There was a peculiar cult about in the 1980s which, for want of a better name, could be called “brand worship”. Its core belief was that brand names had a great and immutable value that most people had failed to appreciate. The cult found some of its keenest followers in Europe, which was stuffed with fine old-name products suffering a similar fate as its fine old-name aristocrats.

brand 300x188 - The Renaissance  Of The Brand

 

Hidden Assets

When in 1988 the Swiss food-products company Nestle bought the British confectionery group Rowntree, the price paid included well over $1bn for something that had never appeared on Rowntree’s balance sheet: the value of some of the names in its portfolio of products, such as Polo, Kit-Kat and After Eight.

As this hidden value became more widely recognized, a number of companies decided to put the value of their brands on to their balance sheet. The drinks and hotels group Grand Metropolitan added £250m for a few for its more recently acquired products, such as Smirnoff vodka. When Polly Peck bought the Del Monte fresh-fruits business it added £250m to its assets for the value of the Del Monte name alone. Polly Peck subsequently collapsed, partly because it overstretched itself with the Del Monte purchase. This practice was not just cosmetic. It improved the companies gearing and, as a consequence, their ability to borrow from banks, and thence their capacity to buy yet more brands.

 

Reputation Is All

 

However, events conspired to bring the brand-worshippers down to earth. The value of brands was seen to be far less tangible than the accountants who were using it to puff up balance sheets might have wished. For a start, names can go off faster than a raw steak in Riyadh: in 1990 sales of Perrier water were decimated by the discovery of small quantities of benzene in samples taken from the water’s source. And later that decade companies such as Nike and The Gap found themselves under fire for the conditions in overseas factories in their supply chains.

 

Own-brand Growth

 

It was not just the vulnerability of brands to unexpected events that reduced their glamour. Two market-related events were also working against them. In consumer goods, retailers were gaining the upper struggle with manufacturers.

The powerful retail chains found that one way of increasing their profit margins was to have “own-label” products specially manufactured for them. Consumers came to value the Safeways name on a bottle of wine, or Marks & Spencer’s St Michael label on a bar of chocolate, quite as highly as the names of any of the well-established manufacturers of these products.

In a time of recession, consumers were even more attracted by the price of own-label products. This was always lower than the price charged by famous-one manufacturers because the balance-sheet value of these manufacturers’ brands lay essentially in the premium they could charge for sticking their name on the product. This premium could be as high as 50%, and it was always bound to attract pot-shots.

By the mid-1990s, the pot-shots were coming from all directions. Big supermarkets turned their attention not just to food and drink but also to banking and insurance and other financial services. The Virgin group became a byword for “brand stretching”, for taking a name and planting it on any product or service where there were fat margins or a complacent oligopoly. There was Virgin cola, Virgin insurance, a Virgin radio station and a Virgin airline. There seemed to be few industries off-limits to the name.

 

Global Dreams

 

Another setback for traditional brands came from the unexpected difficulties they found in taking brands across borders. In the excitement of globalization, companies anticipated making huge economies of scale from marketing the same brand in the same way throughout the world. Any product with a strong market share in one country was fair game for globalization. If products that are as American McDonald’s and Coca-Cola could do it, then anybody could.

They could not, of course, because not all names travel well. For example, Irish Mist liqueur has a hard time in German-speaking markets (mist in German means manure). Moreover, within the global village that marketing people were blindly assuming already existed, distinct tastes were proving remarkably persistent. Coca-Cola was a big success in South Africa, but PepsiCo bowed out of the country after three difficult years.

Unilever, which had traditionally allowed its national detergent companies great autonomy to develop their own products, came under the influence of the globalisers and reversed its policy for the launch of Radion, a detergent that was sold on its ability to remove odours as well as dirt. With Radion the company imposed a universally uniform package design and a bright orange colour on, in many cases, reluctant national managers.

Sice then Unilever has reached a compromise with its international brands. It defines what it sees as a product’s “core brand values”, those that meet common needs in all its main markets, and then tinkers with other aspects of the brand according to the needs of different local markets,

 

The need to nature

 

The main lesson of the cult of the brand, and of its downfall, is that brands cannot be left unattended for long. Building them up is a long, hard process and so is maintaining them – a fact that has been ignored by those that have bought an already established brand in the belief that with such-and-such a name they cannot go wrong.

Look at the products on the supermarket shelves that have not had their market shares drastically eroded by own-label products. They include instant coffee and breakfast cereals. The likes of Nescafe and Kellogg have retained their market leadership because they have spent much of the premium in their prices on constantly developing new products and on improving existing ones. The brand that is merely sat upon will soon be squashed.

But there are no guarantees even for those brands that are not sat upon. A report from the Boston Consulting Group said, “Many brands today are dying. Not the natural death of absence but the slow, painful death of sales and margin erosion. The managers of these brands are not complacent – in fact, they are constantly tweaking the advertising, pricing, and cost of their brands. At the heart of the problem is a more fundamental issue: can the original promise of the brand be recreated and a new spark lit with today’s consumers? We believe it can. Most brands can be reinvented through brand renaissance”

 

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