Vitaly Demin Senior Strategy Consultant Read about Vitaly

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November 2011

I knew that the Kirkland Signature brand was being stretched beyond possible but I never really thought how bad it was till recently. I was at a Costco store the other day and I bought a $20 Robert Mondavi cabernet. As I was checking out, I asked their wine person if it was good and he said yes. Then he added that I should also try a Kirkland cabernet which is priced a little higher, at $30, but is really good. I said - a Kirkland wine at $30? He said - Yes, and please don't be confused by the name... and that's what got me thinking. There are certain things that you just can't do to a brand.

Kirkland Signature is being positioned as a superior brand and it's a great strategy and I'm sure it works for Costco but you still cannot stick it on everything. Moreover, the more high-end a brand is, the easier it is to destroy it by stretching it. Most executives don't believe in this but it always happens. There's always a short run for a brand that keeps it going while it's being milked but eventually it'll get damaged to the point of no recovery. Costco did a great job on building this house brand and it's an extremely valuable strategic asset but if they keep managing it like this, may be 2-3 more years and it'll start losing its brand equity because people will no longer take it seriously. It's ok to have this brand on groceries or batteries but it's not ok to stick it on a bottle of wine, especially an expensive one (leave alone shirts and some other product categories).

Think about it this way. Would Steve Jobs ever put his Mac name on the Apple's mp3 player, the phone and the tablet? No, he called them an iPod, an iPhone and an iPad. Did Coca-Cola put their name on their energy drink? No, they called it Burn. Does P&G stick their name on everything they make? No, they develop separate brands for almost every product and that's exactly the reason why they are one of the most successful and most profitable companies in the world.

Costco invested a lot of time and money to build the Kirkland Signature brand and get it where it is right now. If they're willing to give it up in a few years, it's their call. But if they want to preserve it and make it stronger, they have to start contracting it right now and launch more private labels for categories that they want to be in. Wine and shirts would be a great start. Not only will they keep Kirkland Signature from damaging, they'll also gain additional brand assets by introducing new names for other categories. You cannot own everything with one brand - it never worked and it never will.

As Craig Jelinek, the COO of Costco, is about to take over the CEO position at the company, the performance of Kirkland Signature will hugely impact his future reputation. When the brand eventually weakens and starts bringing less money, it'll be his failure. If he does something about it now and gets the private label back on the right path, it'll make him a more successful CEO as the brand will keep adding up to the bottom line. With Costco's margins being razor thin the private label is a major profit stream. They have to protect it as hard as they can or their margins will start eroding before they know it.

And here's a quick question to the Costco executives and the Kirkland Signature brand manager in particular: "How does the Kirkland wine taste now?"

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Free on iBooks

This eBook is a brief insight into the core of the executive management of Sony Corporation, the core that is unfortunately filled with one of the most perilous human qualities – arrogance.

For a very long time now Sony has been known as an organization permeated by arrogant attitude toward their suppliers, their distributors and now their customers. This culture is felt everywhere in the world. I remember having meetings with Sony people in Moscow Russia when I consulted the largest electronics retailer in the country. These meetings were very adversarial and not a most pleasant experience. Also, as I worked with electronics retailers in Kuwait, Emirates, India, England, US and other countries, the opinions I received about Sony were the same. Nobody liked them and nobody wanted to do business with them because it was just too painful. Obviously, they could not stop carrying Sony products in their stores but some of them did try to reduce the assortment. Sony rarely partners. They dictate.

This work is an attempt to show how corporate arrogance affected the decisions Sony made along the way, the decisions that led to mistakes, mistakes that got them dethroned from the position of being the best and the most admired consumer electronics company in the world.

I hope this eBook helps other companies see a bigger picture of how decisions that are made inside their organizations affect their brand, their customer loyalty and profitable business growth. Very often top managers do not realize that many of wrong decisions are made not due to the lack of knowledge about the problem but due to the mentioned above human flaw – arrogance.

The 2nd edition includes financial updates from 2010 as well as other recent events associated with the Sony organization.

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