Rebuilding the 'Martha Stewart' Brand

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Case Details:

Case Code : MKTG133
Case Length : 16 Pages
Period : 2001-2006
Organization : - Martha Stewart Living Omnimedia
Pub Date : 2006
Teaching Note : Available
Countries : USA
Industry : Media, Entertainment, and Gaming

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Capitalising on the chronic insecurity of Americans in matters of taste, she (Martha Stewart) branded herself the ultimate authority on perfect living."

- The Economist in 2002. 1

"The case against Martha Stewart has to be seen against the background of the financial scandals of the last three or four years, and the public perception that the guilty parties are not being brought to justice. I think prosecutors in this case saw Martha Stewart as an opportunity to demonstrate that they are bringing people to justice, and it doesn't matter if they are prominent or influential or not."

- Lawrence White, professor of economics at Stern School of Business in New York, in 2004 2

"Many, many good people . . . have gone to prison - look at Nelson Mandela."

- Martha Stewart, founder of Martha Stewart Living Omnimedia, in 2004 3

The Long Road To Revival

In early 2006, Martha Stewart Living Omnimedia (MSO), a prominent media and lifestyle company in the United States (US), announced its earnings for the last quarter of 2005.

The company had a reason to feel pleased with the results, as after a string of losses, it had finally managed to post a profit that quarter.

MSO made a profit of $3 million4 in the fourth quarter of 2005, a significant improvement over the $7.1 million loss it made in the corresponding quarter of 2004.

Revenue also increased from $60.2 million to $84 million during the same period. Talking about the company's improved performance, Susan Lyne (Lyne), MSO's president and CEO said, "The results for the quarter show meaningful improvement in all areas of our business. Results outpaced expectations in every segment." 5

The company's positive performance was attributed to improved advertising revenues, which had increased 133 percent in that quarter.

This, in turn, was driven by the aggressive brand rebuilding exercise that Martha Stewart (Stewart), MSO's founder and former chairman and CEO, had embarked on after she was released from prison in early 2005.

(Stewart was jailed for five months at a federal prison for lying to federal investigators, in connection with her involvement in a dubious stock sale.)

However, MSO's satisfaction was short-lived. When the company announced its first quarter 2006 results, MSO was back in the red. After it posted a profit in the last quarter of 2005, Wall Street analysts had predicted the company's return to profitability by the end of 2006. However, the $6.84 million loss on revenues of $61.8 million in the first quarter of 2006 seemed to put paid to their expectations.

MSO's financial troubles had begun in 2002, when Stewart became embroiled in legal problems related to the sale of her shares in the biopharmaceutical company Imclone Systems Incorporated (Imclone). MSO, which was heavily dependent on its founder's image, suffered when advertisers, wary of associating themselves with a tainted brand, shunned it.

After Stewart was convicted in early 2004, some of the more pessimistic observers even predicted the end of MSO. At the time, in an effort to get over its troubles, the company started taking steps to distance itself from Stewart's image.

However, MSO later made a dramatic about-turn and started promoting the Martha Stewart brand vigorously. Although by early 2006 the company had recovered from the lows of 2003 and 2004, it was far from certain whether the Martha Stewart brand would regain enough of its former cachet to ensure financial stability for the company, and attractive returns for its shareholders.

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1] "Cooking Martha's Goose," The Economist, September 12, 2002.
2] Janet Ball, "Martha Stewart pays price of fame,", March 5, 2004.
3] Marcus Wareen, "Stewart Makes Herself at Home in Prison," The Daily Telegraph, October 9, 2004.
4] Dollars ($) refer to US dollars in this case study.


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