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2013 Opinion Issue

How to Stop Mismanaging Your Brands

Branding May Be a Bit Ephemeral, But Its Results Aren't

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The last time I went shopping for a TV was both confusing and enlightening. And a little bit embarrassing.

I was confronted with literally dozens of TVs, all beaming and blaring as if they were clamoring for my attention: "Buy me!" "Buy me!" It was instant sensory overload.

I knew what size TV I wanted, but was still left with a couple dozen to sort through. My next step was to do what most rational consumers do when confronted with too much choice -- I developed a shortcut.

I couldn't easily tell all of the different models apart, so I simply ruled out the higher-priced options (why pay a premium?) and eliminated the lower-priced options (too cheap is risky), which narrowed my selection down to four or five. Ruling out a few more for picture quality reduced my choice to the beauty of the binary: this TV or that TV.

This is where I got stuck. I gazed at one TV, then the other, then back to the first again, stroking my chin like some amateur Einstein, for an absurdly long time. It was then that I noticed something that, in an instant, made my decision simple. One TV was branded Dynex and one Toshiba.

Which one do you think I bought?

I've used this illustration several times and I've never had anyone say anything other than Toshiba. And yes, that is the correct answer. I bought the TV that was built by a brand that I both knew and respected. All other things being equal, Toshiba got my business because the brand has been around for some time and has earned a good reputation. Dynex was unfamiliar to me and, therefore, had built no reservoir of trust or equity in my mind. Case closed. Sale made.

This story is but one illustration that all the assets any company owns, its brand is the single most valuable. Think about it: A brand is the only corporate asset that, managed properly, will never depreciate. Never depreciate. Those are magic words. Patents expire, software ages, buildings crumble, roofs leak, machines break and trucks wear out. But a well-managed brand can increase in value year after year after year.

If that's the case, why is branding taken so lightly in the boardroom? I believe it's because it's misunderstood. Branding seems soft and fuzzy. It's often incorrectly defined. And (at least historically) it hasn't been a hard, measurable internal metric like sales, market share, stock price, or price/earnings ratio that a CFO can track on a spreadsheet or a CEO report to the board.

That said, neglecting a brand is both naive and shortsighted. In some ways, branding is a victim of semantics; call it "reputation" and nobody in the C-suite would ever argue that it's anything less than critical. Corporations intuitively understand Will Rogers' quip: "It takes a lifetime to build a good reputation, but you can lose it in a minute." But management teams commonly underachieve in the application of reputation-management best practices -- in a word, branding.

Effective branding improves the visibility of and respect for a product, service, or company and drives sales. It enhances margins, as customers are willing to pay more for products and services from companies they know and trust. Branding can also improve the internal dynamics of an organization and impact both recruiting and employee turnover. And research now demonstrates that branding even affects financial metrics: How would your world be different if your stock price was 5%, 10%, or 15% higher, or if the value of your company increased by 2%? This kind of impact can translate to immense wealth.

Branding is anything but lightweight, but too few companies intentionally manage their brands as the valuable corporate assets they are. The stakes are as high as the statistics are striking: 100% of marketing plans promise to generate growth, yet over the course of an average decade (to say nothing of recent years), more than half of all companies witnessed a decline in revenue for at least one year (and sometimes multiple years). The problem isn't a lack of desire or ambition -- it's a lack of perspective, understanding and insight.

If you want your CEO to pay attention, numbers talk. Branding may be a bit ephemeral, but its results aren't, and there is an ever-widening body of research that demonstrates the business value of branding.

One such study is Interbrand's exhaustive annual report on brand value. In it, Coca-Cola is perennially at or near the top of the list with a value of more than $75 billion. That's the value of the brand alone -- not the bottling plants, the inventory, the truck fleets, the factories, the secret recipe -- just the brand. According to the same study, the McDonald's brand is worth more than $40 billion, and the Toyota, BMW, and Mercedes brands all hover around $30 billion each.

Some of us intuitively understand the value of branding based on our own consumer experiences. Others may need to see the numbers before they're convinced. But the more everyone in the C-suite understands and adopts the principles of power branding, the more opportunity they'll have to create real shareholder value.

From "Power Branding" by Steve McKee. Copyright © 2014 by the author and reprinted by permission of Palgrave Macmillan, a division of Macmillan Publishers Ltd.

ABOUT THE AUTHOR
Steve McKee is CEO of McKee Wallwork & Co.

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