Brand New: How Entrepreneurs Earned Consumers' Trust from Wedgwood to Dell

by Nancy F. Koehn

Overview

"The hottest word in business lingo today is branding. Koehn has entered the scene to write a book that explains the meaning of this overused term. In this lucidly and entertainingly written book, Koehn traces how six great companies created enduring brands. In each case they thought first not of an ad campaign or catchy sales pitch but of the ingredients that would make their product distinctive. A valuable addition to any business collection."
-Ken Auletta, Author and Communications Columnist, The New Yorker

"Brand New is an unforgettable collective portrait of six entrepreneurs and the great companies they founded. With brilliant insight and vivid prose, Koehn takes the reader inside the minds of her entrepreneurs and analyzes the reasons their companies prospered even as most of their competitors failed. With a memorable mix of old and new, Koehn is able to accomplish that rarest of historical feats: rigorous use of the past to inform the present, and vice versa. Her book is simply an outstanding achievement."
-Thomas K. McCraw, Straus Professor of Business History, Harvard Business School

"Brand New felicitously blends biography, business history, and conceptual analysis in a book that gives the vogue word branding a rich and surprising past. Koehn writes with lively prose and has the historian's eye for illuminating detail. From Wedgwood and Heinz to Estée Lauder and Dell, her entrepreneurs created lasting brands, but always in a context of their own choosing. While giving due credit to their enterprise, Koehn brings out the interplay between vision and the historical forces that make it realizable."
-Jack Beatty, Senior Editor, Atlantic Monthly and Author, Colossus: How the Corporation Changed America

"Brand New is absolutely essential reading for anyone who has ever aspired to build a successful business. Countless "new new thing" technologies end up not making it to companyhood because their creators fail to appreciate basic lessons of businesses and brands past. In all moments of great economic change, technology matters. But understanding customers and meeting their needs effectively and meaningfully matter just as much-sometimes more. Using a range of compelling historical and modern companies, Brand New lays out a series of critical lessons that no businessperson operating in today's turbocharged environment can afford to ignore."
-Jonathan Bush, Chairman, CEO and Co-Founder, Athenahealth

"Koehn has opened a new field of business history-one that focuses on the demand side rather than the supply side in technologically new industries. She brilliantly records the careers of six entrepreneurs who, by defining customer needs, became leaders in their rapidly growing markets. By combining past and present, she joins her talents as a historian, case writer, and teacher to provide a new perspective on branding."
-Alfred D. Chandler, Jr., Straus Professor of Business History, Emeritus, Harvard Business School

"Today's literature on brand building is replete with simpleminded platitudes and prescriptions generally divorced from any context other than someone's most recent success story. With Brand New, Koehn has successfully described the complex evolution of modern consumer brands. In viewing contemporary business behavior through six of the world's great brand developers, she provides the reader with an interesting set of tales with significant take-home value. A superb read!"
-Len Schlesinger, Executive Vice President, The Limited, Inc.

"In a world where many companies are built to sell, Brand New shows how companies can be built to last-and that is where value is created. Unlike the recent spending frenzy, history shows that brands are built by giving value to customers, suppliers, capital sources, and employees-and by doing so at a margin that preserves the economic engine. The entrepreneurs in this book built enduring best-of-class businesses by creating change and living through it. Their stories contribute to an inspiring book."
-Howard Stevenson, Senior Associate Dean and Sarofim-Rock Professor of Business Administration, Harvard Business School

"Nancy Koehn understands how markets reward quality brand names, which is the essence of honorable capitalism. Indeed, in this field of study she is the quality brand name."
-Ben Wattenberg, Senior Fellow, American Enterprise Institute and Moderator, PBS's weekly discussion program Think Tank

Product Details

ISBN-13:	9781578512218
Publisher:	Harvard Business Review Press
Publication date:	03/28/2001
Pages:	469
Product dimensions:	6.40(w) x 9.42(h) x 1.69(d)

About the Author

Nancy F. Koehn is an Associate Professor of Business Administration at the Harvard Business School.

