Saturday, April 26, 2008

Brand Portfolio - Strategic resource for brand equity and growth

Competition is a strange thing. It makes brands do many things. Gone are the days when any brand was known for just one star product. Also gone are the days when any brand will be known for one star product and an array of "me-too" products. The likes of Apple, Toyota, Sony and others have been fairly successful in ushering in the age of the star brand portfolio for their respective brands.

Brand portfolio usually refers to the company's set of brands and/or products. The traditional logic behind having a portfolio of brands rather than a single brand has been possible diversification and risk minimization. Given this logic, most brands have had portfolios where one brand led the charge and other brands either tested waters in different segments/sectors or fought against other leading brands to keep the charge going. But this is changing.

Look at Apple. It started with Macintosh computers, which soon became a rage among the many who despised the market leader Microsoft. Macintosh became such an iconic product that Apple was almost synonymous with Macintosh. Apple could have rested on its laurels and continued with Macintosh. But then, Apple did something different with iPod. Not only did the iPod change the face of digital music, it gave a much needed boost to Apple. It further cemented Apple's brand identity as one of the true global icons. So hugely successful was iPod that when sales of its Mac computers fell, Apple still managed to beat market expectations because of iPod.

Once again, Apple did not stop at iPod. In 2007, it came out with the revolutionary iPhone, which not only has become one of the fastest selling mobile phones, but is also on its way to change the way consumers think of mobile phones.

Thus, Apple's brand portfolio is a treasure trove. It has three products in three different market sectors: computers/laptops, digital music, and mobile telephones. Each of these leading products has its own product line.

As such, Apple is well guarded in three ways:
  1. The brand portfolio continues to bolster its image as a true global icon with top notch technology, world class design and awe inspiring user interfaces
  2. The brand portfolio protects the Apple brand from possible downturns in any one sector
  3. The brand portfolio offers Apple the strategic and innovative leadership to enter new markets, new product categories and still not dilute its brand equity

Time and time again, Apple has managed to change the rule of the game. It will be interesting to see when Apple slips, how it manages its brand and its world of loyal, almost cult-like, followers.

Friday, April 18, 2008

Baidu - China's very own search engine brand

The recent offer by Microsoft to acquire Yahoo! brings to the fore yet again the high stakes involved in the online world. With a few dominant players and billions of dollars at stake, the online world of commerce, advertising and search is just starting to heat up. No where is this hotter than in China, the world's second largest Internet market. Even though Google and Yahoo! are the worldwide leaders in search, they have taken a beating in the highly complex and competitive online market in China. The Chinese online market is controlled by China's own brand: Baidu.

Baidu controls 57% of the Chinese search market, while the global search leader Google comes in a distant second with 18.7% and Yahoo! a close third with 13.6% of the search market. With the online search market amounting to US$260 million in 2006 and estimated to grow by 50% to 60% compounded annually over the next three years, the competition seems to be just starting.

This highlights the complexities of the Chinese market. Even though Google and Yahoo! have the resources and technological know how, the unique cultural and ethnic nuances of China makes knowledge of the people and their language a strategic competence. It also helps Baidu that it is a homegrown brand with a very strong brand identity that inspires and rallies the Chinese population and those together have effectively managed to take on global giants.

Given that China has millions of small and medium sized businesses that are yearning to capitalize on the enormous market opportunities, Baidu can yet again leverage its "Chineseness" and continue to grow. That only 130 million Chinese, a mere 10% of the population, are online compared to almost 60% to 70% in the US, Japan and South Korea offers Baidu an even better opportunity to surge ahead with its position of brand leadership.

Baidu has so far waged a very successful fight against the global giants. With the affluent Chinese aspiring to anything global, it will be a tough road ahead for Baidu to balance its brand experience. The competition is heating up and none of the search engine brands will disregard China in their portfolio.

Nokia's China Adventure - Blueprint for brand success?

