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Saturday, December 09, 2006

Brand extension failures: Xerox Data Systems

More than copiers?

Xerox is one of the branding success stories of the 20th century. As with many other similar successes, the company didn’t just create a product, it invented a whole new category. Indeed, such is Xerox’s achievement that its brand name has become a part of everyday speech. In the United States, xerox is a verb, used when people are copying paper.

Chester Carlson was the man who started it all. In 1928, he invented plainpaper copying, a process he referred to as ‘xerography’ (a term based on the Greek words for ‘dry’ and ‘writing’). But it wasn’t until 1947 that ‘xerography’ became a business, as well as a technological, venture. That was when the New York-based Haloid Company met with Carlson and acquired the licence to develop a xerographic machine. One year later the words ‘Xerox’ and ‘xerography’ had been patented.

1949 saw the launch of the first ever Xerox machine, called simply Model A. A few years later the Haloid company had changed its name to Haloid Xerox and in 1959 it introduced the product which was to put Xerox on the map. The Xerox 914 was the first automatic plain-paper copier and, as such, attracted considerable media attention. Indeed, within months of its launch Fortune magazine was writing enthusiastically about this machine, which could make over seven copies a minute, and referred to it as ‘the most successful product ever marketed in America.’

Word spread about this amazing product, and very soon it was becoming an office essential. The company, rechristened the Xerox Corporation in 1961, was now listed on the New York Stock Exchange. By 1968, company sales rose to the US $1 billion mark. In 1969, Xerox became a majority shareholder of the European operation, Rank Xerox, and so the Xerox name was now a truly global brand.

The following year, the company strengthened its reputation as a technological innovator by setting up the Xerox Palo Alto Research Center, abbreviated as Xerox PARC. However, the research centre was also a testimony to Xerox’s broader ambitions. From 1970, the company expressed its desire to stretch beyond copying into the field of computer technology and data processing. In 1975 this desire became a reality with the launch of a computer product, Xerox Data Systems, which had been researched at Xerox PARC. It failed disastrously and Xerox lost US $85 million. Four years later though, the company was still determined to extend its brand beyond the copier market, this time with an early version of a fax machine called a Telecopier.

Another disastrous failure.

The problem wasn’t that Xerox’s brand name was too weak. On the contrary, the problem was that Xerox was a very strong brand name, but one associated almost exclusively with copier machines. Xerox wasn’t just a company that made photocopiers – it was photocopiers. It didn’t matter if the machine was made by Canon or Kodak, people still referred to it as a Xerox machine. Indeed, this was an impression enforced through Xerox’s own marketing efforts. Through much of the 1970s and 1980s Xerox ads used to pose the question: ‘How to tell the real Xerox from a Xerox copy?’ The implication was that if it wasn’t Xerox, it wasn’t the real thing. While this strategy helped to sell copiers, it meant that it was tied to that product category. After all, no one brand can claim to be the only genuine article in more than one category.

For years, Xerox had competed on the superior quality of its copier products. Then, when the company’s rivals had caught up, it competed on the superior quality of its brand. And as soon as a company makes the transition from a simple product manufacturer, to a global brand, it has to live with the consequences. It can’t just create a strong perception and then undermine that perception by embarking on other categories. As Al Ries memorably put it, ‘the difference between brands is not in the products, but in the product names. Or rather the perception of the names.’

However, Xerox didn’t give up. Instead, it tried to tackle the problem head on. For instance, in a magazine ad for Xerox Computer Services, the strap line read: ‘This is not about copiers.’ But of course, this only confirmed the impression that Xerox was about copiers.

During the 1980s, Xerox tried to reposition itself as a provider of all technology-based office products. At the start of the decade, the company launched a personal computer, or (as Xerox preferred to term it) an ‘information processor’. Again, there was nothing fundamentally wrong with the product, at least for the time. But again, the product failed. Similar failures occurred when Xerox tried to launch office networks such as the XTEN network and the Ethernet office network, which were designed to compete with IBM’s Satellite Business network. Both the Xerox networks failed to make an impression.

Despite its best efforts to be associated with office technology, the public remained stubbornly unwilling to think of Xerox in any terms other than office copier technology. Although the company had invested fortunes in creating office information systems, this was an area steadfastly linked to another technology brand – IBM.

So why, then, did Xerox persist in trying to reposition its brand during the 1980s? Part of the answer may lie in the company’s admiration for Japanese models of business. It had close links with Fuji, and had a unique insight into the Japanese management style. In Japan, brand extension was, and indeed remains, the norm, especially for technology companies. For instance, there are few areas of home entertainment where the Sony brand doesn’t dominate.

Yamaha is another example of successful brand extension. Although the company started producing pianos in the 19th century, it has not been tied down to musical instruments. After 60 years of piano-making, the Japanese company moved into various other product categories with very little difficulty. Think Yamaha and what do you think? Pianos? Organs? Motorbikes?

