The future of corporate brands

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The FT’s Global Brands special report exclusively features Millward Brown Optimor’s annual ranking of the world’s most valuable brands. It shows that brands not only matter more than ever - they are worth more than ever too.

As developed economies switch from manufacturing to services and tangible to intangible products, brands make up a growing proportion of financial value. The proportion of intangible assets to shareholder value at Fortune 500 companies has steadily risen, from about 50 per cent in 1980 to 70 per cent today.

More companies now consist essentially of intangible assets such as patents plus the value embedded in their brands.

But if brands are valuable, they are not all-powerful. Consumer brands face competition from the retailers who stock their products, from generic manufacturers in such industries as pharmaceuticals, and from copycats in regions where intellectual property law is less entrenched in the business culture.

So what is the future of corporate brands? John Gapper, the FT’s chief business commentator and associate editor, and Eileen Campbell, chief executive of Millward Brown answer your questions.

More background reading


Q: Do you have any evidence that a well-designed internet site enhances corporate brands?
Lauren Gallagher, York, UK

Eileen Campbell: You could certainly argue that Google, the top brand in our rankings this year, built their fame on the simple, fun and uncluttered elegance of their website as well as the effectiveness of the actual search engine. In general, the impact of a website depends a great deal on the brand. One of the keys we’ve seen to developing strong brands is the ability to connect with users or potential users of the brand when and where they are most receptive to your message. For some people, that is undoubtedly the web and in those instances, the quality of the website and the online experience is imperative.

The web also provides brands with the opportunity to connect with consumers in an intimate, almost one-to-one fashion. Brands like Procter and Gamble have done a brilliant job of connecting with mom’s and teens via the internet through their Tremor business unit. Take a look at these sites, however, and you’ll notice how different and well-tailored they are to their respective audiences (vocalpoint for moms and tremor for teens). Toyota, our 10th most highly ranked brand, launched their youth-oriented brand, Scion, largely on the merits of their website where you could create custom configurations of fun and funky Scions.

So while the evidence here is largely anecdotal, we’re pretty confident that for the right brands, the internet can be amongst their most powerful brand building tools.

John Gapper: Not to hand. I would have thought it might do so a bit, but the chances of it making a huge difference these days, given the number of web sites out there and number of internet design consultancies is small. Having said that, a bad or confusing site is annoying so competence helps.


Q: Will the demand for Coca-Cola ever saturate?
Rafi, Toronto

Eileen Campbell: Well, “ever” is a very long time, Rafi, but Coke is a long, long way from reaching saturation. Just by way of example, according to Beverage Digest, in the US alone, annual per capita consumption of all carbonated soft drinks is around 6,600 ounces (that’s over 550 cans of soda per year!). Coke Classic commands only about 18% of the market and all Coca-Cola brands captured around 43% of the market. So even in mature markets, there’s room for growth and in emerging markets like the BRIC’s (Brazil, Russia, India and China) Coke has tremendous growth opportunities.

John Gapper: I think there is good evidence that Coca-Cola has reached saturation point in developed countries, despite its efforts to reinvigorate the brand with new variations, such as Coca-Cola Blak. Worse than that, for the company, there is a possibility of it shrinking, given the growing concern over childhood obesity and carbonated drinks. Robert Goizueta, the former head of the company, used to talk of Coke being piped into households as an alternative to water, but that now seems not merely unattainable but positively unhealthy.


Q: Wireless technology and nano technology is the way forward. Is there a list of companies, big and small, involved in the manufacture of these things? The information I have found so far is bitty.
Sue, Reading

Eileen Campbell: Companies that are players in the wireless space figured prominently in our rankings including Nokia, Apple, NTT DoCoMo and Intel, to name a few. So no question, great value is being created in this space.

Nano-technology still has limited commercial applications and isn’t yet delivering mainstream brand value. We don’t know of any lists of companies in this space beyond what you might find in a typical internet search.


Q: What is a most crucial factor influencing the growing trend of the financial value of brands?
Rene Ringas, Tallinn, Estonia

Eileen Campbell: Successful brands create value through strong business basics and a clear and relevant value proposition that is communicated powerfully and consistently. They deliver a great experience that delivers against the brand promise they’ve communicated. And in most cases, they work actively to create a sense of leadership by appealing to people’s hopes and aspirations.

