Branding in a_recession


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Branding in a_recession

  1. 1. March 2003 Managing Value in a Downturn Branding in a Recession Interbrand 85 Strand London, WC2R 0DW United KingdomTelephone: +44 20 7554 1000
  2. 2. Branding in a RecessionTom Blackett, Current economic conditions are trying, and to Bucking the TrendGroup Deputy more recent generations of company managers Not all companies fare badly due to these impacts may seem unique. However, downturns have been when times get tough. In fact, history reveals manyJeffrey Swystun,Global Director experienced before and there are tremendous positive examples of companies which lessons to be learned from previous recessions. profited during economic downturns. Revlon andNick Liddell, This paper concentrates on the need to pinpoint Phillip Morris both gained market share duringConsultant, Brand brands as potentially the most resilient assets a the recession in the 1970s by maintaining intensive company can own. Such assets have in the past marketing spend while competitors pulled back.Interbrand sustained companies in adversity; and all the Taco Bell and Pizza Hut stole market share from evidence suggests that, if they are well-managed, McDonald’s in the 1990–1991 recession by they can continue to do so, now and in the future. focusing on the brand attributes that differentiated them from the market leader.If you do not know Brands are valuable in good times and in bad.the value of your brand, However, if you do not know the value of your In a recession everyone gets hurt but thoseyou are missing the brand, the drivers of that value, and the organisations with strong brands don’t fall as faropportunity to pilot management skills required to guide the drivers or as fast as their competitors.your organisation – you are missing the opportunity to pilot yourthrough challenging organisation through challenging economic times. During the early 1990s Nike tripled their marketingeconomic times. spend, resulting in profits nine times higher out of The ‘Triple Whammy’ recession than going in. They focused on One could list scores of impacts that result during promoting awareness and relevance and provided a recession; for purposes here we highlight three a set of aspirations for all those seeking athletic very clear issues influencing business performance: freedom and performance. This had the effect of destroying Reebok’s competitive threat and • Investors become obsessively risk-averse. They building the platform for Nike’s global dominance. begin to behave as a herd and are quick to criticise companies’ performance, resulting in According to a 1998 PIMS study, companies that lower valuations of goodwill and plummeting increased marketing spend during the last share prices. recession achieved an average return on capital • The labour market is quickly and easily depressed employed of 4.3%, compared to 0.6% for those causing employees to regard the organisations that maintained marketing spend and -0.8% for they work for with a more critical eye. those that cut. • Falling consumer confidence leads to contracting demand – heralding either lower prices or sales, but in either case, it would seem, falling profits.
  3. 3. Branding in a Recession Efficiency Rather Than Expenditure A Source of Strategic Value The primary lesson is not necessarily one of Brand development reaches far beyond traditional maintaining or increasing marketing investment, forms of consumer advertising. However, most still but of achieving superior results with more confuse the discipline of branding with advertising effective brand management. Brands are valuable communications. This interpretation ignores the because they represent a relationship of trust. reality that: Traditionally this has been defined in the context of the customer, where brands stimulate demand • Brands are strategic assets rather than purely and help secure future earnings through symbolic tools. increased loyalty. • Effective branding is a matter of profit, not just market share.In 2001, brand value Nowadays, the same argument is just as relevant • Competitive advantage branding is a matter ofaccounted for 33% of for employees and investors, and there is evidence sustained investment rather than cost.the market capitalisation that effective brand management results inof the companies in financial benefits to the owner far beyond the Through their ability to influence consumers,Interbrand’s 100 Top customer relationship. This is equally – if not more investors and employees, brands are powerfulBrands ranking; in the – relevant during an economic downturn. Effective strategic tools – and this is particularly so in amidst of recession, this brand performance is therefore not just a function downturn. In 2001, brand value accounted forfigure has grown to 38%. of marketing spend, but involves managing the 33% of the market capitalisation of the companies brand to create value for all stakeholders, both in Interbrand’s 100 Top Brands ranking; in the external and internal. midst of recession, this figure has grown to 38%. Figure 1 – Brand Impacts All Constituents Delivering Better Returns In 2000, Watson Wyatt conducted a study showing that organisations where employees had strong confidence and trust in leadership, delivered Investors Employees shareholder returns 40% higher than companies Brand where trust indicators were low. Not only is Increase goodwill Improve motivation this trust valuable in itself, but it also reinforces Higher returns Increase productivity Lower risk Reduce turnover the brand-strength to external stakeholders Enhance ability to through employees who trust their company and attract talent whose personal values are aligned with those Consumers Stimulate demand of the organisation. Secure earnings Increase share
