Is Toyota on the decline as long-time ruler of vehicle quality? Yes, if one speaks of real quality--but if one speaks of brand equity, probably not, at least in the near term. Yet, a flurry of studies this year suggest that Toyota may want to watch its back. Mile markers include Ford's strong showing in J.D. Power & Associates' "2007 Initial Quality Study" in June. For the first time since 1998, Ford topped all automakers, garnering five top model segment awards (although one of the vehicles was Mazda's). Lincoln went from 12th place to third, Mercury from 17th to eighth, and Ford from 16th to 10th. In the first paragraph in its story on Ford's win, the Associated Press suggested that people who have been joking that Ford stands for "Found on Road Dead" may have to change it to "Fixing Our Reputation Daily." The consultancy's report followed another study--San Diego-based Strategic Vision's Total Quality Awards, the results of which showed all boats rising to meet Toyota in the area of perceived quality: Hyundai and Nissan dominated that study, while long-time leader Toyota took no top honors at all, although its scores also rose. The consultancy's headline: "Hyundai 3; Toyota 0." This month, Consumer Reports' "2007 Annual Car Reliability Survey" downgraded several Toyota vehicles, while giving the nod to Ford and GM. Toyota responded, saying that Toyota, Lexus, and Scion brands led the industry in CR's survey, with the greatest number of models--17--ranking "Most Reliable." Now, Strategic Vision's "2007 Total Value Index" has given the nod to Ford as well, making the point in its official release that one of Ford's wins comes at Toyota's expense. Ford, which has won only four of the consultancy's top spots over the past four years--versus 20 for Toyota--garnered top spots for three vehicles: the Lincoln MKX crossover, Ford Edge crossover and Expedition EL SUV. General Motors fared best among domestics in the index, with four leaders, including the full-sized pickup segment with its GMC Sierra. Analysts say it is unlikely that Toyota's advantage in consumer perception of brand quality will suddenly evaporate. But, they say, if the domestics keep garnering third-party awards that acknowledge their quality gains--awards they can then turn around and use in advertising--consumers will focus less single-mindedly on quality and more on aesthetics, pricing and features. No doubt, Ford would like that very much--particularly as it has just launched Synch, a voice-activated music and telematics program. "Our data suggest that consumers aren't yet shifting, in terms of the perception of relative quality of domestics versus Japanese brands," says Dave Sargent, director of automotive research for J.D. Power. "What is happening is that the actual differences are narrowing, and when the basic requirement of a car not falling apart and being safe to drive is met, consumers will consider other things." Still, both Edge and Lincoln MKX are selling strongly. Ford's overall vehicle sales numbers slumped 21% last month, but the company sold 11,632 of the Edge crossovers, and 3,805 Lincoln MKX vehicles. Lincoln has a ways to go to beat Toyota in its game: Last month, Toyota's Lexus division sold twice as many RX350 and RXs as Lincoln of its still-new MKX. Strategic Vision's report says: "Although the Lexus brand name offers its customers a stronger belief in reliability and durability, the MKX product characteristics and features, specifically in areas such as interior design, quality and roominess, offered at a lower price, makes each dollar spent on the MKX a better choice than the RX350." Alexander Edwards, president of Strategic Vision, says Toyota has led in 20 of the vehicle segments covered by the index because "they have preached one message for 20 years: reliability"--adding that their focus has been on keeping the number of things that have gone wrong per 100 vehicles as small as possible. "But statistically, the differences are negligible, so that actual leadership position in quality is not apparent any more--the other brands catching up"--meaning, he adds, that keeping ahead of the field means focusing more and more on narrower and narrower leads. Of GMC Sierra vs. Toyota Tundra pickups, Strategic Vision says, "As seen in multiple instances in 2007, the Toyota brand name stood for reliability, but the product cues were where the Tundra was slightly behind the Sierra. For the Sierra, GM's new warranty also had a strong impact in reassuring customers that their investment was more secure." Says Edwards: "Toyota is in the top area of a very tight race which would only get a ribbon on a horse track. Yes, whoever has the lowest score wins, but is it statistically relevant? For the most part, most brands and vehicles are at the same level of quality, and pushing it further will be difficult. If Toyota provides products that are satisfactory and don't go the next step with vehicles providing an emotional connection between consumer and product, their 'get out of jail free' will begin to fade, and consumers, reassured by warranties, will look at other vehicles more frequently." Still, in the Total Value Index, based on subjective new-owner statements about things like expected reliability, expected fuel economy, price paid, and expected resale value, Toyota still dominates. The company had four leaders, including Yaris, and 4Runner, and, for the fourth year, Lexus LS430. Honda has also done well this year in the index, with six vehicles leading in five vehicle segments, and a strong perception of resale value inherent in the brand. Hyundai took two top spots for the Azera sedan and Santa Fe SUV.
