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Sunday, September 24, 2017

The Economist: Brands and Branding
By Rita Clifton and John Simmons, Princeton, New Jersey, Bloomberg Press, 2004

(Page 2)

The brand is the most important and sustainable asset of any organization – whether a product- or service-based corporation or a not-for-profit concern – and it should be the central organizing principle behind every decision and every action. Any organization wanting to add value to day-to-day process and cost needs to think of itself as a brand.

 

The economic importance of brands
Certainly, all the hard economic evidence is there for the central importance of the brand. While the brand clearly belongs in the "intangible assets of an organization, this hardly makes its economic contribution and importance any less real. For example, the intangible element of the combined market capitalization of the FTSE 100 companies has increased to around 70%, compared with some 40% 20 years ago, and it is likely to grow even further as tangible distinctions between businesses become less sustainable. The brand element of that combined market value amounts to around one-third of the total, which confirms the brand as the most important single corporate asset. Globally, brands are estimated to account for approximately one-third of all wealth; and that is just looking at their commercial definition. Some of the world's most recognized and influential brands are, of course, those of not-for-profit organizations, such as Oxfam and the Red Cross. This is an aspect of "global brands all too rarely considered in the public debate about brands and branding.

 

From an investment perspective, the brand provides a more reliable and stable indicator of the future health of a business. Inspection of brand value, equity measures and audience relationships will give a more complete and realistic basis for underlying value that short-term financial results, which often reflect short-term priorities. A recent study by Harvard and South Carolina Universities compared the financial performance of the world's most valuable 100 brands with the average of the Morgan Stanley Capital Index and the Standard & Poor's 500. The dramatic difference in performance gives further quantified substance to what is qualitatively obvious. Strong brands mean more return, for less risk.

 

(page 5)

If brands are so demonstrably powerful, and since the definition and benefit of brands embrace every type of business and organization. The question to ask is why every business and organization would not want to concentrate their resource, structure and financial accountability around the most important asset. Indeed, there is a clear need for organizations to be consistently preoccupied with maintaining the sustainable competitive advantage offered by the brand. The clarity of focus that a strong brand positioning gives organizations will always create more effectiveness, efficiency and competitive advantage across all operations; and from a pragmatic financial perspective, research among investment communities confirms that clarity of strategy is one of the first criteria for judging companies.

 

So why are brands sometimes not taken as seriously as the data show us they should be? There seems to be several potential explanations.

 

Lack of understanding
Perhaps the first and most obvious is a lack of full understanding among some senior managers about what successful branding really is. If branding is treated as a cosmetic exercise only, and regarded merely as a new name/logo, stationery and possibly a new advertising campaign, then it will have only a superficial effect at best. Indeed, it this "cosmetic approach is applied in a n effort to make a bad or confused business look more attractive, it is easy to see why these so-called "rebranding exercises encourage such cynicism. Reputation is, after all, reality with a lag effect. Branding needs to start with a clear point of view on what an organization should be about and how it will deliver sustainable competitive advantage; then it is about organizing all product, service and corporate operation to deliver that. The visual (and verbal) elements of branding should, of course, then symbolize that difference, lodge it memorably in people's minds and protect it in law through the trade mark.

 

Terminology
The second explanation for why branding is sometimes not central in the corporate agenda seems to be to do with terminology. The term "brand has now permeated just about every aspect of society, and can be easily applied to utilities, charities, football teams and even government initiatives as it has been in the past to packaged goods. Yet there still seems to be a residual and stubborn belief that brands are relevant only to consumer goods and commerce. Clearly, this is nonsense when every organization has "consumers of some kind; furthermore, some of the world's most valuable brands are business to business, but that does not make them any less "consumers. However, rather than get deeply embroiled in the broader meanings of consumption, it is probably more helpful to talk about audiences for brands today. These can be consuming audiences, influencing audiences or internal audiences. All of the audiences need to be engaged by the brand – whether it is a product, service, corporate or not-for-profit brand – for it to fulfill its potential.

 

If there are still those who would say "yes, but why does it have to be called brand?, it is worth remembering that every successful business and organization needs to be set up and organized around a distinctive idea of some kind. To distinguish itself effectively and efficiently from other organizations, it is helpful to have some kind of shorthand: visual or verbal symbols, perhaps an icon that can be recognized and protected. To make up another term for all this would seem perverse, as branding is already in existence. Rather, it is worth exploring why some people and organizations might have this aversion or misunderstanding and tackle the root cause. In the case of some arts and charitable organizations, there can be a problem with commercial overtones; for commercial organizations working in the business-to-business arena, or in heavy or technical services, there may be concerns that branding feels too soft and intangible to be relevant. With the former, it is a harsh truth of the new arts and not-for-profit worlds that they are competing for talent, funding, supporters and audiences, and need to focus their efforts and investments with the effectiveness and efficiency that brand discipline brings. With the latter, there is nothing "soft about the financial value that strong branding brings, in all and any sector; nor is it "soft to use all possible competitive levers to gain every customer in a hypercompetitive international market. Price will always be a factor in choice. But acting like a commodity, rather than a trusted and differentiated brand, will eventually lead only to the lower-price road to perdition.