Apart from China's highly lucrative business opportunities, one of the features of the Chinese market that gets reported regularly in the global media, is how Western companies find it difficult to crack into the market and survive and thrive. There are many examples of Western companies and brands trying to establish a strong base in the Chinese market but failing such as eBay, NewsCorp, and even Starbucks. But one of the global icons has managed to beat the odds and establish a near strangle hold on the Chinese market.

This success is of Nokia's. The world's number one mobile phone company has established itself as the market leader of the mobile phone industry in China. By commanding a 35.3% of the market as of the last quarter of 2007, Nokia is ahead of its nearest competitor Samsung by 22.1% (Samsung's market share is 13.2%). Not only that, China has emerged as Nokia's largest mobile phone market with a year-on-year sales up by 38.6%, with Nokia selling 70.7 million phones last year.

Such a phenomenal success brings to focus Nokia's branding strategy in a tumultuous market such as China. The resurgence of Samsung, Motorola and LG in the global markets has been well recorded. So much so, that Nokia was blamed by many for its complacency and for not having checked Samsung's rise in the mobile phone market. But the picture in China seems totally opposite.

Nokia seems to have refocused on two key areas: distribution and investment in R&D. Nokia's earlier preference was to establish tie ups with national distributors with a goal to gain a national presence. But recently, the company's sales head revealed that Nokia now has decided to go with regional distributors in order to solidify its position on region by region basis. Secondly, Nokia seems to have made considerable investment in R&D in China itself so that the Chinese market does not end up being just a cheap manufacturing base. Such a commitment seems to have paid well in sustaining the Nokia brand.

Even though the story so far has been very encouraging to Nokia, it remains to be seen whether Samsung can leverage its Asian identity to sneak into Nokia's strong hold on the Chinese market. The focus must be for the executive management team to focus heavily on brand building and distribution.

Tuesday, February 19, 2008

Profitable brands need a long-term management perspective

Brand management is a dynamic and a continuous process that needs consistent investment of time and money. The boardroom must ensure that brand management is allocated a specific budget as it is much more than mere marketing communications. Due to the intangible nature of branding, the results may not accrue in a short period of time a it takes time and reinforcement to build customer loyalty.

Many companies increasingly complain that financial markets focus on short-term results and give little credit for long-term value creation strategies. These claims are contradicted by empirical evidence.

A McKinsey study has shown that expectations of future performance are the main driver of shareholder returns. Across industries and stock exchanges, up to 80 percent of a company's market value can be explained only by cash flow expectations beyond the next three years. These expectations are driven by growth judgments and long-term profitability. An examination of stock prices of leading consumer product companies illustrated that future growth accounts for 54% of the stocks' total value.

Another study by McKinsey of Standard & Poors 500 companies from 1984 to 2004 illustrated that the average total returns to shareholders was 9.4 percentage points better among the companies that balanced short- and long-term performance compared to less balanced peers.

The best performers also survived longer in the market, the CEOs of these companies generally remained in office three years longer, and their stock prices were significantly less volatile.

Therefore, corporate management must align short-term and long-term objectives and expected outcomes of branding, and be committed to support it accordingly with well-balanced strategies and time horizons.

The 9 characteristics of a brand

A strong brand is defined and characterized by the following 9 dimensions:

  1. A brand drives shareholder value
  2. The brand is led by the boardroom and managed by brand marketers with an active buy-in from all stakeholders
  3. The brand is a fully integrated part of the entire organisation aligned around multiple touch points
  4. The brand can be valued in financial terms and must reside on the asset side of the balance sheet
  5. The brand can used as collateral for financial loans and can be bought and sold as an asset
  6. Customers are willing to pay a substantial and consistent price premium for the brand versus a competing product and service
  7. Customers associate themselves strongly with the brand, its attributes, values and personality, and they fully buy into the concept which is often characterized by a very emotional and intangible relationship (higher customer loyalty)
  8. Customers are loyal to the brand and would actively seek it and buy it despite several other reasonable and often cheaper options available (higher customer retention rate)
  9. A brand is a trademark and marquee (logo, shape, colour etc) which is fiercely and pro-actively protected by the company and its legal advisors

Monday, February 11, 2008

Starbucks - The coffee giant under attack?

