Building the new basics of branding

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Innovation is a driving force as companies compete against each other in the global marketplace. In the new book "Breaking Compromises," members of the Boston Consulting Group offer ideas and advice on how to "break" the fundamental compromises that most businesses operate by. This edited transcript looks at the area of branding.

A business revolution has come to brands. From every side, traditional brands appear to be under attack. Costs are escalating. Consumer loyalty is eroding. Retailers are competing through private-label products. Store brands are commandeering valuable niches. Some observers are even speculating about "the end of brands."

No, brands won't disappear. But what a brand is and how best to manage it are changing. Increasingly, a brand is far more than just a name on a product. Winning brands are carefully designed business systems. These systems stretch from the choice of raw materials to final service with the customer. And it is the total system that the customer purchases, not just the product.

When brands become business systems, brand management becomes far too important to leave to the marketing department. It cuts across functions and business processes. It requires decisions and actions at every point along the value chain. It is central to a company's overall business strategy. That's why we call it total brand management.

Total brand management can take a variety of forms:

* In some cases, the brand extends beyond the actual product to include the infrastructure supporting it. For example, high-end brands such as Lexus or Infiniti, and even midmarket brands such as General Electric appliances, have invested heavily in information systems that support customer service and serve as marketing attributes enhancing the core product.

* In other cases, well-crafted umbrella brands such as Gillette or Levi's stretch across many related products, enabling their owners to leverage materials innovations, marketing investments and trade promotions more effectively.

* In still other cases, the entire retail system itself is the brand. At the Body Shop, for example, the way products are sourced (all-natural ingredients), developed (no animal testing) and sold (in distinctive Body Shop boutiques) is as important to the company's marketing image as the products themselves.

Regardless of the particular form, total brand management has two fundamental imperatives. The first is a major escalation in the amount and kind of investments necessary to support a successful brand. It's no longer enough simply to increase the advertising budget.

Companies have to invest in a broad range of costly capabilities: proprietary research methodologies for understanding subtle shifts in consumer attitudes, intertwined manufacturing and logistics networks providing superior retail service at lower cost, retail information-processing capability to optimize inventory costs and product development functions to speed product innovation.

But the total brand manager must also remember that such investments are only table stakes that allow entry into the game. It takes more than deep pockets to win. In particular, companies must concentrate on three key high-leverage activities:

* Maximize synergies across a coherent brand portfolio. Financing a massive buildup in new capabilities requires spreading investments over many brands, cascading across price points and channels. Practitioners of total brand management, therefore, focus not on individual brands but on a coherent brand portfolio.

French cosmetics maker L'Oreal, for example, knew that increased R&D was essential to competing in the new brand environment. So over a five-year period, L'Oreal doubled its R&D budget. This major investment helped spark a key innovation: the company's new "anti-aging complex" -- a breakthrough in skincare that slows the onset and spread of wrinkles. But L'Oreal was able to afford this massive increase in R&D spending only because it could spread the costs over several brands in its portfolio at different price points and positions. The company introduced its anti-aging complex under the Lancome brand, then moved it into the Vichy range and finally into broad distribution with Plenitude. It has been a tremendously successful innovation, but it couldn't have been accomplished with one brand alone.

The key word in "coherent brand portfolio" is coherent. It does no good to cobble together a collection of unrelated brands. Doing so leads only to higher overhead costs, fragmented business processes and duplication of resources.

Not all brands contribute equally to enhancing the value of a company's brand portfolio. Brand managers must evaluate each existing brand along two dimensions: its fit with core capability and its potential for value-generation. Such an assessment reshuffles the brands into four categories of investment priority, ranging from good fit/high value to low fit/low value.

* Strengthen the brand portfolio through innovation. As the L'Oreal example suggests, innovation is more important now than ever. Other forms of growth, such as acquisitions and expanding margins, have been largely played out. Spending on retailers or consumers is becoming too expensive for all but the biggest budgets. What's more, consumers are becoming more sophisticated and harder to reach. Mere bells and whistles won't sell anymore.

