Author Profile Sidebar: AL RIES
On Coca-Cola, Microsoft, Xerox, Southwest
(plus what really happened to the Ford Edsel)


FRANK GREGORSKY: The Coca-Cola Company's website brags about "400 products," which is a subtle change from six months ago, when they claimed 400 brands. Still, for an investor who likes your Focus marketing methods, to see all these bottles and cans -- in one long row! -- is more disorienting than encouraging.


Yet this venerable company strikes me as largely copy-cat. Coke doesn't see why Gatorade should be dominant -- so it creates Powerade, still an also-ran. Coke sees Red Bull take off -- so they create KMX. And this year it's getting scary. Late in July, I was alarmed to read a typically breathless Business Week profile of Coca-Cola's marketing director. They dubbed her the "Queen of Pop." The aggressiveness made for good copy, and the story sounds like she's making even better enemies. This woman seems to measure innovation by the number of things going out the door, rather than total sales and money coming back in the door. We discussed that situation in an e-mail. So what is your wider take on Coca-Cola? Why do they copy and modify, rather than create?

AL RIES: They are so committed to advertising that they see "launching a new brand" in terms of how much money they need to spend up-front to advertise it. That's why they waited 13 years to get into the energy drink business -- the energy drink business wasn't big enough to justify a $50 million advertising launch.


RIES: Now, by the time the market got big enough to justify the $50 million advertising launch, it was too late. Same thing happened [with Powerade]. By the time [Coke] figured the business was big enough to jump into, Gatorade had too big a lead. That's what happened in all their brands, over the past four decades: They've always waited until the market was big enough [for them] to use their traditional strategy -- big advertising launch, big programs with retailers, trucks and displays and everything else.

That's where our book The Fall of Advertising & Rise of PR comes in. Laura and I say: "Hey, you shouldn't be launching new brands with advertising anyhow. We study new brands -- and they always take off slowly." Mark the progress of Microsoft versus Red Bull. Would you believe it took Red Bull nine years to reach $100 million in annual sales? It took Microsoft 10 -- 10 years -- to reach $100 million in sales! It took Wal-Mart 14 years to reach $100 million in annual sales. The bigger the brand -- the more revolutionary the concept -- the longer it takes to establish. So, some of the most important product developments take a long time to get off the ground.

GREGORSKY: We'll get to Microsoft shortly. At least when it comes to Coke -- like Microsoft, a stock trapped in a relatively narrow range [37 to 58] for six years now -- you would say it's not a good move to hire a hotshot to play Marketing Czar and encourage her to start throwing darts at 7/11 stores?

RIES: [Laughter] When I read the Business Week story on Coke, it reminded me of the day Carly Fiorina introduced 154 new products and a marketing budget of $300 million to promote them. Meanwhile Steve Jobs was introducing one new product, the iPod, which turned the company around.

"It's Amazing How Many Different Businesses They're In"

GREGORSKY: Now to another Dow Jones stock with rock-solid financial strength, another lumbering giant and market leader that defines "leadership" as aping everyone else -- whether it's Sony [in games], AOL, or this year Apple. I'm speaking of Microsoft. Their so-called "iPod-killer" is a disaster for 2007, but let's not forget the Tablet PC -- a thousand bucks for less agility than you get with a $1.33 writing tablet from Office Depot. Gates was trooping around in person four years ago, holding this creature aloft, saying it was the next big thing.

RIES: They also spent a fortune on interactive TV. They spent a fortune on the "Media Center PC" -- everybody would control everything in the house (even the lights) from their personal computer.

GREGORSKY: Long ago, Bill Gates forgot how to make money. A couple of months ago, he turned his full attention to giving it away. But Microsoft is still there, a mix of 800-pound gorilla and 50-ton beached whale.

RIES: The problem with Microsoft is a focus type of problem. They're tying to "monitor" too many different areas. What are they doing in the video-game business with the X-Box?

GREGORSKY: Losing billions -- although a recent article said that part of the company should reach profitability in 2007.

