John Kuraoka, freelance advertising copywriter

www.kuraoka.com
(619) 465-6100
Brands and branding: a white paper

© John Kuraoka

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Contents:
Branding: yes, you need a brand. But ...
Branding will not create a spike in cash flow or market share.
Rebranding costs you equity - and customers.
Branding was cheaper and easier in the old days
What can you do?

Branding: yes, you need a brand. First, branding is a key defense against commoditization - a situation in which a company’s products and services become perceived by buyers as being interchangeable with those of other companies, so buying decisions become driven by price. With the trend toward instantly and globally searchable competition across all product and service categories, the pull toward commoditization is now an elemental force in marketing. The value of branding - intelligent, relevant, branding that effectively differentiates you from your competition - has never been higher.

Branding is also a way to leverage success, expand market share, and fend off competition. Indeed, companies with established brands often rebrand as a way to penetrate perceived new markets or defend core markets. This rebranding is often a costly mistake.

Branding - or “brand-building” - has become the El Dorado of corporate marketing departments, advertising agencies, design firms, and consultants. However, branding goes beyond an attitude, or a logo, or a slogan, or an advertising campaign. Branding is a long-term holding in which your marketing communications are relatively short-term investments. Your brand is a tangible corporate asset - an end toward which all your business efforts should work.

Key point:
Your brand is a tangible corporate asset!

No less a forward-thinker than Tom (“Destruction is Cool”) Peters in The Circle of Innovation says “An obsession with branding isn’t simply a “marketing department” issue. It’s an accounts receivable issue. A purchasing issue. An information systems issue. Heaven knows, a human resources issue. Every decision … every system … should reflect, visibly, the specific attention to (obsession with) BRANDING.” (His weird punctuation and capitalization.) In other words, brand management is corporate management, in the deepest, truest, sense of the term.

The problem is, companies are turning to branding as a panacea. Equally problematic, are the self-proclaimed “branding experts” who are happy to sell you this expensive snake oil. In inexpert hands, branding becomes a way to obfuscate relative sameness, instead of to communicate relevant uniqueness.

Key point:
Mindshare is nothing; market share is everything!

The fatal fallacy, for many companies, is confusing “brand-building” with real results. Mindshare is nothing; market share is everything. Branding is an important tool to gain market share, but for most successful companies branding is only one part of brand management.
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Cold, hard fact number one: branding will not create a spike in cash flow or market share. Quite the opposite in fact: it costs time and money to build brand equity whether you’re launching a new brand or re-launching an old one.

If you’re rebranding, by the time you’ve spent enough time and money on advertising and marketing, the conditions that triggered your quest to rebrand will have changed. Rebranding as reflex action to stem losses in market share is stupid.

How about branding the company with the name of its most-successful product - a recognized name with huge market share? This seems like a good idea, until you realize that implementing this strategy severely limits (if not entirely eliminates) your growth potential in future business areas, and ties you to a product that may not remain relevant.

Consider the case of a former multi-billion-dollar software company called MicroPro. For most of the 1980s and well into the 1990s, MicroPro made the dominant word processing program: a product called WordStar. Technology guru John C. Dvorak called WordStar “one of the greatest single software efforts in the history of computing.” The product name WordStar was better-known and more-respected than the corporate name MicroPro. So, when MicroPro rebranded under the corporate name WordStar International, it thought it was going with a winner.

The new brand identity proved immediately self-limiting. As WordStar International, the company was poorly positioned to keep up with changes in the computer industry - such as the rise of integrated software bundles that were the predecessors to today’s Microsoft Office.

Note that Microsoft never became “Windows International,” in the same way that Proctor & Gamble never became “Tide Corp.”

Key point:
Re-branding can cost you ... your company!

Where is WordStar now? Its last lingering years are a grim illustration of brand management gone sour. It tried strategic alliances. It tried buying other companies. After many years of losses, what was left got acquired by SoftKey, then by The Learning Company, which Mattel acquired for $3.5 billion. In late 2000, after huge losses, Mattel fired CEO Jill Barad (partly because of the acquisition), and jettisoned The Learning Company for a paltry $50 million, non-cash. Today, even the memory of WordStar has vanished.

