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Obstacles to the implications of branding


Obstacles to the implications of branding

Within the same company, brand policy often conflicts with other policies. As these are unwritten and implicit, they may seem innocuous, when in fact they are a hindrance to a true brand policy.

Current corporate accounting, as such, disnature towards brands. Accounting misruled by the prudence principle: consequently, any outlay for which payback is uncertain is counted as an expense rather than valued as an asset. This is the case of investments made in communications in order to inform the general public about the brand’s identity.

Because it is impossible to measure exactly what share of the annual communications budget generates returns immediately, or within a specified number of years, the whole sum is taken as an operating expense which is subtracted from the financial year’s profits. Yet advertising, like investments in machinery, talented staff andR&D, also helps build brand capital.

Accounting thus creates a bias that handicaps brand companies because it projects an undervalued image of them. Take the case of company A, which invests heavily to develop the awareness and renown of its brand name. Having to write off this investment as an expense results in low annual profits and as mall asset value on the balance sheet.

This usually occurs during a critical period in the company’s growth, when it could actually use some help from outside investors and bankers. Now compare A to company B, which invests the same amounts in machines and production and nothing whatsoever in either name, image or renown. As it is allowed to value these tangible investments as fixed assets and to depreciate them gradually over several years, B can announce higher profit sand its balance sheet, displaying bigger assets, will project a more flattering image. B will thus look better in terms of accounting, when, in fact, A is in a better position to differentiate its products.

The principle of annual accounting also hinders brand policy. Every product manager is judged on his yearly results and on the net contribution generated by his product. This leads to ‘short-term ism’ in decision making:those decisions which produce fast, measurable results are favored over those that build up brand capital, slowly no doubt, but more reliably in the long term.

Moreover, product-based accounting discourages product managers from putting out any additional advertising effort that would serve essentially to bolster the brand as a whole, when the latter serves as an umbrella and sign for other products. Managers thus only focus on one thing: any new expenditure in the general interest will be charged to their own account statement. For example, Palmolive isa brand covering several products: liquid detergent, shampoo, shaving cream, etc.

The brand could decide to communicate only one of these products singled out as a prominent image leader, capitalizing on image spillover reciprocal effects (Balachander, 2003). But the investment made would certainly be higher than could be justified solely by the sales forecast of that product. This new expenditure will in fact always be on the given product, even though its ultimate purpose is to collectively benefit all products under the umbrella brand.

In order to react against the short-term bias caused by accounting practices and the underestimation of (corporate) value as shown in the balance sheets, some British companies have begun to list their own brands as asset son their balance sheets. This has triggered discussion on the fundamental validity of accounting practices that emerged in the ‘age of commodities’, when the essential part of capital consisted of real estate and equipment.

Today, on the contrary, intangible assets(know-how, patents, reputation) are what make the difference in the long run. Beyond the need for an open debate in Europe and the United States on how to capitalize brands, it has become just as important to find a way for companies to account for the long-term pro sand cons of short-term brand decisions in their books. It is all the more compelling as brand decision-makers themselves rotate often, perhaps too often.

Even the way in which the various types of communication agencies are organized fails to comply with the requirements of sound brand policy. Even if an advertising agency has its own network of partner companies – in charge of proximity marketing, CRM, e-business and so on – and can thus promote itself as an integrated communications group, it remains the crux of the network. Furthermore, advertising agencies think only in terms of campaigns, operating in a short, one-year time frame. Brand policy is different:it develops over a long period and requires that all means be considered at once, in a fully integrated way.

It is clear that a company rarely finds contacts inside so-called communications groups who are actually in charge of strategic thinking and of providing overall recommendations rather than merely focusing on advertising or on the necessity to sell campaigns. Moreover, advertising agencies are not in apposition to address strategic issues, such as what should be the optimal number of brands in a portfolio.

As these affect the survival of the brands that are under their advertising responsibility, the agencies find themselves in the awkward position of being judge and jury. That is why a new profession has been created: strategic brand management consulting. The time had indeed come for companies to meet professionals with a midterm vision who are capable of providing consistent, integrated guidelines for the development of brand portfolios without focusing on one single technique.

A high personnel turnover disrupts the continuity brand needs. Yet companies today actually plan for their personnel to rotate on different brands! Thus, brands are often entrusted to young graduates with impressive degrees but little experience and the promotion they expect often consists of being assigned to yet another brand! Thus, product managers must achieve visible results in the short term. This helps to explain why there are so many changes in advertising strategy and implementation as well as in decisions on brand extension, promotion or discounts. These are in fact caused by changes in personnel.

It is significant that brands that have maintained continuous and homogeneous image belong to companies with stable brand decision makers. This is the case for luxury brands: the long-lasting presence of the creator or founder allows for sound, long-term management. The same is true of major retailers where senior managers often handle the communication themselves or at least make the final decisions. As a means to alleviate the effects of excessive brand manager rotation, companies aim not only at incorporating brand value into their accounts, but also at creating a long-term brand image charter. The latter represents both a vital safeguard and an instrument of continuity.

