July 23, 2004

Yet Again, a Brand Name Loses Its Magic

An American Telephone and Telegraph advertising brochure from 1895.
Property of AT&T Archives
An American Telephone and Telegraph advertising brochure from 1895.


To most Americans, AT&T used to mean phone service, just as Xerox once meant copying and the Big Three - General Motors, Ford and Chrysler - once stood for cars.

As iconic brands, they towered over their rivals and dominated their businesses.

But the world of brands has changed. Indeed, the AT&T Corporation's decision to effectively retreat from the residential phone business - by not seeking new customers or even trying to retain its current ones - says a great deal not only about AT&T and the phone industry, but also about the jeopardy that once-leading brands in many other industries are in.

Famous brands have faded before, of course, but the impact of deregulation, galloping technology, marketing clutter and increasing global competition has made it harder than ever for established brands to stay on top. That is especially true when a dominant player in a market fails to react to change, allowing new and aggressive rivals to innovate with products or pricing.

No one is suggesting that brands are not important. But increasingly, marketing experts say, companies that think their brands will insulate them against competition are in for a shock. The reverse is more likely to be true, marketers say: the brand will not compensate for missteps, but missteps will devastate the brand.

Few iconic brands have fallen as fast or as far as AT&T. Back in the early 1980's, before the Justice Department forced the old American Telephone and Telegraph Company to break up, AT&T was known by many customers as Ma Bell or the phone company - not a phone company, but the phone company.

AT&T lost this huge advantage as new competitors emerged and did a better job of serving customers. The company has said many of its problems were caused by regulatory decisions that unfairly put it at a competitive disadvantage. Others, however, say that AT&T's own mistakes made it vulnerable.

"They mismanaged businesses like cable, and fell behind the curve in recognizing what consumers wanted, like flat-rate pricing for long distance,'' said Nicholas Donatiello, president of Odyssey, a San Francisco research firm. "AT&T didn't lead the way, consumers went elsewhere, and the result is the destruction of a brand that, a decade ago, was the standard of consumer brand names in the telecom space.''

AT&T may have cut back on marketing just when it needed to bolster its image the most. Last year, with its share of the market a fraction of what it had been even after the breakup, AT&T spent an estimated $312.6 million to advertise in United States major media, compared with $427.8 million in 1998, according to TNS Media Intelligence/CMR, part of Taylor Nelson Sofres.

Like many other once-dominant companies, AT&T's brand supremacy came under assault from many different angles - in its case, from new rivals like MCI, then from the Baby Bells as they entered the long-distance market and most recently from Internet phone services.

The increased competition in many industries underscores the new reality that few brands can be all things to all people. "The metaphor for American society is no longer the melting pot; it's the quilt,'' Mr. Donatiello said. "People no longer want to watch the same television show or use the same toothpaste.''

Moreover, the global economy has increased the number of brands. Take the automotive industry. In one sense, it is still brand-driven. "A small Indian company making a car still can't get its foot in the door in the United States market,'' said Puneet Manchanda, an associate professor of marketing at the University of Chicago's business school. But the stable of brands - Toyota, Mercedes, Rolls-Royce, Saab and so on - increasingly spans the globe. As a result, the market share of General Motors, Ford and Chrysler (now part of DaimlerChrysler) has declined sharply since the 1970's.

A handful of airlines, too, used to dominate the United States market, relying on a combination of regulation and customer loyalty to stay profitable despite expensive labor costs and aging fleets. But then, eased rules paved the way for rivals like Southwest, JetBlue and others with low costs and young planes. The Internet, with its many ways for passengers to check on flights and compare prices, made it easy for customers to find the alternatives. Now, many venerable airlines are gone - TWA and PanAm, for instance - and United Airlines, USAir and several others are in jeopardy. Belatedly, some have started their own low-cost units - Song from Delta and Ted from United are two - but experts say it may be too little too late.

Even if these airlines survive, the built-in advantage of their brand names has been diluted. "The big companies with iconic brands are often too conscious of preserving their fat margins to realize they should be leading change,'' said Judy Hopelain, managing partner at Prophet Brand Strategy, a San Francisco consulting company.

In fact, for some companies, a strong brand identity has been as much hindrance as help. Smith Corona was a leader in manual typewriters, and Polaroid had a lock on the instant camera market, but both wound up in bankruptcy when they could not extricate their identity from antiquated technologies.

Xerox and Kodak are grappling with similar issues now. Kodak long considered itself a photography company whose main problem was keeping competitors like Fuji at bay, and it did not respond as quickly as it should have to the threat posed by digital cameras. Only recently has Kodak turned a profit on digital photography.

"Kodak was so used to thinking it defined the entire product category that it took them a long time to regroup and refresh their brand,'' Professor Manchanda said.

Similarly, Xerox's dominance in the copier market was so total that its brand became a verb to mean copying. But the advent of digital technology blurred the distinction between copiers and printers - slap a scanner on a printer, and it is a copier - and suddenly, Xerox was competing with Hewlett-Packard, Canon and others. Xerox, which came close to bankruptcy a few years ago, has been struggling to remake its image as a "document processing company'' that sells printers and services. It is solidly in the black, but is not as dominant as it once was.

Flagging brands can, of course, be revived. Michael Watras, president of the New York brand consultancy Straightline International, noted that Apple has been successfully marketing itself as the "cool" computer for young, hip people - and the backlog of orders on its iPod indicates the approach has succeeded.

Experts say that among companies that sell primarily to other businesses, the winners have been those that have associated their brands with solving problems, not products.

That may yet be the saving grace for AT&T, as it focuses largely on corporate customers, Ms. Hopelain notes. "Business customers are just a lot less likely to keep switching providers, particularly if they are getting a lot of service,'' she said. "To stay relevant, a brand has to parlay its expertise to meet its customers' needs. And AT&T may still be able to do that. ''

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