According a recent earnings release, Coach operates 343 retail stores and 119 factory stores worldwide.  At one time fashion brands used factory stores or outlets to move excess merchandise from their regular stores.  Not so now.  Today, most of the offerings found at factory stores are made specifically for sale at outlets, including 80% of Coach’s “factory” inventory.  The more merchandise Coach makes specifically for the factory stores, the less regular merchandise it liquidates, leading to “significantly higher profitability.” The problem comes when people think they are dealing with a single, common luxury Coach brand.

Some retailers deliberately maintain separate brands for their outlet stores like Nordstrom Rack, Saks Off Fifth, Neiman Marcus Last Call, to help keep brand experience expectations in check.  For example, Nordstrom Rack offers customers a 30 day return policy that is certainly reasonable, but a far cry from the legendary leniency of the flagship Nordstrom return policy.  Others clearly delineate merchandise specifically manufactured for and sold only in outlets.  Brooks Brothers sells a separate “346″ line at a lower price (and some say significantly lower quality) specifically for its outlets, a common practice among retailers including  Ann Taylor Factory, Banana Republic, Gymboree and many others.

Coach, however, deliberately encourages conflation between full price and factory.  On a recent business trip, we had some time to kill before a flight and popped into the Coach factory store in Loveland, Colorado.  Seeing what looked like a “real” Coach design, logo, tags, etc., we picked up a bag.  Andrea Shaw Resnick, Coach’s Senior Vice President of Investor Relations and Corporate Communications acknowledges that the Coach factory stores sell different merchandise but with “the same excellent Coach quality.” Well, maybe not. Two weeks or so after our bag was put into use the, “turnlock” fell off.  Not a big deal, but certainly a defect that interfered with the essential function of closing the bag.

We trotted over a short hop from BrandCulture HQ to Coach’s Century City outpost where we encountered Brianna and explained the failure.  Brianna knew at a glance that we had a “factory bag” and explained that we were in a “full price” store where such a bag “would never be sold.”  To further amplify the point, she pointed out the Coach equivalent of the Scarlet Letter, a tell-tale “F” in the serial number designating “factory.” Accordingly, she would not be able to exchange the bag or issue a refund — even though we presented our original sales receipt.  Brianna did say we could ship our factory bag to Jacksonville Florida (at our expense) where a team of experts would determine within 4 to 6 weeks whether or not the bag could be repaired.

Just when this rigmarole seemed a bit much for a brand new defective bag, Brianna invited us to take a trip from Century City to the Coach factory stores in Camarillo (47.6 miles) or Barstow (126 miles) for a refund.  Returning an item to a Coach factory store is inconvenient . . . by design.  Normally Coach endeavors to locate its factory stores at least 60 miles or an hour’s drive away from the full-priced outlets.  One Coach brand, but two different businesses and very different brand behavior.

Full price Coach never has sales.  Factory Coach always has sales, sales and more % off sales!

Why does Coach do this?  We’re confident that Coach has reams of psychographic, demographic, market segmentation and focus group data — bolstered by the 70,000 customer interviews the company purportedly conducts each year — that show that the bargain-crazed, coupon-addicted factory store customers (like us) and the upscale full price shoppers are distinct cohorts and never the twain will meet.  Evidently Coach believes this is a representative factory store shopper:

. . .  and here are their “full price” shoppers:

Conventional wisdom and even outside experts agree, including Kit Yarrow of Golden Gate University, “Outlet shoppers are less fashion forward and more interested in saving money.” Outside of hard-core outlet shoppers, we suspect this is largely a load of piffle, and the reality is that sometimes people find themselves in factory store settings and sometimes not, and migrate freely between the two retail worlds.  But we’re even more confident that from a brand perspective this operating methodology moves more merchandise, but puts Coach and its brand on thin ice.

This is a dilemma of Coach’s own making, as the company sets a high bar for itself in its Mission Statement.  In addition to asserting that its brand “represents a unique synthesis of magic and logic that stands for quality, authenticity, value and a truly aspirational, distinctive American style,” Coach borrows a play out of the Lexus Covenant, in asserting that all Coach customers will be treated “like guests in our own home.”  You don’t see Toyota promising this for Camry and Scion owners.  In reality, the standards of hospitality among Coach’s 12,000 employees evidently differ considerably for factory store guests vs. those of the full price stores.

Coach makes bags and accessories — $3.4 billion of them over the last year.  But its business is its brand.  That’s what enables Coach to earn a gross margin that is not only among the very highest in the industry, but one that frequently approaches and even surpasses 80% (consider that when making your next Coach impulse purchase).  With margins like these, Coach should consider investing a few bucks in a seamless brand experience to mollify factory-shopping slack-jawed bumpkins such as ourselves who inadvertently stumble into a “real” Coach store.  Alternatively, instead of promising a common standard of quality and courtesy across its portfolio, create a more deliberate and explicit brand architecture with a “Coach Lite” brand (like Nordstrom Rack) where shoppers can still have the signature Coach C’s on their arms without quite the same expectation of quality or of a luxury brand treatment.  Either way, with an asset as valuable as the Coach brand, we suggest that Coach take care not to stretch the elasticity of its storied brand past the point of fracture.

