Philips must raise image to lift sales

The departure last week of Philips marketing chief Gerard Dufour was viewed as a major blow to the electronics giant’s global brand-building ambitions.

Dufour, brought in from ad agency Euro RSCG three years ago by chief executive Cor Boonstra, was charged with revitalising the Dutch multinational’s staid image and making inroads into the crucial US market.

He was also central to Boonstra’s efforts to transform Philips from a lumbering product-led conglomerate, with a reputation for failing to capitalise on its own innovations, into an agile and focused marketing company.

Insiders claim Dufour has left a solid platform for his successor to build on but, in reality, there is still a great deal of work to be done.

In the early Nineties, Philips was teetering on the edge of bankruptcy. Its research and development-led approach and policy of manufacturing in local markets left it trailing behind more nimble, market-focused Japanese rivals.

Despite being responsible for key innovations in consumer electronics – from the compact cassette to the compact disc – the company was hampered by a sprawling product range.

It was nursed back to financial health by former chairman Jan Timmer, who in 1996 handed over the reins to Boonstra – a marketing man who cut his teeth at Sarah Lee.

One of Boonstra’s first acts was to hire Dufour, and together the pair set about reshaping Philips.

As the chief executive hacked away at non-core business, culminating in the disposal of music arm PolyGram and the Philips Car Systems division, marketing chief Dufour trimmed the company’s global advertising roster from 40 agencies to two: Euro RSCG and DMB&B (now D’Arcy).

He also appointed brand champions in the five global territories – the Asia-Pacific, North America, Latin America, western Europe and eastern Europe – and initiated a research programme, involving 14,000 consumers in 17 countries, to put Philips in touch with its core markets – some would argue for the first time.

The company now has 227,000 employees worldwide, and last year achieved global sales of £34bn.

An insider says: “It is a completely different beast compared with ten years ago. There is a great deal more self-confidence. There is less cynicism – and the products have improved.”

Dufour’s departure – although a blow to the marketing department – is unlikely to deflect Boonstra from his aims. Dufour will not be replaced directly, his role being split between Ad Veenhof – who becomes chairman of the brand equity board – and Mark Kerray, who will take over the global brand management department.

Despite industry and press speculation, it seems Dufour’s resignation was prompted by genuine health problems. As one Philips insider put it dryly: “Dufour cares passionately about the company, but he doesn’t want to die for it.”

His legacy includes the much-derided “Let’s make things better” campaign, devised while he was still at Euro RSCG.

The catchline, which translates easily into different languages, was the platform for Philips’ recent £100m global marketing campaign. It has attracted criticism for being too vague and naively idealistic, with one Dutch ad executive recently commenting: “The slogan does not tell people why they should buy Phillips’ products.”

But while the “Let’s make things better” formula is perhaps not as “sensual” or “human” as Dufour has claimed, it is better than no formula at all – and Philips has no immediate plans to change it.

The company claims, with some justification, that the initiative has unified its brand message across a still diverse product portfolio, ranging from electric shavers to video recorders.

Philips has begun to make strides in sectors where its flair for innovation can flourish. Its share of the UK television market, for example, has doubled in the past five years, as it has successfully tapped into the widescreen TV boom. Although still nowhere near the major TV players such as Sony, Panasonic and JVC, which account for the bulk of the 4.7 million units sold annually, it is being taken seriously for the first time in years.

Philips is in third place in the widescreen sector, with a 16 per cent market share. Panasonic has 19 per cent and Sony 36 per cent, according to Euromonitor.

A source at one competitor comments: “Philips has read the market more accurately than most and it has been agile and aggressive in responding to trends. You have to give it credit for what it has achieved. Five years ago we would not have regarded Philips as a serious competitor.”

However, despite bold claims by Philips’ PR department, it still has a lot of ground to make up in the 18- to 24-year-old accessories market, which includes personal stereos and CD players. The sector is dominated by Sony, and Philips lags behind by 28 per cent in terms of market share, according to industry analyst GFK.

One UK retailer says: “Philips has some very innovative products but it needs to work on its supply chain and general understanding of retail.

“With recordable CDs, for example, the launch was delayed several times and, although the product was great, the company was unable to deliver in terms of stock. It may claim to have made strides in the youth market but it has not communicated this well, or demonstrated it in terms of product, apart from a few youth-oriented lines.”

The picture is brighter in the rest of Europe, where Philips has been more successful at lending its products a youthful sheen.

It is also a major player in the TV, VCR and camcorder markets, occupying first place in France and third place, behind Grundig and Sony, in Germany, according to Euromonitor.

An industry analyst says: “I think Philips has closed the gap on Sony in Europe. It is quite a sexy brand now with young people. Ten years ago it had a very dull image, but the products, and the design, has improved. It has closed the quality gap with Sony.”

But the real battleground is the US, where the name Philips was virtually unknown until recently. For historical reasons, it has traded under the Magnavox brand – a mid-market proposition which lacks the association with quality and innovation that Philips enjoys in Europe.

The US market accounted for just 17 per cent of Philips’ global turnover in 1998. And for the past few months of his tenure Dufour was based in New York, where he concentrated on pushing the Philips brand to US consumers.

The company now claims Philips is the second or third brand of choice in US electrical stores, but there is clearly some way to go.

The ace up Philips’ sleeve is, as always, product development. The company leads the way in a whole range of frontier technologies, from flatscreen hand-held organisers to Web TV. And it already has a strong presence in digital TV, DVD and recordable DVD, home networking, PC peripherals and telecoms.

The fact that this spirit of innovation is still not truly reflected in Philips’ brand image must be frustrating for Dufour’s successor.

Perhaps the time is right for the company’s marketers to start taking a few risks – and finally ditch that stolid, dependable image.