Since founding an entire industry around brewed coffee 15 years ago, Starbucks has enjoyed roaring success - and the success continues. The third quarter results in 2007 showed that the revenues increased 20% to US$2.4 billion and net income increased 9% to US$158.3 million.
But as always, such success attracts competitors. Starbucks has no dearth of competitors. McDonald's, Dunkin' Donuts and Burger King are some of the fiercest of competitors of Starbucks in the United States. So serious are these other players that a 2007 Consumer Reports' head to head comparison of coffee from all these four brands declared McDonald's the winner. McDonald's, a new entrant into the coffee sector beat Starbucks. Such reports beg the question: Is Starbucks under attack?

Competition is the reality of business. Successful companies and their brands have always attracted competition. Well managed companies have always thwarted such competition and have succeeded. But in this case, it is not just competition. An underlying change in Starbucks' main customer base is altering the strategic landscape for the coffee giant.

Affluent women and professionals earning an average US$92,000 a year were the core customer base of Starbucks. These customers bought the Starbucks' idea of coffee with a context rather than just a product. As such, they were not too price sensitive. But over the years, Starbucks' quest for growth both within the United States and also globally has acquired a new set of customers. Compared to the original group, this new generation of customers is less educated, less affluent and more price sensitive. To complicate the matter further, many of the aforementioned competitors have decided to compete on price. Given the combination of factors, Starbucks seems to be under attack.

What can Starbucks do to retain the leadership position? For starters, Starbucks will have to strengthen the brand, its brand equity and its many touch points. In many affluent cities in the US such as New York City and Boston, Starbucks outlets get too crowded and customers just walk out to a competitors' café. That has to be corrected right away. More importantly, Starbucks should focus the attention once again on the brand experience. Starbucks is not just about a cup of coffee, but is about the ambience, a third alternative between home and work. Such a focus on the overall brand experience will divert the customers from a singular focus on price.

Finally, Starbucks should launch new products (new combinations of coffee) to cater to its changing base of customers. These actions should allow Starbucks to continue to have a strong hold on the coffee market, refresh its brand and gain new territory for its brand equity.

Tuesday, December 18, 2007

Sports and celebrity marketing in Asia

Why are Asian sporting events and Asian stars popular? Why should sponsors pay attention to regional events or stars? What has changed?

Sport stars and athletes world over are bankable endorsers as sports as an event gains immense following and popularity amongst people around the world. With globalization, Asian sports and sporting events have gained immense momentum. The rise in sporting events has coincided with a population that has more disposable income and is willing to indulge in products and services beyond basic necessities. The combination of these two factors has resulted in increased sport sponsorships.

More over with developing economies, booming employment, a population of over 3 billion and an increased awareness to events across the world, Asian consumers have become more discerning and have developed their own sense of identity. Asian consumers can relate more closely to Asian sport celebrities such as Yao Ming, Sachin Tendulkar and others.

As outlined in Asian Brand Strategy, for brands to leverage celebrity endorsements to the hilt, there are ten basic guidelines. They are:

1. Consistency and long term commitment
2. Three prerequisites to selecting celebrities
3. Celebrity-brand match
4. Constant monitoring
5. Selecting unique endorsers
6. Timing
7. Brand over endorser
8. Celebrity endorsement is just a channel
9. Celebrity ROI
10. Trademark and legal contracts

Most of these are self-explanatory, but three issues are important:

Brand celebrity match: If a brand wants to extract the maximum out of its association with a celebrity, it has to match the celebrity to the brand's identity and personality and the association has to compliment the brand. If the brand is in one category and the celebrity in a sport/profession that has no connection to the said industry, then the match may not be hugely successful.

Three prerequisites to selecting celebrities: Brands that sign in celebrities must ensure that the celebrity has these three qualities - the celebrity is an expert in his field, the celebrity is attractive and the celebrity must have a positive image in the society to recommend something to the public.

Celebrity endorsement is just a channel: Brands must realize that a mere association with a celebrity cannot build the brand. But rather it merely supports the brand in its quest to build strong personality in the market. Therefore brands must practice branding in its totality and use endorsements to support the basic activities.