  4. 4. Branding in a Recession Therefore, not only is the brand asset Resilience and Continuity comparatively more important during a recession Recessions force companies to focus on how to but the return on brand investment is also higher. create value through concentrating investment Strong brands also benefit investors; as the figure activity on those assets with the highest potential below shows, companies with strong brands return. And if these assets are brands, then have historically outperformed the market, both recessions can be a necessary evil – it is no in and out of recession. coincidence that a quarter of the world’s 50 most valuable brands predate 1900, sure confirmation Figure 2 – Market Performance of Brands of the resilience they have acquired. 1200 Global Brand Portfolio Figure 4 – Brand ResiliencyThe key to maximising 1000 MSCI World Index S&P 500 10%the return from this 800 25% Launch dates of the Top 50 brands:vital asset lies in Before 1900understanding how 600 Between 1900 and 1949valuable it is, how this 400 32% Between 1950 and 1979 Between 1980 and 1998value is created andconsequently how its 200value can be managed 0 33%for improvement. 2 3 4 5 6 7 8 9 0 1 2 r-9 r-9 r-9 r-9 r-9 r-9 r-9 r-9 r-0 r-0 r-0 Ap Ap Ap Ap Ap Ap Ap Ap Ap Ap Ap But herein lies the problem: despite the growing Moreover, academic research from Harvard appreciation of branding as a source of competitive University and the University of South Carolina into strength, very few companies know exactly how the companies in Interbrand’s 100 Top Brands much of their company value resides in this asset. ranking has shown that brands offer higher returns The key to maximising the return from this vital to investors for less risk. asset lies in understanding how valuable it is, how this value is created and consequently how Figure 3 – Risk and Reward its value can be managed for improvement. How to Leverage Brand Value 2.5 Market 1. Audit Your Brand Investment Portfolio. Audit 2.0 Interbrand weighted the brand assets that you have as part of your portfolio by brand value corporate or line of business brands to determine 1.5 what is really valuable and what is not; what 1.0 could be phased out, what could be sold, what should be kept. Take advantage of this time to 0.5 prune your brand assets to find the greatest 0 opportunities for managed growth. Average monthly return % ß (Risk of portfolio, 1=Market)
  5. 5. Branding in a Recession2. Focus on Contingency Planning. Develop 7. Don’t Compromise on Your Brand Promise.scenarios just as you would with physical assets – There might be temptation to cut back on productwhich would be the first to go? Which the second? quality or service quality in order to squeezeWhich brands are critical to your core business a few extra margin points. Don’t do it! If you loseand you would keep at all costs? confidence in your brand’s promise, your customers will be the first to know.3. Enhance Customer Insight. In a downturn, manycompanies see research as expendable. However, 8. Don’t Discount Accrued Brand Value. Resistunderstanding their customers at this moment is the temptation to use price discounting to maintaineven more critical. You should protect your budget volume targets. Take the risk of losing a fewand preserve the longer-term projects concerning customers in the short-term and focus on revenueinnovation and trends. Your business must know rather than volume. It will cost much more towhere your customers are going over a time reverse the negative impression of “the deephorizon that will allow you to come through the discount” after the event than what accrues todownturn in a better competitive position. your business in the short term.4. Build Internal Brand Supports. Examine ways in 9. Keep Talking. Don’t stop communicating withwhich the stronger brands in the portfolio (or the your customers. In a downturn, people don’t stopstronger businesses) could support the marketing buying; they just buy more cleverly. Take advantageefforts of the weaker brands or weaker businesses. of the general decrease in marketing spendingNow is a good time to determine if every subtle to grab a larger share of voice and define yourselfbrand distinction actually matters to customers. in a less cluttered marketplace. In good times, the best tactic may be advertising, but now is the time5. Evaluate and Eviscerate. Take a sharp knife to evaluate less traditional ways of communicatingto every unnecessary product brand, sub-brand or with your customers.program brand. Business units have a habit ofcreating new brands for reasons other than for 10. Define Minimum Standards of Upkeep. It isthe benefit of customers or the bottom line. Each important to understand what brand investmentextension costs money to support and distracts must be sustained in order to protect your asset.attention from core issues. The amount required to retain your brand’s value is money worth spending.6. Build on Existing Equities. Having identifiedwhich brands enjoy the strongest customer loyalty, Moving Forwardcompanies should explore ways of further A recession, though economically painful during itsleveraging these brands. Product line extensions term, presents a more acute opportunity to uncoverand licencing can be especially powerful as sources of value that once identified and managed,efficient ways of unlocking brand potential. will benefit the company exponentially when the economy recovers.
  6. 6. Founded in 1974, Interbrand serves the world with 34 offices in 22 countries. Working in close partnership with our clients we combine the rigorous strategy and analysis of brand consulting with world-class design and creativity. We offer a range of services including brand valuation, research, strategy, naming and verbal identity, corporate identity, package design, retail design, internal brand communications, corporate reporting, and digital branding tools. We enable our clients to achieve greater success by helping them to create and manage brand value. Interbrand 85 Strand London, WC2R 0DW United KingdomTelephone: +44 20 7554 1000 © Interbrand 2003