Competition of Brands -- or of Business Models?

Keeping It Real: Marketers, Build Your Image -- and Equity -- From Within

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Hit parades of the financial valuation of brands -- also called brand equity -- are regularly published in business, financial and economics magazines. With their billion-dollar estimates, they have become ritual figures that aim to reassure CEOs, board members and the financial community of the worth of high investments in brand building. At the same time, other headlines strike fear in that same audience, asking, "Are brands dead?" and "Do brands matter?"

Illustration: Andy Martin
Branding professionals may become infatuated and forget the real sources of brand equity. It's easy to underestimate the true factors behind brand success. It is an often-overlooked fact that all growing stars of the brand-equity hit parades share two common, striking features: They all innovated their business models and integrated their distribution.


These figures are, of course, questionable. After all, it's hard to really evaluate a brand from the outside -- without having access to company's internal data, such as the real sales figures of each of its products, in each channel, knowing that consumers weigh brands differently per product and per channel.

The financial intention
Still, while the validity of these brand-valuation estimates may be questionable, they do at least stress the essentially financial intentions behind building a brand.

Companies do not build brands for the sake of it or to have authors write books on them or to make the streets livelier thanks to billboard advertising. They do it to grow the business, make it ever more profitable and create an intangible asset.

Even low-cost airlines, for example, think of themselves as brands and want to create a perception of uniqueness in their own segment. They invest in everything -- pricing, service and communication -- that will make the consumers think of them and only them when considering a low-cost airline. Communication is not the least of their strengths, and they use exceptional prices as an appeal, even if there are only a few seats at that price. It's enough to create an anchored perception of an unbeatable-price brand.

Because of this relentless emphasis on brands, reinforced by the ritual publication of brands' financial value, slowly over time, branding has been constructed as a separate field. There are fewer and fewer seminars on marketing itself but a lot of books and symposia on brand building.

Brand narcissism
There is a risk, however, of the branding community's falling in love with its own image: One could very easily come to believe that brands are the one and only issue of importance.

Indeed, branding professionals may become infatuated and forget the real sources of brand equity. In fact, it's easy to underestimate the true factors behind brand success. It is an often-overlooked fact that all growing stars of the brand-equity hit parades -- brands such as eBay, Amazon, Dell, Starbucks, Ikea -- share two common, striking features: They all innovated their business models and integrated their distribution.

Looking at one of these stars, Dell, whose brand financial valuation is relentlessly growing, one question inevitably arises: Is Dell's success due to its brand or to its business model? Dell innovated with both a made-to-order business model and direct contact with clients, which enabled the company to drastically reduce costs. It can be argued that it is not the Dell brand but its economic engine that allows the company to announce more price cuts, putting rival Hewlett-Packard in a difficult position between two boa constrictors, Dell and IBM.

The Dell brand is not the be-all, end-all. It captures the fame, but that fame has been made possible by Dell's category-killing business model. The same holds true for each of the other brands mentioned above. These brands made competition obsolete by implementing radical new business models.

Trade brands, the new paragon
The second striking feature shared by brands regarded as modern heroes of brand building is the fact that most, if not all, integrate their distribution. Dell is a distributor, exactly as Amazon, Starbucks and Ikea are. Some low-cost airlines, meanwhile, are their own distributors, selling only through the internet. In short, whether we like it or not, they are all "trade brands."
Jean-Noel Kapferer is a professor of marketing at the HEC Graduate School of Management in Paris, a consultant and author of six books, including 'Strategic Brand Management' and 'Reinventing the Brand.'
Jean-Noel Kapferer is a professor of marketing at the HEC Graduate School of Management in Paris, a consultant and author of six books, including 'Strategic Brand Management' and 'Reinventing the Brand.'

In fact, the new paragon of brand building is a "trade brand," even if the consumer does not perceive it that way. We are not too far from the relentless worldwide growth of the private labels of Wal-Mart, Carrefour or Tesco or even of unbranded products from the fast-growing Aldi and Lidl, called hard discounters because they price 70% below so-called big brands. Here again, behind these new trade successes, there is a hidden business model. Aldi and Lidl are not selling low-quality products to the affluent and mature consumers of Europe and the U.S. They have invented a business model based on "design to cost" -- the whole supply chain is reorganized to enable these prices.

It is high time to relate the brand to the business model, for both are intimately intertwined. Brand building is made possible by the business model, which is the true creator of sustainable difference, and it cannot be understood without this perspective. The goal of an effective marketing strategy is to build a sustainable advantage over the competition, and brand building is one of the very few ways of achieving this. The business model is another.

What can brand equity deliver without an innovative business model?

Indeed, most successful business models integrate distribution. To succeed, then, a brand should master its own trade: the full customer experience.
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