Brands are a company’s most valuable financial asset. They are the engine that drives the company. Yet too many chief executives don’t give brands the ongoing attention they demand and deserve. And only a small number have truly embraced the concept of brand asset management.
Many had strong branding strategies that may have become ineffective or obsolete in today’s environment of mergers and acquisitions, global marketing, and increased competition. Such neglect is surprising. Indeed, headline-making deals in recent years illustrate the bottom-line impact of building, protecting and maintaining strong brand assets.
After Cadbury Schweppes bought the Hires and Crush soft drink lines from Procter & Gamble for $220 million, the company explained that some $20 million was for physical assets, while the rest was for “brand value.” When Philip Morris acquired Kraft, the $12.9 billion purchase price was four times Kraft’s book value. Explaining the purchase premium, Philip Morris CEO Hamish Maxwell said: “The future of consumer goods marketing belongs to the companies with the strongest brands.”
The list goes on. Ford Motor paid $2.5 billion to acquire the prestigious Jaguar brand. And British conglomerate Grand Metropolitan offered $5.2 billion for Pillsbury: The price was 24 times the American company’s yearly earnings. Clearly, such high-profile Pillsbury brands as Hungry Jack, Haagen Dazs and Green Giant were the prize-not Pillsbury’s management team or manufacturing .
In the past, companies recognized the added value of brands as “goodwill” on the balance sheet, but they didn’t fully recognize the impact of brand equity on financial success. But today, there are potentially millions of dollars to be leveraged, legally protected and sold within a brand’s identity.
The upshot: An increasing number of companies are tapping the hidden wealth of their brands.
THE VALUE OF BRAND WORTH
What is the relationship between the management of brand-image assets and financial assets? The subject is so new that few understand how to value brands and how to leverage their full investment potential. We suggest that instead of trying to determine the price of assets, products and services, today’s managers should attempt to understand the more elusive concept of worth.
In a world ruled by mass production, standardization, and the parity of technology, the brand is the only remaining distinction between many products and services. It is the only feature of a product or service that can’t be duplicated. Moreover, the brand’s trade name and trade dress are among the few elements that can be owned and legally protected.
As Charles Newman, senior group manager of market research at Lever Brothers, once said, “You may buy a whole fleet of bakery trucks, but the branded stuff that goes inside is what drives it. A petroleum jelly factory is much more valuable if its output can be called “Vaseline.”
A few years ago, Castle & Cooke undertook an extensive research project to determine the “worth” of its well-known Dole brand. The company discovered that in consumers’ eyes, the brand connoted much more than pineapple products. Instead, it found the Dole brand suggests “sunshine foods.” The association enabled the company to extend its brand to many other product categories.
After having the Dole brand identity redesigned-changing the “0″ in “Dole” from a small pineapple crown to a vivid yellow sunburst-the company leveraged its brand into frozen desserts, dried fruits, snack nuts (a business Dole entered through its acquisition of Sun Giant in 1987), nonpineapple fruit juices and vegetables. Recognizing the power of its Dole brand, Castle & Cooke decided to market its name to investors as well and now calls itself “Dole.”
Unfortunately, Wall Street’s focus on short-term profits has resulted in the erosion of valuable brand franchises that enable companies to price their products and services at a premium. The foundation of long-term profitability-the brand-is being chipped away not by the competition, but by practices within the company itself.
One reason: Brand management is often relegated to MBAs fresh out of business school. (In fact, some marketing consultants suggest that MBA stands for “Murderer of Brand Assets.”) Others simply are not in a position to be heard by the top officers of their company.
To manage brand assets effectively, one must first understand the definition of a brand. First, a brand is a trust. To the public, it represents a company, and its products and services. Consumers select a brand because it communicates a perceived value.
A brand comprises many elements. These include its name, positioning (reason for being), trademark/trade dress (symbols, colors, typestyle, package configuration), and brand communications. These brand elements, when successfully developed and managed, create a strong identity for a company. Over time, this creates strong brand authority.
CEOs who want to develop a brand asset management plan must evaluate their strategic brand identity options as they would any other assets. There is no correct selection: For different companies, different approaches may be right for different reasons. What’s irrefutable, however, is how important it is that CEOs find the “right” branding strategy. After all, this is how a brand message is communicated to the public, both visually and verbally. The goal is to discover a strategy that parallels your organizational goals.
There are six major branding options (see chart in this story). For now, we’ll examine the two opposite ends of the pole in strategic branding options: the monolithic system and decentralized, autonomous branding.
This is the simplest form of corporate branding. Typically, this strategy is used by single-product or vertical-product companies such as Benetton, IBM, and Dole. While it is one of the most cost effective options available-and the one that builds strong brand authority quickest-it is not generally a popular choice among large conglomerates.
Mitsubishi, a Japanese multinational, is a prominent exception to that rule. Under one corporate banner, the “three diamonds,” Mitsubishi markets products ranging from mackerel to motor cars, tractors to television sets, and banks to plastics.