It is most likely that you think of all three. Other Western companies have also been influenced by the Japanese approach to branding. Take Virgin, for example. Richard Branson has been famous for criticizing brands such as Mars, which refuse to attach the name to other types of products.

What I call ‘Mars Syndrome’ infects every marketing department and advertising agency in the country. They think that brands only relate to products and that there is a limited amount of stretch that is possible.

They seem to have forgotten that no-one has a problem playing a Yamaha piano, having ridden a Yamaha motorbike that day, or listening to a Mitsubishi stereo in a Mitsubishi car, driving past a Mitsubishi bank.

However, among Western companies Xerox remains more typical than Virgin. Unlike Xerox, Virgin doesn’t risk brand dilution. As John Murphy, chairman of the international branding consultancy Interbrand once observed:

‘Unless they poison someone or start applying the brand to inappropriate products such as pension funds or photocopiers, I doubt whether the Virgin brand will ever be diluted.’

In 1996 Murphy had to eat his words when Virgin did start to move into pension funds. However, there is little sign that Virgin is about to compete with Xerox in the photocopier market. Even Richard Branson might have a problem reversing the intrinsic association the Xerox name has with the product it invented.

The simple fact is that most large brands are associated with one product or service offering. With Coca-Cola, it’s cola. With Levi’s, it’s blue jeans. With McDonald’s, it’s fast food. And with Xerox, it’s copiers. Xerox was never going to be a Virgin or a Yamaha, but it still kept trying. Recognizing this fact, brand expert Jack Trout, president of Trout and Partners, advised Xerox to concentrate on what it did best. Trout realized that Xerox could remain within the copier market and still be at the forefront of technology. The solution? Laser technology. As Trout has since written about the experience:

There I was, facing a room full of technical and marketing people who were dutifully executing the office automation strategy that had been in force for years. I was the designated outside messenger bringing the bad news that all their past efforts were in vain and they should focus on the lowly laser printer instead of their glorious office machines. This was not a popular message.

Indeed, Trout soon realized that Xerox believed the future lay in another direction:

To this day, 15 years later, I have a vivid memory of an interchange that ended this meeting. After listening to my impassioned plea about laser printing, an engineer in the back of the room stood up and said that laser printing was ‘old hat’. Xerox had seen the future and it was about to be ‘ion deposition’. I asked what that was. The reply was that it was a little hard to explain to a layperson, but it was going to be fast and cheap. My response went something like this, ‘When that happens, we can move to ionography, but for now let’s jump on the laser and lasography.'

So what happened? According to Trout, ‘the room went icy cold, the sale was lost, and another prediction was pursued that never happened.’

Indeed, the strategy which followed that disastrous meeting cost Xerox billions. Although the company now seems to accept its fate as a ‘copier brand’, it spent years exploring other, profitless avenues. As a result, competitors such as Canon and IBM have made serious inroads into the copier market, with their high-speed machines. However, providing Xerox can keep its focus on copiers and direct its technological ambitions towards this narrow, but still lucrative market, it could still dominate in the future.

Lessons from Xerox

  • It’s vital to know who you are. Xerox’s major mistake lay in trying to transform itself into an IBM-style ‘information business’. The rest of the world kept on viewing Xerox as a company which made photocopying machines.
  • Nobody knows the future. George Orwell’s novel 1984 tells us more about the period it was written in than the year 1984. Likewise, future business and technological predictions rarely come true. For instance, no-one predicted the rise of SMS text messaging on mobile phones. Xerox spent too much time and energy looking into a future which didn’t exist.
  • Brands are bigger than products. ‘The most valuable asset of the US $19.5 billion Xerox Corporation is the Xerox name itself,’ says Al Ries. That name, however, is exclusively and historically associated with copier machines. It doesn’t matter that Xerox PARC has come up with some of the most significant technological developments in computing, such as the invention of the mouse. All that matters is the association of the brand name in the consumer’s mind.

5 comments:

leec said...

"In 1975 this desire became a reality with the launch of a computer product, Xerox Data Systems, which had been researched at Xerox PARC. It failed disastrously and Xerox lost US $85 million."

XDS did not start as a result of research, or any other activity at PARC. Xerox bought Scientific Data Systems (SDS) in the late 1960s as an entree into the mainframe computing business. They rebranded SDS as XDS, but were never able to successfully compete against IBM or even become one of the Seven Dwarfs. XDS threw in the towel in August 1975.

Actually PARC refused to even use XDS technology. Instead they built DEC-10 clones from scratch, an expensive form of NIH.

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Terry Lipford said...

As "leec" said, Xerox Data Systems resulted from the purchase of Scientific Data Systems (SDS) in 1969. As a person who worked for SDS/XDS, I would like to also point out that the author completely missed the real reason why Xerox folded it's XDS tent - the gas crisis of 73/74 caused the financial industry to become cautious and they were loath to fund Xerox's desire to build a new facility in Texas. This fact made Xerox extremely cautious and they realized that since they were not going to be able to be one of the real computer industry powerhouses, that they should stick to what they do best.

takeshi007 said...

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