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Sunday, August 14, 2011
HTC and Dr. Dre…or…The Importance of Branding
August 14, 2011
HTC and Dr. Dre…or…The Importance of Branding
On and off, I have talked about the importance of branding in these various posts. Not that I am obsessed with the subject matter, but I look at "brands" as a determining factor in maintaining gross profit margins during challenging economic times. When pressure exists to provide low-cost products at low prices, brand image can make a difference. As someone who really is not that involved in marketing on a daily basis, I find that branding sometimes explains the unexplainable. Often times, when there are circumstances or consequences that do not seem to make sense, there is the "Aha"-moment…it's because of the brand (or the lack thereof).
The importance of branding is evidently also valued by HTC, a Taiwanese manufacturer of Android-based smartphones, which on Thursday announced a $309 million investment in Beats Electronics (Beats) to acquire a 51% ownership stake. To give some background, Beats was founded in 2006 as a venture between Dr. Dre and James Iovine, Chairman of Interscope Records. A USA Today article dated August 12, 2011, gives the details of how the venture started. The main product that has sparked the interest of HTC is the high-end Beats by Dr. Dre headset, priced upwards of $150 to $350. Despite their size, the headphones have established themselves as cult objects and icons. HTC CEO, Peter Chou, made very clear that this deal is all about branding for him: "This strategic partnership with Beats also makes the HTC-experience cool."
Since the establishment of the venture, the Beats audio technology has been built into HP computers and according to USA Today, the 2012 Chrysler 300S will be equipped with the same technology come fall.
The interesting question is, would this have been a good deal for Apple and does Apple even care? In response to the first question, I am not convinced that the demographics of the target customer match. Is the iPhone user the same customer that purchases Beat by Dr. Dre headphones? I am going to venture a guess and say "No". So, does Apple care? Absolutely. Maybe not because Apple would have liked a piece of that deal, but have no doubt that any move by a rival company, with which they are currently in litigation (see Apple: Litigation as Business Strategy) remains ignored.
The move by HTC is aimed at gaining greater share in the global smartphone market, and building its brand image to reflect some of that "high-end", but hip flair, similar to what the iPhone has become associated with.… But it really is for a different customer. A brand archetype analysis would be very interesting. Without much investigation, I would classify the Apple iPhone brand under Creator (Core Desire: Creating something of enduring value; If it can be imagined it can be created") or Ruler ("Core Desire: Control; Power isn't everything, it is the only thing") [I could really see either one work] and the Beats headphones under Jester ("Core Desire: To live in the moment with full enjoyment. If I can't dance I don't want to be part of your revolution.").
For Apple this may have been attractive as a defensive move; nothing but pocket change for the organization. But can you imagine Steve Jobs negotiating with Dr. Dre and J. Iovine? Hard to say who would need whom more in this scenario and that would make the deal immediately unappealing to Mr. Jobs, who likes to feel needed and prefers to be in the driver's seat. [Nothing wrong with that.]Separately, headphones that size seem to completely go against the sleek and "mobile" design standards implemented in the development of the iPhone. [Personally, headphones that size go against everything I consider "mobile", but that's just me…I guess the importance of accessorizing must not be ignored in this case.]
For HTC, this move is supposed to bring new and different momentum. There are some smart business men behind the venture, and diversification away from headphones should yield long-term benefits and growth opportunities. Larry Dignan, ZDNet, has a point [loved the boldness] stating that it may be too late to bank on the relevance of music on smartphones for HTC. I am not sure that I agree that the deal is completely pointless. While the headphones were key to make the deal attractive given their success and brand creation, I am certain that there are already bigger and grander plans in the works. With the market becoming so intense and competitive, I actually consider this move creative and relatively low risk. But I am sure, some competitor action is being plotted as we speak to counteract HTC's position and latest move. Never boring in this space…
[On a side note, as I was writing this post I attempted to log on to the Beats Electronics Web site several times and got the following message: Server is too busy….Now you tell me, branding is not important!!!]