When brands can deliver all of this, they typically command a premium price and build a greater immunity to competition. That, in turn, delivers great financial performance for the brand owner.


Q: With all the anti-sites on the web, how can companies protect their brands?

Eileen Campbell: No question, the web makes managing your brand more challenging! Consumers really are in control of the brand in the online world. Brand owners can certainly protect themselves from illegal misappropriation of their brand on the internet and there are many companies providing web-intelligence to protect companies from illegal uses of their brand such as phishing, pharming and brand diversion schemes.

But there’s no law against consumers expressing their opinions online! This makes building great, trusted relationships all the more important. Great brands nurture customer relationships and strive to create advocates. For all the risk the internet presents, it also provides huge opportunities when customers become online evangelists for the brand.

John Gapper: Brands, like people and companies, are clearly vulnerable to attack on the internet. One basic precaution is to buy the related internet domain names so it is harder for others to piggyback on the brand. But protecting the brand is inevitably becoming a more complex task. Companies such as Dell have suffered from the viral spread of videos showing products going wrong. There is no simple solution to this apart from being ready to respond quickly before a campaign gets out of hand.


Q: Aren’t brands dying as a concept? Customers are pretty cynical about brands, aren’t they?
Desmond Boyle, St Paul, Minnesota

Eileen Campbell: Not at all! The total value created by our top 100 brands was up significantly this year. In an increasingly cluttered world, brands still provide a short-cut to decision making.

While consumers may be more cynical than in the past, they are also busier and faced with an ever-increasing array of choices. In many ways, brands are great “decision simplifiers”.

John Gapper: I think people are clearly more cynical about brands and marketing than they used to be. The days of simply being able to present a brand as embodying a lifestyle or aspiration by stating it in a television commercial are gone. Clearly, younger consumers have also been influenced by books such as No Logo by Naomi Klein.

But what people say and what they do are different things and I do not think that brand identification or the brand premium has gone away. Customers are simply more demanding about how brands are presented and whether there is substance behind the marketing.


Q: What about Chinese brands? What are the brands coming out of China that will be global?
Geoff Butler, Cape Town, South Africa

Eileen Campbell: Chinese brands are coming into their own and China Mobile was in the top 5 of our ranking for the second year running. Other top Chinese brands were Bank of China (#38) and China Construction Bank(#61). You could argue that these are not the most “exportable” of brands, but there are other Chinese brands starting to make it into the lexicon of international consumers.

Lenovo would be an obvious example but others include appliance manufacturer Haier and beer-maker Tsingtao. Look to see Chinese cars appearing in major western markets in the next couple of years as well.

John Gapper: Chinese brands are engaged in a fascinating battle to gain global recognition at the moment. As the Millward Brown Optimor shows, brands such as China Mobile are already enormously valuable because the parent companies’ domestic market is so vast. But that is not the same as having a brand that has global value – indeed, I imagine China Mobile would not have much appeal in the US.

That is why companies such as Lenovo have tried to go global by acquiring or linking up with western companies. In the longer-term, I cannot see why Chinese brands cannot achieve the same global reputation as those from other Asia countries, such as Sony, Samsung and LG. But I am not sure that we have seen them yet.


Q: What is a brand really worth? How do analysts and private equity firms value brands?
Kim Lo, Hong Kong

Eileen Campbell: A brand is worth the uplift in sales, profits and financial value created for the brand owner by use of the brand on a company’s products and services. This can be either the current owner, or a new owner, in the case of the sale of a brand. The ultimate proof of a brand’s value is the price premium purchasers are willing to pay for a brand, over the tangible assets of the business. This can be very significant- as is shown, for example, by the recent $848M sale of Aston Martin.

The underlying methodology used by analysts and private equity firms for valuing brands is similar to ours. They use an economic use approach (such as DCF, EVA, CFROI etc.) just as we do. In the past, they have focused on the value of the business, rather than the value of the brand.

Their approaches to establishing the contribution of brand equity to financial value have often been rudimentary, with a tendency to rely on comparables. This is now changing, as the importance of intangibles has increased, and the value of the brand has grown to represent a major proportion of the value of a business. We are working with a number of private equity firms on establishing brand value for transaction purposes.