Usually a decentralized approach is the strategy of choice when companies acquire strong brands or divisions, and/or the CEO doesn’t want to assert corporate brand authority, either for brand equity or political reasons. Brand decentralization may also be the choice when brand managers, marketing and advertising directors, and outside advertising agencies are given an inordinate amount of branding power.
In many instances, however, there are good reasons to develop or retain a decentralized strategy. Nestle made a strategic decision to maintain a decentralized identity for the Stouffer’s and Beringer brands. Woolworth’s, too, opted for decentralization. The company positioned its specialty businesses in marketplace niches, reckoning that stores such as Lady Footlocker, Kids Mart, and Mathers (
But diversification is also the most expensive branding option. Companies such as American Home Products, Procter & Gamble, and Grand Metropolitan must support their individual products with large amounts of advertising. There is no advertising synergy; therefore, media campaigns across product lines are not cost effective.
THE BIG PICTURE
Armed with an understanding of branding options, a CEO might want to take a “macroscopic” look at how brands fit into a company’s overall strategy. In evaluating the big picture, it might be helpful to ask the following questions:
- What brands does your company own? This includes the parent company, divisions, branded products or services, and retail outlets.
- What are these brands worth, individually and collectively? Do they have extension, leveraging, or licensing potential? Does a single brand have enough equity to be spun off and sold?
- What brands are earning the best return on investment? Which brands are weaker and perhaps should be eliminated? Which brands have global potential?
- What relationship do the different brands (products/divisions/stores) have to each other and to the parent company? Are there cross-selling opportunities across brands?
- Are you protecting your brands against trademark infringement? Have you created unassailable brand identities, or will you be the target of lawsuits known as “knockoffs?”
- How are your brand assets being managed for future growth and profitability? Do you need to appoint a director of brand equity to prevent the erosion of your brand franchises?
LEVERAGING FOR SUCCESS
The answers to these questions may surprise you. Perhaps you’ll discover an identity option that better suits your company’s needs-one that is more globally oriented and cost-efficient, for example. Or perhaps you’ll find your brand name has different meanings in different languages. At the very least, you’ll likely uncover several missed opportunities.
To the horror of many executives, brand audits frequently show that their company has been “abusing” its brands-ignoring those that are strongest and lavishing money and attention on weaker ones. Or that it has abused the value of a brand name by applying a good brand with a high-quality image to lesser-quality products. This is the cardinal sin of brand equity management.
Below are some actions that typically follow the brand-evaluation process.
Selling/pruning of brand assets. If a company is lavishing money on brands with an unprofitable return on investment, then it might consider selling those brands. For example, a company with an overall 5 percent return on sales may have some brands with a 1 percent return and others with a 20 percent return. But while a lower-performing brand may not be earning profits for your company-or worse, draining funds that could he used elsewhere-it may have great potential for someone else.
Revitalizing a fading brand. Perhaps your brand analysis indicates that an old brand can be revitalized. Philip Morris’ Kraft subsidiary successfully did that not long ago with its 38-year-old Cheez Whiz brand.
The brand was sinking fast, with annual sales declining between 3 and 4 percent. But then the company repositioned the product as a cheese sauce for the microwave. The brand’s advertising budget was tripled to $6 million and sales subsequently surged 35 percent. Today, the brand continues to be a successful profit maker.
Extending a brand. In an effort to bypass the long odds and high cost of establishing a new brand-estimated at $50 million to $150 million-many companies have aggressively pursued brand extensions as a cure-all solution. But line or category brand extensions may or may not be the right strategy for your brands. A failed brand extension has the potential to drag down the primary brand with it.
Sometimes, launching a new brand is the better choice. ConAgra, for example, successfully marketed a line of frozen dinner entrees under the “Healthy Choice” banner instead of under its own name.
Licensing arrangements. For years, Pillsbury built equity in its blue trademark and Doughboy mascot but steadfastly refused to license its trademarks. But last year, it shifted gears and licensed both to a
In 1991, sales of licensed products in the
Joint ventures. For more than 46 years, Swiss-based Nestle has successfully managed its brand assets on an international scale. New brand names have used variations on familiar nomenclature. Names such as Nestea, Nescafe, and NesQuick have brought synergy and success to marketing and cross-selling efforts.
More recently, however, Nestle and other companies have used joint ventures to build brand equity and capture new markets. For example, Nestle and Coca-Cola joined to form Coca-Cola Nestle Refreshments; the entity will market products such as iced Nestea in single-serving bottles and cans. Coke-Nestle is a 50-50 venture: Coca-Cola has the bottling, canning and distributing facilities, while Nestle has the technology and brand asset.
It’s likely that more such marriages will follow as companies evaluate the impact and equity of their brands in global markets. Indeed, the possibilities are endless.
But one prerequisite is that CEOs take a hands-on approach to brand asset management. Only by opening up your organization’s vault of brand assets will you understand your company’s true net worth.
James M. Biggar is retired chairman of Nestle
Elinor Selame, president-elect of Package Design Council, and author of “The Company Image: Building Your Identity and Influence in the Marketplace,” is president of Boston-based Brand-Equity International.