Martha Stewart:
What's in a Name?

Amy O. J. Lum and Doman Lum

When a company's success or failure is literally intertwined with the name of the CEO, there can be danger ahead. Will Martha Stewart's Omnimedia beat the odds?

Amy O. J. Lum is a marketing consultant in San Francisco. Doman Lum is Professor Emeritus of Social Work at California State University in Sacramento.

Does an individual’s personal and legal crisis affect a brand when that person is synonymous with a product, as in the case of well-known businesswoman Martha Stewart? One might assume that because Martha Stewart was found guilty in a stock trading trial and is serving a jail sentence, her competitive advantage and ultimately her brand name would be damaged. However, a major negative impact upon the overall health of Martha Stewart Omnimedia (MSO) is debatable. Because MSO has a large cash reserve, no debt, and a record of success in new products, the company has been able to survive in the short term.

But when Martha Stewart is released from prison and home confinement and returns to her company, how will consumers react? Will consumer loyalty be sustained? (Editor’s Note: The answers may come sooner than we expected. NBC has announced that Stewart will star in an upcoming edition of “The Apprentice,” set to air in September. This means filming will begin when Stewart is still under house arrest.)

The most critical issues will be getting Stewart’s reputation restored, advertisers back, and contracts renewed. In retrospect, Stewart’s personality and products are linked with consumers’ trust in the brand and in the individual. This example forms the backdrop for an examination of issues surrounding personal branding and the impact on a firm and its shareholders when the individual associated with the brand faces a crisis.

Photo by Gary Zeigler

Brand Equity

A brand stands for a promise. It is a guarantee, and a reflection on a company’s founder, employees, mission statement, and values. According to the American Marketing Association, a brand is “a name, term, sign, symbol, or design, or a combination of them, intended to identify the goods and services of one seller to a group of sellers and to differentiate them from those of competition.”1 Brands play an important role to both consumers and firms.

For consumers, brands speed up the decision-making process when purchasing because of the reputation of the brand and past experiences with the brand. Brands also identify the source or maker of a product, and assign responsibility to that maker. A brand represents a pact between the consumer and the manufacturer. Consumers trust the reliability of the brand and are loyal to it, so long as the manufacturer continues to satisfy the consumer in terms of pricing, promotion, distribution, and quality. Also, for consumers, brands are a reflection of the consumer’s self-image. Brands symbolize a certain quality, status, or image that individuals want to project.

The essence and worthiness of a brand are measured by the brand equity. There are many definitions of brand equity, but the most accurate is “the set of associations and behaviors on the part of the brand’s customers, channel members, and parent corporation that permits the brand to earn greater volume or greater margins than it could without the brand name and that gives the brand a strong, sustainable and differentiated advantage over competitors.”2 The brand equity is the measure of the brand value and strength a brand has to compete with other products. Brand equity is important in all facets of branding.

Personal branding associates an individual with the brand and therefore depends on the perceived trustworthiness of the individual as well as the product to fulfill consumers’ needs and wants. Personal brands tend to get established more quickly since people are able to relate to the personality; however, they are also easy to tarnish because public perceptions of people are hard to manage. Public figures are constantly monitored and scrutinized in the celebrity spotlight. Personalities are cheered when they do something magnificent, but scorned when they do something wrong. Martha Stewart is a case in point.

The Martha Stewart brand has established itself as offering high quality, but more than that, a “Martha Stewart image” that can be achieved by using her products. The Martha Stewart brand is what ultimately sets her products apart from the rest and thus is the core competency of the products and of the company. It is Martha Stewart the person with whom people are enamored. With a brand so attached to a personality, and a consumer so attached to that personality, it is easy to see that if her image is compromised, there will be a direct impact on the company.

The Scandal

Personalities are cheered when they do something magnificent, but scorned when they do something wrong. Martha Stewart is a case in point.