RIES: This video-game business is a big, big, big business -- enormous. As a matter of fact, more video games are sold in the U.S. than movie tickets [laughter] -- but it doesn't get the publicity. Because of this divergence trend, Microsoft as a company is trying to be all things to everybody. As a result, it doesn't have the ability to jump in with a big brand early.

GREGORSKY: But unlike Coke, who you're indicating is sort of hostage to its tried-and-true "advertise first and let's see what can be put on the truck," Gates is supposedly a visionary. He takes a week to go off and do nothing but read -- "Think Week" -- to discern where the country is going, or where the industry is going. The visionary could not produce anything new in the software world?

RIES: I don't doubt his visionary ability at all. What I'm saying is, early on he was a visionary in personal-computer software, period. Then he's a visionary in interactive TV. He's a visionary in cell-phones [and] in TV on cell-phones. He's a visionary in video games, a visionary in servers, a visionary in business computer software.

GREGORSKY: Should all those statements have a question mark at the end? [Laughter]

RIES: Well, I'm saying you can't be a visionary in 57 different subjects. And if Microsoft is really gonna pioneer something new and different, they can't be thinking about everything, which is what they've been doing for at least a decade. It's amazing how many different businesses they're in. I don't know if they changed the name of Great Plains Software [when they purchased that company] -- but this is a big deal in itself: Small business software, competing with Oracle and SAP. That business alone has been a multibillion-dollar business, for a long period of time.

Editor's insert: I checked. With vintage Microsoft swagger, they phased out the original brand name. All that remains of Great Plains is something called "Microsoft Dynamics GP..."


RIES: You can't be a pioneer if you try to pioneer in too many different areas. And the stock has been flat for over five years.

GREGORSKY: The range is roughly between 20 and 30, but the trend is overwhelmingly sideways.

RIES: The sales are up [but not the stock]. They had such a high price-earnings ratio; that's been steadily coming down, because people are not seeing the growth they're expecting from a company like Microsoft. Of course it always happens [to a super-growth company eventually].

Microsoft is a company that, from my point of view, needs some focusing advice. What should they focus on? I can't tell ‘em from the outside. But [the way to start is by] looking at their books to see where they're making money, where they're losing money, and that sort of stuff.

GREGORSKY: But you're saying [the creation of something honestly new and also popular, by Microsoft] wouldn't necessarily have to be a software product just because everybody sees ‘em as a software company. They could create a new brand by doing something differently in a different area.

RIES: Sure! A lot of products are really 90% software and 10% product. The Palm handheld computer is a handheld computer, but 90% of the "thinking" is in the software. Same thing is true for the cell-phone today. It's a software-driven world.

Ford Never Differentiated Edsel from its Logical Rivals

GREGORSKY: You wrote in 1972: "If the Edsel had been tagged a 'high-performance' car and presented in a sleek two-door, bucket-seat form and given a name to match, no one would have laughed. It could have occupied a position that no one else owned and the ending of the story might have been different."

My father owned an Edsel, one of the original '58s, and he liked it a lot. And there was a '59 model, so the idea that it crashed and burned right away is misleading.

RIES: When you talk automobile brands, "immediate" is years [laughter], as opposed to a consumable-type brand that might [fizzle] in a matter of days. From my point of view, the [Edsel] brand crashed right away, even though [the car itself] was around for a couple of years.

GREGORSKY: But let's stick with that '72 quote -- "If the Edsel had been tagged a 'high-performance' car and presented in a sleek two-door" version, with a cool name... Were you saying then, and do you believe now, that basically the Edsel -- of course with a different name -- could have broken through as a slightly larger version of the Thunderbird (a splendid Ford hit from '55, which itself got much bigger for that '58 model year)?

