Brand Rescue of Clorox

Some blue-chip companies have adopted a longer view of brand management and are starting to show positive results. For example, Clorox, a leading consumer-packaged-goods firm, is ahead of the curve in its use of long-term metrics to steward its brand. Until the second quarter of 2005, the Clorox bleach product line was in a seemingly endless cycle of discounting. Almost once a month, the price of a 96-ounce bottle of regular Clorox bleach was reduced to $0.99 at retail—even cheaper than most bottled waters. The company had also reduced its advertising spending. From a short-term perspective, the promotions appeared to be quite profitable. Yet consumers learned to lie in wait for these deals, which increased short-term sales but decreased baseline sales.

In the midst of this, Stephen Garry, director of advanced analytics at Clorox, introduced long-term metrics to measure brand performance. The top chart in the exhibit “How Clorox Rescued Its Brand” depicts quarterly baseline sales for the brand and the projected incremental lift arising from promotions. Both measures are expressed as a percentage change from the corresponding quarter of the previous year to control for seasonal fluctuations in sales and to protect the company’s data.

How Clorox Rescued Its Brand

Garry found that before the third quarter of 2005, baseline sales were low (not depicted in the chart) and decreasing. Lift over baseline—which reflects price sensitivity—was extremely high (not depicted in the chart) and increasing. These numbers indicated weakness in the brand from the perspective of both sales and margins. In response, Garry initiated an effort to reverse this trend by reducing discounting and increasing television advertising. The changes, implemented in July 2005, are depicted in the middle chart of the exhibit.

As a result of the policy change, baseline sales increased dramatically and lift over baseline decreased. Consumers were no longer buying from promotion to promotion but were instead purchasing more volume at full price. These changes had a positive long-term effect on the company’s revenues and profits by increasing the brand’s quantity and price premiums.

As shown in the bottom chart of the exhibit, revenue (which was low before the policy change) eventually began to turn around as a result of the reduction in discounting. Clorox further indicated to us that profits, which continued to fall in the short term (the third and fourth quarters of 2005), rebounded sharply in the first and second quarters of 2006.

Note the implication for the analyst who typically focuses on short-term metrics such as quarterly revenue. In the third quarter of 2005, the analyst might have downgraded the brand as a result of revenue and profit decreases. Yet these short-term decreases reflect the time it takes for consumers to acclimate to the price changes and respond to the advertising. Clorox, with the foresight and temerity to monitor the attendant long-term changes in brand health, persevered with its strategy. The ensuing quarters yielded higher revenues and substantially increased gross profits. Without long-term brand-health measures, the analyst may have come to a misleading conclusion about the value of the brand or Clorox may not have realized the fruition of its strategy. Armed with long-term metrics, firms and analysts can assume a longer-term perspective on the brand, leading to improved profitability.

Brand management today is like driving a car by looking only a few feet ahead. The drivers can change direction rapidly, but they’re not necessarily on a path that will take them where they want to go. In the face of an increasingly fragmented media and powerful retailers, brand managers cannot afford to be steering their brands in the wrong direction. Mounting evidence suggests that a short-term orientation erodes a brand’s ability to compete in the marketplace. Accordingly, managers are well advised to refocus their attention on the basic principles that once made their brands ascendant.