Business organization is sometimes an obstacle to building the brand. In 2001, thevery high-profile Toshiba Corporation created new and hitherto non-existent vice-president post: VP Brand. Significantly, the appointee was the existing VP of Research and Development. The fact that the world number one in laptops and a major player in the television, hi-fi and lo-fi sectors should create such a post demonstrates a strong awareness of an unfilled gap. Toshiba’s products are undeniably excellent, and until now this has been the key to the success of Japanese companies in general, and Toshiba in particular. This is a company that enjoys dominant position in a sector as cut-throat as the laptop industry. So what was it missing?

Worldwide studies had revealed that there was no ‘magic’ to the Toshiba brand. It could be compared to a colleague at the office whom you would regularly consult for advice, but would never invite home for dinner. It was brand based on a single pillar: there was astrong rational component, but little by way of emotional appeal, intangible values and‘magic’. In short, it was no Sony, and could not command Sony’s higher margins.

Accompany can become a leader in the Toshiba mould through excellent products and prices, or a leader like Dell by dint of a distribution system with levels of efficiency that remain head and shoulders above any (known)competitor. But since the effect of competitions to erode perceived difference, other instruments are needed to attract customers and keep them loyal; to ensure that they remain customers of the brand. This desire is based on the need for security, and on intangible factors.

Up until 2001, there was no management of the Toshiba brand. The company’s organization was based on a branched structure, and thus no one was responsible for the crosscompanyresource that is the brand. The medical branch had one view of Toshiba, while the computer branch had another, and so on. There was no coordination or global brand platform, to say nothing of joint promotions between branches, of course. Horizontal initiatives (such as sponsorship)were rare, and commercial necessity dictated that the power lay with the distribution subsidiaries: the name of the game was to sell imported products, not to build a brand reputation. Local managers’ remuneration packages were calculated on sales, not brand equity.

Another syndrome pertains to the relationship between production and sales. In theElectrolux group, for instance, production units are specialized according to product. Both mono-product and multi-market, they sell their product to the sales units who are, on the contrary, mono-market and multi product(grouped under an umbrella brand).

The problem is that these autonomous sales divisions, who each have their own brand, all want to benefit from the latest product innovation so as to maximize their division’turnover. What is missing is a structure for managing and allocating innovations in accordance with a consistent and global vision of the brand portfolio. As we will see later, there is no point in entrusting a strong innovation to a weak brand. Moreover, this undermines the very basis of the brand concept: differentiation.

Lastly, if words mean anything at all, communications managers should have the power to prevent actions that go against the brand’s interest. Thus, Philips never succeeded in fully taking advantage of its former brand baseline: ‘Philips, tomorrow is already here’. In order to do so, they would have needed to ban all advertising on batteries or electric light bulbs that either trivialized the assertion, contradicted it, or reduced it to mere advertising hype. It would also have been possible to communicate only about future bulb types rather than about the best current sales.

Unfortunately, nobody in the organization had the power (or the desire) to impose these kinds of constraints. When the Whirlpool brand appeared, however, the managers from Philips actually created the organization they needed for implementing a real brand policy:as it was directly linked to general management, the communications department was able to ensure the optimal circumstances for launching the Whirlpool brand, by banning over a three-year period any communication about a commonplace product or even a best-selling product.

Failing to manage innovations has a very negative impact on brand equity. Even though salespeople go up in arms when they are not given the responsibility of a strong innovation, it is a mistake to assign the latter to a weak brand, especially in multi-brand groups. When dealing with a weak brand, attractive pricing must indeed be offered to distributors as an incentive to include the latter in their reference listing. But since the brand’s consumers do not expect this innovation(each brand defines its type and level of consumer expectations), the product turnover is insufficient.

As for the non-buyers, such a brand is not reassuring. If the innovation is launched a few weeks later under leading brand name, distributors will refuse to pay for the price premium due to a leader because they purchased it at a lower price just while back from the same company. Thus, even with the strong brand, the sales price eventually has to be cut.

Breeding many strong brands, l’Oréal allocate sits inventions to its various businesses according to brand potency. Innovation isthmus first entrusted to prestigious brands sold in selective channels as the products’ high prices will help cancel out the high research cost incurred. Thus, liposomes were firstcommercialised by Lancôme, the new sun filter Mexoryl SX by Vichy. Innovation is then diffused to the other channels and eventually to the large retailers. By then, the selective channel brands are already likely to have launched another differentiating novelty.

However, this process is affected by the fact that innovation is not exclusively owned by any one company; it quickly spreads to competitors, which calls for immediate reaction.

Along the same lines, when a producer supplies a distributor’s brand with the same product it sells under its own brand, it will eventually erode its brand equity and, more generally, the very respectability of the concept of a brand. This simply means that what customers pay more for in a brand is the name and nothing else. When the brand is dissociated from the product it enhances and represents, it becomes merely superficial and artificial, devoid of any rational legitimacy.

Ultimately, companies pay a price for this as sales decrease and distributors seize the opportunity to declare in their advertising that national brands alienate consumers, but that consumers can resist by purchasing distributors’own-brands. This also justifies the sluggishness of public authorities regarding the increasing amount of counterfeit products among distributors’ own-brands. Finally, such practices foster a false collective understanding of what brands are, even among opinion leaders, which contributes to therumour that nowadays all products are just the same!

Strategic Brand Management Related Practice Tests

Strategic Management Practice Tests