A brand's association with any sport will have to match the brand's identity and personality. An association with any sport or celebrity will only reiterate the already existing personality of the brand.

When Nike wanted to venture into the premium golf segment, it was only natural for a brand built on sports to enter another sports segment. Nike teamed up with the ultimate golfer Tiger Woods and the association has proved to be highly successful to Nike. Michelle Wie is another example of a sports celebrity whom is determined to change the game. Therefore, the basic premise is the match between the brand and the association.

Friday, December 14, 2007

The Asian trading mindset

Despite the growth of Asian companies and their global aspirations for leadership, the majority of Asian companies still function based on a trading mindset. A trading mindset where short-term sales and investments in tangible capital assets are predominant.

A study carried out by McKinsey shows that tangible assets are becoming less relevant in Asia's battle for global success. It shows that the biggest value creators of Asia have a 1:1 sales to asset ratio as against a 1:4 sales to asset ratio for an average Asian company.

Going ahead, Asian CEOs and boardrooms need to realize the importance of intangible assets and invest in them. Asian boardrooms will have to accept and support consistent investments in brand building, the results of which will take a couple of years to accrue.

Tuesday, November 20, 2007

Emergence of a large Asian value segment

Despite Asia's stride into the value economy, a considerable percentage of Asia's population still lives in poverty with little education and with inferior infrastructure and support systems. This is what has been popularly referred to as the bottom of the pyramid in Professor C.K. Prahalad's seminal research on the topic.

This segment still lacks the purchasing power to go for global premium brands and affordability becomes the most important decision criteria. For example, Hindustan Lever, Unilever's Indian subsidiary, introduced shampoo sachets at very low prices that addressed the needs of this segment and it proved quite successful. Similar case stories from South America have been documented by INSEAD business school.

In a nut shell, this huge value segment presents a great untapped potential for global brands as they seek to expand further. Global brands need to adopt their offerings and plan appropriate brand extensions to suit this huge market segment effectively.

The brand challenge of diversification - An Asian perspective

A McKinsey study shows that 90% of Asia's value creators derive more than 80% of their revenues by focusing their businesses in one industry sector. Moreover, these companies focus on intangibles like fostering human capital, exploiting network effects and creating synergies based on brands and reputation rather than investing in physical assets. Additionally, interests in diversified areas poses a great challenge as creating and managing a consistent brand personality becomes much more difficult.

The Reliance group of India is a typical example for such a diversified conglomerate with businesses in petrochemicals, financial advisory, telecommunications, and oil explorations. Though the Reliance brand is doing very well in the Indian market till now, it needs to focus on a more directed corporate branding approach. Many conglomerates from Japan and Korea face similar challenges as they aspire to build and sustain their brands and brand equity across the world.

To brand different businesses across a wide array of sectors will prove to be a resource drainer in the longer run. Especially, small and medium level firms that aspire to build strong brands but have a resource constraint will find it very difficult to carry out successful branding if businesses are highly diversified. Instead, the CEO and executive team should focus on the core of their business, and make sure the brand takes center-stage in the boardroom and becomes the most prominent driver of business strategy.

The power of pricing

The right pricing can be an effective way to increase profits. A strong brand allows for better premiums as illustrated in this example: For the average income statement of a Standards & Poor 1500 company, a price increase of 1 percent, if volume remained stable, would generate an 8 percent increase in operating profits. An impact almost 50 percent greater than that of a 1 percent decrease in variable costs like materials and direct labour, and more than three times greater than the impact of a 1 percent increase in volume.

Pricing and its many opportunities is one of the most ignored marketing parameters. Rarely does marketers raise prices. The function tends to worry about the effect on consumer and distribution responses despite the effects on the bottom-line which outweighs the potential responses. Price is also a guiding factor on quality perception, positioning and brand image, so potential price increases can in many instances help enhance brands and their equity.

Asian companies need to move up the value chain to increase shareholder value over the next 10 to 15 years through effective, CEO-led brand building. Pricing can play an important role in this process and support the chances for survival in the global market place.
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