Holiday Inn is getting its first new logo ever, as part of a sweeping $61 million rebranding effort. In addition to dramatically different signage, InterContinental Hotels Group, which owns the brand, is also asking franchisees to kick in $1 billion for upgrades, focusing on areas that matter most to guests--including shower-curtain rods. While the brand itself may be a little dusty, it's still a behemoth. Launched in 1952, it accounts for almost 25% of the industry's mid-scale lodging segment in the U.S., and with 100 million room nights a year, "is the most 'stayed-in' hotel brand in the world," the company says. But after spending more than two years on "the industry's largest piece of consumer research," says a company spokesperson, "encompassing more than 100 different brands and more than 18,000 people," Holiday Inn realized that it was time for some changes. "About 90% of what's important to guests in a hotel stay is a modern, clean, safe property with efficient, friendly service that affords a great night's sleep," he says. "We are focusing our efforts on fine-tuning those key areas, rather than creating innovation for innovation's sake." As a result, the $1 billion improvements will include fresh, white triple-sheeting and pillows that come in two comfort levels: soft and firm. Bathrooms will be enhanced to include an improved shower head that offers superior pressure, "as well as a signature shower curtain with curved rod and new amenities to deliver a consistent bath experience that feels fresh and contemporary." Such upgrades are probably overdue. "I don't think that Holiday Inn has much of a choice," says David Brudney of David Brudney & Associates, a hospitality marketing consultant based in Carlsbad, Calif. "It's an icon in this industry, so it will always have a certain power in its brand. But in the last five years, so much in the industry has changed. Luxury is now mainstream. Everyone is putting marble in the bathrooms and upgrading the front desk." The competitive pressure is greatest, he says, on its Holiday Inn full-service brand. "Holiday Inn Express will do fine, but it's that middle-tier property that needs all the help in the world." Going forward, he says, the brands that will thrive are those that cater to the lifestyles of younger travelers, "who are very demanding, highly technology-oriented travelers," Brudney says. "They're not going to be driving up in their fathers' Oldsmobiles." The move shows that "IHG is managing its brand for the future, responding to customers' involvement," agrees Priscilla Bevel Caldwell, a spokesperson for Madigan Pratt & Associates, a hospitality marketing consultant in Williamsburg, Va. "Better delivering on guests' expectations is a critical aspect of fulfilling the brand promise." IHG says it will launch new advertising to support the rebranding as soon as the majority of the Holiday Inn properties are in compliance with the new identity and standards, the spokesperson says, which will likely be mid-2009.
