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In the Information Age, Brand Loyalty Is Antique : Business: It is performance and not name that counts to consumers today. Philip Morris was acknowledging that when it lowered its prices.

April 18, 1993|Charles R. Morris | Charles R. Morris is a Wall Street consultant. His most recent book is "Computer Wars: How the West Can Win in a Post-IBM World" (Times Books)

NEW YORK — The great cigarette price war--touched off when Philip Morris cut most brand prices by 20%--has sent tobacco stocks reeling. Generic ciga rettes have been cutting into the market share of the branded majors for some time; Philip Morris' action just recognized reality. The success of the generics has touched off speculation about how far Americans will go to save money in hard times: What happened to good old American brand loyalty?

Few tears need to be shed over the plight of cigarette companies, but there is much more afoot here than the price of a favored coffin nail. Collapsing brand loyalty in almost all industries, from cigarettes to cars to computers, is just one symptom of the declining fortunes of traditional big corporations. The huge and continuing layoffs of well-paid white-collar workers from IBM, General Motors and many other once-dominant companies is another. This is the information age, an age of knowledgeable, cynical and demanding consumers, with effects that can be felt in almost every major institution, including political ones.

Cigarettes are a good example of how brand names serve as an information substitute. Tobacco companies, of course, claim their products are really different and that more expensive cigarettes actually taste better. But if there was a difference between one brand and the next, companies wouldn't work so hard creating "images," like the Marlboro Man, Joe Camel or the liberated Virginia Slims woman. The extra price of a brand-name cigarette, that is, goes to purchase a vicarious positive self-image rather than better taste. And consumers, it turns out, are much less willing to pay for such fringe benefits than they used to be.

It is a phenomenon with effects far beyond cigarettes. Through most of the 1980s, IBM could get away with charging up to twice as much for its personal computers as lower-cost "clone" makers did. The IBM brand presumably signified something--solidity, good design, back up. But with some minor differences, almost all personal computers are assembled from roughly the same parts, from roughly the same set of vendors. The processor usually comes from Intel, the disk drive from Connor Peripherals and so forth. Why pay more for the name on the outside, particularly when other vendors often offered better service? Hence the personal-computer price wars.

Before the onslaught of Japanese cars in the 1970s and 1980s, American car buyers tended to sort fairly reliably into GM, Ford or Chrysler customers. GM buyers were a tad more settled, Ford buyers a bit more adventurous. Foreign-car buyers tended to be nonconformists, academics or connoisseurs. Japanese companies shifted the competition away from brand loyalty to issues of quality and reliability--where they had a decisive advantage.

It took a decade for American companies to respond, but they are now winning share back on Japanese terms. Look at any car advertisement. There will still be some image overtones, but the emphasis is more on reliability, warranties and price. Car buyers who have cycled through several Japanese brands and are now trying American cars again are much less predictable or categorizable, much more interested in the nitty-gritty than their fathers were, much less willing to pay for the presumed status that an automobile was supposed to confer.

In an information age, industrial competition gets much closer to the bone; the product-development rhythms are faster and more jagged, and companies with slow reflexes end up on the losing side.

Traditional organizational structures, like those on the charts so beloved by the business schools, are another form of information substitute. Managers think of their organizations as information channels, but they're not. The job of traditional organizational structures is not so much to communicate information, but to ensure that people act in fairly predictable ways even when they don't know what's going on. And, of course, most people in big organizations don't know what's going on most of the time.

But when accurate information is available, those clumsy structures are no longer necessary--the reason for the current ravaging of corporate America's white-collar middle-management rank.

When the pace of change was slow, stability and predictability seemed like good things and made a chief executive's life far easier. But modern markets are so fiercely competitive that companies are forced to move decision making much closer to the customer. The computer industry, particularly the California industry, is pointing the way. Organizations are flat. Product generations are short--typically only six months. And companies are lean--for example, they buy as many of their product components from outside suppliers as possible.

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