RIES: There was certainly room in Ford's situation for an Edsel brand. But they didn't seem to realize that it's not enough to make it a good Ford brand; you have to make it a good anti-Buick brand. In other words, you've got to do [negative positioning]: "How do we differentiate Edsel from the competition?" The only thing different that they had was: "Well, it's not a Ford [laughter] -- it's more expensive, you know; it's an Edsel!" Matter of fact, the first ads said THIS IS EDSEL -- that was the ad! My point is: "What the hell is an Edsel?" That's what they never answered.

GREGORSKY: But it wasn't a bad car -- did it get bad reviews in Popular Mechanics and Automotive Weekly? Do you remember it bring a problem-plagued car?

RIES: No, it wasn't. As a matter of fact, Edsel got a bad reputation as a car only after it folded. See, here's the point: People figured it must've been a bad car because it folded.


RIES: It wasn't perceived as a bad car before it folded. It was only perceived as a bad car after it folded.

GREGORSKY: And was it perceived as an ugly car while it was [on the market], or did the "ugliness" also take hold retroactively too?

RIES: I think most of the ugliness took hold retroactively. If you look at old cars, you're gonna find a lot of very, very, very ugly old cars. But years from now, people [will look back at this era] and say, "Hummer? [Laughter] I wouldn't drive one of those suckers if you paid me." Years from now the Hummer will look ugly; but today it just looks different. Initially the Edsel looked different -- and now people say, "Well, it also looked ugly." Ugliness is in the perception of the observer, and not necessarily in the product itself.

"All These Products Tied Together" -- Mostly Blur, Little Buy

GREGORSKY: My father also worked at Xerox -- he started there when it was it was just Haloid, in 1955, as an immigrant from Canada. I worked there too, for four years in the mid-1970s, mostly doing assembly. Another unique twist you put on U.S. business history has to do with Xerox failing to become the personal computer company, even though they had the screen, keyboard, hard drive and even the mouse -- thanks to the company's Palo Alto Research Center (PARC). On pages 127 to 136 of the original Positioning paperback, you and Jack Trout contend that it didn't matter how many info-tech (IT) goodies came out of PARC, they never could have turned "Xerox" into an IT-oriented brand. To almost everyone, "Xerox" meant copier, and that was that. Yet, for the 20+ years after you wrote that, I'd see story after story claiming that Xerox's management "blew a golden opportunity" to exploit its own PARC technology.

Okay, here's the question: Outside your own books, have you ever seen what you contend to be the real story of Xerox [and building computers] explained anywhere? Did anyone echo or endorse your unique account of Xerox?

RIES: Well, I think you'll find that, in general, people always look at success or failure based on the product -- and not the perception created by the product, or by the name.


RIES: So, when Xerox got into the mainframe computer business, it was a disaster. Sure enough, everyone thought the product was no good. I said, "Hold the phone. Nobody's gonna buy a Xerox mainframe computer. A ‘Xerox' is a copier." The same thing would have been true if -- as a matter of fact, Xerox did introduce a personal computer.

GREGORSKY: In 1983! Ten thousand bucks. I looked at it [that winter] and was just floored. Huge screen.

RIES: Yeah. And that went nowhere. And later -- maybe around 1995 -- they had a major campaign for a broad line of products. The theme was "the office of the future" -- one big network of all these products tied together. But, again, people don't want to buy from a generalist; they want to buy from a specialist. You buy a personal computer from Dell, a cell-phone from Motorola, a copier from Xerox, a printer from HP. In general, nobody buys everything from one manufacturer. Why? Because people tend to think the specialist is better than the generalist.

GREGORSKY: Wrapping up on Xerox. One book, which came out in 1986, called the company an "American Samurai," finally winning back market-share from the Japanese. A decade later, though, they were ready to trigger yet another identity crisis -- "a bungled transformation engineered by Rick Thoman, an IBM executive who became Xerox's chief operating officer in 1997 and was elevated to CEO in 1999. Thoman tried to remake the company in the image of IBM by focusing more on software and consulting — and less on copiers — and disrupted Xerox's legendary sales force." [That's from an analysis in Slate -- http://www.slate.com/id/2078439 ]

From 1999 to October 2000, the stock power-dived from $64 to below five. For every dollar of revenue, Xerox had a dollar in debt. In 2001, Anne Mulcahy became CEO...