But the kind of innovation that matters is not what managers might expect. It's not the creation of new brands -- an increasingly expensive proposition. Rather, it is the reinvention of existing brands through three basic techniques: repositioning, extension and transformation.

For example, SmithKline Beecham repositioned Lucozade, once considered a medicinal remedy, by directing it at anybody who cares about health, particularly athletes. Today, Lucozade is Britain's No. 1 non-cola drink.

* Secure the brand through close relationships with customers and the trade. Increasingly, customers value the reassurance and stability that come from an enduring relationship with someone who understands and can respond to their specific needs. But this requires a broad rethinking of the value a company offers its customers, as well as of the specific products and services it provides.

Not long ago, for example, Japanese videogame maker Nintendo found itself in a dying market with too many players and limited shelf space. The challenge: to discover a new way to hold its brand name with customers. So the company launched two new business initiatives: Nintendo Power, a $15-a-year magazine that receives 40,000 letters a month, and a 900 number on game strategy that receives 10,000 calls a week.

Both proved to be powerful customer-relationship vehicles that cut across hardware, software, education, new product development and customer service. But even more important, the magazine and the 900 number have opened a direct line of communication from the customer back to new product development, which has enabled the company to forecast sales of a new product within 10%. Today, with annual sales of $5 billion, Nintendo is Japan's most profitable company.

For many brands, the most important customer is the trade. To fend off private-label growth, brand managers must find ways to create value for the trade without simply giving away more margin.

A leading office-products manufacturer, for example, has been able to work with a superstore chain to develop new packaging, replenishment and stocking systems that provide more margin to the chain than private-label products would. With its interlocking business systems, the manufacturer can now secure its brand franchise and increase margins in a win-win relationship with a heavily deal-driven retailer.

As brand managers manage portfolios of brands, customer segments and retailers across an entire business system, their role has become more cross-functional and strategic. Indeed, total brand management often involves redesigning the business through new partnerships, better cross-functional linkages and innovation. To that end, brand managers must make choices at every point along the value chain, not just in marketing and sales.

Brand Renaissance

Many brands today are dying. Not the natural death of obsolescence, but a slow, painful death of sales and market erosion. The managers of these brands are not complacent. In fact, they are constantly tweaking the advertising, pricing and cost of their products.

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 a brand renaissance.

The Renaissance of the 15th and 16th centuries reinvented the Greco-Roman artistic tradition. In the Dark Ages that followed the Greek and Roman eras, the church had declared realistic art too sensual and pagan.

Rigid new standards were adopted and followed so thoroughly that the rules and techniques used to create the masterpieces of Greco-Roman art were forgotten. The artistic principles of antiquity had to be rediscovered at the start of the Renaissance.

Today, many companies have forgotten what made their brands great -- they are lost in their own dark ages. Ineffective business practices have become habit, and the powerful connection of great brands to their customers has stagnated or died. Following in the footsteps of Renaissance artists, business managers can learn from the great art of antiquity.

Five elements of the Greco-Roman artistic tradition were rediscovered during the Renaissance. When applied to business practice, they can create a brand renaissance today.

1. Sound economics. Great art can flourish only under a system of competitive advantage that creates wealth. In the Renaissance, the city-states of Florence and Venice created economies with clear trading and banking advantages that generated great wealth. That wealth funded Renaissance art. Similarly, great brands can thrive only when a company's underlying economic system is sound.

2. Profound insight. Great art requires profound, often intuitive insight into human nature and values. Enduring brands are built on deep insights into consumers' needs and, especially, dissatisfactions. Consider, for example, the insights into unmet consumer needs represented by two recent brand successes. Starbucks Coffee has positioned itself as an affordable luxury for U.S. coffee lovers, and Saturn has provided a refreshing answer for many Americans yearning for a high-quality small car made in the U.S. and sold in an honest, "main street" kind of way.

3. An original paradigm. Great artists often invent their own rules. Seminal figures of Renaissance sculpture such as Donatello and Ghiberti drew heavily on Greco-Roman models, but developed original styles that influenced a host of imitators. Companies wishing to resuscitate moribund brands often look to classic models like Coca-Cola and Crest for inspiration, but most of the time a successful brand renaissance requires an original paradigm.