Despite strong sales of over-the-counter weight-loss drug Alli, GlaxoSmithKline reported that third-quarter profit fell 5.8% as several of its drugs lost sales to the competition, including generics. Glaxo posted net profit of $2.68 billion for the three months to Sept. 30. Revenue fell 2% to $11.02 billion, largely due to a 7% decline in turnover in the U.S., where stiffer generic competition combined with a 38% drop in sales of the Avandia family of drugs over the quarter. Sales for Alli--which hit shelves in June and is the first and currently only OTC weight-loss drug approved by the U.S. Food and Drug administration--were in line with the drugmaker's expectations, coming in at about two million starter kits. The pharmaceutical company expects to sell between 5 million and 6 million kits annually, translating to at least $1.5 billion in annual retail sales. For the quarter, Glaxo's Consumer Healthcare division--which includes Alli, Breathe Right* and FiberChoice--registered a 16% increase in overall sales. Within the division, sales of OTC drugs like Alli rose 24% to $853.6 million, with Alli contributing $69.6 million of that increase. On the downside, Avandia, Glaxo's second-best-selling product last year, lost market share to Takeda Pharmaceutical Co.'s Actos. Glaxo ran into trouble in May when a report in The New England Journal of Medicine found that Avandia raised the risk of heart attacks, and possibly death. The FDA ruled in July that Avandia could remain on the market, but Glaxo agreed to label the drug with warnings about a risk of heart failure to some patients. CEO Jean-Pierre Garnier told analysts Wednesday that the company could potentially launch up to 25 new drugs over the 2007-09 period--it has already launched five--depending on regulatory approval. As for the continued success of Alli, while it's too early to predict how many consumers will continue using the drug--which is an OTC version of the diet drug Xenical--feedback from current users so far has been overwhelmingly positive, says Joe Cadle, marketing director for Glaxo Consumer Healthcare. A new ad campaign for the Alli began Tuesday. The campaign features first-person accounts from 100 users who were recruited by the company to take the drug for free prior to its launch. The spots will air on network and cable television. Glaxo is banking on Alli to become a major drug in its portfolio. The company is spending $150 million on marketing the drug this year, making it one of the drugmaker's biggest campaigns to date. Analysts say Alli's long-term success will hinge on Glaxo's ability to educate people to have realistic expectations about the diet pill. "If [the marketing is] done correctly, it has to be a long and drawn-out campaign," Steve Brozak, an analyst with WBB Securities, told the Associated Press. Glaxo's understated campaign so far is a good sign, Brozak said. But he added that there's no way to truly gauge the financial success of the drug so soon after its release. * Editor's note: The story was amended post-publication.
With the SEMA show around the corner, 'tis the season for supercharged sub-brands. Automakers are taking time out of the salt mines to focus on hot wheels produced in-house or through association with private skunk works. Chrysler's Dodge division has just introduced its Caliber SRT4 and is tapping the tuner market --people into customizing who are driving the $36 billion-plus aftermarket business--to promote it. The company is launching a promotion centered on DodgeRUTunedOut.com, a play on words referring to people who are so into their wheels that they neglect their human relationships. The promotion is based on the conceit that the SRT series means never having to do your own tuning, so you can pay attention to all the people you've neglected in favor of superchargers, nitrous oxide tanks and oversized woofers. Registrants must submit a 250-word essay answering the questions, "Why are you or your significant other tuned out?" and "How will an all-new Dodge Caliber SRT4 help you or your significant other tune back in?" An independent panel of judges will review all of the entries that are received and will select four finalists, who will be announced Nov. 29. Dodge is one of several automakers using this month's SEMA show in Las Vegas to roll out factory-tuned cars and trucks. One benefit of factory-tuned versions of mass-market cars is that they carry a factory warranty. Typically, the factory voids owner warranties if owners add steroids to their engines. The Caliber SRT, which has a turbocharged 285 horsepower motor and wears a $22,995 price tag, also gets Chrysler's standard three-year power train warranty (although not the lifetime coverage that Chrysler debuted this year). Honda is rolling out 1,000 tricked-out versions of its Civic. The car, Civic Mugen Si, which has a full body kit and a 197-horsepower engine, is also backed by Honda's warranty. As are Honda's two factory-modified versions of the new 2008 Accord Coupe, bearing the Honda Factory Performance (HFP) name, that are rolling out at the SEMA show. The company says that when a dealer installs accessories at the time of purchase, Honda's HFP products--the company launched the sub-brand in 2002--carry the same three-year/36,000 mile, bumper-to-bumper warranty as the rest of the vehicle. That is a very big deal, says Todd Turner at L.A.-based consultancy Car Concepts. He points out that factory-approved parts installed at dealerships at time of purchase not only boost dealer revenue, but also give consumers peace of mind. "We are starting to see changes in the industry based on providing consumers an advantage," he says. "At [Toyota's] Scion, for example, there is a factory-installed supercharger kit-- installed by the dealer--with full warranty coverage. And that's a huge benefit to the consumer." He says offering that sort of coverage is not without risk to the factory. "There have been situations where manufacturers have gotten into trouble offering engine kits then backing out," he says, when the automaker learned that owners were participating in street drag-racing events. But he says such programs are critical for automakers, although the sales are a fraction of the volume they garner from their more tame vehicles. "I think it gives them an edge. The very people they are hoping to attract are the most enthusiastic of car buyers who religiously keep up with things. And they are extremely influential." And, he adds, although the volumes are small, "there's a lot of profit in that segment of the market."
