a discipline that forces the brand manager to focus on some rather important issues:
• What actually represents strength and value in our business – is it the brands?
• What is the relative importance of our brands compared to, let’s say, our physical assets?
• If a brand has a value, then it can be sold. What will be best for the business, selling a brand or continuing to invest in it?
• Valuing brands helps puts a price on licensing and royalties.
• The value of a brand is not based solely on today’s receipts but, as for any investment, also on tomorrow’s potential. The practice of valuing brands forces the business to regard those brands as investments over time, making quite clear the brand manager’s responsibility to build and sustain that investment, consistently.
(Remember this argument the next time the boss asks for a cut in the advertising budget!)
• Is the practice of branding more profitable than simply selling products and services?
profit margin of 18 per cent while the No 2 brand has an average of only 4 per cent. Remember that these are averages – many No 2 brands run at a loss. Not surprisingly, a good number of these No 2 brands have withdrawn from the game.
These figures suggest that in the food business at least, it is not branding per se that is profitable, but successful branding, and in this market that means being the brand leader. In other markets, there is still room for a multiplicity of brands, but being the biggest often helps.
Table 8.1 shows the average return on investment (ROI) assessed across 3,000 diverse UK businesses looking at how they stood based on market share (brand strength) and quality.
These figures alone are by no means conclusive but they suggest some truths that other pieces of evidence would give backing to – investing in brands to gain market share is as rewarding as investing in the product to improve quality, and if a good quality product also has a good brand standing, then it will be even more likely to return good profits. Strong brands tend to return good profits for a variety of reasons:
• Top brands command premium prices.
• Winning new customers is easier and so less costly.
Valuing the brand 쐽 69
Table 8.1 PIMS research on brands and ROI
Low Medium High
Quality Quality Quality
high market share 21.00 25.00 38.00
medium market share 14.00 20.00 27.00
low market share 7.00 13.00 20.00
• Good brands win customer loyalty, and loyal customers will cost less to retain and service.
• A strong brand gives negotiating power to the supplier.
• High market share gives you presence in the market, and that brings knowledge, and that allows vision, and that facilitates an ability to change (but only if you choose to learn).
• A good brand evidences a unique match between company capabilities and market needs – a good brand is therefore an expression of competitive advantage.
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Business strategy must come before brand strategy
Part II
Brand management – the strategy
Brands don’t come first. If they do, then you have the prospect of muddle at best, with incoherence and chaos the more likely result. If we remember the level of investment put into brands, then imagine the waste that can result from asking them to work in a business structure or culture that doesn’t suit.
Sometimes a successful brand in the wrong place can be as damaging as a flop; it can work as a brake to the business progressing in its chosen direction.
Business strategy must come first, and brands must fit within that context. For the world’s leading brands, brand management takes place in the boardroom.
Part II takes us through a process for the devel- opment and positioning of brands within the context of your business strategy. Not entirely
chronological; a lot must go on at once, and of course, if your brands exist already, you may need to do some backtracking.
The process, illustrated in Figure PII.1, sees a continual narrowing of the brand’s focus, funnelling down from the broad positioning based on the business strategy to the specific positioning based on benefits that establish a definition of value. This positioning is ‘experienced’ by the customer through a number of ‘brand interactions’.
The brand positioning process
Figure PII.1 The brand positioning process
the value context
business strategy segmentation capabilities brand architecture
brand interactions
broad positioning
specific positioning
total customer experience
Some brands fit… some don’t
In theory, defining the business strategy should come first, followed by the creation of the brands and the brand architecture to support that strategy.
In reality companies often have an existing portfolio of brands and find themselves scouting around for things to do with them. They are the ‘proud’ owners of excellent brands, but ones that can’t be made to work within their strategy.
Strategies for razor blades and pens
Gillette has long prospered with razors and blades, applying
‘high-tech’ innovations to global brands, but a business model that works for these brands has not worked so well with Parker, Papermate or Waterman, famous and worthy brands of pens that might prosper more in other hands…