Would you now say that the company has quit trying to run away from the focus most of us always had on it?

RIES: Sure. Today, Xerox is a copier company, period. Everything else they make is related to copiers: Printers, scanners, fax machines, document-management software and consulting.

The copier business is not a growth business and Xerox sales have been flat for years. So have profit margins which range around 5%. But it's better than losing money by trying to get into different businesses.

What would I do if I was running Xerox? I'd consider the copier business a cash cow and keep research-and-development costs to a minimum. Then I'd look around the company to see if there's a product idea with a future. If so, I would launch a second brand to take advantage of that concept.

Which is exactly what Apple did with the iPod. They didn't call the product an Apple MP3 player. It was an iPod MP3 player. Sure, the Apple name was on the product in a "brought to you by" mode, much like Gillette uses its name on Mach 3 and Fusion razors. And Sony uses its name on PlayStation.

Southwest Airlines Was Given Room to Grow

GREGORSKY: In that 1972 set of articles with Jack Trout, you rag on Eastern Airlines for having the wrong name. "When the prospect is given a choice, he or she is going to prefer the national airline, not the regional one." Twenty-four years later, Southwest Airlines was favorably cited in Focus (pages 120-23 of the hardback). Here we are in 2006, another decade after that, with only a handful of states Southwest does not fly to.

Yet they still have that "no-frills" business model and continue to be profitable with $75-a-barrel oil. My girlfriend said that the airline received 150,000 applications for 2,000 open jobs during a however-long stretch. So the [two-part] question: Do you think Southwest is a national airline now, and did they get there without the right company name?

RIES: Sure! Both things are true. One, Southwest is a national airline; and two, "Southwest" is a bad name.

And you might say: "Well, wait a minute. You're saying the name is important." Yes, I say the name [of the company or product] is important. But go back in history. Who was Southwest's competition? You know what? They didn't have any. For decades, there wasn't a single no-frills airline. So, if you're the only bar in town, people are not gonna stop drinking because you have a bad name!

GREGORSKY: Gotcha. Yep.

RIES: In the case of Eastern [circa 1972], they were competing with American, United, Delta and a handful of other airlines. So in Eastern's case, they had a competitive problem. In Southwest's case [15 or 25 years ago], they didn't have a competitive problem. Now, if somebody had jumped in years ago -- when Southwest was just getting started -- with the same strategy but a better name, they could've won the battle. Jack and I argued with Continental Airlines about the same thing -- we wanted Continental to compete against Southwest, but with a national name: Continental.

GREGORSKY: When were you making that argument?

RIES: The day Continental hired an executive from Southwest that we knew very well -- it was sometime in the ‘80s. It wasn't "early," but it was before AirTran and Jet Blue. And look at how relatively successful they have become.

GREGORSKY: AirTran was able to recover from the disaster of May '96, when they were "ValuJet" [and Flight 592 went right into the Everglades after a fire broke out on-board].


RIES: And one of the reasons for [the recovery] is they bought AirTran to change their name. It was a good move. Today, AirTran is an airline run by ValuJet executives.


Need Some Background?

You are viewing the "Companies and Strategy" sidebar to an extensive interview of Al Ries published in March 2006. He is the author of Focus and co-author of 10 other books, including Positioning: The Battle for Your Mind, Marketing Warfare and The 22 Immutable Laws of Branding. Twelve years ago, he and daughter Laura started Ries & Ries. They consult with Fortune 500 companies and give seminars around the world. Best way for you to keep current on Al's thinking is via the monthly marketing column he writes for Advertising Age. In 1999, PR Week named Ries one of the hundred most influential public-relations people of the 20th century. Interviewer Frank Gregorsky is a long-time text and sound editor -- contact him via FrankGregorsky@aol.com or 703-849-8068.