John Gapper: There are many different ways to calculate the value of brands. It is worth looking at the methodology employed by Millward Brown Optimor in its Brandz 2007 study.


Q: What’s the difference between a brand and a reputation? Nike has a great brand but a terrible reputation, no?
Victoria Craig, Brighton

Eileen Campbell: Brands certainly contribute to a company’s reputation, but you’re right, Victoria, they are not always synonymous. You can have great, powerful brands in companies that have suffered reputation-damaging events. Conversely, you can have some companies who enjoy a great reputation, but don’t own any world-class market facing brands.

There are aspects of the company’s reputation that will effect their brands. We’re seeing increasing evidence that a company’s corporate social responsibility policies can have a very strong impact on how people feel about their brands. As more consumers worry more about obesity, leading brands like McDonald’s (#11 in our ranking) have altered their menus to provide healthier choices and are enjoying significant growth as a result.

Toyota’s (#10) overall corporate reputation has been significantly enhanced by their early commitment to more environmentally friendly vehicles like the Prius. But the payoff from this commitment extends beyond corporate reputation – Toyota has just become the world’s best selling car.

John Gapper: Interesting question because, as the case of Nike shows, a strong brand co-existed in the past with a weak reputation for, in that case, ethical manufacturing. I think a brand is a product or a service, while a reputation is something attached to the parent company. When the two have the same name, it can be difficult to untangle the two. The people who go out and buy the product are not always the same ones who notice corporate reputations. The dangerous thing is when a bad corporate reputation starts to tarnish a brand.


Q: Companies are very protective of their brands, and go to great lengths to prevent counterfeiting, particularly of luxury brands. Can we measure the value that counterfeiters get from the brands they copy? Are the brands actually losing anything from this counterfeiting, since presumably, the people who buy knock-offs could not afford the real thing in the first place.
Olaf Pedersen, Sweden

John Gapper: I have never managed to have a conversation with a counterfeiter who told me how highly his business was valued and I suspect, of its nature, it is hard to estimate. There is an interesting debate as to how much value brands lose from counterfeiting.

Probably not as much as some claim but I think they are losing from it even if people in developing countries could not afford the real thing. The brand dilution problem applies particularly to luxury brands. If everyone has a fake Cartier watch, they the cache of owning a real one is affected.


Q: When brands such as Burberry go for a wider market, are they in danger of diluting their brand? Part of what makes brands attractive is that they are exclusive. If a brand is more widely consumed it loses its cache, and ultimately even the ‘aspirational’ buyers will no longer want it.
Machado Bettencourt, Sao Paulo, Brazil

John Gapper: Yes, and it is something luxury brands struggle with. Companies such as Bentley deliberately limit the number of products they produce annually so they do not lose the appeal of exclusiveness. One of the ways in which luxury designers now try to have the best of both worlds is to have a mass market line in addition to an exclusive one. But that is always a difficult balancing act. I think Levi Strauss tarnished its brand by extending its brand to the Signature line that sell in Target, the discount retailer.


If brands such as Google can topple Coca-Cola in less than a decade, doesn’t that undermine the value of the brand? Will the trend of old brands losing power to new start-ups continue?
Oliver Davis, France

John Gapper: I am not sure that it undermines the point of brands but it clearly means that brands may have less longevity than in the past. I think that is a reflection of the broader reality that business conditions change faster now and, with open global competition, brands are less protected than they used to be. I think the trend will continue and corporations will have to get used to it.


Isn’t Google just as vulnerable now to new entrants than the big old established ones? It’s in a fast changing industry that will surely have new competitors?
Craig Hardy, New York

John Gapper: Yes, I think it is vulnerable but I do not see an intrinsic reason why it is more vulnerable because it is in the internet and software services business, rather than soft drinks or banking. The strength of both its technology and its brand compensates for the open nature of the internet.


Background reading

Special report: Global brands

Ask the experts: Ethical brands Q&A with Rita Clifton, chairman of Interbrand the marketing consultancy, and Chris Davis, head of GfK NOP’s brand strategy centre of excellence.

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