Read an Excerpt

CHAPTER 5

Estée LauderPrologue: The Launch of "Beautiful"

In the summer of 1985, Estée Lauder Incorporated, an American company, prepared to launch "Beautiful," its latest fragrance. It was the company's first new perfume in seven years and was intended to enhance the cosmetic manufacturer's leadership position in the $3.8 billion U.S. fragrance market.1 Estée Lauder herself, the organization's cofounder and chairwoman, then seventy-seven, had created the scent. "I wanted a new fragrance," she said, "so I started mixing the finest oils and essences. I worked on one, and that came out lovely. I worked on another and that came out lovely. I put them together and that came out beautiful."2

Developing an interesting, appealing perfume was just the beginning. Once she was satisfied with her creation, Lauder began working with senior colleagues to fashion an ambitious marketing plan. She left no aspect of this process to chance, deliberating over the new product's image, packaging, accompanying cosmetics, and store rollout. She devoted particular attention to choosing a name for the fragrance. Major scents had traditionally been labeled with nouns rather than adjectives. For example, Chanel's "Coco," also introduced in 1985, was named after the company's founder, French designer Coco Chanel. Calvin Klein's "Obsession," launched the same year, was named for the times, according to company president Robin Burns. "Today, women are obsessed," she explained. "They're obsessed with diets, obsessed with careers, obsessed with equality, obsessed with marriages, obsessed with bringing up children."3

Lauder knew that whatever name she chose, it had to reflect an image that female consumers considered attractive and relevant to their lives. This vision, like the fragrance itself, had to be consonant with the meaning of the Estée Lauder brand. Toward this end, she and other company executives had considered calling the new perfume Elle, E.L., and Fleurs 2000. They floated these possibilities with scores of women. Lauder offered samples of the scent to friends and associates. When she asked for their reactions, some said the fragrance was beautiful. The entrepreneur realized she had found a name. "That's good enough for me, we'll call it Beautiful," Lauder remembered, saying, "I'm so tired of all those sexy names that are being used to sell perfume. If you're beautiful, you're also going to be sexy-you just don't have to talk about it."4

Estée Lauder not only named her perfumes-she named herself. The European sounding "Estée" evolved from a succession of earlier names she used, including Esther, Esty, and others. Lauder was her married name, though initially it was spelled Lauter and was changed on her initiative.

She was born Josephine Esther Mentzer in New York City in 1908, of Hungarian immigrant parents. Even as a teenager, she showed remarkable talents in preparing and selling face creams. In 1929, at age twenty-one, she married Joseph Lauter, of Austrian descent. In the 1930s, self-employed in the beauty business, she steadily gained experiences with skin care products, makeup, and sales methods. In 1946, when she was thirty-eight, she founded Estée Lauder Cosmetics with her husband, Joe.

The company's introduction of Beautiful in 1985 had several strategic objectives. Most obviously, it was intended to capture consumer interest in a crowded category. More than 80 percent of American women used fragrance in the mid-1980s.5 They had a bewildering array of colognes, perfumes, and toilet waters from which to choose. In 1985, more than 700 fragrances were distributed in the United States.6 Most of these scents were sold through mass merchandisers and drugstores. But the more expensive, prestigious fragrances, such as Chanel No. 5 and Estée Lauder's White Linen, were available primarily in department stores. In all of these outlets, competition was fierce.

Scores of manufacturers from Avon to Chesebrough-Pond's to Yves St. Laurent (owned by Squibb Corporation) competed to offer scents that best met women's evolving needs and wants. Most relied heavily on product launches to help them do this. In the mid-1980s, new fragrance introductions averaged about seventy a year. The majority of these-more than three-quarters-failed.7 Purchasers seemed to use their choice of fragrance as many used the purchase of a car or piece of clothing-to express themselves. Consumption of certain goods served as a means by which women and men explored their own self-images, including their identities, creativity, fantasies, and fears.8 By addressing the priorities of a particular market segment, product launches offered fragrance makers a crucial opportunity to reach new customers and expand their existing share.

Some of this increase would come from perfume sales. But Estée Lauder Inc. also planned to introduce body lotion and powder under the Beautiful name, and these new products would drive additional revenues. Just as important, sales of other Estée Lauder cosmetics were likely to grow after a fragrance launch. Consumers who had not previously bought a company's products often became interested in its broader offerings after buying a specific perfume for the first time.9

Priced at $150 an ounce, Beautiful was targeted at women in their late twenties.10 This was something of a departure for the cosmetics manufacturer, which had generally concentrated its original and most popular brand of cosmetics, the Estée Lauder line, on female buyers thirty-five years and older. Lauder managers projected that younger women were more likely to buy Beautiful for themselves than wait to receive it as a gift.11

The new launch was directed toward other strategic goals as well. It was intended to help establish a credible, differentiated position for the new scent. Why should consumers choose Beautiful rather than Coco, Obsession, Yves Saint-Laurent's Opium, or other competing products? All facets of Beautiful's introduction, from the pink and gold packaging to the counter decorations in department stores, were coordinated to present the product as a premium fragrance that was unabashedly romantic. Lauder executives selected a bride as the advertising symbol for the new perfume. "In almost every woman's life," noted a marketing vice president, "there's a moment when she's said to be beautiful. The imagery of the bride is timeless, classic, an integral part of every culture's traditions."12

