Tuesday, October 15, 2024

The Brand Complacency Threat – Branding Strategy Insider

Share


Whatever your opinion of private equity companies, their potential for financial engineering when taking over a company, or their forcing of operational and managerial changes, the Elliot Investment Management letter and presentation to Southwest Airlines’ Board of Directors are insightful.

However, as Forbes points out, all of Elliot Investment Management’s ideas are about “extracting more revenue from customers to better reward shareholders.” Let’s be clear: customers define brand value. If brand value is diminished or negligible in the eyes of customers than there is no shareholder value.

This article is part of Branding Strategy Insider’s newsletter. You can sign up here to get thought pieces like this sent to your inbox.

Diluting the unique identity of Southwest in order to stuff the pockets of shareholders will erode the specialness of the Southwest brand. Forbes writes that “Turning (Southwest) into a clone of United, American and Delta could be a fatal mistake.” Even The Wall Street Journal indicated that “Southwest’s culture helped to make it uniquely successful. Delivering much-needed modernization without damaging it will require more than cold numbers.”

Standing his ground, southwest CEO Bob Jordan indicates that the Southwest brand adapts to its customer needs. The brand is willing to change certain deliverables but within the framework of the brand’s purpose and promise. Mr. Jordan indicated to CNBC that it has been a while since Southwest researched customer preferences. But, this is underway and operational and financial benefits are being reviewed.

Lining shareholder pockets can be detrimental to any brand. However, there do seem to be some internal warning flags as to how Southwest has been managing over the past years.

On the other hand, and If Elliot Investment Management is correct, Southwest Airlines is suffering from some of the most troubling tendencies that lead to brand decline. Elliot Investment Management explains that with Southwest’s early successes, Southwest fell into 1) the comfort of complacency and 2) thinking what worked yesterday will work today.

These two tendencies and other troubling tendencies are the result of brand mismanagement. Elliot Investment Management is correct. These are “stop-now” behaviors. When it comes to a brand turnaround, these tendencies for trouble must be eliminated as these are impediments to brand invigoration.

The Comfort of Complacency

The Elliot Investment Management letter to the airline’s Board of Directors states the following, “Even as the Company’s performance has deteriorated, Jordan (Southwest Airlines’ CEO) has demonstrated a surprising level of complacency, describing each quarter as ‘great’ or ‘strong’ while the earnings outlook continues to fall.”

Complacency is comforting but it is also concerning.

Complacency stops ideas, innovation. Complacency stops brands from keeping up with customers and competition. Complacency allows employees to keep on doing what they are most comfortable doing. Complacency lulls people into laziness and inaction; crushing creativity and curiosity. Complacency gives a brand’s management the opportunity to stop looking at the changes in the world and the brand’s specific market segment. Complacency takes management’s eyes off of the competition.

Brands are not passive. Brands are promises. Brands are active promises of an expected, relevant, differentiated experience. Brands can be quiet, traditional and chill but brands must move if they want to deliver. Complacency creates inaction and, eventually, irrelevance.

The more successful the brand, the easier it is to walk off the complacency cliff. Complacency leads a brand to believe that there is now nothing left to do but live off of its success.

Warren Buffet wrote in one of his well-read shareholder letters, “… complacency is another corporate cancer.” Mr. Buffet wrote that complacency is dangerous because it has its roots in past success.

Elliot Investment Management wrote that Southwest Airlines’ Board has reinforced an insular culture and outdated thinking in the face of indisputable evidence that change is required.

Believing That What Worked Yesterday Will Work Today

One of Elliot Investment Management’s key criticisms of Southwest’s strategy and actions is the brand’s  “rigid commitment to an approach developed decades ago,” an approach that “has inhibited its (Southwest’s) ability to compete in the modern airline industry. This ethos pervades the entire business with outdated software, a dated monetization strategy and antiquated processes. This failure to modernize is vividly underscored by the December 2023 operational meltdown that was caused by the Company’s outdated technology, which led to Southwest stranding over 2 million customers over the holidays.”

Elliot Investment Management added that Southwest Airlines’ Board of Directors keeps “doing things the way they have always been done.” To be fair, CEO Jordan does seem to be willing to consider certain changes such as premium seating, as long as customers perceive these changes as desirable.

Change happens. Doing what once worked when the current landscape is different makes no sense. The management guru, Peter Drucker, had a lot to say about “doing what has always worked in the past” in the current environment.

Mr. Drucker pointed to these three lessons:

  1. “Environments change. Continuing strategies and actions that created past successes will eventually lead to failure.”
  2. “Being defensive and unyielding will also lead to failure. Organizations must be willing to (quickly) abandon formerly successful approaches.”
  3. “Believe that change will happen and that sometimes the change will be revolutionary. Enterprises should create the future by making changes even though it means ‘obsolescing the products or methods of its current and past success.’”

Warren Buffet indicated that having past success is very dangerous because there is a tendency to see past success as generating present and future success. Mr. Buffet wrote that past success does not mean subsequent success. CEO’s who continue to ride on the wave of past success create a culture that is lackadaisical and lazy.

Markets and customers change quickly. So, companies must be flexible, agile, and quickly decisive. However, it is also important to have a leader who is willing to look outward rather than backward.

Building a culture that is not afraid of letting go is critical. This does not mean giving up the enterprise’s core values. But, it does mean being ready to take leadership in a fast-moving, changing world. Staying out of trouble hinges on how willing the brand’s top executives are to recognize when it is time to move on and jettison a strategy that is holding the brand back. 

At its core, however, and according to the business press, the Elliot Investment Management approach appears to be a financial play for better margins and better performance and higher stock price. In other words, more profit. Sure, Southwest Airlines has a lot of issues that affect all stakeholders. The fear is that the Southwest Airlines brand will take a hit. A lot of observers see the end result of this activist action as grounding what Southwest stands for in the eyes of its customers just to satisfy shareholders.

Satisfying shareholders at the expense of customers is another tendency for trouble. One of Peter Drucker’s mantras was” The purpose of business is to create a customer.” Losing customer focus is a certain path to trouble. The future belongs to customer-focused businesses that are best at attracting and retaining customers resulting in sustainable, profitable share growth.

Of course, stop the bleeding must be the first step in a turnaround. But, turnarounds require 1) stopping any decline in the core customer base by clarifying the brand’s purpose and promise; 2) achieving cultural alignment; 3) defining an immediate 90-day plan and 4) defining and implementing a Plan to Win.

One critic stated that Elliot Investment Management has no plan to “fix” Southwest Airlines. The critic posted that Elliot Investment Management’s entire plan, as clear in the presentation, is to turn Southwest Airlines into an ATM for its shareholders. If Elliot Investment Management is actually interested in fixing Southwest in order to generate enduring profitable growth as opposed to just profit, believing that the Southwest Airlines brand is a valuable asset to be properly managed and nurtured and grown might make Elliot Investment Management changes more palatable and more profitable.

Contributed to Branding Strategy Insider by: Joan Kiddon, Author of The Paradox Planet: Creating Brand Experiences For The Age Of I

At The Blake Project, we help clients worldwide, in all stages of development, define or redefine and articulate what makes them competitive at critical moments of change. Please email us to learn how we can help you compete differently.

Branding Strategy Insider is a service of The Blake Project: A strategic brand consultancy specializing in Brand Research, Brand Strategy, Brand Licensing and Brand Education

FREE Publications And Resources For Marketers


Post Views: 44





Source link

Read more

Local News