 

(page 7)

And as far as the need for CEO attention is concerned, if the brand is the most important organizational asset, it makes rational sense for it to be the central management preoccupation. Business strategy is, or should be, brand strategy, and vice versa. Effective and efficient corporate governance is brand-driven governance.

 

(page 13)

What is a brand?
Ancient and modern
The Oxford American Dictionary (1980) contains the following definition:

 

Brand (noun): a trade mark, good of a particular make: a mark of identification made with a hot iron, the iron used for this; a piece of burning or charred wood, (verb): to mark with a hot iron, or to label with a trade mark.

 

Similarly, The Pocket Oxford Dictionary of Current English (1934) says:

 

Brand. 1. n. Piece of burning or smoldering wood, torch, (literary); sword (poet.);iron stamp used red-hot to leave an indelible mark, mark left by it, stigma, trade-mark, particular kind of goods (all of the best bb.). 2. v.t. Stamp (mark, object, skin),with b., impress indelibly (is branded on my memory)

 

These two entries, in the order in which they list the definitions and in the definitions themselves, illustrate how, over 50 years, the primary use of the word "brand now has a commercial application. However, the definitions also underline a common origin. Almost irrespective of how the word is used today, it has always meant, in its passive form, the object by which an impression is formed, and in its active form, the process of forming this impression.

 

The world has changed. There are far more choices, but there is less and less time to sort them out.

 

(page 16)

But the name is the most important element of the brand as its use in language provides a universal reference point.

 

(page 17)

Creating an indelible impression
In developed economies consumers have an astonishing – often bewildering – array of choice. There are, for example, dozens of car manufacturers, hundreds of car models, and thousands of different vehicle specifications to choose from; the days when Henry Ford offered "any color you want as long as it's black are now long gone. This diversity of choice puts pressure on those making or selling products or services to offer high quality, excellent value and wide availability. It also puts pressure on them to find more potent ways of differentiating themselves and securing a competitive advantage. According for Fortune magazine (in 1997):

In the twenty-first century, branding ultimately will be the only unique differentiator between companies. Brand Equity is now a key asset.

 

(page 27)

Brand valuation

If this business were split up, I would give you the land and bricks and mortar, and I would take the brands and trade marks, and I would fare better than you.


John Stuart, chairman of Quaker (ca. 1900)

 

 

 

It's about brands and brand building and consumer relationships…Recapitalized, brand owning companies can earn huge returns on their capital and grow faster, unencumbered by factories and masses of manual workers. Those are the things that the stock market rewards with high price/earnings ratios.

 

John Akasie, in Forbes magazine, (July 17, 2000, pp 30-34)

(page 43)

As global competition becomes tougher and many competitive advantages, such as technology, become more short-lived, the brand's contribution to shareholder value will increase. The brand is one of the few assets that can provide long-term competitive advantage.

 

(page 50)

But it is more constructive to examine how brands affect the process of innovation, which can lead directly to better social outcomes. In doing so, it is important to remember that the brand, not the company or its investors, is the essential component. Without a brand, companies would not risk innovating, since they would not be able to associate new products and services with their own efforts and investments, and would therefore not be able to capture the benefits of innovation.

 

(page 67)

1. Most leading brands are American. Of the 20 leading brands, 15 are American. Does this mean that although a leading brand can originate from anywhere, the United States is better at the practice of branding than other countries? Its dominance of the list of leading brands may be attributed to the nature of American society. Its entrepreneurial culture recognizes the rewards those successful in business, and encourages risk-taking and the kind of innovation that produces the big idea from which a leading brand may develop. In effect, the United States has an established and natural incubator for business innovation rooted in the core purpose and values of the country.

 

(page 68)

If differentiation is the goal, branding is the process.

 

(page 73)

IBM is an example of a great brand bouncing back. The company dominated the mainframe computer market but was outflanked in the personal computer age by companies such as Compaq and Dell. It has since reinvented itself as an IT services provider. It was a high-risk strategy and a challenging journey, during which IBM invented and pioneered large-scale brand management. It centralized brand strategy and focused the marketing spend for overall leverage. It used the brand as a central management tool to drive behavior internally and communicate consistently. It provided enough flexibility to be nimble in the fast-moving technologies segments but maintained control and discipline to ensure integrity. Brand equity was measured to gauge performance and ensure a brand-driven culture, which would never again take the customer for granted.

 

As a result, IBM has become the largest IT service provide in the world, and the brand communicates both innovation and reliability.

 

(page 74)

The three attributes of the great brands: Built from a great idea; Holds true to core purpose and values; Employs brand as the central organizing principle.

 

(page 86)

For example, if you were seeking to define a brand for a company that provides business software, you could begin a discussion the three ways, each of which would elicit a different response. You could ask people to describe their uses and perceptions of office tools today, and to explain where they think these tools are lacking. You could enquire about the tasks they do at work, the tools they have to help them perform those tasks and what they think will be available in the future. Or you could ask them what makes them feel engaged or confident at work.