This positioning stood in marked contrast to that of many popular perfumes. Obsession, Opium, Revlon's Scoundrel, and Dior's Poison had overtly sexual associations, many of which bordered on the risqué. But her own customers, Estée Lauder maintained, "were too fine, and more important, too smart, to be taken in by crudeness." These women, she continued, were "elegant achievers." They were independent and wanted something more than sex appeal.13

In addition to establishing the perfume's position in the marketplace and attracting specific consumers, the launch campaign was also intended to enhance the broader Estée Lauder brand. In 1985, Estée Lauder Inc. was a privately held company, selling a range of skin care products, makeup, and fragrances under the Estée Lauder name.14 The enterprise had also developed three other cosmetics brands-Aramis, Clinique, and Prescriptives. In the United States and more than seventy other countries, all four of these names had become household words. Each of the brands commanded strong consumer recognition, premium prices, and significant market share in their respective segments. Company sales totaled over $1 billion in 1985.15 The flagship Estée Lauder brand or line of products, sold primarily through department stores, accounted for the most revenues.16 To millions of women, the Lauder name represented quality, elegance, individual control, and self-respect.

To bring these associations home to consumers, the company developed an extensive marketing campaign based on in-store promotions, direct mail, and print advertising. The manufacturer had not used television to introduce earlier fragrances. But company executives decided to have a thirty-second commercial made for Beautiful's launch. The ad featured a top fashion model wearing a $15,000 wedding gown. Filmed in a bucolic setting with a rendition of the song "You Are So Beautiful" playing in the background, the commercial closed with the tag line "This is your moment to be beautiful."

All marketing efforts were carefully coordinated to coincide with the perfume's fall rollout in selected stores. Neiman Marcus, for example, was scheduled to be the first retailer to offer Beautiful. Shortly after Labor Day, Estée Lauder arrived in Dallas to promote the fragrance at the retailer's headquarters store. This was the first of a series of personal appearances she made to help launch the new perfume. Wherever she went, listeners were struck by her energy and missionary-like zeal.17 "Every one of you can be an Estée Lauder," she told Neiman Marcus saleswomen. "You're beautiful. No matter how old you are, you can always feel like a bride. Now I am going to show you my new commercial. It's going to be on every television throughout the world!"18

The manufacturer worked closely with retailers to market Beautiful. Each store that distributed Estée Lauder cosmetics received detailed guidelines on the appearance of sales counters, banners, windows, and personnel. The colors pink, gold, and the company's signature blue were to be featured in these venues. Each sales representative for the cosmetics maker was required to wear a pink smock and matching scarf during the launch.

Some retailers planned in-store events to promote the new fragrance. Kaufmann's department store in Pittsburgh, for example, staged a mock wedding on the sales floor while customers feasted on free cake. Other retailers hired models to distribute pink cloth flowers scented with Beautiful. Some stores arranged for instant photographs to be taken of shoppers and placed in pink frames.19 Whether stores orchestrated an elaborate event or not, nearly all of them that sold Lauder products distributed large numbers of samples to promote the new perfume. Estée Lauder had long believed in the importance of using samples to build consumer interest in her products. For the Beautiful launch alone, the company planned to give away 25 million samples of the product.20

Advertisements by direct mail and in print encouraged women to visit the Estée Lauder counters in local department stores. Scented sachet cards went to thousands of charge-account holders at specific retailers. Newspaper and magazine ads were coordinated to appear with the perfume's arrival in individual stores.

Extensive advertising, like the rest of the Beautiful launch, represented a substantial expenditure for Estée Lauder Inc. The company did not release its marketing costs for the new fragrance. But it is reasonable to assume that the manufacturer spent at least $10 million introducing its new perfume.21 From the perspective of the senior management team, this expenditure was a smart bet. Estée Lauder had a strong track record anticipating what would appeal to consumers. If she was right about the appeal of her latest perfume, the costs of launching the scent would quickly be repaid in thousands of repeat sales. Many of these customers would also buy other company products.

