ever going to have an environment where you’re not going to move is not right. I was in a meeting this morning with some of your people, and they want to move,” he shot at Lauder.
Earlier, Dillard had appeared to agree with Waterfield, when he said that two years ago his French fragrances had shown gains and his American scents had not. But the retailer then amended that: He had not meant the Lauder fragrances, and, in fact, Beautiful had shown gains.
“This isn’t something that’s French,” Dillard said. “It’s a way people approach the business.”
Dillard, whose cosmetics business has grown in 15 years from $32 million to $900 million this year, appeared pained by the manufacturers’ anger at retailers. At one point, referring to his store’s huge growth, he said, “We did that mainly with the help of the people in this room.
“Everybody has got business problems,” said Dillard. “But it hit me that my experience with the people in this room is that they’ve done a good job with us, trying to solve our problems.”
Federated’s Mangan earlier had added, “I’d like to say, on behalf of the department stores, that sometimes we get a bad rap that we’re only after the newest and latest brand, and that’s all we’re there for. That’s not how we built our business at Federated.
“What’s interesting in this industry is that the newness is all coming from you, and we are not going to say no to newness from our important vendor partners,” she continued.
“But there’s one plea I could throw out to the industry: Work with us a little earlier on,” she said. “I think we need to look at things not only more globally, but more early on.
“All of you, by the time you present the product to us, have already made your decisions that you are going to do 30 million scent strips and 40 million tags and you’re going to be on TV or not on TV, or you’re doing a ‘g’ [gift with purchase] or not doing a ‘g,’ and you’re going to have 50 percent in value sets. And all this is determined by the time you get to us. So we ask for a catalog page,” Mangan smiled, triggering laughter. “It doesn’t seem like much.”
Stabenau, formerly of Neiman’s, seconded Mangan’s plea for more partnership in marketing.
Stabenau then pointed out that at Neiman’s, “when we launched [Chanel’s] Allure, which was an amazing success story, we did not drop any business in Chanel No. 5. When we launched Pleasures, we did not drop any business in Beautiful. When we launched Champs-Elysees, we did not drop one dollar in Shalimar.
“How?” he asked. “We worked with the manufacturer in putting a stock and sales plan together for both brands and worked on how to preserve the old brand.
“The company’s account executive must be focused on both the new brand and the old brand,” Stabenau said. “In many cases, the account executive walks in and says, I’m going to launch this’ — boom boom — and nobody pays attention.”
The rate of launches has become an issue.
During her speech, Mangan referred to the “dramatic shift toward newness.” At Federated last year, new brands accounted for 15 to 20 percent of the company’s fragrance business, compared with 10 percent the prior year, Mangan said.
Mangan said more new fragrances are coming from the core vendor group. In 1995, it was just one, Estee Lauder Pleasures, that achieved top sales ranking; in 1996, six new fragrances came out of the core group and ranked in the top 20.
Federated, whose strategy hinges on identifying core vendors, had made achieving superior assortments a top priority because that is “the number-one reason customers come to our stores.”
“Clearly, the industry has stepped up the pace on launching new brands,” she said. “And in this highly competitive environment, the pace not only refers to the number of new brands but also to the aggressive marketing initiatives invested into these brands.”
The trick lies in getting the most out of the launches while holding onto the existing brands. “How we handle this dilemma is critical to the overall growth of the fragrance business,” she said.
“Our overall philosophy and strategic direction is to continue to develop our cosmetics and fragrance brand by focusing on those vendors that offer quality and consistent marketing strategies,” Mangan said. “The big messages here truly are quality and consistency, and that definitely will lead to brand equity.”
In response to a question, Mangan conceded that fragrance sales growth has been running at only 3 to 5 percent during the last several years, even as the proportion of newness has risen.
Brady raised the issue of what he called, “the other side of the gray goods issue: loss of profitability.”
Paraphrasing a line from Leonard Lauder’s keynote speech, Brady said, “Department stores don’t get it.”
He charged that if the stores do not change the way they do business, “particularly as it regards the expense factors and particularly as it regards unauthorized deductions, more and more companies will be pressured to seek alternate forms of profitability.”
Brady said he has launched a campaign to eradicate unauthorized deductions, or chargebacks. “At the end of last year, our unauthorized deductions as a percentage of net, which we do by account, ran anywhere from 0.2 percent to 7 percent,” Brady said.