After a long-term friendship and a history of sharing advice on purchases and trades of stock, Stewart and Sam Waksal, former chief executive officer of ImClone and former suitor of Stewart’s daughter, both tarnished their names with the ImClone stock. Both Stewart and Waksal bought ImClone stock in the hope that a new drug, Erbitux, would meet Food and Drug Administration (FDA) approval, making it a healthy investment.

On Dec. 27, 2001, Waksal tipped both his daughter and father to sell ImClone stock after he found out that the FDA did not approve the new drug. On the same day, Stewart received a phone call from Douglas Faneuil, her broker’s assistant at Merrill Lynch, saying that Waksal was selling his ImClone stock. Faneuil was instructed by broker Peter Bacanovic to make this call to Stewart and other privileged clients. Doing so, however, broke confidentiality rules regarding sharing of insider information. Given that Stewart had invested in 3,928 shares, Faneuil’s call would save her approximately $45,000. Based on that call, Stewart decided to sell all of her shares. On Dec. 28, 2001, ImClone publicly announced the rejection of Erbitux, and ImClone stocks closed 20 percent lower than the previous day. The SEC became involved on Jan. 7, 2002, questioning both Stewart and her broker, Peter Bacanovic.

Stewart claimed that she had a pre-existing agreement (done on Dec. 20, 2001) with Bacanovic to sell ImClone stock when it fell below $60. Unfortunately, there was no evidence that this had been entered into the Merrill Lynch computers or any formal record. Stewart’s case went to trial in early 2004. She was convicted that March of lying to investigators about information pertaining to her sale of ImClone stock.

Martha Stewart as a Case Study

Martha Stewart is an excellent example of the synonmity of a brand with an individual. Arguably the best-known brand name associated with a personality, the Martha Stewart name is associated with a range of home products, a television show, numerous books, and a magazine. Her personality, style, celebrity status, and standard for the very best are reflected in each element of the Martha Stewart brand. The “Martha style” is about simplicity, elegance, and perfection. Her company, Martha Stewart Omnimedia, has built its competitive advantage on her personality. Other home experts have emerged in the media—Barbara Smith and Chris Casson Madden, for example—but none has the name recognition of Martha Stewart.

Stewart, known for her famous slogan, “It’s a good thing,” admitted in an interview with Barbara Walters that the stock scandal was “not a good thing.” When crisis occurs for a celebrity personality who has literally invested herself in all aspects of her company and products, not only is the individual’s reputation harmed, but more importantly, there is additional risk for the stakeholders, for the reputation of the brand name, and for the very survival of the company. Knowing how to position a personality, then, is integral to the success or failure of a company.

Prepare for Crisis Management

Knowing how to position a personality, then, is integral to the success or failure of a company.

In the case of Martha Stewart, personal branding and the recovery of her company present an opportunity to consider the principles of crisis management. R. L. Heath and D. P. Millar define an organizational crisis in terms of the dynamics of the stakeholders: “A crisis is typically defined as an untimely but predictable event that has actual or potential consequences for stakeholders’ interests as well as the reputation of the organization suffering the crisis. That means a crisis can harm stakeholders and damage the organization’s relationship with them… The organization must respond in many ways to put the minds of its stakeholders at ease about the organization’s responsibility for creating or allowing the crisis to occur… The manner in which the organization addresses this responsibility serves as a turning point for it: Respond well and survive the crisis; respond poorly and suffer the death of the organization’s reputation and perhaps itself.”3

In the early brainstorming discussions of how best to handle crisis management, C. M. Seligman4 suggests that a company do the following:

• Sketch out worst-case scenarios of possible crisis situations and identify customer tiers that will be most affected.

• Prepare internal response strategies for each crisis scenario and prearrange such structures as a contingency production partnership, an employee hotline, and emergency vendor communication channels.

• Prepare a simple message (no more than four points) when a crisis hits: this is what happened, these are the people who were affected, this is what we did in response, and this is what we are doing to make sure it does not happen again.

Martha Stewart Omnimedia is indeed a case study of how a company should have responded to a crisis of proportion and charted its recovery. Below are some suggestions for next steps to take when planning for crisis management.

Establish an action plan.