Too young to remember WordStar (or too obtuse to learn from it)? For a current, ongoing example, look at the $19 billion merger between Hewlett-Packard and Compaq: two powerful brands in a market where the fourth-largest brand, Gateway, is struggling. This merger created the world’s largest PC maker. Ignore, for a moment, the $56.8 billion drop in HP’s market capitalization from mid-1999 to mid-2002. Ignore, for a moment, the 55% drop in HP’s share value from July 2000 to January 2005. The fact remains that being the world’s largest PC maker is a long way from being the world’s largest PC seller. That’s it, folks, plain and simple. And, without profitable sales, branding accomplishes nothing.

Disbelieve? Despite a massive (and self-congratulatory) branding push, HP had roughly the same profits and share value in 2003 as it did in 1995, which amounts to eight years of zero growth at a time of phenomenal market growth. The result? A beleaguered brand that was outpointed in every way from branding to sales to profits, and an ousted CEO. Years later, with a renewed focus on the customer (what a concept), things finally turned the corner.

Key points:
Without sales and market share, branding accomplishes nothing.

 

Market share is branding.

Which goes to illustrate another key concept: at a certain point, sales is branding. The more sales you have, the more market share you have, the more people see and hear of you, and the more they will think of you.

Gateway (to pick up that thread) learned this to its dismay a few years back, when it shifted its focus to more-expensive machines in an effort to enhance brand prestige and profitability. Sure, Gateway made more money on each machine, and posted a small paper profit in fourth-quarter 2001 - no small accomplishment. But, that accomplishment came at the expense of market share; in that “profitable” fourth quarter alone, sales fell off 53.6%. The result? The company’s third reorganization in 13 months - closing 19 stores and laying off more than 2,000 employees in an effort to control overhead - to better compete in (guess where) the higher-volume low-priced PC market.

The change in strategy helped Gateway claw its way to a 1% gain in second-quarter 2002 sales. The cost of that 1% sales gain? A whopping 33% decline in quarterly revenues, that’s what that 1% cost. That’s an expensive way to buy market share. The laughable thing, is that on October 1, 2002, Gateway announced a new “branding” initiative: a sleeker (more-generic) logo (as if consumers care about the logo). Later, Gateway announced its intention to sell bargain-priced flat-screen television sets, as clear a loss of brand vision as when Xerox decided to make PCs. About five months later, Gateway changed its ad agency (for the third time in 14 months), as if the logo and advertising lay at the root of their problems.

In 2004, Gateway made another effort to buy market share, this time by acquiring eMachines, a company with strong retail penetration. How well did that work? Not well. Barely three years later, on August 27 2007, the whole Gateway/eMachines conglomeration was sold to Acer for $710 million.

Gateway is practically the poster child for companies that successfully built brands without building profitable market share. That might be branding, but it’s lousy brand management. They threw a great party, but, in the end, not enough people showed up.
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Key point:
Re-branding is almost never customer-driven, and almost always internally driven.

Cold, hard fact number two: rebranding costs you equity - and customers. This is significant, even if you don’t think your current brand has much of a positive image - or even a negative one. No mere sloganeering or banner-waving is going to make your customers think any differently about you.

More-important, your customers - and you do have them, even if in declining numbers - know what you have to offer. Indeed, they are probably coming to you for precisely the qualities you’ll walk away from by rebranding. Re-branding to polish your image will fool neither customers nor lenders.

