Philips’ simple, sharing solution may prove to be a digital triumph

Philips isn’t a brand you would instantly associate with the digital age, but its ‘Sense and Simplicity’ global brand campaign could change how it is viewed

It’s hard enough being a consumer in this category right now, but spare a thought for those responsible for bringing such wonders to market. You would need the wisdom of Job to correctly read the runes in this baffling cauldron of change. Consider some of the challenges.

â¢The rise of downloadable content (such as itunes), the consequent decline of traditional content packages such as the CD (and of the business models that surround them), and the rise of new business models, including buying content on subscription or “by the drink” – item by item.

â¢The shift from wire-based to wireless devices, and wireless connectivity between devices.

â¢The rise of digital television, including set-top boxes and high-definition TV (HDTV).

â¢Sectoral technology revolutions such as the move from cathode-ray tubes to flat screens, or from landline to mobile to internet telephony.

â¢Functional convergence in devices such as phones that take pictures and PCs that act as multi-media home entertainment systems.

â¢The need to make sense of all these trends individually and then work out how they fit together, with what timing, in which combinations, to add most value for consumers.

We’ve already seen just how risky this new terrain is. Look at the changing fortunes of brands such as Apple, Nokia, Samsung and Sony. Which raises a question: how important is branding in this intensely technology-driven environment? Does having the right brand strategy really matter?

One company that’s betting on branding is Philips, with its global brand campaign based on the theme of “Sense and Simplicity”. Philips is hardly a brand you would associate with the brave new world of digital convergence. Nevertheless, with this simplicity theme, chief executive Gerard Kleisterlee believes he could yet emerge triumphant. In a few years time, he predicts, “simplicity will be the new cool”.

Making dreams come true However, the nightmare is all-too realistic a prospect too. We would love to have all these things if they all really worked without hassle; if we didn’t have to worry about different technology standards, device incompatibility and so on.

At Philips, the man responsible for turning the simple brand dream into reality is consumer electronics chief executive Rudy Provoost. He admits that many people, both inside and outside the industry, have already written off traditional consumer electronics companies such as his, but, he argues, with the help of consumer-oriented notions such as simplicity, such companies can “reinvent” themselves. “Simplicity has to be the ‘string’ that ties consumer experiences together,” he says. “Delivering simplicity is not only about products and services, but also about the way the industry does its business”.

So what is Philips actually doing to deliver on the simplicity front?

“Agility” is one key theme. Over the past five years, Philips has outsourced or sold off many of its former “core” commodity production facilities, halving its consumer electronics workforce in the process. Provoost has an ugly word for this: “deverticialisation”. He says: “We are deconstructing the value chain. We don’t want to be taken hostage by our asset base.”

Instead, the company is focusing on a new “sharing and partnering” strategy. The idea: to focus internally on particular strengths in areas such as innovation and design and to partner with other companies able to complement these strengths.

An example is Philips’ new Streamium home entertainment system. This is an internet-linked wireless system that stores all your CDs on a hard-drive and enables you to wirelessly play one CD in one room and another CD in another, all from the same system. Here Philips has signed up with Yahoo! to make its content available too, including online radio.

Finding the perfect partner The other side of this coin, of course, is an army of new competitors. In the past, Provoost notes, Philips’ competitors were easy to identify: Panasonic, Samsung, Sony and so on. Today, they could be Microsoft, Apple or Hewlett-Packard, plus a host of up-and-coming Chinese manufacturers – each with very different strengths.

In response, Philips is embracing a strategy of “differentiated business models” designed to help it fight on whatever front necessary, whether it is innovation, price or distribution. Provoost has developed five such differentiated business models: “premier” innovation-driven businesses with high research and development spend and premium prices; “mainstream” or commodity businesses delivering high volume, economies of scale and market clout; “end-to-end” (driving supply chain and category management with major retailers) partner alliances (with broadcasters to drive take-up of HDTV), and “integrated marketing” for online initiatives.

But whatever the business model, they are all united under the brand umbrella of “Sense and Simplicity”. This winter, Philips will spend E60m (&£40m) promoting this brand platform. Meanwhile, simplicity is becoming a filter for everything the organisation does, claims Provoost. Not only consumer products, but supply chain relationships too.

Provoost can point to some early signs of success. Brand preference is up 80 per cent in some countries (where the brand was previously not well established). And in key markets such as the US costs are down and sales and profits are up.

So can Philips reinvent itself quick enough? It’s too early to tell. But one thing seems certain: in this complex, confusing environment a brand that really does make sense of the market for consumers while delivering all its potential benefits really will be triumphant.

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