Rather than fighting a visible court case, should Martha Stewart have assumed responsibility for her actions and offered an honest explanation with an apology?

Did Martha Stewart Omnimedia have a prescribed action plan for an organizational crisis? Rather than admit wrongdoing, Martha Stewart and her attorneys sought to justify her actions based on an agreement, of which there is no paper evidence, to sell her stock if it fell below a certain price. Their actions do not reflect a sound crisis management action plan.

D. Liss asserts that a company must have an action plan in place in advance of any crisis.5 It is too late after a crisis starts. There must be a crisis team, composed of the CEO and senior executives, public relations staff, media consultants, and legal counsel, that will:

• Identify the crisis spokesperson (ideally the CEO) who is believable and empathetic, and who has an immediate and clear plan of action. Spokespersons will receive specific training to work with media in the event of a crisis.

• Write a brief crisis manual to establish guidelines on what to do in the event of a crisis.

• Build a Web site with key information to be activated once the crisis hits.

• Set up an outside crisis phone system with toll-free numbers for the public to access information from the company.

• Be accountable to all employees and reassure them about their jobs; have alternate places to work and counseling available.

• Practice and update a crisis plan to keep it current, update relevant computer files, and conduct dry runs in front of cameras for company spokespersons to respond to hard journalistic questions.

Plan for crisis survival.

Rather than fighting a visible court case, should Martha Stewart have assumed responsibility for her actions and offered an honest explanation with an apology? M. Pearce6 recommends honesty, forthrightness, and

• acknowledging the situation at every turn, expressing your genuine concern about the situation, and pledging to become a part of the solution to the situation;

• developing a strategy for ensuring that the situation does not occur again;

• getting the facts out quickly and accurately; having a crisis communication team in place composed of your trusted employees, or retaining a public relations firm that specializes in crisis communication.

D. Crowther suggests a crisis communication kit that can be activated when communicating with the media.7 The kit would include such items as contact information for key officers and spokespersons; fact sheets on the company, each division, each physical location, and each product offered; profiles of key managers in the company; copies of company, division, and product logos, press release format, and the scanned-in signature of the CEO on disk; prewritten scripts answering key questions based on an analysis of the crisis scenario; and contact information for key analysts and media contacts in the financial press.

N.R. Augustine sets forth six stages of crisis management: avoid the crisis, prepare to manage the crisis, recognize the crisis, contain the crisis, resolve the crisis, and profit from the crisis.8 But his final advice underscores the virtue of crisis survival: “So by all means avoid involving your business in a crisis. But once you’re in one, accept it, manage it, and try to keep your vision focused on the long term. The bottom line of my own experience with crises can be summarized in just seven words: Tell the truth and tell it fast.”

Manage the organizational image.

She may reinvent herself and redefine herself in terms of a new Martha Stewart who has been introspective, learned about the morality of honesty and integrity, and emerged as a person with positive strengths to carry into the business world.

Has MSO sustained an effective image with its stakeholders? J. E. Massey states that image management evolves through three developmental phases: creation of an image with its stakeholders when an organization begins its operations; maintenance of an image as an ongoing process that requires communication with organizational stakeholders; and restoration of an organization after a crisis to restore a successful image in terms of a new identity, merger, name change, and other end results which move the organization back to the image creation stage.9 The goal is organizational legitimacy and congruence.

The concept of positionality serves as a theoretical basis for studying how Martha Stewart and those in similar predicaments may proceed in crisis situations. Positionality involves sorting out our multiple identities and establishing (or in this case, reestablishing) our position in relation to others. B. G. Reed, P. A. Newman, Z. E. Suarez, and E. A. Lewis set forth four guiding principles of positionality10:

• An inward process of self-examination and self-exploration and an outward process of understanding and situating one’s self in the world

• A dialogue between thinking and action, knowledge and experience, where there is a joining of critical reflection and an engagement that leads to involvement and commitment

• A different position involving a different standpoint from which one develops a level of awareness about one’s social (as well as economic and political) location

• A connection between positionality and worldview

In one sense, positionality is self-reflection on who you are, where you have come from, and where you are heading as a person. It is the continuous discovery of your place in life and your relationships with others with whom you live and work.11 It is an existential journey into yourself to find out who you are, and a simple declaration of your emerging self to others. Martha Stewart has probably engaged in this turning inward and is reportedly keeping a diary of her experiences and thoughts in prison. New York magazine reports that there is a book deal in the works which is worth more than $5 million.12 She may reinvent herself and redefine herself in terms of a new Martha Stewart who has been introspective, learned about the morality of honesty and integrity, and emerged as a person with positive strengths to carry into the business world.