Nor shareholders. In 1998, Daimler bought Chrysler for $37 billion. It rebranded the new company DaimlerChrysler. By mid-2000, its market value dropped by $35 billion, and by third-quarter 2001 - even with the aid of hugely popular “brand-building” designs like the Viper, PT Cruiser, Prowler, Pacifica, and Ram pick-up - its U.S. market share (that is, actual sales as opposed to brand equity) had dropped to a mere 11.4%. In February 2002, DaimlerChrysler announced a net loss for 2001, a loss nearly equaling its total profit the previous year, and slashed its dividend 60%. In August 2003, after a $1.17 billion branding initiative starring pop star Celine Dion, Chrysler sales were down 4.7%, for a net operating loss of $1.1 billion. The branding campaign ended, amidst C-level recriminations, to be replaced with retail-oriented advertising. The result: first-quarter 2004 profits down 33%, and the share price down 60% since the acquisition.

Along the way, the management saw fit to kill off one of the brand assets (if it was indeed an asset): Plymouth, shortly after its quirky, mall-based kiosks might have gained some traction.

You know how this ends; the two companies unmerged, with Daimler selling Chrysler to a private investment group. Chrysler, after some frantic searching, got Fiat to pick up the tab and is currently eking out survival.

In the meantime, while you implement your new brand image, you’ll suffer loss of continuity with your existing customers. This cuts off your most-cost-effective source of new or increased business: your past and current customers. The best you can hope for, is to do no harm; the reality is more bleak. Gateway learned this lesson the hard way, going through the expense of new packaging, store signage, stationery - in short, millions of dollars in unrecoverable hard costs. It was a great cash cow (so to speak) for a design firm, but a lousy decision for a brand manager.

Look at what happened to the formerly thriving Thrifty/PayLess Drug Store chain after it was rebranded by Rite Aid Corporation in 1998. Thrifty/PayLess, a Western U.S. regional chain, went from having a name with a benefit, to having a name with a misspelling - a name that needed several million dollars in advertising just to claw its way up to the same level of local awareness as the previous name. This cost capital beyond the purchase of the chain two years before - and what’s the ROI on a name change?

Questions:
What’s the ROI on a name change?

Or a logo change?

In its rush to rebrand its newly acquired stores as Rite Aid Pharmacies, Rite Aid failed to appreciate the value of walk-in business attracted by a product mix that included “award-winning” ice cream. Rite Aid didn’t go so far as to rebrand Thrifty ice cream, but who goes to a pharmacy for ice cream cones - or beach balls, or cosmetics, or magazines? At the same time, by rebranding the company incurred unrecoverable hard costs - not just in advertising, but in store signage and remodeling.

Just a year after rebranding, after a steady decline of as much as 9.4% per month in front-end sales in its Western stores, Rite Aid sold 38 stores in California to Longs, reduced its corporate staff, and “realigned” its West Coast distribution center.

That Rite Aid struggled with the task of re-capturing former Thrifty/PayLess customers is further evidenced by the resignation of its president/CEO and its hiring, in early 2000, of two former Thrifty/PayLess executives to manage its newly formed “Western operating region.” Even after a 7-month, $50 million review of financial results, including re-stating expenses associated with acquiring Thrifty/Payless (and the corresponding loss of goodwill), and significant debt restructuring associated with yet another acquisition and sell-off, the company continues to struggle with cash flow, with 2000-2001 year-end losses of $5.65 per share. And, in June 2002, the company depended on a $44 million income tax benefit in the first quarter to post a meager second-quarter “profit” of 2.6 million - a loss of a penny a share. Allegations of accounting irregularities aside, the costs (both moral and otherwise) of that acquisition and misfired rebranding still reverberate.

Key point:
If you want increased sales, ask for them!

Can a complex, high-level process like rebranding be replaced by a simple, low-level action like asking for more business, implementing a referral or frequent-user program, or improving customer service? If the primary goal of rebranding is pursuing more sales, then the answer is yes. It is far more cost-effective to pursue increased sales directly, by asking for them or by earning them, than indirectly, by rebranding the whole company.
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That brings us to cold, hard fact #3: branding was cheaper and easier in the old days. Television time was inexpensive enough to be cost-effective, especially at fringe times, even for small businesses. There was less competition in the media, less noise. People had longer attention spans. If you’re walking away from a brand that was built prior to the late-1990s (or, in fast-moving industries like web services, as little as two years ago), you’re throwing away a corporate asset that you simply cannot afford to replace.

