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BRANDS

Introduction to Branding

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The super-ordinal business objective

Increase shareholder value

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How

Creating brand value

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The Power of Brands

Rank Brand bn. $ 2005

1 Coca Cola 67.52

2 Microsoft 59.94

3 IBM 53.38

4 GE 47.00

5 Intel 33.59Source: Interbrand

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Put it in perspective

• Greater than the 2003 GDP of Czech Republic ($60.15 bn), Algeria ($62.67 bn), New Zealand ($57.52 bn.).

• Gross value of Coca Cola company’s Dec. 2004 net fixed assets – $6.09 bn.

• Personal Income for 2003, for Charlotte-Gastonia-Concord MSA - $47.85 bn – 1.439 mill. people (BEA – US Dept. of Commerce)

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What does this value indicate

• The amount you would have to pay if you wanted to buy the brand (Bills Gates: $46.5 bn. in 2005)

• The power to command future sales (Coke’s 2004 sales – $21.96 bn.)

• The incredible skew in value placed on an intangible asset (6 bn. Vs. 67 bn.)

• Lastly, the strength and favorable attitude towards the name in your minds (1985 – Coke’s misadventure)

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Origins of branding

• Derived from old Norse word ‘brandr’ meaning ‘to burn’

• Marks on Chinese porcelain, pottery jars from Grecian, Roman and Indian artifacts dating from 1300 BC

• Cattle Ranchers• Bakers to mark their bread - English law in 1266• The Moon & the Stars (1851) – P&G brand• Uneeda biscuits – 1898 – first nationally branded

biscuit

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Once upon a time (in a land far, far away!) there were commodities…

• Undifferentiable by seller/manufacturer

• Often sold loose

• Quality highly variable

• In competitive markets we have many mfrs. / sellers for the same commodity.

• QUESTION: How do I get a buyer to prefer and buy my ‘commodity’?

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How do you differentiate

• ANSWER: Differentiate it from competition

• HOW: By branding your ‘commodity’.

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What is a brand

• A differentiated product is a brand.e.g. Adidas, Gap, Abercrombie & Fitch, I-Pod, Motorola Razr, Panthers, Coca Cola, etc.

• A brand must satisfy two conditions– Distinctive identity (name, symbol, logo,

slogan, etc.)– A distinctive image (e.g. Nano vs. Zen)

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Some advantages of branding

• Can be sold prepackaged hence specific quality levels can be assured

• Opportunity to communicate specific brand benefits

• Opportunity to appeal to specific market segments

• Ready value in M&A transactions

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Why is branding important

• Push vs. Pull

• Financial value of brands in the context of mergers and acquisitions (KKR paid $30 bn. for RJR Nabisco (Oreos, Newtons, Teddy Grahams, Chips Ahoy, etc.) in 1989 – first M&A transaction to recognize value of the brand name)

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Why is branding important

• Jump start sales across product categories e.g. Hooters Airlines, Reebok bottled water, Ralph Lauren paints.

• Ability to operate highly profitably on minimal fixed investment (e.g. Sara Lee Corp. – Hanes, Ball Park, Kiwi, Coach, etc. – is an “assetless” company – no manufacturing operations. Also Baskin Robbins, Sam Adams beer, Calvin Klein jeans and Motorola cellphones)

• Separate manufacturing from production

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Critical features of brands

• Intangible• Exist at a perceptual level

– Whether a brand has been created or not is determined by the consumer.

– (manufacturers may invent the brand – name, advertising and positioning, but if the consumer does not perceive the brand as such (i.e. a differentiated product), a brand HAS NOT been created)

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Types of brands

• Consumer brands (most fall in this category) e.g. Nike, Gatorade, Maytag, Pantene, Tyson chicken, Mercedes, etc.

• Industrial brands e.g. Xerox, Caterpillar, Komatsu, Boeing, Airbus, etc.

• Service Brands e.g. British Airways, Fedex, UPS, State Farm Insurance, Citibank, etc.

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Types of brands

• Corporate Brands e.g. GE, Disney, Honeywell, etc.

• Retail brands e.g. Gap, A&F, JC Penney, Albertsons, etc.

• Person brands e.g. Cindy Crawford, Heidi Klum, Michael Jordan, Jennifer Lopez, etc.

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What are the brand’s benefits?

• Functional level – does the product perform as it is supposed to perform – primary benefits e.g.

• Crest – clean teeth, whitening, fresh breath, protect against gum disease, etc.

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Brand benefits

• Emotional level – does using this brand give me emotional satisfaction – secondary benefits.

• Do I feel self-confident after using Crest ?

• Do I feel desirable in my A&F jeans?

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Brand benefits

• Self-expressive level – does using this brand say something about me to my peers – tertiary benefits.

• If I drive a Corvette, what does it say about me to my peers?

• If I wear a Brooks Brothers suit, what does it say about me to my peers?

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In Conclusion

• Today almost everything is branded

• Brands cannot be seen, heard or felt – intangible and exist in your mind– Logo, symbol and brand name attempt to give

the brand a physical identity

• Manufacturers / sellers do not create brands

• Consumers create brands