Tesla, the broken brand promise
When you start a company, you have a vision that it will be hugely successful and it’ll become the next [insert your role model company here]. But, as you work hard to get your product to the market, there are a million things you have to accomplish. Among them is defining your brand.
Brand, in the simplest of terms, is what people think or say about your company and product when you are not there with them. These people are either your customers or your detractors — or another group of people who have no clue about your brand.
Typically you’re trying to communicate who you are and what you can do for them. If you don't, the aforementioned groups will do it for you, along with the media (if they care enough about you to begin with). Your brand is something that you are constantly working very hard to grow in the minds of your customers. It carries a promise of value.
This brand promise was broken by Tesla when it discounted the price of its products.
I’ll say it again, since this might sound counterintuitive: by not raising the price of its product, and instead lowering it - Tesla’s brand took a hit.
In fact, this demonstrated the weakness of its brand, publicly. In the words of Warren Buffet:
“The single most important decision in evaluating a business is pricing power... If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.”
Through its CEO, Tesla framed itself as the luxury maker of the most advanced electric cars. It became the golden standard in innovation that, eventually, would be copied by others. It was a company which didn’t need to advertise because the waiting list for the car was longer than the best Michelin restaurant. (Side note: Michelin restaurants don’t have ‘happy hours’ to attract customers — they provide top quality dining experience without the coupon).
The discount was in direct contradiction to the statement made by Mr. Musk in September 2016:
“However, there can never - and I mean never - be a discount on a new car coming out of the factory in pristine condition".
To be fair, the quote continues with 'where there is no underlying rationale,' but that part never makes it to the headlines.
With Tesla’s discount, it introduced a new thing for a customer to ponder when purchasing a new electric car: Should I wait for the end of month or the quarter to get a better price? The discount significantly cuts into any profit margin on its cars and the cost material is going up, especially the ones that batteries require.
With the discount more uncomfortable questions will come to the forefront: Where is the self driving car? Where is the pickup truck? Where is everything else which was promised?
There is a tough road ahead for Tesla. It became just another electric car company that will compete on features and price, like everyone else. The cost of its dealership networks will become a competitive disadvantage. While being distracted by taking over Twitter, Tesla’s CEO has leveraged his stock — and that doesn’t help.
When you think about luxury car brands, do you think Mercedes, Porsche or BMW? Is Tesla among them? What car James Bond is driving? It ain't a Tesla. All these companies have electric cars. Better yet, they are established brands that have devoted drivers. Gone are the days where it mattered that Tesla built an advanced chip for image recognition or that its motors are extremely well engineered.
As a CTO of a company, you are tasked with building a product. The fact you know how to do that is a given. You have to know how the product is positioned in the market, what value it delivers, and what the brand promises. As a CMO, you are in charge of building the brand promise and sharing it with the market. As CEO, you have to enforce that brand promise across the organization — whether you’re a Fortune 500 company or a startup. That’s a non-negotiable recurrent pattern.