Diageo, the world's leading premium drinks business, is joining Anheuser-Busch and Coca-Cola in a trend that is gaining steam in the spirits and beverage industry. It has inked a deal with black rapper Sean "Diddy" Combs not only to shill for its super-premium vodka Ciroc, but to help develop the brand with a promised 50% of the profits. The multi-year agreement is the latest in which a celebrity is going beyond the typical endorser role. Combs joins rappers Jay-Z for Budweiser Select and 50 Cent for Coke's Vitamin Water. In fact, 50 Cent enjoyed a robust $400 million payout when Coke purchased the brand from Glaceau for more than $4 billion earlier this year. Diageo predicts its pact with Combs could be worth more than $100 million for the 37-year-old mogul who owns his own perfume and clothing lines and is CEO of Bad Boy Worldwide Entertainment. Robert Passikoff, founder/president of Brand Keys, Inc., says that "to a certain degree it's the same old same old except for the financial deal. Although now, instead of just being an endorser, what [the celebrities] need to do is actually be an engager in terms of the brand itself." It is what separates Tanqueray's Tony Sinclair and Starwood Hotels & Resorts Worldwide's chief beer officer from these new guys on the block. Of the new arrangements, Passikoff says: "From a practical perspective it's good. It means the celebrity actually needs to work at building the brand instead of standing next to it, as has been the traditional role." The history of hiring celebrities to endorse brands, he says, is based on brands that had "no values of their own. They borrowed them from the celebrity, some set of values that resonated with the targeted audience. It seems a bit broader in this case in terms of luxury and lifestyle. A guy like Combs may be able to manage it. "Everyone's always looking for some celebrity because most stuff has totally been turned into commodities," he says. "So folks are always looking for someone that maybe stands for something more than the product stands for."
Microsoft on Wednesday said it is investing $240 million for a 1.6% stake in Facebook--a deal that values the hot social network at a staggering $15 billion. Beating out Google, Microsoft also won exclusive global rights to sell third-party banner ads on Facebook. Microsoft has had an agreement to sell ads on Facebook in the U.S. since August of last year. Expanding the deal internationally was seen as critical because 60% of Facebook's nearly 50 million registered users are abroad. Microsoft believes that user base is on track to exceed 200 million and eventually 300 million members, said Kevin Johnson, president of Microsoft's platforms and services division, during a conference call Wednesday. On the call, Johnson downplayed what one analyst called the "faddishness" of Facebook. "Figured with [Facebook's] monetization opportunities," said Johnson, "you could very quickly get to the valuation" of $15 billion. Analysts agreed that whatever Facebook's prospects, social networking can no longer be considered a fad. "These are seasoned companies making well-thought-out investments," said Gartner analyst Andrew Frank of the deal. Johnson said he was pleased with Microsoft's ability to monetize Facebook's network thus far, but that there are "many initiatives underway to drive that higher." Johnson did not provide details regarding these initiatives. Owen Van Natta, Facebook's vice president of operations and chief revenue officer, did allude to Microsoft's recent acquisition of aQuantive, saying the deal was "a deep strategic move for them." Beyond mere ad-serving opportunities, Johnson said the partnership with Facebook was largely strategic. "You can sit back and watch how this partnership is going to develop," he told one analyst. To align further with Facebook, Microsoft reportedly faced intense competition from Google, which had previously bested Microsoft in bidding wars involving AOL and DoubleClick. Even with this latest win, however, Microsoft still faces an uphill battle against Google in the fight for online ad dollars. In its fiscal year ending in June, Microsoft's online ad revenue rose 21% to $1.84 billion. During the same period, Google's ad revenue totaled $13.3 billion. Van Natta said the investment would be used to fund further "innovation and growth." Van Natta pointed to a high demand for more Web developers, in particular, and estimated that Facebook would have more than 700 employees by next year. This year, Facebook is reportedly expecting a profit of $30 million on revenue of $150 million. While MySpace remains the top social network, Facebook has grown much faster over the past year. Facebook attracted 30.6 million U.S. visitors during September, compared with 68.4 million at MySpace. Microsoft's social networking offering, "Windows Live Spaces," attracted an audience of 9.8 million, according to comScore.