The Outlook for MSO

Martha Stewart Omnimedia implemented a partial, incremental, crisis management strategy that consisted of removing visible images of Martha Stewart after her conviction. MSO took steps to move away from the Martha Stewart label by publishing the Everyday Food magazine and maintaining the television show, Pet-keeping with Marc Morrone. MSO has tried to maintain its audience through such moves as substituting the AskMartha syndicated column with advice about entertaining, gardening, crafts, and holiday planning from editors on the Martha Stewart Living magazine staff.

While Stewart is serving her sentence, MSO is staying competitive by maintaining the brand and keeping up with any changes in the market. Because there are many small competitors, they can all easily take a small piece of MSO’s market share during Stewart’s absence. This has been the fate of many strong brands perched at the top—suffering a decline after failing to adequately assess consumers, competitors, and market changes.

Still, many think that because of MSO’s infrastructure, its freedom from debt, and its $170 million of cash on hand, it will survive. Nevertheless, it is important that MSO continue to take active steps to restore itself. It appears that “The Apprentice” will be just the beginning. o

Endnotes

Click on the note number to return to the text.

1 K. Keller, Strategic Brand Management (Upper Saddle River, New Jersey: Prentice Hall, 2003).

2 Ibid.

3 R. L. Heath and D. P. Millar, “A Rhetorical Approach to Crisis Communication: Management, Communication Processes, and Strategic Responses,” Responding to Crisis: A Rhetorical Approach to Crisis Communication (Mahwah, New Jersey: Lawrence Erlbaum Associates, 2004), pp. 1-17.

4 C. M. Seligman, “Crisis Preparation Guidelines” (2002), pp 1-2. Retrieved from http://www.traversant.com:16080/company/10-25-2002.htm

5 D. Liss, “Fire Drill: Preparing for Crisis,” Brandhome (2002), pp. 1-9. Retrieved from http://www.brandchannel.com/features_effect.asp?pf_id=116

6 M. Pearce, “Crisis Management: Martha! Martha! Martha!” Esources (September 2002), pp.1-2.

7 D. Crowther, “7 Must-Have Elements in Every Crisis Communications Kit” (2004), pp. 1-2. Retrieved from http://www.globalprblogweek.com/archives/7_musthave_elements_.php

8 N. R. Augustine, “Managing the Crisis You Tried to Prevent,” Harvard Business Review on Crisis Management (Boston: Harvard Business School Press, 2000), pp. 1-31.

9 J. E. Massey, “Managing Organizational Images: Crisis Response and Legitimacy Restoration,” Responding to Crisis: A Rhetorical Approach to Crisis Communication (Mahwah, New Jersey: Lawrence Erlbaum Associates, 2004), pp. 233-246.

10 B. G. Reed, P. A. Newman, Z. E. Suarez, and E. A. Lewis, “Interpersonal Practice Beyond Diversity and Toward Social Justice: The Importance of Critical Consciousness,” Interpersonal Practice in Social Work: Promoting Competence and Social Justice (Boston: Allyn & Bacon, 1997), pp. 44-77.

11 D. Lum, “Social Context,” Culturally Competent Practice: A Framework for Understanding Diverse Groups and Justice Issues (Pacific Grove, CA: Brooks/Cole-Thomson Learning, 2003), pp. 34-60.

12 CNNMoney, “Report: Martha Plans Prison Book” (2004). Retrieved from http://money.cnn.com/2004/10/14/news/newsmakers/martha_book/