Sure, you could re-allocate resources, increase your marketing budget, and conceivably (given intelligent brand management, sound marketing, and compelling creative execution) see an increase in brand awareness - but not necessarily in profitability.

As Peter Drucker says in his book Management Challenges for the 21st Century: “What we generally call profits, the money left to service equity, is not profit at all, and may be mostly a genuine cost. Until a business returns a profit that is greater than the cost of capital, it operates at a loss. … Until then it does not create wealth; it destroys it.”

In London, England, and in a completely different industry, is Gareth Williams, co-curator of the Victoria and Albert Museum’s Brand.new exhibition, which culminates a three-year study of the trend towards brand politicization. In a recent interview for BBC News, Williams points out that the explosive growth of new media makes branding harder to achieve. “There’s more competition, so it’s getting more-difficult to create your brand … the biggest brands in the world are often the oldest.”

Key point:
A brand is a long-term holding in which marketing communications are short-term investments!

At the beginning of this white paper, I said: “branding is a long-term holding in which your marketing communications are relatively short-term investments.” What I didn’t say - until now - is that marketing communications are investments only to the extent that they are strategically sound and continuously supported. Otherwise they are costs - large, potentially unrecoverable, capital costs.

Look at all the formerly established companies spending vast amounts of capital to re-establish themselves as re-made entities, throwing their brand identities into the maelstrom of new and emerging companies. Kodak. Old Navy. Levi’s. CompuServe. They could, with more thought and less cost, have risen above the chaos, but that is getting ahead of ourselves.
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So, what can you do with your brand, this corporate asset, if it no longer fits your corporate mission? You adapt it. You re-position your brand or your product or your service. Through a change in positioning instead of in branding, you harness the power of your existing brand while at the same time re-positioning your company for growth. You have to think, mind you, but you’ve got a multi-million-dollar head-start by being able to reconcile the past with the future.

This is not to be confused with incrementalism. Repositioning can be as fast a departure from business-as-usual as rebranding. More so, in fact, because it leverages the power of the existing brand.

As a positive example, look at Arm & Hammer. When Arm & Hammer decided to pursue baking soda sales outside of baking, it made a quantum leap in positioning but retained the market strength of its brand. Wow!

Key point:
Reconciling the past with the future gives your brand a multi-million-dollar head-start!

Why don’t more people do this? Simple: in today’s throw-away world, where solutions are short-term and everything is disposable, there aren’t many people who know how to repair clocks, let alone brands.

It is easy to throw everything away and start from scratch. Marketing executives can then make large-scale changes and advertising managers can feel like they’re taking action. The result, however, is often a proactive - indeed, passionate - flying of the company into the ground.

Key point:
With goods and services becoming increasingly commoditized, a strong brand identity is the only way to survive!

It is hard to see the value in the brand you already have. That’s why an outside marketing consultant brings value to your organization, just by virtue of being from outside.

It is hard to examine your brand, toss the trash, and retain the value. That’s why it pays to bring in an experienced advertising professional who has done a lot of successful branding in a lot of industries.

It is hard to build upon that foundation to re-position your brand, bridging the gap between where you are and where you want to be. That’s why it is vital to the success of your company that you hire an advertising copywriter who understands brand strategy and can help you build that bridge.

Don’t get me wrong - there are times when corporate destruction and rebirth is absolutely the Right Thing To Do. Too often, though, it is nothing more than the marketing model du jour, seized out-of-context and executed with blind fervor and dumb obedience to management by adage.

Your brand is your company’s most-precious asset. Your brand is who you are; it defines you even more than what you do defines you. Brand management is corporate management. In a world in which goods and services are increasingly commoditized, a strong brand identity is the only way to survive, let alone grow. It encompasses all you have ever been. And, it can encompass all you will ever be. Thats the power of branding done right. Let me help you with your brand – just call me: (619) 465-6100.
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John Kuraoka, freelance advertising copywriter
6877 Barker Way
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