In the meantime, if you’re heading out to Barstow will you swing by and pick up our broken Coach bag?

…Huh?

With this ad, Burger King effectively commoditizes itself while positioning McDonald’s as the product/taste leader. While Burger King will undoubtedly encourage some switching (though how many people will change their routine to save a buck or so?), should the chain ever wish to raise the price of their knock-off, we suspect those customers they do convert will quickly return to McDonald’s to buy the genuine article.

And is it worth what they are giving up in terms of positioning the Burger King brand?

Television viewers: McDonald’s is “where it’s at” in fast food. How do we know? Because Burger King told us so in this ad. And based on our own work with McDonald’s in a previous life, we can bet the communications folks there are basking in this free publicity.

Here’s a little gratis communications consulting for any businesses/organizations/brands that aim to dethrone the number one player in their respective industries: don’t reinforce your competitor’s strength or commoditize yourself by promoting your products and services as cheaper, copied alternatives.

Burger King is the second-largest fast food chain in the world. With this ad, they appear destined to remain #2.

This morning we received an offer from Groupon (incidentally a pretty cool site/service for Los Angelenos) offering us a hotel stay and extras worth $424 for only $150. (After today, you can see the deal here for a few more months.) We immediately noticed this language in the offer:

“For $150, you’ll get a romantic retreat at SeaCrest Resort complete with ocean-view room, wine tasting with appetizers, vineyard tour, bottle of wine, and $10 toward Marie Callender’s…”

We don’t know about you or your significant others, but Marie Callender’s is not typically how we like to end wine-filled romantic beach retreats. It’s not that there’s anything wrong with Marie Callender’s. It’s just that as a brand it’s not really the right accompaniment for a resort, a weekend or an outing purporting to be escapist, passionate or vinicultural.

Escapist, Passionate, Vinicultural

Marie Callender's

There’s a lesson here for b2b brands and the professionals in charge of them. Do the partners, third-parties and ancillary products/services associated with your brand do it justice?

• If you want the brand to be seen as technologically advanced, you’d better make sure your salespeople don’t show up to meetings running PowerPoint 2004 on Windows 98.
• If you want the brand associated with service, you might not want to co-market with TimeWarner Cable.
• If you want the brand to be known as dependable, giving away crappy bags that fall apart a week after the tradeshow isn’t doing you any favors.

If you’re serious about building your brand, then it’s up to you to ensure that you surround it with other brands that present it to best effect.

It takes planning, it isn’t always cheap and it often involves someone or something you can’t directly control, but hey – if building great brands was easy it just wouldn’t be so rewarding, now would it?

Even if you’ve never flown them, you’ve probably heard of European low-cost carrier Ryanair. And if you haven’t flown them it’s something you should try – at least once in your life. It’s less like Southwest and more like the second-class train car from Cuzco to Puente Ruinas: cramped, with people relentlessly trying to sell you something, but at a fraction of the cost of alternate means of transportation. And if you haven’t heard or read some of  CEO Michael O’Leary’s precious gems, well, that’s something you should experience as well.

From a WSJ interview: “…that’s what people really want—affordable, safe air transport from A to B. It’s a commodity. It’s not some life-changing sexual experience, which is what the other high-fare airlines have tried to convince you that it is.” (The rest of the short article is equally entertaining)

If nothing else, Ryanair is consistent: the taglines (see logo above, and sometimes they use “The Low Fares Airline”), a website that sets a new record for price promos per pixel, the CEO’s talking points and even in-plane advertising:

Adopting a strategy anathema to branding professionals, it’s all meant to focus travelers’ attentions on one thing: price. And is that really so bad? There are many competing low-cost airlines in Europe, but – based on our vast European network and our own extended sojourns abroad – Ryanair is where travelers go first when looking for low-cost travel.

Like Mercury in auto insurance:

and Walmart in retail (though they’re trying to change):

Ryanair has been able to build a strong brand based on cost.

But, to use our own old saw, the delivery must match the promise. Flights may be advertised at 1 cent, but airport taxes, online check-in fees, credit card fees, bag fees, sports equipment fees and many potential others bring the price up considerably and – in our own experience – into the same ballpark as advance fares on full-service airlines.

We applaud Ryanair’s focused execution, and we acknowledge that sometimes it makes sense for a brand to position on price. We believe, however, that if Ryanair’s extra fees mean that the company doesn’t make good on its low fare promise, then Mr. O’Leary – despite his protestations to the contrary – may just start looking for ways to make his airline a little more sexy and a little less commodity.

Perhaps that effort has already begun?

“The only way that real change is made is from the bottom up,” he said. “You can mandate change from the top … but the only way an organization really changes is from the roots up; that’s much more powerful. So what you’ll see is different with me is I’m going to concentrate on the roots of the organization.”

We can neither confirm nor deny that Deputy Chief Beck is an avid reader of BrandCultureTalk, but he’s certainly a kindred spirit of ours. Whether you’re trying to reform a police department or to align your business and your employees around a new promise to the market, your challenge is the same: if you don’t convince the rank and file, you don’t stand a chance of success.