4. Skilled teams. The great art of antiquity and the Renaissance was often created by skilled teams working toward a common vision, under the direction of a master. Chief sculptor Phidias, for example, designed and supervised all the figures of the Parthenon, but no one knows which, if any, were actually created by him. The teams that rebuild great brands may be led by visionaries, but their success is founded equally on their members' collective and complementary skills.

5. Relentless innovation. Great art has always been driven by a stubborn pursuit of innovation. True artists don't create great works and then say, "Aha, that's it! I'll just repeat that over and over." They push the boundaries. Sustaining strong brands takes the same dedication to innovation and improvement in all aspects of brand management: positioning, product development, marketing and the coordination of the entire consumer experience.

The Brandnet Company

A new kind of company -- we call it the brandnet -- is revolutionizing traditional marketing. Brands such as Virgin, Swatch, Disney, Samuel Adams, Nike and Adidas have become powerful images in consumers' minds, with a significance that transcends their association with any single product or service. Brandnet companies achieve more with less by:

* Accessing scale economies with limited volumes.

* Acquiring expertise without hiring it.

* Borrowing technology without developing it.

* Delivering to rapidly growing demand without creating redundant capacity.

* Growing with limited resources and investment.

In brief, brandnet companies add value to their brand by transforming a conventional value chain into a value-adding network.

Brandnet companies look and feel different. Instead of inflexible investments, they have contractors and partners. They trade license fees, selectively contract production and distribution, broker sales forces and share R&D. As a result, they gain access to best practices in every step of the value network and earn extraordinary returns with fewer assets.

Brandnet companies, however, maintain complete control over those activities that are critical to the customer's experience of the brand, and they perform them extremely well. More important, brandnet companies understand how to extend the brand's core value over multiple businesses, products, customers and price points. They do this by establishing a strong emotional connection with consumers. And they can do it quickly.

Brandnet companies don't believe in borders -- not for their products or their businesses. Producers such as Disney and Nike, for example, have opened their own retail outlets, while brandnet retailers, such as Benetton, are getting involved in managing their suppliers' value chains.

Isn't this risky? Doesn't it invite brand dilution? Not necessarily. As long as the new idea is consistent with the brand's emotional appeal, it actually enhances the brand's relevance and vibrancy.

Virgin is the classic brandnet company. Founded in 1970 by Richard Branson as a discount-record and mail-order operation, the British company has extended its brand to airlines, financial services, retail stores, railroads and hotels. With a turnover approaching 1.5 billion, Virgin comprises more than 250 companies, joint ventures and partnerships in a variety of businesses from personal computers to soft drinks.

Virgin is more than a collection of disparate products under a provocative name, however. Whether it's a music video or an airline flight, customers experience the Virgin brand as something new, exciting and different. How did this come about?

When Branson started his first business, he understood that he wasn't only fulfilling a need for discount music. He was also affirming his customers' taste in music, as well as giving them a sense of affinity with a group of like-minded alternative-music fans. He made his customers feel special, and that emotional connection generated a passionate loyalty to, and trust in, the brand.

A more significant accomplishment has been Branson's ability to extend this emotional response to other products and services -- most notably, airline travel. Filling a void left by Freddie Laker in low-cost international flights, Branson offered first-class service at business-class prices.

Where was the connection with his other businesses? It was in the brand experience. Branson put the romance back into flying. He made his customers feel special with such services as massages, limousine transportation and seat-back videos. Established competitors on Virgin routes were unwilling to enter the escalated amenity war.

Branson focuses on lean operations and contracts out or leases much of his operations. But Virgin staffs all the elements of the business system that are critical to the customer's emotional connection with the brand -- on the ground and in the air -- including reservations, ground check-in, marketing, sales and in-flight services.

Excerpted with permission of the publisher, John Wiley & Sons, from "Breaking Compromises." Copyright (c) 2000 by the Boston Consulting Group. This book is available at all bookstores, online booksellers and from the Wiley Web site at www.wiley.com, or call 1-800-225-5945.

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