During the next fifteen years, Estée Lauder executives had reason to be satisfied with their investment in Beautiful. The perfume was enormously popular in its inaugural year, and it continued to sell well in U.S. and international markets.22 Through most of the late 1980s and the 1990s, Beautiful was a leading product among prestige fragrances distributed in the United States. In 1998, for example, it was the second most popular scent in the category. The top seller was Pleasures, an Estée Lauder fragrance introduced in 1995.23 These and other products helped expand the company's sales to almost $4 billion in fiscal 1999.24 As the decade closed, the manufacturer's product lines, including those recently developed and acquired, accounted for 46 percent of U.S. prestige cosmetic sales.25

The markets for beauty products-which included makeup, skin care products, fragrances, and toiletries (dental care products, shaving items, and deodorants)-had changed substantially since the early 1920s when, as a teenager, Estée Lauder first started experimenting with skin creams. At that time, the U.S. cosmetics and toiletries business was a fledgling sector with retail sales totaling about $130 million (or $1.9 billion today).26 On a per capita basis, the average American spent $1.20 ($10.10 today) annually on all goods such as lipstick, hand lotion, cologne, toothpaste, and razors.27 Working women in cities probably spent more than this, most rural consumers less. Regardless of where they lived or what they did for a living, the majority of women in 1920 would not have considered perfume, facial cleansers, or after-shave essential goods.

By the mid-1990s, cosmetics production was a thriving global industry with estimated worldwide revenues of more than $60 billion a year.28 More than half of these sales were generated in the United States.29 The average American at the close of the twentieth century spent about $100 annually on cosmetics.30 The bulk of these expenditures was for makeup, fragrances, and products for skin care, hair care, and oral hygiene. Unlike their counterparts in the early twentieth century, most consumers in the 1990s viewed these expenses as routine components of the cost of living.

How did female and male consumers come to make such products a part of their everyday lives? What role did entrepreneurial brand creation play in the evolution of consumers' attitudes toward these goods and the larger market? How were these changes related to broader economic and social shifts?

Estée Lauder probably did not focus on these larger historical issues. She was interested in understanding current happenings and what they meant for her life, professional and personal. Growing into adulthood in the 1920s, she realized that the possibilities confronting women were changing. On average, most American women then had more disposable income than their mothers. More held jobs outside the home. Many played larger roles in getting and spending household resources than had previous generations of women.

These changes accelerated in the 1940s during and after World War II. Rising incomes, population growth, increases in the female workforce, and women's expanding public roles influenced consumers' priorities, creating new desires and underscoring existing ones. Such transitions, Lauder realized, presented significant strategic opportunities. Acting on her own intuition about the demand side and input from her customers, the entrepreneur constructed a meaningful identity for her products, one that women associated with quality, self-expression, reinvention, elegance, and control. Relying on tightly controlled distribution, imaginative marketing, and careful merchandising, she and her colleagues built a brand that, by 1970, had become one of the most powerful in the business.

As her company grew in the 1960s, Lauder and her colleagues worked to translate the founder's entrepreneurial knowledge of the demand side into a range of organizational capabilities.31 These efforts were very successful. Many of the specific initiatives that they pioneered to interest and earn the trust of consumers-women and men alike-such as gift-with-purchase and on-site sales training, quickly became industry standards. At the end of the twentieth century, experts recognized the company as the premier creator and manager of prestige cosmetic brands in the world.32 Most observers also applauded management's long-term perspective, distribution control, and ability to anticipate and respond to shifts in consumer behavior.

Excerpted from Brand New: How Entrepreneurs Earned Consumers' Trust From Wedgwood to Dell, by Nancy Koehn, Harvard Business School Press 2001. Copyright 2001 President and Fellows of Harvard College. All rights reserved.

Editorial Reviews

Business historian Nancy F. Koehn begins Brand New -- her critically acclaimed examination of the means by which six aspiring entrepreneurs created viable and enduring products -- with the story of Josiah Wedgewood, the 18th-century potter whose name, after two centuries, is still synonymous with finely made china. Koehn also considers the achievements of H. J. Heinz (food production), Marshall Field (mass retailing), Estee Lauder (prestige cosmetics), Howard Schultz (speciality coffee), and Michael Dell (personal computers), each of whom succeeded in exploiting the social and economic forces of their day to create goods that commanded the awareness and interest of large number of consumers.

bn.com

It's Brand New really good stuff, the true human drama of business, engagingly written and illustrated with great photos.

Star Tribune

Koehn (business administration, Harvard Business School) explores the connections between entrepreneurs and consumers, and the exceptional abilities of certain entrepreneurs to understand<-->and capitalize upon<-->the effects of rapid social, economic and technological changes on consumers' needs and wants. Six leaders of brand creation, from the mid-1700s to the present day, are profiled: Josiah Wedgwood, Henry Heinz, Marshall Field, Est<'e>e Lauder, Howard Schultz, and Michael Dell. Koehn considers the role that these six individuals have played historically in creating new markets and affecting modern consumption, and she draws on their examples to find insights for today's brand builders. Annotation c. Book News, Inc., Portland, OR (booknews.com)

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