Arriving after Brady’s speech, Michael Gould, Bloomingdale’s chairman and ceo, said he considers unauthorized deductions a “fireable offense.”
But Gould said there are larger issues to deal with, such as the growth of the gray market. “Diversion is not coming from the store,” he asserted, “it comes from the vendor.”
There was little question about that, as far as the other panelists were concerned. “You want me to be blunt on this subject?” Lauder’s Langhammer asked with characteristic directness in response to a question.
“Gray market is created by the vendor. Period. It is often driven by the economics and the launch hype activity, which is often financially unsound in terms of return on investment. Therefore, that’s the only alternative to make some numbers work, short term,” he said.
Lauder has been among the most vigilant in combating diversion. But there have been others, including those on the panel.
Peter England, president and ceo of Elizabeth Arden, whose previous experience was in the mass market, said, “I spent a lot of time trying to understand what distribution channel means in this business. I also understood how we were getting it wrong.
“Getting out of it is painful,” he continued. “I’m talking about the gray market, the distribution channel that’s a part of our brand. It’s a part of our mix. Here are we, as a company that has a brand called Red Door, an icon of the company, all over the place,” he continued. “We have stopped that. It is painful.”
But the issues were larger than simple diversion. Langhammer drew the distinction between “quality growth and growth with very little quality.” He asserted that discipline is required to assure that “quality growth and growth for the sake of growth are not out of whack. That is the big danger here, when you’re listening to gray market activity, when listening to overpromotion, when you are listening to excessive launch activity. There’s a border line.”
There was a lot of talk about creativity, especially the absence of it. “We are copying too much,” said Norbert Becker, president and ceo of Renaissance Cosmetics Inc., a leader in reviving old brands. “We have no real innovations in our industry right now.
“What we, as an industry, have to do is get away from the promotions — not totally; you always need promotions — but not to focus too much on promotions and not too much on gwp’s,” he said. “Then all of a sudden, what we’ll see is that a brand will grow again because of enhanced brand equity. We produce a value to a customer, and then we have a loyal customer, instead of [someone] looking for deals.”
Becker gave a thoughtful presentation, laying out the pluses and minuses of launching a new brand or reviving an old one.
“Old: less risky to fail, less expensive from a marketing support point of view, but it is much more work to attract new consumers,” Becker summed up. “New: high risk of failure [eight out 10 launches fail], heavy dollars, marketing support, easier to convince users and the trade to try it, and of course, it’s up to date with a fashion trend.”
Steve Sadove, president of Bristol-Meyers Squibb Worldwide Beauty Care, also explored brand renovation, providing a case study with his hugely successful reclamation of Herbal Essence, a nearly extinct shampoo from the Sixties that now does $300 million annually.
The only similarity between the original Herbal Essence and the current Herbal Essence is the name, a point not lost on Sadove.
“What is going to make or break the building of brand equity is what you do executionally,” said Sadove, who ran commercials showing a customer enjoying an orgiastic experience.
“You have to take some risks in terms of what you want to be creating and don’t just evolve an old product,” Sadove said. “Don’t deal in evolution. You have to be revolutionary, and you have to be different, especially if you want to recreate an old brand. You have to go for it.”
To Philip Shearer, president of Cosmair’s Lancome division, brand equity turns on a number of factors, not the least of which is product performance.
Lancome has managed to stay near the top of the heap for 62 years. “People come back,” Shearer observed, “because you are doing something right.”
The brand, therefore, has to continue showing a winning edge with trademark-superior performance, forcing the company to keep producing new products to maintain superiority.
“It’s not so much new product versus old product,” Shearer said. “It’s improved performance versus existing performance. This is true, especially when you are in areas where you can really make a difference in product differentiation — mascaras, for instance, and foundation and skin care.”
In some areas, like fragrances, brand differentiation becomes more subjective, he noted. In those categories, where the issues are more elusive, he noted, “The product life cycle is like a rubber band that stretches on a whim.”
Maintaining brand equity is not easy, he continued, due to internal and external forces, such as shareholders and retail partners.
“The more control you exert, the more likely you are to protect your equity,” Shearer said. “But of course, if you want to remain pure and control it all by ourself and have no partners, no one will ever know how good you are.”