Saturday 6 February 2010

The Value of the Brand

Brands – they impact upon our lives almost every moment of the day and they have become so ubiquitous that as consumers we take them for granted. When all is well they give us value and reassurance and they make us feel better. When they are really cherished by us they become almost like a member of the family – we like using them and being seen with them – and we even defend them to the hilt when they falter, just like a family member who slips from the straight and narrow. These are the towering brands that illuminate our society – the brands that “Saatchi and Saatchi” called “Lovemarks” – brands to which we are “loyal without reason” and which “deliver beyond your expectations” and “reach your heart as well as your mind, creating an intimate, emotional connection that you just can’t live without”

Saatchi’s language is flowery and passionate and corporate man – especially the ones who hold the budget allocations in their tight grasp – might think that it is all a bit too fluffy. “What’s your brand really worth – in hard dollars and cents?” the accountants often ask - as if the brand asset is like any other and can be measured in the open market or traded on Ebay. But they shouldn’t really need to ask because the hard evidence pops up from time to time. Would Kraft really have paid nearly $20billion for Cadbury Schweppes if it had just been factories they had been acquiring? Of course not – Kraft wanted Dairy Milk and Roses and Twirl and the dozens of other brands that add incremental value over and above their pure utility value - and therefore allow premium prices to be charged.

But for every brand success story, stories about products which became cherished brands because consumers were given and accepted reasons to prefer and even “love” them, there are dozens of stories of brands which fall from grace , lose their advantages and disappear. And it is not just about brand names – it’s about how a brand performs. “Delivery” in the modern jargon. Take Woolworths. Now there’s a brand that has created a distinctive market edge, offers quality products at competitive prices in well laid-out stores with friendly staff and with a distinctively excellent customer focus. Isn’t it? Well in South Africa it is and it is the polar opposite of the failed chain of stores with the same name in Britain. Of course brand names are important – but even the most valued names will lose their edge and even fail if insufficient thought goes into their management and insufficient investment into maintaining their edge. Woolworths in Britain became synonymous with shoddiness and confusion and it failed. Woolworths in South Africa offered more and delivered – and prospered.

Of all the many destructions of brand value that we have seen over the years few have been more shocking than that of Rover Cars. Those of us of a “certain age” remember when a Rover was the ultimate aspirational car for the successful professional man. In the mid 1960s there was no doubt at all that in Britain Rover was perceived of at least the equal of BMW, Mercedes or Audi - and probably ahead of them. This was for two main reasons. First the brand had a comfortable resonance and history as British and as standing for quality. Secondly the company actually began to deliver a range of cars which performed reassuringly well. And brand extension was also handled well – the Rover 2000, a superb family saloon, was utterly different from the countryman’s Land Rover – but each was at the top of its class and the parent brand was enhanced by having both in the family. Then disaster struck. Rover was subsumed into a huge unwieldy car-making conglomerate called British Leyland in 1967 and gradually decisions about Rover cars and the Rover brand were being taken in a totally different corporate context. And when the British Leyland colossus lost its way years later an attempt was made to try and wrench some residual brand value from the premium “Rover” name and the whole company, with its myriad of failing products, became the “Rover Group” – and that, of course, was the end for Rover as a distinctive up-market brand. Had Rover remained independent, had proper and focused investment in its products occurred and had the eye been kept on the target group who were Rover’s loyal customers surely Rover today could be up there with the great premium German car brands - one of the great missed opportunities of British industry. And all because they utterly failed to value the Rover brand, understand what it stood for and cherish it as much as their customers did.

The truly great brands withstand almost anything in the world around them and survive and even strengthen their appeal in tough times. But they can never stand still or be complacent – as the British Woolworths did. And they can never be expected to carry more on their shoulders than they are equipped to handle – the Rover story shows the perils of trying to make a premium brand into a generic. So in today’s complex and challenging business times what are the three golden rules for brand managers to follow?

1. Value your brand financially – but don’t be greedy

The oil company Shell had one of the strongest of all consumer brands around the world until comparatively recently. But underinvestment both in the brand and in the assets, especially petrol stations, caused the brand to slip and especially to concede ground to the highly professional marketing of the supermarket brands like Carrefour, Tesco and Sainsbury’s. This led to a vicious downward spiral in some markets where there was an unwillingness to invest which led to loss of share which led to lower financial returns and increased unit costs. One example of where this happened is Greece and Shell eventually decided to pull out of the retail business in that country entirely. Except that they didn’t – at least from the consumers’ perspective! The residual goodwill in the Shell brand, combined with the significant cost that would have been incurred by the assets’ purchaser Avin to re-image the 700 sites, persuaded Shell to license Avin to continue to use the Shell brand at a fee rumoured to be 7.5 million Euros per year (mirroring an earlier similar agreement struck between BP and Hellenic Petroleum).This is a deal which would have gladdened the hearts of the voracious accountants – you get the assets off the balance sheet, cut your costs completely and still have a nice little earner from your intangible asset the brand. The problem is, however, that Shell’s brand management in Greece has been contracted out to a third party which means that the petrol stations whilst they look like Shell are really Avin’s concern completely. Are they Shell or are they Avin – they can’t be both! It’s like pregnancy – you can’t be half pregnant and you can’t be half Shell.

2. Invest in the brand counter-cyclically

This hurts! When times are tough brand investment and expenditure are high up on the list of things that are vulnerable to budget cuts. It ought to be the other way round – when times are tough the confident brand will redouble its efforts to be preferred and to deliver more. The problem is that the accountants will often see brand expenditure as “discretionary” – that is if you cut the cost in the short term the business probably won’t suffer much and the bottom line will of course be improved. Over time your brand position will weaken, but with business cycles ever shorter and shorter it is tempting to just cut the costs. A Company that did not do this saw the benefits – DSG International, owner of the Dixons, Curry’s and PC World brands, reported an 8% rise in sales pre Christmas 2009 compared with the previous year – and this in the highly competitive consumer electronics market. These results are in part attributable to DSG's program of redesigning and modernising its Curry’s and PC World chains – in other words in investing in its brands at the key consumer interface.

3. Always allow your brand to be consumer driven

A design consultant I worked with closely back in the 1990s when I was responsible for the project management of the redesign of Shell’s global petrol station network used to say that we must always remember that great brands, including Shell, are owned not by the company but by the consumer. This is close to Saatchi’s idea of the “Lovemark” mentioned above. This is difficult for some executives to understand – clearly those responsible for passing the Shell brand to a third party to manage in Greece didn’t understand it – any more than the management of Rover and Woolworths in the UK did. But the idea is undisputedly true. Brands exist in the minds of consumers or not at all and the best brands are built from the inside out, based on real properties that consumers value and which can be sustained over time. But consumers change and competitors change and the world around us changes – all too rapidly sometimes. This means that our brands must respond and evolve and the only way that they can do this is if we regularly tap consumer needs, opinions and beliefs through research – and then act on what we find. Market Research is not “discretionary expenditure” either – although it is vulnerable to cuts in the short term just as brand expenditure is. The smart companies do more research when times are tough – not less. My guess is that DSG researched extensively before they came up with new design and layouts for their stores – and the results are clear to see.

Call to arms

It takes courage to be a brand advocate in your company and sometimes you will be seen as a nuisance if you are. Be a nuisance and always think what the competitors would least like you to do. The last thing that they want is a bold brand-driven strategy from a competitor when they are trying to meet cost-cutting targets. That alone is why you should do it! Good luck.

January 2010 © Minale Tattersfield

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