At Sara Lee, we had this brand called L'Eggs. A pair of pantyhose that came inside of an egg that was sold in the grocery store - just a great brand.
“Nothing beats a great pair of L'Eggs.”
It was a 500 million dollar brand in the 80s with an interesting concept. You could buy your pantyhose in a grocery store. The folks at the Price Club came to us and said, ”We’d really love to put your brand in our stores. We think we could sell a lot of it.” We said, “Well, you know we're really protective of our brand and we're not gonna drop the price.” They agreed. Then we inquired, “How many pairs do you think you can sell?”
The buyer wrote down a number on a yellow pad and said, “Before I shove this pad across the table, I want you to know that this is not what we think we can sell. This is a commitment for a solid order,” and slowly pushed the pad across.
I had to change my underpants! It was just a humongous number. We said, “You understand, there is no discount on this, you're gonna buy at full price.” “I completely understand,” the buyer replied.
We were over the moon. We ran up the order. We all went out to lunch to celebrate.
Then we stopped and thought, “How are we going to make all this stuff?” It was clear that the only way we could make it was to expand our production capability. We built this huge edition on to the factory, hired a ton of people and started training them. Pantyhose production is mostly automated, where the knitting machines do a lot of the work, but there is some sewing involved, and there's packaging. Everything was great. The chamber of commerce congratulated us on what great citizens we were. We were expanding the community, hiring people, increasing the tax base - the greatest people in the world.
Sales were going well and our customer was moving through their inventory.
Then at the beginning of the next year, we go to our meeting with the customer. We say, “We wanna talk to you about a price increase.” They say, “Well, that great because we'd like to talk to you about the price, too!”
We put on our poor mouth act, “Nylon has gone up, packaging has increased, transportation costs have increased, but because you're such a good customer were gonna limit you to a 5% increase in price.”
So the guy looks at us - he's quiet for a while. Then he takes out his yellow pad, writes down a number, and slides it across the table. “This is the price that I'm willing to pay.” It was a 10% decrease.
We pleaded, “Oh, you don’t understand, all these costs have gone up.” But he coldly responded, “That is the price I'm willing to pay or I’m willing to walk away and go to your competitor.”
So we told him about this factory that we've built and all this equipment that we have to run, and how we've got all these people that we've hired that we have to take care of, and suggested we split the difference and tried to get 5% decrease only. But they wouldn't budge.
The executives in the company, who all get paid on revenue, said, “Screw this. I'm getting my bonus. Take the deal!” So, we take the deal. We make less money, the margins in pantyhose were good, close to 44% at the time. So, were still making good money for a while.
But year by year they would come to us and ask for a lower and lower price. Eventually, we said, “We can't do it. The cost of nylon has gone up!” And they said, “We thought you might say that. We talked to the people you purchase nylon from, your supplier, and negotiated a price for your nylon.” They knew our costs better than we did.
Then they said, “The problem is this damn egg. This egg is adding no value to this brand. If you take the egg away and put it in a pouch, then it will be a lot cheaper.” Then the next year, “The problem is you’re spending all this money on advertising. If you didn’t spend this money on advertising, you could sell the product for a lot less money!”
Little by little they chipped away at the brand to the point that they turned it into a commodity. Rather than being a branded egg that sold in a grocery store it was an undifferentiated watered down version of the original product in a plastic pouch.
If you go to Winston-Salem today you ‘ll see this huge empty factory, 1500 people were laid off, and you won't see any advertising, you won't see any brand.
Like most stories of brand killers, greedy people think they can water their brand down just a little. But when you start putting too much water in the whiskey, at some point it's not whiskey anymore. You can never get that water out and nobody wants to buy it.
About The Author
Edward M. Tashjian - CMO / Branding / Story Teller
Ed has extensive marketing experience at senior levels—in premier packaged goods companies, high growth retail and B2B businesses on major brands, licensed products, warehouse clubs and new ventures. His deep base of industry knowledge, channels and resources for realizing opportunities and solving problems provide quick results for most clients.